S-1/A

As Filed with the Securities and Exchange Commission on April 19, 2004

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Blue Nile, Inc.

(Exact name of registrant as specified in its charter)

Delaware	5944	91-1963165
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

705 Fifth Avenue S, Suite 900

Seattle, Washington 98104

(206) 336-6700

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Mark C. Vadon

Chief Executive Officer

Blue Nile, Inc.

705 Fifth Avenue S, Suite 900

Seattle, Washington 98104

(206) 336-6700

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Mark P. Tanoury
John M. Geschke
Gordon K. Ho
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
(650) 843-5000 Patrick J. Schultheis
Christian E. Montegut
Wilson Sonsini Goodrich & Rosati
Professional Corporation
5300 Carillon Point
Kirkland, Washington 98033
(425) 576-5800

          Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”) check the following box. o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) of the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. o

          If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE

			Proposed Maximum
Title of Class of	Amount to be	Proposed Maximum	Aggregate Offering	Amount of
Securities to be Registered	Registered(1)	Price Per Share(2)	Price(1)	Registration Fee(3)
Common Stock, $0.001 par value per share	4,301,000	$19.50	$83,869,500	$10,627

(1)	Includes 561,000 shares that the underwriters have the option to purchase to cover over-allotments, if any.
(2)	Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(o) of the Securities Act.
(3)	$9,503 of this fee was previously paid.

          THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated April 19, 2004

PROSPECTUS

3,740,000 Shares

Common Stock

          This is Blue Nile, Inc.’s initial public offering. We are selling 2,000,000 shares and the selling stockholders are selling 1,740,000 shares. We will not receive any proceeds from the sale of shares by the selling stockholders.

          We expect the initial public offering price to be between $17.50 and $19.50 per share. Currently, no public market exists for the shares. We have applied to have our common stock listed on the Nasdaq National Market under the symbol “NILE.”

          Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 6 of this prospectus.

	Per Share		Total
Public offering price		$		$
Underwriting discount		$		$
Proceeds, before expenses, to Blue Nile, Inc.		$		$
Proceeds, before expenses, to the selling stockholders		$		$

          The underwriters may also purchase up to an additional 300,613 shares from us, and up to an additional 260,387 shares from the selling stockholders, at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

          The shares will be ready for delivery on or about                     , 2004.

Merrill Lynch & Co. Bear, Stearns & Co. Inc.

Thomas Weisel Partners LLC

The date of this prospectus is                     , 2004.

[Inside front cover artwork containing pictures of diamonds, diamond rings, jewelry and jewelry settings, the Blue Nile logo, a computer screen shot from the Blue Nile web site and descriptions under the headings “Education,” “Guidance,” “Diamonds” and “Fine Jewelry.”]

TABLE OF CONTENTS

	Page
Prospectus Summary		1
Risk Factors		6
Forward-Looking Statements		20
Use of Proceeds		20
Dividend Policy		20
Capitalization		21
Dilution		23
Selected Consolidated Financial Information		24
Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Business		34
Management		44
Certain Transactions		57
Principal and Selling Stockholders		58
Description of Capital Stock		61
Shares Eligible for Future Sale		64
Material United States Federal Tax Considerations for Non-United States Holders		66
Underwriting		69
Legal Matters		72
Experts		72
Where You Can Find Additional Information		73
Index to Consolidated Financial Statements		F-1
Exhibit 5.1
EXHIBIT 10.4.1
Exhibit 10.5.1
Exhibit 10.5.2
Exhibit 10.6.1
Exhibit 10.6.2
Exhibit 10.6.3
EXHIBIT 10.13
EXHIBIT 23.1

          You should rely only on the information contained in this prospectus. We have not, and the selling stockholders and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the selling stockholders and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

          Market data and industry statistics used throughout this prospectus are based on independent industry publications and other publicly available information. We do not guarantee, and we have not independently verified this information. Accordingly, investors should not place undue reliance on this information.

          “Blue Nile,” “bluenile.com,” the BN logo and the Blue Nile BN stylized logo are registered trademarks of Blue Nile. All other trademarks or service marks appearing in this prospectus are trademarks or service marks of others.

[THIS PAGE INTENTIONALLY LEFT BLANK]

PROSPECTUS SUMMARY

          This summary does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including “Risk Factors,” our consolidated financial statements and the related notes and the other financial information appearing elsewhere in this prospectus before you decide to invest in our common stock. Unless otherwise indicated, references to “Blue Nile,” the “Company,” “we,” “us” and “our” refer to Blue Nile, Inc. and our consolidated subsidiary, Blue Nile, LLC.

Blue Nile

          We are a leading online retailer of high quality diamonds and fine jewelry. We have built a well respected consumer brand by employing an informative sales process that empowers our customers while offering a broad selection of high quality jewelry at competitive prices. Our web site at www.bluenile.com showcases over 30,000 independently certified diamonds and more than 1,000 styles of fine jewelry, including rings, wedding bands, earrings, necklaces, pendants, bracelets and watches.

          We have developed an efficient online cost structure and a supply solution that eliminates traditional layers of diamond wholesalers and brokers, which allows us to purchase most of our product offerings at lower prices by avoiding mark-ups imposed by those intermediaries. Our supply solution also enables us to purchase only those diamonds that our customers have ordered. As a result, we are able to minimize the costs associated with carrying diamond inventory and limit our risk of potential mark-downs.

          Consumers frequently view the purchase of diamonds or fine jewelry as a significant event, and often require substantial information and guidance before completing a purchase. Our web site and extensively trained customer service representatives improve the traditional purchasing experience by providing education and detailed product information that enable our customers to objectively compare diamonds and fine jewelry products and make informed decisions. Our web site features interactive search functionality that allows our customers to quickly find the products that meet their exact needs from our broad selection of diamonds and fine jewelry.

          Our business has grown considerably since its launch in 1999. For the year ended December 31, 2003, we reported net sales of $128.9 million, an increase of 79% from the prior year, and net income before income taxes of $11.3 million as compared to $1.6 million in the prior year.

Our Industry

          According to U.S. Census Bureau statistics, total U.S. retail jewelry sales were approximately $51 billion in 2001. The U.S. retail jewelry industry is highly fragmented, with approximately 95% of all retail jewelry firms operating only a single store. Forrester Research, Inc., an independent technology research company, estimates that the online jewelry and luxury goods market will grow at a 25% compound annual growth rate, from approximately $2 billion in 2003 to $6 billion in 2008. This growth, and growth in e-commerce in general, is partly a result of the increased awareness of the convenience, selection and product information available through online shopping, continued improvement in network infrastructure and payment security, and growing access to high speed Internet connections, which make online shopping increasingly efficient and attractive to consumers.

Our Value to Customers and Suppliers

          Our business model enables us to generate higher operating margins and returns on invested capital than many traditional jewelry retailers while providing substantial value to both our customers and suppliers.

1

Value to Customers

•  Detailed product information.

•  Broad selection.

•  Ability to customize.

•  Lower pricing.

•  Knowledgeable customer support.

•  Free shipping and 30-day return guarantee.

Value to Suppliers

•  Improved capital efficiency.

•  Lower management costs.

•  Access to real-time market intelligence.

Our Growth Strategy

          Our objective is to become a leading retailer of diamonds and fine jewelry in the U.S. by offering exceptional value to our customers through supply chain efficiencies, an efficient cost structure and a high quality customer experience. Key elements of our growth strategy include:

•  increasing Blue Nile brand awareness;

•  focusing on the customer experience;

•  increasing supply chain efficiency;

•  continuing to scale our business to enhance profitability;

•  expanding product offerings; and

•  expanding into international markets.

          Our business is subject to numerous risks, which are highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. In particular, our limited operating history makes it difficult for us to accurately forecast net sales and appropriately plan for our expenses. Furthermore, we have incurred significant operating losses in the past and may incur significant operating losses in the future.

Corporate Information

          Our business was incorporated in Delaware on March 18, 1999 as RockShop.com, Inc. On May 21, 1999, we purchased certain assets of Williams & Son, Inc., a Seattle jeweler, including a web site established by that business. In June 1999, we changed our name to Internet Diamonds, Inc. In November 1999, we launched the Blue Nile brand and changed our name to Blue Nile, Inc. Our principal executive offices are located at 705 Fifth Avenue S, Suite 900, Seattle, Washington 98104, and our telephone number is (206) 336-6700. Our web site is located at www.bluenile.com. The information on, or that can be accessed through, our web site is not part of this prospectus.

2

The Offering

Common stock offered by:
Blue Nile, Inc.	2,000,000 shares
The selling stockholders	1,740,000 shares ______________
Total	3,740,000 shares
Common stock outstanding after this offering	17,341,239 shares
Use of proceeds	We estimate that our net proceeds from this offering will be approximately $32.4 million. We intend to use these net proceeds for general corporate purposes, including working capital and capital expenditures. Capital expenditures may include the expansion or relocation of our fulfillment facilities, the cost of which is estimated to be up to approximately $1.5 million. We will not receive any proceeds from the sale of shares by the selling stockholders.
Risk factors	See “Risk Factors” and the other information included in this prospectus for a discussion of the factors you should consider carefully before deciding to invest in shares of our common stock.
Proposed Nasdaq National Market symbol	NILE

          Unless specifically stated otherwise, all information contained in this prospectus:

•  gives effect to a 1-for-2.5 reverse split of our common and mandatorily redeemable convertible preferred stock (convertible preferred stock) prior to the closing of this offering;

•  gives effect to the conversion of all of our outstanding convertible preferred stock into 10,920,172 shares of common stock immediately upon the closing of this offering;

•  assumes that the underwriters do not exercise their option to purchase up to 300,613 additional shares from us and up to 260,387 additional shares from the selling stockholders in this offering to cover overallotments; and

•  assumes a public offering price of $18.50 per share.

          The number of shares of common stock to be outstanding after this offering excludes the following:

•  1,417,343 shares of common stock subject to outstanding options under our 1999 Equity Incentive Plan as of April 4, 2004;

•  20,324 shares of common stock issuable upon the exercise of outstanding warrants;

•  an aggregate of 214,177 shares of common stock reserved for future issuance under our 1999 Equity Incentive Plan as of April 4, 2004; and

•  an aggregate of 3,960,000 shares of common stock reserved for future issuance under our 2004 Equity Incentive Plan, 2004 Non-Employee Directors’ Stock Option Plan and 2004 Employee Stock Purchase Plan, each adopted in March 2004 and containing provisions that automatically increase their share reserves each year, as more fully described in “Management — Stock Based Plans.”

3

Summary Consolidated Financial Information

          The table below shows summary consolidated financial data for each of our fiscal years ended December 31, 2001, 2002 and 2003. The consolidated statements of operations data and the additional operating data for each of the three fiscal years ended December 31, 2001, 2002 and 2003 and the consolidated balance sheet data as of December 31, 2003 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The pro forma consolidated balance sheet data and the pro forma basic and diluted net income per share data below reflect the (i) automatic conversion of all of our outstanding convertible preferred stock into 10,920,172 shares of our common stock upon the closing of this offering and (ii) the issuance of 6,000 shares of common stock upon the cash exercise of outstanding warrants that will expire if not exercised prior to the closing of this offering. The pro forma as adjusted column of the consolidated balance sheet data reflects the sale of 2,000,000 shares of common stock offered by us at an initial public offering price of $18.50 per share, after deducting the underwriting discount and estimated offering expenses payable by us.

          You should read the following summary consolidated financial and operating information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this prospectus. The historical results presented below are not necessarily indicative of future results.

		Year Ended December 31,
		2001			2002			2003
		(In thousands, except per share data)
Consolidated Statements of Operations Data:
	Net sales	$	48,674		$	72,120		$	128,894
	Gross profit		11,123			18,153			29,420
	Selling, general and administrative expenses		15,421			14,126			18,165
	Restructuring charges		1,017			400			(87	)
	Operating income (loss)		(5,315	)		3,627			11,342
	Income (loss) before income taxes		(7,360	)		1,627			11,330
	Income tax expense (benefit)		—			—			(15,700	)
	Net income (loss)	$	(7,360	)		$1,627			$27,030
	Basic net income (loss) per share		$(2.44	)	$	0.49		$	6.99
	Diluted net income (loss) per share		$(2.44	)	$	0.11		$	1.65
	Shares used in computing basic net income (loss) per share		3,015			3,336			3,868
	Shares used in computing diluted net income (loss) per share		3,015			14,160			16,338
	Pro forma basic net income per share							$	1.83
	Pro forma diluted net income per share							$	1.65
	Pro forma shares used in computing pro forma basic net income per share								14,794
	Pro forma shares used in computing pro forma diluted net income per share								16,378
Additional Operating Data:
	Net cash provided by operating activities		$4,460		$	16,730		$	19,816
	Gross profit margin		22.9	%		25.2	%		22.8	%
	Selling, general and administrative expenses as a percentage of net sales		31.7	%		19.6	%		14.1	%

4

	As of December 31, 2003
						Pro Forma
	Actual			Pro Forma		As Adjusted
				(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$30,383		$	30,421	$	62,831
Working capital(1)		15,537			15,575		47,985
Total assets		62,305			62,343		94,753
Total long-term obligations		—			—		—
Mandatorily redeemable convertible preferred stock		57,485			—		—
Total stockholders’ equity (deficit)		(27,238	)		30,285		62,695

(1)  Working capital consists of total current assets, including cash and cash equivalents, less total current liabilities.

5

RISK FACTORS

          You should carefully consider the risks described below and the other information in this prospectus before making a decision to invest in our common stock. If any of such risks actually occur, our business, results of operations or financial condition could be adversely affected. In those cases, the trading price of our common stock could decline and you may lose all or part of your investment.

Risks Related to Our Business

Our limited operating history makes it difficult for us to accurately forecast net sales and appropriately plan our expenses.

          We were formed in March 1999 and have a limited operating history. As a result, it is difficult to accurately forecast our net sales and plan our operating expenses. We base our current and future expense levels on our operating forecasts and estimates of future net sales. Net sales and operating results are difficult to forecast because they generally depend on the volume and timing of the orders we receive, which are uncertain. Some of our expenses are fixed, and, as a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in net sales. This inability could cause our net income in a given quarter to be lower than expected.

We have incurred significant operating losses in the past and may not be able to sustain profitability in the future.

          We experienced significant operating losses in each quarter from our inception in 1999 through the second quarter of 2002. As a result, our business has a limited record of profitability and may not continue to be profitable or increase in profitability. If we are unable to acquire diamonds and fine jewelry at commercially reasonable prices, if net sales decline or if our expenses otherwise exceed our expectations, we may not be able to sustain or increase profitability on a quarterly or annual basis.

          As a result of our significant operating losses in prior periods, we have accrued substantial net operating loss carryforwards. If we are unsuccessful in generating sufficient net income in future periods, these assets may expire before they are utilized.

We expect our quarterly financial results to fluctuate which may lead to volatility in our stock price.

          We expect our net sales and operating results to vary significantly from quarter to quarter due to a number of factors, including changes in:

•  demand for our products;

•  our ability to attract visitors to our web site and convert those visitors into customers;

•  our ability to retain existing customers or encourage repeat purchases;

•  our ability to manage our product mix and inventory;

•  consumer tastes and preferences for diamonds and fine jewelry;

•  our ability to manage our fulfillment operations;

•  general economic conditions;

•  advertising and other marketing costs;

•  the costs to acquire diamonds and precious metals;

•  our, or our competitors’, pricing and marketing strategies;

•  conditions or trends in the diamond and fine jewelry industry;

•  conditions or trends in the Internet and e-commerce industry; and

6

•  costs of expanding or enhancing our technology or web site.

          As a result of the variability of these and other factors, our operating results in future quarters may be below the expectations of public market analysts and investors. In this event, the price of our common stock may decline.

As a result of seasonal fluctuations in our net sales, our quarterly results may fluctuate and could be below expectations.

          We have experienced and expect to continue to experience seasonal fluctuations in our net sales. In particular, a disproportionate amount of our net sales has been realized during the fourth quarter as a result of the December holiday season, and we expect this seasonality to continue in the future. Over 35%, 42% and 38% of our net sales in 2001, 2002 and 2003, respectively, were generated during the fourth quarter. In anticipation of increased sales activity during the fourth quarter, we may incur significant additional expenses, including higher inventory of jewelry and additional staffing in our fulfillment and customer support operations. If we were to experience lower than expected net sales during any future fourth quarter, it would have a disproportionately large impact on our operating results and financial condition for that year. We also experience considerable fluctuations in net sales in periods preceding other special annual occasions such as Valentine’s Day and Mother’s Day. In the future, our seasonal sales patterns may become more pronounced, may strain our personnel and fulfillment activities and may cause a shortfall in net sales as compared to expenses in a given period, which would substantially harm our business and results of operations.

Our failure to acquire diamonds and fine jewelry at commercially reasonable prices would result in higher costs and lower net sales and damage our competitive position.

          If we are unable to acquire diamonds and fine jewelry at commercially reasonable prices, our costs may exceed our forecasts, our gross margins and operating results may suffer and our competitive position could be damaged. The success of our business model depends, in part, on our ability to offer prices to customers that are significantly below those of traditional jewelry retailers. A majority of the world’s supply of rough diamonds is controlled by a small number of diamond mining firms. As a result, any decisions made to restrict the supply of rough diamonds by these firms to our suppliers could substantially impair our ability to acquire diamonds at commercially reasonable prices, if at all. We do not currently have any direct supply relationship with these firms nor do we expect to enter into any such relationship in the foreseeable future. Our ability to acquire diamonds and fine jewelry is also substantially dependent on our relationships with various suppliers. Approximately 44%, 36% and 27% of our payments to our diamond and fine jewelry suppliers in 2001, 2002 and 2003, respectively, were made to our top three suppliers. Our inability to maintain and expand these and other future diamond and fine jewelry supply relationships on commercially reasonable terms or the inability of our current and future suppliers to maintain arrangements for the supply of products sold to us on commercially reasonable terms would substantially harm our business and results of operations.

          Suppliers and manufacturers of diamonds as well as retailers of diamonds and diamond jewelry have vertically integrated and we expect will continue to vertically integrate their operations either by developing retail channels for the products they manufacture or acquiring sources of supply, including, without limitation, diamond mining operations for the products that they sell. To the extent such vertical integration efforts are successful, some of the fragmentation in the existing diamond supply chain could be eliminated and our ability to obtain an adequate supply of diamonds and fine jewelry from multiple sources could be limited.

Purchasers of diamonds and fine jewelry may not choose to shop online, which would prevent us from increasing net sales.

          The online market for diamonds and fine jewelry is significantly less developed than the online market for books, music, toys and other consumer products. If this market does not gain widespread

7

acceptance, our business may suffer. Our success will depend in part on our ability to attract consumers who have historically purchased diamonds and fine jewelry through traditional retailers. Furthermore, we may have to incur significantly higher and more sustained advertising and promotional expenditures or price our products more competitively than we currently anticipate in order to attract additional online consumers to our web site and convert them into purchasing customers. Specific factors that could prevent consumers from purchasing diamonds and fine jewelry from us include:

•  concerns about buying luxury products such as diamonds and fine jewelry without a physical storefront, face-to-face interaction with sales personnel and the ability to physically handle and examine products;

•  delivery time associated with Internet orders;

•  product offerings that do not reflect consumer tastes and preferences;

•  pricing that does not meet consumer expectations;

•  concerns about the security of online transactions and the privacy of personal information;

•  delayed shipments or shipments of incorrect or damaged products; and

•  inconvenience associated with returning or exchanging purchased items.

We may not succeed in continuing to establish the Blue Nile brand, which would prevent us from acquiring customers and increasing our net sales.

          A significant component of our business strategy is the continued establishment and promotion of the Blue Nile brand. Due to the competitive nature of the online market for diamonds and fine jewelry, if we do not continue to establish our brand and branded products, we may fail to build the critical mass of customers required to substantially increase our net sales. Promoting and positioning our brand will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high quality customer experience. To promote our brand and branded products, we have incurred and will continue to incur substantial expense related to advertising and other marketing efforts.

          A critical component of our brand promotion strategy is establishing a relationship of trust with our customers, which we believe can be achieved by providing a high quality customer experience. In order to provide a high quality customer experience, we have invested and will continue to invest substantial amounts of resources in our web site development and functionality, fulfillment operations and customer service operations. Our ability to provide a high quality customer experience is also dependent, in large part, on external factors over which we may have little or no control, including, without limitation, the reliability and performance of our suppliers, third-party carriers and networking vendors. We also rely on third parties for information, including product characteristics and availability that we present to consumers on our web site, which may, on occasion, be inaccurate. Our failure to provide our customers with high quality customer experiences for any reason could substantially harm our reputation and adversely impact our efforts to develop Blue Nile as a trusted brand. The failure of our brand promotion activities could adversely affect our ability to attract new customers and maintain customer relationships, and, as a result, substantially harm our business and results of operations.

We face significant competition and may be unsuccessful in competing against current and future competitors.

          The retail jewelry industry is intensely competitive, and we expect competition in the sale of diamonds and fine jewelry to increase and intensify in the future. Increased competition may result in price pressure, reduced gross margins and loss of market share, any of which could substantially harm our business and results of operations. Current and potential competitors include:

•  independent jewelry stores;

•  retail jewelry store chains, such as Tiffany & Co. and Bailey Banks & Biddle;

8

•  other online retailers that sell jewelry, such as Amazon.com;

•  department stores, chain stores and mass retailers, such as Nordstrom and Neiman Marcus;

•  online auction sites, such as eBay;

•  catalog and television shopping retailers, such as Home Shopping Network and QVC; and

•  discount superstores and wholesale clubs, such as Costco Wholesale and Wal-Mart.

          In addition to these competitors, we may face competition from suppliers of our products that decide to sell directly to consumers, either through physical retail outlets or through an online store.

          Many of our current and potential competitors have advantages over us, including longer operating histories, greater brand recognition, existing customer and supplier relationships, and significantly greater financial, marketing and other resources. In addition, traditional store-based retailers offer consumers the ability to physically handle and examine products in a manner that is not possible over the Internet as well as a more convenient means of returning and exchanging purchased products.

          Some of our competitors seeking to establish an online presence may be able to devote substantially more resources to web site systems development and exert more leverage over the supply chain for diamonds and fine jewelry than we can. In addition, larger, more established and better capitalized entities may acquire, invest or partner with traditional and online competitors as use of the Internet and other online services increases. Our online competitors can duplicate many of the products, services and content we offer, which could harm our business and results of operations.

In order to increase net sales and to sustain or increase profitability, we must attract customers in a cost-effective manner.

          Our success depends on our ability to attract customers in a cost-effective manner. We have relationships with providers of online services, search engines, directories and other web sites and e-commerce businesses to provide content, advertising banners and other links that direct customers to our web site. We rely on these relationships as significant sources of traffic to our web site. Our agreements with these providers generally have terms of one year or less. If we are unable to develop or maintain these relationships on acceptable terms, our ability to attract new customers would be harmed. In addition, many of the parties with which we have online-advertising arrangements could provide advertising services to other online or traditional retailers, including retailers with whom we compete. As a result, these parties may be reluctant to enter into or maintain relationships with us. Without these relationships, traffic to our web site could be reduced, which would substantially harm our business and results of operations.

Our failure to meet customer expectations with respect to price would adversely affect our business and results of operations.

          Demand for our products has been highly sensitive to pricing changes. Changes in our pricing strategies have had and may continue to have a significant impact on our net sales, gross margins and net income. In 2002 and 2003, we instituted retail price reductions as part of our strategy to stimulate growth in net sales and optimize gross profits. We may institute similar price reductions in the future. Such price reductions may not result in an increase in net sales or the optimization of gross profits. In addition, many external factors, including the costs to acquire diamonds and precious metals and our competitors’ pricing and marketing strategies, can significantly impact our pricing strategies. If we fail to meet customer expectations with respect to price in any given period, our business and results of operations would suffer.

We rely exclusively on the sale of diamonds and fine jewelry for our net sales, and demand for these products could decline.

          Luxury products, such as diamonds and fine jewelry, are discretionary purchases for consumers. The volume and dollar value of such purchases may significantly decrease during economic downturns.

9

The success of our business depends in part on macroeconomic factors such as employment levels, salary levels, tax rates and credit availability, all of which affect consumer spending and disposable income. Any reduction in consumer spending or disposable income may affect us more significantly than companies in other industries.

          Our net sales and results of operations are highly dependent on the demand for diamonds and diamond jewelry, particularly engagement rings. Should prevailing consumer tastes for diamonds decline or customs with respect to engagement shift away from the presentation of diamond jewelry, demand for our products would decline and our business and results of operations would be substantially harmed.

          The significant cost of diamonds results in large part from their scarcity. From time to time, attempts have been made to develop and market synthetic stones and gems to compete in the market for diamonds and diamond jewelry. We expect such efforts to continue in the future. If any such efforts are successful in creating widespread demand for alternative diamond products, demand and price levels for our products would decline and our business and results of operations would be substantially harmed.

          In recent years, increasing attention has been focused on “conflict” diamonds, which are diamonds extracted from war-torn regions in Africa and sold by rebel forces to fund insurrection. Diamonds are, in some cases, also believed to be used to fund terrorist activities in some regions. Although we believe that the suppliers from whom we purchase our diamonds seek to exclude such diamonds from their inventories, we cannot independently verify whether any diamond we offer was extracted from these regions. Current efforts to increase consumer awareness of this issue and encourage legislative response could adversely affect consumer demand for diamonds.

          Our jewelry offerings must reflect the tastes and preferences of a wide range of consumers whose preferences may change regularly. Our strategy has been to offer primarily what we consider to be classic styles of fine jewelry, but there can be no assurance that these styles will continue to be popular with consumers in the future. If the styles we offer become less popular with consumers and we are not able to adjust our inventory in a timely manner, our net sales may decline or fail to meet expected levels.

The success of our business may depend on our ability to successfully expand our product offerings.

          Our ability to significantly increase our net sales and maintain and increase our profitability may depend on our ability to successfully expand our product lines beyond our current offerings. If we offer a new product category that is not accepted by consumers, the Blue Nile brand and reputation could be adversely affected, our net sales may fall short of expectations and we may incur substantial expenses that are not offset by increased net sales. Expansion of our product lines may also strain our management and operational resources.

If our fulfillment operations are interrupted for any significant period of time, our business and results of operations would be substantially harmed.

          Our success depends on our ability to successfully receive and fulfill orders and to promptly and securely deliver our products to our customers. Our inventory management, jewelry assembly, packaging, labeling and product return processes are performed in a single fulfillment center. This facility is susceptible to damage or interruption from human error, fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, break-ins, earthquake and similar events. We do not currently maintain back-up power systems at our fulfillment center. We do not presently have a formal disaster recovery plan and our business interruption insurance may be insufficient to compensate us for losses that may occur in the event operations at our fulfillment center are interrupted. We may transfer our fulfillment operations to a larger fulfillment center in the future. Any interruptions in our fulfillment center operations for any significant period of time, including interruptions resulting from the transfer to a new facility, could damage our reputation and brand and substantially harm our business and results of operations.

10

We may fail to successfully expand our fulfillment capabilities, which would substantially harm our business and results of operations.

          We currently provide, through a single fulfillment center, our own order fulfillment services for substantially all products we sell. If we fail to quickly and efficiently fill customer orders, our operating results may suffer. We believe that increased demand and other considerations will require us to expand our fulfillment capabilities and facilities in the near future. Our need to rapidly adapt and expand our fulfillment capabilities is particularly acute during the fourth quarter. If we do not successfully expand our fulfillment capabilities to accommodate increases in demand, we may not be able to substantially increase our net sales. Our efforts at expanding our fulfillment capabilities may cause disruptions in other areas of our business which could substantially harm our business and results of operations.

We rely on our suppliers and third-party carriers as part of our fulfillment process, and these third parties may fail to adequately serve our customers.

          In general, we rely on our suppliers to promptly ship us diamonds ordered by our customers. Any failure by our suppliers to sell and ship such products to us in a timely manner will have an adverse effect on our ability to fulfill customer orders and harm our business and results of operations. Our suppliers, in turn, rely on third-party carriers to ship diamonds to us, and in some cases, directly to our customers. We also rely on third-party carriers for product shipments to our customers. We and our suppliers are therefore subject to the risks, including employee strikes and inclement weather, associated with such carriers’ abilities to provide delivery services to meet our and our suppliers’ shipping needs. Our suppliers’ and third-party carriers’ failure to deliver products to us or our customers in a timely manner or to otherwise adequately serve our customers would damage our reputation and brand and substantially harm our business and results of operations.

If we are unable to accurately manage our inventory of fine jewelry, our reputation and results of operations could suffer.

          Except for loose diamonds, substantially all of the fine jewelry we sell is from our physical inventory. Changes in consumer tastes for these products subject us to significant inventory risks. The demand for specific products can change between the time we order an item and the date we receive it. If we under-stock one or more of our products, we may not be able to obtain additional units in a timely manner on terms favorable to us, if at all, which would damage our reputation and substantially harm our business and results of operations. In addition, if demand for our products increases over time, we may be forced to increase inventory levels. If one or more of our products does not achieve widespread consumer acceptance, we may be required to take significant inventory markdowns, or may not be able to sell the product at all, which would substantially harm our results of operations.

We face the risk of theft of our products from inventory or during shipment.

          We may experience theft of our products while they are being held in our fulfillment center or during the course of shipment to our customers by third-party shipping carriers. We have taken steps to prevent such theft and maintain insurance to cover losses resulting from theft. However, if security measures fail, losses exceed our insurance coverage or we are not able to maintain insurance at a reasonable cost, we could incur significant losses from theft, which would substantially harm our business and results of operations.

Our failure to effectively manage the growth in our operations may prevent us from successfully expanding our business.

          We have experienced, and in the future may experience, rapid growth in operations which has placed, and could continue to place, a significant strain on our operations, services, internal controls and other managerial, operational and financial resources. To effectively manage future expansion, we will need

11

to maintain our operational and financial systems and managerial controls and procedures, which include the following processes:

•  transaction-processing and fulfillment;

•  inventory management;

•  customer support;

•  management of multiple supplier relationships;

•  operational, financial and managerial controls;

•  reporting procedures; and

•  training, supervision, retention and management of our employees.

          If we are unable to manage future expansion, our ability to provide a high quality customer experience could be harmed, which would damage our reputation and brand and substantially harm our business and results of operations.

If the single facility where substantially all of our computer and communications hardware is located fails, our business, results of operations and financial condition would be harmed.

          Our ability to successfully receive and fulfill orders and to provide high quality customer service depends in part on the efficient and uninterrupted operation of our computer and communications systems. Substantially all of the computer hardware necessary to operate our web site is located at a single leased facility. Our systems and operations are vulnerable to damage or interruption from human error, fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, break-ins, earthquake and similar events. We do not presently have redundant systems in multiple locations or a formal disaster recovery plan, and our business interruption insurance may be insufficient to compensate us for losses that may occur. In addition, our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss of critical data, the inability to accept and fulfill customer orders or the unauthorized disclosure of confidential customer data. The occurrence of any of the foregoing risks could substantially harm our business and results of operations.

We rely on the services of our key personnel, any of whom would be difficult to replace.

          We rely upon the continued service and performance of key technical, fulfillment and senior management personnel. If we lose any of these personnel, our business could suffer. Our future success depends on our retention of key employees, including Mark Vadon, our Chief Executive Officer, on whom we rely for management of our company, development of our business strategy and management of our strategic relationships. None of our key technical, fulfillment or senior management personnel are bound by employment or noncompetition agreements, and, as a result, any of these employees could leave with little or no prior notice. In addition, other than for Mr. Vadon, we do not have “key person” life insurance policies covering any of our employees.

Failure to adequately protect our intellectual property could substantially harm our business and results of operations.

          We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. These afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our web site features and functionality or to obtain and use information that we consider as proprietary, such as the technology used to operate our web site, our content and our trademarks.

          We have registered “Blue Nile,” “bluenile.com,” the BN logo and the Blue Nile BN stylized logo as trademarks in the U.S. and in certain other countries. Our competitors have, and other competitors may, adopt service names similar to ours, thereby impeding our ability to build brand identity and possibly

12

leading to customer confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term Blue Nile or our other trademarks. Any claims or customer confusion related to our trademarks could damage our reputation and brand and substantially harm our business and results of operations.

          We currently hold the bluenile.com Internet domain name and various other related domain names. Domain names generally are regulated by Internet regulatory bodies. If we lose the ability to use a domain name in a particular country, we would be forced to either incur significant additional expenses to market our products within that country, including the development of a new brand and the creation of new promotional materials and packaging, or elect not to sell products in that country. Either result could substantially harm our business and results of operations. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize the name Blue Nile in all of the countries in which we currently or intend to conduct business.

          Litigation or proceedings before the U.S. Patent and Trademark Office may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and domain names and to determine the validity and scope of the proprietary rights of others. Any litigation or adverse priority proceeding could result in substantial costs and diversion of resources and could substantially harm our business and results of operations. Finally, we intend to sell our products internationally, and the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States.

Assertions by third parties of infringement by us of their intellectual property rights could result in significant costs and substantially harm our business and results of operations.

          Other parties have, and may in the future, assert that we have infringed their technology or other intellectual property rights. We cannot predict whether any such assertions or claims arising from such assertions will substantially harm our business and results of operations. If we are forced to defend against any infringement claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, diversion of technical and management personnel or product shipment delays. Furthermore, the outcome of a dispute may be that we would need to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all.

Increased product returns and the failure to accurately predict product returns could substantially harm our business and results of operations.

          We offer our customers an unconditional 30-day return policy that allows our customers to return most products if they are not satisfied for any reason. We make allowances for product returns in our financial statements based on historical return rates. Actual merchandise returns are difficult to predict and may significantly exceed our allowances. Any significant increase in merchandise returns above our allowances would substantially harm our business and results of operations.

We may be unsuccessful in expanding our operations internationally.

          To date, we have made very limited international sales, but we anticipate expanding our international sales and operations in the future either by building local versions of our web site for foreign markets or through acquisitions or alliances with third parties. Any international expansion plans we choose to undertake will require management attention and resources and may be unsuccessful. We have minimal experience in selling our products in international markets or in conforming to the local cultures, standards or policies necessary to successfully compete in those markets. We do not currently have any overseas fulfillment, distribution or server facilities or any web site content localized for foreign markets and we cannot be certain that we will be able to establish a global presence if we choose to expand

13

internationally. In addition, we may have to compete with retailers that have more experience with local markets. Our ability to expand internationally may also be limited by the demand for our products and the adoption of electronic commerce in these markets. Different privacy, censorship and liability standards and regulations and different intellectual property laws in foreign countries may cause our business and results of operations to suffer.

          Any future international operations may also fail to succeed due to other risks inherent in foreign operations, including:

•  the need to develop new supplier and jeweler relationships;

•  unexpected changes in international regulatory requirements and tariffs;

•  difficulties in staffing and managing foreign operations;

•  longer payment cycles from credit card companies;

•  greater difficulty in accounts receivable collection;

•  potential adverse tax consequences;

•  lack of infrastructure to adequately conduct electronic commerce transactions or fulfillment operations;

•  price controls or other restrictions on foreign currency; and

•  difficulties in obtaining export and import licenses.

Our failure to successfully expand our operations internationally may cause our business and results of operations to suffer.

We rely on our relationship with a third-party consumer credit company to offer financing for the purchase of our products.

          The purchase of the diamond and fine jewelry products we sell is a substantial expense for many of our customers. We currently rely on our relationship with a single financial institution to provide financing to our customers. If we are unable to maintain this or other similar arrangements, we may not be able to offer financing alternatives to our customers, which may reduce demand for our products and substantially harm our business and results of operations.

We may undertake acquisitions to expand our business, which may pose risks to our business and dilute the ownership of our existing stockholders.

          A key component of our business strategy includes strengthening our competitive position and refining the customer experience on our web site through internal development. However, from time to time, we may selectively pursue acquisitions of businesses, technologies or services. Integrating any newly acquired businesses, technologies or services may be expensive and time-consuming. To finance any acquisitions, it may be necessary for us to raise additional funds through public or private financings. Additional funds may not be available on terms that are favorable to us, and, in the case of equity financings, would result in dilution to our stockholders. If we do complete any acquisitions, we may be unable to operate such acquired businesses profitably or otherwise implement our strategy successfully. If we are unable to integrate any newly acquired entities or technologies effectively, our business and results of operations could suffer. The time and expense associated with finding suitable and compatible businesses, technologies or services could also disrupt our ongoing business and divert our management’s attention. Future acquisitions by us could also result in large and immediate write-offs or assumptions of debt and contingent liabilities, any of which could substantially harm our business and results of operations. We have no current plans, agreements or commitments with respect to any such acquisitions.

14

Risks Related to Our Industry

If use of the Internet, particularly with respect to online commerce, does not continue to increase as rapidly as we anticipate, our business will be harmed.

          Our future net sales and profits are substantially dependent upon the continued use of the Internet as an effective medium of business and communication by our target customers. Internet use may not continue to develop at historical rates and consumers may not continue to use the Internet and other online services as a medium for commerce. Highly publicized failures by some online retailers to meet consumer demands could result in consumer reluctance to adopt the Internet as a means for commerce, and thereby damage our reputation and brand and substantially harm our business and results of operations.

          In addition, the Internet may not be accepted as a viable long-term commercial marketplace for a number of reasons, including:

•  actual or perceived lack of security of information or privacy protection;

•  possible disruptions, computer viruses or other damage to the Internet servers or to users’ computers; and

•  excessive governmental regulation.

          Our success will depend, in large part, upon third parties maintaining the Internet infrastructure to provide a reliable network backbone with the speed, data capacity, security and hardware necessary for reliable Internet access and services. Our business, which relies on a contextually rich web site that requires the transmission of substantial data, is also significantly dependent upon the availability and adoption of broadband Internet access and other high speed Internet connectivity technologies.

Our net sales may be negatively affected if we are required to charge taxes on purchases.

          We do not collect or have imposed upon us sales or other taxes related to the products we sell, except for certain corporate level taxes and sales taxes with respect to purchases by customers located in the State of Washington. However, one or more states or foreign countries may seek to impose sales or other tax collection obligations on us in the future. A successful assertion by one or more states or foreign countries that we should be collecting sales or other taxes on the sale of our products could result in substantial tax liabilities for past sales, discourage customers from purchasing products from us, decrease our ability to compete with traditional retailers or otherwise substantially harm our business and results of operations.

          Currently, decisions of the U.S. Supreme Court restrict the imposition of obligations to collect state and local sales and use taxes with respect to sales made over the Internet. However, implementation of the restrictions imposed by these Supreme Court decisions is subject to interpretation by state and local taxing authorities. While we believe that these Supreme Court decisions currently restrict state and local taxing authorities outside the State of Washington from requiring us to collect sales and use taxes from purchasers located within their jurisdictions, taxing authorities outside the State of Washington could disagree with our interpretation of these decisions. Moreover, a number of states, as well as the U.S. Congress, have been considering various initiatives that could limit or supercede the Supreme Court’s position regarding sales and use taxes on Internet sales. If any state or local taxing jurisdiction were to disagree with our interpretation of the Supreme Court’s current position regarding state and local taxation of Internet sales, or if any of these initiatives were to address the Supreme Court’s constitutional concerns and result in a reversal of its current position, we could be required to collect sales and use taxes from purchasers located in states other than Washington. The imposition by state and local governments of various taxes upon Internet commerce could create administrative burdens for us and could decrease our future net sales.

15

Changes in accounting standards or our accounting policy relating to stock-based compensation may negatively affect our reported results of operations.

          We currently are not required to record stock-based compensation charges if the employee’s stock option exercise price equals or exceeds the deemed fair value of our common stock at the date of grant. However, several companies recently have elected to change their accounting policies and begun to record the fair value of stock options as an expense. Although the standards have not been finalized and the timing of a final statement has not been established, the Financial Accounting Standards Board, or FASB, has announced its support for recording expense for the fair value of stock options granted. We account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. Under APB 25, compensation expense is recognized for the difference between the fair value of our stock on the date of grant and the exercise price. We have elected to apply the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” (“SFAS No. 123”). Had compensation cost for the Company’s stock options been determined based on the fair value of the options at the date of grant under SFAS No. 123, our pro forma net income (loss) would have been as set forth in Note 1 to our consolidated financial statements included elsewhere in this prospectus.

Government regulation of the Internet and e-commerce is evolving and unfavorable changes could substantially harm our business and results of operations.

          We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet or other online services. These regulations and laws may cover taxation, restrictions on imports and exports, customs, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services, broadband residential Internet access and the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may substantially harm our business and results of operations.

Our failure to protect confidential information of our customers and our network against security breaches could damage our reputation and brand and substantially harm our business and results of operations.

          A significant barrier to online commerce and communications is the secure transmission of confidential information over public networks. Our failure to prevent these security breaches could damage our reputation and brand and substantially harm our business and results of operations. Currently, a majority of our sales are billed to our customers’ credit card accounts directly. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of confidential information, including credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the technology used by us to protect customer transaction data. Any such compromise of our security could damage our reputation and brand and expose us to a risk of loss or litigation and possible liability which would substantially harm our business and results of operations. In addition, anyone who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches.

Interruptions to our systems that impair customer access to our web site would damage our reputation and brand and substantially harm our business and results of operations.

          The satisfactory performance, reliability and availability of our web site, transaction processing systems and network infrastructure are critical to our reputation and our ability to attract and retain

16

customers and to maintain adequate customer service levels. Any future systems interruption that results in the unavailability of our web site or reduced order fulfillment performance could result in negative publicity, damage our reputation and brand and cause our business and results of operations to suffer. We may be susceptible to such disruptions in the future. We may also experience temporary system interruptions for a variety of other reasons in the future, including power failures, software errors or an overwhelming number of visitors trying to reach our web site during periods of strong seasonal demand or promotions. Because we are dependent in part on third parties for the implementation and maintenance of certain aspects of our systems and because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, or at all.

Our failure to address risks associated with credit card fraud could damage our reputation and brand and may cause our business and results of operations to suffer.

          Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature. We do not currently carry insurance against this risk. To date, we have experienced minimal losses from credit card fraud, but we face the risk of significant losses from this type of fraud as our net sales increase. Our failure to adequately control fraudulent credit card transactions could damage our reputation and brand and substantially harm our business and results of operations.

Our failure to rapidly respond to technological change could result in our services or systems becoming obsolete and substantially harm our business and results of operations.

          As the Internet and online commerce industries evolve, we may be required to license emerging technologies useful in our business, enhance our existing services, develop new services and technologies that address the increasingly sophisticated and varied needs of our prospective customers and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. We may not be able to successfully implement new technologies or adapt our web site, proprietary technologies and transaction-processing systems to customer requirements or emerging industry standards. Our failure to do so would substantially harm our business and results of operations.

Risks Related to this Offering

Our stock price will fluctuate after this offering, which could result in substantial losses for investors and significant costs related to litigation.

          The market price for our common stock will vary from the initial public offering price after trading commences. This could result in substantial losses for investors. The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control. These factors include:

•  quarterly and seasonal variations in operating results;

•  changes in financial estimates and ratings by securities analysts;

•  announcements by us or our competitors of new product and service offerings, significant contracts, acquisitions or strategic relationships;

•  publicity about our company, our products and services, our competitors or electronic commerce in general;

•  additions or departures of key personnel;

•  fluctuations in the costs of acquiring diamonds and precious metals;

•  any future sales of our common stock or other securities; and

17

•  stock market price and volume fluctuations of publicly-traded companies in general and Internet-related companies and specialty retailers in particular.

          The trading prices of Internet-related companies and electronic commerce companies have been especially volatile. Investors may be unable to resell their shares of our common stock at or above the initial public offering price. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may be the target of similar litigation in the future. Securities litigation could result in significant costs and divert management’s attention and resources, which could substantially harm our business and results of operations.

No public market for our common stock currently exists and an active trading market may not develop or be sustained following this offering.

          Prior to this offering, there has been no public market for our common stock. We cannot be certain that an active trading market for our common stock will develop or be sustained following this offering. Further, we cannot be certain that the market price of our common stock will not decline below the initial public offering price. The initial public offering price was determined by negotiation among us and the underwriters based upon several factors and may not be indicative of future market prices for our common stock.

If securities or industry analysts do not publish research or reports about our business, our stock price and trading volume could decline.

          The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Future sales of our common stock could lower the market price of our common stock.

          After this offering, we will have 17,341,239 shares of common stock outstanding, assuming no exercise of the underwriters’ overallotment option and no exercise of outstanding options and warrants. Of these shares, the shares being offered in this offering will be freely tradable under federal and state securities laws. Each of our officers and directors and existing holders of substantially all of our securities have entered into the lock-up agreements described in “Underwriting.”

          All but 986,806 of the 13,601,239 shares of our common stock that are not being sold in this offering will be eligible for sale in the public market 180 days after the date of this prospectus under Rules 144, 144(k) and 701, subject in some cases to volume and other limitations. In addition, of the 1,417,343 shares issuable upon exercise of options to purchase our common stock outstanding as of April 4, 2004, approximately 923,320 shares will be vested and eligible for sale upon exercise 180 days after the date of this prospectus. For a further description of the eligibility of shares for sale into the public market following this offering see “Shares Eligible for Future Sale.”

          A number of our current security holders hold registration rights relating to our common stock. If we propose to register any of our securities under the Securities Act either for our own account or for the accounts of other security holders after this offering, subject to certain conditions and limitations, the holders of registration rights will be entitled to include their shares of common stock in the registered offering. In addition, holders of registration rights may require us on not more than two occasions at any time beginning approximately six months from the date of the closing of this offering, to file a registration statement under the Securities Act with respect to their shares of common stock. Further, the holders of registration rights may require us to register their shares on Form S-3 if and when we become eligible to use that form.

18

          In the future, we may also issue additional shares to our employees, directors or consultants, in connection with corporate alliances or acquisitions and in follow-on offerings to raise additional capital. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales could reduce the market price of our common stock.

New stockholders will incur substantial and immediate dilution as a result of this offering.

          The initial public offering price is expected to be substantially higher than the book value per share of our outstanding common stock. As a result, investors purchasing common stock in this offering will incur substantial and immediate dilution. At the assumed public offering price of $18.50 per share, purchasers in this public offering will experience immediate and substantial dilution of approximately $14.88 per share, representing the difference between our historical net tangible book value per share after giving effect to this offering and the assumed public offering price. In addition, purchasers of common stock in this offering will have contributed approximately 39% of the aggregate price paid by all purchasers of our stock but will own only approximately 12% of our common stock outstanding after this offering. In addition, we have issued options to acquire common stock at prices significantly below the public offering price. To the extent such options are ultimately exercised, there will be further dilution to investors in this offering.

Our executive officers, directors and entities affiliated with them will own approximately 32% of our common stock after this offering, which may delay or prevent an acquisition.

          Executive officers, directors and entities affiliated with them, if acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. These stockholders will, in the aggregate, beneficially own approximately 32% of our outstanding common stock following the completion of this offering.

Our management’s broad discretion in the use of proceeds from this offering may result in application of the net proceeds in a manner not favored by investors.

          Presently, we intend to use the proceeds from our sale of common stock in this offering for general corporate purposes, including working capital and capital expenditures. We may also use a portion of the proceeds to expand our business through strategic alliances and acquisitions. We have not yet determined the amount of net proceeds to be used specifically for any of the foregoing purposes. As a result, investors in this offering will be relying on management’s judgment with only limited information about its specific intentions regarding the use of proceeds.

Anti-takeover provisions in our charter documents and Delaware law could prevent or delay a change in control.

          Our restated certificate of incorporation and amended and restated bylaws include several provisions that may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable by:

•  authorizing the issuance of up to 5,000,000 shares of preferred stock with terms and conditions set by our board of directors as a means to discourage a third-party from attempting to acquire a majority of our outstanding voting stock;

•  providing a classified board of directors with staggered, three-year terms, which generally increases the time required for stockholders to change the composition of our board of directors; and

•  limiting the persons who may call special meetings of the stockholders.

          In addition to these provisions and several other provisions of our restated certificate of incorporation and amended and restated bylaws that may deter an unsolicited offer to acquire us,

19

Section 203 of the General Corporation Law of Delaware prohibits us from engaging in a transaction involving a sale of assets, merger or consolidation of our company with an “interested stockholder,” as defined under Section 203, of our company for a period of three years following the date of the transaction in which the stockholder became an “interested stockholder” unless the transaction is approved in a prescribed manner.

FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements that involve many risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including “would,” “could,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks described above and in other parts of this prospectus. These factors may cause our actual results to differ materially from any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We cannot guarantee future results, levels of activity, performance or achievements.

USE OF PROCEEDS

          At an assumed public offering price of $18.50 per share, the mid-point of the initial public offering price range, we will receive $32,410,000 from our sale of 2,000,000 shares of common stock in this offering, after deducting estimated offering expenses of approximately $2,000,000 and the underwriting discount. At an assumed public offering price of $18.50 per share, the selling stockholders will receive $29,936,700 from their sale of shares of our common stock in this offering, after deducting the underwriting discount. We will not receive any portion of the net proceeds received by the selling stockholders from the sale of their shares. If the underwriters exercise their overallotment option in full, we will receive an additional $5,172,047 and the selling stockholders will receive an additional $4,479,958 in net proceeds at a public offering price of $18.50 per share.

          The principal purposes of this offering are to create a public market for our common stock, to facilitate our future access to the public capital markets and to provide us with flexibility in the future, including the flexibility to acquire additional businesses, products or technologies either with the net proceeds from this offering or through the publicly traded common stock we create through this offering. We have no present intention to acquire any such businesses, products or technologies. We intend to use the net proceeds of this offering for general corporate purposes, including working capital and capital expenditures. Capital expenditures may include the expansion or relocation of our fulfillment facilities, the cost of which is estimated to be up to approximately $1.5 million. Pending use of the net proceeds of this offering, we intend to invest the funds in short-term, interest bearing, investment grade securities.

          Management’s plans for the proceeds of this offering are subject to change due to unforeseen opportunities. We cannot specify with certainty the particular uses for the net proceeds to be received upon completion of this offering. Accordingly, our management team will have broad discretion in using the net proceeds of this offering.

DIVIDEND POLICY

          We have never declared or paid any cash dividends on our capital stock. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

20

CAPITALIZATION

          The following table sets forth our capitalization and our cash and cash equivalents as of December 31, 2003 on:

•  an actual basis;

•  a pro forma basis to reflect (i) the automatic conversion of our outstanding shares of convertible preferred stock into 10,920,172 shares of our common stock upon the closing of this offering and (ii) the issuance of 6,000 shares of common stock upon the cash exercise of outstanding warrants that will terminate if not exercised prior to the closing of this offering, for $37,500 in cash proceeds; and

•  a pro forma as adjusted basis to give effect to the sale of 2,000,000 shares of common stock by us in this offering after deducting the underwriting discount and estimated offering expenses payable by us.

          If the holders referred to above exercise their warrants on a cashless basis based on an assumed initial public offering price of $18.50 per share, we will issue an aggregate of 3,972 shares of common stock and our cash and cash equivalents will be reduced by $37,518 on a pro forma as adjusted basis.

          You should read this table in conjunction with our consolidated financial statements and the related notes as well as the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

			As of December 31, 2003
									Pro Forma
			Actual			Pro Forma			As Adjusted
			(In thousands, except par value data)
Cash and cash equivalents				$30,383			$30,421			$62,831
Total long-term obligations				—			—			—
Mandatorily redeemable convertible preferred stock, $0.001 par value; 25,856 shares authorized, 10,000 shares issued and outstanding actual; no shares authorized, issued or outstanding pro forma and pro forma as adjusted				57,485			—			—
Stockholders’ equity:
	Preferred stock, $0.001 par value; no shares authorized, issued or outstanding (actual); 5,000 shares authorized, no shares issued or outstanding (pro forma and pro forma as adjusted)			—			—			—
	Common stock, $0.001 par value; 48,000 shares authorized, 5,128 shares issued and 4,378 shares outstanding (actual); 300,000 authorized, 16,054 shares issued and 15,304 outstanding (pro forma); and 300,000 authorized, 18,054 shares issued and 17,304 outstanding (pro forma as adjusted)			5			16			18
	Additional paid-in capital			3,549			61,061			93,469
	Deferred compensation			(698	)		(698	)		(698	)
	Accumulated deficit			(29,458	)		(29,458	)		(29,458	)
	Treasury stock, at cost; 750 shares outstanding			(636	)		(636	)		(636	)
		Total stockholders’ equity (deficit)		(27,238	)		30,285			62,695
Total capitalization				$60,630			$60,706			$125,526

          This table excludes the following shares:

•  1,402,583 shares of common stock subject to outstanding options under our 1999 Equity Incentive Plan;

•  22,324 shares of common stock issuable upon the exercise of outstanding warrants;

21

•  an aggregate of 264,008 shares of common stock reserved for future issuance under our 1999 Equity Incentive Plan; and

•  an aggregate of 3,960,000 shares of common stock reserved for future issuance under our 2004 Equity Incentive Plan, 2004 Non-Employee Directors’ Stock Option Plan and 2004 Employee Stock Purchase Plan, each adopted in March 2004 and containing provisions that automatically increase their share reserves each year, as more fully described in “Management — Stock Based Plans.”

22

DILUTION

          If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock upon the completion of this offering. The pro forma net tangible book value attributable to our common stock as of December 31, 2003 was $30.3 million, or $1.98 per share. Our pro forma net tangible book value assumes the automatic conversion of our outstanding shares of convertible preferred stock into 10,920,172 shares of our common stock immediately upon the closing of this offering and the cash exercise of warrants to purchase 6,000 shares of our common stock that will expire if not exercised prior to the closing of this offering.

          Net tangible book value per share of common stock is determined by dividing the number of outstanding shares of common stock into the pro forma net tangible book value attributable to our common stock, which is our total tangible assets less our total liabilities. After giving effect to the sale of common stock by us in this offering at an initial public offering price of $18.50 per share and after deducting the estimated underwriting discount and offering expenses payable by us, the adjusted pro forma net tangible book value attributable to our common stock as of December 31, 2003 would have been approximately $62.7 million, or $3.62 per share. This represents an immediate increase in pro forma net tangible book value of $1.64 per share to the holders of our existing common stock and an immediate dilution of $14.88 per share to new investors purchasing shares of common stock at the initial public offering price.

Assumed initial public offering price per share			$	18.50
Pro forma net tangible book value per share as of December 31, 2003	$	1.98
Increase per share attributable to new investors		1.64
Adjusted net tangible book value per share after the offering				3.62
Dilution in pro forma net tangible book value per share to new investors			$	14.88

          The following table sets forth, as of December 31, 2003, the differences between the number of shares of common stock purchased from us, the total price paid and average price per share paid by existing stockholders and by the new investors in this offering at an assumed initial public offering price of $18.50 per share, before deducting the underwriting discount and estimated offering expenses payable by us.

		Shares Purchased					Total Consideration
												Average Price
		Number		Percent			Amount		Percent			Per Share
Existing stockholders			15,304,185		88	%	$	57,845,689		61	%	$	3.78
New investors			2,000,000		12			37,000,000		39			18.50
	Total		17,304,185		100	%	$	94,845,689		100	%

          If the underwriters’ overallotment option is exercised in full, the following will occur:

•  the number of shares of common stock held by existing stockholders will represent approximately 87% of the total number of shares of our common stock outstanding after this offering; and

•  the number of shares held by new public investors will increase to 2,300,613 or approximately 13% of the total number of shares of our common stock outstanding after this offering.

          The foregoing discussion and tables assume no exercise of the warrants to purchase 22,324 shares of common stock at a weighted average exercise price of $5.04 per share outstanding as of December 31, 2003 or stock options to purchase 1,402,583 shares of common stock under our 1999 Equity Incentive Plan at a weighted average exercise price of $2.47 per share outstanding as of December 31, 2003. To the extent that any warrants or options having an exercise price that is less than the offering price of this offering are exercised, new investors will experience further dilution. See “Management — Stock Based Plans — 1999 Equity Incentive Plan.”

23

SELECTED CONSOLIDATED FINANCIAL INFORMATION

          The table below shows selected consolidated financial data for the period from our inception through December 31, 1999 and each of our fiscal years ended December 31, 2000, 2001, 2002 and 2003. The consolidated statements of operations data and the additional operating data for each of the fiscal years ended December 31, 2001, 2002 and 2003 and the consolidated balance sheet data as of December 31, 2002 and 2003 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2001 is derived from audited consolidated financial statements not included in this prospectus. The consolidated statements of operations data for the period from our inception through December 31, 1999 and for the year ended December 31, 2000 and the consolidated balance sheet data as of December 31, 1999 and 2000 are derived from unaudited consolidated financial statements not included in this prospectus.

          You should read the following selected consolidated financial and operating information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this prospectus. The historical results presented below are not necessarily indicative of future results. The pro forma basic and diluted net income per share data reflect the conversion of all outstanding convertible preferred stock into common stock immediately upon the closing of this offering. See Note 11 of the related notes to our consolidated financial statements for the calculation of weighted average shares outstanding used in computing pro forma basic and diluted net income per share.

          The pro forma consolidated balance sheet data below reflects the automatic conversion of all of our outstanding shares of convertible preferred stock into 10,920,172 shares of our common stock upon the closing of this offering and the issuance of 6,000 shares of our common stock upon the cash exercise of outstanding warrants that will terminate if not exercised prior to the closing of this offering. The pro forma consolidated balance sheet data does not give effect to the net proceeds to be received by us in this offering.

	Period from
	March 18,
	1999
	(inception)
	through			Year Ended December 31,
	December 31,
	1999			2000			2001			2002		2003
	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Net sales		$14,010			$44,232			$48,674			$72,120		$128,894
Gross profit		1,070			6,745			11,123			18,153		29,420
Selling, general and administrative expenses		16,557			41,808			15,421			14,126		18,165
Restructuring charges		—			—			1,017			400		(87	)
Operating income (loss)		(15,487	)		(35,063	)		(5,315	)		3,627		11,342
Income (loss) before income taxes		(15,174	)		(35,581	)		(7,360	)		1,627		11,330
Income tax expense (benefit)		—			—			—			—		(15,700	)
Net income (loss)		$(15,174	)		$(35,581	)		$(7,360	)		$1,627		$27,030

24

	Period from
	March 18,
	1999
	(inception)
	through			Year Ended December 31,
	December 31,
	1999			2000			2001			2002			2003
	(In thousands, except per share data)
Basic net income (loss) per share		$(14.28	)		$(15.36	)		$(2.44	)		$0.49			$6.99
Diluted net income (loss) per share		$(14.28	)		$(15.36	)		$(2.44	)		$0.11			$1.65
Shares used in computing basic net income (loss) per share		1,063			2,317			3,015			3,336			3,868
Shares used in computing diluted net income (loss) per share		1,063			2,317			3,015			14,160			16,338
Pro forma basic net income per share														$1.83
Pro forma diluted net income per share														$1.65
Pro forma shares used in computing pro forma basic net income per share														14,794
Pro forma shares used in computing pro forma diluted net income per share														16,378
Additional Operating Data:
Net cash provided by operating activities		$(19,374	)		$(36,047	)		$4,460			$16,730			$19,816
Gross profit margin		7.6	%		15.2	%		22.9	%		25.2	%		22.8	%
Selling, general and administrative expenses as a percentage of net sales		118.2	%		94.5	%		31.7	%		19.6	%		14.1	%

																Pro Forma
	As of December 31,															as of
																December 31,
	1999			2000			2001			2002			2003			2003
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$11,748			$12,142			$16,298			$22,597			$30,383			$30,421
Accounts receivable		307			599			71			402			843			843
Inventories		6,933			14,049			6,619			5,181			10,204			10,204
Accounts payable		5,449			4,084			5,253			15,791			26,288			26,288
Working capital(1)		18,729			14,372			9,010			1,779			15,537			15,575
Total assets		29,576			34,056			26,545			30,914			62,305			62,343
Total long-term obligations		1,356			16,361			10,778			1,075			—			—
Mandatorily redeemable convertible preferred stock		35,493			50,570			57,215			57,215			57,485			—
Total stockholders’ equity (deficit)		(14,390	)		(48,723	)		(56,199	)		(54,560	)		(27,238	)		30,285

(1)  Working capital consists of total current assets, including cash and cash equivalents, less total current liabilities.

25

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the heading “Risk Factors.”

Overview

          We are a leading online retailer of high quality diamonds and fine jewelry. We have built a well respected consumer brand by employing an informative sales process that empowers our customers while offering a broad selection of high quality jewelry at competitive prices. Our web site at www.bluenile.com showcases over 30,000 independently certified diamonds and more than 1,000 styles of fine jewelry, including rings, wedding bands, earrings, necklaces, pendants, bracelets and watches.

          Our business model enables us to eliminate much of the cost associated with carrying diamond inventory. We generally do not hold in our inventory the diamonds we offer for sale until we receive a customer order. With limited exceptions, the diamonds we display are owned by our suppliers. Upon receipt of a customer order for a specific diamond, we purchase that diamond from our supplier, who generally ships it to us in one business day. We take title to the diamond at the time of its shipment from our supplier. Unlike diamonds, we typically take rings, wedding bands, earrings, necklaces, pendants, bracelets and watches into inventory before they are ordered by our customers. As such, we are subject to costs associated with carrying such jewelry products and risks of potential mark-downs.

          We review our operations based on both our financial results and various non-financial measures. Among the key financial factors upon which management focuses in reviewing performance are gross profit margin, operating income and growth in net sales. As an online retailer, we do not incur most of the operating costs associated with physical retail stores, including the costs of maintaining significant inventory and related overhead. As a result, while our gross profit margins are lower than those typically maintained by traditional diamond and fine jewelry retailers, we are able to realize relatively higher operating income as percentage of net sales. In 2003, we had a 22.8% gross profit margin, as compared to gross profit margins of up to 50% by some traditional retailers. We believe our lower gross profit margins result from lower retail prices that we offer to our customers. We believe these lower prices, in turn, contribute to increased net sales. Our financial results, including our net sales, gross profit and operating income can and do vary significantly from quarter to quarter as a result of a number of factors, many of which are beyond our control. These factors include the seasonality of our net sales, general economic conditions, the costs to acquire diamonds and precious metals, and our competitors’ pricing and marketing strategies.

          Among the key non-financial measures of our success are customer feedback and customer satisfaction ratings compiled by third parties. We believe that maintaining high overall customer satisfaction is critical to our ongoing efforts to promote the Blue Nile brand and to increase our net sales and net income. We actively solicit customer feedback on our web site functionality as well as the entire purchase experience. To maintain a high level of performance by our customer service associates, we also undertake an ongoing customer feedback process. If we are unable to meet customer expectations with respect to price or do not successfully expand our product lines or otherwise fail to maintain high overall customer satisfaction, our business and results of operations would be harmed.

          We were incorporated in Delaware on March 18, 1999 as RockShop.com, Inc. On May 21, 1999, we purchased certain assets of Williams & Son, Inc., a Seattle jeweler, including a web site established by that business. In June 1999, we changed our name to Internet Diamonds, Inc. In November 1999, we launched the Blue Nile brand and changed our name to Blue Nile, Inc. Since inception, we have focused on increasing brand awareness, providing a quality customer experience, improving supply chain efficiency, scaling our business to enhance profitability and expanding our product offerings.

26

Critical Accounting Policies

          The preparation of our consolidated financial statements requires that we make certain estimates and judgments that affect amounts reported and disclosed in our consolidated financial statements and related notes. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. The following are the critical accounting policies that we believe require significant estimation and management judgment.

Revenue Recognition

          We recognize revenue and the related gross profit on the date on which we estimate that the customer has received the product. We require payment prior to shipment, so any payments received prior to the customer receipt date are recorded as a deposit. We utilize our freight vendors’ tracking information to determine when delivery has occurred, which is typically within one to six days after shipment. We reduce revenue by a provision for returns, which is based on our historical product return rates. Our contracts with our suppliers generally allow us to return to our suppliers, at no additional costs to us other than shipping and handling costs (if any), diamonds purchased and returned by our customers.

Fraud Reserve

          A majority of our sales has historically been paid by credit card. Although we have measures in place to detect and prevent credit card fraud, we have exposure to losses from fraudulent charges. We record a reserve for fraud losses based on our historical rate of such losses, which has been minimal.

Income Taxes

          We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance against our deferred tax assets. We believe that all net deferred tax assets shown on our balance sheet are more likely than not to be realized in the future and no valuation allowance is necessary. In the event that actual results differ from those estimates or we adjust those estimates in future periods, we may need to record a valuation allowance, which will impact deferred tax assets and the results of operations in the period the change is made.

Stock-based Compensation

          We account for our employee compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. We amortize stock-based compensation using the straight-line method over the vesting period of the related options, which is generally four years.

          We have recorded deferred stock-based compensation representing the difference between the option exercise price and the deemed fair value of our common stock on the grant date for financial reporting purposes. We determined the deemed fair value of our common stock based upon several factors, including the market capitalization of similar retailers and the expected valuation we would obtain in an initial public offering. Had different assumptions or criteria been used to determine the deemed fair value of our common stock, different amounts of stock-based compensation could have been reported.

          Pro forma information regarding net income (loss) attributable to common stockholders and net income (loss) per share attributable to common stockholders is required in order to show our net income (loss) as if we had accounted for employee stock options under the fair value method of SFAS No. 123, as amended by SFAS No. 148. This information is contained in Note 1 to our financial statements. The fair values of options and shares issued pursuant to our option plan at each grant date were estimated using the Black-Scholes option pricing model.

27

Results of Operations

          The following table presents our historical operating results for the periods indicated as a percentage of net sales:

		Year Ended December 31,
		2001			2002			2003
Net sales			100.0	%		100.0	%		100.0	%
Gross profit			22.9			25.2			22.8
Selling, general and administrative expenses			31.7			19.6			14.1
Restructuring charges			2.1			0.6			(0.1	)
	Operating income (loss)		(10.9	)		5.0			8.8
Other income (expense), net			(4.2	)		(2.7	)		0.0
	Income (loss) before income taxes		(15.1	)		2.3			8.8
Income tax expense (benefit)			0.0			0.0			(12.2	)
	Net income (loss)		(15.1	)%		2.3	%		21.0	%

          The following describes certain line items set forth in our consolidated statement of operations:

          Net Sales. Substantially all of our net sales consist of diamonds and fine jewelry sold via the Internet, net of estimated returns. Historically, net sales have been higher in the fourth quarter as a result of higher consumer spending during the December holiday season. We expect this seasonal trend to continue in the foreseeable future. We also generate net sales from upgrades to our free standard shipping.

          Gross Profit. Our gross profit consists of net sales less the cost of sales. Our cost of sales consists of the cost of diamonds and jewelry products sold to customers, inbound and outbound shipping costs, insurance on shipments and the costs incurred to set diamonds into ring, earring and pendant settings, including labor and related facilities costs. Our gross profit has fluctuated historically based primarily on our product acquisition costs, product mix and pricing decisions.

          Selling, General and Administrative Expenses. Our selling, general and administrative expenses consist primarily of payroll and related benefit costs for our employees, and marketing costs. These expenses also include credit card fees and certain facilities, fulfillment, customer service, technology and depreciation expenses, as well as professional fees and other general corporate expenses.

          As of December 31, 2003, we had an aggregate of $698,000 of unamortized deferred stock-based compensation relating to certain stock option grants. These options are considered compensatory because the deemed fair value of our stock on the grant date for financial reporting purposes is greater than the exercise price of the options. We amortize deferred stock-based compensation over the vesting period of the related options, which is generally four years. Substantially all of these expenses are included in selling, general and administrative costs. Assuming these options fully vest, we will recognize amortization of deferred stock-based compensation from these options of $190,000, $188,000, $187,000 and $133,000 in 2004, 2005, 2006 and 2007, respectively.

          Income Taxes. In 2003, we recognized an income tax benefit of $15.7 million due to the release of our valuation allowance relating primarily to our net operating loss carryforwards. Prior to 2003, we recorded no provision for federal and state income taxes since inception. Our aggregate net operating loss carryforwards for federal income tax purposes were approximately $37.7 million at December 31, 2003. These net operating loss carryforwards expire periodically between 2019 and 2021, although we expect to utilize all loss carryforwards in advance of their expiration dates. We expect to recognize expense related to provision for income taxes in future periods.

28

Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002

Net Sales

          Net sales increased 78.7% to $128.9 million in 2003 from $72.1 million in 2002. This increase resulted primarily from the growth of our customer base in our core diamond engagement business. The increase in net sales also resulted from an increase in the number of repeat orders from our existing customer base and an increase in the number of selections in our customized diamond jewelry and non-customized jewelry product categories.

Gross Profit

          Gross profit increased 62.1% to $29.4 million in 2003 from $18.2 million in 2002. The increase in gross profit in 2003 primarily resulted from increases in sales volume and relative decreases in product acquisition costs relating to diamonds, partially offset by retail price reductions we instituted beginning in the second quarter of 2003 as part of our strategy to stimulate growth in net sales and optimize aggregate gross profits. Gross profit as a percentage of net sales was 22.8% and 25.2% in 2003 and 2002, respectively. The decrease in gross profit as a percentage of net sales resulted primarily from the retail price reductions we instituted. Additionally, our gross profit as a percentage of net sales was negatively impacted in 2003 by increases in product acquisition costs related to precious metals, particularly gold and platinum that we did not fully pass on to our customers. We expect that gross profit will fluctuate in the future based primarily on changes in product acquisition costs, product mix and pricing decisions. Product mix has an impact on our overall gross profit percentage due to the fact that gross profit percentages differ by product type. In particular, sales of non-diamond jewelry have historically generated higher gross profit margin than sales of diamond jewelry. We expect that this trend will continue in the foreseeable future.

Selling, General and Administrative Expenses

          Selling, general and administrative expenses increased 28.6% to $18.2 million in 2003 from $14.1 million in 2002. The increase in selling, general and administrative expenses in 2003 was due primarily to a $1.3 million increase in marketing costs, higher payroll and payroll related expenses of approximately $1.4 million resulting from the addition of new employees, and an increase in credit card processing fees of approximately $1.0 million due to higher sales volumes. As a percentage of net sales, these expenses were 14.1% and 19.6% in 2003 and 2002, respectively. The decrease in selling, general and administrative expenses as a percent of net sales in 2003 resulted primarily from our ability to leverage our fixed cost base. During 2003, we recorded deferred stock compensation of approximately $744,000, of which approximately $46,000 was amortized as stock compensation expense in 2003. There was no corresponding expense in 2002. We expect selling, general and administrative expenses to increase in absolute dollars in future periods as a result of expansion of our marketing efforts to drive increases in net sales, expansion or relocation of our fulfillment facilities, increases in credit card processing fees and other variable expenses, and increases in administrative costs related to becoming a public reporting company.

Restructuring Charges

          We recorded a restructuring benefit of approximately $87,000 in 2003 as compared to a restructuring charge of approximately $400,000 in 2002 in relation to a leased facility that we no longer occupied. As of December 31, 2003, the remaining liability related to this facility was $0.

Other Expense, Net

          Other expense, net primarily consists of interest expense and interest income. Other expense, net was approximately $12,000 in 2003 as compared to $2.0 million in 2002. The decrease in other expense, net was primarily attributable to a reduction in interest expense resulting from the repayment of the outstanding balances on our notes payable and capital lease obligations in early 2003, compared to a full year of interest expense in 2002 on outstanding balances on our notes payable and capital lease obligations.

29

Income Taxes

          In 2003, we recognized an income tax benefit of $15.7 million due to the release of our valuation allowance relating primarily to our net operating loss carryforwards. Prior to 2003, our financial statements reflected a valuation allowance against the deferred tax asset, and we did not recognize any income tax benefit related to the unutilized net operating loss carryforwards. In 2003, we concluded that a valuation allowance was no longer necessary based on the determination that it was more likely than not that our net operating loss carryforwards will be utilized in the future. As a result, we reversed the existing valuation allowance of $19.7 million in the fourth quarter of 2003. We expect that in future periods we will recognize expense related to provision for income taxes at the federal statutory rate.

Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001

Net Sales

          Net sales increased 48.2% to $72.1 million in 2002 from $48.7 million in 2001. This increase resulted primarily from the growth of our customer base in our core diamond engagement business. The increase in net sales also resulted from an increase in the number of repeat orders from our existing customer base and an increase in the number of selections in our customized diamond jewelry and non-customized jewelry product categories. In 2002, we undertook numerous efforts designed to increase net sales, including enhancing our web site features and functionality, expanding our offerings of lower price merchandise to encourage purchases by first time buyers and reducing retail prices on diamonds.

Gross Profit

          Gross profit increased 63.2% to $18.2 million in 2002 from $11.1 million in 2001. The increase in gross profit in 2002 was primarily attributable to increases in net sales and relative decreases in product acquisition costs. Gross profit as a percentage of net sales was 25.2% and 22.9% in 2002 and 2001, respectively. The increase in gross profit as a percentage of net sales in 2002 resulted primarily from decreases in product acquisition costs related to diamonds and fine jewelry, pricing decisions and product mix.

Selling, General and Administrative Expenses

          Selling, general and administrative expenses decreased 8.4% to $14.1 million in 2002 from $15.4 million in 2001. The decrease in selling, general and administrative expenses in 2002 was primarily attributable to a $1.7 million reduction in marketing costs resulting from lower pricing for our online advertising, partially offset by an increase in credit card processing fees of approximately $387,000 due to higher sales volumes. Selling, general and administrative expenses as a percentage of net sales were 19.6% and 31.7% in 2002 and 2001, respectively. The decrease in selling, general and administrative expenses as a percentage of net sales is primarily attributable to the decrease in overall selling, general and administrative expenses and our ability to leverage our fixed cost base.

Restructuring Charges

          In 2001, we recorded a restructuring charge of $1.0 million related to two leased facilities that we no longer occupied and the write-off of leasehold improvements at these facilities. In 2002, we recorded an additional restructuring charge of approximately $400,000 for the decrease in estimated sublease income at one of the facilities.

Other Expense, Net

          Other expense, net was $2.0 million in 2002 and 2001. Our interest expense decreased slightly in 2002 as a result of declining outstanding balances on our notes payable and capital lease obligations.

30

Income Taxes

          In 2002 and 2001, we had net operating loss carryforwards of $50.3 million and $52.4 million, respectively, for federal income tax purposes. For years 2002 and 2001, the related net deferred tax asset was fully reduced by a valuation allowance. This valuation allowance was deemed appropriate due to available evidence indicating that some or all of the deferred tax asset would not be realized in future years.

Quarterly Operations Data

          The following tables set forth quarterly consolidated statements of operations data for the eight quarters ended December 31, 2003, including amounts expressed as a percentage of net sales. This quarterly information is unaudited, but has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of our management, reflects all adjustments necessary for a fair representation of the information for the periods presented. This quarterly statement of operations data should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this prospectus. Operating results for any quarter are not necessarily indicative of results for any future period.

	Quarter Ended
	Mar. 31,			June 30,			Sept. 30,			Dec. 31,			Mar. 31,			June 30,		Sept. 30,		Dec. 31,
	2002			2002			2002			2002			2003			2003		2003		2003
	(In thousands)
Net sales		$11,592		$	14,813		$	15,404		$	30,311		$	24,628		$	27,254	$	27,457	$	49,555
Gross profit		2,960			3,600			3,852			7,741			6,153			6,107		6,071		11,089
Selling, general and administrative expenses		3,042			3,288			3,224			4,572			4,317			3,890		3,922		6,036
Restructuring charges		—			400			—			—			—			—		—		(87	)
Operating income (loss)		(82	)		(88	)		628			3,169			1,836			2,217		2,149		5,140
Other income (expense), net		(504	)		(481	)		(503	)		(512	)		(145	)		26		39		68
Income (loss) before income taxes		(586	)		(569	)		125			2,657			1,691			2,243		2,188		5,208
Income tax expense (benefit)		—			—			—			—			—			—		—		(15,700	)
Net income (loss)		$(586	)	$	(569	)	$	125		$	2,657		$	1,691		$	2,243	$	2,188	$	20,908
Basic net income (loss) per share		$(0.18	)	$	(0.17	)	$	0.04		$	0.79		$	0.50		$	0.65	$	0.51	$	4.81
Diluted net income (loss) per share		$(0.18	)	$	(0.17	)	$	0.01		$	0.19		$	0.11		$	0.14	$	0.13	$	1.28

31

	Quarter Ended
	Mar. 31,			June 30,			Sept. 30,			Dec. 31,			Mar. 31,			June 30,			Sept. 30,			Dec. 31,
	2002			2002			2002			2002			2003			2003			2003			2003
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit		25.5			24.3			25.0			25.5			25.0			22.4			22.1			22.4
Selling, general and administrative expenses		26.2			22.2			20.9			15.1			17.5			14.3			14.3			12.2
Restructuring charges		—			2.7			—			—			—			—			—			(0.2	)
Operating income (loss)		(0.7	)		(0.6	)		4.1			10.5			7.5			8.1			7.8			10.4
Other income (expense), net		(4.4	)		(3.2	)		(3.3	)		(1.7	)		(0.6	)		0.1			0.1			0.1
Income (loss) before income taxes		(5.1	)		(3.8	)		0.8			8.8			6.9			8.2			8.0			10.5
Income tax expense (benefit)		—			—			—			—			—			—			—			(31.7	)
Net income (loss)		(5.1	)%		(3.8	)%		0.8	%		8.8	%		6.9	%		8.2	%		8.0	%		42.2	%

          The increases in our net sales for the quarters ended December 31, 2002 and 2003 are attributable to our overall growth as well as the seasonality of our business related to the December holiday season. Our selling, general and administrative expenses are also seasonal as we increase our inventory and staffing in anticipation of increased sales activity. The overall growth of our net sales over the periods presented may obscure the seasonality of our overall results and cause quarter to quarter and year to year comparisons of our operating results to not be meaningful. The decrease in our gross profit as a percentage of net sales beginning in the second quarter of 2003 resulted primarily from retail price reductions we instituted as part of our strategy to stimulate growth in net sales and optimize aggregate gross profit.

Liquidity and Capital Resources

          Since inception, we have funded our operations through the sale of equity securities, subordinated indebtedness, credit facilities, capital lease obligations and cash generated from operations. The significant components of our working capital are inventory and liquid assets such as cash and trade accounts receivable, reduced by accounts payable and accrued expenses. Our business model contains beneficial working capital characteristics. While we collect cash from sales to customers within several business days of the related sale, we typically have extended payment terms with our suppliers.

          As of December 31, 2003, we had working capital of $15.5 million, including cash and cash equivalents of $30.4 million, partially offset by accounts payable of $26.3 million. In the first half of 2003, we paid off the outstanding balances on our notes payable and capital lease obligations. As of December 31, 2003, we had no long-term debt or capital lease obligations. Due to the seasonal nature of our business, cash and cash equivalents, inventory and accounts payable are generally higher in the fourth quarter, resulting in fluctuations in our working capital.

          Net cash provided by operating activities was $19.8 million, $16.7 million and $4.5 million in 2003, 2002 and 2001, respectively. The increase in cash provided by operating activities in 2003 as compared to 2002 was primarily due to an increase in net income, which was partially offset by an increase in inventory balances resulting from a seasonal increase in inventory of settings and non-customized jewelry and accessories in the fourth quarter of 2003. The increase in cash provided by operating activities in 2002 as compared to 2001 was primarily due to an increase in net income and changes in our working capital resulting from an extension of vendor payment terms, which apply for the remaining terms of the agreements or unless otherwise agreed to by the parties.

32

          Net cash used in investing activities was $3.5 million and $1.0 million in 2003 and 2002, respectively, and was primarily related to capital expenditures for our technology system infrastructure, including software. In 2003, we utilized $1.3 million to undertake certain leasehold improvements for our new corporate office under a lease that began in August 2003. Net cash provided by investing activities was $758,000 in 2001 resulting from sales of marketable securities of $2.3 million, partially offset by capital expenditures of $1.2 million and transfers to restricted cash of $350,000. In 2001, we utilized approximately $361,000 to undertake certain leasehold improvements for our fulfillment center that we occupied beginning in October 2001.

          Net cash used in financing activities was $8.5 million, $9.4 million and $1.1 million in 2003, 2002 and 2001, respectively, and primarily related to payments on the remaining balances on our notes payable and capital lease obligations. In 2001, net cash used in financing activities also included repayment of the balance of a working capital line of credit that was terminated in November 2002, partially offset by net proceeds of $6.6 million from the sale of our Series E convertible preferred stock in June 2001.

          The following table summarizes our contractual obligations and the expected effect on liquidity and cash flows.

Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		Over 5 Years
Operating leases	$	2,279	$	412	$	734	$	532	$	601
Purchase obligations		2,833		2,833		—		—		—
	$	5,112	$	3,245	$	734	$	532	$	601

          We believe that cash and cash equivalents currently on hand as well as cash flows from operations will be sufficient to continue our operations for the foreseeable future. While we anticipate that, beyond the next twelve months, our cash flows from operations will be sufficient to fund our operational requirements, future capital and operating requirements may change and will depend on many factors, including the level of our net sales, the expansion of our sales and marketing activities, the cost of our fulfillment operations and continued market acceptance of our products. We anticipate that the near-term expansion or relocation of our fulfillment facilities will represent a capital expenditure of up to approximately $1.5 million. We could be required, or could elect, to seek additional funding through a public or private equity or debt financing in the future, and this financing may not be available on terms acceptable to us, or at all.

Impact of Inflation

          The effect of inflation and changing prices on our operations was not significant during the periods presented.

Quantitative and Qualitative Disclosures of Market Risk

          The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in short-term, high quality, interest bearing securities. Our investments in debt securities are subject to interest rate risk. To minimize our exposure to an adverse shift in interest rates, we invest in short-term securities and maintain an average maturity of one year or less. We do not believe that a 10% change in interest rates would have a significant impact on our interest income.

33

BUSINESS

Overview

          We are a leading online retailer of high quality diamonds and fine jewelry. We have built a well respected consumer brand by employing an informative sales process that empowers our customers while offering a broad selection of high quality jewelry at competitive prices. Our web site at www.bluenile.com showcases over 30,000 independently certified diamonds and more than 1,000 styles of fine jewelry, including rings, wedding bands, earrings, necklaces, pendants, bracelets and watches.

          We have developed an efficient online cost structure and a supply solution that eliminates traditional layers of diamond wholesalers and brokers, which allows us to purchase most of our product offerings at lower prices by avoiding mark-ups imposed by those intermediaries. Our supply solution enables us to purchase only those diamonds that our customers have ordered. As a result, we are able to minimize the costs associated with carrying diamond inventory and limit our risk of potential mark-downs.

          The significant costs of diamonds and fine jewelry lead consumers to require substantial information and trusted guidance throughout their purchasing process. Our web site and extensively trained customer service representatives improve the traditional purchasing experience by providing education and detailed product information that enable our customers to objectively compare diamonds and fine jewelry products and make informed decisions. Our web site features interactive search functionality that allows our customers to quickly find the products that meet their exact needs from our broad selection of diamonds and fine jewelry.

          Our business has grown considerably since its launch in 1999. For the year ended December 31, 2003, we reported net sales of $128.9 million, an increase of 79% from the prior year, and net income before income taxes of $11.3 million as compared to $1.6 million in the prior year.

Industry Background

The Internet and Online Commerce

          The Internet’s development into a significant global medium for communication, content and commerce has led to substantial growth in online shopping and has provided companies with new opportunities to remove intermediaries from the traditional retail supply chain. According to U.S. eCommerce Overview: 2003 to 2008, Forrester Research, Inc., July 25, 2003, online purchases by U.S. consumers are expected to continue to grow from an estimated $96 billion in 2003 to approximately $230 billion by 2008. This growth is partly a result of the increased awareness of the convenience, selection and product information available through online shopping, continued improvement in network infrastructure and payment security, and growing access to high speed Internet connections that make online shopping increasingly efficient and attractive to consumers.

          The Internet provides a number of distinct advantages to online retailers, including the lower cost of managing and maintaining a web site as opposed to physical storefronts, the ability to efficiently reach and serve a large and geographically dispersed group of customers from a central location, and the potential for personalized low-cost customer interaction. Online retailers can quickly react to changing consumer tastes and preferences by efficiently adjusting their featured selections, editorial content, shopping interfaces, pricing and visual presentations. In addition, online retailers generally do not incur the significant printing and mailing costs of catalog marketing and can more easily compile demographic and behavioral data about their customers that increase opportunities for direct marketing and personalized services. On the other hand, the Internet also provides a number of distinct challenges to online retailers. Online retailers must adequately address concerns about the security of online transactions, the privacy of personal information, delivery time associated with Internet orders, delayed shipments or shipments of incorrect or damaged products and the inconvenience associated with returning or exchanging purchased items.

34

The Diamond and Jewelry Industry

          According to U.S. Census Bureau statistics, 2001 total U.S. retail jewelry sales were approximately $51 billion. Diamonds and diamond jewelry represent a substantial portion of the U.S. retail jewelry market. According to the Jewelers of America 2003 Cost of Doing Business Survey, diamonds and diamond jewelry make up approximately 47% of jewelry sales. Forrester Research estimates that online jewelry and luxury goods sales will grow at a 25% compound annual growth rate from approximately $2 billion in 2003 to $6 billion in 2008.

The Diamond Jewelry Supply Chain

          As illustrated above, the production of diamond jewelry begins with diamond mining and involves multiple intermediaries over a period of up to two years before the product is sold to the end consumer. There is significant concentration at the earliest stage of the diamond jewelry supply chain, with a small number of diamond mining firms responsible for a substantial majority of the world’s diamond mining output. At each successive stage in the diamond jewelry supply chain, the chain becomes increasingly fragmented and cost is added to the product.

          The fragmentation of the jewelry supply chain is most pronounced at the retail level. According to U.S. Census Bureau statistics, jewelry was sold at 126,364 physical locations in the United States in 1997, including over 28,000 locations classified as jewelry stores. Approximately 95% of all retail jewelry firms operate only a single store. In order to supply this fragmented market, there are often several layers of wholesaling that increase retail prices, often with little or no added value.

          Consumers frequently view the purchase of diamonds or fine jewelry as a significant event, and often require substantial information and guidance before completing a purchase. Many of these consumers find the traditional retail jewelry purchasing experience stressful for a number of reasons, including:

•  Emotional Significance. Many purchases of diamonds and fine jewelry are made for presentation during a significant emotional event or occasion such as an engagement, marriage, birthday or anniversary.

•  Significant Cost. The cost of an item of fine jewelry often represents a significant portion of the purchaser’s disposable income.

•  Uncertainty Regarding Pricing. Consumers are frequently skeptical as to whether the listed retail price of a diamond or fine jewelry product is fair, but lack sufficient information to evaluate its fairness or effectively negotiate a better price.

•  Lack of Comparability. Consumers often lack the ability to compare a wide selection of jewelry items, and diamonds in particular, against a set of objective criteria provided by an independent third-party evaluator.

•  Limited Selection. The limited selection of jewelry at a typical retail store requires consumers to visit multiple stores during limited hours or settle for less desired products.

•  High Pressure Environment. Consumers frequently feel pressured towards a purchase by commission-based sales personnel.

•  Limited Ability to Control the Buying Experience. Consumers are frequently limited to the time and information provided to them by in-store sales personnel who may be trying to serve multiple customers simultaneously.

35

Blue Nile’s Value to Customers and Suppliers

          We have developed an innovative, efficient business model that we believe enables us to achieve higher operating margins and returns on invested capital than many traditional jewelry retailers, while providing our customers with fine jewelry at exceptional values. As an online retailer, we do not incur most of the costs associated with operating brick and mortar retail stores. We have also created efficiencies in our supply chain through our supplier relationships, which eliminate multiple intermediaries from the traditional supply chain, including many jewelry manufacturers and several layers of diamond and jewelry wholesalers. This allows us to purchase diamonds at lower prices by eliminating the mark-ups typically imposed by these intermediaries. Our business model also avoids much of the cost associated with carrying diamond inventory and minimizes the risk of potential inventory mark-downs. Unlike most other diamond retailers, we do not hold the diamonds we offer for sale in inventory until we receive customer orders. With limited exceptions, most of the diamonds we display are owned by our suppliers. Upon receipt of a customer order for a specific diamond, we purchase that diamond from our supplier, who generally ships it to us in one business day.

          We are also capitalizing on a compelling market opportunity by enhancing the retail shopping experience and further establishing our well-known and trusted consumer brand in the diamond and fine jewelry market. We believe that consumers’ increasing comfort with purchasing higher priced goods online, combined with the availability of certified third-party diamond grading based on objective criteria, is making the Internet an attractive channel for the dynamic display of these products. We believe the Internet’s information-rich, interactive nature will attract a growing number of consumers seeking more personalized and informed purchasing experiences for diamonds and fine jewelry.

          This compelling model provides substantial value to both our customers and suppliers, including the following:

Value to Customers

•  Detailed Information. We provide convenient access to extensive reliable product information through our web site. We use this information to educate our customers on the general characteristics of diamonds and fine jewelry and the specific attributes of the items they are viewing. On average, our customers view over 200 pages of our web site prior to purchasing a diamond engagement ring. This educational process builds our customers’ confidence in their purchases and empowers them to control their online purchasing experiences.

•  Broad Selection. We offer our customers more than 30,000 high quality diamonds, which can be set in over 100 styles of ring, earring and pendant settings. Each diamond is graded and certified by independent organizations that have no formal relationship with us. In addition, we offer more than 1,000 styles of fine jewelry. Our interactive search functionality allows our customers to efficiently sort through this broad selection.

•  Ability to Customize. Our customers can customize their diamond jewelry purchases by selecting individual diamonds to be set in their choice of ring, earring or pendant settings.

•  Lower Pricing. We are able to offer our customers significantly lower prices than traditional jewelry retailers by eliminating numerous intermediaries in the diamond supply chain, establishing an efficient cost structure and creating incentives for our suppliers to provide us with competitive prices.

•  Knowledgeable Customer Support. Our extensively trained customer service staff is available to provide assistance to our customers throughout the purchase process, creating a customer experience that instills trust and helps customers make informed purchasing decisions. Unlike many traditional retailers, we do not compensate our staff on a commission-based system.

•  Free Shipping and 30-day Return Guarantee. We provide free shipping for all of our products. Substantially all diamond engagement rings are delivered by priority overnight delivery. Orders

36

for in-stock, non-customized jewelry that are placed by 3:00 p.m. Eastern time are generally shipped the same day. Deliveries of customized diamond jewelry products are typically made within four business days of receiving orders. For most items, we offer our customers an unconditional 30-day return policy.

Value to Suppliers

•  Improved Capital Efficiency. We enable our diamond suppliers to substantially increase their inventory turns and improve their returns on invested capital. By displaying their diamonds on our web site, our suppliers efficiently access a nationwide customer base instead of only relying on traditional jewelry retailers that may have a limited ability to carry inventory due to significant capital and merchandising constraints.

•  Lower Management Costs. We believe we are one of the largest purchasers of certified diamonds in the U.S. By enabling our diamond suppliers to drive significant sales volumes through a single account, we allow our suppliers to substantially reduce the costs associated with their sales operations. In addition, we provide a proprietary interactive inventory management system to our suppliers. This system improves the efficiency of their operations by simplifying the administration related to selling and tracking their inventories.

•  Access to Real-time Market Intelligence. Our interactive inventory management system enables suppliers to receive real-time market feedback on demand for their inventories. This system provides suppliers with the information necessary to quickly react to shifting demand for products and to competitively price their inventories.

The Blue Nile Growth Strategy

          Our objective is to become a leading retailer of diamonds and fine jewelry in the U.S. by offering exceptional value to our customers through supply chain efficiencies, an efficient cost structure and a high quality customer experience. Key elements of our growth strategy include:

Increasing Blue Nile Brand Awareness

          We continue to build the Blue Nile brand through online and offline marketing and advertising efforts. We have established and are continuing to develop a brand based on trust, guidance and value, and we believe our customers view Blue Nile as a trusted authority on diamonds and fine jewelry. Our goal is for consumers to seek out the Blue Nile brand whenever they purchase high quality diamonds and fine jewelry.

Focusing on the Customer Experience

          We continue to refine the customer service we provide in every step of the purchase process, from our web site to our customer support and fulfillment operations. The Blue Nile customer experience is designed to empower our customers with knowledge and confidence as they evaluate, select and purchase diamonds and fine jewelry.

Increasing Supply Chain Efficiency

          We continue to build mutually beneficial supply relationships designed to further enhance supply chain efficiencies and provide value to both our customers and suppliers. We intend to continue expanding our supplier network to broaden our selection of diamonds and fine jewelry.

Continuing to Scale our Business to Enhance Profitability

          We have established and will continue to refine our scaleable, lower cost business model that can continue to grow with less working capital than traditional jewelry retailers. We intend to continue

37

improving our profitability by leveraging our relatively fixed cost technology and fulfillment infrastructure as we seek to increase our net sales.

Expanding Product Offerings

          We plan to selectively expand our jewelry offerings, in terms of both price and product mix, through additional customized and non-customized products. The online nature of our business allows us to test new products and efficiently add promising new merchandise to our overall assortment.

Expanding into International Markets

          We intend to selectively pursue opportunities in international markets in which we can leverage our efficient online cost structure and supply solution. We plan to prioritize and pursue these opportunities based on each market’s consumer spending on jewelry, adoption rate of online purchasing and competitive landscape, among other factors.

Merchandising

          Blue Nile merchandise consists of high quality diamonds and fine jewelry, with a particular focus on engagement diamonds and settings. Our online business model, combined with the strength of our supplier relationships, enables us to pursue a dynamic merchandising strategy. Our diamond supplier relationships allow us to display suppliers’ diamond inventories on the Blue Nile web site for purchase without holding the diamonds in our inventory until the products are ordered by customers. Our agreements with suppliers are typically multi-year arrangements with expiration dates ranging from 2004 to 2009 that provide for certain diamonds to be offered online to consumers only through the Blue Nile web site. With limited exceptions, our supplier agreements may only be terminated by either party in the case of material breach upon thirty days notice to the other party. In addition, some of our supplier agreements contain minimum commitment terms that if not met, would allow the supplier to terminate the agreement upon thirty days prior written notice.

          Diamonds represent the most significant component of our product offerings. While we currently offer over 30,000 independently certified diamonds, we limit our diamond offerings to those possessing characteristics associated with high quality merchandise. Accordingly, we offer diamonds with the following characteristics:

•  Shape. Round, princess, emerald, oval, heart, pear, radiant, Asscher and marquise.

•  Cut. Ranging from “Ideal” for diamond cuts that fall within strict mathematical proportions to “Fair” for diamond cuts that maximize the weight of the original stone at the expense of optimal light reflection.

•  Color Grades. Ranging from “D” for no detectable color tone to “J” for nearly undetectable traces of color to the untrained eye.

•  Clarity. Ranging from “FL” for flawless clarity to “SI2” for some visible inclusions or flaws.

•  Carat Weight. Generally ranging from approximately 0.25 to 10 carats.

          Customers may purchase customized diamond jewelry by selecting a diamond and then choosing from a variety of ring, earring and pendant settings that are designed to match the shape of each individual diamond. The customized product is then assembled and delivered to the customer, typically within four business days.

          We offer a broad range of fine jewelry products to complement our selection of high quality customized diamond jewelry. Our selection includes diamond, platinum, gold, pearl and sterling silver jewelry and accessories. Our fine jewelry assortment includes rings, wedding bands, earrings, necklaces, pendants, bracelets and watches. We focus on selected classic designs, which we believe are less susceptible to changing consumer tastes and preferences. We currently have relationships with

38

approximately 60 fine jewelry and watch suppliers from which we source our jewelry and watch merchandise. In the case of fine jewelry, unlike diamonds, we typically take products into inventory before they are ordered by our customers.

Marketing

          We have developed a marketing strategy designed to increase Blue Nile brand recognition, generate consumer traffic, acquire customers at an increasing rate, build a loyal customer base and maximize repeat purchases. Our primary target market is 25 to 45 year-old men, who represent the largest segment of our customer base. We believe these consumers generally seek high quality diamonds and fine jewelry from a trusted source in a non-intimidating environment, where information, guidance, reputation, convenience and value are important characteristics. Our marketing and advertising efforts include online and offline initiatives which primarily consist of the following:

•  Portal and Targeted Web Site Advertising. A primary vehicle for our online advertising is the placement of banner advertisements and optimized search results on web sites with high traffic volumes. We currently maintain advertising relationships with AOL, Google, MSN, Overture and Yahoo. In addition, we advertise on sites that appeal to our target customer base and networks that distribute our banner advertisements to multiple web sites.

•  Affiliate Program. We also acquire customers by offering an affiliate program that is intended to extend the reach of our brand and draw consumers from a variety of other web sites. By joining our affiliate program, operators of other web sites earn commissions and enhance their web sites by providing their visitors access to our content and information as well as our extensive selection of diamonds and fine jewelry.

•  Direct Marketing. We utilize an electronic direct marketing program to encourage repeat purchases and customer retention, generate referral business and provide access to increasing numbers of prospective customers. Once a customer has completed a purchase, we focus on establishing a continuing relationship with that customer in order to encourage repeat purchases. To acquire new customers, we leverage our relationships with existing customers by encouraging them to refer friends and family to Blue Nile. We also utilize permission based email marketing to non-buying visitors who indicate a desire to continue to hear about Blue Nile’s offerings.

Customer Service and Support

          A key element of our sales strategy is our ability to provide a high level of customer service and support. We augment our online information resources with knowledgeable, highly trained support staff to give customers confidence in their purchases. Our commitment to customers is reflected in both the high service levels provided by our extensively trained customer service associates, as well as in our guarantees and policies.

          Our top priority is to provide, on a timely basis, the personalized customer service that fine jewelry customers require. Our customer service staff answers approximately 85% of all calls to our call center within 10 seconds. They are available to provide assistance via e-mail and telephone seven days a week, from 8:00 a.m. to midnight Eastern time on weekdays and from 9:00 a.m. to 10:00 p.m. Eastern time on weekends. Although this schedule accommodates almost all of our call volume, we monitor after-hours calls to determine if service hours need to be extended. Our customer service associates are trained to provide guidance on all steps in the process of buying diamonds and fine jewelry, including, among other things, the process for selecting an appropriate item, the purchase of that item, financing and payment alternatives and shipping services. We also undertake an ongoing customer feedback process to monitor the performance of our customer service associates and improve our overall service and support.

          We prominently display all of our guarantees and policies on our web site to create an environment that is intended to instill confidence in Blue Nile. These include policies relating to privacy, security, product availability, pricing, shipping, refunds, exchanges and special orders.

39

Fulfillment Operations

          Our fulfillment operations strategy is designed to enhance value for our customers by fulfilling orders quickly, securely and accurately. Our fulfillment center has restricted access and security controls and has been designed for the prompt receipt, storage and shipment of our products. To further enhance inventory accountability and security, our inventory management system enables us to track our inventory at all stages of the receiving and order fulfillment process and to replenish stock when necessary.

          When an order for a customized diamond jewelry setting is received, the third-party supplier who holds the diamond in inventory generally ships it to us within one business day. Upon receipt, the merchandise is sent to assembly for setting and sizing, which is performed by our on-site jewelers or independent third-party jewelers with whom we maintain ongoing relationships. We inspect each diamond upon arrival from our suppliers as well as each finished setting or sizing prior to shipment to a customer.

          Prompt and secure delivery of our products is a high priority, and we ship nearly all diamond and fine jewelry products via nationally recognized carriers. Loose diamonds may be shipped by Blue Nile or directly by our suppliers to our customers. All shipments of products for which the cost of goods shipped is over $1,000 are fully insured by a third party in case of loss or theft. We assume the risk of loss or theft on shipments of products for which the cost of goods shipped is less than $1,000. Customer orders are typically delivered within one to six business days, depending on product availability, price point, shipping method and whether the orders require customization.

          For most of our products, we offer an unconditional 30-day return policy, under which customers desiring to return a product receive return authorization by calling our customer service center. Returned products are treated as merchandise receipts and are subject to the same inventory accountability and security steps described above.

Technology and Systems

          We have implemented our inventory, merchandising, order processing and fulfillment, customer interaction and financial reporting systems using a combination of proprietary and licensed technologies. We focus our internal development efforts on creating and enhancing the features and functionality of our web site and order processing and fulfillment systems to deliver a high quality customer experience.

          The Blue Nile web site, and in particular our interactive search functionality and shopping cart, are based on internally developed proprietary technology. Our interactive search functionality allows customers to choose a diamond based on price and characteristics such as shape, cut, color, clarity and carat size. For customers seeking to customize diamond jewelry such as engagement rings, diamond earrings and diamond pendants, our web site provides a step-by-step process for the selection of a diamond followed by a match with a jewelry setting. Our web site uses secure encryption technology to send and receive financial information to prevent unauthorized parties from intercepting such information.

          We have internally developed critical software systems, including our call center systems and vendor extranet. The inventory management systems that we have developed on our vendor extranet include regularly scheduled data communications between us and our key diamond suppliers throughout the day. These communications enable us to accurately track individual diamonds located at our suppliers for efficient delivery.

          We license third-party information technology systems for our financial reporting, inventory, order fulfillment and merchandising. We use redundant Internet carriers to minimize downtime. Our systems are monitored continuously using third-party software and an on-call team is staffed to respond to any emergencies in the technology infrastructure.

Seasonality

          Our business has been highly seasonal, reflecting the retail industry’s general pattern of peak sales in late November and December during the holiday shopping season. The fourth quarter accounted for

40

approximately 35%, 42% and 38% of our net sales in 2001, 2002 and 2003, respectively. In anticipation of increased sales activity during the fourth quarter, we incur significant additional expenses, including customer support and jewelry assembly costs. In addition, we make merchandising and inventory decisions for the holiday season well in advance. We also have experienced relatively higher net sales in February and May relating to Valentine’s Day and Mother’s Day. Due to the seasonality of our sales, our quarterly results will fluctuate, perhaps significantly.

Competition

          The diamond and fine jewelry retail market is intensely competitive and highly fragmented. Our primary competition comes from online and offline retailers that offer products within the higher value segment of the jewelry market. In the future, we may also compete with other retailers that move into the higher value jewelry segment. Current or potential competitors include the following:

•  independent jewelry stores;

•  retail jewelry store chains, such as Tiffany & Co. and Bailey Banks & Biddle;

•  other online retailers that sell jewelry, such as Amazon.com;

•  department stores, chain stores and mass retailers, such as Nordstrom and Neiman Marcus;

•  online auction sites, such as eBay;

•  catalog and television shopping retailers, such as Home Shopping Network and QVC; and

•  discount superstores and wholesale clubs, such as Costco Wholesale and Wal-Mart.

          In addition to these competitors, we may face competition from suppliers of our products that decide to sell directly to our customers, either through physical retail outlets or through an online store.

          We believe that the principal competitive factors in our market are product selection and quality, price, customer service and support, brand recognition, reputation, reliability and trust, web site features and functionality, convenience and delivery performance. We believe that we compete favorably in the market for diamonds and fine jewelry by offering detailed product information, broad product selection, the ability to customize jewelry, lower pricing and knowledgeable customer support to our customers.

Intellectual Property

          We rely on general intellectual property law and contractual restrictions and to a limited extent, copyrights and patents to protect our proprietary rights and technology. These contractual restrictions include confidentiality agreements, invention assignment agreements and nondisclosure agreements with employees, contractors, suppliers and strategic partners. Despite the protection of general intellectual property law and our contractual restrictions, it may be possible for a third-party to copy or otherwise obtain and use our intellectual property without our authorization. In addition, we pursue the registration of our trademarks and service marks in the U.S. and certain other countries. However, effective intellectual property protection may not be available in every country in which our products and services are made available in the future. In the United States and certain other countries, we have registered “Blue Nile,” “bluenile.com,” the BN logo and the Blue Nile BN stylized logo as trademarks. We have also registered copyrights with respect to images and information set forth on our web site and the computer code incorporated in our web site and filed a U.S. patent application relating to certain features of our web site.

          We rely on technologies that we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms in the future. As a result, we may be required to obtain substitute technologies of lower quality or at greater cost, which could materially adversely affect our business, results of operations and financial condition.

41

          Third parties have, and may in the future, assert that our business or the technologies we use infringe upon their rights. We cannot predict whether any such assertions or any claims based on such assertions will harm our business or results of operations. We expect that participants in our market will be increasingly subject to infringement claims as the number of competitors in our industry grows. Any such claim, with or without merit, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into burdensome royalty or licensing agreements.

Government Regulation

          We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally or directly applicable to retailing or online commerce. However, as the Internet becomes increasingly popular, it is possible that a number of laws and regulations may be adopted with respect to the Internet. These laws may cover issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Further, the growth of online commerce may prompt calls for more stringent consumer protection laws. Several states have proposed legislation to limit the uses of personal user information gathered online or require online companies to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online company regarding the manner in which personal information is collected from users and provided to third parties. We do not currently provide individual personal information regarding our users to third parties. However, the adoption of additional privacy or consumer protection laws could create uncertainty in Internet usage and reduce the demand for our products and services.

          We are not certain how our business may be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, taxation, libel, obscenity, qualification to do business and export or import matters. The vast majority of these laws was adopted prior to the advent of the Internet. As a result, they do not contemplate or address the unique issues of the Internet and related technologies. Changes in laws intended to address these issues could create uncertainty for those conducting online commerce. This uncertainty could reduce demand for our products and services or increase the cost of doing business as a result of litigation costs or increased fulfillment costs.

          In addition, because our products and services are available over the Internet in multiple states, certain states may claim that we are required to qualify to do business in such state. Currently, we are qualified to do business only in the State of Washington. Our failure to qualify to do business in a jurisdiction where we are required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in these jurisdictions. The application of laws or regulations from jurisdictions whose laws do not currently apply to our business could harm our business and results of operations.

Employees

          As of April 4, 2004, we employed 113 full-time and 10 part-time employees. From time to time, we also employ independent contractors to support our operations. Our employees are not party to any collective bargaining agreement, and we have never experienced an organized work stoppage. We believe our relations with our employees are good.

Facilities

          All of our facilities are currently located in Seattle, Washington. Our corporate headquarters consists of approximately 21,000 square feet and is subject to a sub-lease which expires in August 2011. We believe that the facility housing our corporate headquarters is adequate to meet our current requirements and that suitable additional or substitute space will be available as needed. Our fulfillment center consists of approximately 10,000 square feet and is subject to a lease that expires in October 2006. We also have 2,500 square feet of additional space under a lease that expires in October 2004. We may

42

relocate our fulfillment operations into a larger facility and/or rent additional space in 2004. We do not expect any such relocation to result in a disruption to our fulfillment operations.

Legal Proceedings

          From time to time, we may be involved in litigation relating to claims rising out of our ordinary course of business. We are not currently a party to any material legal proceedings.

43

MANAGEMENT

Executive Officers and Directors

          The following table sets forth certain information with respect to our executive officers and directors as of April 15, 2004.

Name	Age		Position
Mark Vadon		34	President, Chief Executive Officer and Chairman of the Board
Robert Paquin		57	Chief Operating Officer and Chief Information Officer
Diane Irvine		45	Chief Financial Officer and Director
Susan Bell		46	Vice President of Merchandising
Darrell Cavens		31	Vice President of Development and Chief Technology Officer
Dwight Gaston		35	Vice President of Operations
Barbara Rybka		41	Vice President of Marketing
Joseph Jimenez(1)(2)		44	Director
Mary Alice Taylor(1)(3)		54	Director
Joanna Strober(1)(3)		35	Director
Augustus Tai(2)		38	Director
Brian McAndrews(2)(3)		44	Director

(1)	Member of the Audit Committee.
(2)	Member of the Compensation Committee.
(3)	Member of the Nominating and Corporate Governance Committee.

          Mark Vadon co-founded Blue Nile and has served as President, Chief Executive Officer and Chairman of the Board since inception. From December 1992 to March 1999, Mr. Vadon was a consultant for Bain & Company, a management consulting firm. Mr. Vadon holds a B.A. in Social Studies from Harvard University and an M.B.A. from Stanford University.

          Robert Paquin has served as our Chief Operating Officer and Chief Information Officer since September 1999. From May 1994 to September 1999, Mr. Paquin served as Vice President of Information Services and Senior Vice President of Operations and Information Services at L.L. Bean, Inc., a clothing retailer. From 1992 to 1994, Mr. Paquin served as Senior Vice President and Chief Information Officer at Hanover Direct, Inc., a consumer catalog retailer. From 1989 to 1991, Mr. Paquin served as Vice President of Information Service and Operations at Tweeds, Inc., an apparel catalog company. Mr. Paquin holds a B.A. in Business Administration from Southern Oregon State College.

          Diane Irvine has served as our Chief Financial Officer since December 1999 and as a director since May 2001. From February 1994 to May 1999, Ms. Irvine served as Vice President and Chief Financial Officer of Plum Creek Timber Company, Inc., a timberland management and wood products company. From September 1981 to February 1994, Ms. Irvine served in various capacities, most recently as a partner, with Coopers and Lybrand LLP, an accounting firm. Ms. Irvine holds a B.S. in Accounting from Illinois State University and holds an M.S. in Taxation from Golden Gate University.

          Susan Bell has served as our Vice President of Merchandising since May 2003. Ms. Bell served as our Vice President of Marketing from the time she joined Blue Nile in September 2001 until May 2003. From October 2000 to February 2001, Ms. Bell served as Vice President of Merchandising and Marketing for The Body Shop Digital, an e-commerce company. From July 1984 to July 2000, Ms. Bell served in various capacities at Eddie Bauer, Inc., a clothing and merchandise retail company, most recently as Vice

44

President and General Merchandising Manager. Ms. Bell holds a B.A. in Business Administration from San Francisco State University.

          Darrell Cavens has served as our Vice President of Development since October 2003 and as our Chief Technology Officer since November 2000. From September 1999 to November 2000, Mr. Cavens served as our Director of Technology. From April 1996 to September 1999, Mr. Cavens worked as Staff Engineer within the Advanced Development team at Starwave Corporation, an Internet development company. Mr. Cavens attended the University of Victoria in Canada from 1990 to 1994.

          Dwight Gaston has served as our Vice President of Operations since July 2003. From May 1999 to July 2003, Mr. Gaston served as our Director of Fulfillment Operations. From June 1992 to June 1995 and from August 1997 to May 1999, Mr. Gaston was a consultant with Bain & Company, a management consulting firm. Mr. Gaston holds a B.A. in Economics from Rice University and an M.B.A. from Harvard University.

          Barbara Rybka has served as our Vice President of Marketing since January 2004. From August 2001 to December 2003, Ms. Rybka served as an Engagement Director at Roundarch, Inc., an eCRM consulting firm. From January 2001 to May 2001, Ms. Rybka served as Director, Direct Marketing and Product Planning for BroadBand Office Inc., a communications services company. From May 1992 to January 2001, Ms. Rybka served in various marketing roles, most recently as Head of International Marketing Strategy and Development for the Establishment Services division of American Express Company, a financial services company. Ms. Rybka holds a B.S. in Mathematics from Smith College and an M.B.A. from the International Institute of Management in Switzerland.

          Joseph Jimenez has served as a director since March 2000. Mr. Jimenez has served as Executive Vice President of H.J. Heinz Company, a food products company, since September 2001 and the President and Chief Executive Officer of Heinz Europe since July 2002. From November 1998 to July 2002, Mr. Jimenez served as President and Chief Executive Officer of Heinz North America. Mr. Jimenez holds a B.A. in Economics from Stanford University and an M.B.A. from the University of California, Berkeley. Mr. Jimenez also serves on the board of directors of AstraZeneca PLC, a medicine development company.

          Mary Alice Taylor has served as a director since March 2000. Ms. Taylor is an independent business executive. She held a temporary assignment as Chairman and Chief Executive Officer of Webvan Group, Inc., an e-commerce company, from July 2001 to December 2001. Prior to that, she served as Chairman and Chief Executive Officer of HomeGrocer.com, an e-commerce company, from September 1999 until she completed a sale of the company to Webvan Group, Inc. in October 2000. From January 1997 to September 1999, Ms. Taylor served as Corporate Executive Vice President of Worldwide Operations and Technology for Citigroup, Inc., a financial services organization. Ms. Taylor holds a B.S. in Finance from Mississippi State University. Ms. Taylor also serves on the boards of directors of Exult, Inc., an employee management company, Allstate Corporation, an insurance company, Autodesk Inc., a design software company, and Sabre Holdings, an Internet travel services company.

          Joanna Strober has served as a director since May 1999. Ms. Strober has served as a Managing Director of Symphony Technology Group, an enterprise software investment firm, since January 2002. From April 1996 to December 2002, Ms. Strober held various positions at Bessemer Venture Partners, a private venture capital firm, most recently serving as a General Partner from January 2000 to December 2002. From August 1994 to March 1996, Ms. Strober was an associate at Venture Law Group, a corporate law firm. Ms. Strober holds a B.A. in Political Science from the University of Pennsylvania and a J.D. from the University of California, Los Angeles.

          Augustus Tai has served as a director since January 2003. From May 1996 to present, Mr. Tai has held various positions at Trinity Ventures, a venture capital partnership, most recently serving as a General Partner since September 1998. Mr. Tai holds a B.A. in Applied Mathematics from Harvard University and M.S. degrees from the Massachusetts Institute of Technology’s Department of Materials Science and Engineering and Sloan School of Management.

45

          Brian McAndrews has served as a director since April 2004. Mr. McAndrews has served as Chief Executive Officer and a director of aQuantive, Inc. since September 1999, and as President of aQuantive, Inc. since January 2000. From July 1990 to September 1999, Mr. McAndrews worked for ABC, Inc., a broadcasting and communications company, holding executive positions at ABC Sports, ABC Entertainment and ABC Television Network, and most recently he served as Executive Vice President and General Manager of ABC Sports. From 1984 to 1989, Mr. McAndrews served as a product manager for General Mills, Inc., a leading consumer products manufacturer. Mr. McAndrews holds an M.B.A. from Stanford University and a B.A. from Harvard University.

Board Composition

          In accordance with the terms of our restated certificate of incorporation, following completion of this offering our board of directors will be divided into three classes as follows:

•  Class I consists of Ms. Strober and Mr. Vadon, whose terms will expire at our annual stockholders meeting to be held in 2005;

•  Class II consists of Mr. Tai and Ms. Taylor, whose terms will expire at our annual stockholders meeting to be held in 2006; and

•  Class III consists of Ms. Irvine, Mr. McAndrews and Mr. Jimenez, whose terms will expire at our annual stockholders meeting to be held in 2007.

          At each annual meeting of stockholders after the initial classes are established, the successors to directors whose terms expire at that meeting will be elected to serve from the time of election and qualification until the third annual meeting following election. In addition, our restated certificate of incorporation provides that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors. This division of the board of directors into three classes may have the effect of delaying or preventing changes in control or management.

Board Committees

          Our board of directors has the authority to appoint committees to perform certain management and administrative functions. The board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee.

          Our audit committee currently consists of Ms. Taylor, Mr. Jimenez and Ms. Strober, none of whom is a member of our management. The committee oversees our corporate accounting and financial reporting process. Our audit committee:

•  evaluates the independent auditors’ qualifications, independence and performance;

•  determines the terms of engagement of the independent auditors;

•  approves the retention of the independent auditors to perform any proposed permissible non-audit services;

•  monitors the rotation of partners of the independent auditors on the engagement team as required by law;

•  reviews our financial statements;

•  reviews our critical accounting policies and estimates; and

•  discusses with management and the independent auditors the results of the annual audit and the review of our quarterly financial statements, among other things.

46

          Our board of directors has designated Ms. Taylor, an independent director, as a “financial expert” as such term is defined under applicable Securities and Exchange Commission rules and regulations and the chairperson of our audit committee.

          Our compensation committee currently consists of Messrs. Tai, McAndrews and Jimenez, none of whom is a member of our management. Our compensation committee reviews and recommends to our board of directors the compensation and benefits of all our officers, directors and employees, including reviewing and approving corporate goals and objectives relevant to compensation of the Chief Executive Officer and other executive officers, evaluating the performance of these officers in light of those goals and objectives, and setting compensation of these officers based on such evaluations. The compensation committee also has power and authority to administer and delegate the administration of the issuance of stock options and other awards under our stock plans.

          Our nominating and corporate governance committee currently consists of Ms. Strober, Mr. McAndrews and Ms. Taylor, none of whom is a member of our management. Our nominating and corporate governance committee oversees all aspects of corporate governance functions, makes recommendations to our board of directors regarding candidates to serve as directors, considers stockholder suggestions for director nominations, makes recommendations to the board of directors regarding candidates for successors to the Chief Executive Officer and makes other recommendations to the board of directors regarding corporate governance.

          Our existing committees meet the applicable composition and functioning requirements under the current requirements of the Sarbanes-Oxley Act of 2002, the Nasdaq National Market and Securities and Exchange Commission rules and regulations. We intend to comply with future requirements to the extent they become applicable to Blue Nile.

Compensation Committee Interlocks and Insider Participation

          None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our board of directors or compensation committee. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.

Director Compensation

          Our directors who are also our employees receive no compensation for serving on the board of directors. We have agreed to reimburse our non-employee directors for all reasonable expenses incurred in connection with their duties as directors and provide $10,000 per member in cash consideration annually for serving on our board of directors, an additional $1,000 per member for serving on any committee of our board of directors and an additional $1,000 for serving as chairperson of our audit committee. At the discretion of our board of directors, directors may be permitted to forego all or a portion of their annual $10,000 cash payment for service on the board in exchange for a grant or grants of restricted stock under the 2004 Equity Incentive Plan having a fair market value equal to the amount of foregone cash compensation. Our non-employee directors are also eligible to receive nonstatutory stock option grants under our 2004 Non-Employee Directors’ Stock Option Plan. Under our 2004 Non-Employee Directors’ Stock Option Plan, each non-employee director will receive an initial option grant to purchase 20,000 shares of our common stock upon the effective date of this offering and thereafter any new non-employee director will receive an initial option grant to purchase 20,000 shares of our common stock upon the director’s election or appointment to our board of directors. Each non-employee director will receive an additional option grant to purchase 16,000 shares of our common stock upon full vesting of such initial grant and any such subsequent additional grants. Each non-employee director will receive an annual option grant to purchase 4,000 shares of our common stock on the date following each annual meeting of stockholders, which will be reduced pro rata for each full quarter prior to the grant date during which the

47

director did not serve as a non-employee director. See the “Stock Based Plans — 2004 Non-Employee Directors’ Plan” section below for a further description of our 2004 Non-Employee Directors’ Plan.

Executive Compensation

          The table below summarizes the compensation awarded or paid to, or earned for, services rendered to us in all capacities during 2003, by our Chief Executive Officer and the other four most highly compensated executive officers whose total annual salary and bonus exceeded $100,000. These executives are referred to as the “named executive officers” elsewhere in this prospectus.

Summary Compensation Table

					Long-Term
					Compensation
					Awards
	Annual Compensation				Securities
					Underlying		All Other
Name and Principal Position	Salary		Bonus		Options		Compensation
Mark Vadon Chief Executive Officer	$	249,499	$	100,000		100,000	$	5,107	(1)
Robert Paquin Chief Operating Officer		282,880		100,000		20,000		4,957	(2)
Diane Irvine Chief Financial Officer		249,499		100,000		40,000		5,924	(3)
Susan Bell Vice President of Merchandising		193,000		—		6,000		7,950	(4)
Darrell Cavens Chief Technology Officer		142,125		—		16,000		3,148	(5)

(1)	Of this amount, $4,387 is for matching contributions under our 401(k) plan and $720 is for a transportation allowance.
(2)	Amount paid for matching contributions under our 401(k) plan.
(3)	Of this amount, $5,204 is for matching contributions under our 401(k) plan and $720 is for a transportation allowance.
(4)	Of this amount, $3,872 is for matching contributions under our 401(k) plan, $720 is for a transportation allowance and $3,358 is for medical insurance premiums for dependents.
(5)	Of this amount, $2,848 is for matching contributions under our 401(k) plan and $300 is for a transportation allowance.

Stock Options

          The following table sets forth certain information with respect to stock options granted to each of our named executive officers during 2003, including the potential realizable value, which is the exercise price before taxes associated with exercise, over the entire term of the options assuming options are exercised at the end of their terms, based on assumed annual rates of stock appreciation of 5% and 10%, compounded annually, and based on the fair market value on the date of grant as determined by our board of directors. These assumed rates of appreciation comply with the rules of the Securities and Exchange Commission and do not represent our estimate of future stock prices. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock.

          Options granted in 2003 to the named executive officers were granted under our 1999 Equity Incentive Plan, the material terms of which are further described below. All options granted to the named executive officers are options to purchase common stock. The option grants vest as to 25% of the shares subject to the option one year from the date of grant and one-forty-eighth of the shares subject to the option vest on a monthly basis thereafter. Upon designated change in control events of Blue Nile, if the surviving entity does not agree to assume the options or substitute similar options, this vesting will

48

accelerate as to all shares that are then unvested. In addition, in the event of certain stock sales and other change in control events, all options held by current employees, directors and consultants may be subject to accelerated vesting, either as to an additional eighteen months or in full. This accelerated vesting may discourage, delay or prevent a change in control in the ownership of Blue Nile, Inc. Each option expires ten years from the date of grant, subject to earlier termination if the optionee’s service with us ceases. Options granted to certain of the named executive officers are subject to additional acceleration provisions as described in the “Change of Control Provisions” section below.

          The exercise price per share of each option granted was equal to the fair market value of the underlying common stock as determined by our board of directors on the date of the grant.

Option Grants in 2003

	Individual Grants
										Potential Realizable
	Number									Value at Assumed
	of									Annual Rates of Stock
	Securities		Percent of							Price Appreciation for
	Underlying		Total Options			Exercise				Option Term
	Options		Granted			Price		Expiration
Name	Granted		in 2003			Per Share		Date		5%		10%
Mark Vadon		100,000		26.4	%	$	8.75		10/9/2013	$	550,283	$	1,394,525
Robert Paquin		20,000		5.3			8.75		10/9/2013		110,057		278,905
Diane Irvine		40,000		10.6			8.75		10/9/2013		220,113		557,810
Susan Bell		6,000		1.6			8.75		10/9/2013		33,017		83,671
Darrell Cavens		16,000		4.2			8.75		10/9/2013		88,045		223,124

          The following table sets forth option exercises during 2003 and the number of shares of our common stock subject to vested and unvested stock options held by each of our named executive officers as of December 31, 2003.

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

					Number of Securities				Value of Unexercised
					Underlying Unexercised Options				In-the-Money Options
	Shares				at December 31, 2003				at December 31, 2003
	Acquired		Value
Name	on Exercise		Realized(1)		Exercisable		Unexercisable		Exercisable(1)		Unexercisable
Mark Vadon		110,000	$	2,004,750		30,000		200,000	$	546,750	$	3,645,000
Robert Paquin		299,999		5,474,982		169,001		65,000		3,084,268		1,186,250
Diane Irvine		266,943		4,871,710		43,890		89,167		800,983		1,627,280
Susan Bell		55,124		438,000		19,084		67,792		1,089,361		509,303
Darrell Cavens		24,000		1,006,013		59,691		27,909		348,283		1,237,186

(1)  There was no public trading market for our common stock as of December 31, 2003. Accordingly, as permitted by the rules of the Securities and Exchange Commission, these values have been calculated based on an assumed initial public offering price of $18.50 per share, minus the exercise price, multiplied by the number of shares issued upon the exercise of the option.

Employment Agreements

          Each of our named executive officers, except for Mr. Vadon, have signed offer letters. These offer letters provide that the officer is an at-will employee. These offer letters also provide for salary and stock option grants, as well as other customary benefits and terms. Mr. Paquin’s offer letter provides that if his employment is terminated without cause, he will continue to receive his then base salary for six months following the termination date.

49

Change of Control Provisions

          Options to purchase 126,000 shares of our common stock granted to Ms. Bell in 2001, options to purchase an aggregate of 170,000 shares of our common stock granted to Mr. Paquin in 2002 and 2003, options to purchase an aggregate of 200,000 shares of our common stock granted to Ms. Irvine in 2002 and 2003, and options to purchase an aggregate of 340,000 shares of our common stock granted to Mr. Vadon in 2002 and 2003 are subject to accelerated vesting, if, within 12 months following a change of control, the employee:

•  is terminated without cause;

•  voluntarily terminates continuous service following a material reduction in such employee’s responsibilities and duties without cause; or

•  voluntarily terminates continuous service following a relocation of the principal place where such employee’s responsibilities and duties are performed outside of a specified radius.

          All options to purchase common stock issued to our named executive officers are also subject to accelerated vesting upon a change of control as described in the “Stock Based Plans — 1999 Equity Incentive Plan” section below.

Stock Based Plans

1999 Equity Incentive Plan

          We initially adopted, and our stockholders initially approved, our 1999 Equity Incentive Plan (the 1999 plan) on April 17, 1999. The 1999 plan was last amended and restated by our board of directors on July 23, 2002, and our stockholders approved the amendment and restatement on August 23, 2002. Upon the effective date of this offering, no further option grants will be made under the 1999 plan. The 1999 plan provides for the grant of incentive stock options, nonstatutory stock options, stock bonuses and restricted stock awards, which may be granted to employees, including officers, non-employee directors and consultants, except that incentive stock options may be granted only to employees.

          Share Reserve. An aggregate of 3,310,400 shares of common stock are reserved for issuance under the 1999 plan. As of April 4, 2004, outstanding options to purchase a total of 1,417,343 shares of our common stock were held by participants under the 1999 plan, and 214,177 shares remain available for grant. No additional awards will be granted under the 1999 plan after the effective date of this offering.

          Shares issued under the 1999 plan may be previously unissued shares or reacquired shares bought on the market or otherwise.

          Administration. The board of directors administers the 1999 plan. The board of directors may delegate authority to administer the 1999 plan to a committee. Subject to the terms of the 1999 plan, the plan administrator (our board of directors or its authorized committee) determines recipients, grant dates, the numbers and types of equity awards to be granted and the terms and conditions of the equity awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the plan administrator will also determine the exercise price of options granted and the purchase price for rights to purchase restricted stock.

          Incentive Stock Options. Incentive stock options are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code. Incentive stock options are granted pursuant to incentive stock option agreements. The plan administrator determines the exercise price for an incentive stock option, which may not be less than 100% of the fair market value of the stock underlying the option determined on the date of grant. Notwithstanding the foregoing, incentive stock options granted to employees who own, or are deemed to own, more than 10% of our voting stock, must have an exercise price not less than 110% of the fair market value of the stock underlying the option determined on the date of grant.

50

          Nonstatutory Stock Options. Nonstatutory stock options are granted pursuant to nonstatutory stock option agreements. The plan administrator determines the exercise price for a nonstatutory stock option, which may not be less than 85% of the fair market value of the stock underlying the option determined on the date of grant.

          Incentive and Nonstatutory Stock Options. Options granted under the 1999 plan vest at the rate specified in the stock option agreement.

          The plan administrator generally determines the term of options granted under the 1999 plan. Incentive stock options have a maximum term of 10 years provided that incentive stock options granted to stockholders possessing 10% or more of the total combined voting power of the company have a maximum term of five years. Unless the terms of an optionee’s stock option agreement provide otherwise, if an optionee’s service relationship with us, or any of our affiliates, ceases due to disability or death or the optionee dies within a specified period after the termination of service, the optionee, or his or her beneficiary, may exercise any vested options for a period of 12 months in the event of disability or 18 months in the event of death, after the date such service relationship ends or after death, as applicable. If an optionee’s relationship with us, or any of our affiliates, ceases for any reason other than disability or death, the optionee may exercise any vested options for a period of three months from cessation of service, unless the terms of the stock option agreement provide for earlier or later termination. However, in no event may an option be exercised after the expiration of its term, as set forth in the stock option agreement.

          Acceptable consideration for the purchase of common stock issued upon the exercise of an option includes cash, and if is determined by the plan administrator, may also include common stock previously owned by the optionee, a deferred payment arrangement or other legal consideration approved by the plan administrator.

          Incentive stock options are not transferable other than by will or the laws of descent and distribution. A nonstatutory stock option generally is not transferable other than by will or the laws of descent and distribution unless the nonstatutory stock option agreement provides otherwise. However, an optionee may designate a beneficiary who may exercise an incentive or nonstatutory option following the optionee’s death.

          Stock Bonuses and Restricted Stock Awards. Stock bonuses and restricted stock awards are granted pursuant to stock bonus agreements and restricted stock purchase agreements, respectively. Stock bonus awards are generally granted in consideration for the awardholder’s past services. The purchase price for restricted stock awards must not be less than 85% of the fair market value of the stock on the date the award is made or at the time of purchase. The purchase price for a restricted stock award may be payable in cash, according to a deferred payment arrangement at the discretion of the plan administrator, or any form of legal consideration approved by the plan administrator. Rights to acquire shares under a stock bonus or restricted stock award may be transferable only to the extent provided in the stock bonus or restricted stock purchase agreement.

          Changes to Capital Structure. In the event that there is a certain type of change in the capital structure of the company, such as a stock split, the number of shares reserved under the plan and the number of shares and exercise price or strike price, if applicable, of all outstanding awards will be appropriately adjusted.

          Effect of a Change in Control. In the event of certain corporate transactions, all outstanding stock awards under the 1999 plan may be assumed or substituted for by any surviving or acquiring entity. If the surviving or acquiring corporation does not assume or substitute for such awards, then, for awardholders who are then providing services to us or our affiliates, the vesting and exercisability of the awards will accelerate fully, and the awards will terminate immediately prior to the occurrence of the corporate transaction. The vesting and exercisability of awards held by awardholders who are no longer providing services to us or one of our affiliates will not accelerate and will terminate immediately prior to the occurrence of the corporate transaction.

51

          In the event that any surviving or acquiring entity either assumes all outstanding stock awards under the incentive plan or substitutes other awards for the outstanding stock awards, the vesting of such assumed or substituted awards for those awardholders whose continuous service has not terminated prior to the closing of such corporate transaction generally shall accelerate as follows:

•  any portion of the stock award not subject to monthly vesting, but subject to vesting based on the expiration of a one year period (“cliff vesting”) will be treated as if the award had vested ratably on a monthly basis from the vesting commencement date; and

•  the lesser of twelve and 12.5% of all shares subject to such stock awards, or an amount equal to the remaining unvested shares will vest upon the closing of such corporate transaction.

          If, after this offering is completed, any person or entity, or group thereof acting together, acquires shares representing at least 50% of the voting power entitled to vote in the election of our directors, other than in certain corporate transactions, the vesting and exercisability of the awards will accelerate in full for awardholders who are then providing services to us or our affiliates.

          Accelerated vesting of awards under the 1999 plan may discourage, delay or prevent a change in control of Blue Nile.

2004 Equity Incentive Plan

          Our board of directors adopted our 2004 Equity Incentive Plan (the incentive plan) in March 2004 and our stockholders approved it in                     2004. The incentive plan will become effective upon the effective date of this offering. Unless sooner terminated by the board of directors, the incentive plan will terminate on the day before the tenth anniversary of the date the incentive plan is adopted by the board of directors or approved by our stockholders, whichever is earlier. The incentive plan provides for the grant of nonstatutory stock options, restricted stock awards, stock appreciation rights, restricted stock units and other forms of equity compensation, which may be granted to employees, including officers, non-employee directors and consultants.

          Share Reserve. The aggregate number of shares of common stock that may be issued pursuant to awards granted under the incentive plan is 2,560,000 shares, which amount will be increased annually on January 1st of each year, from 2005 until 2014, by five percent of the number of shares of common stock outstanding on such date. However, the board of directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased. As of the date hereof, no shares of common stock have been issued under the incentive plan.

          The following types of shares issued under the incentive plan may again become available for the grant of new awards under the incentive plan: restricted stock issued under the incentive plan or the 1999 plan that is forfeited or repurchased prior to it becoming fully vested; shares withheld for taxes; shares used to pay the exercise price of an option in a net exercise; shares tendered to us to pay the exercise price of an option; and shares subject to awards issued under the incentive plan or the 1999 plan that have expired or otherwise terminated without having been exercised in full. Shares issued under the incentive plan may be previously unissued shares or reacquired shares bought on the market or otherwise.

          Administration. The board of directors will administer the incentive plan. The board of directors may delegate authority to administer the incentive plan to a committee. Subject to the terms of the incentive plan, the plan administrator (our board of directors or its authorized committee) determines recipients, grant dates, the numbers and types of equity awards to be granted and the terms and conditions of the equity awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the plan administrator will also determine the exercise price of options granted, the purchase price for rights to purchase restricted stock and, if applicable, restricted stock units and the strike price for stock appreciation rights.

          Nonstatutory Stock Options. Nonstatutory stock options are granted pursuant to nonstatutory stock option agreements. The plan administrator determines the exercise price for a nonstatutory stock option, which may not be less than 50% of the fair market value of the stock underlying the option

52

determined on the date of grant. Options granted under the incentive plan vest at the rate determined by the board of directors and specified in the stock option agreement.

          The plan administrator determines the term of nonstatutory stock options granted under the incentive plan. Unless the terms of an optionee’s nonstatutory stock option agreement provide otherwise, if an optionee’s service relationship with us, or any of our affiliates, ceases due to disability or death or the optionee dies within a specified period after termination of service, the optionee, or his or her beneficiary, may exercise any vested options for a period of 12 months in the event of disability or 18 months in the event of death, after the date such service relationship ends or after death, as applicable. If an optionee’s relationship with us, or any of our affiliates, ceases for any reason other than disability or death, the optionee may exercise any vested options for a period of three months from cessation of service, unless the terms of the stock option agreement provide for earlier or later termination. However, in no event may an option be exercised after the expiration of its term, as set forth in the stock option agreement.

          Acceptable consideration for the purchase of common stock issued upon the exercise of a nonstatutory stock option will either be cash or determined by the plan administrator and may also include common stock previously owned by the optionee, a deferred payment arrangement past services rendered, a broker assisted exercise, the net exercise of the option or other legal consideration approved by the plan administrator.

          Generally, an optionee may not transfer a nonstatutory stock option other than by will or the laws of descent and distribution unless the nonstatutory stock option agreement provides otherwise. However, an optionee may designate a beneficiary who may exercise the option following the optionee’s death.

          Restricted Stock Awards. Restricted stock awards are granted pursuant to restricted stock award agreements. The purchase price for restricted stock awards must be at least equal to the par value of the common stock. The purchase price for a restricted stock award may be payable in cash, by the recipient’s services performed or to be performed for us, according to a deferred payment arrangement at the discretion of the plan administrator or any other form of legal consideration approved by the plan administrator. Restricted Stock Awards may be subject to a repurchase right in accordance with a vesting schedule determined by the board of directors. Rights to acquire shares under a restricted stock award may be transferable only to the extent provided in a restricted stock award agreement.

          Stock Appreciation Rights. Stock appreciation rights are granted pursuant to stock appreciation right agreements. The plan administrator determines the strike price for a stock appreciation right. A stock appreciation right granted under the incentive plan vests at the rate specified in the stock appreciation right agreement.

          The plan administrator determines the term of stock appreciation rights granted under the incentive plan. If an awardholder’s relationship with us, or any of our affiliates, ceases for any reason, any unvested stock appreciation rights will be forfeited and any vested stock appreciation rights will be automatically redeemed.

          Restricted Stock Units. Restricted stock units are granted pursuant to restricted stock unit agreements. A restricted stock unit may require the payment of at least par value of the common stock. Payment of any purchase price may be made in cash or shares of common stock, or in any combination of cash and shares. Dividend equivalents may be credited in respect of restricted stock units, as determined by the plan administrator. Such dividend equivalents may be converted into additional restricted stock units based on the fair market value of the common stock on the payment date of such dividend. As determined by the plan administrator, the vesting of restricted stock units may be subject to certain restrictions or conditions and the plan administrator may impose certain restrictions or conditions that may delay delivery of the shares or their cash equivalent after vesting. If an awardholder’s relationship with us or any of our affiliates ceases for any reason, any unvested restricted stock units will be forfeited.

          Other Equity Awards. The plan administrator may grant other awards based in whole or in part by reference to our common stock. The plan administrator will determine the number of shares under the

53

award, the purchase price, if any, the timing of exercise and vesting and any repurchase rights associated with such awards.

          Changes to Capital Structure. In the event that there is a certain type of change in the capital structure of the company, such as a stock split, the number of shares reserved under the plan and the number of shares and exercise price or strike price, if applicable, of all outstanding awards will be appropriately adjusted.

          Changes in Control. In the event of certain corporate transactions, all outstanding options and other awards under the incentive plan may be assumed, continued or substituted for by any surviving or acquiring entity. If the surviving or acquiring entity elects not to assume, continue or substitute for such awards, the vesting of such awards held by awardholders whose service with us or any of our affiliates has not terminated will be accelerated and such awards will be terminated if not exercised prior to the effective date of the corporate transaction. Restricted stock awards may have their repurchase or forfeiture rights assigned to the surviving or acquiring entity. If such repurchase or forfeiture rights are not assigned, then such awards held by awardholders whose service with us or any of our affiliates has not terminated will become fully vested. All other awards will terminate if not exercised prior to such corporate transaction. In the event of certain changes in control, the vesting and exercisability of certain awards may be accelerated if the awardholder’s award agreement so specifies.

2004 Non-Employee Directors’ Stock Option Plan

          Our board of directors adopted our 2004 Non-Employee Directors’ Stock Option Plan (the directors’ plan) in March 2004 and our stockholders approved it in                     2004. The directors’ plan will become effective upon the effective date of this offering. The directors’ plan will provide for the automatic grant of nonstatutory stock options to purchase shares of common stock to our non-employee directors.

          Share Reserve. The aggregate number of shares of common stock that may be issued pursuant to options granted under the directors’ plan is 400,000 shares, which amount will be increased annually on January 1st of each year, from 2005 and until 2014, by the number of shares of common stock subject to options granted during the prior calendar year. However, the board of directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased. As of the date hereof, no shares of common stock have been issued under the directors’ plan.

          Administration. The board of directors will administer the directors’ plan. The exercise price of the options granted under the directors’ plan will be equal to the fair market value of the underlying common stock on the date of grant. No option granted under the directors’ plan may be exercised after the expiration of ten years from the date it was granted. Options granted under the directors’ plan generally are not transferable other than by will or by the laws of descent and distribution and are exercisable during the life of the optionee only by the optionee. However, an option may be transferred for no consideration upon written consent of the board of directors if (i) a Form S-8 registration statement is available at the time of transfer for the issuance of shares upon exercise of the transferred option or (ii) the transfer is to the optionee’s employer or its affiliate at the time of transfer. In addition, an optionee may designate a beneficiary who may exercise the option following the optionee’s death. An optionee whose service relationship with us or any of our affiliates (whether as a non-employee director of the company or subsequently as an employee, director or consultant of either the company or an affiliate) ceases for any reason may exercise vested options for the term provided in the option agreement, three months generally, 12 months in the event of disability and 18 months in the event of death. However, in no event may an option be exercised after the expiration of its term, as set forth in the stock option agreement.

          Automatic Grants. Pursuant to the terms of the directors’ plan, on the effective date of this offering, each non-employee director will automatically be granted an initial grant to purchase 20,000 shares of common stock. The initial grant will vest monthly with respect to 1/30th of the shares subject to the grant for the first 12 months following the date of grant and 1/60th of the shares subject to the grant for the subsequent 36 months. Any individual who becomes a non-employee director after this offering will automatically be granted an initial grant to purchase the same number of shares with the same vesting

54

schedule upon being elected or appointed to the board of directors. Upon full vesting (other than upon a corporate transaction or change of control) of each non-employee director’s initial grant, such director will be granted an additional grant to purchase 16,000 shares of common stock that will vest in equal monthly installments over four years. Each non-employee director who receives any such additional grant will be granted a subsequent additional grant upon full vesting (other than upon a corporate transaction or change of control) of any previous additional grant. Any person who is a non-employee director on the date after an annual meetings of our stockholders automatically will be granted an annual grant to purchase 4,000 shares of common stock on such date; provided, however, that each non-employee director who has been a non-employee director for less than 12 months at the time of the annual meeting of our stockholders will receive an annual grant that has been reduced pro rata for each full quarter prior to the date of grant during which such person did not serve as a non-employee director. Annual grants will vest in equal monthly installments over the 12 months following the date of grant.

          Changes to Capital Structure. In the event that there is a certain type of change in the capital structure of the company, such as a stock split, the number of shares reserved under the plan and the number of shares and exercise price of all outstanding nonstatutory stock options will be appropriately adjusted.

          Changes in Control. In the event of certain corporate transactions, all outstanding options under the directors’ plan may be either assumed, continued or substituted for by any surviving entity. If the surviving or acquiring entity elects not to assume, continue or substitute for such options, the vesting and exercisability of options held by optionees whose service with us or any of our affiliates has not terminated will be accelerated in full and such options will be terminated if not exercised prior to the effective date of such corporate transaction. All other options will terminate if not exercised prior to such corporate transaction. In the event of certain changes of control, the vesting and exercisability of outstanding options under the directors’ plan shall be accelerated in full.

2004 Employee Stock Purchase Plan

          Our board of directors adopted our 2004 Employee Stock Purchase Plan, the purchase plan, in March 2004 and our stockholders adopted it in                     2004. The purchase plan will become effective after this offering as determined by our board of directors.

          Share Reserve. The purchase plan authorizes the issuance of 1,000,000 shares of common stock pursuant to purchase rights granted to our employees or to employees of any of our affiliates that we designate as being eligible to participate, which amount will be increased on January 1st of each year following the year in which we commence our first offering under the purchase plan and for 20 years by the lesser of 320,000 shares or one and one half percent of the number of shares of common stock outstanding on each such date. However, the board of directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased on such date. The purchase plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. As of the date hereof, no shares of common stock have been purchased under the purchase plan.

          Administration. The board of directors will administer the purchase plan, but such administration may be delegated to a committee of the board of directors. The purchase plan provides a means by which employees may purchase our common stock. The purchase plan is implemented by offerings of rights to eligible employees. Under the purchase plan, we may specify offerings with a duration of not more than 27 months, and may specify shorter purchase periods within each offering. The first offering under the purchase plan will begin after the effective date of this offering, as determined by the board of directors. Unless otherwise determined by the board of directors, common stock is purchased for accounts of employees participating in the purchase plan at a price per share equal to the lower of (i) 85% of the fair market value of a share of our common stock on the date of commencement of the offering or (ii) 85% of the fair market value of a share of our common stock on the date of purchase. Generally, all regular employees, including executive officers, who are customarily employed by us or by any of our designated

55

affiliates for more than 20 hours per week and more than five months per calendar year may participate in the purchase plan and may contribute (normally through payroll deductions) up to 10% of their earnings for the purchase of common stock under the purchase plan, as determined by the board of directors.

          Limitations. Eligible employees may be granted rights only if the rights, together with any other rights granted under other employee stock purchase plans do not permit such employee’s rights to purchase our stock to accrue at a rate which exceeds $25,000 of the fair market value of such stock for each calendar year in which such rights are outstanding. No employee shall be eligible for the grant of any rights under the purchase plan if immediately after such rights are granted, such employee owns stock possessing five percent or more of our outstanding capital stock measured by vote or value.

          Changes to Capital Structure. In the event that there is a certain type of change in the capital structure of the company, such as a stock split, the number of shares reserved under the plan and the number of shares and purchase price of all outstanding purchase rights will be appropriately adjusted.

          Changes in Control. In the event of certain corporate transactions, all outstanding rights to purchase our stock under the purchase plan will be assumed, continued or substituted for by the surviving or acquiring entity. If the surviving or acquiring entity elects not to assume, continue or substitute rights, then the participants’ accumulated contributions will be used to purchase shares of our common stock within five days prior to such corporate transaction and such purchase rights will terminate immediately thereafter.

401(k) Plan

          We maintain a deferred savings retirement plan for our U.S. employees. The deferred savings retirement plan is intended to qualify as a tax-qualified plan under Section 401 of the Internal Revenue Code. Contributions to the deferred savings retirement plan are not taxable to employees until withdrawn from the plan. The deferred savings retirement plan provides that each participant may contribute up to 15% of his or her pre-tax compensation (up to a statutory limit, which is $13,000 in 2004). Under the plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee. The retirement and deferred savings plan also permits us to make discretionary contributions (including matching contributions), subject to established limits and a vesting schedule.

Limitations on Directors’ and Executive Officers’ Liability and Indemnification

          Our restated certificate of incorporation and amended and restated bylaws provide that we shall indemnify our directors and executive officers to the fullest extent permitted by Delaware law, except with respect to some specific proceedings initiated by such persons. We are also empowered under our amended and restated bylaws to enter into indemnification contracts with our directors and executive officers. We are similarly authorized to purchase insurance on behalf of any person it is required or permitted to indemnify.

          The restated certificate of incorporation also provides that, after its approval by our stockholders, if the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. The provision does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

          In addition to the indemnification provided for in our restated certificate of incorporation and amended and restated bylaws, we have entered into agreements to indemnify our directors and executive officers. These agreements, among other things, indemnify our directors and executive officers for expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by any director or executive officer in any action or proceeding, including any action by us arising out of services as one of our directors or executive officers, any of our subsidiaries or any other company or enterprise to which the director or executive officer provides services at our request. We believe that these provisions and agreements are

56

necessary to attract and retain qualified persons as directors and executive officers. We also intend to maintain liability insurance for our officers and directors.

          The limitation of liability and indemnification provisions in our restated certificate of incorporation and amended and restated bylaws may discourage a stockholder from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

CERTAIN TRANSACTIONS

Stock Sales

          Since January 1, 2001, the following executive officers, directors and holders of more than five percent of our voting securities purchased securities in the amounts as of the dates set forth below.

			Series E
			Convertible
	Common		Preferred		Price Per		Date of
Name	Stock		Stock		Share		Purchase
Directors and Executive Officers
Mark Vadon		110,000		—		$0.28		07/01/03
Robert Paquin		299,999		—		0.25		07/01/03
Diane Irvine		266,943		—		0.25		07/01/03
Darrell Cavens		24,000		—		0.25		07/08/03
Dwight Gaston		10,000		—		0.25		01/07/03
Dwight Gaston		8,000		—		0.5		08/05/03
Dwight Gaston		4,800		—		0.25		01/05/04
Susan Bell		55,124		—		0.25		07/01/03
Susan Bell		4,734		—		0.25		02/06/04
5% Stockholders
Entities affiliated with Trinity Ventures		—		969,220		1.90		06/29/01
Entities affiliated with Bessemer Venture Partners		—		969,220		1.90		06/29/01
KPCB Holdings, Inc.		—		735,560		1.90		06/29/01
Funds managed by Lightspeed Venture Partners		—		314,341		1.90		06/29/01
Entities affiliated with Integral Capital Partners		—		232,613		1.90		06/29/01
Vulcan Ventures Incorporated		—		261,951		1.90		06/29/01

          We sold the Series E convertible preferred stock to the above referenced stockholders and their affiliated entities pursuant to a preferred stock purchase agreement and an investors’ rights agreement on substantially the same terms as the other purchasers of Series E convertible preferred stock, which included registration rights, information rights, and right of first refusal, among other provisions standard in venture capital financings. The information rights and right of first refusal terminate upon the closing of this offering.

          Mr. Tai, one of our directors, is a General Partner of Trinity Ventures and may be deemed to beneficially own the shares held by entities affiliated with Trinity Ventures.

Note Payable

          In May 1999, we acquired certain assets and liabilities of Williams & Son, Inc., a retail jewelry business. Concurrent with the purchase agreement, we also entered into a non-compete agreement with

57

Douglas B. Williams, the founder of Williams & Son, Inc. The non-compete agreement provided future payments of $955,000 in each of May 2001 and 2002, and was conditioned upon the continued employment of Mr. Williams with us. In October 2000, the employment condition was removed and Mr. Williams left us. On June 25, 2001, the agreement was amended to state that $250,000 was to be paid on or before June 10, 2001, $1,390,000 would be paid on May 21, 2002 and the remaining $270,000 would be converted to 141,454 shares of Series E mandatorily redeemable convertible preferred stock on May 21, 2002. On May 21, 2002, the payment terms were amended again such that $250,000 was to be paid on or before May 21, 2003, $890,000 was to be paid on or before May 21, 2004 and the 141,454 shares of Series E mandatorily redeemable convertible preferred stock would be issued on or before May 21, 2004. The note accrued interest at the rate of 12% per annum through May 21, 2003 and 14% per annum thereafter. In April 2003, we repaid the entire outstanding balance under this note and issued the Series E mandatorily redeemable convertible preferred stock.

Director and Officer Indemnification

          Our restated certificate of incorporation contains provisions limiting the liability of directors. In addition, we have entered into agreements to indemnify our directors and executive officers to the fullest extent permitted under Delaware law. See “Limitations on Directors’ and Executive Officers’ Liability and Indemnification.”

PRINCIPAL AND SELLING STOCKHOLDERS

          The following table sets forth information regarding the beneficial ownership of our common stock as of April 4, 2004, by the following individuals, entities or groups:

•  each person or entity who we know beneficially owns more than five percent of our outstanding common stock;

•  each of the named executive officers;

•  each of the selling stockholders;

•  each of our directors; and

•  all directors and executive officers as a group.

          Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the shares. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after April 4, 2004, are deemed outstanding, while the shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by them.

          Applicable percentage ownership in the following table is based on 15,341,239 shares of common stock outstanding as of April 4, 2004 and 17,341,239 shares of common stock outstanding immediately following the completion of this offering, as adjusted to reflect the conversion of all outstanding shares of convertible preferred stock into shares of common stock upon the closing of this offering. The numbers shown in the table below assume no exercise by the underwriters of their overallotment option. Unless otherwise indicated, the address for each of the stockholders in the table below is c/o Blue Nile, Inc., 705 Fifth Avenue S, Suite 900, Seattle, WA 98104.

58

Principal and Selling Stockholders Table

					Percentage of
	Number of		Number of		Shares Outstanding
	Shares		Shares to be
	Beneficially		Sold in the		Before			After
Name	Owned		Offering		Offering			Offering
5% Stockholders(1)
Entities affiliated with Bessemer Ventures(2)		2,858,121		248,607		18.6	%		15.1	%
KPCB Holdings, Inc.		2,169,305		188,693		14.1			11.4
Funds managed by Trinity Ventures(3)		2,858,119		248,608		18.6			15.1
Entities affiliated with Lightspeed Venture Partners (4)		1,105,435		96,153		7.2			5.8
Vulcan Ventures Incorporated		967,305		84,139		6.3			5.1
Douglas B. Williams(5)		942,597		506,761		6.1			2.5
Selling Stockholders(6)
Comdisco Ventures Fund A, LLC(7)		76,641		5,219		*		*
Entities affiliated with Integral Capital Partners(8)		686,352		59,702		4.5	%		3.6	%
Karr Family 1982 Trust(9)		766		130		*		*
Cynthia Karr(10)		382		64		*		*
Elizabeth A. Karr(11)		382		64		*		*
The Henriquez Family Trust(12)		3,298		2,869		*		*
Larry Elowitz(13)		722,298		298,991		4.7			2.4
Directors and Executive Officers
Mark Vadon(14)		1,741,928		—		11.3	%		10.0	%
Diane Irvine(15)		324,020		—		2.1			1.9
Susan Bell(16)		88,375		—		*		*
Robert Paquin(17)		484,625		—		3.1			2.8
Darrell Cavens(18)		90,516		—		*		*
Joanna Strober(19)		—		—		—			—
Augustus Tai(20)		2,858,119		248,608		18.6			15.1
Joseph Jimenez(21)		19,166		—		*		*
Mary Alice Taylor(22)		19,166		—		*		*
All directors and officers as a group (10 persons) (23)		5,701,289		248,608		36.0			32.0

     *  Less than 1% of the outstanding shares of common stock.

(1)	Messrs. Vadon and Tai are also holders of greater than five percent of our outstanding shares of common stock.
(2)	Includes 1,143,248 shares held by Bessec Ventures IV L.P. and 1,714,873 shares held by Bessemer Venture Partners IV L.P. (“BVP IV”). William T. Burgin, David J. Cowan, Christopher F. O. Gabrieli and G. Felda Hardymon are the managing members of Deer IV & Co. LLC, the general partner of these funds and have shared voting and investment authority over these shares. However, William T. Burgin, David J. Cowan, Christopher F. O. Gabrieli and G. Felda Hardymon disclaim beneficial ownership of these shares except to the extent of their pecuniary interest arising therein. The address for the entities affiliated with Bessemer Ventures is 1865 Palmer Avenue, Larchmont, NY 10538.
(3)	Includes 2,726,743 shares held by Trinity Ventures VI, L.P. and 131,376 shares held by Trinity VI Side-By-Side Fund, L.P. Noel J. Fenton, Tod H. Francis, Lawrence K. Orr, James G. Shennan, Augustus O. Tai and Fred Wang are the managing members of these funds and have shared voting and investment authority over these shares. However, Noel J. Fenton, Tod H. Francis, Lawrence K. Orr, James G. Shennan, Augustus O. Tai and Fred Wang disclaim beneficial ownership of these shares except to the extent of their pecuniary interest arising therein. The address for the entities affiliated with Trinity Ventures is 3000 Sand Hill Road, Building 4, Suite 160, Menlo Park, CA 94025.
(4)	Includes 884,353 shares held by Weiss, Peck & Greer Venture Associates V, L.L.C., 7,405 shares held by Weiss, Peck & Greer Venture Associates V-A, L.L.C., 19,897 shares held by WPG Information Sciences

59

Entrepreneur Fund II, L.L.C., 12,268 shares held by WPG Information Sciences Entrepreneur Fund II-A, L.L.C. and 181,512 shares held by Weiss, Peck & Greer Venture Associates V Cayman, L.P. In October 2000, Weiss, Peck & Greer changed its name to Lightspeed Venture Partners. Lightspeed Venture Partners has informed us that Philip Greer and Gill Cogan have voting and dispositive control of these shares and each of those individuals disclaim beneficial ownership of these shares except to the extent of their pecuniary interest arising therein. The address for the funds managed by Lightspeed Venture Partners is 2200 Sand Hill Road, Menlo Park, CA 94025.

(5)	Includes 141,454 shares held by Douglas B. Williams and 801,143 shares held by Douglas B. Williams and Lori Williams as joint tenants with right of survivorship. The shares held as joint tenants were acquired pursuant to a transfer by Mr. Williams. Mr. Williams acquired his shares in a private placement.
(6)	Unless otherwise indicated, the shares sold to the selling stockholders were issued directly from Blue Nile pursuant to private equity financings.
(7)	If the underwriters’ overallotment option is exercised in full, the total shares sold by Comdisco Venture Fund A, LLC would be 6,000 shares.
(8)	If the underwriters’ overallotment option is exercised in full, the total shares sold by entities affiliated with Integral Partners would be 68,636 shares.
(9)	If the underwriters’ overallotment option is exercised in full, the total shares sold by the Karr Family 1982 Trust would be 149 shares.

(10)	If the underwriters’ overallotment option is exercised in full, the total shares sold by Cynthia Karr would be 74 shares.
(11)	If the underwriters’ overallotment option is exercised in full, the total shares sold by Elizabeth A. Karr would be 74 shares.
(12)	If the underwriters’ overallotment option is exercised in full, the total shares sold by the Henriquez Family Trust would be 3,298 shares.
(13)	If the underwriters’ overallotment option is exercised in full, the total shares sold by Larry Elowitz would be 343,734 shares. Mr. Elowitz’s shares were acquired in a private placement.
(14)	Includes 55,000 shares of common stock issuable upon the exercise of options that are exercisable within 60 days after April 4, 2004.
(15)	Includes 1,160 shares held by Douglas Royan Irvine as Custodian for the benefit of Laura Anne Irvine under the Washington Uniform Gift to Minors Act, 1,160 shares held by Douglas Royan Irvine as Custodian for the benefit of David Douglas Irvine under the Washington Uniform Gift to Minors Act, 1,160 shares held by Douglas Royan Irvine as Custodian for the benefit of Jessica Leigh Irvine under the Washington Uniform Gift to Minors Act and 60,557 shares of common stock issuable upon the exercise of options that are exercisable within 60 days after April 4, 2004.
(16)	Includes 28,517 shares of common stock issuable upon the exercise of options that are exercisable within 60 days after April 4, 2004.
(17)	Includes 185,786 shares of common stock issuable upon the exercise of options that are exercisable within 60 days after April 4, 2004.
(18)	Includes 63,316 shares of common stock issuable upon the exercise of options that are exercisable within 60 days after April 4, 2004.
(19)	Ms. Strober has a pecuniary interest in a limited partner of BVP IV and is the managing member of BVP IV and Bessec Ventures IV L.P. Ms. Strober does not have voting or dispositive power over the shares held by BVP IV or Bessec Ventures IV L.P.
(20)	Includes 2,858,119 shares held by entities affiliated with Trinity Ventures. Mr. Tai is a general partner of Trinity Ventures. As such, Mr. Tai may be deemed to have voting and dispositive power over the shares held by Trinity Ventures. However, Mr. Tai disclaims beneficial ownership of these shares except for his pecuniary interest therein. Mr. Tai’s address is c/o Trinity Ventures.
(21)	Includes 19,166 shares of common stock issuable upon the exercise of options that are exercisable within 60 days after April 4, 2004.
(22)	Includes 19,166 shares of common stock issuable upon the exercise of options that are exercisable within 60 days after April 4, 2004.
(23)	Includes shares held by Mr. Vadon, Ms. Irvine, Ms. Bell, Mr. Paquin and Mr. Cavens, the shares described in notes (19) through (21) above, 25,491 shares held by our executive officers who are not named executive officers, and 49,883 shares issuable pursuant to options held by executive officers who are not named executive officers that are exercisable within 60 days of April 4, 2004.

60

DESCRIPTION OF CAPITAL STOCK

General

          We are authorized to issue 300,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of undesignated preferred stock, $0.001 par value per share. The following description of our capital stock does not purport to be complete and is subject to and qualified in its entirety by the provisions of applicable Delaware law.

Common Stock

          As of April 4, 2004, there were 15,341,239 shares of common stock outstanding which were held of record by approximately 132 stockholders after giving effect to the conversion of all outstanding convertible preferred stock into common stock immediately upon the closing of this offering.

          The holders of our common stock are entitled to one vote per share on all matters to be voted on by the stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefore. In the event we liquidate, dissolve or wind up, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive, conversion, or subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

Options

          As of April 4, 2004, options to purchase a total of 1,417,343 shares of common stock were outstanding and 214,177 additional shares of common stock were available for future grant under our 1999 Equity Incentive Plan. There were no options outstanding under our 2004 Equity Incentive Plan, Employee Stock Purchase Plan and Non Employee Directors’ Equity Incentive Plan. See “Management — Stock Based Plans.”

Preferred Stock

          Under our restated certificate of incorporation, the board of directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon such preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and reduce the likelihood that such holders will receive dividend payments and payments upon liquidation. Such issuance could have the effect of decreasing the market price of the common stock. The issuance of preferred stock or even the ability to issue preferred stock could also have the effect of delaying, deterring or preventing a change in control. We have no present plans to issue any shares of preferred stock.

Warrants

          In August 1999, in connection with the execution of a master equipment lease, we issued a warrant to purchase 14,706 shares of Series B convertible preferred stock at an exercise price of $3.40 per share. Upon completion of this offering, the warrant will be exercisable for 16,492 shares of our common stock. The warrant will expire upon the earlier of three years after the completion of this offering or, subject to certain conditions, a change of control.

61

          In December 1999, in connection with an amendment to the master equipment lease, we issued a warrant to purchase 2,994 shares of Series C convertible preferred stock at an exercise price of $16.70 per share. Upon completion of this offering, the warrant will be exercisable for 3,832 shares of our common stock. The warrant will expire upon the earlier of three years after the completion of this offering or, subject to certain conditions, a change of control.

Registration Rights

          The holders of an aggregate of 10,778,718 shares of our common stock, or their permitted transferees, are entitled to rights with respect to the registration of these shares under the Securities Act. These rights are provided under the terms of an amended and restated investor rights agreement between us and the holders of these shares. Under the terms of the amended and restated investor rights agreement, we will be required, upon the written request from holders of either a majority of these shares or the holders of any number of these shares having a proposed aggregate offering price of at least $10 million, to use our best efforts to register these shares for public resale. We are required to effect only two registrations pursuant to this provision of the investor rights agreement, and we are not required to comply with this form of demand registration prior to 180 days after the closing of this offering.

          These holders also have the right, upon written request from holders of at least 15% of these shares, to have such shares registered by us on a Form S-3 registration statement at our expense provided that such requested registration has an anticipated aggregate offering price to the public of at least $2 million and we have not already effected one registration on Form S-3 in any preceding 12-month period after we are eligible to use Form S-3. If we register any of our common stock either for our own account or for the account of other security holders, other than with respect to this offering, the holders of these shares are entitled to include their shares in the registration. A holder’s right to include shares in an underwritten registration is subject to the ability of the underwriters to limit the number of shares included in the underwritten offering. All fees, costs and expenses of underwritten registrations will be borne by us and all selling expenses, including underwriting discounts and selling commissions will be borne by the holders of the shares being registered. The rights granted to each holder under the investor rights agreement will terminate upon the earlier of (i) when such holder owns less than one percent of our common stock and is able to sell all its shares pursuant to Rule 144 under the Securities Act in any 90 day period or (ii) the third anniversary of this offering.

Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions

          Delaware Takeover Statute. Blue Nile is subject to the provisions of Section 203 of the Delaware General Corporation Law, which regulates acquisitions of some Delaware corporations. Section 203 prohibits, with some exceptions, a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sale or other transactions resulting in a financial benefit to the stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of a corporation’s voting stock. The statute could have the effect of delaying, deferring or preventing a change in control of Blue Nile.

          Restated Certificate of Incorporation and Amended and Restated Bylaws. Our restated certificate of incorporation specifies that our board of directors will be classified into three classes of directors and each of the directors may be removed from the board of directors during their tenure only for cause. In addition, the restated certificate of incorporation specifies that the authorized number of directors may be changed only by resolution of the board of directors and does not include a provision for cumulative voting for directors, which may make it difficult for stockholders owning less than a majority of our stock to elect directors. Our restated certificate of incorporation also provides that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing. In addition, our amended and restated bylaws provide that special meetings of our stockholders may be called only by the Chairman of the board of directors, the

62

Chief Executive Officer or the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors. The provisions within our restated certificate of incorporation relating to the corporate actions described in this paragraph may only be amended with the approval of 66 2/3% of our outstanding voting stock, and our amended and restated bylaws may be amended either by the majority of the authorized number of the board of directors or by the approval of 66 2/3% of our outstanding voting stock. Furthermore, our restated certificate of incorporation requires the advance notice of stockholders’ nominations for the election of directors and business brought before a meeting of stockholders. These provisions contained in our restated certificate of incorporation and our amended and restated bylaws could delay or discourage certain types of transactions involving an actual or potential change in control of Blue Nile or our management.

Transfer Agent and Registrar

          The transfer agent and registrar for the common stock is Mellon Investor Services LLC.

Nasdaq National Market Listing

          We have applied for quotation of our common stock on the Nasdaq National Market under the trading symbol “NILE.”

63

SHARES ELIGIBLE FOR FUTURE SALE

          Before this offering, there has been no public market for our common stock. If our stockholders sell substantial amounts of our common stock in the public market following this offering, the prevailing market price of our common stock could decline. While all currently outstanding shares are subject to contractual and legal restrictions on resale for 180 days after the date of this prospectus, as described below, sales of substantial amounts of our common stock in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.

          Upon the closing of this offering, we will have outstanding an aggregate of 17,341,239 shares of our common stock, based upon the number of shares outstanding as of April 4, 2004 and assuming automatic conversion of all of our outstanding convertible preferred stock, no exercise of the underwriters’ overallotment option, no exercise of outstanding options and warrants, and no grant of additional options or warrants. All shares sold in this offering will be freely tradable without restriction or the requirement of further registration under the Securities Act, unless they are purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining shares are “restricted shares,” as that term is defined in Rule 144 under the Securities Act, and will be eligible for sale in the public market as follows:

          Lock-up Agreements. All of our directors, officers, warrant holders and holders of all but 157,854 shares of our outstanding common stock are subject to lock-up agreements under which they have agreed, with limited exceptions, not to transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for 180 days after the date of this prospectus. The shares of our common stock to be sold by the selling stockholders in this offering are not subject to lock-up restrictions. Merrill Lynch may, in its sole discretion, at any time and without prior notice or announcement, release all or any portion of shares subject to the lock-up agreements.

          Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year, including the holding period of prior owners other than affiliates, is entitled to sell within any three-month period a number of shares that does not exceed the greater of (a) 1% of the number of shares of our common stock then outstanding, which will equal approximately 173,412 shares immediately after the offering, or (b) the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us. Based upon the number of shares outstanding as of April 4, 2004, an aggregate of approximately 11,773,860 shares of our common stock will be eligible to be sold pursuant to Rule 144, subject to the volume restrictions described in the previous sentence, beginning 90 days after the date of this prospectus. However, all but 1,209 of such shares are subject to the lock-up agreements described above and will only become eligible for sale upon the expiration or termination of such agreements.

          Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the three months preceding a sale and who has beneficially owned shares for at least two years, including the holding period of certain prior owners other than affiliates, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Based upon the number of shares outstanding as of April 4, 2004, an aggregate of approximately 2,580,573 shares of our common stock will be eligible to be sold pursuant to Rule 144(k) after the date of the prospectus. However, all but 52,395 of such shares are subject to the lock-up agreements described above and will only become eligible for sale upon the expiration or termination of such agreements.

          Rule 701. In general, under Rule 701 of the Securities Act as currently in effect, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights

64

granted under our stock plans may be resold, beginning 90 days after the date of this prospectus, to the extent not subject to lock-up agreements, by:

•  persons other than affiliates, subject only to the manner-of-sale provisions of Rule 144; and

•  our affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule 144, in each case, without compliance with the one-year holding requirements of Rule 144.

          An aggregate of 1,143,914 shares of our common stock that were outstanding as of April 4, 2004 and approximately 769,090 shares of our common stock that may be acquired upon the exercise of options outstanding as of April 4, 2004, will be eligible to be sold pursuant to Rule 701 beginning 90 days after the date of the prospectus, subject to the vesting provisions that may be contained in individual option agreements. However, all but 149,854 of the outstanding shares described above are subject to the lock-up agreements described above and will only become eligible for sale upon the expiration or termination of such agreements.

          Registration Rights. Beginning 180 days after this offering, holders of approximately 10,778,718 shares of our common stock are entitled to have their shares registered by us under the Securities Act. See “Description of Capital Stock — Registration Rights.” After any registration of these shares, such shares, except for shares purchased by affiliates, will be freely tradable without restriction under the Securities Act.

          Stock Plans. We intend to file one or more registration statements on Form S-8 under the Securities Act following this offering to register the shares of our common stock that are issuable pursuant to our 1999 Equity Incentive Plan, 2004 Equity Incentive Plan, 2004 Non-Employee Directors’ Stock Option Plan, 2004 Employee Stock Purchase Plan and shares issuable pursuant to options granted outside of any plans. These registration statements are expected to become effective upon filing. Shares covered by these registration statements will then be eligible for sale in the public markets, subject to any applicable lock-up agreements and to Rule 144 limitations applicable to affiliates.

65

MATERIAL UNITED STATES FEDERAL TAX

CONSEQUENCES FOR NON-UNITED STATES HOLDERS

          The following is a general discussion of material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a beneficial owner thereof that is a “Non-U.S. Holder.” A “Non-U.S. Holder” is a person or entity that, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation or a foreign estate or trust. The test for whether an individual is a resident of the U.S. for federal estate tax purposes differs from the test used for federal income tax purposes. Some individuals, therefore, may be “Non-U.S. Holders” for purposes of the federal income tax discussion below, but not for purposes of the federal estate tax discussion, and vice versa.

          This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, judicial decisions and administrative regulations and interpretations in effect as of the date of this prospectus, all of which are subject to change, including changes with retroactive effect. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to Non-U.S. Holders in light of their particular circumstances (including, without limitation, Non-U.S. Holders who are pass-through entities or who hold their common stock through pass-through entities) and does not address any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction. Prospective holders should consult their own tax advisors with respect to the federal income and estate tax consequences of holding and disposing of our common stock in light of their particular situations and any consequences to them arising under the laws of any state, local or non-U.S. jurisdiction.

Dividends

          Subject to the discussion below, distributions, if any, made to a Non-U.S. Holder of our common stock out of our current or accumulated earnings and profits generally will constitute dividends for U.S. tax purposes and will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide us with a properly-executed IRS Form W-8BEN certifying the Non-U.S. Holder’s entitlement to benefits under that treaty. Treasury Regulations provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends paid to a Non-U.S. Holder that is an entity should be treated as paid to the entity or to those holding an interest in that entity. To the extent such distributions exceed our current and accumulated earnings and profits for U.S. tax purposes, they will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock.

          There will be no withholding tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States if a properly-executed IRS Form W-8ECI, stating that the dividends are so connected, is provided to us. Instead, the effectively connected dividends will be subject to regular U.S. income tax, generally in the same manner as if the Non-U.S. Holder were a U.S. citizen or resident alien or a domestic corporation, as the case may be, unless a specific treaty exemption applies. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional “branch profits tax”, which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) of the corporate Non-U.S. Holder’s effectively connected earnings and profits, subject to certain adjustments. If you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may obtain a refund of any excess amounts currently withheld if you file an appropriate claim for refund with the U.S. Internal Revenue Service.

Gain on Disposition of Common Stock

          A Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of our common stock unless: (i) the gain is effectively connected with a trade or business of such holder in the United States and a specific treaty exemption does not apply to eliminate the tax;(ii) if a tax treaty would otherwise apply to eliminate the tax, the gain is attributable

66

to a permanent establishment of the Non-U.S. Holder in the U.S.; (iii) in the case of Non-U.S. Holders who are nonresident alien individuals and hold our common stock as a capital asset, such individuals are present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met; (iv) the Non-U.S. Holder is subject to tax pursuant to the provisions of the Code regarding the taxation of U.S. expatriates; or (v) we are or have been a “United States real property holding corporation” within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or such holder’s holding period. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation. Even if we are treated as a United States real property holding corporation, gain realized by a Non-U.S. Holder on a disposition of our common stock will not be subject to U.S. federal income tax so long as: (a) the Non-U.S. Holder owned directly or indirectly, no more than five percent of our common stock at all times within the shorter of (x) the five year period preceding the disposition or (y) the holder’s holding period; and (b) our common stock is regularly traded on an established securities market. There can be no assurance that our common stock will continue to qualify as being regularly traded on an established securities market.

          If you are a Non-U.S. Holder described in (i) or (ii) above, you will be required to pay tax on the net gain derived from the sale at regular graduated U.S. federal income tax rates, and corporate Non-U.S. Holders described in (i) or (ii) above may be subject to the branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual Non-U.S. Holder described in (iii) above, you will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by U.S. source capital losses (even though you are not considered a resident of the United States).

Information Reporting Requirements and Backup Withholding

          Generally, we must report to the U.S. Internal Revenue Service the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or certain other agreements, the U.S. Internal Revenue Service may make its reports available to tax authorities in the recipient’s country of residence.

          Backup withholding will generally not apply to payments of dividends made by us or our paying agents to a Non-U.S. Holder if the holder has provided its federal taxpayer identification number, if any, or the required certification that it is not a U.S. person (which is generally provided by furnishing a properly-executed IRS Form W-8BEN), unless the payor otherwise has knowledge or reason to know that the payee is a U.S. person.

          Under current U.S. federal income tax law, information reporting and backup withholding will apply to the proceeds of a disposition of our common stock effected by or through a U.S. office of a broker unless the disposing holder certifies as to its non-U.S. status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding will not apply to a payment of disposition proceeds where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. However, U.S. information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds where the transaction is effected outside the United States by or through an office outside the United States of a broker that fails to maintain documentary evidence that the holder is a Non-U.S. Holder and that certain conditions are met, or that the holder otherwise is entitled to an exemption, and the broker is (i) a U.S. person, (ii) a foreign person which derived 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, (iii) a “controlled foreign corporation” for U.S. federal income tax purposes, or (iv) a foreign partnership (a) at least 50% of the capital or profits interest in which is owned by U.S. persons, or (b) that is engaged in a U.S. trade or business. Backup withholding will apply to a payment of disposition proceeds if the broker has actual knowledge that the holder is a U.S. person.

          Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of

67

taxes, a refund may be obtained, provided that the required information is furnished to the U.S. Internal Revenue Service.

Federal Estate Tax

          The estates of nonresident alien individuals are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be the U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent. This U.S. federal estate tax liability of the estate of a nonresident alien may be affected by a tax treaty between the United States and the decedent’s country of residence.

          THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK.

68

UNDERWRITING

          Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc. and Thomas Weisel Partners LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in a purchase agreement among us, the selling stockholders and the underwriters, we and the selling stockholders have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us and the selling stockholders, the number of shares of common stock set forth opposite its name below.

		Number of
Underwriter		Shares
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Bear, Stearns & Co. Inc.
Thomas Weisel Partners LLC
	Total		3,740,000

          Subject to the terms and conditions set forth in the purchase agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the purchase agreement if any of these shares are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreement may be terminated.

          We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

          The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

          The representatives have advised us that they propose initially to offer the shares to the public at the initial public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $           per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $           per share to other dealers. After the initial public offering, the public offering price, concession and discount may be changed.

          The following table shows the public offering price, underwriting discount and proceeds before expenses to us and the selling stockholders. The information assumes either no exercise or full exercise by the underwriters and selling stockholders of their overallotment option.

	Per Share		Without Option		With Option
Public offering price		$		$		$
Underwriting discount		$		$		$
Proceeds, before expenses, to Blue Nile, Inc.		$		$		$
Proceeds, before expenses, to the selling stockholders		$		$		$

          The total expenses of the offering, not including the underwriting discount, are estimated at $2,000,000 and are payable by us.

69

Overallotment Option

          We and the selling stockholders have granted an option to the underwriters to purchase up to 561,000 additional shares at the public offering price, less the underwriting discount. The underwriters may exercise this option for 30 days from the date of this prospectus solely to cover any overallotments. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter’s initial amount reflected in the above table.

Reserved Shares

          At our request, the underwriters have reserved for sale, at the initial public offering price, up to                    shares for sale to some of our directors, officers, employees, distributors, dealers, business associates and related persons. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not orally confirmed for purchase within one day of the pricing of this offering will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.

No Sales of Similar Securities

          We and the selling stockholders, our executive officers and directors and our other existing security holders have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:

•  offer, pledge, sell or contract to sell any common stock;

•  sell any option or contract to purchase any common stock;

•  purchase any option or contract to sell any common stock;

•  lend or otherwise dispose of or transfer any common stock; or

•  enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.

          This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. This lock-up provision does not apply to reserved shares purchased by individuals who were not stockholders of Blue Nile prior to this offering.

Quotation on the Nasdaq National Market

          We have applied to list our common stock for quotation on the Nasdaq National Market under the symbol “NILE.”

          Before this offering, there has been no public market for our common stock. The public offering price will be determined through negotiations among us, the selling stockholders and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:

•  the valuation multiples of publicly traded companies that the representatives believe to be comparable to us;

•  our financial information;

70

•  the history of, and the prospects for, our past and present operations, and the prospects for, and timing of, our future revenues;

•  an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues;

•  the present state of our development; and

•  the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

          An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price. The underwriters do not expect to sell more than five percent of the shares being offered in this offering to accounts over which they exercise discretionary authority.

Price Stabilization, Short Positions and Penalty Bids

          Until the distribution of the shares is completed, Securities and Exchange Commission rules may limit the underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.

          The underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from the issuer in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the overallotment option. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.

          The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

          Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market.

          Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the representatives make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

71

Electronic Offer, Sale and Distribution of Shares

          Merrill Lynch will be facilitating Internet distribution for this offering to certain of its Internet subscription customers. Merrill Lynch intends to allocate a limited number of shares for sale to its online brokerage customers. An electronic prospectus is available on the Internet web site maintained by Merrill Lynch. Other than the prospectus in electronic format, the information on the Merrill Lynch web site is not part of this prospectus.

LEGAL MATTERS

          The validity of the common stock offered hereby will be passed upon for us by Cooley Godward LLP, Palo Alto, California. Cooley Godward LLP owns an aggregate of 12,480 shares of our common stock. Certain legal matters will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Kirkland, Washington.

EXPERTS

          The consolidated financial statements of Blue Nile, Inc. as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

          On October 9, 2003, with the approval of the audit committee of our board of directors, we dismissed our outside accounting firm KPMG LLP. On November 1, 2003, with the approval of the audit committee of our board of directors, we retained PricewaterhouseCoopers LLP. KPMG LLP’s report on our 2002 consolidated financial statements contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, during the period from November 26, 2002 thru October 9, 2003, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG LLP, would have caused it to make a reference to the subject matter of the disagreements in connection with its report for such year and there were no reportable events as defined in regulation S-K Item 304(a)(1)(v). We did not consult PricewaterhouseCoopers LLP on any financial or accounting reporting matters in the period before their appointment.

          On November 26, 2002, with the approval of our board of directors, we dismissed our outside accounting firm Arthur Andersen LLP and retained KPMG LLP. Arthur Andersen LLP’s reports on our 1999, 2000 and 2001 consolidated financial statements contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, during 1999, 2000 and 2001, and through the date we dismissed Arthur Andersen LLP, there were no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused it to make a reference to the subject matter of the disagreements in connection with its reports for such years, and there were no reportable events as defined in regulation S-K Item 304(a)(1)(v). We did not consult KPMG LLP on any financial or accounting reporting matters in the period before their appointment. We have requested but were unable to obtain confirmation from Arthur Andersen LLP on the above statements.

72

WHERE YOU CAN FIND ADDITIONAL INFORMATION

          We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act that registers the shares of common stock to be sold in the offering. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus, which is a part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information about us and our common stock, you should refer to the registration statement and the exhibits and schedules filed with the registration statement. You may read and copy any of this information at the Security and Exchange Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains an Internet web site that contains reports, proxy statements and other information about issuers, like us, that file electronically with the Securities and Exchange Commission. The address of that site is www.sec.gov.

          Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, will file periodic reports, proxy statements and other information with the Securities and Exchange Commission. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and web site of the Securities and Exchange Commission referred to above. We maintain a web site at www.bluenile.com. You may access our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission free of charge at our web site as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The reference to our web address does not constitute incorporation by reference of the information contained at this site.

          We intend to provide our stockholders with annual reports containing consolidated financial statements audited by an independent accounting firm and to file with the Securities and Exchange Commission quarterly reports containing unaudited consolidated financial data for the first three quarters of each year.

73

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Blue Nile, Inc.
	Report of Independent Auditors		F-2
	Consolidated Balance Sheets		F-3
	Consolidated Statements of Operations		F-4
	Consolidated Statements of Changes in Stockholders’ Deficit		F-5
	Consolidated Statements of Cash Flows		F-6
	Notes to Consolidated Financial Statements		F-8
	Schedule II — Valuation and Qualifying Accounts		F-25

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of Blue Nile, Inc.:

The 1-for-2.5 reverse stock split of the Company’s common and mandatorily redeemable convertible preferred stock described in Note 14 to the consolidated financial statements has not been consummated at April 19, 2004. When it is consummated, we will be in a position to furnish the following report:

“In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders’ deficit and of cash flows present fairly, in all material respects, the financial position of Blue Nile, Inc. and its subsidiary at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.”

/s/ PricewaterhouseCoopers LLP

Seattle, Washington

March 9, 2004

F-2

BLUE NILE, INC.

CONSOLIDATED BALANCE SHEETS

			December 31,						Pro Forma
									December 31,
			2002			2003			2003
									(Unaudited)
			(In thousands, except par value)
ASSETS
Current assets:
	Cash and cash equivalents			$22,597			$30,383			$30,421
	Restricted cash			400			400			400
	Accounts receivable			402			843			843
	Inventories			5,181			10,204			10,204
	Deferred income taxes			—			5,300			5,300
	Prepaids and other current assets			383			465			465
		Total current assets		28,963			47,595			47,633
	Property and equipment, net			1,861			3,979			3,979
	Deferred income taxes			—			10,654			10,654
	Other assets			90			77			77
		Total assets		$30,914			$62,305			$62,343
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable			$15,791			$26,288			$26,288
	Accrued liabilities			3,434			5,770			5,770
	Current portion of note payable to related party			520			—			—
	Current portion of subordinated notes payable			6,566			—			—
	Current portion of capital lease obligations			873			—			—
		Total current liabilities		27,184			32,058			32,058
Note payable to related party, less current portion				890			—			—
Capital lease obligations, less current portion				185			—			—
Commitments and contingencies
Mandatorily redeemable convertible preferred stock, $0.001 par value; 25,856 shares authorized; 9,859 and 10,000 issued and outstanding at December 31, 2002 and 2003, respectively and none pro forma (unaudited); aggregate liquidation preference of $77,584 and $78,664, respectively				57,215			57,485			—
Stockholders’ deficit:
	Preferred stock, $0.001 par value; no shares authorized, issued and outstanding in 2002 and 2003; 5,000 shares authorized, none issued and outstanding pro forma (unaudited)			—			—			—
	Common stock, $0.001 par value; 48,000 shares authorized; 4,139 and 5,128 issued as of December 31, 2002 and 2003, respectively, 3,391 and 4,378 shares outstanding as of December 31, 2002 and 2003, respectively; 300,000 shares authorized, 16,054 shares issued and 15,304 shares outstanding pro forma (unaudited)			4			5			16
	Additional paid-in capital			2,552			3,549			61,061
	Deferred compensation						(698	)		(698	)
	Accumulated deficit			(56,488	)		(29,458	)		(29,458	)
	Treasury stock, at cost; 748 shares and 750 shares outstanding as of December 31, 2002 and 2003, respectively			(628	)		(636	)		(636	)
		Total stockholders’ equity (deficit)		(54,560	)		(27,238	)		30,285
		Total liabilities and stockholders’ equity (deficit)		$30,914			$62,305			$62,343

The accompanying notes are an integral part of these consolidated financial statements

F-3

BLUE NILE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2001			2002			2003
		(In thousands, except per share data)
Net sales			$48,674			$72,120			$128,894
Cost of sales			37,551			53,967			99,474
Gross profit			11,123			18,153			29,420
Operating expenses:
	Selling, general and administrative		15,421			14,126			18,165
	Restructuring charges		1,017			400			(87	)
			16,438			14,526			18,078
Operating income (loss)			(5,315	)		3,627			11,342
Other income (expense):
	Interest income		399			215			109
	Interest expense		(2,485	)		(2,327	)		(209	)
	Other income (expense), net		41			112			88
			(2,045	)		(2,000	)		(12	)
Income (loss) before income taxes			(7,360	)		1,627			11,330
Income tax expense (benefit)			—			—			(15,700	)
Net income (loss)			$(7,360	)		$1,627			$27,030
Basic net income (loss) per share			$(2.44	)		$0.49			$6.99
Diluted net income (loss) per share			$(2.44	)		$0.11			$1.65
Pro forma basic net income per share (unaudited)									$1.83
Pro forma diluted net income per share (unaudited)									$1.65

The accompanying notes are an integral part of these consolidated financial statements

F-4

BLUE NILE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

Years Ended December 31, 2001, 2002 and 2003

		Common stock				Additional			Stockholder			Deferred						Treasury stock						Total
						paid-in			notes			stock			Accumulated									stockholders’
		Shares		Amount		capital			receivable			compensation			deficit			Shares			Amount			deficit
		(In thousands)
Balance, December 31, 2000			4,104		$4		$2,634			$(454	)		—			$(50,755	)		(41	)		$(152	)		$(48,723	)
	Issuance of warrants		—		—		89			—			—			—			—			—			89
	Repurchase of restricted stock		—		—		—			454			—			—			(707	)		(476	)		(22	)
	Exercise of common stock options		12		—		16			—			—			—			—			—			16
	Stock option compensation expense (benefit)		—		—		(199	)		—			—			—			—			—			(199	)
	Net loss and comprehensive loss		—		—		—			—			—			(7,360	)		—			—			(7,360	)
Balance, December 31, 2001			4,116		4		2,540			—			—			(58,115	)		(748	)		(628	)		(56,199	)
	Exercise of warrants		14		—		4			—			—			—			—			—			4
	Exercise of common stock options		9		—		8			—			—			—			—			—			8
	Net income and comprehensive income		—		—		—			—			—			1,627			—			—			1,627
Balance, December 31, 2002			4,139		4		2,552			—			—			(56,488	)		(748	)		(628	)		(54,560	)
	Exercise of common stock options		989		1		253			—			—			—			—			—			254
	Repurchase of stock		—		—		—			—			—			—			(2	)		(8	)		(8	)
	Deferred stock compensation		—		—		744			—			$(744	)		—			—			—			—
	Amortization of deferred stock compensation		—		—		—			—			46			—			—			—			46
	Net income and comprehensive income		—		—		—			—			—			27,030			—			—			27,030
Balance, December 31, 2003			5,128		$5		$3,549			$—			$(698	)		$(29,458	)		(750	)		$(636	)		$(27,238	)

The accompanying notes are an integral part of these consolidated financial statements

F-5

BLUE NILE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended December 31,
			2001			2002			2003
			(In thousands)
Operating activities:
Net income (loss)				$(7,360	)		$1,627			$27,030
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			1,920			1,757			1,293
	Loss on asset retirements			—			—			14
	Stock-based compensation			(199	)		—			46
	Warrant-based interest expense			510			597			87
	Restructuring charges			1,017			400			(87	)
	Deferred income taxes			—			—			(15,700	)
	Changes in assets and liabilities:
		Receivables, net		528			(331	)		(441	)
		Inventories		7,430			1,438			(5,023	)
		Prepaid expenses and other assets		666			(82	)		(235	)
		Accounts payable		1,168			10,538			10,497
		Accrued liabilities		(1,220	)		786			2,335
Net cash provided by operating activities				4,460			16,730			19,816
Investing activities:
Purchases of property and equipment				(1,184	)		(991	)		(3,506	)
Proceeds from sales of property and equipment				—			—			3
Transfers to restricted cash				(350	)		(50	)		—
Sale of marketable securities				2,292			—			—
Net cash provided by (used in) investing activities				758			(1,041	)		(3,503	)
Financing activities:
Proceeds from sale of mandatorily redeemable convertible preferred stock, net of issuance costs				6,645			—			—
Repurchase of restricted and common stock				(22	)		—			(8	)
Net repayments on line of credit				(6,738	)		—			—
Payments on subordinated notes payable				—			(8,362	)		(6,638	)
Payments on capital lease obligations				(643	)		(790	)		(995	)
Payments on note payable to related party				(250	)		(250	)		(1,140	)
Payment on notes payable				(70	)		—			—
Proceeds from warrant and stock option exercises				16			12			254
Net cash used in financing activities				(1,062	)		(9,390	)		(8,527	)
Net increase in cash and cash equivalents				4,156			6,299			7,786
Cash and cash equivalents, beginning of period				12,142			16,298			22,597
Cash and cash equivalents, end of period				$16,298			$22,597			$30,383

The accompanying notes are an integral part of these consolidated financial statements

F-6

BLUE NILE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Years Ended December 31,
		2001		2002		2003
		(In thousands)
Supplemental disclosure of cash flow information:
	Cash paid for interest		$1,964		$1,682		$154
Non-cash investing and financing activities:
	Assets acquired under capital leases		31		—		—
	Warrants issued in connection with amended subordinated notes payable		89		—		—
	Repurchase of common stock through forgiveness of stockholder notes receivable		454		—		—
Conversion of related party note payable to Series E mandatorily redeemable convertible preferred stock			—		—		270

The accompanying notes are an integral part of these consolidated financial statements

F-7

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of the Company and Summary of Significant Accounting Policies

The Company

          Blue Nile, Inc. (the “Company”) is a leading online retailer of high quality diamonds and fine jewelry. In addition to sales of diamonds, fine jewelry and watches, the Company provides guidance and support to enable customers to more effectively learn about and purchase diamonds as well as classically styled fine jewelry. The Company, a Delaware corporation, based in Seattle, Washington, was formed in March 1999. The Company maintains its primary web site at www.bluenile.com.

Change in Fiscal Year

          Beginning January 1, 2004, the Company’s fiscal year end will change from December 31 to the Sunday closest to December 31. Each fiscal year will consist of four 13-week quarters, with an extra week added onto the fourth quarter every five to six years. This fiscal calendar is widely used in the retail industry.

Basis of Presentation

          The consolidated financial statements include the balances of Blue Nile, Inc. and its subsidiary for the entire fiscal year. All significant intercompany transactions and balances are eliminated in consolidation.

Unaudited Pro Forma Information

          Upon closing of the planned initial public offering, each of the outstanding shares of mandatorily redeemable convertible preferred stock will convert into shares of common stock. The pro forma balance sheet and the pro forma basic and diluted net income (loss) per share reflect the conversion of all of the outstanding shares of mandatorily redeemable convertible preferred stock into shares of common stock and the issuance of 6,000 shares of common stock upon the exercise of outstanding warrants that will expire if not exercised prior to the closing of the planned offering. The pro forma balance sheet does not give effect to the offering proceeds.

Use of Estimates

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates include the allowance for sales returns, the reserve for estimated fraud losses and the deferred tax valuation reserve. Actual results could differ from those estimates.

Concentration of Risk

          The Company maintains its cash and cash equivalents in accounts with two major financial institutions in the United States of America, in the form of demand deposits, certificates of deposits and money market accounts. Deposits in these banks may exceed the amounts of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company’s accounts receivable are derived from credit card purchases from customers and are typically settled within one to two days.

F-8

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

          The Company’s ability to acquire diamonds and fine jewelry is dependent on its relationships with various suppliers from whom it purchases diamonds and fine jewelry. The Company has reached agreements with certain suppliers to provide access to their inventories of diamonds for its customers, but the terms of these agreements are limited and do not govern the purchase of diamonds for its inventory. The Company’s inability to maintain these and other future diamond and fine jewelry supply relationships on commercially reasonable terms would cause its business to suffer and its revenues to decline. Purchase concentration by major supply vendor is as follows:

	2001		2002		2003
	Payments		Payments		Payments
Vendor A		11%		21%		15%
Vendor B		23%		15%		12%
Vendor C		10%		—		—

Cash and Cash Equivalents

          The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.

Restricted Cash

          Restricted cash consists primarily of cash pledged as collateral to a credit card processing bank.

Marketable Securities

          The Company’s marketable securities consist of highly liquid short-term fixed income securities (commercial paper) with maturities at purchase of less than one year. Marketable securities are classified as available for sale and are reported at fair value, which approximates cost. The Company did not hold any marketable securities at December 31, 2002 or December 31, 2003.

Inventories

          The Company’s diamond, fine jewelry and watch inventories are classified at the lower of cost or market, using the specific identification method for diamonds and weighted average cost method for fine jewelry and watches. The Company also lists loose diamonds on its web site that are not included in inventory until the Company receives a customer order for those diamonds. Upon receipt of a customer order, the Company purchases a specific diamond and records it in inventory until it is delivered to the customer, at which time the revenue from the sale is recognized and inventory is relieved.

Property and Equipment

          Property and equipment are stated at cost less accumulated depreciation. Maintenance and repairs are expensed as incurred. Assets purchased under capital leases are recorded at cost based on the present value of future minimum lease payments discounted at the contractual interest rates. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets. The cost and related accumulated depreciation or amortization of assets sold or otherwise disposed of is removed from the

F-9

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

accounts and the related gain or loss is reported in the statement of operation. Estimated useful lives by major asset category are as follows:

Asset	Life (in years)
Computers and equipment		3
Software and web site development		2-3
Leasehold improvements		Shorter of life of lease or asset life
Furniture and fixtures		7

Capitalized Software

          The Company capitalizes internally developed software costs and web site development costs in accordance with the provisions of Statement of Position 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use and Emerging Issues Task Force No. 00-2, Accounting for Website Development Costs. Capitalized costs are amortized on a straight-line basis over the estimated useful life of the software once it is available for use.

Long-Lived Assets

          The Company reviews the carrying value of its long-lived assets, including property and equipment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. To the extent the estimated future cash inflows attributable to the assets, less estimated future cash outflows, are less than the carrying amount, an impairment loss would be recognized.

Intangible Assets, Including Goodwill

          Intangible assets represent the consideration paid for non-compete agreements. Goodwill represents the excess of costs over fair value of assets of a business acquired. As of December 31, 2001 goodwill and intangible assets were fully amortized. Amortization expense recorded for the year ended December 31, 2001 was $239,000.

Fair Value of Financial Instruments

          The carrying amounts for the Company’s cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities. The fair value of notes payable and related party note payable approximate fair value primarily because the debt interest rates are comparable to market rates for debt instruments with similar maturities and terms.

Treasury Stock

          Treasury stock is recorded at cost and primarily consists of the repurchase of restricted common stock issued to founders and unvested stock issued to employees in connection with early exercises of stock options.

Income Taxes

          Deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the tax rates that will be in effect when the differences are expected to reverse. Future tax benefits, such as net operating loss carryforwards, are recognized to the extent that realization of such benefits is considered to be more likely than not.

F-10

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition

          Net sales consist of products sold via the Internet and shipping revenue, net of estimated returns and promotional discounts. The Company recognizes revenues when all of the following have occurred: persuasive evidence of an agreement with the customer exists, products are shipped and the customer takes delivery and assumes the risk of loss; the selling price is fixed or determinable and collectibility of the selling price is reasonably assured. The Company evaluates the criteria outlined in Emerging Issues Task Force Issue 99-19, “Reporting Revenue Gross as a Principal Versus net as an Agent”, in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned.

          The Company requires payment at the point of sale. Amounts received prior to delivery of goods to customers are recorded as deferred revenue. The Company offers a return policy of generally 30 days and provides an allowance for sales returns during the period in which the sales are made. At December 31, 2002 and 2003, the reserve for sales returns was $601,000 and $769,000, respectively, and was recorded as an accrued liability. Sales revenues and cost of sales reported in the Statement of Operations are reduced to reflect estimated returns.

          The Company generally does not extend credit to customers, except through third party credit cards. The majority of sales are through credit cards, and accounts receivable are composed primarily of amounts due from financial institutions related to credit card sales. The Company does not maintain an allowance for doubtful accounts because payment is typically received one to two business days after the sale is completed.

          The Company has procedures in place to detect and prevent credit card fraud since the Company has exposure to losses from fraudulent charges. The Company records a reserve for fraud losses based on our historical rate of such losses. This reserve is recorded as an accrued liability and amounted to $113,000 and $188,000 at December 31, 2002 and 2003, respectively.

Cost of Sales

          Cost of sales consists of the cost of merchandise sold to customers, inbound and outbound shipping costs, insurance on shipments and assembly costs.

Selling, General and Administrative Expense

          Selling, general and administrative expenses consist primarily of marketing and sales expenses, fulfillment (handling) costs and customer service center costs. Credit card fees, insurance and other personnel costs are also included in selling, general and administrative expenses.

          Fulfillment (handling) costs include costs incurred in operating and staffing the fulfillment center, including costs attributable to: receiving, inspecting and warehousing inventories and picking, packaging and preparing customers’ orders for shipment. Fulfillment (handling) costs in 2001, 2002 and 2003 were approximately $887,000, $1.2 million and $1.5 million, respectively.

Advertising

          Advertising production costs are expensed as incurred. Costs of advertising associated with television, radio, print and other media are expensed when such services are used. Costs associated with web portal advertising contracts are amortized over the period such advertising is expected to be used. Advertising expense for the years ended December 31, 2001, 2002 and 2003 was approximately $4.8 million, $3.2 million and $4.5 million, respectively.

F-11

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Compensation

          The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations including Financial Accounting Standards Board (“FASB”) Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25” (“FIN 44”), which is described more fully in Note 7. The Company has elected to apply the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” (“SFAS No. 123”). Had compensation cost for the Company’s stock options been determined based on the fair value of the options at the date of grant, the Company’s pro forma net income (loss) would have been as shown below (in thousands, except per share data).

		Year Ended December 31,
		2001			2002			2003
Net income (loss), as reported			$(7,360	)		$1,627			$27,030
Add: Stock-based compensation expense (benefit), as reported			(199	)		—			46
Deduct: Stock-based employee compensation expense determined under fair-value-based method, net of tax			(249	)		(279	)		(307	)
Pro forma net income (loss)			$(7,808	)		$1,348			$26,769
Income (loss) per share:
	Basic — as reported		$(2.44	)		$0.49			$6.99
	Basic — pro forma		$(2.59	)		$0.40			$6.92
	Diluted — as reported		$(2.44	)		$0.11			$1.65
	Diluted — pro forma		$(2.59	)		$0.10			$1.64

          See Note 7 for the assumptions used to compute the pro forma amounts.

Segments

          The Company has one operating segment, online retail jewelry. No foreign country or geographic area accounted for more than 10% of net sales in any of the periods presented and the Company does not have any long-lived assets located in foreign countries.

Recent Accounting Pronouncements

          In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which addresses consolidation by business enterprises of variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) the company will hold a significant variable interest in, or have significant involvement with, an existing variable interest entity. FIN 46 is effective as of the first interim period beginning after June 15, 2003. However, an October 2003 FASB Staff Position deferred the effective date for applying the provisions of FIN 46 for interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003 and non-registered investment companies. The Company has no interests in variable interest entities and FIN 46 is not expected to impact the results of operations or the financial position of the Company.

F-12

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 2.     Inventories

          Inventories consists of the following (in thousands):

	December 31,
	2002		2003
Loose diamonds		$757		$124
Fine jewelry, watches and other		4,424		10,080
		$5,181		$10,204

Note 3.     Property and Equipment

          Property and equipment consists of the following (in thousands):

	December 31,
	2002			2003
Computers and equipment		$2,214			$3,204
Software and web site development		3,129			3,892
Leasehold improvements		909			2,310
Furniture and fixtures		357			537
		6,609			9,943
Less: accumulated depreciation		(4,748	)		(5,964	)
		$1,861			$3,979

          The total cost of leased equipment capitalized at December 31, 2002 was $2.6 million with related accumulated depreciation of $2.2 million. The capital leases were paid off in April 2003.

          Capitalized software costs include external direct costs and internal direct labor and related employee benefits costs. Amortization begins in the period in which the software is ready for its intended use. The Company had $629,000 and $815,000 of unamortized internally developed computer software and web site development costs at December 31, 2002 and 2003, respectively. Depreciation expense was $1.2 million, $1.3 million and $962,000 in 2001, 2002 and 2003 respectively. Amortization of capitalized software development costs was $479,000, $490,000 and $331,000 in 2001, 2002 and 2003 respectively.

Note 4.     Long-Term Debt

Line of Credit

          During 2002, the Company had a line of credit agreement with a financing company that allowed the Company to borrow up to the lesser of $15 million or 60% of the eligible inventory less a $1,000,000 reserve. The credit advances were charged interest at a floating rate equal to the 30-day commercial paper rate plus three and one half percent (3.5%). The line of credit contained various operating and financial covenants including maintenance of specific levels of liquidity and cumulative earnings, and limitations on capital expenditures. In November 2002, the Company terminated the line of credit and has no further obligations under this agreement.

Subordinated Notes Payable

          In February 2000, the Company entered into a subordinated debt agreement with a financing company to borrow up to $15 million. The notes were subordinated to the line of credit. On March 17, 2000, the Company borrowed $10.0 million at an interest rate of 8.75%, due in March 2003, and on

F-13

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

August 7, 2000, the Company borrowed the remaining $5.0 million at an interest rate of 9.5%, due in August 2003. In June 2001, the subordinated debt agreement was amended to extend the maturity date of all borrowings to September 1, 2003 with interest only payments from March 2000 until March 2002 and principal payments beginning April 1, 2002. In addition, the principal payments were reduced by fifty percent for the first six months of payments (April 1, 2002 through September 1, 2002) followed by amortization of the remaining principal amount until September 1, 2003.

          In January 2003, the Company repaid the entire outstanding principal of the subordinated notes payable in the amount of $6,638,000 and fully expensed the unamortized debt discount of $72,000. The Company has no further obligations under this agreement.

          In connection with the original agreement, the Company granted warrants to the lender to purchase 126,315 shares of Series C mandatorily redeemable convertible preferred stock at $23.75 per share. The fair value of the warrants, $959,000 as determined using the Black-Scholes option pricing model, was recorded as debt discount and was amortized as interest expense over the life of the debt. In connection with the loan amendment, the warrants to purchase 126,315 shares of Series C mandatorily redeemable convertible preferred stock at $23.75 were canceled and replaced with warrants to purchase 126,315 shares of Series E mandatorily redeemable convertible preferred stock at $1.91 per share. The additional fair value of the replacement warrants, $89,000 as determined using the Black-Scholes option-pricing model, was also recorded as debt discount and was amortized as interest expense over the life of the debt. The warrants expired unexercised on October 15, 2003.

Note Payable to Related Party

          In May 1999, the Company acquired certain assets and liabilities of Williams & Son, Inc., a retail jewelry business. Concurrent with the purchase agreement the Company also entered into a non-compete agreement with the founder of Williams & Son, Inc. The non-compete agreement provided future payments of $955,000 in each of May 2001 and 2002, and was contingent upon Williams continued employment with the Company. The payments were charged to general and administrative expenses as the services were performed. In October 2000, the employment contingency was removed and Williams left the Company. The remaining portion of the payments due was then fully expensed. On June 25, 2001, the agreement was amended to state that $250,000 was to be paid on or before June 10, 2001, $1,390,000 would be paid on May 21, 2002 and the remaining $270,000 would be converted to 141,454 shares of Series E mandatorily redeemable convertible preferred stock on May 21, 2002. These payment obligations were non-interest bearing.

          On May 21, 2002, the payment terms were amended again such that $250,000 was to be paid on or before May 21, 2003, $890,000 was to be paid on or before May 21, 2004 and the 141,454 shares of Series E mandatorily redeemable convertible preferred stock would be issued on or before May 21, 2004. The note accrues interest at the rate of 12% per annum through May 21, 2003 and 14% per annum thereafter.

          In April 2003, the Company repaid the entire outstanding balance under this note and issued the Series E mandatorily redeemable convertible preferred stock.

F-14

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 5.     Commitments and Contingencies

Leases

          The Company leases its office facilities and fulfillment center under noncancelable operating lease agreements that expire through 2008. Future minimum lease payments as of December 31, 2003 are as follows (in thousands):

	Operating
	Leases
2004		$412
2005		373
2006		361
2007		269
2008		263
Thereafter		601
Total minimum lease payments		$2,279

          Rent expense under operating leases for the years ended December 31, 2001, 2002 and 2003 was approximately $601,000, $501,000 and $406,000, respectively.

          Certain leases also provide for payment of operating expenses, such as common area charges and real estate charges. Certain leases include options that allows us to extend the lease term beyond the initial commitment periods and early termination options, which can be exercised under specific conditions.

          For leases that contain predetermined fixed escalations of the minimum rentals, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rental expense and amounts payable under the lease as deferred credits.

          Cash or tenant improvement allowances received upon entering into a lease are recognized on a straight line basis as a reduction to rent expense over the lease term. The unamortized portion is included in other liabilities and amounted to $1.3 million at December 31, 2003. There were no such amounts at December 31, 2002.

Litigation

          From time to time, the Company is subject to contingencies resulting from legal proceedings and claims in the ordinary course of business. Management currently believes, after considering a number of factors and the nature of the contingencies to which the Company is subject, that the ultimate disposition of these contingencies either cannot be determined at the present time or will not have, individually or in the aggregate, a material adverse effect on its financial position or results of operations.

Note 6.     Mandatorily Redeemable Convertible Preferred Stock

          The Company has authorized 25,856,000 shares of mandatorily redeemable convertible preferred stock. Shares of mandatorily redeemable convertible preferred stock may be issued from time to time in one or more series, with designations, preferences, and limitations established by the Company’s board of directors.

F-15

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

          The Company has designated the following series of mandatorily redeemable convertible preferred stock. All series of mandatorily redeemable convertible preferred stock are at $0.001 par value. Amounts at December 31, 2002 are as follows (in thousands):

	December 31, 2002
					Shares issuable
	Authorized		Shares		upon				Liquidation
	shares		outstanding		conversion		Amount		preference
Series A mandatorily redeemable convertible preferred stock		6,667		2,667		2,770		$5,989		$6,000
Series B mandatorily redeemable convertible preferred stock		3,353		1,326		1,488		4,508		4,510
Series C mandatorily redeemable convertible preferred stock		3,906		1,560		1,996		26,023		26,045
Series D mandatorily redeemable convertible preferred stock		1,930		772		991		14,050		14,050
Series E mandatorily redeemable convertible preferred stock		10,000		3,534		3,534		6,645		26,979
		25,856		9,854		10,779		$57,215		$77,584

          Amounts at December 31, 2003 are as follows (in thousands):

	December 31, 2003
					Shares issuable
	Authorized		Shares		upon				Liquidation
	shares		outstanding		conversion		Amount		preference
Series A mandatorily redeemable convertible preferred stock		6,667		2,667		2,770		$5,989		$6,000
Series B mandatorily redeemable convertible preferred stock		3,353		1,326		1,488		4,508		4,510
Series C mandatorily redeemable convertible preferred stock		3,906		1,560		1,996		26,023		26,045
Series D mandatorily redeemable convertible preferred stock		1,930		772		991		14,050		14,050
Series E mandatorily redeemable convertible preferred stock		10,000		3,675		3,675		6,915		28,059
		25,856		10,000		10,920		$57,485		$78,664

          Series A through E mandatorily redeemable convertible preferred stock is convertible into common stock at the option of the holder, subject to antidilution provisions. In the event of an effective registration statement where the total proceeds are at least $25.0 million and at a minimum price per share, the Series A through E mandatorily redeemable convertible preferred stock is automatically converted into common stock.

          In the event of liquidation, Series E shareholders receive the first distributions up to the amount shown in the above table plus any declared and unpaid dividends. After the Series E liquidation preference has been met, Series A through D shareholders receive distributions pro rata based on their respective liquidation preferences in the above table, plus any declared and unpaid dividends until their liquidation preferences have been met.

F-16

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

          The sale of all of the Company’s assets, a consolidation or merger with another company, or a transfer of voting control in excess of fifty percent (50%) of the Company’s voting power are all events which are deemed to be a liquidation and would trigger the payment of liquidation preferences under the preferred stock agreements. All such events require board approval. However, a forced action by creditors or court ordered sale of all of the Company’s assets are also events that could be deemed a liquidation. These liquidation characteristics require classification of the mandatorily redeemable convertible preferred stock outside of the stockholders’ equity section as certain of these factors are outside the control of the Company. The mandatorily redeemable convertible preferred stock is not redeemable under any other circumstances.

          The following table summarizes information about mandatorily redeemable convertible preferred stock for the years ended December 31, 2001, 2002 and 2003 (in thousands);

		Series A				Series B				Series C				Series D				Series E
		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount
Balance, December 31, 2000			2,667		$5,989		1,326		$4,508		1,560		$26,023		772		$14,050		—		$—
	Issuance of Series E mandatorily redeemable convertible preferred stock, net		—		—		—		—		—		—		—		—		3,534		6,645
Balance, December 31, 2001			2,667		5,989		1,326		4,508		1,560		26,023		772		14,050		3,534		6,645
Balance, December 31, 2002			2,667		5,989		1,326		4,508		1,560		26,023		772		14,050		3,534		6,645
	Conversion of debt to mandatorily redeemable convertible preferred stock		—		—		—		—		—		—		—		—		141		270
Balance, December 31, 2003			2,667		$5,989		1,326		$4,508		1,560		$26,023		772		$14,050		3,675		$6,915

Preferred Stock Warrants

          In connection with certain capital leases entered into during 1999, the Company issued warrants to purchase 14,706 shares of Series B mandatorily redeemable convertible preferred stock at $3.40 per share (Series B warrants) and warrants to purchase 2,994 shares of Series C mandatorily redeemable convertible preferred stock at $16.70 per share (Series C warrants) to a financial institution. The Series B warrants are exercisable immediately and expire in August 2006 or three years from the effective date of an Initial Public Offering, whichever is longer. The Series C warrants are exercisable immediately and expire in December 2004 or three years from the effective date of an Initial Public Offering, whichever is longer. The fair value of the warrants, $71,000 as determined using the Black-Scholes option-pricing model, was recognized as interest expense over the term of the lease.

          As discussed in Note 4, the Company also issued warrants in connection with its subordinated debt. As consideration for the extension of the maturity date, the Company canceled the original warrant grant for 126,315 shares of Series C mandatorily redeemable convertible preferred stock at $23.75 and issued warrants to purchase 126,315 shares of Series E mandatorily redeemable convertible preferred stock at $1.91. These warrants expired unexercised on October 15, 2003. The fair value of the original and amended warrants, approximately $959,000 as determined using the Black-Scholes option-pricing model, was recognized as interest expense over the term of the subordinated notes payable.

F-17

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

          The fair value of the warrants is estimated using a dividend rate of 0%, expected volatility of 80%, risk-free interest rates ranging from 4.4% to 6.6% and contract lives of 2.3 years to 7.0 years.

Shares Reserved for Issuance

          The following shares of common stock were reserved at December 31, 2003 (in thousands):

Mandatorily redeemable convertible preferred stock (Series A through E)	10,920
Stock options and warrants	1,695
	12,615

Note 7.     Stock-Based Compensation

Stock Option Plan

          In 1999, the Company adopted a combined incentive and nonqualified equity incentive plan (the “Plan”) to provide incentive to employees, directors, consultants and advisors. The Company has reserved 3,310,400 shares of common stock for issuance under the Plan.

          Options granted under the Plan generally provide for 25% vesting on the first anniversary from the date of grant with the remainder vesting monthly over three years and expire 10 years from the date of grant. Options granted under the Plan are generally granted at fair value on the date of the grant. For options granted prior to February 2001, the options included an early exercise provision that allows early exercise of unvested stock options subject to a repurchase right at original cost on unvested shares.

          As mentioned in Note 1, the Company accounts for stock-based employee compensation arrangements in accordance with APB 25 and FIN 44. Under APB 25, compensation expense is recognized for the difference between the fair value of the Company’s stock on the date of grant and the exercise price. In 2001, the Company recorded $199,000 for stock-based compensation benefit resulting from the variable accounting treatment of certain stock options early exercised with non-recourse notes. There were no such expenses or benefits in 2002. During 2003 the Company issued options to certain employees under the Plan with exercise prices below the deemed fair market value of the Company’s common stock at the date of grant. In accordance with the requirements of APB 25, the Company has recorded deferred stock-based compensation for the difference between the exercise price of the stock option and the deemed fair market value of the Company’s stock at the grant date. In 2003, the Company recorded deferred stock-based compensation of $744,000 related to these options. This amount is being amortized over the vesting period of the awards, generally four years. During 2003, the Company recorded compensation expense of $46,000 related to the amortization of deferred compensation.

          The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”). EITF 96-18 requires such equity instruments be recorded at their fair value on the measurement date.

          In August 2001, the Company offered a voluntary stock option cancellation and re-grant program to its employees. The plan allowed employees, at their election, to cancel a portion or all of their unexercised stock options effective August 15, 2001, provided that, should an employee participate, any option granted to that employee during the period February 15, 2001 to August 15, 2001 would be automatically canceled and the Company would grant no options to the participants from August 15, 2001 through February 18, 2002. In exchange, in February 2002, the employee would be granted new options at the then fair value of the underlying common stock to purchase a number of shares equal to the number

F-18

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of shares underlying the canceled options provided they were still employed by the Company at that time. Options to purchase approximately 1,061,600 shares of the Company’s common stock were canceled, and new options to purchase approximately 961,000 shares of the Company’s common stock were granted.

          A summary of activity related to the Plan is as follows (in thousands, except exercise price):

	Year Ended December 31,
	2001					2002					2003
				Weighted					Weighted					Weighted
				average					average					average
				exercise					exercise					exercise
	Options			price		Options			price		Options			price
Balance, beginning of year		1,216			$3.19		207			$0.48		2,078			$0.27
Granted		161			0.55		1,906			0.25		379			8.48
Exercised		(12	)		1.37		(9	)		0.87		(989	)		0.26
Canceled		(1,158	)		3.33		(26	)		0.30		(65	)		0.91
Balance, end of year		207			$0.48		2,078			$0.27		1,403			$2.47
Exercisable at end of year		42			$0.89		1,166			$0.28		650			$0.30

          The following table summarizes information about stock options outstanding at December 31, 2003:

	Outstanding						Exercisable
			Weighted Average
			Remaining						Weighted
	Options		contractual		Exercise		Options		average
	(in thousands)		life		price		(in thousands)		exercise price
Range of Exercise Price
$0.25		848		8		$0.25		567		$0.25
$0.28-$3.75		187		7		0.47		83		0.66
$6.25		22		10		6.25		—		—
$8.75		328		10		8.75		—		—
$9.38		18		10		9.38		—		—
		1,403		8		$2.47		650		$0.30

          The weighted-average fair value at grant date of options granted during 2001, 2002 and 2003 was $0.10, $0.05 and $3.20, respectively. The exercise price of all options granted in 2001 and 2002 was equal to the fair value on the grant date. The exercise price of all options granted in 2003 was less than the fair value of the stock on the grant date. The fair value for each option grant is estimated on the date of grant using the minimum value method and the following assumptions:

	Year Ended December 31,
	2001		2002		2003
Expected dividend rate		0%		0%		0%
Expected volatility		0%		0%		0%
Expected lives (years)		5		5		5
Risk-free interest rate		3.9%-4.9%		2.9%-4.8%		2.6%-3.6%

          See Note 1 for the pro forma effect of accounting for stock options using the fair value method.

F-19

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 8.     Common Stock

Common Stock Warrants

          In January 2000, the Company issued warrants to purchase an aggregate of 15,000 shares of common stock at exercise prices of $3.75 and $6.25 per share. These warrants were fully exercisable and expired at different times. In January 2002, the Company issued another fully exercisable warrant to purchase an aggregate of 14,000 shares of common stock at an exercise price of $0.25 per share and a term of ten months. The fair value of the warrants issued in 2000 and 2002 was approximately $43,000 and less than $1,000, respectively, and was determined using the Black-Scholes option-pricing model. The assumptions used in determining the fair value were a dividend rate of 0%, expected volatility of 80%, risk-free interest rates ranging from 4.5% to 6.7% and contractual lives of ten months to four years. The fair value of the warrants was expensed upon issuance.

          At December 31, 2003, the Company had warrants outstanding to purchase a total of 8,000 shares of common stock at an exercise price of $6.25. One of these warrants to purchase 2,000 shares expires on November 10, 2004 and the remaining warrants to purchase 6,000 shares expire upon the closing of an initial public offering.

Restricted Stock

          In 1999, the Company issued 2,555,564 shares of common stock to the founders of the Company at $0.001 per share, which represents the fair value on the date of issuance. The shares vested 25% upon the closing of the Series A mandatorily redeemable convertible preferred stock offering in May 1999, and the remainder vested monthly over 36 months beginning in June of 1999 until May of 2002. If employment was terminated the Company could repurchase unvested shares at cost. During 2001, the Company repurchased 214,737 unvested shares of restricted common stock for approximately $1,000 from a founder in connection with his termination.

          As of December 31, 2002 and 2003, all 2,340,827 shares were fully vested.

Change in Control

          During 2001, the Board of Directors approved a Management Change of Control Incentive Plan whereby under certain circumstances key employees would receive up to a total of 10% of the net proceeds received upon an asset transfer or acquisition, reduced by amounts received for common stock interests. The Management Change of Control Incentive Plan terminates upon the closing of this offering.

Note 9.     Employee Benefit Plan

          The Company has a defined contribution plan pursuant to Section 401(k) of the Internal Revenue Code covering all eligible officers and employees. The Company provides a matching contribution of $0.50 for every $1.00 contributed by the employee up to 2% of each employee’s salary. Such contributions were approximately $62,000, $67,000 and $97,000 for the years ended December 31, 2001, 2002 and 2003, respectively.

F-20

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 10.     Income Taxes

          The (benefit) provision for income taxes consists of the following (in thousands):

		Year Ended December 31,
		2001		2002		2003
Current income tax expense			$—		$—		$254
Deferred income tax benefit:
	U.S. Federal benefit						(690	)
	Benefit of net operating loss carryforwards						4,438
	Adjustment to beginning of year valuation allowance		—		—		(19,702	)
Total income tax expense (benefit)			$—		$—		$(15,700	)

          A reconciliation of the statutory Federal income tax rate to the effective tax rate is as follows:

	Year Ended December 31,
	2001			2002			2003
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Change in valuation allowance		(35.9	)		(35.2	)		(173.8	)
Other		0.9			0.2			0.2
Effective tax rate		—	%		—	%		(138.6	)%

          Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets are as follows (in thousands):

			December 31,
			2002			2003
Deferred tax assets:
	Current:
		Net operating loss carryforwards		$4,438			$4,500
		Deferred rent		7			456
		Reserves and allowances		262			344
	Noncurrent:
		Net operating loss carryforwards		13,182			8,682
		Excess of book over tax depreciation		1,393			1,363
		Other		420			609
Gross deferred tax assets				19,702			15,954
Valuation allowance				(19,702	)		—
Net deferred tax assets				$—			$15,954

          During 2003, the Company recorded a reduction in the valuation allowance of $19.7 million, primarily due to the Company realizing net income in 2002 and 2003. The Company believes that it is more likely than not that it will generate sufficient taxable income to utilize its deferred tax assets, including net operating loss carryforwards, within any applicable carryover periods.

F-21

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

          At December 31, 2003 the Company had net operating loss carryforwards for federal income tax purposes of $37.7 million that expire between 2019 and 2021. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating losses may be limited in certain circumstances.

Note 11.     Income (Loss) Per Share

          Basic net income (loss) per share is based on the weighted average number of common shares outstanding, excluding unvested common shares issued to the Company’s founders, and employees upon early exercise of options, which are subject to repurchase by the Company. Diluted net income (loss) per share is based on the weighted average number of common shares and equivalents outstanding. Common share equivalents included in the computation represent unvested common shares issued to founders, and common shares issued upon early exercise of options which are subject to repurchase rights, shares issuable upon assumed exercise of outstanding stock options, warrants and mandatorily redeemable convertible preferred stock except when the effect of their inclusion would be antidilutive.

          The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

	Year Ended December 31,
	2001			2002		2003
Net income (loss)		$(7,360	)		$1,627		$27,030
Weighted average common shares outstanding		3,015			3,336		3,868
Basic net income (loss) per share		$2.44			$0.49		$6.99
Dilutive effect of restricted stock issued to founders		—			37		—
Dilutive effect of options early exercised with repurchase rights		—			8		2
Dilutive effect of stock options and warrants		—			—		1,583
Dilutive effect of convertible preferred stock		—			10,779		10,885
Common stock and common stock equivalents		3,015			14,160		16,338
Diluted net income (loss) per share		$2.44			$0.11		$1.65

          The following is a summary of the securities outstanding during the respective periods that have been excluded from the calculations because the effect on net income (loss) per share would have been antidilutive (in thousands):

	Year Ended December 31,
	2001		2002		2003
Unvested restricted stock issued to founders		459
Options early exercised subject to repurchase rights		117		—		—
Mandatorily redeemable convertible preferred stock		8,580		—		—
Options		535		694		86
Preferred stock warrants		147		147		3
Common stock warrants		7		10		—
		9,845		851		89

F-22

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

          The shares used in calculating the pro forma net income per share assume the conversion of the following mandatorily redeemable convertible preferred shares and warrants outstanding (in thousands, except per share data):

		Year Ended
		December 31, 2003
		(Unaudited)
Net income			$27,030
Weighted average common shares outstanding			3,868
Plus conversion of mandatorily redeemable convertible preferred stock			10,920
Plus common shares from warrants exercised			6
Total weighted average shares outstanding used in computing pro forma net income per share			14,794
Dilutive effect of options early exercised with repurchase rights			2
Dilutive effect of stock options and warrants			1,582
	Total common stock and common stock equivalents		16,378
Pro forma basic net income per share			$1.83
Pro forma diluted net income per share			$1.65

Note 12.     Restructuring Costs

          In 2001, the Company recorded a restructuring charge of $1,017,000 related to the loss on facilities we no longer occupied and the write-off of leasehold improvements at these facilities. In 2002, the Company recorded an additional restructuring charge of $400,000 reflecting a decrease in estimated sublease income at one of these facilities. During 2003, the Company negotiated the termination of one the leases and reversed $87,000 of the restructuring charge previously recorded. A summary of activity related to the restructuring charge for December 31, 2001, 2002 and 2003 is as follows (in thousands):

	Lease			Asset
	obligations			write-offs			Total
Initial restructuring charge		$831			$186			$1,017
Cash paid		(244	)		—			(244	)
Non-cash charges		—			(186	)		(186	)
Restructuring accrual at December 31, 2001		587			—			587
Changes in estimates		400			—			400
Cash paid		(395	)		—			(395	)
Restructuring accrual at December 31, 2002		592			—			592
Changes in estimates		(87	)					(87	)
Cash paid		(472	)		—			(472	)
Restructuring accrual at December 31, 2003		$33			$—			$33

          The remaining liability at December 31, 2003 is due in 2004.

F-23

BLUE NILE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 13.     Subsequent Events

          On March 9, 2004, the Company’s Board of Directors passed the following resolutions:

•  To authorize the officers of the Company to undertake a firm commitment underwritten public offering of shares of the Company’s common stock;

•  To adopt the 2004 Equity Incentive Plan and reserve 2,560,000 shares thereunder, subject to stockholder approval;

•  To adopt the 2004 Non-Officer Stock Option Plan and reserve 400,000 shares thereunder, subject to stockholder approval;

•  To adopt the 2004 Employee Stock Purchase Plan and reserve 1,000,000 shares thereunder, subject to stockholder approval;

•  To terminate the 1999 Equity Incentive Plan upon the effective date of the Company’s initial public offering; and

•  To amend and restate the Company’s certificate of incorporation to authorize 300,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock, subject to stockholder approval.

Note 14.  Reverse Stock Split

          On April 14, 2004, the Company’s Board of Directors approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a 1 for 2.5 reverse stock split of the Company’s common stock and mandatorily redeemable convertible preferred stock. The Amended and Restated Certificate of Incorporation will be filed prior to effectiveness of the registration statement relating to the initial public offering. All references to the number of shares, per share amounts and any other references to shares in the consolidated financial statements and the accompanying notes, unless otherwise noted, have been adjusted to reflect the reverse stock split on a retroactive basis. Previously awarded stock options, restricted stock awards, warrants and all other agreements payable in the Company’s common stock or mandatorily redeemable convertible preferred stock have been retroactively adjusted to reflect the reverse stock split.

F-24

BLUE NILE, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

				Charged to
		Balance at		revenue,
		beginning of		costs or					Balance at
Description		period		expenses(A)		Deductions(B)			end of period
Reserve deducted from asset to which it applies:
Year Ended December 31, 2003
	Reserve for deferred income tax assets	$	19,702	$	—	$	(19,702	)	$	—
Year Ended December 31, 2002
	Reserve for deferred income tax assets	$	20,276	$	—	$	(574	)	$	19,702
Year Ended December 31, 2001
	Reserves for deferred income tax assets	$	17,632	$	2,644	$	—		$	20,276
Reserves recorded as accrued liabilities:
Year Ended December 31, 2003
	Reserve for sales returns	$	601	$	168	$			$	769
	Reserve for fraud	$	113	$	75	$			$	188
Year Ended December 31, 2002
	Reserve for sales returns	$	261	$	340	$			$	601
	Reserve for fraud	$	72	$	41	$			$	113
Year Ended December 31, 2001
	Reserve for sales returns	$	239	$	22	$			$	261
	Reserve for fraud	$	105	$		$	(33	)	$	72

(A)	The Company reduces sales revenues and cost of sales reported in the Statements of Operations to reflect estimated returns. The additions to the reserve for sales return is the net increase in the reserve recorded in each year presented.
(B)	Includes adjustments to reduce the deferred tax valuation allowance and reserve for fraud, which were credited to the Statement of Operations.

F-25

[Inside back cover artwork: picture of diamond ring and “Blue Nile” and

Blue Nile logo on bottom of page]

               Through and including                     , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

3,740,000 Shares

Common Stock

PROSPECTUS

Merrill Lynch & Co.

Bear, Stearns & Co. Inc.

Thomas Weisel Partners LLC

          , 2004

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.     Other Expenses of Issuance and Distribution

          The following table sets forth all expenses payable by us in connection with the sale of the common stock being registered. All of the amounts shown are estimates, except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market initial listing fee.

		Amount to be
		Paid
Registration fee			$10,627
NASD filing fee			$8,887
Nasdaq National Market initial listing fee			$100,000
Blue sky qualification fees and expenses			$10,000
Printing and engraving expenses			$250,000
Legal fees and expenses			$500,000
Accounting fees and expenses			$500,000
Transfer agent and registrar fees			$25,000
Miscellaneous			$595,486
	Total		$2,000,000

Item 14.     Indemnification of Officers and Directors

          Under Section 145 of the Delaware General Corporation Law, we have broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act.

          Our restated certificate of incorporation and amended and restated bylaws include provisions to (i) eliminate the personal liability of our directors for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by Section 102(b)(7) of the General Corporation Law of Delaware and (ii) require the registrant to indemnify its directors and officers to the fullest extent permitted by Section 145 of the Delaware Law, including circumstances in which indemnification is otherwise discretionary. Pursuant to Section 145 of the Delaware Law, a corporation generally has the power to indemnify its present and former directors, officers, employees and agents against expenses incurred by them in connection with any suit to which they are, or are threatened to be made, a party by reason of their serving in such positions so long as they acted in good faith and in a manner they reasonably believed to be in or not opposed to, the best interests of the corporation and with respect to any criminal action, they had no reasonable cause to believe their conduct was unlawful. We believe that these provisions are necessary to attract and retain qualified persons as directors and officers. These provisions do not eliminate the directors’ duty of care, and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware Law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to the registrant, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for acts or omissions that the director believes to be contrary to the best interests of the registrant or its stockholders, for any transaction from which the director derived an improper personal benefit, for acts or omissions involving a reckless disregard for the director’s duty to the registrant or its stockholders when the director was aware or should have been aware of a risk of serious injury to the registrant or its stockholders, for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the registrant or its stockholders, for improper transactions between the director and the registrant and for improper distributions to stockholders and loans to directors and officers. The provision

II-1

also does not affect a director’s responsibilities under any other law, such as the federal securities law or state or federal environmental laws.

          At present, there is no pending litigation or proceeding involving any of our directors or officers as to which indemnification is being sought nor are we aware of any threatened litigation that may result in claims for indemnification by any officer or director.

          We have an insurance policy covering our officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.

Item 15.     Recent Sales of Unregistered Securities

          Since January 1, 2001, we have issued and sold the following unregistered securities:

      (1) We granted stock options to employees, consultants and directors under its 1999 Equity Incentive Plan covering an aggregate of 2,501,670 shares of our common stock, at a weighted average exercise price of $1.79 per share. Of these, options covering an aggregate of 1,255,504 were canceled without being exercised. During the same period, we sold an aggregate of 1,044,756 shares of our common stock to employees, consultants and directors for cash consideration in the aggregate amount of $286,914 upon the exercise of stock options granted under the 1999 plan.

      (2) In June and July 2001, we sold an aggregate of 3,533,601 shares of Series E convertible preferred stock, convertible into the same number of shares of common stock, at $1.90 per share for an aggregate sale price of $6,744,769 to the investors and in the amounts set forth below:

Name	Shares
Entities affiliated with Bessemer Ventures		969,220
KPCB Holdings, Inc.		735,560
Funds managed by Trinity Ventures		969,220
Entities affiliated with Lightspeed Venture Partners		314,341
Vulcan Ventures Incorporated		261,951
Entities affiliated with Integral Capital Partners		232,613
Ray E. Wooldridge		50,696

      (3) In June 2001, in connection with a loan agreement, we issued a purchase option, which has since expired, allowing for the purchase of 126,315 shares of Series E convertible preferred stock to an accredited investor. The purchase option had an exercise price of $1.90 per share and expired unexercised in September 2003.

      (4) In January 2002, in connection with a supplier agreement, we issued a warrant exercisable into 14,000 shares of common stock to an vendor. The warrant, which had an exercise price of $0.25 per share, was exercised in April 2002. We issued 14,000 shares of common stock to a vendor upon the exercise of the warrant.

      (5) In April 2003, in connection with an amended noncompetition agreement, we issued 141,454 shares of Series E convertible preferred stock to one of our affiliates. The shares were issued in consideration for cash payments that were due under the original noncompetition agreement.

          The issuances described in paragraph (1) above in this Item 15 were deemed exempt from registration under the Securities Act in reliance on either (1) Rule 701 promulgated under the Securities Act as offers and sale of securities pursuant to certain compensatory benefit plans and contracts relating to compensation in compliance with Rule 701 or (2) Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and

II-2

instruments issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.

          The sales and issuances of securities in the transactions described in paragraphs (2), (3), (4) and (5) were exempt from registration pursuant to the Securities Act by virtue of Section 4(2) and/or Regulation D promulgated thereunder as transactions not involving any public offering. All of the purchasers of securities for which the registrant relied on Regulation D and/or Section 4(2) represented that they were accredited investors as defined under the Securities Act. The registrant believes that the issuances are exempt from the registration requirements of the Securities Act on the basis that (a) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view to the distribution thereof and that they either received adequate information about the registrant or had access, through employment or other relationships, to such information and (b) appropriate legends were affixed to the stock certificates issued in such transactions.

Item 16. Exhibits and Financial Statement Schedules

          (A) Exhibits:

Exhibit
Number			Description of Document
	1.1(1)	—	Form of Underwriting Agreement.
	3.1(2)	—	Amended and Restated Certificate of Incorporation to be filed on closing of the offering made hereby.
	3.2(2)	—	Amended and Restated Bylaws to be filed on closing of the offering made hereby.
	4.1(2)	—	Reference is made to Exhibits 3.1 and 3.2.
	4.2(1)	—	Specimen Stock Certificate.
	4.3(2)	—	Amended and Restated Investor Rights Agreement dated June 29, 2001 by and between the registrant and certain holders of the registrant’s preferred stock.
	5.1	—	Form of Opinion of Cooley Godward LLP.
	10.1.1(2)	—	Blue Nile, Inc. Amended and Restated 1999 Equity Incentive Plan.
	10.1.2(2)	—	Form of Stock Option Agreement pursuant to the Blue Nile, Inc. 1999 Equity Incentive Plan.
	10.2.1(2)	—	Blue Nile, Inc. 2004 Non-Employee Directors’ Stock Purchase Plan.
	10.2.2(2)	—	Form of Stock Option Agreement pursuant to the Blue Nile, Inc. 2004 Non-Employee Directors’ Stock Purchase Plan.
	10.3(2)	—	Blue Nile, Inc. 2004 Employee Stock Purchase Plan.
	10.4.1	—	Blue Nile, Inc. 2004 Equity Incentive Plan.
	10.4.2(2)	—	Form of Stock Option Agreement pursuant to 2004 Equity Incentive Plan.
	10.5.1	—	Sublease Agreement, dated May 22, 2003, between Amazon.com Holdings, Inc. and the registrant.
	10.5.2	—	First Amendment to Sublease Agreement, dated July 3, 2003, between Amazon.com Holdings, Inc. and the registrant.
	10.6.1	—	Lease, dated June 28, 2001, between Gull Industries, Inc. and the registrant.
	10.6.2	—	First Amendment to Lease, dated December 11, 2002 between Gull Industries, Inc. and the registrant
	10.6.3	—	Second Amendment to Lease, dated November 15, 2003, between Gull Industries, Inc. and the registrant.
	10.7(2)	—	Offer Letter with Diane M. Irvine, dated December 1, 1999.
	10.8(2)	—	Offer Letter with Robert L. Paquin, dated September 7, 1999.
	10.9(2)	—	Offer Letter with Dwight Gaston, dated May 14, 1999.
	10.10(2)	—	Offer Letter with Susan S. Bell, dated August 22, 2001.
	10.11(2)	—	Offer Letter with Darrell Cavens, dated July 30, 1999.

II-3

Exhibit
Number			Description of Document
	10.12(2)	—	Offer Letter with Barbara Rybka, dated January 20, 2004.
	10.13	—	Form of Indemnification Agreement entered into between the registrant and each of its directors and executive officers.
	16.1(2)	—	Letter from KPMG LLP.
	21.1(2)	—	Subsidiaries of the Registrant.
	23.1	—	Consent of PricewaterhouseCoopers LLC.
	23.2	—	Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
	24.1(2)	—	Power of Attorney. Reference is made to the signature page.

(1) To be filed by amendment.

(2) Previously filed.

          (B) Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts

Item 17. Undertakings

          The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

          Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions described in Item 14 or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

          The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act each, post-effective amendment that contains a form prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on April 19, 2004.

By:  /s/ MARK C. VADON

Mark C. Vadon

President and Chief Executive Officer

POWER OF ATTORNEY

          KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark C. Vadon and Diane M. Irvine and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments, exhibits thereto and other documents in connection therewith) to this Registration Statement and any subsequent registration statement filed by the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as amended, which relates to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ MARK C. VADON Mark C. Vadon	President, Chief Executive Officer and Director (Principal Executive Officer)	April 19, 2004
/s/ DIANE M. IRVINE Diane M. Irvine	Chief Financial Officer, (Principal Financial and Accounting Officer)	April 19, 2004
* Joseph Jimenez	Director	April 19, 2004
* Joanna A. Strober	Director	April 19, 2004
* Augustus O. Tai	Director	April 19, 2004

II-5

Signature		Title	Date
* Mary Alice Taylor		Director	April 19, 2004
/s/ BRIAN P. MCANDREWS Brian P. McAndrews		Director	April 19, 2004
*By:	/s/ MARK C. VADON Mark C. Vadon Attorney-in-Fact

II-6

EXHIBIT INDEX

Exhibit
Number			Description of Document
	1.1(1)	—	Form of Underwriting Agreement.
	3.1(2)	—	Amended and Restated Certificate of Incorporation to be filed on closing of the offering made hereby.
	3.2(2)	—	Amended and Restated Bylaws to be filed on closing of the offering made hereby.
	4.1(2)	—	Reference is made to Exhibits 3.1 and 3.2.
	4.2(1)	—	Specimen Stock Certificate.
	4.3(2)	—	Amended and Restated Investor Rights Agreement dated June 29, 2001 by and between the registrant and certain holders of the registrant’s preferred stock.
	5.1	—	Form of Opinion of Cooley Godward LLP.
	10.1.1(2)	—	Blue Nile, Inc. Amended and Restated 1999 Equity Incentive Plan.
	10.1.2(2)	—	Form of Stock Option Agreement pursuant to the Blue Nile, Inc. 1999 Equity Incentive Plan.
	10.2.1(2)	—	Blue Nile, Inc. 2004 Non-Employee Directors’ Stock Purchase Plan.
	10.2.2(2)	—	Form of Stock Option Agreement pursuant to the Blue Nile, Inc. 2004 Non-Employee Directors’ Stock Purchase Plan.
	10.3(2)	—	Blue Nile, Inc. 2004 Employee Stock Purchase Plan.
	10.4.1	—	Blue Nile, Inc. 2004 Equity Incentive Plan.
	10.4.2(2)	—	Form of Stock Option Agreement pursuant to 2004 Equity Incentive Plan.
	10.5.1	—	Sublease Agreement, dated May 22, 2003, between Amazon.com Holdings, Inc. and the registrant.
	10.5.2	—	First Amendment to Sublease Agreement, dated July 3, 2003, between Amazon.com Holdings, Inc. and the registrant.
	10.6.1	—	Lease, dated June 28, 2001, between Gull Industries, Inc. and the registrant.
	10.6.2	—	First Amendment to Lease, dated December 11, 2002 between Gull Industries, Inc. and the registrant
	10.6.3	—	Second Amendment to Lease, dated November 15, 2003, between Gull Industries, Inc. and the registrant.
	10.7(2)	—	Offer Letter with Diane M. Irvine, dated December 1, 1999.
	10.8(2)	—	Offer Letter with Robert L. Paquin, dated September 7, 1999.
	10.9(2)	—	Offer Letter with Dwight Gaston, dated May 14, 1999.
	10.10(2)	—	Offer Letter with Susan S. Bell, dated August 22, 2001.
	10.11(2)	—	Offer Letter with Darrell Cavens, dated July 30, 1999.
	10.12(2)	—	Offer Letter with Barbara Rybka, dated January 20, 2004.
	10.13	—	Form of Indemnification Agreement entered into between the registrant and each of its directors and executive officers.
	16.1(2)	—	Letter from KPMG LLP
	21.1(2)	—	Subsidiaries of the Registrant.
	23.1	—	Consent of PricewaterhouseCoopers LLC.
	23.2	—	Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
	24.1(2)	—	Power of Attorney. Reference is made to the signature page.

(1) To be filed by amendment.

(2) Previously filed.

EX-5.1

                                                                     EXHIBIT 5.1
[COOLEY GODWARD LOGO]         ATTORNEYS AT LAW

                              Five Palo Alto Square    Broomfield, CO
                              3000 El Camino Real      720 566-4000
                              Palo Alto, CA            Reston, VA
                              94306-2155               703 456-8000
                              Main     650 843-5000    San Diego, CA
                              Fax      650 849-7400    858 550-6000
                                                       San Francisco, CA
                              www.cooley.com           415 693-2000

                              JOHN M. GESCHKE
                              (650) 843-5757
                              jgeschke@cooley.com




__________, 2004



Blue Nile, Inc.
705 Fifth Avenue S, Suite 900
Seattle, Washington 98104

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by Blue Nile, Inc. (the "Company") of a Registration Statement
on Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") covering an underwritten public offering of up to
               (        ) shares of the Company's common stock, including up to
           shares to be sold by the Company (the "Company Shares"),
shares for which the Underwriters have been granted an over-allotment option,
and up to              shares to be sold by certain selling stockholders (the
"Selling Stockholder Shares").

In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation and Bylaws, as currently in effect, and
the originals or copies certified to our satisfaction of such records,
documents, certificates, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below. As
to certain factual matters, we have relied upon a certificate of officers of the
Company and have not sought to independently verify such matters. Our opinion is
expressed only with respect to the laws of the State of Delaware.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Selling Stockholder Shares are, and the Company Shares when sold and
issued in accordance with the Registration Statement and related Prospectus will
be, validly issued, fully paid and non-assessable.

We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included on the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.

Very truly yours,

COOLEY GODWARD LLP

By:
    --------------------------------
         John M. Geschke

EX-10.4.1

                                                                  EXHIBIT 10.4.1



                                 BLUE NILE, INC.
                           2004 EQUITY INCENTIVE PLAN

                ADOPTED BY THE BOARD OF DIRECTORS: MARCH 9, 2004
                    APPROVED BY STOCKHOLDERS: MARCH __, 2004


1. PURPOSES.

         (a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are Employees, Directors and Consultants.

         (b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Nonstatutory Stock Options, (ii) Restricted
Stock Awards, (iii) Stock Appreciation Rights, (iv) Restricted Stock Units and
(v) Other Stock Awards.

         (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2. DEFINITIONS.

         (a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

         (b) "BOARD" means the Board of Directors of the Company.

         (c) "CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that term
in Section 11(a).

         (d) "CHANGE IN CONTROL" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

                  (i) any Exchange Act Person becomes the Owner, directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
other than by virtue of a merger, consolidation or similar transaction.


                                       1.



                  (ii) there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company if, immediately after
the consummation of such merger, consolidation or similar transaction, the
stockholders of the Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities representing more than
fifty percent (50%) of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than
fifty percent (50%) of the combined outstanding voting power of the parent of
the surviving Entity in such merger, consolidation or similar transaction;

                  (iii) there is consummated a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportion as their
Ownership of the Company immediately prior to such sale, lease, license or other
disposition; or

                  (iv) individuals who, on the date this Plan is adopted by the
Board, are members of the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the members of the Board; (provided, however,
that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of
the Incumbent Board then still in office, such new member shall, for purposes of
this Plan, be considered as a member of the Incumbent Board).

         The term Change in Control shall not include a sale of assets, merger
or other transaction effected exclusively for the purpose of changing the
domicile of the Company.

         Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company or any Affiliate and the Participant shall
supersede the foregoing definition with respect to Stock Awards subject to such
agreement (it being understood, however, that if no definition of Change in
Control or any analogous term is set forth in such an individual written
agreement, the foregoing definition shall apply).

         (e) "CODE" means the Internal Revenue Code of 1986, as amended.

         (f) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with Section 3(c).

         (g) "COMMON STOCK" means the common stock of the Company.

         (h) "COMPANY" means Blue Nile, Inc., a Delaware corporation.

         (i) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) serving as a member of the Board of
Directors of an Affiliate and who is compensated for such services. However, the
term "Consultant" shall not include Directors who are not compensated by the
Company for their services as Directors, and the payment of a


                                       2.



director's fee by the Company for services as a Director shall not cause a
Director to be considered a "Consultant" for purposes of the Plan.

         (j) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the Participant
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the
Participant's service with the Company or an Affiliate, shall not terminate a
Participant's Continuous Service. For example, a change in status from an
employee of the Company to a consultant to an Affiliate or to a Director shall
not constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave. Notwithstanding the foregoing, a leave of absence
shall be treated as Continuous Service for purposes of vesting in a Stock Award
only to such extent as may be provided in the Company's leave of absence policy
or in the written terms of the Participant's leave of absence.

         (k) "CORPORATE TRANSACTION" means the occurrence, in a single
transaction or in a series of related transactions, of any one or more of the
following events:

                  (i) a sale or other disposition of all or substantially all,
as determined by the Board in its discretion, of the consolidated assets of the
Company and its Subsidiaries;

                  (ii) a sale or other disposition of at least fifty percent
(50%) of the outstanding securities of the Company;

                  (iii) a merger, consolidation or similar transaction following
which the Company is not the surviving corporation; or

                  (iv) a merger, consolidation or similar transaction following
which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger, consolidation or
similar transaction into other property, whether in the form of securities, cash
or otherwise.

         (l) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.

         (m) "DIRECTOR" means a member of the Board.

         (n) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

         (o) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Service as a Director or payment of a director's fee by the Company
for such service or for

                                       3.



service as a member of the Board of Directors of an Affiliate shall not be
sufficient to constitute "employment" by the Company or an Affiliate.

         (p) "ENTITY" means a corporation, partnership or other entity.

         (q) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         (r) "EXCHANGE ACT PERSON" means any natural person, Entity or "group"
(within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that
"Exchange Act Person" shall not include (A) the Company or any Subsidiary of the
Company, (B) any employee benefit plan of the Company or any Subsidiary of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary of the Company, (C) an underwriter
temporarily holding securities pursuant to an offering of such securities, or
(D) an Entity Owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their Ownership of stock of the
Company.

         (s) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

                  (i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

                  (ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.

         (t) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

         (u) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not
currently an employee or officer of the Company or its parent or a subsidiary,
does not receive compensation, either directly or indirectly, from the Company
or its parent or a subsidiary, for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to which disclosure
would not be required under Item 404(a) of Regulation S-K promulgated pursuant
to the Securities Act ("Regulation S-K")), does not possess an interest in any
other transaction for which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship for which
disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.

         (v) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.


                                       4.



         (w) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

         (x) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.

         (y) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

         (z) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

         (aa) "OTHER STOCK AWARD" means an award based in whole or in part by
reference to the Common Stock which is granted pursuant to the terms and
conditions of Section 7(d).

         (bb) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" who
receives compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year, has not been an officer
of the Company or an "affiliated corporation", and does not receive remuneration
from the Company or an "affiliated corporation," either directly or indirectly,
in any capacity other than as a Director or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.

         (cc) "OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall be
deemed to "Own," to have "Owned," to be the "Owner" of, or to have acquired
"Ownership" of securities if such person or Entity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power, which includes the power to vote or to direct the
voting, with respect to such securities.

         (dd) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

         (ee) "PLAN" means this Blue Nile, Inc. 2004 Equity Incentive Plan.

         (ff) "RESTRICTED STOCK AWARD" means an award of shares of Common Stock
which is granted pursuant to the terms and conditions of Section 7(a).

         (gg) "RESTRICTED STOCK UNIT" means a right to receive shares of Common
Stock which is granted pursuant to the terms and conditions of Section 7(b).

         (hh) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.

         (ii) "SECURITIES ACT" means the Securities Act of 1933, as amended.

         (jj) "STOCK APPRECIATION RIGHT" means a right to receive the
appreciation on Common Stock that is granted pursuant to the terms and
conditions of Section 7(c).


                                       5.



         (kk) "STOCK AWARD" means any right granted under the Plan, including an
Option, Restricted Stock Award, Restricted Stock Unit, Stock Appreciation Right
and Other Stock Award.

         (ll) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

         (mm) "SUBSIDIARY" means, with respect to the Company, (i) any
corporation of which more than fifty percent (50%) of the outstanding capital
stock having ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether, at the time, stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, Owned by the Company, and (ii) any partnership in which the Company
has a direct or indirect interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%).

3. ADMINISTRATION.

         (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
Section 3(c).

         (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

                  (i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award shall
be granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

                  (ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

                  (iii) To effect, at any time and from time to time, with the
consent of any adversely affected Optionholder, (1) the reduction of the
exercise price of any outstanding Option under the Plan, (2) the cancellation of
any outstanding Option under the Plan and the grant in substitution therefor of
(A) a new Option under the Plan or another equity plan of the Company covering
the same or a different number of shares of Common Stock, (B) a Restricted Stock
Award (including a stock bonus), (C) a Stock Appreciation Right, (D) Restricted
Stock Unit, (E) an Other Stock Award, (F) cash and/or (G) other valuable
consideration (as determined by the Board, in its sole discretion), or (3) any
other action that is treated as a repricing under generally accepted accounting
principles.


                                       6.



                  (iv) To amend the Plan or a Stock Award as provided in
Section 12.

                  (v) To terminate or suspend the Plan as provided in
Section 13.

                  (vi) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and that are not in conflict with the provisions of the Plan.

         (c) DELEGATION TO COMMITTEE.

                  (i) GENERAL. The Board may delegate administration of the Plan
to a Committee or Committees of one (1) or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.

                  (ii) SECTION 162(m) AND RULE 16b-3 COMPLIANCE. In the
discretion of the Board, the Committee may consist solely of two or more Outside
Directors, in accordance with Section 162(m) of the Code, and/or solely of two
or more Non-Employee Directors, in accordance with Rule 16b-3. In addition, the
Board or the Committee may delegate to a committee of one or more members of the
Board the authority to grant Stock Awards to eligible persons who are either (a)
not then Covered Employees and are not expected to be Covered Employees at the
time of recognition of income resulting from such Stock Award, (b) not persons
with respect to whom the Company wishes to comply with Section 162(m) of the
Code, or (c) not then subject to Section 16 of the Exchange Act.

         (d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4. SHARES SUBJECT TO THE PLAN.

         (a) SHARE RESERVE. Subject to the provisions of Section 11(a) relating
to Capitalization Adjustments, the shares of Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate Six Million Four
Hundred Thousand (6,400,000) shares of Common Stock, plus an annual increase to
be added on the first day of the fiscal year of the Company for a period of ten
(10) years, commencing on the first day of the fiscal year that begins on
January 1, 2005 and ending on (and including) the first day of the fiscal year
that begins on January 1, 2014 (each such day, a "Calculation Date"), equal to
five percent (5%) of the shares of Common Stock outstanding on each such
Calculation Date (rounded down to the nearest whole share). Notwithstanding the
foregoing, the Board may act, prior to the first day of any fiscal year of the
Company, to increase the share reserve by such number of shares of


                                       7.



Common Stock as the Board shall determine, which number shall be less than five
percent (5%) of the shares of Common Stock Outstanding on the Calculation Date.

         (b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
granted under the Plan or under the Company's 1999 Equity Incentive Plan shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, or if any shares of Common Stock issued to a
Participant pursuant to a Stock Award granted under the Plan or under the
Company's 1999 Equity Incentive Plan are forfeited back to or repurchased by the
Company, including, but not limited to, any repurchase or forfeiture caused by
the failure to meet a contingency or condition required for the vesting of such
shares, then the shares of Common Stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan. If any
shares subject to a Stock Award are not delivered to a Participant because such
shares are withheld for the payment of taxes or the Stock Award is exercised
through a reduction of shares subject to the Stock Award (i.e., "net
exercised"), then the number of shares that are not delivered shall revert to
and again become available for issuance under the Plan. If the exercise price of
any Stock Award is satisfied by tendering shares of Common Stock held the
Participant (either by actual deliver or attestation), then the number of such
tendered shares shall revert to and again become available for issuance under
the Plan.

         (c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY.

         (a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Stock Awards may be granted
to Employees, Directors and Consultants.

         (b) SECTION 162(m) LIMITATION ON ANNUAL GRANTS. Subject to the
provisions of Section 11(a) relating to Capitalization Adjustments, no Employee
shall be eligible to be granted Options covering more than Two Million Five
Hundred Thousand (2,500,000) shares of Common Stock during any calendar year.

         (c) CONSULTANTS. A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("Form S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, because the
Consultant is not a natural person, or because of any other rule governing the
use of Form S-8.

6. OPTION PROVISIONS.

         Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be designated
Nonstatutory Stock Options at the time of grant. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:


                                       8.



         (a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date on which it was granted.

         (b) EXERCISE PRICE. The exercise price of each Nonstatutory Stock
Option shall be not less than fifty percent (50%) of the Fair Market Value of
the Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.

         (c) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) by a "net exercise" of the
Option (as further described below) (4) pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board that, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instruction to pay the aggregate
exercise price to the Company from the sales proceeds or (5) in any other form
of legal consideration that may be acceptable to the Board. Unless otherwise
specifically provided in the Option, the purchase price of Common Stock acquired
pursuant to an Option that is paid by delivery to the Company of other Common
Stock acquired, directly or indirectly from the Company, shall be paid only by
shares of the Common Stock of the Company that have been held for more than six
(6) months (or such longer or shorter period of time required to avoid a charge
to earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.

         In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid (1) the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement and (2) the treatment of the Option as a
variable award for financial accounting purposes.

         In the case of a "net exercise" of an Option, the Company will not
require a payment of the exercise price of the Option from the Participant but
will reduce the number of shares of Common Stock issued upon the exercise by the
largest number of whole shares that has a Fair Market Value that does not exceed
the aggregate exercise price. With respect to any remaining balance of the
aggregate exercise price, the Company shall accept a cash payment from the
Participant. The shares of Common Stock so used to pay the exercise price of an
Option under a "net exercise" will be considered to have resulted from the
exercise of the Option, and accordingly, the Option will not again be
exercisable with respect to such shares, the shares actually delivered to the
Participant, and any shares withheld for purposes of tax withholding.

         (d) TRANSFERABILITY. A Nonstatutory Stock Option shall be transferable
to the extent provided in the Option Agreement. If the Nonstatutory Stock Option
does not provide for transferability, then the Nonstatutory Stock Option shall
not be transferable except by will or by



                                       9.



the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.

         (e) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this Section 6(g) are subject to any Option provisions governing
the minimum number of shares of Common Stock as to which an Option may be
exercised.

         (f) TERMINATION OF CONTINUOUS SERVICE. In the event that an
Optionholder's Continuous Service terminates (other than upon the Optionholder's
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise such Option as of the date
of termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.

         (g) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in Section 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.

         (h) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.

         (i) DEATH OF OPTIONHOLDER. In the event that (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or


                                      10.



inheritance or by a person designated to exercise the option upon the
Optionholder's death pursuant to Section 6(e) or 6(f), but only within the
period ending on the earlier of (1) the date eighteen (18) months following the
date of death (or such longer or shorter period specified in the Option
Agreement or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.

         (j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate. The Company will not exercise its repurchase
option until at least six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically
provides in the Option.

7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

         (a) RESTRICTED STOCK AWARDS. Each Restricted Stock Award agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of Restricted Stock Award
agreements may change from time to time, and the terms and conditions of
separate Restricted Stock Award agreements need not be identical; provided,
however, that each Restricted Stock Award agreement shall include (through
incorporation of the provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:

                  (i) PURCHASE PRICE. At the time of the grant of a Restricted
Stock Award, the Board will determine the price to be paid by the Participant
for each share subject to the Restricted Stock Award. To the extent required by
applicable law, the price to be paid by the Participant for each share of the
Restricted Stock Award will not be less than the par value of a share of Common
Stock. A Restricted Stock Award may be awarded as a stock bonus (i.e., with no
cash purchase price to be paid) to the extent permissible under applicable law.


                  (ii) CONSIDERATION. At the time of the grant of a Restricted
Stock Award, the Board will determine the consideration permissible for the
payment of the purchase price of the Restricted Stock Award. The purchase price
of Common Stock acquired pursuant to the Restricted Stock Award shall be paid in
one of the following ways: (i) in cash at the time of purchase; (ii) at the
discretion of the Board, according to a deferred payment or other similar
arrangement with the Participant; (iii) by past services rendered to the Company
or an Affiliate; or (iv) in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company is
incorporated in Delaware, the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be paid by deferred payment and must
be paid in a form of consideration that is permissible under the Delaware
Corporation Law.



                                      11.



                  (iii) VESTING. Shares of Common Stock acquired under a
Restricted Stock Award may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.

                  (iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event that a Participant's Continuous Service terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of Common Stock held
by the Participant that have not vested as of the date of termination under the
terms of the Restricted Stock Award agreement. The Company will not exercise its
repurchase option until at least six (6) months (or such longer or shorter
period of time required to avoid a charge to earnings for financial accounting
purposes) have elapsed following the purchase of the restricted stock unless
otherwise determined by the Board or provided in the Restricted Stock Award
agreement.

                  (v) TRANSFERABILITY. Rights to purchase or receive shares of
Common Stock granted under a Restricted Stock Award shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
Restricted Stock Award agreement, as the Board shall determine in its
discretion, and so long as Common Stock awarded under the Restricted Stock Award
remains subject to the terms of the Restricted Stock Award agreement.

         (b) RESTRICTED STOCK UNITS. Each Restricted Stock Unit agreement shall
be in such form and shall contain such terms and conditions as the Board shall
determine. The terms and conditions of Restricted Stock Unit agreements may
change from time to time, and the terms and conditions of separate Restricted
Stock Unit agreements need not be identical; provided, however, that each
Restricted Stock Unit agreement shall include (through incorporation of the
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:

                  (i) CONSIDERATION. At the time of grant of a Restricted Stock
Unit award, the Board will determine the consideration, if any, to be paid by
the Participant upon delivery of each share of Common Stock subject to the
Restricted Stock Unit award. To the extent required by applicable law, the
consideration to be paid by the Participant for each share of Common Stock
subject to a Restricted Stock Unit award will not be less than the par value of
a share of Common Stock. Such consideration may be paid in any form permitted
under applicable law.

                  (ii) VESTING. At the time of the grant of a Restricted Stock
Unit award, the Board may impose such restrictions or conditions to the vesting
of the shares Restricted Stock Unit as it deems appropriate.

                  (iii) PAYMENT. A Restricted Stock Unit award may be settled by
the delivery of shares of Common Stock, their cash equivalent, or any
combination of the two, as the Board deems appropriate.

                  (iv) ADDITIONAL RESTRICTIONS. At the time of the grant of a
Restricted Stock Unit award, the Board, as it deems appropriate, may impose such
restrictions or conditions that delay the delivery of the shares of Common Stock
(or their cash equivalent) subject to a Restricted Stock Unit award after the
vesting of such Award.


                                      12.



                  (v) DIVIDEND EQUIVALENTS. Dividend equivalents may be credited
in respect of Restricted Stock Units, as the Board deems appropriate. Such
dividend equivalents may be converted into additional Restricted Stock Units by
dividing (1) the aggregate amount or value of the dividends paid with respect to
that number of shares of Common Stock equal to the number of Restricted Stock
Units then credited by (2) the Fair Market Value per share of Common Stock on
the payment date for such dividend. The additional Restricted Stock Units
credited by reason of such dividend equivalents will be subject to all the terms
and conditions of the underlying Restricted Stock Unit award to which they
relate.

                  (vi) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Except
as otherwise provided in the applicable Stock Award Agreement, Restricted Stock
Units that have not vested will be forfeited upon the Participant's termination
of Continuous Service for any reason.

         (c) STOCK APPRECIATION RIGHTS. Each Stock Appreciation Right agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of Stock Appreciation Right
agreements may change from time to time, and the terms and conditions of
separate Stock Appreciation Rights agreements need not be identical, but each
Stock Appreciation Right agreement shall include (through incorporation of the
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:

                  (i) CALCULATION OF APPRECIATION. Each Stock Appreciation Right
will be denominated in share of Common Stock equivalents. The appreciation
distribution payable on the exercise of a Stock Appreciation Right will be not
greater than an amount equal to the excess of (A) the aggregate Fair Market
Value (on the date of the exercise of the Stock Appreciation Right) of a number
of shares of Common Stock equal to the number of share of Common Stock
equivalents in which the Participant is vested under such Stock Appreciation
Right and with respect to which the Participant is exercising the Stock
Appreciation Right on such date, over (B) an amount that will be determined by
the Committee at the time of grant of the Stock Appreciation Right.

                  (ii) VESTING. At the time of the grant of a Stock Appreciation
Right, the Board may impose such restrictions or conditions to the vesting of
such Right as it deems appropriate.

                  (iii) EXERCISE. To exercise any outstanding Stock Appreciation
Right, the Participant must provide written notice of exercise to the Company in
compliance with the provisions of the Stock Appreciation Rights agreement
evidencing such Right.

                  (iv) PAYMENT. The appreciation distribution in respect of a
Stock Appreciation Right may be paid in Common Stock, in cash, or any
combination of the two, as the Board deems appropriate.

                  (v) TERMINATION OF CONTINUOUS SERVICE. If a Participant's
Continuous Service terminates for any reason, any unvested Stock Appreciation
Rights shall be forfeited and any vested Stock Appreciation Rights shall be
automatically redeemed.

         (d) OTHER STOCK AWARDS. Other forms of Stock Awards valued in whole or
in part by reference to, or otherwise based on, Common Stock may be granted
either alone or in




                                      13.



addition to Stock Awards provided for under Section 6 and the preceding
provisions of this Section 7. Subject to the provisions of the Plan, the Board
shall have sole and complete authority to determine the persons to whom and the
time or times at which such Other Stock Awards will be granted, the number of
shares of Common Stock (or the cash equivalent thereof) to be granted pursuant
to such Awards and all other terms and conditions of such Awards.

8. COVENANTS OF THE COMPANY.

         (a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

         (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.

9. USE OF PROCEEDS FROM STOCK.

         Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

10. MISCELLANEOUS.

         (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.

         (b) STOCKHOLDER RIGHTS. Subject to the further limitations of Section
7(b)(iv) hereof, no Participant shall be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares of Common Stock
subject to such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.

         (c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate,


                                      14.


and any applicable provisions of the corporate law of the state in which the
Company or the Affiliate is incorporated, as the case may be.

         (d) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

         (e) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law (or such lesser amount as may be necessary to
avoid variable award accounting); or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.

11. ADJUSTMENTS UPON CHANGES IN STOCK.

         (a) CAPITALIZATION ADJUSTMENTS. If, on or after the date the Plan is
adopted by the Board, any change is made in, or other event occurs with respect
to, the Common Stock subject to the Plan or subject to any Stock Award without
the receipt of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company (each a
"Capitalization Adjustment"), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
Sections 4(a) and 4(b) and the maximum number of securities subject to award to
any person pursuant to Section 5(c), and the outstanding Stock Awards will be
appropriately adjusted


                                      15.



in the class(es) and number of securities and price per share of Common Stock
subject to such outstanding Stock Awards. The Board shall make such adjustments,
and its determination shall be final, binding and conclusive. (The conversion of
any convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)

         (b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to the completion of such dissolution or liquidation, and
shares of Common Stock subject to the Company's repurchase option may be
repurchased by the Company notwithstanding the fact that the holder of such
stock is still in Continuous Service.

         (c) CORPORATE TRANSACTION. In the event of a Corporate Transaction, any
surviving corporation or acquiring corporation may assume or continue any or all
Stock Awards outstanding under the Plan or may substitute similar stock awards
for Stock Awards outstanding under the Plan (it being understood that similar
stock awards include, but are not limited to, awards to acquire the same
consideration paid to the stockholders or the Company, as the case may be,
pursuant to the Corporate Transaction), and any reacquisition or repurchase
rights held by the Company in respect of Common Stock issued pursuant to Stock
Awards may be assigned by the Company to the successor of the Company (or the
successor's parent company), if any, in connection with such Corporate
Transaction. In the event that any surviving corporation or acquiring
corporation does not assume or continue any or all such outstanding Stock Awards
or substitute similar stock awards for such outstanding Stock Awards, then with
respect to Stock Awards that have been not assumed, continued or substituted and
that are held by Participants whose Continuous Service has not terminated prior
to the effective time of the Corporate Transaction, the vesting of such Stock
Awards (and, if applicable, the time at which such Stock Awards may be
exercised) shall (contingent upon the effectiveness of the Corporate
Transaction) be accelerated in full to a date prior to the effective time of
such Corporate Transaction as the Board shall determine (or, if the Board shall
not determine such a date, to the date that is five (5) days prior to the
effective time of the Corporate Transaction), the Stock Awards shall terminate
if not exercised (if applicable) at or prior to such effective time, and any
reacquisition or repurchase rights held by the Company with respect to such
Stock Awards held by Participants whose Continuous Service has not terminated
shall (contingent upon the effectiveness of the Corporate Transaction) lapse.
With respect to any other Stock Awards outstanding under the Plan that have not
been assumed, continued or substituted, the vesting of such Stock Awards (and,
if applicable, the time at which such Stock Award may be exercised) shall not be
accelerated, unless otherwise provided in a written agreement between the
Company or any Affiliate and the holder of such Stock Award, and such Stock
Awards shall terminate if not exercised (if applicable) prior to the effective
time of the Corporate Transaction.

         (d) CHANGE IN CONTROL. A Stock Award held by any Participant whose
Continuous Service has not terminated prior to the effective time of a Change in
Control may be subject to additional acceleration of vesting and exercisability
upon or after such event as may be provided in the Stock Award Agreement for
such Stock Award or as may be provided in any other written agreement between
the Company or any Affiliate and the Participant, but in the absence of such
provision, no such acceleration shall occur.


                                      16.



12. AMENDMENT OF THE PLAN AND STOCK AWARDS.

         (a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11(a) relating to
Capitalization Adjustments, no amendment shall be effective unless approved by
the stockholders of the Company to the extent stockholder approval is necessary
to satisfy the requirements of Section 422 of the Code.

         (b) STOCKHOLDER APPROVAL. The Board, in its sole discretion, may submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to Covered Employees.

         (c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

         (d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.

         (e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

13. TERMINATION OR SUSPENSION OF THE PLAN.

         (a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

         (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.

14. EFFECTIVE DATE OF PLAN.

         The Plan shall become effective as determined by the Board, but no
Stock Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.


                                      17.



15.      CHOICE OF LAW.

         The law of the State of Delaware shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.


                                      18.

EX-10.5.1

                                                                  EXHIBIT 10.5.1

                               SUBLEASE AGREEMENT

         This Sublease Agreement ("Sublease") is entered as of May 22, 2003,
between Amazon.com Holdings, Inc., a Delaware corporation ("Sublandlord") and
Blue Nile, Inc., a Delaware corporation ("Subtenant").

                                R E C I T A L S:

         A.       Amazon.com, Inc., a Delaware corporation ("Original Tenant")
and Opus Union Station, L.L.C. ("Original Landlord") are parties to a
Multi-Tenant Office Lease Agreement dated as of August 23, 1999, as amended by
that certain Amendment 1 to the Multi-Tenant Office Agreement dated as of May
21, 2001 (the "First Amendment") (as amended from time to time, the "Prime
Lease"), Original Tenant's interest in which is now held by Sublandlord.
Effective June 12, 2001, Original Landlord's interest in the Prime Lease was
transferred to Seattle Union Station II, LLC, a Washington limited liability
company ("Landlord'). Pursuant to the Prime Lease, Sublandlord leases 253,769
square feet of Rentable Area (as defined in the Prime Lease) (the "Leased
Premises") from Landlord at the Opus Center South Building (the "Building"). The
Leased Premises and the Building are more fully described in the Prime Lease
attached as EXHIBIT A to this Sublease.

         B.       Subtenant wishes to acquire from Sublandlord the right to
occupy part of the 9th floor of the Building (as depicted on the illustration
attached hereto as EXHIBIT B and consisting of 21,135 square feet of Rentable
Area of a total of 24,184 square feet of Rentable Area on the 9th floor), as
determined in this Sublease for such floor as set forth in the First Amendment)
(the "Subleased Premises").

                                    AGREEMENT

In consideration of the mutual promises of the parties and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:

1.       SUBLEASE OF SUBLEASED PREMISES

         1.1      INITIAL SUBLEASED PREMISES. Sublandlord subleases to
Subtenant, and Subtenant subleases from Sublandlord, the Subleased Premises,
subject and pursuant to the terms and conditions of this Sublease. Within 10
business days after completion of the Subtenant's Improvements (defined in
Section 6.1 below) in the Subleased Premises, or after any space is added to the
Subleased Premises under the terms of Sections 1.2, 1.3 or 1.4 of this Sublease,
Subtenant and Sublandlord shall measure the Subleased Premises, or, as
applicable, any area(s) hereafter added to the Subleased Premises, by such
person as shall be reasonably acceptable to Subtenant, Sublandlord and Landlord,
and the Rentable Area shall be determined by such person using the standards set
forth in the Prime Lease. Sublandlord and Subtenant shall each pay one half of
the cost of such measurement. If Sublandlord, Subtenant or Landlord disputes the
measurement provided by the designated architect, the parties will jointly agree
upon a second person to perform the measurements and the results of this second
measurement will be final and binding upon the parties hereto for all purposes
hereunder, including, without limitation, the

                                       1.


determination of the total Basic Rent and Subtenant's Share (both as defined in
this Sublease). If the Rentable Area determined by any such measurement should
differ from that set forth in this Sublease, the parties shall jointly execute
an amendment to this Sublease setting forth the Rentable Area of the Subleased
Premises, the Basic Rent, Subtenant's Share and such other matters herein (if
any) that vary with the size of the Subleased Premises; provided, however, any
failure to execute such amendment shall not affect the results of such
remeasurement. Until such measurement occurs, the approximate Rentable Area of
the Subleased Premises set forth in Recital B above will be binding.

         1.2      OPTION TO EXPAND. Commencing on the Sublease Commencement Date
and for a period of eight (8) months thereafter, Subtenant shall have the right
to exercise an option ("Expansion Option") to expand into the balance of the 9th
floor of the Building ("Expansion Space") by providing written notice to
Sublandlord. If Subtenant timely exercises its Expansion Option, then the
balance of the 9th floor of the Building shall be added to the Subleased
Premises effective 120 days from the effective date of Subtenant's notice
("Expansion Effective Date"). The parties will promptly sign an amendment to
this Sublease adding the Expansion Space to the Subleased Premises as of the
Expansion Effective Date. Subtenant's sublease of the Expansion Space will be
co-terminous with its sublease of the initial Subleased Premises. The amendment
will provide for the Expansion Space to be included as part of the Subleased
Premises and all terms and conditions of this Sublease will apply to the
Expansion Space, except that (a) the Subtenant Improvement Allowance for the
Expansion Space will be a prorated portion of the Subtenant Improvement
Allowance provided pursuant to Section 6.1 below stated on a per square foot
basis, based upon the total number of months that the Expansion Space will be a
part of the Subleased Premises as compared to the total number of months of the
Sublease Term, and (b) there will be no abatements in Base Rent for past time
periods. The following example is for purposes of clarification of the manner in
which the Subtenant Improvement Allowance will be calculated for the Expansion
Space: Assuming that the Expansion Space is 4,000 Square Feet of Rentable Area
and that it becomes a part of the Subleased Premises at the commencement of the
8th month of the Sublease Term, and assuming that the Sublease Term is 93
months, then the total available allowance stated on a per square foot basis
would be 86/93 times $58.50 (the Subtenant Improvement Allowance stated in
Section 6.1).

         1.3      SAME FLOOR RIGHT OF FIRST OFFER. After that date which is
twelve months from the Sublease Commencement Date, Subtenant will have a right
of first offer to sublease any space that Sublandlord intends to sublease in the
same floor of the Building ("Floor RFO"), subject to the pre-existing rights of
other subtenants of the Building as of the date of this Sublease Agreement. When
such space becomes available for sublease, Sublandlord will give written notice
("Floor RFO Notice") to Subtenant containing a proposal to add the available
space ("Floor RFO Space") to the Subleased Premises on all terms and conditions
of this Sublease (except Base Rent and the amount of any tenant improvement
allowance (if any), which will be on such terms and conditions as Sublandlord is
prepared to accept in view of market conditions at the time for comparable
space). If Subtenant wants to accept Sublandlord's offer to sublease the Floor
RFO Space, it will give Sublandlord an irrevocable notice of acceptance of such
space within 7 business days and, in such case, the parties will promptly sign
an amendment to this Sublease adding the Floor RFO Space to the Subleased
Premises on the terms of the Floor RFO Notice. Subtenant's sublease of the Floor
RFO Space will be co-terminus with its sublease of the initial Subleased
Premises. If Subtenant does not timely

                                       2.


notify Sublandlord of its desire to accept the offer, Sublandlord will be free
to sublease the RFO Space on any terms to any other party and Subtenant shall
have no further rights with respect to such Floor RFO Space; provided, however,
that if Sublandlord proposes to sublease the RFO Space to any other party at a
Basic Rent that is less than 90% of the rate offered to Subtenant, then
Sublandlord shall give notice to Subtenant of the new Basic Rent that it
proposes for that sublease and Subtenant shall have 3 business days in which to
give Sublandlord an irrevocable notice of acceptance, and in such case, the
parties will promptly sign an amendment to this Sublease adding the Floor RFO
Space to the Subleased Premises on the terms set forth in Landlord's second
notice. This right of first offer applies only with respect to the entire Floor
RFO Space and may not be exercised with respect to only a portion. This right of
first offer will, at Sublandlord's election, be null and void with respect to
the subject Floor RFO Space for its current availability if any Event of Default
(as defined in the Prime Lease) under the Sublease exists on the date
Sublandlord would otherwise notify Subtenant of its offer for the Floor RFO
Space or at any time thereafter before the parties sign an amendment adding the
Floor RFO Space to this Sublease. If Subtenant declines to sublease Floor RFO
Space, Sublandlord subleases to a third party and the same Floor RFO Space
subsequently becomes available once again, then for the first 72 calendar months
of the Sublease Term Tenant will have a continuing right of first offer to
sublease any Floor RFO Space that becomes available on the terms set forth in
this Section 1.3.

         1.4      ADJACENT FLOOR RIGHT OF FIRST OFFER. In addition to the Same
Floor RFO, at any time after the expiration of the forty-eighth (48th) month of
the Sublease Term ("Adjacent Floor RFO Date"), Subtenant will have a right of
first offer to sublease any space that Sublandlord intends to sublease on a
floor that is adjacent to a floor on which Subtenant is already subleasing space
from Sublandlord, subject to the pre-existing rights of other subtenants of the
Building as of the Adjacent Floor RFO Date. For purposes of this Section 1.4,
any floor in the Building shall be deemed to be an adjacent floor if all
rentable area on all floors lying between the subject floor and the Premises is
fully subleased at the time that space becomes available on the subject floor.
When such space becomes available for sublease, Sublandlord will give written
notice ("Adjacent Floor RFO Notice") to Subtenant containing a proposal to add
the available space ("Adjacent Floor RFO Space") to the Subleased Premises on
all terms and conditions of this Sublease (except (a) Basic Rent which will be
on such terms and conditions as Sublandlord is prepared to accept in view of
market conditions at the time for comparable space, and (b) any other allowances
under the Sublease, which will provided only in the sole discretion of
Sublandlord). If Subtenant wants to accept Sublandlord's offer to sublease the
Adjacent Floor RFO Space, it will give Sublandlord an irrevocable notice of
acceptance of such space within 7 business days and, in such case, the parties
will promptly sign an amendment to this Sublease adding the Adjacent Floor RFO
Space to the Subleased Premises, on the terms of the Adjacent Floor RFO Notice.
Subtenant's sublease of the Adjacent Floor RFO Space will be co-terminus with
its sublease of the initial Subleased Premises. If Subtenant does not timely
notify Sublandlord of its desire to accept the offer, Sublandlord will be free
to sublease the Adjacent Floor RFO Space an any terms to any other party and
Subtenant shall have no further rights with respect to such Adjacent Floor RFO
Space. Notwithstanding the foregoing, if the entire 9th floor of the Building is
subleased to Subtenant or to Subtenant and any third party, then if Sublandlord
proposes to sublease the Adjacent Floor RFO Space to any party other than
Subtenant at a Basic Rent that is less than 90% of the rate offered to
Subtenant, then Sublandlord shall give notice to Subtenant of the new Basic Rent
that it proposes for that sublease and Subtenant shall have 3

                                       3.


business days in which to give Sublandlord an irrevocable notice of acceptance,
and in such case, the parties will promptly sign an amendment to this Sublease
adding the Adjacent Floor RFO Space to the Subleased Premises on the terms set
forth in Landlord's second notice. This right of first offer applies only with
respect to the entire Adjacent Floor RFO Space and may not be exercised with
respect to only a portion. This right of first offer will, at Sublandlord's
election, be null and void with respect to the subject Adjacent Floor RFO Space
for its current availability if any Event of Default (as defined in the Prime
Lease) under the Sublease exists on the date Sublandlord would otherwise notify
Subtenant of its offer for the Adjacent Floor RFO Space or at any time
thereafter before the parties sign an amendment adding the Adjacent Floor RFO
Space to this Sublease. If Subtenant declines to sublease Adjacent Floor RFO
Space, Sublandlord subleases to a third party and the same Adjacent Floor RFO
Space subsequently becomes available once again, then for the first 72 calendar
months of the Sublease Term Tenant will have a continuing right of first offer
to sublease that Adjacent Floor RFO Space on the terms set forth in this Section
1.4.

         1.5      TEMPORARY LICENSE DURING BUILDOUT. During construction of
Subtenant's Improvements, Subtenant shall have a license to use approximately
3,000 square feet of space on the 9th Floor of the Building that is not a part
of the Premises for use as a staging area for construction work and to make
certain improvements as described in Section 6.1 below, and for no other use or
purpose whatsoever. All of the terms and conditions of this Sublease shall apply
with respect to this temporary license except for payment of Rent.

2.       TERM OF SUBLEASE.

         2.1      The term of this Sublease ("Sublease Term") will commence
("Sublease Commencement Date") the earlier of (i) August 1, 2003 or (ii)
Substantial Completion (as defined in the Prime Lease) of the Subtenant's
Improvements (as defined below); provided, however, that if the conditions
precedent that are set forth in Sections 8.1 and 8.2 below are not satisfied
within fifteen days of the date this Sublease has been executed by both
Sublandlord and Subtenant, then the date of August 1, 2003 that is set forth in
(i) above shall be extended one day for each day that elapses until the
conditions precedent have been satisfied, up to a maximum of 16 days; and
provided, further, that if either Landlord or Tenant fails to act on Subtenant's
proposed space plan or final plans within the time lines specified in the Prime
Lease, then the date of August 1, 2003 that is set forth in (i) above shall be
extended one day for each day that elapses until both Landlord and Tenant have
acted on Subtenant's Proposed space plan or final plans, as the case may be.
Unless earlier terminated in accordance with the terms and conditions of this
Sublease, the Sublease Term shall expire with respect to the entire Subleased
Premises at 11:59 p.m. on April 29, 2011. If the Commencement Date is a day
other than August 1, 2003, the parties shall promptly sign an amendment to this
Sublease confirming the Commencement Date.

         Subtenant shall have access to the Subleased Premises for the purposes
of constructing Subtenant's Improvements and for installation of furniture and
equipment from and after the date that the conditions precedent that are set
forth in Section 8.1 below are satisfied, and all of the terms and conditions of
this Sublease shall apply from and after that date except for payment of Rent.

                                       4.


         2.2      Subtenant will have a one time right to terminate this
Sublease without cause ("Termination Right") by providing Sublandlord with
written notice of termination on or before the first day of the 48th month
("Notice Date") of the Sublease Term and paying the Early Termination Fee
described below prior to the Early Termination Date (as that term is defined
below). If Subtenant properly exercises the Termination Right then: (a) the
termination will become effective upon the last day of the 59th month of the
Sublease Term ("Early Termination Date"), and (b) prior to the Early Termination
Date, Subtenant shall pay an early termination fee equal to the sum of the
then-unamortized portions of the Subtenant Improvement Allowance and
Architectural Allowance ("Early Termination Fee"). In the event that Subtenant
fails to exercise the Termination Right by the Notice Date, or exercises the
Termination Right by the Notice Date but fails to pay the Early Termination Fee
prior to the Early Termination Date, then the Termination Right and the
effectiveness of any notice given by Subtenant exercising the Termination Right
shall expire and be of no further force or effect; provided, however, that if
Subtenant exercises the Termination Right by the Notice Date but fails to pay
the Early Termination Fee prior to the Early Termination Date, then Sublandlord
shall have the right, but not the obligation, to accept the early termination of
the Sublease Term and to recover from Subtenant Sublandlord's losses, costs and
damages arising out of Subtenant's failure to timely pay the Early Termination
Fee, including, but not limited to, interest at the Maximum Rate.

         2.3      Sublandlord agrees to waive its renewal rights under the Prime
Lease with respect to the Subleased Premises until the earlier of: (a)
Subtenant's failure to provide written notice to Sublandlord prior to the
expiration of the end of the 80th month of the term of this Sublease that
Subtenant intends to enter into a direct lease for the Subleased Premises upon
the expiration of this Sublease, (b) the termination of this Sublease prior to
the expiration of the Subleased Term, or (c) an event of default by Subtenant
under this Sublease.

3.       BASIC RENT AND ADDITIONAL RENT.

         Rent to be paid under this Sublease will include Basic Rent and
Additional Rent as described in this Section 3, and all other sums that may be
owing from Subtenant to Sublandlord under the terms of this Sublease.

3.1      BASIC RENT

         Basic Rent during the Sublease Term will be $13.12 per square foot of
Rentable Area in the Subleased Premises per year, except that, provided there is
no Event of Default by Subtenant under this Sublease at any time during the
Sublease Term, Basic Rent and Tenant's Share of Operating Expenses (calculated
on an annualized basis) for months 1, 2, 3, 13, 25, 37, 49, 61, 73 and 85 of the
Sublease Term shall abate. For example, if the Subleased Premises contain the
Rentable Area that is set forth in Recital B above, then Basic Rent will be
$23,107.60 per month (except as it may be abated pursuant to the previous
sentence of this Section 3.1). For purposes of this Section 3.1, the first month
of the Sublease Term shall commence on the Sublease Commencement Date and
subsequent months shall commence on the same day of the following months. Basic
Rent shall be paid in equal monthly installments and without previous demand,
invoice or notice for payment. Each installment of Basic Rent shall be due and
payable in advance on the first day of each month during the Sublease Tenn. Rent
for any partial months during the Sublease Term shall be prorated based upon the
actual number of days in the month.

                                       5.


         3.2      ADDITIONAL RENT

         Commencing on the Sublease Commencement Date, Subtenant will pay as
Additional Rent (i) Subtenant's Share (as that term is defined below) of the
amounts owed by Sublandlord as Tenant's Share of Operating Expenses (as that
term is defined in the Prime Lease) under Section 2.2 and Article 3 of the Prime
Lease and (ii) all other sums that constitute Additional Rent under the terms of
the Prime Lease and that pertain to the Subleased Premises or to Subtenant's use
or occupancy of the Subleased Premises. "Subtenant's Share" shall be a fraction,
the numerator of which is the number of rentable square feet in the Subleased
Premises and the denominator of which shall be 253,769. Upon receipt of a
statement from Sublandlord containing the amount of Subtenant's Share of
Operating Expenses (in accordance with estimates provided by Landlord under
Sections 3.2 and 3.4 of the Prime Lease), Subtenant will pay Subtenant's Share
of the amounts payable pursuant to clause (i) above, together with Basic Rent,
on the first day of each month during the Sublease Term without previous demand,
invoice or notice for payment. Subtenant will pay all amounts payable pursuant
to clause (ii), and of any other Additional Rent due under this Sublease, within
30 days after receiving Sublandlord's invoice therefor.

         3.3      MANNER AND METHOD OF PAYMENT

         All rent payments shall be made in United States Dollars, without
deduction or offset, except as otherwise provided herein, and delivered to
Sublandlord at the address set forth in Section 9 of this Sublease, or to such
other entity and/or at such other address as Sublandlord may designate in
writing from time to time. Basic Rent and Additional Rent relating to Operating
Expenses for any partial month shall be prorated in proportion to the number of
days in that month.

         3.4      SECURITY DEPOSIT

         Upon execution of this Sublease, Subtenant shall deposit with
Sublandlord a cash security deposit ("Security Deposit") in the amount of
$40,896.23 (the "Deposit Amount"). If additional Rentable Area is added to the
Subleased Premises, the Deposit Amount shall be adjusted so that it is equal to
the Basic Rent plus estimated Tenant's Share of Operating Expenses for the last
month of the Sublease Tenn. The Security Deposit shall be held by Sublandlord as
security for Subtenant's performance of its obligations under this Sublease and
may be applied, at Sublandlord's sole discretion, against any obligation
incurred by Subtenant in connection with this Sublease that is not timely paid
or performed (as the case may be), including the payment of Basic Rent and
Additional Rent, the repair of any damage that is Subtenant's responsibility,
and all other obligations of Subtenant under this Sublease. If Sublandlord
debits the Security Deposit, Sublandlord shall notify Subtenant of the
occurrence and amount of the debit, and Subtenant shall promptly pay to
Sublandlord the amount necessary to restore the Security Deposit to the full
Deposit Amount. Sublandlord is not required to keep the Security Deposit
separate from its general funds and Subtenant is not entitled to interest on the
Security Deposit. If Subtenant performs each of its obligations under this
Sublease, then the Security Deposit, or any then-remaining balance thereof,
shall be returned to Subtenant within 30 days after the later of (i) the
expiration of the Sublease Term or termination of this Sublease, and

                                       6.


(ii) the date on which Subtenant surrenders the Subleased Premises to
Sublandlord in the condition required by this Sublease.

4.       ADDITIONAL OBLIGATIONS OF SUBTENANT

         4.1      INCORPORATION BY REFERENCE OF PRIME LEASE TERMS

         In addition to the payment of rent, Subtenant agrees, for the benefit
of Sublandlord and Landlord, that during the Sublease Term Subtenant shall
perform each and every one of the obligations of the tenant under the Prime
Lease that is incorporated into this Sublease. The following terms, covenants,
and conditions of the Prime Lease are incorporated into this Sublease with the
same force and effect as if Sublandlord were the landlord under the Prime Lease
and Subtenant were the tenant under the Prime Lease, except that, except as may
be otherwise expressly provided, each reference in such incorporated provisions
to "Lease" shall be deemed a reference to this "Sublease" and each reference to
"Premises" shall be deemed a reference to the "Subleased Premises": Sections
1.2.3; 1.2.4; 2.3; 2.4; 3.6; 3.8; Article 4 (except (i) the last sentence of
Section 4.1, (ii) with respect to Section 4.4, only the first three sentences
thereof and (iii) with respect to Section 4.3, the term "Landlord" shall mean
"either Landlord or Sublandlord" except in the last sentence of Section 4.3, in
which the term "Landlord" shall mean "Landlord and Sublandlord"); Article 5
(except for the second paragraph of Article 5.4, and except that with respect to
Article 5, the term "Landlord Parties" shall have the meaning ascribed to it in
the Prime Lease and shall also include Sublandlord and its officers, directors
and shareholders); the third sentence of Section 6.1.2; Section 6.2; Section
6.4; Section 7.2.1 (except the first and fifth sentences thereof); the first and
third sentences of Section 7.2.2; the first and third paragraphs of Section 8.1;
Section 8.2 (except that with respect to Section 8.2 the term "Landlord" shall
mean "both Landlord and Sublandlord" and the reference to $150,000 shall be
changed to $10,000); Section 8.3 (except that the reference to $100,000 shall be
changed to $10,000); Sections 8.4; 8.5 (except that with respect to Section 8.5,
the term "Landlord Parties" shall have the meaning ascribed to it in the Prime
Lease and shall also include Sublandlord and its officers, directors and
shareholders); Sections 9.1 (first four sentences only) and 9.6; 10.1 and, with
respect to Section 10.1.5, the term "Landlord Parties" shall have the meaning
ascribed to it in the Prime Lease and shall also include Sublandlord and its
officers, directors and shareholders); 10.2.3; 10.3 (except that with respect to
Section 10.3, the term "Landlord Parties" shall have the meaning ascribed to it
in the Prime Lease and shall also include Sublandlord and its officers,
directors and shareholders); 10.4 (except that with respect to Section 10.4, the
term "Landlord Parties" shall mean Sublandlord and its officers, directors and
shareholders); 10.5; 10.6; 10.7; Article 13; 14.1 (except that the applicable
cure or grace periods under Sections 14.1.2 and 14.1.4 shall be reduced by 3
business days); 14.2; 14.3; 14.4; the first paragraph of 14.5; 14.6; 14.7; 15.4
(except that, in addition, Subtenant will execute any such document at
Landlord's request); 16.1 (except that the term "Commencement Date" shall mean
the Sublease Commencement Date and excluding the proviso in the 3rd sentence and
excluding the 4th sentence); 16.2 (except that the term "Term" shall mean the
Sublease Term); Sections 17.1.14 (as modified by the First Amendment); 17.11.1;
18; 19.1 (as to notices to Landlord); 19.4; 19.5; 19.7; 19.8; 19.9; 19.10
(except that with respect to Section 19.10, the term "Landlord Parties" shall
mean "Sublandlord and its officers, directors and shareholders"); 19.12; 19.13;
19.16; 19.17; 19.18; 19.20 (except the last sentence); 19.21; 19.23; 19.24;
Exhibit A of the Prime Lease with respect to those terms used in the foregoing
provisions or that are necessary in order

                                       7.


to accurately define those terms; and paragraph 11 of the First Amendment.
Notwithstanding anything to the contrary in the foregoing, Subtenant shall
obtain the insurance required by Section 10.1 of the Prime Lease and shall name
Landlord and its Property Manager and Sublandlord as additional insureds
thereunder.

         4.2      SUBJECT TO PRIME LEASE

         This Sublease is subject and subordinate to the Prime Lease (including
the provisions thereof not incorporated herein by reference) and to all of
Landlord's rights under the terms of the Prime Lease. Subtenant has no
authority, and shall not attempt to exercise any of Sublandlord's options (if
any exist) to extend or terminate the Prime Lease or to add or remove space from
the Leased Premises. Subtenant shall, within ten (10) business days after
request made by either Landlord or Sublandlord, execute and deliver a
subordination agreement requested by any current or future mortgagee or ground
lessor of the Building or any portion thereof in a commercially reasonable form,
subordinating this Sublease to the interest of such mortgagee or ground lessor.
Sublandlord will not modify or amend the Prime Lease during the Sublease Term in
a manner that affects Subtenant's rights or obligations under this Sublease
without Subtenant's prior consent (which will not be unreasonably withheld,
conditioned or delayed).

         Sublandlord and Landlord (but, with respect to Landlord, subject to the
terms and conditions of any agreement between Landlord and Subtenant to
recognize Subtenant as Landlord's tenant in the event of a termination of the
Prime Lease) shall have no liability whatsoever to Subtenant with respect to (i)
termination of the Prime Lease for any reason (including without limitation
Sublandlord's default thereunder) or (ii) termination of this Sublease as a
result of termination of the Prime Lease. However, notwithstanding the
foregoing, Sublandlord shall be liable to reimburse Subtenant for any amount
paid by Subtenant to Sublandlord as Basic Rent or Additional Rent under this
Sublease which Sublandlord fails to pay as rent to Landlord (to the extent
actually due under the Prime Lease).

         4.3      BUILDING SERVICES/BUILDING SECURITY

         Notwithstanding anything to the contrary in this Sublease (including
Section 4.1 above), Subtenant acknowledges that Sublandlord does not have
control of the Building, Building security or the Building systems, and that
Sublandlord will not provide Building security, utilities, maintenance, repair
or restoration work or other Building services (including, without limitation,
those services and obligations to be performed by Landlord under Articles 6, 7,
11, 12 and 17.12 of the Prime Lease). Subject to the terms of this paragraph 4.3
and the Landlord's Consent, Subtenant will took solely to Landlord for
performance of the services to which Sublandlord is entitled under Article 6,
7.1 and 17.12 of the Prime Lease. In the event that Subtenant utilizes HVAC
after hours, Subtenant will be required to pay only the actual cost due for such
services under the Prime Lease, which is currently $13.40 per hour per floor.
Without limiting the generality of the foregoing, Sublandlord shall have no
liability for any interruption or stoppage of services, and no such interruption
or stoppage of services shall relieve Subtenant from any obligation that it may
have under this Sublease, including without limitation, the obligation to pay
Basic Rent and Additional Rent; provided, however, that if Sublandlord's Basic
Rent is abated with respect to any portion of the Subleased Premises pursuant to
Section 6.3 of

                                       8.


the Prime Lease, and if the interruption or stoppage is not caused by misuse or
neglect by Subtenant or Subtenant's agents or employees, then Basic Rent for the
portion of the Subleased Premises that is not usable shall abate for the period
of time that Sublandlord's Basic Rent abates pursuant to Section 6.3 of the
Prime Lease with respect to that portion of the Subleased Premises. Sublandlord,
upon receipt of written notice from Subtenant, shall make demand upon Landlord
to take all appropriate action for the correction of any defect, inadequacy or
insufficiency in Landlord's performance under the Prime Lease that interferes
with Subtenant's use of the Subleased Premises, including, but not limited to,
Landlord's obligations to repair and restore the Premises as described in
Section 11.5 of the Prime Lease.

         4.4      SUBTENANT TO COMPLY WITH PRIME LEASE

         Subtenant shall neither do nor permit anything to be done that would
cause the Prime Lease to be terminated or forfeited by reason of any right of
termination or forfeiture or default reserved or vested in Landlord under the
Prime Lease, and Subtenant shall indemnify and hold Sublandlord harmless from
and against all claims, actions, liabilities, damages, costs, penalties,
forfeitures, losses or expenses of any kind whatsoever including, without
limitation, reasonable attorneys' fees, arising out of Subtenant's breach of the
foregoing covenant.

         4.5      USE OF SUBLEASED PREMISES

         Subtenant will use the Subleased Premises for general, non-governmental
office purposes and for no other use or purpose whatsoever. Subtenant shall not
use the Subleased Premises for any unlawful purpose or in any manner prohibited
by the Prime Lease.

         4.6      NOTICES FROM LANDLORD OR GOVERNMENTAL AUTHORITY

         Subtenant agrees to forward to Sublandlord, promptly upon receipt
thereof, copies of any notices relating to Subtenant's occupancy or use of the
Subleased Premises received by Subtenant from Landlord or from any governmental
authority. Sublandlord will forward to Subtenant, promptly upon receipt thereof,
copies of any notices relating to the Subleased Premises or this Sublease from
Landlord or from any governmental authority.

5.       PARKING

         5.1      PARKING

         Subtenant shall have the right to use up to 1 Regular Parking Stall (as
defined in the Prime Lease) per 1,000 rentable square feet of the Subleased
Premises in the manner and on the allocation and payment terms described in the
Parking Agreement attached hereto as EXHIBIT C. Subtenant's right shall be
subject to the terms of Section 17.8 of the Prime Lease, the Parking Agreement,
and to all rules and regulations imposed by the Garage Operator (as that term is
defined in the Prime Lease), including but not limited to the right of the
Garage Operator to impose and adjust hours and charges for parking.

                                       9.


6.       ACCEPTANCE OF PREMISES; ALTERATIONS; MOVING ALLOWANCE

6.1      INITIAL SUBTENANT IMPROVEMENTS

         Subtenant will build out its initial improvements ("Subtenant's
Improvements") at its sole cost in accordance with all terms and conditions of
the Prime Lease. Sublandlord hereby assigns to Subtenant the right to receive
from Landlord a portion of the Improvement Allowance equal to $30 per square
foot of the Rentable Area in the Subleased Premises ("Base Improvement
Allowance"), provided that such assignment may be immediately revoked during the
existence of any Event of Default (as defined in the Prime Lease) under this
Sublease that remains uncured or that is no longer susceptible of cure in
accordance herewith. In addition to the Base Improvement Allowance, Sublandlord
agrees to provide Subtenant with a tenant improvement allowance equal to $28.50
per square foot of the Rentable Area in the Subleased Premises ("Additional
Allowance") over the base building items to be provided by Landlord as reflected
in the Base Building Specifications in the Master Lease, provided that such
allowance may be immediately revoked during the existence of any Event of
Default (as defined in the Prime Lease) under this Sublease that remains uncured
or that is no longer susceptible of cure in accordance herewith. The Base
Improvement Allowance and the Additional Allowance are collectively referred to
as the "Subtenant Improvement Allowance". The Subtenant Improvement Allowance
will be applied to the cost of tenant improvements and any Additional
Architectural Services, but, except as is expressly provided below, not to
fixtures, furniture or equipment. The Base Improvement Allowance will be
disbursed in accordance with the Prime Lease and the Additional Allowance will
be disbursed by Sublandlord within thirty (30) days of Sublandlord's receipt of
valid invoices for completion of the Subtenant's Improvements. Sublandlord will
not charge a plan review fee or any other fee to Subtenant for its involvement
in the design and construction process (other than amounts payable to Landlord
pursuant to Section 8.2 of the Prime Lease). Subtenant will deliver to
Sublandlord copies of all drawings, materials, documents and submissions at the
same time as Subtenant delivers such items to Landlord in connection with the
design and construction of Subtenant's Improvements. In the event that Subtenant
does not spend the entire Additional Allowance on Subtenant's Improvements, then
notwithstanding anything to the contrary in this Sublease, the unspent amount of
the Additional Allowance may be applied, at Subtenant's Option to (a) as
additional rent abatement commencing in the 4th month of the Sublease Term, (b)
additional Architectural Services (defined below) and construction supervision
services, and/or (c) to offset any costs associated with the furniture,
telephone/data cabling, or any moving costs in excess of the Moving Allowance
(defined in Section 6.3 below).

         Subtenant shall have the right to install a ceiling grid in the
Expansion Space ("Subtenant's Additional Improvements") as a part of
constructing Subtenant's Improvements to the Premises, subject to the terms of
this Sublease concerning approval of all of Subtenant's Improvements by Landlord
and Sublandlord. Subtenant acknowledges that Subtenant shall have no right
whatsoever to use, appropriate or otherwise enjoy the benefit of Subtenant's
Additional Improvements unless and until Subtenant takes occupancy of the
Expansion Space pursuant to an amendment to this Sublease. If Subtenant
exercises the Option to Expand, and if the total cost of Subtenant's
Improvements (including Subtenant's Additional Improvements) exceeds the
Subtenant Improvement Allowance such that Subtenant is required to make
additional payments in order to complete construction ("Subtenant's Payments"),
then at the time that Subtenant takes

                                      10.


occupancy of the Expansion Space pursuant to an amendment to this Sublease
Sublandlord shall credit to Subtenant against rent due under this Sublease the
reasonable cost of Subtenant's Additional Improvements up to the amount of
Subtenant's Payments.

         6.2      AS IS

         Subtenant hereby confirms that by taking possession of the Subleased
Premises, Subtenant accepts the Subleased Premises in their "AS IS" condition.
Sublandlord makes no warranty of any kind concerning the Subleased Premises, the
Building or the project of which they are a part, and Sublandlord expressly
disclaims any warranty concerning latent defects, any warranty of fitness for
use, and any other express or implied warranty (including any warranty of
MERCHANTABILITY).

         6.3      MOVING ALLOWANCE. No later than sixty (60) days from the
Commencement Date, Subtenant will provide Sublandlord with copies of invoices
(together with all applicable lien releases) of its expenses incurred in moving
from Subtenant's prior office space into the Subleased Premises ("Moving
Expenses"). Sublandlord will reimburse Subtenant for Moving Expenses of up to
$1.00 per square foot of the Rentable Area in the Subleased Premises ("Moving
Allowance") within 30 days of receipt of Subtenant's Moving Expenses invoices.
Moving Expenses shall include only the direct costs to relocate Subtenant's
facilities (e.g. packers, movers, transportation).

         6.4      ARCHITECTURAL SERVICES ALLOWANCE. Sublandlord agrees to
reimburse Subtenant up to $2.00 per square foot of the Usable Area in the
Subleased Premises ("Architectural Allowance") for the schematic and
construction drawings and a construction work letter, including the cost of
permits and the fees and charges of the designers, relating to the Subleased
Premises ("Architectural Services"). Within 30 days of Sublandlord's receipt of
valid invoices for such architectural services, Sublandlord will pay the
applicable amounts due for the Architectural Allowance. Sublandlord agrees that
any unused Additional Allowance (defined in Section 6.1) may be applied to pay
for Architectural Services in excess of the Architectural Allowance.

7.       HOLDING OVER

         If Subtenant remains in possession of the Subleased Premises after
expiration of the Sublease Term or after the earlier termination of the
Sublease, Sublandlord may be treated by Landlord as being in breach of the Prime
Lease. Sublandlord may be obligated to pay damages to Landlord, including
consequential damages that are presently difficult or impossible to calculate.
In the event of any Subtenant holdover, the Base Rent due shall be 150% of the
then current Base Rent for each portion of the Subleased Premises. Subtenant
agrees to indemnify, defend and hold harmless Sublandlord from any and all
actions, liabilities, damages, costs, penalties, losses or expenses that may
arise out of or be in any way connected with any holding over by Subtenant
following the expiration or earlier termination of the Sublease Term.

8.       CONDITION PRECEDENT

         8.1      Subtenant acknowledges that Sublandlord's right to sublease
the Subleased Premises is subject to obtaining the prior written consent of
Landlord, and that Landlord's

                                      11.


consent may be contingent upon execution by Subtenant of a subordination
agreement pursuant to Section 4.2 in favor of Bank of America. If such consent
is not obtained in the form attached hereto as EXHIBIT D, or Landlord has not
received approval from Bank of America to a form of subordination agreement that
is acceptable to Subtenant, within thirty (30) days of the date of this
Sublease, then either party may, at its option, terminate this Sublease by
written notice given within ten (10) business days of the expiration of the
thirty (30) day period.

         8.2      The effectiveness of this Sublease is expressly conditioned
upon Landlord's execution and delivery of an agreement recognizing Subtenant as
Landlord's tenant in the event of a termination of the Prime Lease in form and
substance satisfactory to Subtenant within thirty days after the date of this
Sublease, and if such an agreement is not received by Subtenant within that
thirty-day period, then Subtenant may, at its option, terminate this Sublease by
written notice given to Sublandlord within ten (10) days after expiration of
such thirty (30) day period.

9.       NOTICES

         Any notice or demand which either party may or must give pursuant to or
in connection with this Sublease shall be in writing, delivered personally, sent
by prepaid overnight courier, sent by first class mail, postage prepaid,
registered or certified, return receipt requested, or sent by facsimile
transmission as follows:

To Sublandlord:                  Amazon.com Holdings, Inc.
                                 1200 12th Ave. South, Suite 1200
                                 Seattle, Washington 98144
                                 Attn: Director, Global Real Estate
                                 Fax: (206) 266-1820

with a copy to:                  Amazon.com Holdings, Inc.
                                 1200 12th Ave. South, Suite 1200
                                 Seattle, Washington 98144
                                 Attn: General Counsel
                                 Fax: (206) 266-7010

Address for
Rent Payments:                   Amazon.com Holdings, Inc.
                                 1200 12th Ave. South, Suite 1200
                                 Seattle, Washington 98144
                                 Attn: Global Property Manager
                                 Fax: (206) 266-1820

If to Subtenant:                 Prior to the commencement date of the Sublease
                                 Term:
                                 Blue Nile, Inc.
                                 2025 First Avenue,Suite 300
                                 Seattle, WA 98121
                                 Attn: Bob Paquin
                                 Fax: (206) 336-6809

                                      12.


                                 After the commencement date of the Sublease
                                 Term:
                                 Blue Nile, Inc.
                                 At the address of the Premises
                                 To the attention of Mr. Paquin
                                 And the same Fax number

with a copy to:                  Tousley Brain Stephens PLLC
                                 700 Fifth Avenue, 56th Floor
                                 Seattle, WA 98104
                                 Attn: Russell F. Tousley, P.S.
                                 Fax: (206) 667-0229

         Either party may, by notice in writing, direct that future notices or
demands be sent to a different address that is not a post-office box. Notices
given by mail are deemed effective three business days after deposit, postage
prepaid, with the United States Post Office. Notices delivered by courier are
deemed effective on the next business day after deposit with the courier for
overnight (next day) delivery. Notices sent by facsimile or delivered personally
are effective upon receipt.

10.      DAMAGE OR DESTRUCTION

         Notwithstanding anything to the contrary contained in this Sublease, in
the event any fire or other casualty renders the whole or any material part of
the Subleased Premises or the Building untenantable, then, whether or not any
fire or other casualty renders the whole or any material part of the Subleased
Premises untenantable, in such event (i) if either Landlord or Sublandlord
exercises a right under the Prime Lease to terminate the Prime Lease, then this
Sublease shall terminate upon termination of the Prime Lease, and (ii) if
neither Landlord nor Sublandlord exercises a right to terminate the Prime Lease,
then this Sublease shall remain in full force and effect, and for so long as any
portion of the Subleased Premises are untenantable Basic Rent and Subtenant's
Share of Operating Expenses shall abate pro rata based upon the Rentable Area of
the Subleased Premises that is untenantable as compared to the total Rentable
Area of the Subleased Premises. Notwithstanding the foregoing, if Landlord
exercises its right to terminate the Prime Lease, then Sublandlord shall have
the right at its election to terminate this Sublease and shall have no
obligation whatsoever to exercise its right under Section 11.4 of the Prime
Lease to avoid termination of the Prime Lease. If, however, Sublandlord does
elect to avoid termination of the Prime Lease, and if Subtenant promptly pays to
Sublandlord Subtenant's Share of the amount payable by Sublandlord to Landlord
in order to avoid termination, and not otherwise, then this Sublease shall
continue in full force and effect.

         The provisions of this Section 10 are Subtenant's sole and exclusive
rights and remedies in the event of a casualty. To the extent permitted by the
Laws (as that term is defined in the Prime Lease), Subtenant waives the benefit
of any Law that provides to Subtenant any abatement or termination right by
virtue of a casualty.

                                      13.


11.      EMINENT DOMAIN

         In the event a Condemning Authority effects a Taking (as those terms
are defined in the Prime Lease) of all or a portion of the Leased Premises,
then, (i) if either Landlord or Sublandlord exercises a right to terminate the
Prime Lease, then this Sublease shall terminate upon termination of the Prime
Lease, and (ii) if neither Landlord nor Sublandlord exercises a right to
terminate the Prime Lease, then this Sublease shall remain in full force and
effect. If a portion of the Subleased Premises are taken and this Sublease does
not terminate, then Basic Rent shall be adjusted based upon the formula set
forth in Section 12.2 of the Prime Lease as applied to the Subleased Premises,
and Sublandlord shall equitably adjust Subtenant's Share of Operating Expenses
to account for any reduction in the number of rentable square feet in the
Subleased Premises.

         Subtenant waives and assigns to Sublandlord any interest it may have in
any damage, award or payment resulting from or paid on account of any Taking,
provided that Subtenant shall have the right to recover from any Condemning
Authority any compensation that may be separately recoverable for damages to or
condemnation of Subtenant's movable trade fixtures and equipment and for moving
expenses. Subtenant shall not have any right to receive any award for its
interest in this Sublease or for loss of leasehold. The provisions of this
Section 11 are Subtenant's sole and exclusive rights and remedies in the event
of a Taking. To the extent permitted by the Laws (as that term is defined in the
Prime Lease), Subtenant waives the benefits of any Law that provides Subtenant
any abatement or termination rights or any right to receive any payment or award
by virtue of a Taking.

12.      NO RECORDING

         Neither party shall record this Sublease or any memorandum of this
Sublease.

13.      SUCCESSORS AND ASSIGNS

         Subject to the limitations set forth in this Sublease, the covenants
and agreements in this Sublease shall bind and inure to the benefit of
Sublandlord, Subtenant and their respective successors and permitted assigns.

14.      ACCESS/INSPECTION

         Subtenant acknowledges and agrees to Landlord's access rights reserved
under Section 9.1 the Prime Lease and acknowledges and agrees that those rights
apply to the Subleased Premises and that Landlord has no obligation to give
notice to Subtenant of its intent to enter. Sublandlord shall make commercially
reasonable efforts to advise Subtenant promptly if and when Sublandlord receives
notice that Landlord intends to enter upon the Subleased Premises.

15.      SIGNAGE

         Subtenant will have the right, at no extra charge and in common with
Sublandlord and other occupants of the Building, to install the signage
described in subsection (1) of Section 17.11.2 of the Prime Lease. Subtenant
will comply with and satisfy all restrictions,

                                      14.


obligations and liabilities concerning signage under the Prime Lease and will
pay all costs associated therewith.

16.      AGENTS AND BROKERS

         At the signing of this Agreement, Washington Partners represented
Sublandlord and Washington Partners represented Subtenant, subject to separate
agreements that are not part of this Sublease. Sublandlord will be responsible
for payment of and will indemnify and hold Subtenant harmless from and against
all commissions or fees due to Washington Partners in connection with this
Sublease pursuant to a separate agreement between Sublandlord and Washington
Partners. Each party represents to the other that it has engaged no other agent
broker or agent in connection with the negotiation leading to this agreement,
and shall bold the other harmless from any claim or demand from any other agent
or broker claiming to have acted on behalf of the indemnifying party in
connection with this Sublease.

17.      ENTIRE AGREEMENT

         This Sublease represents the entire agreement of the Sublandlord and
Subtenant with respect to this subject matter and supersedes all prior oral and
written understandings and agreements of the parties, all of which are merged
within this Sublease. This Sublease may not be amended, modified, or
supplemented in any manner other than by the written agreement of the parties
signed by the authorized representatives of the parties.

18.      EXHIBITS

         The following Exhibits attached to this Sublease are incorporated into
and made a part of it by this reference:

         EXHIBIT A                    Prime Lease
         EXHIBIT B                    Illustration of Subleased Premises
         EXHIBIT C                    Parking Agreement
         EXHIBIT D                    Landlord's Consent

Executed in duplicate as of the date first written above.

                                      SUBLANDLORD:

                                      AMAZON.COM HOLDINGS, INC.

                                      By: /s/ Mark S. Peek
                                         ----------------------------------
                                      Name: Mark S. Peek
                                      Title: VP CAO

                                      15.


                                       SUBTENANT:

                                       BLUE NILE, INC.

                                       By: /s/ Robert L. Paquin
                                           -----------------------------------
                                       Name: Robert L. Paquin
                                       Title: COO

                                      16.


STATE OF WASHINGTON   )
                      )    ss.
COUNTY OF KING        )

         On this 22 day of May, 2003, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Mark Peek, to me known to be the person who signed as Vice
President of Amazon.com Holdings, Inc., the corporation that executed the within
and forgoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that he was duly elected, qualified and acting as
said officer of the corporation, that he was authorized to execute said
instrument and that the seal affixed, if any, is the corporate seal of said
corporation.

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

                                       /s/ K.J. Freeman
                                       ----------------------------
                                       (Signature of Notary)

                                       K.J. Freeman
                                       -----------------------------
                                       (Print or stamp name of Notary)

                                       NOTARY PUBLIC in and for the State of
                                       Washington, residing at 3118 S. 381st Way
                                       Auburn
                                       My appointment expires: June 29, 2006

                                      17.


STATE OF WASHINGTON   )
                      )    ss.
COUNTY OF KING        )

         On this 15th day of May, 2003, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Robert L. Paquin, to me known to be the person who signed as
COO of Blue Nile, Inc., the corporation that executed the within and foregoing
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said corporation for the uses and purposes therein mentioned, and on
oath stated that he was duly elected, qualified and acting as said officer of
the corporation, that he was authorized to execute said instrument and that the
seal affixed, if any, is the corporate seal of said corporation.

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

                                       /s/ Sandra J. Wong
                                       ----------------------------------
                                       (Signature of Notary)

                                       Sandra J. Wong
                                       ----------------------------------
                                       (Print or stamp name of Notary)

                                       NOTARY PUBLIC in and for the State of
                                       Washington, residing at Kenmore.
                                       My appointment expires: 10/5/03.

                                       _________________________________________
                                       (Signature of Notary)

                                       _________________________________________
                                       (Print or stamp name of Notary)

                                       NOTARY PUBLIC in and for the State of
                                       Washington, residing at_________________
                                       My appointment expires:_________________

                                      18.


                              EXHIBIT A TO SUBLEASE

                                   PRIME LEASE

                                      19.


                                  MULTI-TENANT
                                     OFFICE
                                LEASE AGREEMENT

                    OPUS UNION STATION, L.L.C., AS LANDLORD,

                                       AND

                          AMAZON.COM, INC., AS TENANT.

                                   BUILDING 4

                           OPUS CENTER @ UNION STATION

                                   SEATTLE, WA



                                TABLE OF CONTENTS

                                                                                           
ARTICLE 1        LEASE OF PREMISES AND LEASE TERM............................................     3
            1.1  Premises....................................................................     3
            1.2  Term, Delivery and Commencement.............................................     3
                 1.2.1  Commencement and Expiration of Term..................................     3
                 1.2.2  Tender of Possession.................................................     3
                 1.2.3  Commencement Date Memorandum.........................................     3
                 1.2.4  Early Access.........................................................     3
            1.3  Effect of Acceptance........................................................     4
ARTICLE 2        RENTAL AND OTHER PAYMENTS...................................................     4
            2.1  Basic Rent..................................................................     4
            2.2  Additional Rent.............................................................     4
            2.3  Delinquent Rental Payments..................................................     4
            2.4  Independent Obligations.....................................................     4
ARTICLE 3        OPERATING EXPENSES..........................................................     4
            3.1  Payment of Operating Expenses...............................................     5
            3.2  Estimation of Tenant's Share of Operating Expenses..........................     5
            3.3  Payment of Estimated Tenant's Share of Operating Expenses...................     5
            3.4  Re-Estimation of Operating Expenses.........................................     5
            3.5  Confirmation of Tenant's Share of Operating Expenses........................     5
            3.6  Tenant's Inspection and Audit Rights........................................     5
            3.7  Amendments to Tenant's Share of Operating Expenses Percentage...............     6
            3.8  Personal Property Taxes.....................................................     6
            3.9  Right to Contest Property Taxes.............................................     6
            3.10 [Reserved]..................................................................     7
ARTICLE 4        USE.........................................................................     7
            4.1  Permitted Use...............................................................     7
            4.2  [Reserved]..................................................................     7
            4.3  Increased Insurance.........................................................     7
            4.4  Laws/Building Rules.........................................................     7
            4.5  Common Area.................................................................     7
ARTICLE 5        HAZARDOUS MATERIALS.........................................................     8
            5.1  Compliance with Hazardous Materials Laws....................................     8
            5.2  Notice of Actions...........................................................     8
            5.3  Disclosure and Warning Obligations..........................................     8
            5.4  Indemnification.............................................................     9
ARTICLE 6        SERVICES....................................................................     9
            6.1  Landlord's Obligations......................................................     9
                 6.1.1  Janitorial Service...................................................     9
                 6.1.2  Electrical Energy....................................................     9
                 6.1.3  Heating, Ventilation and Air Conditioning............................    10
                 6.1.4  Water................................................................    10
                 6.1.5  Elevator Service.....................................................    10
            6.2  Tenant's Obligations........................................................    10
            6.3  Other Provisions Relating to Services.......................................    10
            6.4  Tenant Devices..............................................................    11
ARTICLE 7        MAINTENANCE AND REPAIR......................................................    11
            7.1  Landlord's Obligations......................................................    11
            7.2  Tenant's Obligations........................................................    11
                 7.2.1  Maintenance of Premises..............................................    11
                 7.2.2  Alterations Required by Laws.........................................    11
ARTICLE 8        CHANGES AND ALTERATIONS.....................................................    12
            8.1  Landlord Approval...........................................................    12
            8.2  Tenant's Responsibility for Cost and Insurance..............................    12
            8.3  Construction Obligations and Ownership......................................    13



                                       i


                                                                                           
            8.4  Liens.......................................................................    13
            8.5  Indemnification.............................................................    13
ARTICLE 9        RIGHTS RESERVED BY LANDLORD.................................................    13
            9.1  Landlord's Entry............................................................    13
            9.2  Control of Property.........................................................    14
            9.3  Lock Box Agent/Rent Collection Agent........................................    14
            9.4  [Reserved]..................................................................    15
            9.5  Telecommunications..........................................................    15
                 9.5.1  Landlord's Rights....................................................    15
                 9.5.2  Limited Liability....................................................    15
            9.6  Electromagnetic Fields......................................................    16
ARTICLE 10       INSURANCE...................................................................    16
           10.1  Tenant's Insurance Obligations..............................................    16
                 10.1.1  Liability Insurance.................................................    16
                 10.1.2  Property Insurance..................................................    16
                 10.1.3  Other Insurance.....................................................    16
                 10.1.4  Miscellaneous Insurance Provisions..................................    17
                 10.1.5  Tenant's Waiver and Release of Claims and Subrogation...............    17
                 10.1.6  No Limitation.......................................................    17
           10.2  Landlord's Insurance Obligations............................................    17
                 10.2.1  Property Insurance..................................................    17
                 10.2.2  Liability Insurance.................................................    17
                 10.2.3  Landlord's Waiver and Release of Claims and Subrogation.............    18
           10.3  Tenant's Indemnification of Landlord........................................    18
           10.4  Landlord's Indemnification of Tenant........................................    18
           10.5  Tenant's Failure to Insure..................................................    18
           10.6  Limitation on Indemnities...................................................    18
           10.7  Intent Concerning Insurance.................................................    19
ARTICLE 11       DAMAGE OR DESTRUCTION.......................................................    19
           11.1  Tenantable Within 270 Days..................................................    19
           11.2  Not Tenantable Within 270 Days..............................................    19
           11.3  Building Substantially Damaged..............................................    19
           11.4  Insufficient Proceeds.......................................................    20
           11.5  Landlord's Repair Obligations...............................................    20
           11.6  Rent Apportionment..........................................................    20
           11.7  Exclusive Casualty Remedy...................................................    21
ARTICLE 12       EMINENT DOMAIN..............................................................    21
           12.1  Termination of Lease........................................................    21
           12.2  Landlord's Repair Obligations...............................................    21
           12.3  Tenant's Participation......................................................    21
           12.4  Exclusive Taking Remedy.....................................................    21
ARTICLE 13       TRANSFERS...................................................................    22
           13.1  Restriction on Transfers....................................................    22
                 13.1.1  General Prohibition.................................................    22
                 13.1.2  Transfers to Affiliates.............................................    22
           13.2  Costs.......................................................................    22
ARTICLE 14       DEFAULTS; REMEDIES..........................................................    22
           14.1  Events of Default...........................................................    22
                 14.1.1  Failure to Pay Rent.................................................    23
                 14.1.2  Failure to Perform..................................................    23
                 14.1.3  [Reserved]..........................................................    23
                 14.1.4  Other Defaults......................................................    23
                 14.1.5  Notice Requirements.................................................    23
           14.2  Remedies....................................................................    23
                 14.2.1  Termination of Tenant's Possession; Re-entry and Reletting Right....    23
                 14.2.2  Termination of Lease................................................    24



                                       ii


                                                                                           
                 14.2.3  Self Help...........................................................    24
           14.3  Costs.......................................................................    24
           14.4  Waiver and Release by Tenant................................................    24
           14.5  Landlord's Default..........................................................    24
           14.6  No Waiver...................................................................    25
           14.7  Parties' Remedies...........................................................    25
ARTICLE 15       CREDITORS; ESTOPPEL CERTIFICATES............................................    25
           15.1  Subordination...............................................................    25
           15.2  Attornment..................................................................    26
           15.3  Mortgagee Protection Clause.................................................    26
           15.4  Estoppel Certificates.......................................................    26
                 15.4.1 Contents.............................................................    26
ARTICLE 16       TERMINATION OF LEASE........................................................    26
           16.1  Surrender of Premises.......................................................    26
           16.2  Holding Over................................................................    27
ARTICLE 17       ADDITIONAL PROVISIONS.......................................................    27
           17.1  Initial Improvements........................................................    27
                 17.1.1  Landlord's Improvements.............................................    27
                 17.1.2  Improvement Allowance...............................................    28
                 17.1.3  Tenant's Improvements...............................................    28
                 17.1.4  Property Manager/Site Superintendent................................    29
                 17.1.5  Space Plan..........................................................    29
                 17.1.6  Working Drawings and Specifications.................................    29
                 17.1.7  Changes to Final Plans..............................................    30
                 17.1.8  Substantial Completion..............................................    30
                 17.1.9  Failure to Complete Construction....................................    30
                 17.1.10 Tenant Delays.......................................................    30
                 17.1.11 Punch List..........................................................    31
                 17.1.12 Construction Warranty...............................................    31
                 17.1.13 Representatives.....................................................    32
                 17.1.14 Delivery in Segments................................................    32
           17.2  Special Termination Option..................................................    33
           17.3  Renewal Terms...............................................................    33
                 17.3.1  Renewal Term Basic Rent.............................................    34
                 17.3.2  Appraisal Procedure.................................................    34
                 17.3.3  Tenant's Right Not to Renew.........................................    35
           17.4  [Reserved]..................................................................    35
           17.5  [Reserved]..................................................................    35
           17.6  Rights of First Opportunity and Right of First Refusal to Purchase..........    35
           17.7  [Reserved]..................................................................    36
           17.8  Parking Allotment...........................................................    36
           17.9  [Reserved]..................................................................    37
           17.10 Hazardous Materials.........................................................    37
           17.11 Signs.......................................................................    37
                 17.11.1 Building Standard Signs.............................................    37
                 17.11.2 Other Permitted Signs...............................................    38
           17.12 Security....................................................................    38
           17.13 Waiver of Landlord's Lien...................................................    38
           17.14 Telecommunications Lines....................................................    38
                 17.14.1 Landlord's Consent..................................................    38
                 17.14.2 New Provider Installations..........................................    39
           17.15 Electric Utility Provider...................................................    39
           17.16 Integration with Condominium................................................    40
           17.17 License for Satellite Equipment Site........................................    40
           17.18 Security Deposit............................................................    41
                 17.18.1 General Requirements................................................    41



                                       iii


                                                                                           
                 17.18.2 Cash Security Deposit...............................................    42
                 17.18.3 Letter of Credit / Security Deposit.................................    42
                 17.18.4 Pledged Securities / Security Deposit...............................    42
                 17.18.5 Reduction of Security Deposit.......................................    43
           17.19 Special Contingency.........................................................    43
           17.20 Disaster Recovery Plan......................................................    43
ARTICLE 18       INSOLVENCY..................................................................    44
ARTICLE 19       MISCELLANEOUS PROVISIONS....................................................    44
           19.1  Notices.....................................................................    44
           19.2  Transfer of Landlord's Interest.............................................    44
           19.3  Successors..................................................................    45
           19.4  Captions and Interpretation.................................................    45
           19.5  Relationship of Parties.....................................................    45
           19.6  Entire Agreement; Amendment.................................................    45
           19.7  Severability................................................................    45
           19.8  Landlord's Limited Liability................................................    45
           19.9  Survival....................................................................    45
           19.10 Attorneys' Fees.............................................................    45
           19.11 Brokers.....................................................................    46
           19.12 Governing Law...............................................................    46
           19.13 Time is of the Essence......................................................    46
           19.14 Joint and Several Liability.................................................    47
           19.15 Barrier Code................................................................    47
           19.16 Tenant's Organization Documents; Authority..................................    47
           19.17 Provisions are Covenants and Conditions.....................................    47
           19.18 Force Majeure...............................................................    47
           19.19 Management..................................................................    47
           19.20 Financial Statements........................................................    47
           19.21 Quiet Enjoyment.............................................................    48
           19.22 Short Form: Title Insurance.................................................    48
           19.23 Confidentiality of Lease and Lease Matters..................................    48
           19.24 Construction of Lease and Terms.............................................    49



EXHIBITS:

Exhibit A Definitions
Exhibit B Site Plan
Exhibit C Floor Plans
Exhibit D Form of Commencement Date Memorandum
Exhibit E Building Rules
Exhibit F Landlord's Improvements
Exhibit G Tenant's Improvements Outline Specification
Exhibit H [Reserved]
Exhibit I Janitorial Specifications
Exhibit J HVAC Specifications
Exhibit K [Reserved]
Exhibit L Form of Letter of Credit
Exhibit M Form of Stock Pledge Agreement
Exhibit M Form of Custodial Agreement

                                       iv



                       MULTI-TENANT OFFICE LEASE AGREEMENT

         This Multi-tenant Office Lease Agreement is made and entered into as of
the Effective Date by and between OPUS UNION STATION, L.L.C., a Delaware limited
liability company, as Landlord, and AMAZON.COM, INC., a Delaware corporation, as
Tenant.

                                   DEFINITIONS

         Capitalized terms used in this Lease have the meanings ascribed to them
on the attached EXHIBIT A.

                                   BASIC TERMS

         The following Basic Terms are applied under and governed by the
particular section(s) in this Lease pertaining to the following information:

1.       PREMISES:                        The entire Rentable Area, containing
                                          approximately 249,970 square feet, and
                                          located on the 1st floor through the
                                          11th floor of the Opus Center South
                                          Building on the Property. Each floor
                                          of the Premises is depicted
                                          approximately as shown on EXHIBIT C.

2.       TERM:

             INITIAL TERM:                10 Lease Years (120 months) (See
                                          Section 1.2)

             RENEWAL TERMS:               Two 5 year options (See Section 17.3).

             TERMINATION RIGHT:           See Section 17.2.

3.       DELIVERY DATE:                   February 1, 2001 (See Section 1.2)

             OUTSIDE DELIVERY DATE:       Either (a) May 1, 2001 if Landlord
                                          receives a building permit from City
                                          for the Landlord's Improvements on or
                                          before December 31, 1999, or (b) if
                                          said building permit is received after
                                          December 31, 1999, 16 months after the
                                          date Landlord receives from City a
                                          Building permit for the Landlord's
                                          Improvements (See Section 17.1.9).

             LANDLORD TERMINATION OPTION: See Section 17.19.

4.       BASIC RENT:

             INITIAL TERM:



          Months              Annual Basic Rent Per Square Foot of Rentable Area
          ------              --------------------------------------------------
                           
 1  -   60 Floors 10 & 11
 3  -   60 Floors 7, 8 & 9
 5  -   60 Floors 4, 5 & 6
 7  -   60 Floors 1, 2 & 3
61  -  120 Floors 10 & 11
61  -  120 Floors 7, 8 & 9
61  -  120 Floors 4, 5 & 6
61  -  120 Floors 1, 2 & 3




                                                 (See Sections 2.1 and 17.1.14)

             RENEWAL TERMS:               See Section 17.3.1.

5.       INITIAL TENANT'S SHARE OF
         OPERATING EXPENSES PERCENTAGE:   100% (See Section 3.7)

         ESTIMATED OPERATING EXPENSES:    $8.00 per square foot of Rentable Area
                                          of the Premises

6.       IMPROVEMENT ALLOWANCE:              per square foot of Rentable Area in
                                          the Premises.

7.       CURRENT PROPERTY MANAGER/RENT    Opus Union Station, L.L.C.
         PAYMENT ADDRESS:                 915 - 118th Avenue SE
                                          Bellevue, WA 98005
                                          Attn: Thomas B. Parsons

8.       ADDRESS OF LANDLORD FOR NOTICES: Opus, L.L.C.
                                          10350 Bren Road West
                                          Minnetonka, MN 55343
                                          Attn: Legal Department

         WITH A COPY TO:                  Property Manager, if different from
                                          Landlord, at the address described in
                                          a notice delivered to Tenant after the
                                          Effective Date.

9.       ADDRESS OF TENANT FOR NOTICES:   Amazon.com, Inc.
                                          1200 12th Ave. South, Suite 1200
                                          Seattle, WA 98144
                                          Attn: Director, Global Real Estate

         WITH A COPY TO:                  Amazon.com, Inc.
                                          1200 12th Ave. South, Suite 1200
                                          Seattle, WA 98144
                                          Attn: General Counsel

10.      BROKER:                          Washington Partners (Ed Curtis)
                                          Kidder Mathews & Segner, Inc.
                                          (See Section 19.11)

11.      SECURITY DEPOSIT                       per square foot of Rentable Area
                                          (See Section 17.18)

12.      PARKING ALLOTMENT:               Up to 1 parking stall per 1,000 square
                                          feet of Rentable Area in the Premises,
                                          a maximum of 15% of which may be
                                          Executive Parking Stalls and the
                                          balance of which will be Regular
                                          Parking Stalls. (See Section 17.8)

                                       2.


                                   ARTICLE 1

                        LEASE OF PREMISES AND LEASE TERM

         1.1      PREMISES.

         Landlord has the right to acquire fee simple title to the Unit within
which Landlord will construct or cause to be constructed the Building. The Unit
is a condominium unit in Union Station Condominium.

         In consideration of the mutual covenants this Lease describes, Landlord
leases the Premises to Tenant and Tenant leases the Premises from Landlord, upon
and subject to the terms, covenants and conditions set forth in this Lease. The
estimated Rentable Area of the Premises is the Rentable Area specified in the
Basic Terms. Prior to the Commencement Date, Landlord and Tenant will determine
jointly the Rentable Area of the Premises substantially in accordance with BOMA
Standards. If Landlord or Tenant cannot agree on the measurement of the
Premises, the parties will appoint a neutral architect to resolve the dispute.
The architect's fees will be divided between Landlord and Tenant. At the request
of either party, after Landlord acquires fee simple title to the Unit, the
parties will re-execute and reconfirm this Lease.

         1.2      TERM, DELIVERY AND COMMENCEMENT.

                  1.2.1    COMMENCEMENT AND EXPIRATION OF TERM.

                           The Term of this Lease is the period stated in the
Basic Terms. The Term commences on the Commencement Date and unless earlier
terminated in accordance with the terms and conditions of this Lease, expires on
the last day of the last calendar month of the Term. SEE SECTION 17.2.

                  1.2.2    TENDER OF POSSESSION.

                           Landlord will use commercially reasonable efforts to
tender possession of the Premises to Tenant on or before the Delivery Date,
subject to any extension of such date under Section 19.18. If Landlord is unable
to tender possession of the Premises to Tenant on or before the Delivery Date
because of Force Majeure or Tenant Delay, then, except as provided in Section
17.1.9, this Lease remains in full force and effect and Landlord is not liable
to Tenant for any resulting loss or damage; provided, however, except to the
extent the delay is caused by Tenant Delay of more than 15 days, the
Commencement Date and Rent Commencement Date will not be postponed. If the
Commencement Date has not occurred on or before July 30, 2004, this Lease will
automatically terminate without notice and be of no force or effect. SEE SECTION
17.1.14.

                  1.2.3    COMMENCEMENT DATE MEMORANDUM.

                           Within a reasonable time after the Commencement Date,
Landlord will execute and deliver to Tenant the Commencement Date Memorandum
with all blanks relating to dates completed. Tenant, within 10 days after
receipt from Landlord of an accurate Commencement Date Memorandum, will execute
and deliver it to Landlord. Tenant's failure to execute and deliver to Landlord
the Commencement Date Memorandum does not affect any obligation of Tenant under
this Lease.

                  1.2.4    EARLY ACCESS.

                           Tenant will not occupy the Premises for the Permitted
Use before Substantial Completion without Landlord's prior written consent.
Notwithstanding the foregoing, Landlord will give Tenant access to the Premises
not less than 30 days prior to the Delivery Date for the sole purpose of
installing Tenant's furniture, cabling, fixtures and equipment in the Premises,
provided that Tenant will comply with and observe all terms and conditions of
this Lease (other than Tenant's obligation to pay Rent) during the early
occupancy period. SEE SECTION 17.1.14.

                                       3.


         1.3      EFFECT OF ACCEPTANCE.

         Subject to the Warranty Terms, Tenant's acceptance of the Premises
conclusively establishes that Landlord completed the Improvements as required by
this Lease in a manner satisfactory to Tenant. The Warranty Terms provide Tenant
with its sole and exclusive remedies for Landlord's incomplete or defective
construction of the Improvements. Tenant's failure to strictly comply with the
Warranty Terms with respect to any item included as part of the Improvements
constitutes Tenant's waiver and release of any and all rights, benefits, claims
or warranties available to Tenant under this Lease, at law or in equity in
connection with each such item. SEE SECTION 17.1.14.

                                   ARTICLE 2

                            RENTAL AND OTHER PAYMENTS

         2.1      BASIC RENT.

         Tenant will pay Basic Rent in monthly installments to Landlord, in
advance, without notice, and, without setoff or deduction (except as may be
expressly provided in this Lease), commencing on the Rent Commencement Date and
continuing on the first day of each and every calendar month after the Rent
Commencement Date during the Term. Tenant will make all Basic Rent payments to
Property Manager at the address specified in the Basic Terms or at such other
place or in such other manner as Landlord may from time to time designate in
writing. Tenant will make all Basic Rent payments without Landlord's previous
demand, invoice or notice for payment. Landlord and Tenant will prorate, on a
per diem basis, Basic Rent for any partial month within the Term.

         2.2      ADDITIONAL RENT.

         Article 3 of this Lease requires Tenant to pay certain Additional Rent
pursuant to estimates Landlord delivers to Tenant. Tenant will make all payments
of estimated Additional Rent in accordance with Sections 3.3 and 3.4 without
deduction or offset (except as may be expressly provided in this Lease) and
without Landlords previous demand, invoice or notice for payment. Tenant will
pay all other Additional Rent described in this Lease that is not estimated
under Sections 3.3 and 3.4 within 30 days after receiving Landlord's invoice for
such Additional Rent. Tenant will make all Additional Rent payments to the same
location and, except as described in the previous sentence, in the same manner
as Tenant's Basic Rent payments.

         2.3      DELINQUENT RENTAL PAYMENTS.

         If Tenant does not pay any installment of Basic Rent or any Additional
Rent or other payment due under this Lease within five days after notice of
nonpayment from Landlord (provided that no such notice will be required more
than two times in any twelve-month period) or, if no notice is required under
this Lease, then within 8 days after the date due, Tenant will pay Landlord an
additional amount equal to interest on the delinquent payment calculated at the
Maximum Rate from the date when the payment is due through the date the payment
is made. If, however, Tenant does not pay any installment of Basic Rent or any
Additional Rent within five Business Days after the date the payment is due,
more than two times in any twelve month period, then, in lieu of interest,
Tenant will pay Landlord a late payment charge equal to 5% of the amount of the
delinquent payment. Landlord's right to such compensation for the delinquency is
in addition to all of Landlord's rights and remedies under this Lease, at law or
in equity.

         2.4      INDEPENDENT OBLIGATIONS.

         Notwithstanding any contrary term or provision of this Lease, Tenant's
covenant and obligation to pay Rent is independent from any of Landlord's
covenants, obligations, warranties or representations in this Lease.

                                   ARTICLE 3

                               OPERATING EXPENSES

                                       4.


         3.1      PAYMENT OF OPERATING EXPENSES.

         Tenant will pay, as Additional Rent and in the manner this Article 3
describes, Tenant's Share of Operating Expenses for each and every calendar year
of the Term. Landlord will prorate Tenant's Share of Operating Expenses for the
calendar year in which the Lease commences or terminates as of the Commencement
Date or termination date, as applicable, on a per diem basis based on the number
of days of the Term within such calendar year.

         3.2      ESTIMATION OF TENANT'S SHARE OF OPERATING EXPENSES.

         Landlord will deliver to Tenant not later than April 1 in each calendar
year a written estimate of the following for that calendar year of the Term: (a)
Operating Expenses, (b) Tenant's Share of Operating Expenses Percentage and (c)
the annual and monthly Additional Rent attributable to Tenant's Share of
Operating Expenses.

         3.3      PAYMENT OF ESTIMATED TENANT'S SHARE OF OPERATING EXPENSES.

         Tenant will pay the amount Landlord estimates as Tenant's Share of
Operating Expenses under Section 3.2 for each and every calendar year of the
Term in equal monthly installments, in advance, commencing on the Rent
Commencement Date and continuing on the first day of each and every month during
the Term. If Landlord has not delivered the estimates to Tenant by the first day
of January of the applicable calendar-year, Tenant will continue paying Tenant's
Share of Operating Expenses based on Landlord's estimates for the previous
calendar year. When Tenant receives Landlord's estimates for the current
calendar year, Tenant will pay the estimated amount (less amounts Tenant paid to
Landlord in accordance with the immediately preceding sentence) in equal monthly
installments over the balance of such calendar year, with the number of
installments being equal to the number of full calendar months remaining in such
calendar year.

         3.4      RE-ESTIMATION OF OPERATING EXPENSES.

         Landlord may re-estimate Operating Expenses from time to time during
the Term in but not more than twice in any calendar year. In such event,
Landlord will re-estimate the monthly Additional Rent attributable to Tenant's
Share of Operating Expenses to an amount sufficient for Tenant to pay the
re-estimated monthly amount over the balance of the calendar year. Landlord will
notify Tenant of the re-estimate and Tenant will pay the re-estimated amount in
the mariner provided in the last sentence of Section 3.3.

         3.5      CONFIRMATION OF TENANT'S SHARE OR OPERATING EXPENSES.

         After the end of each calendar year within the Term, Landlord will
determine the actual amount of Operating Expenses and Tenant's Share of
Operating Expenses for the expired calendar year and deliver to Tenant a written
statement of such amounts. If Tenant paid less than the actual amount of
Tenant's Share of Operating Expenses specified in the statement, Tenant will pay
the difference to Landlord as Additional Rent in the manner Section 2.2
describes. If Tenant paid more than the actual amount of Tenant's Share of
Operating Expenses specified in the statement, Landlord, will either (a) if the
Lease has ended, refund the excess amount to Tenant within 30 days, or (b) if
the Lease is still in effect, credit the excess amount against Tenant's next due
monthly installment or installments of estimated Additional Rent. If Landlord is
delayed in delivering such statement to Tenant, such delay does not constitute
Landlord's waiver of Landlord's rights under this section; notwithstanding the
foregoing, if Landlord has not delivered such statement in the calendar year
following the year for which the statement is required to be given, then
Landlord will be deemed to have waived the right to recover any short fall in
Tenant's payments of Operating Expenses for the year in question.

         3.6      TENANT'S INSPECTION AND AUDIT RIGHTS.

         If no Event of Default exists and Tenant questions Landlord's
determination of the actual amount of Operating Expenses or Tenant's Share of
Operating Expenses for a calendar year and Tenant delivers to Landlord written
notice within 180 days after Landlord's delivery of the statement of such amount
under Section 3.5, Tenant, at its sole cost and expense, upon prior written
notice and during regular business hours at a time and place

                                       5.


reasonably acceptable to Landlord (which will be the location within the
boundaries of King County, Washington, where Landlord or Property Manager
maintains the applicable records), may cause a certified public accountant
reasonably acceptable to Landlord to audit Landlord's records relating to the
disputed amounts. The foregoing audit right is personal to Tenant, and may not
be exercised by any assignee or subtenant of Tenant other than an entity to
which Tenant has assigned all or any of its interest in this Lease as permitted
by Section 13.1.2; provided, however, that at the time of any such permitted
assignment the instrument of assignment and assumption delivered to Landlord
pursuant to Section 13.1.2 will state that either: (a) Tenant has retained all
of Tenant's rights under this section, or (b) Tenant has assigned to the
permitted assignee all of Tenant's rights under this section. Tenant will not
object to Landlord's determination of Operating Expenses or Tenant's Share of
Operating Expenses unless Tenant completes the audit within 60 days after the
date Tenant delivers its notice to Landlord under this section. If the audit
shows that the amount Landlord charged Tenant for Tenant's Share of Operating
Expenses was greater than the amount this Article 3 obligates Tenant to pay,
Landlord will refund the excess amount to Tenant, together with interest on the
excess amount at the Maximum Rate (computed from the date Tenant delivers its
dispute notice to Landlord) within 10 days after Landlord receives a copy of the
audit report. If the audit shows that the amount Landlord charged Tenant for
Tenant's Share of Operating Expenses was less than the amount this Article 3
obligates Tenant to pay, Tenant will pay to Landlord, as Additional Rent, the
difference between the amount Tenant paid and the amount determined in the
audit. Pending resolution of any audit under this section, Tenant will continue
to pay to Landlord the estimated amounts of Tenant's Share of Operating Expenses
in accordance with Sections 3.3 and 3.4. Tenant will keep all information it
obtains in any audit strictly confidential and may only use such information for
the limited purpose this section describes and for Tenant's own account. If
Tenant's audit discloses that Tenant was overcharged by more than three percent
(3%), Landlord will reimburse Tenant reasonable for the cost of the audit but
not more than $3,000, which amount will be increased $125.00 per annum on each
anniversary of the Commencement Date. If Tenant does not perform an audit,
Landlord's written statement delivered pursuant to Section 3.5 will be final and
binding on Landlord and Tenant 180 days after Landlord's delivery of the
statement. If Tenant does perform an audit, the audit as resolved will be final
and binding on Landlord and Tenant.

         3.7      AMENDMENTS TO TENANT'S SHARE OF OPERATING EXPENSES PERCENTAGE.

         Tenant's Share of Operating Expenses Percentage will be a percentage
equal to a fraction, the numerator of which is the Rentable Area of the Premises
and the denominator of which is the Rentable Area of the Building as determined
pursuant to Section 1.1.

         3.8      PERSONAL PROPERTY TAXES.

         Tenant, prior to delinquency, will pay all taxes charged against
Tenant's trade fixtures and other personal property. Tenant will use all
reasonable efforts to have such trade fixtures and other personal property taxed
separately from the Property. If any of Tenant's trade fixtures and other
personal property are taxed with the Property, Tenant will pay the taxes
attributable to Tenant's trade fixtures and other personal property to Landlord
as Additional Rent.

         3.9      RIGHT TO CONTEST PROPERTY TAXES.

         Landlord is not obligated to but may contest the amount or validity, in
whole or in part, of any Property Taxes. Landlord's contest will be at
Landlord's sole cost and expense, except that if Property Taxes are reduced (or
if a proposed increase is avoided or reduced) because of Landlord's contest,
Landlord may include in its computation of Property Taxes the costs and expenses
Landlord incurred in connection with the contest, including, but not limited to,
reasonable attorney's fees, up to the amount of any Property Tax reduction
Landlord realized from the contest or any Property Tax increase avoided or
reduced in connection with the contest, as the case may be.

         If Landlord does not contest property taxes, then Tenant at its sole
cost and expense may, by appropriate legal proceedings conducted in good faith
and with due diligence, contest the amount or validity of Property Taxes if: (a)
the proceedings suspend the collection of the Property Taxes from Landlord,
Tenant and the Property, unless Tenant will have furnished security as provided
in this paragraph; (b) Tenant will have furnished such security, if any, as may
be required in the proceedings to suspend the collection of the Property Taxes,
or otherwise will have furnished the security in an amount equal to 150% of the
amount of the Property Taxes being contested; and (c) Tenant will give Landlord
reasonable notice of, and information pertaining to, the contest. Tenant will
indemnify,

                                       6.


protect and hold Landlord and the Property harmless from any lien or liability
with respect to any such contest. Tenant will also have the right to contest any
lien, encumbrance or charge against the Premises arising from work done or
materials provided to or for Tenant pursuant to the terms of this Section 3.9.

         3.10     [RESERVED]

                                   ARTICLE 4

                                       USE

         4.1      PERMITTED USE.

         Tenant will not use the Premises for any purpose other than general
non-governmental office purposes, a data center, and uses incidental thereto
("Permitted Use"). Tenant will not use the Property or knowingly permit the
Premises to be used in violation of any Laws or in any manner that would (a)
violate any certificate of occupancy affecting the Building; (b) cause injury or
damage to the Building; or (c) constitute a public or private nuisance or waste.
Landlord represents and warrants that the Permitted Use does not violate local
zoning rules or any of the Permitted Encumbrances, including the condominium
documents pursuant to which the Unit was created.

         4.2      [RESERVED]

         4.3      INCREASED INSURANCE.

         So long as Landlord has notified Tenant of any applicable restrictions
and such restrictions are not violated by the Permitted Use, Tenant will not do
in the Building or permit to be done on the Premises anything that will (a)
increase the premium of any insurance policy Landlord carries covering the
Premises or the Building; (b) cause a cancellation of or be in conflict with any
such insurance policy; or (c) result in any insurance company's refusal to issue
or continue any such insurance in amounts satisfactory to Landlord. Tenant, at
Tenant's sole cost and expense, will comply with all rules, orders, regulations
and requirements of insurers and of the American Insurance Association or any
other organization performing a similar function. Tenant will reimburse
Landlord, as Additional Rent, for any additional premium charges for such policy
or policies resulting from Tenant's failure to comply with the provisions of
this section.

         4.4      LAWS/BUILDING RULES.

         This Lease is subject and subordinate to all Laws. Except as provided
in the last paragraph of this Section 4.4, Tenant will, at Tenant's sole cost,
promptly comply with all Laws regarding the Premises or use or occupancy
thereof. A copy of the current Building Rules is attached to this Lease as
EXHIBIT E. Landlord may amend the Building Rules from time to time in Landlord's
sole discretion; provided, however, that the Building Rules shall at all times
be reasonable.

         In the event of any inconsistency between the Lease and the Building
Rules, the Lease will prevail and control. Landlord will enforce the Rules and
Regulations in a non-discriminatory manner.

         Landlord represents and warrants that the Building will be in
compliance with all material and applicable Federal, state and local laws,
ordinances, rules and regulations ("Laws and Requirements"). During the Term
Landlord will, at its sole cost and expense (subject however to Article 3),
comply with all future Laws and Requirements that may require structural
modifications or other capital improvements to be performed to the building and
the Premises unless such Laws and Requirements specifically apply solely by
reason of the Tenant's particular use of the Premises or relate solely to
Tenant's Improvements.

         4.5      COMMON AREA.

         Landlord grants Tenant the non-exclusive right, together with all other
occupants of the Building and their agents, employees and invitees, to use the
Common Area during the Term, subject to all Laws; provided, however,

                                       7.


that at any time that Tenant occupies all of the Rentable Area of the Building,
it shall have the exclusive right to use the Common Area. Landlord, at
Landlord's sole and exclusive discretion, may (a) restrain unauthorized persons
from using the Common Area; (b) temporarily close any portion of the Common Area
(i) for repairs, improvements or Alterations, (ii) to discourage unauthorized
use, (iii) to prevent dedication or prescriptive rights, or (iv) for any other
reason Landlord deems sufficient in Landlord's reasonable judgment; (c) change
the shape and size of the Common Area; (d) add, eliminate or change the location
of any improvements located in the Common Area; and (e) impose and revise
Building Rules concerning use of the Common Area, including, but not limited to,
any parking facilities comprising a portion of the Common Area. Landlord's
rights under this Section 4.5 will be exercised at all times in a manner so as
(a) not to prevent, impair or materially alter access to the Premises, (b) to
minimize the interference with Tenant's business in the Premises and (c) to the
extent it is under Landlord's control, maintain reasonable ingress to and
ingress between the Premises and the Parking Garage.

                                   ARTICLE 5

                               HAZARDOUS MATERIALS

         5.1      COMPLIANCE WITH HAZARDOUS MATERIALS LAWS.

         Tenant will not cause any Hazardous Material to be brought upon, kept
or used on the Property in a manner or for a purpose prohibited by or that could
result in liability under any Hazardous Materials Law. Tenant, at its sole cost
and expense, will comply with all Hazardous Materials Laws and prudent industry
practice relating to the presence, treatment, storage, transportation, disposal,
release or management of Hazardous Materials in, on, under or about the Union
Station Condominium the Tenant brings upon, keeps or uses on Union Station
Condominium and will notify Landlord of any and all Hazardous Materials Tenant
brings upon, keeps or uses on the Property (other than small quantities of
office cleaning or other office supplies as are customarily used by a tenant in
the ordinary course in a general office or call center facility). On or before
the expiration or earlier termination of this Lease, Tenant, at its sole cost
and expense, will completely remove from the Property (regardless whether any
Hazardous Materials Law requires removal), in compliance with all Hazardous
Materials Laws, all Hazardous Materials Tenant causes to be present in, on,
under or about the Property other than Hazardous Materials incorporated into
Improvements as a part of construction materials. Tenant will not take any
remedial action in response to the presence of any Hazardous Materials in on,
under or about the Property, nor enter into any settlement agreement, consent
decree or other compromise with respect to any Claims relating to or in any way
connected with Hazardous Materials in, on, under or about the Property, without
first notifying Landlord of Tenant's intention to do so and affording Landlord
reasonable opportunity to investigate, appear, intervene and otherwise assert
and protect Landlord's interest in the Property. See Section 17.10.

         5.2      NOTICE OF ACTIONS.

         Tenant will notify Landlord of any of the following actions affecting
Landlord, Tenant or the Property that result from or in any way relate to
Tenant's use of the Property immediately after receiving notice of the same: (a)
any enforcement, clean-up, removal or other governmental or regulatory action
instituted, completed or threatened against Tenant or Landlord under any
Hazardous Materials Law; (b) any Claim made or threatened by any person against
Tenant or Landlord relating to damage, contribution, liability, cost recovery,
compensation, loss or injury resulting from or claimed to result from any
Hazardous Material; and (c) any reports made by any person, including Tenant, to
any environmental agency relating to any Hazardous Material, including any
complaints, notices, warnings or asserted violations. Tenant will also deliver
to Landlord, as promptly as possible and in any event within five Business Days
after Tenant first receives or sends the same, copies of all Claims, reports,
complaints, notices, warnings or asserted violations relating to Hazardous
Materials Laws and to the Premises or Tenant's use of the Premises. Upon
Landlord's written request, Tenant will promptly deliver to Landlord
documentation reasonably acceptable to Landlord reflecting the legal and proper
disposal of all Hazardous Materials removed or to be removed from the Premises,
if such materials were in fact placed there by Tenant. All such documentation
will list Tenant or its agent as a responsible party and will not attribute
responsibility for any such Hazardous Materials to Landlord or Property Manager.

         5.3      DISCLOSURE AND WARNING OBLIGATIONS.

                                       8.


         Tenant acknowledges and agrees that all reporting and warning
obligations required under Hazardous Materials Laws resulting from or in any way
relating to Tenant's use of the Premises or Property are Tenant's sole
responsibility, regardless whether the Hazardous Materials Laws permit or
require Landlord to report or warn.

         5.4      INDEMNIFICATION.

         Tenant releases and will indemnify, defend (with counsel reasonably
acceptable to Landlord), protect and hold harmless the Landlord Parties from and
against any and all Claims whatsoever to the extent arising or resulting from
the presence, treatment, storage, transportation, disposal, release or
management of Hazardous Materials in, on, under, upon or from the Union Station
Condominium (including, but not limited to, water tables and atmosphere) that
Tenant brings upon, keeps or uses on the Premises or Union Station Condominium.
Tenant's obligations under this section include, without limitation and whether
foreseeable or unforeseeable, (a) the costs of any required or necessary repair,
clean-up, detoxification or decontamination of the Union Station Condominium;
(b) the costs of implementing any closure, remediation or other required action
in connection therewith as stated above; and (c) consultants' fees, experts'
fees and response costs. The obligations of Tenant under this section survive
the expiration or earlier termination of this Lease.

         Landlord releases, and will indemnify, defend (with counsel reasonably
acceptable to Tenant), protect and hold harmless the Tenant from and against any
and all Claims whatsoever to the extent arising or resulting (unless
constituting Claims for which Tenant is responsible pursuant to the first
paragraph of this Section 5.4), from the presence, treatment, storage,
transportation, disposal, release or management of Hazardous Materials in, on,
under, upon or from the Union Station Condominium (including, but not limited
to, water tables and atmosphere) resulting from or in any way related to the use
of the Property, but only to the extent that (i) the Hazardous Materials have
been brought onto or released upon Union Station Condominium by any of the
Landlord Parties, or (ii) pursuant to applicable Laws Landlord has a duty to
remove such Hazardous Materials from Union Station Condominium. Landlord's
obligations under this section include, without limitation and whether
foreseeable or unforeseeable, (a) the costs of any required or necessary repair,
clean-up, detoxification or decontamination of the Union Station Condominium;
(b) the costs of implementing any closure, remediation or other required action
in connection therewith as stated above; and (c) consultants' fees, experts'
fees and response costs. The obligations of Landlord under this section survive
the expiration or earlier termination of this Lease.

                                   ARTICLE 6

                                    SERVICES

         6.1      LANDLORD'S OBLIGATIONS.

         Landlord will provide the following services, the costs of which are
Operating Expenses:

                  6.1.1    JANITORIAL SERVICE.

                  Janitorial service in the Premises, five nights per week,
appropriate for a first class office building similar in construction, general
location, use, occupancy and design to the Building and in compliance with the
specifications for janitorial service attached hereto as EXHIBIT I (the
"Janitorial Specifications"), including cleaning, trash removal, necessary
dusting and vacuuming, maintaining towels, tissue and other restroom supplies
and such other work as is customarily performed in connection with nightly
janitorial services in office complexes similar in construction, location, use
and occupancy to the Property. Landlord will also provide periodic interior and
exterior window washing and cleaning and waxing of uncarpeted floors appropriate
for a first class office building similar in construction, general location,
use, occupancy and design to the Building

                  6.1.2    ELECTRICAL ENERGY.

                  Electrical energy to the Premises for lighting and for
operating office machines for general office use. Electrical energy will be
sufficient for Tenant to operate personal computers and other equipment of
similar low electrical consumption, but will not be sufficient for lighting in
excess of the standards established in EXHIBIT F.

                                       9.


Tenant will not use any equipment requiring electrical energy in excess of the
above standards without receiving Landlord's prior written consent, which
consent Landlord will not unreasonably withhold but may condition on Tenant
paying all costs of installing the equipment and facilities necessary to furnish
such excess energy and an amount equal to the average cost per unit of
electricity for the Building applied to the excess use as reasonably determined
either by an engineer selected by Landlord or by submeter installed at Tenant's
expense. Landlord will replace all lighting bulbs, tubes, ballasts and starters
within the Premises at Tenant's sole cost and expense unless the costs of such
replacement are included in Operating Expenses. If such costs are not included
in Operating Expenses, Tenant will pay such costs as Additional Rent.

                  6.1.3    HEATING, VENTILATION AND AIR CONDITIONING.

                  During Business Hours, heating, ventilation and air
conditioning to the Premises sufficient to maintain comfortable temperatures in
the Premises in accordance with the HVAC Specifications attached hereto as
EXHIBIT J. During other times, Landlord will provide heat and air conditioning
upon Tenant's request. Tenant will pay Landlord, as Additional Rent, for such
extended service on an hourly basis at the rates Landlord establishes from time
to time for its costs of providing such services without markup. Landlord will
provide air conditioning to the Premises based on standard lighting and general
office use only.

                  6.1.4    WATER.

                  Hot and cold water from standard building outlets for
lavatory, restroom and drinking purposes.

                  6.1.5    ELEVATOR SERVICE.

                  Elevator service to be used by Tenant in common with other
tenants. Landlord may restrict Tenant's use of elevators for freight purposes to
the freight elevator and to hours Landlord reasonably determines but at no
special use charge to Tenant. Landlord may limit the number of elevators in
operation at times other than Business Hours.

         6.2      TENANT'S OBLIGATIONS.

         Tenant is solely responsible for paying directly to the applicable
utility companies, prior to delinquency, all separately metered or separately
charged utilities, if any, to the Premises or to Tenant. Such separately metered
or charged amounts are not Operating Expenses. Except as provided in Sections
6.1 and 17.1, Tenant will also obtain and pay for all other utilities and
services Tenant requires with respect to the Premises, but Tenant will not be
required to pay hook-up and connection charges for basic utility service to the
Building.

         6.3      OTHER PROVISIONS RELATING TO SERVICES.

         No interruption in, or temporary stoppage of, any of the services this
Article 6 describes is to be deemed an eviction or disturbance of Tenant's use
and possession of the Premises, nor does any interruption or stoppage relieve
Tenant from any obligation this Lease describes, render Landlord liable for
damages or entitle Tenant to any Rent abatement; provided, however, if such
interruption or stoppage prevents Tenant from engaging in the Permitted Use at
all or any part of the Premises for 4 consecutive days, then Annual Basic Rent
will be abated in proportion to the portion of the Premises not usable for the
Permitted Use from and after the expiration of said fourteen-day period until
the earlier to occur of (i) the restoration of the furnishing of such utility or
other service to such portion of the Premises or (ii) the date on which such
interruption no longer prevents Tenant from engaging in the Permitted Use at
such portion of the Premises. Anything herein to the contrary notwithstanding,
there will be no such abatement of rent if either (a) Landlord's inability to
provide such services is caused by misuse or neglect of Tenant or Tenant's
agents or employees, or (b) the interrupted or stopped service or utility has
been provided by or through an alternative telecommunication company selected by
Tenant pursuant to Section 17.14. Landlord is not required to provide any heat,
air conditioning, electricity or other service in excess of that permitted by
voluntary or involuntary governmental guidelines or other Laws. Subject to
Section 17.14.2 Landlord has the exclusive right and discretion to select the
provider of any service to the Property and to determine whether the Premises or
any other portion of

                                      10.


the Property may or will be separately metered or separately supplied. Landlord
reserves the right, from time to time, to make reasonable and non-discriminatory
modifications to the above standards for utilities and services.

         6.4      TENANT DEVICES.

         Tenant will not, without Landlord's prior written consent, use any
apparatus or device in or about the Premises that causes substantial noise, odor
or vibration. Tenant will not connect any apparatus or device to electrical
current or water except through the electrical and water outlets Landlord
installs in the Premises.

                                   ARTICLE 7

                             MAINTENANCE AND REPAIR

         7.1      LANDLORD'S OBLIGATIONS.

         Landlord will, in accordance with the standards of first class office
buildings, repair and maintain and keep in good order, condition and repair: (a)
the foundations, exterior walls and roof of the Building; and (b) the
electrical, mechanical, plumbing, heating and air conditioning systems,
facilities and components located in the Building and used in common by all
tenants of each of the Building. Notwithstanding the foregoing, items located in
the Premises serving only the Premises which are part of the base building
systems will be maintained by Landlord. Landlord will also maintain and repair
Common Area (subject to all other terms and conditions of this Lease relating to
Common Area) and the windows, doors, plate glass and the exterior surfaces of
walls that are adjacent to Common Area. Landlord's repair and maintenance costs
under this Section 7.1 are Operating Expenses unless otherwise specifically
excluded by this Lease. Neither Basic Rent nor Additional Rent will be reduced
(except as set forth in Section 6.3), nor will Landlord be liable, for loss or
injury to or interference with Tenant's property, profits or business arising
from or in connection with Landlord's performance of its obligations under this
section.

         7.2      TENANT'S OBLIGATIONS.

                  7.2.1    MAINTENANCE OF PREMISES.

                  Except as otherwise specifically provided in this Lease,
Landlord is not required to furnish any services or facilities, or to make any
repairs or Alterations, in, about or to the Premises or the Property. Except as
specifically described in Section 7.1, Tenant assumes the full and sole
responsibility for the repair, replacement and maintenance in the Premises.
Except as specifically described in Section 7.1, Tenant, at Tenant's sole cost
and expense, will keep and maintain the Premises (including, but not limited to,
all non-structural interior portions, systems and equipment, interior surfaces
of exterior walls; interior moldings, partitions and ceilings, and interior
electrical, lighting and plumbing fixtures) in good order, condition and repair,
reasonable wear and tear and damage from casualties not required to be repaired
by Tenant excepted. Tenant will keep the Premises in a neat and sanitary
condition and will not commit any nuisance or waste in, on or about the Premises
or the Property. If Tenant damages or injures the Common Area or any part of the
Property other than the Premises, Landlord will repair the damage and Tenant
will pay Landlord for all uninsured costs and expenses of Landlord in connection
with the repair as Additional Rent. Tenant is solely responsible for and, to the
fullest extent allowable under the Laws, will release and indemnify, protect and
defend Landlord against (with counsel reasonably acceptable to Landlord) and
hold Landlord harmless from, the cost of repairing, and any Claims resulting
from, any penetrations or perforations of the roof or exterior walls or floors
of the Building Tenant causes. Tenant will maintain the Premises in a
first-class and fully operative condition. Tenant's repairs will be at least
equal in quality and workmanship to the original work and Tenant will make the
repairs in accordance with all Laws.

                  7.2.2    ALTERATIONS REQUIRED BY LAWS.

                  If any governmental authority requires any Alteration to the
Building or the Premises as a result of Tenant's particular use of the Premises
or relating solely to Tenant's Improvements or as a result of any Alteration to
the Premises made by or on behalf of Tenant, or if Tenant's particular use of
the Premises subjects Landlord or

                                      11.


the Property to any obligation under any Laws, Tenant will pay the cost of all
such Alterations or the cost of compliance, as the case may be. If any such
Alterations are Structural Alterations, Landlord will make the Structural
Alterations; provided, however, that Landlord may require Tenant to deposit with
Landlord an amount sufficient to pay the cost of the Structural Alterations
(including, without limitation, reasonable overhead and administrative costs).
If the Alterations are not Structural Alterations, Tenant will make the
Alterations at Tenant's sole cost and expense in accordance with Article 8.

                                   ARTICLE 8

                             CHANGES AND ALTERATIONS

         8.1      LANDLORD APPROVAL.

         Tenant will not make any Alterations to the Common Area. Tenant will
not make any other Alterations without Landlord's prior written consent, which
consent Landlord will not unreasonably withhold or delay; provided, however,
that Landlord may impose conditions upon its consent in its reasonable
discretion. Along with any request for Landlord's consent, Tenant will deliver
to Landlord plans and specifications for the Alterations and names and addresses
of all prospective contractors for the Alterations. If Landlord approves the
proposed Alterations, Tenant, before delivering or accepting delivery of any
materials to be used in connection with the Alterations, will deliver to
Landlord for Landlord's reasonable approval copies of all contracts, proof of
insurance required by Section 8.2, copies of any contractor safety programs,
copies of all necessary permits and licenses and such other information relating
to the Alterations as Landlord reasonably requests. Tenant will not commence the
Alterations before obtaining Landlord's approval of the foregoing. Landlord's
approval of plans and specifications for any Alterations will not be construed
to constitute a representation or warranty by Landlord as to compliance with
applicable Laws, as to the structural, engineering or other design of the
Premises or the Property or as to the quality or fitness of any materials used.
Tenant will construct all approved Alterations or cause all approved Alterations
to be constructed (a) promptly by a contractor Landlord approves in writing in
Landlord's sole discretion, (b) in a good and workmanlike manner, (c) in
compliance with all Laws, (d) in accordance with all orders, rules and
regulations of the Board of Fire Underwriters having jurisdiction over the
Premises and any other body exercising similar functions, and (e) in full
compliance with all of Landlord's rules and regulations applicable to third
party contractors, subcontractors and suppliers performing work at the Property.

         Notwithstanding the foregoing, provided Tenant notifies Landlord 10
days prior to commencing any work permitted by this paragraph, Tenant will be
permitted to perform Alterations which are in keeping with the standards of the
Premises and do not materially or adversely affect the structural, electrical or
mechanical systems of the Premises or the Building and which do not cost more
than $50,000 for an individual change, and which do not in the aggregate cost
more than $150,000 per project, without the necessity of having to obtain
Landlord's consent but otherwise subject to all of the foregoing provisions of
this section except the third and fourth sentences and in clause (a) of the last
sentence of the first paragraph of this section. Each of the amounts set forth
in this paragraph will be adjusted on the first day of each Lease Year by the
change in the CPI for the calendar month two months before the first day of the
Lease Year, compared to the CPI for the month two months before the first
calendar month of the Term.

         Within 30 days after substantially completing the installation of any
Alteration, whether the Alterations require Landlord's prior consent pursuant to
the foregoing of this section, Tenant will deliver to Landlord "as-built"
drawings showing all changes to the Premises or the Building.

         8.2      TENANT'S RESPONSIBILITY FOR COST AND INSURANCE.

         Tenant will pay the cost and expense of all Alterations, including,
without limitation, the reasonable charges of Landlord's engineering consultants
for engineering review of Tenant's plans, and for any painting, restoring or
repairing of the Premises or the Building the Alterations occasion. For projects
exceeding $150,000 in cost (which amount will be adjusted on the first day of
each Lease Year by the change in the CPI for the calendar month two months
before the first day of the Lease Year, compared to the CPI for the month two
months before the first calendar month of the Term), prior to commencing the
Alterations, Tenant will deliver the following to Landlord: (a) a certificate of
insurance evidencing builder's all risk insurance in an amount reasonably
established

                                      12.


by Landlord; (b) a certificate of insurance evidencing commercial general
liability insurance insuring against construction related risks in at least the
form, amounts and coverages required of Tenant under Article 10, and (c) copies
of all applicable contracts and of all necessary permits and licenses. The
insurance policies described in clauses (a) and (b) of this section must name
Landlord, Landlord's lender (if any) and Property Manager as additional
insureds.

         8.3      CONSTRUCTION OBLIGATIONS AND OWNERSHIP.

         Landlord may inspect construction of the Alterations. Immediately after
completing any Alterations exceeding $100,000 in cost (which amount will be
adjusted on the first day of each Lease Year by the change in the CPI for the
calendar month two months before the first day of the Lease Year, compared to
the CPI for the month two months before the first calendar month of the Term),
Tenant will furnish Landlord with contractor affidavits and full and final lien
waivers covering all labor and materials expended and used in connection with
the Alterations. Tenant will remove any Alterations upon expiration or
termination of this Lease; provided, however, that unless Landlord, in its
written consent to proposed Alterations, states that upon expiration or
termination of this Lease, Landlord will require Tenant to remove those
Alterations, Landlord will not have the right to require removal thereof, and
provided further that Tenant will not be required to remove its initial Tenant
Improvements. All Alterations Tenant makes or installs (including all telephone,
computer and other wiring and cabling located within the walls of and outside
the Premises, but excluding Tenant's movable trade fixtures, furniture and
equipment) become the property of Landlord upon installation and, unless
Landlord requires Tenant to remove the Alterations in accordance with this
Section 8.3, Tenant will surrender the Alterations to Landlord upon the
expiration or earlier termination of this Lease at no cost to Landlord.

         8.4      LIENS.

         Tenant will keep the Property free from any mechanics', materialmens',
designers' or other liens arising out of any work performed, materials furnished
or obligations incurred by or for Tenant or any person or entity claiming by,
through or under Tenant. Tenant will notify Landlord in writing 30 days prior to
commencing any Alterations in order to provide Landlord the opportunity to
record and post notices of non-responsibility or such other protective notices
available to Landlord under the Laws. If any such liens are filed and Tenant
does not contest those liens in the manner set forth in Section 3.9, and does
not, within 15 days after such filing, release the same of record or provide
Landlord with a bond or other security satisfactory to Landlord protecting
Landlord and the Property against such liens, Landlord may, without waiving its
rights and remedies based upon such breach by Tenant and without releasing
Tenant from any obligation under this Lease, cause such liens to be released by
any means Landlord deems proper, including, but not limited to, paying the claim
giving rise to the lien or posting security to cause the discharge of the lien.
In such event, Tenant will reimburse Landlord, as Additional Rent, for all
amounts Landlord pays (including, without limitation, reasonable attorneys' fees
and costs).

         8.5      INDEMNIFICATION.

         To the fullest extent allowable under the Laws, Tenant releases and
will indemnify, protect, defend (with counsel reasonably chosen by Tenant's
insurer, or if there is no insurer, with counsel reasonably acceptable to
Landlord) and hold harmless the Landlord Parties and the Property from and
against any Claims or arising out of any Alterations or any other work
performed, materials furnished or obligations incurred by or for Tenant or any
person or entity claiming by, through or under Tenant except, however, such
Claims to the extent they arise from the negligence or willful misconduct of any
of the Landlord Parties.

                                   ARTICLE 9

                           RIGHTS RESERVED BY LANDLORD

         9.1      LANDLORD'S ENTRY.

         Landlord and its authorized representatives may enter the Premises to:
(a) inspect the Premises; (b) show the Premises to prospective purchasers and
Mortgagees and, during the last nine (9) months of the Term (as it may

                                      13.


be extended) to prospective tenants; (c) post notices of non-responsibility or
other protective notices available under the Laws; or (d) exercise and perform
Landlord's rights and obligations under this Lease. Landlord, in the event of
any emergency, may enter the Premises without notice to Tenant. In an emergency,
Landlord's entry into the Premises without prior notice is not to be construed
as a forcible or unlawful entry into, or detainer of, the Premises or as an
eviction of Tenant from all or any part of the Premises. Tenant will also permit
Landlord (or its designees) to install, use, maintain, replace and repair pipes,
cables, conduits, plumbing and vents, and telephone, electric and other wires or
other items, in, to and through the Premises if Landlord reasonably determines
that such activities are necessary to provide necessary services to another
tenant in the Building, or to cause any of the Building to comply with
applicable changes in Laws, provided Landlord will locate any such items in the
floor or in the plenum or in the mechanical or electrical spaces in the
Premises, and will otherwise take reasonable steps to minimize interference with
Tenant's business. Landlord will be entitled to have access to the Premises only
when accompanied by a representative of Tenant, and upon no less than 24 hours'
prior written notice specifying the purpose for the access and identifying by
name and business any persons other than Landlord who will accompany Landlord;
provided, however, that in the case of an emergency that gives rise to imminent
danger to persons or property, Landlord will give Tenant such notice as may be
practicable under the circumstances. Access by Landlord will be strictly in
accordance with the security and confidentiality requirements that Tenant may
impose from time to time, including, without limitation, a requirement that
persons other than Landlord having access to the Premises will sign and deliver
to Tenant a nondisclosure and confidentiality agreement in form and content
acceptable to Tenant. All information learned by or disclosed to Landlord with
respect to Tenant's business, and all information disclosed or discovered during
an entry by Landlord into the Premises, will be kept strictly confidential by
Landlord, Landlord's legal representatives, successor, assigns, servants and
agents, and will not be used (except for Landlord's confidential internal
purposes) or disclosed to others by Landlord or Landlord's legal
representatives, successors, assigns, servants or agents without the express
prior written consent of Tenant, which Tenant may grant, withhold or condition
in its sole and absolute discretion. At Tenant's request, Landlord will prevent
access to the Premises by any prospective purchaser or tenant or other visitor
whom Landlord intends to bring onto the Premises who is, or may reasonably be
suspected by Tenant to be or represent, a competitor of Tenant. In exercising
its right of entry, Landlord will not unreasonably interfere with the conduct of
Tenant's business operations on the Premises.

         9.2      CONTROL OF PROPERTY.

         Landlord reserves all rights respecting the Property and Premises not
specifically granted to Tenant under this Lease, including, without limitation,
the right to: (a) change the name of the Building; (b) designate and approve all
types of signs, window coverings, internal lighting and other aspects of the
Premises and its contents that may be visible from the exterior of the Premises;
(c) prohibit Tenant from installing vending or dispensing machines of any kind
in or about the Premises other than those Tenant installs in the Premises solely
for use by Tenant's employees; (e) close the Building after Business Hours,
except that Tenant and its employees and invitees may access the Premises after
Business Hours in accordance with such rules and regulations as Landlord may
prescribe from time to time for security purposes (it being understood and
agreed that Tenant will have access to the Premises 24 hours per day, seven days
per week and 365 days per year; (f) install, operate and maintain security
systems that monitor, by closed circuit television or otherwise, all persons
entering or leaving the Building; (g) subject to applicable limitations set
forth in Section 9.1, install and maintain pipes, ducts, conduits, wires and
structural elements in the Premises that serve other parts or other tenants of
the Building; and (h) retain and receive master keys or pass keys to the
Premises and all doors in the Premises. Notwithstanding the foregoing, or the
provision of any security-related services by Landlord, Landlord is not
responsible for the security of persons or property on the Property and Landlord
is not and will not be liable in any way whatsoever for any breach of security
not solely and directly caused by the negligence or willful misconduct of
Landlord, its agents or employees or any of the Landlord Parties.

         9.3      LOCK BOX AGENT/RENT COLLECTION AGENT.

         Landlord, from time to time, may designate a lock box collection agent
or other person to collect Rent. In such event, Tenant's payment of Rent to the
lock box collection agent or other person is deemed to have been made (a) as of
the date the lock box collection agent or other person receives Tenant's payment
(if the payment is not dishonored for any reason); or (b) if Tenant's payment is
dishonored for any reason, the date Landlord or Landlord's agent collects the
payment. Neither Tenant's payment of any amount of Rent to the lock box
collection agent or other person nor Landlord's or Landlord's agent's collection
of such amount if the payment is dishonored constitutes Landlord's waiver of any
default by Tenant in the performance of Tenant's obligations under this Lease

                                      14.


or Landlord's waiver of any of Landlord's rights or remedies under this Lease.
If Tenant pays any amount to the lock box collection agent or other person other
than the actual amount due Landlord, then Landlord's or Landlord's agent's
receipt or collection of such amount does not constitute an accord and
satisfaction, Landlord is not prejudiced in collecting the proper amount due
Landlord and Landlord may retain the proceeds of any such payment, whether
restrictively endorsed or otherwise, and apply the same toward amounts due and
payable by Tenant under this Lease.

         9.4      [RESERVED]

         9.5      TELECOMMUNICATIONS.

                  9.5.1    LANDLORD'S RIGHTS.

                  Landlord may (but will not have the obligation to): (a)
install new Lines at the Building to serve Tenant and any other tenant(s) of the
Building; (b) create additional space for Lines at the Building; (c) reasonably
direct, monitor and/or supervise the installation, maintenance, replacement and
removal of, and the allocation and periodic re-allocation of available space (if
any) for, any Lines now or hereafter installed at the Building by Landlord,
Tenant or any other Person (but Landlord will have no right to monitor or
control the information transmitted through such Lines). Such rights will not be
in limitation of other rights that may be available to Landlord by Law or
otherwise. If Landlord exercises any such rights pursuant to Tenant's request,
Landlord may charge Tenant for the costs reasonably attributable to and approved
by Tenant, or may include those costs in Operating Expenses (such costs to
include, without limitation, costs for acquiring and installing Lines and risers
within the Building Telecommunication spine to accommodate new Lines and spare
Lines, any associated computerized system and software for maintaining records
of Line connections within the Building Telecommunication spine, costs for
actual work required to provide cable pair assignments and routine maintenance
of the Lines, third party management fees, and the fees of any consulting
engineers and other experts), if the benefit is proportionate to all tenants of
the Building.

                  9.5.2    LIMITED LIABILITY.

                           (a)      Limitation of Responsibility. Tenant
         acknowledges and agrees that all telephone and telecommunications
         services desired by Tenant will be ordered and utilized at the sole
         expense of Tenant. Landlord will have no responsibility for the
         maintenance of Tenant's telecommunications equipment, including wiring,
         nor for any other infrastructure to which Tenant's telecommunications
         equipment may be connected. Tenant agrees that to the extent any such
         service is interrupted, curtailed, or discontinued, Landlord will have
         no obligation or liability with respect thereto other than for damages
         in an amount not to exceed the actual cost of repair incurred on
         account of the negligence or willful misconduct of Landlord, or its
         contractors, agents, or employees or any of the Landlord Parties and it
         will be the sole obligation of Tenant at its expense to obtain
         substitute service.

                           (b)      Limitation of Liability. Except to the
         extent arising from the negligence or willful misconduct of Landlord or
         Landlord's agents or employees or any of the Landlord Parties, Landlord
         will have no liability for damages arising from, and Landlord does not
         warrant that the Tenant's use of any Lines will be free from the
         following (respectively, "Line Problems"): (a) any shortages, failures,
         variations, interruption, disconnection, loss or damage caused by the
         installation, maintenance, replacement, use or removal of Lines by or
         for other tenants or occupants at the Building, by any failure of the
         environmental conditions or the power supply for the Building to
         conform to any requirements for the Lines or any associated equipment,
         or any other problems associated with any Lines by any other cause; (b)
         any failure of any Lines to satisfy Tenant's requirements; or (c) any
         eavesdropping or wire-tapping by unauthorized parties. Under no
         circumstances will any Line Problems be deemed an actual or
         constructive eviction of Tenant, render Landlord liable to Tenant for
         abatement of Rent (except as otherwise expressly provided in this
         Lease), or relieve Tenant from performance of Tenant's obligations
         under this Lease.

                                      15.


         9.6      ELECTROMAGNETIC FIELDS.

         If Tenant, at any time, uses any Lines or equipment in, on or about the
Premises or the Building that may create an electromagnetic field exceeding
radiation limits for Class A and Class B computing devices as set forth in FCC
regulation Part 15 as now or hereafter amended, Landlord reserves the right to
require Tenant to take any and all steps necessary, up to and including removal
of all Lines and/or equipment causing the electromagnetic emissions, to reduce
radiation to within levels permitted by applicable Laws.

                                   ARTICLE 10

                                    INSURANCE

         10.1     TENANT'S INSURANCE OBLIGATIONS.

         Tenant, at all times during the Term and during any early occupancy
period, at Tenant's sole cost and expense, will maintain the insurance this
Section 10.1 describes.

                  10.1.1   LIABILITY INSURANCE.

                  Commercial general liability insurance (providing coverage at
least as broad as the current ISO form) with respect to the Premises and
Tenant's activities in the Premises and upon and about the Property, on an
"occurrence" basis, with a combined single limit of not less than $5,000,000 per
occurrence and general aggregate. Such insurance must include specific coverage
provisions or endorsements (a) for broad form contractual liability insurance
insuring Tenant's contractual obligations under this Lease; (b) naming Landlord
and Property Manager as additional insureds by an "Additional Insured - Managers
or Lessors of Premises" endorsement (or equivalent coverage or endorsement); (c)
waiving the insurer's subrogation rights against all Landlord Parties to the
extent reasonably available for such insurance; (d) providing Landlord with at
least 30 days prior notice of any cancellation; (e) expressly stating that
Tenant's insurance will be provided on a primary and non-contributory basis; (f)
providing that the insurer has a duty to defend all insureds under the policy
(including additional insureds); and (g) employer's liability and Washington
stop-gap coverage. If Tenant provides such liability insurance under a blanket
policy, the insurance must be made specifically applicable to the Premises and
this Lease on a "per location" basis.

                  10.1.2   PROPERTY INSURANCE.

                  At Tenant's option and not otherwise, property insurance
providing coverage at least as broad as the current ISO Special Form
("all-risks") policies in an amount not less than the full insurable replacement
cost of all of Tenant's trade fixtures and other personal property within the
Premises and including business income insurance covering at least nine months
loss of income from Tenant's business in the Premises. If Tenant provides such
property insurance under a blanket policy, the insurance must include "agreed
amount, no coinsurance" provisions.

                  10.1.3   OTHER INSURANCE.

                  Such other insurance as may be required by any Laws from time
to time or may reasonably be required by Landlord from time to time in
accordance with then-current industry standards. If insurance obligations
generally required of tenants in similar space in similar office buildings in
the area in which the Premises is located increase or otherwise change, Landlord
may likewise increase or otherwise change Tenant's insurance obligations under
this Lease to that which is generally being required by landlords of first class
office buildings and improvements similar in construction, general location,
use, occupancy and design to the Building. This section will not apply to the
insurance referred to in Section 10.1.2.

                                      16.


                  10.1.4   MISCELLANEOUS INSURANCE PROVISIONS.

                  All of Tenant's insurance will be written by companies rated
at least A-VII in the most current Best's Key Rating Guide. Tenant will deliver
a certificate of insurance, (a) on or before the Commencement Date (and prior to
any earlier occupancy by Tenant), (b) not later than 10 days prior to the
expiration of any current policy or certificate, and (c) at such other times as
Landlord may reasonably request. If Landlord allows Tenant to provide evidence
of insurance by certificate, Tenant will deliver an ACORD Form 27 certificate
and will attach or cause to be attached to the certificate copies of the
endorsements this Section 10.1 requires (including specifically, but without
limitation, the "additional insured" endorsement). Tenant's insurance must
permit releases of liability as provided in Section 10.1.5 and must provide for
waiver of subrogation to the extent required by this Lease.

                  10.1.5   TENANT'S WAIVER AND RELEASE OF CLAIMS AND
                           SUBROGATION.

                  To the extent not prohibited by the Laws, Tenant, on behalf of
Tenant and its insurers, waives, releases and discharges the Landlord Parties
from all Claims arising out of damage to or destruction of the Tenant's
Improvements or Tenant's trade fixtures, other personal property (including the
Equipment referred to in Section 17.17) or business, and any loss of use or
business interruption, occasioned by any fire or other casualty or occurrence
whatsoever (whether similar or dissimilar), regardless whether any such Claim
results from the negligence or fault of any Landlord Party or otherwise, and
Tenant will look only to Tenant's insurance coverage (regardless whether Tenant
maintains any such coverage) in the event of any such Claim. Except as provided
in Section 10.4, Tenant's Improvements, trade fixtures, other personal property
and all other property in Tenant's care, custody or control, is located at the
Property (including the Equipment referred to in Section 17.17) at Tenant's sole
risk. Except as provided in Section 10.4. Landlord is not liable for any damage
to such property or for any theft, misappropriation or loss of such property,
including by or resulting from the act or omission of any other tenant or
occupant of the Building. Tenant is solely responsible for providing such
insurance as may be required to protect Tenant, its employees and invitees
against any injury, loss, or damage to the property of Tenant or the property of
any other Person occupying any of the Premises occurring in the Premises or at
the Property, including, without limitation, any loss of business or profits
from any casualty or other occurrence at the Property.

                  10.1.6   NO LIMITATION.

                  Landlord's establishment of minimum insurance requirements is
not a representation by Landlord that such limits are sufficient and does not
limit Tenant's liability under this Lease in any manner.

         10.2     LANDLORD'S INSURANCE OBLIGATIONS.

         Landlord will (except for the optional coverages and endorsements
Section 10.2.1 describes) at all times during the Term maintain the insurance
this Section 10.2 describes. All premiums and other costs and expenses Landlord
incurs in connection with maintaining the insurance described in this Section
10.2 are Operating Expenses. Landlord's insurance must permit releases of
liability as provided in Section 10.2.3 and must provide for waiver of
subrogation to the extent required by this Lease.

                  10.2.1   PROPERTY INSURANCE.

                  Property insurance on the Building providing coverage at least
as broad as the current ISO Special Form ("all risks") policies in an amount not
less than the full insurable replacement cost of the Building, including, but
not limited to, coverage for windstorm, hail, explosion, vandalism, riot and
civil commotion. Landlord, at its option, may obtain such additional coverages
or endorsements as Landlord deems appropriate or necessary, including, without
limitation, insurance covering foundation, grading, excavation and debris
removal costs; business income and rent loss insurance, boiler and machinery
insurance, ordinance or laws coverage; earthquake insurance; flood insurance;
and other coverages. Landlord may maintain such insurance in whole or in part
under blanket policies. Such insurance will not cover or be applicable to any
property of Tenant within the Premises or otherwise located at the Property,
including property of third parties in Tenant's care, custody or control at the
Property.

                  10.2.2   LIABILITY INSURANCE.

                                      17.


                  Commercial general liability insurance providing coverage at
least as broad as the current ISO form against Claims for bodily injury,
personal injury, and property damage occurring at the Property in commercially
reasonable amounts. Such liability insurance (a) will protect only Landlord and,
at Landlord's option, Landlord's lender and some or all of the Landlord Parties,
(b) does not replace or supplement the liability insurance this Lease obligates
Tenant to carry, and (c) shall waive the insurer's subrogation rights against
Tenant to the extent reasonably available for such insurance.

                  10.2.3   LANDLORD'S WAIVER AND RELEASE OF CLAIMS AND
                           SUBROGATION.

                  To the extent not expressly prohibited by the Laws, Landlord,
on behalf of Landlord and its insurers, waives, releases and discharges Tenant
from all Claims or demands whatsoever arising out of damage to or destruction of
the Property, personal property of Landlord or other parties, or business, and
any loss of use of the Property or business interruption, occasioned by any fire
or other casualty or occurrence whatsoever (whether similar or dissimilar),
regardless whether any such Claim or demand results from the negligence or fault
of Tenant, or otherwise, and Landlord will look only to Landlord's insurance
coverage (regardless whether Landlord maintains any such coverage) in the event
of any such Claim. Landlord's policy or policies of property insurance will
permit releases of liability as provided in this Section 10.2 and will provide
for waiver of subrogation as to tenants of the Property.

         10.3     TENANT'S INDEMNIFICATION OF LANDLORD.

         In addition to Tenant's other indemnification obligations in this Lease
and except as specifically set forth in Section 10.1 and/or Section 10.2.3,
Tenant, to the fullest extent allowable under the Laws, releases and will
indemnify, protect, defend (with counsel reasonably chosen by Tenant's insurer,
or if there is no insurer, with counsel reasonably acceptable to Landlord) and
hold harmless the Landlord Parties from and against all Claims arising from (a)
any breach or default by Tenant in the performance of any of Tenant's covenants
or agreements in this Lease, (b) any act, omission, negligence or misconduct of
Tenant and (c) any accident, injury, occurrence or damage in, about or to the
Premises and, to the extent caused by Tenant, the Property and/or Union Station
Condominium.

         10.4     LANDLORD'S INDEMNIFICATION OF TENANT.

         In addition to Landlord's other indemnification obligations in this
Lease, and except as set forth in Section 10.2 and/or the first sentence of
Section 10.1.5, Landlord, to the fullest extent allowable under the Laws,
releases and will indemnify, protect, defend (with counsel reasonably chosen by
Landlord's insurer or if there is no insurance, with counsel reasonably
acceptable to Tenant), and hold Tenant harmless from and against all Claims
arising from (a) any breach or default by Landlord in the performance of any of
Landlord's covenants or agreements under this Lease, (b) any act, omission,
negligence or misconduct of Landlord or any of the Landlord Parties and (c) any
accident, injury, occurrence or damage in, about or to the Common Area.

         10.5     TENANT'S FAILURE TO INSURE.

         Notwithstanding any contrary language in this Lease and any notice and
cure rights this Lease provides Tenant, if Tenant fails to provide Landlord with
evidence of insurance as required under Section 10.1 within a reasonable time
after Landlord's request, Landlord may assume that Tenant is not maintaining the
insurance Section 10.1 requires Tenant to maintain and Landlord may, but is not
obligated to, without further demand upon Tenant or notice to Tenant and without
giving Tenant any cure right or waiving or releasing Tenant from any obligation
contained in this Lease, obtain such insurance for Landlord's benefit. In such
event, Tenant will pay to Landlord, as Additional Rent, all costs and expenses
Landlord incurs obtaining such insurance. Landlord's exercise of its rights
under this section does not relieve Tenant from any default under this Lease.

         10.6     LIMITATION ON INDEMNITIES.

         In compliance with RCW 4.24.115 as in effect on the date of this Lease,
all provisions of this Lease pursuant to which a party agrees to indemnify
another party against liability for damages arising out of bodily injury

                                      18.


to person or damage to property ("Damages") in connection with the construction,
alteration, repair, addition to, subtraction from, improvement to or maintenance
of any improvement attached to the Property ("Indemnities") will be limited by
the provisions of this Section 10.6. None of such Indemnities will apply to
Damages caused by or resulting from the sole negligence of the indemnitee, its
agents or employees. To the extent that any such Damages are caused by or result
from the concurrent negligence of (a) the indemnitee or its agents or employees
and (b) the indemnitor or its agents or employees, the Indemnities will apply
only to the extent of the indemnitor's negligence. If RCW 4.24.115 is hereafter
amended to eliminate or modify the limitations on indemnities set forth therein,
this Section 10.6 will automatically and without further act by either party be
deemed amended to remove any of the limitations contained in this Section 10.6
that are no longer required by then-applicable law. Landlord and Tenant have
specifically negotiated and specifically waive any provisions of any industrial
insurance act, including Title 51 of the Revised Code of Washington, or any
other employee benefit act which might otherwise operate to release or immunize
it from its obligations under this Section 10.

         10.7     INTENT CONCERNING INSURANCE.

         Risk of loss or damage for Claims subject to Section 10.1.5 or Section
10.2.3 will be born by the parties' respective insurance carriers and Landlord
and Tenant will look solely to and seek recovery only from their respective
insurance carriers in the event of a loss for which insurance is permitted or
required by this Lease in connection with such claims.

                                   ARTICLE 11

                              DAMAGE OR DESTRUCTION

         11.1     TENANTABLE WITHIN 270 DAYS.

         Except as provided in Section 11.3, if fire or other casualty renders
the whole or any material part of the Premises untenantable and Landlord
determines (in Landlord's reasonable discretion) that it can make the Premises
tenantable within 270 days after the date of the casualty, then Landlord will
notify Tenant that Landlord will repair and restore the Building and the
Premises to as near their condition prior to the casualty as is reasonably
possible within the 270 day period (subject to delays caused by Tenant Delays or
Force Majeure). Landlord will provide the notice stating the estimate of time
required for repairs, within 30 days after the date of the casualty. In such
case, this Lease remains in full force and effect, but Basic Rent and Tenant's
Share of Operating Expenses for the period during which all or a part of the
Premises are untenantable abate pro rata (based upon the Rentable Area of the
untenantable portion of the Premises as compared with the Rentable Area of the
entire Premises). Notwithstanding the foregoing, however, if Landlord fails to
complete the repair and restoration of the Building and the Premises within 90
days after expiration of the 270 day period established by Landlord pursuant to
this Section (subject to delays caused by Tenant Delays or Force Majeure),
Tenant may terminate this Lease by notice to Landlord at any time after
expiration of such 90 day period, which termination will be effective on the
date of Tenant's notice. SEE SECTION 17.20.

         11.2     NOT TENANTABLE WITHIN 270 DAYS.

         If fire or other casualty renders the whole or any material part of the
Premises untenantable or if the Building is damaged so that access and necessary
services cannot be provided to the Premises, and Landlord determines (in
Landlord's reasonable discretion) that it cannot make the Premises tenantable
and restore access and services within 270 days after the date of the casualty,
then Landlord will so notify Tenant within 30 days after the date of the
casualty and may, in such notice, terminate this Lease effective on the date of
Landlord's notice. If Landlord does not terminate this Lease as provided in this
Section, Tenant may terminate this Lease by notifying Landlord within 30 days
after the date of Landlord's notice, which termination will be effective on the
date of Tenant's notice. Basic Rent and Tenant's Share of Operating Expenses
will abate from the date of the casualty according to the formula set forth in
Section 11.1.

         11.3     BUILDING SUBSTANTIALLY DAMAGED.

                                      19.


         Notwithstanding the terms and conditions of Section 11.1, if the
Building is damaged or destroyed by fire or other casualty (regardless whether
the Premises is affected) and the damage reduces the value of the Building by
more than 50% (as Landlord reasonably determines value before and after the
casualty), regardless whether Landlord determines (in Landlord's reasonable
discretion) that it can make the Premises tenantable within 270 days after the
date of the casualty, then Landlord, at Landlord's option, by notifying Tenant
within 30 days after the casualty, may terminate this Lease effective on the
date of Landlord's notice. Basic Rent and Tenant's Share of Operating Expenses
will abate from the date of the casualty according to the formula set forth in
Section 11.1.

         11.4     INSUFFICIENT PROCEEDS.

         Notwithstanding any contrary language in this Article 11, if this
Article 11 obligates Landlord to repair damage to the Premises or Building
caused by fire or other casualty and Landlord does not receive sufficient
insurance proceeds (excluding any deficiency caused by the amount of any policy
deductible or the failure of Landlord to procure the insurance coverages
required in Section 10.2.1) to make the repair and the cost of the repair not
covered by insurance proceeds is in excess of 15% of the insurable value of the
Building immediately before the loss, or if Landlord's lender does not allow
Landlord to use sufficient proceeds to make the repair, and the cost of the
repair not covered by proceeds made available by Landlord's lender is in excess
of 15% of the insurable value of the Building immediately before the loss, then
Landlord, at Landlord's option, by notifying Tenant within 30 days after the
casualty, may terminate this Lease effective on the date of Landlord's notice.
Landlord's notice of termination, however, shall not be effective if, within 10
days of receipt of Landlord's notice, Tenant delivers irrevocable notice to
Landlord that Tenant will pay Landlord, as Additional Rent, at such time and to
such account as are designated by or acceptable to Landlord's lender, all such
amounts in excess of 15% of the insurable value of the Building immediately
before any such loss that are necessary to make the repair.

         11.5     LANDLORD'S REPAIR OBLIGATIONS.

         If this Lease is not terminated under Sections 11.2 through 11.4
following a fire or other casualty, then Landlord will repair and restore the
Premises and the Building to as near their condition prior to the fire or other
casualty as is reasonably possible with all commercially reasonable diligence
and speed (subject to delays caused by Tenant Delay or Force Majeure but also
subject to Tenant's right to terminate in Section 11.1) and Basic Rent and
Tenant's Share of Operating Expenses for the period during which all or a part
of the Premises are untenantable will abate pro rata (based upon the Rentable
Area of the untenantable portion of the Premises as compared with the Rentable
Area of the entire Premises). In no event is Landlord obligated to repair or
restore any Alterations or Tenant's Improvements that are not covered by
Landlord's insurance, any special equipment or improvements installed by Tenant,
any personal property, or any other property of Tenant. Landlord will, if
necessary, equitably reduce Tenant's Share of Operating Expenses Percentage,
subject to Section 3.7, to account for any reduction in the Rentable Area of the
Premises or Building resulting from a casualty.

         11.6     RENT APPORTIONMENT.

         If either Landlord or Tenant terminates this Lease under this Article
11, Landlord will apportion Basic Rent and Tenant's Share of Operating Expenses
on a per diem basis and Tenant will pay the Basic Rent and Tenant's Share of
Operating Expenses to (a) the date of the fire or other casualty if the event
renders the Premises completely untenantable or (b) if the event does not render
the Premises completely untenantable, the effective date of such termination
(provided that if a portion of the Premises is rendered untenantable, but the
remaining portion is tenantable, then Tenant's obligation to pay Basic Rent and
Tenant's Share of Operating Expenses will abate according to the formula set
forth in Section 11.1 from the date of the casualty and Tenant will pay the
unabated portion of the Basic Rent to the date of such termination).

                                      20.


         11.7     EXCLUSIVE CASUALTY REMEDY.

         The provisions of this Article 11 are Tenant's sole and exclusive
rights and remedies in the event of a casualty. To the extent permitted by the
Laws, Tenant waives the benefits of any Law that provides Tenant any abatement
or termination rights (by virtue of a casualty) not specifically described in
this Article 11.

                                   ARTICLE 12

                                 EMINENT DOMAIN

         12.1     TERMINATION OF LEASE.

         If a Condemning Authority desires to effect a Taking of all or any
material part of the Property, Landlord will notify Tenant and Landlord and
Tenant will reasonably determine whether the Taking will render the Premises
unsuitable for Tenant's intended purposes. If Landlord and Tenant conclude that
the Taking will render the Premises unsuitable for Tenant's intended purposes,
Landlord and Tenant will document such determination and this Lease will
terminate as of the date the Condemning Authority takes possession of the
portion of the Property taken. Tenant will pay Rent to the date of termination.
If a Condemning Authority takes all or any material part of the Building or if a
Taking reduces the value of the Building by 50% or more (as reasonably
determined by Landlord), regardless whether the Premises is affected, then
Landlord, at Landlord's option, by notifying Tenant prior to the date the
Condemning Authority takes possession of the portion of the Property taken, may
terminate this Lease effective on the date the Condemning Authority takes
possession of the portion of the Property taken.

         12.2     LANDLORD'S REPAIR OBLIGATIONS.

         If this Lease does not terminate with respect to the entire Premises
under Section 12.1 and the Taking includes a portion of the Premises, this Lease
automatically terminates as to the portion of the Premises taken as of the date
the Condemning Authority takes possession of the portion taken and Landlord
will, at its sole cost and expense, restore the remaining portion of the
Premises to a complete architectural unit with all commercially reasonable
diligence and speed and will reduce the Basic Rent for the period after the date
the Condemning Authority takes possession of the portion of the Premises taken
to a sum equal to the product of the Basic Rent provided for in this Lease
multiplied by a fraction, the numerator of which is the Rentable Area of the
Premises after the Taking and after Landlord restores the Premises to a complete
architectural unit, and the denominator of which is the Rentable Area of the
Premises prior to the Taking. Landlord will also equitably adjust Tenant's Share
of Operating Expenses Percentage for the same period to account for the
reduction in the Rentable Area of the Premises or the Building resulting from
the Taking. Tenant's obligation to pay Basic Rent and Tenant's Share of
Operating Expenses will abate on a proportionate basis with respect to that
portion of the Premises remaining after the Taking that Tenant is unable to use
during Landlord's restoration for the period of time that Tenant is unable to
use such portion of the Premises.

         12.3     TENANT'S PARTICIPATION.

         Landlord is entitled to receive and keep all damages, awards or
payments resulting from or paid on account of a Taking. Accordingly, Tenant
waives and assigns to Landlord any interest of Tenant in any such damages,
awards or payments. Tenant may recover from the Condemning Authority but not
from Landlord, such compensation as may be separately recoverable for damages to
or condemnation of Tenant's movable trade fixtures and equipment and for moving
expenses; provided however, that Tenant has no right to receive any award for
its interest in this Lease or for loss of leasehold.

         12.4     EXCLUSIVE TAKING REMEDY.

         The provisions of this Article 12 are Tenant's sole and exclusive
rights and remedies in the event of a Taking. To the extent permitted by the
Laws, Tenant waives the benefits of any Law that provides Tenant any abatement
or termination rights or any right to receive any payment or award (by virtue of
a Taking) not specifically described in this Article 12.

                                      21.


                                   ARTICLE 13

                                    TRANSFERS

         13.1     RESTRICTION ON TRANSFERS.

                  13.1.1   GENERAL PROHIBITION.

                  Except as set forth in this Section 13.1, Tenant will not
cause or suffer a Transfer without obtaining Landlord's prior written consent,
which Landlord may grant or withhold in Landlord's sole and absolute discretion.
Notwithstanding the foregoing, Tenant may assign its interest in this Lease or
sublet the Premises, in whole or in part, to persons not permitted by Section
13.1.2, only with Landlord's prior written consent which will not be
unreasonably withheld, conditioned or delayed. In the event of a partial
assignment or a sublease to a Person that is not an Affiliate of Tenant, for the
remainder of the Term, Landlord may also, at Landlord's option by notifying
Tenant, terminate this Lease with respect to the portion of the Premises that
would be affected by the partial assignment or sublease. Landlord will notify
Tenant of Landlord's election to consent, withhold consent, impose conditions
and/or terminate within 30 days after receiving Tenant's request for consent to
the Transfer. Tenant will, in connection with requesting Landlord's consent,
provide Landlord with a copy of any and all documents and information regarding
the proposed Transfer and the proposed transferee as Landlord reasonably
requests. No Transfer, including, without limitation, a Transfer under Section
13.1.2, releases Tenant from any liability or obligation under this Lease and
Tenant remains liable to Landlord after such a Transfer as a principal and not
as a surety. If Landlord consents to any Transfer, Tenant will pay to Landlord,
as Additional Rent, 50% of any amount Tenant receives on account of the Transfer
in excess of the amounts this Lease otherwise requires Tenant to pay, once
Tenant has recovered its costs of the transaction, including Tenant Improvement
costs or allowances, broker commissions, attorneys' fees and other expenses. Any
attempted Transfer in violation of this Lease is null and void.

                  13.1.2   TRANSFERS TO AFFILIATES.

                  Tenant, without Landlord's consent (provided there is no Event
of Default by Tenant then existing under this Lease), may cause a Transfer to an
Affiliate if Tenant (a) notifies Landlord at least 15 days prior to such
Transfer; and (b) the Transferee assumes and agrees in writing delivered to
Landlord to perform Tenant's obligations under this Lease and to observe all
terms and conditions of this Lease. Landlord's right described in Section 13.1.1
to share in any profit Tenant receives from a Transfer, Landlord's termination
right under Section 13.1.1 and Landlord's right to costs in Section 13.2, do not
apply to any Transfer this Section 13.1.2 permits.

         13.2     COSTS.

         Tenant will pay to Landlord, as Additional Rent, all reasonable
out-of-pocket costs and expenses Landlord incurs in connection with its review
of a request for consent to a Transfer and/or instrument of assumption,
including, without limitation, reasonable attorneys' fees and costs, regardless
of whether Landlord consents to the Transfer.

                                   ARTICLE 14

                               DEFAULTS; REMEDIES

         14.1     EVENTS OF DEFAULT.

         The occurrence of any of the following constitutes an Event of Default
by Tenant under this Lease if such Event of Default is not cured by Tenant
within the periods set forth below after written notice from Landlord:

                                      22.


                  14.1.1   FAILURE TO PAY RENT.

                  Tenant fails to pay Basic Rent, any monthly installment of
Tenant's Share of Operating Expenses or any other Additional Rent amount as and
when due and such failure continues for five days after Landlord notifies Tenant
in writing,

                  14.1.2   FAILURE TO PERFORM.

                  Tenant fails to perform any of Tenant's nonmonetary
obligations under this Lease and the failure continues for a period of 30 days
after Landlord notifies Tenant in writing of Tenant's failure; provided that if
Tenant cannot reasonably cure its failure within a 30 day period, Tenant's
failure is not an Event of Default if Tenant commences to cure its failure
within the 30 day period and thereafter diligently pursues the cure and effects
the cure to completion.

                  14.1.3   [RESERVED]

                  14.1.4   OTHER DEFAULTS.

                  (a) Tenant makes a general assignment or general arrangement
for the benefit of creditors; (b) a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by Tenant; (c) a petition for
adjudication of bankruptcy or for reorganization or rearrangement is filed
against Tenant and is not dismissed within 120 days; (d) a trustee or receiver
is appointed to take possession of substantially all of Tenant's assets located
at the Premises or of Tenant's interest in this Lease and possession is not
restored to Tenant within 120 days; or (e) substantially all of Tenant's assets,
substantially all of Tenant's assets located at the Premises or Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure not discharged within 30 days. If a court of competent jurisdiction
determines that any act described in this section does not constitute an Event
of Default, and the court appoints a trustee to take possession of the Premises
(or if Tenant remains a debtor in possession of the Premises) and such trustee
or Tenant transfers Tenant's interest hereunder, then Landlord is entitled to
receive, as Additional Rent, the amount by which the Rent (or any other
consideration) paid in connection with the Transfer exceeds the Rent otherwise
payable by Tenant under this Lease.

                  14.1.5   NOTICE REQUIREMENTS.

                  The notices required by this Section 14.1 are intended to
satisfy any and all notice requirements imposed by the Laws and are not in
addition to any such requirements.

         14.2     REMEDIES.

         Upon the occurrence of any Event of Default, Landlord, at any time and
from time to time, and without preventing Landlord from exercising any other
right or remedy, may exercise any one or more of the following remedies:

                  14.2.1   TERMINATION OF TENANT'S POSSESSION; RE-ENTRY AND
                           RELETTING RIGHT.

                  Landlord may terminate Tenant's right to possess the Premises
by any lawful means with or without terminating this Lease, in which event
Tenant will immediately surrender possession of the Premises to Landlord. Unless
Landlord specifically states that it is terminating this Lease, Landlord's
termination of Tenant's right to possess the Premises is not to be construed as
an election by Landlord to terminate this Lease or Tenant's obligations and
liabilities under this Lease. In such event, this Lease continues in full force
and effect (except for Tenant's right to possess the Premises) and Tenant
continues to be obligated for and must pay all Rent as and when due under this
Lease. If Landlord terminates Tenant's right to possess the Premises, Landlord
is not obligated to but may re-enter the Premises and remove all persons and
property from the Premises. Landlord may store any property Landlord removes
from the Premises in a public warehouse or elsewhere at the cost and for the
account of Tenant. Upon such re-entry, Landlord will make commercially
reasonable efforts to relet all or any part of the Premises to a third party or
parties for Tenant's account. Tenant is immediately liable to Landlord for all
Re-entry Costs and must

                                      23.


pay Landlord the same within five days after Landlord's notice to Tenant.
Landlord may relet the Premises for a period shorter or longer than the
remaining Term. If Landlord relets all or any part of the Premises, Tenant will
continue to pay Rent when due under this Lease and Landlord will refund to
Tenant the Net Rent Landlord actually receives from the reletting up to a
maximum amount equal to the Rent Tenant paid that came due after Landlord's
reletting. If the Net Rent Landlord actually receives from reletting exceeds
such Rent, Landlord will apply the excess sum to future Rent due under this
Lease. Landlord may retain any surplus Net Rent remaining at the expiration of
the Term.

                  14.2.2   TERMINATION OF LEASE.

                  Landlord may terminate this Lease effective on the date
Landlord specifies in its termination notice to Tenant. Upon termination, unless
possession has already been relinquished pursuant to Section 14.2.1, Tenant will
immediately surrender possession of the Premises to Landlord. If Landlord
terminates this Lease, Landlord may recover from Tenant and Tenant will pay to
Landlord on demand all damages Landlord incurs by reason of Tenant's default,
including, without limitation, (a) all Rent due and payable under this Lease as
of the effective date of the termination; (b) any amount necessary to compensate
Landlord for any detriment proximately caused Landlord by Tenant's failure to
perform its obligations under this Lease or which in the ordinary course would
likely result from Tenant's failure to perform, including, but not limited to,
any Re-entry Costs, and (c) an amount equal to the amount by which the present
worth, as of the effective date of the termination, of the Rent for the balance
of the Term remaining after the effective date of the termination (assuming no
termination) exceeds the present worth, as of the effective date of the
termination, of the amount of Rent loss for the Premises for the same period,
that Tenant proves could be reasonably avoided. For purposes of this section,
Landlord will compute present worth by utilizing a discount rate of 8% per
annum. Nothing in this section limits or prejudices Landlord's right to prove
and obtain damages in an amount equal to the maximum amount allowed by the Laws,
regardless whether such damages are greater than the amounts set forth in this
section.

                  14.2.3   SELF HELP.

                  Provided Landlord has provided notice to Tenant and Tenant has
not cured the Event of Default subject of and within the period set forth in,
Section 14.1.2, Landlord may perform any obligation which Tenant has failed to
perform, on Tenant's behalf without waiving Landlord's rights under this Lease,
at law or in equity and without releasing Tenant from any obligation under this
Lease. Tenant will pay to Landlord, as Additional Rent, all sums Landlord pays
and obligations Landlord incurs on Tenant's behalf.

         14.3     COSTS.

         Tenant will reimburse and compensate Landlord on demand and as
Additional Rent for any actual loss Landlord incurs in connection with,
resulting from or related to any Event of Default of Tenant under this Lease,
and regardless whether suit is commenced or judgment is entered. Such loss
includes all reasonable legal fees, costs and expenses (including paralegal and
clerical fees and charges and other professional fees and charges) Landlord
incurs investigating, negotiating, settling or enforcing any of Landlord's
rights or remedies or otherwise protecting Landlord's interests under this
Lease.

         14.4     WAIVER AND RELEASE BY TENANT.

         Except to the extent of the negligence or willful misconduct of
Landlord or the Landlord Parties, Tenant waives and releases all Claims Tenant
may have resulting from Landlord's re-entry and taking possession of the
Premises in accordance with Washington forcible entry and detainer statute and
removing and disposing of or storing Tenant's property as permitted under this
Lease, regardless whether this Lease is terminated. No such reentry is to be
considered or construed as a forcible entry by Landlord.

         14.5     LANDLORD'S DEFAULT.

         If Landlord defaults in the performance of any of its obligations under
this Lease, Tenant will notify Landlord of the default and Landlord will have 30
days after receiving such notice to cure the default. If Landlord is

                                      24.


not reasonably able to cure the default within a 30 day period, Landlord will
not be in default if Landlord commences to cure its failure within the 30 day
period and thereafter diligently pursues the cure to completion. In no event is
Landlord liable to Tenant or any other person for consequential, exemplary or
punitive damages, including, without limitation, lost profits and/or loss of
business opportunity. In the event Landlord fails to cure or commence cure
within the periods described in this Section 14.5, then Tenant may (but will not
be obligated to) perform the obligations of Landlord while at all times being in
compliance with all applicable Laws pertaining to such performance, and the
reasonable cost of that performance will be payable from Landlord to Tenant upon
demand.

         If Tenant obtains a judgment against Landlord arising out of Landlord's
default under this Lease, Tenant may, to the extent the judgment is not paid by
Landlord, elect to setoff the amount of the judgment plus interest at the
Maximum Rate, against not more than 15% of Basic Rent, until paid; provided,
however, that if 15% of Basic Rent is not sufficient to amortize the judgment
and interest over the then remaining Term, Tenant may setoff the excess over and
against all Basic Rent and Additional Rent until the then remaining unpaid
balance of principal on the judgment, and interest can be amortized over the
then-remaining Term, at which point Tenant's setoff rights will again be
limited, with respect to judgment, as set forth prior to the semicolon of this
sentence. Election by Tenant to setoff against Rent, however, will not
constitute an election of remedies and Tenant may pursue all remedies available
at law or equity to enforce a judgment against Landlord. For purposes of this
paragraph, judgment means the final order of a court of competent jurisdiction
establishing Landlord's liability to Tenant in connection with Landlord's
default, which order is no longer appealable because the time in which an appeal
could have been filed has expired without the necessary appellate filing having
been made.

         14.6     NO WAIVER.

         No failure by Landlord or Tenant to insist upon the other party's
performance of any of the terms of this Lease or to exercise any right or remedy
consequent upon a breach thereof, constitutes a waiver of any such breach or of
any breach or default by the other party in its performance of its obligations
under this Lease. No acceptance by Landlord of full or partial Rent from Tenant
or any third party during the continuance of any breach or default by Tenant of
Tenant's performance of its obligations under this Lease constitutes Landlord's
waiver of any such breach or default. None of the terms of this Lease to be
kept, observed or performed by a party to this Lease, and no breach thereof, are
waived, altered or modified except by a written instrument executed by the other
party. No waiver of any default of a party to this Lease in the performance of
its obligations under this Lease may be implied from any omission by the other
party to take any action on account of such default. One or more waivers by a
party to this Lease is not to be construed as a waiver of a subsequent breach of
the same covenant, term or condition. No statement on a payment check from a
party to this Lease or in a letter accompanying a payment check is binding on
the other party. The party receiving the check, with or without notice to the
other party, may negotiate such check without being bound to the conditions of
any such statement.

         14.7     PARTIES' REMEDIES.

         If either party breaches any of the provisions of this Lease, the other
will be entitled to enjoin such breach and will have the right to invoke any
right or remedy allowed at law, in equity, by statute or otherwise as though
entry, reentry, summary proceedings and other remedies were not provided for in
this Lease. Each remedy or right of either party provided for in this Lease will
be cumulative and will be in addition to every other right or remedy provided
for in this Lease, or now or hereafter existing at law, in equity, by statute or
otherwise. The exercise or the beginning of the exercise by either party of any
one or more of such rights or remedies will not preclude the simultaneous or
later exercise by such party of any or all other rights or remedies.

                                   ARTICLE 15

                        CREDITORS; ESTOPPEL CERTIFICATES

         15.1     SUBORDINATION.

         Tenant's performance under this Lease is conditional upon execution and
delivery to Tenant of a nondisturbance agreement by any current mortgagee or
ground lessor of the Building or any portion thereof in a

                                      25.


commercially reasonable form. Such agreement will provide that for so long as
there is no Event of Default by Tenant under this Lease, Tenant's possession
will not be disturbed in the case of any mortgage foreclosure or ground lease
termination, as the case may be, and that this Lease will remain in full force
and effect, without increasing Tenant's obligations and duties and without
diminishing Tenant's rights and privileges under this Lease. Tenant will
subordinate this Lease to any future Mortgage or lessor of a master lease of the
Building and agree to attorn to a successor to Landlord's interest in the
Building provided such Mortgagee or lessor of a master lease of the Building
enters into an agreement with Tenant on the terms set forth above. Any such
subordination, attornment and nondisturbance agreement will be in form and
substance reasonably satisfactory to Landlord and Tenant.

         15.2     ATTORNMENT.

         If any ground lessor, holder of any Mortgage at a foreclosure sale or
any other transferee acquires Landlord's interest in this Lease, the Premises or
the Property, Tenant will attorn to the transferee of or successor to Landlord's
interest in this Lease, the Premises or the Property (as the case may be) and
recognize such transferee or successor as Landlord under this Lease.

         Tenant waives the protection of any statute or rule of law that gives
or purports to give Tenant any right to terminate this Lease or surrender
possession of the Premises upon the transfer of Landlord's interest.

         15.3     MORTGAGEE PROTECTION CLAUSE.

         Tenant will give the holder of any Mortgage, by certified mail and at
the same time as Tenant notifies Landlord, a copy of any notice of default
Tenant serves on Landlord, provided that Landlord or the holder of the Mortgage
previously notified Tenant (by way of notice of assignment of rents and leases
or otherwise) of the address of such holder. Tenant further agrees that if
Landlord fails to cure such default within the time provided for in this Lease,
then Tenant will provide written notice of such failure to such holder and such
holder will have an additional 30 days within which to cure the default.

         15.4     ESTOPPEL CERTIFICATES.

                  15.4.1   CONTENTS.

                  Upon Landlord's written request, Tenant will execute,
acknowledge and deliver to Landlord a written statement in form satisfactory to
Landlord certifying: (a) that this Lease (and all guaranties, if any) is
unmodified and in full force and effect (or, if there have been any
modifications, that the Lease is in full force and effect, as modified, and
stating the modifications); (b) that this Lease has not been canceled or
terminated; (c) the last date of payment of Rent and the time period covered by
such payment; (d) whether there are then existing any breaches or defaults by
Landlord under this Lease known to Tenant, and, if so, specifying the same; (e)
specifying any existing claims or defenses in favor of Tenant against the
enforcement of this Lease (or of any guaranties); and (f) such other factual
statements relating to the status of the Lease and the performance of its
provisions as Landlord, any lender, prospective lender, investor or purchaser
may request. Tenant will deliver the statement to Landlord within 15 Business
Days after Landlord's request. Landlord may give any such statement by Tenant to
any lender, prospective lender, investor or purchaser of all or any part of the
Property and any such party may conclusively rely upon such statement as true
and correct.

                                   ARTICLE 16

                              TERMINATION OF LEASE

         16.1     SURRENDER OF PREMISES.

         Tenant will surrender the Premises to Landlord at the expiration or
earlier termination of this Lease in good order, condition and repair, and in
the condition it was in on the Commencement Date, reasonable wear and tear,
permitted Alterations and damage by casualty or condemnation excepted, and will
surrender all keys to the Premises to Properly Manager or to Landlord at the
place then fixed for Tenant's payment of Basic Rent or as Landlord or

                                      26.


Property Manager otherwise direct. Tenant will also inform Landlord of all
combinations on locks, safes and vaults, if any, installed by Tenant in the
Premises or on the Property. Tenant will at such time remove all of its property
from the Premises and, if Landlord so requests, all Alterations designated by
Landlord pursuant to Section 8.3 to be removed upon expiration or termination of
this Lease, any safes or vaults, any computer room installations, and all
computer data and other related cables Tenant placed on the Premises or in the
Union Station Condominium, provided, however, that if this Lease expires upon
expiration of a Renewal Term, Tenant will be obligated to remove computer data
and related cables only if they are obsolete or they are unused and have been
abandoned at any time during the Term. Nothing is this Lease requires Tenant to
remove telephone wires or cables. Tenant will promptly repair any damage to the
Premises caused by such removal and restore the Premises to the condition
required by the first sentence of this section. All property of Tenant not
removed on or before the last day of the Term is deemed abandoned. Tenant
appoints Landlord as Tenant's agent to remove, at Tenant's sole cost and
expense, all of Tenant's property from the Premises upon termination of this
Lease and to cause its transportation and storage for Tenant's benefit, all at
the sole cost and risk of Tenant, and Landlord will not be liable for damage,
theft, misappropriation or loss thereof or in any manner in respect thereto. If
Tenant fails to timely remove any items required hereunder to be removed or
fails to timely repair any damage and restore the Premises, as required by this
Section 16.1, Landlord may, at Tenant's cost, perform the removal, repair and/or
restoration.

         16.2     HOLDING OVER.

         If Tenant possesses the Premises after the Term expires or is otherwise
terminated without executing a new lease but with Landlord's written consent,
including for purposes of performing its obligations under Section 16.1, Tenant
is deemed to be occupying the Premises as a tenant from month-to-month, subject
to all provisions, conditions and obligations of this Lease applicable to a
month-to-month tenancy, except that (a) Basic Rent will equal the greater of
Basic Rent payable by Tenant in the last Lease Year of the Term or Landlord's
then current basic rent for the Premises according to Landlord's rental rate
schedule for prospective tenants, and (b) either Landlord or Tenant may
terminate the month-to-month tenancy at any time upon 30 days prior written
notice to the other party. If Tenant possesses the Premises after the Term
expires or is otherwise terminated without executing a new lease and without
Landlord's written consent, Tenant is deemed to be occupying the Premises
without claim of right (but subject to all terms and conditions of this Lease)
and, in addition to Tenant's liability for failing to surrender possession of
the Premises as provided in Section 16.1, Tenant will pay Landlord a charge for
each day of occupancy after expiration of the Term in an amount equal to 150% of
Basic Rent (on a daily basis) immediately before the expiration or termination
of this Lease.

                                   ARTICLE 17

                              ADDITIONAL PROVISIONS

         17.1     INITIAL IMPROVEMENTS.

                  17.1.1   LANDLORD'S IMPROVEMENTS.

                  Landlord will provide, at no cost to Tenant, the Landlord's
Improvements.

                  Landlord will deliver to Tenant a full set of the latest
available design development drawings for the Landlord's Improvements within 5
Business Days of the Effective Date. Tenant may, within 10 Business Days of
receipt of such drawings, request Landlord to make changes to the Building in
connection with (collectively, the "Permitted Change Items") building internal
circulation, the mechanical and electrical systems' layouts, and structural
elements affecting Tenant's use. Landlord agrees not to unreasonably withhold,
condition or delay its consent to Tenant's requested changes to the Permitted
Change Items provided that: (i) they do not affect major structural systems of
the Building or the location of the principal mechanical or elevator portions of
the Building, all of which are established and fixed; (ii) the changes will not,
in Landlord's reasonable opinion, adversely affect Landlord's schedule for plan
development, building permit application, or construction; and (iii) the changes
do not increase any cost to Landlord unless Tenant agrees to bear the increased
cost.

                                      27.


                  17.1.2   IMPROVEMENT ALLOWANCE.

                  Landlord will credit an amount up to the Improvement
Allowance, against Tenant's obligation to pay the Cost of Construction of the
Tenant's Initial Improvements, and the costs of Tenant's service providers as
described in Section 17.1.3. Landlord is not obligated to pay or incur any such
costs that exceed the Improvement Allowance.

                  17.1.3   TENANT'S IMPROVEMENTS.

                  Landlord will construct, at Tenant's sole cost and expense
(but subject to Section 17.1.2), all initial Tenant's Improvements. Tenant will
design the Tenant's Improvements as described in this Section 17.1.

                  As soon as reasonably practical after Landlord approves the
Final Plans, but not more than 15 Business Days thereafter, Landlord will
provide to Tenant a detailed budget for the Cost of Construction of the Tenant's
Improvements in accordance with the Final Plans, which proposed budget will be
subject to review and approval by Tenant. As approved by Landlord and Tenant in
writing, such construction budget will be referred to herein as the "Budget."
Landlord and Tenant agree to make a good-faith effort to prepare and approve the
Budget within 15 days after Landlord has delivered its initial detailed budget
to Tenant. As initially proposed and submitted by Landlord to Tenant for
Tenant's approval, the Budget will set forth a breakdown by trade of bids
received, and Landlord will supply Tenant with documentation relating to any
referenced bids as Tenant may reasonably request. As part of the Budget approval
process, Tenant may request competitive bidding of up to 3 bids, as may be
reasonable under the circumstances, and, incident thereto, provide Landlord with
additional subcontractors or suppliers (not to exceed three per line item
subcontract) from whom Landlord will obtain bids; provided, however, that (i) no
such multiple bids will be required for contracts where the total subcontract
cost is less than Thirty Thousand Dollars ($30,000.00), (ii) Landlord will not
be obligated to use any supplier or subcontractor recommended by Tenant unless
Landlord is reasonably satisfied that the particular subcontractor or supplier
meets Landlord's financial and performance requirements for the work, and (iii)
the mechanical, electrical and fire protection subcontractors performing the
work for Landlord's Improvements will be the subcontractor performing such
services to Landlord for the Landlord's Improvements, so long as those
subcontractors provide bids that are competitive and are able to meet the
construction schedule for the work, and if either of those criteria are not met
by any of such subcontractors, then Tenant may require its work to be
competitively bid, whereupon the provisions of clause (ii) of this sentence will
apply. During development of the Budget, Tenant may make value engineering
adjustments in coordination with Landlord and Landlord's architect to reduce the
Cost of Construction of the Tenant's Improvements as Tenant sees fit.

                  Tenant will have the right to select its own subcontractors or
service providers for telecommunications, data systems and cabling, security and
architectural and design services. If, incident to the design or construction of
Landlord's Improvements and Tenant's Improvements, Landlord is required to
engage one or more engineering consultants to review the work of Tenant's
service providers, the fees reasonable and charges of such' consultants will
also constitute part of the Cost of Construction.

                  If the Cost of Construction of Tenant's Improvements exceeds
the Improvement Allowance, Tenant will pay Landlord, as Additional Rent, the
amount by which the Cost of Construction of the Tenant's Improvements exceeds
the Improvement Allowance, in monthly installments (the "Estimated TI Payments")
based upon a percentage completion basis, as follows: On the 25th day of each
calendar month commencing with the calendar month during which the Improvement
Allowance will be expended, Landlord will submit to Tenant a progress payment
request, estimated as of the thirtieth or last Business Day of that month,
showing Landlord's reasonable estimate of the value of the Tenant's Improvements
completed, based upon the value of labor, services and materials incorporated or
to be incorporated in the Premises and of materials stored at the Building Site
as of the 30th or last Business Day of the month and the contractor's
overhead/general conditions costs and contractor's fee thereon. Tenant will pay
Landlord, within 10 days of receipt, the amount specified in Landlord's
statement. Upon Substantial Completion of Tenant's Improvements, Landlord will
notify Tenant of the final Cost of Construction of Tenant's Improvements, which
notice will be accompanied by reasonable documentation. If the final Cost of
Construction of Tenant's Improvements less the Estimated TI Payments actually
paid by Tenant exceeds the Improvement Allowance, Tenant will pay the amount of
such excess to Landlord, as Additional Rent, within 30 days after receipt of
Landlord's notice. If the final Cost of Construction of Tenant's Improvements,
less the

                                      28.


Estimated TI Payments actually paid by Tenant, is less than the Improvement
Allowance, Landlord will pay the unused portion of the Improvement Allowance to
Tenant within 30 days after giving said notice.

                  17.1.4   PROPERTY MANAGER/SITE SUPERINTENDENT.

                  Landlord is the general contractor for all Tenant's
Improvements. In connection with installing Tenant's Improvements, Landlord will
utilize a project manager and site superintendent, the fees of which are payable
by Tenant on an hourly basis, as part of Landlord's overhead in connection with
the Tenant's Improvements.

                  17.1.5   SPACE PLAN.

                  Landlord will give not less than 13 months' notice of the
estimated Delivery Date, provided, however, that the estimated Delivery Date may
not be prior to February 1, 2001 unless Landlord gives notice of such date to
Tenant on or before October 1, 1999. On or before 10 months before the estimated
Delivery Date as so established by Landlord, Tenant will deliver to Landlord a
space plan for the Tenant's Improvements. The space plan must (a) be compatible
(as reasonably determined by Landlord) with the base building and the mechanical
and electrical components of the base building; (b) be adequate, in Landlord's
reasonable discretion, for Tenant to prepare working drawings for the Tenant's
Improvements; (c) show, in reasonable detail, the design and appearance of the
finishing material Landlord will use in connection with installing Tenant's
Improvements; (d) be consistent with the Tenant's Improvements Outline
Specifications attached hereto as EXHIBIT G and (e) contain such other detail or
description as may be necessary for Landlord to adequately outline the scope of
Tenant's Improvements. Landlord will approve or disapprove the space plan in
writing within ten days after receiving the same. If Landlord disapproves the
space plan within the 10 day period, Tenant will revise the space plan and
resubmit it to Landlord for approval. Landlord will have the same approval
rights and approval time period with respect to the revised space plan as
Landlord had with respect to the initial space plan as described in this
section. Not more than 15 days after Tenant has submitted its Space Plan in
conformance with the foregoing requirements of this section, Landlord will
deliver to Tenant a preliminary cost estimate for Tenant's Improvements shown on
the Space Plan submitted.

                  17.1.6   WORKING DRAWINGS AND SPECIFICATIONS.

                  On or before 120 days after Landlord approves Tenant's space
plan, Tenant will cause its architect to prepare and deliver the Final Plans to
Landlord. The Final Plans must be (a) compatible (as reasonably determined by
Landlord) with the base building and the mechanical and electrical components of
the base building; (b) show, in reasonable detail, the design and appearance of
the finishing material Landlord will use in connection with installing Tenant's
Improvements; and (c) contain such other detail or description as may be
necessary for Landlord to construct the Tenant's Improvements. Landlord will
approve or disapprove the proposed Final Plans in writing within 15 days after
receipt. If Landlord disapproves the Final Plans within the 15 day period
described in this section, Tenant will revise the Final Plans and resubmit them
to Landlord for approval. Landlord will have the same approval rights and
approval time period with respect to the revised Final Plans as Landlord had
with respect to the initial Final Plans as described in this section. After the
Final Plans have been approved in writing by Landlord, Tenant will cause its
architect to seal the Final Plans. Landlord will apply for all necessary
building permits and submit the approved Final Plans for construction bids. If
City requires any changes to the Final Plans and if Landlord disapproves the
changes required by City, Landlord and Tenant will cooperate to develop changes
to the Final Plans that are approved by both Landlord and City. If Tenant orders
long lead time items that delay Substantial Completion of Tenant's Improvements,
Substantial Completion will be deemed to occur notwithstanding the absence of
long lead items and Tenant will pay all additional costs (and additional
mobilization costs, if any) incurred by Landlord as a result of completing the
construction and installation of long lead time items. Landlord will exercise
commercially reasonable efforts to notify Tenant if Tenant orders long lead time
items that will delay Substantial Completion of Tenant's improvements.

                  Notwithstanding the foregoing provisions of this section,
Landlord agrees, if requested by Tenant, to submit to City for a building
permit, even if the Final Plans have not been approved by Landlord and sealed by
Landlord's architect, provided that any such premature submittal will be at
Tenant's own risk, and any additional cost incurred in connection with amending
any such submitted plans to obtain the approval of Landlord or City shall be a
Cost of Construction, and any delay will constitute a Tenant Delay.

                                      29.


                  17.1.7   CHANGES TO FINAL PLANS.

                  Tenant will notify Landlord in writing of any desired
revisions to the Final Plans approved by Landlord and the City of Seattle
pursuant to Section 17.1.6. If Landlord approves the revisions, Tenant will
cause the Final Plans to be revised accordingly and promptly delivered to
Landlord. Landlord will notify Tenant of the additional cost of Tenant's
Improvements and the anticipated delay in completing the Tenant's Improvements
caused by such revisions. Tenant will approve or disapprove the increased cost
and delay within five Business Days after Landlord notifies Tenant of the
additional cost and delay. If Tenant fails to notify Landlord in writing of its
approval or disapproval of the additional cost and delay within the five
Business Day period, Tenant will be deemed to have disapproved the additional
cost or delay. If Tenant disapproves the additional cost or delay, Tenant is
deemed to have withdrawn its proposed revisions to the Final Plans. If incident
to a requested revision to the Final Plans, Landlord stops work pending
resolution of whether Tenant finally approves or disapproves a proposed
revision, then whether or not Tenant ultimately approves or disapproves the
proposed revision and its attendant additional cost or delay, any delay
resulting from the work stoppage will constitute a Tenant Delay.

                  17.1.8   SUBSTANTIAL COMPLETION.

                  Landlord will use commercially reasonable efforts to achieve
Substantial Completion of Tenant's Improvements on or before the Delivery Date,
subject to Tenant Delays and delays caused by Force Majeure. Landlord will
notify Tenant on or before 60 days prior to the Delivery Date, if Landlord
believes that Substantial Completion of Tenant's Improvements will occur after
the Delivery Date. To the extent any delay in Substantial Completion of the
Premises more than 15 days but less than 30 days past the Delivery Date is
attributable to delay caused by Landlord, then Landlord will pay to Tenant, as
liquidated damages, a sum equal to the number of days of delay attributable to
delay by Landlord after expiration of such 15-day period times 150% of the per
diem Basic Rent specified for the first 60 months of the Initial Term. To the
extent any delay in Substantial Completion of the Premises more than 30 days
past the Delivery Date is attributable to delay caused by Landlord, then
Landlord will pay to Tenant, as liquidated damages, a sum equal to the number of
days of delay attributable to delay by Landlord after expiration of such 30-day
period times 250% of the per diem Basic Rent specified for the first 60 months
of the Initial Term. SEE SECTION 17.1.14.

                  17.1.9   FAILURE TO COMPLETE CONSTRUCTION.

                  If Landlord fails to achieve Substantial Completion of the
Landlord's Improvements and the Tenant's Improvements on Floors 10 and 11 by the
Outside Delivery Date as extended, if at all, as a result of Tenant Delays or
Force Majeure (the "Right to Cancel Date"), Tenant may terminate this Lease by
delivering fifteen (15) days prior written notice to Landlord at any time after
the Right to Cancel Date. Notwithstanding the foregoing, however, unless
Landlord, within fifteen (15) days of the receipt of the Tenant's termination
notice causes Substantial Completion to occur and delivers the Premises to
Tenant as required hereby, this lease will be automatically terminated at the
expiration of such fifteen (15) day period following Landlord's receipt of
Tenant's notice. Upon such termination, except as provided in Section 17.1.8,
neither party will have any additional Claims against the other except to the
extent Landlord's failure to achieve Substantial Completion by the Outside
Delivery Date is due to a cause other than Tenant Delays or Force Majeure, then
Landlord will pay Tenant, as liquidated damages and as Tenant's sole and
exclusive remedy, a sum equal to $3,125,000 plus Tenant's Out of Pocket Expenses
within thirty (30) days following Landlord's receipt of notice from Tenant
terminating this Lease and Landlord's receipt of Tenant's demand accompanied by
reasonable supporting invoices.

                  17.1.10  TENANT DELAYS.

                  To the extent a delay in the Substantial Completion of the
Premises which is a direct, indirect, partial, or total result of any of the
following, the delay is a "Tenant Delay":

                           (a)      Tenant's failure to comply with Tenant's
         Improvements deadlines which are Tenant's responsibility to meet in
         accordance with this Lease;

                           (b)      Tenant's failure to timely approve any
         matter requiring Tenant's approval;

                                      30.


                           (c)      Tenant's failure to maintain the Security
         Deposit required by Section 17.18; provided, however, that if the
         Security Deposit is provided by a pledge of marketable securities under
         Section 17.18.4, then Tenant shall not be deemed to have failed to
         maintain the Security Deposit under this Section 17.1.10 unless the
         value of the pledged securities is less than 90% of the value required
         by Section 17.18.4, and if Landlord stops construction due to a
         violation of the foregoing standard, then promptly after Tenant
         restores the Security Deposit to the required amount, Landlord shall
         recommence construction;

                           (d)      Tenant's request for changes in any of the
         plans, drawings or specifications which have been, by process of the
         approval procedures described in this Lease, deemed to be "Final
         Plans";

                           (e)      Tenant's requirement for materials,
         components, finishes or improvements which are not available in a
         commercially reasonable time given the anticipated date of Substantial
         Completion of the Premises, as set forth in this Lease, or which are
         different from, or not included in, the Standard Improvement Package;

                           (f)      changes to the building shell and core, or
         structural components or systems of the Building required by the Final
         Plans or any changes thereto requested by Tenant;

                           (g)      Landlord's inability to obtain a temporary
         certificate of occupancy (or its equivalent) for the Premises as a
         result of the failure of the Tenant's Improvements shown on the Final
         Plans to comply with any applicable governmental requirements;

                           (h)      Tenant's request that Landlord temporarily
         suspend any portion of the construction of the Tenant's Improvements
         for reasons unrelated to the construction of the Tenant's Improvements
         in an unsatisfactory manner; or

                           (i)      a delay arising out of Section 17.1.7.

                  No occurrence will be deemed to be a "Tenant Delay" unless
Landlord identifies such occurrence in writing in a notice to Tenant as a
"Tenant Delay." Landlord agrees to use good faith reasonable efforts to counter
the effect of any Tenant Delay; however, Landlord will not be obligated to
expend any additional amounts in such efforts (e.g., by employing overtime
labor) unless Tenant agrees in advance to bear any incremental cost associated
with such efforts (whether or not such efforts are ultimately successful).
Notwithstanding the foregoing, a Tenant Delay will not be deemed to have delayed
Substantial Completion unless there is a direct causation between the Tenant
Delay and Landlord's failure to achieve Substantial Completion.

                  17.1.11  PUNCH LIST.

                  Landlord will give Tenant not less than five Business Days'
notice of the estimated date of Substantial Completion. Within three Business
Days after the Tenant's Improvements are substantially complete, Landlord and
Tenant will inspect the Premises and will thereafter develop a Punch List.
Landlord will complete (or repair, as the case may be) the items described on
the Punch List with commercially reasonable diligence and speed, subject to
delays caused by Tenant Delays and Force Majeure. If Tenant refuses to inspect
the Premises with Landlord within the period required by this section, then upon
Substantial Completion the Tenant's Improvements will be deemed to be
substantially completed in accordance with the Final Plans and Tenant is deemed
to have accepted the Premises as delivered, subject to Section 17.1.12. SEE
SECTION 17.1.14.

                  17.1.12  CONSTRUCTION WARRANTY.

                  Landlord (a) warrants Landlord's Improvements will be
constructed in a good and workmanlike manner, free of defects and in conformance
with all applicable laws, codes, regulations and ordinances and with EXHIBIT F,
and (b) warrants Tenant's Improvements will be constructed in a good and
workmanlike manner, in conformance with the Final Plans (as revised pursuant to
this Section 17.1) and will be free of defects in workmanship and materials for
a period of one year after the date of Substantial Completion. Landlord will
repair

                                      31.


or replace, as necessary, any defective item that is a part of Tenant's
Improvements caused by poor workmanship or materials if Tenant notifies Landlord
of the defective item within such one year period. Landlord has no obligation to
repair or replace any item that is a part of Tenant's Improvements unless Tenant
notifies Landlord of the defect before the one year period expires. Tenant must
strictly comply within Warranty Terms. Upon expiration of the one-year warranty
period set forth in this section in connection with Tenant's Improvements,
Landlord will assign to Tenant any warranties of workmanship or materials given
to Landlord by subcontractors or materialmen for a period longer than the
one-year warranty described above. Landlord makes to warranty or representation
that any such warranties will be assignable. To the extent that any such
warranty is not assignable, Landlord agrees to cooperate with Tenant in the
enforcement thereof by Tenant, at Tenant's sole cost. Landlord also agrees to
cooperate with Tenant in the enforcement by Tenant, at Tenant's sole cost, of
any service contracts that provide service, repair or maintenance for a period
longer than such one-year period on any item incorporated in the Building, that
is to be maintained by Tenant. SEE SECTION 17.1.14.

                  17.1.13  REPRESENTATIVES.

                  "Designated Representative" means any person authorized to
speak and act on behalf of Landlord or Tenant and upon whom the other will fully
and unconditionally be entitled to rely for any and all purposes of this Section
17.1 until such designation will be revoked or altered as hereinafter provided.
Landlord hereby appoints Tom Parsons as its Designated Representative. Tenant
hereby appoints Behrouz Emam and Gerry Ronningen-Fenrich as its Designated
Representatives. Either party may change its Designated Representatives by
notice to the other, but no such change or revocation of the power of a
Designated Representative will affect any approval or consent given by a party's
Designated Representative prior to the other party receiving notice of
revocation of such Designated Representative's appointment. Landlord or Tenant's
approval or consent to any matter arising under this Section 17.1 or Section
17.19 will conclusively be evidenced by the signature of one of its Designated
Representatives.

                  Landlord and Tenant will cause their respective Designated
Representatives to have weekly meetings commencing in the first week of August
1999, for the purpose of keeping each other informed on the status of all
matters involving Landlord's Improvements or Tenant's Improvements. Landlord
will also cause its project manager and site superintendent to attend such
meetings.

                  17.1.14  DELIVERY IN SEGMENTS.

                  The parties agreed that: all of the Rentable Area on Floors 7,
8 and 9 of the Building (the "First Takedown Space") will be included in the
Premises Rentable Area the earlier of (a) the date 60 days after the
Commencement Date or (b) the date on which Tenant actually occupies or uses any
portion of the First Takedown Space for any purpose whatsoever, except as
permitted by Section 1.2.4; all of the Rentable Area on Floors 4, 5 and 6 of the
Building (the "Second Takedown Space") will be included in the Premises Rentable
Area the earlier of (c) the date 120 days after the Commencement Date or (d) the
date on which Tenant actually occupies or uses any portion of the Second
Takedown Space for any purpose whatsoever, except as permitted by Section 1.2.4;
and all the Rentable Area on Floors 1, 2 and 3 (the "Third Takedown Space") will
be included in the Premises Rentable Area on the earlier of the date that is (e)
180 days after the Commencement Date or (f) the date on which Tenant actually
occupies any portion of the Third Takedown Space for any purposes whatsoever,
except as permitted by Section 1.2.4. Notwithstanding any other provision of
this Lease, Landlord may elect to achieve Substantial Completion of the Tenant's
Improvements in each of the First Takedown Space, the Second Takedown Space, and
the Third Takedown Space, respectively, as necessary to enable the Rentable Area
in such portions of the Building to be added to the Premises on the foregoing
schedule. All of Tenant's rights under Sections 1.2.2, 1.2.4; 1.3, 17.1.8,
17.1.11 and 17.1.12 will be deemed to apply separately to the First Takedown
Space, the Second Takedown Space and/or the Third Takedown Space and,
accordingly, any reference to the "Premises" in those sections and in the
definition of Commencement Date on EXHIBIT A will be deemed to refer to the
First Takedown Space, the Second Takedown Space and/or the Third Takedown Space,
as the case may be. In addition, any reference to the Delivery Date in Sections
1.1.2, 1.2.4 and 17.1.8 or in the definition of Commencement Date shall mean, in
the case of the First Takedown Space, the Second Takedown Space or the Third
Takedown Space, the date the Rentable Area thereof is to be added to the
Premises as set forth above in this section or established, if at all, pursuant
to the next paragraph of this section.

                                      32.


                  Tenant may elect, by delivering not less than 150 days' prior
written notice to Landlord, to accelerate the date Landlord will achieve
Substantial Completion of the Tenant's Improvements in all or any of the First
Takedown Space, the Second Takedown Space or the Third Takedown Space, as the
case may be; provided, however, that Tenant may elect so to accelerate the
Delivery Date only on a floor-by-floor basis, commencing on Floor 9, and then
proceeding to each next succeeding lower floor in the Building.

         17.2     SPECIAL TERMINATION OPTION.

         Provided that an Event of Default under this Lease does not then exist,
Tenant will have the right to partially terminate this Lease for up to two
contiguous floors (which must be on Floor 11 and then on Floor 10) as of the end
of the 96th or the 108th full calendar month of the Initial Term, by giving not
less than 12 months irrevocable written notice of termination to Landlord.
Tenant's notice of partial termination will be effective only if it is delivered
to Landlord on or before the last day of the 83rd full calendar month of the
Initial Term (in the case of termination as of the end of the 96th full calendar
month of the Initial Term) or on or before the last day of the 95th calendar
month of the Initial Term (in the case of termination as of the end of the 108th
full calendar month of the Initial Term). It is a condition of any such partial
termination that Tenant will pay Landlord, as Additional Rent, on or before the
expiration of the 96th or the 108th full calendar month of the Initial Term, as
the case may be, an amount (a "Termination Fee") equal to multiplying (x) the
fraction, the numerator of which is the Rentable Area of the Premises as to
which the Lease is being terminated, and the denominator of which is the
Rentable Area of the Initial Premises, times (y) an amount equal to the then
unamortized portion (based upon an amortization period of 120 months with
interest at 11 percent per annum) of the Improvement Allowance, Landlord's
reasonable legal fees incurred in connection with this Lease, and Broker fees
paid by Landlord and attributable to this Lease. In furtherance thereof,
Landlord will deliver to Tenant within 60 days after receiving a partial
termination notice from Tenant pursuant to this section, Landlord's computation
of the Termination Fee due and payable to Landlord in connection with the
partial termination. The provisions of this section are for the personal benefit
of the original Tenant that executes this Lease only, and no assignee or
sublessee (except for an Affiliate to which Tenant has assigned its interest in
this Lease or subleased all or a part of the Premises as permitted by Section
13.1.2) will have any rights whatsoever under this section. THE PARTIES HEREBY
AGREE THAT (a) TIME IS PARTICULARLY OF THE ESSENCE WITH RESPECT TO THE
PROVISIONS OF THIS SECTION; (b) NOTWITHSTANDING ANY LAW IN THE STATE OF
WASHINGTON, INCLUDING CASE LAW, TO THE CONTRARY, LANDLORD WILL BE UNDER NO DUTY
WHATSOEVER TO NOTIFY TENANT THAT TENANT HAS FAILED TO GIVE THE NOTICE IT HAS THE
RIGHT TO GIVE UNDER THE FOREGOING PROVISIONS OF THIS SECTION; AND (c) THE ENTIRE
PROVISIONS OF THIS SECTION HAVE BEEN SPECIALLY NEGOTIATED BY THE PARTIES.

         17.3     RENEWAL TERMS.

         Tenant will have the right, subject to all provisions of this Section
17.3, to extend the Lease Term for two consecutive and successive periods of
five years (each of which is a "Renewal Term" and all of which are sometimes
collectively the "Renewal Terms"), provided that: (a) Tenant has delivered to
Landlord an information notice of its intent to exercise its right to a Renewal
Term, which information notice must be delivered to Landlord not less than 18
months prior to the expiration of the then Initial Term or Renewal Term, as the
case may be; (b) this Lease is in full force and effect; (c) an Event of Default
does not exist on the last day of the Initial Term or of the first Renewal Term,
as the case may be; (d) Tenant exercises its right to each of the Renewal Terms
by giving Landlord written notice of its election at least one year before the
first day of the Renewal Term being exercised; and (e) each Renewal Term will be
upon the same terms, covenants and conditions as provided in this Lease except
that: (i) the Improvements Allowance and the Special Termination Option set
forth in Section 17.2 will not apply, (ii) there will be no renewal option
beyond those provided in this Section 17.3, and (iii) the monthly Basic Rent
will be the Basic Rent determined pursuant to this section. THE PARTIES HEREBY
AGREE THAT (a) TIME IS PARTICULARLY OF THE ESSENCE WITH RESPECT TO THE
PROVISIONS OF THIS SECTION; (b) NOTWITHSTANDING ANY LAW IN THE STATE OF
WASHINGTON, INCLUDING CASE LAW, TO THE CONTRARY, LANDLORD WILL BE UNDER NO DUTY
WHATSOEVER TO NOTIFY TENANT THAT TENANT HAS FAILED TO GIVE THE NOTICE IT HAS THE
RIGHT TO GIVE UNDER THE FOREGOING PROVISIONS OF THIS SECTION; AND (c) THE ENTIRE
PROVISIONS OF THIS SECTION HAVE BEEN SPECIALLY NEGOTIATED BY THE PARTIES.

                                      33.


                  17.3.1   RENEWAL TERM BASIC RENT.

                  The annual Basic Rent during each Renewal Term will be the
annual Market Rent for Comparable Space in the Relevant Market leased on
comparable terms and conditions. Landlord will give Tenant notice of Landlord's
estimation of such Market Rent on the later of (a) that day which is 15 days
after receiving Tenant's informational notice of its intent to exercise its
right to renew, and (b) that day which is 18 months prior to the expiration of
the then-current Term. If Tenant disagrees with such estimate, it will notify
Landlord in writing thereof within 30 days of Tenant's receipt of its notice. If
Tenant fails to notify Landlord that it disagrees with the estimation within
said 30-day period, Tenant will be deemed to have agreed to the Market Rent
proposed by Landlord. If there is a disagreement on such estimation, the parties
will promptly meet to attempt to resolve their differences. If the differences
as to Market Rent are not resolved within 30 days of the date Tenant objects to
Landlord's initial estimate of Market Rent, then the parties will submit the
matter to appraisal in accordance with Section 17.3.2 so that Market Rent is
determined no later than twelve months prior to the expiration of the
then-current Term.

                  17.3.2   APPRAISAL PROCEDURE.

                  If the parties are to submit any matter to appraisal pursuant
to the terms of this Lease, either Landlord or Tenant (the "Moving Party") may
give notice to the other demanding appraisal and naming an independent and
neutral appraiser or appraisal company. The recipient of such notice (the
"Recipient") will, within 15 days after receiving the Moving Party's notice,
give notice to the Moving Party naming an independent and neutral appraiser or
appraisal company selected by the Recipient. Each appraiser will be a member of
the American Institute of Appraisers and will have not less than 10 years
experience in the appraisal of properties like the Building in the Relevant
Market. If the Recipient fails to notify the Moving Party of the name of the
appraisal company it has selected within said 15 day period, the appraisal
company selected by the Moving Party will determine the matter submitted. The
appraiser(s) will render a determination in writing to Landlord and Tenant
simultaneously within 15 days of their appointment. Any determination in which
the appraiser appointed by Landlord and the appraiser appointed by Tenant concur
will be binding and conclusive upon the parties.

         If the two appraisers are unable to determine the matter within 20 days
after appointment of the second of the two appraiser(s), they will appoint a
third appraiser, who will be an independent and neutral person with
qualifications the same as to those required of the first two appraisers. If the
initial two appraisers are unable to agree upon such appointment within 5 days
after expiration of the 20 day period, the third appraiser will be selected by
the parties themselves, if they can agree, within a further period of 10 days.
If the parties do not so agree, then either party, on behalf of both, may
request appointment of such a qualified person by Judicial Dispute Resolution,
LLC ("JDR") of Seattle, Washington. The other party will not raise any question
as to JDR's full power and jurisdiction to entertain the application for and
make the appointment. If the matter cannot be determined by agreement between
the two appraisers selected by Landlord and Tenant, or settlement between the
parties during the course of appraisal, then it will be determined by the three
appraisers in accordance with the following procedure. Each of the two
appraisers originally selected by the parties will prepare a written statement
of his determination, supported by the reasons therefor, with counterpart copies
for each party and the third appraiser. The appraisers will arrange for a
simultaneous exchange of their written statements. The role of the third
appraiser will be to select which of the two proposed determinations most
closely approximates his determination on the matter. The third appraiser will
have no right to propose a middle ground or any modification of either of the
two determinations. The third appraiser will determine the matter within 10 days
after his or her receipt of the written statements of each of the first two
appraisers. The determination chosen by the third appraiser will constitute the
determination of the appraisers and be final and binding upon the parties.

         In the event of a failure, refusal or inability of any appraiser to
act, his successor will be appointed by him, but in the case of the third
appraiser, his successor will be appointed in the manner described above for
appointment of the third appraiser. The appraisers will have the right to
consult experts and competent authorities with factual information or evidence
pertaining to a determination on the matter, but any such consultation will be
made in the presence of both parties with full right on their part to
cross-examine. The appraiser(s) will render the determination on the matter in
writing, with counterpart copies to each party. The appraisers will have no
power to modify the provisions of this Lease. Each party will pay the fees and
expenses of its respective appraiser and both will share equally the fees and
expenses of the third appraiser, if any. Each party will pay the attorneys' fees
and expenses of

                                      34.


its counsel and the fees and expenses of any witnesses called by that party.
Time is of the essence in connection with any matter submitted to appraisal
pursuant to this section.

                  17.3.3   TENANT'S RIGHT NOT TO RENEW.

                  Notwithstanding anything herein to the contrary, Tenant will
have the absolute right to elect not to exercise its option to renew the Lease
Term whether or not Basic Rent for a Renewal Term will have been determined;
provided, however, that if Tenant has given Landlord its informational notice
pursuant to Section 17.3 and Basic Rent has not been determined by that date
which is 12 months prior to the expiration of the then-current Term, then to the
extent any delay is the result of Landlord's failure to comply with the
deadlines specified in Section 17.3.1 and 17.3.2, the last date for Tenant's
notice of its exercise of an option to extend the Term of the Lease will be
extended on a day-for-day basis, until Landlord's compliance is complete; and
provided, further, that if the Basic Rent for a Renewal Term has been determined
pursuant to the Appraisal Procedures set forth in Section 17.3.2 and if Tenant
does not elect to exercise its option to renew for that Renewal Term, then
Tenant will pay to Landlord the actual fees and expenses Landlord incurred for
appraisers pursuant to Section 17.3.2 with respect to that Renewal Term.

         17.4     [RESERVED]

         17.5     [RESERVED]

         17.6     RIGHTS OF FIRST OPPORTUNITY AND RIGHT OF FIRST REFUSAL TO
                  PURCHASE.

         Subject to the last paragraph of this section, Tenant will have the
right of first opportunity to purchase the Unit during the term of this Lease on
the terms and conditions set forth in this section. If Landlord desires to sell
the Unit during the Term, Landlord will deliver to Tenant a copy of (a "Letter
of Intent") either a (i) letter of intent signed by Landlord and a bona fide
third party purchaser setting forth the material terms of the sale or (ii) a
list of material terms for a sale by Landlord to Tenant. Tenant will have 15
Business Days from receipt of the Letter of Intent to deliver to Landlord
written notice (the "Exercise Notice") of its intention to pursue purchase of
the Unit on the terms and conditions contained in the Letter of Intent or to
propose a counteroffer to Landlord. Tenant will have the right to deliver an
Exercise Notice only in connection with the entire Unit. Tenant's failure to
deliver the Exercise Notice or counteroffer to Landlord within the 15 Business
Day period will constitute its decision not to pursue purchase of the Unit. If
Tenant does not so deliver an Exercise Notice, or if Landlord and Tenant are
unable to reach agreement on all material terms of a sale within ten (10)
Business Days after delivery by Tenant of its counteroffer, then Landlord will
have the right to sell the Unit to any other person, provided the sale price is
not more than ten percent (10%) below the sale price offered to Tenant in the
Letter of Intent. If the sale price is more than ten percent (10%) below the
sale price offered to Tenant in the Letter of Intent, then Tenant will have a
right of first refusal to purchase the Unit on the same essential business terms
offered by the third party. Landlord will deliver to Tenant a copy of the third
party offer which Landlord desires to accept (a "Modified Letter of Intent");
Tenant will have 7 Business Days from receipt of the Modified Letter of Intent
to deliver an Exercise Notice to Landlord. As a condition of the effectiveness
of an Exercise Notice given under this right of first refusal, Tenant will,
within 7 Business Days after giving its Exercise Notice to Landlord, deliver to
Landlord a nonrefundable deposit equal to ten percent (10%) of the purchase
price set forth in the Modified Letter of Intent. If Tenant delivers the
Exercise Notice to Landlord within the 15 Business Day period or 7 Business Day
period, as the case may be, Landlord and Tenant will proceed to close the
purchase and sale of the Unit (a) within the time period, if any, accepted by
Tenant's Exercise Notice or (b) if there is no such agreed time period, within a
reasonable period of time not to exceed ninety (90) days. Landlord will also
provide Tenant with a commitment (the "Commitment") for an ALTA standard owner's
policy of title insurance (1970 form with 1984 revisions), issued by a title
insurance company selected by Landlord and reasonably acceptable to Tenant,
together with copies of all exceptions shown in the Commitment. Notwithstanding
the provisions of the applicable Letter of Intent or Modified Letter of Intent,
Tenant will have 10 days after receipt of said Commitment and copies of all
exceptions to object to any exceptions or other matters disclosed by the
Commitment, and will be deemed to have approved of all exceptions and matters
not objected to within said 10-day period. On or before the expiration of the
10-day period, Tenant may, at its option, withdraw the Exercise Notice. At the
closing, (i) Landlord will transfer title to the Unit by special warranty deed,
subject to no exceptions other than those approved by Tenant, (ii) Landlord will
pay the portion of the premium attributable to a standard form title insurance
policy, the real estate excise tax, and one half of the escrow

                                      35.


fee, and (iii) Tenant will pay the portion of the title insurance premium
attributable to extended coverage and any endorsements desired by Tenant and one
half of the escrow fee. If Tenant does not timely deliver an Exercise Notice or
withdraws its Exercise Notice within the time period specified above, this right
of first opportunity to purchase the Unit will automatically terminate and
Landlord will be free to sell the Unit on terms and conditions that are not
materially different that those set forth in the applicable Letter of Intent or
Modified Letter of Intent. All Tenant's rights under this section are personal
to Tenant and may not be exercised by any assignee or subtenant of Tenant other
than an entity to which Tenant has assigned all or any of its interest in this
Lease as permitted by Section 13.1.2; provided, however, that at the time of any
such permitted assignment the instrument of assignment and assumption delivered
to Landlord pursuant to Section 13.1.2 will state that either (a) Tenant has
retained all of Tenant's rights under this section or (b) Tenant has assigned to
the permitted assignee all of Tenant's rights under this section. Landlord's
Mortgagee will not be required to comply with the terms of this section when
foreclosing its Mortgage or taking a deed in lieu of foreclosure of its
Mortgage. However, if Landlord's Mortgagee becomes the Landlord by purchasing
the Unit at the foreclosure sale or taking a deed in lieu of foreclosure,
Landlord's Mortgagee and its successors will comply with the terms of this
section in connection with its subsequent sale of the Unit. THE PARTIES HEREBY
AGREE THAT (a) TIME IS PARTICULARLY OF THE ESSENCE WITH RESPECT TO THE
PROVISIONS OF THIS SECTION; (b) NOTWITHSTANDING ANY LAW IN THE STATE OF
WASHINGTON, INCLUDING CASE LAW, TO THE CONTRARY, LANDLORD WILL BE UNDER NO DUTY
WHATSOEVER TO NOTIFY TENANT THAT TENANT HAS FAILED TO GIVE THE NOTICE IT HAS THE
RIGHT TO GIVE UNDER THE FOREGOING PROVISIONS OF THIS SECTION; AND (c) THE ENTIRE
PROVISIONS OF THIS SECTION HAVE BEEN SPECIALLY NEGOTIATED BY THE PARTIES.

         Landlord will not deliver a Letter of Intent to Tenant prior to
September 1, 1999, provided nothing in this sentence is intended to prevent
Landlord from dealing with or providing information to potential lenders or
purchasers prior to September 1, 1999.

         17.7     [RESERVED]

         17.8     PARKING ALLOTMENT.

         Parking for Union Station Condominium is located in the underground
parking garage ("Parking Garage") which is part of a separate condominium (the
"Base Unit") not owned or operated by Landlord. Landlord will arrange with the
Base Unit owner ("Garage Operator") for Tenant to have the right but not an
obligation to use up to the number of Executive Parking Stalls and Regular
Parking Stalls determined as set forth the in Parking Allotment described in the
Basic Terms during the Term of this Lease, subject to the rules and regulations
as may be established from time to time by the Garage Operator, provided that
(i) Tenant may, subject to the Parking Allotment, increase or decrease the
number of parking spaces licensed to it after giving Landlord not less than 30
days prior written notice of the increase or the reduction; (ii) no reduction
will be effective until Tenant surrenders to Landlord the keycards, stickers or
other identification materials used to provide garage access for the parking
spaces surrendered; (iii) absent a timely delivery of notice to increase or
reduce the number of licensed stalls, the number of stalls licensed to Tenant
will be the number of stalls licensed to it pursuant to the previous most recent
request; and (iv) if Landlord so requests, Tenant will deal directly with the
Garage Operator, rather than through Landlord, in connection with the terms and
conditions of parking in the Base Unit (but not with respect to Tenant's right
to use parking stalls, for which Landlord will at all times remain responsible).
Except during periods in which Landlord has directed Tenant to deal directly
with the Garage Operator, Tenant will pay Landlord the monthly charge (without
markup by Landlord) for all Executive Parking Stalls and Regular Parking Stalls
leased to Tenant during each calendar month on or before the first day of such
calendar month. "Executive Parking Stall" will mean a stall in the Parking
Garage which is located in a designated area within the Parking Garage available
to such users which are specifically set aside for Executive Parking Stall users
on a non-reserved basis and which will be available to such users on a 24 hour
basis throughout the entire calendar year and will not be subject to or limited
to Parking Hour. "Regular Parking Stall" will mean a parking stall available in
common with other users of the Parking Garage on a non-reserved basis, anywhere
in the Parking Garage other than stalls reserved for Executive Parking Stalls or
similar reserved parking, which is available to a user on a 24 hour basis
throughout the entire calendar year except for days when a Posted Event is
scheduled to occur. On days of Posted Events, the Regular Parking Stalls will be
limited to the Parking Hours. "Posted Event" means any event scheduled for the
Kingdome, the Football Stadium, the Baseball Stadium or the adjacent Exhibition
Hall, during non-Parking Hours, notice of which will be posted at the entrances
to the Parking Garage. "Parking Hours" will mean 7:00 o'clock a.m. to 6:00
o'clock p.m., Monday

                                      36.


through Friday, and 7:00 o'clock a.m. to 12:00 o'clock noon on Saturday. In
addition to the Parking Allotment, as long as the same are made available by
Garage Operator, Tenant may lease additional Executive Parking Stalls or Regular
Parking Stalls on a month-to-month basis at the rate then being charged for such
stalls by Garage Operator.

         Landlord and Union Station Associates, LLC, a Washington limited
liability company ("USA") are parties to that certain Real Property Purchase and
Sale Agreement dated as of May 28, 1999 (as amended to date, the "Purchase
Agreement"). USA is the holder of fee title to the Base Unit and is Garage
Operator as of the Effective Date of this Lease. The Purchase Agreement
contemplates that upon conveyance of fee title to the Property from USA to
Landlord, Landlord and USA will record a parking agreement and covenant (the
"Parking Agreement") pursuant to which, among other things, Landlord will have
the right to Lease up to one parking stall per 1,000 square feet of Rentable
Area of the Buildings, a portion of which stalls constitute Tenant's Parking
Allotment. Landlord agrees not to default under either the Purchase Agreement or
the Parking Agreement and agrees to cooperate with Tenant if Garage Operator
defaults under the Parking Agreement or the unrecorded addendum to parking
agreement and covenant (the "Parking Addendum") arising out of the Parking
Agreement and agrees not to amend in a manner which would adversely affect
Tenant, or to terminate, either the Parking Agreement or the Parking Addendum
without Tenant's prior written consent. In furtherance thereof, if Landlord
fails to pursue its rights against Garage Operator following a Garage Operator
default which could have a materially adverse impact upon Tenant, Tenant may,
upon not less than 30 days prior written notice to Landlord, elect to prosecute
the default at Landlord's expense; Landlord will cooperate with Tenant as
reasonably necessary in connection therewith. Landlord has delivered to Tenant a
copy of the form of Parking Agreement and Parking Addendum which USA and
Landlord have agreed to execute and deliver concurrently with the closing of
Landlord's purchase of the Property from USA pursuant to the Purchase Agreement.

         17.9     [RESERVED]

         17.10    HAZARDOUS MATERIALS.

         Asbestos will not be utilized in the construction of the Building.
Landlord will not introduce any Hazardous Materials to the Building other than
office cleaning or other office supplies customarily used in the ordinary course
and in accordance with prudent industry practice.

         The land below Union Station Condominium is affected by an
environmental remediation obligation to the Washington State Department of
Ecology. Landlord is the insured under an Environmental Response, Compensation
and Liability Insurance Policy issued by Kemper Surplus Lines Insurance Company,
as its Policy No 4TG 000013 (the "Policy"). The Policy protects Landlord against
liability for the contamination that is the subject of the remediation
obligation. Landlord has the right to add Tenant as an insured on the Policy.
The Policy period is from June 01, 1999 to June 01, 2009, and Landlord has the
right to extend the Policy for an additional period of 10 years. Landlord
agrees: (i) promptly after the Effective Date, to add Tenant as an additional
insured on the Policy; (ii) to maintain the Policy in full force and effect
during the full stated policy period; and (iii) to add Tenant as an additional
insured on any renewal or extension of the Policy, or, if permitted by the terms
thereof, on any replacement policy; but nothing herein is intended to require
Landlord to renew or extend the Policy or purchase a replacement policy

         17.11    SIGNS.

                  17.11.1  BUILDING STANDARD SIGNS.

                  Except as otherwise provided in this Lease, Tenant will not
install or permit to be installed in the Premises any sign, decoration or
advertising material of any kind that is visible from the exterior of the
Premises. Landlord may immediately remove, at Tenant's sole cost and expense,
any sign, decoration or advertising material that violates this section.

                                      37.


                  17.11.2  OTHER PERMITTED SIGNS.

                  Tenant may, at its sole cost and expense, (subject to
obtaining any required approvals) install one or more of the following signs:
(1) exterior plaza and/or interior Building lobby monument signage; (2) Tenant's
name plate in one or all of the elevators, adjacent to the button for Tenant's
lobby; (3) Tenant's name plate in the Garage elevator lobby; and (4) if Tenant
becomes, and for as long as Tenant remains, the largest tenant in the Building
exterior building signage; provided that such signs referred to in clauses (1)
through (4) inclusive (a) do not cause any structural damage to the Building;
(b) do not violate any Laws; (c) are in accordance with the sign criteria
established by Landlord and the design guidelines established by the
International District; (e) are approved in advance by Landlord (which approval
will not be unreasonably withheld, conditioned or delayed), City and any other
entity required to approve such signs. Tenant will be solely responsible for the
maintenance, repair and replacement of all such signs and the repair,
restoration or replacement of any and all portions of the Property that are
affected by the signs. Tenant, upon vacating the Premises or removing or
altering its signs for any reason, will repair, restore and/or replace the
Property surfaces where its signs were attached.

         17.12    SECURITY.

         Building security will include a perimeter security access system with
card key readers at the elevators and all exterior entrances. Landlord will
cooperate with Tenant so as to provide maximum compatibility that is reasonably
practicable with Tenant's security systems at other locations provided Tenant
reimburses Landlord for any additional costs incurred by Landlord in connection
therewith. The installation of any card readers or other equipment for Tenant
will be included in the Cost of Construction of the Tenant's Improvements.
Landlord will also provide at least one security guard in the Building 24 hours
a day, 7 days a week, as part of Operating Expenses. The guard will be available
to escort Tenant's employees to their vehicles parked in the Parking Garage
after hours, as requested, at no additional charge to Tenant. Tenant will have
the right to request Landlord to upgrade the security system for the Building,
provided that Tenant will pay all costs of any kind or nature incident to any
such upgrade.

         17.13    WAIVER OF LANDLORD'S LIEN.

         Landlord waives any statutory lien against Tenant's property arising
out of RCW Chapter 60.72.

         17.14    TELECOMMUNICATIONS LINES.

                  17.14.1  LANDLORD'S CONSENT.

                  Tenant may install, maintain, replace, remove, or modify
(each, a "Line Change") any portions of any Lines located outside the Premises
only with Landlord's prior written consent, which consent will not be
unreasonably withheld, conditioned or delayed. In exercising its discretion,
Landlord will take into consideration the fact that installation, maintenance,
repair, replacement, and expansion of, and access to and use of,
telecommunications lines is essential to Tenant's Permitted Use. Any Line Change
will be processed as an Alteration pursuant to Article 8 of this Lease;
provided, however, that Landlord's consent will not be required for routine
maintenance and repair so long as Tenant provides 48 hours' advance notice of
the work, or in case of emergency, such notices as may be reasonable under the
circumstances.

                  Landlord's approval of a Line Change will not be deemed a
warranty as to the adequacy thereof and Landlord hereby disclaims any
responsibility or liability for the same. Landlord disclaims all responsibility
for the condition or utility of the intra-building network cabling, including
the primary telephone cables running between the main telephone room or rooms
and a telecommunications closet on a floor of the Building (collectively, "INC")
and make no representation regarding the suitability of the INC for Tenant's
intended use. If Landlord consents to Tenant's Line Change, Tenant will: (a) pay
all costs in connection therewith (including all costs related to new Lines);
(b) comply with all requirements and conditions of this Lease; and (c) use,
maintain and operate the Lines. As soon as the work is completed, Tenant will
submit "as-built" drawings to Landlord.

                                      38.


                  17.14.2  NEW PROVIDER INSTALLATIONS.

                  In the event the Tenant wishes at any time to utilize the
services of a telephone or telecommunications provider whose equipment is not
then servicing the Building, no such provider will be permitted to install its
Lines or other equipment within Union Station Condominium without first securing
the prior written approval of the Landlord, which will not be unreasonably
withheld, conditioned or delayed as provided in Section 17.14.1 above.
Landlord's approval will not be deemed any kind of warranty or representation by
Landlord, including, without limitation, any warranty or representation as to
the suitability, competence, or financial strength of the provider. Without
limitation of the foregoing standard, unless all of the following conditions are
satisfied to Landlord's satisfaction, it will be reasonable for Landlord to
refuse to give its approval: (a) Landlord will incur no expense whatsoever with
respect to any aspect of the provider's provision of its services, including
without limitation, the costs of installation, materials and services; (b) prior
to commencement of any work in or about Union Station Condominium by the
provider, the provider will supply Landlord with such written indemnities,
insurance, financial statements, and such other items as Landlord reasonably
determines to be necessary to protect its financial interests and the interests
of the Property relating to the proposed activities of the provider; (c) the
provider agrees in writing to abide by such rules and regulations, building and
other codes, job site rules and such other requirements as are reasonably
determined by Landlord to be necessary to protect the interests of the owners of
Union Station Condominium, the tenants in the Building, and the Landlord
Parties, in the same or similar manner as Landlord has the right to protect
itself and Union Station Condominium with respect to proposed Alterations as
described in this Lease; (d) landlord reasonably determines that there is
sufficient space in Union Station Condominium for the placement of all of the
provider's equipment and materials to the extent that space outside of the
Premises is required; (e) Landlord receives from provider such compensation as
is reasonably determined by Landlord to compensate it for space used in the
building (other than space within the Premises) for the storage and maintenance
of the provider's equipment, for the fair market value of a provider's access to
Union Station Condominium, and the costs which may reasonably be expected to be
incurred by Landlord in conjunction with the provider's occupancy of and
activities within Union Station Condominium (other than space within the
Premises), all of which compensation will be comparable to similar charges and
compensation received by Landlord from other providers selected by other tenants
in the building; and (f) all of the foregoing matters are documented in a
written agreement between Landlord and the provider, the form and content of
which is reasonably satisfactory to Landlord.

         If Landlord wrongfully refuses to give its consent to a new provider,
Tenant will still have no right to terminate the Lease or claim an entitlement
to rent abatement, but may assert a claim for its direct damages. The provisions
of this paragraph may be enforced solely by Tenant and Landlord and their
respective successors in interest under this Lease, are not for the benefit of
any other Person, and specifically, but without limitation, no telephone or
telecommunications provider will be deemed a third party beneficiary of this
Lease.

         In addition to any other indemnification obligations under this Lease,
Tenant will indemnify, protect, defend (with counsel reasonably chosen by
Tenant's insurer, or if there is no insurer, with counsel reasonably acceptable
to Landlord) and hold harmless the Landlord Parties from and against any and all
Claims arising out of or in any way related to the acts and omissions of Tenant,
Tenant's officers, directors, employees, agents, contractors, subcontractors,
subtenants, and invitees with respect to: (a) any Lines serving Tenant; (b) any
personal injury (including wrongful death) or property damage (real or personal)
arising out of or related to any Lines serving Tenant; (c) any lawsuit brought
or threatened, settlement reached, or governmental order relating to such Lines;
and (d) any violations of Laws or demands of governmental authorities, or any
reasonable policies or requirement of Landlord, which are based upon or in any
way related to such Lines. This indemnification obligation will survive the
expiration or termination of this Lease.

         17.15    ELECTRIC UTILITY PROVIDER.

         Landlord and Tenant acknowledge that various federal and state
initiatives are under way that are expected, over time, to result in
deregulation of the electric utility industry so that the historic, vertically
integrated monopoly for generation and delivery of electrical power and services
is replaced by market-priced elements of production, capacity, transmission and
ancillary services. Following any such deregulation giving Landlord a choice of
electric utility providers, (a) Landlord will endeavor to procure electric
utility service at competitive prices serving the best interests of all tenants
and other occupants of the Property, and (b) at such time as Tenant leases all
of the Rentable Area in the Building, Tenant shall have the right to select the
electric utility service provider to the Premises.

                                      39.


         17.16    INTEGRATION WITH CONDOMINIUM.

         Article 19 of the Condominium Declaration contemplates that the
Building, will have all necessary easements in the Base Unit for support,
utilities, equipment and improvements, elevators, access and telecommunications
links and that the owner of the Base Unit will grant to Landlord as the owner of
Unit 4 and or Unit 3, specific easements for utilities, equipment and
improvements, elevators and telecommunications links in locations and under
terms and conditions approved by Landlord and the Base Unit owner. Landlord
agrees to obtain all such necessary easements and not to terminate or amend in
any way that would materially adversely affect Tenant or the Premises, either
any such easement or the Condominium Declaration, without Tenant's prior written
consent, which will not be unreasonably withheld or delayed.

         17.17    LICENSE FOR SATELLITE EQUIPMENT SITE.

         Tenant may throughout the Term, install, operate and maintain, at
Tenant's sole expense and risk, one or more satellite dishes and other antennas
and related communication equipment described in drawings and specifications
prepared by or on behalf of Tenant and approved by Landlord in writing (the
"Approved Equipment Plans"), together with required utility cabling
(collectively, the "Equipment"), provided that the maximum outside diameter of
any dish antenna will not exceed the diameter permitted by applicable Laws. The
Equipment will be mounted on the exterior of the Building using utility conduits
in locations and in the manner approved in advance in writing by Landlord. The
Equipment will be installed in accordance with the approved Equipment Plans.

         On or before the first day of each calendar month (prorated for any
partial month in which the Equipment has been installed or removed in accordance
with this section, as the case may be), Tenant will pay to Landlord with the
monthly Basic Rent payable to Landlord pursuant to the Lease, in advance and
without notice, setoff or deduction, as Additional Rent, the sum (the "Satellite
Equipment Rent") equal to $250.00 for each dish or other antenna installed,
except there will be no charge for the first dish or other antenna installed by
Tenant. The Satellite Equipment Rent will be increased by 2.5% on the third
anniversary of the Commencement Date and on each third anniversary of the
Commencement Date thereafter.

         The Equipment will be used solely for internal communications on a
non-fee basis and no other use without the prior written consent of Landlord,
which may be withheld or conditioned in Landlord's sole discretion. Tenant will
operate the Equipment in a manner that does not interfere with normal electronic
or communications equipment of any kind located in the Building.

         Tenant will obtain all necessary licenses, permits and approvals
relating to installation and operation of the Equipment from state, federal and
other governmental authorities. Tenant will install, operate and maintain the
Equipment in accordance with all applicable laws, ordinances, rules and
regulations and in a manner that will not invalidate or increase the rate of any
insurance on the Premises or any other portion of the Building.

         Tenant will, at Tenant's sole expense, maintain the Equipment in good
condition and repair and repair any damage to the Premises or any other portion
of the Building arising in connection with the installation, operation or
removal of the Equipment. Tenant will have 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, at all times
subject to any reasonable regulation thereof by Landlord. In no event, however,
will Tenant place or keep personnel on the roof of the Premises, other than for
periodic visits by maintenance, repair or installation personnel. Tenant will
reimburse Landlord for all increased costs of maintaining the roof or utility
systems caused by the presence, operation or maintenance of the Equipment. Upon
termination of this License, Tenant will remove the Equipment from the Building,
repair all damage to the Building resulting from said removal and surrender the
site to Landlord in substantially the same order and condition as originally
delivered to Tenant, excepting ordinary wear and tear, damage by fire and other
casualty, and termination of this Lease pursuant to Article 11 or Article 12
excepted. If Tenant fails to so remove the Equipment and repair any damage,
Landlord may do so on Tenant's behalf, and Tenant will within ten (10) days
after receipt of Landlord's written demand pay to Landlord the actual costs
incurred by Landlord in so doing.

         Tenant will be responsible for the costs and expenses of any and all
utilities and services supplied to the Premises which are consumed by Tenant in
installing or operating the Equipment, whether by Landlord or directly

                                      40.


by utility companies. Landlord may require Tenant to install, at Tenant's sole
expense, separate meters for such utilities. Landlord will bill Tenant for any
of said utilities and services supplied by Landlord, and Tenant will pay said
charges, together with its monthly payments of Additional Rent. If items are not
separately metered, the charge will be based on the Landlord's engineer's
reasonable estimate of the cost of said utilities and services provided by
Landlord.

         Installation, maintenance and use of the Equipment will not in any way
interfere with the systems of the Building or the quiet enjoyment of the
Property by any other tenant or occupant, including without limitation the use
of television, radio, telephone and other communications equipment and any other
communications apparatus now or hereafter located on the roof of the Building.
If Landlord receives complaints regarding interference with reception from
another tenant or occupant, and Landlord reasonably believes the source of the
interference is the Equipment, Tenant will take all steps necessary to stop the
interference. If in the reasonable opinion of Landlord, the interference is not
corrected within 48 hours of Tenant's receiving notice of the interference,
Tenant will cease the use of the Equipment until the interference is corrected.
Tenant's obligations under Section 10.3 extend to any Claims arising out of
Tenant's installation, operation, maintenance, use or removal of the Equipment,
or caused by or resulting from any act or omission of Tenant or Tenant's
contractors, subcontractors or engineers, or of any officer, agent, employee,
guest, invitee or visitor of any such person while performing services or acting
for Tenant pursuant to this section in, on or about the Building or caused by or
resulting from Tenant's breach of its other obligations under this section. The
Landlord Parties will not be responsible or liable to Tenant for any loss or
damage whatsoever that may occur to the Equipment, whether occasioned by or
through the acts or omissions of Landlord, its managing agent or employees.
Tenant will look solely to its insurance for recoveries of such loss or damage

         Tenant and Landlord will promptly deliver to the other a copy of any
and all notices which it receives from third parties that the Equipment is or
may be in violation of any law, ordinance or regulation. Tenant will pay all
taxes of any kind or nature whatsoever levied upon the Equipment and all
licensing fees, franchise taxes and other charges, expenses and costs of any
nature whatsoever relating to the installation, ownership, maintenance and
operation of the Equipment. If the Equipment is assessed for tax purposes as
part of the Property or Landlord's personal property, Tenant will reimburse
Landlord within 30 days of written demand for all additional taxes, if any,
attributable to the Equipment.

         Nothing in this section will prevent Landlord from licensing others to
use the roof for development, installation and operation of electromagnetic
radiation and reception facilities or FM broadcasting and two-way radio and
microwave transmission, provided such facilities do not unreasonably or
materially interfere with the operations of Tenant pursuant to its rights
granted herein, or with the functioning of Tenant's Equipment.

         Tenant may upon not less than 30 days prior written notice to Landlord,
terminate the License created by this section and remove all Equipment from the
Building in compliance with the fifth paragraph of this Section 17.17.

         17.18    SECURITY DEPOSIT.

                  17.18.1  GENERAL REQUIREMENTS.

                  Within twenty-one (21) days after execution of this Lease,
Tenant will pay or otherwise provide to Landlord, as required or permitted by
this section, a security deposit (the "Security Deposit") in the amount of per
square foot of Rentable Area of the Premises. For purposes of the initial
Security Deposit, the parties have assumed that the Rentable Area of the
Premises is 249,970 square feet; promptly after the final Rentable Area has been
determined pursuant to the second paragraph of Section 1.1 and Section 17.7, the
Security Deposit initially provided will be increased or decreased accordingly.
Commencing with the first day of the fourth Lease Year, provided there is no
Event of Default under the Lease, the Security Deposit will be reduced by twenty
percent (20%) per Lease Year until the Security Deposit is reduced to $0.
Notwithstanding the foregoing sentence, the Security Deposit will not be reduced
below a sum equal to the last month's Basic Rent and estimated Operating
Expenses as reasonably determined by Landlord, except in accordance with Section
17.18.5. The amount of the Security Deposit required under this section is the
"Security Deposit Amount." In addition to the foregoing reductions, if and when

                                      41.


Tenant's credit rating reaches a level BBB or its equivalent, then the formula
for reduction of the amount of the Security Deposit set forth in Section 17.18.5
will apply.

                  Tenant can elect to satisfy the Security Deposit Amount either
with cash, a letter of credit, or pledged marketable securities from Tenant's
corporate cash investment portfolio. Landlord will hold the Security Deposit as
security for the performance of Tenant's obligations under the Lease. The
Security Deposit will not be considered an advance payment of Rent or a measure
of Tenant's liability for damages. Landlord may, from time to time, without
prejudice to any other remedy, upon the occurrence of an Event of Default, use
all or a portion of the Security Deposit to make good any arrearage of Rent, to
repair damages to the Premises, to clean the Premises upon termination of the
Lease or otherwise to satisfy any other covenant or obligation of Tenant under
the Lease, in each case to the extent Tenant is liable therefor under the terms
of the Lease. Following any such application of the Security Deposit, Tenant
will restore the Security Deposit to its Security Deposit Amount. Any assignment
of the Lease by Landlord, whether voluntary or through involuntary assignment or
transfer such as bankruptcy or foreclosure, will automatically and without
further action by either party cause an assignment of the Security Deposit
(whether cash, marketable securities, or a letter of credit) to the assignee
(and the parties will execute such documents as necessary to reflect such
assignment), and upon the assignee's assumption of Landlord's obligations under
the Lease (including Landlord's obligations with respect to the Security
Deposit), Landlord thereafter will have no further liability for the return of
such Security Deposit and in such circumstances Tenant agrees to look solely to
such transferee or assignee for the return of the Security Deposit. Landlord and
its successors and assigns will not be bound by any actual or attempted
assignment or encumbrance of the Security Deposit by Tenant, provided, however,
if Tenant's interest in the Lease has been assigned, Landlord will, provided
that Landlord has been furnished with a fully executed copy of the agreement
assigning such Security Deposit, return the Security Deposit to such assignee in
accordance with the terms and conditions hereof. If Landlord returns the
Security Deposit to Tenant's assignee as aforesaid, Landlord will have no
further obligation to any party with respect thereto.

                  17.18.2  CASH SECURITY DEPOSIT:

                  At the option of Tenant Tenant may elect to provide all or any
portion of the Security Deposit in the form of cash. If Tenant elects to satisfy
all or any portion of the Security Deposit with cash, Landlord will be required
to keep the Security Deposit invested and separate from its other accounts.
Furthermore, Landlord will credit all interest and other income capital gains
earned or generated by the Security Deposit to Tenant, and will return all such
interest and capital gains to Tenant upon Tenant's written request.

                  17.18.3  LETTER OF CREDIT / SECURITY DEPOSIT:

                  At the option of Tenant, Tenant may elect to provide all or
any portion of the Security Deposit in the form of a letter of credit (the
"LOC"). The LOC will be an irrevocable and unconditional standby letter of
credit, issued by a financial institution determined by Tenant, satisfactory to
Landlord and with a term of at least one year, drawable by Landlord upon
presentation, and substantially in the form of EXHIBIT L attached hereto.
Landlord may draw upon the LOC under the same terms and conditions as Landlord
may apply a cash security deposit; provided, however, that the parties agree
that the reference to "USD$500" on page L-2 of EXHIBIT L may be increased at the
rate of 3 percent per annum on each anniversary of the Commencement Date. In
addition, Landlord may draw upon the LOC if Tenant fails to deliver to Landlord
no later than thirty (30) days prior to the expiration date of the existing LOC
a renewal or extension of the LOC for a term of not less than one year.
Notwithstanding the foregoing, and unless a renewal or extension of the LOC has
not been delivered to Landlord thirty (30) days prior to the expiration date of
the existing LOC, Landlord will give Tenant 5 Business Days prior written notice
before drawing upon the LOC.

                  17.18.4  PLEDGED SECURITIES/ SECURITY DEPOSIT:

                  At the option of Tenant, Tenant may elect to provide all or
any portion of the Security Deposit by pledging for the benefit of Landlord
marketable securities with a market value equal to the Security Deposit Amount.
The pledge will be of short term (three (3) years or less) fixed income
marketable securities from Tenant's corporate cash investment portfolio,
including money market funds, rated A-/A3 or equivalent by a nationally
recognized credit rating service. The pledged marketable securities will be held
by a bank or financial institution mutually approved by Landlord and Tenant as
custodian for Landlord, either in a separate custodian account or as specially
designated securities within a larger custodian account. The pledge agreement
must be substantially in the

                                      42.


form of EXHIBIT M attached hereto and provide Landlord with a perfected first
lien security interest in the pledged securities. The custodial agreement must
be substantially in the form of EXHIBIT N attached hereto, and provide direct
access authorization which would permit Landlord in an Event of Default, without
approval of Tenant, to authorize the sale of the securities and the withdrawal
of the proceeds thereof (not to exceed the amount of the then required Security
Deposit) for application by Landlord on the same terms and conditions as
Landlord could draw on a LOC in an Event of Default. Tenant will be entitled to
retain all interest and other income capital gains earned or generated by the
pledged securities.

                  At all times, the value of the pledged securities if they are
held in the form of corporate bonds must equal or exceed 115% of the amount then
required, however such amount will be reduced to 110% if not more than 50% of
such securities are held in the form of corporate bonds. If the market value of
the pledged securities drops below the required level of the then-required
Security Deposit, Tenant will immediately add additional marketable securities
to the pledge to increase the value of the pledged securities to equal or exceed
the required level. Failure of Tenant to increase the pledged securities as
required within 3 Business Days of notice from Landlord and/or the account
custodian will constitute an Event of Default. Tenant will have the right to
substitute additional marketable securities for the securities subject to the
pledge, provided Landlord obtains a perfected first lien security interest in
the substituted securities prior to the release of the pledged securities.

                  17.18.5  REDUCTION OF SECURITY DEPOSIT:

         17.19    SPECIAL CONTINGENCY.

         Landlord will diligently and in good faith endeavor, on or before
December 31, 1999 (the "Special Contingency Date") to: (i) cause the working
drawings and specifications for the Building to be completed, which plans and
specifications will be substantially in accordance with the plans and
specifications for the Building, a portion of which is leased to Tenant pursuant
to the Other Amazon Lease, which plans and specifications will also be subject
to Tenant's reasonable approval, which shall not be unreasonably withheld,
conditioned or delayed; (ii) confirm entitlements and permit schedules; (iii)
obtain project financing acceptable to Landlord; and (iv) prepare the final
project schedule for Tenant's approval, which approval will not be unreasonably
withheld, conditioned or delayed. Landlord will diligently and in good faith
endeavor to achieve and eliminate the foregoing contingencies as soon as
possible and, in any event, on or before the Special Contingency Date. If
Landlord is not satisfied that it has or will be able to remove the foregoing
contingencies to its satisfaction, Landlord may terminate this Lease by notice
to Tenant on or before the Special Contingency Date. Upon such termination
neither party shall have any Claim against the other arising out of or in
connection with this Lease except Landlord will reimburse Tenant, within 30 days
of invoice accompanied by reasonable supporting data, for Tenant's Out of Pocket
Expenses not in excess of $125,000.

         17.20    DISASTER RECOVERY PLAN.

         Landlord will, on or before 90 days prior to the Commencement Date,
cause a disaster recovery plan reasonably acceptable to Tenant to be developed
and implemented for the Building, the principal purpose of which will be to
enable the Building to be restored to fully operational status as soon as
possible following damage or destruction. All costs of developing and updating
any such plan shall constitute Operating Expenses.

                                      43.


                                   ARTICLE 18

                                   INSOLVENCY

         Landlord and Tenant (as either debtor or debtor-in-possession) agree
that if a petition is filed by or against Tenant (each a "Petition") under any
chapter of the Bankruptcy Code, and is not dismissed within 120 days: (a) Tenant
will perform each and every obligation of Tenant under this Lease, until such
time as this Lease is either rejected or assumed; (b) adequate protection for
the performance of Tenant's post-Petition but pre-assumption or pre-rejection
obligations under this Lease will be provided within 120 Business Days after the
filing and will be in the form of a security deposit to be held by the court or
an independent escrow agent approved by the court, in an amount equal to all
amounts then payable by Tenant to Landlord under the terms of the Lease during a
one-month period; (c) Tenant will give Landlord at least 30 days' prior written
notice of any abandonment of the Premises; (d) if Tenant abandons the Premises,
Tenant stipulates to the entry, without notice to any party, of an ex parte
order modifying the stay to permit Landlord to take reasonable steps to secure
the Premises, including changing the locks, putting lights on timers and
covering the windows; (e) if Tenant has failed to timely and fully perform any
of its obligations under this Lease before the filing of the Petition, whether
or not Landlord has given Tenant written notice of said failure and whether or
not any time period for performance or cure set forth in Article 14 has expired
before the filing of the Petition, a Tenant Event of Default would have deemed
to have been in existence on the date the Petition was filed; (f) Tenant will
provide Landlord with 30 days' prior written notice of the proposed assumption
or assignment of this Lease, which notice will set forth (1) the compensation
for pecuniary loss to be provided to Landlord, (2) the adequate assurance of
prompt cure and future performance to be provided to Landlord, (3) the name,
address, state and federal tax identification numbers, and any other federal,
state or local registration numbers, of any proposed assignee and (4) all of the
terms and conditions of any proposed assignment; (g) prompt cure of Events of
Default will mean cure within 30 days after assumption; (h) adequate assurance
of future performance of this Lease after assumption by Tenant or any proposed
assignee will require that Tenant or the proposed assignee deposit with Landlord
as security for such future performance, an amount equal to 3 months of Basic
Rent and Additional Rent; and (i) if this Lease is to be assigned, adequate
assurance of future performance by the proposed assignee will also require that
(1) the assignee demonstrate that it has the business experience and financial
ability to perform Tenant's obligations under this Lease and operate the
Premises in the manner contemplated by this Lease, (2) the Premises will remain
a single space and no physical changes of any kind will be made to the Premises
without complying with the applicable provisions of this Lease and (3) the
assignee assumes any obligations of Tenant to pay for improvements to the
Premises constructed by Landlord, which obligations are contained in any
agreement or instrument other than this Lease. Tenant will do all other things
of benefit to Landlord that are otherwise permitted under the Bankruptcy Code.

                                   ARTICLE 19

                            MISCELLANEOUS PROVISIONS

         19.1     NOTICES.

         All Notices must be in writing and must be sent by personal delivery,
United States registered or certified mail (postage prepaid) or by an
independent overnight courier service, addressed to the addresses specified in
the Basic Terms or at such other place which is not a post office box as either
party may designate to the other party by written notice given in accordance
with this section. Notices given by mail are deemed effective within three
Business Days after the party sending the Notice deposits the Notice with the
United States Post Office. Notices delivered by courier are deemed effective on
the next Business Day after the day the party delivering the Notice timely
deposits the Notice with the courier for overnight (next day) delivery.

         19.2     TRANSFER OF LANDLORD'S INTEREST.

         If Landlord Transfers any interest in the Premises for any reason other
than collateral security purposes, the transferor is automatically relieved of
all obligations on the part of Landlord accruing under this Lease from and after
the date of the Transfer, provided that the transferee assumes the obligations
of Landlord under this Lease from and after the date of the Transfer.

                                      44.


         19.3     SUCCESSORS.

         Subject to applicable limitations set forth in this Lease, the
covenants and agreements contained in this Lease bind and inure to the benefit
of Landlord, its successors and assigns, bind Tenant and its successors and
assigns and inure to the benefit of Tenant and its successors and assigns.

         19.4     CAPTIONS AND INTERPRETATION.

         The captions of the articles and sections of this Lease are to assist
the parties in reading this Lease and are not a part of the terms or provisions
of this Lease. Whenever required by the context of this Lease, the singular
includes the plural and the plural includes the singular. Whenever words such as
"herein," "hereunder," etc., are used in this Lease, they will mean and refer to
this Lease in its entirety and not to any specific section, paragraph or other
part of this Lease.

         19.5     RELATIONSHIP OF PARTIES.

         This Lease does not create the relationship of principal and agent, or
of partnership, joint venture, or of any association or relationship between
Landlord and Tenant other than that of landlord and tenant

         19.6     ENTIRE AGREEMENT; AMENDMENT.

         The Basic Terms and all exhibits, addenda and schedules attached to
this Lease are incorporated into this Lease as though fully set forth in this
Lease and together with this Lease contain the entire agreement between the
parties with respect to the improvement and leasing of the Premises. All prior
and contemporaneous negotiations, including, without limitation, any letters of
intent or other proposals and any drafts and related correspondence, are merged
into and superseded by this Lease. No subsequent alteration, amendment, change
or addition to this Lease (other than to the Building Rules) is binding on
Landlord or Tenant unless it is in writing and signed by the party to be charged
with performance.

         19.7     SEVERABILITY.

         If any covenant, condition, provision, term or agreement of this Lease
is, to any extent, held invalid or unenforceable, the remaining portion thereof
and all other covenants, conditions, provisions, terms and agreements of this
Lease, will not be affected by such holding, and will remain valid and in force
to the fullest extent permitted by law.

         19.8     LANDLORD'S LIMITED LIABILITY.

         Except for Landlord's obligations under Section 17.1, Tenant will look
solely to Landlord's interest in the Property for recovering any judgment from
Landlord or any other Landlord Party. Tenant agrees that neither Landlord nor
any other Landlord Party will be personally liable for any personal judgment or
deficiency decree or judgment against it.

         19.9     SURVIVAL.

         All of Tenant's and Landlord's obligations under this Lease (together
with interest on payment obligations at the Maximum Rate) accruing prior to
expiration or other termination of this Lease survive the expiration or other
termination of this Lease. Further, all of Tenant's and Landlord's release,
indemnification, defense and hold harmless obligations under this Lease survive
the expiration or other termination of this Lease, without limitation.

         19.10    ATTORNEYS' FEES.

         In the event of any litigation or other proceeding, declaratory or
otherwise, arising out of this Lease, including an action to collect or enforce
a judgment or order entered in any such litigation or proceeding, the prevailing
party will recover its attorneys' fees from the nonprevailing party, in an
amount which will be fixed by

                                      45.


the court. If Landlord engages counsel to enforce the terms of this Lease
(including for the purpose of preparing a delinquency notice), Tenant will
reimburse Landlord for all attorneys' fees incurred before any subject Event of
Default is considered cured. As used in this Lease, "attorneys' fees" means all
costs, damages and expenses, including attorneys', paralegals', clerical and
consultants' respective fees and charges actually expended or incurred in
connection therewith, including for appeals.

         Tenant will indemnify, defend (with counsel reasonably acceptable to
Landlord), protect and hold harmless the Landlord Parties from and against all
Claims Landlord or any of the other Landlord Parties incurs if Landlord or any
of the other Landlord Parties becomes or is made a party to any claim or action
(a) instituted by Tenant against, or instituted against Tenant by, any person
holding any interest in the Premises by, under or through Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; or (c) otherwise arising out of or resulting from any act or
omission of Tenant or such other person. In addition to the foregoing, Landlord
is entitled to reimbursement of all of Landlord's fees, expenses and damages,
including, but not limited to, reasonable attorneys' fees Landlord incurs in
connection with protecting its interests in any bankruptcy or insolvency
proceeding involving Tenant, including, without limitation, any proceeding under
any chapter of the Bankruptcy Code; by asserting or defending a claim; by
defending a preference or fraudulent transfer action; by exercising and
advocating rights under Section 365 of the Bankruptcy Code; by proposing a plan
of reorganization and objecting to competing plans; and by filing motions for
relief from stay. Such fees and expenses are payable on demand, or, in any
event, upon assumption or rejection of this Lease in bankruptcy.

         Landlord will indemnify, defend (with counsel reasonably acceptable to
Tenant), protect and hold harmless the Tenant from and against all Claims Tenant
incurs if Tenant becomes or is made a party to any claim or action (a)
instituted by Landlord against, or instituted against Landlord by, any person
holding any interest in the Premises by, under or through Landlord (other than
Tenant or anyone holding through Tenant); (b) for foreclosure of any lien for
labor or material furnished to or for Landlord or such other person (other than
Tenant or anyone holding through Tenant) or (c) otherwise arising out of or
resulting from any act or omission of Landlord or such other person (other than
Tenant or anyone holding through Tenant). In addition to the foregoing, Tenant
is entitled to reimbursement of all of Tenant's fees, expenses and damages,
including, but not limited to, reasonable attorneys' fees Tenant incurs in
connection with protecting its interests in any bankruptcy or insolvency
proceeding involving Landlord or any of the other Landlord Parties, including,
without limitation, any proceeding under any chapter of the Bankruptcy Code; by
asserting or defending a claim, by defending a preference or fraudulent transfer
action; by exercising and advocating rights under Section 365 of the Bankruptcy
Code, by proposing a plan of reorganization and objecting to competing plans;
and by filing motions for relief from stay. Such fees and expenses are payable
on demand, or, in any event, upon assumption or rejection of this Lease in
bankruptcy.

         19.11    BROKERS.

         Tenant represents and warrants to Landlord that it has not had any
dealings with any realtors, brokers, finders or agents in connection with this
Lease, except the Brokers set forth in the Basic Terms. Each of Landlord and
Tenant agrees to release and will indemnify, defend and hold the other harmless
from and against any Claim based on the failure or alleged failure to pay any
compensation, commission or changes claimed by any other realtors, brokers,
finders or agents claiming by, through or on behalf of it with respect to this
Lease or the negotiation of this Lease.

         19.12    GOVERNING LAW.

         This Lease is governed by, and must be interpreted under, the internal
laws of the State. Any suit arising from or relating to this Lease must be
brought in the County; Landlord and Tenant waive the right to bring suit
elsewhere.

         19.13    TIME IS OF THE ESSENCE.

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

                                      46.


         19.14    JOINT AND SEVERAL LIABILITY.

         All parties signing this Lease as Tenant and any Guarantors of this
Lease are jointly and severally liable for performing all of Tenant's
obligations under this Lease.

         19.15    BARRIER CODE.

         The Common Areas in the portions of the Building and the Premises
designed by Landlord's architect will comply in all material respects with the
Barrier Free Code of the State of Washington, applicable to the Property on the
Commencement Date,

         19.16    TENANT'S ORGANIZATION DOCUMENTS; AUTHORITY.

         Tenant and each individual signing this Lease on behalf of Tenant
represents and warrants that they are duly authorized to sign on behalf of and
to bind Tenant and that this Lease is a duly authorized obligation of Tenant.
Tenant will deliver to Landlord, prior to Landlord's execution of this Lease, a
certified copy of a resolution of the Board of Directors of Tenant, signed by
the secretary or an assistant secretary of Tenant, confirming the authorization
of Tenant's signator to execute and deliver this Lease on behalf of Tenant.

         19.17    PROVISIONS ARE COVENANTS AND CONDITIONS.

         All provisions of this Lease, whether covenants or conditions, are
deemed both covenants and conditions.

         19.18    FORCE MAJEURE.

         If Landlord is delayed or prevented from performing any act required in
this Lease (excluding, however, the payment of money) by reason of Tenant Delay
or Force Majeure, Landlord's performance of such act is excused for the longer
of the period of delay or the period of delay caused by such Tenant Delay or
Force Majeure and the period of the performance of any such act will be extended
for a period equivalent to such longer period.

         If Tenant is delayed or prevented from performing any act required in
this Lease (excluding, however, the payment of money) by reason of Landlord's
failure timely to perform its obligations under Section 17.1 or Force Majeure,
Tenant's performance of such act is excused for the longer of the period of
delay or the period of delay caused by such Landlord's failure timely to perform
its obligations under Section 17.1 or Force Majeure and the period of the
performance of any such act will be extended for a period equivalent to such
longer period.

         Nothing in this lease is intended to restrict or prohibit Tenant from
taking such action as it deems prudent and reasonable, at its sole cost and
expense, to minimize or overcome the effect of Force Majeure, so long as such
action does not interfere with the rights or obligations of Landlord under this
Lease.

         19.19    MANAGEMENT.

         Property Manager is authorized to manage the Property. Landlord
appointed Property Manager to act as Landlord's agent for leasing, managing and
operating the Property. The Property Manager then serving is authorized to
accept service of process and to receive and give notices and demands on
Landlord's behalf.

         19.20    FINANCIAL STATEMENTS.

         Tenant will, prior to Tenant's execution of this Lease and within 10
days after Landlord's request at any time during the Term, deliver to Landlord
complete, accurate and up-to-date financial statements with respect to Tenant,
which financial statements must be (a) prepared according to generally accepted
accounting principles consistently applied, and (b) certified by an independent
certified public accountant or by Tenant's chief financial officer that the same
are a true, complete and correct statement of Tenant's financial condition as of
the date of such financial statements. This section will not apply to
Amazon.com, Inc. or any Affiliate for so long as the stock of Amazon.com is
publicly traded over the counter or on a national securities exchange.

                                      47.


         19.21    QUIET ENJOYMENT.

         Landlord covenants that Tenant will have quiet enjoyment of the
Premises during the Term, without disturbance by Landlord or any person claiming
by, through or under Landlord, subject to the terms and conditions of this
Lease, if Tenant pays all Rent as and when due and keeps, observes and fully
satisfies all other covenants, obligations and agreements of Tenant under this
Lease.

         19.22    SHORT FORM: TITLE INSURANCE.

         This Lease will not be recorded. At the request of either party,
Landlord and Tenant will execute and deliver to the other a short form
memorandum of this Lease in form and content mutually acceptable to both
parties. Tenant may in its discretion and at its expense record the memorandum
and obtain a leasehold policy of title insurance insuring its leasehold estate
in the Premises and Landlord shall cooperate as may be reasonably required in
order to obtain the issuance of such a policy.

         19.23    CONFIDENTIALITY OF LEASE AND LEASE MATTERS.

         Each of Landlord and Tenant agrees that the terms and conditions of
this Lease and details regarding its negotiation are and shall remain
confidential between Landlord and Tenant, except that Landlord and Tenant shall
have the right to disclose this Lease and its terms to any lender (or potential
tender) or to a purchaser (or potential purchaser) of its interest in the
Building, and to its respective legal counsel, accountants and other financial
advisors or analysts, who have a need to know and have agreed to the foregoing
limits on use and confidentiality, except as required by law, or by governmental
regulation, requirement or order, or as may be necessary to establish or assert
its rights hereunder. Neither Landlord nor Tenant will distribute, copy or
otherwise submit this Lease or any summary thereof, orally or in writing, to any
other person.

                     [Rest of page intentionally left blank]

                                      48.


         19.24    CONSTRUCTION OF LEASE AND TERMS.

         The terms and provisions of this Lease represent the results of
negotiations between Landlord and Tenant, each of which are sophisticated
parties and each of which has been represented or been given the opportunity to
be represented by counsel of its own choosing, and neither of which has acted
under any duress or compulsion, whether legal, economic or otherwise.
Consequently, the terms and provisions of this Lease must be interpreted and
construed in accordance with their usual and customary meanings, and Landlord
and Tenant each waive the application of any rule of law that ambiguous or
conflicting terms or provisions contained in this Lease are to be interpreted or
construed against the party who prepared the executed Lease or any earlier draft
of the same. Landlord's submission of this instrument to Tenant for examination
or signature by Tenant does not constitute a reservation of or an option to
lease and is not effective as a lease or otherwise until Landlord and Tenant
both execute and deliver this Lease. The parties agree that, regardless of which
party provided the initial form of this Lease, drafted or modified one or more
provisions of this Lease, or compiled, printed or copied this Lease, this Lease
is to be construed solely as an offer from Tenant to lease the Premises,
executed by Tenant and provided to Landlord for acceptance on the terms set
forth in this Lease, which acceptance and the existence of a binding agreement
between Tenant and Landlord may then be evidenced only by Landlord's execution
of this Lease.

         Landlord and Tenant each caused this Lease to be executed and delivered
by its duly authorized representative to be effective as of the Effective Date.

                                    LANDLORD:

Date: 8/23/99                       OPUS UNION STATION, L.L.C.
                                    a Delaware limited liability company

                                    By: /s/  Thomas B. Parsons
                                        ----------------------------------------
                                        Thomas B. Parsons, Vice President

                                    TENANT:

                                    AMAZON.COM, INC.,
                                    a Delaware corporation

                                    By: /s/  Joseph Gali, Jr.
                                        ----------------------------------------
                                        Joseph Galli, Jr., President and Chief
                                        Operating Officer

                                      49.


STATE OF WASHINGTON     )
                        )  ss.
COUNTY OF KING          )

                  I certify that I know or have satisfactory evidence that
THOMAS B. PARSONS is the person who appeared before me, and said person
acknowledged that he signed this instrument, on oath stated that he was
authorized to execute the instrument and acknowledged it as the Vice President
of OPUS UNION STATION, L.L.C., a Delaware limited liability company, to be the
free and voluntary act of such party for the uses and purposes mentioned in the
instrument.

                  Dated: August 20, 1999

                                        /s/  Laura M. Macpherson
                                        ----------------------------------------
                                        (Signature of Notary Public)

                                        Laura M. Macpherson
                                        ----------------------------------------
                                        (Printed Name of Notary Public)

                                        My Appointment expires 6/15/2002

STATE OF WASHINGTON    )
                       ) ss
COUNTY OF KING         )

                  I certify that I know or have satisfactory evidence that
JOSEPH GALLI, JR. is the person who appeared before me, and said person
acknowledged that he signed this instrument, on oath stated that he was
authorized to execute the instrument and acknowledged it as the President of
AMAZON.COM, INC., a Delaware corporation, to be the free and voluntary act of
such party for the uses and purposes mentioned in the instrument.

                  Dated: August 20, 1999

                                        /s/  Laura M. Macpherson
                                        ----------------------------------------
                                        (Signature of Notary Public)

                                        Laura M. Macpherson
                                        ----------------------------------------
                                        (Printed Name of Notary Public)

                                        My Appointment expires 11-20-99

                                      50.


                                    EXHIBIT A

                                   DEFINITIONS

"ADDITIONAL RENT" means any charge, fee or expense (other than Basic Rent)
payable by Tenant under this Lease, however denoted.

"AFFILIATE" means (a) any person that, directly or indirectly, Controls, is
Controlled by or is under common Control with Tenant; (b) any Entity resulting
from a merger or consolidation with Tenant, and (c) any Entity succeeding to the
business and substantially all of the assets and goodwill of Tenant.

"ALTERATION" means any change, alteration, addition or improvement to the
physical structure of the Premises or Property but will exclude the initial
buildout of the Premises.

"BANKRUPTCY CODE" means the United States Bankruptcy Code as the same now exists
and as the same may be amended, including any and all rules and regulations
issued pursuant to or in connection with the United States Bankruptcy Code now
in force or in effect after the Effective Date.

"BASIC RENT" means the Basic Rent amounts specified in the Basic Terms.

"BASIC TERMS" means the terms of this Lease identified as the "Basic Terms"
before Article 1 of the Lease.

"BOMA STANDARDS" means the "Standard Method for Measuring Floor Area in Office
Buildings" approved June 7, 1996 by the American National Standards Institute,
Inc. and the Building Owners and Managers Association International (ANSI/BOMA
Z65.1-1996).

"BUILDING" means both the office building and related improvements in Unit 4,
which is located approximately as shown on the Site Plan as the Opus Center
South Building.

"BUILDING RULES" means those certain rules attached to this Lease as EXHIBIT E,
as Landlord may amend the same from time to time.

"BUSINESS DAYS" means any day other than Saturday, Sunday or a legal holiday in
the State.

"BUSINESS HOURS" means Monday through Friday from 7:00 a.m. to 6:00 p.m. and on
Saturdays from 8:00 a.m. to 1:00 p.m., excluding national holidays.

"CITY" means Seattle, Washington.

"CLAIMS" means all claims, actions, demands, liabilities, damages, costs,
penalties, forfeitures, losses or expenses, including, without limitation,
reasonable attorneys' fees and the costs and expenses of enforcing any
indemnification, defense or hold harmless obligation under the Lease.

"COMMENCEMENT DATE" means the later of (a) the Delivery Date specified in the
Basic Terms, (b) 30 days after the Premises has been delivered to Tenant
pursuant to and for the purposes set forth in Section 1.2.4 or (c) the date of
Substantial Completion of the Tenant's Improvements, unless Landlord does not
achieve Substantial Completion of the Tenant's Improvements on or before the
Delivery Date because of Tenant Delays, in which event the Commencement Date is
the later of (x) the Delivery Date (y) 30 days after the Premises has been
delivered to Tenant pursuant to and for the purposes set forth in Section 1.2.4
or (z) the date the Tenant's Improvements would have been substantially
completed in accordance with the definition of Substantial Completion but for
the delay attributable to the delay attributable to the Tenant Delays, provided
that the first fifteen (15) days of Tenant Delays will be disregarded for
purposes of this clause (z). Notwithstanding the foregoing, if Tenant commences
business operations in any of the Premises after the date of Substantial
Completion but before the Delivery Date, the Commencement Date will be the date
in which Tenant so commences business operations in the Premises.

                                      A-1.


"COMMENCEMENT DATE MEMORANDUM" means the form of memorandum attached to the
Lease as EXHIBIT D.

"COMMON AREA" means the lobby areas, and other interior or exterior areas of the
Property Landlord may designate from time to time as common area available to
all tenants.

"COMPARABLE SPACE" means a comparable amount of space (considering the standard
of measurement by which square footage is measured) in comparable condition (for
example, shell or second generation) on a comparable floor and with a comparable
view located in a building of comparable age and construction, with a comparable
number of floors, a floor plate of comparable size and configuration and
offering comparable services and amenities.

"CONDEMNING AUTHORITY" means any person or entity with a statutory or other
power of eminent domain.

"CONDOMINIUM DECLARATION" means the restated and amended Declaration and
Covenants, Conditions, Restrictions and Reservations for Union Station, a
condominium, recorded in the records of King County, Washington, under recording
number 9811171094, as now or hereafter amended or restated in the records of
King County, Washington.

"CONTROL" means the possession of the power to direct or cause the direction of
the management and policies of Tenant, whether through ownership of voting
securities, by contract or otherwise.

"COST OF CONSTRUCTION" means (a) Landlord's out-of-pocket costs (including sales
and excise taxes) incurred in the design or construction of the Tenant's
Improvements; (b) premiums for builder's risk, workers compensation and
liability insurance directly related to the construction of the Tenant's
Improvements; (c) costs of obtaining building permits, water, sewer and utility
tap fees; and (d) compensation to Landlord or its affiliate for actual overhead
and general conditions (not to exceed 8 percent of the costs described in (a),
(b) and (c) of this definition), and (e) a fee as a general contractor in an
amount equal to three percent (3%) of the costs described in clauses (a), (b)
and (c) of this definition.

"COUNTY" means King County, Washington.

"CPI" means the Consumer Price Index for All Urban Consumers, U.S. city average,
all items, 1982-84 equals base. If the said Index is discontinued, then "CPI"
will mean the closest successor index reasonably selected by Landlord.

"DELIVERY DATE" means either the target date for Landlord's delivery of Floors
11 and 12 of the Premises to Tenant, which is the delivery date specified in the
Basic Terms, or the delivery date established for other portions of the Premises
pursuant to Section 17.1.14, as the context may require.

"EFFECTIVE DATE" means the date Landlord executes this Lease.

"ENTITY" means any Person not a natural person.

"EVENT OF DEFAULT" means the occurrence of any of the events specified in
Section 14.1 of the Lease.

"FINAL PLANS" means the final working drawings and specifications for the
Tenant's Improvements prepared by Tenant and approved by Landlord.

"FLOOR PLANS" means the floor plans attached to the Lease as EXHIBIT C.

"FORCE MAJEURE" means acts of God; strikes; lockouts; labor troubles; inability
to procure materials, despite commercially reasonable efforts to procure the
materials; governmental laws or regulations; orders or directives of any
legislative, administrative, or judicial body or any governmental department
inability to obtain any governmental permits, licenses, permissions or
authorizations (despite commercially reasonable pursuit of such permits,
licenses, permissions or authorizations); and other similar or dissimilar causes
beyond a party's reasonable control.

                                      A-2.


"HAZARDOUS MATERIALS" means any of the following, in any amount: (a) any
petroleum or petroleum product, asbestos in any form, urea formaldehyde and
polychlorinated biphenyls; (b) any radioactive substance; (c) any toxic,
infectious, reactive, corrosive, ignitable or flammable chemical or chemical
compound; and (d) any chemicals, materials or substances, whether solid, liquid
or gas, defined as or included in the definitions of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," "solid
waste," or words of similar import in any federal, state or local statute, law,
ordinance or regulation now existing or existing on or after the Effective Date
as the same may be interpreted by government offices and agencies.

"HAZARDOUS MATERIALS LAWS" means any federal, state or local statutes, laws,
ordinances or regulations now existing or existing after the Effective Date that
control, classify, regulate, list or define Hazardous Materials.

"IMPROVEMENT ALLOWANCE" means the amount (per square foot of Rentable Area in
the Premises) specified in the Basic Terms for the cost of designing and
installing Tenant's Improvements.

"IMPROVEMENTS" means, collectively, the Landlord's Improvements and the Tenant's
Improvements.

"INCLUDING" and "INCLUDING" means "including but not limited to."

"LANDLORD" means Opus Union Station, L.L.C., its successors and assigns as the
record holder of fee simple title to the Property at the time in question.

"LANDLORD PARTIES" means Landlord and Property Manager and their respective
officers, directors, partners, shareholders and members.

"LANDLORD'S IMPROVEMENTS" means the base building improvements described on the
attached EXHIBIT F.

"LAWS" means any law, regulation, rule, order, statute or ordinance of any
governmental or private entity in effect on or after the Effective Date and
applicable to the Property or the use or occupancy of the Property, including,
without limitation, Hazardous Materials Laws, Building Rules and Permitted
Encumbrances.

"LEASE" means this Multi-Tenant Office Lease Agreement, as the same may be
amended or modified after the Effective Date.

"LEASE YEAR" means each consecutive 12 month period during the Term, commencing
on the Commencement Date, except that if the Commencement Date is not the first
day of a calendar month, then the first Lease Year is a period beginning on the
Commencement Date and ending on the last day of the calendar month in which the
Commencement Date occurs plus the following 12 consecutive calendar months.

"LINES" means, individually and collectively, communications or computer wires,
cables and related devices and equipment of any nature, wherever located on or
about the Property or Union Station Condominium.

"MARKET RENT" means the annual amount per square foot that a willing tenant
would pay and a willing landlord would accept, in an arms-length lease for
Comparable Space for a comparable period of time, giving consideration to the
financial capability of the tenants, the amount of square feet being leased, the
rent rates per square foot, the standard of measurement by which square footage
is measured, the type and extent of liability under any escalation clauses, the
approximate amount of operating expenses to be paid by the tenant, the amenities
and services provided, any rent concessions and all other applicable conditions
of tenancy.

"MAXIMUM RATE" means interest at a rate equal to the lesser of Prime Rate plus
5% per annum and the maximum interest rate permitted by law.

"MORTGAGE" means any mortgage, deed of trust, master lease of the Building,
"synthetic lease," security interest or other security document of like nature
that at any time may encumber all or any part of the Property and any

                                      A-3.


replacements, renewals, amendments, modifications, extensions or refinancings
thereof, and each advance (including future advances) made under any such
instrument.

"MORTGAGEE" means the beneficial owner of any encumbrance created by a Mortgage.

"NET RENT" means all rental Landlord actually receives from any reletting of all
or any part of the Premises, less any indebtedness from Tenant to Landlord other
than Rent (which indebtedness is paid first to Landlord) and less the Re-entry
Costs (which costs are paid second to Landlord).

"NOTICES" means all notices, demands or requests that may be or are required to
be given, demanded or requested by either party to the other as provided in the
Lease.

"OPERATING EXPENSES" means all expenses Landlord incurs in connection with
maintaining, repairing and operating the Property, as determined by Landlord's
accountant in accordance with generally accepted accounting principles
consistently followed, including, but not limited to, the following: all
Property Taxes; insurance premiums and deductible amounts under any insurance
policy; maintenance and repair costs; steam, electricity, water, sewer, gas and
other utility charges and the costs of providing such utilities; fuel; lighting;
window washing; janitorial services; trash and rubbish removal; property
association fees and dues and all payments under any Permitted Encumbrance
(except Mortgages and liens) affecting the Property; wages payable to persons at
the level of manager and below whose duties are connected with maintaining and
operating the Property (but only for the portion of such persons' time allocable
to the Property), together with all payroll taxes, unemployment insurance,
vacation allowances and disability, pension, hospitalization, retirement and
other so-called "fringe benefits" of a monetary nature paid in connection with
such persons (allocated in a manner consistent with such persons' wages);
amounts paid to contractors or subcontractors for work or services performed in
connection with maintaining and operating the Property; all costs of uniforms,
supplies and materials used in connection with maintaining, repairing and
operating the Property; any wage or monetary fringe benefit related expense
imposed upon Landlord, its contractors or subcontractors pursuant to Laws or
pursuant to any collective bargaining agreement covering such employees; all
services, supplies, repairs, replacements or other expenses for maintaining and
operating the Property; costs of complying with Laws; reasonable management fees
not to exceed then-current market standards and the costs (including rental) of
maintaining a building or management office in the Building occupying not in
excess of 1,520 useable square feet; and such other expenses as may ordinarily
be incurred in connection with maintaining and operating an office complex
similar to the Property. The term "Operating Expenses" also includes expenses
Landlord incurs in connection with public sidewalks adjacent to the Property,
any pedestrian walkway system (either above or below ground) and any other
public facility to which Landlord or the Property is from time to time subject
in connection with operating the Property and all costs incurred by Landlord in
connection with transportation management for the Property including payments to
or for public transit, shuttles, car pooling facilities, a transportation
manager or otherwise as required by Law, except that such costs will be excluded
from Operating Expenses if and to the extent that Tenant's program satisfies the
requirements of Law concerning transportation management. The term "Operating
Expenses" does not include: (a) the cost of repairs, restoration or other work
occasioned by fire, the exercise of eminent domain, or by windstorm or other
insured casualty other than the amount of any deductible under any insurance
policy (regardless whether the deductible is payable by Landlord in connection
with a capital expenditure); (b) expenses Landlord incurs in connection with
leasing or procuring tenants or renovating space for new or existing tenants;
(c) legal expenses incident to Landlord's enforcement of any lease; (d) interest
or principal payments on any Mortgage or other indebtedness of Landlord or
expenses in connection with any financing; (e) an allowance or expense for
depreciation or amortization; (f) any cost or expense to the extent to which
Landlord is paid or reimbursed or is entitled to payment or reimbursement from
any person (other than as a payment for Operating Expenses), including but not
necessarily limited to (1) work or service performed for any tenant (including
Tenant) at such tenant's cost, (2) the cost of any item for which Landlord is
reimbursed by insurance proceeds, warranties, service contracts, condemnation
proceeds or otherwise, (3) increased insurance or taxes assessed specifically to
any tenant of the Building, (4) charges (including applicable taxes for heat,
air conditioning, electricity, water or other utilities for which Landlord is
entitled to direct reimbursement from any tenant, and (5) the cost of items
furnished to a tenant to a materially greater extent or in a materially more
favorable manner than that furnished generally to the tenants and other
occupants of the Building (including Tenant); (g) the cost of installing,
operating and maintaining any special facilities, such as an observatory,
cafeteria, luncheon club, athletic club or other similar facilities; (h) the
cost of correcting defects in the initial design or

                                      A-4.


construction of the Building; (i) any cost or expense which is applicable to or
incurred for maintaining and operating parking in the Parking Garage in the Base
Unit; (j) taxes, Operating Expenses or the cost of any work or services
performed for any facility other than the Building or the portions of the Base
Unit benefiting the Building; (k) any fees, costs, and commissions incurred in
procuring or attempting to procure other tenants including, but not necessarily
limited to brokerage commissions, finders' fees, attorneys' fees and expenses,
expenses of relocating tenants in the Building, entertainment costs, travel
expenses and advertising and production costs; (1) any cost included in
Operating Expenses representing an amount paid to a Person related to Landlord
which is in excess of the amount which would have been paid on an arms length
basis in the absence of such relationship; (m) any costs of painting or
decorating of any interior parts of the Building other than the Building's
Common Area; (n) landlord's general overhead except as it relates specifically
to the actual management of the Building; (o) the cost of the initial
landscaping of the Building; (p) attorney's fees, costs and other expenditures
incurred in connection with leasing of premises in the Building, leasing
disputes with tenants or occupants of the Building and/or claims by such
tenants; (q) the cost of any repairs, alterations, additions, improvements,
changes, replacements or other items which under generally accepted accounting
principles are properly classified as capital expenses, provided that,
notwithstanding the foregoing, Operating Expenses may include: (1) the cost of
capital improvements to the Building expended by Landlord to comply with Laws
and regulations not applicable to the Building at the time relevant permit
applications were deemed complete by City ("Compliance Capital Costs"), the cost
of which will be amortized over the useful life of the improvements in
accordance with generally accepted accounting principles, limited, however, in
any calendar year, to an amount not in excess of 3% of total Operating Expenses
for such calendar year excluding Property Taxes; and (2) to the extent that any
such repairs, alterations, additions, etc. result in a reduction of Operating
Expenses, Landlord may charge annually a pro rata amount of such cost amortized
over the useful life of the item in question based on generally accepted
accounting principles, but in an amount which does not exceed the savings in
operating expenses which has been realized for that year; (r) the cost of the
initial stock of tools and equipment for operation, repair and maintenance of
the Building; (s) the cost of acquiring sculptures, paintings and other objects
of art; (t) the cost of remediating any environmental condition not caused by
Tenant, including the removal of, or other steps taken with respect to, asbestos
located in the Building; (u) any late fees, fines or penalties incurred by
Landlord and cost and expenses incurred in contesting or settling any claimed
violation of Laws; and (v) any insurance deductible in excess of $25,000 (which
amount will be adjusted on the first day of each Lease Year by the change in the
CPl for the calendar month two months before the first day of the Lease Year,
compared to the CPl for the month two months before the first calendar month of
the Term) per loss. Any reference in the foregoing definition of Operating
Expenses to the Property includes improvements in the Base Unit benefiting the
Building such as passenger elevators, freight elevators, loading docks,
stairways and stairwells.

"OTHER AMAZON LEASE" means the multi-tenant office lease concurrently made and
dated herewith relating to the building known as the Opus Center West Building
and located in Unit 2 of the Union Station Condominium, as now or hereafter
amended.

"OUT OF POCKET EXPENSES" are Tenant's reasonable expenses actually incurred with
respect to this Lease and the Premises, including space planning and design
fees, storage costs and reasonable attorneys' fees.

"OUTSIDE DELIVERY DATE" means either (a) July 1, 2001 if Landlord receives a
building permit from City for Landlord's Improvements or before December 31,
1999, or (b) if said building permit is received after December 31, 1999, 18
months after the date Landlord receives from City a Building permit for
Landlord's Improvements.

"PARKING ALLOTMENT" means the Parking Allotment specified in the Basic Terms.

"PERMITTED ENCUMBRANCES" means all Mortgages, liens, easements, condominium or
other declarations, including the Condominium Declaration, encumbrances,
covenants, conditions, reservations, restrictions and other matters affecting
title to the Property as of the Effective Date.

"PERMITTED USE" means the use permitted pursuant to Section 4.1.

"PERSON" and "person" means and includes any natural person, corporation, firm,
partnership, limited partnership, limited liability company, limited liability
partnership, trust, estate, unincorporated organization or other legal or
business entity, however designated or constituted.

                                      A-5.


"PREMISES" means that certain space situated in the Building shown and
designated on the Floor Plans and described in the Basic Terms.

"PRIME RATE" means the published "Prime Rate" announced as such by U.S. Bank
National Association, its successors or assigns, including by merger or other
operation of law, but in no event greater than the maximum lawful rate.

"PROPERTY" means, collectively, subject to Section 3.7, the Building and all
other improvements to the Landlord's Unit in which the Building is located.

"PROPERTY MANAGER" means any agent Landlord appoints to manage the Property.

"PROPERTY TAXES" means any general real property tax, improvement tax,
assessment, special assessment, reassessment, commercial rental tax, tax, in
lieu tax, levy, charge, penalty or similar imposition imposed by any authority
having the direct or indirect power to tax, including but not limited to, (a)
any city, county, state or federal entity, (b) any school, agricultural,
lighting, drainage or other improvement or special assessment district, (c) any
governmental agency, or (d) any private entity having the authority to assess
the Property under any of the Permitted Encumbrances. The term "Property Taxes"
includes all charges or burdens of every kind and nature Landlord incurs in
connection with using, occupying, owning, operating, leasing or possessing the
Property, without particularizing by any known name and whether any of the
foregoing are general, special, ordinary, extraordinary, foreseen or unforeseen;
any tax or charge for fire protection, street lighting, streets, sidewalks, road
maintenance, refuse, sewer, water or other services provided to the Property.
The term "Property Taxes" does not include Landlord's state or federal income,
franchise, real estate transfer, estate or inheritance taxes, or any fine,
penalty or cost attributable to delinquent payment thereof. If Landlord is
entitled to pay, any of the above listed assessments or charges in installments
over a period of two or more calendar years, then Landlord will elect to do so
and only such installments of the assessments or charges (including interest
thereon) as are required to be paid in a calendar year will be included within
the term "Property Taxes" for such calendar year.

"PUNCH LIST" means a list of minor items of construction, decoration and/or
adjustment not completed by Landlord in connection with the Tenant's
Improvements which do not interfere in any material respect with Tenant's
occupancy of the Premises or its use thereof for the Permitted Use or Tenant's
Improvements items in need of repair prepared in accordance with Section
17.1.11.

"RE-ENTRY COSTS" means all costs and expenses Landlord incurs re-entering or
reletting all or any part of the Premises, including, without limitation, all
costs and expenses Landlord incurs (a) maintaining or preserving the Premises
after an Event of Default; (b) recovering possession of the Premises, removing
persons and property from the Premises (including, without limitation, court
costs and attorneys' fees) and storing such property; (c) reletting, renovating
or altering the Premises; (d) real estate commissions, advertising expenses and
similar expenses paid or payable in connection with reletting all or any part of
the Premises; and (e) the value of free rent and other concessions Landlord
gives in connection with re-entering or reletting all or any part of the
Premises.

"RELEVANT MARKET" means the area bounded by the Fremont/Wallingford Districts to
the north, South Royal Brougham Way to the south, Interstate 5 to the east and
Puget Sound to the west.

"RENT" means, collectively, Basic Rent and Additional Rent.

"RENT COMMENCEMENT DATE" means the earlier of (a) the Commencement Date; or (b)
the date Tenant commences business operations in the Premises.

"RENTABLE AREA" means the rentable area of the Premises, the Building, or any
other area, as applicable, calculated in accordance with the BOMA Standards for
the calculation of "Building Rentable Area" if a tenant occupies an entire
Building and, if a tenant does not occupy an entire Building, "Floor Rentable
Area," as set forth in BOMA Standards. Unheated storage space will not be
included in Rentable Area.

                                      A-6.


"STANDARD IMPROVEMENT PACKAGE" means Building standard finishes, components and
interior materials and improvements established by Landlord. Such materials may
be subject to change based upon availability or fluctuations in the cost of
labor or materials.

"STATE" means the State of Washington.

"STRUCTURAL ALTERATIONS" means any Alterations involving the structural,
mechanical, electrical, plumbing, fire/life safety or heating, ventilating and
air conditioning systems of the Building

"SUBSTANTIAL COMPLETION" means (a) provided the Tenant's Improvements have been
constructed in accordance with the Final Plans subject only to Punch List items,
the date that the City or other appropriate authority issues a conditional or
unconditional Certificate of Occupancy or similar document for the Premises or
(b) if the City or other appropriate authority does not require that a
Certificate of Occupancy or other similar document be issued for Tenant's
occupancy of the Premises, and provided the Tenant's Improvements have been
constructed in accordance with the Final Plans subject only to Punch List items,
the date that Tenant is reasonably able to occupy and use the Premises for its
intended purposes.

"TAKING" means the exercise by a Condemning Authority of its power of eminent
domain on all or any part of the Property, either by accepting a deed in lieu of
condemnation or by any other manner.

"TENANT" means the tenant identified in the Lease and such Tenant's permitted
successors and assigns. In any provision relating to the conduct, acts or
omissions of "Tenant," the term "Tenant" includes the tenant identified in the
Lease and such Tenant's agents, employees and contractors.

"TENANT DELAYS" means any delays caused or contributed to by Tenant as described
in Section 17.1.10.

"TENANT'S IMPROVEMENTS" means all initial improvements to the Premises (other
than Landlord's Improvements).

"TENANT'S SHARE OF OPERATING EXPENSES" means the product obtained by multiplying
the amount of Operating Expenses for the period in question by the Tenant's
Share of Operating Expenses Percentage.

"TENANT'S SHARE OF OPERATING EXPENSES PERCENTAGE" means the percentage specified
in the Basic Terms, as such percentage may be adjusted in accordance with the
terms and conditions of this Lease.

"TERM" means the Initial Term of this Lease specified in the Basic Terms and, if
applicable, any Renewal Term then in effect.

"TRANSFER" means an assignment, mortgage, pledge, transfer, sublease, or other
encumbrance or conveyance (voluntarily, by operation of law or otherwise) of
this Lease or all or any portion of the Premises or any interest in this Lease
or all or any portion of the Premises. If the stock of Tenant is not publicly
traded over the counter or on a national securities exchange, the term
"Transfer" also includes any assignment, mortgage, pledge, transfer or other
encumbering or disposal (voluntarily, by operation of law or otherwise) of any
ownership interest in Tenant or any Guarantor that results or could result in a
change of Control of Tenant or any Guarantor.

"TRANSFEREE" means the Person to whom Tenant makes a Transfer.

"UNION STATION CONDOMINIUM" means Union Station, a condominium, recorded in
Volume 15 of Condominiums, pages 37-45, according to the amended and restated
declaration thereof recorded under King County Recording No. 9811171094 and any
amendments thereto, including and together with those certain easements for
support, utilities, equipment and improvements, elevators, access and
telecommunications links as set forth therein; situated in the City of Seattle,
County of King, State of Washington.

"UNIT" means Unit 4 of Union Station Condominium.

                                      A-7.


"WARRANTY TERMS" means, collectively, the Punch List and construction warranty
provisions of Section 17.1 of the Lease.

                                      A-8.


                                    EXHIBIT B

                                   [SITE PLAN]

This exhibit diagrammatic only and is intended to show only the general location
of the Units, the Property, the Buildings and the common walkways and other
improvements on or about the ground level of Union Station Condominium. This
exhibit is not a warranty that the improvement shown hereon will be as depicted
either at the commencement of or during the Term.

                                      B-1.



                                    EXHIBIT C

                                   FLOOR PLAN



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                  [FLOOR PLAN]



                                   EXHIBIT D

                          COMMENCEMENT DATE MEMORANDUM

         THIS MEMORANDUM is made and entered into as of [___________, ____] by
and between [_______________] ("Landlord") and [______________] ("Tenant").

                                    RECITALS:

         1.       Landlord and Tenant are party to a certain Multitenant Office
Lease Agreement dated as of [___________, ____] ("Lease"), relating to certain
premises ("Premises") located in the building commonly known as
["_______________,"] located at [_______________] ("Building").

         2.       Landlord and Tenant desire to confirm the Commencement Date
and Rent Commencement Date (as such terms are defined in the Lease) and the date
the [initial] Term of the Lease expires [and the notice date(s) and expiration
date(s) of any renewal Term(s) provided to Tenant under the Lease].

                                ACKNOWLEDGMENTS:

         Pursuant to Section 1.2.3 of the Lease and in consideration of the
facts set forth in the Recitals, Landlord and Tenant acknowledge and agree as
follows:

         1.       All capitalized terms not otherwise defined in this Memorandum
                  have the meanings ascribed to them in the Lease.

         2.       The Commencement Date under the Lease is [_______________].

         3.       The Rent Commencement Date under the Lease is [_____________].

         4.       The Initial Term of the Lease expires on [_______________],
                  unless the Lease is sooner terminated in accordance with the
                  terms and conditions of the Lease.

         5.       Tenant must exercise its right to the first renewal Term, if
                  at all, by notifying Landlord no later than ______________,
                  subject to the conditions and limitations set forth in the
                  Lease.

         6.       The first renewal Term expires on _______________.

         7.       Tenant must exercise its right to the second renewal Term, if
                  at all, by notifying Landlord no later than _______________,
                  subject to the conditions and limitations set forth in the
                  Lease.

         8.       The second renewal Term expires on _______________.

         12.      Tenant must exercise its special termination option set forth
                  in Section 17.2, if at all, by notifying Landlord no later
                  than _______________, subject to the conditions and
                  limitations set forth in the Lease.

                                      D-1.



         Landlord and Tenant each caused this Memorandum to be executed by its
duly authorized representative as of the day and date written above. This
Memorandum may be executed in counterparts, each of which is an original and all
of which constitute one instrument.

                                   LANDLORD:

                                   [____________________________________]

                                   By:__________________________________________
                                   Name:________________________________________
                                   Its:_________________________________________

                                   TENANT:

                                   [______________________________________]

                                   By:__________________________________________
                                   Name:________________________________________
                                   Its:_________________________________________

                                      D-2.



                                    EXHIBIT E

                                 BUILDING RULES

                              RULES AND REGULATIONS

         1.       The sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors and halls will not be obstructed or used for
any purpose other than ingress and egress. The halls, passages, entrances,
elevators, stair-ways, balconies and roof are not for the use of the general
public, and the Landlord will in all cases retain the right to control and
prevent access thereto of all persons whose presence, in the judgment of the
Landlord, will be prejudicial to the safety, character, reputation and interests
of the Building and its tenants, provided that nothing herein contained will be
construed to prevent such access to persons with whom the Tenant normally deals
only for the purpose of conducting its business on the Premises (such as
clients, customers, office suppliers and equipment vendors, and the like) unless
such persons are engaged in illegal activities. Except as permitted pursuant to
Section 17.17 of the Lease, neither Tenant nor its employees, agents or
contractors will go upon the roof of the Building without the written consent of
the Landlord.

         2.       No awnings or other projections will be attached to the
outside walls of the Building. No curtains, blinds, shades or screens will be
attached to or hung in, or used in connection with, any window or door of the
Premises other than Landlord standard window covering. All electric ceiling
fixtures hung in offices or spacers along the perimeter of the Building must be
fluorescent, of a quality, type, design and bulb color approved by Landlord.
Neither the interior nor the exterior of any windows will be coated or otherwise
sunscreened without written consent of Landlord.

         3.       No sign, advertisement, notice or handbill will be exhibited,
distributed, painted or affixed by any Tenant on, about or from any part of the
Premises or the Building without the prior written consent of the Landlord. If
the Landlord will have given such consent at the time, whether before or after
the execution of this Lease, such consent will in no way operate as a waiver or
release of any of the provisions hereof or of this Lease, and will be deemed to
relate only to the particular sign, advertisement or notice so consented to by
the Landlord. In the event of the violation of the foregoing by any Tenant,
Landlord may remove or stop same without any liability, and may charge the
expense incurred in such removal or stopping to the Tenant. The directory tablet
will be provided exclusively for the display of the name and location of the
Tenants only and Landlord reserves the right to exclude any other names
therefrom. Nothing may be placed on the exterior of corridor walls or corridor
doors other than Landlord's standard signage.

         4.       Tenant will exercise reasonable care and caution that all
water faucets or water apparatus are entirely shut off before Tenant or Tenant's
employees leave the Building, so as to prevent waste or damage. Tenant will
cooperate with Landlord in obtaining maximum effectiveness of the cooling system
by closing blinds when the sun's rays fall directly on the windows of the
Premises. Tenant will not tamper with or change the sweating of any thermostats
or temperature control valves.

         5.       The toilet rooms, water and wash closets and other plumbing
fixtures will not be used for any purpose other than those for which they were
constructed, no sweepings, rubbish, rags, or other substances will be thrown
therein. All damages resulting from any misuse of the fixtures by Tenant, its
subtenants, assignees or any of their servants, employees, agents, visitors or
licensees will be borne by Tenant.

         6.       No Tenant will mark, paint, drill into, or in any way deface
any part of the Premises or the Building. No boring, cutting or stringing of
wires or laying of linoleum or other similar floor coverings will be permitted,
except with the prior written consent of the Landlord (which Landlord will not
unreasonably withhold) and as the Landlord may direct.

         7.       No bicycles, vehicles, birds or animals of any kind (except
for seeing eye dogs for the blind) will be brought into or kept in or about the
Premises, and no cooking will be done or permitted by any Tenant on the
Premises, except that microwave oven, snack and coke type vending machines and
the preparation of coffee, tea, hot chocolate and similar items for Tenants and
their employees will be permitted provided power will not exceed that

                                      E-1.



amount which can be provided by a 30 amp circuit. No Tenant will cause or permit
any unusual or objectionable odors to be produced or permeate the Premises.
Smoking or carrying lighted cigars, cigarettes or pipes in the Building is
prohibited.

         8.       The Premises will not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the permitted
use of the Premises. No Tenant will occupy or permit any portion of the Premises
to be occupied as an office for a public stenographer or typist, or for the
manufacture or sale of liquor, narcotics, or tobacco in any form or as a medical
office, or as a barber or manicure shop, or as an employment bureau, without the
express written consent of Landlord. No Tenant will engage or pay any employees
on the Premises except those actually working for such Tenant on the Premises,
nor advertise for laborers giving an address at the Premises. The Premises will
not be used for lodging or sleeping or for any immoral or illegal purpose.

         9.       No Tenant, subtenant or assignee nor any of their servants,
employees, agents, visitors or licensees, will at any time bring or keep upon
the Premises any inflammable, combustible or explosive fluid, chemical or
substance

         10.      No additional locks or bolts of any kind will be placed upon
any of the doors or windows by any Tenant, nor will any changes be made in
existing locks or the mechanisms thereof. Each Tenant must upon the termination
of his tenancy, restore to the Landlord all keys of stores, offices, and toilet
rooms, either furnished to, or otherwise procured by, such Tenant and in the
event of the loss of keys so furnished, such Tenant will pay to the Landlord the
cost of replacing the same or of changing the lock or locks opened by such lost
key if Landlord will deem it necessary to make such changes.

         11.      The removal or the carrying in or out of any safes, freight,
furniture, or bulky matter of any description must take place during the hours,
which Landlord will determine from time to time. The moving of safes or other
fixtures or bulky matter of any kind must be done upon previous notice to the
Building Manager of the Building and under his supervision, and the persons
employed by any Tenant for such work must be acceptable to Landlord. The
Landlord reserves the right to inspect all safes, freight or other bulky
articles to be brought into the Building and to exclude from the Building all
safes, freight or other bulky articles which violate any of these Rules and
Regulations or the Lease. The Landlord reserves the right to prescribe the
weight and position of all safes, which must be placed upon supports, approved
by Landlord to distribute the weight. No furniture or bulky packages will be
received in the Building or carried up or down in the elevator except on freight
elevators and during such hours as will be designated by the Landlord. In no
event will Tenant be charged a freight elevator usage fee.

         12.      No Tenant will purchase ice, towels, janitorial or maintenance
or other like services, from any person or persons not approved by the Landlord,
which approval will not be unreasonably withheld.

         13.      Landlord will have the right to prohibit any advertising by
any Tenant which impugns the reputation of the Building or its desirability as
an office location and upon written notice from Landlord any Tenant will refrain
from or discontinue such advertising.

         14.      Landlord reserves the right to exclude from the Building
between the hours of 6:00 p.m. and 7:00 a.m., Monday through Friday and at all
hours on Saturday and Sunday and legal holidays, all persons who do not present
a current security card to the Building. The Landlord will furnish security
cards to persons for whom any Tenant requests the same in writing. Each Tenant
will be responsible for all persons for whom he requests passes and will be
liable to the Landlord for all acts of such persons. Landlord will in no case be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. In case of an invasion, mob riot, public
excitement or other circumstances rendering such action advisable in Landlord's
opinion, Landlord reserves the right without any abatement of rent to require
all persons to vacate the Building and to prevent access to the Building during
the continuance of the same for the safety of the Tenants and the protection of
the Building and the property in the Building.

         15.      Any persons employed by any Tenant to do janitorial work will,
while in the Building and outside of the Premises, be subject to and under the
control and direction of the superintendent of the Building (but not as an agent
or servant of said superintendent or of the Landlord), and Tenant will be
responsible for all acts of such persons on or about the Property.

                                      E-2.



         16.      All doors opening onto public corridors will be kept closed,
except when in use for ingress and egress.

         17.      Canvassing, soliciting and peddling in the Building are
prohibited and each Tenant will report and otherwise cooperate to prevent the
same.

         18.      All office equipment of any electrical or mechanical nature
will be placed by Tenant in the Premises in settings approved by Landlord, to
absorb or prevent any vibration, noise and annoyance.

         19.      There will not be used in any space or in the public halls of
the Building, either by any tenant or others, any hand trucks except those
equipped with rubber tires and rubber side guards.

         20.      The scheduling of Tenant move-ins and move-outs will be
subject to the reasonable discretion of Landlord.

         21.      The term "personal goods or services vendors" as used herein
means persons who periodically enter the Building of which the Premises are a
part for the purpose of selling goods or services to a Tenant, other than goods
or services which are used by the Tenant only for the purpose of conducting its
business on the Premises. "Personal goods or services" include, but are not
limited to, drinking water and other beverages, food, barbering services, and
shoe shining services. Landlord reserves the right to prohibit personal goods
and services vendors from access to the Building except upon such reasonable
terms and conditions, including but not limited to, the payment of a reasonable
fee and provision for insurance coverage, as are related to the safety, care and
cleanliness of the Building, the preservation of good order thereon, and the
relief of any financial or other burden on the Landlord occasioned by the
presence of such vendors or the sale by them of personal goods or services to
the Tenant or its employees. If necessary for the accomplishment of these
purposes, Landlord may exclude a particular vendor entirely or limit the number
of vendors who may be present at any one time in the Building.

         22.      Landlord will not be responsible for lost or stolen property,
equipment, money or jewelry from Tenant's area or public rooms regardless of
whether such loss occurs when such area or public rooms are locked against
entry, unless due to the gross negligence or willful acts or omissions of
Landlord.

                                      E-3.



                                    EXHIBIT F

                             LANDLORD'S IMPROVEMENTS

                        I. BASE BUILDING SPECIFICATIONS

A.       SERVICE CORE

         1.       All building common areas completed which will include
                  elevator lobbies, rest rooms installed and "finished out" per
                  building standards on each floor, telephone room, mechanical
                  room and janitors closet.

         2.       Main elevator lobby installed and complete.

         3.       Exit Stairways as required by code, in acceptable condition to
                  serve as a connecting stairway.

         4.       Common Area electrical, telephone, janitor, mechanical rooms
                  on each floor (for Tenant's use on full floors). Include
                  maintenance sink in janitor's closet.

         5.       Common Area Electrical closets complete with service
                  distribution panel boards and transformers as specified by
                  Landlord as Building Standard.

         6.       Core walls and columns within service core on partial, full
                  and main floor complete with drywall, taped, sanded and ready
                  for paint. Common Areas finished.

         7.       Men's and women's washrooms on each floor finished with:

                  a.       Ceramic tile or better on floors and wet walls.

                  b.       Other walls and ceilings finished.

                  c.       Vanities, cubicles, accessories, fixtures, trim
                           lighting and all mechanical and plumbing services
                           complete.

                  d.       Complied with all applicable laws and codes.

         8.       All hardware is, including locking devices and closures for
                  restrooms, closets, stairwells and other Common Areas.

         9.       Water and drainage on each floor.

                  a.       Access at the core to domestic water, drainage and
                           vent systems.

                  b.       Three wet columns per floor except at 1st floor. One
                           wet column at 1st floor.

                  c.       Drinking fountains per floor, with chilled water
                           installed, as per applicable code. Note quantity (2
                           each floor).

                  d.       Water heating system for hot water installed for rest
                           rooms and janitors closet.

         10.      Communication risers providing:

                  a.       Telephone and data communication cables to each
                           floor.

                                      F-1.



                  b.       Conduit from the roof to each floor for antenna and
                           data transmission cable to be installed by Tenant.

         11.      Access to main telephone service on the first floor or lower
                  level of the Building as required and set forth in the Lease
                  agreement.

B.       WALLS

         1.       All interior drywall for the building shell to be furred,
                  taped and ready for painting.

         2.       Panelized brick and/or pre-cast concrete exterior wall
                  treatment installed and sealed.

         3.       Exterior windows installed and sealed. Glass shall have a
                  shading [missing text] of 0.45.

         4.       Building standard window coverings for all areas of exterior
                  or [missing text] wall glazing. Window covering: Hunter
                  Douglas Aluminum Blinds #171 Umber Perforated 1" mini.

         5.       Exterior walls will be insulated only (from slab-to-slab).

C.       FLOORS

         1.       Design to support a minimum live load of 80 lbs per square
                  foot at the building core and 50 lbs. at the perimeter with a
                  partition load of 20 lbs. per square foot. See the structural
                  drawing as to the floor loading distribution.

         2.       Concrete floors with trowel finish leveled to tolerance of 1/2
                  inch of a 10 radius (non-cumulative). Maximum deviation not to
                  exceed 2.5 inches between any two points on the floor.

         3.       Smooth and ready to receive the floor covering per carpet
                  industry standards.

D.       MECHANICAL

         HVAC system and design criteria shall comply with ASHRAE and other
pertinent codes. In no event shall compliance with ASHRAE and other codes reduce
the HVAC requirements as outlined in this section.

         1.       Air Conditioning shall be sized at a minimum of 310 square
                  feet of floor area per ton.

         2.       HVAC shall be a system designed for construction to provide
                  zones, each of 1200 usable square feet maximum, except where
                  standard design criteria suggest larger interior zones.

         3.       Condenser water loop includes the ability to extend the loop
                  at each floor via valved fitting. Average floor can support an
                  additional (6 tons) 19 gallons per minute of condenser water
                  flow.

         4.       HVAC systems to service cores on all floors.

         5.       Primary HVAC service installed and ready for distribution,
                  including only VAV boxes required for freeze protection as
                  indicated on shell mechanical drawings.

         6.       Heating energy sources shall be electric.

         7.       Exhaust systems for toilet rooms and janitor closets designed
                  to accommodate a minimum of 2 CFM per sq. ft.

                                      F-2.



         8.       Fresh air ventilation shall be provided to satisfy local
                  energy codes for office buildings or appropriate ASHRAE
                  standards, whichever is more stringent. (As mutually agreed
                  upon based upon final Tenant design.)

         9.       HVAC systems operational a minimum of 30 days prior to
                  occupancy.

         10.      Elevator lobby diffusers installed.

         11.      Exhaust system has future tenant tap at 1,000 CFM per floor.

E.       CEILINGS

         1.       Installed in main lobby, elevator, partially occupied floor
                  lobbies, toilet rooms, and freight vestibules.

         2.       Suspended 4' by 4' ceiling grid system throughout.

         3.       Building standard ceiling tile purchased and stacked on floor.

         4.       Easy access to overhead mechanical, electrical and lighting
                  systems without damage to ceiling components.

         5.       Predominant minimum finished ceiling height is 9'0" on floors
                  2-11. Predominant finished ceiling height is 12'0" on 1st
                  floor.

F.       ELECTRICAL/POWER

         Landlord shall provide in the Base Building a minimum three (3) watts
per usable square foot for Tenant convenience power, including transformers and
panels for electrical power per the Base Building electrical specifications.
Total service shall provide between 22 and 25 watts per square foot for all
building systems including HVAC and lighting requirements.

         NOTE: These are Tenant demand loads and do not include base building
         equipment power requirements.

         1.       Step-down Transformers located on each floor per the Base
                  Building electrical specification.

         2.       Primary electrical service includes two (2) K rated
                  transformers per floor. Panels will be installed in accordance
                  with the drawings listed below.

         3.       System provides code maximum of 2.0 watts per square foot for
                  lighting (Base Building Design standard is 1.2 watts per
                  square foot). Electrical design will support 5.0 watts per
                  square foot (connected load) for an average of 3.5 watts per
                  square foot (demand load).

         4.       900 kva emergency generator and circuit to at least one
                  elevator, life-safety systems, and all emergency lighting.
                  Landlord expects to use approximately 40% of the generator's
                  capacity for such purposes. The remaining emergency generator
                  capacity will be available to Tenant for dedicated Tenant
                  loads.

         5.       Emergency lighting and power home run grids installed.

         6.       Utility costs during tenant build-out.

         7.       Provisions for both general and clean (dedicated) power
                  circuits.

                                      F-3.



         8.       The Building must have the capability of installing local
                  emergency generators for tenant use only, in a mutually agreed
                  upon location in accordance with all applicable building
                  codes, at any point during the lease term.

         9.       The capability for separate metering or monitoring.

         10.      Facility will have lighting system designed with UL Master
                  Label. System will be fully grounded.

         11.      Dedicated tenant electrical panels and transformers shall be
                  installed within Tenant's Premises.

G.       LIGHTING

         1.       Building standard light fixtures installed and operating in
                  main lobby, stairwells, elevators, multitenant floor lobbies,
                  mechanical room, utility rooms and other lighting as required
                  by code.

H.       DOORS

         1.       Doors for stairwells, electrical rooms, mechanical, janitor,
                  telephone closet, toilet room installed.

         2.       Common doors finished and complete with frame, trim, hardware,
                  locking devices and closers.

I.       LIFE SAFETY

         1.       Sprinkler System

                  a.       Fire sprinkler system, including sprinkler risers,
                           main loop, and sprinkler heads installed in the
                           Premises as required by code for the shell.

                  b.       Primary loop with branch distribution with heads
                           turned up.

                  c.       Sprinkler heads installed and operational in the
                           core.

         2.       Fire hose and extinguisher cabinets with extinguishers and/or
                  hoses finished and installed as required by code for building
                  shell.

         3.       Pressurized exit stairwells and elevator shafts for smoke
                  protection with standard shoot out panels for building smoke
                  exhaust evacuation.

         4.       Smoke detectors in all elevator lobbies.

         5.       Exit signs illuminated with power shall be backed up by an
                  emergency source or self-illuminating exit signs, or as
                  required by code for building shell.

         6.       Fire horns and exit signs as required by code for building
                  shell.

         7.       Fire alarm system installed as required for Common Areas.

         8.       Infrastructure for the installation of fire horns and strobes
                  required for the tenant improvement build-out is provided in
                  building shell.

J.       ELEVATORS AND FREIGHT FACILITIES

         1.       All passenger elevators installed and operational as designed
                  (5 - 3,500 lb, 400 ft per minute passenger with 1 - 4,500 lb,
                  350 ft per minute service elevator).

                                      F-4.



         2.       Service elevator installed and operational as designed.

         3.       Freight vestibules installed as designed.

         4.       Truck height loading dock facilities installed in parking
                  garage as designed for the space available.

         5.       Service elevator to accommodate a twelve (12) foot roll of
                  carpet material in its entirety when ceiling is removed or
                  opened up.

         Landlord shall provide in the Base Building 24-hour freight elevator
         capabilities via use of public elevators. Said elevators shall be
         located in the near proximity of the loading area.

K.       PARKING - BY OTHERS

         1.       Garage and loading dock construction complete with all
                  equipment operational and spaces lined.

         2.       Parking lot paved, lined, and reserved spaces in a specific
                  area of the garage. See plans for details.

L.       SECURITY

         1.       Guard station/reception desk installed and operational with
                  roving guard for the site and Buildings as part of the Union
                  Station project.

         2.       Electronic surveillance installed and operational per Landlord
                  design (specify type in notes).

                  a.       Entrances TBD

                  b.       Elevators TBD

                  c.       Stairwells TBD

                  d.       Garage Entrances (By Others)

         3.       Electronic pass systems installed and operational for building
                  perimeter and elevators per design. Schlage or equivalent.

                            II. BID DOCUMENT DRAWING

         Landlord and Tenant will amend the Lease to insert the final bid
document drawings promptly upon request of Landlord.

                               III. SPECIAL NOTE

         The foregoing specifications and drawings substantially reflect the
Landlord's Improvements anticipated to be provided as the Building shell and
core. Tenant and Tenant's architect, however, will be responsible to field
verify final conditions so as to identify and allow for reasonable adjustments
and revisions made during the course of construction of the Building.

                                      F-5.



                                    EXHIBIT G

                  TENANT'S IMPROVEMENTS OUTLINE SPECIFICATIONS

A.       INTERIOR WALLS

         1.       Tenant corridors on floors fully occupied by Tenant.

B.       FLOORS

         1.       Standard Carpet:Mohawk - Rio 30 oz. cut pile over 3/8 inch
                  felt pad.

         2.       Upgrade Carpet: Bently - New Covington over Interloc I Pad.

         3.       Vinyl Composition Tile: Mannington Essentials

         4.       Sheet Vinyl: Mannington - Fine Fields Color @ hard surfaces.

         5.       Rubber Base: Roppe 4" Cove.

C.       MECHANICAL

         1.       Supplemental cooling system includes the ability to extend the
                  condenser water loop via valved fittings provided at each
                  floor to provide approximately 6 tons of cooling per floor.
                  Average floor can support 19 gallons per minute of condenser
                  water flow.

         4.       All ceiling units, dampers, etc., shall be isolated from the
                  Building and Premises via vibration isolation devices.

         5.       Auxiliary exhaust fans for kitchen, conference rooms, etc.

         6.       Heating and air-cooling equipment with necessary controls
                  including complete perimeter heating system, main fan system
                  installed and operational

         8.       Mechanical systems designed with appropriate isolation and
                  control valving or mechanisms; nominally at each branch line,
                  each riser and each fan unit, to minimize disruption to system
                  operation during maintenance and emergencies.

D.       ACOUSTICS

         1.       AI of .05 or less in all floor-to-ceiling offices and
                  conference rooms.

         2.       AI of .20 or less between workstations and within paneled
                  offices.

E.       CEILINGS

         1.       Ceiling Tile: Armstrong - Second Look.

         2.       Ceiling tiles to comply with Federal Specifications SS-S-118B,
                  Class A (sound controlling/acoustical tiles and panels), and
                  surface burning characteristics:

                  a.       flame spread - 25 or less.,

                  b.       smoke developed - 50 or less,

                                      G-1.



                  c.       color ranges - light neutrals,

                  d.       light reflectance - 1,

                  e.       NRC range - .65-.75 Mineral Fiber (NOTE: In high
                           ceiling areas use Glass Fiber) (Note: .55 - .65 is
                           typical office building standard.)

                  f.       STC range - 35-39 (in enclosed offices),

                  g.       style - heavy tex

         3.       Installation of spacer bars and tile.

F.       ELECTRICAL/POWER

         1.       Dedicated tenant electrical panels and transformers installed
                  within the Premises, except those shown on the shell drawings
                  listed in Exhibit F.

         2.       Dedicated circuits for PC outlet use. Five PCs per circuit
                  maximum.

         3.       The purchase and installation of VAV boxes, except those shown
                  on the shell drawings listed in Exhibit F, and all
                  distribution.

         4.       All electrical service upgrades to building standard
                  specifications required by Tenant,

         5.       Emergency power distribution including automatic transfer
                  switches, conduits, conductors, transformers and panels.

G.       LIGHTING

         1.       Light Fixtures: 2'x4', 3 lamp fluorescent parabolic troffer
                  Luminaire equal to or better than Lithonia "Optimax" System
                  with rapid start electronic low harmonic ballast.

         2.       Downlights: 1 lamp, 26-watt compact fluorescent recessed
                  downlight, 6" diameter aperture. 1 HPF electronic ballast.
                  Lithonia AFV 32 TRT-6 AR2776EB10, Halo, Lightolier,
                  Prescolite, Kurt Versen.

         3.       Light fixtures to be parabolic fixtures with min. 3" deep
                  cell. Lamps are to be of the "warm white", energy saving type.
                  Ballasts shall also be electronic energy efficient, high power
                  factor U.L. listed, class P, and have a sound rating of "A".

         4.       Purchase and installation of all light fixtures.

H.       LIFE SAFETY

         1.       Trimming of all sprinkler drops and installation of all
                  sprinkler heads.

I.       ELEVATORS AND FREIGHT FACILITIES

         1.       Hoist operator provided (if applicable).

                                      G-2.



                                  SPECIAL NOTE

         The foregoing specifications are not exhaustive. They are only intended
either (a) to establish minimum quality standards for Tenant's Improvements or
(b) to clarify miscellaneous items not being installed by Landlord as part of
Landlord's Improvements.

                                      G-3.



                                    EXHIBIT H

                                   [RESERVED]

                                      H-1.



                                    EXHIBIT I

                            JANITORIAL SPECIFICATIONS

                                CLEANING SERVICES

1.       General Cleaning

            Nightly

                  a.       Empty and clean all waste receptacles, removing waste
                           to a designated central location for disposal.
                           Landlord is to provide for disposal of waste.

                  b.       Empty and clean all ash trays and receptacles.

            Weekly

                  c.       Hand dust and clean all office furniture that has
                           been cleared of papers, boxes, and/or personal items,
                           ledges, chair rails, baseboards, and window sills.

                  d.       Remove all fingerprints, smudges, and other marks
                           from metal partitions, doors, and other surfaces

2.       Flooring

                  Group A-Granite, ceramic tile, marble, terrazzo

                  Group B-Linotile, asphalt, koroseal, plastic vinyl, wood,
                  rubber, or other composition floors and base.

            Nightly

                  a.       All floors in Group A to be swept, wet mopped and
                           rinsed.

                  b.       All floors in Group B to be dry mopped.

            Weekly

                  c.       All floors in Group B to be damp mopped.

            Every six (6) months

                  d.       All floors to be scrubbed and buffed.

            At Additional cost

                  e.       Stripping and waxing at a direct, additional cost to
                           Tenant.

3.       Vacuuming

            Nightly

                  a.       Vacuum or Carpet sweep all high traffic areas of rugs
                           and carpeted areas.

            Weekly

                                      I-1.



                  b.       Vacuum or carpet sweep all rugs and carpeted areas.

            Monthly

                  b.       Brush or dust by hand carpet edges inaccessible to
                           high pressure vacuum attachments.

4.       High Dusting

            Every six (6) months

                  a.       Dust all clothes closet shelving, pictures, charts,
                           graphs, etc.

                  b.       Dust clean all vertical surfaces such as walls,
                           partitions, door bucks, and other surfaces.

                  c.       Dust all venetian blinds.

            Special service

                  Records and General Storage Space

                           Floors are to be broom cleaned weekly. Files and
                           exposed open shelves dusted once every three (3)
                           months.

5.       Other Services

                  a.       Landlord will supply all soap, towels, and toilet
                           tissue in both men's and women's rooms and sanitary
                           napkins in coin dispensers in the women's rooms.

                  b.       Landlord will supply all coin operated dispensers and
                           will be responsible for the servicing of same and for
                           the collection of money from the machine.

                  c.       During the Term of this Lease the dispenser price for
                           sanitary napkins will not exceed a price equal to
                           1501; of the wholesale price paid by Landlord.

6.       Carpeting

            At Additional Cost

                  a.       General carpet shampooing at a direct, additional
                           cost to Tenant.

7.       Glass

            Monthly

                  a.       Clean all partitions and furniture glass.

            Annually

                  b.       Clean all perimeter windows, both inside and out.

8.       Kitchen Areas

            Nightly

                  a.       Clean all tables, chairs, counters, and sinks.

                                      I-2.



                  b.       Spot cleaning of walls.

9.       General

                  a.       All lights are to be extinguished and the doors as
                           specified by Tenant are to be locked after cleaning
                           is completed.

                  b.       All personnel are to be uniformed and clean in
                           appearance during business hours.

                  c.       Cleaning of all private bathrooms will be subject to
                           additional charges will be determined on a
                           case-by-case basis.

                  d.       Recycling will be encouraged as long as it is
                           economically cost effective. During any period in
                           which recycling is, in Landlord's reasonable opinion,
                           not economically cost effective, Landlord will
                           arrange for recycling for the Premises at Tenant's
                           request and at Tenant's sole cost and expense;
                           provided that if Tenant desires to continue recycling
                           service and if Landlord can arrange, to its
                           reasonable satisfaction, for non-cost-effective
                           recycling to be done for the entire Building, the
                           cost thereof will be an Operating Expense.

                                      I-3.



                                    EXHIBIT J

                               HVAC SPECIFICATIONS

HVAC SYSTEM BASED ON FOLLOWING CRITERIA:

         Roof "U" Value (BTUH/S.F. F)             =         .05

         Wall "U" Value (BTUH/S.F. F)             =         .14

         Floor "U" Value (BTUH/S.F. F)            =        .056

         Glass "U" Value (BTUH/S.F. F)            =         .50

         Glass Shade Coeff                        =         .45

         Lighting (Watts/S.F.)                    =         1.2 (Energy Code)

         Misc. Equipment (Watts/S.F.)             =         3.0

         People Density (People/S.F.)             =         143

         Cooling Indoor Design Temp (F)           =          74

         Cooling Outdoor Design Temp (F)          =          83

         Heating Indoor Design Temp (F)           =          70

         Heating Outdoor Design Temp (F)          =          23

HVAC SYSTEM:

Shell and core ductwork is sized to accommodate an average zone size of 1,000
S.F./zone.

A/C units are vertical self-contained (VSC) floor-by-floor water-cooled with
100% economizer.

Central cooling tower providing condenser water-cooling to each floor-by-floor
unit.

Auxiliary condenser water loop expandable to accommodate Tenant supplemental
systems (TI).

Shell and core work per EXHIBIT F, VAV boxes, down stream ductwork and
diffusers, and the balance of the temperature control system, are tenant
improvements (T.I.).

DDC electronic temperature control system to coordinate the operation of the
HVAC equipment.

Telephone equipment rooms will be fitted with thermostatically controlled
exhaust fans.

                                      J-1.



                                   EXHIBIT K.

                                   [RESERVED]

                                      K-1.



                                    EXHIBIT L

                            FORM OF LETTER OF CREDIT

                                [BANK LETTERHEAD]

                      IRREVOCABLE STANDBY LETTER OF CREDIT

                                                          
DATE OF ISSUE:                                               CREDIT NUMBER:
[Month, Day, Year]                                           DATE OF EXPIRY: [Month, Day, Year]

BENEFICIARY:                                                 APPLICANT:
Opus Union Station, L.L.C.                                   Amazon.com, Inc.
Attn: Thomas B. Parsons, Vice President                      Attn: Director, Global Real Estate
915 - 118th Avenue SE, Suite 300                             1200 12th Avenue South, Suite 1200
Bellevue, WA  98005                                          Seattle, WA  98144

                                                             And

                                                             Amazon.com, Inc.
                                                             Attn: General Counsel
                                                             1200 12th Avenue South, Suite 1200
                                                             Seattle, WA  98144



         We hereby issue in your favor this Standby Letter of Credit which is
available by your drafts at sight drawn on [Name of Bank], [City], [State] and
accompanied by any of the following documents:

         1.       Your written certification, notarized, reading as follows (all
blank spaces will be completed by Beneficiary):

         In reference to [Name of Bank] Letter of Credit
         No._____________________ , we hereby certify and affirm that an Event
         of Default has occurred after the expiration of any applicable cure
         period under that certain Multi- Tenant Office Lease Agreement
         dated_______________________________ , between Opus Union Station,
         L.L.C. ("Landlord") and_________________________________ ("Tenant").
         The delinquent amount, as defined in said Lease, owed by Tenant to
         Landlord as a result of such Event of Default is
         USD$___________________________ ."

         We hereby irrevocably instruct [Name of Bank] to pay the sum specified
         above as follows: Such sum will be paid directly to Opus Union Station,
         L.L.C., at___________________________________.


         IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the________________________day of________________, _________.

                                       Opus Union Station, L.L.C.

                                       By:______________________________________
                                       Name:____________________________________
                                       Title:___________________________________

                                      L-1.



         2.       Your written Certification, notarized, reading as follows (all
blank spaces will be completed by Beneficiary):

         In reference to [Name of Bank] Letter of Credit No.______________ we
         hereby certify that this Letter of Credit is within thirty (30) days
         prior to its expiration date and has not been extended or replaced
         pursuant to that certain Multi-Tenant Office Lease Agreement
         dated_______________________ , between Opus Union Station, L.L.C.
         ("Landlord"), and____________________________ ("Tenant").

         We hereby irrevocably instruct [Name of Bank] to pay the sum of USD$
         ______________ directly to Opus Union Station, L.L.C., at
         ______________________________.

         IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the ______________ day of ____________________, __________


                                       Opus Union Station, L.L.C.

                                       By:______________________________________
                                       Name:____________________________________
                                       Title:___________________________________

SPECIAL CONDITIONS:

     -    All drafts must be marked "drawn under [Name of Bank] Letter of Credit
          No.__________________ dated ____________________ ."

     -    Notwithstanding any reference in this Letter of Credit to other
          documents, instruments, or agreements or references in such other
          documents, instruments, or agreements to this Letter of Credit, this
          Letter of Credit contains the entire agreement among the Applicant,
          Beneficiary, and the issuer relating to the obligations of the issuer
          hereunder.

     -    If this Letter of Credit is not extended or replaced pursuant to the
          Lease, the Beneficiary may draw under number 2 above hereunder on or
          prior to the then relevant expiration date, in the full amount of this
          Letter of Credit. Notice of extension will be given to Beneficiary at
          the address set forth herein, or, if we have received an executed
          notice of transfer as provided herein, at the address as the
          Beneficiary may designate to us in writing at our address set forth
          herein. We agree that we will, upon written request, confirm in
          writing any transferee or prospective transferee of this Letter of
          Credit, the then outstanding amount of this Letter of Credit.
          Beneficiary will be permitted to make one or more partial draws on
          this Letter of Credit.

     -    This Letter of Credit is transferable in its entirety (but not in
          part), on one or more occasions. We will not recognize any transfer of
          this Letter of Credit until an executed transfer in the form of Annex
          1 is filed with us and our customary charges (not in excess of
          USD$500) are paid (Form for Filing Transfer Instructions with us is
          attached), accompanied by the original of this Letter of Credit (or a
          replacement Letter of Credit issued pursuant to this paragraph), upon
          receipt of the above-mentioned documents, we will issue and deliver a
          replacement Letter of Credit to the transferee which (I) designates
          the transferee as beneficiary, and with all references herein to "you"
          referring to it, and (II) is otherwise in the same form as this Letter
          of Credit and is also transferable. Until the transferee receives the
          replacement Letter of Credit in the form required hereby, this Letter
          of Credit will remain outstanding and in full force and effect
          notwithstanding delivery of the original hereof to us. A transfer of
          this Letter of Credit as provided herein will transfer all rights
          hereunder to the transferee, and the transferee will for all purposes
          to be considered the Beneficiary hereunder, with full right and
          authority to draw on this Letter of Credit as provided herein, but
          upon the transferee's receipt of the replacement Letter of Credit in
          the form required hereby, this Letter of Credit will be invalid.

                                      L-2.



     -    We hereby undertake to promptly honor your sight draft(s) drawn on us,
          indicating our Credit No. _____________ for all or any part of this
          Letter of Credit if presented at our office at [Address], [City],
          [State] [Zip Code] on or before __________________________.


     -    All inquiries and/or correspondence pertaining to this Letter of
          Credit must be in writing and directed to the attention of [Name],
          [Telephone Number], at the above-mentioned address, and must
          specifically refer to this Letter of Credit No. .

        Except as otherwise expressly stated herein, this Letter of Credit is
subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision) International Chamber of Commerce Publication No. 500.

                                       Very truly yours,

                                       [Name of Bank]

                                       By:__________________________________
                                       Its:_________________________________

                                      L-3.



                                     ANNEX 1

[Name of Bank]
[Address]
[City, State, Zip Code]

         Reference is made to [Name of Bank] Letter of Credit No._____________ .

         The undersigned, as Beneficiary hereby irrevocably transfers to
___________________________________ (the "Transferee") all rights of the
undersigned to draw under the Letter of Credit.

                                       Very truly yours,
                                       Opus Union Station, L.L.C.

                                       By:__________________________________
                                       Its:_________________________________

                                      L-4.



                                    EXHIBIT M

                         FORM OF STOCK PLEDGE AGREEMENT

                        SECURITY DEPOSIT PLEDGE AGREEMENT

         THIS SECURITY DEPOSIT PLEDGE AGREEMENT (the "Agreement"), dated as of
_____ ____,1999, is between Amazon.com, Inc. ("Tenant"), a Delaware corporation,
and OPUS Union Station, L.L.C. ("Landlord"), a Delaware limited liability
company.

         The parties hereto agree as follows:

1.       DEFINITIONS

         For purposes of this Agreement, the following terms have the meanings
set forth below:

         "Collateral" has the meaning specified in Section 5.

         "Collateral Securities" means fixed income securities that meet the
following requirements:

         (a)      are rated A- or better by Standard & Poor's Rating Group or A3
or better by Moody's Investors Service;

         (b)      are freely transferable without restriction of any kind
(including any restrictions that may be imposed under federal or state
securities laws);

         (c)      have remaining maturities of not more than 3 years; and

         (d)      otherwise meet the requirements of Section 17.18.4 of the
Lease, a copy of which is attached to this Agreement as EXHIBIT A.

         "Control Account" means the account established by Tenant in its name
at Morgan Stanley & Co., Bankers Trust Company, Seafirst Bank or such other
brokerage firm or bank as Landlord may reasonably approve, which account is
subject to the terms and conditions of the Control Account Agreement.

         "Control Account Agreement" means the "Security, Custodian and Control
Account Agreement" in substantially the form of EXHIBIT B, which is entered into
with respect to the Control Account.

         "Event of Default" has the meaning specified in Section 8.

         "Lease" means the "Multi Tenant Office Lease" between Tenant and
Landlord having an Effective Date of August _, 1999, as now or hereafter
amended, relating to certain premises in Building 2 (the "Building") of Opus
Center @ Union Station, Seattle, Washington.

         "Market Value" means, as of any date of determination, the market value
of the Collateral Securities then held in the Control Account, as reflected on
the most recently monthly account statement delivered to Landlord and Tenant
pursuant to the Control Account Agreement.

2.       PURPOSE

         This Agreement is for the purpose of securing the prompt payment and
performance in full when due, whether at stated maturity, by acceleration or
otherwise, of Tenant's obligations (the "Obligations") with respect to the
security deposit (the "Security Deposit") that are detailed in Section 17.18 of
the Lease. The amount of the

                                      M-1.



Security Deposit required under the terms of the Lease from time to time is
referred to as the "Security Deposit Amount.

3.       COLLATERAL SECURITIES

         As collateral for the Obligations throughout the term of the Lease,
Tenant will pledge to Landlord, and grant Landlord, a perfected, first priority
security interest in, Collateral Securities held in the Control Account with a
Market Value at all times equal to 115% of the Security Deposit Amount, or such
lower percentage thereof as may be permitted by the second paragraph of Section
17.18.4 of the Lease (the "Required Percentage"). A list of the initial
Collateral Securities pledged by Tenant and held in the Control Account is
attached to this Agreement as EXHIBIT C.

4.       CONTROL ACCOUNT

         Subject to the terms of the Agreement and the Control Account
Agreement, the Collateral Securities pledged by Tenant pursuant to this
Agreement shall at all times be held in the Control Account. The maintenance,
disposition and transfer of the Control Account and all Collateral Securities
held therein shall at all times be subject to the terms of the Agreement and the
Control Account Agreement.

5.       GRANT OF PERFECTED FIRST LIEN SECURITY INTEREST

         Throughout the term of the Lease, as security for the Obligations,
Tenant hereby delivers, pledges, grants, transfers, assigns and sets over to
Landlord, and hereby grants to Landlord a continuing perfected first lien
security interest in, the following (the "Collateral"):

         (a)      All Collateral Securities, securities, shares, certificates,
cash, cash equivalents, financial assets and other assets held in the Control
Account;

         (b)      The Control Account;

         (c)      All securities entitlements and financial assets relating to
the foregoing; and

         (d)      All proceeds and products of any of the foregoing held in the
Control Account.

6.       CONSENT RIGHTS, TRADING RIGHTS AND PAYMENTS IN RESPECT OF THE
         COLLATERAL

         (a)      So long as no Event of Default has occurred and is continuing,
Tenant shall be entitled (i) to exercise (but not in a manner inconsistent with
this Agreement or the Control Account Agreement) all consent or other voting
rights with respect to the Collateral Securities, (ii) to receive and retain all
regularly scheduled payments of interest or dividends in respect of the
Collateral Securities or (iii) to substitute at any time during the term of the
Lease the Collateral Securities with other Collateral Securities of equal or
greater value ("Substitute Collateral"), provided Landlord obtains a perfected
first priority security interest in the Substitute Collateral Securities prior
to the release of the pledged Collateral Securities. Upon such substitution,
release and withdrawal of such released assets from the Control Account, such
released assets will no longer be subject to a security interest in favor of
Landlord and, unless subsequently re-deposited into the Control Account, will no
longer be "Collateral": within the meaning of this Agreement.

         (b)      If an Event of Default has occurred and is continuing,
Landlord shall be entitled (i) to exercise all consent or other voting rights
with respect to the Collateral Securities, (ii) to any and all rights of sale,
conversion, exchange, subscription, withdrawal and any other rights, privileges
or options pertaining to the Collateral as if Landlord were the absolute owner
thereof and (iii) to receive and retain, as additional Collateral hereunder, any
and all interest, dividends or other payments at any time and from time to time
paid on the Collateral; provided, however, that prior to any exercise by
Landlord of any of the preceding rights with respect to the Collateral
Securities, Landlord agrees to provide Tenant three (3) business days' prior
written notice of its intent to exercise its rights to the to the Collateral.
Tenant appoints Landlord its attorney-in-fact, with full power of substitution,
upon an

                                       M-2



Event of Default and its continuance for purpose of exercising its
remedies under this Agreement and taking any action and executing any instrument
reasonably necessary or desirable to accomplish the purposes of this Agreement
as a result of or in connection with the Event of Default, which appointment is
irrevocable and coupled with an interest.

         (c)      Any principal amount at any time paid in respect of the
Collateral Securities (whether at the acceleration thereof, as a scheduled or
mandatory sinking fund payment, in redemption or prepayment thereof or at the
maturity thereof) shall constitute part of the Collateral and shall be held in
the Control Account until reinvested therein as provided in the Collateral
Account Agreement. If for any reason Tenant should receive any such payment of
principal in respect of the Collateral Securities, Tenant shall receive and hold
the same in trust, for the benefit of Landlord, and shall promptly deposit such
payment (or, at Tenant's option, substitute Collateral Securities) in the
Control Account.

7.       REPRESENTATIONS, WARRANTIES AND COVENANTS BY TENANT

         (a)      Tenant represents that the execution, delivery and performance
of this Agreement does not violate any agreement to which it is bound or any law
or regulation applicable to Tenant, and that it has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder.

         (b)      Tenant represents that it is, for all Collateral Securities,
the sole beneficial owner of the Collateral Securities and the proceeds thereof
free and clear of any adverse claim, pledge, mortgage, hypothecation,
encumbrance, security interest, lien or other right, title or interest of any
party except for the first priority security interest created favor of Landlord
pursuant to and in accordance with this Agreement. Tenant will not create or
permit to exist any adverse claim, pledge, mortgage, hypothecation, encumbrance,
security interest, lien or other encumbrance on or against the Collateral,
except the lien and security interest granted hereunder. Tenant further
represents, except as permitted under this Agreement and the Control Account
Agreement, that for the term of this Agreement it will not sell, convey,
transfer or otherwise dispose of any of the Collateral Securities.

         (c)      Tenant represents that this Agreement and delivery of the
Collateral into the Collateral Account creates a valid, perfected, and first
priority security interest in the Collateral in favor of Landlord, and all
actions necessary to achieve such perfection have been duly taken.

         (d)      Tenant represents that this Agreement and delivery of the
Substitute Collateral into the Collateral Account pursuant to clause (iii) of
Section 6(a) will create a valid, perfected, and first priority security
interest in the Substitute Collateral in favor of Landlord, and all actions
necessary to achieve such perfection, upon delivery to the Custodian, will have
been duly taken.

         (e)      Tenant at all times will cause the Control Agreement to remain
in full force and effect and will cause the Collateral Securities to be held in
the Control Account.

         (f)      Upon demand by Landlord, Tenant will permit inspection of the
Collateral Securities by Landlord.

         (f)      Tenant at all times will cause the Market Value of Collateral
Securities held in the Control Account to equal or exceed the Required
Percentage of the Security Deposit Amount. If, at any time, the Market Value of
Collateral Securities held in the Control Account is less than the Required
Percentage of the Security Deposit Amount, Tenant shall immediately cause to be
deposited in the Control Account additional Collateral Securities with a Market
Value sufficient to cause the aggregate Market Value of all Collateral
Securities then held in the Collateral Account to equal or exceed the Required
Percentage of the Security Deposit Amount.

8.       EVENTS OF DEFAULT; REMEDIES

         (a)      The occurrence of any of the following constitutes an "Event
of Default":

                  (i)      Failure of Tenant to perform the Obligations;

                                      M-3



                  (ii)     The occurrence of an "Event of Default" under the
         Lease,

                  (iii)    Failure of Tenant to comply with any covenant or
         agreement required to be observed or performed by it pursuant to this
         Agreement or the Control Account Agreement;

                  (iv)     Any representation or warranty made by Tenant
         hereunder is, now and also upon the delivery of any Collateral or
         Substitute Collateral to Custodian, false in any material respect; or

                  (v)      This Agreement or the Control Account Agreement for
         any reason ceases to be valid, binding or enforceable; or Tenant,
         Custodian or any of their affiliates, or any of the assignees of
         Tenant, Custodian or any of their affiliates, or any entity related to
         either Tenant or Custodian or any trustee in bankruptcy or receiver for
         Tenant, Custodian or any of their affiliates, or any of the assignees
         of Tenant, Custodian or any of their affiliates contests or denies the
         validity or enforceability thereof.

         (b)      Upon the occurrence and continuance of an Event of Default,
Landlord shall be entitled to exercise the following rights and remedies

                  (i)      To give instructions pursuant to the Control Account
         Agreement, instructing the account manager thereunder to sell or
         withdraw Collateral Securities or other assets from the Control Account
         and/or any proceeds thereof and deliver the same to or for the account
         of Landlord in an amount not to exceed the Security Deposit;

                  (ii)     To exercise all rights and remedies of a secured
         party under the Uniform Commercial Code of California with respect to
         the Collateral; and

                  (iii)    To exercise all other rights and remedies available
         to it under this Agreement at law or in equity;

provided, however, that Landlord shall give Tenant three (3) business days'
prior written notice of its intent to exercise remedies or to make a sale and/or
withdrawal of any Collateral Securities or other assets held in the Control
Account and any instructions delivered by Landlord pursuant to the Control
Account Agreement shall be accompanied by a sworn, notarized affidavit stating
that such notice has been given.

9.       LIABILITY

         Tenant shall indemnify the financial institution party to the Control
Account Agreement for any and all costs and expenses, and attorney's fees and
court costs, which directly result from any sale of Collateral Securities and
the withdrawal of the settlement proceeds thereof (not to exceed the amount of
the Security Deposit Amount) authorized by Landlord to fulfill any of Tenant's
Obligations; provided, however, that nothing in this indemnification provision
shall operate or be construed to limit Tenant's rights against Landlord under
the terms of the Lease or Landlord's rights against Tenant thereunder. Tenant
shall indemnify and defend, with counsel reasonably acceptable to Landlord,
Landlord's right, title and first priority security interest in the Collateral
and Substitute Collateral. After Landlord delivers a Notice of Exclusive Control
to the financial institution party to the Control Account Agreement, (a)
Landlord may liquidate or sell all or any part of the Collateral in a
commercially reasonable manner and whether or not the value of any of the
Collateral is rising, failing or holding, and (b) Landlord is not required to
exercise any right, option or privilege arising from or relating to the
Collateral. The provisions of this section shall survive expiration or
termination of this Agreement or any determination that this Agreement or any
portion is void or voidable.

10.      ASSIGNMENT AND AMENDMENT

         (a)      This Agreement may not be amended without the prior written
consent of both parties.

         (b)      This Agreement may not be assigned by either party without the
prior written consent of the other party; provided, however, that:

                                      M-4



                  (i)      Landlord may at any time, and without notice to or
the necessity of obtaining Tenant's consent, assign to any financial institution
providing a loan to Landlord in connection with the Building (together with any
such financial institution's successors or assigns, the "Lender") all of its
rights under, and interest in, this Agreement. Within one (1) business day after
making any such assignment, Landlord shall deliver to Tenant written notice of
the assignment and a copy of the instrument of assignment. Upon receipt by
Tenant of the aforementioned notice, Lender shall thereafter succeed to all of
the rights and privileges of Landlord and shall be subject to the same
obligations, terms, conditions and restrictions applicable to Landlord under the
terms of this Agreement, provided that after Lender sends Custodian a Lender
Notice of Exclusive Control pursuant to Section 10(b) of the Control Account
Agreement, Lender shall also be subject to the same obligations (including
indemnification obligations arising from and after the date of the Lender Notice
of Exclusive Control) as Landlord. Lender will not be liable for any act,
omission or breach by Landlord of any obligation under this Agreement or the
Control Account Agreement which occurs prior to the date of the Lender Notice of
Exclusive Control and will, upon any sale or transfer by Lender of its interest
in the property and the Lease, automatically be released and discharged from any
and all liability thereafter accruing under this Agreement or the Control
Account Agreement; and

                  (ii)     If Landlord assigns its interest in the Lease,
whether voluntary or through involuntary assignment or transfer such as
bankruptcy or foreclosure, such assignment will automatically and without
further action or notice to Tenant, cause an assignment of Landlord's rights in
this Agreement and the Collateral to the assignee and upon the assignee's
assumption of Landlord's obligations under the Lease (including Landlord's
obligations with respect to this Agreement and the Collateral), Landlord will
thereafter accrue no further liability for the return of the collateral and
Tenant will look solely to the transferee or assignee for the return of the
Collateral. Upon request of either party, Landlord and Tenant agree to execute
such documents as may be necessary or desirable to reflect or better confirm
such assignment, assumption and/or release.

11.      WAIVERS

         A waiver by either party of a breach of any provision of this Agreement
shall not constitute a waiver of any subsequent breach of such provision or of
any other provision hereof. Failure of either party to enforce at any time or
from time to time any provision of this Agreement shall not be construed as a
waiver thereof.

12.      SEVERABILITY

         Each provision of this Agreement is intended to be severable from the
others so that if any provision or term hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remaining provisions and terms hereof.

13.      GOVERNING LAW: SUCCESSORS BOUND

         This Agreement shall be construed in accordance with the internal laws
of the State of Washington, determined without regard to conflicts of law.
Subject to all the terms and provisions hereof, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Each party hereto consents to submit to the jurisdiction
of the courts of the State of Washington and of the United States of America
located in King County, Washington for any action, suit or proceeding arising
out of or relating to this Agreement. Each party further waives any objection to
the laying of venue of any such action, suit or proceeding in such courts, and
further agrees not to plead or claim in any such court that any such action,
suit or proceeding has been brought in an inconvenient forum.

14.      NOTICES

         All notices must be in writing and must be sent by personal delivery,
United States registered or certified mail (postage prepaid) or by an
independent overnight courier service, addressed to the addresses specified
below or at such other place which is not a post office box as either party may
designate to the other party by written notice given in accordance with this
section. Notices given by mail are deemed effective within three business days
after the party sending the notice deposits the notice with the United States
Post Office. Notices delivered by courier are

                                      M-5



deemed effective on the next business day after the day the party delivering the
notice timely deposits the notice with the courier for overnight (next day)
delivery.

         If to Tenant:                 c/o General Counsel
                                       Amazon.com, Inc.
                                       1200 12th Avenue South, Suite 1200
                                       Seattle, Washington 98144

         With a copy to:               Treasurer
                                       Amazon.com, Inc.
                                       1200 12th Avenue South, Suite 1200
                                       Seattle, Washington 98144

         If to Landlord:               c/o Thomas B. Parsons, Vice President
                                       Opus Union Station, L.L.C.
                                       915 - 118th Avenue SE
                                       Bellevue, WA 98005

         With a copy to:               c/o Legal Department
                                       Opus, L.L.C.
                                       10350 Bren Road West
                                       Minnetonka, MN 55343

15.      ENTIRE AGREEMENT

         This Agreement, together with the Lease and the Control Account
Agreement, embody the entire agreement and understanding between the parties
pertaining to the subject matters hereof and thereof, and supersedes any prior
agreements, understandings, negotiations, representations and discussions,
whether oral or written, of the parties, pertaining to such subject matters. The
parties acknowledge that they have all participated in the drafting of this
Agreement, and that they all have been represented by legal counsel of their own
choosing and the language of all parts of this Agreement shall in all cases be
construed as a whole, according to its fair meaning, and not strictly for or
against any of the parties.

16.      FURTHER ASSURANCES

         Tenant shall, upon the request of Landlord, execute and deliver such
other instruments and take and cause to be taken such further actions as may be
reasonably necessary or reasonably appropriate to carry out the provisions and
purposes of this Agreement and the Lease, and specifically to continue the
creation, attachment and perfection of the security interest granted hereunder,
or which are necessary or appropriate for Landlord to enforce its rights and
remedies hereunder. Tenant will promptly execute and deliver to Landlord such
UCC financing statements to be filed of record in the appropriate filing office
or offices if Landlord deems such filing or filings to be necessary or
advisable. Tenant will also deliver to Landlord, at its expense, an opinion
letter from Perkins Coie LLP, or other attorneys reasonably acceptable to
Landlord, substantially in the form of EXHIBIT D.

17.      REINSTATEMENT

         In the event all or any portion of the Obligations are paid by Tenant
or any other person, this Agreement, the Control Account Agreement, the
respective obligations of Tenant hereunder and thereunder and the liens and
security interests created hereby shall continue and remain in full force and
effect or be reinstated, as the case may be, in the event that all or any part
of such payments are rescinded or recovered from Landlord as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Obligations for all purposes of this Agreement and
the Control Account Agreement.

                                      M-6



         IN WITNESS WHEREOF, Tenant and Landlord have caused this Agreement to
be executed by their proper corporate officers as of the day and year first
above written.

                                       AMAZON.COM, INC.,

                                       a Delaware corporation

                                       By ______________________________________
                                       Name:____________________________________
                                       Title:___________________________________

                                       OPUS UNION STATION, L.L.C.,
                                       a Delaware limited liability company

                                       By ______________________________________
                                       Name:____________________________________
                                       Title:___________________________________

                                      M-7

                                    EXHIBIT A
                                       TO
                        SECURITY DEPOSIT PLEDGE AGREEMENT

                      COPY OF SECTION 17.18.4 OF THE LEASE

                  At the option of Tenant, Tenant may elect to provide all or
any portion of the Security Deposit by pledging for the benefit of Landlord
marketable securities with a market value equal to the Security Deposit Amount.
The pledge will be of short term (three (3) years or less) fixed income
marketable securities from Tenant's corporate cash investment portfolio,
including money market funds, rated A-/A3 or equivalent by a nationally
recognized credit rating service. The pledged marketable securities will be held
by a bank or financial institution mutually approved by Landlord and Tenant as
custodian for Landlord, either in a separate custodian account or as specially
designated securities within a larger custodian account. The pledge agreement
must be substantially in the form of EXHIBIT M attached hereto and provide
Landlord with a perfected first lien security interest in the pledged
securities. The custodial agreement must be substantially in the form of EXHIBIT
N attached hereto, and provide direct access authorization which would permit
Landlord in an Event of Default, without approval of Tenant, to authorize the
sale of the securities and the withdrawal of the proceeds thereof (not to exceed
the amount of the then required Security Deposit) for application by Landlord on
the same terms and conditions as Landlord could draw on a LOC in an Event of
Default. Tenant will be entitled to retain all interest and other income capital
gains earned or generated by the pledged securities.

                  At all times, the value of the pledged securities if they are
held in the form of corporate bonds must equal or exceed 115% of the amount then
required, however such amount will be reduced to 110% if not more than 50% of
such securities are held in the form of corporate bonds. If the market value of
the pledged securities drops below the required level of the then-required
Security Deposit, Tenant will immediately add additional marketable securities
to the pledge to increase the value of the pledged securities to equal or exceed
the required level. Failure of Tenant to increase the pledged securities as
required within 3 Business Days of notice from Landlord and / or the account
custodian will constitute an Event of Default. Tenant will have the right to
substitute additional marketable securities for the securities subject to the
pledge, provided Landlord obtains a perfected first lien security interest in
the substituted securities prior to the release of the pledged securities.

                                     M-A-1.


                                    EXHIBIT B
                                       TO
                        SECURITY DEPOSIT PLEDGE AGREEMENT

                  [COPY OF EXECUTED CONTROL ACCOUNT AGREEMENT]

                                     M-B-1.


                                    EXHIBIT C
                                       TO
                        SECURITY DEPOSIT PLEDGE AGREEMENT

                        COLLATERAL SECURITIES IN ACCOUNT

                                     M-C-1.


                                    EXHIBIT D
                                       TO
                        SECURITY DEPOSIT PLEDGE AGREEMENT

                             FORM OF OPINION LETTER

                                August ___, 1999

Opus Union Station, L.L.C.
915 - 118 Avenue S.E.
Bellevue, WA 98005

         RE:      SECURITY DEPOSIT FOR MULTI-TENANT OFFICE LEASE TO AMAZON.COM,
                  INC., BUILDING 2 OF OPUS CENTER

Ladies and Gentlemen:

         We have acted as counsel to Amazon.com, Inc., a Delaware corporation
(the "Company"), in connection with the transactions contemplated by the tenant
security deposit provisions of the Multiple-Tenant Office Lease (the "Lease")
dated as of August ____, 1999 between the Company and Opus Union Station
L. L. C. (the "Landlord").

A.       BASIS OF OPINION

         In connection with this opinion letter, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of such documents,
records, certificates and statements of government officials, corporate officers
and other representatives of the persons referred to therein, and such other
instruments as we have deemed relevant or necessary as the basis for the
opinions herein expressed, including the following:

         A.1.     The Lease, including the exhibits thereto;

         A.2.     The Security Deposit Pledge Agreement (the "Pledge Agreement")
between the Company and Landlord, dated as of August ____, 1999; and

         A.3.     The Security, Custodian and Control Agreement (the "Control
Account Agreement") among Landlord, the Company and Bankers Trust Company of
California, N.A. (the "Custodian"), dated as of August ____, 1999.

         Documents A.2 and A.3 are hereinafter collectively referred to as the
"Security Documents." The assets pledged by the Company as security in
accordance with the Pledge Agreement and delivered to and held by the Custodian
in the State of California in accordance with the Control Account Agreement are
referred to herein as the "Collateral."

         As to matters of fact bearing upon the opinions expressed herein, we
have, with your consent and without investigation, relied upon:

                  (a)      information in documents issued by the Secretaries of
         State of Delaware and Washington such as, without limitation,
         certificates of corporate good standing of the Company; and

                  (b)      information provided in certificates by an officer of
         the Company.

         We are rendering this opinion letter to you at the request of the
Company pursuant to Section 16 of the Pledge Agreement.

                                     M-D-1.


B.       ASSUMPTIONS

         For purposes of this opinion letter, we have relied, without
investigation, upon the following assumptions:

         B-1      All natural persons who are involved on behalf of the Company
have sufficient legal capacity to enter into and perform the transactions
contemplated by the Lease and the Security Documents or to carry out their role
in it.

         B-2      The Company holds the requisite title and rights to any
property involved in the transactions.

         B-3      Each party to the transactions other than the Company has
satisfied those legal requirements applicable to it that are necessary to make
the documents signed by it enforceable against it in accordance with its terms.

         B-4      Each party to the transactions other than the Company has
complied with all legal requirements pertaining to its status as such status
relates to its rights to enforce the Lease and the Security Documents against
the Company.

         B-5      Each document submitted to us for review is accurate and
complete, each such document that is an original is authentic, each such
document that is a copy conforms to an authentic original, and all signatures on
each such document are genuine.

         B-6      Each public authority document reviewed by us for the purpose
of rendering this opinion letter is accurate, complete and authentic, and all
official public records (including their proper indexing and filing) are
accurate and complete.

         B-7      There has been no mutual mistake of fact or misunderstanding,
fraud, duress or undue influence with respect to, or affecting any of, the
parties to the transactions.

         B-8      The conduct of the parties to the transactions has complied
with any requirement of good faith, fair dealing and conscionability.

         B-9      The party to whom this opinion letter is directed and any
agent acting for it in connection with the transactions have acted in good faith
and without notice of any defense against the enforceability of any rights
created by, or adverse claim to any property or security interest transferred or
created as a part of, the transactions.

         B-10     There arc no agreements or understandings among the parties,
written or oral, and there is no usage of trade or course of prior dealing among
the parties that would, in either case, define, supplement or qualify the terms
of the Security Documents or Section 17.18 of the Lease.

         B-11     All statutes, judicial and administrative decisions, and rules
and regulations of governmental agencies, constituting the law examined by us,
are generally available (i.e., in terms of access and distribution following
publication or other release) to lawyers practicing in such jurisdiction, and
are in a format that makes legal research reasonably feasible.

         B-12     The constitutionality or validity of the relevant statute,
rule, regulation or agency action is not in issue unless a reported decision in
the opining jurisdiction has specifically addressed but not resolved, or has
established, its unconstitutionality or invalidity.

         B-13     Other agreements and court orders will be enforced as written.

         B-14     The Company will not in the future take any discretionary
action including a decision not to act) permitted under the Security Documents
that would result in the violation of law or constitute a breach or default
under any other agreement or court order.

                                     M-D-2


         B-15     All parties to the transactions will act in accordance with,
and will refrain from taking any action that is forbidden by, the terms and
conditions of any Security Document or Section 17.18 of the Lease.

         B-16     The enforceability of any provisions in the Security Documents
providing for the exercise of remedies in any combination or sequence may be
limited by the California Commercial Code.

         B-17     The provisions of the Security Documents or any other
documents requiring the Company or any other party to pay Landlord's attorneys'
fees and costs in any action to enforce the provisions thereof may not be
enforceable by Landlord if Landlord is not the prevailing party in such action.

         Whenever a statement herein is qualified by the phrase "to our
knowledge," or by any other phrase of similar import, or where it is noted that
nothing has been brought to our attention, it means that the opinion stated is
based solely upon the conscious awareness of information as to the matters being
opined upon by (a) the attorney who signs, on behalf of Perkins Coie LLP, this
opinion letter, (b) any attorney at Perkins Coie LLP who has been actively
involved in negotiating the transactions, preparing the Security Documents or
preparing this opinion letter, and (c) solely as to information relevant to a
particular opinion issue or confirmation regarding a particular factual matter
(e,g., pending or threatened legal proceedings), any attorney at Perkins Coie
LLP who is primarily responsible for providing the response concerning that
particular opinion issue or confirmation. We have not undertaken, nor were we
obligated or expected to undertake, an independent investigation to determine
the accuracy of the facts or other information as to which our knowledge is
sought, and any limited inquiry undertaken by us during the preparation of this
opinion letter should not be regarded as such an investigation. No inference as
to our knowledge of any matters bearing on the accuracy of any such statement
should be drawn from the fact of our representation of the Company.

C.       OPINIONS

         Based upon the foregoing examinations and assumptions and subject to
the qualifications stated below, we are of the opinion that:

         C-1      The Company is duly organized, validly existing and in good
standing under Delaware law and is duly qualified to do business and in good
standing as a foreign corporation in Washington.

         C-2      The Company has all necessary corporate power and corporate
authority to enter into, and to perform its obligations under, each of the
Security Documents and to perform its obligations under Section 17.18 of the
Lease.

         C-3      The Company has authorized, by all necessary corporate action,
the execution, delivery and performance of each of the Security Documents and
the Lease.

         C-4      Each of the Security Documents and Section 17.18 of the Lease,
when the Security Documents and the Lease, respectively, have been executed and
delivered by the Company, will constitute the legal, valid and binding
obligation of the Company enforceable in accordance with their respective terms.

         C-5      To our knowledge, there are no actions or proceedings against
the Company, pending or threatened in writing, before any court, government
agency or arbitrator that seek to affect the enforceability of any Security
Document or Section 17.18 of the Lease or that are specifically applicable to
the Collateral.

         C-6      Execution and delivery by the Company of, and performance by
the Company of its agreements in, each of the Security Documents and Section
17.18 of the Lease are not prohibited by, nor do they result in the imposition
of a fine, penalty or similar action or a violation under, any statute or
regulation of Washington or California that a lawyer in Washington or
California, respectively, exercising customary professional diligence would
reasonably recognize as being directly applicable to the Company or the
transactions contemplated by such documents.

                                     M-D-3


         C-7      The Security Documents, when executed and delivered by the
parties thereto, will create and perfect a security interest in the Collateral
in favor of Landlord as secured party under Division 9 of the California
Commercial Code or Chapter 62A- 9 of the Revised Code of Washington, as the case
may be, upon deposit of the Collateral with, and so long as the Collateral is
held by, the Custodian pursuant to the Control Account Agreement.

         C-8      The Collateral is not a general intangible under Division 9 of
the California Commercial Code or Chapter 62A-9 of the Revised Code of
Washington

D.       QUALIFICATIONS

         The opinions set forth herein are subject to the following
qualifications:

         D-1      The opinions set forth herein, including those opinions as to
the enforceability of the Security Documents and Section 17.18 of the Lease, are
subject to the effect of bankruptcy, insolvency, reorganization, receivership,
moratorium and other similar laws affecting the rights and remedies of creditors
generally and the effect of general principles of equity, whether applied by a
court of law or equity.

         D-2      The opinions set forth herein, including those opinions as to
the enforceability of the Security Documents and Section 17.18 of the Lease, are
subject to the effect of generally applicable rules of law that

                  (a)      limit or affect the enforceability of provisions of a
         contract that purport to require waiver of the obligations of good
         faith, fair dealing, diligence and reasonableness;

                  (b)      provide that forum selection clauses in contracts are
         not necessarily binding on any court in the forum selected;

                  (c)      limit the availability of a remedy under certain
         circumstances where another remedy has been elected;

                  (d)      limit the right of a creditor to use force or cause a
         breach of the peace in enforcing rights;

                  (e)      relate to the sale or disposition of collateral or
         the requirements of a commercially reasonable sale ,

                  (f)      limit the enforceability of provisions of releasing,
         exculpating or exempting a party from, or requiring indemnification of
         a party for, liability for its own action or inaction, to the extent
         that the action or inaction involves gross negligence, recklessness,
         willful misconduct or unlawful conduct;

                  (g)      may, where less than all of a contract may be
         enforceable, limit the enforceability of the balance of the contract to
         circumstances in which the unenforceable portion is not an essential
         part of the agreed exchange;

                  (h)      govern and afford judicial discretion regarding the
         determination of damages and entitlement to attorneys' fees and other
         costs;

                  (i)      may permit a party who has materially failed to
         render or offer performance required by the contract to cure that
         failure unless permitting a cure would unreasonably hinder the
         aggrieved party from making substitute arrangements for performance or
         unless it is important in the circumstances to the aggrieved party that
         performance occur by the date stated in the contract.

         D-3      Notwithstanding any provisions in the Security Documents to
the effect that such documents reflect the entire understanding of the parties
with respect to the matters described therein, the courts of the State of
Washington may consider extrinsic evidence of the circumstances surrounding the
negotiation and execution of such documents to ascertain the intent of the
parties in using the language employed in the documents, regardless of

                                     M-D-4


whether or not the meaning of the language used in the documents is plain and
unambiguous on its face, and may determine that additional or supplemental terms
can be incorporated into the documents.

         D-4      The opinions set forth herein, including those opinions as to
the enforceability of the Security Documents and Section 17.18 of the Lease, are
subject to the qualification that they do not address, except as expressly
stated elsewhere in the opinion letter, enforceability of any of the following
provisions included in such documents:

                  (a)      choice of law provisions;

                  (b)      provisions that contain a waiver of (i) broadly or
         vaguely stated rights, (ii) the benefits of statutory, regulatory or
         constitutional rights, unless and to the extent the statute, regulation
         or constitution explicitly allows waiver, (iii) unknown future
         defenses, and (iv) rights to damages;

                  (c)      provisions that attempt to change or waive rules of
         evidence or fix the method or quantum of proof to be applied in
         litigation or similar proceedings;

                  (d)      forum-selection clauses and consent to jurisdiction
         clauses (both as to personal jurisdiction and subject matter
         jurisdiction);

                  (e)      provisions waiving the pledgor's rights under the
         Uniform Commercial Code, including the right that Collateral be
         disposed of in a reasonable commercial manner; and

                  (f)      provisions appointing one party as an
         attorney-in-fact for an adverse party.

         The opinions set forth herein are as of the date hereof, and we
disclaim any undertaking or obligation to update these opinions for events and
circumstances occurring after the date hereof or as to facts relating to prior
events that are subsequently brought to our attention.

         This opinion letter is rendered only to you and is solely for your
benefit in connection with the transactions contemplated by the Security
Documents and Section 17.18 of the Lease. This opinion is rendered only to you
and is, subject to the next sentence, solely for you benefit in connection with
the transactions contemplated by the Security Documents and Section 17.18 of the
Lease. This opinion letter may not, without our prior written consent, be used
or relied upon for any other purpose or by any other person except your assignee
of the Lease and your lender, in each instance in accordance with Section 10 of
the respective Security Documents.

                                                              Very truly yours,

                                                              Perkins Coie LLP

PBA.jab

                                     M-D-5


                                    EXHIBIT N

                           FORM OF CUSTODIAL AGREEMENT

                    SECURITY, CUSTODIAN AND CONTROL AGREEMENT

         THIS SECURITY, CUSTODIAN AND CONTROL AGREEMENT ("Agreement") is made
and entered into as of the _ day of August, 1999, by and among Amazon.com, Inc.
("Pledgor"), Bankers Trust Company of California, N.A. ("Custodian"), and OPUS
Union Station, L.L.C. (collectively, "Pledgee").

                                    RECITALS

         A.       Pledgor and Pledgee have entered into a "Security Deposit
Pledge Agreement" dated as of August ____, 1999 ("Pledge Agreement") pursuant to
which Pledgor has pledged for the benefit of Pledgee certain securities
("Securities") and has granted Pledgee a security interest in the Account
(hereinafter described) pursuant to the Pledge Agreement;

         B.       The Pledge Agreement requires Pledgor to establish a third
party custodial account or subaccount for the deposit of such Securities;

         C.       Pledgor and Custodian have entered into a Custodian Agreement
dated September 8, 1998 ("Custodian Agreement") pursuant to which Custodian acts
as custodian of certain assets of Pledgor;

         D.       Pledgor and Pledgee desire Custodian to accept the Securities
and to hold the Securities and the cash and non-cash proceeds in a separate,
segregated custodian account or subaccount (the "Account") on the terms set
forth herein;

         E.       Custodian has established for this purpose Account No. _______
in the name of Pledgor in which Custodian will hold the Securities pursuant to
this Agreement; and

         F.       Pledgor, Pledgee and Custodian are entering into this
Agreement to provide for the control of the Account and as a means to perfect
the security interest of Pledgee in the Account and Pledgor's Security
Entitlement in respect of the Securities and any other Financial Assets in the
Account from time to time. It is understood that Custodian has no responsibility
to Pledgee in respect to the validity or perfection of such security interest
other than to act in accordance with the terms and conditions of this Agreement.

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, it is agreed that the Custodian will accept the Securities and
that it will hold the same as Custodian hereunder for the use and benefit, and
subject to the powers and duties, as follows:

1.       CERTAIN DEFINITIONS

         As used herein the following terms shall have the following meanings:

         "Entitlement Holder" means a person identified in the records of
Custodian as the person having a Security Entitlement against Custodian.

         "Event of Default" shall have the meaning assigned to it in the Pledge
Agreement.

         "Entitlement Order" means a notification communicated to Custodian
directing transfer or redemption of a Financial Asset to which the Entitlement
Holder has a Security Entitlement.

         "Financial Asset" shall mean any property, including cash, held in the
Account.

                                      N-1.


         "Security Entitlement" shall mean the rights and property interest of
an Entitlement Holder with respect to a Financial Asset as provided in Chapter 5
of Division 8 of the California Commercial Code.

2.       THE ACCOUNT

         EXHIBIT A attached hereto is a complete and accurate statement of the
Financial Assets maintained in the Account as of the date thereof. EXHIBIT A
does not reflect any Financial Assets which are registered in the name of
Pledgor, payable to Pledgor's order, or specifically endorsed to Pledgor, which
have not been endorsed to Custodian, or its nominee, or in blank. Except for the
claims and interests of Pledgee and Pledgor in the Account (subject to any claim
in favor of Custodian permitted under Sections 3 and 11 hereof), Custodian does
not know of any claim to or interest in the Account. Custodian will treat all
property and cash held by it in the Account as Financial Assets under Division 8
of the California Commercial Code

3.       THE SECURITIES

         (a)      Custodian shall accept and retain the Securities in the form
in which received, except for those Securities received in physical form which
may be held in the name of Custodian's nominee or agent or which may be
converted to the Depository Trust Company or other book entry system, subject in
each case to withdrawal or other disposition pursuant to this Agreement, the
Pledge Agreement or on joint written instruction of Pledgee and Pledgor. All
Securities delivered to Custodian shall be in good deliverable form as
determined by Custodian with reference to applicable law and industry practices.
Except as otherwise provided in Section 8, Custodian shall be under no duty to
ascertain or inform any party to this Agreement of, or be required to take any
action concerning, any maturities, calls, redemptions, conversions, exchanges,
reorganizations, offers, tenders or similar matters relating to the Securities,
except that if information as to a call is received by it, Custodian shall
notify Pledgee of any called Securities.

         (b)      Custodian hereby acknowledges the security interest granted to
Pledgee by Pledgor. Custodian shall maintain all Securities free of any lien,
charge or claim of any kind in favor of Custodian or any person claiming through
Custodian, and it will not assert any lien, encumbrance, claim or right of
set-off against the Account or any Financial Asset carried in the Account or any
credit balance in the Account, except as otherwise provided in this Section 3(b)
and in Section 11 hereof. Notwithstanding the foregoing, any Financial Asset in
the Account may at all times be held and treated by Custodian as collateral for
the payment of any Financial Asset for which payment has not been made, or for
the purchase and sale of foreign exchange or of contracts for foreign exchange
relating to authorized transactions in the Account. Custodian will not agree
with any third party that Custodian will comply with Entitlement Orders
concerning the Account originated by such third party without the prior written
consent of Pledgee and Pledgor. Custodian represents that no such agreement with
any third party is now in effect.

4.       CONTROL

         Custodian will comply, and will cause its agents and subcustodians to
comply, with Entitlement Orders originated by Pledgee concerning the Account
without further consent by Pledgor, provided that such Entitlement Order must be
accompanied by the notarized affidavit required pursuant to the last sentence of
this Section 4. Except as otherwise provided in Sections 3 and 5 hereof,
Custodian shall make trades of Financial Assets held in the Account at the
direction of Pledgor, or its authorized representatives, and comply with
Entitlement Orders concerning the Account from Pledgor, or its authorized
representatives, until such time as Pledgee delivers a written notice to
Custodian, substantially in the form of EXHIBIT B hereto and accompanied by the
affidavit required by the last sentence of this Section 4, that Pledgee is
thereby exercising exclusive control over the Account. Such notice may be
referred to herein as the "Notice of Exclusive Control." After Custodian
receives the Notice of Exclusive Control, it will promptly cease complying with
Entitlement Orders or other directions concerning the Account (including any
provision hereof regarding payments to the Pledgor) originated by Pledgor or its
representatives notwithstanding any contrary provision in the Custodian
Agreement. Notwithstanding the preceding provisions, any delivery of
instructions to Custodian from Pledgee directing Custodian to trade, withdraw or
transfer Financial Assets from the Account, whether by means an entitlement
order, a Notice of Exclusive Control or otherwise, shall not be effective, under
the terms of this agreement unless accompanied by a sworn, notarized affidavit
from Pledgee

                                      N-2


stating that Pledgee has provided Pledgor with three (3) business days' prior
written notice of its intent to so trade, withdraw or transfer Financial Assets.

5.       SUBSTITUTIONS AND WITHDRAWALS

         Pledgor shall have the right to substitute for Securities in the
Account other Securities as authorized by the Pledge Agreement from time to
time. Substituted Securities shall be delivered to Custodian before any
Securities being substituted for are delivered to or on instructions of Pledgor
by Custodian. Except for such substitutions, Custodian shall neither accept nor
comply, and will not permit any of its agents or subcustodians to comply, with
any Entitlement Order from Pledgor withdrawing any Financial Assets from the
Account nor deliver any such Financial Asset to or on instruction of Pledgor,
without the specific prior written consent of Pledgee; provided, however, prior
to receipt by Custodian of Notice of Exclusive Control, Custodian is authorized
to collect and receive all income with respect to the Securities and any other
Financial Assets in the Account, whether interest or dividends, and to credit
such income to Pledgor.

6.       RECORDS

         Custodian shall maintain the Securities and shall identify the
Securities on its books and records as securities being held, subject to this
Agreement, for Pledgee as pledgee under the Pledge Agreement.

7.       RETURN OF SECURITIES

         Upon joint written notification from Pledgor and Pledgee, Custodian
shall return the Securities and any other Financial Assets in the Account to
Pledgor. Any such delivery shall constitute a complete discharge of Custodian
from any and all further liability for such Securities and Financial Assets
hereunder.

8.       CONFIRMATIONS

         Custodian shall issue a confirmation or safekeeping receipt to Pledgor
and Pledgee for each Security received by Custodian hereunder which identifies
(as applicable) the issuer, the maturity date, the number of shares, the face
amount and the coupon rate. Custodian shall supply to Pledgor and to Pledgee a
separate written report for each preceding day listing the Securities and any
other Financial Assets held in the Account and the unaudited value thereof from
Custodian. Presently, Custodian uses Merrill Lynch or Interactive Data
Corporation (IDC) to provide such values ("Service Provider"). Custodian may, in
its sole discretion, decide to use another similar valuation reporting service
Custodian reasonably believes to be reliable. Custodian's report shall include
the principal amount and/or number of shares of each Security or Financial
Asset, as appropriate, and the market value of each of the Securities or
Financial Assets. Pledgor and Pledgee shall promptly review all Custodian's
reports and shall promptly advise Custodian of any error, omission or inaccuracy
in the listing of Securities or Financial Assets therein known to Pledgor or
Pledgee, as the case may be. In no event shall Custodian be required to
personally determine or, except as stated above, to report the market value of
any Security. Subject to Custodian's obligation to exercise reasonable judgment
in selecting a Service Provider as set forth above, Custodian does not verify or
represent or warrant either the reliability of Service Provider or the accuracy
or completeness of any such information furnished or obtained by or through
Service Provider and Custodian shall have no liability in selecting and
utilizing Service Provider or furnishing any information derived from Service
Provider.

9.       RESPONSIBILITY OF CUSTODIAN

         Custodian shall have no responsibility or liability to Pledgee for
making trades of Financial Assets held in the Account at the direction of
Pledgor or its authorized representatives or, subject to Section 4 hereof,
complying with Entitlement Orders concerning the Account from Pledgor, or its
authorized representatives, which are received by Custodian before Custodian
receives a Notice of Exclusive Control from Pledgee. Custodian shall have no
responsibility or liability to Pledgor for complying with Entitlement Orders
that comply with the requirements of Section 4 or complying with Notices of
Exclusive Control that comply with the requirements of Section 4 concerning the
Account originated or by Pledgee. Custodian shall have no duty to investigate or
make any determination as to whether a default Event of Default exists under any
agreement between Pledgor and Pledgee,

                                      N-3


and shall comply with a Notice of Exclusive Control even if Custodian receives a
claim that no such default or Event of Default exists or believes that no such
default or Event of Default exists. This Agreement does not create any
obligation or duty on the part of Custodian other than those expressly set forth
herein. Upon receipt of a Notice of Exclusive Control, Custodian shall notify
Pledgor of its receipt of such Notice of Exclusive Control and shall deliver the
Securities and any other Financial Assets in the Account to or on instructions
of Pledgee upon Pledgee's demand. Custodian may fully rely, and may take the
actions herein set forth, notwithstanding any notice of dispute between Pledgee
and Pledgor. The parties acknowledge that, notwithstanding the above, Custodian
is required to and shall comply with the orders of any court of competent
jurisdiction with respect to matters otherwise governed by this Agreement,
provided, however, that Custodian will give Pledgee and Pledgor immediate notice
and a complete copy of any order received by it.

10.      ASSIGNMENT

         (a)      Pledgee shall have the right to assign all of its rights under
this Agreement including, but not limited to, its rights under Section 4, to any
financial institution (together with any such financial institution's successors
or assigns, the "Lender") providing loans to Pledgee in connection with the
Property described in that certain Multi Tenant Office Lease Agreement between
Pledgor (as "Tenant") and Pledgee (as "Landlord") having an Effective Date of
August _, 1999 (as now or hereafter amended, the "Lease"). Within one (1)
business day after making any such assignment of its rights and interests under
this Agreement to Lender, Pledgee shall deliver to Custodian written notice
substantially in the form of EXHIBIT C hereto. Upon receipt by Custodian of the
aforementioned notice, (i) Lender shall thereafter succeed to all of the rights
and privileges of Pledgee and shall be subject to the same conditions and
restrictions applicable to Pledgee under the terms of this Agreement, provided
that after Lender sends Custodian a Lender Notice of Exclusive Control pursuant
to Section 10(b) below, Lender shall also be subject to the same obligations
(including indemnification obligations arising from and after the date of the
Lender Notice of Exclusive Control) as Pledgee, and (ii) Custodian shall
promptly deliver to Lender a written acknowledgment of Lender's succession to
Pledgee under this Agreement. Lender will not be liable for any act, omission or
breach by Pledgee of any obligation under this Agreement or the Pledge Agreement
which occurs prior to the date of the Lender Notice of Exclusive Control and
will, upon any sale or transfer of its interest in the property and the Lease,
automatically be released and discharged from any and all liability thereafter
accruing under this Agreement or the Pledge Agreement, but no such delivery by
Lender of its Notice of Exclusive Control will release the Pledgee Landlord from
liability to the Pledgor for acts, omissions or breaches of this Agreement
during the period the Pledgee Landlord was the Pledgee hereunder.

         (b)      Notwithstanding Section 10(a) above, Pledgee shall continue to
exercise all of its rights under this Agreement as a licensee of Lender until
such time as Lender delivers a written notice to Custodian, substantially in the
form of EXHIBIT D hereto, that it is thereby exercising exclusive control over
the Account (the "Lender Notice of Exclusive Control"). After Custodian receives
the Lender Notice of Exclusive Control, it will promptly cease complying with
Entitlement Orders or other directions concerning the Account (including any
provision hereof regarding payments to the Pledgor) originated by Pledgor or
Pledgee or their respective representatives notwithstanding any contrary
provision in the Custodian Agreement. After delivering a Lender Notice of
Exclusive Control, Lender shall be bound by and shall comply with all the
obligations, terms, restrictions and conditions applicable to Pledgee under the
terms of this Agreement, including those concerning trade, withdrawal or
transfer of Financial Assets.

         (c)      If Pledgee assigns its interest in the Lease, whether
voluntary or through involuntary assignment or transfer such as bankruptcy or
foreclosure, such assignment will automatically and without further action or
notice to Pledgor cause an assignment of Pledgee's rights in this Agreement and
the collateral to the assignee and upon the assignee's assumption of Pledgee's
obligations under the Lease (including Pledgee's obligations with respect to
this Agreement and the Collateral), Pledgee will thereafter accrue no further
liability for the return of the Collateral and Pledgor will look solely to the
transferee or assignee for the return of the Collateral, but no such assignment
will release the assigning Pledgee from liability to Pledgor for acts, omissions
or breaches of this Agreement during the period the assignor was the Pledgee
hereunder. Upon request of either party, Pledgee and Pledgor agree to execute
such documents as may be reasonably necessary or desirable to reflect or better
confirm such assignment.

                                      N-4


11.      FEES, TAXES

         (a)      Pledgor shall pay to Custodian the agreed upon Custodian's
fees and other compensation or reimbursement which may become due hereunder as
provided in a separate agreement.

         (b)      All items of income, gain, expense and loss recognized in the
Account shall be reported to the Internal Revenue Service and any applicable
state and local taxing authorities under the name and taxpayer identification
number of Pledgor.

12.      NO ADDITIONAL DUTIES

         The parties acknowledge and agree that Custodian shall not have any
additional duties other than those expressly provided herein. Custodian has not
reviewed the Pledge Agreement and shall have no responsibility or liability in
respect thereof. Notwithstanding any other provisions of this agreement, the
Custodian shall have no duty, obligation or liability to ensure compliance with
any regulation or statute applicable to Pledgor or Pledgee.

13.      REPRESENTATIONS

         (a)      Each of the parties represents and warrants that (i) it is
duly incorporated or organized and is validly existing in good standing in its
jurisdiction of incorporation or organization, (ii) the execution, delivery and
performance of this Agreement and all documents and instruments to be delivered
hereunder have been duly authorized, (iii) the person executing this Agreement
on its behalf has been duly authorized to act on its behalf, (iv) this Agreement
constitutes its legal, valid, binding and enforceable agreement, subject to the
effect of bankruptcy, insolvency or similar laws affecting the rights of debtors
and creditors generally, and (v) its entry into this Agreement will not violate
its articles of incorporation (or other governing documents) or any agreement,
law, rule or regulation by which it is bound or by which any of its assets are
affected.

         (b)      Custodian represents and warrants that (i) it is and will
remain a "securities intermediary" within the meaning of such term in California
Commercial Code Section 8102(a)(14), (ii) it is and will remain a "securities
intermediary" within the meaning of such term in 31 C.F.R. Section 357.2
(Regulations Governing Book-Entry Treasury Bonds, Notes and Bills) and (iii) it
has received a copy of this Agreement signed by Pledgor and Pledgee.

         (c)      As between Custodian and Pledgor (i) the representations and
warranties of the Pledgor and Custodian, respectively, set forth in the
Custodian Agreement, (ii) the provisions of the Custodian Agreement providing
for indemnities, exculpations, protections and other privileges for the benefit
of Custodian and (iii) the provisions of the Custodian Agreement relating to the
services to be provided by Custodian with respect to proxies, notices, reports
and other communications relative to any Securities in the Account are hereby
incorporated by reference, mutatis mutandis, in respect of this Agreement and
the transactions herein contemplated as if set forth at length in this
Agreement; provided, however, that except as to matters expressly set forth in
(iii) above such incorporation by reference shall not impose or be deemed to
impose on Custodian any duties or responsibilities beyond those expressly set
forth in this Agreement; and provided further, however, in the event of any
conflict or inconsistency between this Agreement and the Custodian Agreement,
the provision that provides the greater protection to the Custodian shall
govern. Nothing in this Section 13(c), however, will apply to Pledgee in any
manner whatsoever, including after Pledgee gives Custodian a Notice of Exclusive
Control.

         (d)      Custodian represents and warrants to Pledgee that it is a
directly or indirectly wholly owned subsidiary of Deutsche Bank
Aktiengesellschaft.

14.      NOTICES

         Except as otherwise specifically provided for by this Agreement, all
notices and other communications between parties shall be in writing, effective
upon receipt, and shall be either hand delivered or mailed by first class mail,
postage prepaid, or sent by electronic facsimile or independent courier service
as follows:

                                      N-5


         to Pledgee:               Opus Union Station, L.L.C.
                                   915 - 118th Avenue SE
                                   Bellevue, WA 98005
                                   Attn: Thomas B. Parsons, Vice President
                                   Fax: (425) 453-1712

         With a copy to            Opus, L.L.C.
                                   10350 Bren Road West
                                   Mennetonka, MN 55343
                                   Attn: Legal Department
                                   Fax: (612) 936-4529

         to Pledgor:               Amazon.com, Inc.
                                   1200 12th Avenue South, Suite 1200
                                   Seattle WA 98144
                                   Attn: General Counsel
                                   Fax: (206) 834-7010

         to Custodian:             Bankers Trust Company of California, N.A.
                                   3005 South Grand Avenue, 40th Floor
                                   Los Angeles California 90071
                                   Attention: Diane Severino
                                   Fax: (213) 620-8400

Each party may change its address prospectively for purposes hereof by giving
notice to the other parties in accordance with the provisions of this paragraph.

15.      SIGNATURES

         Both Pledgor and Pledgee agree to provide Custodian with specimen
signatures of those persons authorized, from time to time, to give instructions
to Custodian under this Agreement and Custodian shall not incur any liability
with respect to any action taken in reliance upon any written instructions which
Custodian in good faith believes to be genuine and to have been signed by a duly
authorized person.

16.      INSTRUCTIONS

         Custodian shall be fully protected in acting on written instructions
from Pledgor and/or Pledgee as herein provided. All such instructions shall be
delivered to Custodian sufficiently in advance to accord to Custodian reasonable
time to act thereon.

17.      CUSTODIAN AGREEMENT

         (a)      Regardless of any provision in any other agreement, the state
of California shall be deemed to be Custodian's location for the purposes of
this Agreement and the perfection and priority of creditor's security interest
in the Account.

         (b)      Custodian shall not be liable for any expenses, losses or
damages Pledgee, Pledgor or any third person may suffer or incur by reason of
any delay in obtaining Securities from any clearing agent, transfer agent.,
issuer, securities broker or dealer, or any other third party, or in obtaining
monies from the Pledgee, clearing agency or the Federal Reserve wire transfer
system.

         (c)      Custodian shall not be responsible for the title, validity or
genuineness of any Security or other Financial Asset.

                                      N-6


         (d)      Subject to Section 18 of this Agreement, Custodian shall not
be liable for any expenses, losses or damages Pledgee, Pledgor or any third
person may suffer or incur by reason of any signature by an unauthorized person
on, or forgery or wrongful alteration of, a written instrument or inaccuracy,
incompleteness or falsity of data transmitted by computer tape or terminal or in
a written instrument if Custodian believes in good faith that such instrument,
instruction or data was for the account or benefit of Pledgee or Pledgor, as
applicable, or that the writing was signed by, or the data or computer tape was
transmitted by, an appropriately authorized person.

18.      STANDARD OF CARE

         Custodian shall be responsible for the performance of only such duties
as are set forth herein or contained in instructions given to the Custodian
which are not contrary to the provisions of this Agreement. The Custodian will
use reasonable care with respect to the safekeeping of property in the Account
and, except as otherwise expressly provided herein, in carrying out its
obligations under this Agreement. Custodian's responsibility hereunder for
physical loss or damage of property is limited to any loss occasioned directly
by the gross negligence or willful misconduct of an employee of Custodian or by
robbery, burglary or theft (while the Securities and Financial Assets are in
Custodian's physical possession), to the extent of the market value of such
Securities and Financial Assets at the date of the discovery of such loss if
such Securities or Financial Assets cannot be replaced by Custodian. In no
event, however, shall Custodian have any responsibility for consequential,
indirect, special or exemplary damages, whether or not it has notice thereof,
nor shall it have any responsibility or liability for the validity or
enforceability of any security interest or other interest of Pledgee or Pledgor
in the Securities.

19.      FORCE MAJEURE

         Custodian shall not be responsible or liable for any failure or delay
in performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control,
including without limitation, acts of God, earthquakes, fires, floods, wars,
civil or military disturbance, sabotage, epidemics, riots, acts of terrorism,
loss or malfunctions of utilities or of computer (hardware or software) or
communications services, labor disputes, acts of civil or military authority, or
governmental, judicial or regulatory actions; provided, however, that Custodian
shall use its best efforts to resume performance as soon as reasonably possible.

20.      INDEMNIFICATION

         Except where Custodian has defaulted on its obligations hereunder, or
Custodian has been grossly negligent or has acted in bad faith, Pledgee and
Pledgor will release Custodian from and indemnify and hold Custodian harmless
from and against any and all losses, claims, damages, liabilities, costs and
expenses (including, without limitation, reasonable counsel fees, whether
arising in an action or proceeding between the parties hereto or otherwise) to
which Custodian may become subject, or which it may suffer or incur, arising out
of or based upon this Agreement or the actions contemplated hereby; provided,
however, that Pledgee's liability under this paragraph shall be limited to
matters arising out of Custodian's execution of Pledgee's instructions or
resulting from any actual or alleged breach of this Agreement by Pledgee. This
paragraph shall survive the termination of this Agreement.

21.      BINDING EFFECT; ENTIRE AGREEMENT

         (a)      This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that except as set forth in Section 10 of this Agreement, this
Agreement shall not be assignable by any party to this Agreement without the
prior written consent of all parties.

         (b)      This Agreement represents the entire agreement of the parties
with respect to its subject matter and supersedes all prior oral or written
agreements, negotiations or proposals. Custodian shall not be bound by the terms
of the Pledge Agreement notwithstanding any reference thereto in this Agreement
and shall have no duty to inquire into Pledgor's or Pledgee's compliance
therewith Pledgee shall not be bound by the terms of the Custodian Agreement
notwithstanding any reference thereto in this Agreement, and shall have no duty
to inquire into Custodian's or Pledgor's compliance therewith. This Agreement
may not be modified or amended except by written

                                      N-7


agreement executed by all parties, and the observance of any of the terms of
this Agreement may be waived only with prior written consent of all parties
hereto.

22.      TERMINATION

         This Agreement may be terminated jointly by Pledgor and Pledgee by an
instrument in writing delivered or mailed, postage prepaid, to Custodian, such
termination to take effect on the date of such delivery or receipt by Custodian;
provided, however, that until a successor custodian shall have been appointed
and Custodian shall have transferred the Securities and other Financial Assets
as provided be-low, this Agreement shall continue in full force and effect. This
Agreement may be terminated by Custodian by an instrument in writing delivered
or mailed, postage prepaid, to Pledgor and Pledgee, such termination to take
effect not sooner than thirty (30) days after the date of such delivery or
mailing; provided, however, that until a successor custodian shall have been
appointed and Custodian shall have transferred the Securities as provided below
to such successor custodian, this Agreement shall continue in full force and
effect. If such successor custodian is not appointed by Pledgee and Pledgor and
has not accepted the duties of Custodian hereunder within sixty (60) days of the
delivery by custodian of its notice of termination of this Agreement, Pledgee
acting alone shall designate such successor custodian, in writing delivered to
Pledgor and Pledgee, selected from among the ten largest commercial banks (in
terms of deposits) in California or in accordance with the directions of a final
order or judgment of a court of competent jurisdiction. If a successor custodian
shall be appointed as herein provided upon termination of this Agreement,
Custodian shall transfer all Securities and other Financial Assets to the
designated account of the successor custodian physically or in the appropriate
book-entry system, if feasible, and thereupon Custodian shall be discharged from
any and all further responsibility hereunder.

23.      IMMUNITY; JURISDICTION

         To the extent, if any, to which Pledgor or any of its respective
properties may be deemed to have or hereafter to acquire immunity, on the ground
of sovereignty or otherwise, from any judicial process or proceeding to enforce
this Agreement or to collect amounts due hereunder (including, without
limitation, attachment proceedings prior to judgment or in aid of execution) in
any jurisdiction, Pledgor hereby waives such immunity and agrees not to claim
the same. Any suit, action or proceeding arising out of this Agreement may be
instituted in any State or Federal court sitting in Los Angeles, California,
United States of America, and the Pledgor irrevocably submits to the exclusive
jurisdiction of any such court in any such suit, action or proceeding and
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of venue of any such suit, action or proceeding
brought in such a court and any claim that such suit, action or proceeding was
brought in an inconvenient forum.

24.      COUNTERPARTS

         Three or more duplicate or counterpart originals of this Agreement may
be signed by the parties hereto, each of which together shall constitute one and
the same Agreement.

25.      GOVERNING LAW

         THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA (EXCLUDING ANY CONFLICT OF LAWS
PRINCIPLES THEREOF) WHICH ARE APPLICABLE TO AGREEMENTS THAT ARE NEGOTIATED,
EXECUTED, DELIVERED AND TO BE PERFORMED ENTIRELY IN THE STATE OF CALIFORNIA.
Whenever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under said laws, provided, however, if any
provision of this Agreement shall be construed to be prohibited or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or remaining provision in this Agreement.

                                      N-8


26.      WAIVER OF TRIAL BY JURY.

         THE PARTIES HERETO MUTUALLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LITIGATION RELATING TO THIS AGREEMENT, INCLUDING ANY COUNTERCLAIM OR
CROSS-CLAIM THEREIN.

         IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed by a duly authorized representative as of the date first above
written.

                                    AMAZON.COM, INC.
                                    a Delaware corporation

                                    By
                                       -----------------------------------------
                                       Authorized Signature

                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------

                                    OPUS UNION STATION, L.L.C.,
                                    a Delaware limited liability company

                                    By
                                       -----------------------------------------
                                       Authorized Signature

                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------

                                    BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
                                    a banking corporation organized under the
                                    laws of the United States

                                    By
                                      ------------------------------------------
                                       Authorized Signature

                                       Name:
                                             -----------------------------------
                                       Title:
                                              ----------------------------------

                                      N-9


                                    EXHIBIT A
                                       TO
                    SECURITY, CUSTODIAN AND CONTROL AGREEMENT

                           FINANCIAL ASSETS IN ACCOUNT

                                     N-A-1.


                                    EXHIBIT B
                                       TO
                    SECURITY, CUSTODIAN AND CONTROL AGREEMENT

                  FORM OF PLEDGEE'S NOTICE OF EXCLUSIVE CONTROL

                            __________________, 199_

TO:      [Name and address of Custodian]

         ________________________________

         ________________________________

         ________________________________


         RE:      NOTICE OF EXCLUSIVE CONTROL - ACCOUNT NO._____________

         Dear Sirs:

         Pursuant to the provisions of the Security, Custodian and Control
Agreement dated as of ______________, among the under signed as Pledgee,
_______________ as Pledgor and you as Custodian (the "Agreement"), the
undersigned hereby gives notice of the exercise of exclusive control over the
Account due to the occurrence and continuance of an Event of Default under the
Agreement. Subject to the provisions of the Agreement, you are hereby instructed
to transfer and credit on your books and records all Financial Assets in the
Account to an account in the name of the under signed as the Entitlement Holder.

         In accordance with the Agreement, you are hereby notified to cease
complying with Entitlement Orders or other directions concerning the Account or
the Financial Assets therein originated by Pledgor or its representatives.

         The undersigned hereby certifies that three (3) business days prior to
the date hereof it has given notice to Pledgee that it intends to excuse
remedies under the Agreement.

         All capitalized terms used herein without definition have the same
meanings as are ascribed to such terms in the Agreement.

                                    Very truly yours,

                                    PLEDGEE:

                                    ____________________________________________

                                     By ________________________________________
                                         Name: _________________________________
                                         Title: ________________________________

                                     N-B-1.


                                    EXHIBIT C
                                       TO
                    SECURITY, CUSTODIAN AND CONTROL AGREEMENT

                FORM OF PLEDGEE'S NOTICE OF ASSIGNMENT TO LENDER

                             _______________, 199__

TO:      [Name and address of Custodian]

         ________________________________

         ________________________________

         ________________________________


RE:      NOTICE OF ASSIGNMENT - ACCOUNT NO._____________

Dear Sirs:

         Pursuant to Section 10 of the Security, Custodian and Control Agreement
dated as of ______________, among the undersigned as Pledgee, __________ as
Pledgor and you as Custodian (the "Agreement"), the undersigned hereby gives
notice it has assigned its rights under the Agreement to the ______________ (the
"Lender").

         In accordance with the provisions of Section 10 of the Agreement, the
undersigned shall continue to exercise its rights under the Agreement as a
licensee of the Lender until such time as the Lender delivers to you a Lender
Notice of Exclusive Control.

         All capitalized terms used herein without definition have the same
meanings as are ascribed to such terms the Agreement.

                                    Very truly yours,

                                    PLEDGEE:

                                    ____________________________________________

                                     By ________________________________________
                                         Name: _________________________________
                                         Title: ________________________________

                                     N-C-1.


                                    EXHIBIT D
                                       TO
                    SECURITY, CUSTODIAN AND CONTROL AGREEMENT

                  FORM OF LENDER'S NOTICE OF EXCLUSIVE CONTROL

                           ___________________, 199__

TO:      [Name and address of Custodian]

         ________________________________

         ________________________________

         ________________________________


         RE:      NOTICE OF EXCLUSIVE CONTROL - ACCOUNT NO._____________

Dear Sirs:

         Pursuant to the provisions of the Security, Custodian and Control
Agreement dated as of _______________ among _______________ as Pledgee,
__________________ as Pledgor and you as Custodian (the "Agreement"), the
undersigned hereby gives notice of the exercise of exclusive control over the
Account. Subject to the provisions of the Agreement, you are hereby instructed
to transfer and credit on your books and records all Financial Assets in the
Account to an account in the name of the undersigned as the Entitlement Holder.

         In accordance with the Agreement, you are hereby notified to cease
complying with Entitlement Orders or other directions concerning the Account or
the Financial Assets therein originated by Pledgor, Pledgee or their respective
representatives.

         All capitalized terms used herein without definition have the same
meanings as are ascribed to such terms in the Agreement.

                                     Very truly yours,

                                     LENDER:

                                     ___________________________________________

                                     By ________________________________________
                                         Name: _________________________________
                                         Title: ________________________________

                                       2.


                                        Opus Center @ Union Station - Building 4
                                                                     Seattle, WA

               AMENDMENT 1 TO MULTI-TENANT OFFICE LEASE AGREEMENT

         This Amendment 1 to Multi-Tenant Office Lease Agreement (this
"Amendment") is by and between OPUS UNION STATION II, L.L.C., a Delaware limited
liability company ("Landlord") and AMAZON.COM HOLDINGS, INC., a Delaware
corporation ("Tenant"), and is made and dated as of May 21, 2001.

         Landlord's predecessor in interest, Opus Union Station, L.L.C., a
Delaware limited liability company ("Original Landlord"), and Tenant's
predecessor in interest, Amazon.com, Inc., a Delaware corporation ("Original
Tenant"), are parties to that certain Multi-Tenant Office Lease Agreement (the
"Lease") having an Effective Date of August 23, 1999 and relating to those
certain Premises in the Building In Unit 4, Union Station Condominium, a
condominium recorded in Volume 15 of Condominiums, pages 37-45, according to the
amended and restated declaration thereof recorded under King County Recording
No. 9811171094 and the first amendment thereto recorded under King County
Recording No. 9901042189, and situated in the City of Seattle, Washington.
Original Landlord assigned its entire interest in the Lease to Landlord pursuant
to that certain Assignment and Assumption of Lease dated February 15, 2000,
recorded under King County Recording No. 20000218001379. Original Tenant
assigned its entire interest in the Lease to Tenant pursuant to that certain
Assignment and Assumption Agreement having an effective date of October 1, 1999.
Unless specifically defined in this Amendment, capitalized terms in this
Amendment have the same meaning as set forth in the Lease. Substantial
Completion of Floors 1 through 3 and 8 through 11 has been delayed because of
Tenant Delays and the parties wish hereby to provide for a takedown schedule for
the Floors comprising the Premises, both initially and after the initial
takedown, that is different from the sequence now contemplated in the Lease, the
parties agreeing that neither party has any claim against the other arising out
of delays (including Tenant Delays) in Substantial Completion of such Floors. In
addition, Landlord and Tenant have established the final Rentable Area of the
Premises and the Building and have agreed that April 10, 2001 is the
Commencement Date of the Lease, and wish to amend the Lease as contemplated by
Section 1.1 thereof, in connection with matters related thereto, and to confirm
certain other agreements of the parties in connection with the Lease.

         NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, receipt and sufficiency of which is fully and unconditionally
acknowledged, Landlord and Tenant do hereby agree as follows:

         1.       The description of the Premises in Paragraph 1 of the Basic
Term is deleted in its entirety, and in its place is substituted the following:

                                       1.


                  PREMISES:         The entire Rentable Area, containing 253,769
                                    square feet, and located on the 1st floor
                                    through the 11th floor of the Opus Center
                                    South Building on the Property. Each floor
                                    of the Premises is depicted approximately as
                                    shown on EXHIBIT C.

         2.       Paragraphs 6, 7 and 8 of the Basic Terms of the Lease are
deleted in their entireties, and in their place is substituted the following:

6. IMPROVEMENT ALLOWANCE:                per square foot of Rentable Area in the
                                    Premises. Tenant acknowledges that Landlord
                                    has paid the Improvement Allowance for
                                    Tenant's Improvements in certain portions of
                                    the Premises and that the remaining
                                    Improvement Allowance as of the date hereof
                                    is

7. CURRENT PROPERTY                 Opus Northwest Management, L.L.C.
   MANAGER/LOCAL CONTACT:           605 Fifth Avenue South, Suite 110
                                    Bellevue, WA 98004
                                    Attn: Property Manager
                                    Telephone: (425) 453-4100
                                    Facsimile: (425) 453-1712

   CURRENT RENT PAYMENT             Opus Union Station II L.L.C.
   ADDRESS:                         c/o Opus Northwest Management, L.L.C.
                                    10350 Bren Road West
                                    Minnetonka, MN 55343

8. ADDRESS OF LANDLORD FOR
   NOTICES:                         Opus Union Station II, L.L.C.
                                    915 - 118th Avenue SE, Suite 300
                                    Bellevue, WA 98005
                                    Attn: Thomas B. Parsons

   WITH A COPY TO:                  Opus, L.L.C.
                                    10350 Bren Road West
                                    Minnetonka, MN 55343
                                    Attn: Legal Department

   AND TO:                          PROPERTY MANAGER AT THE ADDRESS
                                    DESCRIBED IN SECTION 7 OF THE BASIC TERMS

                                       2.


         3.       For purposes of Section 1.1 of the Lease, the Rentable Area of
the Building is 253,769 square feet, allocated as follows:



     FLOOR(s)                 SQUARE FEET OF RENTABLE AREA PER FLOOR
- -----------------             --------------------------------------
                           
Each of 10 and 11                             24,057
        9                                     24,185
 Each of 8 and 7                              24,226
        6                                     24,227
        5                                     24,407
        4                                     25,039
        3                                     24,794
        2                                     20,632
        1                                     13,919


         The parties each waive any right under Section 1.1 of the Lease to
remeasure the Premises or to have a neutral architect resolve any dispute with
respect to the measurement of Rentable Area. As of the Commencement Date, the
Rentable Area of the Premises on which Tenant will be paying Basic Rent is
73,673 square feet, which consists of Floors 4, 5 and 6 in the Building.

         4.       The definition of "Commencement Date" set forth in EXHIBIT A
to the Lease is hereby deleted and replaced with the following: "Commencement
Date" means April 10, 2001.

         5.       The definition of "Rent Commencement Date" set forth in
EXHIBIT A to the Lease is hereby deleted and replaced with the following: "Rent
Commencement Date" means with respect to each floor of the Premises, the date
upon which Tenant is required to commence paying Basic Rent as established in
Paragraph 4 of the Basic Terms of Lease (as amended below).

         6.       Paragraph 4 of the Basic Terms of the Lease is deleted in its
entirety and the following is substituted in its place:

                  a.       During the period between the Commencement Date and
September 30, 2001 (the "Rent Transition End Date"), Tenant will pay Basic Rent
as follows for Floors 4 through 6: at the rate of      per square foot of
Rentable Area of Floor 4, and at the rate of      per square foot of Rentable
Area for Floors 5 and 6, for a total aggregate Basic Rent of      per month
through the Rent Transition End Date.

                  b.       During the period commencing on the date a particular
Takedown Space is included in the Premises Rentable Area (see the amendment to
Section 17.1.14 of the Lease as set forth in Paragraph 10 below) and ending on
the Rent Transition End Date, Tenant will pay Basic Rent for each Takedown Space
at the following rates:

                                       3.




    TAKEDOWN SPACE                            MONTHLY BASIC RENT
- ---------------------                 ------------------------------------
                                   
First Takedown Space
Second Takedown Space
Third Takedown Space
Fourth Takedown Space
Fifth Takedown Space                      for the period, if any, prior to
                                      October 1, 2001


                  c.       Commencing on October 1, 2001 through April 30, 2006
(the end of the 60th month of the Initial Term), the Annual Basic Rent will be
                , payable in monthly installments of .

                  d.       From and after May 11, 2006 (the beginning of the
61st month of the Initial Term) through the end of the Initial Term on April 30,
2011, the Annual Basic Rent per square Foot of Rentable Area will be as follows



                                         ANNUAL BASIC RENT - PER SQUARE FOOT
            FLOOR                                 OF RENTABLE AREA
- --------------------------               -----------------------------------
                                      
Each of Floors 1 through 6
Each of Floors 7 through 9
Each of Floors 10 and 11


         7.       Section 4.5 of the Lease is amended to read as follows:

                  4.5      COMMON AREA.

                  Landlord grants Tenant the non-exclusive right, together with
         all other occupants of the Building and their agents, employees and
         invitees, to use the Common Area during the Term, subject to all Laws;
         provided, however, that at any time that Tenant occupies all of the
         Rentable Area of the Building, it shall have the exclusive right to use
         the Common Area on the interior of the Building except that (i)
         Landlord shall have the right to use of the freight elevator in the
         Building for janitorial and maintenance services to the Building during
         the hours of 6 p.m. to 7 am on Business Days and at all hours on
         non-Business Days and for general deliveries, and (ii) Landlord will
         coordinate with Tenant to schedule any large general deliveries during
         the hours of 7:00 a.m. to 6:00 p.m. on Business Days. Landlord, at
         Landlord's sole and exclusive discretion, may (a) restrain unauthorized
         persons from using the Common Area; (b) temporarily close any portion
         of the Common Area (i) for repairs, improvements or Alterations, (ii)
         to discourage unauthorized use, (iii) to prevent dedication or
         prescriptive rights, or (iv) for any other reason Landlord deems
         sufficient in Landlord's reasonable judgment; (c) change the shape and
         size of the Common Area; (d) add, eliminate

                                       4.


         or change the location of any improvements located in the Common Area;
         and (e) impose and revise Building Rules concerning use of the Common
         Area, including, but not limited to, any parking facilities comprising
         a portion of the Common Area. Landlord's rights tinder this Section 4.5
         will be exercised at all times in a manner so as (a) not to prevent,
         impair or materially alter access to the Premises, (b) to minimize the
         interference with Tenant's business in the Premises and (c) to the
         extent it is under Landlord's control, maintain reasonable ingress to
         and ingress between the Premises and the Parking Garage.

         8.       Section 17.1.4 of the Lease is amended by deleting the first
sentence in its entirety, and substituting in its place the following:

                  Tenant acknowledges that Landlord is not a general contractor
         and that Opus Northwest, L.L.C. acted as general contractor for the
         Tenant's Improvements completed through April 4, 2001.

         9.       Section 17.1.9 of the Lease is hereby deleted.

         10.      Section 17.1.14 of the Lease is amended to read as follows:

                  17.1.14  DELIVERY IN SEGMENTS.

                  The parties agree that for each Takedown Space identified
         below, all of the Rentable Area on the Floors of such Takedown Space
         will be included in the Premises Rentable Area on the earlier of (a)
         the corresponding Last Date for Takedown specified below, or (b) the
         date of Substantial Completion of any Tenant's Improvements or
         Subtenant's Improvements pursuant to this Section 17.1.14, provided,
         however, that if any Substantial Completion of any Subtenant's
         Improvements occurs before the Last Date for Takedown specified below,
         then during the period between such Substantial Completion and the Last
         Date for Takedown specified below, the Rentable Area on such Floor to
         be included in the Premises Rentable Area shall be limited to the
         Rentable Area of the Designated Takedown Space that is the subject of
         such Approved Sublease:



                                    FLOORS COMPRISING TAKEDOWN          LAST DATE
TAKEDOWN SPACE                                 SPACE                  FOR TAKEDOWN
- --------------------                --------------------------      -----------------
                                                              
First Takedown Space                      Floors 2 and 3              June 1, 2001
Second Takedown Space                     Floors 7 and 8              July 1, 2001
Third Takedown Space                          Floor 1                August 1, 2001
Fourth Takedown Space                     Floors 9 and 10           September 1, 2001
Fifth Takedown Space                         Floor 11                October 1, 2001


                                       5.


         "Takedown Space" means the First Takedown Space, the Second Takedown
         Space, the Third Takedown Space, the Fourth Takedown Space, or the
         Fifth Takedown Space, as the case may be. Notwithstanding any other
         provision of this Lease, each Takedown Space will be added to the
         Premises Rentable Area on the date set forth above, regardless of
         whether it is Substantially Complete.

         The Final Plans were established for Floors 4, 5, 6 and 7, and all
         Tenant's improvements on those floors were Substantially Completed, in
         accordance with the Final Plans, on April 4, 2001, subject to mutually
         agreed Punch List items. Landlord's Improvements for the entire
         Building have been completed subject to mutually agreed Punch List
         items except for the completion of industry standard telephone and data
         communications cables to be installed within the communications risers
         serving all floors of the Building. All Punch List items have since
         been completed. Landlord has no further obligation to construct
         Tenant's Improvements on those floors or Landlord's Improvements
         (except for the cabling described above) and Tenant has accepted
         possession of those Floors. The one-year warranty for the Tenant's
         Improvements on Floors 4, 5, 6 and 7 commenced on April 4, 2001.

         Final Plans were also established for Floors 1, 2 and 3, but Tenant
         directed Landlord to stop constructing the Tenant's Improvements on
         those floors. Tenant acknowledges that as of April 4, 2001 Landlord
         completed on Floors 1, 2 and 3 the Tenant's Improvements summarized on
         SCHEDULE 1 attached hereto. The one-year warranty for the Tenant's
         Improvements on Floors 1, 2 and 3 commenced on April 4, 2001. In
         addition, Tenant did not deliver space plans to Landlord for Floors 8,
         9, 10 or 11 and, accordingly, no Final Plans were established by
         Landlord and Tenant for those floors. Tenant has indicated to Landlord
         that it may wish to change the Final Plans for all or any of Floors 1,
         2 and 3. Notwithstanding anything to the contrary in this Section
         17.1.14, because the damage is covered by Landlord's builder's risk
         insurance, Landlord will promptly repair (to the extent not already
         repaired) all earthquake damage to the Landlord's Improvements and
         Tenant's Improvements on Floors 1-7 existing on the Commencement Date.

         Landlord will not undertake any further buildout of Tenant's
         Improvements beyond those Substantially Completed as of April 4, 2001.
         Any additional Tenant's Improvements will be built out by Tenant or, if
         the space is to be occupied by a subtenant ("Subtenant") pursuant to a
         sublease approved by Landlord (an "Approved Sublease"), then any
         Tenant's Improvements in the space to be occupied by the Subtenant
         ("Subtenant's Improvements") may be built out by a Subtenant, pursuant
         to the following procedures:

                           (1)      Tenant may, by notice to Landlord, designate
                  any portion of Floors 1 through 3, inclusive, and/or 8 through
                  11, inclusive, to be built out (each, a "Designated Takedown
                  Space") by Tenant or a Subtenant.

                                       6.


                           (2)      Provided that there exists no Event of
                  Default under the Lease, the remaining Improvement Allowance
                  may be applied to all costs of the Tenant's Improvements or
                  Subtenant's Improvements (including architectural and
                  engineering design, construction fees and any costs payable to
                  Landlord under Section 8.2) and the costs of Tenant's or any
                  Subtenant's service providers as described in Section 17.1.3.
                  Landlord shall pay Tenant (or a Subtenant if Tenant has
                  assigned the Improvement Allowance to a Subtenant in an
                  Approved Sublease) the portion of the Improvement Allowance
                  attributable to such Designated Takedown Space in monthly
                  installments as costs are incurred in accordance with the
                  following paragraph (3).

                           (3)      If the total cost of construction (as
                  evidenced by the construction contract approved by Landlord)
                  exceeds the Improvement Allowance allocable to the Designated
                  Takedown Space, then Tenant (or Subtenant) shall contribute
                  its proportionate share of the cost of construction on a
                  monthly basis and may submit monthly draw requests on the
                  Improvement Allowance for Landlord's proportionate share of
                  the costs incurred. Each draw request shall be accompanied by
                  (a) invoices for work performed or materials supplied for
                  which payment is being requested, (b) lien releases from
                  Tenant's (or Subtenant's) general contractor, subcontractors
                  and suppliers for the work and materials covered by prior draw
                  requests that were paid by Landlord. Landlord shall pay the
                  allowable portion of the Improvement Allowance to Tenant (or
                  Subtenant) by the 10th business day following receipt of a
                  complete and accurate draw request. Notwithstanding the
                  foregoing, Landlord shall not be required to pay the final
                  disbursement until Tenant or Subtenant has provided to
                  Landlord a certificate of occupancy or other evidence that the
                  City of Seattle has approved the occupancy of the Designated
                  Takedown Space. Landlord may withhold a disbursement if the
                  work performed is not in accordance with plans submitted to
                  and approved by Landlord, does not meet the requirements of
                  Article 8 of the Lease or if Tenant is in default under the
                  Lease.

                           (4)      Provided Tenant is not in default under the
                  Lease, then after all Tenant's Improvements and all
                  Subtenant's Improvements have been completed in the entire
                  Building, Landlord will pay any unused portion of the
                  remaining Improvement Allowance to Tenant within 30 days after
                  receipt of evidence reasonably acceptable to Landlord that all
                  Tenant's Improvements and Subtenant's Improvements have been
                  completed in accordance with the Lease and (if applicable) the
                  Sublease and any agreement between Landlord and the Subtenant,
                  accepted by Tenant and any Subtenant, all contractors and
                  subcontractors for the Tenant's Improvements and the
                  Subtenant's Improvements have been paid and all lien rights of
                  contractors and subcontractors have been waived or released
                  pursuant to Section 8.4 of the Lease; and

                                       7.


                           (5)      Tenant or Subtenant will prepare and
                  Landlord will review and approve the plans for the Tenant's
                  Improvements or Subtenant's Improvements in accordance with:
                  (i) Section 17.1.5 of the Lease (except the last sentence
                  thereof and except that in subclause (c) of the second
                  sentence, the word "Landlord" shall be changed to read
                  "Tenant"); (ii) the first eight (8) sentences of Section
                  17.1.6 of the Lease (except that in subclauses (b) and (c) of
                  the second sentence and in the seventh sentence, the word
                  "Landlord" shall be changed to read "Tenant"); and (iii) the
                  first two sentences of Section 17.1.7 of the Lease. Each
                  Designated Takedown Space will be designed in accordance with
                  the foregoing provisions.

                  The Tenant's Improvements or Subtenant's Improvements
         installed in the Building after April 4, 2001 will be considered
         Alterations (notwithstanding the definition of "Alterations" in Exhibit
         A to the Lease) and, except as provided above with respect to the
         Improvement Allowance and submittal and approval of plans, shall be
         constructed by Tenant or the Subtenant (if applicable) at such party's
         expense in accordance with the provisions of Section 8.1 of the Lease
         (except the second paragraph) and Sections 8.2, 8.3 (except the third
         sentence), 8.4 and 8.5 of the Lease. Landlord will, at no cost or
         additional liability to Landlord, if requested by Tenant, execute and
         deliver to Tenant any permit application relating to the Tenant's
         Improvements and/or the Subtenant's Improvements if Landlord's
         signature thereon is necessary under applicable Laws. Tenant
         acknowledges that it is directly liable to Landlord for liens arising
         out of the Subtenant's Improvements to the extent required under
         Section 8.4 of the Lease. Tenant may access any of the Takedown Space
         (and/or any Subtenant may access any of the space to be occupied by it)
         in order to design and build any additional Tenant's Improvements or
         Subtenant's Improvements and prepare the space in accordance with the
         second sentence of Section 1.2.4.

         11.      Tenant acknowledges that Tenant or Subtenant (as applicable)
shall be solely responsible for the design and installation of any Tenant's
Improvements and/or Subtenant's Improvements after April 4, 2001, and that
(except as specifically provided above) Landlord shall have no obligations
(including without limitation, any obligations under Sections 17.1.3, 17.1.5,
17.1.6, 17.1.7, 17.1.8, 17.1.9, 17.1.10, 17.1.11, or 17.1.12) with respect to
any Tenant's Improvements or Subtenant's Improvements not completed on such
date. Landlord will not charge any fee in connection with Tenant's Improvements
or Subtenant's Improvements installed after April 4, 2001, including under
Section 17.1.4, except to the extent permitted under Section 8.2.

         12.      Tenant acknowledges that it has received notice from Landlord
under Section 17.6 of the Lease that Landlord intends to sell the Unit, that
Tenant has elected pursuant to the terms of Section 17.6 not to pursue purchase
of the Unit on the terms offered by Landlord, and that Landlord has the right
under Section 17.6 of the Lease to sell the Unit to any other person, provided
the sale price is not more than ten percent (10%) below the sale price that
Landlord offered to Tenant. Tenant has not waived any other right of first
opportunity or first refusal.

                                       8.


         13.      If, as of the last day of the 83rd full calendar month of the
Initial Term, there exists a sublease for any part of Floor 11 the term of which
expires (or upon exercise of an option may expire) after the end of the 96th
full calendar month of the Initial Term, then Tenant shall have no right to
exercise its termination right as of the end of the 96th full calendar month of
the Initial Term with respect to Floor 11. If, as of the last day of the 83rd
full calendar month of the Initial Term, there exists a sublease for any part of
Floor 10 the term of which expires (or upon exercise of an option may expire)
after the end of the 96th full calendar month of the Initial Term, then Tenant
shall have no right to exercise its termination right as of the end of the 96th
full calendar month of the Initial Term with respect to Floor 10, but such night
will be exercisable with respect to Floor 11 except as set forth in the
immediately preceding sentence. If, as of the last day of the 95th full calendar
month of the Initial Term, there exists a sublease for any part of Floor 11 the
term of which expires (or upon exercise of an option may expire) after the end
of the 108th full calendar month of the Initial Term, then Tenant shall have no
right to exercise its terminate right as of the end of the 108th full calendar
month of the Initial Term with respect to Floor 11. If, as of the last day of
the 95th full calendar month of the Initial Term, there exists a sublease for
any part of Floor 10 the term of which expires (or upon exercise of an option
may expire) after the end of the 108th full calendar month of the Initial Term,
then Tenant shall have no right to exercise its termination right as of the end
of the 108th full calendar month of the Initial Term with respect to Floor 10,
but such right will be exercisable with respect to Floor 11 except as set forth
in the immediately preceding sentence.

         13.      Except as amended herein, the Lease is affirmed by the parties
and continues in full force and effect in accordance with its terms.

                                         LANDLORD:

                                         OPUS UNION STATION II, L.L.C.,
                                         a Delaware limited liability company

                                         By:  /s/ Thomas B. Parsons
                                            ------------------------------------
                                            Thomas B. Parsons, Vice President

                                         TENANT:

                                         AMAZON.COM HOLDINGS, INC.,
                                         a Delaware corporation

                                         By:  /s/ Julie Benezet
                                            -----------------------------------
                                         Name: Julie Benezet
                                         Its: Director

                                       9.


                                  RATIFICATION

         AMAZON.COM, INC., a Delaware corporation ("Original Tenant") hereby
agrees as follows:

         1.       Original Tenant, as tenant, and Opus Union Station, L.L.C.
("Original Landlord"), as landlord, entered into that certain Multi-Tenant
Office Lease Agreement, Building 4 dated as of August 23, 1999 (as the same has
been and may hereafter be assigned, amended or modified from time to time, the
"Lease"). Capitalized terms not otherwise defined herein shall have the meanings
given in the Lease.

         2.       In connection with Section 17.18.4 of the Lease: (a) Original
Tenant and Original Landlord entered into that certain Security Deposit Pledge
Agreement dated as of September 13, 1999 (the "Pledge Agreement"); and (b)
Original Tenant, Original Landlord and Bankers Trust Company of California, N.A.
("Custodian") entered into that certain Security, Custodian and Control
Agreement dated as of September 13, 1999 (the "Control Agreement").

         3.       By an Assignment and Assumption Agreement dated as of October
1, 1999 (the "Lease Assignment"), Original Tenant assigned its entire interest
in the Lease to Amazon.com Holdings, Inc. ("Tenant") and Tenant assumed all
obligations of Original Tenant under the Lease. Original Tenant did not assign
its rights in the collateral secured by the Pledge Agreement and subject to the
Control Agreement, nor its rights and obligations under said agreements.
Further, the Lease Assignment did not release or relieve Original Tenant from
any obligations under the Lease and Original Tenant remains liable thereunder as
principal and not as surety.

         4.       By an Assignment and Assumption of Lease dated as of February
16, 2000, Original Landlord assigned and transferred to Opus Union Station II,
LLC ("Landlord") all of Original Landlord's right, title and interest in the
Lease, together with all guaranties and other security pledged with respect
thereto and Landlord assumed all obligations of Original Landlord under the
Lease.

         5.       Original Tenant hereby ratifies and confirms that: (a) it has
consented and agreed to all amendments to the Lease including this Amendment;
and (b) its obligations under the Pledge Agreement and Control Agreement remain
in full force and effect and secure the obligations of Original Tenant and, by
the Lease Assignment, the Tenant, under the Lease.

                                         ORIGINAL TENANT:

                                         AMAZON.COM, INC.,
                                         a Delaware corporation

                                         By:  /s/ Julie Benezet
                                            ------------------------------------
                                         Name: Julie Benezet
                                         Its: Director

                                      10.


STATE OF WASHINGTON )
                    ) ss.
COUNTY OF KING      )

         I certify that I know or have satisfactory evidence that THOMAS B.
PARSONS is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Vice President of OPUS UNION STATION II,
L.L.C., a Delaware limited liability company, to be the free and voluntary act
of such party for the uses and purposes mentioned in the instrument.

         Dated: May 29 , 2001.

                                           /s/  Robin Wolff
                                         ---------------------------------------
                                         (Signature of Notary Public)

                                                Robin Wolff
                                         ---------------------------------------
                                         (Print Name of Notary Public)

                                         My Appointment Expires: 6/15/2002

                                      11.


STATE OF WASHINGTON )
                    ) ss.
COUNTY OF KING      )

         I certify that I know or have satisfactory evidence that Julie Benezet
is the person who appeared before me, and said person acknowledged that the
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President of AMAZON.COM HOLDINGS, INC., a
Delaware corporation, to be the free and voluntary act of such party for the
uses and purposes mentioned in the instrument.

         Dated: May 22 , 2001.

                                           /s/ Joanna M. Haught
                                         ---------------------------------------
                                         (Signature of Notary Public)

                                               Joanna M. Haught
                                         ---------------------------------------
                                         (Print Name of Notary Public)

                                         My Appointment Expires:  3-9-03

STATE OF WASHINGTON )
                    ) ss.
COUNTY OF KING      )

         I certify that I know or have satisfactory evidence that Julie Benezet
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President of AMAZON.COM INC., a Delaware
corporation, to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.

         Dated: May 22 , 2001.

                                           /s/ Joanna M. Haught
                                         ---------------------------------------
                                         (Signature of Notary Public)

                                               Joanna M. Haught
                                         ---------------------------------------
                                         (Print Name of Notary Public)

                                         My Appointment Expires:  3-9-03

                                      12.


                                   SCHEDULE 1
                                       TO
               AMENDMENT 1 TO MULTI-TENANT OFFICE LEASE AGREEMENT

                        SUMMARY OF TENANT'S IMPROVEMENTS
                       COMPLETED ON THE COMMENCEMENT DATE

FLOOR 1

DIVISION 3: Concrete
         Demolition of floor slabs for grease duct.
         Support steel for grease duct openings.
         Trench and infill for kitchen/servery utilities.
         Cut curbs for modified doors.

DIVISION 5: Metals
         Kitchen wall reinforcing steel.

DIVISION 6: Wood
         Misc. carpentry for mail room, dining, corridors.
         Kitchen rough carpentry for doors, walls in dining room, and servery.

DIVISION 7: Protection
         Fireproofing for grease shaft support steel and misc.  patching of
         fireproofing.
         Protect finishes.

DIVISION 8: Doors and Windows
         Install hollow metal frames, wood doors and hardware in corridors, mail
         room, kitchen office.
         Purchase doors, frames for corridors, mail room, kitchen office.
         Purchase door hardware for corridors, mail room, kitchen office.
         Modify exterior doors for security access and eliminate exterior doors.

DIVISION 9: Finishes
         All GWB system materials studs, drywall, taping compound, tape,
         insulation purchased and stocked.
         Complete all metal framing for walls, soffits, columns, features,
         perimeter walls; begin GWB soffits; perimeter partially taped; finish
         corridors, kitchen office, mail room exterior.
         Additional Venetian Plaster at lobby alcove walls.
         Purchase material for exhaust duct rated GWB shaft for Levels 2 through
         roof.
         Temporary heat for drying taping compound and paint.
         Repair GWB trade damage.
         Raise perimeter framing for specified ceiling levels at building
         perimeter.
         Frame transitions, corridors, lobby area.
         Acoustical ceilings corridors.
         Additional stone flooring for lobby alcove.
         Purchase and store Altro flooring for kitchen/servery/dining areas.
         Rubber base for corridors
         Floor preparation for corridors, mail room, kitchen office floors.



         Carpet corridors, lobby area.
         Paint corridors, kitchen office, and exterior of mailroom.
         Paint lobby alcove ceilings, transition areas.

DIVISION 10: Specialties
         Fire extinguishers for Amazon layout.
         Construction clean corridors, office, lobby alcove.
         Final clean corridors, kitchen office, lobby alcove.
         Load materials: carpet, special flooring.
         Corner guards in corridors.

DIVISION 11: Equipment
         Supply kitchen and servery, equipment: walk-in cooler at Amazon,
         exhaust hoods at site, misc.
         servery equipment at supplier, restocking and return fees, equipment
         planning and coordination.

DIVISION 15: Mechanical
         Piping and plumbing for kitchen, servery espresso, including bus tunnel
         work for all penetrating systems complete.
         Sprinkler system complete to ceiling level.
         HVAC duct work for corridors, mail room, lobby expansion, kitchen
         office, including mounting of VAV boxes and controls; several VAV boxes
         stocked but not installed.
         Diffusers and sound boots purchased and stocked.
         Grease hood exhaust ductwork horizontal runs complete and capped from
         hood locations to exhaust shaft.
         Rated duct insulation installed at hard ceilings.
         Overtime to stock VAV boxes and ductwork.
         Louvers for exhaust hoods, make-up air, dryers, and condensers.
         3 extra stocked VAV boxes (design changes)

DIVISION 16: Electrical
         Kitchen, dining, and servery power, HVAC and lighting rough-in
         complete; panels installed.
         Additional lighting in main lobby for alcove.
         Special support suspension system for conduit runs.
         Co-ordinate electrical in ceilings with other ceiling components.
         Provide infrastructure for security access system and Controls for
         exterior doors, dining rooms, elevator lobbies, mail room and west
         stair.
         Engineer, design, supply, connect, and test security access system.

FLOOR 2

DIVISION 6: Woods
         Rough carpentry for doors and openings in full height walls.
         Layout for walls complete.

DIVISION 7: Protection
         Patch fireproofing.
         Protect finishes from trade damage at floors, walls, ceilings.
         Weather protection at manlift openings.

                                       2.


DIVISION 8: Doors and Windows
         Install IDF room door and frame.
         Supply IDF room door and frame.
         Supply IDF room door hardware.

DIVISION 9: Finishes
         All GWB materials studs, drywall, taping compound, tape, insulation
         purchased and stocked.
         Framing for full height walls at common rooms, core furring, conference
         rooms, shower/locker rooms, columns complete.
         Install GWB system complete in main IDF room, shower/ locker rooms.
         Temporary heat for drying taping compound and paint.
         Repair drywall at main IDF room, shower/locker rooms (design change).
         Purchase and stock ceramic tile for locker/shower rooms.
         IDF acoustic ceiling.
         Special flooring for IDF
         Rubber base for IDF.
         Purchase and stock sheet vinyl, special elevator lobby flooring.
         Prepare floors in IDF room, shower/locker rooms, and elevator lobby.
         Purchase and store carpet.
         Paint IDF room, shower/locker rooms.

DIVISION 10: Specialties
         Purchase fire extinguishers and cabinets.
         Construction clean.
         Final clean for IDF room.
         Load carpet, glass, door frames, and doors into building.
         Purchase and stock toilet partitions for locker/shower rooms.

DIVISION 15: Mechanical
         Piping, plumbing complete to coffee rooms, shower/locker rooms.
         Main IDF room cooling, condensate system complete.
         Complete sprinkler system to ceiling level.
         HVAC system coordinated, VAV boxes and controls purchased and
         installed.
         Majority of HVAC ductwork installed, not insulated.
         Diffusers and sound boots purchased and stored.
         Unit heaters for main mechanical rooms purchased and stocked.
         Overtime for HVAC material loading and installation to maintain ceiling
         grid proposed installation schedule.

DIVISION 16:
         Rough-in electrical power, HVAC, and lighting ceilings, perimeter,
         showers/locker rooms, full-height walls in common rooms, core furring.
         Purchase and store electrical equipment, lighting fixtures and trim.
         Provide special suspension system for main conduit runs.
         Coordinate electrical components in ceiling with other elements.
         Provide infrastructure for security access system.
         Design, engineer, supply components, connect devices and panels, and
         test security access system.
         Added transformer and panels installed.

                                       3.


FLOOR 3

DIVISION 6: Woods
         Rough carpentry for doors and openings full height walls.
         Layout for walls complete.

DIVISION 7: Protection
         Patch fireproofing.
         Protect finishes from trade damage at floors, walls, and ceilings.
         Weather protection at manlift openings.

DIVISION 8: Doors and Windows
         Install IDF room door and frame.
         Supply IDF room door and frame.
         Supply IDF room door hardware.

DIVISION 9: Finishes
         All GWB system materials studs, drywall, taping compound, tape,
         insulation purchased and stocked.
         Complete framing for full height walls at common rooms, core furring,
         conference rooms, columns, perimeter, elevator lobby.
         Perimeter walls taped.
         Install GWB system complete in IDF room.
         Temporary heat for drying taping compound and paint.
         Repair drywall at main IDF room.
         Install IDF acoustic ceiling.
         Partial ACT grid in elevator lobby.
         Purchase and stock grid materials and wire mesh panels for special
         ceilings.
         Special flooring for IDF.
         Rubber base for IDF.
         Prepare floors in IDF room and elevator lobby.
         Purchase and stock sheet vinyl, special elevator lobby flooring.
         Purchase and stock carpet.
         Paint IDF room.

DIVISION 10: Specialities
         Purchase fire extinguishers and cabinets.
         Construction clean.
         Final clean for IDF room.
         Load carpet, glass, door frames, and doors into buildings.

DIVISION 15: Mechanical
         Piping and plumbing rough-in complete coffee rooms.
         Complete sprinkler system to ceiling level.
         HVAC system coordinated; ductwork installed, insulated to flex, VAV
         boxes and controls purchased and installed.
         Diffusers and sound boots purchased and stored.
         Overtime for HVAC material loading and installation to maintain ceiling
         grid proposed installation schedule.

                                       4.


         Unit heater for main mechanical room stocked.
         4 extra VAV boxes (design change-boxes stored on 2nd floor)

DIVISION 16:
         Rough-in electrical power, HVAC, and lighting ceilings, perimeter,
         showers/locker rooms, full-height walls in common rooms, core furring.
         Purchase and store electrical equipment, lighting fixtures and trim.
         Add level three lighting controls.
         Provide special suspension system for main conduit runs.
         Cores for floor penetrations complete.
         Coordinate electrical components in ceiling with other elements.
         Provide infrastructure for security access system.
         Design, engineer, supply components, connect devices and panels, and
         test security access system.

                                       5.


                              EXHIBIT B TO SUBLEASE

                    [FLOOR PLANS SHOWING SUBLEASED PREMISES]


                              EXHIBIT C TO SUBLEASE

                                PARKING AGREEMENT



Recorded at the Request of
and after Recording Return to:

Russell F. Tousley. P.S.
Tousley Brain PLLC
700 Fifth Avenue, Suite 5600
Seattle, WA 98104-5056

Abbreviated legal description: Base Unit and Unit 4, Union Station, a
condominium, Vol. 150, Pgs. 37-45 (amended and restated by No. 9811171094)

Additional legal description(s) are on pages 10 and 11 of this document.

Assessor's Tax Parcel No.: 880970-0050-05





                                FILED FOR RECORD                          Unit 4
                                AT THE REQUEST OF    Opus Center @ Union Station
                                TRANSNATION TITLE                    Seattle, WA
                                   INSURANCE CO

                           PARKING AGREEMENT AND COVENANT
                           (UNION STATION PARKING GARAGE)

         This Parking Agreement and Covenant (the "Agreement") is made as of
February 15th, 2000, by and between UNION STATION ASSOCIATES, LLC, a Washington
limited liability company, together with its successors and assigns in ownership
of the Base Unit (as defined below) (collectively, "USA LLC") and OPUS UNION
STATION II, L.L.C., together with its successors and assigns in ownership of the
Office Project (as defined below) (collectively "Unit Owner").

                                    RECITALS:

         A.       USA LLC is the declarant of Union Station, A Condominium (the
"Condominium"), created by the Declaration and Covenants, Conditions,
Restrictions and Reservations for Union Stations, A Condominium recorded under
King County Auditor's No. 9807280839, and Survey Map and Plans recorded under
King County Auditor's No. 9807280838, Vol. 150, Pg. 37-45.

         B.       USA LLC and Unit Owner are parties to a Real Property Purchase
and Sale Agreement dated as of May 28, 1999 as amended and assigned to date,
pursuant to which USA LLC has agreed to sell Unit 4 of the Condominium legally
described in Exhibit A attached hereto (the "Unit") to Unit Owner. Unit Owner
intends to construct within such Unit an office building containing
approximately 256,886 rentable square feet (the "Office Project").

         C.       USA LLC is also the owner of the Base Unit of the Condominium
legally described in Exhibit B attached hereto (the "Base Unit") within which
USA LLC has constructed, a parking garage containing two (2) parking levels and
approximately 425 parking stalls (the "Garage Project - Phase I"). The Office
Project is to be located on top of the Base

                                       1.


Unit. USA LLC intends to construct a second garage (the "Garage Project-Phase
II") which will be adjacent to and south of the Garage Project-Phase I and will
include approximately 675 parking stalls. The Garage Project-Phase I and, when
completed, the Garage Project-Phase II, are collectively referred to as the
"Garage Project".

         D.       In connection with the Unit Owner's development, ownership and
operation of the Office Project within the Unit, USA LLC has agreed to make
available for the benefit of the Office Project (including any future building
built from time to time on or about the Unit) up to 257 parking spaces in the
Garage Project.

         E.       USA LLC and Unit Owner desire to set forth herein their
agreement with respect to such parking rights and the terms and conditions for
the use and enjoyment thereof

         NOW, THEREFORE, the parties agree as follows:

         1.       Parking Rights in Garage Project. Commencing upon the date
upon which the Office Project within the Unit is substantially complete and Unit
Owner receives a certificate of occupancy (temporary or permanent) for the
Office Project (the "Effective Date"), and continuing perpetually for so long as
and during any period in which a building is located on or about the Unit, USA
LLC agrees and covenants to make available in the Garage Project for the benefit
of the Office Project up to 257 self park, individual parking stalls and Unit
Owner agrees to lease such stalls from USA LLC on the terms and conditions set
forth herein. The parties acknowledge that Unit Owner shall make such parking
stalls available to the tenants and other users and occupants of the Office
Project.

         2.       Right to Park. On or before the 20th day of each calendar
month commencing with the month in which the Office Project is initially
occupied by the Unit Owner or its tenants, Unit Owner shall advise USA LLC (or
the operator of the Garage Project designated by USA LLC) in writing of the
number of parking stalls the Office Project will require for the next succeeding
calendar month, not greater than 257 stalls. The number of stalls so requested
by the Office Project shall be the number of stalls leased by the Unit Owner for
such succeeding month (the "Leased Stalls"). If in any month the Unit Owner does
not request a different number of parking stalls required for the next
succeeding month, the most recent request shall continue to apply.

         The parking stalls so requested by Unit Owner shall be made available
to Unit Owner for the month in which the request applies at the prevailing
market rate then being charged to persons (other than Central Puget Sound
Regional Transit Authority and/or its successors and assigns) for monthly
parking at the Garage Project. The rate shall be determined based upon the rates
in effect as of the first day of the month, and any rate increases during such
month shall not be effective until the first day of the next month. USA LLC
agrees to provide Unit Owner with at least thirty (30) days prior written notice
of any increases in the monthly parking rates at the Garage Project.

         On or before the first day of each month, Unit Owner shall make payment
to USA LLC (or the operator of the Garage Project designated by USA LLC) for the
Leased Stalls for such

                                       2.


month. Payments not made within five (5) days of the date when due shall bear
interest at the rate of twelve percent (12%) per annum.

         3.       Maintenance of Garage Project. USA LLC agrees to continuously
maintain and operate the Garage Project in a first class manner and state of
repair, consistent with other similar multi level parking facilities in Class A
high-rise buildings in the downtown Seattle area. USA LLC may from time to time
temporarily close portions of the Garage Project for maintenance and repair
purposes, but USA LLC will use all reasonable efforts to conduct routine repairs
and maintenance so as to not unreasonably disrupt the Unit Owner's use of its
Leased Stalls. In the event of major damage or casualty to the Base Unit which
prohibits the use of the Leased Stalls as provided herein, USA LLC will use all
reasonable efforts to promptly repair such damage or casualty and restore the
Base Unit improvements to substantially the same condition (including
appearance, configuration, layout and structural aspects) as existed immediately
prior to such damage or destruction, at USA LLC's sole cost and expense.

         USA LLC agrees and covenants that for so long as the Condominium
exists, (i) the Garage Project shall be operated in a manner reflecting the fact
that a primary purpose of the Parking Garage during Parking Hours (as defined in
the Addendum to this Agreement) shall be to service the parking needs of the
tenants and other users and occupants of Condominium outside the Base Unit, and
(ii) access will be available to the Garage Project as required for tenants and
employees of the Office Project identified or otherwise designated by Unit
Owner. USA LLC and the Unit Owner shall cooperate in good faith to implement an
operating program that allows such continuous access, through access cards or
similar arrangements. USA LLC shall have the right to close the Garage Project
to the public (subject, however, to the access rights of Unit Owner's tenants
and occupants, as established by any separate agreement with USA LLC) from time
to time (evenings, weekends, holidays) in accordance with the Garage operating
program established by USA LLC. USA LLC may adopt reasonable nondiscriminatory
rules for the Garage Project.

         4.       Default. In the event Unit Owner fails to make a payment when
due hereunder or to perform any other obligation hereunder and such failure
continues for a period of thirty (30) days after written notice of such failure
from USA LLC (which, with respect to nonmonetary failures, shall also specify
the steps required to cure the failure), Unit Owner shall be in default
hereunder, provided that if any non-monetary default requires more than thirty
(30) days to cure, Unit Owner shall not be deemed to be in default if it
commences the cure within such period and diligently pursues such cure to
completion. Upon such default, USA LLC may seek any and all remedies available
by law or in equity, including an action for damages to collect any unpaid
amounts plus interest thereon. Notwithstanding the foregoing, USA LLC may not
terminate this Agreement due to such default unless, after the initial thirty
(30) day cure period has expired, USA LLC gives Unit Owner a second ten (10) day
written notice and cure period, which notice must specify that the Agreement
will terminate on the expiration of such ten (10) day period unless the default
is cured within such ten (10) day period.

         In the event USA LLC fails to perform any obligation hereunder and such
failure continues for a period of thirty (30) days after written notice of such
failure from Unit Owner (which notice shall specify the steps required to cure
such failure), USA LLC shall be in default hereunder, provided that if any
non-monetary default requires more than thirty (30) days to cure,

                                       3.


USA LLC shall not be deemed to be in default if it commences the cure within
such period and diligently pursues such cure to completion. Upon such default,
Unit Owner shall be entitled to any and all remedies available in law or in
equity, including an injunction or specific performance in order to obtain the
benefit of the parking rights set forth in or arising out of this Agreement.

         5.       Protection of Lenders. The notices required to be given to
Unit Owner pursuant to Section 4 above shall not be deemed to be effective
unless such notice is also given to any lender who has a security interest in
the Office Project and who has given USA LLC written notice of its right to
receive such notices and the address to which such notices should be sent. Any
lender who has a security interest in the Office Project and who has provided
such notice to USA LLC shall also be authorized to cure any nonpayment or other
default within the applicable cure period, and USA LLC agrees to accept such
payment or other cure directly from such lender. Notices required to be given to
USA LLC by any lender may be sent to the address for notices set forth in
Section 12 hereof.

         6.       Binding Effect. The covenants, licenses, leases and/or
agreements set forth in the Agreement shall be continuing covenants running with
the land. Such covenants shall be binding upon, and inure for the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding the
foregoing, a Unit Owner of the Office Project shall not have personal liability
hereunder except with respect to the obligations which have accrued during such
time as such Unit Owner owns the Office Project.

         7.       Term. Unless this Agreement is earlier terminated by written
agreement of USA LLC and Unit Owner or as a result of a default of party
hereunder, the term of this Agreement shall continue until the Office Project is
voluntarily demolished or is substantially damaged or destroyed under
circumstances in which the then Unit Owner of the Office Project does not
commence to repair or rebuild such building within two (2) years of such damage
or destruction. Nonuse of the full parking rights granted hereunder by the Unit
Owner shall not constitute a termination or abandonment of this Agreement or the
rights of the Unit Owner hereunder.

         The two (2) year period referred to above shall be subject to and
extended by any period of delay due to Force Majeure. Force Majeure shall mean,
strikes, riots, acts of God, delay caused by the failure of a governmental
agency to issue a building or occupancy permit despite diligent pursuit thereof,
shortages of labor or materials because of priority or similar regulations or
order of any governmental or regulatory body, war, governmental laws,
regulations or restrictions or any other causes of any kind whatsoever which are
beyond the reasonable control of said party; provided, however, lack of funds or
inability to obtain financing shall not be an event of force majeure.

         8.       Estoppel Certificate. Either party shall, within fifteen (15)
days of a request from the other party, execute, acknowledge and deliver to the
requesting party or its designee a written statement confirming the status of
matters under this Agreement, including the number of parking stalls then
currently designated by the Unit Owner as provided in Section 2 above, whether
all payments are current, whether any party is in default under this Agreement,
and such other matters as the requesting party may reasonably request. It is
intended that any such

                                       4.


statement may be relied upon by lenders providing financing with respect to any
of the properties benefited or burdened by this Agreement.

         9.       Recording. At the request of either party, this Agreement
shall be recorded in the real property records of King County, Washington.

         10.      Subordination of Lenders. USA LLC shall cause any mortgage,
deed of trust, sale and leaseback, or other security instrument now or hereafter
placed upon the Garage Project, or any portion thereof, by USA LLC, its
successors or assigns, including any amendments, replacements, renewals and
extensions thereof, to be subordinated to this Agreement and any Addendum
hereto. In furtherance thereof, USA LLC agrees to cause its existing mortgagee,
deed of trust beneficiary or sale and lease-back lessor, as the case may be
(each, a "Mortgagee"), to execute and deliver to Unit Owner an instrument of
subordination in form and content reasonably acceptable to Unit Owner, within
thirty (30) days of the date of this Agreement.

         11.      Meetings with Operator. USA LLC shall cause the management of
its designated operator of the Garage Project to meet with Unit Owner upon
reasonable request during normal business hours.

         12.      Non-Exclusive Rights. The parking rights granted hereunder
will be applicable to all available parking stalls in the Garage Project as no
stalls will be specifically reserved for the Leased Stalls. In addition, the
rights granted to the Unit Owner hereunder shall not limit the rights of Unit
Owner or its tenants, employees. invitees, and agents from parking in the Garage
Project on the same terms and conditions as parking is made available to the
public generally (including hourly or daily parking) as then managed by USA LLC
or its designated operator.

         13.      Costs and Attorneys' Fees. The parties hereto agree that in
the event it becomes necessary for any party to defend or institute legal
proceedings as a result of the failure of either party to comply with the terms,
covenants, agreements and/or conditions of this Agreement, it is understood and
agreed that the prevailing party in such litigation shall be entitled to be
reimbursed for all costs incurred or expended in connection therewith,
including, but not limited to, reasonable attorney's fees (including paralegals'
and consultants' fees and fees for appeals or any bankruptcy proceeding) and
court costs.

         14.      Notices. Any and all notices or other communications required
to permitted by this Agreement or by law to be delivered to, served on or given
to either party to this Agreement by the other party to this Agreement, shall be
in writing and shall be deemed properly delivered, given or served when
personally delivered to such party, or in lieu of personal services, when
telecopied or when mailed by United States mail, express, certified or
registered, postage prepaid, or by a nationally recognized overnight delivery
service, charges prepaid, addresses as follows:

         If to USA LLC:                 Union Station Associates LLC
                                        2401 Utah Avenue South, Suite 305
                                        Seattle, WA  98134
                                        Attn: Kevin Daniels
                                        Facsimile No. (206) 467-0423

                                       5.


         With a copy to:                Ryan, Swanson & Cleveland, PLLC
                                        1201 Third Ave., Suite 3400
                                        Seattle, WA  98101-3034
                                        Attn: David H. Oswald
                                        Facsimile No. (206) 583-0359

         If to Unit Owner:              Opus Union Station II, L.L.C.
                                        915 - 118th Avenue SE
                                        Bellevue, WA  98005
                                        Attn: Thomas B. Parsons, Vice President
                                        Facsimile No. (425) 453-1712

         With a copy to:                Tousley Brain PLLC
                                        700 Fifth Avenue, Suite 5600
                                        Seattle, WA  98104-5056
                                        Attn: Russell F. Tousley, P.S.
                                        Facsimile No. (206) 682-2992

         And to:                        Opus, L.L.C.
                                        10350 Bren Road West
                                        Minnetonka, MN  55343
                                        Attn: Legal Department
                                        Facsimile: (612) 656-4755


and all notices so mailed shall be deemed received on the date which is 24 hours
after delivery to the overnight delivery service by the sender, or if placed in
the United States mails, on the date of the return receipt or, if delivery of
such United States mail is refused or cannot be accomplished, 48 hours after
deposit in the United States mails. Either party may change its address for the
purpose of this Section by giving ten (10) days advance written notice of such
change to the other party in the manner provided in this Section.

         15.      Amendment. This Agreement may not be modified, amended or
terminated without the prior written approval of USA LLC and Unit Owner,
provided that additional terms may be contained in an Addendum to this
Agreement; and provided further the number of Leased Stalls and the rates
charged to Unit Owners for the Leased Stalls may be set forth, from time to
time, on a Schedule to this Agreement. Neither such Addendums nor such Schedule
shall be recorded.

         16.      Waiver. No waiver or any of the provisions of this Agreement
shall be effective unless it is in writing, signed by the party against whom it
is asserted and any such written waiver shall only be applicable to the specific
instances to which it relates and shall not be deemed to be a continuing or
future waiver.

                                       6.


         17.      Construction. The captions and section headings contained in
this Agreement are for convenience and reference only and in no way define,
describe, extend or limit the scope or intent of this Agreement, nor the intent
of any provision hereof. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the
identification of the person or persons may require. "Person" shall mean an
individual, firm, association, corporation, limited liability company, trust or
any other form of business or legal entity. Whenever the adverbs "herein",
"hereunder", "hereto, "hereby", "hereinafter", etc., are used in this Agreement,
they shall mean and refer to this Agreement in its entirety and not to any
specific section or paragraph hereof. Whenever the word "including" is used in
this Agreement, it shall mean "including, but not limited to".

         18.      Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.

         IN WITNESS WHEREOF, this Parking Agreement and Covenant is executed by
the parties, intended to be legally bound, as of the date first written above.

USA LLC                                  UNION  STATION ASSOCIATES, LLC,
                                         a Washington limited liability company
                                         By NSD, L.L.C., Manager

                                         By:  /s/ Kevin Daniels
                                            ------------------------------------
                                            Name: Kevin Daniels
                                            Title: Member

UNIT OWNER                               OPUS UNION STATION II, L.L.C.,
                                         a Delaware limited liability company

                                         By:  /s/ Thomas B. Parsons
                                            ------------------------------------
                                            Name: Thomas B. Parsons
                                            Title: Vice President

                                       7.


STATE OF WASHINGTON )
                    ) ss.
COUNTY OF KING      )

         THIS IS TO CERTIFY that on this 15th day of February, 2000, before me,
the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared KEVIN DANIELS, to me known to be a
Member of NSD, L.L.C., a Washington limited liability company, to me known to be
the Manager of UNION STATION ASSOCIATES, LLC, the Washington limited liability
company that executed the within and foregoing instrument, and acknowledged the
said instrument to be the free and voluntary act and deed of each limited
liability company for the uses and therein mentioned, and on oath stated that
said individual was authorized to execute said instrument.

         WITNESS my hand and official seal hereto affixed this 15th day of
February, 2000.

                                           /s/ Alex B. Galloway
                                         ---------------------------------------
                                         (Signature of Notary)

                                               Alex B. Galloway
                                         ---------------------------------------
                                         (Print or stamp name of Notary)
                                         NOTARY PUBLIC in and for the State of
                                         Washington, residing at North Bend
                                         My Appointment Expires: 5-22-02

STATE OF WASHINGTON )
                    ) ss.
COUNTY OF KING      )

         THIS IS TO CERTIFY that on this 14 day of February, 2000, before me,
the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared THOMAS B. PARSONS, to me known to be
the Vice President of OPUS UNION STATION II, L.L.C., the Delaware limited
liability company that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
each limited liability company for the uses and therein mentioned, and on oath
stated that said individual was authorized to execute said instrument.

         WITNESS my hand and official seal hereto affixed this 14 day of
February, 2000

                                           /s/ Karen E.Y. Booth
                                         ---------------------------------------
                                         (Signature of Notary)

                                               Karen E.Y. Booth
                                         ---------------------------------------
                                         (Print or stamp name of Notary)
                                         NOTARY PUBLIC in and for the State of
                                         Washington, residing at POULSBO
                                         My Appointment Expires: 12-28-02

                                       8.


                                    EXHIBIT A

                          LEGAL DESCRIPTION OF THE UNIT

Unit 4, Union Station, a condominium recorded in Volume 150 of Condominiums,
Pages 37 through 45, according to the Declaration thereof, recorded under King
County Recording No. 9807280839, including and together with those certain
easements for support, utilities, equipment and improvements, elevators, access
and telecommunication links set forth therein and any amendments thereto;

Situate in the City of Seattle, County of King, State of Washington.

                                       9.


                                    EXHIBIT B

                            DESCRIPTION OF BASE UNIT

Base Unit, Union Station, a condominium recorded in Volume 150 of Condominiums,
Pages 37 through 45, according to the Declaration thereof, recorded under King
County Recording No. 9807280839, including and together with those certain
easements for support, utilities, equipment and improvements, elevators, access
and telecommunication links set forth therein and any amendments thereto;

Situate in the City of Seattle, County of King, State of Washington.

                                      10.


                                                                          Unit 4
                                                     Opus Center @ Union Station
                                                                     Seattle, WA

                   ADDENDUM TO PARKING AGREEMENT AND COVENANT

         This Addendum to Parking Agreement and Covenant (this "Addendum") is
made as of February 15th, 2000 by and between UNION STATION ASSOCIATES, LLC, a
Washington limited liability company ("USA LLC") and OPUS UNION STATION II
L.L.C., a Delaware limited liability company ("Unit Owner").

         USA LLC and Unit Owner are parties to that certain Parking Agreement
and Covenant (Union Station Parking Garage) made and dated concurrently herewith
(the "Underlying Agreement"). Unit Owner owns Unit 4. Unless specifically
defined in this Addendum, capitalized terms have the same meaning as set forth
in the Underlying Agreement.

         USA LLC and Unit Owner wish to amend and supplement the Underlying
Agreement all on the terms and conditions hereinafter set forth.

         NOW, THEREFORE. in consideration of the covenants and agreements
hereinafter contained, the receipt and sufficiency of which is fully and
unconditionally acknowledged, USA LLC and Unit Owner do hereby agree as follows:

         Section 1. This Addendum is incorporated by reference into the
Underlying Agreement as if set forth in full in the Underlying Agreement and the
combination of the Underlying Agreement and this Addendum are deemed to be a
single integrated agreement and shall be construed as such so that a breach by
either party of any of the terms, provisions, covenants or conditions of either
the Underlying Agreement or this Addendum shall constitute a breach of both
agreements entitling the non-defaulting party to exercise any and all remedies
provided in the Underlying Agreement or this Addendum or by applicable law.

         Section 2. Any conflict between this Addendum and the Underlying
Agreement shall be controlled by the provisions of this Addendum.

         Section 3. USA LLC covenants and agrees for the benefit of Unit Owner
that:

                  (a) Unit Owner shall at all times have the right to lease not
less than one (1) parking stall in the Garage Project for each 1,000 square feet
of Rentable Area of its Unit (the "Unit Entitlement"). As used herein, "Rentable
Area" shall have the same meaning as set forth in "Standard Method for Measuring
Floor Area in Office Buildings" (ANSI/BOMA Z65 1-1996) published by Building
Owners and Managers Association International.

                  (b) Unit Owner shall not be required at any time to lease a
minimum number of Leased Stalls.

                  (c) Each month Unit Owner shall notify USA LLC, or its
designated garage operators, of the number of each type of parking stall it
desires, as provided in paragraph 2 of the Underlying Agreement, for the
following month, provided the number of Executive Parking Stalls shall not
exceed 15% of the total Unit Entitlement without USA LLC's prior written
agreement; and provided further that for any month Unit Owner does not provide
such notice, Unit Owner shall have the same number of each type of stall it had
during the prior month.

                  (d) As used herein, the following terms have the Following
meanings:

                                       1.


                  (i)      "Executive Parking Stall" shall mean a stall in the
Garage Project which is located in a designated area within the Garage Project
available to such users which are specifically set aside for Executive Parking
Stall users on a non-reserved basis and which will be available to such users on
a 24-hour basis throughout the entire calendar year and shall not be subject in
or limited to Parking Hours.

                  (ii)     "Regular Parking Stall" shall mean a parking stall
available in common with other users of the Garage Project on a non-reserved
basis, anywhere in the Garage Project, other than stalls reserved for Executive
Parking Stalls or similar reserved parking, which is available to a user on a
24-hour basis throughout the entire calendar year except for days when a Posted
Event is scheduled to occur. On days of Posted Events, the Regular Parking
Stalls will be limited to the Parking Hours.

                  (iii)    "Posted Event" means any event scheduled for the
Kingdome, the Football Stadium, the Baseball Stadium or the adjacent Exhibition
Hall, during non-Parking Hours, which shall be posted at the entrances to the
Garage Project.

                  (iv)     "Parking Hours" shall mean 7:00 o'clock a.m. to 6:00
o'clock p.m., Monday through Friday, 7:00 o'clock a.m. to 12:00 o'clock noon on
Saturday.

                  (e)      In addition to the Unit Entitlement Unit Owner's
tenants and guests shall be entitled to lease during Parking Hours any available
stalls in the Garage Project on the same basis as the general public and the
other owners of units in the Condominium.

                  (f)      USA LLC will not lease or license more Executive
Parking Stalls than the number of spaces specifically set aside for Executive
Parking Stalls in the Garage Project at the time, or lease or license to other
owners of units in the Condominium, more spaces than the rate of Unit Owner's
Unit Entitlement or lease or license more Regular Parking Stalls than the number
of spaces in the Garage Project not set aside for Executive Parking Stalls at
the time.

                  (g)      Unit Owner shall at all times have the right, if it
wishes, to deal directly with USA LLC on behalf of tenants and occupants of the
Office Project.

                  (h)      USA LLC will notify Unit Owner of Posted Events
during any calendar month on or before the 15th day of the prior calendar month.

         Section 4. Parking rates for Units Owners' parking stalls shall be
fixed commencing on the Effective Date and ending 36 full calendar months after
the Effective Date, and the monthly charge for individual Leased Stalls during
such period shall be as follows:



DURING CALENDAR YEAR       EXECUTIVE PARKING STALLS           REGULAR PARKING STALLS*
- --------------------       ------------------------           -----------------------
                                                        
       2001                       $248.06                            $192.04
       2002                       $260.46                            $202.59
       2003                       $273.48                            $212.72
       2004                       $287 15                            $223.35
       2005                       $301.51                            $234.52


                           * plus applicable sales tax

                                       2.


         Section 5. Following expiration of the period covered by Section 4
above, the parking rates for the Garage Project will be based on those charged
for parking in similar garages in the area of the Garage Project in view of the
hours which a particular parker is entitled to park in the Garage Project. The
parties agree that the Merrill Place Garage, the Butler Garage and 83 King
Street Garage parking garages (the "Base Comparable Garages") are comparable
garages for purposes of establishing rates for the Garage Project. USA LLC
agrees not to charge in excess of the mean rate then charged by the Base
Comparable Garages for their parking stalls adjusted to be equivalent to
Executive Parking Stalls and Regular Parking Stalls. The parties may change the
Base Comparable Garages from time to time with the consent of USA LLC and Unit
Owner, which consent shall not be unreasonably withheld. The rates, as
established from time to time by USA LLC will be attached as a Schedule to this
Addendum; provided that a person using a Regular Parking Stall who does not
vacate the stall by 30 minutes after expiration of Parking Hours on the day of a
Posted Event or who parks in the Garage Project on the day of a Posted Event
when such day has no Parking Hours shall be charged the parking fee for the
Posted Event in addition to the monthly charge payable by such person.

         Section 6. Any reference in the Underlying Agreement or this Addendum
to USA LLC includes its successors and assigns as Owner (as defined in the
Condominium Declaration) of the Base Unit.

         Section 7. USA LLC covenants to open and operate the Garage Project at
least during all Parking Hours. In furtherance thereof, USA LLC covenants and
agrees that during such mandatory hours of operation, it shall have or cause its
garage operator to have uniformed staff on duty in the Garage. Notwithstanding
that the Parking Garage will be staffed and open to the public only during
Parking Hours, USA LLC agrees that users of Executive Parking Stalls and Regular
Parking Stalls shall be entitled to park in the Garage Project during hours in
which the Garage is closed, without additional charge, except on days of a
Posted Event.

         Section 8. USA LLC agrees to comply with and to cause the designated
operator of the Garage Project to comply with the requirements the Property Use
and Development Agreement recorded under recording number 9002161696 in the
records of King County, Washington with respect to the requirements in such
document for carpool stalls.

         Section 9. For so long as the Underlying Agreement and/or the
Condominium Declaration continue in effect, to the extent permitted by
applicable law, USA LLC covenants to defend, indemnify and hold Unit Owner, its
agents, property managers, employees, tenants, and Mortgagees harmless from and
against all claims, costs, expenses (including but not limited to attorneys'
fees), losses, fines, penalties, and other liabilities arising from or a result
of (i) the occupancy or use of the Garage Project by USA LLC, any of its
sublessees or licensees or any agent, contractor or employee of any of them;
(ii) any accident, injury, loss or damage whatsoever caused to any person or
property alleged to have occurred on or about the Garage; or (iii) any
negligence or willful misconduct of USA LLC or any sublessee, licensee or agent,
contractor or employee of any of them that is alleged or proven to have occurred
on or about the Garage Project; provided, however, that with respect to damage
caused by or resulting from the concurrent negligence of the indemnified person,
its agents or employees, and USA LLC, its agents or employees, the foregoing
indemnity shall apply only to the extent of the negligence of USA LLC, its
agents or employees.

         Section 10. All of the provisions, agreements, rights, powers,
covenants, conditions and obligations contained in the Underlying Agreement and
this Addendum shall be binding on the parties, their respective heirs,
successors (by merger, consolidation or otherwise) and assigns, devisees,
administrators, representatives, lessees and all other persons acquiring either
Unit 4 or the Base Unit, or any portion thereof, or any interest therein,
whether by operation of law or in any other manner whatsoever, and shall inure
to the benefit of the parties and their respective

                                       3.


heirs, successors (by merger, consolidation or otherwise) and assigns as Owners
(determined pursuant to the Condominium Declaration). All the provisions of the
Underlying Agreement and this Addendum shall be enforceable as equitable
servitudes and constitute covenants running with the land pursuant to applicable
law. It is expressly acknowledged that respect to the various covenants (whether
affirmative or negative) on the part of each respective party contained in the
Underlying Agreement or this Addendum, which affect or bind, or are to be
performed on portions of each party's respective Unit, the Unit benefited by
such covenant shall, during the term of the Underlying Agreement and this
Addendum be the dominant estate, and the Unit of the respective Owner, as the
case may be (or if the particular covenant affects, binds or is to be performed
on less than the whole of such Unit, then with respect to the particular
covenant, such portion thereof as is affected by, or bound by, a particular
covenant, on or which the particular covenant is to be performed) shall, during
the term of the Underlying Agreement and this Addendum, be the servient estate.

         Section 11. Nothing in the Underlying Agreement or this Addendum, nor
the acts of the parties, shall be deemed to create a partnership between or
among the parties or shall cause them to be considered joint venturers or
members of any joint enterprise.

         Section 12. The provisions of the Underlying Agreement and this
Addendum are for the exclusive benefit of the parties and their successors and
assigns and are not for the benefit of any third person nor shall this Agreement
be deemed to have conferred any rights, express or implied, upon any third
person. It is expressly understood and agreed that no modification, amendment,
whole or in part, of the Underlying Agreement or this Addendum shall require any
consent or approval on the part of any person other than the undersigned, or
their successors or assigns as the Owner of each of the undersigned's respective
Units in the condominium.

         IN WITNESS WHEREOF, this Addendum is executed by the parties, intended
to be legally bound, as of the date first written above.

USA LLC                                UNION  STATION ASSOCIATES, LLC,
                                       a Washington limited liability company
                                       By NSD, L.L.C., Manager

                                       By: /s/  Kevin Daniels
                                          --------------------------------------
                                           Name:  Kevin Daniels
                                           Title: Member

UNIT OWNER                             OPUS UNION STATION II, L.L.C.,
                                       a Delaware limited liability company

                                       By: /s/  Thomas B. Parsons
                                          --------------------------------------
                                          Name:  Thomas B. Parsons
                                          Title: Vice President

STATE OF WASHINGTON        )
                           ) ss.
COUNTY OF KING             )

                                       4.


         THIS IS TO CERTIFY that on this 15th day of February, 2000, before me,
the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared KEVIN DANIELS, to me known to be a
Member of NSD, L.L.C., a Washington limited liability company, to me known to be
the Manager of UNION STATION ASSOCIATES, LLC, the Washington limited liability
company that executed the within and foregoing instrument, and acknowledged the
said instrument to be the free and voluntary act and deed of each limited
liability company for the uses and therein mentioned, and on oath stated that
said individual was authorized to execute said instrument.

         WITNESS my hand and official seal hereto affixed this 15th of February,
2000.

                                        /s/  Alex B. Galloway
                                       -----------------------------------------
                                       (Signature of Notary)

                                             Alex B. Galloway
                                       -----------------------------------------
                                       (Print or stamp name of Notary)
                                       NOTARY PUBLIC in and for the State of
                                       Washington, residing at North Bend
                                       My Appointment Expires: 5-22-02

                                       5.


STATE OF WASHINGTON )
                           ) ss.
COUNTY OF KING             )

         THIS IS TO CERTIFY that an this 14 day of February, 2000, before me,
the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared THOMAS B. PARSONS, to me known to be
the Vice President of OPUS UNION STATION II, L.L.C, the Delaware limited
liability company that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
each limited liability company for the uses and therein mentioned, and on oath
stated that said individual was authorized to execute said instrument.

         WITNESS my hand and official seal hereto affixed this 14 day of
February, 2000.

                                        /s/  Karen E.Y. Booth
                                       -----------------------------------------
                                       (Signature of Notary)

                                             Karen E.Y. Booth
                                       -----------------------------------------
                                       (Print or stamp name of Notary)
                                       NOTARY PUBLIC in and for the State of
                                       Washington, residing at POULSBO
                                       My Appointment Expires: 12-28-02

                                       6.


                   ADDENDUM TO PARKING AGREEMENT AND COVENANT

         This Addendum to Parking Agreement and Covenant (this "Addendum") is
made as of June 1, 1999 by and between UNION STATION ASSOCIATES, LLC. a
Washington limited liability company ("USA LLC") and OPUS UNION STATION, L.L.C.,
a Delaware limited liability company ("Unit Owner").

         USA LLC and Unit Owner are parties to that certain Parking Agreement
and Covenant (Union Station Parking Garage) made and dated concurrently herewith
(the "Underlying Agreement"). Unit Owner owns Unit 2. Unless specifically
defined in this Addendum, capitalized terms have the same meaning as set forth
in the Underlying Agreement.

         USA LLC and Unit Owner wish to amend and supplement the Underlying
Agreement, all on the terms and conditions hereinafter set forth.

         NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter contained, the receipt and sufficiency of which is fully and
unconditionally acknowledged, USA LLC and Unit Owner do hereby agree as follows:

         SECTION 1. This Addendum is incorporated by reference into the
Underlying Agreement set forth in full in the Underlying Agreement and the
combination of the Underlying Agreement and this Addendum are deemed to be a
single integrated agreement and shall be construed as such so that a breach by
either party of any of the terms, provisions, covenants or conditions of either
the Underlying Agreement or this Addendum shall constitute a breach of both
agreements entitling the non-defaulting party to exercise any and all remedies
provided in the Underlying Agreement or this Addendum or by applicable law.

         SECTION 2. Any conflict between this Addendum and the Underlying
Agreement shall be controlled by the provisions of this Addendum.

         SECTION 3. USA LLC covenants and agrees for the benefit of Unit Owner
that:

                  (a)      Unit Owner shall at all times have the right to lease
not less than one (1) parking stall in the Garage Project for each 1,000 square
feet of Rentable Area of its Unit (the "Unit Entitlement"). As used herein,
"Rentable Area" shall have the same meaning as set forth in "Standard Method for
Measuring Floor Area in Office Buildings" (ANSI/BOMA Z65 1-1996) published by
Building Owners and Managers Association International.

                  (b)      Unit Owner shall not be required at any time to lease
a minimum number of Leased Stalls.

                  (c)      Each month Unit Owner shall notify USA LLC, or its
designated garage operators, of the number of each type of parking stall it
desires, as provided in paragraph 2 of the Underlying Agreement, for the
following month. provided the number of Executive Parking Stalls shall not
exceed 15% of the total Unit Entitlement without USA LLC's prior written
agreement; and provided further that for any month Unit Owner does not provide
such notice, Unit Owner shall have the same number of each type of stall it had
during the prior month.

                  (d)      As used herein. the following terms have the
following meanings:

                  (i)      "Executive Parking Stall" shall mean a stall in the
Garage Project which is located in a designated area within the Garage Project
available to such users which are specifically set aside for Executive Parking
Stall users on a non-reserved basis and which will be available to such users on
a 24 hour basis throughout the entire calendar year and shall not be subject to
or limited to Parking Hours.

                  (ii)     "Regular Parking Stall" shall mean a parking stall
available in common with other users of the Garage Project on a non-reserved
basis, anywhere in the Garage Project, other than stalls reserved for Executive
Parking Stalls or similar reserved parking, which is available to a user on a 24
hour basis throughout the

                                       1


entire calendar year except for days when a Posted Event is scheduled to occur.
On days of Posted Events, the Regular Parking Stalls will be limited to the
Parking Hours.

                  (iii)    "Posted Event" means any event scheduled for the
Kingdome, the Football Stadium, the Baseball Stadium or the adjacent Exhibition
Hall, during non-Parking Hours, which shall be posted at the entrances to the
Garage Project.

                  (iv)     "Parking Hours" shall mean 7:00 o'clock a.m. to 6:00
o'clock p.m., Monday through Friday, 7:00 o'clock a.m. to 12:00 o'clock noon on
Saturday.

                  (e)      In addition to the Unit Entitlement, Unit Owner's
tenants and guests shall be entitled to lease during Parking Hours any available
stalls in the Garage Project on the same basis as the general public and the
other owners of Units in the Condominium.

                  (f)      USA LLC will not lease or license more Executive
Parking Stalls than the number of spaces specifically set aside for Executive
Parking Stalls in the Garage Project at the time, or lease or license to other
owners of units in the Condominium, more spaces than the rate of Unit Owner's
Unit Entitlement or lease or license more Regular Parking Stalls than the number
of spaces in the Garage Project not set aside for Executive Parking Stalls at
the time.

                  (g)      Unit Owner shall at all times have the right, if it
wishes, to deal directly with USA LLC on behalf of tenants and occupants of the
Office Project.

                  (h)      USA LLC will notify Unit Owner of Posted Events
during any calendar month on or before the 15th day of the prior calendar month.

         SECTION 4. Parking rates for Units Owners' parking stalls shall be
fixed commencing on the Effective Date and ending 36 full calendar months after
the Effective Date, and the monthly charge for individual Leased Stalls during
such period shall be as follows:



DURING CALENDAR YEAR       EXECUTIVE PARKING STALLS*      REGULAR PARKING STALLS*
- --------------------       -------------------------      -----------------------
                                                    
       1999                       $225.00                        $175.00
       2000                       $236.25                        $183.75
       2001                       $248.06                        $192.04
       2002                       $260.46                        $202.59
       2003                       $273.48                        $212.72


                           *plus applicable sales tax

         SECTION 5. Following expiration of the period covered by Section 4
above, the parking rates for the Garage Project will be based on those charged
for parking in similar garages in the area of the Garage Project in view of the
hours which a particular parker is entitled to park in the Garage Project. The
parties agree that the Merrill Place Garage, the Butler Garage and 83 King
Street Garage parking garages (the "Base Comparable Garages") are comparable
garages for purposes of establishing rates for the Garage Project. USA LLC
agrees not to charge in excess of the mean rate then charged by the Base
Comparable Garages for their parking stalls adjusted to be equivalent to
Executive Parking Stalls and Regular Parking Stalls. The parties may change the
Base Comparable Garages from time to time with the consent of USA LLC and Unit
Owner, which consent shall not be unreasonably withheld. The rates, as
established from time to time by USA LLC will be attached as a Schedule to this
Addendum; provided that a person using a Regular Parking Stall who does not
vacate the stall by 30 minutes after expiration of Parking Hours on the day of a
Posted Event or who parks in the Garage Project on the day of a Posted

                                       2


Event when such day has no Parking Hours shall be charged the parking fee for
the Posted Event in addition to the monthly charge payable by such person.

         SECTION 6. Any reference in the Underlying Agreement or this Addendum
to USA LLC includes its successors and assigns as Owner (as defined in the
Condominium Declaration) of the Base Unit.

         SECTION 7. USA LLC covenants to open and operate the Garage Project at
least during all Parking Hours. In furtherance thereof, USA LLC covenants and
agrees that during such mandatory hours of operation, it shall have or cause its
garage operator to have uniformed staff on duty in the Garage. Notwithstanding
that the Parking Garage will be staffed and open to the public only during
Parking Hours, USA LLC agrees that users of Executive Parking Stalls and Regular
Parking Stalls shall be entitled to park in the Garage Project during hours in
which the Garage is closed, without additional charge, except on days of a
Posted Event.

         SECTION 8. USA LLC agrees to comply with and to cause the designated
operator of the Garage Project to comply with the requirements the Property Use
and Development Agreement recorded under recording number 9002161696 in the
records of King County, Washington with respect to the requirements in such
document for carpool stalls.

         SECTION 9. For so long as the Underlying Agreement and/or the
Condominium Declaration continue in effect, to the extent permitted by
applicable law, USA LLC covenants to defend, indemnify and hold Unit Owner, its
agents, property managers, employees, tenants, and Mortgagees harmless from and
against all claims, costs, expenses (including but not limited to attorneys'
fees), losses, fines, penalties, and other liabilities arising from or a result
of (i) the occupancy or use of the Garage Project by USA LLC, any of its
sublessees or licensees or any agent, contractor or employee of any of them;
(ii) any accident, injury, loss or damage whatsoever caused to any person or
property alleged to have occurred on or about the Garage; or (iii) any
negligence or willful misconduct of USA LLC or any sublessee, licensee or agent,
contractor or employee of any of them that is alleged or proven to have occurred
on or about the Garage Project; provided, however, that with respect to damage
caused by or resulting from the concurrent negligence of the indemnified person,
its agents or employees, and USA LLC, its agents or employees, the foregoing
indemnity shall apply only to the extent of the negligence of USA LLC, its
agents or employees.

         SECTION 10. All of the provisions, agreements, rights, powers,
covenants, conditions and obligations contained in the Underlying Agreement and
this Addendum shall be binding on the parties, their respective heirs,
successors (by merger, consolidation or otherwise) and assigns, devisees,
administrators, representatives, lessees and all other persons acquiring either
Unit 2 or the Base Unit, or any portion thereof, or any interest therein,
whether by operation of law or in any other manner whatsoever, and shall inure
to the benefit of the parties and their respective heirs, successors (by merger,
consolidation or otherwise) and assigns as Owners (determined pursuant to the
Condominium Declaration). All the provisions of the Underlying Agreement and
this Addendum shall be enforceable as equitable servitudes and constitute
covenants running with the land pursuant to applicable law. It is expressly
acknowledged that respect to the various covenants (whether affirmative or
negative) on the part of each respective party contained in the Underlying
Agreement or this Addendum, which affect or bind, or are to be performed on
portions of each party's respective Unit, the Unit benefited by such covenant
shall, during the term of the Underlying Agreement and this Addendum be the
dominant estate, and the Unit of the respective Owner, as the case may be (or if
the particular covenant affects, binds or is to be performed on less than the
whole of such Unit, then with respect to the particular covenant, such portion
thereof as is affected by, or bound by, a particular covenant, on or which the
particular covenant is to be performed) shall, during the term of the Underlying
Agreement and this Addendum, be the servient estate.

         SECTION 11. Nothing in the Underlying Agreement or this Addendum, nor
the acts of the parties, shall be deemed to create a partnership between or
among the parties or shall cause them to be considered joint venturers or
members of any joint enterprise.

         SECTION 12. The provisions of the Underlying Agreement and this
Addendum are for the exclusive benefit of the parties and their successors and
assigns and are not for the benefit of any third person nor shall this Agreement
be deemed to have conferred any rights, express or implied, upon any third
person. It is expressly understood and agreed that no modification, amendment,
whole or in part, of the Underlying Agreement or this

                                       3


Addendum shall require any consent or approval on the part of any person other
than the undersigned, or their successors or assigns as the Owner of each of the
undersigned's respective Units in the condominium.

         IN WITNESS WHEREOF, this Addendum Is executed by the parties, intended
to be legally bound, as of the date first written above.

USA LLC                                UNION STATION ASSOCIATES, LLC,
                                       a Washington limited liability company
                                       By NSD, L.L.C., Manager

                                       By:  /s/  Kevin Daniels
                                          --------------------------------------
                                          Name:  Kevin Daniels
                                          Title: Member

UNIT OWNER                             OPUS UNION STATION, L.L.C.,
                                       a Delaware limited liability company

                                       By:  /s/  Thomas B. Parsons
                                          --------------------------------------
                                          Name:  Thomas B. Parsons
                                          Title: Vice President

STATE OF WASHINGTON        )
                           ) ss.
COUNTY OF KING             )

         THIS IS TO CERTIFY that on the 1st day of June, 1999, before me, the
undersigned, a notary public in and for the State of Washington, duly
commissioned and sworn, personally appeared KEVIN DANIELS to me known to be a
Member of NSD, L.L.C., a Washington limited liability company and to me known to
be the Manager of UNION STATION ASSOCIATES, L.L.C., the Washington limited
liability company that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
each limited liability company for the uses and purposes therein mentioned, and
on oath stated that said individual was authorized to execute said instrument.

         WITNESS my hand and official seal hereto affixed this 1st day of June,
1999.

                                         /s/  Alex B. Galloway
                                       -----------------------------------------
                                       (Signature of Notary)

                                              Alex B. Galloway
                                       -----------------------------------------
                                       (Print or stamp name of Notary)

                                       NOTARY PUBLIC in and for the State of
                                       Washington
                                       My Appointment Expires: 5-22-02

                                       4


STATE OF WASHINGTON        )
                           ) ss.
COUNTY OF KING             )

         I certify that I know or have satisfactory evidence that Thomas B.
Parsons is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Vice President of OPUS UNION STATION,
L.L.C. to be the free and voluntary act and deed of said limited liability
corporation, for the uses and purposes mentioned in the instrument.

         WITNESS my hand and official seal hereto affixed this 1st day of June,
1999.

                                         /s/  Alex B. Galloway
                                       -----------------------------------------
                                       (Signature of Notary)

                                             Alex B. Galloway
                                       -----------------------------------------
                                       (Print or stamp name of Notary)

                                       NOTARY PUBLIC in and for the State of
                                       Washington
                                       My Appointment Expires: 5-22-02

                                       5


RETURN ADDRESS:
David H Oswald, Esq
Ryan, Swanson & Cleveland, PLLC
1201 Third Avenue, Suite 3400
Seattle, WA 98101-3034

                                  AMENDMENT TO
                         PARKING AGREEMENT AND COVENANT

                                                     
RECORDING NO OF RELATED DOCUMENT                        20000216000353

GRANTOR                                                 UNION STATION ASOCIATES, LLC

GRANTEE                                                 OPUS UNION STATION II L.L.C.

ABREVIATED LEGAL DESCRIPTION                            N/A (See related document referred to above)

ASSESSOR'S TAX PARCEL NO.                               880970-0050-00



         The Amendment to Parking Agreement and Covenant (the "Amendment") is
made and entered into this 10th day of May, 2000, by and between Union Station
Associates, LLC, a Washington limited liability company ("USA") and OPUS Union
Station II, L.L.C., a Delaware limited liability company ("OPUS")

         WHEREAS, USA and OPUS entered into a Parking Agreement and Covenant
dated February 15, 2000, and recorded under King County Recording No.
20000216000353 (the "Parking Agreement"), which Parking Agreement provided for
the lease of up to 257 parking stalls in the Garage Project (as defined in the
Parking Agreement), and

         WHEREAS, the number of parking stalls was based on the proposed
rentable square footage of the Office Project (as defined in the Parking
Agreement) of 256,886, and

         WHEREAS, the revised rentable square footage of the Office Project is
now 260,044 square feet and the parties have agreed to increase the maximum
number of parking stalls available to OPUS to 260,

         NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree to amend the Parking
Agreement as follows:

         1.       In the last line of Recital paragraph D and the sixth line of
paragraph 1 of the Parking Agreement "257" is hereby amended to be "260".

                                       1.


         2.       Except as hereby amended by this Amendment, the Parking
Agreement shall remain in full force and effect.

                                       UNION STATION ASSOCIATES, LLC,
                                       a Washington limited liability company

                                       By  NSD, L.L.C., a Washington limited
                                           liability company, its manager

                                       By:  /s/  Kevin Daniels
                                          --------------------------------------
                                          Kevin Daniels, Member

                                       OPUS UNION STATION II, L.L.C.,
                                       a Delaware limited liability company

                                       By:  /s/  Thomas B. Parsons
                                          --------------------------------------
                                          Thomas B. Parsons, Vice President

                                       2.


STATE OF WASHINGTON  )
                     ) ss.
COUNTY OF KING       )

         I certify that I know or have satisfactory evidence that KEVIN DANIELS
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Member of NSD, LLC, as the Manager of
UNION STATION ASSOCIATES, LLC, to be the free and voluntary act and deed of said
limited liability company, for the uses and purposes mentioned in the instrument

         WITNESS my hand and official seal hereto affixed this 10th day of May,
2000

                                         /s/  Linda Pieratt
                                       -----------------------------------------
                                       (Signature of Notary)

                                              Linda Pieratt
                                       -----------------------------------------
                                       (Print or stamp name of Notary)
                                       NOTARY PUBLIC in and for the State of
                                       Washington
                                       My Appointment Expires: 8-19-00

STATE OF WASHINGTON )
                    ) ss.
COUNTY OF KING      )

         I certify that I know or have satisfactory evidence that THOMAS B,
PARSONS is the person who appeared before me, and said person acknowledged that
he signed this instrument, an oath stated that he was authorized to execute the
instrument and acknowledged it as the Vice-President of OPUS UNION STATION II,
L.L.C., to be the free and voluntary act and deed of said limited liability
company, for the uses and purposes mentioned in the instrument

         WITNESS my hand and official seal hereto affixed this 10th day of May,
2000

                                         /s/  Robin Wolff
                                       -----------------------------------------
                                       (Signature of Notary)

                                              Robin Wolff
                                       -----------------------------------------
                                       (Print or stamp name of Notary)
                                       NOTARY PUBLIC in and for the State of
                                       Washington
                                       My Appointment Expires: 6/15/2002

                                       3.


                              EXHIBIT D TO SUBLEASE

                               LANDLORD'S CONSENT

         The undersigned, Landlord under the Prime Lease (as defined in the
foregoing Sublease Agreement dated as of May ___, 2003, by and between
Amazon.com Holdings, Inc. and Blue Nile, Inc.), hereby consents, as contemplated
in Article 13 of such Prime Lease, to the foregoing Sublease on the express
condition that nothing in this consent is intended to relieve, release,
discharge or otherwise affect the liability of Sublandlord or Original Tenant
from the performance of their respective obligations to Landlord under the Prime
Lease and they shall remain fully liable under the Prime Lease to perform all of
the obligations of the "Tenant" under the Prime Lease. This Consent shall apply
only to this Sublease and shall not be deemed to be either (a) a consent to any
other sublease, assignment or other Transfer (as defined in the Prime Lease) of
any interest in any of the Premises leased to Sublandlord under the Prime Lease
or (b) a release from or waiver of the obligation to obtain Landlord's consent
in the event of any future sublease or assignment or other Transfer of any
interest in any of the Premises leased to Sublandlord under the Prime Lease.

         This consent and the Recognition Agreement dated May 22, 2003 between
Landlord, Subtenant and Amazon.com Holdings, Inc., represent the entire
agreement of Landlord with respect to the Sublease and shall be binding upon and
inure to the benefit of Subtenant, Sublandlord, Original Tenant, and Landlord
and their respective successors and assigns.

         Nothing in this Consent or the Sublease shall be deemed to obligate
Landlord to perform any obligations under the Prime Lease for the benefit of
Subtenant. This Consent is issued on the understanding that nothing contained in
the Sublease or this Consent and no direct relationship between Landlord and
Subtenant including, without limitations, the provisions of Section 4.3 of the
Sublease, shall modify, expand or enlarge Landlord's obligations under the Prime
Lease nor release Sublandlord or Original Tenant from any of their obligations
thereunder.

Dated this 22 day of May, 2003.

                                       SEATTLE UNION STATION II, LLC,
                                       a Washington limited liability company

                                       By:  /s/  Joseph D. Weinstein
                                          --------------------------------------
                                          Joseph D. Weinstein, Asst Secy of Mig
                                       Corp, its Manager




                  ORIGINAL TENANT'S CONSENT AND ACKNOWLEDGMENT

         Original Tenant hereby consents to the foregoing Sublease and ratifies
and affirms that Original Tenant remains liable under the Prime Lease as a
principal and not as a surety notwithstanding execution of the foregoing
Sublease or any course of conduct or dealings between Subtenant and Tenant and
nothing contained herein and no such course of conduct or dealings shall
relieve, release, discharge or otherwise affect the liability of Original Tenant
for the performance of Sublandlord's and Original Tenant's obligations to
Landlord under the Prime Lease.

Agreed to and accepted this 21 day of May, 2003.

                                       AMAZON.COM, INC.

                                       By:  /s/  Mark S. Peek
                                          --------------------------------------
                                       Name:     Mark S. Peek
                                       Title:   VP CAO

EX-10.5.2

                                                                  EXHIBIT 10.5.2

                      FIRST AMENDMENT TO SUBLEASE AGREEMENT

         This First Amendment to Sublease Agreement (this "Amendment") is made
and entered into as of July 3, 2003, between Amazon.com Holdings, Inc., a
Delaware corporation ("Sublandlord") and Blue Nile, Inc., a Delaware corporation
("Subtenant").

                                    RECITALS:

         A.       Sublandlord and Subtenant entered into that certain Sublease
Agreement dated May 22, 2003 with respect to certain premises (the "Leased
Premises") located in the Opus Center South Building (the "Building") in
Seattle, Washington. The Leased Premises and the Building are more fully
described in EXHIBIT A to this Sublease. The Sublease is in full force and
effect.

         B.       The parties have agreed that the Expansion Space described in
the Sublease shall be added to the Leased Premises, and that Subtenant may
construct improvements to the Expansion Space as a part of its initial
improvements to the Leased Premises, all subject to certain terms and
conditions.

         C.       Sublandlord and Subtenant now wish to amend the Sublease to
provide for the foregoing and for certain other matters, all as set forth below.

                                    AGREEMENT

In consideration of the mutual promises of the parties and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:

1.       DEFINITIONS

The capitalized words used in this Amendment shall have the meanings ascribed to
them in the Sublease unless the context requires otherwise.

2.       SUBLEASE OF EXPANSION SPACE

         2.1      AMENDMENT TO SECTION 1.2. Section 1.2 of the Sublease is
amended to read in its entirety as follows:

         1.2      Expansion Space. The entire balance of the 9th floor of the
Building ("Expansion Space") shall be added to and become a part of the
Subleased Premises for all purposes under this Sublease on that date (i) which
is eighteen (18) months after the Sublease Commencement Date, or (ii) on which
Subtenant first uses the Expansion Space for any purpose whatsoever (other than
the purposes described in Section 1.5 or Section 6.1 below), whichever shall
first occur ("Expansion Effective Date"); provided, however, that (a) the
Security Deposit shall be increased by the sum of $5,901.75 (subject to
adjustment after the Subleased Premises and Expansion Space are measured
pursuant to Section 1.1), (b) there will be no abatements in Basic Rent for the
Expansion Space for time periods occurring prior to the Expansion Effective
Date, (c) the Subtenant Improvement Allowance for the Expansion Space will be a
prorated portion of the Subtenant Improvement Allowance provided pursuant to
Section 6.1 below stated

                                       1.


on a per square foot basis, based upon the total number of months that the
Expansion Space will be a part of the Subleased Premises as compared to the
total number of months of the Sublease Term, (d) the Subtenant Improvement
Allowance for the Expansion Space will be paid at the time and in the manner set
forth in Section 6.1 below, and (e) Sublandlord will not pay Moving Expenses
with respect to the Expansion Space. The following example is for purposes of
clarification of the manner in which the Subtenant Improvement Allowance will be
calculated for the Expansion Space: Assuming that the Expansion Space is 4,000
Square Feet of Rentable Area and that it becomes a part of the Subleased
Premises at the commencement of the 19th month of the Sublease Term, and
assuming that the Sublease Term is 93 months, then the total available allowance
stated on a per square foot basis would be 75/93 times $58.50 (the Subtenant
Improvement Allowance stated in Section 6.1). Subject to the terms and
conditions of Section 6.1, Sublandlord hereby assigns to Subtenant the right to
receive from Landlord a portion of the Improvement Allowance equal to $30 per
square foot of the Rentable Area in the Expansion Space; the remaining allowance
amount will be provided by Sublandlord as Additional Allowance. The total
Subtenant Improvement Allowance for the Expansion Space shall be included for
purposes of calculating the Early Termination Fee pursuant to Section 2.2.

         2.2      DELETION OF SECTION 1.3. Section 1.3 of the Sublease is
deleted in its entirety.

         2.3      AMENDMENT TO SECTION 1.4. Section 1.4 of the Sublease is
amended by deleting the first six words of that Section, so that the first
sentence of Section 1.4 reads as follows:

         At any time after the expiration of the forty-eighth (48th) month of
the Sublease Term ("Adjacent Floor RFO Date"), Subtenant will have a right of
first offer to sublease any space that Sublandlord intends to sublease on a
floor that is adjacent to a floor on which Subtenant is already subleasing space
from Sublandlord, subject to the pre-existing rights of other subtenants of the
Building as of the Adjacent Floor RFO Date.

3.       INITIAL SUBTENANT IMPROVEMENTS FOR EXPANSION SPACE

The second paragraph of Section 6.1 of the Sublease shall be amended to read in
its entirety as follows:

         At Subtenant's option, Subtenant may build out its initial improvements
to the Expansion Space ("Expansion Space Improvements") at the same time as, and
as a part of, construction of Subtenant's Improvements to the initial Subleased
Premises, subject to the terms of this Sublease concerning approval of all of
Subtenant's Improvements by Landlord and Sublandlord. The Expansion Space shall
he measured pursuant to Section 1.1 above upon completion of the Expansion Space
Improvements. Subtenant shall have no right whatsoever to use, appropriate or
otherwise enjoy the benefit of the Expansion Space Improvements prior to the
Expansion Effective Date except that Subtenant, its agents, employees and
invitees will have the right at all times prior to the Expansion Effective Date
to walk through the Expansion Space to jet to and from other parts of the
Subleased Premises. The Subtenant Improvement Allowance (both the Base
Improvement Allowance and the Additional Allowance) and the Architectural
Allowance with respect to the Expansion Space shall be paid to Subtenant thirty
(30) days after the Expansion Effective Dale, provided, however, that (a)
Subtenant shall have provided to Sublandlord, immediately upon completion of
construction of the Expansion Space Improvement, valid invoices for completion
of all of the Expansion Space Improvements, whether or not the

                                       2.


Expansion Effective Date shall have occurred, and (b) the Subtenant Improvement
Allowance will be immediately revoked during the existence of any Event of
Default (as defined in the Prime Lease) under this Sublease that remains uncured
or that is no longer susceptible of cure in accordance with the terms of this
Sublease.

4.       REVOCABLE LICENSE TO USE GENERATOR

The parties acknowledge that the Building is served by a backup power generator
owned by Landlord and that Sublandlord has certain rights to use the generator
pursuant to the Prime Lease. Sublandlord agrees that Subtenant may install such
wires, lines and appurtenances as may be reasonably necessary in Order to
connect to the generator to serve the Subleased Premises (subject to the terms
of this Sublease concerning approval of all of Subtenant's Improvements by
Landlord and Sublandlord), and may use a portion of the capacity of the
generator as described in the report of Cochrane Electrics dated May 30, 2003 (a
copy of has been received by each party) (the "Revocable License"). Subtenant
shall install a protection device between the building electrical supply and any
devices owned by Subtenant with sufficient buffering capacity to protect
Subtenant's devices from variances in electrical supply. Sublandlord or Landlord
may revoke the Revocable License on written notice given to Subtenant no less
than five (5) days prior to the effective date of the revocation. No later than
the effective date of the revocation Subtenant shall disconnect its service from
the generator, and Subtenant shall promptly thereafter remove all wires, lines
and appurtenances that were installed by or on behalf of Subtenant in order to
connect to and use the generator, and shall repair any damage caused by the
installation or removal of those wires, lines and appurtenances. Neither
Sublandlord nor Landlord makes any representations or warranties as to the
available capacity of the generator or the adequacy of the generator to meet
Subtenant's needs. Neither Sublandlord nor Landlord shall have any liability to
Subtenant with respect to the generator and Subtenant releases any and all
claims it may have against either of them in the event the generator fails to
supply adequate electricity to Subtenant's equipment.

5.       LANDLORD'S CONSENT

The effectiveness of this Amendment is expressly conditioned upon Landlord's
written consent given in substantially the form attached to this Amendment as
Exhibit B within thirty (30) days of the date of this Amendment. The additional
funds required pursuant to Section 2.1 of this Amendment in order to increase
the Security Deposit shall be tendered to Sublandlord within 5 business days
after receipt of Landlord's consent.

6.       EXHIBITS

         The following Exhibits attached to this Amendment are incorporated into
and made a part of it by this reference:

         EXHIBIT A                     Subleased Premises and Legal
                                       Description
         EXHIBIT B                     Landlord's Consent

7.       RATIFICATION

                                       3.


Except as specifically amended by this Amendment, the Sublease is ratified and
confirmed.

                                       4.


         Executed in duplicate as of the date first written above.

                                       SUBLANDLORD:

                                       AMAZON.COM HOLDINGS, INC.

                                       By:  /s/ Mark Peek
                                          --------------------------------------
                                       Name:    Mark Peek
                                            ------------------------------------
                                       Title:  VP
                                             -----------------------------------

                                       SUBTENANT:

                                       BLUE NILE, INC.

                                       By: /s/ Mark Vadon
                                          --------------------------------------
                                       Name:   Mark Vadon
                                            ------------------------------------
                                       Title: CEO
                                             -----------------------------------

                                       5.


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

         On this 21st day of July, 2003, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Mark S. Peek, to me known to be the person who signed as VP
of Amazon.com Holdings, Inc., the corporation that executed the within and
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that he was duly elected, qualified and acting as
said officer of the corporation, that he was authorized to execute said
instrument and that the seal affixed, if any, is the corporate seal of said
corporation.

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

                                         /s/ Reese Elaine Kolsky
                                       -----------------------------------------
                                       (Signature of Notary)

                                             Reese Elaine Kolsky
                                       -----------------------------------------
                                       (Print of stamp name of Notary)

                                       NOTARY PUBLIC in and for the State
                                       of Washington, residing at Seattle.
                                       My appointment expires: 5/9/07.

                                       6.


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

         On this 7th day of July, 2003, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Mark Vadon, to me known to be the person who signed as CEO
of Blue Nile, Inc., the corporation that executed the within and foregoing
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said corporation for the uses and purposes therein mentioned, and on
oath stated that he was duly elected, qualified and acting as said officer of
the corporation, that he was authorized to execute said instrument and that the
seal affixed, if any, is the corporate seal of said corporation.

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

                                         /s/ Sandra J. Wong
                                       -----------------------------------------
                                       (Signature of Notary)

                                             Sandra J. Wong
                                       -----------------------------------------
                                       (Print of stamp name of Notary)

                                       NOTARY PUBLIC in and for the State
                                       of Washington, residing at Kenmore.
                                       My appointment expires: 10/5/03.

                                       _________________________________________
                                       (Signature of Notary)

                                       _________________________________________
                                       (Print of stamp name of Notary)

                                       NOTARY PUBLIC in and for the State
                                       of Washington, residing at _____________.
                                       My appointment expires: ________________.

                                       7.


                              EXHIBIT A TO SUBLEASE

                    SUBLEASED PREMISES AND LEGAL DESCRIPTION

                                       8.


                                Legal Description

"Property" means, collectively, subject to Section 3.7, the Building and all
other improvements to the Landlord's Unit in which the Building is located.

"Union Station Condominium" means Union Station, a condominium, recorded in
Volume 15 of Condominiums, pages 37-45, according to the amended and restated
declaration thereof recorded under King County Recording No. 9811171094 and any
amendments thereto, including and together with those certain easements for
support, utilities, equipment and improvements, elevators, access and
telecommunications links as set forth therein; situated in the City of Seattle,
County of King, State of Washington.

"Unit" means Unit 4 of Union Station Condominium.

                                       9.


                       FLOOR PLAN POCKET SPACE - 3289 USF
                       SCALE: FIT TO PAGE

                       7/17/03

                                  [FLOOR PLAN]



                              EXHIBIT B TO SUBLEASE

                               LANDLORD'S CONSENT

         The undersigned, Landlord under the Prime Lease (as defined in the
foregoing Sublease Agreement dated as of May 22, 2003, by and between Amazon.com
Holdings, Inc. and Blue Nile, Inc.), hereby consents, as contemplated in Article
13 of such Prime Lease, to the foregoing Amendment on the express condition that
nothing in this consent is intended to relieve, release, discharge or otherwise
affect the liability of Sublandlord or Original Tenant from the performance of
their respective obligations to Landlord under the Prime Lease and they shall
remain fully liable under the Prime Lease to perform all of the obligations of
the "Tenant" under the Prime Lease.

Notwithstanding the foregoing, Landlord agrees that the Improvement Allowance
payable by Landlord under the Prime Lease with respect to the Expansion Space
Improvements (as that term is defined in the foregoing Amendment) shall be paid
in accordance with the terms of the First Amendment to the Prime Lease at the
time described in Section 3 of the foregoing Amendment.

This Consent shall apply only to this Amendment and shall not be deemed to be
either (a) a consent to any other amendment to the sublease or (b) a release
from or waiver of the obligation to obtain Landlord's consent in the event of
any future amendment to the sublease.

         This consent represents the entire agreement of Landlord with respect
to the foregoing Amendment and shall be binding upon and inure to the benefit of
Subtenant, Sublandlord, Original Tenant, and Landlord and their respective
successors and assigns.

         Nothing in this Consent, the Amendment or the Sublease shall be deemed
to obligate Landlord to perform any obligations under the Prime Lease for the
benefit of Subtenant. This Consent is issued on the understanding that nothing
contained in the Amendment, the Sublease or this Consent and no direct
relationship between Landlord and Subtenant including, without limitations, the
provisions of Section 4.3 of the Sublease, shall modify, expand or enlarge
Landlord's obligations under the Prime Lease nor release Sublandlord or Original
Tenant from any of their obligations thereunder.

Dated this 29 day of July, 2003.

                                       SEATTLE UNION STATION II, LLC,
                                       a Washington limited liability company

                                       By: /s/ Joseph D. Weinstein
                                          --------------------------------------

                                        Joseph D. Weinstein, Asst Secy of MIG
                                       Corp., its Manager

                                      10.


                  ORIGINAL TENANT'S CONSENT AND ACKNOWLEDGMENT

         Original Tenant hereby consents to the foregoing Amendment and ratifies
and affirms that Original Tenant remains liable under the Prime Lease as a
principal and not as a surety notwithstanding execution of the foregoing
Amendment or any course of conduct or dealings between Subtenant and Tenant and
nothing contained herein and no such course of conduct or dealings shall
relieve, release, discharge or otherwise affect the liability of Original Tenant
for the performance of Sublandlord's and Original Tenant's obligations to
Landlord under the Prime Lease.

Agreed to and accepted this 11 day of July, 2003.

                                       AMAZON.COM, INC.

                                       By: /s/ Cayce Roy
                                          --------------------------------------
                                       Name:   Cayce Roy
                                       Title: VP

                                      11.

EX-10.6.1

                                                                  EXHIBIT 10.6.1

1.       BASIC LEASE TERMS

         A.       DATE OF LEASE: June 28, 2001

         B.       TENANT: Blue Nile, Inc., a Delaware corporation
                  Trade Name:
                  Address (Leased Premises): 5907 Fourth Ave. S., Seattle,
                   WA 98134
                  Building Unit:____________________

                  Address (For Notices):
                  At the Premises.
                  Attention:________________________
                  Telephone:________________________
                  Facsimile:________________________

                  With copy to:
                  Blue Nile, Inc.
                  2025 First Avenue, Suite 300
                  Seattle WA 98121
                  Attention: Chief Operating Officer
                  Telephone: (206) 336-6700
                  Facsimile: (206) 336-6750

         C.       LANDLORD: Gull Industries Inc., a Washington corporation
                  Address (For Notices): P.O. Box 24687, Seattle, WA 98124
                  Attention: William T. Vivian
                  Telephone: (206) 624-5900
                  Facsimile: (206) 624-5412
                  or to such other place as Landlord may from time to time
                  designate by written notice to Tenant.

         D.       TENANT'S USE OF PREMISES: General office and uses related to a
                  wholesale and/or retail jewelry fulfillment center, including
                  but not limited to, shipping, receiving, warehousing and
                  manufacturing of high-end jewelry products.

         E.       PREMISES AREA: Approximately 9,400 Rentable Square Feet

         F.       PROJECT AREA: Approximately 27,200 Rentable Square Feet

         G.       TERM OF LEASE: The term ("Term") of this Lease shall commence
                  on the Commencement Date as set forth in Section 3 and shall
                  terminate on the last day of the sixtieth (60th) full calendar
                  month after the Commencement Date (the "Expiration Date"). The
                  anticipated date for the Commencement Date is August 24, 2001.

         H.       BASE MONTHLY RENT (months refer to period through the
                  applicable full calendar month):





Period                                 Rent/RSF/Year
- ------                                 -------------
                                                             
Commencement Date - Month 12               $9.50                   7441.67/MO
Month 13 - Month 24                       $10.00                   7833.33/MO
Month 25 - Month 36                       $10.50                   8225.00/MO
Month 37 - Month 48                       $11.00                   8616.67/MO
Month 49 - Month 60                       $12.00                   9400.00/MO


         I.       PREPAID RENT (for months in addition to first month's rent):
                  N/A

         J.       SECURITY DEPOSIT: See Section 6.

         K.       BROKER(S): Tenant's Broker: Larry Blackett, Kidder Mathews
                  Senger; Landlord's Broker: Bob Hartsell, Hallwood

         L.       GUARANTOR(S): None.

         M.       EXHIBITS:

                    Exhibit A - The Premises
                    Exhibit B - The Project
                    Exhibit C - Landlord's Work and Work Letter Agreement
                    Exhibit D - Rules and Regulations
                    Exhibit E - Tenant Sign Criteria
                    Exhibit F - Additional Utilities or Services [if applicable]
                    Exhibit G - Permitted Substances
                    Exhibit H - Location of Reserved Parking Stalls

2.       PREMISES/COMMON AREAS/PROJECT.

         A.       PREMISES. Landlord leases to Tenant the premises described in
                  Section 1 and in Exhibit A (the "Premises"), located in this
                  project described on Exhibit B (the "Project"). By entry on
                  the Premises, Tenant acknowledges that it has examined the
                  Premises and accepts the Premises in their present condition,
                  subject to any Landlord's Work required under this Lease.
                  Landlord's Work shall consist of such work, if any, as is
                  specifically identified as Landlord's construction
                  responsibility under Exhibit C. Unless otherwise identified in
                  the punchlist or otherwise in written notice from Tenant to
                  Landlord prior to the dates specified below, Landlord's Work
                  shall be deemed approved by Tenant in all respects on the date
                  Tenant begins to move its personal property into the Premises.
                  Prior to the Commencement Date, Landlord shall schedule with
                  Tenant an inspection of Landlord's Work. Following such
                  inspection, Landlord's architect shall prepare a "punch list"
                  (as such term is used in the construction industry) of such
                  Landlord's Work. The existence of defects of a nature commonly
                  found on a punchlist shall not postpone the date of
                  substantial completion of Landlord's Work or result in a delay
                  or abatement of Tenant's obligation to pay rent or give rise
                  to a damage claim against Landlord. Landlord shall use
                  reasonable best efforts to complete all items on the punch
                  list within thirty (30) days after preparation thereof.

                                       2.


         B.       COMMON AREAS. As used in this Lease, "Common Areas" shall mean
                  all portions of the Project not leased or demised for lease to
                  specific tenants. During the Lease Term, Tenant and its
                  licensees, invitees, customers and employees shall have the
                  non-exclusive right to use the public portions of the Common
                  Areas, including all parking areas, landscaped areas,
                  entrances, lobbies, elevators, stairs, corridors, and public
                  restrooms in common with Landlord, other Project tenants 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. Landlord
                  in its discretion may increase, decrease or change the number,
                  locations and dimensions of any Common Areas and other
                  improvements shown on Exhibit A which are not within the
                  Premises, so long as the same does not materially interfere
                  with Tenant's use and enjoyment of and access to the Premises
                  and parking rights hereunder.

         C.       PROJECT. Landlord reserves the right in its sole discretion to
                  modify or alter the configuration or number of buildings in
                  the Project so long as the same does not materially interfere
                  with Tenant's use and enjoyment of and access to the Premises
                  and parking rights hereunder, and provided further that upon
                  such modification or alteration, the Project Area as set forth
                  in Section 1(f) shall be adjusted to reflect such modification
                  or alteration.

         D.       RENTABLE SQUARE FOOTAGE. Within ninety (90) days after the
                  Commencement Date of this Lease, Landlord shall cause its
                  architect to compute (with copy to Tenant) the Rentable Square
                  Footage of the Premises and the Project to be computed in
                  accordance with American National Standard Z65.1-1996 Method
                  of Measuring Floor Space in Office Buildings as published by
                  the Building Owners and Managers Association, as amended from
                  time to time, and this Lease shall be deemed amended to
                  incorporate such measurement.

3.       TERM. The Commencement Date listed in Section I of this Lease
         represents an estimate of the Commencement Date. This Lease shall
         commence on the estimated Commencement Date if tenant improvement work
         required of Landlord pursuant to this Lease ("Landlord's Work") is
         substantially completed (as that term is used in the construction
         industry) by such date and Tenant has had at least 75 days access to
         the premises for construction of Tenant's Work (which access may
         require coordination with Landlord's Work), but otherwise the
         Commencement Date shall be first to occur of the following events (i)
         the date on which Landlord notifies Tenant that Landlord's Work is
         substantially complete, and Tenant has had at least 75 days access to
         the premises for construction of Tenant's Work (which access may
         require coordination with Landlord's Work), (ii) the date on which
         Tenant takes possession or commences beneficial occupancy of the
         Premises, or (iii) if substantial completion of Landlord's Work is
         delayed due to Tenant's failure to perform its obligations under this
         Lease, then the date determined by Landlord as the date upon which
         Landlord's Work would have been substantially completed, and Tenant has
         had at least 75 days access to the premises for construction of
         Tenant's Work (which access may require coordination with Landlord's

                                       3.


         Work), but for Tenant's failure to perform. If this Commencement Date
         is later than the Section 1 Commencement Date, this Lease shall not be
         void or voidable, nor shall Landlord be liable to Tenant for any loss
         or damage resulting therefrom. Landlord shall confirm the Commencement
         Date by written notice to Tenant. This Lease shall be for a term
         ("Lease Term") beginning on the Commencement Date and ending on the
         Expiration Date, unless extended or sooner terminated in accordance
         with the terms of this Lease. All provisions of this Lease, other than
         those relating to payment of Base Monthly Rent and Additional Rent,
         shall become effective on the date that Tenant or its officers, agents,
         employees or contractors is first present on the Premises for
         inspection, construction or move in purposes.

4.       RENT

         A.       BASE MONTHLY RENT. Tenant shall pay Landlord monthly base rent
                  in the initial amount in Section 1 which shall be payable
                  monthly in advance on the first day of each and every calendar
                  month ("Base Monthly Rent") provided, however, the first
                  month's Base Monthly Rent (in the estimated amount of $7,441)
                  is due and payable upon execution of this Lease.

                  For purposes of Section 467 of the Internal Revenue Code, the
                  parties to this Lease hereby agree to allocate the stated
                  Rents, provided herein, to the periods which correspond to the
                  actual Rent payments as provided under the terms and
                  conditions of this agreement.

         B.       EXPENSES. The purpose of this Section 4(b) is to ensure that
                  Tenant bears a share of all Expenses related to the use,
                  maintenance, ownership, repair or replacement, and insurance
                  of the Project. Accordingly, beginning on the date Tenant
                  takes possession of the Premises, Tenant shall each month pay
                  to Landlord one-twelfth (1/12) of Tenant's Share of Expenses
                  related to the Project. As used in this Lease, "Tenant's
                  Share" shall mean the Premises Area, as defined in Section
                  1(e), divided by the Project Area, as defined in Section 1(f),
                  and "Tenant's Share of Expenses" shall mean the total Expenses
                  for the Project for the applicable calendar year multiplied by
                  Tenant's Share. Landlord may specially allocate individual
                  expenses where and in the manner necessary, in Landlord's
                  reasonable discretion, to appropriately reflect the
                  consumption of the expense or service. Where multiple premises
                  are served by a common meter, Landlord shall allocate charges
                  based on Landlord's reasonable estimate of proportionate
                  usage.

                  1)       EXPENSES DEFINED. The term "Expenses" shall mean all
                  costs and expenses of the ownership, operation, maintenance,
                  repair or replacement, and insurance of the Project, including
                  without limitation, the following costs:

                           (a)      All supplies, materials, labor, equipment,
                           and utilities used in or related to the operation and
                           maintenance of the Project,

                                       4.


                           (b)      All maintenance, janitorial, legal,
                           accounting, insurance, service agreement and
                           management (including on-site management office)
                           costs related to the Project;

                           (c)      All maintenance, replacement and repair
                           costs relating to the areas within or around the
                           Project, including, without limitation, air
                           conditioning systems, sidewalks, landscaping, service
                           areas, driveways, parking Areas (including
                           resurfacing and restriping parking areas), walkways,
                           building exteriors (including painting), signs and
                           directories, repairing and replacing roofs, walls,
                           etc. These costs may be included either based on
                           actual expenditures or the use of an accounting
                           reserve based on past cost experience for the
                           Project.

                           (d)      Amortization (along with reasonable
                           financing charges) of capital additions or
                           improvements made to the Project which may be
                           required by any government authority or which will
                           improve the operating efficiency of the Project
                           (provided, however, that the amount of such
                           amortization for improvements not mandated by
                           government authority shall not exceed in any year the
                           amount of costs reasonably determined by Landlord in
                           its sole discretion to have been saved by the
                           expenditure either through the reduction or
                           minimization of increases which would have otherwise
                           occurred).

                           (e)      Real Property Taxes including all taxes,
                           assessments (general and special) and other
                           impositions or charges which may be taxed, charged,
                           levied, assessed or imposed upon all or any portion
                           of or in relation to the Project or any portion
                           thereof, any leasehold estate in the Premises or
                           measured by Rent from the Premises, including any
                           increase caused by the transfer, sale or encumbrance
                           of the Project or any portion thereof "Real Property
                           Taxes" shall also include any form of assessment,
                           levy, penalty, charge or tax (other than estate,
                           inheritance, net income, or franchise taxes) imposed
                           by any authority having a direct or indirect power to
                           tax or charge, including, without limitation, any
                           city, county, state federal or any improvement or
                           other district, whether such tax is (1) determined by
                           the value of the Project or the Rent or other sums
                           payable under this Lease; (2) upon or with respect to
                           any legal or equitable interest of Landlord in the
                           Project or any part thereof, (3) upon this
                           transaction or any document to which Tenant is a
                           party creating a transfer in any interest in the
                           Project, (4) in lieu of or as a direct substitute in
                           whole or in part of or in addition to any real
                           property taxes on the Project, (5) based on any
                           parking spaces or parking facilities provided in the
                           Project, 6) in consideration for services, such as
                           police protection, fire protection, street, sidewalk
                           and roadway maintenance, refuse removal or other
                           services that may be provided by any governmental or
                           quasi-governmental agency from time to time which
                           were formerly provided without charge or with less
                           charge to property owners or occupants, or (7)
                           otherwise based on the operation of the Project (such
                           as transit, carpooling or environmental facilities.

                                       5.


                           (f)      Notwithstanding any other provision of this
                           Lease to the contrary, Landlord agrees that Expenses
                           as defined in Section 4(b) shall not include: leasing
                           commissions, attorneys' fees, costs, disbursements,
                           and other expenses incurred in connection with
                           leasing, renovating, or improving space for tenants
                           or other occupants or prospective tenants or other
                           occupants of the Project; the cost of any service
                           sold to any tenant (including Tenant) or other
                           occupant for which Landlord receives reimbursement as
                           an additional charge or rental over and above the
                           basic rent and escalations payable under the lease
                           with that tenant; any depreciation on the Project;
                           capital additions except as provided in subsection
                           (d) above; overhead profit increments paid to
                           Landlord's subsidiaries or affiliates for management
                           or other services on or to the building or for
                           supplies or other materials to the extent that the
                           cost of the services, supplies, or materials exceeds
                           the cost that would have been paid had the services,
                           supplies, or materials been provided by unaffiliated
                           parties on a competitive basis; all interest, loan
                           fees, and other carrying costs related to any
                           mortgage or deed of trust or related to any capital
                           item not chargeable as an Expense, and all rental and
                           other payable due under any ground or underlying
                           lease, or any lease for any equipment ordinarily
                           considered to be of a capital nature unless the
                           purchase of such equipment would have been chargeable
                           as an Expense (and except janitorial equipment which
                           is not affixed to the Project); any compensation paid
                           to clerks, attendants, or other persons in commercial
                           concessions operated by Landlord; advertising and
                           promotional expenditures; any costs, fines, or
                           penalties incurred due to violations by Landlord of
                           any governmental rule or authority, this Lease or any
                           other lease in the Project, or due to Landlord's
                           gross negligence or willful misconduct; the cost of
                           correcting any building code or other violations
                           which were violations prior to the Commencement Date
                           of this Lease; the cost of containing, removing, or
                           otherwise remediating any contamination of the
                           Project (including the underlying land and ground
                           water) by any toxic or hazardous materials
                           (including, without limitation, asbestos and "PCB's")
                           where such contamination was present as of the
                           Commencement Date or was brought onto the Project
                           thereafter by Landlord, its employees or contractors;
                           management costs to the extent they exceed management
                           costs charged for similar facilities in the area;
                           costs for sculpture, paintings, or other objects of
                           art (and insurance thereon or extraordinary security
                           in connection therewith); wages, salaries, or other
                           compensation paid to any executive employees above
                           the grade of building manager.

                  2)       ANNUAL ESTIMATE OF EXPENSES. When Tenant takes
                  possession of the Premises, Landlord shall estimate Tenant's
                  Share of Expenses for the remainder of the calendar year, and
                  at the commencement of each calendar year thereafter, Landlord
                  shall provide Tenant with an estimate of Tenant's Share of
                  Expenses for the ensuing calendar year.

                                       6.


                  3)       MONTHLY PAYMENT OF EXPENSES. Tenant shall pay to
                  Landlord, monthly in advance, as Additional Rent, one-twelfth
                  (1/12) of the Annual Estimate of Tenant's Share of Expenses
                  beginning on the date Tenant takes possession of the Premises.
                  As soon as practical following each calendar year, Landlord
                  shall prepare an accounting of actual Expenses incurred during
                  the prior calendar year and such accounting shall reflect
                  Tenant's Share of Expenses. If the Additional Rent paid by
                  Tenant under this Section 4(b)(3) during the preceding
                  calendar year was less than the actual amount of Tenant's
                  Share of Expenses, Landlord shall so notify Tenant and Tenant
                  shall pay such amount to Landlord within 30 days of receipt of
                  such notice. Such amount shall be deemed to have accrued
                  during the prior calendar year and shall be due and payable
                  from Tenant even though the term of this Lease has expired or
                  this Lease has been terminated prior to Tenant's receipt of
                  this notice. Tenant shall have thirty (30) days from receipt
                  of such notice to contest the amount due, failure to so notify
                  Landlord shall represent final determination of Tenant's Share
                  of Expenses. If Tenant's payments were greater than the actual
                  amount, then such overpayment shall be credited by Landlord to
                  Tenant's Share of Expenses due under this Section 4(b)(3).

         C.       RENT WITHOUT OFFSET AND LATE CHARGE. As used herein, "Rent"
                  shall mean all monetary sums due from Tenant to Landlord. All
                  Base Monthly Rent shall be paid by Tenant to Landlord without
                  prior notice or demand in advance on the first day of every
                  calendar month, at the address shown in Section 1, or such
                  other place as landlord may designate in writing from time to
                  time. Whether or not so designated, all other sums due from
                  Tenant under this Lease shall constitute "Additional Rent",
                  payable without prior notice or demand when specified in this
                  Lease, but if not specified, then within thirty (30) days of
                  demand. All Rent shall be paid without any deduction or offset
                  whatsoever. All Rent shall be paid in lawful currency of the
                  United States of America. Proration of Rent due for any
                  partial month shall be calculated by dividing the number of
                  days in the month for which Rent is due by the actual number
                  of days in that month and multiplying by the applicable
                  monthly rate. Tenant acknowledges that late payment by Tenant
                  to Landlord of any Rent or other sums due under this Lease
                  will cause Landlord to incur costs not contemplated by this
                  Lease, the exact amount of such cost being extremely difficult
                  and impracticable to ascertain. Such costs include, without
                  limitation, processing and accounting charges and late charges
                  that may be imposed on Landlord by the terms of any
                  encumbrance or note secured by the Premises. Therefore, if any
                  Rent or other sum due from Tenant is not received when due,
                  Tenant shall pay to Landlord an additional sum equal to 10% of
                  such overdue payment. Landlord and Tenant hereby agree that
                  such late charge represents a fair and reasonable estimate of
                  the costs that Landlord will incur by reason of any such late
                  payment and that the late charge is in addition to any and all
                  remedies available to the Landlord and that the assessment
                  and/or collection of the late charge shall not be deemed a
                  waiver of any other default. Additionally, all such delinquent
                  Rent or other sums, plus this late charge, shall bear interest
                  at the rate of 18 percent per annum. If the interest rate
                  specified in this Lease is higher than the rate permitted by
                  law, the interest rate is hereby decreased to the maximum
                  legal interest rate permitted by law. Any payments of any kind

                                       7.


                  returned for insufficient funds will be subject to an
                  additional handling charge of $25.00, and thereafter, Landlord
                  may require Tenant to pay all future payments of Rent or other
                  sums due by money order or cashier's check.

5.       PREPAID RENT. [intentionally omitted -- See Section 4(a) for first
         month's rent]

6.       LETTER OF CREDIT.

         A.       LETTER OF CREDIT. Tenant shall, within fifteen (15) days after
                  the date of full execution of this Lease and in accordance
                  with this Section 6, (i) cause a Letter of Credit in the
                  amount of Fifty Thousand Dollars ($50,000) (the "Letter of
                  Credit") to be issued by the L/C Bank in favor of Landlord,
                  and its successors, assigns and transferees and will cause
                  delivery of such letter of credit to Landlord.

         B.       INTENTIONALLY OMITTED.

         C.       MAINTENANCE OF LETTER OF CREDIT. Tenant will cause the Letter
                  of Credit to remain in full force and effect during the entire
                  Term and thereafter until the earlier of the date Landlord
                  acknowledges Tenant has completed all restoration obligations
                  under the lease or 60 days after expiration or earlier
                  termination of the Lease. The specific requirements for the
                  Letter of Credit and the rights of Landlord to make draws
                  thereon will be as set forth in this Section 6. Subject to
                  this Section 6, but anything else in this Lease to the
                  contrary notwithstanding, all of Tenant's rights and all of
                  Landlord's obligations under this Lease are strictly
                  contingent on Tenant's causing the Letter of Credit to remain
                  in full force and effect during the entire Term.

         D.       PAYMENT AND HOLDING OF DRAW PROCEEDS. Immediately upon, and at
                  any time or from time to time after, the occurrence of any one
                  or more Draw Events, Landlord will have the unconditional
                  right to draw on the Letter of Credit, in the full amount
                  thereof or in any lesser amount or amounts as Landlord may
                  determine, in its sole and absolute discretion, in accordance
                  with this Section 6. Upon the payment of Landlord of the Draw
                  Proceeds, Landlord will hold the Draw Proceeds in its own name
                  and for its own account, without liability for interest, and
                  as security for the performance by Tenant of Tenant's
                  covenants and obligations (theretofore or thereafter arising)
                  under this Lease, and will be entitled to use and apply any
                  and all of the Draw Proceeds from time to time solely to
                  compensate Landlord hereunder. Among other things, it is
                  expressly understood that the Draw Proceeds will not be
                  considered an advance payment of Basic Rent or Additional Rent
                  or a measure of Landlord's damages resulting from any Event of
                  Default hereunder (past, present or future). Further,
                  immediately upon the occurrence of any one or more Draw
                  Events, Landlord may, from time to time and without prejudice
                  to any other remedy, use the Draw Proceeds (whether from a
                  contemporaneous or prior draw on the Letter of Credit) to the
                  extent necessary to make good any arrearages of Basic Rent or
                  Additional Rent, to pay to Landlord any and all amounts to
                  which Landlord is entitled in connection with the pursuit of
                  any one or more of its remedies hereunder, and to compensate
                  Landlord for any

                                       8.


                  and all other damage, injury, expense or liability caused to
                  Landlord by any and all such Events of Default. Any delays in
                  Landlord's draw on the Letter of Credit or in landlord's use
                  of the Draw Proceeds will not constitute a waiver by Landlord
                  of any of its rights hereunder with respect to the Letter of
                  Credit or the Draw Proceeds. Following any such application of
                  the Draw Proceeds, Tenant will either pay to Landlord on
                  demand the cash amount so applied in order to restore the Draw
                  Proceeds to the fall amount thereof immediately prior to such
                  application or cause the Letter of Credit to be replenished to
                  its full amount thereunder. Landlord will not be liable for
                  any indirect, consequential, special or punitive damages
                  incurred by Tenant arising from a claim that Landlord violated
                  the bankruptcy code's automatic stay in connection with any
                  draw by Landlord of any Draw Proceeds, Landlord's liability
                  under such circumstances being limited to the reimbursement of
                  direct costs as and to the extent expressly provided in this
                  Section 6. Nothing in this Lease or in the Letter of Credit
                  will confer upon Tenant any property rights or interests in
                  any Draw Proceeds; provided, however, that upon the expiration
                  or earlier termination of this Lease, and so long as there
                  then exist no Draw Events or Event of Default hereunder,
                  Landlord agrees to return any remaining unapplied balance of
                  the Draw Proceeds then held by Landlord, and the Letter of
                  Credit itself (if and to the extent not previously drawn in
                  full) to Tenant.

         E.       TRANSFERABILITY. If Landlord transfers its interest in the
                  Project during the Term, Landlord may transfer the Letter of
                  Credit and any and all Draw Proceeds then held by Landlord to
                  the transferee and thereafter will have no further liability
                  with respect to the Letter of Credit or the Draw Proceeds,
                  including, without limitation, any liability for the return of
                  the Letter of Credit, so long as the transferee has assumed
                  all of Landlord's obligations under this Lease accruing after
                  the date of transfer. Tenant is responsible for any and all
                  fees or costs (whether payable to the L/C Bank or otherwise)
                  in order to effect such transfer of the Letter of Credit.

         F.       ADDITIONAL TERMS. In addition to compliance with the other
                  terms and conditions of this Section 6, the Letter of Credit
                  shall provide as follows:

                  In the event that you receive, prior to the expiration date
                  herein set forth, any payment (from a source other than drafts
                  drawn under this Letter of Credit) for invoices on the
                  debtor's account and within ninety (90) days after receipt of
                  said payment (i) a petition is filed by or against (Account
                  Debtor) with a United States Bankruptcy Court; (ii) (Account
                  Debtor) is the subject of any other proceeding, voluntary or
                  involuntary, which under applicable State or Federal law could
                  result in the return of such payment, then the expiration date
                  hereof shall automatically be extended to a date that is one
                  hundred twenty (120) days after the date of such filing,
                  assignment or proceeding and, if this Letter of Credit has
                  previously expired, our obligations hereunder shall be
                  reinstated up to the amount of such payment only, but in no
                  event more than (face amount) in aggregate.

         G.       APPLICABLE DEFINITIONS.

                                       9.


         "DRAW EVENT" means each of the following events:

                  (1)      the occurrence of any one or more of the following:
                  (i) Tenant's filing of a petition under any chapter of the
                  Bankruptcy Code, or under any federal, state or foreign
                  bankruptcy or insolvency statute now existing or hereafter
                  enacted, or Tenant's making a general assignment or general
                  arrangement for the benefit of creditors, (ii) the filing of
                  an involuntary petition under any chapter of the Bankruptcy
                  Code, or under any federal, state or foreign bankruptcy or
                  insolvency statute now existing or hereafter enacted, or the
                  filing of a petition for adjudication of bankruptcy or for
                  reorganization or rearrangement, by or against Tenant (or its
                  guarantor hereunder) and such filing not being dismissed
                  within 60 days, (iii) the entry of an order for relief under
                  any chapter of the Bankruptcy Code, or under any federal,
                  state or foreign bankruptcy or insolvency statute now existing
                  or hereafter enacted, (iv) the appointment of a "custodian,"
                  as such term is defined in the Bankruptcy Code (or of an
                  equivalent thereto under any federal, state or foreign
                  bankruptcy or insolvency statute now existing or hereafter
                  enacted), for Tenant, or the appointment of a trustee or
                  receiver to take possession of substantially all of Tenant's
                  assets located at the Premises or of Tenant's interest in this
                  Lease and possession not being restored to Tenant within 60
                  days, or (v) the subjection of all or substantially all of
                  Tenant's assets located at the Premises or of Tenant's
                  interest in this Lease to attachment, execution or other
                  judicial seizure and such subjection not being discharged
                  within 60 days; or

                  (2)      the failure of Tenant, not less than 30 days prior to
                  the stated expiration date of the Letter of Credit then in
                  effect, to cause an extension, renewal or replacement issuance
                  of the Letter of Credit, at the reduced amount, if any,
                  applicable under Section 6, to be effected, which extension,
                  renewal or replacement issuance will be made by the L/C Bank,
                  and, except as expressly provided in Section 6, will otherwise
                  meet all of the requirements of the initial Letter of Credit
                  hereunder, which failure will be an Event of Default under
                  this Lease; or

                  (3)      the failure of Tenant to make when due any payment of
                  Basic Rent, of any monthly installment of any Additional Rent,
                  or pay any other monetary obligation within three days after
                  the amount is due; or

                  (4)      the failure by Tenant to pay any amount due hereunder
                  within 10 days after the amount is due; or

                  (5)      the breach by Tenant of any non-monetary obligation
                  hereunder which is not cured within 30 days after notice of
                  the default from Landlord, which notice may be in the form of
                  a proof of claim in the event of a bankruptcy filing, provided
                  that if such failure cannot with due diligence by cured within
                  30 days, Tenant will have the right to cure the default if
                  Tenant commences such cure promptly and within the 30 day
                  period and thereafter diligently and prosecutes such cure to
                  completion.

                                      10.


         "DRAW PROCEEDS" means the proceeds of any draw or draws made by
                  Landlord under the Letter of Credit, together with any and all
                  interest accruing thereon.

         "L/C BANK" means Union Bank, as agent of GE Capital Corporation, or any
                  other United States bank or other financial institution which
                  is approved by Landlord in Landlord's reasonable discretion.

         "LETTER OF CREDIT" means that certain irrevocable Letter of Credit, in
                  the amounts set forth in Section 6, issued by the L/C Bank, as
                  required under Section 6 and, if applicable, as extended,
                  renewed, replaced or modified from time to time in accordance
                  with this lease, which Letter of Credit will be in a form
                  reasonably acceptable to Landlord. Any Letter of Credit
                  provided hereunder shall state that the beneficiary thereunder
                  must submit with any draw request a signed and dated statement
                  worded as follows with the instructions in brackets therein
                  complied with: "The undersigned, an authorized representative
                  of [insert beneficiary name] hereby certifies that a Draw
                  Event has occurred under the terms of the lease between Gull
                  Industries, as landlord, and Tenant dated [insert date]
                  relating to the premises located at 5907 Fourth Ave. S.,
                  Seattle, Washington."

7.       USE OF PREMISES AND PROJECT FACILITIES. Tenant shall use the Premises
         solely for the purposes set forth in Section 1 and for no other purpose
         whatsoever without obtaining the prior written consent of Landlord,
         which shall not be unreasonably withheld so long as Tenant's proposed
         use meets Landlord's then-existing use criteria for the Project and
         complies with all applicable zoning regulations. Except as provided in
         writing in this Lease, Tenant acknowledges that neither Landlord nor
         any agent of Landlord has made any representation or warranty with
         respect to the Premises or with respect to the suitability of the
         Premises or the Project for the conduct of Tenant's business, nor has
         Landlord agreed to undertake any modification, alteration or
         improvement to the Premises or the Project. Tenant acknowledges that
         Landlord may from time to time, at its sole discretion, make such
         modifications, alterations, deletions or improvements to the Project as
         Landlord may deem necessary or desirable, without compensation or
         notice to Tenant, so long as the same does not materially interfere
         with Tenant's use and enjoyment of the Premises and the Common Areas of
         the Project nor with Tenant's parking rights hereunder. Tenant shall
         promptly comply with all laws, ordinances, orders and regulations
         affecting the Premises and the Project, including, without limitation,
         the rules and regulations attached hereto as Exhibit D and any
         reasonable modifications to these rules and regulations as Landlord may
         adopt from time to time. Tenant acknowledges that, except for
         Landlord's obligations pursuant to Section 13, Landlord's Work and the
         Tenant Improvements, Tenant is solely responsible for ensuring that the
         Premises comply with any and all governmental regulations applicable to
         Tenant's conduct of business on the Premises, and that Tenant is solely
         responsible for any alterations or improvements that may be required by
         such regulations, now existing or hereafter adopted. Tenant shall not
         do or permit anything to be done in or about the Premises or bring or
         keep anything in the Premises that will in any way increase the
         premiums paid by Landlord on its insurance related to the Project,
         unless Tenant agrees to reimburse Landlord for any increase directly
         related to Tenant's use, or which will in any way increase the premiums
         for fire or casualty insurance carried by

                                      11.


         other tenants in the Project. Tenant will not perform any act or carry
         on any practices that may injure the Premises or the Project; that may
         be a nuisance or menace to other tenants in the Project; or that shall
         in any way materially interfere with the quiet enjoyment of such other
         tenants. Tenant shall not use the Premises for sleeping, washing
         clothes, cooking (except for preparation of employee meals) or the
         preparation, or manufacture or mixing of anything that might emit any
         reasonably objectionable odor, noises, vibrations or lights onto such
         other tenants. If sound insulation is required to muffle noise produced
         by Tenant on the Premises, Tenant at its own cost shall provide all
         necessary insulation. Tenant shall not do anything on the Premises
         which will overload any existing parking or service to the Premises.
         Pets and/or animals of any type shall not be kept on the Premises,
         except for guide dogs to assist the physically disabled.

8.       HAZARDOUS SUBSTANCES; DISRUPTIVE ACTIVITIES

         a.       HAZARDOUS SUBSTANCES.

                  (1)      Presence and Use of Hazardous Substances. As used in
                  this Lease, "Hazardous Substances" shall mean anything which
                  may be harmful to persons or property, including, but not
                  limited to, materials designated as a "Hazardous Substance"
                  pursuant to Section 101 of the Comprehensive Environmental
                  Response, Compensation and Liability Act of 1980, as now or
                  hereafter amended, 42 USC 9601, et seq., or as a Hazardous
                  Substance, Hazardous Household Substance, Moderate Risk Waste
                  or Hazardous Waste under RCW 70.105 .010, or which is
                  regulated by any federal, state, or local law, statute,
                  ordinance or regulation pertaining to health, industrial
                  hygiene or the environment. Tenant shall not, without
                  Landlord's prior written consent, keep on or around the
                  Premises, Common Areas or Building, for use, disposal,
                  treatment, generation, storage or sale, any Hazardous
                  Substances except such Hazardous Substances as are commonly
                  used in general administrative office operations and those
                  which are listed on Exhibit G attached hereto and a made a
                  part hereof ("Permitted Substances"). Tenant shall have the
                  right to periodically update the list of Permitted Substances
                  by provided written notice thereof to Landlord for Landlord's
                  consent in Landlord's discretion. With respect to any
                  Hazardous Substance, Tenant shall:

                           (i)      Comply promptly, timely, and completely with
                           all governmental requirements for reporting, keeping,
                           and submitting manifests, and obtaining and keeping
                           current identification numbers;

                           (ii)     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;

                           (iii)    Within five (5) days of Landlord's request,
                           submit written reports to Landlord regarding Tenant's
                           use, storage, treatment, transportation, generation,
                           disposal or sale of Hazardous Substances and provide
                           evidence

                                      12.


                           satisfactory to Landlord of Tenant's compliance with
                           the applicable government regulations;

                           (iv)     Allow Landlord or Landlord's agent or
                           representative to come on the Premises in conformance
                           with the entry rights and notice requirements
                           specified in Section 22 to check Tenant's compliance
                           with all applicable governmental regulations
                           regarding Hazardous Substances, provided that
                           Landlord shall use reasonable means to minimize
                           interference with the Tenant's use of the Premises;

                           (v)      Comply with minimum levels, standards or
                           other performance standards or requirements which may
                           be set forth or established for certain Hazardous
                           Substances (if minimum standards or levels are
                           applicable to Hazardous Substances present on the
                           Premises, such levels or standards shall be
                           established by an on-site inspection by the
                           appropriate governmental authorities and shall be set
                           forth in an addendum to this Lease); and

                           (vi)     Comply with all applicable governmental
                           rules, regulations and requirements regarding the
                           proper and lawful use, sale, transportation,
                           generation, treatment, and disposal of Hazardous
                           Substances.

                  (2)      If Landlord has reasonable cause to believe that
                  Tenant is not in compliance with this Section 8, then any and
                  all costs incurred by Landlord and associated with Landlord's
                  monitoring of Tenant's compliance with this Section 8,
                  including Landlord's reasonable attorneys' fees and costs,
                  shall be Additional Rent and shall be due and payable to
                  Landlord immediately upon demand by Landlord.

         B.       CLEANUP COSTS, DEFAULT AND INDEMNIFICATION.

                  (1)      Tenant shall be fully and completely liable to
                  Landlord for any and all cleanup costs, and any and all other
                  charges, fees, penalties (civil and criminal) imposed by any
                  governmental authority with respect to Tenant's use, disposal,
                  transportation, generation and/or sale of Hazardous
                  Substances, in or about the Premises, Common Areas, or
                  Building.

                  (2)      Tenant shall indemnify, defend and save Landlord and
                  Landlord's lender, if any, harmless from any and all of the
                  costs, fees, penalties and charges assessed against or imposed
                  upon Landlord (as well as Landlord's and Landlord's lender's
                  attorneys' fees and costs) as a result of Tenant's use,
                  disposal, transportation, generation and/or sale of Hazardous
                  Substances.

                  (3)      Upon Tenant's default under this Section 8, in
                  addition to the rights and remedies set forth elsewhere in
                  this Lease, Landlord shall be entitled in addition to all
                  other rights and remedies under this Lease to recover any and
                  all damages associated with the default, including, but not
                  limited to cleanup costs and charges, civil and criminal
                  penalties and fees, loss of business and sales by

                                      13.


                  Landlord and other tenants of the Building arising from
                  Tenant's default under this Section 8, any and all damages and
                  claims asserted by third parties which arise from Tenant's
                  default under this Section 8, and Landlord's reasonable
                  attorneys' fees and costs.

         C.       DISPOSAL OF WASTE.

                  (1)      Refuse Disposal. Tenant shall not keep any trash,
                  garbage, waste or other refuse on the Premises except in
                  sanitary containers and shall regularly and frequently remove
                  same from the Premises. Tenant shall keep all incinerators,
                  containers or other equipment used for storage or disposal of
                  such materials in a clean and sanitary condition.

                  (2)      Sewage Disposal. Tenant shall properly dispose of all
                  sanitary sewage and shall not use the sewage disposal system
                  (a) for the disposal of anything except sanitary sewage or (b)
                  in excess of the lesser amount (i) reasonably contemplated by
                  the uses permitted under this Lease or (ii) permitted by any
                  governmental entity. Tenant shall keep that portion of the
                  sewage disposal system located within the Premises free of all
                  obstructions and in good operating condition.

                  (3)      Disposal of Other Waste. Tenant shall properly
                  dispose of all other waste or other matter delivered to,
                  stored upon, located upon or within, used on, or removed from,
                  the Premises in such a manner that it does not, and will not,
                  adversely affect the (a) health or safety of persons, wherever
                  located, whether on the Premises or elsewhere (b) condition,
                  use or enjoyment of the Premises or Project, or (c) Premises
                  or any of the improvements thereto or thereon including
                  buildings, foundations, pipes, utility lines, landscaping or
                  parking areas.

         D.       Disruptive Activities. Tenant shall not:

                  (1)      Produce, or permit to be produced, any intense glare,
                  light or heat except within an enclosed or screened area and
                  then only in such manner that the glare, light or heat shall
                  not, outside the Premises, be materially different that the
                  light or heat from other sources outside the Premises;

                  (2)      Create, or permit to be created, any sound pressure
                  level which will interfere with the quiet enjoyment of any
                  real property outside the Premises, or which will create a
                  nuisance or violate any governmental law, rule, regulation or
                  requirement;

                  (3)      Create, or permit to be created, any ground vibration
                  that is materially discernible outside the Premises;

                  (4)      Transmit, receive or permit to be transmitted or
                  received, any electromagnetic, microwave or other radiation
                  which is harmful or hazardous to any person or property in, or
                  about the Project; or

                                      14.


                  (5)      Create, or permit to be created, any noxious odor
                  that is disruptive to the business operations of any other
                  tenant in the Project.

9.       SIGNAGE. All signage installed by Tenant shall comply with rules and
         regulations set forth by Landlord as may be modified from time to time.
         Current rules and regulations relating to signs are described on
         Exhibit E [PLEASE PROVIDE FOR REVIEW]. Tenant shall have the right to
         install window blinds or screens within the Premises. Tenant shall
         place no stickers, signs, lettering, banners or advertising or display
         material on or near exterior windows or doors if such materials are
         visible from the exterior of the Premises, without Landlord's prior
         written consent. Any material violating this provision may be destroyed
         by Landlord without compensation to Tenant.

10.      PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes,
         assessments, license fees and public charges levied, assessed or
         imposed upon its business operations as well as upon all trade
         fixtures, leasehold improvements, merchandise and other personal
         property in or about the Premises.

11.      PARKING. Landlord grants to Tenant and Tenant's customers, suppliers,
         employees and invitees, a right to use forty (40) stalls in the
         designated parking areas in the Project for the use of full-sized
         passenger automobiles during the term of this Lease. Of the total 40
         stalls which Tenant is entitled to use, those stalls which are located
         within the first three (3) rows of parking adjacent to the Premises and
         south of the demising wall of the Premises as identified on Exhibit H
         hereto shall be made available to Tenant on a reserved, exclusive basis
         at no extra charge to Tenant. Landlord reserves the right at any time
         to grant non-exclusive use to other tenants with respect to the
         unreserved stalls within the parking area, to promulgate rules and
         regulations relating to the use of such parking areas, including
         reasonable restrictions on parking by tenants and employees, to
         designate specific spaces for the use of any tenant, and to make
         changes in the parking layout from time to time, so long as the same
         does not reduce the number of parking stalls which Tenant is entitled
         to use and the new location of such stalls is in reasonably close
         proximity to the Premises and accomplishes the security purpose of the
         three row reservation. Employees of Tenant shall have the right to park
         their vehicles on an overnight basis where necessitated by the work
         schedules of such employees. Any vehicle violating any vehicle
         regulation adopted by Landlord and posted in the parking area is
         subject to removal at the owner's expense.

12.      UTILITIES; SERVICES. Subject to the next paragraph, Landlord shall
         furnish the Premises with electricity for Tenant's use as set forth in
         Section 1(d), including lighting and low power usage for office
         machines and light manufacturing, and water for restroom facilities.
         From 7:00 a.m. to 6:00 p.m. on weekdays and 9:00 a.m. to 1:00 p.m. on
         Saturday, excluding legal holidays ("Normal Business Hours"), Landlord
         shall furnish the Premises with heat and air conditioning services as
         required, in Landlord's reasonable judgment, for the comfortable use
         and occupancy of the Premises. Landlord shall provide further services
         (such as janitorial services and trash disposal) if Landlord and Tenant
         specifically agree to such additional services and identify such
         services with specificity on Exhibit F hereto [SUBJECT TO DISCUSSION].
         If requested by Tenant, Landlord shall furnish heat and air
         conditioning services at times other than Normal Business

                                      15.


         Hours, and supplements to Exhibit F special services, and Tenant shall
         pay for such additional services as additional rent at such reasonable
         rates as Landlord may establish from time to time.

         Tenant has examined the existing electrical and mechanical systems and
         is familiar with their capacities. If Tenant requires any additional
         capacity, Tenant shall install such additional capacity as part of the
         Tenant Improvements pursuant to Exhibit C (which cost shall be paid
         pursuant to Section 7 of Exhibit C). If, in Landlord's reasonable
         estimation, Tenant's usage of electrical or mechanical systems exceeds
         the consumption of spaces jointly metered or maintained with the
         Premises, Landlord may specially allocate to Tenant the actual cost of
         such excess consumption, and Tenant shall pay Landlord in advance, as
         additional rent, on the first day of each month during the Term, the
         amount reasonably estimated by Landlord as the cost of such excess
         consumption. 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 and the HVAC systems resulting from
         such equipment and lights, and from Tenant's HVAC requirements during
         other than Normal Business Hours. Tenant acknowledges that Landlord
         shall have sole control over the determination of what utility
         providers serve the Project, and Landlord shall have no obligation to
         give access or easement rights or otherwise allow onto the Project any
         utility providers except those approved by Landlord in its discretion.
         If, for any reason, Landlord permits Tenant to purchase utility
         services from a provider other than Landlord's designated compan(ies),
         such provider shall be considered a contractor of Tenant and Tenant
         shall indemnify defend and hold Landlord harmless from such provider's
         acts and omissions while in, or in connection with their services to,
         the Building or Project in accordance with the terms and conditions of
         Article 15. In addition, Tenant shall allow Landlord to purchase such
         utility service from Tenant's provider at Tenant's rate or at such
         lower rate as can be negotiated by the aggregation of Landlord's
         tenants' requirements for such utility.

         Except for the costs of above-building standard and/or after-hours
         services, which shall be paid directly by Tenant, the costs of all
         utilities and services provided pursuant to this Section 12 shall be
         Expenses allocated to Tenant as part of Tenant's Share of Expenses
         pursuant to Section 4(b), above. Tenant shall pay when due and directly
         to the service provider any telephone or other services metered,
         chargeable or provided to the Premises and not charged as part of
         Tenant's Share of Expenses.

         Landlord does not warrant that any utilities or services will be free
         from interruption including by reason of accident, repairs, alterations
         or improvements and including by reason of computer programming
         weaknesses. No utility interruption shall be deemed an eviction or
         disturbance of Tenant, or render Landlord liable to Tenant for damages,
         or relieve Tenant from the full and complete performance of all of
         Tenant's obligations under this Lease.

         Landlord may provide such security for the Project as it deems
         appropriate. Landlord understands that Tenant will independently be
         providing security for the Premises. During other than Normal Business
         Hours, Landlord may restrict access to the Project in accordance with
         the Project's security system. Except to the extent caused by the gross

                                      16.


         negligence or willful misconduct of Landlord, its agents or
         contractors, Landlord shall not be liable to Tenant for injury to
         Tenant's agents, employees, customers or invitees, or for losses due to
         theft or burglary, or for damages done by unauthorized persons in the
         Project.

13.      MAINTENANCE. Landlord shall maintain, in good condition and repair, the
         structural parts of the Premises, which shall include only the
         foundations, bearing and exterior walls (excluding glass), subflooring
         and roof (including support and membrane but excluding skylights), the
         unexposed electrical, plumbing and sewerage systems, including those
         portions of the systems lying outside the Premises, gutters and
         downspouts on the Building and the heating, ventilating and air
         conditioning system servicing the Premises; provided, however, the cost
         of all such maintenance shall be subject to the relevant provisions of
         Section 4(b). Except as provided above, Tenant shall maintain and
         repair the interior portions of the Premises in good condition and
         repair, including, without limitation, maintaining and repairing all
         internal walls, storefronts, floors, ceilings, interior and exterior
         doors, exterior and interior windows and fixtures and interior exposed
         plumbing, as well as damage caused by Tenant, its agents, employees or
         invitees. Upon expiration or termination of this Lease, Tenant shall
         surrender the Premises to Landlord in the same condition as existed at
         the commencement of the Term, except for reasonable wear and tear or
         damage caused by fire or other casualty.

14.      ALTERATIONS. Other than Landlord's Work and Tenant's Work, which shall
         be governed by the Work Letter, Tenant shall not make any alterations
         to the Premises, or to the Project, including any changes to the
         existing landscaping, without Landlord's prior written consent, which
         consent shall not be unreasonably withheld, conditioned or delayed.
         Notwithstanding the foregoing, Tenant shall have the right to make
         alterations and improvements to the Premises without Landlord's consent
         (but only after having provided not less than 15 days prior written
         notice to Landlord) where the same (i) will not materially affect the
         structural components of the building in which the Premises is located
         or the building systems, and (ii) will not exceed the cost of $10,000.
         If Landlord gives its consent to alterations, Landlord may post notices
         of non-responsibility in accordance with the laws of the state in which
         the premises are located. Tenant may, at the time of requesting
         Landlord's consent to alterations, further request in writing that
         Landlord elect, at the time of granting consent, whether such
         alterations must be removed upon termination of the Lease. If Tenant so
         requests, Landlord shall make such election at the time of granting
         consent to the alteration (or if no consent is required, then within
         fifteen days of Tenant's request). Failure of Landlord to respond to
         Tenant's request shall be deemed an election that the alteration need
         not be removed on termination of this Lease. Any alterations made shall
         remain on and be surrendered with the Premises upon expiration or
         termination of this Lease, except that Landlord may, within 30 days
         before or 30 days after expiration of the term, elect to require Tenant
         to remove any alterations which Tenant may have made to the Premises
         except such alterations as Tenant has received consent to leave as
         provided above. If Landlord elects to require removal of an alteration,
         at its own cost Tenant shall restore the Premises to the condition
         designated by Landlord in its election, before the last day of the term
         or within 30 days after notice of its election is given, whichever is
         later.

                                      17.


         Should Landlord consent in writing to Tenant's alteration of the
         Premises, Tenant shall contract with a contractor approved by Landlord
         for the construction of such alterations, which approval shall not be
         unreasonably withheld, delayed or conditioned, shall secure all
         appropriate governmental approvals and permits, and shall complete such
         alterations with due diligence in compliance with plans and
         specifications reasonably approved by Landlord. All such construction
         shall be performed in a manner which will not unreasonably interfere
         with the quiet enjoyment of other tenants of the Project. Tenant shall
         pay all costs for such construction and shall keep the Premises and the
         Project free and clear of all mechanics' liens which may result from
         construction by Tenant. Tenant shall not use any portion of the common
         areas in connection with an alteration without the prior written
         consent of Landlord.

15.      RELEASE AND INDEMNITY.

         A.       INDEMNITY. Except to the extent caused by the gross negligence
                  or willful misconduct of Landlord, its agents, employees or
                  contractors, Tenant shall indemnify, defend (using legal
                  counsel acceptable to Landlord) and save Landlord and its
                  property manager harmless from all claims, suits, losses,
                  damages, fines, penalties, liabilities and expenses (including
                  Landlord's personnel and overhead costs and reasonable
                  attorneys fees and other costs incurred in connection with
                  claims, regardless of whether such claims involve litigation
                  but excluding consequential damages such as lost profits)
                  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, or (ii) any act
                  or omission of Tenant, its officers, agents or employees in or
                  about the Premises. Tenant agrees that the foregoing indemnity
                  specifically covers actions brought by its own employees. This
                  indemnity with respect to acts or omissions during the term of
                  this Lease shall survive termination or expiration of this
                  Lease. The foregoing indemnity is specifically and expressly
                  intended to, constitute a waiver of Tenant's immunity under
                  Washington's Industrial Insurance Act, RCW Title 51, to the
                  extent necessary to provide Landlord with a full and complete
                  indemnity from claims made by Tenant and its employees, to the
                  extent provided herein. Tenant shall promptly notify Landlord
                  of casualties or accidents occurring in or about the Premises.

                  Except to the extent caused by the gross negligence or willful
                  misconduct of Tenant, its agents, employees or contractors,
                  Landlord shall indemnify, defend and save Tenant harmless from
                  all claims, suits, losses, damages, fines, penalties,
                  liabilities and expenses (including reasonable attorneys fees
                  and other costs incurred in connection with claims, regardless
                  of whether such claims involve litigation but excluding
                  consequential damages such as lost profits) 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
                  to the extent caused by (i) the activities of Landlord during
                  improvement of the Premises or Project, or the activities of
                  its employees, agents or contractors or (ii) any act or
                  omission of Landlord, its officers, agents or employees in the
                  Common Areas. Landlord agrees that the

                                      18.


                  foregoing indemnity specifically covers actions brought by its
                  own employees. This indemnity with respect to acts or
                  omissions during the term of this Lease shall survive
                  termination or expiration of this Lease. The foregoing
                  indemnity is specifically and expressly intended to,
                  constitute a waiver of Landlord's immunity under Washington's
                  Industrial Insurance Act, RCW Title 51, to the extent
                  necessary to provide Tenant with a full and complete indemnity
                  from claims made by Landlord and its employees, to the extent
                  provided herein.

                  LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION
                  PROVISIONS OF SECTION 8 AND THIS SECTION 15 WERE SPECIFICALLY
                  NEGOTIATED AND AGREED UPON BY THEM.

         B.       RELEASE. 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 Project equipment; any failure to make repairs; any
                  defect, failure, surge in, or interruption of Project
                  facilities or services; any defect in or failure of Common
                  Areas; broken glass; water leakage; the collapse of any
                  Building component; or any act, omission or negligence of
                  co-tenants, licensees or any other persons or occupants of the
                  Building, provided only that the release contained in this
                  Section 15(b) shall not apply to claims for actual damage to
                  persons or property (excluding consequential damages such as
                  lost profits) resulting directly from Landlord's breach of its
                  express obligations under this Lease which Landlord has not
                  cured within a reasonable time after receipt of written notice
                  of such breach from Tenant.

                  Notwithstanding any other provision of this Lease, and to the
                  fullest extent permitted by law, Tenant hereby agrees that
                  Landlord shall not be liable for injury to Tenant's business
                  or any loss of income therefrom, whether such injury or loss
                  results from conditions arising upon the Premises or the
                  Project, or from other sources or places including, without
                  limitation, any interruption of services and utilities or any
                  casualty, or from any cause whatsoever, including, Landlord's
                  negligence, and regardless of whether the cause of such injury
                  or loss or the means of repairing the same is inaccessible to
                  Landlord or Tenant. Tenant may elect, at its sole cost and
                  expense, to obtain business interruption insurance with
                  respect to such potential injury or loss.

         C.       LIMITATION ON INDEMNITY. In compliance with RCW 4.24.115 as in
                  effect on the date of this Lease, all provisions of this Lease
                  pursuant to which Landlord or Tenant (the "Indemnitor") agrees
                  to indemnify the other (the "Indemnitee") against liability
                  for damages arising out of bodily injury to Persons or damage
                  to property relative to the construction, alteration, repair,
                  addition to, subtraction from, improvement to, or maintenance
                  of, any building, road, or other structure, project,
                  development, or improvement attached to real estate, including
                  the Premises, (i) shall not apply to damages caused by or
                  resulting from the sole

                                      19.


                  negligence of the Indemnitee, its agents or employees, and
                  (ii) to the extent caused by or resulting from the concurrent
                  negligence of (a) the Indemnitee or the Indemnitee's agents or
                  employees, and (b) the Indemnitor or the Indemnitor's agents
                  or employees, shall apply only to the extent of the
                  Indemnitor's negligence; PROVIDED, HOWEVER, the limitations on
                  indemnity set forth in this Section shall automatically and
                  without further act by either Landlord or Tenant be deemed
                  amended so as to remove any of the restrictions contained in
                  this Section no longer required by then applicable law.

         D.       DEFINITIONS. As used in any Section establishing indemnity or
                  release of Landlord, "Landlord" shall include Landlord, its
                  partners, officers, agents, employees and contractors, and
                  "Tenant" shall include Tenant and any person or entity
                  claiming through Tenant.

16.      INSURANCE. Landlord shall maintain, or cause to be maintained, standard
         fire and extended coverage insurance on the Project (excluding
         leasehold improvements by Tenant in excess of those standard for the
         building and Tenant's property) in amounts considered by Landlord to be
         reasonable and customary. The insurance required to be obtained by
         Landlord may be obtained by Landlord through blanket or master policies
         insuring other entities or properties owned or controlled by Landlord.

         Tenant shall, throughout the term of this Lease and any renewal hereof,
         at its own expense, keep and maintain in full force and effect, a
         policy of commercial general liability (occurrence form) insurance,
         including contractual liability (including Tenant's indemnification
         obligations under this Lease) insuring Tenant's activities upon, in or
         about the Premises or the Project, against claims of bodily injury or
         death or property damage or loss with a combined single limit of not
         less than One Million Dollars ($1,000,000) per occurrence and Three
         Million Dollars ($3,000,000) in the aggregate, with such increases in
         limits as Landlord may from time to time require consistent with
         insurance requirements of institutional landlords in similar projects
         in the area. If Tenant manufactures on the Premises consumer goods
         using any materials supplied by Landlord (including but not limited to
         water supplied as part of utilities to the Premises), Tenant's
         insurance shall include products liability insurance in the amounts
         specified for the commercial general liability insurance.

         Tenant shall further, throughout the term of this Lease and any renewal
         thereof, at its own expense, keep and maintain in full force and
         effect, what is commonly referred to as "Special Cause of Loss" or
         "Special" coverage insurance (excluding earthquake and flood) on
         tenant's leasehold improvements in an amount equal to one hundred
         percent (100%) of the replacement value thereof with a coinsurance
         waiver. The proceeds from any such policy shall be used by Tenant for
         the restoration of Tenant's improvements or alterations. As used in
         this Lease, "tenant's leasehold improvements" shall mean any
         alterations, additions or improvements installed in or about the
         Premises by or with Landlord's permission or otherwise permitted by
         this Lease, whether or not the cost thereof was paid for by Tenant.

                                      20.


         All insurance required to be provided by Tenant under this Lease: (a)
         shall be issued by Insurance companies authorized to do business in the
         state in which the premises are located with a financial rating of at
         least an AVIII status as rated in the most recent edition of Best's
         Insurance Reports or equivalent rating organization; (b) shall be
         issued as a primary policy; shall be on an occurrence basis; (c) name
         Landlord and Landlord's property manager as additional insured; and (d)
         shall contain an endorsement requiring at least 30 days prior written
         notice of cancellation to Landlord and Landlord's lender, before
         cancellation or change in coverage, scope or amount of any policy.
         Tenant shall deliver a certificate or copy of such policy together with
         evidence of payment of all current premiums to Landlord within 30 days
         of execution of this Lease and at the time of all renewals thereof. If
         Tenant fails at any time to maintain the insurance required by this
         Lease, and fails to cure such default within five (5) business days of
         written notice from Landlord then, in addition to all other remedies
         available under this Lease and applicable law, Landlord may purchase
         such insurance on Tenant's behalf and the cost of such insurance shall
         be Additional Rent due within thirty (30) days of written invoice from
         Landlord to Tenant.

         Each party hereto waives all rights of recovery, claims, actions or
         causes of actions arising in any manner in its (the "Injured Party's")
         favor and against the other party for loss or damage to the Injured
         Party's property located within or constituting a part or all of the
         Project, to the extent the loss or damage: (a) is covered by the
         Injured Party's insurance; or (b) would have been covered by the
         insurance the Injured Party is required to carry under this Lease,
         whichever is greater, regardless of the cause or origin, including the
         sole, contributory, partial, joint, comparative or concurrent
         negligence of the other party. All insurance carried by either Landlord
         or Tenant covering the losses and damages described in this section
         shall provide for such waiver of rights of subrogation by the Injured
         Party's insurance carrier to the maximum extent that the same is
         permitted under the laws and regulations governing the writing of
         insurance within the state in which the building is located. Both
         parties hereto are obligated to obtain such a waiver and provide
         evidence to the other party of such waiver. The waiver set forth in
         this section shall be in addition to, and not in substitution for, any
         other waivers, indemnities or exclusions of liability set forth in this
         Lease.

17.      DESTRUCTION. If during the term, the Premises or Project are more than
         30% destroyed from any cause, or rendered inaccessible or unusable from
         any cause, Landlord may, in its sole discretion, terminate this Lease
         by delivery of notice to Tenant within 30 days of such event without
         compensation to Tenant. If in Landlord's estimation, the Premises
         cannot be restored within 90 days following such destruction, the
         Landlord shall notify Tenant and Tenant may terminate this Lease by
         delivery of notice to Landlord within 30 days of receipt of Landlord's
         notice. If neither Landlord nor Tenant terminates this Lease as
         provided above, then Landlord shall commence to restore the Premises in
         compliance with then existing laws and shall complete such restoration
         with due diligence. In such event, this Lease shall remain in full
         force and effect, but there shall be an abatement of Base Monthly Rent
         and Tenant's Share of Expenses between the date of destruction and the
         date of completion of restoration, based on the extent to which
         destruction interferes with Tenant's use of the Premises.

                                      21.


18.      CONDEMNATION.

         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 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, in the reasonable
                  judgment of Landlord, a taking of any part of the Premises by
                  Eminent Domain renders the remainder thereof unusable for the
                  business of Tenant (or the cost of restoration of the Premises
                  is not commercially reasonable), the Lease may, at the option
                  of either party, 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 and Additional Rent
                  shall be paid to the date of termination. Whenever any portion
                  of the Premises is taken by Eminent Domain and this Lease is
                  not terminated, Landlord shall at its expense proceed with all
                  reasonable dispatch to restore, to the extent of available
                  proceeds, the remainder of the Premises to the condition they
                  were in immediately prior to such taking, including the
                  Landlord's Work and Tenant's Work described in the Work
                  Letter, and Tenant shall at its expense proceed with all
                  reasonable dispatch to restore its personal property and all
                  improvements and alterations other than the Tenant's Work made
                  by it to the Premises to the same condition they were in
                  immediately prior to such taking. The Base 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, and 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.

19.      ASSIGNMENT OR SUBLEASE. Tenant shall not assign or encumber its
         interest in this Lease or the Premises or sublease all or any part of
         the Premises or allow any other person or entity (except Tenant's
         authorized representatives, employees, invitees, or guests) to occupy
         or use all or any part of the Premises without first obtaining
         Landlord's consent which shall not be unreasonably withheld for tenants
         meeting Landlord's

                                      22.



         then-existing standards for creditworthiness and use. No assignment or
         sublease shall release Tenant from the obligation to perform all
         obligations under this Lease. Any assignment, encumbrance or sublease
         without Landlord's written consent shall be voidable and at Landlord's
         election, shall constitute a default. If Tenant is a partnership, a
         withdrawal or change, voluntary, involuntary or by operation of law of
         any partner, or the dissolution of the partnership, shall be deemed a
         voluntary assignment. If Tenant consists of more than one person, a
         purported assignment, voluntary or involuntary or by operation of law
         from one person to the other shall be deemed a voluntary assignment. If
         Tenant is a corporation, any dissolution, merger, consolidation or
         other reorganization of Tenant, or sale or other transfer of a
         controlling percentage of the capital stock of Tenant, or the sale of
         at least 25% of the value of the assets of Tenant shall be deemed a
         voluntary assignment. The phrase "controlling percentage" means
         ownership of and right to vote stock possessing at least 25% of the
         total combined voting power of all classes of Tenant's capital stock
         issued, outstanding and entitled to vote for election of directors.
         This Section 19 shall not apply to corporations the stock of which is
         traded through an exchange or over the counter. Seventy-five (75%) of
         all rent received by Tenant from its subtenants in excess of the Rent
         payable by Tenant to Landlord under this Lease, or any sums to be paid
         by an assignee to Tenant in consideration of the assignment of this
         Lease after deducting therefrom brokers' commissions, reasonable
         attorneys' fees and costs for improving the Premises for such
         subtenants or assignee (said costs to be amortized, without interest,
         over the term of the sublease or remaining term of the Lease, as
         applicable), shall be paid to Landlord. If Tenant requests Landlord to
         consent to a proposed assignment or subletting, Tenant shall pay to
         Landlord, whether or not consent is ultimately given, $100 or
         Landlord's reasonable attorney's fees, not to exceed $ 1,000, incurred
         in connection with such request, whichever is greater.

         No interest of Tenant in this Lease shall be assignable by involuntary
         assignment through operation of law (including without limitation the
         transfer of this Lease by testacy or intestacy). Each of the following
         acts shall be considered an involuntary assignment: (a) if Tenant is or
         becomes bankrupt or insolvent, or institutes proceedings under the
         Bankruptcy Act in which Tenant is the bankrupt; or if Tenant is a
         partnership or consists of more than one person or entity, if any
         partner of the partnership or other person or entity is or becomes
         bankrupt or insolvent, or makes an assignment for the benefit of
         creditors; or (b) if a writ of attachment or execution is levied on
         this Lease; or (c) if in any proceeding or action to which Tenant is a
         party, a receiver is appointed with authority to take possession of the
         Premises. An involuntary assignment shall constitute a default by
         Tenant and Landlord shall have the right to elect to terminate this
         Lease, in which case this Lease shall not be treated as an asset of
         Tenant.

         Notwithstanding anything to the contrary contained in this Lease,
         provided that the net worth of the succeeding entity is not less than
         75% of the net worth of Tenant, Tenant may assign this Lease or sublet
         the Premises, or any portion thereof, without Landlord's consent, to
         any entity which controls, is controlled by, or is under common control
         with Tenant; to any entity which results from a merger of,
         reorganization of, or consolidation with Tenant; to any entity engaged
         in a joint venture with Tenant; or to any entity which acquires
         substantially all of the stock or assets of Tenant, as a going concern,
         with respect to the business that is being conducted in the Premises
         (hereinafter each a "Permitted

                                      23.



         Transfer"). In addition, a sale or transfer of the capital stock of
         Tenant shall be deemed a Permitted Transfer if (1) such sale or
         transfer occurs in connection with any bona fide financing or
         capitalization for the benefit of Tenant, or (2) Tenant is or becomes a
         publicly traded corporation. Landlord shall have no right to terminate
         the Lease in connection with, and shall have no right to any sums or
         other economic consideration resulting from any Permitted Transfer.

20.      EVENT OF DEFAULT. The occurrence of any of the following shall
         constitute a default by Tenant: (a) a failure to pay Rent or other
         charge when due, provided that Landlord shall not exercise any of its
         rights under this Section 20(a) until Landlord has given Tenant notice
         of such default and a cure period of three (3) days from receipt of
         such notice, and Tenant has failed to pay such rent or other charge or
         establish the entry system within such cure period; (b) abandonment and
         vacation of the Premises (failure to occupy and operate the Premises
         for ten consecutive days while in monetary default under this Lease
         shall be conclusively deemed an abandonment and vacation); or (c)
         failure to perform any other provision of this Lease, provided that
         Landlord shall not exercise any of its rights under this Section 20(c)
         until Landlord has given Tenant notice of such default and a cure
         period of thirty (30) days from receipt of such notice, and Tenant has
         failed to cure such default within such cure period, provided further
         that if more than thirty (30) days are required to complete such
         performance, the cure period shall not be deemed to have run so long as
         Tenant commences to cure such default within the thirty (30) day period
         and thereafter diligently pursues its completion. The notice required
         by this Section is intended to satisfy any and all notice requirements
         imposed by law on Landlord and is not in addition to any such
         requirement.

21.      LANDLORD'S REMEDIES. If an Event of Default by Tenant occurs, Landlord
         shall have the following remedies. (These remedies are not exclusive;
         they are cumulative and in addition to any remedies now or later
         allowed by law): Landlord may terminate Tenant's right to possession of
         the Premises at any time. No act by Landlord other than giving notice
         to Tenant shall terminate this Lease. Acts of maintenance, efforts to
         relet the Premises, or the appointment of a receiver on Landlord's
         initiative to protect Landlord's interest under this Lease shall not
         constitute a termination of Tenant's right to possession. Upon
         termination of Tenant's right to possession, Landlord has the right to
         recover from Tenant: (1) the worth of the unpaid Rent that had been
         earned at the time of termination of Tenant's right to possession; (2)
         the worth of the amount of the unpaid Rent that would have been earned
         after the date of termination of Tenant's right to possession less the
         amount that Tenant proves Landlord should be able to earn during such
         period net of all releasing costs; (3) any other amount, including but
         not limited to, expenses incurred to relet the Premises, court,
         attorney and collection costs, necessary to compensate Landlord for all
         detriment caused by Tenant's default. "The Worth," as used for Item (1)
         in this Paragraph 21 is to be computed by allowing interest at the rate
         of 12 percent per annum. If the interest rate specified in this Lease
         is higher than the rate permitted by law, the interest rate is hereby
         decreased to the maximum legal interest rate permitted by law. "The
         Worth" as used for Item (2) in this Paragraph 21 is to be computed by
         discounting the amount at the discount rate of the Federal Reserve Bank
         of San Francisco at the time of termination of Tenant's right of
         possession.

                                      24.



22.      ENTRY ON PREMISES. Landlord and its authorized representatives shall
         have the right to enter the Premises at all reasonable times on
         reasonable prior notice (provided that no notice shall be required in
         an emergency) for any of the following purposes: (a) to determine
         whether the Premises are in good condition and whether Tenant is
         complying with its obligations under this Lease; (b) to do any
         necessary maintenance and to make any restoration to the Premises or
         the Project that Landlord has the right or obligation to perform; (c)
         to post "for sale" signs at any time during the term, to post "for
         rent" or "for lease" signs during the last 90 days of the Term, or
         during any period while Tenant is in default; (d) to show the Premises
         to prospective brokers, agents, buyers or persons interested in
         purchasing the Project, at any time during the Term, or to prospective
         tenants interested in leasing the Premises during the last 90 days of
         the Term; or (e) to repair, maintain or improve the Project and to
         erect scaffolding and protective barricades around and about the
         Premises, and to do any other act or thing necessary for the safety or
         preservation of the Premises or the Project; provided, however, with
         respect to each of subclauses (a) through (e) above, Landlord agrees
         that any entry into the Premises will be limited to accomplishment of
         tasks set forth in Landlord's notice, and Landlord shall use
         commercially reasonable best efforts not to prevent entry to the
         Premises or otherwise interfere with Tenant's use and enjoyment of the
         Premises and Project, and Landlord shall diligently perform the
         relevant work or task to completion. Tenant shall have the right to
         have a representative present during any entry within the Premises by
         Landlord. Notwithstanding the foregoing, in the event that Landlord
         requires access to the Premises during any time period when no Tenant
         representative is available and Landlord reasonably believes that a
         condition exists within any portion of the Premises, which condition
         poses an immediate threat of harm to any person or property (i.e., an
         "emergency"), Tenant hereby instructs Landlord to use whatever force
         and means are reasonably necessary to gain access to the Premises.
         Except to the extent caused by Landlord's gross negligence or willful
         misconduct (and in any event excluding consequential damages such as
         lost profits), Landlord shall not be liable in any manner for any
         inconvenience, disturbance, loss of business, nuisance or other damage
         arising out of Landlord's entry onto the Premises as provided in this
         Section 22. Except as otherwise set forth in this Lease, Tenant shall
         not be entitled to an abatement or reduction of Rent if Landlord
         exercises any rights reserved in this Section 22. Without limiting any
         other requirement of Landlord herein, Landlord shall conduct its
         activities on the Premises in a commercially reasonable manner so as to
         limit inconvenience, annoyance or disturbance to Tenant to the maximum
         extent practicable.

23.      SUBORDINATION; ESTOPPEL CERTIFICATE.

         a.       SUBORDINATION. Without the necessity of any additional
                  document being executed by Tenant for the purpose of effecting
                  a subordination, and at the election of Landlord or any
                  mortgagee or any beneficiary of a Deed of Trust with a lien on
                  the Project or any ground lessor with respect to the Project,
                  this Lease shall be subject and subordinate at all times to
                  (a) all ground leases or underlying leases which may now exist
                  or hereafter be executed affecting the Project, and (b) the
                  lien of any mortgage or deed of trust which may now exist or
                  hereafter be executed in any amount for which the Project,
                  ground leases or underlying leases, or Landlord's interest or
                  estate in any of said items is specified as security. In the

                                      25.



                  event that any ground lease or underlying lease terminates for
                  any reason or any mortgage or Deed of Trust is foreclosed or a
                  conveyance in lieu of foreclosure is made for any reason,
                  Tenant shall, notwithstanding any subordination, attorn to and
                  become the Tenant of the successor in interest to Landlord, at
                  the option of such successor in interest. Tenant covenants and
                  agrees to execute and deliver, upon demand by Landlord and in
                  the form requested by Landlord any additional documents
                  evidencing the priority or subordination of this Lease with
                  respect to any such ground lease or underlying leases or the
                  lien of any such mortgage or Deed of Trust. Notwithstanding
                  the foregoing, Tenant shall not be required to subordinate its
                  interest under this Lease unless (a) such subordination does
                  not materially increase Tenant's obligations, or materially
                  decrease its rights under this Lease, and (b) Landlord first
                  obtains from the holder of the mortgage, deed of trust, or
                  other instrument of security to which this Lease is to become
                  subordinated a written agreement that provides substantially
                  the following: "As long as Tenant performs its obligations
                  under this Lease, Tenant shall not be disturbed in its quiet
                  enjoyment under this Lease by any foreclosure of, deed given
                  in lieu of foreclosure of, or sale under the encumbrance, or
                  steps or procedures taken under the encumbrance."

         b.       ESTOPPEL CERTIFICATE. Tenant shall, within 10 days of demand,
                  execute and deliver to Landlord a written statement
                  certifying: (i) the commencement and the expiration date of
                  the Term; (ii) the amount of Base Rent and the date to which
                  it has been paid; (iii) that this Lease is in full force and
                  effect and has not been assigned or amended in any way (or
                  specifying the date and terms of each agreement so affecting
                  this Lease) and that no part of the Premises has been sublet
                  (or to the extent such is not the case, a copy of any
                  sublease); (iv) that Landlord is not in default under this
                  Lease (or if such is not the case, the extent and nature of
                  such default); (v) on the date of such certification, there
                  are no existing defenses or claims which Tenant has against
                  Landlord (or if such is not the case, the extent and nature of
                  such defenses or claims); (vi) the amount of the Security
                  Deposit held by Landlord; and (vii) any other fact or
                  representation that a mortgagee or purchaser may reasonably
                  request. It is intended that any such statement shall be
                  binding upon Tenant and may be relied upon by a prospective
                  purchaser or mortgagee. If Tenant fails to respond within 10
                  days of receipt of a written request by Landlord therefor, (a)
                  Tenant shall be deemed to have given a certificate as above
                  provided, without modification, and shall be conclusively
                  deemed to have admitted the accuracy of any information
                  supplied by Landlord to a prospective purchaser or mortgagee,
                  and (b) Landlord may impose a fee of $100 per day for each day
                  of delay in providing the statement by Tenant after the 10 day
                  period.

24.      NOTICE. Any notice, demand or request required hereunder shall be given
         in writing to the party's facsimile number or address set forth in
         Section 1 hereof by any of the following means: (a) personal service;
         (b) electronic communication, whether by telex, telegram or facsimile
         with electronic confirmation; (c) overnight courier; or (d) registered
         or certified, first class mail, return receipt requested. Such
         addresses may be changed by notice to the other parties given in the
         same manner as above provided. Any notice,

                                      26.



         demand or request sent pursuant to either subsection (a) or (b) hereof
         shall be deemed received upon such personal service or upon dispatch by
         electronic means with electronic confirmation of receipt. Any notice,
         demand or request sent pursuant to subsection (c) hereof shall be
         deemed received on the business day immediately following deposit with
         the overnight courier and, if sent pursuant to subsection (d), shall be
         deemed received forty-eight (48) hours following deposit in the U.S.
         mail. Tenant hereby appoints as its agent to receive the service of all
         dispossessory or distraint proceedings and notices thereunder the
         person in charge of or occupying the Premises at the time, and, if no
         person shall be in charge of occupying the same, then such service may
         be made by attaching the same on the main entrance of the Premises.

25.      WAIVER. No delay or omission in the exercise of any right or remedy by
         Landlord shall impair such right or remedy or be construed as a waiver.
         No act or conduct of Landlord, including without limitation, acceptance
         of the keys to the Premises, shall constitute an acceptance of the
         surrender of the Premises by Tenant before the expiration of the term.
         Only written notice from Landlord to Tenant shall constitute acceptance
         of the surrender of the Premises and accomplish termination of the
         Lease. Landlord's consent to or approval of any act by Tenant requiring
         Landlord's consent or approval shall not be deemed to waive or render
         unnecessary Landlord's consent to or approval of any subsequent act by
         Tenant. Any waiver by Landlord of any default must be in writing and
         shall not be a waiver of any other default concerning the same or any
         other provision of the Lease. TENANT SPECIFICALLY ACKNOWLEDGES AND
         AGREES THAT, WHERE TENANT HAS RECEIVED A NOTICE TO CURE DEFAULT
         (WHETHER RENT OR NON-RENT), NO ACCEPTANCE BY LANDLORD OF RENT SHALL BE
         DEEMED A WAIVER OF SUCH NOTICE, AND, INCLUDING BUT WITHOUT LIMITATION,
         NO ACCEPTANCE BY LANDLORD OF PARTIAL RENT SHALL BE DEEMED TO WAIVE OR
         CURE ANY RENT DEFAULT. LANDLORD MAY, IN ITS DISCRETION, AFTER RECEIPT
         OF PARTIAL PAYMENT OF RENT, REFUND SAME AND CONTINUE ANY PENDING ACTION
         TO COLLECT THE FULL AMOUNT DUE, OR MAY MODIFY ITS DEMAND TO THE UNPAID
         PORTION. IN EITHER EVENT THE DEFAULT SHALL BE DEEMED UNCURED UNTIL THE
         FULL AMOUNT IS PAID IN GOOD FUNDS.

26.      SURRENDER OF PREMISES; HOLDING OVER. Upon expiration of the term,
         Tenant shall surrender to Landlord the Premises and all Tenant's Work
         and Tenant Improvements and alterations in good condition, except for
         ordinary wear and tear and alterations Tenant has the right or is
         obligated to remove under the provisions of Section 14 herein. Tenant
         shall remove all personal property including, without limitation, all
         data and phone wires, wallpaper, paneling and other decorative
         improvements or fixtures which were not part of the Tenant Improvements
         and shall perform all restoration made necessary by the removal of any
         alterations or Tenant's personal property before the expiration of the
         Term, including for example, restoring all wall surfaces to their
         condition prior to the commencement of this Lease. Landlord can elect
         to retain or dispose of in any manner Tenant's personal property not
         removed from the Premises by Tenant prior to the expiration of the
         Term. Tenant waives all claims against Landlord for any damage to
         Tenant resulting from Landlord's retention or

                                      27.



         disposition of Tenant's personal property. Tenant shall be liable to
         Landlord for Landlord's cost for storage, removal or disposal of
         Tenant's personal property.

         If Tenant, with Landlord's consent, remains in possession of the
         Premises after expiration or termination of the term, or after the date
         in any notice given by Landlord to Tenant terminating this Lease, such
         possession by Tenant shall be deemed to be a month-to-month tenancy
         terminable as provided under Washington law, by either party. All
         provisions of this Lease, except those pertaining to term and Rent,
         shall apply to the month-to-month tenancy. During any holdover term,
         Tenant shall pay Base Monthly Rent in an amount equal to 150% of Base
         Monthly Rent for the last full calendar month during the regular term
         plus 100% of Tenant's share of Expenses pursuant to Section 4(b)(3). If
         Tenant fails to surrender possession of the Premises upon termination
         or expiration of this Lease and if Tenant does not obtain Landlord's
         written consent to Tenant's continued occupancy, then Tenant shall be
         deemed a trespasser and shall be liable to Landlord for all damages
         sustained by Landlord as a result thereof, together with Base Rate at a
         rate double the Latest Rate.

27.      LIMITATION OF LANDLORD'S LIABILITY. In consideration of the benefits
         accruing hereunder, Tenant agrees that, in the event of any actual or
         alleged failure, breach or default of this Lease by Landlord,
         Landlord's liability under this Lease shall be limited to, and Tenant
         shall look only to Landlord interest in the Project and the rents and
         proceeds thereof.

28.      BUILDING PLANNING. If Landlord requires the Premises for use in
         conjunction with another suite or for other reasons connected with the
         Project planning program, upon notifying Tenant in writing, Landlord
         shall have the right to move Tenant to other space in the Project that
         is substantially the same in size, configuration and tenant
         improvements, such move (including out-of-pocket ancillary costs such
         as reprinting of stationary) to be at Landlord's sole cost and expense.
         Upon such move, the terms and conditions of the original Lease shall
         remain in full force and effect, save and excepting that a revised
         Exhibit "A" shall become part of this Lease and shall reflect the
         location of the new space and Section 1 of this Lease shall be amended
         to include and state all correct data as to the new space.

29.      MISCELLANEOUS PROVISIONS.

         a.       TIME OF ESSENCE. Time is of the essence of each provision of
                  this Lease.

         b.       SUCCESSOR. This Lease shall be binding on and inure to the
                  benefit of the parties and their successors, except as
                  provided in Section 19 herein.

         c.       LANDLORD'S CONSENT. Any consent required by Landlord under
                  this Lease must be granted in writing and may be withheld or
                  conditioned by Landlord in its sole and absolute discretion.

         d.       COMMISSIONS. Each party represents that it has not had
                  dealings with any real estate broker, finder or other person
                  with respect to this Lease in any manner, except for the
                  broker(s) identified in Section 1. Landlord shall pay a
                  commission,

                                      28.



                  to be divided equally among the brokers, of Five Percent of
                  Base Monthly Rent for the first 60 months, to be paid one-half
                  on lease execution and one-half on occupancy. Each party shall
                  be responsible for, and indemnify the other party against, any
                  additional sums claimed by its broker. Landlord and Tenant
                  recognize that it is possible that they may hereafter make
                  additional agreements regarding further extension or renewal
                  of this Lease or a new lease or leases for all or one or more
                  parts of the Premises or other space in the Project for a term
                  or terms commencing after the Commencement Date of this Lease.
                  Landlord and Tenant recognize that it is also possible that
                  they may hereafter modify this Lease to add additional space
                  or to substitute space as part of the Premises. If any such
                  additional agreements, new leases or modifications to this
                  Lease are made, Landlord shall not have any obligation to pay
                  any compensation to any real estate broker or to any other
                  third person engaged by Tenant to render services to Tenant in
                  connection with negotiating such matters, regardless of
                  whether under the circumstances such person is or is not
                  regarded by the law as an agent of Landlord.

         e.       OTHER CHARGES. If either party commences any litigation
                  against the other party or files an appeal of a decision
                  arising out of or in connection with the Lease, the prevailing
                  party shall be entitled to recover from the other party
                  reasonable attorney's fees and costs of suit. If Landlord
                  employs a collection agency to recover delinquent charges,
                  Tenant agrees to pay all collection agency and reasonable
                  attorneys' fees charged to Landlord in addition to Rent, late
                  charges, interest and other sums payable under this Lease.
                  Tenant shall pay a charge of $75 to Landlord for preparation
                  of a demand for delinquent Rent.

         f.       FORCE MAJEURE. Landlord shall not be deemed in default hereof
                  nor liable for damages arising from its failure to perform its
                  duties or obligations hereunder if such 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.

         g.       RULES AND REGULATIONS. Tenant shall faithfully observe and
                  comply with the "Rules and Regulations", a copy of which is
                  attached hereto, and all reasonable and nondiscriminatory
                  modifications thereof and additions thereto from time to time
                  put into effect by Landlord. Landlord shall not be responsible
                  to Tenant for the violation or non-performance by any other
                  tenant or occupant of the building or Project of said tenant
                  or occupant's lease or of any of said Rules and Regulations.

         h.       LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
                  Landlord of the Project, the same shall operate to release
                  Landlord from any liability under this Lease, and in such
                  event Landlord's successor in interest shall be solely
                  responsible for all obligations of Landlord under this Lease.

                                      29.



         i.       INTERPRETATION. This Lease shall be construed and interpreted
                  in accordance with the laws of the state in which the premises
                  are located. This Lease constitutes the entire agreement
                  between the parties with respect to the Premises and the
                  Project, except for such guarantees or modifications as may be
                  executed in writing by the parties from time to time. When
                  required by the context of this Lease, the singular shall
                  include the plural, and the masculine shall include the
                  feminine and/or neuter. "Party" shall mean Landlord or Tenant.
                  If more than one person or entity constitutes Landlord or
                  Tenant, the obligations imposed upon that party shall be joint
                  and several. The enforceability, invalidity or illegality of
                  any provision shall not render the other provisions
                  unenforceable, invalid or illegal.

         j.       PRIOR UNDERSTANDINGS. Tenant acknowledges that neither
                  Landlord nor anyone representing Landlord has made statements
                  of any kind whatsoever on which Tenant has relied in entering
                  into this Lease. Tenant further acknowledges that Tenant has
                  relied solely on its independent investigation and its own
                  business judgment in entering into this Lease. Landlord and
                  Tenant agree that: this Lease supersedes all prior and
                  contemporaneous understandings and agreement; the provisions
                  of this Lease are intended by them as the final expression of
                  their agreement; this Lease constitutes the complete and
                  exclusive statement of its terms; and no extrinsic evidence
                  whatsoever may be introduced in any judicial proceeding
                  involving this Lease. No provision of this Lease may be
                  amended except by an agreement in writing signed by the
                  parties hereto or their respective successors in interest,
                  whether or not such amendment is supported by new
                  consideration.

         k.       AUTHORITY. If Tenant is a corporation, each individual
                  executing this Lease on behalf of said corporation represents
                  and warrants that he/she is duly authorized to execute and
                  deliver this Lease on behalf of said corporation. If Tenant is
                  a partnership, each individual executing this Lease on behalf
                  of said partnership represents and warrants that he/she is
                  duly authorized to execute and deliver this Lease on behalf of
                  said partnership and that this Lease is binding upon said
                  partnership in accordance with its terms, and concurrently
                  with execution of this Lease, Tenant shall deliver to Landlord
                  such evidence of authorization as Landlord may require. If
                  Tenant is a marital community, or a member of a marital
                  community, both members of the marital community shall execute
                  this Lease. Where Tenant is comprised of more than one person
                  or entity, all covenants, agreements and obligations of Tenant
                  hereunder shall be the joint and several covenants, agreements
                  and obligations of each person or entity comprising.

         l.       CLEAN AIR ACT. Tenant acknowledges that Landlord has not made
                  any portion of the Premises or the Building accessible for
                  smoking in compliance with WAC 296-62-12000. If Tenant wishes
                  to make any portion of the Premises accessible for smoking,
                  Tenant shall make all improvements necessary to comply with
                  all applicable governmental rules and regulations. Tenant
                  acknowledges that the indemnity contained in Section 15 of the
                  Lease includes, but is not limited to

                                      30.



                  claims based on the presence of tobacco smoke as a result of
                  the activities of Tenant, its employees, agents, or guests.

30.      OPTION TO RENEW. Tenant is granted the right to extend the term of this
         Lease beyond the expiration date of the initial term for one period of
         sixty (60) months (the "Extended Term"). Tenant may not exercise its
         Extension Right if it is then in default beyond any applicable cure
         period or if it has ever been in default beyond any applicable cure
         period more than two (2) times in any twelve (12) month period. Tenant
         may exercise its Extension Right by delivering written notice thereof
         to Landlord not later than one hundred eighty (180) days prior to the
         expiration of the initial term. In the Extended Term, all terms and
         conditions of this Lease shall apply, except (i) the Work Letter
         Agreement shall not apply, and (ii) the Base Monthly Rent for the
         Extended Term shall be ninety-five percent (95%) of the Fair Market
         Rent for a similar lease and term for similarly situated and improved
         space, provided that in no event shall the Base Monthly Rent for the
         Extended Term be less than the Base Monthly Rent for the last month of
         the initial term. Extension Rights shall apply to all of the Premises
         then under lease to Tenant. Tenant's Extension Right is personal and
         may not be exercised by any assignee or sublessee other than an
         affiliate of Tenant or a successor by merger or consolidation.

         The term "Fair Market Rent" for the purposes of this Lease shall mean
         the annual amount per rentable square foot that Lessor has accepted in
         current, new comparable transactions in the Project for comparable
         space, for a comparable period of time, with improvements comparable to
         those existing in the Premises on the date Tenant exercises its
         Extension Right (or with such restoration as Tenant would be required
         to make upon termination of the Lease, if such would increase the Fair
         Market Rent) from non-expansion, non-renewal and non-equity tenants, or
         if there are not a sufficient number of current comparable transactions
         in the Project, what a willing, comparable, new, non-expansion,
         non-renewal, non-equity tenant would pay, and a willing, comparable
         landlord of a comparable building would accept under the transaction as
         further defined above.

         If Landlord and Tenant are not able to agree on the Fair Market Rent
         component for the Extended Term within thirty days after Tenant's
         notice of election to renew, then such Fair Market Rent shall be
         determined as follows. Landlord and Tenant shall each select an
         appraiser with at least ten years experience in the SODO/Dwamish area.
         If the two appraisers are unable to agree within ten days after their
         selection, they shall select a similarly qualified third appraiser (the
         "Neutral Appraiser"). Within twenty days after selection of the Neutral
         Appraiser, the three appraisers shall simultaneously exchange
         determinations of Fair Market Rent. If the lowest appraisal is not less
         than ninety percent (90%) of the highest appraisal, then the three
         appraisals shall be averaged and the result shall be the Fair Market
         Rent. If the lowest appraisal is less than ninety percent (90%) of the
         highest appraisal, then the Fair Market Rent shall be deemed the rent
         set forth in the appraisal submitted an appraiser appointed by a party
         that is closest in dollar amount to the appraisal submitted by the
         Neutral Appraiser.

31.      AMERICANS WITH DISABILITIES ACT. Tenant shall be responsible for
         compliance with any requirements of the Americans with Disabilities Act
         of 1990 ("ADA") that may be imposed as a result of the Tenant's Work or
         Tenant Improvements

                                      31.



         constructed pursuant to the Work Letter Agreement. Landlord shall be
         responsible, at Landlord's expense, for the cost of remedying any
         violations of the ADA existing as of the Commencement Date, except that
         the cost of constructing the Tenant Improvements and Tenant's Work
         shall be paid in compliance with the Work Letter. Landlord hereby
         assumes responsibility for compliance with post-Commencement Date
         amendments or reinterpretations of the ADA relating to the Common
         Areas, and the cost of such compliance shall be an Expense. Tenant
         shall be responsible for ensuring that its Tenant's Work and Tenant
         Improvements do not cause violations of the ADA and for compliance with
         post-Commencement Date amendments or reinterpretations of the ADA
         relating to the Premises.

32.      BUILDING CODES. Landlord shall be responsible, at Landlord's expense,
         for the cost of remedying any violations of the such building codes
         existing as of the Commencement Date except such violations as may be
         created by Tenant's construction of Tenant's Work and Tenant
         Improvements. Landlord hereby assumes responsibility for compliance
         with post-Commencement Date amendments or reinterpretations of the
         applicable building codes relating to the Common Areas, and the cost of
         such compliance shall be subject to Section 4(b). Tenant acknowledges
         that with respect to Landlord's obligations pursuant to Sections 31 and
         32, Landlord shall be entitled to contest any notices of violation, and
         shall not be obligated to make any alterations or improvements until so
         ordered by the applicable governmental entities, and any contested
         matters have been finally resolved.

                                      32.



Landlord:         GULL INDUSTRIES, INC.

                  By:   /s/ William T. Vivian
                      -------------------------------
                      Its VICE PRESIDENT

                  By:   /s/ Robert L. Paquin
                      -------------------------------
                      Its COO

Tenant:           BLUE NILE, INC.

                  By:________________________________
                     Its

                  By:________________________________
                     Its

STATE OF WASHINGTON                 )
                                    ) ss
COUNTY OF KING                      )

         I certify that I know or have satisfactory evidence that William T.
Vivian is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Vice President of Gull Industries to be
the free and voluntary act of such party for the uses and purposes mentioned in
the instrument.

         Dated: 6/28/01

                                                   /s/ Janine Michele Wilson
                                             -----------------------------------
                                                          (Signature)

                                                     Janine  Michele Wilson
                                             -----------------------------------
                                                          (Print Name)

                                             Notary Public, in and for the State
                                             of Washington, residing at Kent
                                             My Commission Expires 9/1/01

                                      33.



STATE OF WASHINGTON                 )
                                    ) ss
COUNTY OF KING                      )

         I certify that I know or have satisfactory evidence that Robert L.
Paquin is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Chief Operating Officer of Blue Nile Inc.
to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.

         Dated: 6/28/01

                                                  /s/ Janice Michele Wilson
                                             -----------------------------------
                                                         (Signature)

                                                   Janice Michele Wilson
                                             -----------------------------------
                                                       (Print Name)

                                             Notary Public, in and for the State
                                             of Washington, residing at Kent
                                             My Commission Expires 9/1/01

                                      34.



                                    EXHIBIT A

                                    PREMISES

                             [KEY PLAN & EXIT PATH]



                                    EXHIBIT B

                                     PROJECT



                                    EXHIBIT C
                               LANDLORD'S WORK AND
                              WORK LETTER AGREEMENT
                      [LANDLORD CONSTRUCTING IMPROVEMENTS]

         This Work Letter Agreement is part of that certain Lease ("Lease") by
and between Gull Industries, Inc. ("Landlord") and Blue Nile, Inc. ("Tenant").

         This Work Letter Agreement shall govern the initial improvements to the
Premises.

         Capitalized terms used but not defined herein shall have the meanings
set forth in the Lease.

                             1. TENANT IMPROVEMENTS.

         Reference herein to "Tenant Improvements" shall include all work to be
done in the Premises pursuant to the Tenant Improvement Plans described in
Paragraph 3 below, including, but not limited to, partitioning, doors, ceilings,
floor coverings, wall finishes (including paint and wall covering), electrical
(including lighting, switching, telephones, outlets, etc.), plumbing, heating,
ventilating and air conditioning, fire protection, cabinets and other millwork.
The parties specifically contemplate that the Tenant Improvements will include:
Security bars on skylight windows on east and west end of 18 foot high portion
of space, floor to roof partition to the extent it does not presently exist
along demising wall, enclosure of shop area, painting of entire Premises, new
ceiling, energy efficient lighting, and new floor covering throughout space
(areas of both VCT and industrial carpeting will be used). "Landlord's Work", as
referenced in the Lease, shall consist of the Tenant Improvements constructed by
Landlord pursuant to this Work Letter Agreement. The parties recognize that in
addition, Landlord may construct (at its expense) earthquake bracing and/or a
new roof, which work shall not be Landlord's Work and shall not be charged as a
Tenant Improvement but which shall be coordinated with construction of the
Tenant Improvements.

                          2. TENANT IMPROVEMENT PLANS.

         Tenant shall deliver final working drawings and specifications by JPC
Architects to Landlord at the time Tenant signs the Lease. Such final working
drawings and specifications shall have been approved by Tenant for use as the
"Tenant Improvement Plans." The "Tenant Improvement Plans" must be consistent
with Landlord's' standard specifications (the "Standards") for tenant
improvements for the Building, as the same may be changed from time to time by
Landlord. Landlord, with Tenant's cooperation, shall cause changes to be made in
the Tenant Improvement Plans only as necessary to obtain the building permit. No
further changes to the Tenant Improvement Plans may be made without the prior
written approval from both Landlord and Tenant, and then only after agreement by
Tenant to pay any excess costs resulting from the design and/or construction of
such changes.

                                      37.



                      3. NON-STANDARD TENANT IMPROVEMENTS.

         Landlord shall permit Tenant to deviate from the Standards for the
Tenant Improvements; provided that (a) the deviations shall not be of a lesser
quality than the Standards; (b) the total lighting for the Premises shall not
exceed 1.65 watts per rentable square foot; (c) the deviations conform to
applicable governmental regulations and necessary governmental permits and
approvals have been secured; (d) the deviations do not require building service
beyond the level normally provided to other tenants in the Building and do not
overload the floors; and (e) Landlord has reasonably determined that the
deviations are of a nature and quality that are consistent with the overall
objectives of the Landlord for the Building.

                                4. FINAL PRICING.

         Landlord shall deliver final pricing to Tenant within 14 days after
execution of the Lease and receipt of approved Tenant Improvement Plans. Tenant
shall have the right to timely review of the cost components and approval of the
final pricing. Said approval shall be provided by Tenant to Landlord within 72
hours of Tenant's receipt of the final pricing.

                             5. COMPLETION SCHEDULE.

         Landlord shall deliver a time table for completion of the installation
of the Tenant Improvements to be constructed in the Premises, and Commencement
Date for the Lease Term, to the Tenant within 14 days after execution of the
Lease and receipt of approved Tenant Improvement Plans. Tenant shall then have
the right to timely review of the time components and approval of the final
schedule. Said approval shall be provided by Tenant to Landlord within 72 hours
of receipt Tenant's of the final schedule.

                     6. CONSTRUCTION OF TENANT IMPROVEMENTS.

         Landlord shall enter into a construction contract with its contractor
for the installation of the Tenant Improvements in accordance with the Tenant
Improvement Plans. Landlord shall cause the Tenant Improvements to be
constructed in a good and workmanlike manner in accordance with the Tenant
Improvement Plans. Landlord shall be solely responsible to interpret Tenant
Improvement Plans and shall supervise the completion of such work and shall use
its commercially reasonable best efforts to secure substantial completion of the
work in accordance with the Completion Schedule. Landlord shall not be liable
for any direct or indirect damages as a result of delays in construction beyond
Landlord's reasonable control, including, but not limited to, acts of God,
inability to secure governmental approvals or permits, governmental
restrictions, strikes, availability of materials or labor or delays by Tenant
(or its architect or anyone performing services on behalf of Tenant).

                 7. PAYMENT OF COST OF THE TENANT IMPROVEMENTS.

a. Landlord hereby grants to Tenant an allowance ("Tenant Allowance") of up to
Ten Dollars ($10.00) per Rentable Square Foot of the Premises, which is
initially estimated as Ninety-Four Thousand Dollars ($94,000) and shall be
reconciled upon final measurement of the Premises.

                                      38.



b.       (Subsection Intentionally Omitted)

c.       The Tenant Allowance shall be used only for:

         (1)      Payment of the cost of preparing the space plan and the final
working drawings and specifications, including mechanical, electrical, plumbing
and structural drawings and of all other aspects of the Tenant Improvement
Plans. The Tenant Allowance will not be used for the payment of extraordinary
design work not included within the scope of Landlord's building standard
improvements or for payments to any other consultants, designers or architects
other than Landlord's architect and/or space planner.

         (2)      The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements.

         (3)      Construction of the Tenant Improvements (specifically
excluding, however, earthquake bracing and/or a new roof), including, without
limitation, the following:

                  (a)      Installation within the Premises of all partitioning,
         doors, floor coverings, ceilings, wall coverings and painting, millwork
         and similar items.

                  (b)      All electrical wiring, lighting fixtures, outlets and
         switches, and other electrical work to be installed within the
         Premises.

                  (c)      The furnishing and installation of all duct work,
         terminal boxes, diffusers and accessories required for the completion
         of the heating, ventilation and air conditioning systems within the
         Premises, including the cost of meter and key control for after-hour
         air conditioning.

                  (d)      Any additional Tenant requirements including, but not
         limited to, odor control, special beating, ventilation and air
         conditioning, noise or vibration control or other special systems.

                  (e)      All fire and life safety control systems such as fire
         walls, sprinklers, halon, fire alarms, including piping, wiring and
         accessories installed within the Premises.

                  (f)      All plumbing, fixtures, pipes and accessories to be
         installed within the Premises.

                  (g)      Testing and inspection costs.

                  (h)      Contractor's fees, including but not limited to any
         fees based on general conditions.

         (4)      All other costs to be expended by Landlord in the construction
of the Tenant Improvements, including those costs incurred by Landlord for
construction of elements of the Tenant Improvements in the Premises.

                                      39.



         (5)      Notwithstanding the above, the Tenant allowance may not be
used for the vault or work inside or to the exterior thereof, cabling and
security system constructed as Tenant's Work pursuant to Section 8 below or for
earthquake bracing and/or a new roof.

d.       The cost of each item shall be charged against the Tenant Allowance. In
the event that the cost of installing the Tenant Improvements, as established by
the final pricing schedule approved by Tenant and the construction contract
approved by Tenant (including any change orders required to deal with plan
inconsistencies or deficiencies or unanticipated conditions or changes requested
by Tenant), shall exceed the Tenant Allowance, the excess shall be paid or
bonded by Tenant to Landlord prior to the commencement of construction of the
Tenant Improvements.

e.       (Subsection Intentionally Omitted)

f.       (Subsection Intentionally Omitted)

g.       Any unused portion of the Tenant Allowance shall be retained by
Landlord.

                                8. TENANT'S WORK.

         Tenant Improvements shall not include Tenant's vault (which shall be a
six-sided vault), Tenant's cabling or Tenant's security system (collectively
"Tenant's Work"). Tenant may, simultaneous with construction of the Tenant
Improvements contract for Tenant's Work, provided that (i) all such construction
shall be pursuant to the approvals and requirements of Section 14 of the Lease,
and (ii) Tenant shall coordinate Tenant's Work with the Tenant Improvements so
as to prevent the Tenant's Work from causing any delay in construction of the
Tenant Improvements.

                                      40.



                                    EXHIBIT D
                              RULES AND REGULATIONS

   TO BE DEVELOPED SUBJECT TO TENANT'S REASONABLE REVIEW AND APPROVAL OF RULES
         AND REGULATIONS SIMILAR TO THOSE COMMONLY FOUND IN PROJECTS OF
                              THIS TYPE IN THE AREA

                                      41.



                                    EXHIBIT E
                                  SIGN CRITERIA

   TO BE DEVELOPED SUBJECT TO TENANT'S REASONABLE REVIEW AND APPROVAL OF SIGN
             CRITERIA SIMILAR TO THOSE COMMONLY FOUND IN PROJECTS OF
                              THIS TYPE IN THE AREA

                                      42.



                                    EXHIBIT F
                        ADDITIONAL UTILITIES OR SERVICES
                                 [IF APPLICABLE]

                                      43.



                                    EXHIBIT G
                              PERMITTED SUBSTANCES

Propane tanks, oxygen tanks, acid-based rhodium plating solution, sulphuric
acid, and rhodium sulfate.

                                      44.



                                    EXHIBIT H
                               PRESERVED PARKINGS

EX-10.6.2

                                                                  Exhibit 10.6.2

                            FIRST AMENDMENT TO LEASE

         This First Amendment to Lease (the "First Amendment") is made effective
the 11th day of December, 2002, by and between Gull Industries, Inc.
("Landlord"), and Blue Nile, Inc. ("Tenant").

                                    RECITALS:

         Landlord and Tenant are parties to that certain that lease, dated for
reference purposes June 28, 2001 (the "Lease") for premises located at 5907
Fourth Avenue South, Seattle, Washington (the "Premises").

         Pursuant to Section 6 of the Lease, Tenant is required to post a letter
of credit (the "Letter of Credit").

         Section 6(f) of the Lease requires reinstatement of the Letter of
Credit after expiration in the event a bankruptcy petition or similar proceeding
is filed that might require Landlord refund monies to Tenant or to Tenant's
bankruptcy estate (the "Bankruptcy Provision").

         Tenant wishes to provide a form a Letter of Credit that does not
contain the Bankruptcy Provision and Landlord is willing to accommodate same all
in the terms and conditions set forth herein.

         Except as specifically defined herein, all capitalized terms used in
this First Amendment shall have the meanings set forth in the Lease.

                                    AGREEMENT

         1.       In providing the Letter of Credit required under Section 6 of
the Lease, Tenant may provide a Letter of Credit which, in lieu of the language
set forth in Section 6(f) provides as follows (the "Alternate Language"):

         This Letter of Credit shall be automatically extended for an additional
         period of one year, without amendment, from the present or each future
         expiration date unless at least thirty (30) days prior to the then
         current expiration date we notify you by registered mail/overnight
         courier service at the above address that this Letter of Credit will
         not be extended for another one year period. If we elect not to renew
         the expiration date of this Letter of Credit for another year, then the
         expiration date will be automatically extended by 165 days beyond the
         current expiration date and that date will be the final expiration
         date. In no event shall this Letter of Credit be automatically extended
         beyond May 14, 2006.

         2.       The parties stipulate that in the event the Alternate Language
is utilized, then the following shall apply:

         a.       The 165 day automatic extension provided in the Alternate
                  Language shall not satisfy the requirement of annual
                  extensions, renewals or

                                       1.



                  replacements of the Letter of Credit (and thus the failure to
                  get a full year extension, renewal or replacement shall be a
                  "Draw Event"), provided only that the failure to provide
                  extension, renewal or replacement Letter of Credit upon
                  expiration of the term of the Lease shall not constitute a
                  Draw Event so long as the 165-day extension provided in the
                  Alternate Language is in effect and continues the
                  then-effective Letter of Credit to a date 165 days after the
                  expiration of the term of the Lease.

         Except as specifically modified herein, all terms and conditions of the
Lease are and remain in full force and effect.

                                        LANDLORD

                                        Gull Industries, Inc.

                                        By:  /s/ William T. Vivian
                                            ------------------------------------

                                        Its:  VICE PRESIDENT            12/11/02

                                        TENANT:

                                        Blue Nile, Inc.

                                        By:  /s/ Robert L. Paquin
                                            ------------------------------------

                                        Its:  COO                       12/12/02

STATE OF WASHINGTON                   )
                                      ) ss.
COUNTY OF KING                        )

         I certify that I know or have satisfactory evidence that William T.
Vivian signed this instrument, on oath stated that (he/she) was authorized to
execute the instrument and acknowledged it in (his/her) capacity as Vice
President of Gull Industries, Inc. to be the free and voluntary act of such
party for the uses and purposes mentioned in the instrument.

         GIVEN under my hand and official seal this 11 day of December, 2002.

                                             /s/ Janine Michele Wilson
                                            ------------------------------------
                                            NOTARY PUBLIC in and for the
                                            State of Washington, residing
                                            at Kent;
                                            My commission expires: 9/1/05

                                             Janine Michele Wilson
                                            ------------------------------------
                                            [Type or Print Notary Name]

                                       2.



STATE OF WASHINGTON                   )
                                      ) ss.
COUNTY OF KING                        )

         I certify that I know or have satisfactory evidence that Robert L.
Paquin signed this instrument, on oath stated that (he/she) was authorized to
execute the instrument and acknowledged it in (his/her) capacity as COO/CIO of
Blue Nile, Inc. to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.

         GIVEN under my hand and official seal this 12th day of December, 2002.

                                                   /s/ Sandra J. Wong
                                                 -------------------------------
                                                 NOTARY PUBLIC in and for the
                                                 State of Washington, residing
                                                 at Kenmore;
                                                 My commission expires: 10/5/03

                                                   Sandra J. Wong
                                                 -------------------------------
                                                 [Type or Print Notary Name]

                                       3.

EX-10.6.3

                                                                  Exhibit 10.6.3

                            SECOND AMENDMENT TO LEASE

         This Second Amendment to Lease (the "Second Amendment") is made
effective the 15th day of November, 2003, by and between Gull Industries, Inc.
("Landlord") and Blue Nile, Inc. ("Tenant").

                                    RECITALS:

         Landlord and Tenant are parties to that certain Lease, dated for
reference purposes June 28, 2001 (the "Lease") for premises located at 5907
Fourth Avenue South, Seattle, Washington (the "Premises").

         Tenant wishes to lease additional space on the Premises on a short term
basis.

                                    AGREEMENT

1.       Landlord agrees to rent an additional 424 sf of use and storage area
         and an additional 320 sf of the access corridor to Tenant as per
         Exhibit A.

         Term:                    A. November 15, 2003 - December 26, 2003 and
                                  B. February 1, 2004 -February 15, 2004
         Additional Rent:         $0.875 per sf/ month prorated
                                  ($564.20 for A and $273.00 for B )

2.       Access to the additional space will be through the roll up door, shared
         with Landlord.

3.       Landlord and Tenant agree to refrain from disturbing the property of
         the other party.

4.       Except as specifically modified herein, all Terms and Conditions of the
         Lease are and remain in full force and effect.

                                LANDLORD:

                                Gull Industries, Inc.

                                By:   /s/ William T. Vivian             11/14/03
                                    --------------------------------------------
                                    William T. Vivian

                                Its: Vice President

                                TENANT:

                                Blue Nile, Inc.

                                By:   /s/ Dwight Gaston
                                    --------------------------------------------
                                    Dwight Gaston

                                Its: VP of Operations



STATE OF WASHINGTON            )
                               )
COUNTY OF _______________      )

         On this _____ day of _______________, 2003, before me personally
appeared ___________________________________________ to me known to be the
_______________ of Gull Industries, Inc., the corporation that executed the
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein.

         GIVEN under my hand and official seal this _____ day of ______________,
2003.

                                       _________________________________________

                                       Notary Public in and for the State of
                                       Washington, residing at

                                       ______________________________ .

                                       My commission expires _________________ .

STATE OF WASHINGTON            )
                               )
COUNTY OF _______________      )

         On this _____ day of _______________, 2003, before me personally
appeared ___________________________________________ to me known to be the
_______________ of______________________________., the corporation that executed
the foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein.

         GIVEN under my hand and official seal this _____ day of ______________,
2003.

                                       _________________________________________

                                       Notary Public in and for the State of
                                       Washington, residing at

                                       ______________________________ .

                                       My commission expires _________________ .



                                  AM Building

                           Temporary use by Blue Nile
                                 Nov. 13, 2003

                                Scale 1" = 10'0"

                                  [FLOOR PLAN]

EX-10.13

                                                                   EXHIBIT 10.13



                                 BLUE NILE, INC.

                               INDEMNITY AGREEMENT

      THIS AGREEMENT is made and entered into this __________ day of __________,
2004 by and between __________, a Delaware corporation (the "Corporation"), and
__________ ("Agent").

                                    RECITALS

      WHEREAS, Agent performs a valuable service to the Corporation as
__________ of the Corporation;

      WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");

      WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and

      WHEREAS, in order to induce Agent to continue to serve as __________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;

      NOW, THEREFORE, in consideration of Agent's continued service as
__________ after the date hereof, the parties hereto agree as follows:

                                    AGREEMENT

      1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.

      2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than the Bylaws or the Code permitted prior to
adoption of such amendment).


                                       1.

      3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:

            (A) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and

            (B) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 41
of the Bylaws.

      4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section 3
hereof shall be paid by the Corporation:

            (A) on account of any claim against Agent solely for an accounting
of profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;

            (B) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;

            (C) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;

            (D) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;

            (E) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or

            (F) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers

                                       2.

vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.

      5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.

      6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.

      7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:

            (A) the Corporation will be entitled to participate therein at its
own expense;

            (B) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of Agent's separate counsel shall be at the expense
of the Corporation. The Corporation shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of the Corporation or
as to which Agent shall have made the conclusion provided for in clause (ii)
above; and


                                       3.

            (C) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.

      8. EXPENSES. As permitted by applicable law, the Corporation shall
advance, prior to the final disposition of any proceeding, promptly following
request therefor, all expenses incurred by Agent in connection with such
proceeding upon receipt of an undertaking by or on behalf of Agent to repay said
amounts if it shall be determined ultimately that Agent is not entitled to be
indemnified under the provisions of this Agreement, the Bylaws, the Code or
otherwise.

      9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.

      10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.

      11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.

      12. SURVIVAL OF RIGHTS.

            (A) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another

                                       4.

corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and shall inure to the benefit of Agent's heirs, executors and
administrators.

            (B) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.

      13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.

      14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.

      15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.

      16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.

      17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.

      18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:

            (A)   If to Agent, at the address indicated on the signature page
                  hereof.

            (B)   If to the Corporation, to:

                  Blue Nile, Inc.
                  705 Fifth Avenue S., Suite 900
                  Seattle, WA  98104

or to such other address as may have been furnished to Agent by the Corporation.




                                       5.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.


                                   BLUE NILE, INC.


                                   Name (Print):________________________________

                                   Signature:___________________________________

                                   Title:_______________________________________



                                   AGENT



                                   Name (Print):________________________________

                                   Signature:___________________________________

                                   Title:_______________________________________

                                   Address:

                                   _____________________________________________

                                   _____________________________________________




                                       6.

EX-23.1

                                                                    Exhibit 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated March 9, 2004 relating to the consolidated financial statements and
financial statement schedule of Blue Nile, Inc., which appears in such
Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

Seattle, Washington
April 19, 2004