10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF  THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2002

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM             TO             

COMMISSION FILE NUMBER: 000-26816

IDX SYSTEMS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Vermont	03-0222230
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

40 IDX Drive, P.O. Box 1070,	05403
South Burlington, Vermont	(Zip Code)
(Address of Principal Executive Offices)

Registrant’s telephone number, including area code:    (802) 862-1022

Securities registered pursuant to Section 12(b) of the Act:    NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

Title of Class

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x    No ¨

The aggregate market value of voting Common Stock held by nonaffiliates of the registrant was $265,805,500 based on the last reported sale price of the Common Stock on the NASDAQ consolidated transaction reporting system on June 28, 2002.

Number of shares outstanding of the registrant’s class of Common Stock as of March 24, 2003: 29,228,147.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s definitive Proxy Statement for its 2003 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III hereof.

IDX SYSTEMS CORPORATION

FORM 10-K

FOR THE PERIOD ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

		Page
PART I
ITEM 1.	Business	3
ITEM 2.	Properties	16
ITEM 3.	Legal Proceedings	17
ITEM 4.	Submission of Matters to a Vote of Security Holders	17
PART II
ITEM 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	20
ITEM 6.	Selected Financial Highlights	21
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	35
ITEM 8.	Financial Statements and Supplementary Data	36
	Consolidated Balance Sheets	36
	Consolidated Statements of Operations	37
	Consolidated Statements of Stockholders’ Equity	38
	Consolidated Statements of Cash Flows	39
	Notes to Consolidated Financial Statements	40
	Report of Independent Auditors	61
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62
PART III
ITEM 10.	Directors and Officers of the Registrant	62
ITEM 11.	Executive Compensation	62
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management	62
ITEM 13.	Certain Relationships and Related Transactions and Related Stockholder Matters	62
ITEM 14.	Controls and Procedures	62
PART IV
ITEM 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	63
SIGNATURES		64
EXHIBIT INDEX		67

2

PART I

ITEM 1.    BUSINESS

Overview

IDX Systems Corporation (IDX or the Company) is a leading provider of software, services and technologies for healthcare organizations. Our mission is to use information technology to maximize value in the delivery of healthcare by improving the quality of patient access and service, enhancing medical outcomes and reducing the cost of care.

We believe there will be a transformation in healthcare driven by information technology. IDX envisions itself as a key driver of this transformation with software and connectivity solutions that bring the stakeholders of patient care into an integrated process, simplifying patient access, streamlining the revenue cycle and improving patient care. IDX solutions are designed to enable healthcare providers to save money, time and lives.

As of December 31, 2002, IDX systems were deployed to serve approximately 138,000 physicians and were installed at over 3,600 customer sites, including over 175 large group practices with greater than 200 physicians, over 665 small- and mid-sized group practices with less than 199 physicians, and more than 380 integrated delivery networks representing more than 700 hospitals. IDX operates its business in two separate segments: Information Systems and Services and Medical Transcription Services. The Company’s core business segment, providing information systems, services and connectivity for group physician practices, hospitals and integrated delivery networks, operates under the IDX^® brand name and consists of software licensing, services, and hardware sales. In April 1999, IDX purchased EDiX Corporation, which IDX operates as a separate business segment providing medical transcription services.

IDX financial, administrative, and patient access products are generally packaged as IDXtend for the Web^™ or IDX Groupcast^™ (formerly Group Practice Management System^™ or GPMS^™) business performance solutions and as part of the IDX Carecast^™ integrated patient information management, clinical, and patient accounting suite. Clinical solutions are generally packaged as the Carecast System, launched in early 2002, and the LastWord^® System. IDX’s radiology and imaging products are marketed as Imagecast^™ RIS (formerly IDXrad^™) and Imaging Suite^™. Through a five-year strategic alliance agreement with Stentor, Inc., the Company markets the Imagecast PACS (formerly vnetix^™) solution. IDX sells the EDiX^™ line of medical dictation and transcription services to integrated delivery networks, hospitals, and physician groups.

IDX was incorporated in Vermont on June 2, 1969. The Company’s executive offices are located at 40 IDX Drive, South Burlington, Vermont 05403-1070 and its telephone number is (802) 862-1022. Our internet address is http://www.idx.com; at this web site, we make available our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Industry Background

Healthcare costs in the United States have risen over the past two decades relative to the overall rate of inflation. We believe that pressures to control costs have contributed to the movement of care from expensive inpatient settings, such as hospitals, to ambulatory settings and that ambulatory care providers, particularly physician groups, control a substantial portion of total healthcare resources. IDX is the largest provider of systems to large group practices in the U.S.

We believe broad use of web technology presents an opportunity to benefit all constituencies in healthcare, strengthening the relationship between patients and physicians, enabling physicians to improve the coordination and quality of care and connecting healthcare organizations with trading partners to increase efficiency and save money.

3

IDX believes increased consumer, government, employer and payer awareness of the high incidence and resulting cost of medical errors will result in an increased interest in clinical information systems. According to the report published by the Institute of Medicine (IOM) of the National Academies, between 44,000 and 98,000 unnecessary deaths result in the United States each year from errors in medical treatment, making medical errors the eighth leading cause of death, ahead of automobile accidents, breast cancer, and AIDS. Aside from human costs, the total financial cost of medical errors has been estimated at up to $8 billion per year. A significant portion of medical errors result from incorrect administration of medications—the wrong drug (often stemming from misinterpreted handwriting or medications with similar sounding names), the wrong dosage and unanticipated interactions with other drugs or patient conditions that were not noted. The Company believes online information processing, specifically computerized physician ordering of medications, can decrease the incidence of adverse drug events resulting from medication errors.

In a follow-up report issued by the IOM in March 2001, the IOM reiterated the urgency of reducing medical errors, but stated that the United States healthcare system is plagued with even deeper quality problems which together detract from the “health, functioning, dignity, comfort, satisfaction and resources of Americans.” The use of information technology to support clinical and administrative processes is prominent in the report’s recommended strategies to improve the overall quality of healthcare within the next ten years. The Company anticipates that increased use of information technology will be a significant factor in driving industry practices to higher quality standards.

Healthcare organizations face increasing regulation and scrutiny by federal, regional and local authorities. Compliance with regulations governing healthcare cost reimbursement; insurance and administration impose financial burdens on healthcare organizations. Recently, proposed and final regulations published under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) have created significant operational challenges to healthcare providers and payers. IDX believes well designed, up-to-date information solutions can play significant roles in complementing the implementation of healthcare organizations’ internal compliance policies.

Strategy

To accomplish our mission, we have positioned IDX to make a contribution to the transformation of healthcare with software and connectivity solutions that give clinicians and other staff at healthcare organizations access to accurate information at appropriate times and locations in the continuum of healthcare delivery and provide patients with seamless access to the delivery system. IDX develops software that is intended to save money, time and lives by making healthcare business and clinical practices better through smart, efficient, and reliable products and services.

The IDX strategy is based on leveraging and building on our industry leading portfolio of comprehensive administrative, clinical, and financial information systems for the medical group, hospital and integrated delivery network. Key elements of IDX’s strategy are:

• Connect the delivery system through seamless patient access and physician connectivity

• Market clinical products as comprehensive clinical solutions

• Provide products and services to improve business performance

• Provide products that support regulatory and compliance efforts

• Provide robust solutions to meet the needs of integrated delivery networks

• Expand medical group practice market share

• Accelerate delivery of products and services

Products and Services

Below is a description of IDX and EDiX products and services as of February 28, 2003.

4

Products of Information Systems and Services Business Segment

Please see Note 5 to the Consolidated Financial Statements for the revenues, profits and losses and total assets for the Information Systems and Services business segment for each of the last three fiscal years.

The Flowcast Division of IDX markets business performance solutions for large group practices, academic medical centers, hospitals, and integrated delivery networks. Flowcast solutions, marketed under the name IDXtend for the Web, include products for patient access, financial management, decision support, document management and connectivity across the enterprise. IDX believes that establishing a sound business environment is fundamental to improving the quality of care. Flowcast solutions focus on enhancing business performance, meeting regulatory requirements (e.g., HIPAA, ABNs, APCs, etc.), and improving patient access and satisfaction.

Flowcast helps customers increase revenue by accelerating and increasing collections while reducing administrative expenses. Capabilities across the entire “revenue cycle” are enhanced so that interdependent administrative and clinical activities effectively contribute to accurate, timely capture and presentation of the information necessary for procuring prompt payment for services. Organizational efficiency and lower costs are driven by fewer errors and less manual intervention and rework. Technology and service components save customers time and money by automating work processes and improving the way work flows in the healthcare environment.

IDX expects that forthcoming solutions from Flowcast will continue to enhance customers’ ability to manage their business in smarter, better, and more effective ways allowing customers to continue to realize tangible return on investment from their IDX system. Enhanced EDI integration, electronic document management, new task management engines, and additional role-based portals are expected to help ensure that Flowcast customers maintain their status as leaders in their field.

Flowcast practice management solutions are integrated with ambulatory clinical solutions from Allscripts Healthcare Solutions, Inc., (Allscripts) pursuant to our strategic alliance agreement.

The Carecast Enterprise System represents the next generation of electronic clinical information solutions, delivering subsecond response time and exceptional reliability to support fast-paced clinical environments. Developed by and for providers – in collaboration with some of the nation’s leading hospitals, clinicians and healthcare executives – Carecast builds on more than 20 years of innovation with the LastWord enterprise clinical system. The system automates workflow throughout the healthcare enterprise and enables rapid access to patient records across the care continuum, from admission to discharge, including pharmacy and ambulatory care. It integrates core clinical processes for orders, results, pharmacy and clinical documentation with administrative and financial processes for scheduling, registration, admitting, charging and billing. The result is a comprehensive lifetime patient record that enhances the quality of care and promotes operational efficiencies. Carecast further safeguards patient care through its computerized physician order entry (CPOE) and wireless bar code medication charting capabilities. Critical components of the system are a 99.9% uptime guarantee and “Thinkspeed” subsecond response time.

The Carecast Web Framework facilitates information flow into and out of patient records using a web-based user interface. The Carecast system’s design and web-based architecture help reduce training time and enhance user interaction with the system. Clinical Information Management applications in Carecast serve clinicians in a variety of inpatient and outpatient settings. Automated workflow tools support caregiver activities such as assessments, charting, and patient classification while protocols and outcomes management is supported through access to a structured medical knowledge database. Additional applications support population health management and provide comprehensive order management and results reporting, supporting CPOE. Other applications include Scheduling (to balance patient needs and clinical workflow), Pharmacy (to increase efficiency while decreasing medical errors), Emergency Department (to improve patient flow management and integrate care activities with the patient’s long-term record) and Image Access (which provides access to notes, diagnostic reports and images).

5

Administrative and Financial Information Management applications work to impart a complete financial and administrative solution. Patient Accounting captures billing details, triggered by medical activities at the point of care, in the patient record and produces claim forms and reports, while supporting compliance with regulatory requirements. Management Reporter creates queries and retrieves data needed for departmental management and tactical analysis. Intercept detects payer underpayments, assists in evaluating future contract profitability and focuses on collection activities. Interactive Eligibility Interface is designed to increase cash flow, reduce administrative costs and enhance patient satisfaction by automating insurance verification. Medical Records automates activities related to releasing patient record information to external requesters, including tracking, billing and collection.

Carecast runs on the HP Nonstop^™ Server.

The Groupcast Practice Management Solution offering provides a comprehensive solution to address sound patient management, financial management, administrative efficiency, clinical excellence, decision support and patient satisfaction for the medical group practice, management service organization, and other billing organizations that service the physician group marketplace. Groupcast solutions help clients streamline patient flow and business processes at every step in the delivery of care such as patient interactive web services, scheduling, referral management, eligibility, demographic management, on-line EDI (Electronic Data Interchange) connectivity to payers, collections, document imaging and decision support tools. Relational reporting using Microsoft^® SQL Server turn data into meaningful information for decision makers and built in integration with the Allscripts Touchworks Clinical solutions provides seamless access to the full range of clinical information.

The Groupcast Patient Centered Design approach to development leads to simplified system workflow using the latest HTML/Java graphical interface tools to meet customers’ growing needs to manage complex health care information. Key components of the technology foundation include an advanced web-based architecture, the UNIX operating system and a relational database reporting platform.

Complementary Groupcast offerings include Claims EDI and Online Status Tracking via the IDX eCommerce Services, Claim Validation and Editing tools, Electronic Charge Scanning and Document Imaging. Through IDX eCommerce Services, IDX offers a HIPAA-ready EDI solution to handle customer claims, remittances, statements, claims status and mailing services. Groupcast is committed to achieving universal connectivity throughout its entire suite of solutions offering a portfolio of integration tools that can be effectively deployed by practices to achieve the connectivity demanded by leading healthcare organizations.

Imagecast Radiology Information Systems (RIS) automates and manages a radiology department’s clinical, demographic, administrative, billing, scheduling, and image management information. Built on web architecture, Imagecast RIS is a relational, scaleable, N-tiered solution designed to streamline workflow and improve operational efficiency. Its web architecture is designed for economy, accessibility, flexibility of implementation and easy expansion within and among facilities.

The Imagecast Imaging Suite integrates patient and clinical information with third-party modality and archiving functions. It enables bi-directional communication among RIS, Picture Archiving Communication Systems (PACS), and modalities to facilitate the transition from a film-based department to a digital imaging environment.

IDX offers a Medical Image and Information Management System (MIMS) combining the advanced intelligence of the Imaging Suite with the innovative image distribution technology of the Imagecast RIS solution. IDX believes this database solution significantly improves the accessibility and timeliness of radiology imaging studies while reducing the high capital expenditures associated with PACS or traditional film-based systems.

6

Services of Information Systems and Services Segment

IDX maintains a Customer Services organization to install its products and to support and provide professional, technical and other consulting services to its customer base. IDX has the consulting expertise desired by the growing number of larger and more sophisticated healthcare enterprises as they reengineer healthcare delivery processes and deploy information systems to support these processes. The service organization is experienced at installing and supporting systems in large organizations with thousands of computer users across multiple departments.

Installation Services. IDX installation representatives work with customers to optimize the use of IDX products to meet specific business needs. Services include project management, train-the-trainer programs, best practices comparison to other IDX customers and systems conversion and implementation assistance.

Maintenance Services. IDX provides ongoing software support to substantially all of its customers of IDXtend for the Web and the Carecast system products under contracts that are typically for a term of one or more years. These contracts generally renew automatically unless terminated at the option of either the customer or IDX. Software maintenance services consist of providing the customer with certain new software upgrades, on an “if and when available” basis, and general support, including error corrections and telephone consultation. Software maintenance services are generally available either on a 24-hour-a-day basis or during normal business hours.

Professional and Technical Services. IDX offers professional and technical services to assist customers in building an information infrastructure to operate in a complex and changing healthcare environment. The work performed by IDX includes information systems planning, process redesign, project management, contract programming, network design, education and training. These value-added services, combined with IDX systems expertise, enable IDX to support its customers’ efforts to develop consistent enterprise-wide systems and processes. Through these services, IDX believes it strengthens its relationship with customers, builds a knowledge base of best practices in the use of IDX systems, and gains information regarding future customer needs.

The following services are provided by the IDX consulting organization:

Carecast Consulting Services (formerly The Laureate Group): Consulting services for all the Carecast system applications, implementation process, project management, technical (systems and report writing), expert rules, upgrades, release migration, programming and best practices.

Xcede (formerly the Huntington Group): Consulting Services in the areas of application consulting, contract programming, process redesign, organization change management, outsourcing and systems integration across the enterprise. Diagnostic assessments to improve operational and financial performance and ensure adherence to HIPAA regulatory requirements have resulted in significant returns on investment for IDX customers.

Radiology Business Management Services: System analysis and process redesign for radiology groups.

Services of Medical Transcription Services Business Segment

Please see Note 5 of the Notes to the Consolidated Financial Statements for the revenues, profits and losses and total assets for the Medical Transcription Services business segment for each of the last three fiscal years.

EDiX services employ innovative technology and an advanced digital voice-capture system to automate the medical transcription process and deliver fast, accurate electronic medical records. EDiX’s network is a secure, private national network connecting clients with a pool of highly trained medical transcriptionists (MTs) located throughout the continental United States and Canada.

7

EDiX is one of the nation’s largest transcription services companies. EDiX’s network serves healthcare customers 24 hours a day, 7 days a week. Transcribed reports can be immediately integrated with a facility’s electronic patient record system. In 2002, EDiX introduced a coding solution that integrates medical transcription and coding into a single solution.

IDX believes health systems and physician practices may use EDiX’s full outsourcing solution to help reduce costs and shorten turnaround time, increase quality, and improve physician satisfaction. EDiX provides, installs, supports and maintains its digital dictation system and management reporting equipment on-site at each facility, eliminating the facility’s own capital equipment and maintenance costs. EDiX’s network is designed to increase workflow efficiencies, enabling customers to monitor and control costs via real-time tracking of every job. By using EDiX as an outsourcing solution, our customers can eliminate their in-house MT staffing and benefit costs. Coding will also provide an outsourced solution to current and prospective customers.

EDiX uses a system of internal quality checks, both systematic and managerial, along with automatic monitoring of regulatory changes to achieve high quality and accuracy levels. Performance is documented and measured via monthly quality and accuracy reports to the client.

BUSINESS RELATIONSHIPS

Allscripts Healthcare Solutions, Inc.

In January 2001, IDX entered into a ten-year strategic alliance with Allscripts to cooperatively develop, market, and sell integrated clinical and practice management products. The agreement between IDX and Allscripts prohibits IDX from formally collaborating with another partner to integrate Groupcast solutions or IDXtend for the Web products with products that would compete with the Allscripts products. Allscripts may not develop any practice management products or enter into a similar collaborative relationship with certain IDX competitors. The alliance will enable IDX and Allscripts to offer a hand-held solution that logically fits into the physician workflow. Consistent with the strategic alliance agreement, the Company and Allscripts seek to provide this complementary product in a seamless and coordinated manner.

Stentor, Inc.

In November 2000, IDX formed a five-year alliance with Stentor to jointly develop Imagecast PACS, a medical image and information management system (MIMS) combining the advanced intelligence of the Imagecast Imaging Suite with image distribution technology from Stentor, Inc. This single database solution is designed to improve the accessibility and timeliness of radiology imaging studies while significantly reducing the high capital expenditures associated with PACS or traditional film-based systems. The overall solution includes the following components:

• a web-based enterprise-wide medical image and information system that enables clinicians and referring providers access to full-fidelity images anytime, anyplace, on-demand across existing networks;

• a specialized workstation designed for radiologists that includes a navigation control panel where all user interface control is managed on a separate monitor, dedicating the diagnostic monitor space for image display; and

• a long-term medical image storage device designed to also accommodate immediate accessibility of images for users.

Other Relationships

From time to time, IDX enters into relationships to distribute or resell products or services provided by third parties, such as IBM, HP, Intersystems, Microsoft, WebMD, Picis and Sentillion.

8

SALES AND MARKETING

IDX sells its products and the services of EDiX exclusively through a direct sales force. The majority of IDX’s initiatives are in response to requests from existing customers or requests for proposals from prospects. IDX generates these requests and other sales primarily through referrals from clients and consultants. IDX also seeks to enhance market recognition through participation in industry seminars and tradeshows, its web site, direct mail campaigns, telemarketing and advertisements in trade journals. IDX products typically have a 3 to 18 month sales cycle for new client sales.

No single customer accounted for more than 10% of IDX’s annual revenues in 2000, 2001 or 2002.

At December 31, 2002, the Company had total backlog of $561.6 million, including $188.7 million attributable to systems sales and $372.9 million attributable to services. Systems sales backlog consists of fees due under signed contracts that have not yet been recognized as revenue. Service backlog represents contracted software maintenance services including anticipated renewals, consulting services, remote computing service fees and medical transcription service fees for a period of 12 months. At December 31, 2001, the Company had total backlog of $455.1 million including $150.2 million attributable to systems sales and $304.9 million attributable to services. Of the total 2002 backlog of $561.6 million, the Company expects that $212.0 million will not be fulfilled in 2003.

PRODUCT DEVELOPMENT

To ensure that the Company’s products continue to meet the evolving needs of the healthcare industry, IDX allocates a significant portion of annual expenditures for software development. IDX’s software development expenses for 2002, 2001 and 2000 were $52.5 million, $43.4 million and $49.4 million, respectively.

IDX’s product development activities include enhancement of existing products and the development of new products, as well as the implementation of new technologies. IDX is devoting significant resources to integrating the Carecast system and IDX products and expanding its web-based architecture. IDX continues to develop its products on a web-based thin-client architecture, and enhance each products EDI and workflow technologies. The unique connectivity design is continuously being improved across all IDX products. As new versions of IDX’s software products are released, improvements are included to help customers meet the latest regulatory requirements. IDX’s development process is focused on building components for its integrated product rather than on stand-alone products. These components can be integrated and configured to address specific customer needs.

IDX utilizes customer focus groups, user groups and industry experts, including physicians, nurses, healthcare administrators and consultants, for advice in developing and enhancing its products and services.

COMPETITION

The market for healthcare information systems is intensely competitive, rapidly evolving and subject to rapid technological change. IDX believes that the principal competitive factors in this market include the breadth and quality of system and product offerings, the features and capabilities of the systems, the price of the system and product offerings, the ongoing support for the systems, the potential for enhancements and future compatible products. IDX believes it competes favorably with respect to these factors. Competitors vary in size, and in the scope and breadth of the products and services offered. See Item 1 below, Forward-Looking Information and Factors Affecting Future Performance – Competition for Healthcare Information Systems.

IDX experiences competition from companies with strengths in various segments of the healthcare information systems market, such as physician group practice systems, hospital information systems, clinical information systems, ancillary departmental systems, transcription services and systems integration. In addition, other entities not currently offering products and services similar to those offered by IDX, including claims processing organizations, hospitals, third-party administrators, insurers, healthcare organizations and others, may enter certain markets in which IDX competes.

9

Information Systems and Services Business Segment

Certain IDX’s competitors have greater financial, development, technical, marketing and sales resources than IDX and have a greater penetration into segments of the market in which IDX competes. In addition, as the markets for IDX’s products and services further develop, additional competitors may enter those markets and competition may intensify. Our principal existing competitors include Eclipsys Corporation, McKesson Corporation, Medquist, Inc., Siemans AG, Epic Systems Corporation, GE Medical, and Cerner Corporation.

Medical Transcription Services Business Segment

With respect to dictation and transcription services, EDiX’s competition consists of several national competitors and an estimated 1,000 to 1,500 local and regional competitors. In addition, EDiX must compete against in-house transcription departments for those healthcare providers who do not currently outsource transcription.

PROPRIETARY RIGHTS AND LICENSES

IDX depends upon a combination of trade secrets, copyright, patent, and trademark laws, license agreements, nondisclosure and other contractual provisions, and technical measures to protect its proprietary rights in its products. IDX distributes its products under software license agreements that grant customers a nonexclusive, nontransferable license to use IDX’s products and contain terms and conditions prohibiting the unauthorized reproduction or transfer of IDX’s products. IDX also utilizes a variety of intellectual property rights that are licensed from third parties.

EMPLOYEES

At December 31, 2002, IDX and its subsidiaries employed 4,971 full-time employees, of which 2,882 were employed in its EDiX business segment. Management believes our relations with employees are good and no employees are covered by a collective bargaining agreement.

FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE

This Annual Report on Form 10-K contains “forward-looking statements” as defined in Section 21E of the Securities Exchange Act of 1934. For this purpose, any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “anticipates,” “plans,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause results to differ materially from those indicated by these forward-looking statements, including among others, statements regarding the health care industry, statements regarding our products, product development and information technology, statements regarding future revenue or other financial trends, statements regarding future acquisitions, strategic alliances, or other agreements, and statements regarding our intellectual property. If any risk or uncertainty identified in the following factors actually occurs, our business, financial condition and operating results would likely suffer. In that event, the market price of IDX’s common stock could decline.

The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.

Because of these and other factors, past financial performance should not be considered an indicator of future performance. Investors should not use historical trends to anticipate future results.

The following important factors affect IDX’s business and operations:

QUARTERLY OPERATING RESULTS MAY VARY. The Company’s quarterly operating results have varied in the past and may vary in the future. IDX expects its quarterly results of operations to continue to

10

fluctuate. Because a significant percentage of IDX’s expenses are relatively fixed, the following factors could cause these fluctuations:

• delays in customers purchasing decisions due to a variety of factors such as consideration and management changes;

• long sales cycles;

• long installation and implementation cycles for the larger, more complex and costlier systems;

• recognizing revenue at various points during the installation process, typically based on milestones; and

• timing of new product and service introductions and product upgrade releases.

In light of the above, IDX believes that its results of operations for any particular quarter or fiscal year are not necessarily meaningful or reliable indicators of future performance.

FINANCIAL TRENDS. Although the Company’s results from operations improved in 2002, since 1999 the Company’s revenue and results from operations have been volatile. During 2000 and continuing into 2001, certain of the Company’s customers delayed making purchasing decisions with respect to certain of the Company’s software systems resulting in longer sales cycles for such systems. Management believes such delays are due to a number of factors, including customer organization changes, government approvals, pressures to reduce expenses, product complexity, competition, and the September 11 National Tragedy. While the Company believes these factors were temporary, they may continue to cause reductions or delays in spending for new systems and services in the future. If these delays reoccur, they may cause unanticipated revenue volatility, decreased revenue visibility and affect the future financial performance of the Company.

VOLATILITY OF STOCK PRICE. IDX has experienced, and expects to continue to experience, fluctuations in its stock price due to a variety of factors including:

• actual or anticipated quarterly variations in operating results;

• changes in expectations of future financial performance;

• changes in estimates of securities analysts;

• market conditions particularly in the computer software and Internet industries;

• announcements of technological innovations, including Internet delivery of information, clinical information systems advances, and use of application service provider technology;

• new product introductions by IDX or its competitors;

• delay in customers purchasing decisions due to a variety of factors;

• market prices of competitors; and

• healthcare reform measures and healthcare regulation.

These fluctuations have had a significant impact on the market price of our common stock, and may have a significant impact on the future market price of our common stock.

11

These fluctuations may affect operating results as follows:

• ability to transact stock acquisitions; and

• ability to retain and incent key employees.

NEW PRODUCT DEVELOPMENT AND RAPIDLY CHANGING TECHNOLOGY. To be successful, IDX must continuously enhance its existing products, respond effectively to technology changes, and help its customers adopt new technologies. In addition, IDX must introduce new products and technologies to meet the evolving needs of its customers in the healthcare information systems market. IDX may have difficulty in accomplishing this because of:

• the continuing evolution of industry standards, for example, standards pursuant to the Health Insurance Portability and Accountability Act of 1996; and

• the creation of new technological developments, for example, Internet and application service provider technologies.

IDX is currently devoting significant resources toward the development of enhancements to its existing products, particularly in the area of Internet-based functionality and the migration of existing products to new hardware and software platforms, including relational database technology, object-oriented architecture and application service provider technology. However, IDX may not successfully complete these product developments or the adaptation in a timely fashion, and IDX’s current or future products may not satisfy the needs of the healthcare information systems market. Any of these developments may adversely affect IDX’s competitive position or render its products or technologies noncompetitive or obsolete.

CHANGES AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY. IDX currently derives substantially all of its revenues from sales of financial, administrative and clinical healthcare information systems, medical transcription services and other related services within the healthcare industry. As a result, the success of IDX is dependent in part on the political and economic conditions in the healthcare industry.

Virtually all of IDX’s customers and the other entities with which IDX has a business relationship operate in the healthcare industry and, as a result, are subject to governmental regulation, including Medicare and Medicaid regulation. Accordingly, IDX’s customers and the other entities with which IDX has a business relationship are affected by changes in such regulations and limitations in governmental spending for Medicare and Medicaid programs. Recent actions by Congress have limited governmental spending for the Medicare and Medicaid programs, limited payments to hospitals and other providers under such programs, and increased emphasis on competition and other programs that potentially could have an adverse effect on IDX’s customers and the other entities with which IDX has a business relationship. In addition, federal and state legislatures have considered proposals to reform the U.S. healthcare system at both the federal and state level. If enacted, these proposals could increase government involvement in healthcare, lower reimbursement rates and otherwise change the business environment of IDX’s customers and the other entities with which IDX has a business relationship. IDX’s customers and the other entities with which IDX has a business relationship could react to these proposals and the uncertainty surrounding these proposals by curtailing or deferring investments, including those for IDX’s products and services.

In addition, many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These providers may try to use their market power to negotiate price reductions for IDX’s products and services. If IDX is forced to reduce its prices, its operating margins would likely decrease. As the healthcare industry consolidates, competition for customers will become more intense and the importance of acquiring each customer will become greater.

COMPETITION FOR HEALTHCARE INFORMATION SYSTEMS. The market for healthcare information systems is intensely competitive, rapidly evolving and subject to rapid technological change. IDX believes that the principal competitive factors in this market include the breadth and quality of system and

12

product offerings, the features and capabilities of the systems, the price of the system and product offerings, the ongoing support for the systems, the potential for enhancements and future compatible products.

Some of IDX’s competitors have greater financial, technical, product development, marketing and other resources than IDX, and some of its competitors offer products that it does not offer. The Company’s principal existing competitors include, Eclipsys Corporation, McKesson Corporation, Medquist, Inc., Siemans AG, Epic Systems Corporation, GE Medical and Cerner Corporation. Each of these competitors offer a suite of products that compete with many of IDX’s products. There are other competitors that offer a more limited number of competing products. Many of IDX’s competitors have also announced or introduced Internet strategies that will compete with IDX’s Internet applications and services. IDX may be unable to compete successfully against these organizations. In addition, IDX expects that major software information systems companies, large information technology consulting service providers and system integrators, Internet-based start-up companies and others specializing in the healthcare industry may offer competitive products or services. In October 2001, Pfizer, IBM and Microsoft announced the creation of a joint venture known as Amicore to develop applications to automate the administrative, clinical and financial functions of a medical practice and connect the practice to groups, laboratories, pharmacies and other providers for physicians and physician groups.

PRODUCT LIABILITY CLAIMS. Any failure by IDX’s products that provide applications relating to patient medical histories, diagnostic procedures, and treatment plans could expose IDX to product liability claims for personal injury and wrongful death. These potential claims may exceed IDX’s current insurance coverage. Unsuccessful claims could be costly to defend and divert management time and resources. In addition, IDX cannot make assurances that it will continue to have appropriate insurance available to it in the future at commercially reasonable rates.

PRODUCT MALFUNCTION FINANCIAL CLAIMS. Any failure by IDX’s eCommerce electronic claims submission service, or by elements of IDX’s systems that provide elements of claims submitted by its clients could expose IDX to liability claims for incorrect billing and electronic claims. These potential claims may exceed IDX’s current insurance coverage. Unsuccessful claims could be costly to defend and divert management time and resources. In addition, IDX cannot make assurances that it will continue to have appropriate insurance available to it in the future at commercially reasonable rates.

KEY PERSONNEL. The success of IDX is dependent to a significant degree on its key management, sales, marketing, and technical personnel. To be successful IDX must attract, motivate, and retain highly skilled managerial, sales, marketing, consulting and technical personnel, including programmers, consultants and systems architects skilled in the technical environments in which IDX’s products operate. Competition for such personnel in the software and information services industries is intense. IDX does not maintain “key man” life insurance policies on any of its executives with the exception of Richard E. Tarrant. Not all of IDX personnel have executed noncompetition agreements. Such agreements, even if executed are difficult and expensive to enforce, and enforcement efforts could result in substantial costs and diversion of management and technical resources.

GOVERNMENT REGULATION. Virtually all of IDX’s customers and the other entities with which IDX has a business relationship operate in the healthcare industry and, as a result, are subject to governmental regulation. Because IDX’s products and services are designed to function within the structure of the healthcare financing and reimbursement systems currently in place in the United States, and because IDX is pursuing a strategy of developing and marketing products and services that support its customers’ regulatory and compliance efforts, IDX may become subject to the reach of, and liability under, these regulations.

The federal Anti-Kickback Law, among other things, prohibits the direct or indirect payment or receipt of any remuneration for Medicare, Medicaid and certain other federal or state healthcare program patient referrals, or arranging for or recommending referrals or other business paid for in whole or in part by the federal health care programs. Violations of the federal Anti-Kickback Law may result in civil and criminal sanction and liability, including the temporary or permanent exclusion of the violator from government health programs, treble

13

damages and imprisonment for up to five years for each violation. If the activities of a customer of IDX or other entity with which IDX has a business relationship were found to constitute a violation of the federal Anti-Kickback Law and IDX, as a result of the provision of products or services to such customer or entity, was found to have knowingly participated in such activities, IDX could be subject to sanction or liability under such laws, including the exclusion of IDX from government health programs. As a result of exclusion from government health programs, IDX customers would not be permitted to make any payments to IDX.

The federal Civil False Claims Act and the Medicare/Medicaid Civil Money Penalties regulations prohibit, among other things, the filing of claims for services that were not provided as claimed, which were for services that were not medically necessary, or which were otherwise false or fraudulent. Violations of these laws may result in civil damages, including treble and civil penalties. In addition the Medicare/Medicaid and other federal statutes provide for criminal penalties for such false claims. If, as a result of the provision by IDX of products or services to its customers or other entities with which IDX has a business relationship, IDX provides assistance with the provision of inaccurate financial reports to the government under these regulations, or IDX is found to have knowingly recorded or reported data relating to inappropriate payments made to a healthcare provider, IDX could be subject to liability under these laws.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) contains provisions regarding standardization, privacy, security and administrative simplification in healthcare. As a result of regulations now proposed under HIPAA, IDX intends to make investments to support customer operations in areas, such as:

• electronic data transactions;

• computer system security; and

• patient privacy.

Although it is not possible to anticipate the final form of all regulations under HIPAA, IDX has made and expects to continue to make investments in product enhancements to support customer operations that are regulated by HIPAA. Responding to HIPAA’s impact may require IDX to make investments in new products or charge higher prices. It may be expensive to implement security or other measures designed to comply with any new legislation or regulation.

The United States Food and Drug Administration has promulgated a draft policy for the regulation of computer software products as medical devices under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. To the extent that computer software is a medical device under the policy, IDX, as a manufacturer of such products, could be required, depending on the product, to:

• register and list its products with the FDA;

• notify the FDA and demonstrate substantial equivalence to other products on the market before marketing such products; or

• obtain FDA approval by demonstrating safety and effectiveness before marketing a product.

Depending on the intended use of a device, the FDA could require IDX to obtain extensive data from clinical studies to demonstrate safety or effectiveness, or substantial equivalence. If the FDA requires this data, IDX would be required to obtain approval of an investigational device exemption before undertaking clinical trials. Clinical trials can take extended periods of time to complete. IDX cannot provide assurances that the FDA will approve or clear a device after the completion of such trials. In addition, these products would be subject to the Federal Food, Drug and Cosmetic Act’s general controls, including those relating to good manufacturing practices and adverse experience reporting. Although it is not possible to anticipate the final form of the FDA’s policy with regard to computer software, IDX expects that the FDA is likely to become increasingly active in regulating computer software intended for use in healthcare settings regardless of whether the draft is finalized or changed. The FDA can impose extensive requirements governing pre- and post-market conditions like service investigation, approval, labeling and manufacturing. In addition, the FDA can impose extensive requirements governing development controls and quality assurance processes.

14

SYSTEM ERRORS AND WARRANTIES. IDX’s healthcare information systems are very complex. As with complex systems offered by others, IDX’s healthcare information systems may contain errors, especially when first introduced. IDX’s healthcare information systems are intended to provide information to healthcare providers for use in the diagnosis and treatment of patients. Therefore, users of IDX’s products may have a greater sensitivity to system errors than the market for software products generally. Failure of an IDX customer’s system to perform in accordance with its documentation could constitute a breach of warranty and require IDX to incur additional expenses in order to make the system comply with the documentation. If such failure is not timely remedied, it could constitute a material breach under a contract allowing the client to cancel the contract and subject IDX to liability.

POTENTIAL INFRINGEMENT OF PROPRIETARY RIGHTS OF OTHERS. If any of IDX’s products violate third party proprietary rights, IDX may be required to reengineer its products or seek to obtain licenses from third parties to continue offering its products without substantial reengineering. Any efforts to reengineer IDX’s products or obtain licenses from third parties may not be successful, in which case IDX may be forced to stop selling the infringing product or remove the infringing functionality or feature. IDX may also become subject to damage awards as a result of infringing the proprietary rights of others, which could cause IDX to incur additional losses and have an adverse impact on its financial position. IDX does not conduct comprehensive patent searches to determine whether the technologies used in its products infringe patents held by others. In addition, product development is inherently uncertain in a rapidly evolving technological environment in which there may be numerous patent applications pending, many of which are confidential when filed, with regard to similar technologies.

LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. IDX’s success and competitiveness are dependent to a significant degree on the protection of its proprietary technology. IDX relies primarily on a combination of copyrights, trade secret laws, patents, and restrictions on disclosure to protect its proprietary technology. Despite these precautions, others may be able to copy or reverse engineer aspects of IDX’s products, to obtain and use information that IDX regards as proprietary or to independently develop similar technology. Litigation may continue to be necessary to enforce or defend IDX’s proprietary technology or to determine the validity and scope of the proprietary rights of others. This litigation, whether successful or unsuccessful, could result in substantial costs and diversion of management and technical resources.

RISKS ASSOCIATED WITH ACQUISITION STRATEGY. IDX intends to continue to grow in part through either acquisitions of complementary products, technologies and businesses or alliances with complementary businesses. IDX may not be successful in these acquisitions or alliances, or in integrating any such acquired or aligned products, technologies or businesses into its current business and operations. Factors which may affect IDX’s ability to expand successfully include:

• the generation of sufficient financing to fund potential acquisitions and alliances;

• the successful identification and acquisition of products, technologies or businesses;

• effective integration and operation of the acquired or aligned products, technologies or businesses despite technical difficulties, geographic limitations and personnel issues; and

• overcoming significant competition for acquisition and alliance opportunities from companies that have significantly greater financial and management resources.

STRATEGIC ALLIANCE WITH ALLSCRIPTS HEALTHCARE SOLUTIONS. In 2001, IDX entered into a ten-year strategic alliance with Allscripts to cooperatively develop, market and sell integrated clinical and practice management products.

During the term of the alliance, IDX is prohibited from cooperating with direct competitors of Allscripts to develop or provide any products similar to or in competition with Allscripts products in the practice management systems market. If the strategic alliance is not successful, or the restrictions placed on IDX during the term of the

15

strategic alliance prohibit IDX from successfully marketing and selling certain products and services, IDX’s operating results may suffer. Additionally, if Allscripts or the Company breaches the strategic alliance, it may also leave the Company without critical clinical components for its information systems offerings in the physician group practice markets.

RESTRICTIONS ON LIQUIDATION OF INVESTMENT IN ALLSCRIPTS HEALTHCARE SOLUTIONS. In January 2001, IDX received approximately 7.5 million shares of common stock of Allscripts Healthcare Solutions in connection with the acquisition by Allscripts of IDX’s majority owned subsidiary, ChannelHealth Incorporated. IDX entered into a stock rights and restrictions agreement with Allscripts, pursuant to which, among other things, IDX agreed to restrictions on the sale of its shares of Allscripts common stock. Prior to January 2006, IDX is prohibited from selling more than 25% of its shares of Allscripts common stock in any one year, and 16.67% of such 25% in any one month. The restrictions on IDX’s ability to sell shares of Allscripts common stock may make it difficult for IDX to liquidate its investment in Allscripts and may adversely affect the value of such investment.

ANTI-TAKEOVER DEFENSES. IDX’s Second Amended and Restated Articles of Incorporation and Second Amended and Restated Bylaws contain certain anti-takeover provisions, which could deter an unsolicited offer to acquire IDX. For example, IDX’s board of directors is divided into three classes, only one of which will be elected at each annual meeting. These provisions may delay or prevent a change in control of IDX.

DISRUPTION IN THE ECONOMY. The terrorist events of September 11, 2001, as well new terrorists threats, the war in Iraq and the possibility of war in other areas of the Middle East, have sensitized the Company and many other businesses to the potential disruption that such activities can have on the economy, the business cycle and, ultimately on the financial performance of these organizations. It is impossible to know whether such terrorist or military activities will continue, and whether, and to what extent, they may cause a disruption which may have a material adverse effect on the business and financial condition of the Company.

ITEM 2.    PROPERTIES

The Company’s principal corporate offices are located at 40 IDX Drive, South Burlington, Vermont 05403. The Company maintains sales, research and support facilities in South Burlington, Vermont; Boston, Massachusetts; and Seattle, Washington. The Company maintains data centers in Boston, Massachusetts, St. Petersburg, Florida and Seattle, Washington. The Company maintains regional sales, support and administrative offices in the greater metropolitan areas of Arlington, Virginia; Chicago, Illinois; Dallas, Texas; San Francisco, California; Clearwater, Florida; Atlanta, Georgia; San Diego, California; Louisville, Kentucky and Hammersmith, London, United Kingdom. The principal corporate offices are housed in three Company owned office buildings in South Burlington, Vermont, consisting of approximately 291,000 square feet of office space. The Company purchased the main headquarters office building in South Burlington, Vermont on April 19, 2001 for approximately $15.0 million from BDP Realty, a related entity that was included in the Company’s consolidated financial statements through that date. As a result, the net assets of BDP Realty, principally real estate and related minority interest of approximately $9.0 million, were eliminated in the Company’s consolidated balance sheet. The real estate was purchased for $15.0 million in cash based upon an independent appraisal of fair market value and was capitalized in property and equipment. The Company has substantially completed construction on an expansion of its corporate headquarters facility in South Burlington, Vermont, which began in November 1999. The Company leases all of its other facilities which, in the aggregate, constitute approximately 525,000 square feet of office space. The Company’s leases will expire between April 30, 2003 and December 31, 2014. From time to time, based on the Company’s requirements, the Company may consider other purchases of land or the construction of additional office space. The Company believes that its facilities are adequate for its current needs and that suitable additional space will be available as required.

16

ITEM 3.    LEGAL PROCEEDINGS

On January 18, 2001, the Company commenced a lawsuit against Epic Systems Corporation (“Epic”), a competitor of the Company, the University of Wisconsin Medical Foundation (the “Foundation”), and two individuals, claiming, among other things, that trade secrets of the Company involving its IDXtend medical group practice system were wrongfully disclosed to, and misappropriated by, Epic in a series of meetings that took place in 1998 and 1999. The defendants denied the Company’s claims. The Company’s lawsuit sought damages and injunctive relief and was brought in the United States District Court for the Western District of Wisconsin and was entitled IDX Systems Corporation v. Epic Systems Corporation, et al. The Foundation brought a counterclaim against the Company claiming that its lawsuit interfered with a contract between the Foundation and Epic, and that the confidentiality provisions in IDX’s contracts with the Foundation were invalid. The counterclaim sought damages and declaratory judgment. The Company denied the counterclaim.

Subsequently, Epic filed an Answer denying the essential elements of the Company’s claims, and asserted counterclaims against the Company. Epic alleged that the Company’s claims asserting its trade secret rights were brought in bad faith, with an intent to injure Epic competitively, and thereby violated Sections 1 and 2 of the Sherman Act because the Company allegedly possessed monopoly power in the U.S. market for medical practice information systems. Epic also claimed that this same alleged conduct constituted intentional interference with its contract with the Foundation. The counterclaim sought treble damages. The Company denied the counterclaims. On July 31, 2001, the Company’s lawsuit against Epic, the Foundation and the individuals was dismissed and the counterclaims of Epic and the Foundation were dismissed. The Company appealed the dismissal of its lawsuit to the United States Court of Appeals for the Seventh Circuit, and on April 1, 2002, that appellate court affirmed the District Court’s dismissal of the trade secret claim, but reversed and remanded the other related claims of the Company, including breach of contract and tortuous interference claims against the defendants.

On August 13, 2002, the District Court granted the Company’s motion for summary judgment on the issue of whether the Foundation had violated its obligations to keep confidential the Company’s proprietary information and stated that it would be reasonable to conclude that Epic intended to improperly receive the information. On August 28, 2002, the defendants settled the litigation with the Company.

In April 2000, the Company commenced a lawsuit for damages caused by wrongful cancellation and material breach of contract by St. John Health System (“SJHS”), in the United States District Court for Eastern District of Michigan, entitled IDX Systems Corporation v. St. John Health System. Subsequently, SJHS commenced a lawsuit against the Company in the Circuit Court of Wayne County, Michigan, claiming unspecified damages against the Company for anticipatory repudiation, breach of contract, tort and fraud. On motion of the Company, SJHS’s lawsuit was removed to and consolidated in the federal court. In its answer to the Company’s lawsuit, SJHS asserted the same claims previously asserted in its state court action. In September 2001, SJHS specified damage claims of approximately $77.0 million in allegedly lost savings, and in January 2002 raised another theory of alleged unspecified damages for “cover”. The Company believes the claims of SJHS are without merit and continues to vigorously defend itself and prosecute its own claims for damages, which the Company believes may exceed approximately $9.0 million. The lawsuit is in the trial preparation stage and the parties are awaiting scheduling of the trial by the court.

From time to time, the Company is a party to or may be threatened with other litigation in the ordinary course of its business. The Company regularly analyzes current information including, as applicable, the Company’s defenses and insurance coverage and as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of these matters. The ultimate outcome of these matters is not expected to materially affect the Company’s business, financial condition or results of operations.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

17

EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth: (i) the name and age of each current executive officer of the Company; (ii) the position(s) currently held by each named person; and (iii) the principal occupations held by each person named for at least the past five years.

Executive Officer	Age	Position
James H. Crook, Jr.	46	President and Chief Executive Officer
John A. Kane	50	Senior Vice President, Finance and Administration, Chief Financial Officer, and Treasurer
Robert W. Baker, Jr.	54	Senior Vice President, General Counsel and Secretary
Robert F. Galin	58	Senior Vice President, Sales
Thomas W. Butts	42	President/General Manager, Flowcast Division
Stephen C. Gorman	37	Vice President/General Manager, Groupcast Division
Lawrence A. Krassner	57	President/General Manager, Carecast Division
Walt N. Marti	47	Vice President/General Manager, Imagecast Division

Mr. Crook, who joined the Company in April 1981, served as Vice President of the Company from June 1984 to February 1999. He served as a Director of the Company from July 1984 to June 1995. He has served as President and Chief Operating Officer since February 1999, and effective January 1, 2003 has served as President and Chief Executive Officer.

Mr. Kane has served as the Senior Vice President, Finance and Administration, Chief Financial Officer and Treasurer since May 2001 and as the Vice President, Finance and Administration, Chief Financial Officer and Treasurer from October 1984 when he joined the Company to May 2001. Mr. Kane is a CPA.

Mr. Baker joined the Company as General Counsel and Secretary in July 1989. He has served as Vice President since April 1996. In December 2001, Mr. Baker retired from the Company and thereafter maintained a private law practice. In September 2002, Mr. Baker rejoined the Company as Senior Vice President, General Counsel, and Secretary.

Mr. Galin has served as Senior Vice President, Sales since June 2000 and served as Vice President, Sales since August 1992. He served as Director of Sales from April 1982 to August 1992.

Mr. Butts joined the Company as President/General Manager of the Flowcast (formerly Enterprise Solutions) Division in January 2002. Prior to joining the Company, Mr. Butts served in various capacities including: General Manager of Business Development, General Manager of X-Ray Sales and Marketing and Vice President of OEC Medical Systems at GE Medical Systems of Milwaukee, WI, a global leader in medical imaging, interventional procedures, healthcare services, and information technology, since 1984.

Mr. Gorman, who joined the Company as a sales representative in June 1991, has served as Vice President/General Manager, Groupcast (formerly Systems) Division since December 1999. Prior to that time, Mr. Gorman served the Company in various capacities, including Southeast Region Operations Manager from 1995 to 1997, and National Operations Manager from 1997 to 1999.

18

Mr. Krassner joined the Company as President/General Manager of the Carecast (formerly Integrated Solutions) Division in June, 2001. Prior to joining the Company, Mr. Krassner was President/General Manager of the Outsourcing Services Division of McKesson HBOC, a leading health care service and technology company, since March 1997. From June 1987 to March 1997, Mr. Krassner served in various capacities including: Senior Vice President of Worldwide Marketing and Sales, Senior Vice President/General Manager of North America, and Senior Vice President of Sales/Customer Service of Alltel Information Services-Health Division (formerly TDS Healthcare Systems), a provider of information processing management, outsourcing services, professional consulting services and application software to the financial, mortgage and telecommunications industries.

Mr. Marti, who joined the Company as a sales representative in March 1989, has served as Vice President/General Manager, Imagecast (formerly Radiology and Imaging Solutions) Division since December 1999. Prior to that time, Mr. Marti served the Company in various capacities, including Sales Manager of Systems Division, Regional Manager of Systems Division and Directors of Sales of Radiology Imaging Solutions Division.

Each officer serves at the discretion of the Company’s Board of Directors. There are no family relationships among the named officers.

19

PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Price of and Dividends on Common Stock and Related Matters. The Common Stock of IDX is traded on the Nasdaq National Market under the symbol “IDXC.” The following table sets forth for the periods indicated the high and low sales prices per share of the Common Stock as reported by the Nasdaq National Market.

	High		Low
Quarter/Year	2001
First Quarter 2001	$	31.81	$	16.38
Second Quarter 2001	$	22.00	$	12.01
Third Quarter 2001	$	19.57	$	9.25
Fourth Quarter 2001	$	13.56	$	8.64
	2002
First Quarter 2002	$	18.50	$	10.95
Second Quarter 2002	$	18.82	$	11.95
Third Quarter 2002	$	14.41	$	9.80
Fourth Quarter 2002	$	18.56	$	10.54

On March 24, 2003, the Company had approximately 658 stockholders of record. (This number does not include stockholders for whom shares are held in a “nominee” or “street” name.) On March 24, 2003, the closing price of the Company’s Common Stock on the Nasdaq National Market was $15.18.

The Company has not declared or paid a dividend since the Company’s initial public offering in 1995. The Company anticipates that all future earnings will be retained for development of its business and will not be distributed to stockholders as dividends. Restrictions or limitations on the payment of dividends may be imposed in the future under the terms of credit agreements or under other contractual provisions. In the absence of such restrictions or limitations, the payment of any dividends will be at the discretion of the Company’s Board of Directors.

20

ITEM 6.    SELECTED FINANCIAL HIGHLIGHTS

The following selected financial data should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and are qualified by reference to the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report. The statement of operations data set forth below for the years ended December 31, 2002, 2001, and 2000, and the balance sheet data at December 31, 2002 and 2001, are derived from audited consolidated financial statements of IDX Systems Corporation included elsewhere herein, which have been audited by Ernst & Young LLP, independent auditors. The statement of operations data set forth below for the years ended December 31, 1999 and 1998, and the balance sheet data at December 31, 2000,1999 and 1998 are derived from audited consolidated financial statements of IDX Systems Corporation not included herein. See Note 1 for basis of presentation.

	Year Ended December 31,
	2002		2001			2000			1999			1998
	(in thousands, except for per share data)
Statements of Operations Data:
Revenues	$	460,068	$	391,419		$	353,950		$	354,345		$	362,021
Operating income (loss)		9,133		(34,168	)		(66,065	)		(12,649	)		34,994
Net income (loss)		9,974		(8,598	)		(35,968	)		(7,944	)		16,834
Diluted net income (loss) per share	$	0.34	$	(0.30	)	$	(1.28	)	$	(0.29	)	$	0.60
Balance Sheet Data:
Cash and investments	$	54,435	$	56,373		$	70,683		$	68,359		$	125,132
Working capital		84,518		90,534			139,492			136,732			169,671
Total assets		291,845		265,322			297,491			271,147			289,223
Long-term debt, less current portion		—		—			—			—			2,261
Redeemable convertible preferred stock of subsidiary		—		—			33,140			—			—
Total stockholders’ equity	$	192,213	$	177,998		$	179,110		$	206,514		$	210,211

The results of operations for the periods presented above include certain significant pre-tax charges and gains in the following periods as described below:

2002

A charge of $9.2 million related to a leasehold abandonment and a gain on sale of an investment in ChannelHealth of $4.3 million.

2001

A charge of $19.5 million related to a restructuring program, a gain on sale of an investment in ChannelHealth of $35.5 million, a realized gain on investment in an unrelated entity of $5.8 million and the equity in the loss of an unconsolidated affiliate of $17.6 million.

2000

Charges of $21.0 million related to a product discontinuance and restructuring program, a $5.8 million loss on impairment of goodwill associated with ChannelHealth, Inc. and a realized gain on investment in an unrelated entity of $7.3 million.

1999

Charges for merger and other costs related to the EDiX acquisition of $4.0 million and an asset impairment charge of $1.6 million.

1998

A charge related to the write-off of acquired research and development costs of $3.2 million.

21

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This Item contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. Actual results may differ materially from those included in such forward-looking statements. Factors which could cause actual results to differ materially include those set forth under “Forward-Looking Information and the Factors Affecting Future Performance”, included in Item 1, as well as those otherwise discussed in this section and elsewhere in this Annual Report on Form 10-K. Unless otherwise specified or the context requires otherwise, the terms “we”, “our” and “us” refer to IDX Systems Corporation and its subsidiaries.

GENERAL

Founded in 1969, IDX Systems Corporation provides information technology (software and service) solutions to maximize value in the delivery of healthcare by improving the quality of patient service, enhancing medical outcomes and reducing the costs of care. Healthcare providers purchase IDX systems, which are designed to be complementary and functionally rich, to improve their patients’ experience through simpler access, safer care delivery and more streamlined accounting.

Revenue growth is driven by demand for new healthcare information technology systems and services as well as installation, maintenance and service to our existing customers, which total more than 3,600 installation sites and include more than 138,000 physicians. Earnings growth is driven primarily by software sales, which yield significantly higher gross profit margins than our other revenue components – hardware and services.

We believe our biggest opportunity for both revenue and earnings growth will be driven by the increasing demand for safer care delivery and improved business performance – both of which we believe can be significantly improved through automation.

We measure financial performance by monitoring revenue and backlog from systems and services, days sales outstanding, recurring revenue, gross profit margin, operating profit margin and bookings.

2002 revenues increased to $460.1 million from $391.4 million in 2001. Systems sales, which include software and hardware sales, increased 5.7% in 2002, while maintenance and service fees grew 22.2% as compared to the prior year. 2002 revenues reflect increased demand for software and services as well as improved system implementation.

We reported operating income of $9.1 million in 2002 compared to an operating loss of $34.2 million in 2001, an increase of $43.3 million. In 2002, we reported net income of $10.0 million, or $0.34 per share, as compared to a net loss of $8.6 million, or $0.30 per share for 2001, an increase of $18.6 million.

In our earnings announcement dated February 6, 2003, we provided investors with 2003 revenue guidance of $530.0 million and earnings guidance of $0.77 per share. Guidance assumes a 30% tax rate and no special items in 2003.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Those estimates are based on our

22

experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, which are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements, and may potentially result in materially different results under different assumptions and conditions. We have identified the following as critical accounting policies to our Company:

• revenue recognition,

• allowance for doubtful accounts,

• capitalization of software development costs,

• income taxes,

• restructuring and lease abandonment charges, and

• accounting for litigation, commitments and contingencies.

This listing is not a comprehensive list of all of IDX’s’ accounting policies. For a detailed discussion on the application of these and other accounting policies, see Note 1 of Notes to Consolidated Financial Statements.

Revenue Recognition – We license software and sell hardware, related ancillary products and transcription services to customers through our direct sales force. We generally recognize revenue from software license, hardware, and related ancillary product revenues using the residual method when:

• persuasive evidence of an arrangement exists, which is typically when a customer has signed a non-cancelable sales and software license agreement;

• delivery, which is typically FOB shipping point, is complete for the software (either physically or electronically), hardware and related ancillary products;

• the customer’s fee is deemed to be fixed or determinable and free of contingencies or significant uncertainties;

• collectibility is probable; and

• vendor specific objective evidence of fair value exists for all undelivered elements, typically maintenance and professional services.

Under the residual method, we defer revenue recognition of the fair value of the undelivered elements and we allocate the remaining portion of the arrangement fee to the delivered elements and recognize it as revenue, assuming all other conditions for revenue recognition have been satisfied. We recognize substantially all of our product revenue in this manner. If we cannot determine the fair value of any undelivered element included in an arrangement, we will defer revenue recognition until all elements are delivered, services are performed or until fair value can be objectively determined.

As part of an arrangement, we typically sell maintenance contracts as well as professional services to customers. Maintenance services include telephone and Web-based support as well as rights to unspecified upgrades and enhancements, when and if we make them generally available. Professional services are deemed to be non-essential and typically are for implementation planning, loading of software, installation of hardware, training, building simple interfaces, running test data, and assisting in the development and documentation of process rules, and best practices consulting.

We recognize revenues from maintenance services ratably over the term of the maintenance contract period based on vendor specific objective evidence of fair value. Vendor specific objective evidence of fair value is based upon the amount charged for maintenance when purchased separately, which is typically the contract’s renewal rate. Maintenance services are typically stated separately in an arrangement.

23

We generally recognize revenues from professional services based on vendor specific objective evidence of fair value when: (1) a non-cancelable agreement for the services has been signed or a customer’s purchase order has been received; and (2) the professional services have been delivered. Vendor specific objective evidence of fair value is based upon the price charged when professional services are sold separately and is typically based on an hourly rate for professional services.

We generally recognize revenue from transcription services based on a reliable, verifiable and objectively determinable measure of fair value when: (1) a non-cancelable agreement for the services has been signed or a customer’s purchase order has been received; and (2) the transcription services have been delivered. We base the fair value of transcription services upon the price charged when these services are sold separately. Transcription services are typically charged at a per line rate.

Our arrangements with customers generally include acceptance provisions. However, these acceptance provisions are typically based on our standard acceptance provision, which provides the customer with a right to a refund if the arrangement is terminated because the product did not meet our published specifications. This right generally expires 30 days after installation. The product is deemed accepted unless the customer notifies the Company otherwise. Generally, we determine that these acceptance provisions are not substantive and historically have not been exercised, and therefore should be accounted for as a warranty in accordance with Statement of Financial Accounting Standards No. 5.

At the time we enter into an arrangement, we assess the probability of collection of the fee and the terms granted to the customer. The Company’s typical payment terms include a deposit and subsequent payments based on specific milestone events and dates. Our payment terms are less than 90 days and typically amounts are due within 30 days of invoice date. If we consider the payment terms for the arrangement to be extended or if the arrangement includes a substantive acceptance provision, we defer revenue not meeting the criterion for recognition under SOP 97-2 and classify this revenue as deferred revenue, including deferred product revenue. We recognize deferred revenue, assuming all other conditions for revenue recognition have been satisfied, when the payment of the arrangement fee becomes due and/or when the uncertainty regarding acceptance is resolved as generally evidenced by written acceptance or payment of the arrangement fee.

Additionally, we periodically enter into certain long-term contracts where we generally recognize revenue on a percentage of completion basis using labor input measures. We recognize losses, if any, on fixed price contracts when the loss is determined. We record revenue in excess of billings on long-term service contracts as unbilled receivables and include in trade accounts receivable. We record billings in excess of revenue recognized on service contracts as deferred income until revenue recognition criteria are met.

Allowance for Doubtful Accounts – IDX maintains an allowance for doubtful accounts to reflect estimated losses resulting from the inability of customers to make required payments. We base this allowance on estimates after consideration of factors such as the composition of the accounts receivable aging and bad debt history and our evaluation of the financial condition of the customers. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances and bad debt expense may be required. We typically do not require collateral. Historically, our estimates have been adequate to cover accounts receivable exposures.

Capitalization of Software Development Costs – We expense all costs incurred in the research, design and development of software for sale to others until technological feasibility is established. Technological feasibility is established when planning, designing, coding and testing activities have been completed so that the working model is consistent with the product design as confirmed by testing. Thereafter, we capitalize and amortize software development costs to software development expense on a straight-line basis over the lesser of 18 months or the estimated lives of the respective products, beginning when the products are offered for sale. We expense costs incurred in the development of software for internal use until it becomes probable that these developments will provide additional functionality that will benefit future periods. Thereafter, we capitalize and

24

amortize certain costs to operating expense on a straight-line basis over the lesser of five years or the estimated economic life of the software. While we believe that our current estimates and the underlying assumptions regarding capitalized software development costs are appropriate, future events could necessitate adjustments to these estimates resulting in additional software development expense in the period of adjustment.

Income Taxes – Our valuation allowance relating to the net deferred tax assets is based on our assessment of historical pre-tax income as well as tax planning strategies designed to generate future taxable income. These strategies include estimates and involve judgment relating to certain unrealized gains in the Company’s investment in common stock of an equity investee. To the extent that facts and circumstances change, these tax planning strategies may no longer be sufficient to support the deferred tax assets and the Company may be required to increase the valuation allowance. To the extent that we generate future taxable income against which these tax assets may be applied, some portion or all of the valuation allowance would be reversed and an increase in net income would consequently be reported in future years.

Restructuring and Lease Abandonment Charges – The Company has recorded restructuring and lease abandonment charges associated with restructuring plans approved by management over the last three years. These reserves include estimates pertaining to employee separation costs and real estate lease obligations. The reserve associated with lease obligations could be materially affected by factors such as the ability to obtain subleases, the creditworthiness of sub-lessees, market value of properties, and the ability to negotiate early termination agreements with lessors. While the Company believes that its current estimates regarding lease obligations are adequate, future events could necessitate significant adjustments to these estimates.

Accounting for Litigation, Commitments and Contingencies – We are currently involved in certain legal proceedings, which, if unfavorably determined, could have a material adverse effect on our operating results and financial condition. In connection with our assessment of these legal proceedings, we must determine if an unfavorable outcome is probable and evaluate the costs for resolution of these matters, if reasonably estimable. We have developed these determinations and related estimates in consultation with outside counsel handling our defense in these matters and is based upon an analysis of potential results, assuming a combination of litigation and defense strategies. See Item 3. “Legal Proceedings” and Note 14 to our audited consolidated financial statements included in this annual report on Form 10-K.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto contained in this Annual Report on Form 10-K which contain accounting policies and other disclosures required by generally accepted accounting principles.

YEARS ENDED DECEMBER 31, 2002 AND 2001

Revenues

The Company’s total revenues increased to $460.1 million in 2002 from $391.4 million in 2001, an increase of $68.6 million or 17.5%. Revenues from systems sales increased to $117.5 million in 2002 (25.5% of total revenues) from $111.1 million in 2001 (28.4% of total revenues), an increase of $6.4 million or 5.7%. This increase was primarily due to an increase in new sales and installations of certain IDX systems. Software license revenue increased $3.4 million and hardware and third party software revenue increased $3.0 million as compared to the prior year.

Revenues from maintenance and service fees increased to $342.6 million in 2002 (74.5% of total revenues) from $280.3 million in 2001 (71.6% of total revenues), an increase of $62.3 million or 22.2%. The increase was due to a $16.3 million increase in EDiX’s medical transcription service fee revenue, a $17.1 million increase in

25

maintenance revenue primarily resulting from price increases and an increase in the Company’s installed base, and an increase in installation and consulting services provided by IDX’s core business. Software installation revenues increased to $45.1 million (9.8% of total revenues) from $25.7 million (6.6% of total revenues), an increase of $19.5 million or 75.9%. Consulting service revenues increased to $27.3 million (5.9% of total revenues) from $24.1 million (6.1% of total revenues), an increase of $3.2 million or 13.2%.

Cost of Sales

The cost of system sales increased to $38.7 million in 2002 from $37.0 million in 2001, an increase of $1.7 million or 4.5%. The increase in cost of system sales is primarily a result of an increase in hardware included as a component of sales of the Company’s systems sales. The gross margin on systems sales increased to 67.1% in 2002 from 66.7% in 2001. Fluctuations in the gross profit margin as a percentage of system sales typically result from the revenue mix of software license revenue, which has a higher gross profit margin and hardware and third party software sales, which have a lower gross profit margin. The increase in the gross profit margin as a percentage of sales was primarily due to the increase in software license revenue.

The cost of maintenance and services increased to $260.1 million in 2002 from $237.5 million in 2001, an increase of $22.6 million or 9.5%. The increase in cost of services resulted primarily from growth in client services expenses related to medical transcription staff and related costs of $17.2 million, combined with increased costs related to implementation and consulting staff in IDX’s core business. The gross profit margin on maintenance and service fees increased to 24.1% in 2002 from 15.3% in 2001 and was due to increased maintenance revenue in IDX’s core business which was only partially offset by growth in service and maintenance expenses, offset by a decrease in EDiX’s gross profit margin due to higher labor and related costs as a percentage of total revenue.

The gross profit margin of system sales of IDX’s core business, information systems and services, increased to 67.1% in 2002 from 66.7% in 2001 primarily due to the effect of an increase in software license revenue which has a higher gross profit margin than hardware sales. The gross profit margin of services of IDX’s core business, information systems and services, increased to 27.3% in 2002 from 12.1% in 2001 primarily due to increased maintenance revenue which was only partially offset by growth in service and maintenance expenses. The gross profit margin for the Company’s medical dictation and transcription business segment (EDiX) decreased as a percentage of sales to 17.4% in 2002 from 21.4% in 2001 due to higher labor and related costs as a percentage of total revenue.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $90.4 million in 2002 from $88.1 million in 2001, an increase of $2.3 million or 2.7%. As a percentage of total revenues, selling, general and administrative expenses decreased to 19.7% in 2002 from 22.5% in 2001. Management is focused on controlling selling, general and administrative costs as a percentage of revenue. IDX’s core business, information systems and services, selling, general and administrative expenses decreased $3.5 million primarily due to decreases in rent expenses of $1.3 million, professional fees of $1.4 million and bad debt expense of $1.1 million. EDiX’s selling, general and administrative expenses increased $5.9 million due to $2.8 million in personnel costs, $1.3 million of bad debt expense, approximately $600,000 in outside professional fees and general increased costs to support sales growth.

Software Development Costs

Software development costs increased to $52.5 million in 2002 from $43.4 million in 2001, an increase of $9.1 million or 21.0%. As a percentage of total revenues, software development costs increased to 11.4% in 2002 from 11.1% in 2001. As a percentage of system sales, software development costs increased to 44.7% in 2002 from 39.1% in 2001. The $9.1 million increase is primarily due to increased personnel costs of $5.6 million

26

combined with a net increase in capitalized software development cost amortization, net of amounts capitalized, of $621,000 in 2002. Software development costs related to IDX’s core information systems and services business segment increased as compared to the prior year primarily due to increased salary costs of $4.7 million combined with a net increase in capitalized software development cost amortization, net of amounts capitalized of $621,000 2002. Software development costs in the medical dictation and transcription business segment (EDiX) increased from $1.6 million in 2001 to $3.0 million in 2002 primarily due to increased personnel costs of $859,000 and increased consulting costs of $487,000.

As described in Note 1 to the Notes to Consolidated Financial Statements, software development costs incurred subsequent to the establishment of technological feasibility until general release of the related products are capitalized. Historically, costs incurred during beta site testing have not been material, however, as the Company develops products that use more complex technologies as well as more comprehensive clinical systems, the time and effort required to complete beta site testing may be significantly more extensive. Consequently, capitalized software development costs may become more significant in future reporting periods. Approximately $3.0 million of software development costs were capitalized in 2002. Approximately $2.1 million of software development costs, net of amortization, were capitalized in 2001.

Lease Abandonment Charge

In the fourth quarter of 2002, the Company recorded a lease abandonment charge of $9.2 million in its core Information Systems and Services business segment. The lease abandonment charge is related to asset impairment and rent obligations through 2005 under the lease agreement associated with the Company’s former Seattle office. In 2002, the Company determined it would consolidate its Seattle operations into the new office space and have abandoned the space subject to the 1999 lease, and has been unable to secure a sub-tenant to assume its prior lease. The lease abandonment charge consisted of costs related to the net present value of future lease payments of approximately $7.9 million and non-cash write-offs of certain leasehold improvements of approximately $1.3 million. Cash expenditures related to the accrual is expected to be approximately $2.2 million in 2003 and $5.7 million thereafter. In the event that the Company is able to secure a sub-tenant to assume its prior lease in a future reporting period, the present value of the future sub-lease income would be recorded as a reduction in expenses under the lease abandonment caption in the financial statements in the period in which the sub-lease agreement is signed.

Interest Income (Expense)

Interest income decreased to approximately $1.8 million during 2002 as compared to $2.4 million for the same period in 2001. This decrease was primarily due to a lower average invested balance combined with lower interest rates in 2002 as compared to 2001. Interest expense increased to approximately $339,000 during 2002 from $42,000 in 2001, primarily due to increased interest expense related to short-term borrowings.

Gain on Sale of Investment in Subsidiary

On January 8, 2001 the Company sold certain of the net assets and operations of its majority owned subsidiary, ChannelHealth to Allscripts, a public company providing point-of-care electronic prescribing and productivity solutions for physicians. In addition to the sale, the Company entered into a ten-year strategic alliance (the “Alliance Agreement”) whereby Allscripts is the exclusive provider of point-of-care clinical applications sold by IDX to physician practices.

Pursuant to the Alliance Agreement, IDX guaranteed that Allscript’s gross revenues resulting from the alliance (less any commissions paid to IDX) would amount to at least $4.5 million for fiscal year 2001. Due to this contingency, IDX deferred $4.5 million of the gain as of the date of the transaction and recognized a gain of $35.5 million in 2001. An additional gain of $4.3 million was recognized in the first quarter of 2002 when the contingency was resolved.

27

Income Taxes

In 2002, the Company recorded income tax expense of approximately $4.9 million, resulting in an effective tax rate of 33.0%. This is lower than the Company’s historical tax rate of 40.0% primarily due to the utilization of previously reserved net operating losses and research and experimentation credits used to offset income taxes, offset by an increase in the valuation allowance as a result of a tax planning strategy that the Company believes is no longer sufficient to support certain deferred tax assets. In 2001, the Company recorded income tax expense of approximately $311,000, an effective tax rate of (3.8%). This rate is lower than the Company’s historical tax rate of 40.0% due to the non-deductible nature of certain costs incurred as part of the restructuring charge recorded in the fourth quarter of 2001 and non-deductible stock-based compensation charges related to the sale of ChannelHealth. The Company anticipates a consolidated effective tax rate of approximately 30.0% for the year ending December 31, 2003.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Revenues

The Company’s total revenues increased to $391.4 million in 2001 from $354.0 million in 2000, an increase of approximately $37.5 million or 10.6%. Revenues from systems sales increased to $111.1 million in 2001 (28.4% of total revenues) from $109.6 million in 2000 (31.0% of total revenues), an increase of $1.5 million or 1.4%. This increase was primarily due to an increase in new sales and installations of certain IDX systems.

Revenues from maintenance and service fees increased to $280.3 million in 2001 (71.6% of total revenues) from $244.3 million in 2000 (69.0% of total revenues), an increase of $36.0 million or 14.7%. The increase was due to a $23.4 million increase in EDiX’s medical transcription service fee revenue, a $10.0 million increase in maintenance revenue primarily resulting from price increases and an increase in the Company’s installed base, as well as an increase in consulting services provided by IDX’s core business. Professional and technical services revenues increased to $25.7 million in 2001 (5.6% of total revenues) from $23.8 million in 2000 (6.7% of total revenues), an increase of $1.9 million, or 8.0%. The Company’s Internet services and content business segment (ChannelHealth), which was sold on January 8, 2001, contributed approximately $6.1 million in revenue, primarily services, during 2000.

Cost of Sales

The cost of system sales decreased to $37.0 million in 2001 from $37.3 million in 2000, a decrease of $268,000 or 0.7%. The decrease in cost of system sales is primarily a result of a decrease in hardware included as a component of sales of the Company’s systems sales. The gross margin on systems sales increased to 66.7% in 2001 from 66.0% in 2000. The increase in the gross profit margin as a percentage of sales was primarily due to the increase in software license revenue which has a higher gross profit margin than hardware sales. The cost of maintenance and services increased to $237.5 million in 2001 from $218.8 million in 2000, an increase of $18.7 million or 8.5%. The increase in cost of services resulted from growth in client services expenses, primarily medical transcription staff, as well as maintenance, installation and consulting staff. The gross profit margin on maintenance and service fees increased to 15.3% in 2001 from 10.4% in 2000 and was due to increased maintenance revenue in IDX’s core business which was partially offset by growth in service and maintenance expenses combined with operational efficiencies related to process improvements at EDiX.

The gross profit margin of system sales of IDX’s core business, information systems and services, increased to 66.7% in 2001 from 66.0% in 2000 primarily due to the effect of an increase in software license revenue which has a higher gross profit margin than hardware sales. The gross profit margin of services of IDX’s core business, information systems and services, increased to 12.1% in 2001 from 9.5% in 2000 primarily due to increased maintenance revenue which was partially offset by growth in service and maintenance expenses. The gross profit margin for the Company’s medical dictation and transcription business segment (EDiX) increased as a percentage of sales to 21.4% in 2001 from 17.5% in 2000 due to efficiencies in operations related to process

28

improvements. The gross margin for the Company’s Internet services and content business segment, operated by ChannelHealth was a negative 42.9% in 2000 primarily due to high fixed costs and low sales volume due to the early stage of this business’ development.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $88.1 million in 2001 from $87.6 million in 2000, an increase of $437,000 or 0.5%. As a percentage of total revenues, selling, general and administrative expenses decreased to 22.5% in 2001 from 24.8% in 2000. IDX’s core business, information systems and services, selling, general and administrative expenses increased $8.9 million due to the reduction in absorption of corporate overhead by ChannelHealth and increased outside professional fees offset by decreased employee costs and rent expenses. EDiX’s selling, general and administrative expenses increased $5.7 million due to increased costs in order to support sales growth.

Software Development Costs

Software development costs decreased to $43.4 million in 2001 from $49.4 million in 2000, a decrease of $6.0 million or 12.1%. As a percentage of total revenues, software development costs decreased to 11.1% in 2001 from 14.0% in 2000. As a percentage of system sales, software development costs decreased to 39.1% in 2001 from 45.1% in 2000. The $6.0 million decrease is primarily due to the decrease in research and development costs in the Internet applications and content business segment (ChannelHealth) that was sold in January 2001 combined with the capitalization of $2.1 million, net of amortization, in software development costs in 2001. Research and development costs related to IDX’s core information systems and services business segment remained level as compared to the prior year due to an increase in software development costs, primarily $2.2 million in increased employee expenses, offset by the capitalization of $2.1 million in software development costs in 2001. Research and development costs in the medical dictation and transcription business segment (EDiX) increased from $1.3 million in 2000 to $1.6 million in 2001.

Restructuring Charges

On September 28, 2001, the Company announced the implementation of a program to restructure and realign its group practice businesses in order to gain efficiencies and provide more focus on its premier customer base. As a result, the Company implemented a workforce reduction affecting approximately four percent of the Company’s employees. Though the Company reduced certain expenses in the cost of sales and services, and selling, general and administrative areas resulting in estimated annual savings in excess of $20.0 million, the Company continues to evaluate and invest resources in the development of various products and new initiatives that management believes will provide appropriate returns to shareholders. The restructuring program resulted in a charge to earnings of approximately $19.5 million in the fourth quarter of 2001, in connection with costs associated with severance arrangements of $5.5 million, lease payments of $5.2 million and non-cash write-offs of certain equipment and leasehold improvements of $8.8 million. Workforce related accruals, consisting principally of employee severance costs, were established based on specific identification of employees to be terminated, along with their job classification or functions and their location. Substantially all workforce related actions were completed during the fourth quarter of 2001, with the exception of a minimal number of staff assigned to transition teams. As of December 31, 2002, the Company had a balance of $2.9 million related to leased facilities. Cash expenditures related to these accruals are expected to be approximately $1.7 million in 2003 and approximately $1.2 million thereafter.

On June 21, 2000, the Company announced the implementation of product discontinuance and restructuring program. The Company halted development and discontinued sales efforts on certain product lines that have failed to achieve business targets or were deemed non-strategic to the business going forward. As a result, the Company implemented a workforce reduction affecting approximately five percent of the Company’s employees. Though the Company reduced certain expenses as a result of the workforce restructuring program, the Company

29

continues to evaluate and invest resources in the development of various products and new initiatives that management believes will provide appropriate returns to shareholders. The restructuring program resulted in a charge to earnings of approximately $21.0 million in the second quarter of 2000, in connection with costs associated with product discontinuations, principally settlements with existing users, of approximately $16.0 million and employee severance arrangements of approximately $5.0 million. Workforce related accruals, consisting principally of employee severance costs, were established based on specific identification of employees to be terminated, along with their job classification or functions, and their location. Substantially all workforce related actions were completed during the third quarter of 2000, with the exception of product related “sunset” support teams. As of December 31, 2001, the Company had a balance of $1.7 million related to accrued restructuring costs.

Loss on Impairment of Goodwill

During the first quarter of 2000, the Company determined that an asset impairment existed related to goodwill acquired in the 1999 purchase of the Company’s initial investment in an Internet services and content provider. In January 2000, the Company made the decision to use an external provider of content and transactions for ChannelHealth and discontinued the use of certain assets. This goodwill impairment was recognized during the first quarter of 2000 and is reflected as a pre-tax loss on impairment of goodwill of approximately $5.8 million.

Interest Income (Expense)

Interest income decreased to approximately $2.4 million during 2001 as compared to $4.8 million for the same period in 2000. This decrease was primarily due to a lower average invested balance combined with lower interest rates in 2001 as compared to 2000. Interest expense increased from approximately $6,000 during 2000 to $42,000 in 2001.

Minority Interest

The Company’s consolidated financial statements included the accounts of the Company and BDP Realty Associates (BDP) through April 2001. BDP’s real estate was leased exclusively by the Company, and the Company was subject to substantially all the risks of ownership through the date that this property was acquired by the Company at fair market value of $15.0 million, determined by an independent appraiser. All transactions between the Company and BDP have been eliminated. Minority interest, which was eliminated in April 2001, represented the net income and equity of BDP.

Gain on Sale of Investment in Subsidiary

On January 8, 2001, Allscripts acquired IDX’s interest in ChannelHealth in exchange for approximately 7.5 million shares of Allscripts common stock (Allscripts shares). The Allscripts shares received are subject to restrictions on any transfer of the securities for a period of one year from the date of the transaction and after one year, on the transfer of more than 25% of the Allscripts shares in any one year, and 16.67% in any one month. IDX recorded the Allscripts shares at fair value of $29.5 million, which included a discount from market value due to the four year restrictions on transfer, resulting in a $35.5 million gain on the transaction. IDX also entered into a ten-year strategic alliance agreement with Allscripts. Pursuant to the strategic alliance agreement, IDX has guaranteed that Allscripts will have gross revenues resulting from the alliance (less any commissions paid to IDX) of at least $4.5 million for fiscal year 2001. Due to this contingency, IDX deferred $4.5 million of the gain as of the date of the transaction and recognized a gain of $35.5 million in 2001.

Realized Gain on Investment

Other income in 2001 includes a $5.8 million realized gain from a distribution of marketable equity securities related to an investment in an unrelated investment partnership.

30

Equity in Loss of Unconsolidated Affiliate

IDX, through a wholly owned subsidiary, currently owns approximately 20% of the outstanding common stock of Allscripts and records its investment under the equity method of accounting. IDX records its interest in the losses of Allscripts as a reduction to its investment account. IDX recorded an equity loss during the first nine months of 2001 of $17.6 million on a pre-tax basis that reduced the balance of IDX’s investment carrying balance in Allscripts to zero.

Income Taxes

The Company recorded income tax expense of approximately $311,000, an effective tax rate of (3.8%). This is lower than the Company’s historical tax rate of 40.0% due to the non-deductible nature of certain costs incurred as part of the restructuring charge recorded in the fourth quarter of 2001 and non-deductible stock-based compensation charges related to the sale of ChannelHealth. The Company’s pre-tax loss for the year ended December 31, 2000 was benefited at approximately 34.5%, which reflects a lower rate than the Company’s historical effective and statutory rate of 40%. The lower rate in 2000 is principally due to a lower state effective tax rate. The Company anticipates a consolidated effective tax rate of approximately 33.0% for the year ending December 31, 2002. This favorable rate is primarily the result of research credits projected to be generated and utilized in 2002. The Company anticipates that EDiX’s effective tax rate in 2002 will be less than the statutory rate due to the use of operating loss carry forwards, subject to annual limitations. The net deferred tax assets as of December 31, 2001, of approximately $8.5 million are expected to be realized by generating future taxable income and are otherwise recoverable through available tax planning strategies.

LIQUIDITY AND CAPITAL RESOURCES

The Company principally has funded its operations, working capital needs and capital expenditures from operations and short-term borrowings under revolving secured bank lines of credit.

Net cash provided by or used in operations is principally comprised of net income or loss and is primarily affected by the net effect of the change in accounts receivable, accounts payable, accrued expenses and non-cash items relating to depreciation and amortization, deferred taxes, the sale of ChannelHealth, and certain components of lease abandonment and restructuring charges. Due to the nature of the Company’s business, accounts receivable, deferred revenue and accounts payable fluctuate considerably due to, among other things, the length of installation efforts, which are dependent upon the size of the transaction, the changing business plans of the customer, the effectiveness of customers’ management and general economic conditions. Accounts receivable has increased $14.3 million as compared to the prior year to $109.8 million, primarily due to the timing of revenue in the fourth quarter of 2002 as compared to 2001. In 2002, accounts receivable from customers have been collected on average within 87 days, which represents a decrease of 2 days as compared to the year ended December 31, 2001.

Cash flows related to investing activities have historically been related to the purchase of computer and office equipment, leasehold improvements and the purchase and sale of investment grade marketable securities. The Company invested approximately $6.5 million on the acquisition and implementation of an enterprise resource planning system during 2002 and plans to invest approximately $11.8 million during 2003 related to this system implementation. In April 2000, the Company entered into a new operating lease for office space in Seattle, Washington, commencing in 2003, for a period of 12 years. The Company invested approximately $3.7 million for improvements related to this Seattle lease in 2002, with an additional $4.3 million planned during the first half of 2003.

In addition, investing activities may also include purchases of interests in, loans to and acquisitions of businesses for access to complementary products and technologies. The Company expects these activities to continue. In April 2002, the Company acquired a minority interest in Stentor, Inc., one of the Company’s

31

strategic partners, by exercising a warrant to purchase 562,069 shares of preferred stock of Stentor, Inc for $7.5 million. Each preferred share is convertible, at any time at the option of the holder, into one share of common stock of Stentor, Inc., subject to certain adjustments. In addition, the preferred shares are not entitled to dividends but are entitled to a liquidation preference equal to the amount paid by the Company to purchase such shares. Stentor, Inc. is a privately held company and therefore it is difficult to determine a fair market value for these shares. As IDX entered into this investment during 2002, management has determined that the investment amount as of December 31, 2002 reflects the fair market value. Management will periodically review this investment for indications of impairment. There can be no assurance that the Company will be able to successfully complete any such purchases or acquisitions in the future.

Cash flows from financing activities historically relate to the issuance of common stock through the exercise of employee stock options and in connection with the employee stock purchase plan and proceeds from line of credit.

Cash, cash equivalents and marketable securities at December 31, 2002 were $54.4 million, a decrease of $1.9 million from December 31, 2001. The Company entered into a new revolving line of credit agreement during the second quarter of 2002 allowing the Company to borrow up to $40.0 million based on certain restrictions. This line of credit is secured by deposit accounts, accounts receivable and other assets and bears interest at the bank’s base rate plus .25%, which was approximately 5.0% as of December 31, 2002. This line of credit is subject to certain terms and conditions and will expire on June 27, 2005. At December 31, 2002, the Company had $18.7 million outstanding under this arrangement. As of January 2, 2003 there was no outstanding balance on this line of credit.

In addition to existing financing arrangements, the Company owns, through a wholly owned subsidiary, approximately 7.5 million shares of stock of Allscripts, a public company listed on the NASDAQ National Market under the symbol MDRX. This investment had a quoted market value of approximately $17.9 million as of December 31, 2002, and is subject to certain sale restrictions that may significantly impact the market value.

In 2002, the Company entered into a $2.8 million stand-by letter of credit arrangement with a bank in compliance with a provision of an office space lease related to tenant improvements. The Company has no plans to default on the underlying payment obligation, and therefore has determined that the fair value of this contingent liability is zero. This stand-by letter of credit expires in June 2003.

The Company expects that its requirements for office facilities and other office equipment will grow as staffing requirements dictate. The Company’s operating lease commitments consist primarily of office leases for the Company’s operating facilities. The Company plans to increase its professional staff during 2003 as needed to meet anticipated sales volume and to support research and development efforts for certain products. To the extent necessary to support increases in staffing, the Company may obtain additional office space.

32

As of December 31, 2002, the Company has not entered into other material lease or purchase commitments not disclosed above, in the table below, or in footnote 15 to the financial statements.

Operating leases

Year	Total
	(in thousands)
2003	$	14,818
2004		14,244
2005		14,642
2006		12,836
2007		11,185
Thereafter		84,047
	$	151,772

Of the $14.8 million due in 2003, $551,000 is due to 4901 LBJ Ltd. Partnership (“LBJ”), a related party described below. All other amounts are due to unrelated third parties. Approximately $7.9 million of this obligation has been accrued in 2002 as a lease abandonment charge. See footnote 3 to the financial statements.

The Company believes that currently available funds will be sufficient to finance its operating requirements at least through the next twelve months. To date, inflation has not had a material impact on the Company’s revenues or income.

During the year ended December 31, 2002, IDX did not engage in:

• Material off-balance sheet activities, including the use of structured finance or special purpose entities, with the exception of BDP Realty which has been given full recognition in the financial statements for all periods presented as described below.

• Trading activities in non-exchange traded contracts: or

• Transactions with persons or entities that benefit from their non-independent relationship with IDX, other than described below.

Through April 19, 2001, the Company’s consolidated financial statements included the accounts of the Company and BDP Realty Associates (“BDP”), a real estate trust owned by certain stockholders and key employees of the Company, Robert H. Hoehl and Richard E. Tarrant, whose real estate was leased exclusively by the Company. Effective with the date of the acquisition of the Company’s corporate headquarters from BDP, the Company has deconsolidated BDP and eliminated the net assets, principally real estate and minority interest, included in the Company’s consolidated balance sheet as of that date. The Company’s corporate headquarters were purchased from BDP for cash, at fair market value as determined by independent appraisers, for approximately $15.0 million during the second quarter of 2001. This amount has been recorded as property and equipment. This transaction was reviewed and approved by certain independent members of the Board of Directors of the Company that had no financial interest in the transaction. Total rent expense includes $294,000 in 2001 related to this lease.

Mr. Tarrant is the President and a director of LBJ Real Estate Inc., a Vermont corporation (“LBJ Real Estate”). Certain executive officers of LBJ Real Estate are also executive officers of the Company, including Mr. Hoehl and John A. Kane, the Company’s Chief Financial Officer, who also serves as a director of LBJ Real Estate. The stockholders of LBJ Real Estate include Messrs. Tarrant and Hoehl. LBJ Real Estate holds a 1% general partnership interest in 4901 LBJ Limited Partnership, a Vermont limited partnership (“LBJ”), and Messrs. Hoehl, Tarrant, and Kane and Mr. Robert F. Galin, the Company’s Senior Vice President of Sales, and two other employees of the Company hold the remaining 72.95% limited partnership interest.

The Company leases an office building from LBJ, a real estate partnership owned by certain stockholders and key employees of the Company. Lease agreements are based on fair market value rents and are reviewed and approved by independent members of the Board of Directors. Total rent paid to LBJ was approximately $555,000, $557,000, and $619,000 in 2002, 2001, and 2000, respectively.

33

At the time of this filing, the stockholders of LBJ are considering the potential sale of this real estate to an unrelated third party. The potential sale of this real estate would have no impact on IDX’s financial condition or operations as the existing operating lease would transfer to the new owners.

NEW ACCOUNTING STANDARDS

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and does not apply to goodwill or intangible assets that are not being amortized and certain other long-lived assets. This Statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and the accounting and reporting of APB Opinion No. 30 “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 had no impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under the guarantee. The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The Company is currently evaluating the requirements and impact, if any, of FIN 45 on its consolidated results of operations and financial position.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities,” to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changes that guidance by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosure about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company is currently evaluating the requirements and impact, if any, of FIN 46 on its consolidated results of operations and financial position.

In June 2002, the FASB issued SFAS No. 146, “Costs Associated with Exit or Disposal Activities.” SFAS 146 supercedes EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity”. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected to have a material impact on the Company’s financial position or results of its operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition Disclosure, An Amendment of FASB Statement No. 123”. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to

34

require more prominent and more frequent disclosure in financial statements regarding the effects of stock-based compensation. The provisions of SFAS No. 148 are effective for fiscal and interim periods ending after December 15, 2002. The Company will continue to apply APB No. 25 as the method used to account for stock-based employee compensation arrangements, where applicable, but has adopted the disclosure requirements of SFAS No. 148.

BACKLOG

At December 31, 2002, the Company had total backlog of $561.6 million, including $188.7 million attributable to systems sales and $372.9 million attributable to services. Systems sales backlog consists of fees due under signed contracts that have not yet been recognized as revenues. Service backlog represents contracted software maintenance services including anticipated renewals, consulting services, remote computing service fees and medical transcription service fees for a period of 12 months. At December 31, 2001, the Company had total backlog of $455.1 million, including $150.2 million attributable to systems sales and $304.9 million attributable to services. Of the total 2002 backlog of $561.6 million, the Company expects that $212.0 million will not be fulfilled in the current fiscal year.

See Forward-Looking Information and Factors Affecting Future Performance in Item 1 of this annual report on Form 10-K.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

IDX does not currently use derivative financial instruments. The Company generally places its marketable securities in high credit quality instruments: primarily U.S. Government and federal agency obligations, tax-exempt municipal obligations and corporate obligations with contractual maturities of a year or less. We do not expect any material loss from our marketable security investments.

Internationally, IDX invoices customers in United States currency. The Company is exposed to minimal foreign exchange rate fluctuations and does not enter into foreign currency hedge transactions. Through December 31, 2002, foreign currency fluctuations have not had a material impact on our financial position or results of operations.

Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that may experience a decline in market value due to changes in interest rates. A hypothetical 10% increase or decrease in interest rates, however, would not have a material adverse effect on our financial condition.

Interest rates on short-term borrowings with floating rates carry a degree of interest rate risk. Our future interest expense may increase if interest rates fluctuate. A hypothetical 10% increase or decrease in interest rates, however, would not have a material adverse effect on our financial condition. Interest expense was immaterial in 2002, 2001 and 2000.

Cash equivalents are short-term highly liquid investments with original maturity dates of three months or less. Cash equivalents are carried at cost, which approximates fair market value. The Company’s marketable securities are classified as available-for-sale and are recorded at fair value with any unrealized gain or loss recorded as an element of stockholders’ equity.

35

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

	December 31,
	2002			2001
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	40,135		$	38,083
Marketable securities		14,300			18,290
Accounts receivable, less allowances of $4,600 in 2002 and $4,156 in 2001 for doubtful accounts		109,806			95,478
Refundable income taxes		7,590			12,100
Prepaid and other current assets		8,716			6,189
Deferred tax asset		3,603			7,718
Total current assets		184,150			177,858
Property and equipment
Equipment and leasehold improvements, net of accumulated depreciation and amortization		47,203			37,351
Real estate, net of accumulated depreciation		41,556			40,285
		88,759			77,636
Other:
Capitalized software costs, net of accumulated amortization of $2,394 in 2002 and $1,900 in 2001		2,676			2,055
Goodwill, net of accumulated amortization of $1,300 in 2002 and $1,300 in 2001		2,411			1,391
Other assets		13,849			5,592
Deferred tax asset		—			790
Total assets	$	291,845		$	265,322
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,733		$	15,943
Accrued expenses		46,743			36,020
Deferred revenue		18,429			20,361
Notes payable to bank		18,727			15,000
Total current liabilities		99,632			87,324
Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued		—			—
Common stock, par value $0.01 per share, 100,000 shares authorized; issued and outstanding 29,202 shares and 28,839 shares in 2002 and 2001, respectively		292			289
Additional paid-in capital		200,437			196,525
Deferred compensation		(751	)		(1,051	)
Accumulated deficit		(7,780	)		(17,754	)
Cumulative unrealized (losses) gains on securities available-for-sale		15			(11	)
Total stockholders’ equity		192,213			177,998
Total liabilities and stockholders’ equity	$	291,845		$	265,322

See accompanying notes.

36

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31
	2002			2001			2000
	(in thousands, except for per share data)
Revenues:
Systems sales	$	117,491		$	111,113		$	109,621
Maintenance and service fees		342,577			280,306			244,329
Total revenues		460,068			391,419			353,950
Operating expenses:
Cost of system sales		38,696			37,030			37,298
Cost of maintenance and services		260,114			237,545			218,843
Selling, general and administrative		90,420			88,078			87,641
Software development cost		52,522			43,418			49,394
Restructuring charges		—			19,516			21,029
Lease abandonment charge		9,183			—			—
Loss on impairment of goodwill		—			—			5,810
Total operating expenses		450,935			425,587			420,015
Operating income (loss)		9,133			(34,168	)		(66,065	)
Other income (expense):
Interest income		1,819			2,384			4,834
Interest expense		(339	)		(42	)		(6	)
Gain on sale of investment in subsidiary		4,273			35,546			—
Minority interest		—			(297	)		(978	)
Gains on sale of investments		—			5,849			7,318
Total other income		5,753			43,440			11,168
Income (loss) before income taxes and equity in loss of unconsolidated affiliate		14,886			9,272			(54,897	)
Income tax (provision) benefit		(4,912	)		(311	)		18,929
Equity in loss of unconsolidated affiliate		—			(17,559	)		—
Net income (loss)	$	9,974		$	(8,598	)	$	(35,968	)
Basic net income (loss) per share	$	0.34		$	(0.30	)	$	(1.28	)
Basic weighted-average shares outstanding		28,939			28,566			28,090
Diluted income (loss) per share	$	0.34		$	(0.30	)	$	(1.28	)
Diluted weighted-average shares outstanding		29,114			28,566			28,090

See accompanying notes.

37

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Deferred Compensation			Cumulative Unrealized Gains (Losses) on Securities Available- for-Sale			Total Stockholders’ Equity
	Shares	Par Value
	(in thousands)
Balances at December 31, 1999	27,813	$	278	$	179,640	$	26,812		$	—		$	(216	)	$	206,514
Comprehensive income:
Net loss	—		—		—		(35,968	)		—			—			(35,968	)
Unrealized losses on securities available-for-sale	—		—		—		—			—			302			302
Comprehensive net loss	—		—		—		—			—			—			(35,666	)
Stock issued upon exercise of nonqualified stock options	140		1		156		—			—			—			157
Tax benefit related to exercise of nonqualified stock options	—		—		2,136		—			—			—			2,136
Stock issued upon exercise of incentive stock options	65		1		820		—			—			—			821
Stock issued pursuant to employee stock purchase plan	378		4		5,098		—			—			—			5,102
Stock issued under director stock option plan	3		—		46		—			—			—			46
Balances at December 31, 2000	28,399		284		187,896		(9,156	)		—			86			179,110
Comprehensive income:
Net loss	—		—		—		(8,598	)		—			—			(8,598	)
Unrealized losses on securities available-for-sale	—		—		—		—			—			(97	)		(97	)
Comprehensive net loss	—		—		—		—			—			—			(8,695	)
Stock issued upon exercise of nonqualified stock options	38		—		216		—			—			—			216
Tax benefit related to exercise of nonqualified stock options	—		—		312		—			—			—			312
Stock issued upon exercise of incentive stock options	45		1		372		—			—			—			373
Stock issued pursuant to employee stock purchase plan	279		3		3,282		—			—			—			3,285
Stock issued under director stock option plan	3		—		61		—			—			—			61
Issuance of restricted stock	75		1		1,201					(1,201	)					1
Amortization of restricted stock	—		—		—		—			150			—			150
Effect of acceleration of IDX options retained by employees of unconsolidated affiliate	—		—		3,185		—			—			—			3,185
Balances at December 31, 2001	28,839		289		196,525		(17,754	)		(1,051	)		(11	)		177,998
Comprehensive income:
Net income	—		—		—		9,974			—			—			9,974
Unrealized gains on securities available-for-sale	—		—		—		—			—			26			26
Comprehensive net income	—		—		—		—			—			—			10,000
Stock issued upon exercise of nonqualified stock options	39		—		548		—			—			—			548
Stock issued upon exercise of incentive stock options	7		—		40		—			—			—			40
Stock issued pursuant to employee stock purchase plan	315		3		3,280		—			—			—			3,283
Stock issued under director stock option plan	2		—		44		—			—			—			44
Amortization of restricted stock	—		—		—		—			300			—			300
Balances at December 31, 2002	29,202	$	292	$	200,437	$	(7,780	)	$	(751	)	$	15		$	192,213

See accompanying notes.

38

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2002			2001			2000
	(in thousands)
Operating Activities:
Net income (loss)	$	9,974		$	(8,598	)	$	(35,968	)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Depreciation		16,338			15,174			15,013
Amortization		2,795			2,603			633
Deferred tax provision (benefit)		4,905			124			(5,568	)
Increase in allowance for doubtful accounts		2,606			359			997
Minority interest		—			297			978
Gain on investments		—			(5,849	)		(7,318	)
Loss on impairment of goodwill		—			—			5,810
Equity in loss of unconsolidated affiliate		—			17,559			—
Gain on sale of investment in subsidiary		(4,273	)		(35,546	)		—
Loss on disposition of assets		122			404			—
Lease abandonment charge		9,183			—			—
Tax benefit related to exercise of non-qualified stock options		—			312			2,139
Restructuring charges		—			19,516			21,029
Changes in operating assets and liabilities:
Accounts receivable		(16,935	)		13,496			(4,103	)
Prepaid expenses and other assets		(5,692	)		(3,946	)		(1,405	)
Accounts payable and accrued expenses		3,177			(18,340	)		990
Federal and state income taxes		6,035			9,716			(13,790	)
Deferred revenue		(1,932	)		476			2,454
Net cash provided by (used in) operating activities		26,303			7,757			(18,109	)
Investing Activities:
Purchase of property and equipment, net		(27,582	)		(38,156	)		(28,387	)
Purchase of securities available-for-sale		(49,698	)		(78,209	)		(22,260	)
Proceeds from sale of securities available-for-sale		53,729			102,851			25,426
Proceeds from sale of investment		—			11,282			—
Business acquisitions		—			(2,080	)		—
Other assets		(7,721	)		(182	)		3,434
Net cash used in investing activities		(31,272	)		(4,494	)		(21,787	)
Financing Activities:
Proceeds from sale of common stock		3,916			3,935			6,126
Proceeds from notes payable to bank		79,181			30,000			—
Repayment of notes payable to bank		(75,454	)		(15,000	)		—
Distributions from affiliates, net		—			(472	)		(1,500	)
Proceeds from issuance of redeemable convertible preferred stock of subsidiary		—			—			33,140
Other financing activities		(622	)		—			—
Net cash provided by financing activities		7,021			18,463			37,766
Increase (decrease) in cash and cash equivalents		2,052			21,726			(2,130	)
Cash and cash equivalents at beginning of year		38,083			16,357			18,487
Cash and cash equivalents at end of year	$	40,135		$	38,083		$	16,357
Supplemental Cash Flow Information
Cash paid for interest	$	122		$	42		$	1
Cash paid for income taxes	$	952		$	3,726		$	479
Noncash Investing Activity:
Deconsolidation of real estate trust	$	—		$	8,979		$	—
Noncash Financing Activity:
Issuance of restricted stock	$	—		$	1,201		$	—

See accompanying notes.

39

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

1.    SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Basis of Presentation

IDX Systems Corporation (IDX or the Company) provides healthcare information systems and services to large integrated healthcare delivery enterprises principally located in the United States. Revenues are derived from the licensing of software, hardware sales, providing maintenance and services related to systems sales and providing medical transcription services.

In March of 2002, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) issued EITF No. 01-14, “Issue No. 01-14 of the Financial Accounting Standards Board (FASB) Emerging Issues Task Force” (“EITF No. 01-14”). EITF No. 01-14 states that customer reimbursements received for “out-of-pocket” expenses incurred should be characterized on the income statement as revenue. These expenses include, but are not limited to, airfare, mileage, hotel stays, out-of-town meals, photocopies, and telecommunications and facsimile charges. Service revenue and cost of service expenses have been restated for all periods presented to reflect this change resulting in no change to net income.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiaries and through April 19, 2001, a real estate trust, BDP Realty Associates (BDP). Investments in unconsolidated affiliates are accounted for by the equity method when we hold more than 20% but less than 50% interest, or below 20% interest but have significant influence over the operations of the companies. Investments in entities over which IDX exerts no significant influence and representing an ownership interest of less than 20%, are accounted for under the cost method.

Through April 19, 2001, the Company’s consolidated financial statements include the accounts of BDP, a real estate trust owned by certain stockholders and key employees of the Company whose real estate was leased exclusively by the Company. All transactions between the Company and BDP through April 19, 2001 were eliminated. Minority interest represents net income and equity of BDP through April 2001. On April 19, 2001, the Company acquired the Company’s corporate headquarters from BDP for $15.0 million in cash, which was the fair market value as determined by independent appraisers. Effective with the date of the acquisition, the Company no longer consolidates BDP.

On January 8, 2001, the Company sold certain operations of its majority owned subsidiary, ChannelHealth Incorporated (“ChannelHealth”) to Allscripts Healthcare Solutions, Inc. (“Allscripts”), a public company. (see Note 2) IDX owns approximately 20% of Allscript’s outstanding common stock and accounts for its investment in Allscripts under the equity method of accounting.

Certain reclassifications have been made in the accompanying financial statements to conform to the 2002 presentation.

Significant Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

40

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions by management affect the Company’s revenue recognition, allowance for doubtful accounts, deferred tax assets, certain accrued expenses, amortization periods, capitalized software, intangible and long-lived assets and restructuring charges. Actual results could differ from those estimates.

Revenue Recognition

Revenue Recognition -IDX licenses software and sells hardware, related ancillary products and transcription services to customers through our direct sales force. IDX generally recognizes revenue from software license, hardware, and related ancillary product revenues using the residual method when:

• persuasive evidence of an arrangement exists, which is typically when a customer has signed a non-cancelable sales and software license agreement;

• delivery, which is typically FOB shipping point, is complete for the software (either physically or electronically), hardware and related ancillary products;

• the customer’s fee is deemed to be fixed or determinable and free of contingencies or significant uncertainties;

• collectibility is probable; and

• vendor specific objective evidence of fair value exists for all undelivered elements, typically maintenance and professional services.

Under the residual method, IDX defers revenue recognition of the fair value of the undelivered elements, allocates the remaining portion of the arrangement fee to the delivered elements and recognize its as revenue, assuming all other conditions for revenue recognition have been satisfied. IDX recognizes substantially all of our product revenue in this manner. If IDX cannot determine the fair value of any undelivered element included in an arrangement, IDX will defer revenue recognition until all elements are delivered, services are performed or until fair value can be objectively determined.

As part of an arrangement, IDX typically sells maintenance contracts as well as professional services to customers. Maintenance services include telephone and Web-based support as well as rights to unspecified upgrades and enhancements, when and if we make them generally available. Professional services are deemed to be non-essential and typically are for implementation planning, loading of software, installation of hardware, training, building simple interfaces, running test data, and assisting in the development and documentation of process rules, and best practices consulting.

IDX recognizes revenues from maintenance services ratably over the term of the maintenance contract period based on vendor specific objective evidence of fair value. Vendor specific objective evidence of fair value is based upon the amount charged for maintenance when purchased separately, which is typically the contract’s renewal rate. Maintenance services are typically stated separately in an arrangement.

IDX generally recognizes revenues from professional services based on vendor specific objective evidence of fair value when: (1) a non-cancelable agreement for the services has been signed or a customer’s purchase order has been received; and (2) the professional services have been delivered. Vendor specific objective evidence of fair value is based upon the price charged when professional services are sold separately and is typically based on an hourly rate for professional services.

41

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

IDX generally recognizes revenue from transcription services based on a reliable, verifiable and objectively determinable measure of fair value when: (1) a non-cancelable agreement for the services has been signed or a customer’s purchase order has been received; and (2) the transcription services have been delivered. We base the fair value of transcription services upon the price charged when these services are sold separately. Transcription services are typically charged at a per line rate.

IDX’s arrangements with customers generally include acceptance provisions. However, these acceptance provisions are typically based on our standard acceptance provision, which provides the customer with a right to a refund if the arrangement is terminated because the product did not meet our published specifications. This right generally expires 30 days after installation. The product is deemed accepted unless the customer notifies the Company otherwise. Generally, IDX determines that these acceptance provisions are not substantive and historically have not been exercised, and therefore should be accounted for as a warranty in accordance with Statement of Financial Accounting Standards No. 5.

At the time IDX enters into an arrangement, the Company assesses the probability of collection of the fee and the terms granted to the customer. The Company’s typical payment terms include a deposit and subsequent payments based on specific milestone events and dates. The Company’s payment terms are less than 90 days and typically amounts are due within 30 days of invoice date. If the Company considers the payment terms for the arrangement to be extended or if the arrangement includes a substantive acceptance provision, the Company defers revenue not meeting the criterion for recognition under SOP 97-2 and classifies this revenue as deferred revenue, including deferred product revenue. IDX recognizes deferred revenue, assuming all other conditions for revenue recognition have been satisfied, when the payment of the arrangement fee becomes due and/or when the uncertainty regarding acceptance is resolved as generally evidenced by written acceptance or payment of the arrangement fee.

Additionally, the Company periodically enters into certain long-term contracts where the Company generally recognizes revenue on a percentage of completion basis using labor input measures. IDX recognizes losses, if any, on fixed price contracts when the loss is determined. IDX records revenue in excess of billings on long-term service contracts as unbilled receivables and include in trade accounts receivable. IDX records billings in excess of revenue recognized on service contracts as deferred income until revenue recognition criteria are met.

Software Development Costs

Costs incurred in the research, design and development of software for sale to others are charged to expense until technological feasibility is established. Software development costs incurred after the establishment of technological feasibility and until the product is available for general release are capitalized, provided recoverability is reasonably assured. Technological feasibility is established upon the completion of a working model. Software development costs, when material, are stated at the lower of unamortized cost or net realizable value. Net realizable value for each software product is assessed based on anticipated profitability applicable to revenues of the related product in future periods. Amortization of capitalized software costs begins when the related product is available for general release to customers and is provided for using the straight-line method over a one to two year life or the product’s estimated economic life, if shorter. Capitalized software development costs are $2.7 million and $2.1 million at December 31, 2002 and 2001, respectively, net of accumulated amortization. Amortization of capitalized software amounted to $2.4 million, $2.1 million and $223,000 in 2002, 2001 and 2000, respectively. Excluding capitalized software development costs and the related amortization expense, research and development costs were $50.1 million, $41.3 million and $49.2 million in 2002, 2001 and 2000, respectively.

42

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

Cash Equivalents

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

Shipping Costs

Shipping costs on goods shipped to customers are included in cost of system sales.

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, trade receivables, accounts payable, accrued expenses, and notes payable. The carrying value of these financial instruments approximates fair value due to their short term to maturity. Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, marketable securities and trade receivables.

All of the Company’s cash equivalents and marketable securities are maintained by major financial institutions. The Company’s marketable securities generally consist of high credit quality instruments, primarily U.S. Government and Federal Agency obligations, tax-exempt municipal obligations and corporate obligations with contractual maturities of a year or less.

Substantially all of the Company’s customers are large integrated healthcare delivery enterprises principally located in the United States. The Company performs ongoing credit evaluations of the financial condition of its customers and generally does not require collateral. Although the Company is directly affected by the overall financial condition of the healthcare industry, management does not believe significant credit risk exists at December 31, 2002. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses when incurred are charged to the allowance. The Company’s losses related to collection of trade accounts receivables have consistently been within management’s expectations.

Marketable Securities

The Company’s marketable securities have been classified as available-for-sale at December 31, 2002 and 2001 and are carried at fair value based on quoted market values. The cost of marketable securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. Realized gains and losses and declines in value judged to be other-than temporary on available-for-sale securities are included in other income. Unrealized gains and losses, net of income tax effect, are reported as a separate component of stockholders’ equity.

Property and Equipment

Real estate, which includes land, buildings and related improvements, is stated at cost. Buildings and related improvements are depreciated using the straight-line method over their estimated useful lives of 30 to 40 years. Equipment is stated at cost and is depreciated straight-line over its estimated useful life of two to five years for computer equipment and five to ten years for furniture and fixtures. Leasehold improvements are amortized using the straight-line method over the lesser of the term of the respective lease or the estimated useful life of the asset. Costs of developing and obtaining software for internal use are accounted for in accordance with SOP No. 98-1, “Accounting for the Costs of Computer Software Developed for Internal Use,” and are included in Property and Equipment. These costs are amortized over their estimated useful life of five years.

43

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

Long-Lived Asset Impairment

The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of long-lived assets (excluding goodwill, which is immaterial) may warrant revision or that the carrying value of these assets may be impaired. During this review, the Company reevaluates the significant assumptions used in determining the original cost and estimated lives of long-lived assets. Although the assumptions may vary from asset to asset, they generally include operating results, cash flows and other indicators of value. Management then determines whether the remaining useful life continues to be appropriate or whether there has been an impairment of long-lived assets based primarily upon whether expected future undiscounted cash flows are sufficient to support the assets’ recovery. If impairment exists, the Company would adjust the carrying value of the asset to fair value, generally determined by a discounted cash flow analysis.

Income Taxes

The Company accounts for income taxes using the liability method as required by Statement of Financial Accounting Standard (SFAS) No. 109, “Accounting for Income Taxes.” Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial accounting of assets and liabilities at the end of each reporting period. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Comprehensive Income

Comprehensive income (loss) is comprised of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and losses on the Company’s available-for-sale securities.

Accounting For Stock Based Compensation

The Company accounts for its stock-based compensation plan under Accounting Principal Bulletin Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees. SFAS No. 123, Accounting for Stock-Based Compensation, establishes the fair-value-based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative for options granted to employees and directors under SFAS No. 123, which requires disclosure of the pro forma effects on earnings as if SFAS No. 123 had been adopted, as well as certain other information. Options granted to scientific advisory board members and other non-employees are recorded at fair value based on the fair value measurement criteria of SFAS No. 123. Compensation expense, computed using the Black-Scholes option pricing model, of $529, $167 and $68 was recorded in the accompanying consolidated statements of operations for the years ended December 31, 2000, 2001 and 2002, respectively

The Company has computed the pro forma disclosures required under SFAS No. 123 for all stock options granted to employees and directors of the Company as of December 31, 2002, 2001 and 2000, using the Black-Scholes option pricing model prescribed by SFAS No. 123.

44

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

The assumptions used for the years ended December 31, 2002, 2001 and 2000 are as follows:

	December 31,
	2002			2001			2000
Risk-free interest rates		3.0	%		3.5	%		5.8	%
Expected lives		4 years			4 years			4 years
Expected volatility		51.5	%		52.4	%		77.6	%
Dividend yield		0	%		0	%		0	%
Weighted average fair value of grants	$	3.65		$	7.10		$	11.29

The effect of applying SFAS No. 123 would be as follows:

	December 31,
	2002			2001			2000
Net income (loss) as reported	$	9,974		$	(8,598	)	$	(35,968	)
Deduct:
Total stock-based employee compensation under fair value based methods, net of tax		(5,306	)		(5,729	)		(5,528	)
Pro forma net income (loss) – SFAS 123	$	4,668		$	(14,327	)	$	(41,496	)
Basic and diluted net income (loss) per share:
As reported	$	0.34		$	(0.30	)	$	(1.28	)
Pro forma – SFAS 123	$	0.16		$	(0.50	)	$	(1.49	)

New Accounting Standards

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and does not apply to goodwill or intangible assets that are not being amortized and certain other long-lived assets. This Statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and the accounting and reporting of APB Opinion No. 30 “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 had no impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under the guarantee. The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The Company is currently evaluating the requirements and impact, if any, of FIN 45 on its consolidated results of operations and financial position.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities,” to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests.

45

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

FIN 46 changes that guidance by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosure about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company is currently evaluating the requirements and impact, if any, of FIN 46 on its consolidated results of operations and financial position.

In June 2002, the FASB issued SFAS No. 146, “Costs Associated with Exit or Disposal Activities.” SFAS 146 supercedes EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity”. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected to have a material impact on the Company’s financial position or results of its operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition Disclosure, An Amendment of FASB Statement No. 123”. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosure in financial statements regarding the effects of stock-based compensation. The provisions of SFAS No. 148 are effective for fiscal and interim periods ending after December 15, 2002. The Company will continue to apply APB No. 25 as the method used to account for stock-based employee compensation arrangements, where applicable, but has adopted the disclosure requirements of SFAS No. 148.

2.    BUSINESS COMBINATIONS AND DIVESTITURES

In April 2002, the Company acquired a minority interest in Stentor, Inc., one of the Company’s strategic partners, by exercising a warrant to purchase 562,069 shares of preferred stock of Stentor, Inc. Company paid approximately $7.5 million to purchase the preferred shares. Each preferred share is convertible, at any time at the option of the holder, into one share of common stock of Stentor, Inc., subject to certain adjustments. In addition, the preferred shares are not entitled to dividends but are entitled to a liquidation preference equal to the amount paid by the Company to purchase such shares. Stentor, Inc. is a California based medical informatics company with products for medical image and information management. The warrant was issued to the Company in November 2000 in connection with the alliance agreement that was entered into by the parties to jointly develop a medical image and information management system (MIMS) combining the Company’s Imaging Suite product with the image distribution technology from Stentor. This investment will be carried at cost. There is currently no public market for the preferred shares.

In June 2001, the Company acquired Vogt Management Consulting, Inc. for approximately $1.1 million. This acquisition has been accounted for under the purchase method of accounting. The purchase price has been allocated, principally to goodwill, based on estimated fair market values at the date of acquisition.

In May 2001, the Company acquired PVI, LLC for approximately $1.0 million. This acquisition has been accounted for under the purchase method of accounting. The purchase price has been allocated based on estimated fair market values at the date of acquisition, principally to software. There are contingent payments based on a percentage of future sales related to this purchase.

46

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

Had these purchase acquisitions occurred as of the beginning of the year in which they occurred, the Company’s pro forma operating results would not be materially different than as reported in the accompanying consolidated financial statements.

On January 8, 2001 the Company sold certain of the net assets and operations of its majority owned subsidiary, ChannelHealth to Allscripts, a public company providing point-of-care e-prescribing and productivity solutions for physicians. In addition to the sale, the Company entered into a ten-year strategic alliance (the “Alliance Agreement”) whereby Allscripts is the exclusive provider of point-of-care clinical applications sold by IDX to physician practices.

In exchange for its 87% ownership of ChannelHealth, IDX received approximately 7.5 million shares (such shares contained restrictions as to resale as discussed below) of Allscripts stock, which represented approximately a 20% ownership interest in Allscripts. IDX recorded the Allscripts shares at an estimated fair value of $29.5 million, which included a discount from market value due to restrictions on transfer. At the time of the transaction, ChannelHealth’s liabilities exceeded its assets by $10.5 million, resulting in a gain of approximately $40 million. Pursuant to the Alliance Agreement, IDX guaranteed that Allscript’s gross revenues resulting from the alliance (less any commissions paid to IDX) would amount to at least $4.5 million for fiscal year 2001. Due to this contingency, IDX deferred $4.5 million of the gain as of the date of the transaction and recognized a gain of $35.5 million in 2001. An additional gain of $4.3 million was recognized in the first quarter of 2002 when the contingency was resolved.

IDX accounts for its investment in Allscripts under the equity method of accounting. Under the equity method of accounting, IDX recognized its pro-rata share of Allscripts 2001 losses resulting in the elimination of the carrying value of this investment during the third quarter of 2001. IDX has not recorded its share of losses since then, of which its share amounts to $67.7 million through December 31, 2002. At December 31, 2002, the estimated market value of the Company’s investment in Allscripts is approximately $17.9 million based on the quoted market price of the stock. The fair market value of this stock would be discounted to reflect the Company’s restricted ability to sell only 25% of its initial Allscripts shares in any one year.

Through December 31, 2002, the Company has sold approximately 14,000 shares of Allscripts common stock, which has not materially changed its ownership interest in Allscripts.

Summary unaudited financial information for Allscripts for the years ended December 31, 2002 and 2001 is as follows in thousands:

	December 31,
	2002			2001
Revenue	$	78,802		$	70,917
Gross profit		19,871			4,633
Net loss		(15,233	)		(418,931	)
Current assets		63,095			64,846
Non current assets		41,258			52,598
Current liabilities		18,369			18,485
Non current liabilities		163			325

ChannelHealth’s revenue and net loss for the year ended December 31, 2000 included in the Company’s consolidated financial statements were approximately $6.1 million and $19.7 million, respectively.

47

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

3.    LEASE ABANDONMENT CHARGE

In 1999, the Company entered into a lease for new office space in Seattle. Although the Company continued to utilize the existing space, an active search for a sublessor was initiated and has been ongoing. In 2002, the Company determined it would consolidate its Seattle operations into the new office space and have abandoned the space subject to the 1999 lease. Due to the depressed Seattle real estate market and the inability to obtain a sublessor, the Company recorded a lease abandonment charge of $9.2 million in its core Information Systems and Services business segment in the fourth quarter of 2002. The lease abandonment charge is related to lease payments of approximately $7.9 million through the end of the lease term in 2005 and non-cash write-offs of certain leasehold improvements of approximately $1.3 million. Cash expenditures related to the accrual are expected to be approximately $2.2 million in 2003 and $5.7 million thereafter.

4.    RESTRUCTURING CHARGES

On September 28, 2001 the Company announced its plan to restructure and realign its large physician group practice businesses. The Company implemented a workforce reduction and restructuring program affecting approximately four percent of the Company’s employees. The restructuring program resulted in a charge to earnings of approximately $19.5 million during the fourth quarter of 2001, in connection with costs associated with employee severance arrangements of approximately $5.5 million, lease payment costs of approximately $5.2 million, and equipment and leasehold improvement write-offs related to the leased facilities and workforce reduction of $8.8 million. Workforce related accruals, consisting principally of employee severance costs, were based on specific identification of employees to be terminated, along with their job classification and functions, and their location. Substantially all work-force related actions were completed during the fourth quarter of 2001, with the exception of a minimal number of staff assigned to transition teams. As of December 31, 2002, the Company had an accrual balance of $2.9 million related to leased facilities. Cash expenditures related to these accruals are expected to be approximately $1.7 million in 2003 and approximately $1.2 million thereafter.

On June 21, 2000 the Company announced the implementation of a restructuring program. The Company halted development and discontinued sales efforts on certain products that had failed to achieve business targets or were deemed non-strategic to the business going forward. As a result, the Company implemented a workforce reduction affecting approximately five percent of the Company’s employees. The restructuring program resulted in a charge to earnings of approximately $21.0 million in the second quarter of 2000, in connection with costs associated with product discontinuations, principally settlements with existing users, of approximately $16.0 million and employee severance arrangements of approximately $5.0 million. Workforce related accruals, consisting principally of employee severance costs, were established based on specific identification of employees to be terminated, along with their job classification or functions, and their location. Substantially all work-force related actions were completed during the third quarter of 2000, with the exception of product related “sunset” support teams. As of December 31, 2002, the accrued restructuring balance was zero and no further costs are expected.

5.    SEGMENT INFORMATION

The Company is required to disclose segment information in accordance with the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” SFAS No. 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about major customers, products and services, and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess performance. The Company’s business units have

48

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

separate management teams and infrastructures that offer different products and services. Accordingly, these business units have been classified as reportable segments (information systems and services, medical transcription services, and in 2000, Internet services and content).

Information Systems and Services: This reportable segment consists of IDX Systems Corporation’s healthcare information solutions that includes software, hardware and related services. IDX solutions enable healthcare organizations to redesign patient care and other workflow processes to improve efficiency and quality. The principal markets for this segment include physician groups, management service organizations, hospitals, and integrated delivery networks primarily located in the United States.

Medical Transcription Services: This reportable segment consists of EDiX, a provider of medical transcription outsourcing services. The principal markets for this segment include hospitals and large physician group practices primarily located in the United States.

Internet Services and Content: ChannelHealth, a majority owned subsidiary until January 8, 2001, offered three Internet channels that integrated IDX’s core practice management systems with extensive Internet-based services and clinically valid content. ChannelHealth services were available to physicians through group practices, hospitals, integrated delivery networks and managed care organizations. This segment is not reported in 2002 and 2001 as a separate business segment due to the acquisition of ChannelHealth by Allscripts on January 8, 2001.

The accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements. The Company evaluates the performance of its operating segments based on revenue and operating income. Intersegment revenues are immaterial. No one customer accounts for greater than 10% of revenue for any reportable segment, with the exception of EDiX in 2000 in which revenues from one major customer amounted to 10.3% of EDiX’s total revenue.

Summarized financial information concerning the Company’s reportable segments is shown in the following table:

	Information Systems and Services			Internet Services And Content			Medical Transcription Services			Total
	(in thousands)
For the year ended December 31, 2002
Net operating revenues	$	348,246		$	—		$	111,822		$	460,068
Operating income (loss)		12,201			—			(3,068	)		9,133
Income (loss) before income taxes		21,719						(6,833	)		14,886
Total assets		246,795			—			45,050			291,845
For the year ended December 31, 2001
Net operating revenues	$	295,848		$	—		$	95,571		$	391,419
Operating income (loss)		(39,431	)		—			5,263			(34,168	)
Income (loss) before income taxes and equity in loss of unconsolidated affiliate		7,289						1,983			9,272
Total assets		227,403			—			37,919			265,322
For the year ended December 31, 2000
Net operating revenues	$	275,677		$	6,098		$	72,175		$	353,950
Operating income (loss)		(40,572	)		(28,880	)		3,387			(66,065	)
Income (loss) before income taxes		(27,465	)		(28,280	)		848			(54,897	)
Total assets		249,441			21,641			26,409			297,491

49

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

Corporate headquarter assets and related operating costs are included in the Information Systems and Services segment information. All goodwill reflected on the consolidated balance sheet is included in the Information Systems and Services segment information. Substantially all of the Company’s operations are in the United States.

6.    SECURITIES AVAILABLE-FOR-SALE

The following is a summary of securities available-for-sale at December 31, 2002 and 2001:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
December 31, 2002
U.S. government securities	$	11,109	$	15	$	—		$	11,124
Other debt securities		2,500							2,500
Total debt securities		13,609		15		—			13,624
Equity securities		4		—		—			4
Money-market funds		672		—		—			672
	$	14,285	$	15	$	—		$	14,300
December 31, 2001
U.S. government securities	$	11,439	$	54	$	—		$	11,493
Total debt securities		11,439		54		—			11,493
Tax-deferred municipal funds		2,366		—		(80	)		2,286
Equity securities		4		—		—			4
Money-market funds		4,507		—		—			4,507
	$	18,316	$	54	$	(80	)	$	18,290

Unrealized gains and losses on securities available-for-sale are recorded, net of any tax effect, as a separate component of stockholders equity. A portion of the Company’s investment in a venture capital fund was converted to marketable equity securities that were sold, resulting in realized gains of $5.8 million for 2001 and $7.3 million for 2000.

The amortized cost and estimated fair value of debt securities and money market funds at December 31, 2002 by contractual maturity, are shown below:

	Cost		Estimated Fair Value
	(in thousands)
Due in one year or less	$	13,721	$	13,726
Due after one year through three years		380		390
Due after three years		180		180
	$	14,281	$	14,296

50

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

7.    PROPERTY AND EQUIPMENT

Equipment and leasehold improvements consist of the following:

	December 31,
	2002		2001
	(in thousands)
Computer equipment and software	$	87,813	$	65,638
Furniture and fixtures		12,655		9,833
Leasehold improvements		10,350		10,044
		110,818		85,515
Less accumulated depreciation and amortization		63,615		48,164
	$	47,203	$	37,351

Real estate consists of the following:

	December 31,
	2002		2001
	(in thousands)
Corporate headquarters	$	43,054	$	40,995
Less accumulated depreciation		1,498		710
	$	41,556	$	40,285

8.    ACCRUED EXPENSES

Accrued expenses consist of the following:

	December 31,
	2002		2001
	(in thousands)
Employee compensation and benefits	$	19,241	$	12,161
Restructuring charges		2,869		7,259
Accrued expenses		7,391		5,630
Accrued contractual minimum payments		—		4,398
Accrual for lease abandonment charge		9,183		—
Other		8,059		6,572
	$	46,743	$	36,020

9.    REDEEMABLE CONVERTIBLE PREFERRED STOCK

On January 10, 2000, ChannelHealth sold 2,719,429 shares of Series A Preferred Stock (3,000,000 total authorized shares) to Pequot Private Equity Fund II, L.P. (Pequot) and other related party investors for a purchase price of $33.1 million. Pequot’s ownership interest represented approximately 9.0% of the outstanding shares of stock of ChannelHealth. The redemption provision of the Series A Preferred Stock was satisfied in connection with the Channelhealth sale transaction on January 8, 2001 described in Note 2 in these financial statements, and accordingly required no use of the Company’s cash.

51

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

10.    FINANCING ARRANGEMENTS

The Company had a revolving demand line of credit (the “Demand Line”) with a bank allowing the Company to borrow up to $18.0 million bearing interest at the bank’s base rate, approximately 4.0% at December 31, 2001. The Demand Line was subject to certain terms and conditions including the requirement that the Company must maintain deposits with the bank that are in excess of the amounts borrowed. The agreement contains covenants related to minimum cash flow targets, net worth and capital spending. At December 31, 2001, the Company had $15.0 million outstanding under this arrangement. The Demand Line expired in 2002 and no amounts were outstanding at December 31, 2002.

The Company entered into a new revolving line of credit agreement (the “New Line”) during the second quarter of 2002 allowing the Company to borrow up to $40.0 million subject to certain restrictions. The New Line is secured by deposit accounts, accounts receivable and other assets and bears interest at the bank’s base rate plus .25%, which was approximately 5.0% as of December 31, 2002. The New Line will expire on June 27, 2005. At December 31, 2002, the Company had $18.7 million outstanding under this arrangement. Amounts due under the New Line were paid in full on January 2, 2003.

In 2002, the Company entered into a $2.8 million stand-by letter of credit arrangement with a bank in compliance with a provision of an office space lease related to tenant improvements. The Company has no plans to default on the underlying payment obligation, and therefore has determined that the fair value of this contingent liability is zero. This stand-by letter of credit expires in June 2003.

11.    INCOME TAXES

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

	2002			2001		2000
	(in thousands)
Currently payable (refundable):
Federal	$	(524	)	$	100	$	(13,790	)
State		346			87		429
Foreign		185			—		—
		7			187		(13,361	)
Deferred provision (benefit)		4,905			124		(5,568	)
	$	4,912		$	311	$	(18,929	)

52

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

A reconciliation of the federal statutory rate to the effective income tax rate during 2002, 2001 and 2000 is as follows:

	2002		2001		2000
Taxes at federal statutory rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	3.0	%	3.0	%	3.0	%
Increase in valuation allowance	32.9	%	0.0	%	0.0	%
Utilization of previously reserved net operating losses and current year research and experimentation credits	(33.0	%)	0.0	%	0.0	%
Restructuring charges not benefited	0.0	%	(30.2	%)	0.0	%
Non-deductible charges related to sale of subsidiary	0.0	%	(15.4	%)	0.0	%
Other, net	(4.9	%)	3.8	%	(3.5	%)
	33.0	%	(3.8	%)	34.5	%

Significant components of the Company’s deferred tax assets:

	December 31,
	2002			2001
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	15,330		$	15,318
Research and experimentation credits		8,649			6,446
Allowances and accruals		9,228			5,561
Depreciation		(158	)		3,290
Deferred revenue		1,441			2,157
Total deferred tax assets		34,490			32,772
Valuation allowance		(30,887	)		(24,264	)
Net deferred tax assets		3,603			8,508
Less current portion		3,603			7,718
	$	—		$	790

At December 31, 2002, the Company had net operating loss carry forwards (NOLs) of approximately $4.1 million available to offset the Company’s future taxable income. These NOLs will expire, if not used, during the years 2020 through 2021. These NOLs include deductions of approximately $2.0 million related to certain stock option exercises. The tax benefit from the NOLs related to the exercise of stock options will be recorded as an increase to additional paid in capital as these NOLs are utilized.

In addition, the Company had NOLs of approximately $35.4 million generated by EDiX available to offset the Company’s future taxable income subject to an annual limitation of $780,000. These NOLs will expire, if not used, during the years 2009 through 2018.

At December 31, 2002, the Company had research and experimentation credits of approximately $8.6 million available to offset the Company’s future tax liabilities subject to limitations. These research and experimentation credits will expire, if not used, during the years 2018 through 2022.

During the year ended December 31, 2002, the Company’s valuation allowance increased by $4.9 million. This increase was a result of a tax planning strategy that the Company believes is no longer sufficient to support certain deferred tax assets.

53

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

The Company believes that, based upon a number of factors, the available objective evidence creates sufficient uncertainty regarding the realization of certain deferred tax assets, principally NOLs and research and experimentation credits, such that a partial valuation allowance has been recorded. The remaining balance is considered recoverable on a more likely than not basis as a result of tax planning strategies related to unrealized gains on the Company’s investment in publicly traded common stock that the Company accounts for using the equity method of accounting. The Company will continue to assess the realization of the deferred tax assets based on available tax planning strategies and actual and forecasted operating results.

12.    NET INCOME (LOSS) PER SHARE

The following sets forth the computation of basic and diluted net income (loss) per share:

	2002		2001			2000
	(in thousands, except per share data)
Numerator:
Net income (loss)	$	9,974	$	(8,598	)	$	(35,968	)
Numerator for basic and diluted income (loss) per share	$	9,974	$	(8,598	)	$	(35,968	)
Denominator:
Denominator for basic income (loss) per share Weighted-average shares		28,939		28,566			28,090
Effect of employee stock options		175		—			—
Denominator for diluted income (loss) per share		29,114		28,566			28,090
Basic net income (loss) per share	$	0.34	$	(0.30	)	$	(1.28	)
Diluted net income (loss) per share	$	0.34	$	(0.30	)	$	(1.28	)

Options to purchase approximately 3,417,000, 3,902,000, and 1,345,000 shares of common stock were outstanding during the years ended December 31, 2002, 2001, and 2000, respectively, but were not included in the year to date calculation of diluted shares because either the options’ exercise price was greater than the average market price of the common shares during those periods, or the effect of including the options would have been anti-dilutive.

13.    EMPLOYEE BENEFIT PLANS

Stock Purchase Plan

In September 1995, IDX’s Board of Directors and stockholders approved the 1995 Employee Stock Purchase Plan, as amended in July 1997 and May 2001, (the ESPP) under which eligible employees may purchase the Company’s common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each offering period. Participation in the offering is limited to 10% of an employee’s compensation (not to exceed amounts allowed under Section 423 of the Internal Revenue Code), may be terminated at any time by the employee and automatically ends on termination of employment with the Company. A total of 2,100,000 shares of common stock have been reserved for issuance under the ESPP. During the years ended December 31, 2002, 2001, and 2000, an aggregate of approximately 315,000, 279,000, and 378,000 shares, respectively, were purchased under the ESPP. No additional shares of common stock were issued under the ESPP subsequent to the end of the year. The Company has approximately 695,000 additional shares of common stock available for issuance pursuant to the ESPP.

54

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

IDX Option Plans

During 1985 and 1994, the Company established incentive stock option plans providing for the grant of options for the issuance of 959,540 and 183,200 shares, respectively, of the Company’s common stock. Options were granted at fair market value at the time of grant and became immediately exercisable at the time of the initial public offering. The options expire on the tenth anniversary of the date of the grant or upon termination of employment. The 1994 Plan was terminated upon the completion of the initial public offering. The 1985 Plan was terminated for purposes of prospective eligibility in March 1995. At December 31, 2002, options to purchase 26,750 and 40,072 shares of common stock were outstanding and exercisable under the 1994 Plan and the 1985 Plan, respectively.

In September 1995, the Company’s stockholders approved the 1995 Stock Option Plan as amended in July 1997 and May 2001, (the 1995 Option Plan). The 1995 Option Plan provides for the grant of stock options to employees, officers and directors of, and consultants or advisors to, the Company. Under the 1995 Option Plan, the Company may grant options that are intended to qualify as incentive stock options under provisions of the Internal Revenue Code or options not intended to qualify as incentive stock options. The option grants, exercise price, vesting and expiration are authorized by a compensation committee comprised of certain of the Company’s directors. A total of 8,500,000 shares of common stock may be issued upon the exercise of options granted under the 1995 Option Plan. At December 31, 2002, options to purchase 4,659,149 shares of common stock were outstanding under the 1995 Option Plan, of which 1,997,505 were exercisable.

In September 1995, IDX’s Board of Directors approved the 1995 Director Stock Option Plan, as amended, in May 1997, July 1997, and May 2001, (the IDX Director Plan), which provides that each non-employee director of the Company be granted an option to acquire 2,000 shares of Common Stock on the date that person becomes a director but, in any event, not earlier than the effective date of the IDX Director Plan. In addition, options are granted periodically to members of the Board of Directors. Options are granted at a price equal to the fair market value on the date of grant. The option becomes exercisable on the first anniversary of the date of grant, and the term of the option is ten years from the date of grant. The Company has reserved 160,000 shares of common stock for issuance under the IDX Director Plan. At December 31, 2002, options to purchase 97,023 shares of Common Stock were outstanding under the IDX Director Plan, of which 64,644 were exercisable.

Phamis Stock Option Plans

Options to purchase shares of PHAMIS common stock under the PHAMIS, Inc. Amended and Restated 1983 Combined Nonqualified and Incentive Stock Option Plan (the 1983 Option Plan), the PHAMIS, Inc. 1993 Combined Incentive and Nonqualified Stock Option Plan (the 1993 Option Plan) and the PHAMIS, Inc. 1994 Non-employee Director Stock Option Plan (the PHAMIS Director Plan) that were outstanding at the effective date of the acquisition of PHAMIS by IDX in 1997, were effectively assumed by IDX based on the exchange ratio of .73 shares of IDX common stock for each share of PHAMIS common stock. Pursuant to the terms of the aforementioned plans, all unvested and unexercisable option grants were fully vested and became exercisable immediately prior to the acquisition. The aforementioned PHAMIS plans were terminated for purposes of prospective eligibility at the effective time of the acquisition. At December 31, 2002, options to purchase 730, 54,999 and 3,650 shares of IDX common stock were outstanding and exercisable under the 1983 Option Plan, the 1993 Option Plan and the PHAMIS Director Plan, respectively.

55

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

2002 Stock Incentive Plan for Non-employee Directors

In March 2002, IDX’s Board of Directors approved the 2002 Stock Incentive Plan for Non-Employee Directors (“2002 Stock Incentive Plan”) which provided for each non-employee director of the Company be compensated for their services on the Company’s Board of Directors by the granting of awards of shares of Common Stock and restricted stock awards. On May 16, 2002, the Company filed a Registration Statement on Form S-8 with SEC to register such securities under the 2002 Stock Incentive Plan. The Company has reserved 25,000 shares of Common Stock for issuance under the 2002 Stock Incentive Plan. At December 31, 2002, 2,482 shares of Common Stock were issued and 22,518 shares were outstanding under the 2002 Stock Incentive Plan.

2001 Restricted Stock Incentive Plan

On June 13, 2001, IDX’s Board of Directors approved the Restricted Stock Awards made to Lawrence A. Krassner (“Restricted Stock Awards”) which provided for awards of restricted stock in connection with an Employment, Noncompetition and Nondisclosure Agreement by and between IDX Systems Corporation and Lawrence A. Krassner dated June 11, 2001. On June 28, 2001, the Company filed a Registration Statement on Form S-8 with the SEC to register such securities for such Restricted Stock Awards. The Company has reserved 115,000 shares of Common Stock for issuance of such Restricted Stock Awards. At December 31, 2002, 75,000 shares of Common Stock were issued and 40,000 shares were outstanding from such Restricted Stock Awards.

Stock-Based Compensation

A summary of the Company’s stock option activity, and related information for the three years ended December 31 follows:

	2002				2001				2000
	Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price
Outstanding at beginning of year	4,044,664		$	19.52	3,370,900		$	20.60	2,605,886		$	22.77
Granted	1,385,419		$	15.08	1,042,478		$	16.24	1,508,060		$	18.45
Exercised	(45,790	)	$	12.81	(80,590	)	$	10.67	(206,120	)	$	15.17
Forfeited	(501,920	)	$	19.55	(288,124	)	$	22.71	(536,926	)	$	25.89
Outstanding at end of year	4,882,373		$	18.32	4,044,664		$	19.52	3,370,900		$	20.60
Exercisable at end of year	2,188,350		$	20.63	1,837,299		$	22.32	1,346,099		$	23.74
Weighted-average fair value of options granted during the year			$	3.65			$	7.10			$	11.29
Available for future grants	3,404,210				4,288,400				965,319

56

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

The following table presents weighted-average price and life information about significant option groups outstanding at December 31, 2002:

	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted—Average Remaining Contractual Life	Weighted—Average Exercise Price		Number Exercisable	Weighted—Average Exercise Price
$4.32—$13.02	591,526	8.16 years	$	11.25	128,639	$	8.02
$13.17—$15.77	1,358,277	7.79 years	$	14.66	658,919	$	13.91
$15.82—$17.55	1,502,570	8.33 years	$	16.72	437,847	$	16.56
$17.57—$31.56	1,227,756	5.73 years	$	24.82	800,621	$	27.24
$31.63—$51.19	202,244	5.80 years	$	36.01	162,324	$	36.33
	4,882,373				2,188,350

Profit Sharing Retirement Plan

The Company maintains a profit sharing retirement plan for all IDX employees meeting age and service requirements. Contributions to the plan are discretionary, as determined by the Board of Directors. The Company expects to continue the plan indefinitely; however, IDX has reserved the right to modify, amend or terminate the plan. For the years ended December 31, 2002, 2001 and 2000, the Company has expensed $373,000, $161,000 and $3,572,000, respectively.

401(K) Retirement Savings Plan

Under the plan, employees are eligible to participate in the plan on the first day of the month following the date of employment. The Company matches participant contributions up to 3%. Matching contributions to the plan were $3.9 million, $3.1 million and $3.3 million for the year ended December 31, 2002, 2001 and 2000, respectively.

14.    COMMITMENTS AND LEGAL MATTERS

On January 18, 2001, the Company commenced a lawsuit against Epic Systems Corporation (“Epic”), a competitor of the Company, the University of Wisconsin Medical Foundation (the “Foundation”), and two individuals, claiming, among other things, that trade secrets of the Company involving its IDXtend medical group practice system were wrongfully disclosed to, and misappropriated by, Epic in a series of meetings that took place in 1998 and 1999. The defendants denied the Company’s claims. The Company’s lawsuit sought damages and injunctive relief and was brought in the United States District Court for the Western District of Wisconsin and was entitled IDX Systems Corporation v. Epic Systems Corporation, et al. The Foundation brought a counterclaim against the Company claiming that its lawsuit interfered with a contract between the Foundation and Epic, and that the confidentiality provisions in IDX’s contracts with the Foundation were invalid. The counterclaim sought damages and declaratory judgment. The Company denied the counterclaim.

Subsequently, Epic filed an Answer denying the essential elements of the Company’s claims, and asserted counterclaims against the Company. Epic alleged that the Company’s claims asserting its trade secret rights were brought in bad faith, with an intent to injure Epic competitively, and thereby violated Sections 1 and 2 of the Sherman Act because the Company allegedly possessed monopoly power in the U.S. market for medical practice information systems. Epic also claimed that this same alleged conduct constituted intentional interference with its contract with the Foundation. The counterclaim sought treble damages. The Company denied the counterclaims. On July 31, 2001, the Company’s lawsuit against Epic, the Foundation and the individuals was dismissed and the counterclaims of Epic and the Foundation were dismissed. The Company appealed the dismissal of its lawsuit to

57

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

the United States Court of Appeals for the Seventh Circuit, and on April 1, 2002, that appellate court affirmed the District Court’s dismissal of the trade secret claim, but reversed and remanded the other related claims of the Company, including breach of contract and tortuous interference claims against the defendants.

On August 13, 2002, the District Court granted the Company’s motion for summary judgment on the issue of whether the Foundation had violated its obligations to keep confidential the Company’s proprietary information and stated that it would be reasonable to conclude that Epic intended to improperly receive the information. On August 28, 2002, the defendants settled the litigation with the Company.

In April 2000, the Company commenced a lawsuit for damages caused by wrongful cancellation and material breach of contract by St. John Health System (“SJHS”), in the United States District Court for Eastern District of Michigan, entitled IDX Systems Corporation v. St. John Health System. Subsequently, SJHS commenced a lawsuit against the Company in the Circuit Court of Wayne County, Michigan, claiming unspecified damages against the Company for anticipatory repudiation, breach of contract, tort and fraud. On motion of the Company, SJHS’s lawsuit was removed to and consolidated in the federal court. In its answer to the Company’s lawsuit, SJHS asserted the same claims previously asserted in its state court action. In September 2001, SJHS specified damage claims of approximately $77 million in allegedly lost savings, and in January 2002 raised another theory of alleged unspecified damages for “cover”. The Company believes the claims of SJHS are without merit and continues to vigorously defend itself and prosecute its own claims for damages, which the Company believes may exceed approximately $9 million. The lawsuit is in the trial preparation stage and the parties are awaiting scheduling of the trial by the court.

From time to time, the Company is a party to or may be threatened with other litigation in the ordinary course of its business. The Company regularly analyzes current information including, as applicable, the Company’s defenses and insurance coverage and as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of these matters. The ultimate outcome of these matters is not expected to materially impact the Company’s business or financial condition but could have a material impact on the cash flows and results of operations in the quarterly or annual period in which the matter is resolved.

15.    OPERATING LEASES

During 1999 through 2001, the Company leased a substantial portion of its space, including its corporate headquarters and sales and support offices, from real estate partnerships and trusts owned by certain stockholders and key employees of the Company. These real estate partnerships and trusts include 116 Huntington Avenue Limited Partnership (HLP) through July 1999, BDP through April 2001 and one other real estate partnership and trust (REP), which continues to be owned by certain stockholders and key employees of the Company. Real estate owned by HLP and the REP is leased to the Company under operating leases.

At December 31, 2002, minimum lease payments, net of sublease proceeds, for certain facilities and equipment under noncancelable leases are as follows:

Year	Total
	(in thousands)
2003	$	14,818
2004		14,244
2005		14,642
2006		12,836
2007		11,185
Thereafter		84,047
	$	151,772

58

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

Of the $14.8 million due in 2003, $551,000 is due to REP. All other amounts are due to unrelated third parties. Approximately $7.9 million of this obligation has been accrued in 2002 as a lease abandonment charge. See Note 3.

Total rent expense amounted to $9.0 million, $10.1 million and $11.1 million during 2002, 2001 and 2000, respectively. Total rent expense includes $555,000, $557,000 and $619,000 in 2002, 2001 and 2000, respectively, related to the leases with HLP and REP.

16.    GOODWILL

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests in accordance with the statements. Other intangible assets continue to be amortized over their useful lives. The Company applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. The Company has performed the required tests of goodwill and, based on the results, has not recorded any charges related to the adoption of and subsequent conformity with SFAS No. 142.

Had SFAS No. 142 been adopted for the three years ending December 31, 2002, the impact on net loss and loss per share would have been as follows:

	2002		2001			2000
	(In thousands)
Net income (loss)	$	9,974	($	8,598	)	($	35,968	)
Add back goodwill amortization, net of tax		—		317			380
Adjusted net income (loss)	$	9,974	($	8,281	)	($	35,588	)
	2002		2001			2000
Basic income (loss) per share	$	0.34	($	0.30	)	($	1.28	)
Add back goodwill amortization, net of tax, per share		—		.01			.01
Adjusted basic income (loss) per share	$	0.34	($	0.29	)	($	1.27	)

All goodwill relates to the Company’s information systems and services segment. During 2002, the Company capitalized as additional goodwill $900,000 relating to contingent consideration for an acquisition completed in 1999. The Company is not required to make any further earn-out payments.

59

IDX SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2002

17.    QUARTERLY INFORMATION (UNAUDITED)

A summary of operating results for the quarterly periods in the two years ended December 31, 2002 is set forth below:

	Quarter ended
	March 31		June 30			September 30			December 31
	(in thousands, except per share amounts)
Year ended December 31, 2002
Total revenues	$	107,871	$	112,743		$	117,661		$	121,793
Net income (loss)		4,127		2,763			4,221			(1,137	)
Net income (loss) per share-basic	$	0.14	$	0.10		$	0.15		$	(0.04	)
Net income (loss) per share-diluted	$	0.14	$	0.09		$	0.14		$	(0.04	)
Year ended December 31, 2001
Total revenues	$	94,580	$	104,307		$	89,490		$	103,042
Net income (loss)		19,760		(2,277	)		(12,233	)		(13,848	)
Net income (loss) per share-basic	$	0.69	$	(0.08	)	$	(0.43	)	$	(0.48	)
Net income (loss) per share-diluted	$	0.68	$	(0.08	)	$	(0.43	)	$	(0.48	)

The results of operations for the periods presented above include restatement of customer reimbursements received for “out-of-pocket” expenses incurred as revenue in accordance with EITF No. 01-14 and certain significant pre-tax charges and gains in the following periods as described below:

2002

A gain on sale of an investment in ChannelHealth of $4.3 million during the first quarter and a lease abandonment charge of $9.2 million during the fourth quarter.

2001

A gain on sale of an investment in ChannelHealth of $35.5 million during the first quarter, a realized gain on investment in an unrelated entity of $5.8 million during the first quarter, a charge of $19.5 million related to a restructuring program during the fourth quarter, and the equity in the loss of an unconsolidated affiliate of $6.0 million, $5.5 million and $6.1 million during the first, second and third quarters, respectively.

60

REPORT OF INDEPENDENT AUDITORS

Board of Directors

IDX Systems Corporation

We have audited the accompanying consolidated balance sheets of IDX Systems Corporation, as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of IDX Systems Corporation, at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 16 to the consolidated financial statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”.

/s/    ERNST & YOUNG LLP

Boston, Massachusetts

January 31, 2003

61

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

Certain information required by Part III of this Form 10-K is omitted because the Company will file a definitive proxy statement pursuant to Regulation 14A (the Proxy Statement) not later than 120 days after the end of the fiscal year covered by this Form 10-K, and certain information to be included therein is incorporated herein by reference.

ITEM 10.    DIRECTORS AND OFFICERS OF THE REGISTRANT

The response to this item is contained in part under the caption “Executive Officers of the Registrant” in Part I hereof, and the remainder is contained in the Proxy Statement under the caption “Election of Directors” and is incorporated herein by reference. Information relating to delinquent filings of Forms 3, 4 and 5 of the Company is contained in the Proxy Statement under the caption “Section 16 Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

The response to this item is contained in the Proxy Statement under the captions “Board of Directors Compensation” and “Compensation of Executive Officers” and is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The response to this item is contained in the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND RELATED STOCKHOLDER MATTERS

The response to this item is contained in the Proxy Statement under the captions “Compensation Committee Interlocks and Insider Participation” and “Certain Relationships and Related Transactions” and is incorporated herein by reference.

ITEM 14.    CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and are operating in an effective manner.

(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

62

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following consolidated financial statements of IDX Systems Corporation are included in Item 8.

(1) Consolidated Balance Sheets at December 31, 2002 and 2001.

Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000.

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.

(2) The consolidated financial statement Schedule II is as follows: All other schedules are omitted, as the information required is either presented in the consolidated financial statements or is inapplicable.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Description	Balance at Beginning of Period		Charged to Costs and Expenses		Deductions-   Other ##		Deductions—Bad Debts Written-Off Net of Collections		Balance at End of Period
Year ended December 31, 2002 Allowance for doubtful accounts	$	4,156,000	$	2,606,000		—	$	2,162,000	$	4,600,000
Year ended December 31, 2001 Allowance for doubtful accounts	$	4,297,000	$	2,382,000	$	500,000	$	2,023,000	$	4,156,000
Year ended December 31, 2000 Allowance for doubtful accounts	$	3,300,000	$	2,918,000		—	$	1,921,000	$	4,297,000

## Reduction in the allowance for doubtful accounts related to the sale of ChannelHealth.

3. The Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this Annual Report on Form 10K.

(b) Reports on Form 8-K

On December 12, 2002, IDX filed a Current Report on Form 8-K, reporting a news release dated December 11, 2002, announcing that the Company would take a non-recurring charge in the fourth quarter of 2002 and updating its earnings guidance for the 2003 fiscal year.

On October 9, 2002, IDX filed a Current Report on Form 8-K, reporting a news release dated October 8, 2002, announcing that James H. Crook, Jr. would become Chief Executive Officer, that Chief Executive Officer Richard E. Tarrant would be named Chairman of the Board, and that Chairman Robert H. Hoehl would become Vice-Chairman of the Board, effective as of January 1, 2003.

63

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 31st day of March, 2003.

IDX SYSTEMS CORPORATION
By:	/s/     JAMES H. CROOK, JR.
	James H. Crook, Jr. Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    JAMES H. CROOK, JR.         James H. Crook, Jr.	Chief Executive Officer (Principal Executive Officer)	March 31, 2003
/s/    JOHN A. KANE         John A. Kane	Senior Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	March 31, 2003
/s/    RICHARD E. TARRANT         Richard E. Tarrant	Director	March 31, 2003
/s/    HENRY M. TUFO         Henry M. Tufo, M.D.	Director	March 31, 2003
/s/    ROBERT H. HOEHL         Robert H. Hoehl	Director	March 31, 2003
/s/    STUART H. ALTMAN         Stuart H. Altman, Ph.D.	Director	March 31, 2003
/s/    MARK F. WHEELER         Mark F. Wheeler, M.D.	Director	March 31, 2003
/s/    ALLEN MARTIN         Allen Martin, Esq.	Director	March 31, 2003
/s/    DAVID P. HUNTER          David P. Hunter	Director	March 31, 2003
/s/    WILLIAM L. ASMUNDSON         William L. Asmundson	Director	March 31, 2003
/s/    CONNIE R. CURRAN          Connie R. Curran	Director	March 31, 2003

64

CERTIFICATIONS

I, James H. Crook, Jr., certify that:

1. I have reviewed this annual report on Form 10-K of IDX Systems Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: March 31, 2003 /s/    JAMES H. CROOK, JR. James H. Crook, Jr. Chief Executive Officer

65

CERTIFICATIONS

I, John A. Kane, certify that:

1. I have reviewed this annual report on Form 10-K of IDX Systems Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: March 31, 2003 /s/    JOHN A. KANE John A. Kane Sr. Vice President, Finance and Administration,
Chief Financial Officer and Treasurer

66

EXHIBIT INDEX

The following exhibits are filed as part of this Annual Report on Form 10-K.

Exhibit No.	Description
3.1	Second Amended and Restated Articles of Incorporation. (b)
3.2	Second Amended and Restated Bylaws. (b)
4.1	Specimen Certificate for shares of Common Stock, $.01 par value, of the Registrant. (b)
10.1	1985 Incentive Stock Option Plan. (a)(b)
10.2	1994 Incentive Stock Option Plan. (a)(b)
10.6	Description of Registrant’s Executive Bonus Plan. (a)(b)
10.10	Employment, Noncompetition and Nondisclosure Agreement between the Registrant and Richard E. Tarrant. (a)(b)
10.13	Employment, Noncompetition and Nondisclosure Agreement between the Registrant and James H. Crook, Jr. dated September 19, 1995. (a)(b)
10.14	Agreement between the Registrant and Robert F. Galin dated April 5, 1982. (a)(b)
10.15	Employment Agreement between the Registrant and John A. Kane dated October 15, 1984. (a)(b)
10.16	Redemption Agreement between the Registrant, Richard E. Tarrant and Robert H. Hoehl dated as of April 1, 1993. (b)
10.17	First Amendment to Redemption Agreement between the Registrant, Richard E. Tarrant and Robert H. Hoehl dated September 19, 1995. (b)
10.20	Indenture of Lease between the Registrant and IDS Realty Trust dated as of December 1, 1981, as amended on June 29, 1995. (b)
10.28	Tax Indemnification Agreement between the Registrant and the stockholders listed on Schedule A thereto.(b)
10.36	Agreement and Plan of Merger dated as of March 25, 1997 by and among the Registrant, Penguin Acquisition Corporation and PHAMIS, Inc. (c)
10.37	PHAMIS, Inc. Amended and Restated 1983 Combined Nonqualified and Incentive Stock Option Plan. (a)(d)
10.38	PHAMIS, Inc. 1993 Combined Incentive and Nonqualified Stock Option Plan as amended through May 14, 1996. (a) (d)
10.39	PHAMIS, Inc. 1994 Non-employee Director Stock Option Plan as amended through January 1, 1996. (a) (d)
10.40	PHAMIS, Inc. Salary Savings and Deferral Plan and Trust as amended through February 22, 1996. (a) (d)
10.44	Specimens of Stock Option Agreements under the 1995 Stock Option Plan. (f)
10.51	Lease Extension between IDS Realty Trust and IDX Systems Corporation dated as of June 15, 1998 and executed April 12, 1999. (h)
10.52	Sample Indemnification Agreement signed by all Directors and Officers as of September 13, 1999. (i)
10.53	Series A Convertible Preferred Stock Purchase Agreement by and between Channelhealth Incorporated, IDX Systems Corporation and Purchasers named on Schedule I dated as of January 10, 2000. (j)
10.54	Stock Restriction and Voting Agreement by and among Richard E. Tarrant and Amy E. Tarrant effective April 29, 1999 and executed June 8, 2000. (j)
10.55	Stock Rights and Restriction Agreement between Allscripts Healthcare Solutions, Inc. and IDX Systems Corporation dated as of January 8, 2001. (l)
10.56	Strategic Alliance Agreement by and between Allscripts Healthcare Solutions, Inc. and IDX Systems Corporation dated as of January 8, 2001. (l)
10.57	Stock Option Agreement by and between IDX Systems Corporation and James H. Crook, Jr. dated as of October 16, 2000. (a) (l)

67

10.58		Employment, Noncompetition and Nondisclosure Agreement by and between the Company and Lawrence A. Krassner dated as of June 11, 2001. (a) (m)
10.59		1995 Stock Option Plan as amended through May 21, 2001. (a) (m)
10.60		1995 Employee Stock Purchase Plan as amended through May 21, 2001. (a) (m)
10.61		1995 Director Stock Option Plan as amended through May 21, 2001. (a) (m)
10.62		Second Amendment to Redemption Agreement by and among the Company, Richard E. Tarrant and Robert H. Hoehl and other shareholders dated as of September 13, 2001. (n)
10.63		Joinder, dated September 30, 2001, by and among Allscripts Healthcare Solutions, Inc., IDX Systems Corporation and IDX Investment Corporation. (o)
10.64	*	Employment, Noncompetition and Nondisclosure Agreement by and between IDX Systems Corporation and Thomas Butts, dated January 17, 2002. (a) (p)
10.65		2002 Stock Incentive Plan for Non-Employee Directors. (a) (p)
10.66		Loan and Security Agreement by and among IDX Systems Corporation, IDX Information Systems Corporation, IDX Investment Corporation, EDiX Corporation and Heller Healthcare Finance, Inc., dated June 27, 2002. (q)
10.67		Revolving Credit Note by and among IDX Systems Corporation, IDX Information Systems Corporation, IDX Investment Corporation, EDiX Corporation and Heller Healthcare Finance, Inc., dated June 27, 2002. (q)
10.68		Office Building Lease by and between IDX Information Systems Corporation and 4901 LBJ Limited Partnership, effective as of July 1, 2002. (r)
10.69		Office Building Lease by and between National Office Partners Limited Partnership and IDX Systems dated March 23, 2000.
10.70		First Amendment to Lease by and between National Office Partners Limited Partnership and IDX Systems Corporation dated February 15, 2002.
10.71	*	Distribution and Development Agreement by and between Stentor, Inc. and IDX Systems Corporation dated November 15, 2000.
21.1		Subsidiaries
23.1		Consent of Ernst & Young LLP
23.2		Consent of KPMG LLP regarding Allscripts Healthcare Solutions, Inc.
99.1		Consolidated Financial Statements for Allscripts Healthcare Solutions, Inc (incorporated by reference to Allscripts Healthcare Solutions Inc. financial statements included in this report on form 10-K, filed on or before March 31, 2003.
99.2		Certification pursuant to 18 U.S.C. §1350.

* Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the commission.

(a) Management contract or compensatory plan or arrangement filed as an exhibit to or incorporated by reference into this Form pursuant to Items 15(a) and 15(c) of Form 10-K.

(b) Incorporated herein by reference from the Company’s Registration Statement on Form S-1, as amended (File No. 33-97104).

(c) Incorporated herein by reference from the Company’s Registration Statement on Form S-4, as amended (File No. 333-28391).

(d) Incorporated herein by reference from the Company’s Registration Statement on Form S-8, as amended (File No. 333-31045).

(f) Incorporated herein by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998.

(h) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999.

68

(i) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999.

(j) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.

(k) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000.

(l) Incorporated herein by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

(m) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001.

(n) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001.

(o) Incorporated herein by reference from the Company’s Report on Amendment No. 1 to Schedule 13D for the event of January 10, 2002.

(p) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002.

(q) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002.

(r) Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002.

69

EX-10.69

                                                                   EXHIBIT 10.69

                          BASIC LEASE INFORMATION SHEET

   1.  Date of Lease                    March 23, 2000

   2.  Tenant:                          IDX SYSTEMS CORPORATION, a Vermont
                                        corporation

   3.  Tenant's Address                 1400 Shelburne Road Burlington, Vermont
       Prior to Occupancy:              05402-1070

   4.  Tenant's Address                 At the Premises with a copy to: 1400
       After Occupancy                  Shelburne Road Burlington, Vermont
                                        05402-1070

   5.  Landlord:                        NATIONAL OFFICE PARTNERS LIMITED
                                        PARTNERSHIP, a Delaware limited
                                        partnership

   6.  Landlord's                       c/o Hines 10900 N.E. 4th Street, Suite
       Address:                         920, Bellevue, WA 98004

   7.  Premises:                        Those portions of Floors 3 through 18
                                        (inclusive) as shown on Exhibit A

   8.  Net Rentable                     Three Hundred Twenty-four Thousand
       Area/Tenant's                    Thirty-six (324,036) square feet of Net
       Proportionate                    Rentable Area/Two Hundred Eighty-six
       Share:                           Thousand Eight Hundred Twenty-eight
                                        (286,828) square feet of Useable Area,
                                        as adjusted pursuant to Section l.l(d).
                                        Tenant's Proportionate Share:
                                        Thirty-nine and 66/100 percent
                                        (39.66%), as to the Minimum
                                        Initial Premises, as adjusted
                                        pursuant to Section 4.3.

   9.  Scheduled                        April 1, 2003
       Commencement Date:

   10. Term:                            Initial Term: Twelve (12) Years and zero
                                        (0) Months Extension Terms: Two (2)
                                        successive options for Six (6) Years
                                        each

   11. Base Rent:                       See Page B attached hereto

   12. Security Deposit:                N/A

   13. Parking:                         1.00 pass per one thousand five hundred
                                        (1,500) square feet of Useable Area,
                                        subject to adjustment pursuant to
                                        Section 14.22.

   14. Tenant's Working                 No later than January 1, 2002
       Drawings Delivery Date:

   15. Cash Allowance:                  $32.00 per square foot of Useable Area
                                        in the Premises, to be allocated as
                                        provided in Exhibit C

   16. Broker(s):                       Landlord's Broker: Colliers
                                        International

/s/ JAK, 3/27/00                                      /s/ [ILLEGIBLE] 4/6/00
- ------------------------                              --------------------------
Tenant's Initials/Date                                Landlord's Initials/Date

                                        A




            Tenant's Broker: Cushman & Wakefield of Washington, Inc.

BASE RENT SCHEDULE (Item 11 on Basic Lease Information Sheet)

                   Minimum Annual Base Rent Per Square Foot of Net Rentable
                   Area for:

                  MINIMUM
                  INITIAL
                PREMISES AND         EXPANSION
 LEASE YEARS*    HOLD SPACE            SPACE
- -----------------------------------------------------
     1-3        $      23.50         $   24.50
     4-6        $      26.00         $   27.00
     7-9        $      28.50         $   29.50
     10-12      $      31.00         $   32.00

*    As defined in Section 2.1(b) below.


JAK, 3/27/00                                            /s/ [ILLEGIBLE] 4/6/00
- ------------------------                                -----------------------
Tenant's Initials/Date                                  Landlord's Initials/Date

                                        B



                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
Basic Lease Information Sheet

ARTICLE 1 Premises.............................................................1

   1.1    Lease................................................................1
   1.2    Landlord's Reserved Rights...........................................3
   1.3    Common Areas.........................................................4
   1.4    Calculation of Net Rentable Area; Useable Area.......................5

ARTICLE 2 Term, Use of Premises and Base Rent..................................5

   2.1    Term.................................................................5
   2.2    Delay in Delivery....................................................6
   2.3    Confirmation.........................................................8
   2.4    Uses.................................................................8
   2.5    Payments by Tenant...................................................8
   2.6    Payment of Base Rent.................................................9
   2.7    Partial Months......................................................11
   2.8    Early Commitment Rent Credit Incentive..............................11

ARTICLE 3 Security Deposit....................................................12

ARTICLE 4 Payment of Operating Costs..........................................12

   4.1    Net Lease...........................................................12
   4.2    Estimated Payments..................................................12
   4.3    Tenant's Proportionate Share........................................12
   4.4    Operating Costs.....................................................12
   4.5    Adjustment for Occupancy............................................15
   4.6    Computation of Operating Costs Adjustment...........................15
   4.7    Adjustment for Variation Between Estimated and Actual...............15
   4.8    Tenant's Audit Right................................................15

ARTICLE 5 Landlord's Covenants................................................17

   5.1    Basic Services......................................................17
   5.2    Hours of Operation..................................................18
   5.3    Interruption........................................................19
   5.4    Extra Services......................................................19
   5.5    Window Coverings....................................................20
   5.6    Graphics and Signage................................................20
   5.7    Tenant Extra Improvements...........................................21
   5.8    Peaceful Enjoyment..................................................22
   5.9    Tenant Improvements in Hold and Expansion Spaces....................22

ARTICLE 6 Tenant's Covenants..................................................22

   6.1    Compliance With Exhibit C...........................................22
   6.2    Construction of Tenant Improvements.................................22
   6.3    Telecommunications..................................................23
   6.4    Taxes on Personal Property and Tenant Extra Improvements............24
   6.5    Repairs by Tenant...................................................24
   6.6    Waste...............................................................24

                                        i



   6.7    Alterations, Additions, Improvements................................24
   6.8    Liens...............................................................25
   6.9    Compliance With Laws and Insurance Standards........................26
   6.10   Entry for Repairs, Inspection, Posting Notices, Etc.................26
   6.11   No Nuisance.........................................................27
   6.12   Rules and Regulations...............................................27
   6.13   Surrender of Premises On Termination................................27
   6.14   Corporate Authority.................................................28
   6.15   Utilities...........................................................28

ARTICLE 7 Hazardous Materials.................................................28

   7.1    Prohibition and Indemnity With Respect to Hazardous Materials.......28
   7.2    Definitions.........................................................29
   7.3    Landlord's Representations and Undertakings.........................29

ARTICLE 8 Assignment or Sublease..............................................30

   8.1    Consent Required....................................................30
   8.2    Transfers to Qualified Transferees, Joint Ventures..................30
   8.3    Landlord's Options..................................................31
   8.4    Minimum Rental; Division of Excess Rent.............................32
   8.5    Tenant Not Released.................................................32
   8.6    Written Agreement...................................................32
   8.7    No Transfer Period..................................................32
   8.8    Conditions..........................................................32
   8.9    Expenses............................................................32
   8.10   No Restriction on Landlord..........................................33
   8.11   No Leasehold Financing..............................................33

ARTICLE 9 Condition and Operation of the Building.............................33

   9.1    Limited Warranties..................................................33
   9.2    Building Alterations................................................33

ARTICLE 10 Lender Rights......................................................34

   10.1   Subordination.......................................................34
   10.2   Attornment..........................................................34
   10.3   REAs................................................................35
   10.4   Estoppel Certificate................................................35
   10.5   Failure to Deliver..................................................36

ARTICLE 11 Insurance..........................................................36

   11.1   Landlord's Casualty Insurance.......................................36
   11.2   Liability Insurance.................................................36
   11.3   Tenant's Additional Insurance.......................................36
   11.4   Indemnity and Exoneration...........................................37
   11.5   Indemnity for Liens.................................................38
   11.6   Waiver of Subrogation Rights........................................38

ARTICLE 12 Casualty and Eminent Domain........................................38

   12.1   Damage and Destruction..............................................38
   12.2   Condemnation........................................................40

                                       ii



ARTICLE 13 Default............................................................40

   13.1   Events of Default...................................................40
   13.2   Remedies Upon Default...............................................41
   13.3   Damages Upon Termination............................................42
   13.4   Computation of Rent for Purposes of Default.........................42
   13.5   Late Charge.........................................................43
   13.6   Remedies Cumulative.................................................43
   13.7   Tenant's Remedies...................................................43
   13.8   Limitation on Consequential Damages.................................44

ARTICLE 14 Miscellaneous......................................................44

   14.1   No Waiver...........................................................44
   14.2   Holding Over........................................................45
   14.3   Attorneys' Fees.....................................................46
   14.4   Amendments..........................................................46
   14.5   Transfers by Landlord...............................................46
   14.6   Severability........................................................47
   14.7   Notices.............................................................47
   14.8   Landlord Relocation Right...........................................47
   14.9   No Option...........................................................47
   14.10  Integration and Interpretation......................................47
   14.11  Quitclaim...........................................................48
   14.12  No Easement for Light, Air and View.................................48
   14.13  No Merger...........................................................48
   14.14  Memorandum of Lease.................................................48
   14.15  Survival............................................................48
   14.16  Financial Statements................................................48
   14.17  No Joint Venture....................................................49
   14.18  Successors and Assigns..............................................49
   14.19  Applicable Law......................................................49
   14.20  Time of the Essence; Force Majeure..................................49
   14.21  Interpretation......................................................49
   14.22  Parking.............................................................50
   14.23  Brokers.............................................................51
   14.24  Arbitration of Certain Disputes.....................................51
   14.25  Building Development................................................52
   14.26  Roof Access.........................................................53
   14.27  Conference Center...................................................53
   14.28  Tenant's Generator; Emergency Cooling...............................53
   14.29  Tax Deferral........................................................54
   14.30  Storage Space.......................................................55
   14.31  Move-In.............................................................55

                                       iii



Attachments:

Exhibit A        Stacking Plan of the Premises
Exhibit B        Legal Description of the Real Property
Exhibit C        Initial Improvement of the Premises
Schedule C-1     Base Building Improvements
Schedule C-2     Definition of Building Standard Improvements
Exhibit D        Rules and Regulations
Exhibit E        Lease Commencement Certificate
Exhibit F-l      Conceptual Signage Plan
Exhibit F-2      Major Tenant Sign
Exhibit G        Form of Estoppel Certificate
Exhibit H        Janitorial Specifications

                                       iv



                            SCHEDULE OF DEFINED TERMS

                                        SECTION NO.                     PAGE NO.
                                        ---------------                ---------

Adjustment Date.........................Section 2.6(b).........................9
Alterations.............................Section 6.7...........................24
Antenna.................................Section 14.26.........................53
Availability Notice.....................Section l.l(e).........................3
Base Rent Credit........................Section 2.8(a)........................12
Basic Services..........................Section 5.1...........................17
Building Components.....................Section 1.2............................4
Building Schematic Design Plans.........Section l.l(a).........................1
Building................................Section 1.1(a).........................1
Business Days...........................Section 5.2...........................19
Claims..................................Section 7.1...........................28
Common Areas............................Section 1.3............................4
Confirmed Occupancy Date................Section 1.1............................2
Continuing Defaults.....................Section 10.2..........................34
Cost Statement..........................Section 4.6...........................15
Estimated Operating Costs...............Section 4.2...........................12
Event of Default........................Section 13.1..........................40
Excluded Items..........................Section 4.8(f)........................16
Expansion Space.........................Section l.l(b).........................2
Expansion Term Adjustment Date..........Section 2.6(b).........................9
Expiration Date.........................Section 2.1(a).........................5
Extended Hours..........................Section 5.2...........................19
Extension Option........................Section 2.1(b).........................6
Extension Terms.........................Section 2.1(b).........................6
Extra Services..........................Section 5.4...........................19
Fair Market Rent........................Section 2.6(b).........................9
Force Majeure...........................Section 14.20.........................49
Garage.:................................Section 14.22.........................50
Guarantor...............................Section 13.1(d).......................41
Hazardous Material......................Section 7.2(a)........................29
Hazardous Materials Claims..............Section 7.2(b)........................29
Hazardous Materials Laws................Section 7.2(c)........................29
Holdover Option.........................Section 14.2..........................45
Initial Holdover Notice.................Section 14.2..........................45
Initial Lease...........................Section l.l(e).........................3
Initial Premises........................Section l.l(a).........................1
Initial Term............................Section 2.1(a).........................5
Landlord................................Introduction...........................1
Landlord Parties........................Section 6.5...........................24
Laws....................................Section 6.9(a)........................26
Lease...................................Introduction...........................1
Lease Year..............................Section 2.1(a).........................6
Major Tenant Sign.......................Section 5.6(b)........................21
Major Vertical Penetrations.............Section 1.2............................4
Market Area.............................Section 2.6(b).........................9

                                        v



Minimum Initial Premises................Section 2.2(b).........................7
Net Rentable Area.......................Section 1.4............................5
Normal Office Hours.....................Section 5.2...........................19
Offer Space Adjustment Date.............Section 2.6(b).........................9
Offer Space.............................Section l.l(e).........................3
Operating Costs Adjustment..............Section 4.6...........................15
Operating Costs.........................Section 4.4.......................12, 14
Parking Passes..........................Section 14.22.........................50
Permitted Hazardous Materials...........Section 7.2(d)........................29
Permitted Holdover Term.................Section 14.2..........................45
Permitted Use...........................Section 2.4............................8
Personal Right..........................Section 2.1(b).........................6
Premises................................Section l.l(a).........................1
Provider................................Section 6.3...........................23
Qualified Auditor.......................Section 4.8(d)........................16
Qualified Joint Venture.................Section 8.2...........................31
Qualified Transferee....................Section 8.2...........................30
Real Property...........................Section l.l(a).........................1
Real Property Taxes.....................Section 4.4(j)........................14
REAs....................................Section 10.3..........................35
Rent....................................Section 2.5............................8
Second Holdover Notice..................Section 14.2..........................45
Senior Instruments......................Section 10.1..........................34
Senior Parties..........................Section 10.1..........................34
SNDA....................................Section 10.1..........................34
Storage Rent............................Section 14.30.........................55
Storage Space...........................Section 14.30.........................55
Successor...............................Section 10.2..........................34
Tax Credit..............................Section 14.29(a)......................54
Tenant Extra Improvements...............Section 5.7...........................21
Tenant Improvements.....................Section 5.7...........................22
Tenant..................................Introduction...........................1
Tenant Parties..........................Section 6.5...........................24
Tenant's Generator......................Section 14.28.........................53
Tenant's Personal Property..............Section 11.1..........................36
Tenant's Proportionate Share............Section 4.3...........................12
Term Commencement Date..................Section 2.1(a).........................5
Term....................................Section 2.1(a).........................6
Transfer Date...........................Section 10.2..........................34
Transfer................................Section 8.1...........................30
Transferee..............................Section 8.1...........................30
Useable Area............................Section 1.4(c).........................5

                                       ii



                              OFFICE BUILDING LEASE

        This Office Building Lease (the "Lease") is made and entered into as of
the date specified in Item 1 of the Basic Lease Information Sheet attached
hereto and incorporated herein by this reference, by and between NATIONAL OFFICE
PARTNERS LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), and
IDX SYSTEMS CORPORATION, a Vermont corporation ("Tenant").

        Now, therefore, in consideration of the mutual covenants and agreements
contained in this Lease, the parties agree as follows:

                                    ARTICLE 1
                                    PREMISES

        1.1     Lease.

                (a)     Initial Premises. Subject to the terms, covenants and
conditions set forth herein, Landlord leases to Tenant and Tenant leases from
Landlord those certain premises identified in the Basic Lease Information Sheet
as Item 7, which are schematically depicted on the preliminary floor plans and
stacking diagram attached hereto as Exhibit A (the "Initial Premises"). The
Initial Premises are estimated to contain Three Hundred Twenty-four Thousand
Thirty-six (324,036) square feet of Net Rentable Area (or Two Hundred Eighty-six
Thousand Eight Hundred Twenty-eight (286,828) square feet of Useable Area). The
term "Premises" as used herein shall mean the Initial Premises and any Offer
Space added to the Premises pursuant to Section 1.1(e) below. The Premises are a
part of the building and other improvements, including common areas
(collectively, the "Building"), located on the real property situated in the
City of Seattle, County of King, State of Washington, legally described on
Exhibit B (as such real property may be added to or reduced by Landlord from
time to time, the "Real Property"). The precise location of and floor plans for
the Premises shall be modified to reflect any revisions to the Building design
after the date hereof; provided that the Initial Premises shall mean all
occupiable space, other than retail space and Common Area, beginning on the
third (3rd) floor of the Building (excluding any retail space on the fourth
(4th) floor) and continuing in contiguous, whole floors to and including the
eighteenth (18th) floor of the Building, and containing approximately Three
Hundred Twenty-four Thousand Thirty-six (324,036) square feet of Net Rentable
Area. The parties acknowledge that the Building, as currently designed, will not
have a fifth (5th) or thirteenth (13th) floor. The final floor plans and the
calculation of Net Rentable Area and Useable Area shall be determined by
Landlord's architect upon completion of the working drawings for the Building
(subject to remeasurement as provided in Section 1.1(d) below), any adjustments
to Base Rent, parking allocation or Tenant's Proportionate Share shall be made
at that time and an amendment to this Lease shall be executed by Landlord and
Tenant to confirm the correct numbers and the floor plans to attach hereto as
Exhibit A. Notwithstanding the foregoing, Landlord agrees not to make any
revisions from the Building Schematic Design Plans (including revisions to
Building finishes), which are likely to have a material adverse effect on the
access or visibility of Tenant's main entrance on the fourth (4th) floor of the
Building from the fourth (4th) floor lobby, without Tenant's prior written
consent, which shall not be unreasonably withheld, delayed or conditioned. As
used herein, the term "Building Schematic Design Plans" means and refers to
those certain schematic design plans for the Building prepared by Kendall Heaton
Associates, dated as of September 17, 1999, copies of which have been delivered
to Tenant, as updated by the plan set delivered to Tenant March 3, 2000, as they
may be supplemented by Landlord.

                (b)     Occupancy Schedule. Tenant shall lease the entire
Minimum Initial Premises on the Term Commencement Date. Tenant shall occupy and
pay Rent on the Minimum Initial Premises, the Hold Space and the Expansion Space
according to the schedule set forth in this Section 1.1(b). The



term "Expansion Space" shall mean and include the First Expansion Space, the
Second Expansion Space and the Third Expansion Space.



                                        ESTIMATED NET  ESTIMATED
                                        RENTABLE       USEABLE
 PORTION OF PREMISES         FLOORS     SQUARE FEET    AREA        TARGET OCCUPANCY DATE
- ----------------------------------------------------------------------------------------
                                                        
 Minimum Initial Premises    3-11       182,970        162,286     April 1, 2003*

 Hold Space                  12          23,511         20,757     January 1, 2004

 First Expansion Space       14          23,511         20,757     January 1, 2005

 Second Expansion Space      15-16       47,022         41,514     January 1, 2006

 Third Expansion Space       17-18       47,022         41,514     January 1, 2007


* subject to acceleration to as early as January 1, 2003 at Landlord's election
(See Section 2.1(a)).

Landlord shall deliver the Hold Space and the First, Second and Third increments
of Expansion Space to Tenant, in the condition described in Section 5.9, within
three (3) months before or after the applicable Target Occupancy Date. Rent
shall commence on each increment of such Hold or Expansion Space on the earlier
of (i) the date on which Tenant takes possession, or (ii) the date specified by
Landlord in a notice to Tenant as the date on which the space will be ready for
occupancy based on Landlord's Work (the "Confirmed Occupancy Date" ); provided
that: (A) Landlord has given Tenant at least sixty (60) days notice of the
Confirmed Occupancy Date; (B) Landlord has given Tenant reasonable access to
such space for at least thirty (30) days for purposes of completing Tenant's
Work (which access may be simultaneous with completion of Landlord's Work,
nonexclusive and subject to any limitations or restrictions imposed by the City
of Seattle); and (C) as of the Confirmed Occupancy Date, the space is in the
condition required under Section 5.9. Until the Confirmed Occupancy Date for
each portion of the Initial Premises, Landlord shall have the right to use such
space in any manner that Landlord chooses, including without limitation leasing
the space to other parties. Landlord shall not lease any of the Expansion Space
on terms that conflict with Tenant's rights thereto and Landlord shall use good
faith efforts to obtain possession of the space on or before the Confirmed
Occupancy Date but shall not be liable to Tenant for any delay attributable to a
prior tenant's holdover.

                (c)     Hold Space. Tenant shall have the option to include the
Hold Space in the Minimum Initial Premises or to delay possession of the Hold
Space until the applicable Confirmed Occupancy Date, provided that Tenant must
notify Landlord by no later than April 1, 2002, if Tenant intends to delay
occupancy. If Tenant fails to provide such notice in a timely manner then the
Hold Space shall be included in the Minimum Initial Premises.

                (d)     Area Measurements. Within ninety (90) days after
issuance of the final permits for construction of the Building, the area of the
Building and Premises shall be measured by Landlord's architect in accordance
with the standards set forth in Section 1.4. Such measurements (the
"Measurements") shall be delivered to Tenant for review by Tenant's Architect
and shall be stipulated for the purposes of this Lease (subject to potential
remeasurement as provided below). Within thirty (30) days after
 Substantial Completion, either Tenant or Landlord may, at its sole cost, hire
Landlord's architect to physically measure the as-built Premises for consistency
with the Measurements. If either party chooses to exercise this right to
re-measure, it shall deliver to the other party full documentation of the
results of such re-measurement, and the other party shall have the right to
confirm or contest the accuracy of such re-measurement. If and only if the
re-measurement shows a discrepancy of one percent (1%) (greater than or less
than) the Measurements, the size of the Premises shall be adjusted accordingly.
To be valid, the re-measurement must be completed in accordance with the
standards set forth in Section 1.4. If one party contests the accuracy of the
re-measurement, both parties shall meet to resolve

                                        2



the disagreement. If the parties cannot resolve the dispute within thirty (30)
days of receipt of the re-measurement, it shall be resolved through arbitration
in accordance with Section 14.24(b). In the event that the re-measurement does
not show a discrepancy of one percent (1%) (greater than or less than) the
Measurements, the party initiating the re-measurement shall pay all costs
associated with the re-measurement, including the costs of the other party to
contest or confirm the re-measurement.

                (e)     Right of First Offer. Subject to the terms and
conditions of this Section 1.1(e), Tenant shall have the right of first offer to
include within the Premises any space which becomes available on Floors 19
through 39 of the Building (the "Offer Space"). Tenant may not exercise its
right to lease any Offer Space during any period when Tenant is in default under
this Lease (which shall mean that no Event of Default has occurred and has not
been cured during the applicable cure period, if any, unless otherwise waived in
writing by Landlord). If less than two (2) years remain in the Lease Term,
Tenant must exercise an Extension Option under Section 2.1(b) in order to lease
any Offer Space and if no Extension Option remains to be exercised Tenant's
rights under this Section l.l(e) shall terminate. For purposes of this Section
l.l(e), the phrase "any space which becomes available" shall mean any space on
Floors 19 through 39 of the Building which is vacant or is scheduled to be
vacated within six (6) months but no space shall be considered Offer Space until
it has been previously leased to another tenant under a written lease agreement
(an "Initial Lease"). Landlord shall not offer to lease nor lease any Offer
Space to a party other than Tenant without first providing Tenant with written
notice that the Offer Space is available to lease or will be available to lease
within the next six (6) months ("Availability Notice"). The Availability Notice
shall include Landlord's proposed Fair Market Rent for the Offer Space in
accordance with Section 2.6(b)(iv), but should Tenant not accept such proposal
then Landlord may provide a different proposed Fair Market Rent for purposes of
any arbitration under Section 2.6(b)(v) and Landlord's original proposal shall
not be binding upon Landlord nor admissible by Tenant in any such arbitration.
Tenant shall have ten (10) Business Days after receipt of an Availability Notice
to notify Landlord in writing that it will lease all of the Offer Space subject
to such Availability Notice and whether Tenant accepts Landlord's proposed Fair
Market Rent. If Tenant does not exercise its option with respect to the Offer
Space described in an Availability Notice then Landlord may lease the space
identified therein to a third party on any terms that Landlord may deem
acceptable. Any Offer Space leased by Tenant under this Section l.l(e) shall be
leased under all of the terms and conditions of this Lease including expiration
date, renewal options and services except that: (i) Landlord shall deliver the
space to Tenant as previously improved with clean paint and carpet but Landlord
shall have no obligation to install any Tenant Improvements in the space or to
contribute any money towards any alteration or improvement thereof; and (ii)
Base Rent shall be the Fair Market Rent proposed in the Availability Notice, if
accepted by Tenant, or as otherwise determined under Section 2.6(b) below.
Tenant's right to lease the Offer Space is a Personal Right and is subject and
subordinate to any: (A) renewal rights or expansion options granted under any
Initial Leases and any other subsequent leases covering space on Floors 19
through 32; and (b) renewal rights, expansion options or rights of first offer
granted under any Initial Leases covering space on Floors 33 through 39. With
respect to Offer Space available on Floors 19 and 20, this right of first offer
shall be a continuing right, and such Offer Space shall be offered to Tenant as
provided herein from time to time as such Offer Space becomes available. With
respect to Offer Space available on Floors 21 through 39, this right of first
offer shall be a one-time right only, and if Tenant does not exercise its right
with respect to Offer Space described in an Availability Notice for any such
space, such space described in the Availability Notice shall no longer be
considered Offer Space.

        1.2     Landlord's Reserved Rights. In addition to all other rights
reserved by Landlord under this Lease, Landlord reserves from the leasehold
estate hereunder, and the Premises shall not include, (a) the exterior surfaces
of the walls and windows bounding the Premises, and (b) all space located within
the Premises for Major Vertical Penetrations (as defined below), conduits,
electric and all other utilities, heating ventilation and air-conditioning and
fire protection and life safety systems, sinks or other Building facilities that
do not constitute Tenant Improvements (collectively, "Building Components").
Landlord

                                        3



shall have the use of the Building Components and access through the Premises
for operation, maintenance, repair or replacement thereof. Landlord shall have
the right from time to time, to install, remove or relocate any of the Building
Components within the Premises to locations that do not permanently and
materially reduce the square footage of the Premises, unreasonably interfere
with Tenant's permitted use of the Premises or otherwise violate the provisions
of Section 1.1(a) regarding access to and visibility of Tenant's main fourth
(4th) floor entrance from the fourth (4th) floor lobby. As used herein, the term
"Major Vertical Penetrations" shall mean the area or areas within Building
stairs (excluding the landing at each floor), elevator shafts, and vertical
ducts that service more than one floor of the Building. The area of Major
Vertical Penetrations shall be bounded and defined by the dominant interior
surface of the perimeter walls thereof (or the extended plane of such walls over
areas that are not enclosed). Major Vertical Penetrations shall exclude,
however, areas for the specific use of Tenant or installed at the request of
Tenant, such as special stairs or elevators.

        1.3     Common Areas. Tenant shall have the nonexclusive right (in
common with other tenants or occupants of the Building, Landlord and all others
to whom Landlord has granted or may hereafter grant such rights) to use the
Common Areas, subject to such reasonable rules and regulations as Landlord may
from time to time impose (and Landlord agrees not to intentionally enforce such
rules and regulations in a nonuniform manner). Landlord may at any time close
temporarily any Common Areas to make repairs or changes therein or to effect
construction, repairs, or changes within the Building, or to prevent the
acquisition of public rights in such areas, or to discourage parking by parties
other than tenants, and may do such other acts in and to the Common Areas as in
its judgment may be desirable, provided that any such closure shall not prevent
Tenant from reasonable access to and use of the Premises at all times other than
emergencies. Landlord may from time to time permit portions of the Common Areas
to be used exclusively by specified tenants. Landlord may also, from time to
time, place or permit customer service and information booths, kiosks, stalls,
push carts and other merchandising facilities in the Common Areas, provided they
do not materially, adversely affect access to or visibility of Tenant's main
fourth (4th) floor entrance from the fourth (4th) floor lobby. "Common Areas"
shall mean any of the following or similar items to the extent included in the
Building (a) the total square footage of areas of the Building devoted to
nonexclusive uses such as ground floor lobbies, seating areas and elevator
foyers; fire vestibules; mechanical areas; restrooms and corridors on all
floors; elevator foyers and lobbies on multi-tenant floors; electrical and
janitorial closets; telephone and equipment rooms; and other similar facilities
maintained for the benefit of Building tenants and invitees, but shall not mean
Major Vertical Penetrations; and (b) all parking garage vestibules; restrooms;
loading docks; locker rooms, exercise and conference facilities available for
use by Building tenants (if any); walkways, roadways and sidewalks; trash areas;
mechanical areas; landscaped areas including courtyards, plazas and patios; and
other similar facilities maintained for the benefit of Building tenants and
invitees. However, restrooms and corridors on floors for which Tenant is the
sole occupant (which shall constitute Common Areas for all other purposes of
this Lease) shall not be available for use by parties other than Tenant and
Tenant Parties, except to the extent required by applicable codes and
regulations. Tenant shall have the right to use, on a nonexclusive basis, the
Building stairways and landings within the Premises, provided such use shall at
all times be in compliance with applicable codes and regulations (including,
without limitation, fire and life safety regulations) and Tenant shall be solely
responsible for maintaining and monitoring security therein (including
installation, maintenance, repair and monitoring of any security systems or
devices desired by Tenant).

        1.4     Calculation of Net Rentable Area; Useable Area. Tenant
acknowledges that the term "Net Rentable Area" as used in this Lease shall mean
the area or areas of space within the Building determined by Landlord in
accordance with a modified BOMA standard as described below.

                (a)     Net Rentable Area on a single tenancy floor shall be
determined by measuring from the inside surface of the outer pane of glass and
extensions of the plane thereof in non-glass areas to the inside surface of the
opposite outer pane of glass and extensions of the plane thereof in non-glass

                                        4



areas and shall include all areas within the envelope created by extending the
dominant plane of the outside walls of the Building, excluding Major Vertical
Penetrations, plus Tenant's pro rata share of Common Areas. Landlord shall
determine Tenant's pro rata share of Common Areas using any commercially
reasonable allocation formula selected by Landlord and consistently applied
throughout the Building. No deductions from Net Rentable Area shall be made for
columns or projections necessary to the Building except for Major Vertical
Penetrations.

                (b)     Net Rentable Area for a multi-tenant floor shall include
all space within the demising walls (measured from the mid-point of the demising
walls and, in the case of exterior walls, measured as defined in (a) above),
plus Tenant's pro rata share of Common Areas. Landlord shall determine Tenant's
pro rata share of Common Areas using any commercially reasonable allocation
formula selected by Landlord and consistently applied throughout the Building.
No deductions from Net Rentable Area shall be made for columns or projections
necessary to the Building except for Major Vertical Penetrations. Building
loading docks shall not be considered for purposes of determining Net Rentable
Area.

                (c)     Tenant acknowledges that the term "Useable Area" means
the Net Rentable Area less the Common Areas included in the calculation thereof.

                                    ARTICLE 2
                       TERM, USE OF PREMISES AND BASE RENT

        2.1     Term

                (a)     Initial Term. Except as otherwise provided herein, the
term "Term Commencement Date" shall mean the later of (i) the date of
Substantial Completion (as defined in Exhibit C to this Lease) of the Minimum
Initial Premises, or (ii) the Scheduled Commencement Date, as stated in the
Basic Lease Information Sheet as Item 9; provided, however, that Landlord may
advance or extend the Scheduled Commencement Date by no more than three (3)
months on thirty (30) days prior written notice to Tenant, and provided further,
that the Term Commencement Date shall not occur until Tenant has been provided:
(A) reasonable access to the Minimum Initial Premises for at least thirty (30)
consecutive days for purposes of completing Tenant's Work as provided in Section
10(e) of Exhibit C (which access may be simultaneous with completion of
Landlord's Work and not exclusive access and which shall be subject in all
respects to any limitations or restrictions imposed by the City of Seattle); and
(B) exclusive access to the Computer Room and Communications Rooms for at least
forty-five (45) days following completion of Landlord's Work with respect to the
Computer Room and Communications Rooms (which shall be subject in all respects
to any limitations or restrictions imposed by the City of Seattle), all as
defined and described in Paragraph 10(e) on Exhibit C. The "Initial Term" of
this Lease shall mean the number of years and/or months set forth in the Basic
Lease Information Sheet as Item 10, commencing on the first day of the calendar
month following the Term Commencement Date (or on the Term Commencement Date if
it is the first day of a calendar month) through and including the Expiration
Date. "Expiration Date" shall mean the last day of the Term or such earlier date
upon which this Lease is terminated pursuant to the terms hereof. For all
purposes hereunder, the term "Lease Year" shall mean a twelve (12) month period
starting on the first day of the calendar month following the Term Commencement
Date (or the Term Commencement Date if it is on the first day of a Calendar
month) or any anniversary thereof and the first Lease Year shall begin on the
Term Commencement Date (and may include a period of slightly more than twelve
(12) months). The "Term" of this Lease shall mean and include the Initial Term,
any Extension Terms and the Permitted Holdover Term, if and to the extent timely
exercised by Tenant. The Scheduled Commencement Date represents merely the
parties' estimate of the Term Commencement Date. If the Premises are
Substantially Complete prior to the Scheduled Commencement Date, Tenant shall
have the option to take occupancy and the Term Commencement Date shall be the
date of such occupancy. Landlord shall provide Tenant as much notice as
circumstances

                                        5



reasonably allow, of the date when Landlord expects to achieve Substantial
Completion, based upon the progress of the work.

                (b)     Extension Term. Provided that Tenant is not in default
of this Lease at the time of exercise (which shall mean that no Event of Default
has occurred and has not been cured during the applicable cure period, if any,
or otherwise waived in writing by Landlord), Tenant shall have two (2)
consecutive options to extend the Initial Term of this Lease (each an "Extension
Option") for the number of years and/or months set forth in the Basic Lease
Information Sheet as "Extension Terms" in Item 10, commencing on the day after
the expiration of the Initial Term and continuing through the Expiration Date,
subject to all of the terms and conditions of this Lease, except that Base Rent
shall be adjusted as provided below. Landlord shall provide Tenant with a
reminder notice no earlier than thirteen (13) months prior to the expiration of
the Initial Term and the first Extension Term, if applicable. Tenant shall
provide Landlord with written notice of Tenant's intent to exercise its
Extension Option by the later of ten (10) days following delivery of Landlord's
reminder notice or twelve (12) months prior to the expiration of the Initial
Term with respect to the first Extension Option, and by the later of ten (10)
days following delivery of Landlord's reminder notice or twelve (12) months
prior to the expiration of the first Extension Term with respect to the second
Extension Option. If Tenant does not deliver a notice of exercise by the
appropriate date then the Extension Option(s) shall immediately terminate and be
of no further force or effect and this Lease shall terminate on the scheduled
Expiration Date. If Tenant does not exercise the first Extension Option then the
second Extension Option shall terminate and be of no further force or effect.
Tenant's Extension Options shall be a Personal Right. As used herein the term
"Personal Right" shall mean a right which is personal to IDX Systems Corporation
or any Qualified Transferee and which may not be exercised by any Transferee
(other than a Qualified Transferee) without Landlord's prior written consent.
Base Rent for each Extension Term shall be determined as provided in Section
2.6(b). Tenant may, at its election, exercise an Extension Option as to the
entire Premises less all or any space leased by Tenant pursuant to Section
1.1(e), provided that simultaneously with the exercise of an Extension Option
Tenant shall designate in its notice the portion of such space to which the
Extension Option applies and if Tenant fails to do so, the Extension Option
shall be deemed exercised as to the entire Premises.

        2.2     Delay in Delivery. If Landlord, for any reason whatsoever,
cannot deliver possession of the Minimum Initial Premises to Tenant on the
Scheduled Commencement Date, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom, except
as provided in this Section 2.2. Tenant understands and agrees that the Term
Commencement Date may be delayed beyond the Scheduled Commencement Date.

                (a)     Delays Before Commencement of Construction.

                        (i)     If Landlord has not commenced construction
(which shall mean beginning any work, (other than utility relocation and
demolition work) on the Real Property pursuant to a valid permit) on or before
January 1, 2002, then Tenant may elect to cancel this Lease by delivering
written notice to Landlord on or before January 15, 2002. If Landlord does not
commence construction within ten (10) Business Days after receipt of such notice
from Tenant then this Lease shall terminate and shall be of no further force and
effect and Landlord shall pay to Tenant the sum of One Million Dollars
($1,000,000) as liquidated damages but not as a penalty and Tenant waives any
other rights or remedies available to it at law or equity for such termination.
Tenant acknowledges that actual damages may be difficult to ascertain and that
this provision does not constitute a penalty. The parties acknowledge that these
damages have been specifically negotiated between Landlord and Tenant and that
the amount of such payment represents a reasonable estimation of the damages
that Tenant would suffer in the event Landlord terminates this Lease. If
Landlord commences construction within ten (10) Business Days after receipt of
Tenant's notice then such notice shall be deemed void and of no effect and this
Lease shall continue in full force and effect.

                                        6



                        (ii)    If Landlord determines in its good faith
discretion that the Building cannot be constructed as currently planned, then
Landlord may cancel this Lease at any time before commencement of construction
by giving written notice to Tenant and this Lease shall terminate and be of no
further force and effect ten (10) days after the date of such notice; provided,
however, that if such notice is given after January 1, 2001, Landlord shall pay
to Tenant the sum of One Million Dollars ($1,000,000) as liquidated damages but
not as a penalty and Tenant waives any other rights or remedies available to it
at law or equity for such termination. Tenant acknowledges that actual damages
may be difficult to ascertain and that this provision does not constitute a
penalty. The parties acknowledge that these damages have been specifically
negotiated between Landlord and Tenant and that the amount of such payment
represents a reasonable estimation of the damages that Tenant would suffer in
the event Landlord terminates this Lease. If Landlord cancels this Lease
hereunder on or before January 1, 2001, Tenant shall not be entitled to receive
any payment hereunder other than reimbursement from Landlord for architectural
and design fees, consultant fees and similar costs (excluding legal fees)
actually incurred by Tenant, but in no event in excess of One and 50/100 Dollars
($1.50) for each square foot of Useable Area in the Initial Premises and
Expansion Space.

                (b)     Delays After Commencement of Construction.

                        (i)     If Landlord does not deliver possession of floor
3 through 11 inclusive (or floors 3 through 12, inclusive, if Tenant elects, by
written notice delivered to Landlord no later than January 1, 2002, to include
the Hold Space in the Minimum Initial Premises) (the "Minimum Initial Premises")
to Tenant in the condition required by Section 5.9 and Exhibit C, on or before
July 1, 2003, then Landlord shall reimburse Tenant on a monthly basis in arrears
for Tenant's actual out-of-pocket costs incurred to lease alternative space or
to reconfigure existing leased space (plus actual moving and build-out costs and
expenses) during the period of delay but only to the extent that the total
amount of such out-of-pocket costs exceeds the Rent that Tenant would have paid
under this Lease. The reimbursement under this Section 2.2(b)(i) shall be
calculated on a monthly basis for each month of delay; the maximum reimbursement
in any calendar month shall be the Base Rent that would have been payable for
such month under this Lease; and the maximum reimbursement hereunder shall not
exceed in the aggregate an amount equal to one-hundred eighty (180) days of Base
Rent that would have been payable under this Lease.

                        (ii)    If Landlord does not deliver the Minimum Initial
Premises on or before November 1, 2003, then Tenant may elect to cancel this
Lease by delivering written notice to Landlord no later than thirty (30) days
thereafter, this Lease shall terminate and, except as set forth below, neither
party shall have any liability hereunder. If Landlord despite good faith efforts
does not deliver the Minimum Initial Premises on or before April 1, 2004, then
Landlord may elect to cancel this Lease by delivering written notice in Tenant,
this Lease shall terminate and, except as set forth below, neither party shall
have any further liability hereunder. If Tenant elects to cancel this Lease and
Landlord delivers possession of the Minimum Initial Premises to Tenant within
ten (10) Business Days after receipt of Tenant's notice then such notice shall
be deemed void and of no effect and this Lease shall continue in full force and
effect. If this Lease is terminated by either party under this Section
2.2(b)(ii), Landlord shall not be required to make any payment to Tenant except
for the reimbursement under Section 2.2(b)(i) above through the effective date
of such termination and reimbursement for any architectural and design fees,
consultant fees and similar costs (excluding legal fees) actually incurred by
Tenant; provided, however, in no event shall the maximum reimbursement hereunder
exceed in the aggregate an amount equal to one-hundred eighty (180) days of Base
Rent that would have been payable under this Lease.

                (c)     Deadlines. The deadlines set forth in this Section 2.2.
shall be extended by any period of Tenant Delay (as defined in Exhibit C) and by
any delay attributable to Force Majeure (as defined in Section 14.20 below),
except the deadlines set forth in Section 2.2(a) shall not be extended by reason
of delays in obtaining permits for the construction of the Building.

                                        7



        2.3     Confirmation. When the actual Term Commencement Date is
determined, Tenant shall, within ten (10) days after receipt thereof, execute
and return to Landlord a Lease Commencement Certificate in the form of Exhibit E
attached hereto, or any similar form reasonably requested by Landlord,
confirming the information thereon. Failure within such time to execute and
return or to object in writing to the Lease Commencement Certificate shall be
conclusively deemed to be an acknowledgement that Tenant agrees to the terms
shown thereon and Tenant shall be deemed to have confirmed that the certificate
is correct as presented.

        2.4     Uses. Subject to the restrictions set forth in Section 7.1,
Tenant shall use the Premises solely for executive, professional, corporate or
administrative offices, software training, computer rooms and related support
services (including a food service area, subject to Landlord's review and
approval of plans therefor) (the "Permitted Use"), provided that Tenant may not
seek a variance for any use not currently permitted in the Building and provided
further that Tenant's use must be compatible with a premier Class A office
building as then operated by Landlord. Notwithstanding the foregoing, for the
purpose of limiting the type of use permitted by Tenant, or any party claiming
through Tenant, but without limiting Landlord's right to lease any portion of
the Building to a tenant of Landlord's choice, the Permitted Use shall not
include: (a) offices of any agency or bureau of the United States or any state
or political subdivision thereof; (b) offices or agencies of any foreign
government or political subdivision thereof; (c) offices of any health care
professionals or service organization, except for administrative offices where
no diagnostic, treatment or laboratory services are performed; (d) schools or
other training facilities that are not ancillary to executive, professional or
corporate administrative office use; (e) retail or restaurant uses; (f)
broadcast studios or other broadcast production facilities, such as radio and/or
television stations; (g) product display or demonstration facilities; (h)
offices at which deposits or bills are regularly paid in person by customers; or
(i) personnel agencies, except offices of executive search firms. If Tenant
assigns this Lease or subleases all or any portion of the Premises, the
subtenant or assignee shall not be permitted to use the Premises in any manner
that would conflict with any exclusive use rights that Landlord may hereafter
grant to any other tenant in the Building.

        2.5     Payments by Tenant. As used herein, the term "Rent" shall
include Base Rent, Operating Costs (as defined in Article 4 below) and all other
sums payable by Tenant to Landlord. Tenant shall pay Rent at the times and in
the manner herein provided. All obligations of Tenant hereunder to make payments
to Landlord shall constitute Rent and failure to pay the same when due shall
give rise to the rights and remedies provided in Section 13.2.

        2.6     Payment of Base Rent

                (a)     In General. Tenant's obligation to pay Rent and its
other obligations under this Lease shall commence upon the Term Commencement
Date (except as expressly otherwise provided herein with respect to obligations
arising earlier). Tenant shall pay the Base Rent in the amounts set forth in the
Basic Lease Information Sheet as Item 11 (as the same may be adjusted from time
to time hereunder) in advance on or before the first day of each calendar month
during the Term and any extensions or renewals thereof; provided, however, that
Base Rent for the first full calendar month following the Term Commencement Date
shall be paid in advance upon Landlord's commencement of construction of the
Building and recording of a memorandum of this Lease as provided in Section
14.14. All payments of Rent due under this Lease shall be payable in advance,
without demand (except as specifically provided herein) and, except as
specifically provided herein, without reduction, abatement, counterclaim or
setoff, at the address specified in the Basic Lease Information Sheet as Item 6,
or at such other address as may be designated by Landlord.

                (b)     Adjustment of Base Rent. In the event that Tenant
exercises any Extension Option under Section 2.l(b) or exercises its right of
first offer under Section 1.1(e), the Base Rent for each such period or such
space, as applicable, shall be determined as follows:

                        (i)     [Intentionally Omitted]

                                        8



                        (ii)    Extension Term Base Rent. Base Rent for an
Extension Term shall be the greater of (A) the ninety-five percent (95%) of Fair
Market Rent based on a six (6) year term to begin on the first day of the
Extension Term (the "Extension Term Adjustment Date"), or (B) the Base Rent in
effect on the last day of the Initial Term.

                        (iii)   Offer Space Base Rent. Base Rent for the Offer
Space shall be equal to the greater of (A) Fair Market Rent as of the date the
space is added to the Premises (the "Offer Space Adjustment Date"), or (B) the
Base Rent rate for such space as set forth in Item 11 to the Basic Lease
Information Sheet in effect during the Lease Years for which the space will be
included in the Premises.

                        (iv)    "Fair Market Rent" as of any date shall mean the
rate being charged during the preceding six (6) month period by direct landlords
(including Landlord), in nonsublease, nonassignment, nonequity, nonexpansion
lease transactions, for comparable space with comparable quality construction in
the Building and comparable projects in the Market Area, taking into
consideration: location in the Building or other building, the quantity and
quality of tenant improvements or allowances existing or to be provided,
proposed term of lease, extent of service provided or to be provided, the
ownership of the comparable space, the time the particular rate under
consideration became or is to become effective and any other relevant terms,
conditions or concessions but excluding brokerage commissions. "Market Area"
means the following projects and buildings located in the Seattle central
business district: Bank of America Tower (located at 701 5th Avenue), Washington
Mutual Tower (located at 1201 3rd Avenue); U.S. Bank Centre (located at 1420 5th
Avenue); and Two Union Square (located at 601 Union Street); provided that such
buildings continue to be maintained as premier Class A quality office projects.

        The term "Adjustment Date" shall mean each of the Extension Term
Adjustment Date or the Offer Space Adjustment Date, as applicable to the
calculation of Fair Market Rate then under consideration. Fair Market Rent as of
any Adjustment Date shall be determined by Landlord with written notice given to
Tenant not later than ninety (90) days prior to the applicable Adjustment Date
(or simultaneously with an Availability Notice for Offer Space as provided in
Section 1.1 (c), subject to Tenant's right of arbitration pursuant to the
provisions of Section 2.6(b)(v). Failure on the part of Landlord to give such
notice in a timely manner shall not vitiate the right to require adjustment of
Base Rent, but such delay shall result in deferral of the Adjustment Date to the
date ninety (90) days after the date of such notice. With respect to the
Extension Options only, if the parties have not agreed in writing upon Fair
Market Rent within sixty (60) days after the date in which Tenant exercises an
Extension Option, Tenant shall elect in writing within ten (10) days thereafter
either to (A) revoke its notice of exercise (in which case this Lease shall
terminate on the scheduled Expiration Date), or (B) demand arbitration in
accordance with the terms of this Section 2.6 (b). With respect to the Offer
Space, Tenant may by written notice demand arbitration within forty-five (45)
days after receipt of notice from Landlord of Landlord's determination of Fair
Market Rent. If Tenant does not demand arbitration, Tenant shall be deemed to
have accepted the Fair Market Rent as determined by Landlord. Should Tenant
elect to arbitrate and should the arbitration not be concluded prior to the
applicable Adjustment Date, Tenant shall pay Rent to Landlord after the
Adjustment Date, including Base Rent adjusted to reflect Fair Market Rent as
Landlord has so determined. If the amount of Fair Market Rent as determined by
arbitration is greater than or less than Landlord's determination, then any
adjustment required to correct the amount previously paid shall be made by
payment by the appropriate party within ten (10) days after such determination
of Fair Market Rent.

                        (v)     Arbitration of Fair Market Rent. If Tenant
disputes the amount claimed by Landlord as Fair Market Rent, the parties shall
attempt to agree on Fair Market Rent within thirty (30) days thereafter. If such
dispute cannot be resolved by mutual agreement, the dispute shall be submitted
to arbitration. The award rendered in any such arbitration may be entered in any
court having jurisdiction and shall be final and binding between the parties.
The arbitration shall be conducted and determined in the City of Seattle,
Washington, in accord with the then-prevailing commercial arbitration

                                        9



rules of the American Arbitration Association or its successor for arbitration
of commercial disputes except that the procedures mandated by said rules shall
be modified as follows:

                                (A)     Tenant shall make demand for arbitration
in writing within forty-five (45) days after receipt of Landlord's
determination of Fair Market Rent. Tenant's arbitration demand shall specify (a)
the name and address of the person to act as the arbitrator on its behalf, and
(b) Tenant's determination of Fair Market Rent. The arbitrator shall be
qualified as a real estate appraiser with at least five (5) years experience
appraising first-class commercial office space in the downtown Seattle area who
would qualify as an expert witness over objection to give testimony addressed to
the issue in a court of competent jurisdiction. Failure on the part of Tenant to
make a timely and proper demand for arbitration shall constitute a waiver of the
right to arbitration. Within ten (10) Business Days after receipt of Tenant's
demand for arbitration, Landlord shall have the right to give notice in writing
to Tenant of Landlord's adjusted determination of Fair Market Rent. Within ten
(10) Business Days following Tenant's receipt of such notice, if Tenant and
Landlord have not agreed upon Fair Market Rent, Tenant shall notify Landlord in
writing that Tenant desires to renew its demand for arbitration. Failure on the
part of Tenant to give such notice shall constitute a waiver of the right to
arbitration, and Tenant shall be deemed to have accepted Landlord's adjusted
determination of Fair Market Rent. Within ten (10) Business Days after the
receipt of a notice renewing the demand for arbitration, Landlord shall give
notice to Tenant, specifying the name and address of the person designated by
Landlord to act as arbitrator on its behalf who shall be similarly qualified. If
Landlord fails to notify Tenant of the appointment of its arbitrator, within or
by the time above specified, then the arbitrator appointed by Tenant shall be
the arbitrator to determine the issue.

                                (B)     If two (2) arbitrators are chosen
pursuant to the preceding Section, the arbitrators so chosen shall meet within
ten (10) Business Days after the second arbitrator is appointed and, if within
ten (10) Business Days after such first meeting the two arbitrators have not
agreed upon a determination of Fair Market Rent, they shall appoint a third
arbitrator, who shall be a competent and impartial person with qualifications
similar to those required of the first two arbitrators. If they are unable to
agree upon such appointment within five (5) Business Days after expiration of
said ten (10) day period, the third arbitrator shall be selected by the parties
themselves if they can agree thereon, within a further period of ten (10)
Business Days. If the parties do not so agree, then either party, on behalf of
both, may request appointment of such a qualified person by a court of the State
of Washington sitting in King County pursuant to RCW 7.04.050. Request for
appointment shall be made in writing with a copy given to the other party. Each
party agrees that said court shall have the power to make the appointment;
provided, however, if the court does not make a determination within ten (10)
days of request by either party for the appointment of a third arbitrator,
appointment of such third arbitrator shall be made in accordance with the
selection procedure of the commercial arbitration rules of the American
Arbitration Association or its successor for arbitration of commercial disputes.
The three (3) arbitrators shall decide the dispute, if it has not previously
been resolved, by following the procedure set forth below.

                                (C)     The arbitrator selected by each of the
parties shall state in writing his or her determination of the Fair Market Rent,
supported by the reasons therefor, and shall deliver a copy to each party. The
arbitrators shall arrange for a simultaneous exchange of such proposed
resolutions. The role of the third arbitrator shall be to select which of the
two (2) proposed resolutions most closely approximates his or her determination
of Fair Market Rent. The third arbitrator shall have no right to propose a
middle ground or any modification of either of the proposed resolutions. The
resolution he or she chooses as most closely approximating his or her
determination of Fair Market Rent shall constitute the decision of the
arbitrators and shall be final and binding upon the parties.

                                (D)     If any arbitrator fails, refuses or is
unable to act, his or her successor shall be appointed by him or her, but in the
case of the third arbitrator, his or her successor shall be appointed in the
same manner as provided for appointment of the third arbitrator. The arbitrators
shall attempt to decide the issue within ten (10) Business Days after the
appointment of the third arbitrator.

                                       10



Any decision in which the arbitrator appointed by Landlord and the arbitrator
appointed by Tenant concur shall be binding and conclusive upon the parties.
Each party shall pay the fees and costs of its own counsel. The losing party
shall pay the fees and costs of the arbitrators and of the expert witnesses (if
any) of the prevailing party as well as those of its expert witnesses. For
purposes hereof, the losing party shall be that party whose selected
arbitrator's statement of Fair Market Rent was not selected by the third
arbitrator.

                                (E)     The arbitrators shall have the right to
consult experts and competent authorities with factual information or evidence
pertaining to a determination of Fair Market Rent, but any such consultation
shall be made in the presence of both parties with full right on their part to
cross-examine. The arbitrators shall not be restricted to or bound by Landlord's
or Tenant's determination of Fair Market Rent which precede the exchange of the
arbitrators' determinations under Section 2.6(b)(v)(C), nor shall either
Landlord's or Tenant's determination be disclosed to the arbitrators. The
arbitrators shall render their decision and award in writing and shall deliver
copies to each party. The arbitrators shall have no power to modify the
provisions of this Lease.

        2.7     Partial Months. If the Term Commencement Date occurs on other
than the first day of a calendar month, then Base Rent and Operating Costs for
such partial calendar month shall be prorated and the prorated installment shall
be paid on the Term Commencement Date together with any other amounts payable on
that day. If the Expiration Date occurs on other than the last day of a calendar
month, then Base Rent and Operating Costs for such partial calendar month shall
be prorated and the prorated installment shall be paid on the first day of the
calendar month in which the Expiration Date occurs.

        2.8     Early Commitment Rent Credit Incentive. Landlord shall provide
the following credit against Tenant's Base Rent, which credit is a Personal
Right:

                (a)     Base Rent Credit. Provided that Tenant is not in default
under the terms of this Lease (which shall mean that no Event of Default has
occurred and has not been cured during the applicable cure period, if any),
during Lease Years 2 through 4 of the Initial Term Landlord shall provide to
Tenant a monthly credit against Base Rent in an amount equal to Twenty Thousand
Dollars ($20,000) per month (the "Base Rent Credit"); provided, however, that in
no event shall the total Base Rent Credit exceed Seven Hundred Twenty Thousand
Dollars ($720,000).

                (b)     Recapture and Repayment in Event of Tenant Default. In
the event that Tenant is in default under this Lease and said default is not
cured within the applicable cure period, if any, then at the option of Landlord,
Tenant's right to receive the Base Rent Credit shall terminate and an amount
equal to all Base Rent Credits previously advanced to Tenant pursuant to this
Section 2.8 shall be immediately due and payable by Tenant to Landlord in
immediately available funds.

                                    ARTICLE 3
                                SECURITY DEPOSIT

        [INTENTIONALLY OMITTED.]

                                    ARTICLE 4
                           PAYMENT OF OPERATING COSTS

        4.1     Net Lease. This is a net lease. Base Rent shall be paid to
Landlord absolutely net of all costs and expenses. The provisions of this
Article 4 for payment of Operating Costs by means of periodic payment of
Tenant's Proportionate Share (as defined in Section 4.3) of Estimated Operating
Costs (as defined in Section 4.2) and the Operating Costs Adjustment (as defined
in Section 4.6) are intended to pass on to Tenant and reimburse Landlord for
Tenant's Proportionate Share of all costs and expenses of the nature described
in Section 4.4.

        4.2     Estimated Payments. Tenant shall pay Tenant's Proportionate
Share of Estimated Operating Costs in advance on or before the first day of each
calendar month during the Term and any

                                       11



extensions or renewals thereof. "Estimated Operating Costs" for any calendar
month shall mean Landlord's estimate of Operating Costs for the calendar year
within which such month falls, divided into twelve (12) equal monthly
installments. Landlord shall provide Tenant with a statement setting forth the
Estimated Operating Costs and Tenant's Proportionate Share thereof within a
reasonable period of time after the Term Commencement Date and the commencement
of each calendar year thereafter. Landlord, acting reasonably, may adjust such
estimate from time to time by written notice. Until a new statement of Estimated
Operating Costs is received Tenant shall continue to make the monthly payment of
Estimated Operating Costs applicable to the prior year.

        4.3     Tenant's Proportionate Share. "Tenant's Proportionate Share"
shall be calculated by Landlord for each calendar year of the Term and shall
mean a percentage equal to the Net Rentable Area of the Premises divided by the
greater of (a) ninety-five percent (95%) of the total Net Rentable Area in the
Building leased or held for lease or (b) the Net Rentable Area of the Building
actually leased to tenants. Tenant's Proportionate Share shall initially be the
percentage set forth in the Basic Lease Information Sheet as Item 8, and shall
be adjusted by Landlord, pursuant to Section 1.1 and when and as additional
space is added to the Minimum Initial Premises.

        4.4     Operating Costs. "Operating Costs" shall mean all expenses and
costs (but not specific costs that are separately billed to and paid by specific
tenants) of every kind and nature that Landlord shall pay or incur or become
obligated to pay or incur (including, without limitation, costs incurred by
managers and agents that are reimbursed by Landlord) because of or in connection
with the management, repair, maintenance, replacement, preservation, ownership
and operation of the Building and any supporting facilities directly serving the
Building (as allocated to the Building in accordance with standard accounting
practices, consistently applied). Operating Costs shall include, but not be
limited to the following types of expenses:

                (a)     Wages, salaries, reimbursable expenses and benefits of
all on-site and off-site personnel engaged in the operation, repair, maintenance
and security of the Building and the direct costs of training such employees.

                (b)     Costs (including allocated rental) for the property
management office and office operation; and costs (excluding allocated rental)
of operating exercise facilities in the Building, if any, available for use by
tenants (including the cost of acquiring or leasing equipment therein) to the
extent such costs exceed revenues generated therefrom.

                (c)     All supplies, materials and rental equipment used in the
operation and maintenance of the Building, including, without limitation, the
cost of erecting, maintaining and dismantling art work and similar decorative
displays commensurate with operation of a Class A office project.

                (d)     Utilities, including, without limitation, water, power,
sewer, waste disposal, communication and cable television facilities, heating,
cooling, lighting and ventilation of the Building.

                (e)     All maintenance, extended warranties (amortized over the
period of such warranty), janitorial and service agreements for the Building and
the equipment therein, including, but not limited to, alarm service, window
cleaning, elevator maintenance, and maintenance and repair of the Building and
all Building Components.

                (f)     A management fee equal to three percent (3%) of all
revenue (excluding such management fee) derived from the Building, including
without limitation, all Rent hereunder, all rent and other payments derived from
other tenants in the Building, and other revenues derived from licenses of any
other part of or right in the Building other than parking revenues.

                (g)     Reasonable legal and reasonable accounting services for
the Building, including, but not limited to, the costs of audits by certified
public accountants of Operating Costs records; provided,

                                       12



however, that Operating Costs shall not include legal fees related to (i)
negotiating lease terms for prospective tenants, (ii) negotiating termination or
extension of leases with existing tenants, (iii) proceedings against tenants
unless such proceedings are reasonably expected to benefit Tenant, in whole or
in part, or (iv) the initial development and/or initial construction of the
Building.

                (h)     All insurance premiums and costs, including but not
limited to, the premiums and cost of fire, casualty, liability, rental abatement
or interruption and earthquake insurance applicable to the Building and
Landlord's personal property used in connection therewith (and all amounts paid
as a result of loss sustained that would be covered by such policies but for
"deductible" or self-insurance provisions).

                (i)     Repairs, replacements and general maintenance of the
Building (except for repairs and replacements (x) paid for from the proceeds of
insurance, or (y) paid for directly by Tenant, other tenants or any third
party).

                (j)     All real and personal property taxes, assessments, local
improvement or special benefit district charges and other governmental charges,
special and general, known and unknown, foreseen and unforeseen, of every kind
and nature whatsoever (i) attributable to the Real Property or the Building or
levied, assessed or imposed on, the Real Property or the Building, or any
portion thereof, or interest therein; (ii) attributable to or levied upon
Landlord's personal property located in, or used in connection with the
Building; (iii) surcharges and all local improvement or special benefit and
other assessments levied with respect to the Building, the Real Property, and
all other property of Landlord used in connection with the operation of the
Building; (iv) any taxes levied or assessed in lieu of, in whole or in part, or
in addition to such real or personal property taxes; (including, but not limited
to, leasehold taxes, business and occupation taxes and taxes or license fees
upon or measured by the leasing of the Building or the rents or other income
collected therefrom); (vi) any and all costs, expenses and attorneys' fees paid
or incurred by Landlord in connection with any proceeding or action to contest,
in good faith, in whole or in part, formally or informally, the imposition,
collection or validity of any of the foregoing taxes, assessments, charges or
fee (collectively, "Real Property Taxes"). If by law any Real Property Taxes may
be paid in installments at the option of the taxpayer, then Landlord shall
include within Real Property Taxes for any year only those installments
(including interest, if any) which would become due by exercise of such option.
Real Property Taxes shall not include (x) inheritance or estate taxes imposed
upon or assessed against the Building, or any part thereof or interest therein,
or (y) federal or state income taxes computed upon the basis of the Landlord's
net income.

                (k)     Amortization (together with reasonable financing
charges) of capital improvements made to the Building (i) which are reasonably
necessary to comply with the requirements of law, ordinance, rule or regulation
to the extent any such requirement adopted, enacted or issued after issuance of
the building permit for the Building, (ii) to replace items which Landlord would
be obligated to maintain under this Lease (excluding the structural elements,
roof and the exterior of the Building); or (iii) which have a reasonable
probability of improving the operating efficiency or reducing Operating Costs of
the Building. As used in this Section, "amortization" shall mean allocation of
the cost equally to each year of useful life of the items being amortized.
Notwithstanding the foregoing, however, Landlord may treat as expenses
(chargeable in the year incurred), and not as capital costs, items that are less
than two percent (2%) of Estimated Operating Costs for the year in question.

                (l)     All charges of any kind and nature imposed, levied,
assessed, charged or collected by any governmental authority or other entity
either directly or indirectly (i) for or in connection with public improvements,
user, maintenance or development fees, transit, parking, housing, employment,
police, fire, open space, streets, sidewalks, utilities, job training, child
care or other governmental services or benefits, (ii) for environmental matters
or as a result of the imposition of mitigation measures, including compliance
with any transportation management plan, or fees, charges or assessments as a

                                       13



result of the treatment of the Building, or any portion thereof or interest
therein, as a source of pollution or storm water runoff.

        Notwithstanding the foregoing, "Operating Costs" shall not include: (i)
costs of special services separately billable to other tenants, (ii) leasing
commissions and related leasing expenses, (iii) salaries for management above
the level of group property manager (but travel costs and other reimbursable
expenses shall not be subject to this exclusion and may be included in Operating
Costs), (iv) amounts received from insurance claims and costs of repair and
reconstruction related thereto (other than deductible amounts under applicable
insurance policies), (v) marketing, advertising and promotional fees related to
the marketing of the Building or space therein; (vi) loan fees, costs and
penalties, (vii) costs to correct initial construction defects in the Building,
(viii) penalties due to violation of law, late payments or similar impositions
against landlord or the Real Property, (ix) tenant improvements costs, (x)
damages for any default, breach, claim or judgment of or against Landlord,
except to the extent caused by Tenant, (xi) rental on ground leases, (xii)
environmental remediation, encapsulation or removal costs for conditions that
existed and were known to be hazardous as of the date of this Lease, (xiii)
costs of acquiring sculptures, paintings and similar art objects (except to the
extent required by any Law following the initial construction of the Building),
(xiv) payments to parties affiliated with Landlord in excess of the prevailing
market fees for similar services, (xv) political or charitable contributions and
lobbying costs and expenses, other than lobbying costs and expense that
Landlord reasonably believes will benefit tenants in the Building, (xvi)
development and permit fees and other costs of development and construction
incurred in connection with the initial construction of the Building, (xvii)
costs and expenses associated with the operation, maintenance, repair or
improvement of the Garage, and (xviii) costs of any conference center as
provided in Section 14.27.

        4.5     Adjustment for Occupancy. Notwithstanding any other provision
herein to the contrary, if during any year of the Term the Building is not fully
occupied or all premises within the Building do not receive Basic Services (as
defined in Section 5.1 below), then an adjustment shall be made in computing
Operating Costs for such year so that Operating Costs shall be computed as
though the Building had been fully occupied and provided with Basic Services
during such year; provided, however, that in no event shall Landlord collect in
total, from Tenant and all other tenants of the Building, an amount greater than
one hundred percent (100%) of Operating Costs during any year of Term.

        4.6     Computation of Operating Costs Adjustment. The term "Operating
Costs Adjustment" for any calendar year shall mean the difference, if any,
between Estimated Operating Costs and actual Operating Costs for that calendar
year. Landlord shall, within a reasonable period of time after the end of any
calendar year for which Estimated Operating Costs differs from actual Operating
Costs, give written notice thereof to Tenant (a "Cost Statement"). The Cost
Statement shall include a statement of the total Operating Costs applicable to
such calendar year, reasonable back-up information showing expense categories
and the computation of the Operating Costs Adjustment. Landlord's failure to
give such Cost Statement within a reasonable period of time after the end of any
calendar year for which a Operating Costs Adjustment is due shall not release
either party from the obligation to make the adjustment provided for in Section
4.7.

        4.7     Adjustment for Variation Between Estimated and Actual. If
Tenant's Proportionate Share of Operating Costs for any calendar year exceeds
the payments received by Landlord towards Tenant's Proportionate Share of
Estimated Operating Costs for such year, Tenant shall pay to Landlord Tenant's
Proportionate Share of the Operating Costs Adjustment within thirty (30) days
after the date of the Cost Statement. If the Tenant's Proportionate Share of
Operating Costs for any calendar year is less than the payments received by
landlord towards Tenant's Proportionate Share of Estimated Operating Costs for
such year, then Landlord shall pay Tenant's Proportionate Share of the Operating
Costs Adjustment to Tenant in cash, such payment to be made within fifteen (15)
days after the first Rent installment paid following such determination. If the
Term commences or terminates at any time other than the first day of a calendar
year, Tenant's Proportionate Share of the Operating Costs Adjustment

                                       14



shall be calculated based upon the exact number of calendar days during such
calendar year that fall within the Term, and any payment by Tenant required
hereunder shall be paid even if the Term has expired when such determination is
made.

        4.8     Tenant's Audit Right. Provided that Tenant delivers written
notice of its intent to audit within ninety (90) days after receipt by Tenant of
Landlord's Cost Statement and completes such audit within one hundred and twenty
(120) days thereafter, Tenant shall have the right to conduct a reasonably and
specifically defined audit of Landlord's books and records relating to Operating
Costs during the prior two (2) calendar years in accordance with the following
terms and provisions:

                (a)     Tenant shall not then be in default in its obligations
under this Lease beyond any applicable notice and cure period with respect to
payment of Base Rent and Tenant's Proportionate Share of Operating Costs.

                (b)     Tenant shall have the right to have an employee of
Tenant or a Qualified Auditor inspect Landlord's accounting records at
Landlord's office no more than once per calendar year.

                (c)     Neither the employee of Tenant nor the Qualified Auditor
shall be employed or engaged on a contingency basis, in whole or in part.

                (d)     Prior to commencing the audit, Tenant and the auditor
shall: (i) provide Landlord with evidence that the auditor is from a nationally
recognized accounting firm or one of the top five (5) accounting firms in the
Seattle metropolitan area and is a certified public accountant or other
individual with appropriate experience who is mutually acceptable to Landlord
and Tenant (a "Qualified Auditor")); (ii) each sign a reasonable confidentiality
letter to be provided by Landlord, consistent with the provisions of this
Section 4.8; (iii) provide a signed representation certified by the auditor's
chief financial officer, chief executive officer or managing partner (or
equivalent) that such auditing firm is acting as an independent accountant in
the conduct of the audit; and (iv) provide Landlord with a full copy of all
correspondence, instructions and engagement letters between the auditor and
Tenant.

                (e)     Tenant shall have the right to conduct an accuracy
audit, which shall be limited solely to: (i) confirming that the Operating Costs
reported in the Cost Statement are consistent with Landlord's books and records;
(ii) confirming that Landlord has reasonable support for the expenses and items
of expenses as reported by Landlord in the Cost Statement; (iii) confirming that
Landlord has not accidentally or fraudulently charged the same item of expenses
on a duplicate basis to the Building; (iv) confirming that Landlord has not
charged any item specifically excluded from Operating Costs in this Lease; (v)
reviewing the procedure for gross-up to confirm that it is consistent with the
terms of this Lease relative to such procedures; and (vi) confirming that Tenant
has been properly allocated Tenant's Proportionate Share of Operating Costs.
Except as specifically provided in Section 4.8(f) below, the auditor shall not
make any judgments as to the reasonableness of any item of expense and/or the
Operating Costs of the Building, nor shall such reasonableness be subject to
audit.

                (f)     In addition to the accuracy audit right under Section
4.8(e) above, if Operating Costs (excluding Real Property Taxes and other costs
under Sections 4.4(k) and (l) (hereinafter, "Excluded Items")) have increased by
more than five percent (5%) annually on a cumulative basis over the Operating
Costs (excluding Excluded Items) charged in the first calendar year of full
operation of the Building, then Tenant shall have the right to conduct a limited
audit as to the reasonableness of such Operating Costs, but such reasonableness
audit shall be limited solely to determining whether a (i) specific item of
expense included in Operating Costs (excluding Excluded Items) has increased by
more than five percent (5%) annually on a cumulative basis over the amount
charged in the first calendar year of full operation of the Building; and (ii)
such increase is unreasonable, considering such factors as inflation, changes in
laws and other items outside of Landlord's direct control.

                (g)     If Tenant's auditor finds, in the course of its (i)
accuracy audit under Section 4.8(e) above, errors or over or under charges in
Landlord's Cost Statement, or (ii) limited

                                       15



reasonableness audit under Section 4.8(f), evidence that Operating Costs, in
general, and specific items of Operating Costs, in particular, have increased by
more than the five percent (5%) of the cumulative amount set forth in Section
4.8(f); then said findings must be promptly and simultaneously reported to both
Landlord and Tenant, with full written support for such findings and specific
reference to the relevant Lease provisions disqualifying such expenses, if
applicable. Landlord shall have a reasonable opportunity to meet with Tenant's
auditor (and any third auditor selected hereinbelow) to explain its charges and
any increases, it being the understanding of Landlord and Tenant that Landlord
intends to operate the Building as a first-class office building with services
at or near the top of the market. If Landlord agrees with said findings,
appropriate rebates or charges shall be made to Tenant in accordance therewith.
If Landlord does not agree, Landlord shall engage its own auditor (who shall be
a Qualified Auditor) to review the findings of Tenant's auditor and Landlord's
books and records. The two auditors shall then meet to resolve any difference
between the audits. If agreement cannot be reached within two (2) weeks after
the auditors' initial meeting, then the auditors shall together select a third
auditor (who shall be a Qualified Auditor) to which they shall each promptly
submit their findings in a final report, with copies submitted simultaneously to
the first two auditors, Tenant and Landlord. The third auditor shall leave
submitted findings unopened for a period of two (2) weeks, during which time
Landlord and Tenant may attempt to reach a negotiated settlement and Landlord
shall have a reasonable opportunity to meet with the third auditor to explain
its charges and any increases. If no settlement is reached, then within fifteen
(15) days following the completion of such two-week period, the third auditor
shall determine which of the two reports best meets the terms of this Lease,
which report shall become the "Final Finding." The third auditor shall not have
the option of selecting a compromise between the first two auditors' findings,
nor to make any other finding.

                (h)     If the Final Finding determines that (a) there were
errors or over or under charges in Landlord's Cost Statement, then Landlord or
Tenant, as the case may be, shall reimburse the other party for any such
amounts; or (b) Landlord has charged Tenant for Operating Costs, in general, and
specific items of Operating Costs, in particular, in excess of the five percent
(5%) cumulative amount set forth in Section 4.8(f) above, then Landlord shall
reimburse Tenant for all amounts paid by Tenant in excess of the greater of (1)
the actual Operating Cost charged for the item(s) in question during the prior
calendar year, or (2) the amount deemed reasonable for such item(s) of Operating
Costs in the Final Finding. If reimbursement is required to be paid to Tenant
hereunder, Landlord shall make such payment within fifteen (15) days after the
first Rent installment paid following determination of the Final Finding. If the
Final Finding determines that Tenant was undercharged, then within thirty (30)
days after the Final Finding, Tenant shall reimburse Landlord the amount of such
undercharge.

                (i)     If the Final Finding results in a credit to Tenant in
excess of three percent (3%) of Tenant's Proportionate Share of the total
Operating Costs, Landlord shall pay its own audit costs and reimburse Tenant for
its costs associated with said audits. If the Final Finding results in no credit
to Tenant, Tenant shall pay its own costs and reimburse Landlord for its costs
associated with said audits. In all other events, each party shall pay its own
audit costs, including one half (1/2) of the cost of the third auditor.

                (j)     The results of any audit of Operating Costs hereunder
shall be treated by Tenant, all auditors, and their respective employees and
agents as confidential, and shall not be discussed with nor disclosed to any
third party.

                                    ARTICLE 5
                              LANDLORD'S COVENANTS

        5.1     Basic Services. Provided that Tenant is not in default of its
obligations under this Lease (which shall mean that no Event of Default has
occurred which has not been cured during the applicable cure period, if any),
during Tenant's occupancy of the Premises Landlord shall maintain the Building
as a first class office building and shall provide the following ("Basic
Services"):

                                       16



                (a)     Administration of construction of the Tenant
Improvements (as defined in Section 5.7) in the Premises in accordance with
Exhibit C.

                (b)     Cold and hot water (other than hot water for special
needs which will be supplied as an Extra Service) at those points of supply
provided for general use of other tenants in the Building.

                (c)     Central heat and air conditioning in season, at such
temperatures and in such capacities as are considered within the performance
criteria for the Building's systems as set forth on Exhibit C-l or as may
otherwise be permitted or controlled by applicable laws, ordinances, rules and
regulations, during Normal Office Hours.

                (d)     Routine maintenance, repairs, structural and exterior
maintenance (including exterior glass and glazing), painting and electric
lighting service for all public areas and special service areas of the Building
in the manner and to the extent deemed by Landlord to be necessary or desirable.
Landlord's obligation with respect to repair as part of Basic Services under
this Section 5.1 shall be limited to (i) the structural portions of the
Building, (ii) the exterior walls of the Building, including glass and glazing,
(iii) the roof, (iv) mechanical, electrical, plumbing and life safety systems
that are considered Building Standard Improvements (as defined Exhibit C
attached hereto), and (v) maintenance of the Common Areas in a manner consistent
with a first class office building.

                (e)     Janitorial service on a five (5) day week basis,
excluding holidays, generally in conformance with the specifications set forth
on Exhibit H attached hereto.

                (f)     An electrical system to convey power delivered by public
utility or other providers selected by Landlord, in amounts sufficient for
normal office operations at all times (but during hours other than Normal Office
Hours as an Extra Service) as provided in similar office buildings, but not to
exceed a total allowance of four and one-half (4.5) watts per square foot of Net
Rentable Area (which includes an allowance for lighting of the Premises),
provided that no single item of electrical equipment consumes more than one-half
(0.5) kilowatt at rated capacity or requires a voltage other than one hundred
twenty (120) volts, single phase. If Tenant's electrical requirements, as
estimated by Landlord based upon rated capacity (or based upon metered
consumption), exceed four (4) watts per square foot of Net Rentable Area or if
Tenant installs equipment exceeding the foregoing capacity, Tenant shall pay the
full amount of such excess together with any additional cost necessary to
provide such excess capacity. If the installation and operation of Tenant's
electrical equipment requires additional air conditioning capacity above that
provided by the Building Standard Improvements (as defined in Exhibit C), then
the cost of installing additional air conditioning and operation thereof
(including utilities) shall be paid by Tenant and shall be considered an Extra
Service, subject to the provisions of Section 5.4 below. If Landlord determines
that Tenant's electricity usage will exceed the permitted amount based on its
review of the equipment that Tenant proposes installing in the Premises, Tenant
shall pay for the installation and operation of utility metering devices to
measure actual utility consumption in the Premises and installation of meters
and the necessary equipment to distribute such excess energy to the Premises
shall be included in the Tenant Improvements.

                (g)     Installation, maintenance and replacement of lamps,
bulbs and ballasts used in the Premises.

                (h)     Twenty-four (24) hour security service for the Building,
including a staffed security station, electronic card key access system, motion
detectors, remote voice intercom and surveillance cameras, or such other
comparable security systems as Landlord deems appropriate for the Building;
provided, however, that the security service shall be provided by unarmed
personnel and shall not include alarm systems for special surveillance of the
Premises; and provided, further, that Landlord shall not be liable to Tenant or
any third party for any breach of security or any losses due to theft, burglary,
battery or for damage done or injury inflicted by persons in or on the Building.
Landlord shall provide to Tenant, at no additional cost, an initial set of card
key access cards in an amount not to exceed

                                       17



one (1) card for every one hundred eighty (180) square feet of Useable Area in
the Premises, and Tenant shall be responsible for reimbursing Landlord for the
cost of all additional or replacement cards.

                        (i)     Public elevator service to the Garage and the
floors on which the Premises are situated twenty-four (24) hours per day, seven
(7) days per week.

        5.2     Hours of Operation. The term "Business Days" shall mean Monday
through Friday, excluding State and Federal holidays and all days that
maintenance employees of the Building are entitled to take off or to receive
extra compensation for, from time to time under their union contract or other
agreement. The term "Normal Office Hours" shall mean Business Days from 7:00
a.m. to 6:00 p.m., and Saturdays from 9:00 a.m. to 1:00 p.m. In addition to
Normal Office Hours, to the extent needed by Tenant or any other tenant in the
Building, Landlord shall provide extended operating hours for standard lighting
and heating, ventilating and air conditioning from 6:00 p.m. to 9:00 p.m. on
Business Days and 1:00 p.m. to 3:00 p.m. on Saturday ("Extended Hours") as part
of the normal Operating Costs for the Building charged to all tenants on a
pro-rata basis, with no additional charge to Tenant for utilities during such
hours; provided, however, that Landlord shall monitor Tenant's actual use of
heating, ventilation and air conditioning service during the Extended Hours and
Tenant shall be provided a credit against Operating Costs (computed annually and
reflected in the Cost Statement) to reflect Tenant's actual use of such services
so that Tenant does not pay in any way for use of such services during Extended
Hours except to the extent requested by Tenant. After-hours HVAC service (i.e.,
between 9:00 p.m. and 7:00 a.m. on Business Days, after 3:00 p.m. Saturday, and
all day Sunday and holidays) shall be available twenty-four (24) hours per day
for an hourly charge on a floor-by-floor basis. Landlord shall make good-faith
efforts to provide such service at the lowest reasonable cost, including using
only fans and outside fresh air for maintaining temperature and spreading costs
between tenants, when appropriate.

        5.3     Interruption. Landlord shall not be liable for damages to either
person or property, nor shall Landlord be deemed to have evicted Tenant, nor
shall there be any abatement of Rent (except to the extent expressly permitted
below), nor shall Tenant be relieved from performance of any covenant on its
part to be performed hereunder by reason of (a) interruption of, or deficiency
in, the provision of Basic Services; (b) breakdown or malfunction of lines,
cables, wires, pipes, equipment or machinery utilized in supplying or permitting
Basic Services or telecommunications; or (c) curtailment or cessation of Basic
Services due to causes or circumstances beyond the reasonable control of
Landlord, including but not limited to (i) strikes, lockouts or other labor
disturbance or labor dispute of any character, (ii) governmental regulation,
moratorium or other governmental action, (iii) inability, despite the exercise
of reasonable diligence, to obtain electricity, water or fuel from the providers
thereof, and (iv) acts of God. Landlord shall use good faith efforts to make
such repairs as may be required to lines, cables, wires, pipes, equipment or
machinery within the Building to provide restoration of Basic Services and,
where the cessation or interruption of Basic Services has occurred due to
circumstances or conditions beyond Real Property boundaries or outside the
Landlord's control, to cause the same to be restored, by application or request
to the provider thereof. Notwithstanding the foregoing, if an interruption or
curtailment of any service to be provided by Landlord under this Article 5 or of
telecommunications service under Section 6.3 occurs by reason of Landlord's
negligence, omission or breach of its obligations hereunder, and (A) the
interruption causes the Premises or a portion thereof to be untenantable, (B)
Tenant ceases to use the Premises or the untenantable portion thereof, and (C)
Tenant has given Landlord notice of such interruption, then, on the fifth (5th)
Business Day following the date on which all of the foregoing conditions are
satisfied Base Rent shall abate (in whole or in part based on the number of
square feet that are untenantable) until the Premises are rendered tenantable.

        5.4     Extra Services. Landlord may provide to Tenant in Landlord's
discretion and at Tenant's cost and expense (and subject to the limitations
hereinafter set forth) the additional services described below ("Extra
Services"). Tenant shall pay Landlord for the cost (including capital costs,
out-of-pocket expenses and the allocated cost of Landlord's employees) of
providing any Extra Services,

                                       18



together with an administrative fee equal to seven and one-half percent (7.5%)
of such cost, within ten (10) days following presentation of an invoice therefor
by Landlord to Tenant, except that the administrative fee shall not be charged
on the Extra Services described in Subsections 5.4(b) or 5.4(c). The cost
chargeable to Tenant for Extra Services shall constitute additional Rent.

                (a)     Any extra cleaning and janitorial services in excess of
that required for Building Standard Improvements.

                (b)     Additional air conditioning and ventilating capacity
required by reason of any electrical, data processing or other equipment or
facilities or services required to support the same, in excess of that which
would be required for Building Standard Improvements.

                (c)     Heating, ventilation, air conditioning or extra
electrical equipment or service during hours other than Normal Office Hours and
Extended Hours. Landlord shall provide said heating, ventilation and air
conditioning or extra service on a floor-by-floor basis solely upon the prior
request of Tenant given in compliance with the reasonable notice requirements
and procedures that Landlord may establish from time to time.

                (d)     Repair and maintenance for which Tenant is responsible
hereunder.

                (e)     Any Basic Service in amounts determined by Landlord to
exceed the amounts required to be provided under Section 5.1, but only if
Landlord elects to provide such additional or excess service.

                (f)     Any other item described in this Lease as an Extra
Service or which Landlord is not required to provide as part of Basic Services.

        Notwithstanding the foregoing, Landlord shall not refuse to provide
Extra Services reasonably requested by Tenant for heating, ventilation, and air
conditioning if and to the extent the Building systems have available mechanical
and electrical capacity to provide such Extra Services and the provision of same
is not otherwise restricted or prohibited by Laws.

        5.5     Window Coverings. All window coverings shall be provided by
Landlord as Building Standard Improvements. Tenant shall not remove, replace or
install any window coverings, blinds or drapes on any exterior window without
Landlord's prior written approval, which shall not be unreasonably withheld with
respect to interior window coverings that do not affect the exterior appearance
of the Building and do not affect the operation of any Building systems. Tenant
shall be responsible for removal of any such window coverings and restoration of
the affected areas of the Building at its sole cost prior to termination of this
Lease. Tenant acknowledges that breach of this covenant shall directly and
adversely affect the exterior appearance of the Building and the operation of
the heating, ventilation and air conditioning systems.

        5.6     Graphics and Signage.

                (a)     Landlord shall provide (i) at no additional cost to
Tenant, the initial identification of Tenant's name on the directory board in
the main lobby of the Building, including a reasonable number of name listings
for Tenant's departments or employees, and (ii) at Tenant's request and cost or
as a deduction from Tenant's Cash Allowance under Exhibit C of this Lease,
signage in the elevator lobby of each floor within the Premises. All signs,
notices and graphics of every kind or character, visible in or from public
corridors, the Common Areas or the exterior of the Premises shall be subject to
Landlord's prior written approval, which shall not be unreasonably withheld or
delayed. In addition, all signage shall be subject to all City of Seattle and
other applicable governmental requirements.

                (b)     Limited Right To Name the Building, Exterior Sign. So
long as Tenant is leasing, occupying and paying Rent on at least twenty percent
(20%) of the total Net Rentable Area in the Building and Tenant is not in
default under this Lease (which shall mean that no Event of Default has occurred
which has not been cured during the applicable cure period, if any), Tenant
shall have the right

                                       19



to require the Building to be named "IDX Tower at Fourth & Madison," subject to
the following conditions and limitations: (i) Tenant shall have the right, at
Tenant's sole cost and expense, to place a sign on each of the Building's east
and west exterior facades near the main entrances to the Building lobby, in
accordance with the signage specifications set forth on Exhibit F-l attached
hereto; (ii) Landlord shall not permit any other exterior signs on the Building
other than a Major Tenant Sign (as defined below) and signs for the Building's
retail tenants, without Tenant's prior approval, which shall not be unreasonably
withheld or delayed; and (iii) each Major Tenant Sign shall include the name of
the Building at the top, followed by Tenant's name and then by the names of the
other major tenants, and Tenant's name shall be larger than the name of any
other tenant. Tenant must submit plans for any Building signage to Landlord for
review and approval before Tenant shall be permitted to install any signage on
the exterior of the Building. Prior to the end of the Lease Term or on thirty
(30) days notice if Tenant fails to satisfy the conditions described in the
first sentence of this Section and such failure is not corrected within such
notice period, then Tenant at Tenant's sole cost and expense shall: (A) remove
any signage installed by Tenant on the Building exterior facades, (B) restore
the Building substantially to its condition prior to installation of such
signage, and (C) in the case where Tenant either requests that "IDX" be removed
from the Building's name or Landlord terminates Tenant's naming right by reason
of Tenant's default or Tenant's failure to lease, occupy and pay Rent on at
least twenty percent (20%) of the Total Net Rentable Area in the Building, then
Tenant shall reimburse Landlord for all reasonable expenses and costs incurred
by Landlord in connection with a change in the Building name. All exterior
signage for Tenant shall be provided at Tenant's sole cost and expense and shall
be subject to Landlord's reasonable approval and all City of Seattle and other
applicable governmental requirements. As used herein, the term "Major Tenant
Sign" shall mean any sign(s) designed and installed by Landlord and located at
or near the main entrances to the Building identifying the names of the
Building's largest or most significant tenants, as reasonably determined by
Landlord. Landlord and Tenant acknowledge that the sketch of a Major Tenant Sign
attached hereto as Exhibit F-2 is for representational purposes only to show the
basic concept discussed in clause (iii) above and that Landlord shall have the
sole right to design all Major Tenant Signs. The rights granted herein are
Personal Rights. Any change in the Building name from "IDX Tower at Fourth &
Madison" requested by Tenant shall be subject to Landlord's prior written
approval, which may be withheld in its discretion; provided, however, that with
respect to any requested change in the Building name to reflect the name of a
Qualified Transferee, Landlord shall not unreasonably withhold its approval
unless, in Landlord's judgment, the proposed new name will: (1) have an adverse
effect on the value of the Building or its reputation; (2) be offensive; or (3)
violate the provisions of any other tenant lease in the Building. Landlord and
Tenant will work together to develop a logo incorporating the name "IDX Tower at
Fourth & Madison" or such other similar project name incorporating "IDX" as
Landlord and Tenant may mutually select.

        5.7     Tenant Extra Improvements. Landlord shall administer
construction and installation of all Tenant Extra Improvements in the Premises,
at Tenant's expense, such installation to be made and paid for pursuant to the
provisions of Exhibit C in the same manner as the Tenant Improvements. Landlord
shall not seek the benefits of depreciation deductions or income tax credit
allowances for federal income tax reporting purposes with respect to any Tenant
Extra Improvements for which Tenant has fully reimbursed Landlord under this
Section 5.7. "Tenant Extra Improvements" shall mean the extent to which the
Tenant Improvements in the Premises differ materially from the Building Standard
Improvements, and, in this regard, following Landlord's review of Tenant's
Working Drawings, Landlord shall notify Tenant as to which elements of the
planned improvements it deems to be Tenant Extra Improvements hereunder and
which of such Tenant Extra Improvements Landlord may require Tenant to remove
from the Premises at the end of the Lease Term. Landlord shall notify Tenant no
later than sixty (60) days prior to the end of the Lease Term (or within thirty
(30) days after an earlier termination of this Lease) as to which of the Tenant
Extra Improvements must be so removed by Tenant and, if no such notice is
provided, Landlord shall be deemed to have elected to have all such Tenant Extra
Improvements removed from the Premises. However, Tenant Extra Improvements shall
not include elements of a

                                       20



standard buildout such as conference and meeting rooms, lunchrooms (not to
include commercial kitchen equipment), coffee stations, the Computer Room
(except for computer equipment and mechanical and electrical equipment located
therein), locker rooms constructed with the initial improvement of the Premises
(not to exceed eight (8) shower stalls and associated locker room space, in a
location mutually acceptable to Landlord and Tenant) and similar improvements.
In instances where this Lease refers to Tenant Extra Improvements as a standard
for the provision of services, maintenance, repair or replacement by Tenant or
Landlord, such reference shall be to the difference in required services,
maintenance, repairs or replacements between the Tenant Improvements as
constructed in the Premises and the Building Standard Improvements, had the
Building Standard Improvements been constructed in the Premises. "Tenant
Improvements" shall mean the improvements installed or to be installed on behalf
of Tenant and approved by Landlord pursuant to Exhibit C. The Cash Allowance (as
defined in Exhibit C) shall not be applied to the cost of any Tenant Extra
Improvements.

        5.8     Peaceful Enjoyment. Tenant shall peacefully have, hold and enjoy
the Premises, subject to the other terms hereof, provided that Tenant pays the
Rent and performs all of Tenant's covenants and agreements herein contained.
This covenant and the other covenants of Landlord contained in this Lease shall
be binding upon Landlord and its successors only with respect to breaches
occurring during its and their respective ownerships of Landlord's interest
hereunder.

        5.9     Tenant Improvements in Hold and Expansion Spaces. Landlord shall
be responsible for installation of Tenant Improvements in the Hold Space and the
First, Second and Third Expansion Spaces. The Tenant Improvements shall be
designed at the same time as the Tenant Improvements for the Minimum Initial
Premises and design and construction thereof shall be governed by Exhibit C
except that Landlord, in its sole discretion, may elect to either (i) complete
construction of the Tenant Improvements in the Hold Space and the First, Second
and Third Expansion Spaces at the same time as it completes construction of the
Tenant Improvements in the Minimum Initial Premises, or (ii) delay construction
of all or any portion of the Tenant Improvements in the Hold Space and the
First, Second and Third Expansion Spaces until such time as Tenant will occupy
such space. Tenant acknowledges that Landlord may lease the space to other
tenants until the date such space is required to be delivered to Tenant and
Tenant shall accept possession of the Hold Space and the First, Second and Third
Expansion Spaces with the Tenant Improvements in their then-current (used)
condition except that Landlord shall clean the space (including the carpets and,
as necessary, the walls) prior to delivery of possession. If Landlord elects to
delay construction of any Tenant improvements in the Hold Space or the First,
Second or Third Expansion Spaces or constructs other Improvements in any such
space for use by prior tenants, then Landlord shall complete the Tenant
Improvements (and remove any nonconforming prior improvements not otherwise
accepted by Tenant) prior to delivering possession of such space to Tenant.
Delivery of the Hold Space and Expansion Space to Tenant shall also to be
subject to the applicable provision of Exhibit C, including the process for
Tenant to inspect the space, prepare punchlists and require correction of
punchlist items.

                                    ARTICLE 6
                               TENANT'S COVENANTS

        6.1     Compliance With Exhibit C. Tenant shall comply with the terms
and conditions and deadlines set forth in Exhibit C with respect to the
construction of the Tenant Improvements in the Premises.

        6.2     Construction and Tenant Improvements. Tenant shall reimburse
Landlord for all costs incurred by a Landlord to construct of install Tenant
Extra Improvements on Tenant's behalf pursuant to Exhibit C. All additions to or
improvements of the Premises, whether of Building Standard Improvements or
Tenant Extra Improvements, shall be and become the property of Landlord upon
installation and shall be surrendered to Landlord upon termination of this Lease
by lapse of time or otherwise, except as otherwise stated herein. Although
Tenant Extra Improvements become the property

                                       21



of Landlord upon installation, they are intended to be for the convenience of
Tenant and are not intended to be a substitute for Rent or any part thereof.

        6.3     Telecommunications. Tenant shall install and maintain all
required intrabuilding network cable and other communications wires and cables
necessary to serve the Premises from the point of presence in the Building.
Tenant shall obtain any telecommunications services within the Building from
vendors selected by Landlord or vendors selected by Tenant and approved by
Landlord in its reasonable discretion (a "Provider"). In the event that Tenant
desires to obtain telecommunications services from a Provider not selected by
Landlord then Tenant shall submit to Landlord a list of such proposed vendor(s)
together with such other information regarding the vendors as Landlord may
request, including financial information, references from at least two (2)
owners of comparable projects in which the vendor has experience and description
of the vendor's business activities in the Market Area. Landlord shall notify
Tenant within thirty (30) Business Days of receipt of the list if Landlord
approves any of Tenant's proposed vendors, with such approval not to be
unreasonably withheld. Failure to notify Tenant shall be deemed disapproval. If
Landlord approves any telecommunication Provider selected by Tenant, the
Provider must agree in writing to abide by all of Landlord's policies and
procedures for telecommunications vendors and to pay for the use of any space
outside the Premises needed to install the vendor's equipment at the rate
established by Landlord from time to time, provided that (a) the fee shall not
be based on the Provider's revenue or profits unless changes to applicable laws
and regulations would make such a limitation illegal or would require Landlord
to provide similar pricing to other tenants or their telecommunications
providers, and (b) the terms offered to the Provider shall not be materially
less favorable than the terms offered to other providers in the Building (with
the exception of a regulated Incumbent Local Exchange Carrier which is currently
U.S. West). If Tenant desires to utilize the services of a Provider not selected
by Landlord, such Provider must obtain the written consent of Landlord to the
plans and specifications for its lines or equipment within the Building prior to
installation in the Building and must install such lines and equipment in
locations designated by Landlord. Tenant shall obtain any necessary governmental
permits relating to the installation, use or operation of Provider's lines and
equipment. Landlord shall provide Tenant and its Provider and contractors with
reasonable access to portions of the Building outside the Premises to the extent
necessary to install, maintain or replace any telecommunications equipment
serving the Premises. Landlord's consent to a Provider shall not be deemed to
constitute a representation or warranty as to the suitability, capability or
financial strength of any Provider. To the extent the service by a Provider is
interrupted, curtailed or discontinued for any reason whatsoever, Landlord shall
have no obligation or liability in connection therewith. The provisions of this
Section are solely for the benefit of Tenant and Landlord, are not for the
benefit of any third party; and no telephone or telecommunications provider
shall be deemed a third party beneficiary hereof. Tenant acknowledges and agrees
that Landlord has not represented or warranted that Tenant will have unlimited
access to riser space or other space outside the Premises for the purpose of the
Antenna and Landlord shall have no obligation to construct or designate
additional riser space or equipment space to accommodate the Antenna. Tenant
acknowledges that roof and riser space are a finite commodity and that Antenna.
Tenant acknowledges that roof and riser space are a finite commodity and that
Landlord may in its discretion limit Tenant's total use of such space to
accommodate and take into account use of the Building systems and the needs of
other Building tenants; provided that at all times Landlord shall provide for
Tenant's use: (i) four (4) four inch (4") sleeves in the floor slabs in the
Communications Rooms (as defined in Paragraph 10(e) on Exhibit C) on Floors 3
through 18; and (ii) one (1) four inch (4") sleeve in the floor slabs in the
Communications Rooms on Floors 3 through the roof of the Building, but Tenant
shall be responsible for installation, maintenance, repair, replacement and
removal of all conduit, wiring and cabling therein.

        6.4     Taxes on Personal Property and Tenant Extra Improvements. In
addition to, and wholly apart from its obligation to pay Tenant's Proportionate
Share of Operation Costs, Tenant shall be responsible for, and shall pay prior
to delinquency, all taxes or governmental service fees, possessory interest
taxes, fees or charges in lieu of any such taxes, capital levies, or other
charges imposed upon, levied with respect to or assessed against Tenant's
Personal Property (as defined in Section 11.1), on the

                                       22



value of its Tenant Extra Improvements, on its interest pursuant to this Lease
or on any use made of the Premises or the Common Areas by Tenant in accordance
with this Lease. To the extent that any such taxes are not separately assessed
or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant
by Landlord.

        6.5     Repairs by Tenant. Tenant shall maintain and repair the Premises
and keep the same in good condition, reasonable wear and tear excepted. Tenant's
obligation shall include, without limitation, the obligation to maintain and
repair all walls, floors, ceilings and fixtures and to repair all damage caused
by Tenant or Tenant's employees, agents, contractors, officers, directors,
partners, members, licensees, invitees and guests ("Tenant Parties") to the
Premises or the Building, whatever the scope of the work of maintenance or
repair required. Tenant shall repair all damage caused by removal of Tenant's
movable equipment or furniture or the removal of any Tenant Extra Improvements
or Alterations (as defined in Section 6.7) permitted or required by Landlord,
all as provided in Section 6.13. Any repair or maintenance that Tenant is
required to perform under this Lease shall be performed at Tenant's expense by
Landlord's employees as an "Extra Service" subject to Section 5.4, or at
Tenant's election by contractors selected or reasonably approved by Landlord
(such approval not to be unreasonably withheld or delayed as to contractors
performing work on other than Building systems or structural elements of the
Building). If Tenant fails or refuses to perform such work in a timely and
efficient manner, then Landlord may perform such work for the account of Tenant
as an Extra Service, after first providing at least twenty-four (24) hour prior
notice to Tenant (except in emergencies where no such notice shall be required).
Any work of repair and maintenance performed by or for the account of Tenant by
persons other than Landlord shall be performed at Tenant's risk using
contractors approved by Landlord prior to commencement of the work and in
accordance with procedures Landlord shall from time to time establish. All such
work shall be performed in compliance with all applicable laws, ordinances,
rules and regulations and Tenant shall provide to Landlord copies of all permits
and records of inspection issued or obtained by Tenant in connection therewith
to establish such compliance. Tenant shall not be required to perform any
maintenance or repair: (a) to the Building Components, to the extent such are
located outside of the Premises and any such repairs are not necessitated by
reason of the negligence or wrongful acts of any Tenant Party; (b) the Common
Areas, to the extent any such repairs are not necessitated by reason of
negligence or wrongful acts of any Tenant Party; or (c) required solely by
reason of the negligence or wrongful acts of Landlord or its employees, agents,
contractors, officers, directors, partners, licensees, invitees and guests,
Landlord's affiliates or Landlord's members ("Landlord Parties"). Tenant shall
promptly notify Landlord of any needed repairs in the Premises or to the
Building Components.

        6.6     Waste. Tenant shall not commit or allow Tenant Parties to commit
any waste or damage in any portion of the Premises or the Building.

        6.7     Alterations, Additions, Improvements. Tenant shall not make or
allow to be made any alterations, additions or improvements in or to the
Premises (collectively, "Alterations") without obtaining the prior written
consent of Landlord, except where set forth to the contrary herein. Landlord's
consent shall not be unreasonably withheld or delayed with respect to proposed
Alterations that (a) comply with all applicable laws, ordinances, rules and
regulations; (b) are compatible with the Building, its architecture and its
mechanical, electrical, HVAC and life safety systems; (c) do not interfere with
the use and occupancy of any other portion of the Building by any other tenant
or their invitees; (d) do not affect the structural portions of the Building;
(e) are designed to be consistent with a standard office buildout; (f) do not
reduce the value of the Premises or materially increase the cost to Landlord of
reletting the Premises; and (g) do not and shall not, whether alone or taken
together with other improvements, require the construction of any other
improvements or alterations within the Building. In determining whether to
consent to the proposed Alterations, Landlord shall have the right to review
plans and specifications for proposed Alterations (in the manner and detail as
set forth in Section 5 of Exhibit C). construction means and methods, the
identity of any contractor or subcontractor to be employed on the work for
Alterations,

                                       23



and the time for performance of such work. Notwithstanding the foregoing,
Alterations which do not affect any Building systems or structural elements of
the Building and involve only painting, floor or wall covering replacement or
installation or relocation of nonload bearing interior walls, shall not require
Landlord's consent but at least thirty (30) days prior written notice thereof
shall be delivered to Landlord. Tenant shall supply to Landlord any documents
and information requested by Landlord in connection with any Alterations to the
Premises. Landlord may hire outside consultants to review such documents and
information and Tenant shall reimburse Landlord for the cost thereof as well as
Landlord's internal costs as an Extra Service subject to Section 5.4. All
Alterations permitted hereunder shall be made and performed by Tenant using
contractors and subcontractors approved by Landlord (which shall not be
unreasonably withheld except that contractors involved in any work affecting any
Building systems or structural elements of the Building shall be designated by
Landlord in its sole discretion) or, at Tenant's election, may be performed by
Landlord or by contractors selected by Landlord, without cost or expense to
Landlord and, if performed by Landlord or its contractors, as an Extra Service.
Upon completion of any Alterations, Tenant shall provide Landlord, at Tenant's
expense, with a complete set of "as built" plans on mylar and specifications
reflecting the actual conditions of the Alterations as constructed in the
Premises, together with a copy of such plans on diskette in the AutoCAD format
or such other format as may then be in common use for computer assisted design
purposes. The obligations of the parties with respect to removal of Alterations
and restoration of the Premises shall be controlled by Section 6.13.

        At the time of giving its approval to any Alterations, Landlord shall
inform Tenant as to which elements or components of such Alterations Landlord
may require Tenant to remove from the Premises at the end of the Lease Term,
provided that Landlord cannot require Tenant to remove Alterations that
constitute Building Standard Improvements, and Landlord shall further inform
Tenant of any changes in its requirements arising from actual changes in the
Alterations work, following Landlord's receipt and review of as-built drawings
relating thereto. Landlord shall notify Tenant no later than sixty (60) days
prior to the end of the Lease Term (or within thirty (30) days after an earlier
termination of this Lease) as to which of such elements or components must be so
removed by Tenant and, if no such notice is provided, Landlord shall be deemed
to have elected to have all such elements and components removed by Tenant.

        6.8     Liens. Tenant shall keep the Premises and the Building free from
any liens arising out of any (a) work performed or material furnished to or for
the Premises, and (b) obligations incurred by or for Tenant or any person
claiming through or under Tenant. Tenant shall, within ten (10) days following
the imposition of any such lien, cause such lien to be released of record by
payment or posting of a bond fully satisfactory to Landlord in form and
substance and in compliance with RCW 60.04. Landlord shall have the right at all
times to post and keep posted on the Premises any notices permitted or required
by law, or that Landlord shall deem proper for the protection of Landlord, the
Premises, the Building and any other party having an interest therein, from
mechanics', materialmen's and other liens. Landlord may cause such liens to be
released by any means it deems proper, including, without limitation, payment of
any such lien, at Tenant's sole cost and expense. All costs and expenses
incurred by Landlord in causing such liens to be released shall be repaid by
Tenant to Landlord immediately upon demand, together with an administrative fee
equal to twenty percent (20%) of such costs and expenses. In addition to all
other requirements contained in this Lease, Tenant shall give Landlord at least
ten (10) Business Days prior written notice before commencement of any
construction on the Premises. Landlord hereby waives all statutory liens in the
nature of a landlord's lien on any personal property owned by Tenant and located
in the Premises.

        6.9     Compliance With Laws and Insurance Standards.

                (a)     Tenant shall comply with all federal, state and local
laws, ordinances, orders, rules, regulations and policies (collectively,
"Laws"), now or hereafter in force, as amended from time to time, in any way
related to the use, condition or occupancy of the Premises, regardless of when
such Laws become effective, including, without limitation, all applicable
Hazardous Materials Laws (as

                                       24



defined in Section 7.2(a)), the Americans with Disabilities Act of 1990, as
amended and any laws prohibiting discrimination against, or segregation of, any
person or group of persons on account of race, color creed, religion, sex,
marital status, national origin or ancestry. If and to the extent such
compliance is required under the Laws, Tenant shall have the right to reasonably
contest any attempted enforcement of the Laws, provided that Tenant shall not
allow any fines, penalties, orders or injunctions to be issued in connection
with any such disputed matters. Tenant shall also comply with the terms of any
transportation management program or similar programs affecting the Building and
required by any governmental authority. Tenant shall immediately deliver to
Landlord a copy of any notices received from any governmental agency in
connection with the Premises. It is the intention of Tenant and Landlord that
the obligations of Tenant under this Section 6.9 shall apply irrespective of the
scope of work required to achieve such compliance. Tenant shall not use or
occupy the Premises in any manner that creates, requires or causes imposition of
any requirement by any governmental authority for structural or other upgrading
of or improvement to the Building.

                (b)     Tenant shall not occupy or use, or permit any portion of
the Premises to be occupied or used, for any business or purpose that is
disreputable or constitutes a fire hazard. Tenant shall not permit anything to
be done that would increase the rate of fire or other insurance coverage on the
Building and/or its contents. If Tenant does or permits anything to be done that
increases the cost of any insurance policy carried by Landlord, then Tenant, at
Landlord's option, shall not be in default under this Lease, but shall reimburse
Landlord, upon demand, for any such additional premiums as an Extra Service.
Landlord shall use good faith efforts to advise Tenant at the time of Landlord's
review of the Working Drawings (and any Alterations) whether Tenant's proposed
design (or Alterations) is likely to result in additional insurance premiums.

        6.10    Entry for Repairs, Inspection, Posting Notices, Etc. After
reasonable notice (which shall mean at least 24 hour prior notice, except in
emergencies or circumstances where Landlord needs to access communications
closets through a Communications Room where no such notice shall be required),
Landlord or Landlord Parties shall have the right to enter the Premises to
inspect the same, to clean, to perform such work as may be permitted or required
hereunder, to make repairs to or alterations of the Building or other tenant
spaces therein, to deal with emergencies, to post such notices as may be
permitted or required by law to prevent the perfection of liens against
Landlord's interest in the Building or to exhibit the Premises to prospective
tenants, purchasers, encumbrancers or others, or for any other purpose as
Landlord may deem necessary or desirable. Landlord shall make reasonable efforts
not to unreasonably interfere with Tenant's business operations and, in the case
of secured access designated by Tenant within the Premises, Landlord's access
shall be coordinated with a Tenant representative (except in emergencies). So
long as Tenant is not in default hereunder, Landlord shall not exhibit the
Premises to prospective tenants except during the last twelve (12) months of the
Lease Term. In no event shall Tenant be entitled to any abatement of Rent by
reason of the exercise of any such right of entry.

        6.11    No Nuisance. Tenant shall not create any nuisance, or interfere
with, annoy, endanger or disturb any other tenant or Landlord in its operation
of the Building. Tenant shall not place any loads upon the floor, walls or
ceiling of the Premises that endanger the structure nor place any harmful
liquids or Hazardous Material (as defined in Section 7.2) in the drainage system
of the Building. Tenant shall not permit any vibration, noise or odor to escape
from the Premises and shall not do or permit anything to be done within the
Premises which would adversely affect the quality of the air in the Building.
Landlord shall use good faith efforts to include this provision in other tenant
leases in the Building which are entered into after the date of this Lease.

        6.12    Rules and Regulations. Tenant shall comply with the rules and
regulations for the Building attached as Exhibit D and such amendments or
supplements thereto as Landlord may adopt from time to time with at least ten
(10) Business Days prior notice to Tenant. Landlord shall not be liable to
Tenant for or in connection with the failure of any other tenant of the Building
to comply with any rules and regulations applicable to such other tenant under
its lease, but Landlord shall use good faith efforts to

                                       25



apply such rules and regulations on a uniform basis among all tenants. In the
event of any conflict between such rules and regulations and the terms of this
Lease, the terms of this Lease shall control.

        6.13    Surrender of Premises On Termination. On expiration of the Term,
Tenant shall quit and surrender the Premises to Landlord, broom clean, in good
order, condition and repair as required by this Lease (subject to ordinary wear
and tear), with all of Tenant's movable equipment, furniture, trade fixtures and
other personal property removed therefrom. In addition, Tenant shall, within ten
(10) Business Days following the Expiration Date, remove all telecommunications
and computer networking wiring and cabling serving the Premises (except cabling
within partition walls) from the Building, unless Landlord requires such
materials to be surrendered to Landlord, and during such ten (10) Business Day
period Tenant shall pay to Landlord Rent for the Premises based on the same
rates paid on the day preceding the Expiration Date. All Alterations and Tenant
Improvements that are to remain at the Premises shall be surrendered with the
Premises in good condition and repair, reasonable wear and tear (but only to an
extent consistent with the premises remaining in good condition and repair) and
casualty damage excepted. Any property of Tenant not removed from the Premises
shall be deemed, at Landlord's option, to be abandoned by Tenant and Landlord
may store such property in Tenant's name at Tenant's expense, and/or dispose of
the same in any manner permitted by law. If Landlord desires to have the
Premises, or any part or parts thereof, restored to a condition that existed
prior to installation of any Tenant Extra Improvements or to the condition prior
to making any Alterations (other than Alterations which are Building Standard
Improvements), Landlord may so notify Tenant in writing at least sixty (60) days
prior to the regularly scheduled Expiration Date (or if this Lease is sooner
terminated, within ten (10) days after the date of such termination); and upon
receipt of such notice, Tenant shall, at Tenant's sole cost and expense, so
restore the Premises, or such part or parts thereof, within Ten (10) Business
Days after the regularly scheduled Expiration Date (or if this Lease is sooner
terminated, within ten (10) days after receipt of notice); provided, however,
Tenant's restoration obligation shall be limited to restoring elements of the
Building's structure and Building systems to their original shell and core
condition. Tenant shall repair at its sole cost and expense, all damage caused
to the Premises or the Building by removal of Tenant's movable equipment or
furniture and such Tenant Extra Improvements and Alterations as Tenant shall be
allowed or required to remove from the Premises by Landlord. If the Premises are
not surrendered as of the end of the Term (or the end of the Permitted Holdover
Term as defined in Section 14.2 below, if applicable) in the manner and
condition herein specified (including any restoration required hereunder),
Tenant shall indemnify, defend, protect and hold Landlord and Landlord Parties
harmless from and against any and all damages resulting from or caused by
Tenant's delay or failure in so surrendering the Premises, including, without
limitation, any claims made by any succeeding tenant due to such delay or
failure. Tenant acknowledges that Landlord shall be attempting to lease the
Premises with any such lease to be effective upon expiration of the Term, and
failure to surrender the Premises could cause Landlord to incur liability to
such successor tenant(s) for which Tenant shall be responsible (except as
limited below). Landlord agrees to provide Tenant with written notice of any
such liability (including, by way of example but not limitation, delay in
delivery penalties) for which Landlord may be liable to tenants under signed
leases, within a reasonable time following full execution thereof, which notice
shall specify the potential level of damages and the circumstances under which
such damages could be incurred, and Landlord shall use good faith efforts to
mitigate all such damages. Notwithstanding anything to the contrary in this
Section 6.13 or this Lease, Tenant's liability to Landlord for consequential
damages incurred by Landlord from third-party claims arising by reason of
Tenant's failure to surrender the Premises when and as required hereunder shall
not exceed the liabilities disclosed to Tenant by Landlord under the preceding
sentence (but no such limitation shall apply to Landlord's actual damages or
costs).

        6.14    Corporate Authority. If Tenant is a corporation or limited
liability company or partnership, or if Tenant is a partnership on whose behalf
a partner which is a corporation or limited liability company executes this
Lease, then in any such case, each individual executing this Lease on behalf of
such corporation, limited liability company or partnership represents and
warrants that he or she

                                       26



is duly authorized to execute and deliver this Lease on behalf of said
corporation, limited liability company and/or partnership, as the case may be.

        6.15    Utilities. Tenant shall not obtain any electrical or other
utility services from vendors other than those selected by Landlord or approved
by Landlord in writing in accordance with the provisions of Section 6.3.

                                    ARTICLE 7
                               HAZARDOUS MATERIALS

        7.1     Prohibition and Indemnity With Respect to Hazardous Materials.
Except as stated below, Tenant shall not cause or permit any Hazardous Material
to be brought upon, kept or used in or about the Premises by Tenant or Tenant
Parties without the prior written consent of Landlord. Tenant may, at Tenant's
risk, bring, store and use reasonable quantities of Permitted Hazardous
Materials in the Premises for their intended use. If Tenant violates this
provision, or if contamination of the Premises or the Real Property by Hazardous
Material occurs for which Tenant or any Tenant Party is responsible, or if
Tenant's activities or those of Tenant Parties result in or cause a Hazardous
Materials Claim, then Tenant shall indemnify, defend, protect and hold Landlord
and Landlord Parties harmless from and against any and all claims, judgments,
damages, penalties, fines, costs, expenses, liabilities or losses (including,
without limitation, diminution in value of the Premises or the Building or the
Real Property, damages for the loss or restriction on use of rentable or usable
space or of any amenity of the Premises or the Building, damages arising from
any adverse impact on marketing of space, and sums paid in settlement of claims,
attorneys' fees, consultants' fees and experts' fees) (collectively, "Claims")
which arise during or after the Term as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work required by any federal, state or local
government agency or political subdivision because of any Hazardous Material
present in the soil or ground water on or under the Premises. The foregoing
indemnity shall survive the expiration or earlier termination of this Lease.
Tenant acknowledges, confirms and agrees that this provision and the indemnities
herein apply to any Claims arising out of or relating to the diesel fuel tank
permitted under Section 14.28 below.

        7.2     Definitions. The following terms shall have the meanings given
below for purposes of this Lease.

                (a)     "Hazardous Material" shall mean any (a) diesel fuel,
oil, flammable substances, explosives, radioactive materials, hazardous wastes
or substances, toxic wastes or substances or any other wastes, materials or
pollutants which (i) pose a hazard to the Building or to persons on or about the
Building or (ii) cause the Building to be in violation of any Hazardous
Materials Laws; (b) asbestos in any form, urea formaldehyde foam insulation,
transformers or other equipment that contain dielectric fluid containing levels
of polychlorinated biphenyls, or radon gas; (c) chemical, material or substance
define as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste," "restricted
hazardous waste," "moderate risk waste," or "toxic substances" or words of
similar import under any applicable local, state or federal law or under the
regulations adopted or publications promulgated pursuant thereto, including, but
not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et
seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section
1251, et seq.; and the Model Toxics Control Act, as amended, RCW 70.105D; (d)
chemicals, materials or substances, exposure to which is prohibited, limited or
regulated by any governmental authority or may or could pose a hazard to the
health and safety of the occupants of the Building or the owners and/or
occupants of property adjacent to or surrounding the Building, or any other
person coming upon the Building or adjacent property; and (e) other chemicals,
materials or substances which may or could pose a hazard to the environment.

                                       27



                (b)     "Hazardous Materials Claims" shall mean any enforcement,
cleanup, removal, remedial or other governmental or regulatory actions,
agreements or orders instituted pursuant to any Hazardous Materials Laws; and
any claims made by any third party against Landlord, Tenant or the Building
relating to damage, contribution, cost recovery compensation, loss or injury
resulting from the presence, release or discharge of any Hazardous Materials.
Tenant shall promptly cure and satisfy all Hazardous Materials Claims arising
out of or by reason of the activities or business of Tenant, Tenant Parties or
any party claiming by or through Tenant and its employees, agents, contractors,
officers, directors, partners, licensees, invitees and guests.

                (c)     "Hazardous Materials Laws" shall mean any federal, state
or local laws, ordinances, orders, rules, regulations or policies, now or
hereafter in force, as amended from time to time, in any way relating to the
environment, health and safety, and Hazardous Materials (including, without
limitation, the use, handling, transportation, production, disposal, discharge
or storage thereof) or to industrial hygiene or the environmental conditions on,
under or about the Building and Real Property, including, without limitation,
soil, groundwater and indoor and ambient air conditioning.

                (d)     "Permitted Hazardous Materials" shall mean (i) diesel
fuel to power the Generator as permitted under Section 14.28 below, and (ii)
Hazardous Materials which are contained in ordinary office supplies of a type
and in quantities typically used in the ordinary course of business within
executive offices of similar size and location, but only if and to the extent
that such supplies are transported, stored and used in full compliance with all
Hazardous Materials Laws and their packaging instructions and otherwise in a
safe and prudent manner. Diesel fuel or other Hazardous Materials which are
contained in ordinary office supplies but which are transported, stored and used
in a manner which is not in full compliance with all Hazardous Material Laws and
their packaging instructions or which is not in any respect safe and prudent
shall not be deemed to be "Permitted Hazardous Materials" for the purposes of
this Lease.

        7.3     Landlord's Representations and Undertakings. Landlord hereby
discloses, covenants and represents to Tenant as follows:

                (a)     Asbestos containing material was removed from
improvements located on a portion of the Real Property prior to demolition of
such improvements and, to the best of Landlord's knowledge, was properly
disposed of by a licensed asbestos contractor;

                (b)     Petroleum-based residue was detected in some of the
soils beneath the surface of a portion of the Real Property, which soils shall
be removed, remediated and/or properly disposed of during the excavation of the
Real Property;

                (c)     Landlord shall construct the Building without knowingly
incorporating therein any Hazardous Materials (other than Hazardous Materials
which are used in the ordinary course of construction, maintenance or operation
of similar buildings, to the extent transported, stored and used in full
compliance with all Hazardous Materials Laws); and

                (d)     Landlord shall use good faith efforts to include a
provision similar to Section 7.1 in all other tenant leases in the Building
entered into after the date of this Lease.

                                    ARTICLE 8
                             ASSIGNMENT OR SUBLEASE.

        8.1     Consent Required. Tenant shall not assign this Lease in whole or
in part, sublease all or any part of the Premises or otherwise sell, transfer or
hypothecate this Lease or grant any right to use or occupy the Premises to
another party (all of such events shall be referred to herein as a "Transfer"
and any such assignee, purchaser, subtenant or other transferee shall be a
"Transferee" for purposes of this Article) without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed. If Tenant
intends to enter into a Transfer, Tenant shall give Landlord at least thirty
(30) days

                                       28



written notice of such intent. Tenant's notice shall set forth the effective
date of such Transfer and shall be accompanied by an exact copy of the proposed
agreements between Tenant and the proposed Transferee and complete financial
information regarding the proposed Transferee. If requested by Landlord, Tenant
shall provide Landlord with (a) any additional information or documents
reasonably requested by Landlord relating to the proposed Transfer or the
Transferee, and (b) an opportunity to meet and interview the proposed
Transferee. This Lease may not be transferred by operation of law. All of the
following shall constitute Transfers subject to this Article 8: (x) if Tenant is
a corporation that is not publicly traded on a national exchange, then any
transfer of this Lease by merger, consolidation or liquidation, or any direct,
indirect or cumulative change in the ownership of, or power to vote the majority
of Tenant's outstanding voting stock, shall constitute a Tansfer; (y) if Tenant
is a partnership, then a change in general partners in, or voting or
decision-making control of, the partnership shall constitute a Transfer; and (z)
if Tenant is a limited liability company, then a change in members in, or voting
or decision-making control of, the limited liability company shall constitute a
Transfer. Any change in ownership of Tenant's parent of the type described in
(x), (y) or (z) above shall also constitute a Transfer subject to this Article
8. These provisions shall apply to any single transaction or any series of
related or unrelated transactions having the effect described.

        8.2     Transfers to Qualified Transferees, Joint Ventures.
Notwithstanding anything herein to the contrary, Landlord shall consent to any
proposed Transfer by Tenant under this Article 8 to: (i) any of the following (a
"Qualified Transferee"): (a) an entity which is a wholly-owned subsidiary of
Tenant; (b) an entity with which or into which Tenant may merge, whether or not
Tenant is the survivor of such merger; or (c) any entity that is controlled by,
controls or is under common control with Tenant (provided, however, that in all
cases under clauses (a) through (c), such entity shall have a creditworthiness
which is equal to or greater than that of Tenant at the time of the proposed
Transfer, as determined by Landlord in its reasonable discretion); or (ii) a
sublease of one floor or less of the Premises to any partnership or joint
venture between Tenant and a business partner of Tenant, in which Tenant owns a
significant and material interest in such entity (a "Qualified Joint Venture")
and the subleased space is not demised separately from the balance of the
Premises. "Control" for purposes of this Article 8 shall mean ownership of a
majority voting interest in any such entity. In the event Tenant desires to
effect any transfer pursuant to this Section 8.2, Tenant must provide Landlord
with at least thirty (30) days' prior written notice of such proposed Transfer,
together with such evidence as Landlord may reasonably request to establish that
the proposed Transferee is a Qualified Transferee or a Qualified Joint Venture
as defined herein.

        8.3     Landlord's Options. If Tenant proposes a Transfer (other than a
Transfer to a Qualified Transferee or a permitted Transfer to a Qualified Joint
Venture) then Landlord may elect to: (a) terminate this Lease as to the Affected
Space (as hereinafter defined) as of the date specified by Tenant in its notice
under Section 8.1, if the proposed Transfer is (1) for the remaining,
then-existing Term of this Lease, or (2) to an existing tenant or occupant of
the Building and for a term longer than three (3) years (including extension
rights); (b) terminate this Lease as to the Total Affected Space (as hereinafter
defined) as of the date specified by Tenant in its notice under Section 8.1 if
the Total Affected Space exceeds:(1) the equivalent of one (1) floor of Net
Rentable Area until Tenant has occupied and commenced paying Rent on the First
Expansion Space; or (2) the equivalent of two (2) floors of Net Rentable Area at
any time thereafter; (c) permit Tenant to complete the Transfer on the terms set
forth in such notice, subject, however, to such reasonable conditions as
Landlord may require and to the balance of this Article 8; or (d) deny the
request to Transfer the Lease so long as Landlord's denial is not unreasonable.
Landlord shall have a period of twenty (20) days following any interview and
receipt of such additional information as Landlord reasonably requests (or
thirty (30) days from the date of Tenant's original notice if Landlord does not
request additional information or an interview) within which to respond to
Tenant's request. If Landlord fails to notify Tenant in writing of such election
within said period, Landlord shall be deemed to have waived options (a) and (b)
above and to have denied consent to the proposed Transfer. In deciding whether
to consent to a proposed Transfer, Landlord may consider any factors that
Landlord deems

                                       29



relevant, including but not limited to the following: (i) whether the use of the
Premises by the proposed Transferee would be a Permitted Use; (ii) whether the
proposed Transferee is of sound financial condition and has sufficient financial
resources and business expertise, as determined by Landlord, to perform under
this Lease; (iii) whether the proposed Transferee's use involves the storage,
use, treatment or disposal of any Hazardous Materials; (iv) whether the proposed
use or the proposed Transferee could cause the violation of any covenant or
agreement of Landlord to any third party or sublessee or permit any other tenant
to terminate its lease; (v) whether there is other comparable space available
for lease in the Building in the same elevator bank in which Tenant desires to
sublease space; and (vi) whether the terms of the proposed Transfer are
reasonable; however, Landlord may not consider as a factor whether the proposed
Transferee leases or occupies any other space in the Building or whether there
is other comparable space available for lease in the Building in another
elevator bank. Failure by Landlord to approve a proposed Transfer shall not
cause a termination of this Lease, and the sole remedy of Tenant shall be an
action for injunctive or declaratory relief. As used herein, the term "Affected
Space" shall mean all Net Rentable Area covered by a particular proposed or
approved Transfer, and the term "Total Affected Space" shall mean the sum of the
Affected Space in the proposed Transfer and all Affected Space in all prior
Transfers approved by Landlord hereunder (to the extent such Transfers have not
terminated or expired by the date of Tenant's notice under Section 8.1). In the
event Landlord exercises its option under clause (b), then at Landlord's
election, Tenant shall either assign its interest in and under all prior
Transfers to Landlord or terminate such prior Transfers and direct the subtenant
or assignee to enter into a new direct lease with Landlord on substantially the
same terms of such prior Transfer.

        Notwithstanding the foregoing, if Tenant proposes a Transfer and
Landlord exercises either option (a) or option (b) above, Tenant may withdraw
its request by written notice to Landlord given within five (5) Business Days
after Landlord's delivery of its notice of recapture hereunder, in which event
such Transfer shall not occur, neither option (a) or option (b) shall become
effective, and this Lease shall remain in full force and effect as to the space
subject to the proposed Transfer.

        8.4     Minimum Rental; Division of Excess Rent. Any rent or other
consideration realized by Tenant in connection with or as a result of any
Transfer (other than a Transfer to a Qualified Transferee or a Qualified Joint
Venture) in excess of the Base Rent payable hereunder, after first deducting all
reasonable and customary costs actually incurred by Tenant to effect such
Transfer (such as tenant improvements, brokerage fees, advertising costs and the
like) shall be divided equally between Landlord and Tenant and Landlord's share
shall be paid promptly after receipt thereof to Landlord as Rent hereunder;
provided, however, that Landlord shall be entitled to receive the total rent and
other consideration if Tenant is in default of any obligation under this Lease
until such default is cured.

        8.5     Tenant Not Released. No Transfer by Tenant shall relieve Tenant
of any obligation under this Lease unless otherwise agreed by Landlord in
writing. Any Transfer that conflicts with the provisions hereof shall be void.
No consent by Landlord to any Transfer shall constitute a consent to any other
Transfer nor shall it constitute a waiver of any of the provisions of this
Article 8 as they apply to any such future Transfers. Following any Transfer,
the obligations for which the Tenant or subsequent transferor remains liable
under this Lease shall include all obligations under this Lease in effect at the
time of the Transfer and any subsequent amendments to this Lease executed by
Landlord and the Transferee (other than amendments that will have a material,
adverse economic effect on Tenant and which have not been consented to in
writing by Tenant). Tenant covenants and agrees that the documentation
evidencing any Transfer involving an assignment shall not restrict or limit the
Transferee's right or ability to amend this Lease.

        8.6     Written Agreement. Any Transfer must be in writing and the
Transferee shall assume in writing, for the express benefit of Landlord, all of
the obligations of Tenant under this Lease with respect to the space
transferred, provided that no such assumption shall be deemed a novation or
other release of the transferor unless otherwise agreed in writing. Tenant shall
provide to Landlord true and correct copies of the executed Transfer documents
and any amendment thereto during the Term.

                                       30



        8.7     No Transfer Period. Except with respect to Qualified Transferees
and Qualified Joint Ventures pursuant to Section 8.2 above, Tenant shall not
enter into any Transfer of this Lease until the earlier of (a) two (2) years
after the Term Commencement Date, or (b) the date on which the Building is
eighty-five percent (85%) leased and occupied.

        8.8     Conditions. Landlord may condition its consent to any proposed
Transfer on such conditions as Landlord may reasonably require including,
construction of any improvements deemed necessary or appropriate by Landlord by
reason of the Transfer. Any improvements, additions, or alterations to the
Building that are required by any law, ordinance, rule or regulation, or are
deemed necessary or appropriate by Landlord as a result of any Transfer
hereunder, shall be installed and provided by Tenant in accordance with Section
6.7, without cost or expense to Landlord.

        8.9     Expenses. Landlord may hire outside consultants to review the
Transfer documents and information. Tenant shall reimburse Landlord for all
reasonable costs and expenses incurred by Landlord in connection with any
request for consent under this Article 8 (even if consent is denied or the
request is withdrawn) and such reimbursement shall include the allocated cost of
Landlord's or its management company's staff plus all out-of-pocket expenses,
including reasonable attorneys' fees, on demand.

        8.10    No Restriction on Landlord. Without liability to Tenant,
Landlord shall have the right to offer and to lease space in the Building, or in
any other property, to any party, including without limitation parties with whom
Tenant is negotiating, or with whom Tenant desires to negotiate, a Transfer.

        8.11    No Leasehold Financing. Tenant shall not encumber, pledge or
mortgage the whole or any part of the Premises or this Lease, nor shall this
Lease or any interest thereunder be assignable or transferable by operation of
law or by any process or proceeding of any court or otherwise without the prior
written consent of Landlord, which consent may be given or withheld in
Landlord's sole discretion.

                                    ARTICLE 9
                     CONDITION AND OPERATION OF THE BUILDING

        9.1     Limited Warranties. Landlord's entire obligation with respect to
the condition of the Premises, its suitability for Tenant's uses and the
improvements to be installed therein shall be as stated in Section 1.1(a),
Section 5.9 or Exhibit C. Landlord shall have no other obligation of any kind or
character, express or implied, with respect to the condition of the Premises, or
the Building or the suitability thereof for Tenant's purposes, and Tenant
acknowledges that it has neither received nor relied upon any representation or
warranty made by or on behalf of Landlord with respect to such matters, except
as expressly set forth herein. Notwithstanding the foregoing, Landlord hereby
represents and warrants to Tenant, as of the date of this Lease, as follows.

                (a)     The Building is or shall be designed to comply with all
applicable Laws, including the Americans With Disabilities Act of 1990, as such
Laws are in effect as of the date of issuance of the building permit for the
Building; and

                (b)     Except as otherwise disclosed to Tenant in this Lease,
Landlord is not aware of any adverse environmental conditions, affecting, or the
presence of any Hazardous Materials (other than those permitted under this
Lease) on, the Real Property.

        9.2     Building Alterations. Except to the extent limited by Section
1.1(a), Landlord may, in its sole discretion, at any time and from time to time:
(a) make alterations, structural modifications, seismic modifications or
additions to the Building (including building additional stories), except
modifications that cover any external window in the Premises other than
modifications required by any Laws; (b) change, add to, eliminate or reduce the
extent, size, shape or configuration of any aspect of or improvement (including
the Building) located on the Real Property or its operations; (c) change the
arrangement, character, use or location of corridors, stairs, toilets,
mechanical, plumbing, electrical or other operating systems or any other parts
of the Building; (d) change the name, number or designation by

                                       31



which the Building is commonly known (subject to Tenant's rights under Section
5.6); or (e) alter or relocate any portion of the Common Areas or any other
common facility. None of the foregoing acts shall be deemed an actual or
constructive eviction of Tenant, entitle Tenant to any reduction of Rent or
result in any liability of Landlord to Tenant. Landlord shall have the exclusive
rights to the airspace above and around, and the subsurface below, the Premises
and the Building, including, without limitation, the exclusive right to use all
exterior walls, roofs and other portions of the Building for signs, notices and
other promotional purposes. Landlord shall have the sole and exclusive right to
possession and control of the Common Areas and all other areas of the Building
and Real Property outside the Premises.

                                   ARTICLE 10
                                  LENDER RIGHTS

        10.1    Subordination. This Lease is subject and subordinate to each
ground or land lease which may now or hereafter cover all or any portion of the
Building or Real Property and to each mortgage, deed of trust or other financing
or security agreement which may now or hereafter encumber all or any portion of
the Building or Real Property and to all renewals, modifications,
consolidations, replacements and extensions thereof (collectively, the "Senior
Instruments"), subject to the terms and conditions set forth herein. The
subordination shall be self-operative and no further instrument of subordination
need be required by any lessor or any holder or beneficiary of any Senior
Instrument (collectively, the "Senior Parties") if the Senior Party executes and
delivers to Tenant for its execution a recordable subordination, nondisturbance
and attornment agreement ("SNDA") which provides that Tenant's rights under this
Lease shall not be disturbed so long as Tenant is not in default hereunder
beyond any applicable cure period, but contains provisions consistent with those
set forth in Clauses (a) through (e) in Section 10.2. Tenant, upon Landlord's or
any Senior Party's request, shall execute promptly any such SNDA or similar
instrument required by any Senior Party (which is consistent with the foregoing
requirements and may contain such other terms and provisions as are commercially
reasonable and do not materially, adversely affect Tenant's rights under this
Lease) to confirm such subordination and shall deliver the same to such party
within ten (10) days following receipt thereof. Promptly after Tenant's receipt
of any such similar instrument, Tenant shall notify Landlord in writing as to
any reasonable objections Tenant may have therewith. The SNDA shall not be
recorded in the real property records unless agreed to by Landlord and such
Senior Party.

        10.2    Attornment. In the event of the enforcement by any Senior Party
under any Senior Instrument provided for by law or by such Senior Instrument,
Tenant shall attorn to any person or party succeeding to the interest of
Landlord as a result of such enforcement including any purchaser of all or any
portion of the Building or the Real Property at a public or private foreclosure
sale or exercise of a power of sale under such mortgage or deed of trust
(collectively, "Successor") and shall recognize such Successor as the Landlord
under this Lease without change in the terms or other provisions of this Lease;
provided, however, that such Successor shall not be: (a) subject to any credits
(other than the Rent Credit and the Tax Credit), offsets, defenses or claims
that Tenant may have against any prior landlord, except that with respect to
defaults of the landlord which are continuing ("Continuing Defaults") on the
date on which any such Senior Party takes title to or possession of the Building
and Real Property (the "Transfer Date"), Tenant shall have the same rights
against Senior Party as it would have had against the prior landlord to the
extent of any damages occurring after the Transfer Date, but in any event
limited to Senior Party's interest in the Building and Real Property; (b) bound
by any payment of Rent for more than one (1) month in advance; (c) bound by any
amendment or modification of this Lease, or any Transfer by Tenant, made after
the applicable Senior Instrument is placed against the Building or the Real
Property (and Tenant has been given notice thereof) without the written consent
of such Senior Party if and to the extent such consent is required under the
Senior Instrument and provided that Senior Party is subject to the same
standards and time periods for approval of a Transfer as are provided to
Landlord under Article 8, except that with respect to Transfers other than to a
Qualified Transferee or a Qualified Joint Venture, Senior Party's time period
for approval shall not commence until Landlord's conditional

                                       32



approval of such Transfer has been obtained; (d) liable for any act, omission,
neglect or default of any prior landlord, except that, with respect to
Continuing Defaults, Tenant shall have the same rights against Senior Party as
it would have had against the prior landlord to the extent of any damages
occurring after the Transfer Date, but in any event limited to Senior Party's
interest in the Building and Real Property; or (e) required to make any capital
improvements to the Building or the Premises which any prior landlord may have
agreed to make but had not completed, however, Tenant shall have the same rights
against Senior Party as it would have had against the prior landlord, but in any
event limited to Senior Party's interest in the Building and Real Property. The
SNDA or similar instrument for such periods shall also provide that Tenant will
not exercise its remedies against Landlord (other than the limited self-help
remedy provided in Section 13.7 below and subject to the notice and opportunity
to cure provisions set forth therein) until after first providing notice to
Senior Party and a reasonable period to cure, which period may be extended for
such periods as may be necessary for Senior Party to obtain control of the
Building and Real Property. Notwithstanding the foregoing, a Senior Party may
elect at any time to cause its interest in the Building or the Real Property to
be subordinate and junior to Tenant's interest under this Lease by filing an
instrument in the real property records of King County, Washington effecting
such election and providing Tenant with notice of such election. In no event
shall any Senior Party or any Successor have any liability or obligation
whatsoever to Tenant or Tenant's successors or assigns for the return of all or
any part of the Security Deposit unless, and then only to the extent that, such
Senior Party or Successor actually receives all or any part of the Security
Deposit. Tenant, upon Landlord's or any Successor's request, shall execute
promptly a written SNDA or similar agreement to confirm such attornment and if
Tenant fails or refuses to do so within ten (10) days after written request
therefor, such failure or refusal shall constitute a material default by Tenant
under this Lease.

        10.3    REAs. Tenant agrees that this Lease and the rights of Tenant
hereunder are subject and subordinate to any reciprocal access or easement
agreements whether now or in the future affecting the Building or Real Property
(the "REAs"); provided, however, any future REAs shall not materially adversely
affect any specific rights granted to Tenant hereunder.

        10.4    Estoppel Certificate. Within ten (10) days of a written request
from Landlord, Tenant shall execute and deliver to Landlord any estoppel
certificate addressed to Landlord and/or to any Senior Party or prospective
Senior Party or, any purchaser or prospective purchaser of all or any portion
of, or interest in, the Building or Real Property, on a form supplied by
Landlord or such other addressee (including but not limited to the form attached
hereto as Exhibit G), certifying as to such facts (if true) as the addressee may
reasonably require. In the event that Tenant fails or refuses to deliver an
estoppel certificate to Landlord within ten (10) days of a written request, then
Tenant shall conclusively be deemed, without exception, to have acknowledged the
correctness of the statements set forth in the form of certificate provided and
Tenant shall be estopped from denying the correctness of each such statement,
and the addressee thereof may rely on the correctness of the statements in such
form of certificate, as if made and certified by Tenant.

        Within ten (10) days after Landlord's receipt of a written request from
Tenant, Landlord shall execute and deliver to Tenant an estoppel certificate
certifying that: (a) this Lease has not been amended or modified and is in full
force and effect or, if there has been a modification or amendment, that this
Lease is in full force and effect as modified or amended, and stating the
modifications or amendments; (b) specifying the date to which the Rent has been
paid; (c) stating whether, to the best knowledge of Landlord, Tenant is in
default and, if so, stating the nature of the default; and (d) stating the Term
Commencement Date, whether any option to extend the Term has been exercised and
any other matters (if true) as Tenant may reasonably request. Notwithstanding
the foregoing, in no event shall Landlord be required hereunder to execute and
deliver an estoppel certificate at any time during which Tenant is in default
hereunder. Tenant shall on demand reimburse Landlord for its reasonable costs
incurred in preparing and delivering any such estoppel certificate.

                                       33



        10.5    Failure to Deliver. Tenant's failure to deliver either an SNDA
or an estoppel certificate when and as required under this Article 10 shall
constitute a default under this Lease.

                                   ARTICLE 11
                                    INSURANCE

        11.1    Landlord's Casualty Insurance. Landlord shall maintain, or cause
to be maintained, a policy or policies of insurance with the premiums thereon
fully paid in advance, issued by and binding upon an insurance company of good
financial standing, insuring the Building against loss or damage by fire or
other insurable hazards (including earthquake loss if Landlord elects to
maintain such coverage) and contingencies for the full insurable value thereof
or, in the alternative, insuring for eighty percent (80%) of the replacement
cost thereof (or such minimum amount as shall be required to eliminate operation
of coinsurance provisions), exclusive of excavations and foundations. Landlord
shall not be obligated to insure any of Tenant's furniture, equipment,
machinery, trade-fixtures, personal property, goods or supplies ("Tenant's
Personal Property"), or any Tenant Extra Improvements or Alterations that Tenant
may make upon the Premises. If the annual premiums paid by Landlord for such
casualty insurance exceed the standard premium rates because the nature of
Tenant's operations result in extra-hazardous or higher than normal risk
exposure, then Tenant shall, upon receipt of appropriate premium invoices,
reimburse Landlord for such increases in premium. All insurance proceeds payable
under Landlord's insurance carried hereunder shall be payable solely to Landlord
and Tenant shall have no interest therein, however, if the proceeds cover Tenant
Improvements and Landlord elects or is otherwise required to restore the
casualty as provided herein, the insurance proceeds applicable to the Tenant
Improvements shall be used to rebuild such Tenant Improvements.

        11.2    Liability Insurance. Landlord (with respect to the Building) and
Tenant (with respect to the Premises and Building) shall each maintain or cause
to be maintained a policy or policies of commercial general liability insurance
with the premiums thereon fully paid in advance, issued by and binding upon an
insurance company of good financial standing, such insurance to afford minimum
protection of not less than Two Million Dollars ($2,000,000.00), per occurrence,
combined single limit, for bodily injury (including death and property damage).
The coverages required to be carried shall be extended to include, but not to be
limited to, blanket contractual liability, personal injury liability (libel,
slander, false arrest and wrongful eviction), and broad form property damage
liability. Tenant's contractual liability insurance shall apply to Tenant's
indemnity obligations under this Lease. The certificate evidencing Tenant's
insurance coverage required hereunder shall state that the insurance includes
the liability assumed by Tenant under this Lease. Tenant's insurance required
hereunder shall be written to be primary with any other insurance available to
Landlord being excess, except to the extent of claims based on the negligence of
Landlord, its employees, contractors or agents. Upon request of Tenant, Landlord
shall provide Tenant reasonable evidence that the insurance required to be
maintained hereunder by Landlord is in full force and effect.

        11.3    Tenant's Additional Insurance.

                (a)     All Risk Coverage. Tenant shall provide insurance
coverage during the Term against loss or damage by fire and such other risks as
are from time to time included in an "all risk" policy (including without
limitation sprinkler leakage and water damage), insuring the full replacement
cost of any Tenant Extra Improvements, any Alterations (other than Building
Standard Improvements) and Tenant's Personal Property.

                (b)     Workers' Compensation Insurance. Throughout the Lease
Term, Tenant, at its own expense, shall keep and maintain in full force and
effect workers' compensation insurance in an amount equal to at least the
minimum statutory amount then currently required in the State of Washington.

                                       34



                (c)     Other. Such other form or forms of insurance as are
generally required or obtained for similar projects, as Landlord or any
mortgagee of Landlord may reasonably require from time to time, against the same
or other insurable hazards which at the time are commonly insured against in the
case of premises similarly situated, due regard being given to the height and
type of buildings thereon and their construction, use and occupancy.

                (d)     Policy Form. All policies required to be carried by
Tenant, under this Article 11 shall be written with financially responsible
companies with a Best & Company rating of "B+ IX" or better, and shall name
Landlord, Landlord's property manager and any Senior Party as an additional
insured, and each insurer shall agree not to cancel or alter the policy without
at least thirty (30) days prior written notice to Landlord and all named and
additional insureds. All policies required to be carried by Landlord under this
Article 11 shall be written with financially responsible companies with a Best &
Company rating of "B+ 1" or better. Any deductible or self-insurance provisions
under any insurance policies maintained by Tenant shall be subject to Landlord's
prior written approval.

                (e)     Certificates. Prior to commencement of the Term, and
thereafter during the Term, within fifteen (15) days prior to the expiration
date of any such coverage, Tenant shall deliver to Landlord a certificate or
certificates of the insurance required hereunder. If Tenant fails to provide
such proof of insurance, Landlord shall be authorized (but not required) to
procure such coverage in the amounts stated with all costs thereof to be charged
to Tenant and paid upon written invoice therefor as an Extra Service. Landlord
shall provide Tenant with a certificate of insurance evidencing insurance
required to be carried by Landlord hereunder, within a reasonable time following
receipt of Tenant's request (but in no event more frequently than once every
twelve (12) months nor at any time during which Tenant is in default under this
Lease).

        11.4    Indemnity and Exoneration.

                (a)     Landlord shall not be liable to Tenant for any loss,
damage or injury to person or property caused by (i) theft, fire, vandalism,
assault, battery, act of God, acts of the public enemy, acts of terrorists or
criminals, riot, strike, insurrection, war, court order, requisition or order of
governmental body or authority, whether or not the negligence of Landlord was a
partial cause of such loss, damage or injury, or (ii) the active negligence or
willful misconduct of Tenant or Tenant Parties, or (iii) repair or alteration of
any part of the Building or failure to make any such repair except as expressly
otherwise provided in this Lease.

                /s/ JAK
                -----------------
                Tenant's Initials

                (b)     Tenant shall indemnify, defend, protect and hold
Landlord and Landlord Parties harmless from and against any and all Claims
arising out of or related to claims of injury to or death of persons, damage to
property occurring or resulting directly or indirectly from the use or occupancy
of the Premises or activities of Tenant or Tenant Parties in or about the
Premises, the Building or the Real Property; provided, however, that the
foregoing indemnity shall not be applicable to claims arising in whole or in
part by reason of the negligence or willful misconduct of Landlord or Landlord's
breach of its obligations under this Lease, unless such claims are or should be
covered by insurance required to be carried by Tenant under the terms of this
Lease, in which case such claims shall be subject to the terms of this
indemnity.

                (c)     Landlord shall indemnify, defend, protect and hold
Tenant and Tenant Parties harmless from and against any and all claims,
judgments, damages, penalties, fines, costs, expenses, liabilities or losses
arising solely out of the negligence or willful misconduct of Landlord or
Landlord's breach of its obligations to maintain and operate the Building in
accordance with this Lease, unless such claims are or should be covered by
insurance required to be carried by Tenant under the terms of this Lease, in
which case such claims shall not be subject to the terms of this indemnity;
provided, however, that the foregoing indemnity shall not include claims
arising, in whole or in part, by reason of the

                                       35



negligence or willful misconduct of Tenant or Tenant Parties, or Tenant's breach
of its obligations under this Lease.

                (d)     To the extent, but only to the extent, necessary to
fully indemnify the parties from claims made by the indemnifying party or its
employees, the indemnities herein constitutes party's a waiver of the
indemnifying party's immunity under the Washington Industrial Insurance Act,
RCW Title 51, as between Landlord and Tenant only.

        11.5    Indemnity for Liens. Tenant shall indemnify, defend and protect
Landlord and hold and save Landlord harmless of and from any and all loss,
claims, proceedings, cost, damage, injury, causes of action, liabilities or
expense arising out of or in any way related to work or labor performed,
materials or supplies furnished to or at the request of Tenant or in connection
with performance of any work done for the account of Tenant in the Premises or
the Building.

        11.6    Waiver of Subrogation Rights. Anything in this Lease to the
contrary notwithstanding, Landlord and Tenant each waive all rights of recovery,
claim, action or cause of action, against the other, Tenant Parties or Landlord
Parties, as applicable, for any loss or damage that may occur to the Premises,
or any improvements thereto, or the Building or Real Property or any personal
property of such party therein, by reason of fire, the elements, or any other
cause that could be insured against under the term of an "all risk" insurance
policy or other casualty insurance coverages which are required to be obtained
pursuant to this Lease, regardless of cause or origin, including negligence of
the other party, Landlord Parties or Tenant Parties, as applicable, and each
party covenants that no insurer shall hold any right of subrogation against such
other party. Tenant shall advise its insurers of the foregoing and
such waiver shall be a part of each policy maintained by Tenant that applies to
the Premises, any part of the Building or Real Property or Tenant's use and
occupancy of any part thereof.

                                   ARTICLE 12
                           CASUALTY AND EMINENT DOMAIN

        12.1    Damage and Destruction. If a fire or other casualty in the
Premises or the Building occurs, Tenant shall immediately give notice thereof to
Landlord. The following provision shall apply to any fire or other casualty:

                (a)     If the damage is limited solely to the Premises and the
Premises can, in the reasonable opinion of Landlord, be made tenantable with all
damage repaired within six (6) months from the date of damage or destruction,
then Landlord shall diligently rebuild the same; provided, however, that
Landlord shall not be obligated to expend for such repair and amount in excess
of the insurance proceeds recovered or recoverable as a result of such damage.

                (b)     If portions of the Building outside the boundaries of
the Premises are damaged or destroyed (whether or not the Premises are also
damaged or destroyed) and (i) the Premises and the Building can both, in the
reasonable opinion of Landlord, be made tenantable with all damage repaired
within six (6) months from the date of damage or destruction, and (ii) Landlord
determines that such reconstruction is economically feasible, then Landlord
shall diligently rebuild the same; provided, however, that Landlord shall not be
obligated to expend for such repair an amount in excess of the insurance
proceeds recoverable as a result of such damage and Landlord shall have no
obligation to repair or restore Tenant Extra Improvements or Alterations (other
than Buildings Standard Improvements).

                (c)     If (i) the Premises should be damaged by any occurrence
not covered by Landlord's insurance, or (ii) the Premises or the Building should
be damaged to the extent that the damage cannot, in Landlord's reasonable
opinion be restored within six (6) months from the date of damage, or (iii) the
Building should be damaged to the extent of more than fifty percent (50%) of the
cost of replacement thereof, notwithstanding that the Premises may be
undamaged, or (iv) if the damage occurs during the last two (2) years of the
Term and Tenant does not exercise an Extension Option (to the

                                       36



extent any Extension Options remain), Landlord may elect either to repair or
rebuild the Premises or the Building or to terminate this Lease upon giving
notice in writing of such election to Tenant within sixty (60) days after the
happening of the event causing the damage.

                (d)     During any period when the Premises are rendered
untenantable because of any casualty, Base Rent shall abate proportionately
until such time as the Premises are made tenantable for general office use, or,
if required by applicable law, a new certificate of occupancy is issued for the
damaged portion of the Premises, and no portion of the Rent so abated shall be
subject to subsequent recapture; provided, however, that there shall be no such
abatement if the damage is caused by Tenant or any Tenant Party.

                (e)     The proceeds form any insurance paid by reason of damage
to or destruction of the Building or any part thereof, the Building Standard
Improvements or any other element, component or property insured by Landlord
shall belong to and be paid to Landlord subject to the rights of any mortgagee
of Landlord's interest in the Building or Real Property or the beneficiary of
any deed of trust that constitutes an encumbrance thereon. If this Lease is
terminated by either party as a consequence of a casualty in accordance with any
of the provisions of this Section 12.1, all proceeds of insurance required to be
maintained by Landlord shall be paid to Landlord subject to the rights of any
mortgagee of Landlord's interest in the Building or Real Property or the
beneficiary of any deed of trust that constitutes an encumbrance thereon.

                (f)     If the Premises, or any part thereof, or any portion of
the Building necessary for Tenant's use of the Premises, are damaged or
destroyed during the last twelve (12) months of the Term, or any extension
thereof, Landlord or Tenant may terminate this Lease by giving written notice
thereof to the other party within thirty (30) days after the date of the
casualty, in which case this Lease shall terminate as of the later of the date
of the casualty or the date of Tenant's vacation of the Premises.

                (g)     Except to the extent expressly provided in this Lease,
nothing contained in this Lease shall relieve Tenant of any liability to
Landlord or to Landlord's insurance carriers that Tenant may have under law or
under the provisions of this Lease in connection with any damage to the Premises
or the Building by fire or other casualty.

                (h)     If Landlord rebuilds the Premises under any provision of
this Article 12 and the space affected contained Tenant Extra Improvements or
Alterations which Tenant desires to rebuild, Tenant shall repair and restore
such Tenant Extra Improvements and Alterations at Tenant's expense so as to
restore the Premises to the condition existing prior to such damage or
destruction, or, at Landlord's election, Landlord may repair and rebuild the
Tenant Extra Improvements or Alterations, at Tenant's sole cost and expense in
accordance with Section 6.7 of this Lease. Tenant may elect by written notice
delivered to Landlord no later than ten (10) Business Days after the casualty,
not to rebuild such Tenant Extra Improvements or Alterations in which case the
Premises shall be restored to a condition consistent with a standard office
layout with Building Standard Improvements.

                (i)     Notwithstanding any other provision of this Section
12.1, within a reasonable period of time after the occurrence of any casualty,
Landlord shall notify Tenant as to the expected period of time needed to make
any repair or restoration. If (A) Landlord estimates that it will take more than
three hundred sixty-five (365) days to complete the repair or restoration after
the date of the casualty or more than two hundred seventy (270) days to complete
the repair or restoration after Landlord's receipt of insurance proceeds, and
(B) the damage or destruction renders a material portion of the Premises
untenantable, then Tenant may elect to terminate this Lease by giving Landlord
written notice of termination within twenty (20) days after receipt of
Landlord's notice. If Tenant does not provide written notice within such time
period, Tenant shall have permanently waived its right to terminate this Lease
pursuant to this provision.

                                       37



                (j)     If Landlord elects to effect such repair or restoration
and Tenant has not terminated this Lease pursuant to an express right hereunder,
Landlord shall proceed promptly, in good faith and with all reasonable diligence
to effect such repair or restoration as quickly as practicable, subject to
Landlord's receipt of insurance proceeds and to Force Majeure delays. The
provisions in Exhibit C relating to Substantial Completion of the initial
construction and delivery of the Premises shall apply to the extent practicable
to the construction and delivery of any repaired or restored Premises.

        12.2    Condemnation.

                (a)     If such portion of the Premises or any portion of the
Building or Real Property shall be taken or condemned for any public purpose and
the remainder of the Premises are rendered untenantable, this Lease shall, at
the option of either party, terminate as of the date of such taking. If this
Lease is not terminated in its entirety then it shall terminate only as to the
portion of the Premises taken and Base Rent and Tenant's Proportionate Share
shall be adjusted to reflect the new Net Rentable Area of the Premises and/or
the Building. If any portion of the Building or Real Property shall be taken or
condemned for any public purpose to such an extent as to render the Building not
economically viable in Landlord's discretion, then whether or not the Premises
or any part thereof is taken or conveyed, Landlord may by notice in writing to
Tenant terminate this Lease, and the Base Rent and other charges shall be paid
or refunded as of the date of termination.

                (b)     If during the Term of this Lease the entire Premises
shall be taken by eminent domain or destroyed by the action of any public or
quasi-public authority or in the event of conveyance in lieu thereof, this Lease
shall terminate as of the day possession shall be taken by such authority, and
Tenant shall pay Rent up to that date with an appropriate refund by Landlord of
such rent as shall have been paid in advance for a period subsequent to the date
of the taking of possession.

                (c)     If a temporary taking of all or a portion of the
Premises occurs, there shall be no abatement of Rent and Tenant shall remain
fully obligated for performance of all of the covenants and obligations on its
part to be performed pursuant to the terms of this Lease. All proceeds awarded
or paid with respect thereto shall belong to Tenant.

                (d)     All compensation awarded for any such taking or
conveyance whether for the whole or a part of the Premises shall be the property
of Landlord, whether such damages shall be awarded as compensation for
diminution in the value of the leasehold or of the fee of or underlying
leasehold interest in the Premises, and Tenant waives all claims against
Landlord and the condemning authority for damages for termination of its
leasehold interest or interference with its business and hereby assigns to
Landlord all of Tenant's right, title and interest in and to any and all such
compensation; provided, however, that Tenant shall be entitled to claim, prove
and receive in the condemnation proceedings such separate award as may under the
laws of the State of Washington be expressly allocated to Tenant's personal
property or relocation expenses, provided that such award shall be made by the
court in addition to and shall not result in a reduction of the award made to
Landlord.

                                   ARTICLE 13
                                     DEFAULT

        13.1    Events of Default. The occurrence of any of the following shall
constitute an event of default ("Event of Default") on the part of Tenant:

                (a)     Abandonment. Abandonment of (i) forty percent (40%) or
more of the Net Rentable Area of the Premises for a continuous period in excess
of one (1) year, or (ii) Tenant's fourth (4th) floor main entrance for a
continuous period in excess of thirty (30) days;

                (b)     Nonpayment of Rent. Failure to pay any installment of
Base Rent, Operating Costs or other items of Rent, upon the date when payment is
due, subject to the terms of Section 13.2(e) below;

                                       38



                (c)     Other Obligations. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters specified in
Sections 13.1(a), 13.1(b) and 13.1(i), such failure continuing for fifteen (15)
days after written notice of such failure (or with respect to nonmonetary
obligations only, such longer period as is reasonably necessary to remedy such
default, provided that Tenant shall continuously and diligently pursue such
remedy at all times until such default is cured);

                (d)     General Assignment. A general assignment for the benefit
of creditors by Tenant or any guarantor of Tenant's obligations hereunder
("Guarantor");

                (e)     Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant or Guarantor, or the filing of an involuntary petition by
Tenant's or Guarantor's creditors, which involuntary petition remains
undischarged for a period of thirty (30) days. If under applicable law the
trustee in bankruptcy or Tenant has the right to affirm this Lease and continue
to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in
such time period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date
of the affirmance of this Lease and provide to Landlord such adequate assurances
as may be necessary to ensure Landlord of the continued performance of Tenant's
obligations under this Lease;

                (f)     Receivership. The employment of a receiver to take
possession of substantially all of Tenant's assets or the Premises, if such
receivership remains undissolved for a period of ten (10) Business Days after
creation thereof;

                (g)     Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or the Premises, if such
attachment or other seizure remains undismissed or undischarged for a period of
ten (10) Business Days after the levy thereof;

                (h)     Insolvency. The admission by Tenant or Guarantor in
writing of its inability to pay its debts as they become due, the filing by
Tenant or Guarantor of a petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, the filing by Tenant or Guarantor
of an answer admitting or failing timely to contest a material allegation of a
petition filed against Tenant or Guarantor in any such proceeding or, if within
thirty (30) days after the commencement of any proceeding against Tenant or
Guarantor seeking any reorganization, or arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such proceeding shall not have been dismissed; and

                (i)     Failure to Deliver. Failure to deliver an SNDA or an
estoppel certificate when and as required under Article 10.

        13.2    Remedies Upon Default.

                (a)     Termination. If an Event of Default occurs (other than
an Event of Default under Section 13.1(i) above), Landlord shall have the right,
with or without notice or demand, immediately (after expiration of the
applicable grace periods specified herein) to terminate this Lease, and at any
time thereafter recover possession of the Premises or any part thereof and expel
and remove therefrom Tenant and any other person occupying the same, by any
lawful means, and again repossess and enjoy the Premises without prejudice to
any of the remedies that Landlord may have under this Lease, or at law or equity
by reason of Tenant's default or of such termination.

                (b)     Continuation After Default. Even though Tenant has
breached this Lease and/or abandoned the Premises, this Lease shall continue in
effect for so long as Landlord does not terminate Tenant's right to possession
under Section 13.2(a) hereof, and Landlord may enforce all of its rights and
remedies under this Lease, including (but without limitation) the right to
recover Rent as it becomes due. Acts of maintenance, preservation or efforts to
lease the Premises or the appointment of

                                       39



receiver upon application of Landlord to protect Landlord's interest under this
Lease shall not constitute an election to terminate Tenant's right to
possession.

                (c)     Cure. Landlord may cure such default or perform such
obligation on Tenant's behalf and at Tenant's expense as an Extra Service.
Tenant shall reimburse Landlord on demand pursuant to Section 5.4.

                (d)     Tax Credit and Amortized Rent. Tenant acknowledges that
it may be required to make certain payments to Landlord under Section 14.29 and
under Paragraph 14(c) of Exhibit C to reimburse Landlord for sums that Landlord
will expend on its behalf. Therefore, in the event of any default under Section
13.1(e), Landlord may process a separate claim in bankruptcy for the amount of
any sales tax deferral that Landlord is required to repay under RCW Chapter
82.63 or any unamortized portion of the Amortized Amount (as defined in
Paragraph 14(c) of Exhibit C), together with interest, late charges and
penalties.

                (e)     Initial Rent Payments. Notwithstanding anything to the
contrary in Section 13.1(b) above, Tenant shall have fifteen (15) days from the
due date within which to pay the first three (3) installments (but only the
first three (3) installments) of Rent applicable to the Minimum Initial
Premises, Hold Space and each increment of Expansion Space; provided, however,
if Landlord has delivered written notice to Tenant of a late payment at any time
prior to the due date for the second installment, then the due date on the third
installment of Rent shall not be so extended.

        13.3    Damages Upon Termination. Should Landlord terminate this Lease
pursuant to the provisions of Section 13.2(a) hereof, Landlord shall have all
the rights and remedies of a landlord under applicable law and, in addition,
Landlord shall be entitled to recover from Tenant: (a) the worth at the time of
award of the unpaid Rent and other amounts which had been earned at the time of
termination; (b) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such Rent loss that could have been reasonably
avoided; (c) the worth at the time of award of the amount by which the unpaid
Rent for the balance of the Term after the time of award exceeds the amount of
such Rent loss that could be reasonably avoided; (d) all costs incurred by
Landlord in reletting the Premises, including without limitation, brokerage
commissions, attorneys' fees, marketing and advertising expenses and expenses of
cleaning, restoring or remodeling the Premises; and (e) any other amount
necessary to compensate Landlord for all actual damages caused by Tenant's
failure to perform its obligations under this Lease (but expressly excluding
consequential damages or lost profits other than as permitted under Section 6.13
or Section 13.8). The "worth at the time of award" of the amounts referred to in
(a) and (b) shall be computed with interest at fifteen percent (15%) per annum
or the highest lawful commercial interest rate, whichever is the lower. The
"worth at the time of award" of the amount referred to in (c) shall be computed
by discounting such amount at the "discount rate" of the Federal Reserve Bank of
San Francisco in effect as of time of award plus one percent (1%) and, where
rental value is a material issue, shall be based upon competent appraisal
evidence. Landlord shall exercise such reasonable efforts as are required by
Washington law to mitigate Landlord's damages hereunder.

        13.4    Computation of Rent for Purposes of Default. For purposes of
computing unpaid Rent that would have accrued and become payable under this
Lease pursuant to the provisions of Section 13.3, unpaid Rent shall consist of
the sum of:

                (a)     the total Base Rent for the balance of the Term, plus

                (b)     a computation of the Operating Costs for the balance of
the Term, the assumed Operating Costs for the calendar year of the default and
each future calendar year in the Term to be equal to the Operating Costs for the
calendar year prior to the year in which default occurs compounded at a per
annum rate equal to the mean average rate of inflation for the preceding five
(5) calendar years as determined by reference to the Consumer Price Index - All
Items for Scattle-Tacoma-Bremerton, All

                                       40



Urban Consumers, published by the Bureau of Labor Statistics of the United
States Department of Labor (Base Year 1982-84=100), or such successor index as
may be established to provide a measure of the current purchasing power of the
dollar (provided, however, that if no successor index is published by the United
States Department of Labor, Landlord may select in its reasonable discretion a
substitute index or method of measuring inflation).

        13.5    Late Charge. In addition to its other remedies, if any payment
of Rent is not received by the fifth (5th) day after the due date thereof (or
longer grace period as expressly permitted under Section 13.1(b)), Tenant shall
pay a late fee in an amount equal to Two Hundred Fifty Dollars ($250.00) plus
four percent (4%) of the delinquency for each month or portion thereof that the
delinquency remains outstanding, the parties agreeing that Landlord's damage by
virtue of such delinquencies would be difficult to compute and the amount stated
herein represents a reasonable estimate thereof. The provision for a late charge
set forth in this Section 13.5, and any collection of a late charge by Landlord,
shall not be deemed a waiver of any breach or Event of Default by Tenant under
this Lease. If Tenant's Rent checks are returned by the bank without payment
then Landlord may require Tenant to pay future installments of Rent by certified
or cashiers' check.

        13.6    Remedies Cumulative. All of the remedies permitted or available
to Landlord under this Lease, or at law or in equity, shall be cumulative and
not alternative and invocation of any such right or remedy shall not constitute
a waiver or election of remedies with respect to any other permitted or
available right or remedy.

        13.7    Tenant's Remedies. Landlord shall not be in default unless
Landlord fails to cure a default by Landlord of its obligations under this Lease
within forty-five (45) days after its receipt of notice thereof from Tenant, or
if such default is not capable of being cured within said forty-five (45) day
period, Landlord has failed to commence such cure and diligently pursue such
cure until completion. The preceding sentence is not intended to supercede the
provisions of Section 5.3 as they relate to Landlord's use of good faith efforts
to make repairs which interrupt Basic Services or Tenant's limited rental
abatement right, all as more particularly set forth therein. In no event shall
Landlord be liable for consequential damages. Tenant shall not sue, seek any
remedy or enforce any right against Landlord until (a) Tenant gives written
notice to all Senior Parties as required under any SNDA, and (b) the time
provided in any such SNDA for such Senior Party to remedy the act or omission
has elapsed following the giving of notice by Tenant to Senior Party required
thereunder, including, without limitation, time to obtain possession from
Landlord by power of sale or judicial foreclosure (except to the extent provided
otherwise in the succeeding paragraph with respect to Tenant's exercise of its
limited self-help right thereunder). Prior to the Term Commencement Date,
Tenant's recourse against Landlord shall not exceed in the aggregate an amount
equal to one-hundred eighty (180) days of Base Rent that would have been payable
under this Lease. From and after the Term Commencement Date, Tenant shall have
recourse solely against Landlord's interest in the Building and the Real
Property for recovery of any judgment from Landlord whether from a breach hereof
or from a right created by statute or at common law and Landlord and Landlord
Parties shall no longer be personally liable for any such judgment. Tenant
agrees that from and after the Term Commencement Date no other property or
assets of Landlord or any partner or member of Landlord shall be subject to
levy, execution or other enforcement procedures for satisfaction of any such
judgment or decree; no partner or member of Landlord shall be sued or named as a
party in any suit or action (except as may be necessary to secure jurisdiction
over Landlord); no service of process shall be made against any partner or
member of Landlord (except as may be necessary to secure jurisdiction over
Landlord); no judgment shall be taken against partner or member of Landlord; no
writ of execution shall ever be levied against the assets of any partner or
member of Landlord; and these covenants, limitations and agreements are
enforceable both by Landlord and by any partner or member of Landlord. Any lien
obtained to enforce any such judgment and any levy of execution thereon shall be
subject and subordinate to any Senior Instrument.

        If a default by Landlord occurs with respect to the provision of Basic
Services to the Premises, Tenant has provided simultaneous written notice
thereof to Landlord and any Senior Party (of which Tenant has notice), and
Landlord or such Senior Party has failed to commence to cure such default within

                                       41



the time specified above. Tenant may thereafter cure the default for the account
of Landlord to the extent and only to the extent that such cure may be
accomplished through repairs to the electrical, mechanical or telecommunications
systems located primarily within or serving only the Premises, but which cure
shall be preceded by an additional notice to Landlord and any Senior Party (of
which Tenant has notice) given at least five (5) days prior to commencement of
such cure; provided, however, that if at the time of such interruption in any
Basic Services such Senior Party is seeking to obtain possession of the Building
through power of sale or judicial foreclosure, then during such period Tenant
may accomplish such repairs as are reasonably required to restore any such Basic
Services. Any such cure by Tenant shall be undertaken only by experienced,
qualified contractors. Landlord shall reimburse Tenant for the reasonable costs
of such cure within thirty (30) days after completion thereof and delivery to
Landlord of invoices therefor, together with such back-up information as
Landlord shall reasonably request. In the event Landlord shall fail to make such
reimbursement when required, Tenant shall have the right to offset against Base
Rent the amount of any arbitration award obtained by Tenant in connection
therewith, at any time following thirty (30) days from the date of such
arbitration award.

        13.8    Limitation on Consequential Damages. Tenant shall not be liable
to Landlord for consequential damages except in connection with defaults under:
(a) Article 7 with respect to Hazardous Materials; (b) Section 11.3 with respect
to insurance coverage; (c) Section 11.4 with respect to indemnity obligations;
(d) Section 11.5 with respect to liens; and (e) Sections 6.13 and 14.2 with
respect to holding over. Except as provided in Section 6.13, Tenant shall be
liable to Landlord for all damages, whether actual or consequential, with
respect to Tenant's obligations only under the foregoing provisions and in all
other events Tenant shall be liable for actual damages only. In addition,
Landlord and Tenant agree that Landlord's actual damages that will be caused by
Tenant if it holds over in possession after expiration of the Term, and which
Landlord shall be entitled to recover from Tenant hereunder, include the
following (subject to Landlord's duty to mitigate): (i) any sums Landlord may be
required to pay to a succeeding tenant because Landlord could not deliver the
premises in a timely manner (including delay in delivery), as limited under
Section 6.13, (ii) any expenses Landlord may incur to try to make up for the
delay in surrender (including overtime costs to complete construction on an
expedited schedule), and (iii) lost or delayed rental income that the succeeding
tenant would be obligated to pay to Landlord under its Lease but only to the
extent such rental income exceeds the holdover rent actually paid by Tenant
under Section 14.2.

                                   ARTICLE 14
                                  MISCELLANEOUS

        14.1    No Waiver. Failure of Landlord or Tenant to declare any default
immediately upon occurrence thereof, or delay in taking any action in connection
therewith, shall not waive such default, but Landlord or Tenant, as the case may
be, shall have the right to declare any such default at any time thereafter. No
waiver by Landlord of an Event of Default, or waiver by Landlord or Tenant of
any agreement, term, covenant or condition contained in this Lease, shall be
effective or binding on such party unless made in writing and no such waiver
shall be implied from any omission by such party to take action with respect to
such matter. No express written waiver by Landlord or Tenant of any such matter
shall affect or cover any other matter or period of time, other than the matter
and/or period of time specified in such express waiver. One or more written
waivers by Landlord or Tenant of any other matter shall not be deemed to be a
waiver of any subsequent matter in the performance of the same provision of this
Lease. Acceptance of Rent by Landlord hereunder, or endorsement of any check,
shall not, in and of itself, constitute a waiver of any breach or Event of
Default or of any agreement, term, covenant or condition of this Lease, except
as to the payment of Rent so accepted, regardless of Landlord's knowledge of any
concurrent Event of Default or matter. Landlord may, at its election, apply any
Rent received from

                                       42



Tenant to the oldest obligation outstanding from Tenant to Landlord, any
endorsement or other statement of Tenant to the contrary notwithstanding. No
course of conduct between Landlord and Tenant, and no acceptance of the keys to
or possession of the Premises before the termination of the Term by Landlord or
any employee of Landlord shall constitute a waiver of any such breach or of any
term, covenant or condition of this Lease or operate as a surrender of this
Lease.

        14.2    Holding Over.

                (a)     Without Landlord's Consent. If Tenant (or anyone
claiming under Tenant) remains in possession after expiration or termination of
this Lease without the written consent of Landlord, Tenant shall comply with all
terms and conditions of this Lease except that Tenant shall pay Base Rent for
each month or partial month of occupancy thereafter at a rate equal to one
hundred fifty percent (150%) of the greater of: (i) the Base Rent for the last
month of the Term, or (ii) the Fair Market Rent, together with such other
amounts as may become due hereunder. No occupancy or payment of Rent by Tenant
after expiration of the Term shall operate to renew or extend the Term. For
purposes of this Section 14.2, the term "remains in possession" shall include
circumstances where Tenant has failed to fully vacate the Premises or failed to
fully complete all removal and restoration work required under this Lease.

                (b)     Permitted Holdover Term. Provided that Tenant is not in
default of this Lease at the time of exercise (which shall mean that no Event of
Default has occurred and has not been cured during the applicable cure period,
if any, or otherwise waived in writing by Landlord), Tenant shall have one (1)
option to extend the Term of this Lease ("Holdover Option") for the number of
months set forth below (the "Permitted Holdover Term") commencing on the day
after the expiration of the Initial Term or the last exercised Extension Term,
as applicable, and continuing through the expiration date of the Permitted
Holdover Term, subject to all of the terms and conditions of this Lease, except
that Base Rent shall be adjusted as provided below. Tenant shall provide
Landlord with written notice of Tenant's intent to exercise its Holdover Option
at least nine (9) months prior to the expiration of the Initial Term or the last
exercised Extension Term, as applicable (the "Initial Holdover Notice"). If
Tenant does not deliver the Initial Holdover Notice by the appropriate date then
the Holdover Option shall immediately terminate and be of no further force or
effect and this Lease shall terminate on the scheduled Expiration Date. In the
Initial Holdover Notice, Tenant shall elect a Permitted Holdover Term of either
three (3) months or six (6) months duration. If in the Initial Holdover Notice
Tenant has elected a three (3) month duration, then Tenant shall have the
additional right to modify the Permitted Holdover Term to one of six (6) months
duration by delivering written notice of such election to Landlord at least six
(6) months prior to the expiration of the Initial Term or Extension Term, as
applicable (the "Second Holdover Notice"). Tenant's exercise of the Holdover
Option and the elections set forth in the Initial Holdover Notice (as modified
by the Second Holdover Notice, if applicable) shall be irrevocable and shall
apply to the entire Premises. If the Holdover Option is properly exercised by
Tenant, then the Base Rent hereunder shall be adjusted as follows: (a) during
the first three (3) months of the Permitted Holdover Term, Base Rent shall be
one hundred twenty-five percent (125%) multiplied by the greater of (i) the Base
Rent for the last month of the Term preceding the Permitted Holdover Term, or
(ii) Fair Market Rent; and (b) during the fourth (4th) through sixth (6th)
months of the Permitted Holdover Term, if applicable, Base Rent shall be one
hundred fifty percent (150%) multiplied by the greater of (i) the Base Rent for
the last month of the Term preceding the Permitted Holdover Term, or (ii) Fair
Market Rent. Tenant's Holdover Option shall be a Personal Right.

                (c)     Indemnity. If Tenant remains in possession after the
expiration or termination of this Lease without Landlord's consent, in addition
to the payment described in Section 14.2(a), Tenant shall indemnify, defend,
protect and hold Landlord and Landlord Parties harmless from and against any and
all Claims for damages by any other tenant or third person to whom Landlord may
have leased or offered to lease all or any part of the Premises effective on or
after the termination of this Lease, together with all loss, cost, expense,
damages and liabilities in connection with any such reletting, including,

                                       43



without limitation, attorneys' fees and Landlord's lost revenues, but subject to
the limitations set forth in Section 6.13 above.

                (d)     Partial Reduction in Holdover Rent. Notwithstanding the
foregoing, if during the Permitted Holdover Term, any portion of the Premises
(i) has been fully vacated by Tenant, with completion of all required removal
and restoration work, and (ii) has been accepted in writing by Landlord for
purposes of commencement of construction of tenant improvements for a
replacement tenant or is otherwise occupied by such replacement tenant, then
Rent for such portion of the Premises shall be abated.

        14.3    Attorneys' Fees. If either party places the enforcement of this
Lease, or any part thereof, or the collection of any Rent due, or to become due
hereunder, or recovery of the possession of the Premises in the hands of an
attorney or collection agency, or files suit upon the same, or seeks a judicial
declaration of rights hereunder, the prevailing party shall recover its
reasonable attorneys' fees, court costs and collection agency charges. As used
herein, "prevailing party" shall mean the party who substantially prevails in
the matter at issue, including without limitation, a party who dismisses an
action for recovery hereunder in exchange for payment of the sums allegedly due,
performance of covenants allegedly breached or consideration substantially equal
to the relief sought in the action.

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

        14.5    Transfers by Landlord. Landlord shall have the right to transfer
and assign, in whole or in part, all of its rights and obligations hereunder and
in the Building and Real Property. Landlord shall provide notice to Tenant of
any such transfer or assignments, including the assignee's name and address. If
Landlord sells or otherwise transfers the Building, or if Landlord assigns its
interest in this Lease, other than an assignment solely for security purposes,
such purchaser, transferee or assignee thereof shall be deemed to have assumed
Landlord's obligations hereunder, and from and after the Term Commencement Date,
Landlord or any successor shall thereupon be relieved of all liabilities
hereunder arising thereafter but this Lease shall otherwise remain in full force
and effect. Landlord or any person or party succeeding to possession of the
Building as a successor to Landlord shall be subject to Landlord's obligations
hereunder only during the period of such person's or party's ownership.

        14.6    Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and shall be enforceable to the extent permitted by
law.

        14.7    Notices. All notices, demands, consents and approvals that may
or are required to be given by either party to the other hereunder shall be in
writing and shall be deemed to have been fully given by personal delivery or
when deposited in the United States mail, certified or registered, postage
prepaid, and addressed to the party to be notified at the address for such party
specified on the Basic Lease Information Sheet, or to such other place as the
party to be notified may from time to time designate by at least fifteen (15)
days notice to the notifying party. Tenant shall deliver a copy of any notice
given to Landlord to (a) Landlord's property manager, (b) any Senior Party whose
address is known to Tenant, and (c) to 2800 Post Oak Boulevard, 50th floor,
Houston Texas 77056-6118, Attention: C. Hastings Johnson. Notwithstanding the
foregoing, personal delivery of notices to Tenant may be made by leaving a copy
of the notice, addressed to Tenant, at the Premises. Tenant appoints as its
agent to receive service of all default notices and notice of commencement of
unlawful detainer proceedings the person in charge of or apparently in charge of
or occupying the Premises at the time, and, if there is no such person, then
such service may be made by attaching the same on the main entrance of the
Premises.

        14.8    Landlord Relocation Right. [Intentionally Omitted]

                                       44



        14.9    No Option. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or an option to lease,
and it is not effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant. Landlord shall not be deemed to have made an offer to
Tenant by furnishing Tenant with a copy of this Lease with particulars inserted.
No contractual or other rights shall exist or be created between Landlord and
Tenant until all parties hereto have executed this Lease and until it has been
approved in writing by any Senior Party and fully executed copies have been
delivered to Landlord and Tenant.

        14.10   Integration and Interpretation. The terms of this Lease are
intended by the parties as a final expression of their agreement with respect to
such terms as are included in this Lease and may not be contradicted by evidence
of any prior or contemporaneous agreement, arrangement, understanding or
negotiation (whether oral or written). The parties further intend that 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. The language in all parts of this Lease shall in all cases
be construed as a whole and in accordance with its fair meaning and not
construed for or against any party, regardless of which party may have drafted
the provision in question, it being agreed that this is a negotiated agreement.
The following exhibits and schedules are attached hereto and incorporated by
this reference as if fully set forth herein:

                Exhibit A         Stacking Plan of the Premises
                Exhibit B         Legal Description of the Real Property
                Exhibit C         Initial Improvement of the Premises
                Schedule C-1      Base Building Improvements
                Schedule C-2      Definition of Building Standard Improvements
                Exhibit D         Rules and Regulations
                Exhibit E         Lease Commencement Certificate
                Exhibit F-l       Conceptual Signage Plan
                Exhibit F-2       Major Tenant Sign
                Exhibit G         Form of Estoppel Certificate
                Exhibit H         Janitorial Specifications

        14.11   Quitclaim. Upon expiration or earlier termination of this Lease,
Tenant shall, immediately upon request of Landlord, execute, acknowledge and
deliver to Landlord a recordable deed quit-claiming to Landlord all interest of
Tenant in the Premises, the Real Property, the Building and this Lease.

        14.12   No Easement for Light, Air and View. This Lease conveys to
Tenant no rights for any light, air or view. No diminution of light, air or
view, or any impairment of the visibility of the Premises from inside or outside
the Building, by any structure or other object that may hereafter be erected
(whether or not by Landlord) shall entitle Tenant to any reduction of Rent under
this Lease, constitute an actual or constructive eviction of Tenant, result in
any liability of Landlord to Tenant, or in any other way affect this Lease or
Tenant's obligations hereunder. Notwithstanding the foregoing, Landlord agrees
not to construct on the Real Property following initial construction of the
Building any additional permanent improvements that cover any exterior windows
in the Premises except to the extent required by the City of Seattle or any
Laws.

        14.13   No Merger. The voluntary or other surrender or termination of
this Lease by Tenant, or a mutual cancellation thereof shall not work a merger,
but, at Landlord's sole option, shall either terminate all existing subleases or
subtenancies or shall operate as an assignment to Landlord of all such subleases
or subtenancies.

        14.14   Memorandum of Lease. Tenant shall, upon request of Landlord,
execute, acknowledge and deliver a short form memorandum of this Lease (and any
amendment hereto or consolidation hereof),

                                       45



in form suitable for recording. In no event shall this Lease or any memorandum
thereof be recorded without the prior written consent of Landlord, and any
attempt to do so shall constitute a default by Tenants; provided, however, that
Landlord shall execute and record a memorandum as contemplated herein upon
Tenant's request at any time following the commencement of construction of the
Building and Tenant's payment to Landlord of the advance Base Rent as provided
under Section 2.6(a), if Tenant has also executed and delivered to Landlord (a)
any SNDA required under Section 10.1, and (b) a recordable termination of the
memorandum in form acceptable to Landlord (which Landlord may record at any time
following the Expiration Date or any earlier termination of this Lease).

        14.15   Survival. All of Tenant's covenants and obligations contained in
this Lease shall survive the expiration or earlier termination of this Lease. No
provision of this Lease providing for termination in certain events shall be
construed as a limitation or restriction of Landlord's rights and remedies at
law or in equity available upon a breach by Tenant of this Lease.

        14.16   Financial Statements. If Landlord intends to sell all or any
portion of the Building or the Real Property (or any interest therein), or
obtain a loan secured by the Building or the Real Property (or any interest
therein), then Tenant shall, within fifteen (15) days of Landlord's written
request, furnish Landlord with financial statements, dated no earlier than one
(1) year before such request, certified as accurate by Tenant, or, if available,
audited financial statements prepared by an independent certified public
accountant with copies of the auditor's statement, reflecting Tenant's then
current financial condition, or the financial condition of the individuals
comprising Tenant, in such form and detail as Landlord may reasonably request.
Any financial statements provided by Tenant to Landlord hereunder shall be
treated as confidential information by Landlord, except to the extent
information contained therein has otherwise been made public or is publicly
available. If Landlord shares such financial statements with any lender,
prospective purchaser or partner, each such party shall be informed of this
confidentiality obligation. In addition, if Landlord finances the construction
of the Building, or otherwise procures financing secured by the Building or the
Real Property, or any portion thereof or interest therein, then the terms and
provisions of this Lease may be subject to review and approval by the source
providing such financing.

        14.17   No Joint Venture. This Lease shall not be construed to create a
partnership, joint venture or similar relationship or arrangement between
Landlord and Tenant hereunder.

        14.18   Successors and Assigns. Except as otherwise provided herein,
this Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns; and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment may be approved by Landlord
hereunder, Tenant's assigns.

        14.19   Applicable Law. All rights and remedies of Landlord and Tenant
under this Lease shall be construed and enforced according to the laws of the
State of Washington. Any actions or proceedings brought under this Lease, or
with respect to any matter arising under or out of this Lease, shall be brought
and tried only in courts located in the County of King, Washington (excepting
appellate courts).

        14.20   Time of the Essence; Force Majeure. Time is of the essence of
each and every covenant herein contained. If either party to this Lease, as the
result of any (i) strikes, lockouts, or labor disputes; (ii) failure of power or
other utilities; (iii) inability to obtain labor or materials or reasonable
substitutes therefor; (iv) war, governmental action, court order, condemnation,
civil unrest, riot, fire or other casualty; (v) extreme or unusual weather
conditions, acts of God or unforeseen soil conditions; or (vi) other conditions
similar to those enumerated in this Section beyond the reasonable control of the
party obligated to perform (except for financial inability) (collectively,
"Force Majeure,") fails punctually to perform any obligation on its part to be
performed under this Lease, then such failure shall be excused and not be a
breach of this Lease by the party in question but only to the extent occasioned
by such event. If any right or option of either party to take any action under
or with respect to this Lease is conditioned upon the same being exercised
within any prescribed period of time or at or before a named

                                       46



date, then such prescribed period of time and such named date shall be deemed to
be extended or delayed, as the case may be, for a period equal to the period of
the delay occasioned by any event described above. Notwithstanding anything
herein contained, however, the provisions of this Section shall not be
applicable to Tenant's obligation to pay Rent under this Lease or its
obligations to pay any other sums, monies, costs, charges or expenses required
to be paid by Tenant hereunder.

        14.21   Interpretation. Except as specifically provided otherwise in
this Lease, Landlord may act in its sole and absolute discretion when required
to act hereunder or when deciding to grant its approval of any Tenant act. The
term, "including" shall mean "including, without limitation." All indemnities
contained herein shall survive termination of this Lease with respect to any
act, condition or event that is the subject matter of such indemnity and that
occurs prior to the Expiration Date. Notwithstanding anything herein to the
contrary, all provisions of this Lease which require the payment of money or the
delivery of property after the Expiration Date shall survive termination of this
Lease.

        14.22   Parking. Tenant shall have the right to purchase parking
stickers and/or cards equal to the number of parking passes (the "Parking
Passes") calculated as set forth in Item 13 of the Basic Lease Information
Sheet, which number shall include Tenant's Proportionate Share of any carpool
spaces Landlord is required to provide or maintain by any governmental
authority. The number of Parking Passes shall increase by one (1) for each one
thousand five hundred (1,500) square feet of Useable Area on which Tenant begins
to pay Rent hereunder. Tenant shall notify Landlord at least thirty (30) days
prior to the date estimated by Landlord for delivery of possession of each
portion of the Premises as to the number of Parking Passes Tenant wishes to
purchase, such number shall be made available to Tenant during the Term and, if
Tenant elects to purchase less than all available Parking Passes associated with
such portion of the Premises then Tenant's rights with respect to the Parking
Passes not purchased shall automatically lapse and be of no further force nor
effect; provided, however, that Tenant shall have the right, exercisable by
providing written notice to Landlord within sixty (60) days after the
commencement of Rent on each such portion of the Premises (which as referred to
herein shall mean the Minimum Initial Premises, the Hold Space, each increment
of Expansion Space and any Offer Space), within which to adjust the number of
Parking Passes desired by Tenant with respect to such portion of the Premises.
Tenant shall have a separate, one-time right to reduce the number of Parking
Passes purchased by it under this Section 14.22 by providing written notice to
Landlord within one (1) year from the date Rent has commenced on all of the
Initial Premises, subject to the following conditions: (a) no Event of Default
shall have occurred at the time of the giving of such notice or on the reduction
date (which date shall be designated by Tenant in its notice, but in no event
earlier than thirty (30) days from the date of such notice), which has not been
cured during the applicable cure period; and (b) the reduction of Parking Passes
permitted to be made under such right shall be specified in Tenant's notice and
shall not exceed ten percent (10%) of the then total number of Parking Passes
purchased by Tenant hereunder. In addition, Tenant shall have the continuing
right to reduce the number of Parking Passes purchased by it under this Section
14.22 by providing written notice to Landlord within thirty (30) days after each
increase by Landlord in the monthly Parking Pass fee, subject to the following
conditions: (i) no Event of Default shall have occurred at the time of the
giving of any such notice or on the reduction date (which date shall be
designated by Tenant in its notice, but in no event earlier than thirty (30)
days from the date of such notice); and (ii) the reduction of Parking Passes
permitted to be made under any such notice shall be specified in Tenant's notice
and shall not exceed ten percent (10%) of the then total number of Parking
Passes purchased by Tenant hereunder. Tenant shall pay the monthly fee per
Parking Pass established by Landlord from time to time for the applicable type
of permit (based on its published monthly fee schedule for the Building), plus
any tax or assessment imposed by any governmental authority in connection with
such parking privileges. Each Parking Pass shall entitle the vehicle on which
the Parking Permit is presented to park in the parking garage located beneath
the Building (the "Garage") 24 hours per day, 7 days per week, on a
nonpreferential and nonexclusive basis. Landlord shall have exclusive control
over the day-to-day operations of the Garage. No specific spaces in the Garage
shall be assigned to Tenant. Landlord may make, modify and enforce reasonable
rules and regulations relating to the parking of

                                       47



vehicles in the Garage, and Tenant shall abide by such rules and regulations and
shall cause its employees and invitees to abide by such rules and regulations.
Landlord shall used good faith efforts to apply such rules and regulations on a
uniform basis as to all parkers and users of the Garage. In lieu of providing
parking stickers or cards, Landlord may use any reasonable alternative means of
identifying and controlling vehicles authorized to be parked in the Garage.
Landlord may designate areas within the Garage for short term or nontenant
parking only and Landlord may change such designations from time to time.
Landlord reserves the right to alter the size of the Garage and the
configuration of parking spaces and driveways therein. Landlord may assign any
unreserved and unassigned parking spaces and/or make all or a portion of such
spaces reserved or institute any other measures, including but not limited to
valet, assisted or tandem parking, that Landlord determines are necessary or
desirable for tenant requirements or orderly and efficient parking. Landlord
shall include and maintain in the Garage bicycle parking spaces or areas which
meet or exceed the requirements of applicable Laws or permits for the Building.

        Landlord may operate the Garage or, in its discretion, may arrange for
the Garage to be operated by a third party and, for purposes of this Section
14.22, such operator shall be entitled to exercise any rights granted to
Landlord under this Section. Upon request, Tenant will execute and deliver a
parking agreement with the operator of the Garage on the operator's standard
form of agreement used with monthly parkers. If Landlord hires a third party to
operate the Garage then the monthly parking charges shall be paid to such
operator at such place as the operator may direct but the parking charges shall
be considered additional Rent hereunder.

        14.23   Brokers. Tenant and Landlord each represent and warrant to the
other that it has had no dealing with any broker or agent other than the
Broker(s) identified in the Basic Lease Information Sheet as Item 16, and
Landlord agrees to indemnify and hold Tenant harmless from and against any
claims for commissions due such Broker(s). Tenant and Landlord shall each
indemnify, defend and hold the other party harmless from and against any and all
liabilities for commissions or other compensation or charges claimed by any
other broker or agent based on dealings with the indemnifying party with respect
to this Lease. The foregoing indemnities shall survive termination or earlier
expiration of this Lease.

        14.24   Arbitration of Certain Disputes.

                (a)     Limited General Arbitration. All disputes between the
parties to this Lease arising out of or relating to (i) the applicability and
duration of Tenant Delays (other than Tenant Delays disclosed in any change
order which Tenant has initiated or otherwise approved under Paragraph 15 on
Exhibit C) and the applicability and duration of Force Majeure delays (other
than circumstances where Tenant is seeking to exercise any termination right
provided to it in this Lease); (ii) the planning, design, management,
administration, bidding, construction, and Substantial Completion of the Base
Building Improvements, the Tenant Improvements, and the Tenant Extra
Improvements pursuant to Exhibit C (but excluding disputes relating to the cost
of such work or Tenant's share thereof); (iii) matters relating to tenantability
and rent abatement under Article 12; and (iv) exercise of self help rights by
Tenant under Section 13.7, shall be decided by arbitration in accordance with
the then applicable rules of the American Arbitration Association ("AAA"),
unless the parties mutually agree otherwise.

        Notice of the demand for arbitration shall be filed in writing with the
other party to this Lease and with the AAA. The demand shall be made within a
reasonable time after the dispute, or other matter in question, has arisen. This
agreement to arbitrate shall be specifically enforceable under prevailing state
or federal arbitration law. A single arbitrator experienced in commercial real
property leases or commercial office building construction, whichever may be
most appropriate given the nature of the dispute, shall arbitrate the dispute,
provided that if the parties cannot agree on an arbitrator within ten (10) days
following a party's initial demand for arbitration each party shall select an
arbitrator and the two arbitrators so selected shall select a third arbitrator.
The panel of three arbitrators shall then arbitrate the dispute.

                                       48



        Except as may be otherwise agreed by the parties to this Lease, the
arbitration shall be conducted in accordance with the AAA Commercial Arbitration
Rules with Expedited Procedures, in effect on the date hereof, as modified by
this section. There shall be no dispositive motion practice. As may be shown to
be necessary to ensure a fair hearing the arbitrator(s) may authorize limited
discovery and may enter pre-hearing orders regarding (without limitation)
scheduling, document exchange, witness disclosure and issues to be heard. The
arbitrator(s) shall not be bound by the rules of evidence or of civil procedure,
but may consider such writings and oral presentations as reasonable business
people would use in the conduct of their day-to-day affairs, and may require the
parties to submit some or all of their case by written declaration or such other
manner of presentation as the arbitrator(s) may determine to be appropriate. The
parties intend to limit live testimony and cross-examination to the extent
necessary to ensure a fair hearing on material issues.

        The arbitrator(s) shall take such steps as may be necessary to hold a
private hearing within thirty (30) days following the date all such arbitrators
have been selected and to conclude the hearing within two (2) days; and the
arbitrator's written decision shall be made not later than seven (7) calendar
days after the hearing. The parties have included these time limits in order to
expedite the proceeding, but they are not jurisdictional, and the arbitrator(s)
may for good cause allow reasonable extension or delays, which shall not affect
the validity of the award. The written decisions shall contain a brief statement
of the claim(s) determined and the award made on each claim. In making the
decision and award, the arbitrator(s) shall apply applicable substantive law.
Absent fraud, collusion or willful misconduct by the arbitrator(s), the award
shall be final, and judgment may be entered in any court having jurisdiction
thereof. The arbitrator(s) may award injunctive relief or any other remedy
available from a judge, including the joinder of parties or consolidation of
this arbitration with any other involving common issues of law or fact or which
may promote judicial economy, and may award attorneys' fees and costs to the
prevailing party but shall not have the power to award punitive or exemplary
damages. Venue of any arbitration conducted pursuant to this paragraph shall be
in Seattle, Washington.

                (b)     Arbitration of Re-measurement Disputes. All disputes
between Landlord and Tenant regarding application of the standards used, or the
results of, a re-measurement under Section 1.1(d) by shall resolved through
arbitration in accordance with this Section 14.24(b).

        If either party objects to the re-measurement calculations or
application of measurement standards under Section 1.1(d), such party shall
deliver within forty (40) Business Days after receipt of such re-measurement an
arbitration demand. Within ten (10) Business Days following delivery of an
arbitration demand, the parties shall mutually select one (1) arbitrator who is
a natural person not employed by either of the parties or any parent or
affiliated partnership, corporation or other enterprise thereof, who shall also
be an architect, design or construction professional with at least ten (10)
years experience in the downtown Seattle Class-A or higher office real estate
market. If the parties do not so agree, then either party, on behalf of both,
may request appointment of such a qualified person by the AAA. Request for
appointment shall be made in writing with a copy given to the other party. The
arbitrator so selected shall decide the dispute, if it has not previously been
resolved, by following the procedure set forth below. The arbitrator shall state
in writing his or her determination of the Net Rentable Area and Useable Area
applying the standards set forth in Section 1.4, supported by the reasons
therefor, and shall deliver a copy to each party. The arbitrator shall complete
its determination within ten (10) Business Days after appointment. The decision
of the arbitrator shall be final and binding upon the parties. Each party shall
pay the fees and costs of its own counsel. The parties shall share the costs of
the arbitrator. The arbitrator shall have no power to modify the provision of
this Lease. If any arbitrator fails, refuses or is unable to act, his or her
successor shall be appointed in the same manner as provided for appointment of
the third arbitrator.

        14.25   Building Development. Tenant acknowledges that some portion of
the Building or Common Areas may be under construction after the Term commences
or may not be constructed at all.

                                       49



Tenant shall have no claim against Landlord for any loss or damage relating to
such construction or lack of construction so long as Substantial Completion has
occurred as provided in Exhibit C.

        14.26   Roof Access. Tenant shall have the right to install, maintain
and repair a satellite dish or antenna (the "Antenna") on the roof of the
Building for Tenant's general business purposes (but not for use by any third
party) at Tenant's sole cost and expense. The right granted herein is personal
to IDX Systems Corporation and any Qualified Transferee and shall not be
assignable to any other party in connection with any assignment of this Lease or
any sublease of all or any part of the Premises. Tenant may not grant any other
party any right to use the Antenna for any purpose whatsoever. The design,
appearance, size, location and method of installation of the Antenna shall be
subject to all applicable laws and regulations and Landlord's approval, which
shall not be unreasonably withheld, but may be withheld if in Landlord's sole
discretion the size or appearance proposed will adversely affect the appearance
or character of the Building. Landlord does not represent that the Antenna will
be permitted under applicable laws or that the Antenna will function and Tenant
shall be solely responsible for designing the Antenna to comply with laws and to
be compatible with the design of the Building and the other equipment located on
the roof. If at any time the Antenna ceases to be permitted under applicable
laws, Tenant's rights under this Section shall terminate and be of no further
force and effect. Upon termination of Tenant's rights under this Section or upon
Lease termination, Tenant at its sole cost and expense shall promptly remove the
Antenna and all related wiring and equipment from the Building and shall restore
the Building to its condition prior to such installation. Tenant shall be solely
responsible for installation and maintenance of the Antenna and shall ensure
that installation and maintenance do not void or limit any warranty Landlord may
have on the roof or roof membrane. Tenant shall provide Landlord with full plans
and specifications for the Antenna prior to installation thereof and such plans
shall include details regarding Tenant's proposed method of installation. Tenant
shall be permitted to install, maintain, remove and replace cables or lines
within the Building outside the Premises (at locations designated by Landlord)
to connect the Antenna to the Premises at no charge to Tenant, as provided in
and limited by Section 6.3 above. Prior to commencement of any work hereunder,
Tenant shall obtain and deliver to Landlord all necessary governmental permits
for the Antenna and related equipment. Tenant shall indemnify and hold harmless
Landlord from any Claims arising out or in connection with the Antenna or the
related equipment in the Building. Tenant acknowledges and agrees that Landlord
has not represented or warranted that Tenant will have unlimited access to riser
space or other space outside the Premises for the purpose of the
telecommunications equipment serving the Premises and Landlord shall have no
obligation to construct or designate additional riser space or equipment space
to accommodate the telecommunications equipment. Tenant acknowledges that riser
space is a finite commodity and that Landlord may in its discretion limit
Tenant's total use of such space to accommodate and take into account use of the
Building systems and the needs of other Building tenants.

        14.27   Conference Center. Landlord may in its sole discretion
construct, operate and maintain a conference center for use by Building tenants,
including Tenant, in accordance with rules and procedures promulgated by
Landlord. Tenants in the Building (including Tenant) desiring use of the
conference center shall be charged a use fee as determined by Landlord and all
costs associated (including allocated rental) with the conference center shall
be excluded from Operating Costs. Tenant shall have the right to use the
conference center for a reasonable period of time in approximate proportion to
the size of the Premises, subject to payment of the applicable use fee. The
size, location and design of, and improvements in, the conference center, if
any, shall be subject to Landlord's sole discretion.

        14.28   Tenant's Generator; Emergency Cooling. Landlord shall provide
Tenant with approximately three hundred (300) square feet of space in a location
designated by Landlord for installation and maintenance of a diesel fuel powered
generator and a diesel fuel tank (collectively, "Tenant's Generator"). Tenant
shall be solely responsible for complying with all laws, rules and regulations
with respect to Tenant's Generator and, prior to commencement of installation
Tenant shall obtain all necessary governmental permits therefor. Tenant shall
obtain insurance (naming Landlord as

                                       50



an additional insured) insuring against any loss or damage arising out of or
relating to any contamination or release of such fuel and shall not be permitted
to install the fuel tank until Tenant has provided a certificate of such policy
to Landlord. Tenant shall be permitted to install, maintain, remove and replace
cables or lines within the Building outside the Premises to connect Tenant's
Generator to the Premises and to exhaust fumes, at no charge to Tenant, but at
locations designated by Landlord. Tenant shall pay Landlord as Rent the sum of
Sixteen Dollars ($16.00) per year per square foot of Useable Area for the space
occupied by Tenant's Generator. Prior to the end of the Lease Term, Tenant shall
remove Tenant's Generator and associated equipment (including the diesel fuel
tank) and properly dispose of same and shall restore the Building to its
condition prior to installation of Tenant's Generator. If Tenant's Generator
fails to work properly or to provide power to the Premises, Landlord shall have
no obligation or liability whatsoever with respect to such failure. Tenant shall
pay all costs of designing, installing, operating and maintaining Tenant's
Generator. Tenant acknowledges that Tenant's Generator will be separate and
apart from any generator (and fuel tank) which Landlord may elect to install to
serve the entire Building. Tenant acknowledges and agrees that Landlord has not
represented or warranted that Tenant will have unlimited access to riser space
or other space outside the Premises for the purpose of Tenant's Generator, and
Landlord shall have no obligation to construct or designate additional space to
accommodate Tenant's Generator. Tenant acknowledges that roof and riser space
are a finite commodity and that Landlord may in its discretion limit Tenant's
total use of such space to accommodate and take into account use of the Building
systems and the needs of other Building tenants, subject to the minimum riser
numbers and size identified in Section 6.3 above.

        Tenant desires that the mechanical systems serving the Computer Room be
connected to Tenant's Generator for purposes of providing emergency back-up
electrical service. Landlord and Tenant shall cooperate in good faith to design
such mechanical systems to permit such connection in an efficient and effective
manner. Notwithstanding the foregoing, Tenant acknowledges and agrees that
Landlord shall have no liability to Tenant with respect to the failure of such
connections.

        Landlord and Tenant shall cooperate to provide 24 hour emergency cooling
to the Computer Room, at Tenant's cost and expense, at a location and in a
manner that is mutually acceptable to Landlord and Tenant.

        14.29   Tax Deferral. Portions of construction of the Tenant
Improvements may be eligible for deferral of state and local sales and use taxes
pursuant to RCW Chapter 82.63 and WAC 458-20-24003 because Tenant will use the
Premises for high technology research and development. Promptly following
execution of this Lease, Landlord and Tenant shall prepare and shall cooperate
in processing an application with the Washington State Department of Revenue for
a deferral of state and local sales and use taxes; however, if the application
is not approved by the Department of Revenue in a timely manner Landlord shall
not be required to delay commencement of construction of the Building or the
Tenant Improvements. Landlord and Tenant shall cooperate to prepare and each
shall execute any accurate certificates or other documents required by the
Department of Revenue to maintain the tax deferral. Landlord hereby agrees that,
to the extent Landlord realizes cost savings because of the tax deferral,
Landlord shall pass the economic benefit to Tenant in the form of reduced rent
payments pursuant to the terms hereof.

                (a)     Calculation of Tax Credit. If the application for a tax
deferral is accepted and a sales and use tax deferral certificate is issued,
then so long as repayment is not required under RCW 82.63.045 or any other
statute or regulation, Landlord agrees to grant Tenant an annual credit (the
"Tax Credit") against Rent during Lease Years 2 through 9 in an amount equal to
the percentage of the tax deferral that is no longer subject to recapture as of
the beginning of such year. The Tax Credit applicable to any Lease Year shall be
divided into twelve (12) equal amounts and credited against Rent due in each
month of the following Lease Year. For example, if the total tax deferral is
$120,000 and as of the last day of the first Lease Year twelve and one-half
percent (12.5%) of the tax is no longer subject to recapture, the total Tax
Credit in the second Lease Year would be $15,000 or $1,250 per month. If the

                                       51



statutory schedule for the tax deferral is extended, then the schedule for the
Rent Credit shall be adjusted to conform to the longer deferral period.

                (b)     Repayment. Tenant acknowledges that all or a portion of
the deferred taxes may be required to be paid if the use of the Premises ceases
to qualify for the tax deferral. In the event the state and local sales and use
taxes are deferred, and if for any reason, any part of the taxes so deferred is
subsequently required to be paid, then Tenant shall promptly reimburse Landlord
for the total amount of taxes that Landlord is required to pay, together with
any penalties, interest or other charges that are or become due in connection
with such taxes. Tenant shall indemnify, defend and hold harmless Landlord from
any and all costs, expenses and claims arising out of or related to any deferral
of state and local sales and use taxes for the Tenant Improvements.

        14.30   Storage Space. Storage space to be located in the Garage (the
"Storage Space") shall be available for lease by Tenant on a first come, first
served basis. If Tenant desires to lease any Storage Space, Tenant shall notify
Landlord in writing and shall state the square footage of Storage Space desired
to be leased. Landlord shall make reasonable efforts to accommodate Tenant's
request. The build-out of any such Storage Space shall be in accordance with
plans reasonably agreed upon by Landlord and Tenant. Tenant shall pay for the
build-out of the Storage Space, with any remaining Cash Allowance applying to
such costs. If Tenant has exhausted the Cash Allowance, then Tenant shall pay
Landlord directly for the cost and expense of any build-out of the Storage Space
requested by Tenant. The rental fee per rentable square foot of Storage Space
("Storage Rent") shall be determined at the time that Tenant submits its request
to lease such Storage Space and shall be equal to fifty percent (50%) of
Tenant's average per square foot Base Rent for the Premises at such time,
adjusted as Base Rent is adjusted from time to time. Tenant may permanently
cancel its lease of Storage Space upon sixty (60) days' prior written notice to
Landlord.

        14.31   Move-In. The Premises shall be cleaned at no additional cost to
Tenant prior to Tenant's initial move into the Initial Premises and any
Expansion Space. Landlord shall furnish, without charge, such air conditioning,
light and power as may be reasonably required in the Premises, elevator service,
including the Building service elevator, and the services or operations for such
elevators (if needed) during Tenant's initial move into each such space. Tenant
shall schedule each initial move-in in advance with Landlord and each such
move-in shall be completed during the period commencing 7:00 p.m. Friday and
ending 5:00 a.m. Monday. Tenant shall also comply with Landlord's standard and
reasonable policies, rules and regulations regarding moves into the Building,
and Tenant acknowledges that Landlord's Contractor (and its subcontractors) will
be working in and around the Building at the time of such move-ins. With respect
to the move by Tenant into the Minimum Initial Premises, Landlord agrees that
Tenant will be the only tenant moving into the Building on the initial weekend
identified by Tenant and Tenant shall have (a) reasonable truck access through
the alley and into the loading dock area of the Building, (b) exclusive use of
three (3) loading dock bays, and (c) exclusive use of four (4) elevators (fully
padded and protected) serving the Premises (although Landlord's elevator
contractor may be permitted access thereto for purposes of completing Landlord's
Work therein) and nonexclusive use of the Building service elevator. Landlord
shall also provide on site during Tenant's move such personnel to operate
Building Systems and provide access to the elevators, loading dock and elsewhere
in the Building as reasonably necessary to effect such move.

                                       52



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

        LANDLORD:                    NATIONAL OFFICE PARTNERS LIMITED
                                     PARTNERSHIP, a Delaware limited partnership

                                     By:
                                        ----------------------------------------
                                     Name:
                                          --------------------------------------
                                     Title:
                                           -------------------------------------

        TENANT:                      IDX SYSTEMS CORPORATION,
                                     a Vermont corporation

                                     By: /s/ John A. Kane
                                        ----------------------------------------
                                     Name: John A. Kane
                                          --------------------------------------
                                     Title: CFO
                                           -------------------------------------

STATE OF WASHINGTON        )
                           ) ss.
COUNTRY OF KING            )

        On this _____ day of ______________, 2000, before me, a Notary Public in
and for the State of Washington, personally appeared _________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person who executed this instrument, on oath stated that he/she was
authorized to execute the instrument, and acknowledged it as the
___________________________________ of NATIONAL OFFICE PARTNERS LIMITED
PARTNERSHIP to be the free and voluntary act and deed of said limited
partnership for the uses and purposes mentioned in the instrument.

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

                              --------------------------------------------------
                              NOTARY PUBLIC in and for the State of  Washington,
                              residing at_______________________________________

                              My appointment expires____________________________

                              Print Name________________________________________

                                       53



STATE OF VERMONT           )
                           ) ss.
COUNTRY OF CHITTENDEN      )

        On this 28th day of March, 2000, before me, a Notary Public in and for
the State of Washington, personally appeared John A. Kane, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person who
executed this instrument, on oath stated that he was authorized to execute the
instrument, and acknowledged he is the CFO of IDX SYSTEMS CORPORATION to be the
free and voluntary act and deed of said corporation for the uses and purposes
mentioned in the instrument.

        IN WITNESS WHEREOF, I have hereunto set my hand and official seal the
day and year first above written.
                                           /s/  Diane L. Brown
                                           -------------------------------------
                                           NOTARY PUBLIC in and for the State of
                                           Vermont residing at Burlington
                                           My appointment expires 02/10/2003
                                           Print Name Diane L. Brown

                                       54



Landlord Signature Block for lease dated March 23,2000
Between National Office Partners Limited Partnership and IDX Systems
Corporation.

NATIONAL OFFICE PARTNERS LIMITED PARTNERSHIP,
A Delaware limited partnership

By:      Hines National Office Partners Limited Partnership
         A Texas limited partnership
         general partner

         By:      Hines Fund Management, L.L.C.,
                  A Delaware limited liability company,
                  general partner

                  By:      Hines Interests Limited Partnership,
                           A Delaware limited partnership
                           Sole member

                           By:   Hines Holdings, Inc.,
                                 A Texas Corporation
                                 its general partner

                           By:   /s/ Daniel MacEachron
                                 ---------------------
                                 Daniel MacEachron
                                 Vice President



CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT

        State of California
                                     ss.
        Country of San Francisco

        On April 6, 2000, before me, Shannon Blair Jensvold, Notary Public
        personally appeared Daniel Mac Eachron

                                    [X] personally known to me
                                    [ ] proved to me on the basis of
                                    satisfactory evidence

                                    to be the person whose name is
                                    subscribed to the within instrument and
                                    acknowledged to me that he executed the
                                    same in his authorized capacity, and
                                    that by his signature on the instrument
                                    the person, or the entity upon behalf of
                                    which the person acted, executed the
                                    instrument.

                                    WITNESS my hand and official seal.

[SEAL OF SHANNON BLAIR JENSVOLD
 APPEARS HERE]                      /s/ Shannon Blair Jensvold
                                    -----------------------------------
   Place Notary Seal Above              Signature of Notary Public



                                    EXHIBIT A

                          STACKING PLAN OF THE PREMISES

                                       A-1



                                    EXHIBIT A

                                IDX STACKING PLAN

[GRAPHIC APPEARS HERE]

[LOGO OF MADISON]



                                    EXHIBIT B

                     LEGAL DESCRIPTION OF THE REAL PROPERTY

LOTS 1, 2, 3, 4, 5 AND 8 IN BLOCK 21 OF ADDITION TO THE TOWN OF SEATTLE, AS LAID
OUT ON THE CLAIMS OF C.D. BOREN AND A.A. DENNY AND H.L. YESLER (COMMONLY KNOWN
AS C.D. BOREN'S ADDITION TO THE CITY OF SEATTLE), AS PER PLAT RECORDED IN VOLUME
1 OF PLATS, PAGE 25, RECORDS OF KING COUNTY;

EXCEPT THE WESTERLY 9 FEET THEREOF CONDEMNED IN KING COUNTY SUPERIOR COURT CAUSE
NO. 54135 FOR THE WIDENING OF THIRD AVENUE, AS PROVIDED BY ORDINANCE NO. 14345
OF THE CITY OF SEATTLE;

SITUATE IN THE CITY OF SEATTLE, COUNTY OF KING, STATE OF WASHINGTON.

                                       B-1



                                    EXHIBIT C

                       INITIAL IMPROVEMENT OF THE PREMISES

        1.      Base Building. Landlord shall construct or install those items
listed on the attached Schedule C-l attached hereto (collectively, "Base
Building Improvements") without cost or expense to Tenant. The Base Building
Improvements shall be based on the Building Schematic Design Plans, with such
modifications as may be required by the City of Seattle or otherwise adopted by
Landlord for value- engineering or aesthetic purposes. Landlord shall be solely
responsible for the design and construction of the Base Building Improvements
and Landlord shall have no obligation to alter any portion thereof to
accommodate the Tenant Improvements. If Tenant desires any changes, relocations
or other modifications or upgrades to the Base Building Improvements to
accommodate the Tenant Improvements, Tenant shall hire Landlord's architect to
prepare any necessary changes to the Building plans. Such modifications must be
approved by Landlord's architect and by Landlord in writing. Landlord's approval
may be given, withheld or subject to such conditions as Landlord in its sole
discretion desires. The expense of Landlord's architect shall be paid by Tenant.
Tenant shall pay Landlord for the actual costs associated with any changes to
the Base Building Improvements approved by Landlord (including additional
architectural and engineering fees), plus an administrative fee equal to Three
and 75/100 percent (3.75%) of the costs of such modifications.

        2.      Improvements. Any work in addition to Base Building Improvements
is referred to herein as "Tenant Improvements" and shall be furnished and
installed within the Premises substantially in accordance with the plans and
specifications to be prepared by the Architect and approved by Landlord and
Tenant in accordance with this Exhibit C. Other than Tenant's Work as provided
below, all Tenant Improvements shall be furnished and installed by Landlord at
the expense of Tenant, except for the amount of the Cash Allowance (as defined
in Paragraph 14 below). For purposes hereof, the cost of the Tenant Improvements
shall include all costs associated with the design and construction of the
Tenant Improvements, including, without limitation, all building permit fees,
payments to design consultants for services and disbursements (including costs
associated with design changes required by the Architect or its errors and
omissions insurance carrier), all preparatory work (if any), premiums for
insurance and bonds (if any), such inspection fees (including City of Seattle
inspections) as Landlord may incur, reimbursement to Landlord for permit and
other fees Landlord may actually incur that are fairly attributable to the
Tenant Improvement work and the cost of installing any additional HVAC or
electrical capacity or telecommunications capacity required by Tenant. All
direct personnel costs of Landlord in reviewing Tenant's plans for the Tenant
Improvement (including changes to the Base Building Improvements) are included
in the administrative fee due Landlord under Section 9(e) below. Within a
reasonable time following execution of the Lease, Landlord shall provide Tenant
with a general budget and description of the various costs and fees customarily
expected to be incurred in connection with the design and construction of the
Tenant Improvements (including cost estimates for work expected to be provided
by consultants to be retained under Paragraph 3 below), which shall be
preliminary in nature for information purposes only to assist Tenant in its
planning.

        3.      Tenant's Architect. Tenant, at its sole cost and expense, shall
hire an architect or other space planning company selected by Tenant and
reasonably approved by Landlord ("Tenant's Architect") to design the Tenant
Improvements, to complete the Working Drawings and to obtain all required
building or other permits to allow construction of the Tenant Improvements in
the Premises. Tenant's Architect shall, on Tenant's behalf, retain the
consultants designing the Building's structural, mechanical, electrical, and
plumbing systems to design these components of the Tenant Improvements (and
Landlord hereby agrees not to disclose to such consultants that they are "sole
source" providers). Tenant shall be responsible for ensuring that Tenant's
Architect coordinates its work with the architect designing the Base Building
Improvements ("Landlord's Architect"). The cost of preparing all plans and
specifications for the Tenant Improvements (including without limitation the
Conceptual Plans and the Working Drawings), the cost of preparing any changes
thereto (except as provided to the contrary in

                                       C-1



Paragraph 6 below) and the cost of obtaining all required permits shall be paid
by Tenant, although Tenant may apply a portion of the Cash Allowance (not to
exceed Three Dollars ($3.00) per square foot of Useable Area) to the payment of
such costs. Landlord shall reimburse Tenant from the Cash Allowance for Tenant's
reasonable, actual design costs incurred, within a reasonable period of time
following Landlord's receipt of invoices therefor and appropriate back-up
information, but subject to the limitation set forth in the preceding sentence.

        4.      Submittal of Conceptual Plans. Tenant shall submit to Landlord
conceptual plans for the Tenant Improvements, including architectural,
electrical, mechanical and reflected ceiling drawings (the "Conceptual Plans")
by no later than the Target Date set forth in Paragraph 20 below. Within a
reasonable time following receipt of the Conceptual Plans, Landlord shall,
review, comment on and return the Conceptual Plans to Tenant, marked "Approved,"
"Approved as Noted" or "Disapproved as Noted, Revise and Resubmit." Such
Conceptual Plans shall be for the general information of Landlord, and to assist
in the coordination of the design and construction of the Tenant Improvements,
and failure to respond to the Conceptual Plans shall not constitute approval by
Landlord of the design or specifications shown thereon.

                (a)     If the Conceptual Plans are returned to Tenant marked
"Approved," the Conceptual Plans shall be deemed approved by Landlord and the
procedure set forth in Paragraph 5 below shall be followed.

                (b)     If the Conceptual Plans are returned to Tenant marked
"Approved as Noted," the Conceptual Plans so submitted shall be deemed approved
by Landlord; provided, however, in preparing the Working Drawings, Tenant shall
cause Tenant's Architect to incorporate Landlord's noted items into the Working
Drawings.

                (c)     If the Conceptual Plans are returned to Tenant marked
"Disapproved as Noted, Revise and Resubmit," Tenant shall cause the Conceptual
Plans to be revised, taking into account the reasons for Landlord's disapproval
(which shall be noted in writing), and shall resubmit revised plans to Landlord
for review within a reasonable period of time after return of the Conceptual
Plans to Tenant by Landlord. The same procedure shall be repeated until Landlord
approves the Conceptual Plans. Tenant shall use good faith efforts to cause the
Conceptual Plans to be revised and resubmitted in time to meet the Target Date
for approval set forth in Paragraph 20 below. Landlord shall not be required to
review the Conceptual Plans more than two (2) times and if Landlord does not
approve the second set of Conceptual Plans Landlord may elect to terminate this
Lease by written notice to Tenant.

                (d)     In the event the Conceptual Plans are returned to Tenant
under either subsections (b) or (c) above, Landlord shall make itself available
upon reasonable notice to meet with Tenant and Tenant's Architect to discuss any
noted items and attempt to resolve the same cooperatively

        5.      Submittal of Working Drawings. Following Landlord's approval of
the Conceptual Plans, and after Landlord has provided Tenant with a set of final
plans for the Base Building Improvements ("Final Building Plans"), which
Landlord intends to deliver on or before November 1, 2000, Tenant shall deliver
to Landlord one (1) set of reproducible sepia and three (3) sets of blue-lined
prints of working drawings and specifications (hereinafter referred to
collectively as the "Working Drawings") for the Tenant Improvements. Tenant
shall also deliver to Landlord a diskette containing the Working Drawings in the
AutoCAD format (or other computer assisted design format approved by Landlord)
("CAD"). The Working Drawings shall be consistent with, and a logical extension
of, the Conceptual Plans approved by Landlord. Within Twenty (20) Business Days
after receipt of the draft Working Drawings from Tenant, Landlord shall return
to Tenant one (1) sepia set of the Working Drawings marked "Approved," "Approved
as Noted" or "Disapproved as Noted, Revise and Resubmit"; provided, however,
that failure to respond to the Working Drawings shall not constitute approval by
Landlord of the design or specifications shown thereon.

                                       C-2



                (a)     If the Working Drawings are returned to Tenant marked
"Approved," the Working Drawings, as so submitted, shall be deemed approved by
Landlord.

                (b)     If the Working Drawings are returned to Tenant marked
"Approved as Noted," the draft of the Working Drawings shall be deemed approved
by Landlord; provided, however, in preparing the final approved Working
Drawings, Tenant shall cause Tenant's Architect to incorporate Landlord's noted
items into the Working Drawings.

                (c)     If the Working Drawings are returned to Tenant marked
"Disapproved as Noted, Revise and Resubmit," Tenant shall cause such Working
Drawings to be revised, taking into account the reasons for Landlord's
disapproval (which shall be noted in writing) and shall resubmit revised plans
to Landlord for review. The same procedure shall be repeated until Landlord
fully approves the Working Drawings.

                (d)     Tenant shall be solely responsible for: (i) the
completeness of the Working Drawings; (ii) the conformity of the Working
Drawings with the existing conditions in the Building and the Premises and to
the Final Building Plans provided by Landlord (including any changes in the
Final Building Plans provided by Landlord to Tenant), if the Working Drawings
are prepared prior to completion of Building construction (subject to potential
reimbursement of redesign costs as provided in Paragraph 6 below); (iii) the
compatibility of the Working Drawings with the Base Building Improvements as
depicted on the Final Building Plans, including the mechanical, plumbing, life
safety or electrical systems of the Building; and (iv) the compliance of the
Working Drawings with all applicable regulations, laws, ordinances, codes and
rules, including, without limitation, the Americans With Disabilities Act, with
respect to the Premises.

                (e)     In the event the Working Drawings are returned to Tenant
under subsections (b) or (c) above, Landlord shall make itself available upon
reasonable notice to meet with Tenant and Tenant's Architect to discuss any
noted items and attempt to resolve same cooperatively.

                (f)     When the Working Drawings are approved by Landlord and
Tenant, the parties shall each acknowledge their approval by signing or
initialing each sheet of the Working Drawings and Tenant shall promptly submit
the Working Drawings to the City of Seattle for permitting. Tenant shall also
deliver to Landlord a diskette containing the approved Working Drawings in the
CAD format.

        6.      Deadlines for Approval; Certain Modifications. Tenant shall
cause the Conceptual Plans and Working Drawings to be prepared by Tenant's
Architect, submitted to Landlord and, where required, revised so as to obtain
the approval of the Working Drawings by Landlord on or before Tenant's Working
Drawings Delivery Date as set forth in Item 14 of the Basic Lease Information
Sheet and in Paragraph 20 below, subject to extension on a day-for-day basis for
each day that Landlord's delivery of the Final Building Plans (as approved and
permitted by the City of Seattle) occurs after July 2, 2001. In the event
Landlord changes or modifies the Final Building Plans subsequent to Landlord's
delivery of the Final Building Plans to Tenant and such modified plans require
material changes to the Working Drawings (other than changes required by the
City of Seattle except for items not conforming to applicable codes at the time
of submission to the City and for which the City initially failed to note such
nonconformance prior to approving the Final Building Plans), then Landlord shall
reimburse Tenant for the actual design costs incurred in connection with
modifying the Working Drawings to the extent caused by such changes to the Final
Building Plans. Any such reimbursement hereunder shall be made within thirty
(30) days after Landlord's receipt of invoices and appropriate backup
documentation for such additional design costs, and shall not be credited
against or a reduction to the Cash Allowance.

        7.      Landlord's Review Responsibilities. Tenant acknowledges and
agrees that Landlord's review and approval, if granted, of all Conceptual Plans
and Working Drawings is solely for the benefit of Landlord and to protect the
interests of Landlord in the Building and the Premises, and Landlord shall not
be the guarantor of, nor in any way or to any extent responsible for, the
correctness or accuracy of any

                                       C-3



Conceptual Plans or Working Drawings or of the compliance of the Conceptual
Plans or Working Drawings with applicable regulations, laws, ordinances, codes
and rules or of the conformance or compatibility of the Conceptual Plans or
Working Drawings with existing conditions in the Building or Premises or with
the Base Building Improvements to be constructed by Landlord.

        8.      Existing Conditions. Prior to commencement of construction of
the Tenant Improvements, Tenant shall require and be solely responsible for
insuring that its architects, engineers and contractors verify all existing
conditions in the Building, insofar as they are relevant to, or may affect, the
design and construction of the Tenant Improvements. Tenant shall be solely
responsible for the completeness of all plans for the Tenant Improvements and
for conformity of the plans with the Final Building Plans (including any changes
thereto provided by Landlord to Tenant, subject to potential reimbursement of
redesign costs as provided in Paragraph 6 above) and existing conditions in the
Building and the Premises. Tenant shall ensure that Tenant's Architect inspects
the Premises to verify existing conditions and construction prior to the start
of construction of the Tenant Improvements. Tenant shall notify Landlord
immediately following such inspection of any discrepancy discovered by Tenant or
Tenant's Architect between existing conditions and/or construction and the Final
Building Plans; otherwise, Landlord shall be conclusively deemed to have met its
obligations relating to the construction of the Premises to the extent the
Premises are complete as of the date of such inspection. In the absence of such
notice, Tenant shall be responsible for any modifications to the Working
Drawings necessary to accommodate existing conditions and construction. Subject
to the terms of Paragraph 19 below, Tenant shall be solely responsible for, and
Landlord specifically reserves the right to require Tenant to make at any time
and from time to time during the construction of the Tenant Improvements, any
changes to the Conceptual Plans and/or the Working Drawings necessary (a) to
obtain any permit, (b) to comply with all applicable regulations, laws,
ordinances, codes and rules, (c) to achieve the compatibility, as reasonably
determined by Landlord, of the Conceptual Plans and Working Drawings with the
Landlord's plans for Base Building Improvements, (d) to avoid impairing or
voiding any third-party warranties or (e) to respond to any redesign requests
from the TI Contractor for reasons of impracticability or impossibility of
construction as originally designed.

        9.      Pricing the Work. In order to obtain the cost benefit of a
construction schedule coordinated with the schedule for completion of the
Building Standard Improvements, the parties intend to retain the general
contractor completing the shell and core for the Building ("Building
Contractor") to construct the Tenant Improvements, although Landlord may elect
to solicit bids from other general contractors for the Tenant Improvements if,
in its opinion, the Building Contractor's bid is not acceptable. It is the
interest of the parties that the Initial Bid shall, to the extent practical, be
obtained from the Building Contractor at the same time as its bid on
construction of the Base Building Improvements. Landlord shall provide Tenant
with its list of prospective contractors prior to selection, Tenant shall have
the right to communicate in writing its concerns to Landlord regarding the
qualifications and experience of the prospective contractors and their project
teams and Landlord shall consider such concerns prior to selection, however the
final selection shall be in Landlord's discretion.

                (a)     Initial Bids. Upon approval of the Conceptual Drawings
by Landlord, Tenant shall cause Tenant's Architect to deliver to Landlord the
number of copies of the Conceptual Drawings which Landlord may reasonably
request for use in obtaining bids for the general terms and conditions and
general contractor's fee. Upon receipt of such copies, Landlord shall obtain a
bid from Building Contractor covering the general terms and conditions and the
general contractor's fee (the "Initial Bid"). Upon receipt of the Initial Bid
from the Building Contractor, if Landlord in its reasonable discretion does not
believe the Initial Bid reflects the anticipated costs savings, Landlord may
elect to solicit Initial Bids from other qualified general contractors selected
by Landlord. Landlord shall select a contractor (the "TI Contractor"), taking
into account, in Landlord's good faith judgment, all factors associated with the
bids, including without limitation, price, quality of materials to be used,
estimated completion time, and

                                       C-4



Tenant's preference if any, and shall notify Tenant of the amount of the Initial
Bid and the TI Contractor selected by Landlord.

                (b)     Trade Bids. Upon approval of the Working Drawings by
Landlord, Tenant shall cause Tenant's Architect to deliver to Landlord the
number of copies of the Working Drawings which Landlord may reasonably request
for use in obtaining bids for the work and in the course of construction. Upon
receipt of such copies, Landlord shall obtain a bid for the Tenant Improvements
reflected in the Working Drawings from the TI Contractor (the "Trade Bid").
Landlord may, if it deems appropriate, solicit Trade Bids from additional
qualified general contractors selected by Landlord if Landlord believes that the
TI Contractor would not be the successful bidder in a competitive bidding
situation. The Trade Bids shall incorporate the terms agreed to during the
Initial Bid process and shall include competitive bidding from at least three
(3) qualified subcontractors in each trade (one of whom shall be the designated
subcontractor for the Base Building Improvements); provided, however, that
Landlord shall not be required to obtain bids from three (3) subcontractors for
any portion of the work for which three (3) qualified subcontractors are not
available. Upon receipt of the Trade Bid from the bidding contractors (including
any bids from subcontractors from whom bids were solicited but excluding any
subcontractor that does not submit a bid within the time period specified by
Landlord in its request for bids), Landlord shall select a contractor taking
into account, in Landlord's good faith judgment, all factors associated with the
Trade Bid, including without limitation, price, quality of materials to be used,
estimated completion time and Tenant's preference, if any, and shall notify
Tenant of the Trade Bid selected by Landlord and the subcontractors selected by
the successful bidder and Landlord. Tenant shall have the right, in accordance
with Paragraph 9(c) below, to review the Trade Bid selected by Landlord. During
the Trade Bid selection process, Tenant and its consultants, along with and at
the same time as Landlord, shall have the opportunity to interview the
prospective bidders and the members of their proposed project teams and to
review the qualifications and experience thereof. Landlord shall in good faith
take into account and consideration any concerns or objections raised by Tenant
in writing as to the qualifications and experience of the prospective trade
bidder and its project team. All other matters being equal (including, but not
limited to, experience, scheduling, staffing and contracting terms) Landlord
shall select the lowest priced Trade Bid from a qualified and acceptable bidder.
If the lowest bidding subcontractor for a Trade Bid under this Section 9(b)
below is a person or entity that Landlord believes must be bonded, then Landlord
may require an appropriate bond and the cost thereof shall be deducted from the
Cash Allowance or, if Tenant objects, Landlord shall select the next acceptable
subcontractor bid that does not require a bond.

                (c)     Tenant Approval Rights. Tenant shall have three (3)
Business Days after receipt of notice from Landlord regarding the selection of
the Trade Bid in which to give written notice to Landlord of Tenant's objection
to the Trade Bid, provided that Tenant must provide specific reasons for any
objections and shall identify precisely the portion or portions of the Trade Bid
to which it objects. If Tenant accepts or fails to object in the manner or
within the time set forth above, the Trade Bid shall be deemed approved and
Landlord shall enter into a guaranteed maximum price contract (the "Construction
Contract") with the TI Contractor which shall incorporate the terms of the Trade
Bid. If Tenant timely objects to the Trade Bid, Tenant shall meet with Landlord,
the Tenant's Architect and the successful bidder within five (5) Business Days
to discuss mutually acceptable revisions to the Trade Bid or to Tenant's Working
Drawings. All costs of changes required by any such revisions and all delays
associated therewith shall be the sole responsibility of Tenant. Following such
revisions, Landlord shall submit to Tenant, as soon as reasonably practicable, a
revised bid from the successful bidder, and the same procedure shall be followed
as set forth above until Tenant has approved the bid and a Construction Contract
has been entered into with the TI Contractor; provided, however, that Tenant
shall not have the right to compel Landlord or the successful bidder to retain
any subcontractor that is not reasonably acceptable to Landlord and the
successful bidder. Tenant shall have the opportunity to review the Construction
Contract prior to execution by Landlord and Tenant shall notify Landlord within
five (5) Business Days after receipt thereof of any specific modifications
Tenant requests to the warranty,

                                       C-5



insurance, bonding or cost savings provisions of the Construction Contract.
Provided Tenant's proposed modifications are timely delivered to Landlord
hereunder, Landlord shall use good faith efforts to incorporate such
modifications into the final Construction Contract. The Construction Contract
shall contain: (i) an audit provision, reasonably acceptable to Landlord and
Tenant, permitting Tenant to participate in an audit of all matters under the
Construction Contract following Completion, subject to the provisions of
Paragraph 17(b) below; and (ii) no provisions regarding contingencies or
allowances that have not been approved in writing by Tenant, such approval not
to be unreasonably withheld or delayed.

                (d)     Bids to Include Entire Initial Premises. The Initial Bid
and the Trade Bid shall cover the entire tenant improvements package for the
Initial Premises, including Tenant Improvements and Tenant Extra Improvements in
the Minimum Initial Premises, the Hold Space and the First, Second and Third
Expansion Spaces, notwithstanding Landlord's right to defer construction of a
portion of such improvements in the Hold Space and the First, Second and Third
Expansion Spaces. Notwithstanding the foregoing, Landlord may include, as bid
alternates, options to defer construction of all or certain elements of the
Tenant Improvements and Tenant Extra Improvements with respect to the Hold Space
or any Expansion Space, but Tenant shall nevertheless contribute the full
Construction Payment based on the required full build-out of such space, when
and as required pursuant to Paragraph 9(f) below.

                (e)     Administrative Fee. Landlord shall be entitled to
receive an administrative fee for the supervision of the TI Contractor and
administration of the contract for the Tenant Improvements and Tenant Extra
Improvements in an amount equal to three and 75/100 percent (3.75%) of the cost
of constructing the Tenant Improvements and Tenant Extra Improvements in the
Premises and the administrative fee shall be included in the cost of the Tenant
Improvements and Tenant Extra Improvements. The administrative fee shall be
calculated and fixed at the time the Construction Contract is fully executed,
subject to increases arising from (i) changes required to be made in the Base
Building Improvements, and (ii) change orders under the Construction Contract
that significantly expand the scope of Landlord's Work.

                (f)     Payment of Tenant's Share of Costs. Within ten (10) days
after execution of the Construction Contract Tenant shall elect in a written
notice to Landlord to either (i) deposit, for payment in accordance with
Paragraph 14 below, an amount (the "Construction Payment") equal to the
difference between the Cash Allowance and the guaranteed maximum price under the
Construction Contract plus Landlord's administrative fee; or (ii) amortize and
pay the Construction Payment in accordance with Paragraph 14(c) below. If Tenant
does not elect to amortize and pay the Construction Payment under Paragraph
14(c) below, then at Tenant's election, and at Tenant's sole cost and expense,
Tenant shall either deposit the Construction Payment with Landlord or into a
commercial escrow account with an escrow agent mutually acceptable to Landlord
and Tenant ("Escrow Agent"). If Tenant does not elect to amortize the
Construction Payment under Paragraph 14 below, then Landlord is not obligated to
authorize construction of the Tenant Improvements to commence until Landlord has
received the Construction Payment; or (A) the parties and Escrow Agent have
entered into an escrow agreement in form and substance satisfactory to Landlord
and Tenant, and (B) Escrow Agent has received the Construction Payment. Tenant
shall pay all costs of the escrow. All interest earned on the Construction
Payment shall be for the account of Tenant. The escrow agreement shall require
the Escrow Agent to provide monthly accountings (together with supporting
documentation) to Landlord and Tenant and to notify Tenant each time a
disbursement is made. The Construction Payment shall be increased by the total
cost of any change order approved or otherwise required under Paragraph 15 below
and such increased payment shall be deposited by Tenant with Landlord or Escrow
Agent, as applicable, within fifteen (15) days following approval of such change
order by the parties or the date of Landlord's delivery of change orders
otherwise required under Paragraph 15.

                                       C-6



        10.     Administration of Work.

                (a)     After entering into the Construction Contract and
receipt of the Construction Payment, Landlord shall administer the construction
of Tenant Improvements in accordance with the final, approved and permitted
Working Drawings ("Landlord's Work"); provided, however, that Landlord shall not
be required to install any Tenant Improvements that do not conform to the
approved Working Drawings, or conflict with elements of the approved Working
Drawings, or do not comply with applicable regulations, laws, ordinances, codes
and rules; such conformity being the obligation of Tenant.

                (b)     All Tenant Improvements shall be constructed by the TI
Contractor selected pursuant to Paragraph 9 with the exception of work stations,
installation of office equipment, telecommunications equipment and wiring and
cabling and acquisition of floor covering materials ("Tenant's Work") which
shall be designed, constructed, installed or provided by Tenant in accordance
with the Working Drawings. Connection of installed work stations to the
Building's electrical system shall be a part of the Tenant Improvements and
shall not constitute Tenant Work, however completion of such connection work
shall not be required for Substantial Completion under Paragraph 17.

                (c)     All Tenant's Work shall be installed in a manner that
conforms with the contractor's and its subcontractors' schedules for completion
of the Tenant Improvements, and the work of installation shall be handled in
such a manner as to maintain harmonious labor relations and as not to interfere
with or delay the Landlord's Work. No portion of the Landlord's Work shall be
dependent upon completion of any Tenant's Work and the Landlord's Work shall
have priority over any Tenant's Work. The contractors, subcontractors and
materialmen performing Tenant's Work shall be subject to prior reasonable
approval by Landlord and shall be subject to the administrative supervision of
Landlord or the Building Contractor and rules of the site. Contractors,
subcontractors and materialmen performing Tenant's Work shall take all necessary
steps to insure, so far as may be possible, the progress of the work without
interruption on account of strikes, work stoppage or similar causes for delay.
In the event that Tenant's contractors or subcontractors do not promptly cause
any pickets to be withdrawn and all other disruptions to the operations of the
Building promptly to cease, or in the event that Landlord notifies Tenant that
Landlord has in good faith concluded that picketing or other disruptive
activities are an imminent threat, Tenant shall immediately cause the withdrawal
from the job of all Tenant's Work contractors, subcontractors or materialmen
involved in the dispute. Any delay caused to Building Contractor attributable to
Tenant's Work shall constitute Tenant's Delay, and in addition to the
obligations set forth elsewhere herein, Tenant shall be obligated to pay all
cost and expense incurred by Landlord in connection therewith. No portion of
Tenant's Work shall be taken into account in determining whether or not the
Premises are Substantially Complete.

                (d)     Tenant shall require that each of its contractors,
subcontractors and materialmen maintain commercial general liability insurance
in an amount of not less than Two Million Dollars ($2,000,000.00) on a combined
single limit basis and all worker's compensation insurance required by law;
provided, however, the minimum insurance required hereunder may be reduced to
One Million Dollars ($1,000,000) in coverage for any contractor, subcontractor
or materialman who has contracted to provide to Tenant One Hundred Thousand
Dollars ($100,000) or less of work in the aggregate.

                (e)     Landlord shall use good faith efforts to make the
Premises available to Tenant on floor by floor, nonexclusive basis for
completion of Tenant's Work as soon as practicable in Landlord's judgment and,
in any event, at least thirty (30) consecutive days prior to Substantial
Completion (with carpet installed at least fourteen (14) days prior to
Substantial Completion), subject to all the terms and conditions of the Lease
and this Exhibit C and in accordance with any reasonable site rules imposed by
the Building Contractor or the TI Contractor and all limitations and
restrictions imposed by the City of Seattle. In addition, Landlord's Work with
respect to the Computer Room and the Communications Rooms shall have been
substantially completed and Tenant shall have exclusive access to such spaces
atleast forty-five (45) days prior to Substantial Completion, subject to the
same terms and conditions set

                                       C-7



forth in the preceding sentence. As used herein the term: (i) "Computer Room"
shall mean an area of approximately nine thousand (9,000) square feet of
Rentable Area to be located on Floor 6 or below in the Premises, for use by
Tenant for its specialized computer needs; and (ii) "Communications Rooms" shall
mean up to two (2) separate rooms in locations adjacent to the communications
closets on each floor of the Premises as reasonably designated by Landlord, each
approximately 10 feet by 12 feet in size, for use by Tenant for its
communications needs. As used herein, the term "substantially completed" shall
mean with respect to: (A) the Computer Room, the installation of the raised
floor, walls and ceiling therein, with operational electrical, mechanical and
fire-suppression systems therein (assuming Tenant is utilizing a stand-alone"
condenser water system) and installation of a water detection system under the
raised floor; and (B) the Communications Rooms, the installation of walls and
riser sleeves required hereunder, with operational electrical, mechanical and
fire-suppression systems therein. Upon and following any entry into he Premises
by Tenant prior to the commencement of the Term, Tenant shall perform all of the
obligations Tenant applicable under the Lease during the Term (except the
obligation to pay Base Rent and Tenant's proportionate Share of Operating
Costs), including, without limitation, obligations pertaining to insurance,
indemnity, compliance with laws and Hazardous Materials. In addition to the
indemnity obligations of Tenant under the Lease, Tenant shall indemnify, defend
and protect Landlord and hold Landlord harmless from and against any and all
claims, proceedings, losses, costs, damages, causes of action, liabilities,
injuries or expenses arising out of or related to claims of injury to or death
of persons or damage to property occurring or resulting directly or indirectly
from the presence in the Premises or the Building of Tenant's contractors or
representatives or the activities of Tenant or its contractors or
representatives in or about the Premises or Building during the construction
period, such indemnity to include, without limitation, the obligation to provide
all costs of defense against any such claims. This indemnity shall survive the
expiration or sooner termination of the Lease.

                (f)     Tenant shall be entitled to be reimbursed (from the Cash
Allowance to the extent any amounts remain following payment in full of all
other amounts owed for Tenant Improvements) for reasonable costs incurred by it
in completing Tenant's Work, which reimbursement shall be made by Landlord
following its receipt of invoices and appropriate back-up material confirming
such expenditures.

        11.     Obligation of Tenant To Provide As Built Plans; Assignment of
Warranties. Within thirty (30) days of Substantial Completion, Tenant shall
cause its Architects to provide Landlord with a complete set of plans on mylar
and specifications reflecting the actual conditions of the Tenant Improvements
as constructed in the Premises, together with a copy of such plans on diskette
in the CAD format. Within thirty (30) days after Landlord's receipt of written
notification that Tenant has accepted the Premises, Landlord shall assign to
Tenant all warranties under the Construction Contract, along with the rights to
enforce same.

        12.     Reimbursement and Compensation. Tenant shall reimburse Landlord
for all actual costs incurred by Landlord in connection with the review of
Conceptual Plans and Working Drawings for the Tenant Improvements. Such review
fees shall be limited to the actual costs for Landlord's architect and
consultants to review such Conceptual Plans and Working Drawings and shall not
include a separate charge for Landlord or its employee or staff time. Landlord
may obtain any reimbursement required hereunder by deducting the amount of such
reimbursement from the Cash Allowance or the Construction Payment. Tenant shall
be responsible for delays and additional costs incurred by Landlord in
completing the Base Building Improvements due to inadequacies in the Working
Drawings or Tenant-requested changes to the Base Building Improvements.

        13.     Tenant Payments. Landlord shall make progress payments for
Landlord's Work first from the Cash Allowance and, at such time as the Cash
Allowance has been fully spent, then from the Construction Payment, from time to
time as the Tenant Improvements are constructed. If for any reason (such as
change orders to the Construction Contract arising from changes under Paragraph
15 below or the costs of Tenant's Work) the Cash Allowance and Construction
Payment are not adequate to make all required payments and Tenant has not
elected to amortize the Construction Payment in accordance with

                                       C-8



Paragraph 14(c) below, Tenant shall pay to Landlord (or deposit with Escrow
Agent, as applicable) within fifteen (15) days after billing by Landlord such
additional required amount, as determined by Landlord. Statements or invoices
may be rendered by Landlord during the progress of the work so as to enable
Landlord to pay the TI Contractor, subcontractors, architect or engineers
without advancing Landlord's funds to pay the cost of Tenant Improvements. If
for any reason the Construction Payment is not fully utilized to make all
required payments, Landlord shall, upon completion of the Tenant Improvements,
refund to Tenant or direct Escrow Agent to refund to Tenant (as applicable) any
unused portion of the Construction Payment. Landlord shall be entitled to
suspend or terminate construction of the Tenant Improvements and to declare
Tenant in default in accordance with the terms of the Lease if payment by Tenant
of any amounts required to be paid by Tenant under this Exhibit C are not
received when due and such failure continues for a period of five (5) days
following written notice to Tenant of such failure. Landlord shall maintain such
separate accountings as may be necessary in connection with the Tax Credit.
Landlord shall provide to Tenant copies of each draw request submitted by the TI
Contractor, together with any back-up information provided therewith. Landlord
shall also provide to Tenant on a continuous basis copies of any progress
reports submitted by the TI Contractor, showing costs incurred to date,
percentage completion, retainage amounts and similar matters. Landlord in good
faith shall take into account and consideration any concerns and objections to
status, quality, percentage completion and similar matters raised by Tenant and
communicated to Landlord in writing. Notwithstanding the foregoing, in no
circumstances shall Tenant or its consultants communicate directly with the TI
Contractor regarding any such matters without the prior written approval of
Landlord. Tenant's Architect shall be responsible for timely completing and
delivering to Landlord all completion certificates required for payments under
the Construction Contract and Tenant's contract with Tenant's Architect shall so
provide; provided, however, that Landlord reserves the right and authority to
authorize payments to the TI Contractor whether or not a completion certificate
has been obtained from Tenant's Architect.

        14.     Cash Allowance.

                (a)     Landlord shall provide a total of up to Thirty-two and
00/100 Dollars ($32.00) per square foot of Useable Area in the Initial Premises
(the "Cash Allowance") toward the payment for the design and construction of the
Tenant Improvements and Tenant Work (assuming standard cabling) in the Premises
and Tenant's reasonable move-in costs and expenses. The Cash Allowance shall be
used solely for the construction of Tenant Improvements above the Base Building
Improvements and other purposes expressly permitted herein. Landlord shall, in
accordance with this Exhibit C. apply the Cash Allowance to the cost of
designing, permitting and constructing the Tenant Improvements (excepting Tenant
Extra Improvements) and for the other purposes specifically provided in this
Exhibit C, Except as provided herein, the Cash Allowance must be spent on items
that, at Landlord's option, shall remain in the Premises on Lease termination
and may not be applied to the cost of removable trade fixtures, equipment or
furniture. The Cash Allowance shall not be used to pay for: (i) Tenant Extra
Improvements; (ii) Tenant's move-in costs and expenses exceeding in the
aggregate the sum of Six Hundred Thousand Dollars ($600,000); or (iii) design
costs exceeding Three Dollars ($3.00) per square foot of Useable Area.

                (b)     If the entire Cash Allowance is not used for Tenant
Improvements and other expenses permitted under Paragraph 14(a) above, then
Landlord shall grant Tenant a credit against Rent in an amount equal to the
difference between (i) Thirty Dollars per square foot of Useable Area in the
Minimum Initial Premises, Hold Space and the Expansion Space, and (ii) the total
cost of the Tenant Improvements installed in the Premises as of the Term
Commencement Date (with respect to the Minimum Initial Premises) or otherwise
budgeted and included in the Construction Contract (with respect to the Hold
Space and the Expansion Space) (the "TI Credit"); provided, however, that the TI
Credit shall not exceed Five and no/100 Dollars ($5.00) per square foot of
Useable Area in the Minimum Initial Premises, Hold Space and the Expansion
Space. If the actual cost of the Tenant Improvements in the Minimum Initial
Premises and the budgeted cost of the Tenant Improvements in the Hold Space and
the

                                       C-9


Expansion Space (as reflected in the Construction Contract) exceeds on average
Thirty Dollars ($30.00) per square foot of Useable Area, then Tenant shall not
be entitled to any TI Credit hereunder. For example, if the total cost of the
Tenant Improvements in the Minimum Initial Premises and the budgeted cost of the
Tenant Improvements in the Hold Space and the Expansion Space (as reflected in
the Construction Contract) is on average Twenty-seven and 00/100 Dollars
($27.00) per square foot of Useable Area, the TI Credit would be Three and
00/100 Dollars ($3.00) per square foot of Useable Area. If, on the other hand
the total cost of the Tenant Improvements in the Minimum Initial Premises and
the budgeted cost of the Tenant Improvements in the Hold Space and the Expansion
Space (as reflected in the Construction Contract) is Twenty-one and 00/100
Dollars ($21.00) per square foot of Useable Area, the TI Credit would be Five
and 00/100 Dollars ($5.00) per square foot of Useable Area. The TI Credit shall
be credited against Rent due in the first five (5) years of the Term in equal
monthly amounts. For example, if the total TI Credit equals One Hundred Ninety
Two Thousand Dollars ($192,000) then Tenant shall receive a monthly rent credit
equal to Three Thousand Two Hundred Dollars ($3,200).

                (c)     In the event that a Construction Payment is required
under Paragraph 9(f) above, then Tenant may elect to amortize and pay the
Construction Payment (the "Amortized Amount") over the Initial Term at an annual
interest rate of ten percent (10%); provided, however, that the Amortized Amount
may not exceed Ten and 00/100 Dollars ($10.00) per square foot of Useable Area
in the Initial Premises and the Hold and Expansion Space. If Tenant elects to
amortize the Construction Payment hereunder then Landlord and Tenant shall enter
into an amendment to the Lease setting forth the Amortized Amount and the
amortization schedule. The Amortized Amount together with interest thereon shall
be payable in equal monthly installments together with the monthly payment of
Base Rent and Operating Costs, commencing on the Term Commencement Date. If
Tenant defaults under the terms of the Lease (which shall mean an Event of
Default has occurred which has not been cured within the applicable cure period,
if any) then the entire unpaid principal balance of the Amortized Amount and all
accrued and unpaid interest thereon shall be immediately due and payable by
Tenant to Landlord. If the Lease terminates prior to the scheduled expiration
date thereof, including by reason of condemnation or damage, the unpaid
principal balance of the Amortized Amount and all accrued and unpaid interest
thereon shall be due and payable to Landlord within ten (10) days of the date of
termination. If Tenant fails to make any payment of the Amortized Amount when
due then Landlord shall be entitled to exercise any remedy available to Landlord
for a default in payment of Rent but the Amortized Amount shall not be prorated
or abated for any reason whatsoever, even if Base Rent is abated. The Amortized
Amount shall be disregarded for purposes of determining Base Rent for any Offer
Space or Base Rent during any Extension Term.

                (d)     The obligation of Landlord to make any one or more
payments pursuant to the provisions of this Paragraph 14 or to proceed with the
construction of the Tenant Improvements shall be suspended without further act
of the parties during any such time as there exists a material default by Tenant
under the Lease (which as used herein shall mean an Event of Default has
occurred which has not been cured after notice and the applicable cure period,
if any). Nothing in this Paragraph 14 shall affect the obligations of Tenant
under the Lease with respect to any alterations, additions and improvements
within the Premises, including, without limitation, any obligation to obtain the
prior written consent of Landlord thereto.

        15.     Modifications.

                (a)     Tenant Initiated Changes. If Tenant desires to change or
revise the Tenant Improvements specified by the Working Drawings, then Tenant
shall submit such change in writing for Landlord's approval, which shall not be
unreasonably withheld, and such request shall be accompanied by plans,
specifications and details as may be required to fully identify and quantify
such changes. Landlord shall not be required to approve any such modifications
if, in Landlord's reasonable judgment such modifications would delay completion
of the Base Building Improvements or have an adverse impact on the mechanical,
electrical, life safety or HVAC systems in the Building. If Landlord approves
such

                                      C-10



changes, then Tenant shall provide Landlord with revised Working Drawings
incorporating the changes. Tenant shall be responsible for all costs of such
changes and any resulting delay in the completion of the Premises or the Base
Building Improvements due to modification of the Working Drawings, and Landlord
shall act in good faith to minimize the costs associated with any such
modifications. The actual cost of any approved changes (other than additional
design costs necessitated by reason of Landlord's modification of the Final
Building Plans pursuant to Paragraph 6 above) shall be added to the Construction
Payment and the Amortized Amount, as applicable, unless the Cash Allowance is
sufficient to pay the cost of such change.

                (b)     Contractor Required Changes. With respect to any change
orders required by the TI Contractor in order to proceed with construction of
the Tenant Improvements, within five (5) Business Days after delivery to Tenant
of such change order (which shall include the estimated additional costs, if
any), Tenant shall either approve or disapprove the change order by written
notice to Landlord. If Tenant approves the change order Tenant shall deposit any
additional sums required thereunder as provided under Paragraph 13. If Tenant
disapproves the change order, Tenant shall specifically identify in its notice
the nature and extent of Tenant's disapproval and shall, within fifteen (15)
days of receipt of such change order, deposit in a separate interest bearing
escrow with Escrow Agent (pursuant to instructions mutually acceptable to
Landlord and Tenant) any additional sums required thereunder, which shall be
released upon the earlier of: (i) Tenant's written consent thereto, or (ii)
completion of an audit and any arbitration under the Construction Contract as
permitted under Paragraph 17(b) below, it being the understanding of the parties
that any dispute as to the necessity for or amount of such change orders is to
be resolved with the TI Contractor by agreement or through such process.

                (c)     Other Required Changes. With respect to any change
orders required by reason of the errors or omissions of Tenant's Architect or
its consultants or otherwise required by the City of Seattle, Tenant shall
deposit any additional sums required thereunder as provided under Paragraph 13.

        16.     Designation of Construction Representatives. Tenant hereby
designates Michael Golden of Tenant Works as its initial representative in
connection with the design and construction of the Tenant Improvements and
Landlord shall be entitled to rely upon the decisions and agreements made by
such representative as binding upon Tenant. Tenant may change its designated
representative upon written notice to Landlord. Landlord hereby appoints Robert
C. Hollister and John Murphy McCullough to act on its behalf and represent its
interests with respect to all matters requiring Landlord action in this Exhibit
C. Tenant hereby expressly recognizes and agrees that no other person claiming
to act on behalf of Landlord is authorized to do so. No consent, authorization
or other action shall bind Landlord or Tenant unless in writing and signed by
the aforementioned person. If Landlord or Tenant complies with any request or
direction presented to it by anyone else claiming to act on behalf of the other
party, such compliance shall be at such party's sole risk and responsibility and
shall not in any way alter or diminish the obligations and requirements created
and imposed by this Exhibit. Landlord shall have the right to observe the
construction of the Tenant Improvements. Tenant shall notify Landlord of all
construction meetings and Landlord shall have the right to attend all meetings
of Tenant and its contractor and subcontractors, and the Tenant's construction
contract(s) shall so provide. Landlord shall notify Tenant of all construction
meetings relating to the Tenant Improvements. Tenant shall have the right to
attend all meetings of Landlord and the TI Contractor and its subcontractors,
coordination meetings between the Building Contractor and the TI Contractor
regarding the Tenant Improvements, and any meetings with the Building Contractor
regarding the Building Shell and Core involving items that directly impact the
Tenant Improvements or the schedule for construction thereof, and the
Construction Contract shall so provide. Tenant acknowledges that the Tenant
Improvements may be constructed at the same time as Landlord is constructing the
Building Shell and Core. Each party shall cause its architects, engineers and
contractors to cooperate fully and promptly with each other as and when deemed
necessary by such party in its good faith determination in the course of
construction of the Tenant Improvements. If Tenant's

                                      C-11



work interferes with Landlord's work and Tenant fails to comply with Landlord's
requests for cooperation then Landlord may require Tenant to cease work in the
Premises.

        17.     Substantial Completion; Audit of Contractor.

                (a)     Substantial Completion. As used herein, "Substantial
Completion" shall mean (and the Minimum Initial Premises shall be deemed
"Substantially Complete") when (i) installation of the Tenant Improvements and
Tenant Extra Improvements in the Minimum Initial Premises has occurred, (ii)
Tenant has direct access to the elevator lobby on the floor (or floors) where
the Minimum Initial Premises are located, and direct access through the fourth
floor lobby to Tenant's main entrance to the Premises on the fourth floor, and
the fourth floor lobby shall be maintained in a clean and presentable manner
(although finish work therein may be ongoing); (iii) Basic Services are
available to the Minimum Initial Premises (including permanent power and
adequate elevator service to accommodate Tenant's normal operating needs, which
shall mean at a minimum four (4) elevators serving the Minimum Premises and one
(1) elevator serving the Garage), and (iv) appropriate governmental authorities
have issued a certificate of occupancy for the Minimum Initial Premises.
Notwithstanding the foregoing, Substantial Completion shall be deemed to have
occurred on the date on which Tenant takes occupancy of the Minimum Initial
Premises and commences to do business therein. Substantial Completion shall be
deemed to have occurred even if a "punch-list" or similar corrective work
remains to be completed. Within ten (10) days after Landlord delivers possession
of the Minimum Initial Premises to Tenant, Landlord, Tenant, and the Tenant's
Architect shall prepare a "punch-list" which shall consist of the items that
have not been, but should have been, finished or furnished by Landlord prior to
such date. Landlord shall proceed diligently to complete, or cause the TI
Contractor to complete, all punch-list items. If Substantial Completion occurs
before all finish work in the fourth (4th) floor lobby is complete, Landlord
shall continue with reasonable diligence to complete the lobby as soon as
practicable and, in any event, shall provide therein a suitable completed
appearance within six (6) months after Substantial Completion. Landlord shall
require reasonable retainage in the Construction Contract and shall not release
all of the retainage to the TI Contractor until such time as Landlord reasonably
believes all punch-list items have been completed. Release of any retainage
shall not release or relieve Landlord of the obligation to cause all punch-list
items to be completed and the Premises to be in the condition as required under
this Lease. The process for inspection of the Premises, the preparation of the
punch-list and the correction of all punch-list items by Landlord shall also
apply with respect to delivery of the Hold Space and all Expansion Space.

                (b)     Audit of Contractor. The Construction Contract shall
provide that Landlord and Tenant shall have a right, within a reasonable period
of time following Substantial Completion of the Minimum Initial Premises, to
conduct an audit of the books and records of the TI Contractor to confirm the
costs actually incurred with respect to the construction of the Tenant
Improvements, the allocation of costs between the Base Building Improvements and
the Tenant Improvements and similar matters under the Construction Contract. The
results of the audit shall be made available to both Landlord and Tenant. The
Construction Contract shall provide for binding arbitration of all disputes
arising over change orders or from the audit. Tenant shall be responsible for
the costs of such audit and any arbitration relating thereto, subject to
reimbursement from the TI Contractor as may be provided in the Construction
Contract. Tenant shall be responsible for and entitled to any adjustments to the
cost of the Tenant Improvements that may be made be reason of such audit.

        18.     Tenant's Delay. If Substantial Completion shall be delayed as a
result of any of the following causes, such delay shall be considered a "Tenant
Delay":

                (a)     Tenant's failure to obtain approval of the Working
Drawings by Landlord on or before Tenant's Plan Delivery Date;

                (b)     Tenant's failure to obtain any required permits to allow
construction of the Tenant Improvements by the date set forth in Paragraph 20
below;

                                      C-12



                (c)     Changes in the Working Drawings requested by Tenant
after approval of the Working Drawings by Landlord, except to the extent such
changes are necessitated by Landlord's changes to the Final Building Plans under
Paragraph 6 above;

                (d)     Any delays in starting construction due to Tenant's
disapproval of the Trade Bid and/or the need to revise the Working Drawings to
obtain revised bids, to the extent such delays continue beyond thirty (30) days
after Landlord's delivery to Tenant of notice of a Trade Bid under Paragraph
9(c) above;

                (e)     Tenant's request for materials, finishes or
installations other than Building Standard Improvements which require a longer
time than Building Standard Improvements to obtain, install or complete;

                (f)     Tenant's failure to comply with the Building
Contractor's, the TI Contractor's or any subcontractor's schedule;

                (g)     Cessation of work for any periods under Paragraph 14(d)
above; or

                (h)     Delays caused by Tenant in construction.

        Landlord shall notify Tenant promptly after learning of any events or
circumstances which Landlord believes may constitute Tenant Delay hereunder,
however Landlord's failure to so notify shall not constitute a waiver by
Landlord of its right to claim a Tenant Delay has occurred. Landlord shall use
good faith efforts to minimize the impact of any Tenant Delay on the Substantial
Completion Date. In the event of any Tenant Delay, Tenant shall pay to Landlord,
as additional Rent, one day's Base Rent for each day of Tenant Delay to the
extent that Tenant Delay has actually delayed Substantial Completion. In
addition, and notwithstanding any provision to the contrary contained in the
Lease, if Substantial Completion is delayed due to Tenant Delay, the Term
Commencement Date shall be the date when Substantial Completion would have
occurred if there had been no Tenant Delay. Tenant acknowledges that the length
of any Tenant Delay is to be measured by the duration of the delay in
Substantial Completion caused by the event or conduct constituting Tenant Delay,
which may exceed the duration of such event or conduct due to the necessity of
rescheduling work or other causes. The parties acknowledge that the Target Dates
for delivery of Conceptual Plans and Working Drawings as set forth in Section 20
below are designed to seek to include the Tenant Improvements in the same bid
packages as the Base Building Improvements and that the failure of Tenant to
meet such Target Dates could increase the overall costs of the Tenant
Improvements. Landlord and Tenant will cooperate in good faith to seek to
include the Tenant Improvements as part of the bid package for the Base Building
Improvements. However, the failure of Tenant to complete the Conceptual Plans
and Working Drawings by the Target Dates set forth in Section 20 below shall not
in itself constitute a Tenant Delay.

        19.     Reliance on Plans. Landlord and Tenant shall each be entitled to
rely on the plans and specifications received from the other for work to be done
by Landlord or Tenant. If (a) Tenant notifies Landlord of any construction
discrepancies following its inspection pursuant to Paragraph 8 above, or (b)
Tenant is required to modify its Working Drawings due to changes in the Final
Building Plans initiated by Landlord pursuant to Paragraph 6 above after
Landlord's deliver of the Final Building Plans to Tenant, then Landlord shall
reimburse Tenant for the cost of revising the Working Drawings to accommodate
such construction discrepancies (other than those arising from customary
variations in the course of construction) or changes in the Final Building
Plans, and the deadlines set forth in Paragraph 20 may be extended as provided
in Paragraph 6 above. The reimbursement shall be limited to the actual costs
incurred in making such revisions.

                                      C-13



        20.     Schedule of Milestone Dates.



                     Event                                  Target Date            Deadline
- ---------------------------------------------------   -----------------------   ---------------
                                                                          
Landlord's Approval of Conceptual Plans:              July 3, 2000                July 1, 2001

Landlord's Delivery of Final Building Plans:          November 1, 2000            July 1, 2001

Tenant's Delivery of Working Drawings to Landlord:    Within 6 months of       January 2, 2002
                                                      Landlord's delivery of
                                                      Final Building Plans

Permits in Place/Construction Start Date:             January 2, 2002          January 2, 2002

Substantial Completion/Scheduled Commencement
 Date:                                                 April 1, 2003              April 1,2003


                                      C-14



                                  SCHEDULE C-l
                           BASE BUILDING IMPROVEMENTS

Landlord shall complete the Base Building Improvements including the Building
exterior enclosure, structural, mechanical, electrical, plumbing and
telecommunications systems as more fully described below. All references in this
Schedule C-l to "square feet," "square foot," "s.f." or "psf" are intended to
refer to square feet of Useable Area.

ELECTRICAL SYSTEM

The building electrical system provides for an approximate total of 9.0 watts
per square foot throughout the building exclusively for tenant use. The power
will be distributed as follows:

..   1.5 watts/s.f. for lighting, in panelboards on each floor;
..   3.0 watts/s.f. for receptacles, transformed to 120/208V in panelboards
    on each floor;
..   2.5 watts/s.f. spare capacity in the bus risers on each floor;
..   2.0 watts/s.f. spare capacity at the main switchboard in the garage.

The standard electrical allocation for Tenant convenience power (receptacles) is
2.5 watts/sf. All costs above the standard allocation shall be paid by Tenant.
All HVAC and building common area loads will be handled separately and are not
included in these totals.

MECHANICAL SYSTEM

The building mechanical system will be a floor-by-floor system providing 100%
fresh air to the tenant space. The Building is designed to incorporate a rooftop
cooling tower to provide condenser water for specific cooling needs. In
addition, Landlord will:

..   Install all vertical ductwork;
..   Install the main horizontal air distribution loop on each floor;
..   Provide VAV fan powered mixing boxes and slot diffusers at a standard
    density ready for installation, with a maximum unit size of 2200 cfm;
..   Provide after-hours HVAC service through an automated tenant interface
    (There will be an hourly charge for after-hours HVAC service).

The building mechanical system shall be built and designed in accordance with
the following design criteria:

1.      Outdoor Design Conditions

        Summer:           85 degree F dry bulb (ASHRAE 0.1%)
                          67 degree F wet bulb (ASHRAE 0.1%)

        Winter:           17 degree F dry bulb

2.      Indoor Design Conditions

        People:           140 rentable square feet per person

        Lights:           1.5 watts per usable square foot

                                      C-l-1



        Equipment:        2 watts per usable square foot

        Temperature:      Summer 74 degree F (+/- 2 degrees F)

                          Winter 72 degree F (+/- 2 degrees F)

        Humidity:         Variable. No direct control of humidity required.

        Outside Air:      20 cfm/person minimum (7 people/1000 rentable square
                          feet). Can be increased to 100% outside air with
                          air economizer operation.

        Extended Hours:   Air system can operate with tenant request.

        24-Hour Cooling:  Condenser water provided for supplemental 24 hour
                          cooling (approximately 10 tons per floor)

        Acoustical:       NC - 40 (+/ -2) within 15 feet of core

STRUCTURAL SYSTEM

The building will feature the following standard loading capacities:

..   Core areas:      80 psf live load, 20 psf dead load
..   Perimeter areas: 50 psf live load, 20 psf dead load

LIFE SAFETY SYSTEMS

The Building will use state of the art life safety systems. As part of the base
building, Landlord will provide at no cost to tenant:

..   Completed life safety buildout in all common areas;
..   Quick response sprinkler heads, smoke detectors, and emergency exit
    lights in the tenant space as required by code for core and shell;
..   Fire control panels in the ground floor lobby of each building, sized to
    accommodate the horns and strobes to be installed as part of the Tenant
    Improvements in Tenant's space;
..   Year 2000 compliant software and hardware.

SECURITY SYSTEMS

The Building will function 24 hours per day, 7 days per week with a security
system that includes:
..   Card controlled access to the Building and the garage;
..   Card readers in each elevator cab;
..   Closed circuit security camera system;
..   24 hour manned security office on-site.

                                      C-l-2



TELECOMMUNICATIONS

Landlord will provide a telephone closet and board on each multi-tenant floor.
The Building will have vertical chase space for multiple telecommunications
providers. In addition, the Building will include:

..   Conduit from the project to telecommunications providers in the street;
..   Vertical conduit to accommodate tenant service providers;

GROUND FLOOR LOBBY AND TYPICAL RESTROOM FINISHES

The ground floor lobby and restrooms will be finished in a manner consistent
with the first class quality of the overall project. Such finishes will include:

..   Floorcoverings composed of granite, marble, or other suitable stone,
    ceramic tile and carpet;

..   Wallcoverings that are a combination of granite, marble, or other
    suitable stone, wood, fabric, and gypsum board;

..   Security desk and tenant directory near the Fourth Avenue entrance;

..   Stainless steel or other upgraded metal elevator doors.

Office floor restroom finishes shall include:

..   Ceramic tile on the floor;

..   Ceramic tile on all wetwalls;

..   Stone vanities;

..   Vitreous china fixtures;

..   Painted metal, ceiling hung toilet partitions;

..   Acoustical tile or gypsum board ceilings.

OTHER BUILDING FINISHES

In addition to the aforementioned lobby and restroom finishes, Landlord will:

..   Complete Building exterior enclosure;
..   Install high speed traction elevators with 3500 pound capacity designed
    to minimize tenant waiting time; upgrade elevator doors, cab finishes,
    frames and buttons;
..   Install drywall ready for paint on all core walls, perimeter walls,
    columns, shafts, bathrooms, and stairwells;
..   Install mini-blinds on all exterior windows;
..   Install one standard drinking fountain per floor at or near the elevator
    lobby;
..   Finish Building Entrance Lobby and multi-tenant lobbies
..   Finish all multi-tenant corridors;
..   Finish Men's & Women's restrooms and associated vestibules;
..   Provide acoustical ceiling grid and tiles ready for installation in
    accordance with the standard Building layout plan;

                                      C-l-3



..   Provide building standard light fixtures ready for installation, at a
    standard density of 1 per 80 square feet; Tenant shall have the right to
    upgrade the building standard light fixtures to a different fixture
    acceptable to Landlord in Landlord's discretion. Tenant shall receive
    any savings actually realized by Landlord through such upgrade as an
    addition to the Cash Allowance.

                                      C-l-4



                                  SCHEDULE C-2

                  DEFINITION OF BUILDING STANDARD IMPROVEMENTS

For the purposes of this Lease, Building Standard Improvements shall consist of:

1.      PARTITIONS.

        One (1) linear foot of ceiling height partition per twelve (12) square
        feet of Net Rentable Area less Common Areas. All required partitions
        shall be 5/8" gypsum board, painted with two coats of latex on 2-1/2"
        metal studs at 24" on center, with 2-1/2" base.

2.      DOORS AND HARDWARE.

        One (1) full height, solid core, hardwood veneer door with a aluminum
        frame and lever handle latch set hardware per three hundred (300) square
        feet of Net Rentable Area less Common Areas.

3.      CEILING.

        Installation of the suspended metal grid system, complete with Class A
        acoustical mineral and/or ceramic fiber 24"x 48" lay in ceiling panels
        for typical floor lease space throughout the Premises as selected or
        provided by Landlord.

4.      LIGHTING.

        Installation of two (2) lamp, 18 cell parabolic light fixtures ready for
        installation per Tenant's plans of a quantity not to exceed one (1)
        2'x4' recessed fluorescent lighting fixture per 80 square feet of usable
        area of a fixture selected or provided by Landlord.

5.      ELECTRICAL OUTLETS.

        One (1) duplex wall-mounted convenience outlet mounted at standard
        locations with white plastic cover plate for each one hundred twenty
        (120) square feet of Net Rentable Area less Common Areas.

6.      TELEPHONE OUTLETS.

        One (1) telephone wall outlet mounted at standard locations for each two
        hundred ten (210) square feet of Net Rentable Area less Common Areas
        with pull wire through the partition.

7.      FLOOR COVERING.

        Building Standard carpet or a credit of $15.00 per square yard of
        carpeted area.

8.      SWITCH.

        One (1) dual light switch, rocker type, mounted at standard locations
        with white plastic cover plate for each three hundred (300) square feet
        of Net Rentable Area less Common Areas.

9.      LIFE SAFETY SYSTEMS.

        Rapid Response fire sprinkler heads to conform with typical Tenant
        partition layout, utilizing the Building Standard partition and
        lighting, for light hazard occupancy design criteria. Manual fire alarm
        pull stations, exit lights, and audible fire alarm speakers shall be
        provided at the Building stair doors and elevator lobbies.

10.     HVAC.

        Installation of the variable air volume series Fan Powered Terminal
        Units (FPTUs) provided by Landlord and installed in accordance with
        building standard mechanical layouts to suit normal general office
        space.

                                      C-2-1



                                    EXHIBIT D

                              RULES AND REGULATIONS

        1.      Sidewalks, doorways, halls, stairways, vestibules and other
similar areas shall not be obstructed by any Tenant or used by them for purpose
other than ingress to and egress from their respective Premises, and for going
from one part of the Building to another part.

        2.      Plumbing fixtures shall be used only for their designated
purpose, and no foreign substances of any kind shall be deposited therein.
Damage to any such fixture resulting from misuse by Tenant or any employee or
invitee of Tenant shall be repaired at the expense of Tenant.

        3.      Nails, screws and other attachments to the Building require
prior written consent from Landlord.

        4.      All contractors and technicians rendering any installation
service to Tenant shall be subject to Landlord's approval and supervision prior
to performing services. This applies to all work performed in the Building,
including, but not limited to, installation of telecommunications equipment, and
electrical devices, as well as all installation affecting floors, walls,
woodwork, windows, ceilings, and any other physical portion of the Building.

        5.      Movement in or out of the Building of furniture, office
equipment, or other bulky material which requires the use of elevators,
stairways, or Building entrance and lobby shall be restricted to hours
established by Landlord. All such movement shall be under Landlord's
supervision, and the use of an elevator for such movements shall be made
restricted to the Building's freight elevators, or an elevator for such
movements shall be made restricted to the Building's freight elevators.
Prearrangements with Landlord shall be made regarding the time, method, and
routing of such movement, and Tenant shall assume all risks of damage and pay
the cost of repairing or providing compensation for damage to the Building, to
articles moved and injury to persons or public resulting from such moves.
Landlord shall not be liable for any acts or damages resulting from any such
activity.

        6.      Corridor doors, when not is use, shall be kept closed.

        7.      Tenant shall cooperate with Landlord in maintaining the
Premises. Tenant shall not employ any person for the purpose of cleaning the
Premises other than the Building's cleaning and maintenance personnel.

        8.      Deliveries of water, soft drinks, newspapers, or other such
items to any Premises shall be restricted to hours established by Landlord and
made by use of the freight elevators if Landlord so directs.

        9.      Nothing shall be swept or thrown into the corridors, halls,
elevator shafts, or stairways. No birds, fish, or animals of any kind shall be
brought into or kept in, on or about the Premises.

        10.     No cooking shall be done in the Premises except in connection
with a cafeteria, convenience lunch room or beverage service for employees and
guests (on a noncommercial basis) in a manner which complies with all of the
provisions of the Lease (including Landlord's right to review and approve all
plans relating thereto) and which does not produce fumes or odors.

        11.     Food, soft drink or other vending machines shall not be placed
within the Premises without Landlord's prior written consent, except vending
machines used by employees of Tenant (and not for use by the general public).

        12.     Tenant shall not use or keep on its Premises any kerosene,
gasoline, or inflammable or combustible fluid or material other than limited
quantities reasonably necessary for the operation and maintenance of office
equipment.

                                       D-1



        13.     Tenant shall not tamper with or attempt to adjust temperature
control thermostats in the Premises. Landlord shall make adjustments in
thermostats on call from Tenant.

        14.     Tenant shall comply with all requirements necessary for the
security of the Premises, including the use of service passes issued by Landlord
for after hours movement of office equipment/packages, and signing security
register in Building lobby after hours.

        15.     Landlord shall furnish Tenant with a reasonable number of
initial access cards for entrance doors into the Premises in accordance with the
terms of the Lease, and may charge Tenant for additional or replacement access
cards, thereafter. All such access cards shall remain the property of Landlord.
No additional locks are allowed on any door of the Premises without Landlord's
prior written consent and Tenant shall not make any duplicate keys, except those
provided by Landlord. Upon termination of this Lease, Tenant shall surrender to
Landlord all keys and access cards to the Premises, and give to Landlord the
combination of all locks for safes and vault doors, if any, in the Premises.

        16.     Landlord retains the right, without notice or liability to any
tenant, to change the street address of the Building.

        17.     Canvassing, peddling, soliciting, and distribution of handbills
in the Building are prohibited and each tenant shall cooperate to prevent these
activities.

        18.     The Building hours of operation shall be as set forth in Section
5.2 of the Lease.

        19.     Tenant shall take reasonable steps to prevent the unnecessary
generation of refuse (e.g., choosing and using products, packaging, or other
materials in business that minimize solid waste or that are durable, reusable,
or recyclable). Tenant shall provide or obtain recycling containers in its
business for use by employees and customers, shall recycle acceptable materials
in the recycling containers provided by Landlord, and shall otherwise
participate in the recycling program established by Landlord for the Building.
Acceptable recyclable materials may include, but are not limited to, the
following: newspaper, cardboard, paperboard, office paper and other mixed paper,
aluminum, tin and other metal, glass, and #1 (PETE) and #2 (HDPE) plastics.

        20.     Tenant shall not and shall cause its employees, agents,
contractors, invitees, customers and visitors, not to smoke in the Premises or
in any portion of the Building or the Common Areas, except those areas expressly
designated as smoking areas by Landlord. Persons may smoke cigarettes in
designated areas only if the smoker uses designated receptacles for ashes and
cigarette butts and does not annoy any nonsmoking persons using the area or
interfere with access to the Building.

        21.     Landlord reserves the right to rescind or modify any of these
rules and regulations and to make future rules and regulations required for the
safety, protection, and maintenance of the Building, the operation and
preservation of good order thereof, and the protection and comfort of the
tenants and their employees and visitors. Such rules and regulations, when made
and written notice given the Tenant, shall be binding as if originally included
herein.

                                       D-2



                                    EXHIBIT E

                                 SAMPLE FORM OF
                         LEASE COMMENCEMENT CERTIFICATE

Re:     [Tenant]
        [Suite No.]
        Madison Financial Center

        ------------------------
        Seattle, Washington

        This is to certify that pursuant to the terms of that certain Office
Lease Agreement dated as of ___________, between [Tenant's Name] ("Tenant") and
National Office Partners Limited Partnership, Tenant has taken possession of
Premises described above. Tenant hereby certifies and agrees that the following
information is true and correct:

        1.      Term Commencement Date: _____________________________

        2.      Lease Expiration Date: ________________________________

        3.      Net Rentable Area of Premises: ______________________

        4.      Total Construction Payment (Exhibit C to Lease) Due From Tenant
                to Landlord: _______________

        5.      Security Deposit Paid: _______________________

        6.      Total Prepaid Rent: ___________________________________

        7.      Months to Which Prepaid Rent Applies: ________________________

        8.      Attached hereto is the Insurance Certificate required by Article
                11 of the Lease

[Name of Tenant]

By:
   ---------------------
Name:
     -------------------
Title:
      ------------------
Date:
      ------------------

                                       E-1



                                   EXHIBIT F-l

                             CONCEPTUAL SIGNAGE PLAN

                                      F-l-1



                                   EXHIBIT F-1

[GRAPHIC APPEARS HERE]



                                   EXHIBIT F-2

                                MAJOR TENANT SIGN

                                      F-2-1



                                   EXHIBIT F-2

[GRAPHIC APPEARS HERE]



                                    EXHIBIT G

                       SAMPLE FORM OF ESTOPPEL CERTIFICATE

TENANT: ________________________________[insert full legal name]
DATE OF LEASE: _________________________
AMENDMENTS: ____________________________
PREMISES: Suite No.______ / Floors:___________________

                              ESTOPPEL CERTIFICATE

 To: ________________________________________________

            The undersigned hereby certifies as follows:

                1.      The undersigned is the "Tenant" under the above
        referenced lease ("Lease") with National Office Partners Limited
        Partnership ("Landlord") covering the above referenced Premises
        ("Premises"). A true, correct and complete copy of the Lease (including
        all addenda, riders, amendments, modifications and supplements thereto)
        is attached hereto as Exhibit A.

                2.      The Lease constitutes the entire agreement between
        landlord under the Lease and Tenant with respect to the Premises and the
        Lease has not been modified, changed, altered or amended in any respect
        except as set forth in Exhibit "A" and the Lease is valid and in full
        force and effect as of the date hereof.

                3.      The term of the Lease commenced on ________, 20
        ________, and, including any presently exercised option or renewal term,
        will expire on _____, 20 ________, unless sooner terminated or extended
        in accordance with the terms of the Lease. Tenant has accepted
        possession of the Premises and is the actual occupant in possession and
        has not sublet, assigned or hypothecated Tenant's leasehold interest,
        except as follows: _____________________________________________________
        ________________________________________________________________________
        _______________________________________________________________________.

                4.      As of the date of this Estoppel Certificate, there
        exists no breach or default on the part of either Tenant or Landlord
        and, to the best of Tenant's knowledge, no event has occurred and no
        condition exists which, with the giving of notice or the lapse of time,
        or both, will constitute a default under the Lease. To the best of
        Tenant's knowledge, no claim, controversy, dispute, quarrel or
        disagreement exists between Tenant and Landlord.

                5.      There are no remaining unsatisfied obligations under the
        Lease on the part of Landlord with respect to tenant improvements, free
        rent, partial rent, rebate of rent, credits, offsets or deduction in
        rent or any other type of rental concessions, except:___________________
        ________________________________________________________________________
        ________________________________________________________________________
        _______________________________________________________________________.

                6.      Tenant is currently obligated to pay base rental in
        monthly installments of $ _________ per month and monthly installments
        of base rental and estimated operating expenses have been paid through
        _______, 20 ______. No other rent has been paid in advance (other than
        estimates of operating expenses) and Tenant has no claim or defense
        against Landlord under the Lease and is asserting no offsets or credits
        against either the rent or Landlord. Tenant has no claim against
        Landlord for any security or other deposits except $_______ which was
        paid pursuant to the Lease. The current proportionate share from which
        Tenant's operating expenses are calculated is ________.

                                       G-1



                7.      Tenant has no option or preferential right to purchase
        all or any part of the Premises (or the real property of which the
        Premises are a part). Tenant has no right to renew or extend the term of
        the Lease or expand the Premises except:_______________________________.

                8.      There has not been filed by or against Tenant a petition
        in bankruptcy, voluntary or otherwise, any assignment for the benefit of
        creditors, any petition seeking reorganization or arrangement under the
        bankruptcy laws of the United States, or any state thereof, or any other
        action brought under said bankruptcy laws with respect to Tenant.

                9.      Tenant's address for notice purposes is: _______________
                        _______________________________________________________.

            This Estoppel Certificate is made to______________________("Buyer")
        [or, ("Lender")] and National Office Partners Limited Partnership,
        L.L.C. ("Owner") in connection with the prospective purchase by Buyer,
        or Buyer's assignee, of the building containing the Premises [or,
        Lender's prospective loan to Owner which will be secured by Owner's
        interest in the Lease and the building containing the Premises]. This
        Certificate may be relied on by Buyer [Lender] and Owner and their
        successors and assigns and any other party who acquires an interest in
        the Premises in connection with such purchase [or loan] and any person
        or entity which may finance Buyer's purchase.

            Dated this _____ day of ______________, 20__.
                                             TENANT

                                             -----------------------------------
                                             [insert full legal name]

                                             By:
                                                 -------------------------------
                                                 Name:
                                                       -------------------------
                                                 Title:
                                                       -------------------------

                                       G-2



                                    EXHIBIT H

                            JANITORIAL SPECIFICATIONS

               BUILDING STANDARD JANITORIAL AND CLEANING SERVICES

        The following building standard janitorial and cleaning services shall
be done by Landlord between 5:30 p.m. and 11:30 p.m. on Monday through Friday, 5
days a week, and at such other times as may be mutually agreed upon.

A.      Tenant Office Areas, Conference Rooms, Common Areas, and Kitchenettes

        1.      Empty, clean and damp dust all waste receptacles and remove
                waste paper and rubbish from the Premises nightly, wash
                receptacles as necessary. Recycled materials including paper,
                aluminum and glass will be picked up nightly.

        2.      Empty and clean all ash trays, screen all sand urns nightly and
                supply and replace sand as necessary.

        3.      Vacuum nightly all rugs and carpeted areas in the Premises,
                lobbies and corridors.

        4.      Nightly hand dust and wipe clean with damp or treated cloth all
                office furniture, files, fixtures, window sills and all other
                horizontal surfaces; once every three weeks for vertical paneled
                surfaces; wash window sills when necessary.

        5.      Nightly damp wipe all glass furniture tops.

        6.      Nightly spot clean, including remove finger marks, dirt, stains,
                graffiti and smudges from vertical surfaces, including doors,
                door frames, glass, around light switches, private entrance
                glass, painted walls, elevator doors, and partitions.

        7.      Wash clean all water fountains nightly.

        8.      Refill all paper towel dispensers in Common Areas.

        9.      Sweep all private stairways nightly, vacuum nightly if carpeted.

        10.     Police all stairwells throughout the project daily and keep in
                clean condition.

        11.     Nightly damp mop spillage in noncarpeted office and public
                areas.

        12.     Nightly damp dust all telephones, desks and other furniture
                tops.

B.      Washrooms (Including Private Washrooms)

        1.      Wet mop, sanitize, rinse and dry floors nightly.

        2.      Scrub floors as necessary.

        3.      Clean all mirrors, bright work and enameled surfaces nightly.

        4.      Wash and disinfect all basins, urinals and bowls nightly using
                nonabrasive cleaners to remove stains and nightly clean
                undersides of rim of urinals and bowls.

        5.      Wash both sides of all toilet seats with soap, water and
                disinfectant nightly.

        6.      Nightly damp wipe and wash with disinfectant when necessary,
                partitions, tile walls and outside surface of dispensers and
                receptacles.

        7.      Empty and sanitize receptacles and sanitary disposals nightly;
                thoroughly clean and wash at least once per week.

        8.      Fill toilet tissue, facial tissue, soap, paper towel dispensers,
                and sanitary napkin dispensers nightly.

                                       H-1



        9.      Clean flushometer, piping, toilet set hinges and other metal
                work nightly.

        10.     Wash and polish walls, partitions, tile walls and enamel
                surfaces from trim to floor monthly.

        11.     Vacuum all louvers, ventilating grilles and dust light fixtures
                weekly.

        NOTE:   It is the intention to keep washrooms thoroughly cleaned and not
                to use a disinfectant to kill odor. If a disinfectant is
                necessary, an odorless product will be used.

C.      Floors

        1.      All ceramic tile, marble and terrazzo floors to be swept nightly
                and washed, scrubbed and buffed as needed.

        2.      Vinyl asbestos, asphalt, vinyl, rubber or other composition
                floors and bases to be swept nightly using dust down
                preparation; such floors in public areas on multitenancy floors
                to be waxed and buffed monthly.

        3.      Tile floors in all areas will be waxed and buffed monthly.

        4.      Floors re-waxed and old wax removed as necessary.

        5.      Carpeted areas and rugs to be vacuumed cleaned nightly. Return
                chairs and waste containers to proper positions.

        6.      Carpet shampooing will be performed at Lessee's request and
                billed to Tenant. Tenant has the right to put this service out
                to bid with other carpet cleaning companies with final selection
                subject to Lessor's approval.

        7.      All floor areas to be spot cleaned nightly.

        8.      Clean chair mats weekly.

D.      Glass

        1.      Clean all perimeter glass every six (6) months outside and every
                six (6) months inside. Any additional cleaning to be at Tenant's
                expense.

        2.      Clean glass entrance doors and adjacent glass panels nightly.

        3.      Clean partition glass, office relights, and interior glass doors
                quarterly.

        4.      Clean exterior of ground floor glass as needed.

E.      High Dusting (Quarterly)

        1.      Dust and wipe clean closet shelving when empty and carpet sweep
                and dry mop floors in closets if such are empty.

        2.      Dust clean all vertical surfaces such as walls, partitions,
                doors, door bucks and other surfaces above shoulder height.

        3.      Damp dust ceiling air-conditioning diffusers, wall grilles,
                registers and other ventilating louvers.

        4.      Dust the exterior (i.e., below ceiling) surfaces of all lighting
                fixtures, including glass and plastic enclosures, pendant
                lighting, and aluminum louvers.

F.      Day Service

        1.      At least once, but not more than twice during the day, check
                men's washrooms for toilet tissue replacement.

                                       H-2



        2.      At least once, but not more than twice during the day, check
                women's washrooms for toilet tissue and sanitary napkin
                replacement.

        3.      Supply toilet tissue, facial tissue, soap, paper towels in men's
                and women's washrooms and sanitary napkins in women's washroom.

        4.      As needed, vacuuming of elevator cabs will be performed.

        5.      There will be a constant surveillance of public areas to insure
                cleanliness.

G.      General

        1.      Wipe all interior metal window frames, mullions, and other
                unpainted interior metal surfaces of the perimeter walls of the
                building each time the interior of the windows is washed.

        2.      Keep slop sink rooms in a clean, neat and orderly condition at
                all times.

        3.      Wipe clean all metal hardware fixtures nightly and polish bright
                work as necessary.

        4.      Dust and/or wash all directory boards as required and remove
                fingerprints and smudges nightly.

        5.      Maintain building lobby, corridors and other public areas in a
                clean condition.

        6.      Janitorial services must respond to emergencies within a timely
                manner to prevent further damage from flooding.

H.      Special

        It is understood that no services of the character provided for in this
        Exhibit shall be provided on Saturdays, Sundays or days recognized as
        Holidays pursuant to this Lease, unless specifically stated above.

This cleaning specification may be changed or altered by Landlord from time to
time to facilitate conformity with the latest methods of maintenance and
cleaning technology generally recognized as acceptable for first-class office
buildings in Seattle, Washington, and Landlord reserves the right to alter the
level of such services from time to time as determined by Landlord to be
appropriate for a first-class office building. In the event Tenant requires a
higher level of services to suit its particular needs, the cost of such
additional service shall be borne by Tenant. However, in no event will the level
or quality of services be diminished by such changes.

                                       H-3

EX-10.70

                                                                   EXHIBIT 10.70

                            FIRST AMENDMENT TO LEASE

        This FIRST AMENDMENT TO LEASE (this "Amendment") is made and entered
into as of the 15th day of February, 2002, by and between NATIONAL OFFICE
PARTNERS LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), and
IDX SYSTEMS CORPORATION, a Vermont corporation ("Tenant"), with reference to
that certain Lease (as defined below) covering certain premises located in the
IDX Tower at Fourth and Madison in Seattle, Washington.

                                    RECITALS

        A.      Landlord and Tenant are parties to that certain Office Building
Lease dated as of March 23,2000 (the "Lease") pursuant to which Tenant leased
certain space in the Building.

        B.      Landlord and Tenant now wish to modify certain provisions of the
Lease.

        NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the parties hereby agree
as follows:

        1.      Revised Basic Lease Information Sheet. The Basic Lease
Information Sheet attached to the Lease is hereby superceded and replaced in its
entirety by the Basic Lease Information Sheet attached hereto and incorporated
herein by this reference.

        2.      Revised Initial Premises. Landlord and Tenant have agreed to
eliminate Floor 18 from the Initial Premises and the Third Expansion Space. The
second (2nd) sentence of Section l.l(a) of the Lease is hereby superceded and
replaced by the following:

                The Initial Premises are estimated to contain Three Hundred Nine
                Thousand Two Hundred Seventy-eight and 1/10 (309,278.10) square
                feet of Net Rentable Area (or Two Hundred Sixty-nine Thousand
                Eight Hundred Nineteen and 3/10 (269,819.3) square feet of
                Useable Area).

        The fifth (5th) sentence of Section 1.1(a) of the Lease is hereby
superceded and replaced by the following:

                The precise location of and floor plans for the Premises shall
                be modified to reflect any revisions to the Building design
                after the date hereof; provided that the Initial Premises shall
                mean all occupiable space, other than retail space and Common
                Area, beginning on the third (3rd) floor of the Building
                (excluding any retail space on the fourth (4th) floor) and
                continuing whole floors to and including the seventeenth (17th)
                floor of the Building, and containing approximately Three
                Hundred Nine Thousand Two Hundred Seventy-eight and 1/10
                (309,278.10) square feet of Net Rentable Area.



        3.      Revised Occupancy Schedule. The occupancy schedule set forth in
Section l.l(b) of the Lease is hereby superceded and replaced by the following:



                                            NET RENTABLE                             TARGET
          PORTION OF PREMISES     FLOORS      AREA(SF)     USEABLE AREA (SF)     OCCUPANCY DATE
     --------------------------------------------------------------------------------------------
                                                                     
     Minimum Initial Premises      3-11        186,033.8           162,504.7     April 1, 2003*
     Hold Space                     12          24,652.9            21,481.8     January 1, 2004
     First Expansion Space          14          24,647.9            21,458.2     January 1, 2005
     Second Expansion Space       15-16         49,295.7            42,916.4     January 1, 2006
     Third Expansion Space          17          24,647.9            21,458.2     February 1, 2008
     --------------------------------------------------------------------------------------------
     

     *subject to acceleration to as early as January 1, 2003 at Landlord's
election (See Section 2.1(a)).

        4.      Right of First Offer. The right of first offer set forth in
Section l.l(e) of the Lease is hereby superceded and replaced in its entirety by
the following:

                        (e)      Right of First Offer. Subject to the terms and
                conditions of this Section l.l(e), Tenant shall have the right
                of first offer to include within the Premises any space which
                becomes available on Floors 18 through 39 of the Building (the
                "Offer Space"). Tenant may not exercise its right to lease any
                Offer Space during any period when Tenant is in default under
                this Lease (which shall mean that no Event of Default has
                occurred and has not been cured during the applicable cure
                period, if any, unless otherwise waived in writing by Landlord).
                If less than two (2) years remain in the Lease Term, Tenant must
                exercise an Extension Option under Section 2.l(b) in order to
                lease any Offer Space and if no Extension Option remains to be
                exercised Tenant's rights under this Section l.1(e) shall
                terminate. For purposes of this Section l.1(e), the phrase "any
                space which becomes available" shall mean any space on Floors 18
                through 39 of the Building which is vacant or is scheduled to be
                vacated within six (6) months but no space shall be considered
                Offer Space until it has been previously leased to another
                tenant under a written lease agreement (an "Initial Lease").
                Landlord shall not offer to lease nor lease any Offer Space to a
                party other than Tenant without first providing Tenant with
                written notice that the Offer Space is available to lease or
                will be available to lease within the next six (6) months
                ("Availability Notice"). The Availability Notice shall include
                Landlord's proposed Fair Market Rent for the Offer Space in
                accordance with Section 2.6(b)(iv), but should Tenant not accept
                such proposal then Landlord may provide a different proposed
                Fair Market Rent for purposes of any arbitration under Section
                2.6(b)(v) and Landlord's original proposal shall not be binding
                upon Landlord nor admissible by Tenant in any such arbitration.
                Tenant shall have ten (10) Business Days after receipt

                                        2



                of an Availability Notice to notify Landlord in writing that
                it will lease all of the Offer Space subject to such
                Availability Notice and whether Tenant accepts Landlord's
                proposed Fair Market Rent. If Tenant does not exercise its
                option with respect to the Offer Space described in an
                Availability Notice then Landlord may lease the space identified
                therein to a third party on any terms that Landlord may deem
                acceptable. Any Offer Space leased by Tenant under this Section
                1.1 (e) shall be leased under all of the terms and conditions of
                this Lease including expiration date, renewal options and
                services except that: (i) Landlord shall deliver the space to
                Tenant as previously improved with clean paint and carpet but
                Landlord shall have no obligation to install any Tenant
                Improvements in the space or to contribute any money towards any
                alteration or improvement thereof; and (ii) Base Rent shall be
                the Fair Market Rent proposed in the Availability Notice, if
                accepted by Tenant, or as otherwise determined under Section
                2.6(b) below. Tenant's right to lease the Offer Space is a
                Personal Right and is subject and subordinate to any: (A)
                renewal rights or expansion options granted under any Initial
                Leases and any other subsequent leases covering space on Floors
                18 through 32; and (b) renewal rights, expansion options or
                rights of first offer granted under any Initial Leases covering
                space on Floors 33 through 39. With respect to Offer Space
                available on Floors 18,19 and 20, this right of first offer
                shall be a continuing right, and such Offer Space shall be
                offered to Tenant as provided herein from time to time as such
                Offer Space becomes available. With respect to Offer Space
                available on Floors 21 through 39, this right of first offer
                shall be a one-time right only, and if Tenant does not exercise
                its right with respect to Offer Space described in an
                Availability Notice for any such space, such space described in
                the Availability Notice shall no longer be considered Offer
                Space.

        5.      Modification of Telecommunications Provision. The reference to
"Floor 18" in the last sentence of Section 6.3 of the Lease is hereby replaced
by the phrase "Floor 17."

        6.      "As Is" Condition of Third Expansion Space. Tenant understands,
acknowledges and agrees that the Third Expansion Space (Floor 17) is being
leased by Landlord to Preston Gates & Ellis LLP ("PGE") for a five (5) year term
which will expire prior to the Target Occupancy Date for the Third Expansion
Space. Landlord will be providing a cash allowance to PGE of Thirty-two Dollars
($32.00) per square foot of Useable Area on Floor 17 ("Floor 17 Allowance") for
purposes of design and construction of tenant improvements for such space,
consistent with Schedule C-2 to the Lease. Tenant shall have the right to review
and approve the Working Drawings for the tenant improvements for Floor 17 as
prepared and submitted by PGE to Landlord, as well as any other plans of PGE for
modifications or alterations to Floor 17 to the extent subject to Landlord's
approval, however, Tenant's approval shall not to be unreasonably withheld or
delayed. Tenant's approval of the Working Drawings for Floor 17 (or any
subsequent modifications or alterations) shall be deemed given should Tenant
fail to

                                        3



deliver to Landlord a written notice of disapproval within five (5) Business
Days following Tenant's receipt of the Working Drawings or other plans therefor.
Tenant shall accept the Third Expansion Space in its "AS IS" condition at the
commencement of the Term therefor except that Landlord shall clean the space
(including the carpets and, as necessary, the walls) prior to delivering
possession of such space to Tenant. Landlord shall have no obligation of any
kind to make any additional modifications or improvements to the Third Expansion
Space nor to provide any tenant improvement allowance to Tenant with respect
thereto. If and to the extent PGE spends less than the full Floor 17 Allowance
on design and construction of tenant improvements for Floor 17, Landlord shall
make available to Tenant, at the commencement of the Term for the Third
Expansion Space, the unexpended portion of the Floor 17 Allowance for additional
modifications or improvements to such space.

        7.      Modifications to Mid-Rise Elevators. As partial consideration
for Landlord's agreement to release Tenant from its obligation to lease Floor
18, Landlord and Tenant hereby agree to reduce the Cash Allowance by One Hundred
Thousand Dollars ($100,000) and Landlord shall apply such amount to the cost of
modifying Floor 19 in the Building to allow the mid-rise elevators to serve
Floor 19. These modifications shall consist of relocating the men's restroom,
re-routing Base Building plumbing as necessary, constructing a second elevator
lobby in the previous location of the men's restroom, adding six (6) new
elevator doors serving such new elevator lobby, and modifying the elevator
control system to allow the six (6) mid-rise elevators to service Floor 19.
Accordingly, the first sentence of Paragraph 14(a) in Exhibit C to the Lease is
hereby superceded and replaced by the following:

                Landlord shall provide a total of up to Thirty-two and 00/100
                Dollars ($32.00) per square foot of Useable Area in the Initial
                Premises (excluding the Third Expansion Space and less One
                Hundred Thousand Dollars ($100,000.00)) (the "Cash Allowance")
                toward the payment for the design and construction of the Tenant
                Improvements and Tenant Work (assuming standard cabling) in the
                Premises and Tenant's reasonable move-in costs and expenses.

        8.      Landlord's Construction Representatives. Landlord's
representatives under Paragraph 16 in Exhibit C to the Lease are hereby updated
to be Robert C. Hollister and Cathy Dempsey.

        9.      Brokers. Landlord shall compensate both Landlord's Broker and
Tenant's Broker pursuant to the terms of separate agreements entered into
between Landlord and each Broker. Tenant shall be responsible for any other
liabilities, commissions, compensation or charges owed to or claimed by Tenant's
Broker or any other broker or agent retained by Tenant in connection with the
Lease or this Amendment.

        10.     Modification of Exhibit A. Exhibit A to the Lease is hereby
superceded and replaced in its entirety by the substitute Exhibit A which is
attached hereto and incorporated herein by this reference.

                                        4



        11.     Conflict. Capitalized terms used herein and not otherwise
defined shall have the meanings given in the Lease. If there is any conflict
between the terms, conditions and provisions of this Amendment and the terms and
conditions of the Lease, the terms, conditions and provisions of this Amendment
shall prevail.

        12.     No Further Amendment. Except as expressly modified by this
Amendment, all terms, covenants and provisions of the Lease shall remain
unmodified and in full force and effect and are hereby expressly ratified and
confirmed.

        13.     Entire Agreement. This Amendment reflects the entire agreement
of the parties with respect to amending the terms of the Lease and this
Amendment supersedes any and all correspondence and oral agreements between the
parties hereto regarding the amendment of the Lease which are prior in time to
this Amendment. With respect to the subject matter hereof, neither party will be
bound by any understanding, agreement, promise, representation or stipulation,
express or implied, not specified herein.

        14.     Counterparts. This Amendment may be executed in counterparts,
each of which will be deemed to be an original, but all of which together will
constitute one and the same document.

                                        5



IN WITNESS WHEREOF, the parties hereto have executed this Amendment in
triplicate originals as of the day and year first above written.

                   LANDLORD:  NATIONAL OFFICE PARTNERS LIMITED PARTNERSHIP, a
                              Delaware limited partnership

                              By:  Hines National Office Partners Limited
                                   Partnership, A Texas limited partnership,
                                   general partner

                                   By:  Hines Fund  Management,  L.L.C., a
                                        Delaware  limited liability company,
                                        general partner

                                        By:  Hines Interests Limited
                                             Partnership, a Delaware limited
                                             partnership, sole member

                                             By:  Hines Holdings, Inc., a Texas
                                                  Corporation, its
                                                  general partner

                                                  By:  /s/ Daniel MacEachron
                                                       -------------------------
                                                       Daniel MacEachron
                                                       Senior Vice President

                   TENANT:  IDX SYSTEMS CORPORATION,
                            a Vermont corporation

                            By: /s/ John A. Kane
                                --------------------
                            Name:  John A. Kane
                            Title: SR VP & CFO

Attachments:
    Basic Lease Information Sheet (revised)
    Exhibit A - Stacking Diagram of Premises (revised)

                                        6



STATE OF     California )
                        ) ss.
COUNTY OF San Francisco )

        On this 15th day of March, 2002, before me, a Notary Public in and for
the State of California, personally appeared DANIEL MacEACHRON, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the person
who signed the instrument; on oath stated that he was authorized to execute this
instrument as the Senior Vice President of HINES HOLDINGS, INC., a Texas
corporation, the corporation that executed the instrument; acknowledged the 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 said
corporation is the general partner of Hines Interests Limited Partnership, which
is the sole member of Hines Fund Management, L.L.C., which is the general
partner of Hines National Office Partners Limited Partnership, the general
partner of NATIONAL OFFICE PARTNERS LIMITED PARTNERSHIP, a Delaware limited
partnership; that said corporation was authorized to execute the said instrument
on behalf of said partnership; and that said instrument was the free and
voluntary act and deed of said partnership for the uses and purposes therein
mentioned.

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

[SEAL OF KIMBERLY A. NORMANDY]         /s/ Kimberly A. Normandy
                                       -----------------------------------------
                                       NOTARY PUBLIC in and for the State of CA
                                       residing at San Francisco
                                       My appointment expires May 20, 2005
                                       Print Name Kimberly A. Normandy


STATE OF     VERMONT)
                    ) ss.
COUNTY OF CHITTENDEN)

        On this 5th day of March 2002, before me, a Notary Public in and for the
State of VERMONT, personally appeared JOHN A. KANE, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed this instrument, on oath stated that HE was authorized to execute the
instrument, and acknowledged it as the Sr.VP & CFO of IDX SYSTEMS CORPORATION to
be the free and voluntary act and deed of said corporation for the uses and
purposes mentioned in the instrument.

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

                                       /s/ Diane L. Brown
                                       -----------------------------------------
                                       NOTARY PUBLIC in and for the State of
                                       VT residing at Burlington
                                       My appointment expires 2/10/2003
                                       Print Name Diane L. Brown

                                        7



                          BASIC LEASE INFORMATION SHEET

8.   Date of Lease                 March 23, 2000, amended by First
                                   Amendment to Lease dated February 15,
                                   2002

9.   Tenant:                       IDX SYSTEMS CORPORATION,
                                   a Vermont corporation

10.  Tenant's Address              1400 Shelburne Road
     Prior to Occupancy:           Burlington, Vermont 05402-1070

11.  Tenant's Address              At the Premises
     After Occupancy:              with a copy to:
                                   1400 Shelburne Road
                                   Burlington, Vermont 05402-1070

12.  Landlord:                     NATIONAL OFFICE PARTNERS LIMITED PARTNERSHIP,
                                   a Delaware limited partnership

13.  Landlord's Address:           c/o Hines
                                   800 Fifth Avenue, Suite 3838
                                   Seattle, Washington 98104

14.  Premises:                     Those portions of Floors 3 through 17
                                   (inclusive) as shown on Exhibit A

15.  Net Rentable Area/Tenant's    Three Hundred Nine Thousand Two Hundred
     Proportionate Share:          Seventy-eight and 1/10 (309,278.1)
                                   square feet of Net Rentable Area/Two
                                   Hundred Sixty-nine Thousand Eight Hundred
                                   Nineteen and 3/10 (269,819.3) square feet
                                   of Useable Area, as adjusted pursuant
                                   to Section 1.1 (d).
                                   Tenant's Proportionate Share: Thirty-eight
                                   and 51/100 percent (38.51%), as to the
                                   Minimum Initial Premises, as adjusted
                                   pursuant to Section 4.3.

16.  Scheduled Commencement Date:  April 1, 2003

17.  Term:                         Initial Term: Twelve (12) Years and zero
                                   (0) Months Extension Terms: Two (2)
                                   successive options for Six (6) Years each

18.  Base Rent:                    See Page B attached hereto

19.  Security Deposit:             N/A

20.  Parking:                      1.00 pass per one thousand five hundred
                                   (1,500) square feet of Useable Area,
                                   subject to adjustment pursuant to
                                   Section 14.22.

/s/ JAK 3/5/02                                          /s/ DM 3/15/02
- ---------------------                                   ------------------------
Tenant's Initials/Date                                  Landlord's Initials/Date

                                        A




21.  Tenant's Working              No later than January 1, 2002
     Drawings Delivery Date:

22.  Cash Allowance:               $32.00 per square foot of Useable
                                   Area in the Premises (excluding the
                                   Third Expansion Space and less One
                                   Hundred Thousand Dollars
                                   ($100,000)), to be allocated as provided
                                   in Exhibit C

23. Broker(s):                     Landlord's Broker: Colliers
                                   International Tenant's Broker:
                                   Cushman & Wakefield of Washington, Inc.



Base Rent Schedule (Item 11 on Basic Lease Information Sheet)

                    MINIMUM ANNUAL BASE RENT PER SQUARE FOOT OF NET RENTABLE
                    AREA FOR:

                    MINIMUM INITIAL
                   PREMISES AND HOLD     EXPANSION
  LEASE YEARS*           SPACE             SPACE
- -------------------------------------------------------------------------------
      1-3          $          23.50      $   24.50
      4-6          $          26.00      $   27.00
      7-9          $          28.50      $   29.50
      10-12        $          31.00      $   32.00

*    As defined in Section 2.1(b) below.

/s/ JAK 3/5/02                                         /s/ DM 3/15/02
- ---------------------                                  ---------------------
Tenant's Initials/Date                                 Landlord's Initials/Date

                                        B



                                   EXHIBIT A

                                IDX STACKING PLAN

[GRAPHIC APPEARS HERE]

[LOGO OF MADISON FINANCIAL CENTER]

EX-10.71

          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

                                                                   Exhibit 10.71

                     DISTRIBUTION AND DEVELOPMENT AGREEMENT

          THIS AGREEMENT (this "Agreement") is made and entered into as of
November 15, 2000 (the "Effective Date") by and between STENTOR, INC., a
Delaware corporation ("Stentor") and IDX SYSTEMS CORPORATION, a Vermont
corporation ("IDX").

                               W I T N E S S E T H

          WHEREAS, Stentor is in the business of developing and marketing
products and services to automate the viewing and archiving of medical images;
and

          WHEREAS, IDX, through its Radiology and Imaging Systems Division, has
developed products and services to automate the management of radiology
practices and departments; and

          WHEREAS, IDX and Stentor desire to develop integration between their
current products and services and certain future products and services to be
developed by Stentor and IDX to create a comprehensive, state-of-the-art medical
image management system, initially applicable to radiology practices, but
possibly extended to cardiology, pathology, opthamology, orthopedics, emergency
departments and other similar practices that could make use of the system;

          NOW, THEREFORE, in consideration of these premises, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

1.        DEFINITIONS

          Capitalized terms used in this Agreement, unless otherwise defined in
this Agreement, shall have the meanings ascribed to them on Schedule 1 attached
hereto.

2.        TERM AND TERMINATION

          2.1  Term. This Agreement shall be in effect for an initial term of
               five (5) years (the "Initial Term") and shall automatically renew
               for additional, successive two (2) year terms unless earlier
               terminated by either of IDX or Stentor by giving written notice
               of such party's election not to renew this Agreement not later
               than one (1) year prior to the expiration of the Initial Term or
               six (6) months prior to the expiration of any then current
               successive term.

          2.2  Termination. Notwithstanding the provisions of Section 2.1, this
               Agreement may be terminated:

               2.2.1   by Stentor if IDX shall have defaulted under or breached
                       any material term of this Agreement and shall not have
                       cured such breach within one hundred twenty (120) days
                       after receiving written notice from Stentor specifying
                       the nature of such default or breach; or



               2.2.2   by IDX if Stentor shall have defaulted under or breached
                       any material term of this Agreement and shall not have
                       cured such breach within one hundred twenty (120) days
                       after receiving written notice from IDX specifying the
                       nature of such default or breach; or

               2.2.3   by either party upon receipt of a notice from the other
                       party that such other party requires a composition or
                       other similar arrangement with creditors, files for
                       bankruptcy or is declared bankrupt.

          2.3  Termination of Restrictions.

               2.3.1   Stentor may elect to terminate Section 6.1.1, as its sole
                       and exclusive remedy in lieu of any damages under this
                       Agreement, if:

                       2.3.1.1   a Material Adverse Change occurs with respect
                                 to IDX; or

                       2.3.1.2   IDX fails, for any two (2) consecutive calendar
                                 years, to meet the minimum sales goals of sales
                                 of the MIMS System to IDXrad Customers or
                                 LastWord Customers set forth in Exhibit C and
                                 as may be agreed to and set forth in the
                                 Marketing Plan.

               2.3.2   If IDX fails after March 31, 2002, to meet the mutually
                       agreed to goals of sales of the MIMS System to IDXrad
                       Customers for a calendar quarter as set forth in the
                       Marketing Plan and does not cure such failure by the end
                       of the next calendar quarter by licensing a MIMS System
                       to that number of IDXrad Customers equal to the sum of
                       the number of IDXrad Customers by which IDX missed the
                       goal plus the goal for the subsequent calendar quarter,
                       then Stentor may elect to terminate Section 6.1.1(ii), as
                       its sole and exclusive remedy in lieu of any damages
                       under this Agreement

               2.3.3   If any of [**] is acquired, becomes Controlled by,
                       obtains Control of, or becomes under common Control with
                       a Person that is or becomes authorized to be a
                       distributor of the MIMS System by Stentor as permitted
                       under this Agreement, and such company demonstrates its
                       intention to permanently cease doing business under or
                       market its products under a name or mark similar to
                       "[**]", as applicable, then Stentor may terminate Section
                       6.1.1(ii) only with respect to [**], as applicable.

               2.3.4   IDX may elect to terminate Section 6.1.2, as its sole and
                       exclusive remedy in lieu of any damages under this
                       Agreement, if:

                       2.3.4.1   a Material Adverse Change occurs with respect
                                 to Stentor; or

                       2.3.4.2   IDX fails, for any two (2) consecutive calendar
                                 years, to meet the minimum sales goals of sales
                                 of the MIMS System to IDXrad Customers or
                                 LastWord Customers set forth in the Exhibit C
                                 and as may be agreed to and set forth in the
                                 Marketing Plan.

November 15, 2000

                                        2



          2.4  Change of Control. If Stentor shall sell all or substantially all
               of its assets or IDX shall sell all or substantially all of the
               assets of its Radiology Information Systems Division business,
               then upon the election of the other party, the party selling its
               assets shall be obligated to assign this Agreement to the
               successor to its assets and to cause such successor to assume its
               performance under this Agreement. Regardless of whether this
               Agreement is assigned, the party not selling its assets may elect
               to terminate the Agreement upon not less than eighteen (18)
               months prior written notice.

          2.5  Effect of Termination; Survival. In the event that this Agreement
               is validly terminated as provided herein, then each of the
               parties shall be relieved of their duties and obligations arising
               under this Agreement after the date of such termination, except
               for their respective obligations to provide support services to
               existing customers under Section 8.1, and such termination shall
               be without liability to the terminating party; provided, however,
               that the obligations of the parties set forth in Sections 8.1,
               9.1, 9.2, 10.1 - 10.21 hereof shall survive any such termination
               and shall be enforceable hereunder; provided, further, however,
               that nothing in this Section 2.5 shall relieve Stentor or IDX of
               any liability for a breach of this Agreement. Furthermore,
               termination of this Agreement shall not affect i) any license or
               subscription rights granted by either party prior to such
               termination or ii) a party's right to continue providing services
               pursuant to customer agreements entered into prior to such
               termination, provided, however, that each party shall continue to
               make payments pursuant to Section 7.

          2.6  Intellectual Property. All rights and licenses granted under or
               pursuant to this Agreement are, and shall otherwise be deemed to
               be, for purposes of Section 365(n) of the United States
               Bankruptcy Code (the "Code"), licenses to rights to "intellectual
               property" as defined in the Code. A party receiving such rights
               under this Agreement shall retain and may fully exercise all of
               its rights and elections under the Code. The parties further
               agree that, in the event of the commencement of a bankruptcy
               proceeding by or against a party under the Code, the other party
               shall be entitled to retain all of its rights under this
               Agreement.

3.        OPERATIONAL MANAGEMENT

          Stentor and IDX shall each appoint an executive with the title of vice
president or higher to oversee performance under this Agreement. These two
executives shall meet not less frequently than once each calendar quarter during
the Initial Term (and more frequently as needed) and shall produce not later
than five (5) business days after the end of each such calendar quarter a
written report to the boards of directors of IDX and Stentor setting forth in
detail:

          3.1  the accomplishments of Stentor and IDX during the preceding
               calendar quarter in performing this Agreement;

          3.2  plans for managing the relationship between IDX and Stentor
               during the next calendar quarter;

November 15, 2000

                                        3



          3.3  any items of dispute or disagreement between IDX and Stentor;

          3.4  plans for resolving any dispute or disagreement between IDX and
               Stentor;

          3.5  any changes proposed to be made to the Marketing Plan or
               Development Plan; and

          3.6  such other items as may be deemed appropriate by such executives.

4.        PRODUCT DEVELOPMENT

          4.1  Product Development.

               4.1.1   Development of the MIMS System. It is the goal of this
                       Agreement that the parties shall use their commercially
                       reasonable efforts to develop a comprehensive,
                       state-of-the-art medical image management system for
                       radiology practices and departments with functionality
                       and features substantially equivalent or superior to any
                       competitive medical image management system available
                       during the term of this Agreement. To accomplish that
                       goal, Stentor and IDX shall carry out their obligations
                       to develop the MIMS System pursuant to the Development
                       Plan. A party's material failure to deliver a minimum
                       development requirement (as set forth on Exhibit A) by a
                       milestone set forth in the Development Plan shall
                       constitute a material breach of this Agreement.

               4.1.2   Joint Testing. The parties shall cooperate to jointly
                       test any software used in connection with the MIMS System
                       to ensure the functionality of such software prior to
                       distribution thereof to any customer.

               4.1.3   Development Plan. Within thirty (30) days of the
                       Effective Date, IDX and Stentor shall mutually develop
                       the Development Plan, which shall contain minimum
                       development requirements described on the Development
                       Plan Outline, attached hereto as Exhibit A. IDX and
                       Stentor shall update the Development Plan every calendar
                       quarter during the term of this Agreement unless earlier
                       updated as necessary to maintain the commercial
                       reasonableness thereof. The Development Plan, as updated
                       from time to time, shall describe activities and
                       responsibilities for one-year periods initially
                       commencing on the Effective Date. Not later than three
                       (3) months prior to the expiration of the initial
                       one-year term of the Development Plan, and thereafter not
                       later than three (3) months prior to the expiration of
                       each successive one-year period, the parties shall
                       commence work on a revised Development Plan for the
                       following one-year period. The Development Plan, as
                       updated from time to time, including updating of the
                       minimum development requirements, shall be executed by
                       the parties and shall become subject to this Agreement.
                       Should the parties have failed to agree upon and execute
                       a revised or updated Development Plan at the time of the
                       expiration of the then current

November 15, 2000

                                        4



                       Development Plan, the parties shall continue to perform
                       under the terms of the then current Development Plan
                       until such time as the parties shall agree upon a revised
                       Development Plan. Notwithstanding anything contained
                       herein or in any Development Plan to the contrary, at all
                       times during the Term, Stentor shall continue to fund the
                       development and support of the iSite Viewer, iDiagnostic
                       Viewer and iVault products as provided in the Development
                       Plan as initially adopted, and IDX shall continue to
                       develop and support Imaging Suite, ConnectR, and the
                       Imaging Suite Lite Version as provided in the Development
                       Plan as initially adopted.

               4.1.4   Early Releases and Testing. IDX and Stentor shall deliver
                       to each other for testing, development and integration
                       purposes only, copies of the earliest test releases of
                       all development deliverables provided for in the
                       Development Plan prior to delivery thereof to any other
                       customers or Distribution Partners.

               4.1.5   Demonstration Products. Each party shall develop
                       demonstration versions of its products for use in selling
                       its products to the other party's customers and
                       prospects.

               4.1.6   Resolution of Programming Errors. Stentor shall be
                       responsible for correcting all programming errors in
                       Stentor Products, and IDX shall be responsible for
                       correcting all programming errors in IDX Products. The
                       Development Plan shall designate Stentor and IDX
                       personnel to coordinate the resolution of any programming
                       errors. To accomplish this goal, Stentor and IDX agree to
                       resolve programming errors as follows:

                       Category 1 Programming Error: A Category 1 Programming
                       Error is an error that causes the software to fail to
                       operate. If a category 1 programming error occurs in the
                       MIMS System software, IDX and Stentor agree to conduct a
                       conference call in an effort to resolve the error as soon
                       as possible but no later than one business day.

                       Category 2 Programming Error: A Category 2 Programming
                       Error is an error that substantially affects the proper
                       operation of the main functions of the MIMS System
                       software but does not cause the software to fail to
                       operate. If a Category 2 Programming Error occurs, IDX
                       and Stentor agree to conduct a conference call in an
                       effort to resolve the error as soon as possible but no
                       later than one week.

                       Category 3 Programming Error: A Category 3 Programming
                       Error causes the software to function incorrectly under a
                       particular set of circumstances, although the error does
                       not substantially affect the proper operation of the main
                       functions of the MIMS System. If a Category 3 Programming
                       error occurs, the party responsible for the programming

November 15, 2000

                                        5



                       error agrees to eliminate the programming error in the
                       next software update of the MIMS System.

5.        LICENSES AND OWNERSHIP

          5.1  Ownership; In General. Except for the rights expressly granted
               herein to Stentor, IDX reserves and retains all right, title and
               interest (including without limitation patents, trade secrets and
               copyrights) in the IDX Products, and all customizations,
               additions, modifications, changes, enhancements, improvements,
               and derivative works thereof made by IDX or on behalf of IDX, and
               all rights therein and copies thereof. Except for the rights
               expressly granted herein to IDX, Stentor reserves and retains all
               right, title and interest (including without limitation patents,
               trade secrets and copyrights) in the Stentor Products, and all
               customizations, additions, modifications, changes, enhancements,
               improvements, and derivative works thereof made by Stentor, or on
               behalf of Stentor, and all rights therein and copies thereof

          5.2  Ownership to works created under the Development Plan. Any
               Intellectual Property developed by Stentor and any derivative
               works of Stentor Products, whether developed by Stentor, IDX or a
               contractor of either party, pursuant to the Development Plan
               shall be owned by Stentor. Any Intellectual Property developed by
               IDX and any derivative works of IDX Products, whether developed
               by Stentor, IDX or a contractor of either party, pursuant to the
               Development Plan shall be owned by IDX. Any Intellectual Property
               jointly developed by IDX and Stentor pursuant to the Development
               Plan shall be jointly owned by IDX and Stentor and each of IDX
               and Stentor shall be free to use such Intellectual Property
               without interference from the other party and without any
               obligation to pay any royalties or account for any profits,
               except as otherwise provided for in this Agreement.
               Notwithstanding the foregoing, the parties shall jointly own any
               and all patent rights to any work created pursuant to the
               Development Plan that combines at least one component of the IDX
               Products and one component of the Stentor Products and shall
               cooperate in the filing of any application(s) related to such
               rights, including, without limitation, the choice of counsel to
               prosecute such application(s). Nothing in this Agreement shall
               require either party to create any Intellectual Property not a
               part of the MIMS System. If either party creates any Intellectual
               Property that is not a part of the MIMS System, but may be used
               in connection with the MIMS System without the material
               assistance of the other party, the creating party shall own any
               and all patent rights to the combination of such Intellectual
               Property and the MIMS System, and such patent rights shall not be
               licensed to the other party under this Agreement except by
               written amendment hereto executed by both parties; provided that
               each party hereby agrees that if it offers to license the right
               to resell or sublicense any such Intellectual Property and the
               patent rights, if any, thereto, to any Person, it shall offer to
               license the right to resell or sublicense such Intellectual
               Property and patent rights, if any, to the other party on the
               most favorable terms offered to any other Person.

November 15, 2000

                                        6



          5.3  IDX Products.

               5.3.1   IDX hereby grants to Stentor a non-exclusive,
                       non-transferable (except as provided in Sections 2.4 and
                       10.14) term license to market and sublicense, and in
                       connection therewith to sell, offer for sale, copy, use,
                       distribute, perform, display, modify, make derivative
                       works of and Merge, the IDX Products, in whole or in
                       part, only as they may be Merged into the MIMS System,
                       and only to Persons that are not Stentor License
                       Exclusion Customers. Stentor License Exclusion Customers
                       include all IDXrad Customers and LastWord Customers
                       except: (i) any IDXrad Customer or LastWord Customer that
                       is a Pre-existing Stentor Customer; (ii) any IDXrad
                       Customer or LastWord Customer that does not use IDXrad or
                       LastWord as their primary radiology information system or
                       primary clinical information system, respectively; and
                       (iii) any IDXrad Customer or LastWord Customer that
                       becomes a Stentor Customer prior to becoming an IDXrad
                       Customer or LastWord Customer. Notwithstanding the
                       limited scope of this license, Stentor may communicate
                       with, and demonstrate, perform and display the MIMS
                       System to, Stentor License Exclusion Customers to make
                       them aware of the availability of the MIMS System from
                       IDX and to provide information to Stentor License
                       Exclusion Customers regarding the MIMS System. Stentor
                       License Exclusion Customers that exist as of the
                       Effective Date are listed on the initial Stentor License
                       Exclusion Customer List, attached hereto as Exhibit B.
                       IDX shall provide an updated Stentor License Exclusion
                       Customer List to Stentor within fifteen (15) days of the
                       end of each calendar quarter. If the parties determine
                       that any customers not listed on the initial Stentor
                       License Exclusion Customer List meet the definition of a
                       Stentor License Exclusion Customer, then any such
                       customers shall be added to the Stentor License Exclusion
                       Customer List, or if the parties determine that any
                       customers listed on the initial Stentor License Exclusion
                       Customer List do not meet the definition of a Stentor
                       License Exclusion Customer, then any such customers shall
                       be removed from the Stentor License Exclusion List.

               5.3.2   IDX also hereby grants to Stentor a non-exclusive,
                       non-transferable (except as provided in Sections 2.4 and
                       10.14) term license to sublicense one or more
                       Distribution Partners to market and sublicense, and in
                       connection therewith to sell, offer for sale, copy, use,
                       distribute, perform, and display, the IDX Products, in
                       whole or in part, only as they may be Merged into the
                       MIMS System, to any Person, including Stentor License
                       Exclusion Customers.

          5.4  Stentor Products. Stentor hereby grants to IDX a non-exclusive,
               non-transferable (except as provided in Sections 2.4 and 10.14)
               term license to market and sublicense (including through one or
               more Distribution Partners acceptable to Stentor), and in
               connection therewith to sell, offer for sale, copy, use,
               distribute,

November 15, 2000

                                        7



               perform, display, modify, make derivative works of and Merge, the
               Stentor Products, in whole or in part, only as they may be Merged
               into the MIMS System. From the Effective Date until December 31,
               2001, Stentor's license granted to IDX in Section 5.4 only
               extends to IDXrad Customers and LastWord Customers. IDXrad
               Customers and LastWord Customers that exist as of the Effective
               Date are listed on the initial IDXrad and LastWord Customer List,
               attached hereto as Exhibit B. Any Person that becomes an IDXrad
               Customer or LastWord Customer during the Term shall be added to
               the IDXrad and LastWord Customer List. After December 31, 2001,
               Stentor's license granted to IDX in Section 5.4 extends to any
               Person. IDX shall provide an updated IDXrad and LastWord Customer
               List to Stentor within fifteen (15) days of the end of each
               calendar quarter. If the parties determine that any customers
               listed on the initial IDXrad and LastWord Customer List fail to
               meet the definition of an IDXrad Customer or LastWord Customer,
               then such customers shall be removed from the IDXrad and LastWord
               Customer List, or if any customers not listed on the initial
               IDXrad and LastWord Customer List do meet the definition of an
               IDXrad Customer or LastWord Customer, then such customers shall
               be added to the IDXrad and LastWord Customer List.

          5.5  Territory. This Agreement and the licenses granted hereunder
               shall apply to the parties only in the [**] (the "Territory");
               provided that, notwithstanding any restriction to the contrary in
               this Agreement, Stentor may enter into an Agreement with another
               Person to Provide a medical imaging management system for
               radiology practices and departments (that is not the MIMS System)
               in the [**] if (i) it is necessary for Stentor to do so in order
               for Stentor to enter into an agreement encompassing other [**]
               countries that are not at that time included in the Territory and
               (ii) Stentor offers IDX the same terms offered any other Person
               in the [**] if such terms are more favorable than the terms
               offered hereunder. Neither party may distribute or sell the MIMS
               System in any country not included in the Territory without the
               written consent of the other, which shall not be unreasonably
               withheld. If a party desires to extend the Territory to another
               country, it shall give the other party written notice of its
               request to do so. The party requested to extend the Territory to
               another country shall have one month from the date of its receipt
               of such written notice to elect to extend its performance and six
               months from such election to implement any development or
               business requirements necessary to extend its performance under
               this Agreement to such country. If a party withholds its consent,
               then the other party may enter into an agreement with any other
               Person with respect to the development and distribution and sale
               of a system similar to the MIMS System in such country; provided
               that this Agreement shall remain in full force and effect in the
               Territory.

          5.6  Expansion of Licenses.

               5.6.1   If Stentor notifies IDX that a Stentor License Exclusion
                       Customer is interested in licensing a MIMS System, but
                       not from IDX, then a representative of Stentor's senior
                       management who is at least a Vice

November 15, 2000

                                        8



                       President and a representative of IDX's senior management
                       who is at least a Vice President shall jointly contact
                       that Stentor License Exclusion Customer in regard to
                       licensing a MIMS System. If the Stentor License Exclusion
                       Customer does not express an interest in licensing a MIMS
                       System from IDX within thirty (30) days of such joint
                       contact, as determined by a subsequent joint contact by
                       the Stentor and IDX representatives, then such customer
                       shall not be considered an Stentor License Exclusion
                       Customer for purposes of the limitation on the license
                       granted to Stentor in Section 5.3.1 of this Agreement.

               5.6.2   If at the end of any calendar year the number of IDXrad
                       Customers that became IDXrad Customers in that year that
                       have also licensed a MIMS System is less than [**]
                       percent ([**] %) of the total number of IDXrad Customers
                       that became IDXrad Customers in that year, then the new
                       IDXrad Customers that have not also licensed a MIMS
                       System shall not be considered Stentor License Exclusion
                       Customers for purposes of the limitation on the license
                       granted to Stentor in Section 5.3.1 of this Agreement.

               5.6.3   If, prior to December 31, 2001, IDX notifies Stentor that
                       a Person that is neither an IDXrad Customer or LastWord
                       Customer is interested in licensing a MIMS System, but
                       not from Stentor, then a representative of Stentor's
                       senior management who is at least a Vice President and a
                       representative of IDX's senior management who is at least
                       a Vice President shall jointly contact that prospect in
                       regard to licensing a MIMS System. If the prospect does
                       not express an interest in licensing a MIMS System from
                       Stentor within thirty (30) days of such joint contact, as
                       determined by a subsequent joint contact by the Stentor
                       and IDX representatives, then the license granted to IDX
                       pursuant to Section 5.4 shall extend to such prospect

6.       MARKETING OF THE MIMS SYSTEM

          6.1  Certain Restrictions on Marketing Rights.


               6.1.1   Restrictions on Stentor. Stentor shall not (i) Provide to
                       any Person located in the Territory a medical imaging
                       management system for radiology practices or departments
                       other than the MIMS System; or (ii) authorize or license
                       [**], or the successor of any of them, to Provide the
                       MIMS System or the Stentor Products in the Territory. If
                       in a particular instance, the use of ConnectR in the MIMS
                       System as a means to provide data exchange between the
                       MIMS System and a non-IDX system would be technologically
                       impractical, then Stentor may modify the MIMS System in
                       such instance to use a component other than ConnectR as a
                       means to provide such data exchange. The restriction set
                       forth in this Section 6.1.1(i) shall not apply to (a)
                       Stentor's sale or license of the

November 15, 2000

                                        9



                       Stentor Component Technology to the extent that the
                       Stentor Component Technology is not used in a medical
                       imaging management system that includes substantially
                       similar functionality to the MIMS System or (b) Stentor's
                       sale or license to non-IDXrad Customers and non-LastWord
                       Customers of a version of iSite that contains only the
                       workflow, worklist and API functionality of the current
                       iSite version 1.1.1 offering (i.e. it shall contain no
                       third party vendor workflow or reconciliation built into
                       iSite), and that cannot be used by a third party to build
                       functionality competitive to the MIMS System other than
                       the functionality substantially similar to that contained
                       in the current iSite version 1.1.1.

               6.1.2   Restrictions on IDX. IDX shall not (i) Provide to any
                       Person located in the Territory a medical imaging
                       management system for radiology practices or departments
                       other than the MIMS System, except that this restriction
                       shall not prohibit IDX from cooperating with any Person
                       that Provides products and services similar to the
                       Stentor Products for the purpose of deploying such
                       products and services to implement a medical imaging
                       management system, on a case-by-case basis to any IDXrad
                       Customer or LastWord Customer, including without
                       limitation by development of data exchange or interfaces,
                       if such IDXrad Customer or LastWord Customer requests IDX
                       to do so; (ii) Provide Imaging Suite to any Person in the
                       Territory except (A) IDXrad Customers or LastWord
                       Customers and (B) IDX Customers other than IDXrad
                       Customers and LastWord Customers to enable other IDX
                       products to distribute medical images, if only a subset
                       of the components of Imaging Suite is used and the subset
                       of components operates as a background service, such that
                       there is no display of the Imaging Suite brand to the
                       customer; or (iii) market the MIMS System except through
                       IDX's RISD sales organization or with the active
                       involvement of a member of IDX's RISD sales organization
                       in any creation of a sales quote, configuration, or sales
                       demonstration.

               6.1.3   Imaging Suite Workflow Engine. The restrictions contained
                       in Section 6.1.2 shall not apply to the "workflow engine"
                       component of the Imaging Suite when used or licensed by
                       IDX separate from the other components of Imaging Suite
                       as Merged with any other IDX application and without the
                       display of the Imaging Suite brand.

          6.2  Marketing Plan; Joint Marketing Duties.

               6.2.1   Marketing Plan. Within thirty (30) days of the Effective
                       Date, IDX and Stentor shall mutually develop and, during
                       the Term, shall regularly update a marketing plan for
                       marketing the MIMS System in general (the "Marketing
                       Plan"). The Marketing Plan shall obligate IDX to make
                       commercially reasonable efforts to make presentations
                       about the MIMS System to appropriate representatives of
                       all of IDX's IDXrad Customers and LastWord Customers
                       before December 31, 2001, and shall describe

November 15, 2000

                                       10



                       detailed activities and responsibilities (including
                       without limitation, with respect to implementation) and
                       sales forecasts over the initial two-year period of this
                       Agreement, but shall be updated not less frequently than
                       every three (3) months. Not less than three (3) months
                       prior to the expiration of the initial two-year period,
                       and thereafter three (3) months prior to the expiration
                       of each successive two-year period of the Initial Term,
                       the parties shall commence work on a revised Marketing
                       Plan for the following two-year sales forecast period.
                       The initial and each revised two-year Marketing Plan
                       shall be executed by the parties and shall be subject to
                       the terms of this Agreement. Should the parties have
                       failed to agree upon and execute a revised Marketing Plan
                       at the time of the expiration of the then current
                       Marketing Plan, the parties shall continue to perform
                       under the terms of the then current Marketing Plan until
                       such time as the parties shall agree upon a revised
                       Marketing Plan. When marketing the MIMS System to IDXrad
                       Customers and LastWord Customers, IDX shall be
                       responsible for hardware used during any pilot period
                       offered by IDX. The Marketing Plan shall include sales
                       goals for sales of the MIMS System to IDXrad Customers as
                       set forth on Exhibit C.

               6.2.2   Joint Marketing Materials. At their joint expense, shared
                       equally, Stentor and IDX shall develop and produce
                       product marketing documentation and materials similar in
                       kind and quality to that currently provided by Stentor
                       and IDX to their respective sales prospects for the
                       purpose of promoting and marketing the MIMS System.

               6.2.3   User Groups and Trade Shows. Stentor shall provide for
                       featured participation by IDX at Stentor's user group
                       meetings involving the Stentor Products, and IDX shall
                       provide for featured participation by Stentor at IDX's
                       user group meetings involving the IDXrad and LastWord
                       products. In accordance with the Marketing Plan, Stentor
                       and IDX shall publicize the alliance created hereby at
                       appropriate trade shows.

               6.2.4   Non-revenue Arrangements. IDX and Stentor shall each
                       cooperate with the other on any non-revenue generating
                       implementations of the MIMS System for public relations
                       or research purposes, provided that neither party shall
                       be obligated to provide any implementation or support
                       services for a non-revenue generating implementation
                       initiated by the other party.

          6.3  Use of Stentor Names and Marks. IDX may use the following names
               and marks in all customer communications pertaining to the
               marketing, support and distribution of the MIMS System and in
               accordance with Stentor's reasonable branding standards in effect
               from time to time: Stentor, iSite, iSyntax, and DTS. IDX shall
               use the mark "Stentor" and applicable Stentor Product marks,
               without alteration of the graphical representation of such marks
               specified by Stentor, in connection with all sales of the MIMS
               System containing any Stentor Products in addition to any other
               marks or tradenames that IDX chooses to use in connection

November 15, 2000

                                       11



               with the MIMS System. Stentor shall provide to IDX, for IDX's use
               in accordance with this Section, additional proprietary
               trademarks, as developed, for the Stentor Products.

          6.4  Use of IDX Names and Marks. Stentor may use the following names
               and marks in all customer communications pertaining to the
               marketing, support and distribution of the MIMS System and in
               accordance with IDX's reasonable branding standards in effect
               from time to time: Imaging Suite and ConnectR. Stentor shall use
               the mark "Imaging Suite", without alteration of the graphical
               representation of such mark specified by IDX, in connection with
               all sales of the MIMS System and Stentor Products containing the
               Imaging Suite in addition to any other marks or tradenames that
               Stentor chooses to use in connection with the MIMS System and
               Stentor Products. IDX shall provide to Stentor, for Stentor's use
               in accordance with this Section, additional proprietary
               trademarks, as developed, for the IDX Products.

          6.5  License Terms. Each party shall have the authority, to the extent
               expressly provided in this Agreement, to market, sell, resell and
               distribute the MIMS System pursuant to its own terms and
               conditions so long as such terms and conditions contain
               provisions as protective of the other party as those set out in
               Exhibit D. Each party shall obligate its Distribution Partners to
               license the MIMS System under terms that are protective as those
               set forth in Exhibit D.

7.        COMPENSATION

          7.1  Compensation; Payment. IDX and Stentor shall be entitled to
               compensation for their respective licensing to the other of their
               respective rights and technology incorporated into the MIMS
               System as set forth in Exhibit E. The Royalties set forth in
               Exhibit E only apply to the MIMS System. Stentor hereby warrants
               that the compensation retained by or paid to any Person
               authorized by Stentor to distribute the MIMS System shall not
               exceed [**] % of Net Revenue for an existing customer of the
               Person and [**] % of Net Revenue for other customers.

          7.2  Payments. Any payment to be made by a party pursuant to this
               Agreement shall be made no later than sixty (60) days after
               payment is due from the customer on which the payment is based,
               and shall be made by delivery of a check, payable to the order of
               the party entitled to payment or by wire transfer of immediately
               available funds to an account designated by such party.

          7.3  Late Fees. Each party agrees to pay late fees equal to one and
               one-half percent (1 1/2%) per month on all amounts due but not
               paid within the time provided in Section 7.2.

          7.4  Certification; Independent Auditor. Not later than the fifteenth
               (15th) day after the end of each calendar quarter, each party
               shall deliver to the other a statement setting forth the
               customers to which the MIMS System was licensed in such quarter
               and the calculation of the payments due for the previous quarter,
               or if

November 15, 2000

                                       12



               none so stating, and signed by an executive officer of the party
               furnishing the statement. Stentor and IDX agree to permit the
               other party, annually at its own expense, to engage a mutually
               acceptable independent auditor to confirm the accuracy of any
               payments made under this Agreement. Stentor and IDX each agree to
               maintain books and records of its sales required to conduct such
               audit and to cooperate with the independent auditor in auditing
               such books and records.

8.        SERVICES

          8.1  Customer Implementation and Support Services. Each of IDX and
               Stentor shall implement the MIMS System for their respective
               customers without the assistance of the other. Stentor and IDX
               shall each provide to the other party reasonable assistance in
               the distribution of hardware from those hardware manufacturers
               with which they each have reseller or distributor relationships
               so long as doing so does not violate the applicable reseller or
               distributor agreement or applicable law. IDX shall provide the
               first line of support for all customers to which IDX has sold the
               MIMS System, provided that Stentor shall provide the second line
               of support for any issue requiring access to or modification of
               the Source Code to any Stentor Product. Stentor shall provide the
               first line of support for all customers to which Stentor has sold
               the MIMS System, provided that IDX shall provide the second line
               of support for any issue requiring access to or modification of
               the Source Code to any IDX Product. Stentor and IDX shall each
               comply with the other party's implementation requirements with
               respect to the other party's products and each shall use
               commercially reasonable efforts to provide support for its
               products in accordance with its internal support procedures. IDX
               and Stentor shall each provide the other sufficient training to
               ensure proper implementation of each party's component portions
               of the MIMS System.

          8.2  Service Quality. All support services provided by either party
               shall be performed in a good and workmanlike manner and
               consistent with standards generally applicable in the healthcare
               clinical information systems industry and consistent with the
               reasonable and customary support standards maintained in the
               healthcare clinical information systems industry.

          8.3  Uptime Performance Guarantee.

               8.3.1   Stentor Uptime Performance Guarantee. After March 31,
                       2001, if Stentor elects to offer an "uptime performance
                       guarantee" and a defect in an IDX Product is the sole
                       cause of "unscheduled downtime" (as defined in the
                       Stentor Uptime Performance Guarantee attached hereto as
                       Exhibit F), then IDX shall use its commercially
                       reasonable efforts to cure such defect. IDX's obligation
                       to use its commercially reasonable efforts to cure such
                       defect shall be Stentor's sole and exclusive remedy, in
                       lieu of any damages that might be caused by breach of
                       this Agreement arising from or related to unscheduled
                       downtime caused by a defect in an IDX Product.

November 15, 2000

                                       13



               8.3.2   IDX Uptime Performance Guarantee. If IDX elects to offer
                       an "uptime performance guarantee" substantially
                       equivalent to the Stentor Uptime Performance Guarantee,
                       and a defect in a Stentor Product is the sole cause of
                       "unscheduled downtime" (as defined in the IDX uptime
                       performance guarantee), then Stentor shall use its
                       commercially reasonable efforts to cure such defect.
                       Stentor's obligation to use its commercially reasonable
                       efforts to cure such defect shall be Stentor's sole and
                       exclusive remedy, in lieu of any damages that might be
                       caused by breach of this Agreement arising from or
                       related to unscheduled downtime caused by a defect in an
                       Stentor Product.

          8.4  Reference Sites. IDX agrees to introduce Stentor to Stentor
               License Exclusion Customers reasonably acceptable to both IDX and
               Stentor so that Stentor may request that such customers act as
               reference sites for the MIMS System for potential Stentor MIMS
               System prospects.

9.        WARRANTIES

          THE PARTIES MAKE THE FOLLOWING REPRESENTATIONS AND WARRANTIES, ALL OF
WHICH SHALL BE FOR AND COMPLETE AS OF THE EFFECTIVE DATE AND THE DATE OF ANY AND
ALL DELIVERIES HEREIN. EXCEPT FOR THE EXPLICIT WARRANTIES MADE IN THIS
AGREEMENT, THERE ARE NO WARRANTIES MADE BY EITHER PARTY IN CONNECTION WITH THE
SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY SPECIFICALLY DISCLAIMS ANY
IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND TITLE.

          9.1  IDX Warranties.

               9.1.1   Encumbrances. The IDX Products shall be free and clear of
                       all liens, restrictions, claims, charges, security
                       interests, or other encumbrances of any nature whatsoever
                       which might affect or adversely impact on Stentor's use
                       of the IDX Products as permitted under this Agreement.

               9.1.2   Ownership; Right to License. IDX owns or otherwise has
                       adequate rights to make the grants of the licenses to the
                       IDX Products to Stentor hereunder and possesses all
                       rights and interests in the IDX Products necessary to
                       enter into this Agreement; provided that Stentor
                       acknowledges that licenses to certain products of
                       Microsoft, Oracle and Amzi used with the IDX Products
                       must be obtained directly by Stentor or customers to
                       which Stentor sells the MIMS System.

               9.1.3   No Infringement. IDX Products and all components thereof
                       do not infringe upon the intellectual property rights,
                       including without limitation the patent, copyright,
                       trademark or trade secret rights, of any third parties.

November 15, 2000

                                       14



                       The sole and exclusive remedy for breach of this warranty
                       shall be as set forth in Section 10.6.

               9.1.4   Functional Performance. The IDX Products shall perform
                       substantially as described in their documentation.

               9.1.5   Anti-Virus Testing. IDX represents and warrants that the
                       IDX Products will be tested prior to shipping for known
                       computer viruses in accordance with commercially
                       reasonable industry standards, including the use of
                       industry standard anti-virus detection software, and IDX
                       represents and warrants that the IDX Products shall be
                       free of viruses.

          9.2  Stentor Warranties.

               9.2.1   Encumbrances. The Stentor Products shall be free and
                       clear of all liens, restrictions, claims, charges,
                       security interests, or other encumbrances of any nature
                       whatsoever which might affect or adversely impact on
                       IDX's use of the Stentor Products as permitted under this
                       Agreement.

               9.2.2   Ownership; Right to License. Stentor owns or otherwise
                       has adequate rights to make the grants of the licenses to
                       the Stentor Products to IDX hereunder and possesses all
                       rights and interests in the Stentor Products necessary to
                       enter into this Agreement.

               9.2.3   No Infringement. Stentor Products and all components
                       thereof do not infringe upon the intellectual property
                       rights, including without limitation the patent,
                       copyright, trademark or trade secret rights, of any third
                       parties. The sole and exclusive remedy for breach of this
                       warranty shall be as set forth in Section 10.6.

               9.2.4   Functional Performance. The Stentor Products shall
                       perform substantially as described in their
                       documentation.

               9.2.5   Anti-Virus Testing. Stentor represents and warrants that
                       the Stentor Products will be tested prior to shipping for
                       known computer viruses in accordance with commercially
                       reasonable industry standards, including the use of
                       industry standard anti-virus detection software, and
                       Stentor represents and warrants that the Stentor Products
                       shall be free of viruses.

10.       MISCELLANEOUS

          10.1 Confidentiality.

               10.1.1  Confidential Information. Each of IDX and Stentor will
                       receive or learn from, information, both orally and in
                       writing, concerning the business of Stentor or IDX,
                       respectively, including, without limitation, financial,
                       technical and marketing information, data, and
                       information related to the

November 15, 2000

                                       15



                       development of technology and services relating to
                       business plans, customers, and markets, which information
                       is deemed, in the case of Stentor, proprietary to Stentor
                       and, in the case of IDX, proprietary to IDX. Both parties
                       hereby agree, as set forth below, to protect such
                       information, whether furnished before, on or after the
                       date of this Agreement, as it protects its own similar
                       confidential information, but never less than by
                       commercially reasonable efforts, and not to disclose such
                       information to anyone except as otherwise provided for in
                       this Agreement. Such information, in whole or in part,
                       together with analyses, compilations, programs, reports,
                       proposals, studies or any other documentation prepared by
                       the parties, as the case may be, which contain or
                       otherwise reflect or make reference to such information,
                       is hereinafter referred to as "Confidential Information".
                       Each party hereby agrees that the Confidential
                       Information will be used solely for the purpose of this
                       Agreement and not for any other purpose. Each party
                       further agrees that any Confidential Information
                       pertaining to the other party is the sole and exclusive
                       property of such other party, and that the receiving
                       party shall not have any right, title, or interest in or
                       to such Confidential Information except as expressly
                       provided in this Agreement. Each party further agrees to
                       protect and not to disclose to anyone (except as provided
                       in this Agreement) for any reason Confidential
                       Information pertaining to the other party; provided,
                       however, that: (a) such Confidential Information may be
                       disclosed to the receiving party's respective officers,
                       directors, employees, agents, or representatives
                       (collectively, "Representatives") on a "need to know"
                       basis for the purpose of this Agreement on the condition
                       that (i) each of such Representatives will be informed by
                       the receiving party of the confidential nature of such
                       Confidential Information and will agree to be bound by
                       the terms of this Agreement and not to disclose the
                       Confidential Information to any other person and (ii)
                       each party agrees to accept full responsibility for any
                       breach of this Section 10.1.1 by its respective
                       Representatives; and (b) Confidential Information
                       pertaining to the other party may be disclosed upon the
                       prior written consent of the other party. Each party
                       hereby agrees, upon the request of the other party, to
                       promptly deliver to the other party at the other party's
                       cost the Confidential Information pertaining to such
                       other party, without retaining any copies thereof.
                       Specifically and without limitation, each party agrees to
                       notify the other party promptly in writing upon any
                       officer or director learning of any unauthorized
                       disclosure or use of the Confidential Information.

               10.1.2  Non-Confidential Information. The term" Confidential
                       Information" shall not include any information: (i) which
                       at the time of disclosure or thereafter is generally
                       available to or known by the public (other than as a
                       result of a disclosure directly or indirectly by the
                       receiving party); (ii) is independently developed by the
                       receiving party, without reference to or use of, the
                       Confidential Information of the other party; (iii) was
                       known by

November 15, 2000

                                       16



                       the receiving party as of the time of disclosure without
                       a breach of confidentiality; (iv) is lawfully learned
                       from a third party not under obligation to the disclosing
                       party; or (v) is required to be disclosed pursuant to a
                       subpoena, court order or other legal process, whereupon
                       the receiving party shall provide prompt written notice
                       to the other party prior to such disclosure.

          10.2 No-Solicitation. During the first year of the term of this
               Agreement, neither party, nor any Affiliate within its Control,
               shall solicit to hire any individual who had been in the employ
               of the other party or any of the other party's Affiliates until
               such time as one (1) year has passed since such individual was in
               the employ of the other party.

          10.3 Regulatory Matters. Each party shall adopt, implement, and
               maintain appropriate and compliant policies, procedures, and
               practices necessary to comply with laws and regulations
               (including without limitation the Health Insurance Portability
               and Accountability Act of 1996 ("HIPAA") and the Federal Food,
               Drug and Cosmetic Act (the "FDA Act")) applicable to it in its
               business and applicable to it as a business partner of a customer
               of the other to whom products or services are provided under this
               Agreement. The parties agree to amend this Agreement to contain
               any provisions necessary to be included as a result of such
               business partner status. Each party agrees to timely develop and
               include in its respective products covered by this Agreement the
               functionality required to support the minimum necessary standards
               applicable users of its products as required by HIPAA.

          10.4 No Consequential Damages. In no event shall either party or any
               Affiliate of either party be liable hereunder for any
               consequential, special, incidental, punitive or indirect damages
               (including without limitation loss of profit, revenue, business
               opportunity or business advantage), whether based upon a claim or
               action of tort, contract, warranty, negligence, strict liability,
               breach of statutory duty, or any other legal theory or cause of
               action, even if advised of the possibility of such damages.

          10.5 Limitation of Liability. Neither party shall be liable to the
               other for damages or costs under this Agreement in excess of
               payments received from the other under this Agreement; provided
               that this limitation shall not apply to either party's
               indemnification obligation pursuant to Section 10.6(iii), and
               further provided that the limitation of liability applicable to
               either party's indemnification obligation pursuant to Section
               10.6(i) shall be an aggregate of Ten Million Dollars
               ($10,000,000) and each party shall carry liability insurance
               against all risks sufficient to cover such indemnification
               obligation. Each party must provide certificates of such
               insurance coverage upon request of the other and shall not change
               or alter such coverage without notice to the other party.

November 15, 2000

                                       17



          10.6 Indemnification. Each party (an "Indemnifying Party") will
               indemnify the other party, its officers, employees, and agents
               (each an "Indemnified Party" and, collectively, the "Indemnified
               Parties") against, and hold each Indemnified Party harmless from,
               all claims, suits, judgments, losses, damages, fines or costs
               (including reasonable legal fees and expenses) ("Losses")
               resulting from any claim, suit, or demand by any third party
               ("Third Party Claim") for injuries to or deaths of persons or
               loss of or damage to property arising out of: (i) the
               Indemnifying Party's products or services as marketed by the
               Indemnified Parties, unless the Indemnified Parties shall have
               acted outside the scope of their rights under this Agreement;
               (ii) the Indemnifying Party's performance or willful misconduct
               of the Indemnifying Party, its employees, officers, or agents in
               connection with the Indemnifying Party's performance, of this
               Agreement, except to the extent caused by the negligence of any
               Indemnified Party, and (iii) that the Indemnifying Party's
               products, or any component thereof, whether used alone or in
               combination with any other item as intended, designed, suggested
               or induced by the Indemnifying Party or its agents, infringes or
               violates any patents, copyrights, trademarks, trade secrets,
               licenses, or other proprietary rights of any third party.

               10.6.1  The Indemnifying Party's obligations under this Section
                       10.6 will survive the termination of this Agreement.

               10.6.2  Each Indemnified Party shall give an Indemnifying Party
                       prompt written notice of any Third Party Claim of which
                       such Indemnified Party has knowledge concerning any
                       Losses as to which such Indemnified Party may request
                       indemnification hereunder. If the Indemnifying Party
                       acknowledges in writing its obligation to indemnify the
                       Indemnified Party hereunder against any Losses that may
                       result from such Third Party Claim, then the Indemnifying
                       Party shall be entitled to assume and control the defense
                       of such Third Party Claim at its expense and through
                       counsel of its choice if it gives notice of its intention
                       to do so to the Indemnified Party within five (5) days of
                       the receipt of such notice from the Indemnified Party;
                       provided, however, that if there exists or is reasonably
                       likely to exist a conflict of interest that would make it
                       inappropriate in the judgment of the Indemnified Party,
                       in its sole and absolute discretion, for the same counsel
                       to represent both the Indemnified Party and the
                       Indemnifying Party, then the Indemnified Party shall be
                       entitled to retain its own counsel, at the expense of the
                       Indemnifying Party. In the event the Indemnifying Party
                       exercises the right to undertake any such defense against
                       any such Third Party Claim as provided above, the
                       Indemnified Party shall cooperate with the Indemnifying
                       Party in such defense and make available to the
                       Indemnifying Party, at the Indemnifying Party's expense,
                       all witnesses, pertinent records, materials and
                       information in the Indemnified Party's possession or
                       under the Indemnified Party's control relating thereto as
                       is reasonably required by the Indemnifying Party.
                       Similarly, in the event the Indemnified Party is,
                       directly or indirectly,

November 15, 2000

                                       18



                       conducting the defense against any such Third Party
                       Claim, the Indemnifying Party shall cooperate with the
                       Indemnified Party in such defense and make available to
                       the Indemnified Party, at the Indemnified Party's
                       expense, all such witnesses, records, materials and
                       information in the Indemnifying Party's possession or
                       under the Indemnifying Party's control relating thereto
                       as is reasonably required by the Indemnified Party. No
                       such Third Party Claim may be settled by the Indemnifying
                       Party without the prior written consent of the
                       Indemnified Party.

               10.6.3  In no event shall the Indemnifying Party be liable to an
                       Indemnified Party for any indirect, incidental, special,
                       punitive, exemplary or consequential damages arising out
                       of or otherwise relating to this Agreement, even if the
                       Indemnifying Party has been advised of the possibility or
                       likelihood of such damages.

               10.6.4  The Indemnifying Party's obligations to indemnify as set
                       forth in Section 10.6(iii) shall not apply to any claim
                       to the extent that it arises from (i) any modifications,
                       changes, additions, or enhancements to the Indemnifying
                       Party's products that have not been made directly by the
                       Indemnifying Party or have not been made at its express
                       direction or under its direct oversight, control or
                       supervision, (ii) any such modifications made by the
                       Indemnifying Party at the request or to the specification
                       of the Indemnified Party, the Indemnified Party's
                       Customers, or any of their agents.

          10.7 Expenses. Except as otherwise specified in this Agreement, all
               costs and expenses, including, without limitation, fees and
               disbursements of counsel, financial advisors and accountants,
               incurred in connection with this Agreement and the transactions
               contemplated hereby shall be paid by the party incurring such
               costs and expenses.

          10.8 Further Assurances and Documents. IDX and Stentor shall take all
               actions and do all things, including without limitation the
               execution and delivery of instruments and documents, necessary to
               effectuate the purposes and intent of this Agreement.

          10.9 Notices. All notices, requests, claims, demands and other
               communications hereunder shall be in writing and shall be given
               or made (and shall be deemed to have been duly given or made upon
               receipt) by delivery in person, by courier service, by telecopy
               or by registered or certified mail (postage prepaid, return
               receipt requested) to the respective parties at the following
               addresses (or at such other address for a party as shall be
               specified in a notice given in accordance with this Section
               10.9):

November 15, 2000

                                       19



                           (a)      if to Stentor:

                                    Stentor, Inc.
                                    385 Oyster Point Boulevard, Suite 8B
                                    South San Francisco, CA 94080
                                    Attention: Oran Muduroglu
                                    Facsimile: 650-866-4197

                           (b)      if to IDX:

                                    IDX Systems Corporation
                                    1400 Shelburne Road
                                    South Burlington, VT 05403
                                    Attention: Walt Marti
                                    Facsimile: 802-865-3489

                                    With a copy to: General Counsel at the same
                                    address

          10.10 Public Announcements. Except as required by law, governmental
                regulation or by the requirements of any securities exchange on
                which the securities of a party hereto are listed, no party to
                this Agreement shall make, or cause to be made, any press
                release or public announcement, not including routine
                advertisements subsequent to an initial joint announcement, in
                respect of this Agreement or the transactions contemplated
                hereby or otherwise communicate with any news media without the
                prior written consent of the other party, consent which shall
                not be unreasonably withheld, and the parties shall cooperate as
                to the timing and contents of any such press release or public
                announcement.

          10.11 Headings. The descriptive headings contained in this Agreement
                are for convenience of reference only and shall not affect in
                any way the meaning or interpretation of this Agreement.

          10.12 Severability. If any term or other provision of this Agreement
                is invalid, illegal or incapable of being enforced by any law,
                governmental regulation or public policy, all other terms and
                provisions of this Agreement shall nevertheless remain in full
                force and effect so long as the economic or legal substance of
                the transactions contemplated hereby is not affected in any
                manner materially adverse to any party. Upon such determination
                that any term or other provision is invalid, illegal or
                incapable of being enforced, the parties hereto shall negotiate
                in good faith to modify this Agreement so as to effect the
                original intent of the parties as closely as possible in an
                acceptable manner in order that the transactions contemplated
                hereby are consummated as originally contemplated to the
                greatest extent possible.

November 15, 2000

                                       20



          10.13 Entire Agreement. This Agreement constitutes the entire
                agreement of the parties hereto with respect to the subject
                matter hereof and supersede all prior agreements and
                undertakings, both written and oral, with respect to the subject
                matter hereof.

          10.14 Assignment. This Agreement shall be binding upon the parties and
                their respective successors, representatives and permitted
                assigns and their Affiliates Controlled by them, respectively.
                Except as provided in Section 2.4, neither party may assign this
                Agreement without the prior written consent of the other party,
                except that either party hereto may assign its rights hereunder
                to an Affiliate of such party and IDX may assign this Agreement
                to any Person that acquires all or substantially all of the
                assets of IDX's Radiology Information Systems Division and IDX
                shall be relieved of any obligation or liability hereunder. If
                IDX shall sell or transfer any of its assets, other than the
                assets of IDX's Radiology Information Systems Division, to a
                Person that is not an Affiliate of IDX, then such Person shall
                not have any obligations or liabilities under this Agreement and
                the assets transferred shall not be encumbered by or subject to
                this Agreement in any way.

          10.15 No Third Party Beneficiaries. This Agreement shall be binding
                upon and inure solely to the benefit of the parties hereto and
                their permitted assigns and successors and nothing herein,
                express or implied, is intended to or shall confer upon any
                other person or entity, any legal or equitable right, benefit or
                remedy of any nature whatsoever under or by reason of this
                Agreement.

          10.16 Amendment. This Agreement may not be amended or modified except
                by an instrument in writing signed by, or on behalf of, each of
                the parties.

          10.17 Governing Law. This Agreement shall be governed by the laws of
                the State of California without regard to its conflict of laws
                provisions.

          10.18 Counterparts. This Agreement may be executed in one or more
                counterparts, and by the different parties hereto in separate
                counterparts, each of which when executed shall be deemed to be
                an original but all of which taken together shall constitute one
                and the same agreement.

          10.19 Dispute Resolution If a dispute, controversy, or claim arising
                out of or related to this Agreement or with the relationship of
                the parties arises, then the parties shall attempt to resolve
                the dispute by means of the procedure set forth in this Section.
                The party believing itself aggrieved (the "Requesting Party")
                will call for progressive management involvement in the
                negotiation of the dispute by notice to the other party. Such a
                notice will be without prejudice to the Requesting Party's right
                to any other remedy permitted by this Agreement. The parties
                will use their best efforts to arrange personal meetings or
                telephone conferences as needed, at mutually convenient times
                and places, between negotiators for the parties at the following
                successive management levels, each of which will have a period
                of allotted time as specified below in which to attempt to
                resolve the dispute:

November 15, 2000

                                       21





                 Level            Stentor             IDX                                Allotted Time
                 --------------   -----------------   --------------------------------   ----------------
                                                                                
                 First            Stentor Vice        Vice President of Development      10 Business Days
                                   President           for RISD

                 Second           CEO                 General Manager of RISD            10 Business Days

                 Third            CEO                 President                          30 Days


                The allotted time for the first-level negotiators will begin on
                the effective date of the Requesting Party's notice. If a
                resolution is not achieved by negotiators at any given
                management level at the end of their allotted time, then the
                allotted time for the negotiators at the next management level,
                if any, will begin immediately. If a resolution is not achieved
                by negotiators at the final management level within their
                allotted time, then the parties' CEO's shall engage in a
                mediation session using one or more third-party mediators
                mutually acceptable to the parties within thirty (30) days. The
                dispute resolution requirements set forth in this Section 10.19
                shall not apply to claims arising out of or related to: (a) any
                infringement or misappropriation of Stentor's or IDX's
                Intellectual Property, and (b) any violation of the
                confidentiality obligations set forth in Section 10.1.

          10.20 Waiver of Jury Trial. Each of the parties hereto irrevocably and
                unconditionally waives trial by jury in any legal action or
                proceeding relating to this Agreement or the transactions
                contemplated hereby and for any counterclaim therein.

          10.21 No Joint Venturer Status. None of the provisions of this
                Agreement is intended to create, nor shall any provision in this
                Agreement be deemed or construed to create, any relationship
                between Stentor and IDX other than that of independent entities
                contracting with each other under this Agreement solely for the
                purpose of effecting the provisions of this Agreement. Neither
                of the parties, nor any of their employees, shall be construed
                to be the partner, joint venturer, agent, employer or
                representative of the other

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.


IDX SYSTEMS CORPORATION                     STENTOR, INC.


By:  /s/ Robert W. Baker, Jr.               By:  /s/ Oran Muduroglu
     -----------------------------------         -------------------------------
     [Signature of Authorized Agent]             [Signature of Authorized Agent]

Print Name and Title:                       Print Name and Title:

Robert W. Baker, Jr., Vice President        Oran Muduroglu, President & CEO

November 15, 2000

                                       22



                                   SCHEDULE 1

                                       TO

                     DEVELOPMENT AND DISTRIBUTION AGREEMENT

                                   DEFINITIONS

"Affiliate" means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such specified Person.

"Change of Control" means any event, transaction or occurrence, with the
exception of an initial public offering, as a result of which either of IDX or
Stentor (i) shall cease to own or control, directly or indirectly through any of
its respective Affiliates, a majority of the voting rights associated with
ownership of its respective voting stock or (ii) shall cease to have the
ability, directly or indirectly, through one or more of its Affiliates, to elect
a majority of its respective board of directors.

"ConnectR" means the product currently marketed by IDX under the trademark
"ConnectR."

"Control" including the terms "Controlling," "Controlled by," and "under common
Control with," means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise, with the
exception of an initial public offering.

"Development Plan" means the Development Plan to be created pursuant to the
Development and Distribution Agreement.

"iDiagnostic Viewer" means the product to be developed under the Development
Plan and currently referred to as iDiagnostic Viewer.

"Distribution Partner" means any Person that has the right to market,
cooperatively market, distribute, resell, sublicense, license, sell or otherwise
provide a party's products or services, including by way of example and not in
limitation, any reseller, distributor, licensee, customer, contractor, service
provider, co-marketer, outsourcing vendor, or other information technology
company.

"Dynamic Transfer Syntax" or "DTS" means the product currently marketed by
Stentor under the marks Dynamic Transfer Syntax or DTS.

"IDX" means IDX Systems Corporation, IDX Information Systems Corporation, IDX
Investment Corporation, and their present and future Affiliates.

"IDX Customer" means any customer of IDX that is licensed to use any product
sold by IDX and any and all entities that have access to such product through
such customer, including without limitation IDXrad Customers and LastWord
Customers.



"IDX Drivers" means the IDX modality drivers for downloading demographics and
exam information to the imaging scanners in accordance with DICOM Modality
Worklist standard, and the uploading of study specific information from the
imaging scanner to the Imaging Suite in accordance with the DICOM Perform
Procedure Step standard.

"IDX Products" means the products currently marketed as Imaging Suite and
ConnectR, the IDX Drivers, and any derivative works or future versions thereof.

"IDXrad" means the products currently marketed by IDX under the mark IDXrad and
future versions thereof containing substantially similar functions.

"IDXrad Customer" means (i) any customer of IDX that is licensed to use IDXrad
and (ii) any and all entities that have access to IDXrad databases through such
customer.

"Imaging Suite" means the product currently marketed by IDX under the mark
Imaging Suite.

"Imaging Suite Lite Version" means a version of Imaging Suite for installation
by Stentor at a non-IDXrad or LastWord site that does not require the
installation and configuration of the IDXrad system, but that can be operated in
concert with a pre-existing non-IDX radiology information system or healthcare
information system.

"iSite" means the product currently marketed by Stentor under the mark iSite.

"iSyntax Server" means the product currently marketed by Stentor under the mark
iSyntax Server.

"iVault" means the product to be developed under the Development Plan and
currenty referred to as the iVault.

"Intellectual Property" means, without limitation, know-how, trade secrets,
inventions (whether or not patentable), ideas, materials, discoveries,
techniques, plans, designs, formulas, processes, invention disclosures,
technology, data or information, software and documentation therefor, hardware,
source code (including all programmers' notes), procedures, methods, works and
other documentation and information and the right to sue and recover damages for
past, present and future infringement of such intellectual property.

"LastWord" means the product currently marketed by IDX under the trademark
LastWord and future versions thereof containing substantially similar functions.

"LastWord Customer" means (i) any customer of IDX that is licensed to use
LastWord and (ii) any and all entities that have access to LastWord databases
through such customer.

"Material Adverse Change" means any material adverse change in the business,
properties, results of operations, condition (financial or otherwise) of an
applicable Person (other than changes that are the result of economic factors
affecting the economy as a whole or changes that are the result of factors
generally affecting the specific industry or markets in which a party competes).

                                        2



"Merge" means the process of merging all or a portion of existing software or
documentation into other software or documentation or adding to existing
software or documentation, including without limitation by application program
interfaces, so that the resulting software or documentation contains
functionality that is substantially more or different from that of the existing
software or documentation.

"MIMS System" means the medical imaging management system consisting of the
combination of both Imaging Suite and ConnectR and at least one of the Stentor
Products, as described in the Development Plan and on the diagram attached to
the Agreement as Exhibit G. The MIMS System shall not include any products,
features or functionality not described in either the Development Plan or the
diagram attached as Exhibit G.

"Person" means any individual, partnership, firm, corporation, association,
trust, limited liability company, limited liability partnership, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.

"Pre-existing Stentor Customer" means any Stentor Customer that existed as of
the Effective Date of this Agreement.

"Provide" means to market, sell, license, cooperatively market, or otherwise
distribute, including through one or more Distribution Partners.

"Regulatory Requirements" means all federal and state laws and regulatory
requirements applicable to the use by IDX, IDX Customers, Stentor, and Stentor
Customers of the MIMS System from time to time during the term of the
Development and Distribution Agreement, including without limitation those
applicable to billing and claims submittal, managed care, data transmission,
security and privacy, and program requirements generally applicable to
healthcare organizations, such as those involving accreditation.

"Stentor Component Technology" means Stentor's proprietary technology to
distribute data and images, including enhancements and improvements thereto,
including, but not limited to, technology used in iSyntax to distribute
image(s), or portions thereof, by transforming the image(s) into a flexible
hierarchical representation and by distributing, to a client, only the transform
data necessary to reconstruct the portion(s) of the image(s) desired at the
client.

"Stentor Customer" means any customer of Stentor that is licensed to use any
product sold by Stentor and any and all entities that have access to such
product through such customer, but shall not include any customer that is in an
evaluation period and not obligated to pay fees to Stentor for the Stentor
Product.

"Stentor License Exclusion Customer" means all IDXrad Customers and LastWord
Customers except: (i) any IDXrad Customer or LastWord Customer that is a
Pre-existing Stentor Customer; (ii) any IDXrad Customer or LastWord Customer
that does not use IDXrad or LastWord as their primary radiology information
system or primary clinical information system, respectively; (iii) any IDXrad
Customer or LastWord Customer that becomes a Stentor Customer prior to becoming
an IDXrad Customer or LastWord Customer; or (iv) any IDXrad Customer or

                                        3



LastWord Customer that ceases to remain a Stentor License Exclusion Customer
pursuant to Section 5.6.

"Stentor Products" means the products marketed by Stentor and currently known as
the iDiagnostic Viewer, DTS, iSite Viewer, iSyntax Server, iVault, any future
versions thereof, and any derivative works or future versions thereof.

                                        4



                                    EXHIBIT A

MINIMUM DEVELOPMENT REQUIREMENTS

[**]

November 15, 2000



EXHIBIT B

IDX CONFIDENTIAL AND PROPRIETARY
IDXrad and LastWord Customer List

IDX HOUSE ACCOUNTS LISTING                                   STATE

          IDXrad Customers

[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]

IDX SYSTEMS CORPORATION CONFIDENTIAL            11/21/00

                                                                          Page 1



[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]

IDX SYSTEMS CORPORATION CONFIDENTIAL            11/21/00

                                                                          Page 2



[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]

IDX SYSTEMS CORPORATION CONFIDENTIAL            11/21/00

                                                                          Page 3



[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]

LASTWORD CUSTOMERS

[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]

IDX SYSTEMS CORPORATION CONFIDENTIAL            11/21/00

                                                                          Page 4



[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]
[**]                                                         [**]

IDX SYSTEMS CORPORATION CONFIDENTIAL            11/21/00

                                                                          Page 5



                                    EXHIBIT C

                               Minimum Sales Goals

The Marketing Plan shall include the following minimum sales goals:

Sale of the MIMS System, or any component thereof, by either party to IDXrad
Customers or LastWord Customers as follows:

[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]
[**]                                 [**]

These sales goals assume that Stentor has developed iSite Version 2.0 as
described in the Development Plan and that it is available for general release
no later than March 31, 2001. The timing of these sales goals shall be delayed
by one month for each month or portion of a month that the general release of
iSite Version 2.0 is delayed beyond March 31, 2001.

November 15, 2000



                                    EXHIBIT D

                     REQUIRED END USER AGREEMENT PROVISIONS

End user agreements shall contain provisions as protective of the parties as the
following provisions:

1.   IN NO EVENT SHALL [IDX's/Stentor's] SUPPLIERS AND LICENSORS BE LIABLE FOR
ANY DAMAGES OF ANY KIND OR NATURE, INCLUDING DIRECT, INDIRECT, INCIDENTAL,
SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL, ARISING OUT OF THE USE OF ANY
SOFTWARE SUPPLIED BY COMPANY, ITS SUPPLIERS OR LICENSORS. THE LICENSEE
UNDERSTANDS AND AGREES THAT THE SOFTWARE PROVIDED BY [IDX/Stentor] TO LICENSEE
CONTAINS SOFTWARE THAT IS THE COPYRIGHTED PRODUCT AND A TRADE SECRET OF
[IDX/Stentor] OR ITS SUPPLIERS AND LICENSORS, AND THAT LICENSEE WILL NOT USE ANY
SUCH SOFTWARE IN VIOLATION OF THE RESTRICTIONS CONTAINED IN THIS AGREEMENT AND
WILL NOT DISCLOSE THE SOFTWARE TO ANYONE OTHER THAN ITS EMPLOYEES OR AGENTS AS
REASONABLY NECESSARY FOR THE PURPOSE OF THIS AGREEMENT AND ON THE CONDITION THAT
IT ACCEPTS FULL RESPONSIBILITY FOR ANY BREACH HEREOF BY ANY SUCH INDIVIDUAL. THE
FOREGOING AGREEMENTS ARE FOR THE EXPRESS BENEFIT OF [IDX/Stentor], ITS SUPPLIERS
AND LICENSORS, AND MAY BE ENFORCED BY [IDX/Stentor], AND ITS SUPPLIERS AND
LICENSORS.

2.   QUALIFIED MODALITY
[IDX/STENTOR] shall provide Customer a list of medical imaging equipment or
modalities ("Qualified Modalities") for Customer's use with the MIMS System
Software/Services. Customer shall contact [IDX/Stentor] immediately if any
additional modalities are added or a modification to an existing Qualified
Modality occurs. A modification to a Qualified Modality includes any type of
change, enhancement or upgrade to that modality, including software upgrades or
revisions. Customer accepts full responsibility for any failure or any other
adverse consequences that may occur if Customer uses MIMS System Software with
any modality other than a Qualified Modality.

3.   SERVICE EQUIPMENT
Service Equipment: shall mean all equipment supplied to or used by Customer in
conjunction with the MIMS System Software/Services.

Access To Service Equipment: Customer shall provide remote network access to the
Service Equipment and MIMS System Software, including providing to [IDX/Stentor]
the necessary security information to access the Service Equipment over a
network. In addition, Customer shall provide to [IDX/Stentor] personnel physical
access to all Service Equipment and MIMS System Software subsequent to receipt
of reasonable notice by [IDX/Stentor].

E-Mail Services: The Customer shall allow outgoing e-mail from Service Equipment
either through the customers SMTP e-mail services or shall allow service
equipment to access the [IDX/Stentor] SMTP e-mail service.

November 15, 2000



No Modification to Service Equipment: Customer agrees not to modify, in any way,
or tamper with the Service Equipment and any software operating on the Service
Equipment. Customer may access Service Equipment during installation, in
accordance with specific instructions from [IDX/Stentor] personnel. In addition,
Customer may access Service Equipment for system administration of MIMS System
Software to assign user identifications and grant user passwords. Customer
agrees not to load any additional software on Service Equipment.

4.        PROPRIATARY RIGHTS AND CONFIDENTIALITY
Ownership: Customer acknowledges and agrees that Stentor-IDX owns the sole and
exclusive worldwide right, title and interest in and to the MIMS System
Software/Services, and MIMS Documentation as well as all worldwide intellectual
property rights therein and all copies thereof, in whole and in part, subject
only to Customer's limited licensed rights to receive and use such MIMS System
Software/Services, and MIMS Documentation as permitted by this Agreement.

Duty of Confidentiality: To protect [IDX/Stentor] Proprietary Information,
Customer agrees that Customer will not decompile, reverse engineer, disassemble
or otherwise reduce the MIMS System Software/Services to a human perceivable
form or permit any other party to do so. Customer may not modify, adapt,
translate, rent, lease, sell, sublicense, loan, resell for profit, distribute,
time-share [except as either IDX or Stentor specifically allows customer to
allow access to third parties] or create any derivative works based upon, the
MIMS System Software/Services, and otherwise any and all information, regardless
of form, that is confidential, proprietary and/or a trade secret of
[IDX/Stentor] ("[IDX/Stentor] Proprietary Information") or any portion thereof
or permit any other party to do so.

Customer shall limit disclosure of [IDX/Stentor] Proprietary Information to its
employees who have a need to know the information in connection with the receipt
of the MIMS System Software/Services. Customer may permit members of its medical
community to observe operation of the MIMS System Software/Services on a limited
basis if they have a need to do so. In no event and under no circumstances shall
Customer reproduce, in any form, MIMS System Software and Documentation. In
addition, Customer shall not reproduce computer screen displays generated by the
iSite(TM) client software. Customer shall not disclose [IDX/Stentor] Proprietary
Information to other parties (except members of its medical community as
described above) or use [IDX/Stentor] Proprietary Information for purposes other
than use of the MIMS System Software/Services, except that it may disclose or
use:

          a)    any information that [IDX/Stentor] expressly authorizes it, in
                writing, to disclose;

          b)    any information that is, through no breach of this or any other
                agreement with [IDX/Stentor], in the public domain; and any
                information that it is required by law to disclose.

Customer agrees to take appropriate action to bind all employees and consultants
regarding their obligations under this Agreement with respect to use, copying,
modification, confidentiality, protection and security of the [IDX/Stentor]
Proprietary Information. Customer agrees that any use or attempted use of
[IDX/Stentor] Proprietary Information in violation of the restrictions of this
Agreement is a material breach of the Agreement which will cause irreparable
harm to [IDX/Stentor], entitling [IDX/Stentor] to injunctive relief in addition
to all legal remedies. The

November 15, 2000



duty of confidentiality set forth in this Section shall survive three (3) years
subsequent to termination the agreement.

5.   WARRANTY DISCLAIMER:
EXCEPT FOR THE FOREGOING EXPRESS WARRANTIES (IF ANY), [IDX/STENTOR] MAKES NO
WARRANTIES, EITHER EXPRESS OR IMPLIED, UNDER THIS AGREEMENT AND HEREBY DISCLAIMS
ALL IMPLIED WARRANTIES, INCLUDING ANY WARRANTIES REGARDING MERCHANTABILITY,
FITNESS FOR PURPOSE OR CORRESPONDENCE WITH DESCRIPTION. THERE IS NO WARRANTY
THAT THE [IDX/STENTOR] PROPRIETARY SOFTWARE IS FREE FROM PROGRAMMING ERRORS.

[IDX/Stentor] shall have no liability and responsibility under the [express
warranties] if:

     a)   The MIMS Licensed Software/Service has been altered or damaged by
          accident, neglect, misuse or other abuse;
     b)   Customer has failed to provide an operating environment (e.g., air
          temperature, electrical surge protection, etc.) for the computer
          equipment operating the MIMS System that complies with general
          industry standards for the safe operation of computer equipment;
     c)   Customer has loaded unauthorized software onto the computer equipment
          operating the MIMS System;
     d)   The MIMS Licensed Software/Service is operating in conjunction with a
          modality that is not a Qualified Modality;
     e)   The MIMS Licensed Software/Service is not the latest update released
          to Customer; or
     f)   The Customer has failed to notify [IDX/Stentor] in writing, during the
          License Term, of any defect Customer contends is a breach of warranty.

6.   LIMITED LIABILITY:
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOSS
OF BUSINESS OR FOR INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL, PUNITIVE OR
SPECIAL DAMAGES SUFFERED BY CUSTOMER, IT'S CUSTOMERS, EMPLOYESS AND PATIENTS OR
OTHERS ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE MIMS SYSTEM SOFTWARE /
SERVICES, DOCUMENTATION OR ANY OTHER STENTOR PRODUCTS OR SERVICES, FOR ALL
CAUSES OF ACTION OF ANY KIND (INCLUDING BUT NOT LIMITED TO TORT, CONTRACT,
NEGLIGENCE, STRICT PRODUCT LIABILITY AND BREACH OF WARRANTY) EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. STENTOR'S LIABILITY WILL IN
NO EVENT EXCEED THE TOTAL DOLLARS PAID BY CUSTOMER FOR MIMS SYSTEM
SOFTWARE/SERVICES.

November 15, 2000



CONFIDENTIAL                                                              Page 1

                                    EXHIBIT E

        To Distribution and Development Agreement by and between Stentor,
                        Inc. and IDX Systems Corporation

                               COMPENSATION TERMS

1.   Stentor shall pay Royalties to IDX on sale of MIMS Systems by Stentor or a
     Stentor Distribution Partner, as follows:

     A.   If Stentor Provides a MIMS System to any End User, Stentor shall pay
          IDX an amount equal to [**] % of the greater of (i) [**] for such MIMS
          System and (ii) [**]; provided that if after the Effective Date but
          prior to December 31, 2001, IDX Provides IDXrad or LastWord to the
          same customer after Stentor Provides a MIMS System to that customer,
          Stentor shall pay IDX an amount equal to [**] % of the greater of (i)
          [**] for such MIMS System or (ii) [**] to such customer.

     B.   If a Stentor Distribution Partner Provides a MIMS System to an IDXrad
          Customer or a LastWord Customer that is a Stentor License Exclusion
          Customer, Stentor shall pay IDX an amount equal to [**] % of the
          greater of (i) [**] for such MIMS System or (ii) [**].

     C.   If a Stentor Distribution Partner Provides a MIMS System to any person
          who (i) is not an IDXrad Customer or a LastWord or (ii) an IDXrad or
          LastWord Customer that is not a Stentor License Exclusion Customer,
          Stentor shall pay IDX an amount equal to [**] % of the greater of (i)
          [**] for such MIMS System, or (ii) [**].

2.   IDX shall pay Royalties to Stentor on sale of MIMS Systems by IDX or an IDX
     Distribution Partner, as follows:

          A.   If IDX Provides a MIMS System to an IDXrad Customer or LastWord
               Customer, IDX shall pay Stentor an amount equal to [**] % of the
               greater of (i) [**] for such MIMS System or (ii) [**].

          B.   If IDX or an IDX Distribution Partner Provides a MIMS System to
               any person who is not an IDXrad Customer or LastWord Customer,
               IDX shall pay Stentor an amount equal to [**] % of the greater of
               (i) [**] for such MIMS System or (ii) [**].

3.   Stentor in its discretion shall determine its own List Price for a MIMS
     System not later than December 31 of each Calendar year during the term of
     this Agreement. This Stentor List Price will be used to calculate the [**]
     as set forth below. The sole effect of the Stentor List Price on IDX will
     be to make this royalty calculation. IDX retains complete discretion over
     prices relating to the MIMS System licensed by IDX.

4.   For the purposes of this Exhibit E the defined terms set forth below shall
     apply. In the case of any conflict or inconsistency between the defined
     terms in this Exhibit and those defined in the Agreement, those set forth
     in this Exhibit shall govern and control with respect to this Exhibit, and
     those set forth in the Agreement shall govern and control with respect to
     the Agreement.

 The following table is provided for convenience in applying the above payment
     obligations and is intended to be duplicative. If there is any conflict
     between the above rules and this table, the above rules shall govern and
     control.




               END USER                            SOLD BY                ROYALTY PAID TO   ROYALTY
   --------------------------------------------------------------------------------------------------------------------------------
                                                                                   
   IDXrad Customer or LastWord Customer            IDX                    Stentor           [**] % of the greater of [**] OR [**]
   --------------------------------------------------------------------------------------------------------------------------------
   IDXrad Customer or LastWord Customer that is    Stentor                IDX               [**] % of the greater of [**] OR [**]
   a Stentor License Exclusion Customer            Distribution Partner
   --------------------------------------------------------------------------------------------------------------------------------
   Any End User (but see the last row in this      Stentor                IDX               [**] % of the greater of [**] OR [**]
   table if such customer subsequently becomes
   an IDXrad




CONFIDENTIAL                                                              Page 2

                                                                                
   Customer or LastWord Customer between the
   Effective Date and December 31, 2001)
   --------------------------------------------------------------------------------------------------------------------------------
   Not an IDXrad Customer or LastWord Customer     IDX                    Stentor           [**] % of the greater of [**] OR [**]
   --------------------------------------------------------------------------------------------------------------------------------
   Not an IDXrad Customer or LastWord Customer     Stentor                IDX               [**] % of the greater of [**] OR [**]
   or an IDXrad Customer or LastWord Customer      Distribution Partner
   that is not a Stentor License Exclusion
   Customer
   --------------------------------------------------------------------------------------------------------------------------------
   Pre-existing Stentor Customer who becomes an    IDX                    Stentor           [**] % of the greater of [**] OR [**]
   IDXrad Customer or LastWord Customer and
   subsequently or concurrently buys all or
   part of a MIMS System
   --------------------------------------------------------------------------------------------------------------------------------
   Stentor Customer who becomes an IDXrad          Stentor                IDX               [**]% of the greater of [**]or [**]paid
   Customer or LastWord Customer after the                                                  for all MIMS System components
   Effective Date but prior to December 31, 2001                                            (regardless of their date of sale) and
                                                                                            payments aremade from the date the
                                                                                            customer becomes an IDX Customer
   --------------------------------------------------------------------------------------------------------------------------------

   

5.   Stentor shall pay a royalty to IDX for each IDX Driver licensed to an End
     User by either Stentor or a Stentor Distribution Partner equal to the
     greater of (i) [**]% of [**] or (ii) $[**] for each imaging device to which
     such IDX Driver(s) is connected. IDX in its discretion shall set the [**]
     not later than December 31 of each Calendar year during the term of this
     Agreement provided that the [**] shall not be increased by more than the
     annual increase in the Consumer Price Index, all items, all urban
     consumers, U.S. city average for such year + [**]%.

                                  DEFINED TERMS

          Exhibit E to Distribution and Development Agreement by
          and between Stentor, Inc. and IDX Systems Corporation

"Agreement" means the Development and Distribution Agreement between IDX and
     Stentor of which this Exhibit E is a part.

"Authorized Licensor" means a Party or a Distribution Partner of a Party
     authorized pursuant to the Agreement.

"Control"(including similar terms such as "Controlling," "Controlled by") shall
     have the meaning set forth in Rule 12b-2 promulgated under the Securities
     and Exchange Act of 1934.

"Distribution Partner" means a person authorized by a Party to distribute the
     MIMS System pursuant to the Agreement.

"End User" means a person to whom an Authorized Licensor Provides a MIMS System.

"Gross Revenue" means [**] charged by an Authorized Licensor to an End User for
     [**]. "Revenue" does not include [**] charged by an Authorized Licensor to
     an End User for [**]. "IDXrad Customer" means (i) any customer of IDX that
     is licensed to use IDXrad and (ii) any and all entities that have access to
     IDXrad databases through such customer.

"LastWord Customer" means (i) any customer of IDX that is licensed to use
     LastWord and (ii) any and all entities that have access to LastWord
     databases through such customer.

"IDX Driver" shall have the meaning set forth in the Agreement.



CONFIDENTIAL                                                              Page 3

"Maintaining" means error correction, updates, and new versions of the MIMS
     System and its components.

"MIMS System" means a system consisting of the MIMS System (as defined in the
     Agreement), plus all other component items Provided by an Authorized
     Licensor in connection therewith, such as equipment, software, and services
     obtained from a Third Party.

"Minimum Royalty Base" in connection with [**] such MIMS System [**].

"Net Revenue" [**].

"Party" means IDX Systems Corporation or Stentor Incorporated.

"Pre-existing Stentor Customer" means any Stentor Customer that existed as of
     the Effective Date of this Agreement.

"Provide" (and similar terms such as "Providing") shall have the meaning set
     forth in the Agreement.

"Royalty" means the fee to be paid to a Party by a Party when such Party
     Provides a MIMS System under the Agreement.

"Stentor Customer" means any customer of Stentor that is licensed to use any
     product sold by Stentor and any and all entities that have access to such
     product through such customer, but shall not include any customer that is
     in an evaluation period and not obligated to pay fees to Stentor for the
     Stentor Product

"Stentor License Exclusion Customer" means all IDXrad Customers and LastWord
     Customers except (i) any IDXrad Customer or LastWord Customer that is a
     Pre-existing Stentor Customer; (ii) any IDXrad Customer or LastWord
     Customer that does not use IDXrad or LastWord as their primary radiology
     information system or primary clinical information system, respectively;
     (iii) any IDXrad Customer or LastWord Customer that becomes a Stentor
     Customer prior to becoming an IDXrad Customer or LastWord Customer; or (iv)
     any IDXrad Customer or LastWord Customer that ceases to remain a Stentor
     License Exclusion Customer pursuant to Section 5.6.

"Stentor List Price" means the price that Stentor lists for retail sale of a
     MIMS System as set pursuant to this Exhibit E.

"Third Party", when referred to in the context of a discussion of a particular
     Authorized Licensor, means any person not Controlled by, Controlling, or
     under common Control with such Authorized Licensor, as the context
     requires.

"Third Party Costs" means all of the actual costs of any good or services of a
     MIMS System Provided by an Authorized Licensor, if such costs are payable
     to a Third Party, but does not include royalties paid to IDX or Stentor.



                                    EXHIBIT F

          STENTOR UPTIME PERFORMANCE, GUARANTEE

As an Application Service Provider (ASP), Stentor, Inc. provides image
distribution on a per-use basis. The ASP model insulates the institution from
hardware and software obsolescence and enables Stentor to guarantee [**]% uptime
performance for iSite.

In the event that Stentor is unable to meet our [**]% uptime performance
guarantee per month, we will discount that month's fee as follows:

          UPTIME PERFORMANCE                            DISCOUNT
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]
- --------------------------------------------------------------------------------
[**]                                        [**]

1)        Every [**]% deviation will provide a [**]% discount for that month's
          fee

2)        Uptime performance less than [**]% will provide [**]

System Uptime Terms and Definitions

     .    STENTOR guarantees it's authorized and licensed users of iSite server
          that the product is [**]% available per month as defined in the
          following terms and conditions.

     .    All time is measured in an increment of one-hour units. Fractions are
          truncated.

     .    One month is defined as a calendar month. For example, April has 30
          days but May has 31 days, therefore, actual required time for this
          guarantee will be variable.

     .    Customer supplied equipment refers to any devices that STENTOR did not
          supply directly to customers (network cables, fibers, hubs, hospital
          network, telephone lines etc.)

Stentor Uptime Performance Guarantee-Confidential - 9/18/2000
November 15, 2000



     .    Stentor customer support representatives are anyone who is authorized
          to respond to customer outage situations (e.g., This can include third
          party agents who are authorized to perform the response tasks).

     .    [**]% Uptime means the Stentor iSite system is functionally accessible
          by all authorized users for [**]% of the time when an access is
          requested by the devices that are connected to the server.
          Availability is measured at the standard point of demarcation (SPOD),
          and outside of the scheduled and external downtime periods as defined
          in this document.

     .    Customer's Designated Contact is a contact person at the customer site
          that shall judge STENTOR's uptime claims.

     .    The Standard Point of Demarcation (SPOD) is defined at the network
          connection interface installed at the iSite server computer hardware.
          For example if 100 Base T network hardware is being used, the Ethernet
          contact pins on the Ethernet card installed on the iSite server shall
          be "our" uptime responsibility. The pins on the connector and beyond
          are customer's uptime domains. This is the demarcation point that QA
          procedure uses.

     .    Downtime shall be categorized into three modes: Unscheduled Downtime,
          Scheduled Downtime, and External Downtime.

     .    Unscheduled downtime shall begin upon notification of Stentor by an
          authorized customer representative that the iSite server could not be
          accessed beyond the SPOD. This instance of unscheduled downtime shall
          be predicated on the fact that there was no advance notification by
          STENTOR in the 24-hour period prior to the outage. The cause of outage
          must be originated within the STENTOR supplied equipment and software.
          The unscheduled downtime shall commence upon the first response by a
          STENTOR customer service representative to the notification from the
          authorized customer representative regarding the down system issue and
          a trouble ticket has been logged

     .    Scheduled downtime shall be defined as the period that iSite servers
          are inaccessible due to scheduled system maintenance. Scheduled
          downtime shall be scheduled at STENTOR's discretion with notification
          to the customer's designated contact. Typical scheduled downtime
          includes preventative maintenance and system upgrades. Automatic and
          scheduled re-boot and restart shall be categorized under the scheduled
          down time so long as the frequency and time of occurrence has been
          communicated to the customer's designated contact. The scheduled
          downtime shall begin when access to the iSite server is completely
          impaired, and does not include the duration of notification period.

     .    External downtime shall be defined as when iSite servers are
          inaccessible due to events that are not in STENTOR's control. These
          events shall include, but are not limited to, events due to natural
          causes such as prolonged power failures, electrical surges due to
          lightening, flood, fire, and manual shutdowns at the sole discretion
          of the customer without prior notification to Stentor, Inc. Note,
          however, that any failure in the iSite server computer that STENTOR
          supplies is subject to Unscheduled Downtime measurement.

     .    STENTOR shall express uptime and downtime metrics based on a
          percentage number based on hourly increments through one calendar
          month.

     .    All downtime ends when a STENTOR customer support representative has
          confirmed and recorded the resumption time of the availability and/or
          received one heartbeat report

Stentor Uptime Performance Guarantee - Confidential - 9/18/2000
November 15, 2000



          back from the server, provided there are not external problems beyond
          the SPOD which prevent the heartbeat report from reaching STENTOR.

     .    Uptime metrics shall be measured in "total round-trip" manner. A
          system is considered "up" if an image can be "pushed" to the iSite
          server and the same image can be accessible within 30 minutes of the
          initial "push". If there is criteria is not met than the system shall
          be considered down.
     .    Uptime percentage (measured in hours) = (Unscheduled Downtime
          hours)/(Number of hours in a given month) * 100.

Informational: Aggregate Uptime Table

ANNUAL                                       ... AND IN ONE CALENDAR MONTH, WE
UPTIME   APPROXIMATE DURATION THAT CAN BE    CAN AFFORD TO GO DOWN APPROXIMATELY
RATE     DOWN PER ASTRONOMICAL YEAR.         THIS LONG.
- --------------------------------------------------------------------------------
[**]%    [**]                                [**] down.
- --------------------------------------------------------------------------------
[**]%    [**]                                [**] down.
- --------------------------------------------------------------------------------
[**]%    [**]                                [**] down.
- --------------------------------------------------------------------------------
[**]%    [**]                                [**] down.
- --------------------------------------------------------------------------------
[**]%    [**]                                [**] down.
- --------------------------------------------------------------------------------
[**]%    [**]                                [**] down.
- --------------------------------------------------------------------------------
[**]%    [**]                                Down [**]
- --------------------------------------------------------------------------------

ASSUMPTIONS

The following assumptions are being made:

     .    There is a way to continuously measure and monitor the uptime in a
          round-trip manner. The proposal for this is included in my
          "Heart-Beat" monitor definitions.

     .    We assume that hardware is sufficiently reliable and do not perform
          hardware specific tests other than setting up an acceptable selection
          criteria. The computer hardware we have chosen has a minimum MTBF
          value of 45,000 hours or greater (approximately 5 years). The system
          MTBF for the purpose of uptime guarantee shall be based on the minimum
          MTBF component installed on the entire system. For example, if an
          Ethernet card has a MTBF of 20,000 hours but the rest of the systems
          have a MTBF of 100,000 hours then the entire system is deem to fail
          within 20,000 hours, and we shall reject a choice of such hardware.
          Under these selection criteria, this author assumes that more than
          99.99% of the hardware in the field shall operate continuously.

     .    If a recoverable failure occurs on a redundant component, this event
          shall not be considered a downtime. For example, if a one of the
          RAID-5 volume goes down, but the system is available, then that is not
          considered as a system failure so long as we are meeting the Uptime
          criteria, and we can recover from this condition during the Scheduled
          downtime. Likewise, if we supply a cluster of redundant servers and
          one of the server goes down, that is not considered as a downtime so
          long as the user can access the active server transparently.

Setentor Uptime Performance Guarantee - Confidential - 9/18/2000
November 15, 2000



     .    All iSite Server hardware is supplied to the customer as part of the
          Stentor Service Agreement. The supplied hardware is covered under
          Stentor's Service Agreement with [**].

          .    Only Stentor approved software may be resident on the iSite
               Server. The presence of non Stentor approved software residing on
               the iSite Server will invalidate the [**]% uptime guarantee.

          .    If the customer is supplying their own hardware for the iSite
               Server, that hardware must be purchased to Stentor's
               specification, only Stentor approved software applications may
               reside on said server, and the customer must provide a [**]
               service agreement equivalent to Stentor's service agreement with
               [**].

Setentor Uptime Performance Guarantee - Confidential - 9/18/2000
November 15, 2000



                                    EXHIBIT G

            COMPONENTS OF THE IDX/STENTOR INTEGRATED PRODUCT OFFERING

                                      [**]

IDX Confidential                                                        11/21/00

                                     Page 1

EX-21.1

                                                                    Exhibit 21.1

                                  Subsidiaries

IDX Investment Corporation

IDX Canada Inc.

IDX Information Systems Corporation

EDiX Corporation

IDX Systems UK Limited

IDX Transportation Corporation

EX-23.1

                                                                    Exhibit 23.1

                         CONSENT OF INDEPENDENT AUDITORS
                         -------------------------------

          We consent to the reference to our firm in Item 6 to the financial
data table and to the incorporation by reference in the Registration Statements
(Form S-4 Nos. 333-67981, as amended as of March 22, 1999 and No. 333-28391) of
IDX Systems Corporation; the Registration Statements (Forms S-8 333-31047,
333-64028, 333-88464) pertaining to the 1985 Incentive Stock Option Plan, the
1994 Incentive Stock Option Plan, the 1995 Director Stock Option Plan, the 1995
Employee Stock Purchase Plan, the 1995 Stock Option Plan, the restricted stock
agreement, the 2002 Stock Incentive Plan for Non-Employee Directors, and
non-statutory stock options granted to directors and officers of IDX Systems
Corporation; the Registration Statement (Form S-8 No. 333-31045) pertaining to
the PHAMIS, Inc. Amended and Restated 1983 Combined Nonqualified and Incentive
Stock Option Plan, the PHAMIS, Inc. 1993 Combined Incentive and Nonqualified
Stock Option Plan as amended through May 14, 1996, the PHAMIS, Inc. 1994
Nonemployee Director Stock Option Plan as amended through January 1, 1996, the
PHAMIS, Inc. Salary Savings and Deferral Plan and Trust as amended through
February 22, 1996 and the PHAMIS, Inc. Cain Option Agreement; of our report
dated January 31, 2003 with respect to the consolidated financial statements and
schedule of IDX Systems Corporation included in this Annual Report (Form 10-K)
for the year ended December 31, 2002.

                                                  /s/ Ernst & Young LLP
                                         ---------------------------------------

Boston, Massachusetts
Dated: March 25, 2003

EX-23.2

                                                                    Exhibit 23.2





                          Independent Auditors' Consent
                          -----------------------------

The Board of Directors
Allscripts Healthcare Solutions, Inc.:

We consent to the incorporation by reference in the registration statements (No.
333-67981) on Form S-4 and (Nos. 333-01502, 333-31047, 333-31045, and 333-64028)
on Form S-8 and in the December 31, 2002 annual report on Form 10-K of IDX
Systems Corporation of our report dated February 11, 2002, with respect to the
consolidated balance sheets of Allscripts Healthcare Solutions, Inc. and
subsidiaries as of December 31, 2001, and the related consolidated statements of
operations, stockholders' equity (deficit) and comprehensive income (loss), and
cash flows for each of the years in the two-year period ended December 31, 2001,
which report appears in the December 31, 2001 annual report on Form 10-K of
Allscripts Healthcare Solutions, Inc.

/s/KPMG LLP



Chicago, Illinois
March 28, 2003

EX-99.2

                                                                    EXHIBIT 99.2

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report on Form 10-K of IDX Systems Corporation
(the "Company") for the year ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned, James H. Crook, Jr., Chief Executive Officer of the Company, and
John A. Kane, Chief Financial Officer of the Company, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, that:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d)
     of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material
     respects, the financial condition and results of operations of the Company.

                                 /s/ James H. Crook, Jr.
                                 ---------------------------------------
Dated:  March 31, 2003           James H. Crook, Jr.
                                 Chief Executive Officer










                                 /s/ John A. Kane
                                 ---------------------------------------
Dated:  March 31, 2003           John A. Kane
                                 Sr. Vice President, Finance and Administration,
                                 Chief Financial Officer and Treasurer

A signed original of this written statement has been provided to IDX Systems
Corporation and will be retained by IDX Systems Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.