Document:

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                                                                   EXHIBIT 10.21

                            JOINT VENTURE AGREEMENT

                                    BETWEEN

                                NORDSTROM, INC.

                                      AND

                              NORDSTROM.COM, INC.

                                  DATED AS OF

                                AUGUST 24, 1999

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                                TABLE OF CONTENTS

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                                                                                          Page

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ARTICLE I  DEFINED TERMS.....................................................................1
        1.1  Defined Terms...................................................................1
        1.2  References and Titles..........................................................10

ARTICLE II  REPRESENTATIONS AND WARRANTIES..................................................10
        2.1  Representations and Warranties Regarding Nordstrom.............................10
        2.2  Representations and Warranties of Nordstrom.com, Inc...........................21

ARTICLE III  PRE-CLOSING AGREEMENTS.........................................................24
        3.1  Conduct of Business............................................................24
        3.2  No Solicitation................................................................25
        3.3  Expenses.......................................................................25
        3.4  Approvals; Additional Documents; and Further Assurances........................25
        3.5  Access and Information.........................................................26
        3.6  Notification of Certain Matters................................................26
        3.7  Transfer Charges...............................................................26
        3.8  Brokers or Finders.............................................................26
        3.9  Bulk Sales Law.................................................................26
        3.10  Employee Benefit Matters......................................................26
        3.11  Employee Arrangements.........................................................27

ARTICLE IV  CONDITIONS PRECEDENT; CLOSING...................................................28
        4.1  Conditions to Each Party's Obligation..........................................28
        4.2  Conditions to Obligation of Nordstrom..........................................28
        4.3  Conditions to Obligations of the Nordstrom.com, Inc............................29
        4.4  Closing........................................................................30
        4.5  Assumption of Liabilities and Obligations......................................30
        4.6  Calculation of Assuming Working Capital Liabilities............................30

ARTICLE V  POST-CLOSING COVENANTS...........................................................31
        5.1  Indemnification................................................................31
        5.2  Store Discounts................................................................33
        5.3  Employee Benefit Plans.........................................................34
        5.4  Equity Incentives..............................................................35
        5.5  Employees......................................................................35
        5.6  Nordstrom Holdings.............................................................35
        5.7  Merger of Nordstrom.com, Inc. and Nordstrom Holdings...........................37

ARTICLE VI  TERMINATION, AMENDMENT AND WAIVER...............................................38
        6.1  Termination....................................................................38
        6.2  Effect of Termination..........................................................39
        6.3  Amendment......................................................................39
        6.4  Extension; Waiver..............................................................39
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ARTICLE VII  GENERAL PROVISIONS.............................................................40
        7.1  Notices........................................................................40
        7.2  Entire Agreement...............................................................42
        7.3  Further Assurances; Post-Closing Cooperation...................................42
        7.4  Waiver.........................................................................42
        7.5  Third-Party Beneficiaries......................................................42
        7.6  No Assignment; Binding Effect..................................................42
        7.7  Headings.......................................................................42
        7.8  Invalid Provisions.............................................................42
        7.9  Governing Law..................................................................43
        7.10  Construction..................................................................43
        7.11  Counterparts..................................................................43
        7.12  Specific Performance..........................................................43
        7.13  Dispute Resolution............................................................43
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Exhibits:

<S>                  <C>     <C>
Exhibit A            --      Form of Assumption Agreement
Exhibit B            --      Form of Bill of Sale and Assignment
Exhibit C            --      Bylaws
Exhibit D            --      Form of Investors' Rights Agreement
Exhibit E            --      Form of License Agreement
Exhibit F            --      Form of Operating Agreement
Exhibit G            --      Form of Put Agreement
Exhibit H            --      Form of Restated Certificate
Exhibit I            --      Form of Right of First Refusal and Co-Sale Agreement
Exhibit J            --      Form of Services Agreement
Exhibit K            --      Form of Stock Purchase Agreement
Exhibit L            --      Form of Supply Agreement

Schedules:

Schedule 2.1(d)(i)   --      Consents Required under Contracts
Schedule 2.1(d)(ii)  --      Consents Required from Governmental Entities
Schedule 2.1(f)      --      Financial Statements; Absence of Certain Changes or Events
Schedule 2.1(g)(i)   --      Compliance with Laws
Schedule 2.1(g)(ii)  --      Licenses and Permits
Schedule 2.1(h)      --      Litigation
Schedule 2.1(k)      --      Leased Real Property
Schedule 2.1(l)      --      Personal Property
Schedule 2.1(m)      --      Liens and Encumbrances
Schedule 2.1(n)      --      Environmental
Schedule 2.1(o)      --      Taxes
Schedule 2.1(p)      --      Certain Agreements
Schedule 2.1(q)      --      Employee Benefit Plans
Schedule 2.1(r)      --      Employees; Labor Relations
Schedule 2.1(s)      --      Intellectual Property
Schedule 3.8         --      Brokers and Finders
</TABLE>

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<S>                  <C>     <C>
Schedule 5.3         --      Excluded Benefit Plans
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                  AMENDED AND RESTATED JOINT VENTURE AGREEMENT

               This AMENDED AND RESTATED JOINT VENTURE AGREEMENT (this
"Agreement") is made and entered into as of August 24, 1999, between Nordstrom,
Inc., a Washington corporation ("Nordstrom"), and Nordstrom.com, Inc., a
Delaware corporation ("Nordstrom.com, Inc.").

                                    RECITALS

               Nordstrom, through its wholly owned subsidiary, Nordstrom.com
Holdings, Inc., a Washington corporation ("Nordstrom Holdings"), and
Nordstrom.com, Inc. plan to form Nordstrom.com, LLC, a Delaware limited
liability company ("LLC"), to engage in the Business (as defined below), subject
to the terms and conditions set forth below.

                                   AGREEMENTS

               NOW, THEREFORE, in consideration of the respective
representations, warranties, agreements, and conditions hereinafter set forth,
and other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:

                                    ARTICLE I

                                  DEFINED TERMS

               1.1 Defined Terms. The following terms shall have the following
meanings in this Agreement:

               "Accounts Receivable" means the rights of Nordstrom or any
Nordstrom Affiliate to payment for merchandise sold to customers pursuant to the
Business.

               "Affiliate" means, with respect to any person, any other person
controlling, controlled by or under common control with such person.

               "Applicable Laws" means all applicable laws, statutes, rules,
regulations, ordinances, judgments, orders, decrees, injunctions, and writs of
any Governmental Entity.

               "Assets" means all the tangible and intangible assets owned,
leased, or licensed by Nordstrom or any Nordstrom Affiliate that are used or
held for use primarily in connection with the Business, but specifically
excluding therefrom the Excluded Assets. Without limiting the foregoing, the
Assets to be assigned, transferred and delivered by Nordstrom and/or Nordstrom
Holdings hereunder shall include the following:

                      (a) the Personal Property;

                      (b) the Leased Real Property;

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                      (c) the Licenses and Permits;

                      (d) the Assumed Contracts;

                      (e) the Intellectual Property, subject to any consents
required for transfer of such Intellectual Property;

                      (f) the Accounts Receivable as of the close of business on
the day immediately preceding the Closing Date;

                      (g) all books and records relating to the Business
(excluding those described in clause (b) of the definition of "Excluded
Assets"), including executed copies of the Assumed Contracts, or if no executed
agreement exists, summaries of such Assumed Contracts transferred pursuant to
clause (e) above;

                      (h) all computer programs and software, and all rights and
interests of Business in and to computer programs and software used primarily in
connection with the Business (but excluding computer programs and software
maintained and operated by Nordstrom for its entire business and not primarily
for the Business), subject to any consents required for transfer of such
computer programs and software;

                      (i) all rights and claims of Nordstrom or any Nordstrom
Affiliate whether mature, contingent or otherwise, against third parties that
relate primarily to the Business (other than the Excluded Assets), whether in
tort, contract, or otherwise, including, without limitation, causes of action,
unliquidated rights and claims under or pursuant to all warranties, indemnities,
representations and guarantees made by manufacturers, suppliers, vendors,
sellers, transferors or predecessors (except to the extent of any counterclaim
or defense to a claim against Nordstrom or any Nordstrom Affiliate that exists
after the Closing);

                      (j) all intangible assets of Nordstrom or any Nordstrom
Affiliate primarily relating to the Business not specifically described above,
including goodwill; and

                      (k) petty cash on hand as of the Closing Date of Nordstrom
and any Nordstrom Affiliate for use solely in the Business.

               "Assumed Contracts" means (a) those Contracts set forth on
Schedule 2.1(p) that are identified as being assumed by the LLC, (b) all other
Contracts of Nordstrom or any Nordstrom Affiliate that relate primarily to the
Assets or the Business, and (c) all Contracts entered into by Nordstrom or any
Nordstrom Affiliate on or after the date of this Agreement and before the
Closing in the ordinary course of business that relate primarily to the Assets
or the Business.

               "Assumed Liabilities" means the liabilities and obligations
assumed by the LLC at the Closing pursuant to Section 4.5(a).

               "Assumed Working Capital Liabilities" means the following:

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                      (a) accounts payable of Nordstrom or any Nordstrom
Affiliate for goods and services primarily for the benefit of the Business
incurred in the ordinary course of business;

                      (b) amounts due or accrued in the ordinary course of
business for wages, salaries, profit-sharing payments, bonuses, vacations and
other employee benefits by Nordstrom or any Nordstrom Affiliate for employees
whose primary service is for the benefit of the Business as of the close of
business; and

                      (c) any other current liabilities of Nordstrom or any
Nordstrom Affiliate incurred in the ordinary course of business primarily for
the benefit of the Business (but excluding liabilities for product returns,
except to the extent the LLC fails to perform its obligations under the Supply
Agreement to accept returns of products sold through the Business on or before
the Closing Date or to the extent provided in the Supply Agreement).

               "Assumption Agreement" means the Assumption Agreement between
Nordstrom and/or a Nordstrom Affiliate and LLC substantially in a form and
substance reasonably acceptable to Nordstrom and Nordstrom Holdings and to be
attached as Exhibit A.

               "Balance Sheet" has the meaning set forth in Section 2.1(f).

               "Benchmark Funds" means one or more of the following: Benchmark
Capital Partners III, L.P., Benchmark Founders' Fund III, L.P., Benchmark
Founders' Fund III-A, L.P., Benchmark Members' Fund III, L.P. and any other
affiliated venture capital funds.

               "Bill of Sale and Assignment" means the Bill of Sale and
Assignment between Nordstrom and/or a Nordstrom Affiliate and the LLC
substantially in the form of Exhibit B.

               "Business" shall mean the sale, supply or other distribution of
goods and services to consumers conducted by Nordstrom through (i) on-line
internet technologies, whether now known or hereafter devised, including, but
not limited to, Websites, e-mail, electronic commerce, on-line advertising and
virtual shopping, and (ii) except as provided in the following sentence, through
catalogs and other written material. Notwithstanding any other provision
contained herein, the "Business" shall exclude: (a) the sale of goods and
services to consumers making such purchases at traditional retail stores, (b)
the sale, supply or other distribution of goods and services to consumers
through catalogs, other written materials or e-mail, provided that such goods
and services are fulfilled by hand at traditional retail stores, and (c) the
supply or distribution of goods and services sold to consumers at traditional
retail stores but fulfilled at a centralized fulfillment center.

               "Business Day" means any other day than (i) a Saturday or Sunday
or (ii) a day on which commercial banks in Seattle, Washington are authorized or
required to be closed.

               "Closing" means the consummation of the transactions contemplated
by this Agreement in accordance with the provisions of Article IV.

               "Closing Date" has the meaning set forth in Section 4.4.

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               "Code" means the United States Internal Revenue Code of 1986, as
amended. All references to the Code, U.S. Treasury regulations or other
governmental pronouncements shall be deemed to include references to any
applicable successor regulations or amending pronouncement.

               "Competing Proposed Transaction" has the meaning set forth in
Section 3.2.

               "Consents" means all governmental consents and approvals, and all
consents and approvals of third parties, in each case that are necessary in
order to transfer the Assets to the LLC pursuant to the Operating Agreement and
otherwise to consummate the transactions contemplated by the Transaction
Documents.

               "Contracts" means all agreements, contracts, or other binding
commitments or arrangements, written or oral (including any amendments and other
modifications thereto), to which Nordstrom or any Nordstrom Affiliate is a party
or is otherwise bound and which primarily relate to the Assets or the Business.

               "Employee Benefit Plans" has the meaning set forth in Section
2.1(q).

               "Environmental Laws" means all Applicable Laws and rules of
common law pertaining to the environment, natural resources, and public health
and safety including the Comprehensive Environmental Response Compensation and
Liability Act, (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Emergency
Planning and Community Right to Know Act and the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the
Hazardous and Solid Waste Amendments Act of 1984, the Clean Air Act, the Clean
Water Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the
Oil Pollution Act of 1990, the Hazardous Materials Transportation Act, and any
similar or analogous statutes, regulations and decisional law of any
Governmental Entity, as each of the foregoing may be amended and in effect on or
prior to the Closing.

               "Environmental Permits" means Permits required pursuant to
Environmental Laws relating to the Business or the Assets.

               "Equity Interests" means any interest in any other corporation,
association, joint venture, partnership or other business entity, whether or not
such interest is represented by a certificate or constitutes a security.

               "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

               "Excluded Assets" means:

                      (a) all tangible and intangible assets owned, leased or
licensed by Nordstrom or any Nordstrom Affiliate that may relate to the Business
but are not used primarily in the Business;

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                      (b) Nordstrom's corporate books and other books and
records relating solely to internal corporate matters and any other books and
records not related to the Business;

                      (c) Any claims, rights and interest of Nordstrom or any
Nordstrom Affiliate in and to any (i) refunds of Taxes or fees of any nature
whatsoever relating to the Business or (ii) deposits or utility deposits
relating to the Business, in each case which relate solely to the period prior
to the Closing Date;

                      (d) All insurance contracts, including the cash surrender
value thereof, and all insurance proceeds or claims made by Nordstrom or any
Nordstrom Affiliate relating to the Business prior to the Closing Date;

                      (e) All Employee Benefit Plans and all assets or funds
held in trust, or otherwise, associated with or used in connection with the
Employee Benefit Plans;

                      (f) All tangible and intangible personal property disposed
of or consumed in the ordinary course of business between the date of this
Agreement and the Closing Date, or as otherwise permitted under the terms
hereof; and

                      (g) Any collective bargaining agreement, any other
Contract not included in the Assumed Contracts and all Contracts that have
terminated or expired prior to the Closing Date in the ordinary course of
business and as permitted hereunder.

               "Executive Employee" means any employee of Nordstrom or any
Nordstrom Affiliate that (i) is a member of the executive group of the Business
or (ii) reports directly to any such member.

               "Financial Statements" has the meaning set forth in Section
2.1(f).

               "GAAP" means generally accepted accounting principles in the
United States.

               "Governmental Entity" means any governmental department,
commission, board, bureau, agency, court, tribunal or other instrumentality of
the United States, any foreign country or any state, county, parish or
municipality, jurisdiction, or other political subdivision thereof.

               "Hazardous Material" means (a) any chemical, material, substance
or waste including, containing or constituting petroleum or petroleum products,
solvents (including chlorinated solvents), nuclear or radioactive materials,
asbestos in any form that is or could become friable, radon, lead-based paint,
urea formaldehyde foam insulation or polychlorinated biphenyls, (b) any
chemicals, materials, substances or wastes which are now defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes, "toxic
substances," "toxic pollutants" or words of similar import under any
Environmental Law; or (c) any other chemical, material, substance or waste which
is regulated by any Governmental Entity or which could constitute a nuisance.

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               "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.

               "Indemnified Party" means any party entitled indemnification
pursuant to Section 5.1 hereof.

               "Indemnifying Party" means any party required to indemnify
another party pursuant to Section 5.1 hereof.

               "Inc. Bylaws" means the Nordstrom.com, Inc. Bylaws in the form
attached as Exhibit C.

               "Inc. Plan" means any equity incentive plan proposed to be
adopted by Nordstrom.com, Inc.

               "Inc. Transaction Documents" means the Restated Certificate,
Stock Purchase Agreement, Investors' Right Agreement, Put Agreement and each
Right of First Refusal and Co-Sale Agreement.

               "Initial Public Offering" means an initial public offering of the
shares of common stock of Nordstrom.com, Inc. or its counterpart pursuant to a
registration statement declared effective under the Securities Act resulting in
gross proceeds of at least $20 million and underwritten by a nationally
recognized investment bank.

               "Intellectual Property" means all Know-how, copyrights, copyright
registrations and applications for registration, Patents, Trademarks and all
other intellectual property rights whether registered or not, licensed to or
owned by Nordstrom or any Nordstrom Affiliate, which are reasonably necessary
for the operation of the Business, excluding the Trademarks that are licensed to
the LLC pursuant to the License Agreement and excluding licenses to Nordstrom or
any Nordstrom Affiliate of rights in software.

               "Investors' Rights Agreement" means the Investors' Rights
Agreement among Nordstrom.com, Inc., Nordstrom Holdings, the Benchmark Funds and
the other investors named therein, substantially in the form of Exhibit D
attached hereto.

               "Know-how" means all plans, ideas, concepts and data, research
records, all promotional literature, customer and supplier lists and similar
data and information and all other trade secrets and confidential or proprietary
technical and business information.

               "Knowledge" means, with respect to a specified party hereto, the
actual knowledge of any executive officer of such party.

               "Leased Real Property" means all of the leasehold interests,
easements, licenses, rights to access and rights-of-way of Nordstrom or any
Nordstrom Affiliate which are used primarily in the Business, which are
identified and described in Schedule 2.1(k), together with any addition or
permitted deletion thereto between the date hereof and the Closing Date.

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               "Liabilities and Costs" means any and all damages, losses,
claims, liabilities, charges, judgments, penalties, costs and expenses
(including court costs and reasonable attorneys' fees and expenses incurred in
investigating and preparing for any litigation or proceeding).

               "Licenses" means all other Permits issued by any Governmental
Entity to Nordstrom or any Nordstrom Affiliate and that are used primarily in
the Business.

               "License Agreement" means the License Agreement to be entered
into among, LLC and Nordstrom or one or more Nordstrom Affiliates substantially
in the form of Exhibit E attached hereto.

               "Liens" shall mean any lien, pledge, mortgage, deed of trust,
security interest, claim, lease, charge, option, right of first refusal,
transfer restriction or other encumbrance of any nature whatsoever.

               "LLC Transaction Documents" means the Operating Agreement, the
License Agreement, the Services Agreement and the Supply Agreement.

               "LLC Shares" shall mean shares of the LLC, consisting of Series A
Preferred Shares ("LLC Series A Preferred Shares"), Series B Preferred Shares
("LLC Series B Preferred Shares") and Common Shares ("LLC Common Shares").

               "Material Adverse Effect" means a material adverse effect on the
business, operations, properties (taken as a whole), condition (financial or
otherwise), results of operations, assets (taken as a whole), liabilities, or
prospects of the Business.

               "Merger" means a merger or other business combination of the LLC,
Nordstrom.com, Inc. and/or Nordstrom Holdings.

               "Nordstrom Affiliate" means each Affiliate of Nordstrom (but not
Nordstrom.com, Inc.)

               "Nordstrom Entities" means each of Nordstrom, Nordstrom Holdings,
and each other Nordstrom Affiliate that is a party to one of the Transaction
Documents.

               "Option" has the meaning set forth in Section 2.1(b).

               "Order" means any judgment, decree, order, writ, permit or
license.

               "Operating Agreement" means the Limited Liability Company
Agreement of the LLC to be entered into among the LLC, Nordstrom.com, Inc. and
Nordstrom Holdings in substantially the form of Exhibit F attached hereto.

               "Patents" means all patent and patent applications (including all
reissues, divisions, continuations, continuations-in-part, renewals, and
extensions of the foregoing) used primarily in the Business that are owned by
Nordstrom or any Nordstrom Affiliate.

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               "Permits" means all permits, registrations, licenses, approvals,
authorizations and the like.

               "Permitted Encumbrances" means (a) statutory liens for current
taxes not yet due and payable, (b) in the case of leases of real property,
agreements with, and/or conditions imposed on the issuance of land use permits,
zoning, business licenses, use permits, or other entitlements of various types
issued by city, county, state, and federal governmental bodies or agencies,
necessary or beneficial to the continued use and occupancy of the Assets or the
conduct of the Business, which do not, individually or in the aggregate,
materially impair the use of such leased real property in the Business or
operation of the Assets, (c) mechanics', carriers', workers', repairers', and
other similar liens imposed by law arising or incurred in the ordinary course of
business for obligations not yet due, which do not, individually or in the
aggregate, materially impair the Business or operation of the Assets to which
such liens relate or any part thereof, (d) in the case of leases of vehicles,
rolling stock, and other personal property, encumbrances, which do not,
individually or in the aggregate, materially impair the operation of the
Business at the facility at which such leased equipment or other Personal
Property is located, and (e) other liens, charges or encumbrances incidental to
the Business or the ownership of the Assets which were not incurred in
connection with the borrowing of money or the advance of credit which in the
aggregate do not materially detract from the value of the Assets or materially
interfere with the Business.

               "Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, or other
entity.

               "Personal Property" means all of the inventory, machinery,
equipment, computer programs, computer software, tools, motor vehicles,
furniture, furnishings, leasehold improvements, office equipment, inventories,
supplies, plant, spare parts, Equity Interests, and other tangible or intangible
personal property owned or leased by Nordstrom or any Nordstrom Affiliate and
which are used or held for use primarily in the Business, including the personal
property which is listed on Schedule 2.1(1) hereto, together with any additions
thereto between the date hereof and the Closing Date less any dispositions made
in accordance with Section 3.1.

               "Put Agreement" means the Put Agreement among the Benchmark
Funds, the other investors listed in the Stock Purchase Agreement and Nordstrom
in substantially the form of Exhibit G attached hereto.

               "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing of a Hazardous Material into the Environment.

               "Restated Certificate" means the Amended and Restated Certificate
of Incorporation of Nordstrom.com, Inc. in substantially the form of Exhibit H
attached hereto.

               "Right of First Refusal and Co-Sale Agreement" means the Right of
First Refusal and Co-Sale Agreement to be entered into between the Benchmark
Funds and the other investors

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named in the Stock Purchase Agreement, on the one hand, and Nordstrom Holdings
and certain other Persons, on the other hand, substantially in the form attached
as Exhibit I.

               "Schedules" means the Schedules attached hereto.

               "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.

               "Services Agreement" means the Services Agreement between the LLC
and Nordstrom substantially in the form of Exhibit J attached hereto.

               "Stock Purchase Agreement" means the Preferred Stock Purchase
Agreement among Nordstrom.com, Inc., Nordstrom Holdings, the Benchmark Funds and
the other investors named therein substantially in the form attached hereto as
Exhibit K.

               "Supply Agreement" means the Supply Agreement between the LLC and
Nordstrom substantially in the form of Exhibit L attached hereto.

               "Subsidiary" with respect to any Person means any corporation or
other entity of which more than fifty percent (50%) of the shares of outstanding
capital stock or other interests possessing the voting power (under ordinary
circumstances) in electing the board of directors are, at the time as of which
any determination is being made, owned by such Person either directly or
indirectly through Subsidiaries.

               "Target Employees" has the meaning set forth in Section
2.1(q)(ii).

               "Taxes" means taxes, charges, fees, imposts, levies, interest,
penalties, additions to tax or other assessments or fees of any kind, including,
but not limited to, income, corporate, capital, excise, property, sales, use,
turnover, value added, gross receipts and franchise taxes, deductions,
withholdings and customs duties, imposed by any Taxing Authority and any
payments with respect thereto required under any tax-sharing agreement, under
any express or implied obligation to indemnify any other person, or as a result
of being a member of an affiliated, consolidated, combined, unitary or other
group for tax purposes.

               "Taxing Authority" means any governmental department, commission,
board, bureau, agency, court or other instrumentality of the United States or
any other Country or of any state, county, parish, municipality, jurisdiction,
or other political subdivision of the United States or any other Country.

               "Tax Returns" means any return, report, information return or
other document (including any related or supporting information) filed or
required to be filed with any Governmental Entity in connection with the
determination, assessment, collection or administration of any Taxes or the
administration of any laws, regulations or administrative requirements relating
to any Taxes.

               "Trademarks" means (a) trademarks, service marks, trade names,
trade dress, labels, logos, and all other names and slogans used primarily in
the Business, whether or not

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registered, and any applications or registrations therefor, and (b) any
associated goodwill incident thereto owned by Nordstrom or any Nordstrom
Affiliate.

               "Transaction Documents" means this Agreement, the Inc.
Transaction Documents and the LLC Transaction Documents.

               "Transfer Charges" has the meaning set forth in Section 3.7.

               "Website" means any interactive site or area, including any
interactive site or area located on the World Wide Web portion of Internet or on
any commercial service or network (including services such as AOL), which is
accessed via the use of any protocols, standards or platforms (including
Internet or Internet derivative protocols, standards and platforms) for remote
access by narrowband or broadband telecommunications, including POTS, ISDN,
cable, fiber optics and hybrid CD-ROM, regardless of whether access to such site
or area is secured through cable, telephone, satellite or otherwise and
regardless of whether the same is received or operated in conjunction with a
personal computer or television, together with any successor into which any of
the foregoing may evolve.

               1.2 References and Titles. All references in this Agreement to
Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections,
and other subdivisions of this Agreement unless expressly provided otherwise.
Titles appearing at the beginning of any Articles, Sections, subsections, or
other subdivisions of this Agreement are for convenience only, do not constitute
any part of such Articles, Sections, subsections or other subdivisions, and
shall be disregarded in construing the language contained therein.

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

               2.1 Representations and Warranties Regarding Nordstrom. Nordstrom
represents and warrants to Nordstrom.com, Inc. as follows (with the
understanding that Nordstrom.com, Inc. is relying on such representations and
warranties in entering into and performing this Agreement).

                      (a) Organization and Qualification. Each Nordstrom Entity
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its assets and properties. Each Nordstrom Entity is duly
qualified, licensed or admitted to do business and is in good standing in each
jurisdiction in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary except where the failure to be so licensed or
admitted would not have a Material Adverse Effect. Nordstrom Holdings has no
Subsidiaries. Nordstrom Holdings does not directly or indirectly own any equity
or similar interest in, or any interest convertible into or exchangeable or

                                       10
<PAGE>   15

exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity other than
the LLC.

                      (b) Capital Structure. As of the date hereof, 1,000 shares
of common stock of Nordstrom Holdings, par value $0.0001 per share ("Nordstrom
Holdings Common Stock") were issued and outstanding and owned of record and
beneficially by Nordstrom, free and clear of any Liens. There are not
outstanding any subscriptions, options, warrants, rights (including phantom
stock or stock appreciation rights) or preemptive rights (collectively, referred
to as "Options") or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security instrument or agreement obligating Nordstrom Holdings to
issue or sell any shares of capital stock of Nordstrom Holdings or to grant,
extend or enter into any Nordstrom Holdings Option with respect thereto.

                      (c) Authority Relative to this Agreement. Each Nordstrom
Entity has full corporate power and authority to enter into each Transaction
Document to which it is a party and to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by each Nordstrom Entity of each
Transaction Document to which it is a party and the consummation by each
Nordstrom Entity of the transactions contemplated hereby and thereby have been
duly and validly approved by the board of directors of such Nordstrom Entity,
and no other corporate proceedings on the part of any Nordstrom Entity are
necessary to authorize the execution, delivery and performance by such Nordstrom
Entity of each Transaction Document to which it is a party and the consummation
by such Nordstrom Entity of the transactions contemplated hereby and thereby.

                      (d) Non-Contravention; Approvals and Consents.

                             (i) The execution and delivery by each Nordstrom
Entity of each Transaction Document to which it is a party does not and will
not, as the case may be, and the performance by such Nordstrom Entity of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, result in a violation
or breach of, constitute (with or without notice or lapse of time or both) a
default under, result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien upon any of the assets or
proprieties of such Nordstrom Entity under any of the terms, conditions or
provisions of (i) the certificate of incorporation or bylaws (or other
comparable charter documents) of such Nordstrom Entity, or (ii) (A) any
Applicable Laws or Orders of any Governmental Entity applicable to such
Nordstrom Entity or any of its assets or properties, or (B) except as set forth
on Schedule 2.1(d)(i), any Contracts to which such Nordstrom Entity is a party
or by which such Nordstrom Entity or any of its assets or properties is bound.

                             (ii) Except as set forth on Schedule 2.1(d)(ii), no
Consent of any Governmental Entity or other public or private third party is
necessary or required under any of the terms, conditions or provisions of any
Applicable Law or Order of any Governmental Entity or any Contract to which any
Nordstrom Entity is a party or by which any Nordstrom Entity or any of its
assets or properties is bound for the execution and delivery by such Nordstrom
Entity

                                       11
<PAGE>   16

of each Transaction Document to which it is a party for the performance by such
Nordstrom Entity of its obligations hereunder or thereunder, or for the
consummation of the transactions contemplated hereby or thereby.

                      (e) Assets. The Assets and the Excluded Assets include all
assets used or held for use in the Business.

                      (f) Financial Statements, Absence of Certain Changes or
Events.

                             (i) Nordstrom has delivered to Nordstrom.com, Inc.
copies of the unaudited balance sheets of the Business as of January 31, 1998
and 1999, together with the related unaudited statements of income of the
Business for the two years ended January 31, 1998, and 1999, (the unaudited
balance sheet of the Business as of January 31, 1999 is referred to as the
"Balance Sheet") (collectively, the "Financial Statements"). The Financial
Statements were prepared with accounting principles applied on a consistent
basis throughout the periods covered thereby and present fairly in all material
respects the financial position, results of operations of the Business as of
such dates and for the periods then ended.

                             (ii) Except as disclosed in Schedule 2.1(f), there
is no liability or obligation of any kind, whether accrued, absolute, fixed,
contingent, or otherwise, relating to the Business that is not reflected or
reserved against in the Balance Sheet, other than (A) liabilities incurred in
the ordinary course of business in a manner consistent with past practice since
January 31, 1999, or (B) any such liability or obligation which would not be
required to be presented in financial statements prepared in a manner consistent
with past practice in the preparation of the Financial Statements. Except as
disclosed in Schedule 2.1(f), there is no liability or obligation referred to in
clause (B) of the preceding sentence, except for any such liabilities or
obligations that are not reasonably expected to have a Material Adverse Effect.

                             (iii) Except as disclosed in Schedule 2.1(f), since
January 31, 1999, Nordstrom has conducted the Business only in the ordinary
course consistent with past practice and nothing has occurred that would have
been prohibited by Section 3.1 if the terms of such section had been in effect
as of and after January 31, 1999. From January 31, 1999 until the date of this
Agreement, there has not occurred, any event, circumstance, or fact that could
reasonably be expected to result in a Material Adverse Effect. To the Knowledge
of Nordstrom, there are no pending or proposed statutes, rules, or regulations,
nor any current or pending developments or circumstances, that could reasonably
be expected to have a Material Adverse Effect.

                      (g) Compliance with Applicable Laws.

                             (i) The Business has been conducted in compliance
with each Applicable Law, except as set forth in Schedule 2.1(g)(i) or where a
failure to do so would not have a Material Adverse Effect. No investigation or
review by any Governmental Entity with respect to the Business is pending or, to
the Knowledge of Nordstrom, threatened. In addition, Nordstrom has duly and
timely filed, or caused to be so filed, with the appropriate Governmental
Entities all reports, statements, documents, registrations, filings, or
submissions with respect to

                                       12
<PAGE>   17

the operation of the Business, where the failure to duly or timely file such
reports, statements, documents, registrations, filings, or submissions would not
have a Material Adverse Effect.

                             (ii) Schedule 2.1(g)(ii) is a true and complete
list of all material Permits issued to Nordstrom or any Nordstrom Affiliate
primarily relating to the Business by any Governmental Entity and held by them
as of the date of this Agreement.

                      (h) Absence of Litigation. Except as set forth on Schedule
2.1(h), there is no claim, action, suit, inquiry, judicial, or administrative
proceeding, grievance, or arbitration pending (nor, to the Knowledge of
Nordstrom, threatened or is there any reasonable basis therefor to the Knowledge
of Nordstrom) relating to the Business or any of the Assets by or before any
arbitrator or Governmental Entity, nor are there any pending or unfunded
settlements or any investigations relating to the Business or any of the Assets
pending (nor, to the Knowledge of Nordstrom, threatened or is there any
reasonable basis therefor) by or before any arbitrator or Governmental Entity.
Except as set forth in Schedule 2.1(h), there is no Order of any Governmental
Entity or arbitrator outstanding relating to the Business or any of the Assets.
There is no action, suit, inquiry, judicial, or administrative proceeding
pending or, to the Knowledge of Nordstrom, threatened against Nordstrom or any
Nordstrom Affiliate relating to the transactions contemplated by this Agreement
or the Transaction Documents.

                      (i) Insurance. Nordstrom and/or the Nordstrom Affiliates
has policies of insurance and bonds of the type and in amounts customarily
carried by persons conducting a business similar to the Business. There is no
material claim pending under any of such policies or bonds related to the
Business as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Nordstrom is otherwise in compliance
with the material terms of such policies and bonds. Nordstrom has no Knowledge
of any threatened termination of, or material premium increase with respect to,
any of such policies, notice or information or the delivery of any inaccurate or
erroneous notice or information, which limits or impairs the rights of Nordstrom
or any Nordstrom Affiliate under any such insurance policies in such a manner as
could reasonably be expected to have a Material Adverse Effect. Excluding
insurance policies that have expired and been replaced in the ordinary course of
business, no insurance policy has been canceled within the last two years prior
to the date hereof.

                      (j) Intentionally Omitted.

                      (k) Leased Real Property. Schedule 2.1(k) contains an
accurate description of all the leasehold interests relating to the Business.
Except as otherwise disclosed on Schedule 2.1(k) Nordstrom is not, and to the
Knowledge of the Nordstrom, no other party is, in material default under any
lease described in Schedule 2.1(k). Subject to obtaining the Consents disclosed
in Schedule 2.1(k), Nordstrom has the full legal power and authority to assign
its rights under the leases listed in Schedule 2.1(k) to the LLC. All leasehold
interests listed in Schedule 2.1(k) (including the improvements thereon) are
available for immediate use in the conduct of the Business as currently
conducted.

                                       13
<PAGE>   18

                      (l) Personal Property. Except as set forth on Schedule
2.1(l), Nordstrom has good title to, or a valid leasehold or license interest in
all Personal Property and none of the Personal Property is subject to any Lien
or other encumbrances, except for Permitted Encumbrances. Nordstrom is not, and
to the Knowledge of the Nordstrom, no other party is, in material default under
any of the leases, licenses and other Contracts relating to the Personal
Property. The Personal Property (i) is in good operating condition and repair
(ordinary wear and tear excepted), and (ii) is available for immediate use in
the Business as currently conducted.

                      (m) Liens and Encumbrances. Except as set forth on
Schedule 2.1(m), all of the Assets, including leases, are free and clear of all
Liens, except for Permitted Encumbrances.

                      (n) Environmental Matters.

                             (i) Nordstrom or a Nordstrom Affiliate possesses
all Environmental Permits necessary to or required for the operation of the
Business, except where the failure to possess such Environmental Permits could
not reasonably be expected to have a Material Adverse Effect.

                             (ii) Nordstrom or a Nordstrom Affiliate is in
compliance with (i) all terms, conditions and provisions of its Environmental
Permits; and (ii) all Environmental Laws relating to the Business or the Assets,
except where the failure to so comply would not have a Material Adverse Effect.

                             (iii) None of Nordstrom or any Nordstrom Affiliate
nor, to the Knowledge of Nordstrom, any predecessor of Nordstrom nor any entity
previously owned by Nordstrom has received any notice of alleged, actual or
potential responsibility for, or any inquiry regarding, (i) any Release or
threatened or suspected Release of any Hazardous Material relating to the
Business or Assets, or (ii) any violation of Environmental Law relating to the
Business or Assets.

                             (iv) None of Nordstrom or any Nordstrom Affiliate
nor, to the Knowledge of Nordstrom, any predecessor of Nordstrom nor any entity
previously owned by Nordstrom has any obligation or liability with respect to
any Hazardous Material relating to the Business or Assets, including any Release
or threatened or suspected Release of any Hazardous Material relating to the
Business or Assets, and to the Knowledge of Nordstrom there are no events, facts
or circumstances which could reasonably be expected to form the basis of any
such obligation or liability.

                             (v) No Releases of Hazardous Material(s) have
occurred at, from, in, to, on, or under any Leased Real Property while Nordstrom
has occupied the Leased Real Property and, to Nordstrom's Knowledge, no
Hazardous Material is present in, on, about or migrating to or from any Leased
Real Property.

                             (vi) None of Nordstrom or any Nordstrom Affiliate
nor any entity previously owned by Nordstrom, has transported or arranged for
the treatment, storage, handling,

                                       14
<PAGE>   19

disposal or transportation of any Hazardous Material at or to any location used
primarily in the Business.

                             (vii) No Leased Real Property is a current or
proposed Environmental Clean-up Site.

                             (viii) There are no Liens under or pursuant to any
Environmental Law on any Leased Real Property.

                             (ix) There is no (i) underground storage tank,
active or abandoned, (ii) polychlorinated biphenyl containing equipment, (iii)
asbestos-containing material, (iv) radon, (v) lead-based paint or (vi) urea
formaldehyde at any Leased Real Property that has a Material Adverse Effect.

                             (x) Except as set forth or Schedule 2.1(n), there
have been no environmental investigations, studies, audits, tests, reviews or
other analyses conducted by or for Nordstrom or any Nordstrom Affiliate or, to
the Knowledge of Nordstrom or any Nordstrom Affiliate, by or for any other
Person with respect to any Leased Real Property while Nordstrom or any Nordstrom
Affiliate has occupied the Leased Real Property, which have not been delivered
to Nordstrom.com, Inc. prior to execution of this Agreement.

                             (xi) Except as set forth on Schedule 2.1(n), none
of Nordstrom or any Nordstrom Affiliate is a party, whether as a direct
signatory, assignor or assignee, guarantor, successor, or third party
beneficiary, to, and is not otherwise bound by, any lease or other contract
under which Nordstrom or any Nordstrom Affiliate is obligated or may be
obligated by any representation, warranty, covenant, restriction,
indemnification or other undertaking respecting Hazardous Materials or under
which any other person is or has been released respecting Hazardous Materials
relating to the Leased Real Property.

                      (o) Taxes. Nordstrom has filed or caused to be filed all
Tax Returns relating to the Business or the Assets which are required to be
filed by Nordstrom, all such Tax Returns which have been filed are accurate and
complete in all material respects, and Nordstrom or a Nordstrom Affiliate has
timely paid all Taxes shown on such returns or on any Tax assessment received by
Nordstrom or a Nordstrom Affiliate to the extent that such Taxes have become
due, except for Taxes that are being contested in good faith. Except for
Permitted Encumbrances, there are no Liens for Taxes upon the Assets. Nordstrom
or a Nordstrom Affiliate has not received notice of any Tax deficiency or
delinquency of a material nature. Except as set forth on Schedule 2.1(o), no
audit by the Internal Revenue Service or a state taxing authority of Nordstrom
or a Nordstrom Affiliate relating to the Business or the Assets is pending or
threatened (nor, to the Knowledge of Nordstrom, is there any reasonable basis
therefor). All monies required to be withheld by Nordstrom or a Nordstrom
Affiliate from employees or collected from customers for Taxes and the portion
of any Taxes to be paid by Nordstrom or a Nordstrom Affiliate to governmental
agencies or set aside in accounts for such purposes relating to the Business or
the Assets have been so paid or set aside, or such monies have been reserved
against and entered upon the books and are reflected in the Financial Statements
and Balance Sheet. There is no legal, administrative, or tax proceedings
pursuant to which Nordstrom or any

                                       15
<PAGE>   20

Nordstrom Affiliate is or could be made liable for any taxes, penalties,
interest, or other charges of any material nature, the liability for which could
extend to the LLC as transferee of the Assets or by operating the Business.
Nordstrom or a Nordstrom Affiliate will pay all Taxes relating to the operation
of the Business before the Closing Date when and as such Taxes are due to the
extent that such Taxes could, if unpaid, have to be paid by Nordstrom.com, Inc.
or otherwise adversely affect the Business or the Assets; provided that the
parties will pro-rate as of the Closing Date all Taxes that accrued or are
attributable to periods on or before the Closing Date.

                      (p) Certain Agreements. Schedule 2.1(p) hereto lists each:
(A) union Contract or any employment or consulting Contract or arrangement
providing for future compensation, written or oral, with any officer,
consultant, director or employee which is not terminable by Nordstrom or a
Nordstrom Affiliate without liability or penalty on thirty days or less notice;
(B) plan, Contract or arrangement, written or oral, providing for bonuses,
pensions, deferred compensation, severance pay or benefits, retirement payments,
profit-sharing or the like (except to the extent any such plan, Contract or
arrangement is an Employee Benefit Plan); (C) joint venture Contract or
arrangement; (D) Contract under which any party thereto remains obligated to
provide goods or services having a value, or to make payments aggregating in
excess of $50,000 per year; (E) Contract for any Leased Real Property; (F)
Contract or lease for Personal Property in which the Business is required to
make payments exceeding $50,000 on an annual basis; (G) license Contract, either
as licensor or licensee, providing for the license of Intellectual Property
(excluding non-exclusive software licenses granted to customers or end-users in
the ordinary course of business); (H) Contract containing covenants purporting
to limit the ability of Nordstrom or any Nordstrom Affiliate to operate the
Business; (I) material Contract providing for indemnification; (J) Contract or
commitment relating to capital expenditures which involves future payments in
excess of $50,000 on an annual basis; (K) Contract relating to the disposition
or acquisition of any Assets (other than the ordinary course of business); (L)
purchase order or Contract for the purchase of materials or supplies involving
payments exceeding $50,000 on an annual basis; and (M) other Contract that is
material to the operation of the Business;

in each case, only to the extent that (i) Nordstrom or a Nordstrom Affiliate is
a party thereto or the Assets are bound thereby and (ii) such Contract,
arrangement, plan, lease, commitment or purchase order relates primarily to the
Business.

               Each such Contract described in Schedule 2.1(p) or required to be
so described is a valid and binding obligation of Nordstrom or a Nordstrom
Affiliate and is in full force and effect without amendment. Nordstrom and, to
the Knowledge of Nordstrom, each other party to such Contracts, has performed in
all material respects the obligations required to be performed by it under such
Contracts and is not (with or without lapse of time or the giving of notice, or
both) in material breach or default thereunder. Schedule 2.1(k) identifies, as
to each such Contract listed thereon, whether the consent of the other party
thereto is required in order for such Contract to continue in full force and
effect upon the consummation of the transactions contemplated hereby or whether
such Contract can be canceled by the other party without liability to such other
party due to the consummation of the transactions contemplated hereby. A
complete copy of each written Contract set forth in Schedule 2.1(p) will be
provided to Nordstrom.com, Inc. within three Business Days after the date
hereof.

                                       16
<PAGE>   21

                      (q) Employee Benefit Plans; ERISA.

                             (i) Definition of ERISA Affiliate. The term "ERISA
Affiliate" means Nordstrom and each person (as defined in section 3(9) of ERISA)
that, together with Nordstrom, would be treated as a single employer under
section 4001(b) of ERISA or that would be deemed to be a member of the same
"controlled group" within the meaning of section 414(b) or (c) of the Code.

                             (ii) Employee Benefit Plans. Except for the plans
and agreements listed in Schedule 2.1(q) (collectively, the "Employee Benefit
Plans"), no ERISA Affiliate maintains, is a party to, contributes to or is
obligated to contribute to, for the benefit of any employee engaged in the
Business as of the date hereof (a "Target Employee"), and the Target Employees
or former Target Employees and their dependents or survivors do not receive
benefits under, any of the following (whether or not set forth in a written
document):

                                (A) Any employee benefit plan, as defined in
        section 3(3) of ERISA;

                                (B) Any bonus, deferred compensation, incentive,
        restricted stock, stock purchase, stock option, stock appreciation
        right, phantom stock, supplemental pension, executive compensation,
        cafeteria benefit, dependent care, director or employee loan, fringe
        benefit, sabbatical, severance, termination pay or similar plan,
        program, policy, agreement or arrangement;

                                (C) Any merchandise discount program or similar
        program; or

                                (D) Any plan, program, agreement, policy,
        commitment or other arrangement relating to the provision of any benefit
        described in section 3(1) of ERISA to former employees or directors or
        to their survivors, other than procedures intended to comply with the
        Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").

                             (i) Terminated Plans. No ERISA Affiliate has, since
January 1, 1993, terminated, suspended, discontinued contributions to or
withdrawn from any employee pension benefit plan, as defined in section 3(2) of
ERISA, including (without limitation) any multi-employer plan, as defined in
section 3(37) of ERISA, that covered Target Employees.

                             (ii) Documents. Nordstrom has made available to
Nordstrom.com, Inc. complete, accurate and current copies of each of the
following:

                                (A) The text (including amendments) of each of
        the Employee Benefit Plans, to the extent reduced to writing;

                                (B) A summary of each of the Employee Benefit
        Plans, to the extent not previously reduced to writing;

                                (C) With respect to each Employee Benefit Plan
        that is an employee benefit plan (as defined in section 3(3) of ERISA),
        the following:

                                       17
<PAGE>   22

                                    (I) The most recent summary plan
               description, as described in section 102 of ERISA;

                                    (II) Any summary of material modifications
               that has been distributed to participants but has not been
               incorporated in an updated summary plan description furnished
               under Subparagraph (I) above; and

                                    (III) The annual report, as described in
               section 103 of ERISA, and (where applicable) actuarial reports,
               for the three most recent plan years for which an annual report
               or actuarial report has been prepared; and

                                (D) With respect to each Employee Benefit Plan
        that is intended to qualify under section 401(a) of the Code, the most
        recent determination letter concerning the plan's qualification under
        section 401(a) of the Code, as issued by the Internal Revenue Service,
        and any subsequent determination letter application.

                             (i) ERISA Compliance. With respect to each Employee
Benefit Plan that is an employee benefit plan (as defined in section 3(3) of
ERISA), the requirements of ERISA applicable to such Employee Benefit Plan have
been satisfied, except to the extent that a failure to satisfy any of such
requirements would not have a Material Adverse Effect.

                             (ii) COBRA Compliance. With respect to each
Employee Benefit Plan that is subject to COBRA, the requirements of COBRA
applicable to such Employee Benefit Plan have been satisfied, except to the
extent that a failure to satisfy any of such requirements would not have a
Material Adverse Effect.

                             (iii) FMLA Compliance. With respect to each
Employee Benefit Plan that is subject to the Family Medical Leave Act of 1993,
as amended, the requirements of such Act applicable to such Employee Benefit
Plan have been satisfied, except to the extent that a failure to satisfy any of
such requirements would not have a Material Adverse Effect.

                             (iv) Qualification Requirements. Each Employee
Benefit Plan that is intended to qualify under section 401(a) of the Code meets
the requirements for qualification under section 401(a) of the Code and the
regulations thereunder, except to the extent that such requirements may be
satisfied by adopting retroactive amendments under section 401(b) of the Code
and the regulations thereunder. Each such Employee Benefit Plan has been
administered in accordance with its terms (or, if applicable, such terms as will
be adopted pursuant to a retroactive amendment under section 401(b) of the Code)
and the applicable provisions of ERISA and the Code and the regulations
thereunder, except to the extent that a failure to be so administered would not
have a Material Adverse Effect.

                             (v) Funding. No ERISA Affiliate has any accumulated
funding deficiency under section 412 of the Code or any termination or
withdrawal liability under Title IV of ERISA, except to the extent that any such
liability would not have a Material Adverse Effect. For purposes of determining
any accumulated funding deficiency under section 412 of

                                       18
<PAGE>   23

the Code, the term "ERISA Affiliate" shall include any entity that is deemed to
be a member of the same "controlled group" within the meaning of section 414(m)
or (o) of the Code.

                             (vi) Contributions. All contributions, premiums or
other payments due from any ERISA Affiliate to (or under) any Employee Benefit
Plan have been fully paid or adequately provided for on the books and financial
statements of such ERISA Affiliate. Except for the Assumed Working Capital
Liabilities and as elsewhere provided under this Agreement, no liability for
such contributions, premiums or other payments will attach to the assets of the
Business.

                             (vii) Consequences of Transactions. The Employee
Benefit Plans permit, or may prior to the Closing Date be amended to permit,
continued participation on the same terms and conditions by the Target Employees
following their transfer to the LLC, provided the LLC remains an ERISA
Affiliate.

                      (r) Employees; Labor Relations.

                             (i)Employees of Business. Within five (5) business
days from the date hereof Schedule 2.1(r) shall be completed to set forth a true
and complete list of all individuals employed in the Business as of the date
hereof and, in the case of employees with an annual base salary of $100,000 or
more, the position and base compensation payable to each such individual,
together with a description of any written or oral employment agreement,
consulting agreement or termination or severance agreement between such
individual and Nordstrom or any Nordstrom Affiliate.

                             (ii) Collective Bargaining. With respect to any
Target Employee, neither Nordstrom nor any Nordstrom Affiliate is a party to or
is subject to (A) a labor or collective bargaining agreement or arrangement or
(B) except as provided in Schedule 2.1(r), any labor or employment dispute.

                             (iii) Consequences of Transactions. Except as
disclosed on Schedule 2.1(r), or to the extent that such amounts would not
result in a Material Adverse Effect, the consummation of the transactions
contemplated herein, including (without limitation) the transfer of the Target
Employees to the LLC and/or Nordstrom.com, Inc., will not result in (A) any
additional amount becoming payable to any Target Employee or independent
contractor engaged in the Business, (B) the acceleration of payment or vesting
of any benefit, option or right to which any Target Employee or independent
contractor engaged in the Business may be entitled, (C) the forgiveness of any
indebtedness of any Target Employee or independent contractor engaged in the
Business or (D) any cost becoming due or accruing to the Business or
Nordstrom.com, Inc. with respect to any Target Employee or independent
contractor engaged in the Business, other than such costs relating to the
continued participation of the LLC in such Employee Benefit Plans pursuant to
Sections 3.11 and 5.3 hereof. Compliance with the terms of this Agreement,
including (without limitation) the transfer of the Target Employees to the LLC
and/or Nordstrom.com, Inc., will not violate any agreement with any Target
Employee.

                                       19
<PAGE>   24

                             (iv) Parachute Payments. Except as disclosed on
Schedule 2.1(r), neither Nordstrom nor any Nordstrom Affiliate is obligated to
make any payment or transfer any property that would be considered a "parachute
payment" under section 280G(b)(2) of the Code to any Target Employee who is
employed by the LLC and/or Nordstrom.com, Inc.

                             (v) Injuries. To the Knowledge of Nordstrom, no
Target Employee has been injured in the work place or in the course of his or
her employment except for injuries which are covered by insurance or for which a
claim has been made under workers' compensation or similar laws.

                             (vi) Compliance With IRCA. With respect to the
Target Employees, Nordstrom and the Nordstrom Affiliates have complied in all
material respects with the verification requirements and the record-keeping
requirements of the Immigration Reform and Control Act of 1986 ("IRCA"); to the
Knowledge of Nordstrom, the information and documents on which Nordstrom and the
Nordstrom Affiliates relied to comply with IRCA with respect to the Target
Employees are true and correct; and there have not been any discrimination
complaints filed against Nordstrom or any Nordstrom Affiliate by the Target
Employees pursuant to IRCA, and to the Knowledge of Nordstrom, there is no basis
for the filing of such a complaint.

                             (vii) Employee Complaints. Except as set forth in
Schedule 2.1(r), neither Nordstrom nor any Nordstrom Affiliate has received or
been notified of any complaint by any Target Employee, applicant, union or other
party of any discrimination or other conduct related to the Business and
forbidden by law or contract nor, to the Knowledge of Nordstrom, is there a
basis for any such complaint, except such complaints as could not reasonably be
expected to have a Material Adverse Effect on the Business.

                             (viii) Government Filings. Nordstrom or a Nordstrom
Affiliate has filed all required reports and information with respect to the
Target Employees that are due prior to the Closing Date and otherwise has
complied in its hiring, employment, promotion, termination and other labor
practices with all applicable federal and state law and regulations, including
without limitation those within the jurisdiction of the United States Equal
Employment Opportunity Commission, United States Department of Labor and state
and local human rights or civil rights agencies, except to the extent that any
such failure to file or comply would not have a Material Adverse Effect on the
Business. Nordstrom or a Nordstrom Affiliate has filed or shall file any such
reports and information that are required to be filed prior to the Closing Date.

                      (s) Intellectual Property. To Nordstrom's Knowledge,
except as set forth in Schedule 2.1(s), Nordstrom and/or Nordstrom Affiliates
have sufficient title and ownership of the Intellectual Property (other than the
trademark "NORDSTROM") necessary to conduct the Business as now conducted. To
Nordstrom's best knowledge, Nordstrom has and/or Nordstrom Affiliates have
sufficient title and ownership of the trademark "NORDSTROM" to conduct the
Business as now conducted. The Intellectual Property constitutes all Know-how,
copyrights, copyright registrations and applications for registration, Patents,
Trademarks and all other intellectual property rights reasonably necessary to
conduct the Business. Except as set forth on Schedule 2.1(s), there are (i) no
Patents and (ii) no outstanding options, licenses, or agreements of any kind
relating to the Intellectual Property, nor is Nordstrom and/or any Nordstrom
Affiliate

                                       20
<PAGE>   25

bound by or a party to any options, licenses or agreements of any kind with
respect to the Intellectual Property except for off-the-shelf end user software
license and support/maintenance agreements. Except as set forth in Schedule
2.1(s), neither Nordstrom nor any Nordstrom Affiliate has received any
communications alleging that Nordstrom and/or any Nordstrom Affiliate has in
connection with the Business violated or, by conducting the Business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. Neither Nordstrom nor any Nordstrom Affiliate is aware that
any of its employees is obligated under any Contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the Business or
that would conflict with the Business. Except as set forth in Schedule 2.1(s),
neither the execution nor delivery of Transaction Documents, nor the carrying on
of the Business will, to the Knowledge of Nordstrom or any Nordstrom Affiliate,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. Neither Nordstrom nor any Nordstrom
Affiliate believes it is or will be necessary to utilize any inventions of any
of its employees (or people it currently intends to hire for the Business) made
prior to or outside the scope of their employment by Nordstrom or any Nordstrom
Affiliate.

                      (t) Affiliate. There are no Contracts or other
arrangements relating primarily to the Business in which any officer, director,
stockholder or employee of or consultant to Nordstrom or any Nordstrom Affiliate
has a material financial interest.

                      (u) No Dispositions. Since January 31, 1999, there has not
occurred any sale, lease, transfer, assignment, abandonment or other disposition
of any material amount of Assets other than any disposition of (i) obsolete
property, (ii) property in connection with the acquisition of replacement
property of equal value, or (iii) assets disposed of in the ordinary course of
business and consistent with past practices.

                      (v) Restrictions on Business. There is no material
Contract or Order (or any administrative or judicial proceeding, pending or
threatened that may result in any such agreement or Order) binding on Nordstrom
or any Nordstrom Affiliate which has or could reasonably be expected to have the
effect of prohibiting or materially impairing the operation of the Business or
the ownership or use of the Assets.

                      (w) Disclosure. No representation or warranty by Nordstrom
contained in this Agreement or in any certificate furnished pursuant to this
Agreement contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.

               2.2 Representations and Warranties of Nordstrom.com, Inc.
Nordstrom.com, Inc. represents and warrants to Nordstrom as follows (with the
understanding that Nordstrom is relying on such representations and warranties
in entering into and performing this Agreement):

                                       21
<PAGE>   26

                      (a) Organization and Qualification. Nordstrom.com, Inc. is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
conduct its business as and to the extent now conducted and to own, use and
lease its assets and properties. Nordstrom.com, Inc. is duly qualified, licensed
or admitted to do business and is in good standing in each jurisdiction in which
the ownership, use or leasing of its assets and properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary. Nordstrom.com, Inc. has no Subsidiaries. Except as contemplated by
the Transaction Documents, Nordstrom.com, Inc. does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.

                      (b) Nordstrom.com, Inc.'s Capital Stock. As of the date
hereof, Nordstrom.com, Inc.'s authorized capital stock consists solely of 10,000
shares of common stock, par value $0.0001 per share (the "Inc. Common Stock") of
which, as of the date hereof, 1,000 were issued and outstanding and none were
reserved for issuance. All the outstanding shares of the Inc. Common Stock are
owned of record and beneficially by an entity affiliated with the Benchmark
Funds, as nominee for the Benchmark Funds, free and clear of any Liens. Except
for transactions contemplated by this Agreement, there are no outstanding
Options, subscriptions, options, warrants, rights (including phantom stock or
stock appreciation rights) or preemptive rights (collectively, referred to as
"Options") or other contracts, commitments, understandings or arrangements,
including any right of conversion or exchange under any outstanding security
instrument or agreement, obligating Nordstrom.com, Inc. to issue or sell any
shares of capital stock of Nordstrom.com, Inc. or to grant, extend or enter into
any Nordstrom.com, Inc. Option with respect thereto. As of the Closing Date,
Nordstrom.com, Inc.'s authorized capital stock shall consist of 33,033,033.03
shares of Inc. Common Stock and 25,885,885.88 shares of preferred stock, par
value $0.0001 per share ("Inc. Preferred Stock"), 21,020,720.72 shares of which
shall have been designated as Series A Preferred Stock, none of which shall be
issued and outstanding, 300.30 shares of which shall have been designated as
Series B Preferred Stock, up to 300.30 shares of which may be issued and
outstanding as of the Closing Date, and 4,864,864.86 shares of which shall have
been designated as Series C Preferred Stock, up to 4,864,864.86 shares of which
may be issued and outstanding as of the Closing Date. As of the Closing Date,
[4,504,000.00] shares of Inc. Common Stock (less the number of shares of the LLC
reserved for issuance pursuant to an equity incentive plan of the LLC) shall be
reserved for issuance pursuant to the Inc. Plan.

                      (c) Nordstrom.com, Inc.'s Assets. Nordstrom.com, Inc. has
conducted no business since the date of its incorporation. Except for
transactions contemplated by the Transaction Documents, Nordstrom.com, Inc. has
no assets or liabilities and does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.

                      (d) Authority Relative to this Agreement. Nordstrom.com,
Inc. has full corporate power and authority to enter into this Agreement and to
perform its obligations under the Transaction Documents and to consummate the
transactions contemplated hereby and

                                       22
<PAGE>   27

thereby. The execution, delivery and performance of the Transaction Documents
and the consummation by Nordstrom.com, Inc. of the transactions contemplated
hereby and thereby have been duly and validly approved by the board of directors
of Nordstrom.com, Inc., and no other corporate proceedings on the part of
Nordstrom.com, Inc. are necessary to authorize the execution, delivery and
performance by Nordstrom.com, Inc. of the Transaction Documents to which it is a
party and the consummation by Nordstrom.com, Inc. of the transactions
contemplated hereby and thereby. This Agreement has been duly and validly
executed and delivered by Nordstrom.com, Inc. and constitutes a legal, valid and
binding obligation, enforceable against Nordstrom.com, Inc. in accordance with
its terms.

                      (e) Non-Contravention; Approvals and Consents.

                             (i) The execution and delivery of the Transaction
Documents by Nordstrom.com, Inc. does and will not, and the performance by
Nordstrom.com, Inc. of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or give to any
person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien upon any of the assets or properties of Nordstrom.com, Inc. under any of
the terms, conditions or provisions of (i) the certificate of incorporation or
bylaws of Nordstrom.com, Inc., or (ii) (x) any Applicable Laws or any Order of
any Governmental Entity applicable to Nordstrom.com, Inc. or any of its assets
or properties, or (y) any Contract to which Nordstrom.com, Inc. is a party or by
which Nordstrom.com, Inc. or any of its assets or properties is bound.

                             (ii) No Consent or other public or private third
party is necessary or required under any of the terms, conditions or provisions
of any Applicable Law or Order of any Governmental Entity or any Contract to
which Nordstrom.com, Inc. is a party or by which Nordstrom.com, Inc. or any of
its assets or properties is bound for the execution and delivery of the
Transaction Documents to which Nordstrom.com, Inc. is a party, the performance
by Nordstrom.com, Inc. of its obligations hereunder or thereunder or the
consummation of the transactions contemplated hereby and thereby.

                      (f) Absence of Undisclosed Liabilities. Nordstrom.com,
Inc. does not have any liabilities or obligations (whether absolute, accrued,
contingent, fixed or otherwise, or whether due or to become due) of any nature.

                      (g) Disclosure. No representation or warranty made by
Nordstrom.com, Inc. contained in this Agreement or in any certificate furnished
by Nordstrom.com, Inc. pursuant to this Agreement contains or will contain an
untrue statement of material fact, or omits or will omit to state a material
fact necessary, in the light of the circumstances under which it was or will be
made, in order to make the statements herein or therein not misleading.

                                       23
<PAGE>   28

                                   ARTICLE III

                             PRE-CLOSING AGREEMENTS

               3.1 Conduct of Business. Except as contemplated by this Agreement
or to the extent that Nordstrom.com, Inc. shall otherwise consent in writing,
which consent shall not be unreasonably withheld, from the date of this
Agreement until the Closing, Nordstrom covenants and agrees that it shall:

                      (a) conduct the Business in the ordinary course consistent
with past practice;

                      (b) use commercially reasonable efforts to preserve intact
the present Business organization and to keep available the services of its
present officers, employees and independent contractors used in the Business and
preserve its relationships with customers, suppliers and others having business
dealings with the Business;

                      (c) maintain the Assets in their current condition, except
for ordinary wear and tear;

                      (d) not amend in any material respect, terminate, or fail
to use all commercially reasonable efforts to renew any material Contract
(provided that Nordstrom shall not be required to renew any material Contract on
terms that are materially less favorable to Nordstrom), or default in any
material respect (or take or omit to take any action that, with or without the
giving notice or passage of time, would constitute a material default) under any
material Contract or enter into any new material Contract;

                      (e) not merge or consolidate the Business with or into any
other legal entity, or dissolve, or liquidate the Business;

                      (f) not adopt or amend any Employee Benefit Plan or
collective bargaining agreement, or increase by more than 5% in any manner the
compensation or fringe benefits of any officer, or employee used in the Business
(whether employees or independent contractors), except as required by law or
pursuant to an applicable written Contract,

                      (g) not terminate any Executive Employee without prior
consultation with Nordstrom.com, Inc. regarding the basis for such termination;

                      (h) not acquire (including, without limitation, by merger,
consolidation, or the acquisition of any equity interest or assets) or sell
(whether by merger, consolidation, or the sale of an equity interest or assets),
lease, or dispose of any material amount of Assets except in the ordinary course
of business and consistent with past practice, whether in one or more
transactions;

                      (i) not mortgage, pledge, or subject to any Lien, other
than Permitted Encumbrances, any of the Assets;

                                       24
<PAGE>   29

                      (j) not change in any material respect its existing
practices and procedures with respect to the collection of Accounts Receivable
and, except with respect to good faith attempts consistent with past practice to
obtain payment of a past due receivable, or except in accordance with existing
practices, a contested receivable, offer to discount the amount of any
outstanding receivable or extend any other incentive (whether to the account
debtor or any employee or third party responsible for the collection of
receivables) to accelerate the collection thereof; or

                      (k) not agree to or make any commitment, orally or in
writing, to take any actions prohibited by this Agreement.

               3.2 No Solicitation. Until the earlier of the Closing and the
date of termination of this Agreement pursuant to the provisions of Section 6.1
hereof, Nordstrom will not, nor will Nordstrom permit any of its directors,
officers, agents, employees, Affiliates, attorneys, accountants, financial
advisers or other representatives (collectively, "Representatives") to (directly
or indirectly): (i) solicit, encourage, initiate, entertain, review or
participate in any negotiations or discussions with respect to an offer or
proposal, oral, written, or otherwise, formal or informal to acquire all or any
part of the Business, whether by purchase of assets, exclusive license, joint
venture formation, purchase of stock, business combination or otherwise, (ii)
disclose any information not customarily disclosed to any Person concerning the
Business and which Nordstrom believes would be used for the purposes of
formulating any such offer or proposal, (iii) assist, cooperate with, facilitate
or encourage any Person to make any offer or proposal to acquire all or any part
of the Business (directly or indirectly), (iv) agree to, enter into a contract
regarding, approve, recommend or endorse any transaction involving the
acquisition of all or any part of the Business (a "Competing Proposed
Transaction"), or (v) authorize or permit any of Nordstrom's Representatives to
take any such action. Nordstrom shall notify Nordstrom.com, Inc. as promptly as
practical if any proposal or offer (formal or information, oral, written or
otherwise), or any inquiry or contact with any Persons with respect thereto,
regarding a Competing Proposed Transaction is made or is outstanding on the date
hereof, such notice to include the identity of the Person proposing such
Competing Proposed Transaction and the terms thereof, and shall keep
Nordstrom.com, Inc. apprised, on a current basis of the status of any such
Competing Proposed Transaction and of any modifications to the terms thereof.
Nordstrom.com, Inc. immediately shall cease and cause to be terminated all
existing discussions or negotiations with any parties other than Nordstrom
conducted heretofore with respect to any Competing Proposed Transaction.

               3.3 Expenses. Upon consummation of the transactions contemplated
by this Agreement to be consummated at the Closing, the LLC shall pay the
reasonable fees and expenses of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP in connection with the negotiation and effectuation of the terms
and conditions of the Transaction Documents and the transactions contemplated
hereby and thereby.

               3.4 Approvals; Additional Documents; and Further Assurances.
Nordstrom and Nordstrom.com, Inc. shall use their best efforts to (i) obtain all
Consents, (ii) do and perform all such other acts and things and (iii) execute
and deliver such other instruments and agreements as

                                       25
<PAGE>   30

may be necessary or desirable for effecting fully the consummation of the
Transaction Documents and the transactions contemplated hereby and thereby.

               3.5 Access and Information. Until the Closing, Nordstrom shall
afford to Nordstrom.com, Inc. and its representatives (including accountants and
counsel) full access, during normal business hours, upon reasonable notice and
in such manner as will not unreasonably interfere with the conduct of the
business of Nordstrom, to all properties, books, records, and Tax Returns
relating to the Business and all other information relating to the Business,
together with the opportunity to make copies of such books, records, and other
documents and to discuss the Business with such corporate officers, other
personnel, accountants, consultants, and counsel for Nordstrom as Nordstrom.com,
Inc. deems reasonably necessary or appropriate for the purposes of familiarizing
itself with the Business.

               3.6 Notification of Certain Matters. Each party to this Agreement
shall give prompt written notice to the other party of (a) the occurrence, or
failure to occur, of any event of which it becomes aware that has caused or that
would be likely to cause any representation or warranty of such party contained
in this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Closing Date, (b) the failure of such party, or any
officer, director, employee, or agent of such party, to comply with or satisfy
in any material respect any covenant, condition, or agreement to be complied
with or satisfied by it hereunder, and (c) in the case of Nordstrom, the
occurrence of any threat made to Nordstrom by any Executive Employee to resign
or otherwise terminate their employment or independent contractor relationship
with Nordstrom. No such notification shall affect the representations or
warranties of the parties or the conditions to their respective obligations
hereunder.

               3.7 Transfer Charges. Nordstrom and Nordstrom.com, Inc. agree to
use commercially reasonable efforts to minimize any taxes, charges, filing fees
or other assessments of any Taxing Authority or other Governmental Entity
(collectively "Transfer Charges") that will result from the transfer of the
Assets to the LLC pursuant to the Transaction Documents. The LLC agrees that it
will pay up to $175,000 of any Transfer Charges, and Nordstrom agrees that it
will pay any Transfer Charges in excess of $175,000.

               3.8 Brokers or Finders. Except as set forth in Schedule 3.8, each
party represents and warrants to the other that no agent, broker, investment
banker, or other person is or will be entitled to any broker's or finder's fee
or any other commission or similar fee payable by Nordstrom or Nordstrom.com,
Inc. in connection with any of the transactions contemplated by this Agreement.

               3.9 Bulk Sales Law. The parties do not believe that any bulk
sales or fraudulent conveyance statute applies to the transactions contemplated
by this Agreement. Nordstrom agrees to indemnify and hold the LLC harmless
against any claim made against LLC by any creditor of Nordstrom as a result of a
failure to comply with any such statute.

               3.10 Employee Benefit Matters. Nordstrom shall take all necessary
actions to cause the Employee Benefit Plans to permit continued participation by
the Target Employees following their transfer to the LLC, provided the LLC
remains an ERISA Affiliate. Such

                                       26
<PAGE>   31

participation shall be in accordance with Section 5.3 hereof and on the terms
and conditions that apply to similarly situated employees employed by Nordstrom
and the Nordstrom Affiliates. At the earlier of October 1, 2002 or at the point
in time when the LLC ceases to be a Nordstrom ERISA Affiliate, the LLC may
continue to participate in such Employee Benefit Plans only with the consent of
Nordstrom.

               3.11 Employee Arrangements. Nordstrom shall use commercially
reasonable efforts to cause the Target Employees to be employed by the LLC
and/or Nordstrom.com, Inc. immediately following the Closing. Employment with
the LLC and/or Nordstrom.com, Inc. shall be offered to the Target Employees
pursuant to offer or notification letters that (a) expressly reserve the right
of the LLC and Nordstrom.com, Inc. to modify compensation levels and employee
benefit programs after December 31, 1999, including (without limitation) the
right to discontinue the participation of the Target Employees in the Employee
Benefit Plans and to substitute new employee benefit plans specific to the LLC
and/or Nordstrom.com, Inc., and (b) acknowledge that the Target Employees will
be employees at will of the LLC and/or Nordstrom.com, Inc. and that such
transfer of employment will not constitute a separation of employment with
Nordstrom for purposes of its Employee Benefit Plans. Without the prior written
consent of Nordstrom.com, Inc., neither Nordstrom nor any Nordstrom Affiliate
shall encourage or solicit any Target Employee to be employed by Nordstrom or
any Nordstrom Affiliate following the Closing. Neither Nordstrom nor any
Nordstrom Affiliate shall attempt to prevent the LLC or Nordstrom.com, Inc. from
hiring a former employee of Nordstrom or any Nordstrom Affiliate who seeks
employment with the LLC or Nordstrom.com, Inc. provided that notice is provided
to Nordstrom prior to the time any offer is made to any such former employee.

               Without the prior written consent of Nordstrom, neither
Nordstrom.com, Inc. nor the LLC shall encourage or solicit any person employed
by Nordstrom or any Nordstrom Affiliate who is not engaged in the Business as of
the date hereof to be employed by Nordstrom.com, Inc. or the LLC following
Closing. Neither Nordstrom.com, Inc. nor the LLC shall attempt to prevent
Nordstrom or any Nordstrom Affiliate from hiring a former employee of
Nordstrom.com, Inc. or the LLC who seeks employment with Nordstrom or any
Nordstrom Affiliate provided that notice is provided to Nordstrom.com, Inc.
prior to the time any offer is made to any such former employee.

               3.12 Delivery and Acceptance of Schedules. Nordstrom shall
deliver to Nordstrom.com, Inc. all Schedules required to be delivered by it
pursuant to this Agreement within three (3) Business Days after the date hereof.
Nordstrom.com, Inc. shall have three (3) Business Days after receipt of the
Schedules to review and approve the disclosures contained therein. The parties
shall promptly meet and attempt to negotiate in good faith any disclosures which
are the subject of dispute, but Nordstrom.com, Inc. shall not be required to
accept any such disclosures that are different in any material respect with
information furnished to Nordstrom.com, Inc. or its Affiliates on or before the
date hereof.

                                       27
<PAGE>   32

                                   ARTICLE IV

                          CONDITIONS PRECEDENT; CLOSING

               4.1 Conditions to Each Party's Obligation. The respective
obligations of Nordstrom and Nordstrom.com, Inc. to effect the transactions
contemplated hereby are subject to the satisfaction on or prior to the Closing
Date of the following conditions:

                      (a) Governmental Consents. All Consents from any
Governmental Entity (if any) necessary for consummation of the transactions
contemplated by this Agreement shall have been timely obtained, and any waiting
period applicable to the consummation of such transactions under the HSR Act
shall have expired or been terminated.

                      (b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other Order issued by
any Governmental Entity or other legal or regulatory restraint or prohibition
preventing the consummation of the transactions contemplated hereby shall be in
effect; nor shall there be any action taken, or any Applicable Law or Order
enacted, entered, enforced or deemed applicable to the transactions contemplated
hereby that would prohibit the consummation of such transactions.

                      (c) No Action. No Governmental Entity shall have notified
either party to this Agreement that such Governmental Entity intends to commence
proceedings to restrain or prohibit the transactions contemplated hereby or
force rescission, unless such Governmental Entity shall have withdrawn such
notice and abandoned any such proceeding prior to the time which otherwise would
have been the Closing Date.

                      (d) Inc. Transaction Documents. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware; the
Inc. Bylaws shall have been duly adopted by the board of directors of
Nordstrom.com, Inc; the Stock Purchase Agreement, Investors' Rights Agreement,
the Put Agreement and the Right of First Refusal and Co-Sale Agreements shall
have been executed and delivered by the parties thereto; and the Closing (as
defined in the Stock Purchase Agreement) shall have occurred.

                      (e) LLC Transaction Documents. Nordstrom and
Nordstrom.com, Inc. shall have executed and delivered the Operating Agreement;
the Closing (as defined in the Operating Agreement) shall have occurred;
Nordstrom and the LLC shall have executed and delivered the Bill of Sale and
Assignment, any other documents reasonably necessary to effect the transfer of
the Assets and the Assumption Agreement; and the License Agreement, the Supply
Agreement and the Service Agreement shall have been executed and delivered by
the parties thereto.

               4.2 Conditions to Obligation of Nordstrom. The obligation of
Nordstrom to effect the transactions contemplated hereby is subject to the
satisfaction of the following conditions unless waived, in whole or in part, by
Nordstrom:

                                       28
<PAGE>   33

                      (a) Representations and Warranties. The representations
and warranties of Nordstrom.com, Inc. set forth in this Agreement shall be true
and correct in all material respects (provided that any representation or
warranty of Nordstrom.com, Inc. contained herein that is qualified by a
materiality or knowledge standard shall not be further qualified hereby) as of
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date, and Nordstrom shall have received a certificate to such
effect signed on behalf of Nordstrom.com, Inc. by the chief executive officer
and the chief financial officer of Nordstrom.com, Inc. in their official
capacities.

                      (b) Performance of Obligations. Nordstrom.com, Inc. shall
have performed in all material respects all obligations required to be performed
by it under this Agreement prior to the Closing Date, and Nordstrom shall have
received a certificate to such effect signed on behalf of Nordstrom.com, Inc. by
the chief executive officer and the chief financial officer of the
Nordstrom.com, Inc.

                      (c) Consents. Nordstrom shall have been furnished with
evidence satisfactory to it that Nordstrom.com, Inc. has obtained each Consent
required in order to permit the consummation of the transactions contemplated
hereby (except for such Consents the failure of which to receive could not
reasonably be expected to have a Material Adverse Effect).

                      (d) Legal Opinion. Nordstrom shall have received from
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to
Benchmark Capital, in form and substance reasonably satisfactory to Nordstrom.

               4.3 Conditions to Obligations of the Nordstrom.com, Inc.. The
obligation of Nordstrom.com, Inc. to effect the transactions contemplated hereby
is subject to the satisfaction of the following conditions unless waived, in
whole or in part, by Nordstrom.com, Inc.

                      (a) Representations and Warranties. The representations
and warranties of Nordstrom set forth in this Agreement shall be true and
correct in all material respects (provided that any representation or warranty
of Nordstrom contained herein that is qualified by a materiality or knowledge
standard shall not be further qualified hereby) as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date, and
Nordstrom.com, Inc. shall have received a certificate to such effect signed on
behalf of Nordstrom by the chief executive officer and the chief financial
officer of Nordstrom.

                      (b) Performance of Obligations of Nordstrom. Nordstrom
shall have performed in all material respects the obligations required to be
performed by it under this Agreement prior to the Closing Date, and
Nordstrom.com, Inc. shall have received a certificate to such effect signed on
behalf of Nordstrom by the chief executive officer and the chief financial
officer of Nordstrom.

                      (c) Legal Opinion. Nordstrom.com, Inc. shall have received
from Lane Powell Spears Lubersky LLP, counsel to Nordstrom, in form and
substance reasonably satisfactory to Nordstrom.com, Inc.

                                       29
<PAGE>   34

                      (d) No Material Adverse Change. There shall have occurred
no material adverse change in the Business or the Assets since the date hereof.

               4.4 Closing. Subject to the satisfaction or waiver of the
conditions set forth in this Article IV, the Closing will take place at the
offices of Lane Powell Spears Lubersky LLP, 1420 5th Avenue, Suite 4100,
Seattle, Washington, at 10:00 a.m., local time (or at such other place and time
as Nordstrom and Nordstrom.com, Inc. may agree) on a date selected by Nordstrom
which date shall be within two (2) business days after the date on which the
conditions set forth in this Article IV have been satisfied or waived in
accordance therewith (the "Closing Date"). The parties to this Agreement shall
use their best efforts to cause the Closing to occur no later than October 31,
1999.

               4.5 Assumption of Liabilities and Obligations.

                      (a) As of the Closing, the LLC shall assume and undertake
to pay, discharge and perform all the obligations and liabilities of Nordstrom
or any Nordstrom Affiliate relating to (i) the Assumed Working Capital
Liabilities as of the close of business on the day immediately preceding the
Closing Date; (ii) the Assumed Contracts assumed by the LLC relating to the time
period beginning on or arising out of events occurring on or after the Closing
Date, (iii) commitments of Nordstrom or any Nordstrom Affiliate relating to the
Business entered into in the ordinary course of business which are consistent
with the past practice of Nordstrom or such Nordstrom Affiliate, to the extent
such commitments relate to goods and services to be received by the LLC after
the Closing Date and (iv) pending non-material worker's compensation claims, a
case by a former employee who worked for the Business, and a non-material EEOC
charge for age discrimination. Other than as specified in the first sentence of
this Section 4.5(a), the LLC shall assume no liabilities or obligations of
Nordstrom or such Nordstrom Affiliate as of the Closing Date that relate to the
Business and shall not be liable therefor.

                      (b) All other obligations and liabilities of Nordstrom or
any Nordstrom Affiliate relating to the Business, including (i) obligations or
liabilities under any contract not included in the Assumed Contracts, (ii)
obligations or liabilities under any Assumed Contract for which a Consent, if
required, has not been obtained as of the Closing, (iii) any obligations and
liabilities arising under the Assumed Contracts that relate to the time period
prior to the Closing Date or arise out of events occurring prior to the Closing
Date and (iv) any forfeiture, claim or pending litigation or proceeding relating
to the Business prior to the Closing Date, shall remain and be the obligation
and liability solely of Nordstrom.

               4.6 Calculation of Assumed Working Capital Liabilities. Within
twenty (20) days after the Closing Date, Nordstrom shall notify Nordstrom.com,
Inc. of its good faith determination of the Assumed Working Capital Liabilities
and provide Nordstrom.com, Inc. with supporting documentation reasonably
necessary to evaluate such determination. If Nordstrom.com, Inc. disagrees with
such determination, Nordstrom.com, Inc. shall give prompt written notice thereof
to Nordstrom, but in no event later than ten (10) days after notice of such
determination, specifying in reasonable detail the nature and extent of such
disagreement. Any disagreement not resolved within ten (10) days after
Nordstrom.com, Inc. furnishes such notice shall be resolved pursuant to Section
7.13 hereof.

                                       30
<PAGE>   35

                                    ARTICLE V

                             POST-CLOSING COVENANTS

               5.1 Indemnification.

                      (a) Subject to the provisions of this Section 5.1,
Nordstrom.com, Inc. shall indemnify and hold harmless Nordstrom and each
officer, director, employee, stockholder and Affiliate of Nordstrom and each
Nordstrom Entity (collectively the "Nordstrom Indemnitees") from and against any
and all Liabilities and Costs incurred by them that arise out of any breach or
default by Nordstrom.com, Inc. of any of the representations, warranties,
covenants or agreements under any Transaction Document to which Nordstrom.com,
Inc. is a party.

                      (b) Subject to the provisions of this Section 5.1,
Nordstrom shall indemnify and hold harmless Nordstrom.com, Inc. and each
officer, director, employee, stockholder and Affiliate of Nordstrom.com, Inc.
(collectively the "Nordstrom.com, Inc. Indemnitees") from and against any and
all Liabilities and Costs incurred by them that arise out of (i) any breach or
default by Nordstrom or any Nordstrom Entity of any of the representations,
warranties, covenants or agreements under any Transaction Document to which
Nordstrom or any Nordstrom Entity is a party, or (ii) any obligations or
liabilities of the Business that are not assumed by the LLC pursuant to Section
4.5 hereof.

                      (c) Subject to the provisions of this Section 5.1,
Nordstrom.com, Inc. and Nordstrom shall cause the LLC to indemnify and hold
harmless the Nordstrom Indemnitees from and against any and all Liabilities and
Costs incurred by them that arise out of any obligations or liabilities of the
Business that are required to be assumed by the LLC pursuant to Section 4.5
hereof and any obligations or liabilities of the Business solely to the extent
that they arise out of events occurring on or after the Closing Date that are
not otherwise the subject of indemnification in favor of Nordstrom.com, Inc. or
the LLC hereunder.

                      (d) Nordstrom represents and warrants to Nordstrom.com
that at the time of the Merger, Nordstrom Holdings shall have no liabilities for
Taxes other than an amount (the "Allowable Tax Amount") equal to the excess, if
any, of (i) the Taxes that Nordstrom Holdings would have incurred solely by
reason of receiving allocations and distributions from the LLC had Nordstrom
Holdings had no assets other than its membership interest in the LLC and had
Nordstrom Holdings at all times been a stand-alone corporation that was not
included in any consolidated, combined, unitary or similar group of corporations
or other entities for tax purposes over (ii) the amount of all distributions
received by Nordstrom Holdings from the LLC. Nordstrom agrees to indemnify
Nordstrom.com, Inc. for any Tax liability of Nordstrom Holdings attributable to
periods prior to the Merger (whether or not due and payable at the time of the
Merger) to the extent such Tax liability exceeds the Allowable Tax Amount.

                      (e) An Indemnified Party shall give prompt written notice
to any Indemnifying Party of the commencement or assertion of any action,
proceeding, demand, or claim by a third party (collectively, a "third-party
action") in respect of which such Indemnified Party shall seek indemnification
hereunder. Any failure so to notify an Indemnifying Party shall

                                       31
<PAGE>   36

not relieve such Indemnifying party from any liability that it, he, or she may
have to such Indemnified Party under this Section 5.1 unless the failure to give
such notice materially and adversely prejudices such Indemnifying Party. The
Indemnifying Party shall have the right to assume control of the defense of,
settle, or otherwise dispose of such third-party action on such terms as they
deem appropriate; provided, however, that:

                             (A) The Indemnified Party shall be entitled, at
his, her, or its own expense, to participate in the defense of such third-party
action (provided, however, that the Indemnifying Party shall pay the attorneys'
fees of the Indemnified Party if (i) the employment of separate counsel shall
have been authorized in writing by any such Indemnifying Party in connection
with the defense of such third-party action, (ii) the Indemnifying Party shall
not have employed counsel reasonably satisfactory to the Indemnified Party to
have charge of such third party action, (iii) the Indemnified Party shall have
reasonably concluded that there may be defenses available to such Indemnified
Party that are different from or additional to those available to the
Indemnifying Party, or (iv) the Indemnified Party's counsel shall have advised
the Indemnified Party in writing, with a copy to the Indemnifying Party, that
there is a conflict of interest that could make it inappropriate under
applicable standards of professional conduct to have common counsel);

                             (B) The Indemnifying Party shall obtain the prior
written approval of the Indemnified Party before entering into or making any
judgment, settlement, compromise, admission, or acknowledgment of the validity
of such third-party action or any liability in respect thereof if, pursuant to
or as a result of such settlement, compromise, admission, or acknowledgment,
injunctive or other equitable relief would be imposed against the Indemnified
Party or if, in the opinion of the Indemnified Party, such settlement,
compromise, admission, or acknowledgment could have a material adverse effect on
its business or, in the case of an Indemnified Party who is a natural person, on
his or her assets or interests;

                             (C) No Indemnifying Party shall consent to the
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to each
Indemnified Party of a release from all liability in respect of such third-party
action; and

                             (D) The parties hereto shall extend reasonable
cooperation in connection with the defense of any third-party action pursuant to
this Section 5.1 and, in connection therewith, shall furnish such records,
information, and testimony and attend such conferences, discovery proceedings,
hearings, trials, and appeals as may be reasonably requested.

                      (f) In any case in which an Indemnified Party seeks
indemnification hereunder which is not subject to Section 5.1(e) because no
third-party action is involved (a "direct cost"), the Indemnified Party shall
notify the Indemnifying Party in writing of any Liabilities and Costs which such
Indemnified Party claims are subject to indemnification under the terms hereof.
The failure of the Indemnified Party to exercise promptness in such notification
shall not amount to a waiver of such claim unless the resulting delay materially
prejudices the position of the Indemnifying Party with respect to such claim.

                                       32
<PAGE>   37

                      (g) Notwithstanding anything to the contrary stated
herein, (i) the Nordstrom.com, Inc. Indemnities shall not be entitled to
indemnification for Liabilities and Costs pursuant to Section 5.1(b) until the
total of all Liabilities and Costs with respect to such matters exceeds $100,000
and then only to the extent of such excess; and (ii) Nordstrom's Indemnities
shall not be entitled to indemnification for Liabilities and Costs pursuant to
Sections 5.1(a) or 5.1(c) until the total of all Liabilities and Costs with
respect to such matters exceeds $100,000 and then only to the extent of such
excess.

                      (h) No Indemnifying Party shall be liable for any
Liabilities and Costs pursuant to this Section 5.1 unless a written claim for
indemnification in accordance with this Section 5.1 is given by the Indemnified
Party to the Indemnifying Party with respect thereto on or before the later of
the second anniversary of the Closing Date (the "Notice Termination Date"). The
Notice Termination Date shall occur sooner in the event of an Initial Public
Offering, but in no event any earlier than the first anniversary of the Closing
Date.

                      (i) The amount of any Liabilities and Costs to be
recovered by Nordstrom Indemnities or Nordstrom.com, Inc. Indemnities shall be
net of insurance proceeds received that mitigate the Liabilities or Costs.

                      (j) The parties agree that the exclusive remedies of the
parties for any Liabilities and Costs arising out of or based upon the matters
set forth in Section 5, or otherwise under this Agreement, shall be (i) the
indemnification obligations of the parties set forth in Section 5, subject to
the limitations on such obligations set forth in this Agreement or (ii) specific
performance or injunctive or declaratory relief. The parties agree that the
remedy of rescission shall not be available as a result of the breach of this
Agreement except where the conduct of the breaching party constitutes fraud.

               5.2 Store Discounts. Nordstrom maintains an employee discount
program (the "Nordstrom Merchandise Discount Program") intended to qualify for
tax-favored treatment under Code Section 132 and the Regulations thereunder.

                      (a) Continuing Reciprocal Agreement. From the date hereof
until the LLC ceases to be an ERISA Affiliate (as defined in 2.1(q)(i) of the
Agreement), (i) employees of the LLC (and their eligible family members) shall
be entitled to receive qualified employee discounts under the Nordstrom
Merchandise Discount Program on their purchases of goods from Nordstrom and (ii)
the Nordstrom Merchandise Discount Program shall apply to the purchase of goods
from the LLC by employees of Nordstrom, the LLC and all Nordstrom ERISA
Affiliates. Neither Nordstrom nor the LLC shall be required to make any
reimbursement to the other for such discounts; provided, however, that nothing
in this paragraph shall alter the right of Nordstrom to change the terms of the
Nordstrom Merchandise Discount Program to the extent required to preserve the
tax-favored treatment of such discount program to employees under Code Section
132.

                      (b) Post Affiliate Status. Beginning on the date that the
LLC ceases to be an ERISA Affiliate, or on such earlier date as required by Code
Section 132, goods purchased through the LLC shall cease to be available for the
Nordstrom Merchandise Discount Program

                                       33
<PAGE>   38

and the discounts available to employees of Nordstrom and its ERISA Affiliates
on purchases made through the LLC shall cease.

                      (c) Nature of Discount. The discounts available to
employees of the LLC on merchandise purchased through Nordstrom shall continue
on substantially similar terms and conditions as, and in percentage discounts
that are no greater than those provided under, the Nordstrom Merchandise
Discount Program, as the same may be amended from time to time, and such
discount shall continue to be made available to employees of the LLC until the
earlier of: (i) the LLC ceasing to maintain a comparable merchandise discount
program for its employees; or (ii) Nordstrom ceasing to maintain the Nordstrom
Merchandise Discount Program. The LLC shall not have any obligation to reimburse
Nordstrom for discounts provided pursuant to this paragraph; provided, however,
that the LLC shall not alter the terms or conditions of such discount program,
without the prior written consent of Nordstrom.

                      (d) Nordstrom Exclusive Right. Nordstrom will maintain the
exclusive right to determine all aspects of the Nordstrom Merchandise Discount
Program, including eligibility, percentage discounts and all other terms and
conditions of that program.

               5.3 Employee Benefit Plans. The employees of the LLC, if
otherwise eligible, shall be permitted to participate in the Employee Benefit
Plans set forth in Schedule 2.1(q), with the exception of those Employee Benefit
Plans set forth in Schedule 5.3 from the Closing Date until such future date as
the LLC shall communicate to Nordstrom by giving not less than 60 days' advance
notice in writing, but in any event not later than the earlier of October 1,
2002, or the date the LLC is no longer an ERISA Affiliate of Nordstrom. Such
participation shall be on the terms and conditions that apply to similarly
situated employees employed by Nordstrom and the Nordstrom Affiliates. The LLC
and/or Nordstrom.com, Inc. shall make timely employer contributions to Nordstrom
or to the Employee Benefit Plans (as appropriate) for the cost of benefits
(including administrative expenses) incurred on behalf of their employees, as
required by the terms of or to provide the benefits under such Employee Benefit
Plans, and shall promptly remit any contributions made by such employees to such
Employee Benefit Plans. Except as required by law or to the extent such Employee
Benefit Plans currently provide, Nordstrom shall not amend the Employee Benefit
Plans or change such plans' cost structure in a manner that differentiates
between (a) the employees of the LLC and (b) the similarly situated employees of
Nordstrom or any Nordstrom Affiliate, division or business unit. By giving
Nordstrom not less than 60 days' advance notice in writing, the LLC and/or
Nordstrom.com, Inc. may adopt new employee benefit plans specific to the LLC
and/or Nordstrom.com, Inc., provided the design of such new plans does not cause
Nordstrom's existing plans to lose eligibility for preferential tax treatment.
Nordstrom shall use its best efforts to facilitate a transition from the
Employee Benefits Plans to such new employee benefit plans. To the extent the
LLC and/or Nordstrom.com, Inc. establishes its own employee benefit plans, LLC
and/or Nordstrom.com, Inc. shall be considered the "plan sponsor" and "plan
administrator" of such plans (as such terms are defined in ERISA), LLC and/or
Nordstrom.com, Inc. shall be solely responsible for the funding and legal
compliance of such plans in accordance with, but not limited to, the
requirements described in 2.1(q)(v) - (x), and LLC and/or Nordstrom.com, Inc.
shall indemnify and hold Nordstrom harmless from and against any liability
associated with the design, administration and funding of such plans. Subject to
the foregoing, nothing in this Section 5.3

                                       34
<PAGE>   39

shall be interpreted or construed as limiting the right of Nordstrom to
otherwise alter, amend or terminate any Employee Benefit Plan, or its underlying
terms or provisions.

               5.4 Equity Incentives. Following the Closing, the employees of
the LLC and/or Nordstrom.com, Inc. shall be eligible to be considered for stock
option grants as follows:

                      (a) The LLC shall maintain an option plan that provides
for the grant of nonstatutory options to purchase LLC shares. Such options shall
not be exercisable prior to the merger contemplated by Section 5.7.

                      (b) Nordstrom.com, Inc. shall maintain an option plan that
provides for the grant of nonstatutory options to purchase shares of the common
stock of Nordstrom.com, Inc. Participation in such plan shall be limited to
management-level employees of the Business who are employed by Nordstrom.com,
Inc. Such options shall be exercisable at any time.

                      (c) Whenever Nordstrom.com, Inc. grants an option to one
of its employees to purchase shares of is common stock, the LLC shall grant to
Nordstrom.com, Inc. an option to purchase an identical number of LLC shares.
Whenever Nordstrom.com, Inc. issues shares of its common stock to one of its
employees upon exercise of an option, Nordstrom.com, Inc. shall exercise its
option and purchase from the LLC an identical number of LLC shares.

                      (d) Twenty-five percent of the shares of common stock or
LLC shares subject to each option granted by Nordstrom.com, Inc. or the LLC
shall vest on the first anniversary of the date of grant, and the balance of
such shares shall vest in 36 equal monthly increments upon completion of each
month of service thereafter.

                      (e) The shares of common stock or LLC shares subject to
the options granted by Nordstrom.com, Inc. or the LLC shall be subject to a
customary right of first refusal in favor of Nordstrom.com, Inc. and the LLC,
respectively. Such options shall also include customary provisions relating to
lock-up agreements with underwriters.

               5.5 Employees. At the discretion of the LLC, the management-level
Target Employees shall be employed jointly by the LLC and Nordstrom.com, Inc.
immediately following the Closing. The other Target Employees shall be employed
by the LLC immediately following the Closing. At the discretion of the LLC, all
newly hired management-level employees engaged in the Business shall be employed
by the LLC or jointly by the LLC and Nordstrom.com, Inc. The other newly hired
employees engaged in the Business shall be employed by the LLC. Each newly hired
employee engaged in the Business shall acknowledge in writing that (a)
compensation levels and employee benefit programs may be modified after December
31, 1999, and (b) such employee will be an employee at will.

               5.6 Nordstrom Holdings. Except as contemplated by the Transaction
Documents, Nordstrom Holdings shall not engage in any business or directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint ventureship or other business association

                                       35
<PAGE>   40

or entity prior to the Merger. Nordstrom shall cause Nordstrom Holdings to at
all times be a wholly owned Subsidiary of Nordstrom. Without limiting the
foregoing, Nordstrom Holdings will not take any of the following actions prior
to the Merger without the priority written consent of Nordstrom.com, Inc., which
consent shall not be unreasonably withheld:

                             (i) amend its certificate of incorporation or
bylaws (or other comparable corporate charter documents);

                             (ii) declare, set aside or pay any dividends on or
make other distributions (whether payable in cash, stock, property or otherwise)
in respect of any of its capital stock; (B) split, combine, reclassify or take
similar actions with respect to any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, (C) adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such liquidation
or a dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization or (D) directly or indirectly redeem, repurchase or
otherwise acquire any shares of its capital stock;

                             (iii) deliver, issue, sell, pledge or encumber or
authorize or propose the issuance, delivery, sale, pledge or encumbrance of, any
shares of its capital stock or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of its capital stock of, or any
other ownership interest in, Nordstrom Holdings, or (B) issue any stock
appreciation rights, restricted stock or similar equity based rights;

                             (iv) adopt any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, pension,
retirement, insurance employment or other employee or retiree benefit agreement,
trust, plan or other arrangement for the benefit of any Person;

                             (v) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division or make any investment in another entity, or sell,
pledge, dispose of, or encumber or authorize or propose the sale, pledge,
disposition or encumbrance of any of its assets;

                             (vi) authorize or propose or enter into any
contract, agreement, commitment or arrangement involving amounts in excess of
$25,000;

                             (vii) create, assume or incur any indebtedness for
borrowed money or guarantee any such indebtedness or assume, guarantee, endorse
or become liable on the obligation of any Person in excess of $25,000 in
aggregate;

                             (viii) engage in any business other than the
ownership of its membership interests in the LLC;

                             (ix) settle or compromise any federal, state, local
or foreign income tax, involving amounts in excess of $25,000, except to the
extent Nordstrom takes actions that affect Nordstrom Holdings as a result of a
consolidated tax return;

                                       36
<PAGE>   41

                             (x) settle or compromise any litigation (whether or
not commenced prior to the date of this Agreement) or settle, pay or compromise
any claims not required to be paid, involving amounts in excess of $25,000;

                             (xi) create, assume, or incur any mortgage, lien,
pledge, charge or other security interest or encumbrance of any kind in respect
of any of its property of any character, involving amounts in excess of $25,000;

                             (xii) consolidate with or merge with any other
Person or sell, lease or transfer or otherwise dispose of all or any substantial
portion of its assets;

                             (xiii) purchase or acquire any capital assets or
make any capital expenditures;

                             (xiv) sell, lease, transfer, pledge, encumber or
otherwise dispose of any of its LLC Shares, including, without limitation,
through a merger or consolidation with such other Person; or

                             (xv) enter into any contract, agreement, commitment
or arrangement to do or engage in any of the foregoing.

               5.7 Merger of Nordstrom.com, Inc. and Nordstrom Holdings. At such
time as the board of directors of Nordstrom.com, Inc. shall determine in
contemplation of an Initial Public Offering, Nordstrom Holdings shall merge with
Nordstrom.com, Inc. pursuant to an agreement and plan of merger reasonably
satisfactory to Nordstrom and Nordstrom.com, Inc. providing, among other things,
that:

                             (i) Nordstrom.com, Inc. shall be the surviving
corporation in the merger;

                             (ii) Nordstrom.com, Inc. shall succeed to and
assume all of the rights and obligations of Nordstrom Holdings pursuant to
applicable corporate law;

                             (iii) the certificate of incorporation and bylaws
of Nordstrom.com, Inc. in effect immediately prior to the effective time of the
merger shall be the certificate of incorporation and bylaws of the surviving
corporation;

                             (iv) the board of directors and officers of
Nordstrom.com, Inc. in effect immediately prior to the effective time of the
merger shall be the board of directors and bylaws of the surviving corporation;

                             (v) the capital stock of Nordstrom Holdings held by
Nordstrom immediately prior to the effective time of the merger shall be
converted into a number of shares of Series A Preferred Stock of Nordstrom.com,
Inc. equal to the number of Series A shares of the LLC owned by Nordstrom
Holdings immediately prior to such effective time subject to appropriate
adjustment for any stock split, stock dividend, combination, reclassification,

                                       37
<PAGE>   42

reorganization or other similar event affecting the Series A Preferred Stock of
Nordstrom.com, Inc. or the Series A shares of the LLC);

                             (vi) each option to acquire a LLC Common Share
shall be assumed by Nordstrom.com, Inc. and shall become an option to purchase
one share of Common Stock of Nordstrom.com, Inc.

Notwithstanding the foregoing, if reasonably possible, Nordstrom.com, Inc. will
effect the transactions contemplated above by means of a different structure to
minimize the tax liabilities of all parties.

               5.8 Nordstrom.com, Inc. Series A Preferred Stock. Until such time
as there are any outstanding shares of Series A Preferred Stock, Nordstrom.com,
Inc. shall not amend its Amended and Restated Certificate of Incorporation to
alter or change the rights, preferences or privileges of the share of such
Series A Preferred Stock, if such Series A Preferred Stock would be adversely
affected by such amendment in a manner different from other then outstanding
series of Nordstrom.com, Inc. Preferred Stock (it being understood that, without
limiting the foregoing, different series of Preferred Stock shall not be
affected differently because of proportional differences in the amounts of their
respective issue prices, liquidation preferences, and dividend preferences that
arise out of differences in the original issue price for each such series). The
foregoing covenant will terminate upon issuance of any Series A Preferred Stock
to Nordstrom. Nordstrom.com, Inc. shall reserve shares of its Series A Preferred
Stock in an amount equal to the number of shares of such preferred stock
issuable to Nordstrom in the merger described in Section 5.7.

               5.9 Non-Exclusive License. Effective as of Closing,
Nordstrom.com, Inc. shall grant to Nordstrom and the Nordstrom Affiliates a
non-exclusive royalty free worldwide right and license to use such Intellectual
Property as is reasonably necessary for the operation of the business of
Nordstrom and the Nordstrom Affiliates, subject to customary and reasonable
terms.

                                   ARTICLE VI

                        TERMINATION, AMENDMENT AND WAIVER

               6.1 Termination. Except as provided in Section 6.2 below, this
Agreement may be terminated at any time prior to the Closing:

                      (a) by mutual agreement of Nordstrom and Nordstrom.com,
Inc.;

                      (b) by Nordstrom or Nordstrom.com, Inc. if: (i) the
Closing has not occurred before 5 p.m. (Pacific Time) on October 31, 1999
(provided, however, that the right to terminate this Agreement under this
Section 6.1(b)(i) shall not be available to any party whose willful failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date); (ii) there shall be a
final nonappealable Order of a federal or state court in effect preventing
consummation of the transactions contemplated by

                                       38
<PAGE>   43

this Agreement, or (iii) be any Applicable Law shall make consummation of the
transactions contemplated by this Agreement illegal;

                      (c) by Nordstrom (if it is not in breach in any material
respect of any of its representations, warranties, covenants, or agreements in
this Agreement) if (i) there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement by Nordstrom.com,
Inc. and (ii) (A) Nordstrom.com, Inc. is not using its reasonable efforts to
cure such breach, or has not cured such breach within thirty (30) days, after
notice of such breach to Nordstrom.com, Inc. (provided, however, that, no cure
period shall be required for a breach which by its nature cannot be cured) and
(B) as a result of such breach any of the conditions set forth in Section 4.1 or
Section 4.2, as the case may be, would not then be satisfied; or

                      (d) by the Nordstrom.com, Inc., (if it is not in breach of
any material respect of any of its representations, warranties, covenants or
agreements in this Agreement) if (i) there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement by
Nordstrom and (ii)(A) Nordstrom is not using its reasonable efforts to cure such
breach, or has not cured such breach within thirty (30) days, after notice of
such breach to Nordstrom (provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured), and (B) as a result
of such breach the conditions set forth in Section 4.1 or Section 4.3, as the
case may be, would not then be satisfied; or

               6.2 Effect of Termination. In the event of a valid termination of
this Agreement as provided in Section 6.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Nordstrom or
Nordstrom.com, Inc., or their respective officers, directors or shareholders or
Affiliates, provided, however, that each party shall remain liable for any
breaches of this Agreement prior to its termination.

               6.3 Amendment. Except as is otherwise required by Applicable Law,
this Agreement may be amended by the parties hereto at any time by execution of
an instrument in writing signed on behalf of each of the parties hereto.

               6.4 Extension; Waiver. At any time prior to the Closing,
Nordstrom and Nordstrom.com, Inc. may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements, covenants or conditions for
the benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.

                                       39
<PAGE>   44

                                   ARTICLE VII

                               GENERAL PROVISIONS

               7.1 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission
against facsimile confirmation or mailed by prepaid first class certified mail,
return receipt requested, or mailed by overnight courier prepaid, to the parties
at the following addresses or facsimile numbers:

                                       40
<PAGE>   45

                      If to Nordstrom to:

                      Nordstrom, Inc.
                      1617 Sixth Avenue, 10th Floor
                      Seattle, WA  98101
                      Attn: Michael A. Stein,
                            Executive Vice President and
                            Chief Financial Officer
                      Attn: Corporate Secretary

                      with a copy to:

                      Lane Powell Spears Lubersky LLP
                      1420 Fifth Avenue, Suite 4100
                      Seattle, WA  98101-2338
                      Facsimile No.: (206) 223-7107
                      Attn: Michael E. Morgan

                      If to Nordstrom.com, Inc.

                      Nordstrom.com, Inc.
                      c/o Benchmark Capital
                      2480 Sand Hill Road, Suite 200
                      Menlo Park, California 94025
                      Facsimile No.: (650) 854-8183
                      Attn: President and Chief Executive Officer

                      with a copy to:

                      Gunderson Dettmer Stough Villeneuve
                      Franklin & Hachigian, LLP
                      155 Constitution Drive
                      Menlo Park, California 94025
                      Facsimile No.: (650) 321-2800
                      Attn: Brooks Stough

               All such notices, requests and other communications will (i) if
delivered personally to the address as provided in this Section 7.1, be deemed
given upon delivery, (ii) if delivered by facsimile transmission to the
facsimile number as provided for in this Section 7.1, be deemed given upon
facsimile confirmation, (iii) if delivered by mail in this manner described
above to the address as provided for in this Section 7.1, be deemed given on the
earlier of the third Business Day following mailing or upon receipt and (iv) if
delivered by overnight courier to the address as provided in this Section 7.1,
be deemed given on the earlier of the first Business Day following the date sent
by such overnight courier or upon receipt (in each case regardless of whether
such notice, request or other communication is received by any other Person to
whom a

                                       41
<PAGE>   46

copy of such notice is to be delivered pursuant to this Section 7.1). Any party
from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such change
to the other party hereto.

               7.2 Entire Agreement. This Agreement and the Exhibits and
Schedules hereto constitute the entire Agreement among the parties with respect
to the subject matter hereof and supersede all prior agreements and
understanding, both written and oral, among the parties with respect to the
subject matter hereof.

               7.3 Further Assurances; Post-Closing Cooperation. At any time or
from time to time after the Closing the parties shall execute and deliver to the
other party such other documents and instruments, provide such materials and
information and take such other actions as the other party may reasonably
request to consummate the transactions contemplated by the Transaction Documents
and otherwise to cause the other party to fulfill its obligations hereunder and
thereunder and the transactions contemplated hereby and thereby.

               7.4 Waiver. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.

               7.5 Third-Party Beneficiaries. Except as contemplated by Section
5.1 with respect to Nordstrom Indemnities and Nordstrom.com, Inc. Indemnities,
terms and provisions of this Agreement are intended solely for the benefit of
each party hereto and their respective successors or permitted assigns, and it
is not the intention of the parties to confer third-party beneficiary rights,
and this Agreement does not confer any such rights, upon any other Person.

               7.6 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party without the prior written consent of the other party and
any attempt to do so will be void. Subject to the preceding sentence, this
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.

               7.7 Headings. The headings and table of contents used in this
Agreement have been inserted for convenience of reference only and do not define
or limit the provisions hereof.

               7.8 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such

                                       42
<PAGE>   47

illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.

               7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Washington,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Washington or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Washington.

               7.10 Construction. The parties hereto agree that this Agreement
is the product of negotiation between sophisticated parties and individuals, all
of whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather than shall be
given a fair and reasonable construction without regard to the rule of contra
proferentem.

               7.11 Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

               7.12 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Except where this Agreement specifically provides for
arbitration, it is agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.

               7.13 Dispute Resolution. The parties desire to resolve disputes
arising out of this Agreement without litigation. Accordingly, except for an
action seeking a temporary restraining order or injunction related to the
purposes of this Agreement, suit to compel compliance with this dispute
resolution process, or entry and enforcement of any judgment on any arbitration
award, the parties agree to meet and negotiate in good faith to resolve any
dispute arising under this Agreement. The location, format, frequency, duration
and conclusion of these discussions shall be left to the discretion of the
parties. The discussions will commence within fifteen (15) days after notice of
a dispute from any party.

                      (a) If a determination is made by any party that
continuation of the negotiation process is not warranted, the dispute shall be
first submitted to mediation by a mediator pursuant to the Commercial Mediation
Rules of the American Arbitration Association. Any party may demand such
mediation in accordance with the procedures set out in those rules, which shall
commence within thirty (30) days of such demand.

                      (b) If a determination is made by any party that
continuation of the mediation process is not warranted or if all of the matters
in dispute are not resolved through

                                       43
<PAGE>   48

mediation, the dispute shall be submitted to binding arbitration by an
arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. Any party may demand such arbitration in accordance
with the procedures set out in those rules, which shall commence within thirty
(30) days of such demand. Each party to the dispute shall have the right to take
the deposition of individuals and expert witnesses designated by the other
party. Each party to the dispute shall also have the right to request production
of relevant documents, the scope and enforcement of which shall be governed by
the arbitrator. Additional discovery may be only by order of the arbitrator, and
only upon a showing of substantial need. The arbitrator shall be authorized to
issue subpoenas for the purpose of requiring attendance of witnesses at
depositions. The parties to the dispute may submit written briefs. The
arbitrator shall rule on the dispute by issuing a written opinion within thirty
(30) days after the close of hearings. The award rendered by arbitration shall
be final, binding and nonappealable judgment, and the award may be entered in
any court of competent jurisdiction in the United States. Special, consequential
or punitive damages shall not be awarded by the arbitrator.

                      (c) Any mediation or arbitration shall be held in Seattle,
Washington, or such other location as mutually agreed upon by the parties to the
dispute. The mediator or arbitrator shall control the scheduling so as to
process the matter expeditiously. The times specified herein may be extended
upon mutual agreement of the parties to the dispute or by the arbitrators upon a
showing of good cause.

               IN WITNESS WHEREOF, Nordstrom and Nordstrom.com, Inc. have caused
this Agreement to be signed, all as of the date first written above.

                                      NORDSTROM, INC.

                                      ------------------------------------------
                                      Name:  Michael A. Stein
                                      Title: Executive Vice President and
                                             Chief Financial Officer

                                      NORDSTROM.COM, INC.

                                      ------------------------------------------
                                      Name:  Steven M. Spurlock
                                      Title: President

                                       44<PAGE>   1
                                                                   EXHIBIT 10.22

                                CREDIT AGREEMENT

                          Dated as of February 29, 2000

                                      among

                                1700 SEVENTH L.P.
                                  as Borrower,

                                       AND

                               THE SEVERAL LENDERS
                         FROM TIME TO TIME PARTY HERETO

                                       AND

                              BANK OF AMERICA, N.A.
                             as Administrative Agent
                       and as Project Administrative Agent

                                  Arranged By:

                         BANC OF AMERICA SECURITIES LLC
                        as Lead Arranger and Book Manager

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                         <C>
SECTION 1  DEFINITIONS.......................................................................1
        1.1    Definitions...................................................................1
        1.2    Computation of Time Periods..................................................20
        1.3    Accounting Terms.............................................................20

SECTION 2  CREDIT FACILITIES................................................................21
        2.1    Revolving Loans..............................................................21
        2.2    Extension of Maturity Date...................................................23

SECTION 3  OTHER PROVISIONS RELATING TO CREDIT FACILITIES...................................24
        3.1    Default Rate.................................................................24
        3.2    Extension and Conversion.....................................................24
        3.3    Prepayments..................................................................25
        3.4    Termination and Reduction of Revolving Committed Amount......................26
        3.5    Fees.........................................................................26
        3.6    Capital Adequacy.............................................................27
        3.7    Limitation on Eurodollar Loans...............................................27
        3.8    Illegality...................................................................28
        3.9    Requirements of Law..........................................................28
        3.10   Treatment of Affected Loans..................................................29
        3.11   Taxes........................................................................29
        3.12   Compensation.................................................................31
        3.13   Pro Rata Treatment...........................................................32
        3.14   Sharing of Payments..........................................................33
        3.15   Payments, Computations, Etc..................................................34
        3.16   Evidence of Debt.............................................................36

SECTION 4  CONDITIONS.......................................................................36
        4.1    Closing Conditions...........................................................36
        4.2    Conditions to Initial Extension of Credit....................................41
        4.3    Conditions to all Extensions of Credit.......................................42

SECTION 5  REPRESENTATIONS AND WARRANTIES...................................................44
        5.1    Financial Condition..........................................................44
        5.2    No Material Change...........................................................44
        5.3    Organization and Good Standing...............................................44
        5.4    Power; Authorization; Enforceable Obligations................................44
        5.5    No Conflicts.................................................................45
        5.6    No Default...................................................................45
        5.7    Ownership....................................................................45
        5.8    Indebtedness.................................................................45
        5.9    Litigation...................................................................45
        5.10   Taxes........................................................................46
</TABLE>

                                       i
<PAGE>   3

<TABLE>
<S>                                                                                         <C>
        5.11   Compliance with Law..........................................................46
        5.12   ERISA........................................................................46
        5.13   Governmental Regulations, Etc................................................47
        5.14   Purpose of Loans.............................................................49
        5.15   Environmental Matters........................................................49
        5.16   Intellectual Property........................................................50
        5.17   Location of Collateral.......................................................50
        5.18   Disclosure...................................................................50
        5.19   Brokers' Fees................................................................50
        5.20   Labor Matters................................................................50
        5.21   Year 2000 Compliance.........................................................51

SECTION 6  AFFIRMATIVE COVENANTS............................................................51
        6.1    Information Covenants........................................................51
        6.2    Preservation of Existence and Franchises.....................................54
        6.3    Books and Records............................................................54
        6.4    Compliance with Law..........................................................54
        6.5    Payment of Taxes and Other Indebtedness......................................54
        6.6    Insurance....................................................................55
        6.7    Maintenance of Property......................................................57
        6.8    Performance of Obligations...................................................57
        6.9    Use of Proceeds..............................................................57
        6.10   Audits/Inspections...........................................................57
        6.11   Year 2000 Compliance.........................................................58
        6.12   Construction.................................................................58
        6.13   Eminent Domain...............................................................58
        6.14.  Changes in Plans and Specifications; Change Orders...........................60
        6.15   Abandonment of Construction..................................................60
        6.16   Alley Vacation...............................................................61

SECTION 7  NEGATIVE COVENANTS...............................................................62
        7.1    Indebtedness.................................................................62
        7.2    Liens........................................................................63
        7.3    Nature of Business...........................................................63
        7.4    Consolidation, Merger, Dissolution, etc......................................63
        7.5    Asset Dispositions...........................................................63
        7.6    Investments..................................................................64
        7.7    Restricted Payments..........................................................64
        7.8    Other Indebtedness...........................................................64
        7.9    Transactions with Affiliates.................................................65
        7.10   Fiscal Year; Organizational Documents........................................65
        7.11   Limitation on Restricted Actions.............................................65
        7.12   Subsidiaries.................................................................65
        7.13   Sale Leasebacks..............................................................65
        7.14   No Further Negative Pledges..................................................65
        7.15   Leases.......................................................................66
</TABLE>

                                       ii
<PAGE>   4

<TABLE>
<S>                                                                                         <C>
        7.16   Plans and Specifications.....................................................66
        7.17   Floor Area Ratio.............................................................66

SECTION 8  EVENTS OF DEFAULT................................................................67
        8.1    Events of Default............................................................67
        8.2    Acceleration; Remedies.......................................................69

SECTION 9  AGENCY PROVISIONS................................................................70
        9.1    Appointment, Powers and Immunities...........................................70
        9.2    Reliance by Administrative Agent.............................................71
        9.3    Defaults.....................................................................71
        9.4    Rights as a Lender...........................................................72
        9.5    Indemnification..............................................................72
        9.6    Non-Reliance on Agents and Other Lenders.....................................72
        9.7    Successor Agents.............................................................73

SECTION 10  MISCELLANEOUS...................................................................74
        10.1   Notices......................................................................74
        10.2   Right of Set-Off; Adjustments................................................75
        10.3   Benefit of Agreement; Assignments............................................76
        10.4   No Waiver; Remedies Cumulative...............................................78
        10.5   Expenses; Indemnification....................................................78
        10.6    Amendments, Waivers and Consents............................................79
        10.7   Counterparts.................................................................80
        10.8   Headings.....................................................................80
        10.9   Survival.....................................................................81
        10.10  Governing Law; Submission to Jurisdiction; Venue.............................81
        10.11  Severability.................................................................81
        10.12  Entirety.....................................................................82
        10.13  Binding Effect...............................................................82
        10.14  Confidentiality..............................................................82
        10.15  Source of Funds..............................................................83
        10.16  Conflict.....................................................................83
        10.17  Oral Agreements Not Binding..................................................83
</TABLE>

                                      iii

<PAGE>   5

                                    SCHEDULES

Schedule 1.1(a)       Controlling Stockholders
Schedule 1.1(b)       Land and Tipp Property
Schedule 1.1(c)       Permitted Liens
Schedule 2.1(a)       Lenders
Schedule 4.3          Borrowing Conditions
Schedule 5.15         Environmental Matters
Schedule 5.17(a)      Real Property
Schedule 5.17(b)      Collateral Locations
Schedule 5.17(c)      Chief Executive Offices/Principal Places
                      of Business
Schedule 6.6          Insurance
Schedule 7.9          Transactions with Affiliates

                                    EXHIBITS

Exhibit 1.1(a)       Form of Guaranty Agreement
Exhibit 2.1(b)(i)    Form of Notice of Borrowing
Exhibit 2.1(e)       Form of Revolving Note
Exhibit 2.2          Form of Estoppel Certificate
Exhibit 3.2          Form of Notice of Extension/Conversion
Exhibit 6.1(c)       Form of Officer's Compliance Certificate
Exhibit 10.3(b)      Form of Assignment and Acceptance

                                       iv
<PAGE>   6

                                CREDIT AGREEMENT

        THIS CREDIT AGREEMENT, dated as of February 29, 2000 (as amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
is by and among 1700 SEVENTH L.P., a Washington limited partnership (formerly
known as 700 Olive L.P.) (the "Borrower"), the Lenders (as defined herein) and
BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (in such
capacity, the "Administrative Agent") and as Project Administrative Agent for
the Lenders (in such capacity, the "Project Administrative Agent").

                               W I T N E S S E T H

        WHEREAS, the Borrower has requested that the Lenders provide a credit
facility in an amount of $93,000,000 (the "Credit Facility") for the purposes
hereinafter set forth; and

        WHEREAS, the Lenders have agreed to make the requested Credit Facility
available to the Borrower on the terms and conditions hereinafter set forth;

        NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

                                    SECTION 1

                                   DEFINITIONS

        1.1 DEFINITIONS.

        As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:

                "Adjusted Base Rate" means the Base Rate plus the Applicable
        Percentage.

                "Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
        Applicable Percentage.

                "Administrative Agent" means Bank of America, N.A. or any
        successor administrative agent appointed pursuant to Section 9.7.

                "Administrative Agent's Fee Letter" means that certain letter
        agreement, dated as of August 27, 1999, among the Administrative Agent,
        BAS, the Borrower and the Guarantor, as amended, modified, restated or
        supplemented from time to time.

                "Administrative Agent's Fees" shall have the meaning assigned to
        such term in Section 3.5(c).

<PAGE>   7

                "Affiliate" means, with respect to any Person, any other Person
        that, directly or indirectly through one or more intermediaries,
        controls, or is controlled by, or is under common control with, such
        first Person. The term "control" means the possession, directly or
        indirectly, of the power, whether or not exercised, to direct or cause
        the direction of the management or policies of a Person, whether through
        the ownership of Capital Stock by contract or otherwise, and the terms
        "controlled" and "common control" have correlative meanings. Unless
        otherwise indicated, "Affiliate" refers to an Affiliate of the Borrower.
        Notwithstanding the foregoing, in no event shall any Lender or any
        Affiliate of any Lender be deemed to be an Affiliate of the Borrower.
        For avoidance of doubt, the parties agree that the Borrower is not an
        Affiliate of the Guarantor.

                "Agency Services Address" means Bank of America, N.A., 1850
        Gateway Blvd., 5th Floor, Concord, California 94520, or such other
        address as may be identified by written notice from the Administrative
        Agent to the Borrower.

                "Agents" means a collective reference to the Administrative
        Agent and the Project Administrative Agent, and "Agent" means any one of
        them.

                "Applicable Lending Office" means, for each Lender, the office
        of such Lender as such Lender may from time to time specify to the
        Administrative Agent and the Borrower by written notice as the office by
        which its Eurodollar Loans are made and maintained.

                "Applicable Percentage" means, for purposes of calculating the
        applicable interest rate for any day for any Loan and the applicable
        rate of the Unused Fee for any day for purposes of Section 3.5(b), the
        appropriate applicable percentage set forth below opposite the
        applicable Senior Debt Rating then in effect as of the most recent
        Ratings Date:

<TABLE>
<CAPTION>
                                                            APPLICABLE PERCENTAGES
                                                   ---------------------------------------
                                                       FOR            FOR            FOR
           PRICING        S&P         MOODY'S      EURODOLLAR      BASE RATE        UNUSED
            LEVEL        RATING        RATING         LOANS          LOANS           FEE
            -----        ------        ------         -----          -----           ---
<S>                      <C>          <C>          <C>             <C>              <C>
              I          >/= A         >/= A2         .75%             0%           .125%
             II          >/= A-        >/= A3         .875%            0%           .15%
             III         >/=BBB+       >/=Baa1       1.0%              0%           .175%
             IV          >/=BBB        >/=Baa2       1.125%            0%           .225%
</TABLE>

        The Applicable Percentages shall be determined based on the Senior Debt
        Rating; provided, however, that (i) if the Guarantor shall not have a
        rating for its Senior Debt by S&P and Moody's, then the Applicable
        Percentages shall be based on Pricing Level IV and (ii) if the Guarantor
        shall have a split Senior Debt Rating the higher of the two ratings
        shall apply. The Applicable Percentages for the Revolving Loans and
        Unused Fee shall be determined and adjusted on the date that the Senior
        Debt Rating changes (each a "Ratings Date"). Each

                                       2
<PAGE>   8

        Applicable Percentage shall be effective from one Ratings Date until the
        next Ratings Date. Any adjustment in the Applicable Percentages for the
        Loans shall be applicable to all existing Loans as well as any new
        Loans.

               "Asset Disposition" means any disposition of any or all of the
        Property of the Borrower whether by sale, lease, transfer or otherwise.

               "Bank of America" means Bank of America, N.A.

               "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
        United States Code, as amended, modified, succeeded or replaced from
        time to time.

               "Bankruptcy Event" means, with respect to any Person, the
        occurrence of any of the following with respect to such Person: (i) a
        court or governmental agency having jurisdiction in the premises shall
        enter a decree or order for relief in respect of such Person in an
        involuntary case under any applicable bankruptcy, insolvency or other
        similar law now or hereafter in effect, or appointing a receiver,
        liquidator, assignee, custodian, trustee, sequestrator (or similar
        official) of such Person or for any substantial part of its Property or
        ordering the winding up or liquidation of its affairs; or (ii) there
        shall be commenced against such Person an involuntary case under any
        applicable bankruptcy, insolvency or other similar law now or hereafter
        in effect, or any case, proceeding or other action for the appointment
        of a receiver, liquidator, assignee, custodian, trustee, sequestrator
        (or similar official) of such Person or for any substantial part of its
        Property or for the winding up or liquidation of its affairs, and such
        involuntary case or other case, proceeding or other action shall remain
        undismissed, undischarged or unbonded for a period of sixty (60)
        consecutive days; or (iii) such Person shall commence a voluntary case
        under any applicable bankruptcy, insolvency or other similar law now or
        hereafter in effect, or consent to the entry of an order for relief in
        an involuntary case under any such law, or consent to the appointment or
        taking possession by a receiver, liquidator, assignee, custodian,
        trustee, sequestrator (or similar official) of such Person or for any
        substantial part of its Property or make any general assignment for the
        benefit of creditors; or (iv) such Person shall be unable to, or shall
        admit in writing its inability to, pay its debts generally as they
        become due.

               "BAS" means Banc of America Securities LLC.

               "Base Rate" means, for any day, the rate per annum equal to the
        higher of (a) the Federal Funds Rate for such day plus one-half of one
        percent (0.5%) and (b) the Prime Rate for such day. Any change in the
        Base Rate due to a change in the Prime Rate or the Federal Funds Rate
        shall be effective on the effective date of such change in the Prime
        Rate or Federal Funds Rate.

               "Base Rate Loan" means any Loan bearing interest at a rate
        determined by reference to the Base Rate.

               "Borrower" means the Person identified as such in the heading
        hereof, together with any permitted successors and assigns.

                                       3
<PAGE>   9

               "Business Day" means a day other than a Saturday, Sunday or other
        day on which commercial banks in Seattle, Washington, San Francisco,
        California or New York, New York are authorized or required by law to
        close, except that, when used in connection with a Eurodollar Loan, such
        day shall also be a day on which dealings between banks are carried on
        in Dollar deposits in London, England.

               "Businesses" means a collective reference to the businesses
        operated at the Real Properties.

               "Capital Lease" means, as applied to any Person, any lease of any
        Property (whether real, personal or mixed) by that Person as lessee
        which, in accordance with GAAP, is or should be accounted for as a
        capital lease on the balance sheet of that Person.

               "Capital Reserve" means an amount equal to the gross leaseable
        square feet of the Improvements multiplied by $.10.

               "Capital Stock" means (i) in the case of a corporation, capital
        stock, (ii) in the case of an association or business entity, any and
        all shares, interests, participations, rights or other equivalents
        (however designated) of capital stock, (iii) in the case of a
        partnership, partnership interests (whether general or limited), (iv) in
        the case of a limited liability company, membership interests and (v)
        any other interest or participation that confers on a Person the right
        to receive a share of the profits and losses of, or distributions of
        assets of, the issuing Person.

               "Cash Equivalents" means, as at any date, (a) securities issued
        or directly and fully guaranteed or insured by the United States or any
        agency or instrumentality thereof (provided that the full faith and
        credit of the United States is pledged in support thereof) having
        maturities of not more than twelve months from the date of acquisition,
        (b) Dollar denominated time deposits and certificates of deposit of (i)
        any Lender, (ii) any domestic commercial bank of recognized standing
        having capital and surplus in excess of $500,000,000 or (iii) any bank
        whose short-term commercial paper rating from S&P is at least A-1 or the
        equivalent thereof or from Moody's is at least P-1 or the equivalent
        thereof (any such bank being an "Approved Bank"), in each case with
        maturities of not more than 270 days from the date of acquisition, (c)
        commercial paper and variable or fixed rate notes issued by any Approved
        Bank (or by the parent company thereof) or any variable rate notes
        issued by, or guaranteed by, any domestic corporation rated A-1 (or the
        equivalent thereof) or better by S&P or P-1 (or the equivalent thereof)
        or better by Moody's and maturing within six months of the date of
        acquisition, (d) repurchase agreements entered into by any Person with a
        bank or trust company (including any of the Lenders) or recognized
        securities dealer having capital and surplus in excess of $500,000,000
        for direct obligations issued by or fully guaranteed by the United
        States in which such Person shall have a perfected first priority
        security interest (subject to no other Liens) and having, on the date of
        purchase thereof, a fair market value of at least 100% of the amount of
        the repurchase obligations and (e) Investments, classified in accordance
        with GAAP as current assets, in money market investment programs
        registered under the Investment Company Act of 1940, as amended, which
        are administered by reputable financial institutions having capital of
        at least

                                       4
<PAGE>   10

        $500,000,000 and the portfolios of which are limited to Investments of
        the character described in the foregoing subdivisions (a) through (d).

               "Change of Control" means any of the following events: (i) any
        Person or two or more Persons acting in concert (other than the
        Controlling Stockholders) shall have acquired beneficial ownership
        (within the meaning of Rule 13d-3 of the Securities and Exchange
        Commission under the Securities Exchange Act of 1934), directly or
        indirectly, of Voting Stock of the Guarantor (or other securities
        convertible into such Voting Stock) representing 40% or more of the
        combined voting power of all Voting Stock of the Guarantor, (ii) any
        change in the ownership, membership or control of the Borrower, (iii)
        Clise Venture shall cease to remain the sole general partner of the
        Borrower, (iv) any change in the ownership, membership or control of
        Clise Venture, or (v) any change in the ownership, membership or control
        of Clise Properties.

               "City" means The City of Seattle, a Washington municipal
        corporation.

               "Clise Properties" means Clise Properties, Inc., a Washington
        corporation.

               "Clise Venture" means Clise Venture One LLC, a Washington limited
        liability company.

               "Closing Date" means the date hereof.

               "Code" means the Internal Revenue Code of 1986, as amended, and
        any successor statute thereto, as interpreted by the rules and
        regulations issued thereunder, in each case as in effect from time to
        time. References to sections of the Code shall be construed also to
        refer to any successor sections.

               "Collateral" means a collective reference to the collateral which
        is identified in, and at any time will be covered by, the Collateral
        Documents.

               "Collateral Documents" means a collective reference to the
        Mortgage Instrument and such other documents executed and delivered in
        connection with the attachment and perfection of the Administrative
        Agent's security interests and liens arising thereunder, including
        without limitation, UCC financing statements.

               "Commitment" means with respect to each Lender, the Revolving
        Commitment of such Lender.

               "Construction Costs" shall have the meaning assigned to such
        term in Section 6.14.

               "Consultant" shall have the meaning assigned to such term in
        Schedule 4.3.

               "Controlling Stockholders" means the individuals listed on
        Schedule 1.1(a) hereto and the spouse and lineal descendants of any such
        individual.

                                       5
<PAGE>   11

               "Credit Documents" means a collective reference to this Credit
        Agreement, the Notes, the Guaranty Agreement, the Environmental
        Indemnity Agreement, the Administrative Agent's Fee Letter and the
        Collateral Documents (in each case as the same may be amended, modified,
        restated, supplemented, extended, renewed or replaced from time to
        time), and "Credit Document" means any one of them.

               "Credit Parties" means a collective reference to the Borrower and
        the Guarantor, and "Credit Party" means any one of them.

               "Credit Party Obligations" means, without duplication, (i) all of
        the obligations of the Credit Parties to the Lenders and the
        Administrative Agent, whenever arising, under this Credit Agreement, the
        Notes, the Guaranty Agreement, the Collateral Documents or any of the
        other Credit Documents (including, but not limited to, any interest
        accruing after the occurrence of a Bankruptcy Event with respect to any
        Credit Party, regardless of whether such interest is an allowed claim
        under the Bankruptcy Code) and (ii) all liabilities and obligations,
        whenever arising, owing from the Borrower to any Lender, or any
        Affiliate of a Lender, arising under any Hedging Agreement.

               "Debt Service" means, as of any date for the twelve month period
        ending on such date, the principal and interest payments (assuming (i) a
        principal amortization schedule for a loan equal to the sum of the
        aggregate outstanding principal amount of Revolving Loans then
        outstanding with a term of twenty-five (25) years and (ii) an interest
        rate equal to the greater of (x) the then applicable Treasury Rate plus
        1.50% per annum and (y) eight percent (8.0%) per annum) which would be
        due and payable during such twelve month period.

               "Debt Service Coverage Ratio" means, for the twelve month period
        ending as of the calendar month most recently ended, the ratio of (a)
        Net Operating Income for such period to (b) Debt Service for such
        period.

               "Default" means any event, act or condition which with notice or
        lapse of time, or both, would constitute an Event of Default.

               "Defaulting Lender" means, at any time, any Lender that (a) has
        failed to make a Loan or purchase a Participation Interest required
        pursuant to the term of this Credit Agreement within one Business Day of
        when due, (b) other than as set forth in (a) above, has failed to pay to
        the Administrative Agent or any Lender an amount owed by such Lender
        pursuant to the terms of this Credit Agreement within one Business Day
        of when due, unless such amount is subject to a good faith dispute or
        (c) has been deemed insolvent or has become subject to a bankruptcy or
        insolvency proceeding or with respect to which (or with respect to any
        of the assets of which) a receiver, trustee or similar official has been
        appointed.

               "Deposit Account" shall have the meaning assigned to such term in
        Section 2.1(b)(iii).

                                       6
<PAGE>   12

               "Development Agreement" means that certain Development Agreement
        dated as May 12, 1998 between the Borrower, Clise Development LLC, a
        Washington limited liability company and Nordstrom, as amended or
        modified from time to time.

               "Dollars" and "$" means dollars in lawful currency of the United
        States.

               "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
        Lender that is a "United States person" (as defined in Section
        7701(a)(30) of the Code); and (iii) any other Person approved by the
        Administrative Agent and, unless an Event of Default has occurred and is
        continuing at the time any assignment is effected in accordance with
        Section 10.3, the Borrower (such approval by the Administrative Agent or
        the Borrower not to be unreasonably withheld or delayed); provided,
        however, that neither the Borrower nor an Affiliate of the Borrower
        shall qualify as an Eligible Assignee.

               "Environmental Indemnity Agreement" means that certain
        Certificate and Indemnity Agreement Regarding Building Laws and
        Hazardous Substances dated as of the Closing Date between the Borrower
        and the Administrative Agent, as amended or modified from time to time.

               "Environmental Laws" means any and all lawful and applicable
        Federal, state, local and foreign statutes, laws, regulations,
        ordinances, rules, judgments, orders, decrees, permits, concessions,
        grants, franchises, licenses, agreements or other governmental
        restrictions relating to the environment or to emissions, discharges,
        releases or threatened releases of pollutants, contaminants, chemicals,
        or industrial, toxic or hazardous substances or wastes into the
        environment including, without limitation, ambient air, surface water,
        ground water, or land, or otherwise relating to the manufacture,
        processing, distribution, use, treatment, storage, disposal, transport,
        or handling of pollutants, contaminants, chemicals, or industrial, toxic
        or hazardous substances or wastes.

               "ERISA" means the Employee Retirement Income Security Act of
        1974, as amended, and any successor statute thereto, as interpreted by
        the rules and regulations thereunder, all as the same may be in effect
        from time to time. References to sections of ERISA shall be construed
        also to refer to any successor sections.

               "ERISA Affiliate" means an entity which is under common control
        with the Borrower within the meaning of Section 4001(a)(14) of ERISA, or
        is a member of a group which includes the Borrower and which is treated
        as a single employer under Sections 414(b) or (c) of the Code.

               "ERISA Event" means (i) with respect to any Plan, the occurrence
        of a Reportable Event or the substantial cessation of operations (within
        the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the
        Borrower or any ERISA Affiliate from a Multiple Employer Plan during a
        plan year in which it was a substantial employer (as such term is
        defined in Section 4001(a)(2) of ERISA), or the termination of a
        Multiple Employer Plan; (iii) the distribution of a notice of intent to
        terminate or the actual termination of a Plan pursuant to Section
        4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to

                                       7
<PAGE>   13

        terminate or the actual termination of a Plan by the PBGC under Section
        4042 of ERISA; (v) any event or condition which might constitute grounds
        under Section 4042 of ERISA for the termination of, or the appointment
        of a trustee to administer, any Plan; (vi) the complete or partial
        withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer
        Plan; (vii) the conditions for imposition of a lien under Section 302(f)
        of ERISA exist with respect to any Plan; or (viii) the adoption of an
        amendment to any Plan requiring the provision of security to such Plan
        pursuant to Section 307 of ERISA.

               "Eurodollar Loan" means any Loan that bears interest at a rate
        based upon the Eurodollar Rate.

               "Eurodollar Rate" means, for any Eurodollar Loan for any Interest
        Period therefor, the rate per annum (rounded upwards, if necessary, to
        the nearest 1/100 of 1%) determined by the Administrative Agent to be
        equal to the quotient obtained by dividing (a) the Interbank Offered
        Rate for such Eurodollar Loan for such Interest Period by (b) 1 minus
        the Eurodollar Reserve Requirement for such Eurodollar Loan for such
        Interest Period.

               "Eurodollar Reserve Requirement" means, at any time, the maximum
        rate at which reserves (including, without limitation, any marginal,
        special, supplemental, or emergency reserves) are required to be
        maintained under regulations issued from time to time by the Board of
        Governors of the Federal Reserve System (or any successor) by member
        banks of the Federal Reserve System with deposits exceeding $5 billion
        against "Eurocurrency liabilities" (as such term is used in Regulation
        D). Without limiting the effect of the foregoing, the Eurodollar Reserve
        Requirement shall reflect any other reserves required to be maintained
        by such member banks with respect to (i) any category of liabilities
        which includes deposits by reference to which the Adjusted Eurodollar
        Rate is to be determined, or (ii) any category of extensions of credit
        or other assets which include Eurodollar Loans. The Adjusted Eurodollar
        Rate shall be adjusted automatically on and as of the effective date of
        any change in the Eurodollar Reserve Requirement.

               "Event of Default" shall have the meaning assigned to such term
        in Section 8.1.

               "Executive Officer" of any Person means any of the chief
        executive officer, chief operating officer, president, vice president,
        chief financial officer or treasurer of such Person.

               "Extension Period" shall have the meaning assigned such term in
        Section 2.2.

               "Federal Funds Rate" means, for any day, the rate per annum
        (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
        weighted average of the rates on overnight Federal funds transactions
        with members of the Federal Reserve System arranged by Federal funds
        brokers on such day, as published by the Federal Reserve Bank of New
        York on the Business Day next succeeding such day; provided that (a) if
        such day is not a Business Day, the Federal Funds Rate for such day
        shall be such rate on such transactions on the next preceding Business
        Day as so published on the next succeeding Business Day, and (b) if no
        such rate is so published on such next succeeding Business Day, the
        Federal

                                       8
<PAGE>   14

        Funds Rate for such day shall be the average rate charged to the
        Administrative Agent (in its individual capacity) on such day on such
        transactions as determined by the Administrative Agent.

               "Fees" means all fees payable pursuant to Section 3.5.

               "Funding Date" means the date on which the conditions set forth
        in Section 4.1 and Section 4.2 have been fulfilled, provided that such
        date must be on or before March 14, 2000.

               "Funds" shall have the meaning assigned to such term in Schedule
        4.3.

               "GAAP" means generally accepted accounting principles in the
        United States applied on a consistent basis and subject to the terms of
        Section 1.3.

               "Governmental Authority" means any Federal, state, local or
        foreign court or governmental agency, authority, instrumentality or
        regulatory body.

               "Ground Lease Agreement" means that certain ground lease
        agreement dated as of September 30, 1997 by and between Stewart Avenue
        Properties, a California general partnership and the Borrower (as
        assignee in interest of the Guarantor), as amended or modified from time
        to time.

               "Guarantor" means Nordstrom, Inc., a Washington corporation.

               "Guaranty Agreement" means that certain guaranty agreement dated
        as of the date hereof in the form of Exhibit 1.1(a) executed by the
        Guarantor, as amended, modified, restated or supplemented from time to
        time.

               "Guaranty Obligations" means, with respect to any Person, without
        duplication, any obligations of such Person (other than endorsements in
        the ordinary course of business of negotiable instruments for deposit or
        collection) guaranteeing or intended to guarantee any Indebtedness of
        any other Person in any manner, whether direct or indirect, and
        including without limitation any obligation, whether or not contingent,
        (i) to purchase any such Indebtedness or any Property constituting
        security therefor, (ii) to advance or provide funds or other support for
        the payment or purchase of any such Indebtedness or to maintain working
        capital, solvency or other balance sheet condition of such other Person
        (including without limitation keep well agreements, maintenance
        agreements, comfort letters or similar agreements or arrangements) for
        the benefit of any holder of Indebtedness of such other Person, (iii) to
        lease or purchase Property, securities or services primarily for the
        purpose of assuring the holder of such Indebtedness, or (iv) to
        otherwise assure or hold harmless the holder of such Indebtedness
        against loss in respect thereof. The amount of any Guaranty Obligation
        hereunder shall (subject to any limitations set forth therein) be deemed
        to be an amount equal to the outstanding principal amount (or maximum
        principal amount, if larger) of the Indebtedness in respect of which
        such Guaranty Obligation is made.

                                       9
<PAGE>   15

               "Hedging Agreements" means any interest rate protection agreement
        entered into by the Borrower in connection with the Loans.

               "Housing Credits Letter of Credit" shall have the meaning
        assigned to such term in Section 7.1(c).

               "Housing Project" means the multifamily residential building
        containing approximately sixty-five (65) units on five levels above one
        street-level of retail space.

               "HRG" means Housing Resources Group, a Washington nonprofit
        corporation.

               "Improvements" means all improvements (including, without
        limitation, the Project) constructed by the Borrower on the Land.

               "Indebtedness" means, with respect to any Person, without
        duplication, (a) all obligations of such Person for borrowed money, (b)
        all obligations of such Person evidenced by bonds, debentures, notes or
        similar instruments, or upon which interest payments are customarily
        made, (c) all obligations of such Person under conditional sale or other
        title retention agreements relating to Property purchased by such Person
        (other than customary reservations or retentions of title under
        agreements with suppliers entered into in the ordinary course of
        business), (d) all obligations of such Person issued or assumed as the
        deferred purchase price of Property or services purchased by such Person
        (other than trade debt incurred in the ordinary course of business and
        due within twelve months of the incurrence thereof) which would appear
        as liabilities on a balance sheet of such Person, (e) all obligations of
        such Person under take-or-pay or similar arrangements or under
        commodities agreements, (f) all Indebtedness of others secured by (or
        for which the holder of such Indebtedness has an existing right,
        contingent or otherwise, to be secured by) any Lien on, or payable out
        of the proceeds of production from, Property owned or acquired by such
        Person, whether or not the obligations secured thereby have been
        assumed, (g) all Guaranty Obligations of such Person with respect to
        Indebtedness of another Person, (h) the principal portion of all
        obligations of such Person under Capital Leases, (i) all obligations of
        such Person under Hedging Agreements, (j) the maximum amount of all
        performance and standby letters of credit issued or bankers' acceptances
        facilities created for the account of such Person and, without
        duplication, all drafts drawn thereunder (to the extent unreimbursed),
        (k) all preferred Capital Stock issued by such Person and which by the
        terms thereof could be (at the request of the holders thereof or
        otherwise) subject to mandatory sinking fund payments, redemption or
        other acceleration at any time prior to the final Maturity Date
        hereunder, (l) the principal portion of all obligations of such Person
        under Synthetic Leases, (m) all obligations of such Person to repurchase
        any securities which repurchase obligation is related to the issuance
        thereof, including, without limitation, obligations commonly known as
        residual equity appreciation potential shares, (n) the Indebtedness of
        any partnership or unincorporated joint venture in which such Person is
        a general partner or a joint venturer and (o) the aggregate amount of
        uncollected accounts receivable of such Person subject at such time to a
        sale of receivables (or similar transaction) regardless of whether such
        transaction is effected without recourse to such

                                       10
<PAGE>   16

        Person or in a manner that would not be reflected on the balance sheet
        of such Person in accordance with GAAP.

               "Interbank Offered Rate" means, for any Eurodollar Loan for any
        Interest Period therefor, the rate per annum (rounded upwards, if
        necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750
        (or any successor page) as the London interbank offered rate for
        deposits in Dollars at approximately 11:00 a.m. (London time) two
        Business Days prior to the first day of such Interest Period for a term
        comparable to such Interest Period. If for any reason such rate is not
        available, the term "Interbank Offered Rate" shall mean, for any
        Eurodollar Loan for any Interest Period therefor, the rate per annum
        (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
        Reuters Screen LIBO Page as the London interbank offered rate for
        deposits in Dollars at approximately 11:00 a.m. (London time) two
        Business Days prior to the first day of such Interest Period for a term
        comparable to such Interest Period; provided, however, if more than one
        rate is specified on Reuters Screen LIBO Page, the applicable rate shall
        be the arithmetic mean of all such rates (rounded upwards, if necessary,
        to the nearest 1/100 of 1%).

               "Interest Payment Date" means (a) as to Base Rate Loans, each
        March 31, June 30, September 30 and December 31 and the Maturity Date,
        and (b) as to Eurodollar Loans, the last day of each applicable Interest
        Period, the date of repayment of principal of such Loan and the Maturity
        Date, and in addition where the applicable Interest Period for a
        Eurodollar Loan is greater than three months, then also the date three
        months from the beginning of the Interest Period and each three months
        thereafter.

               "Interest Period" means, as to Eurodollar Loans, a period of one,
        two, three or six months' duration, as the Borrower may elect,
        commencing, in each case, on the date of the borrowing (including
        continuations and conversions thereof); provided, however, (a) if any
        Interest Period would end on a day which is not a Business Day, such
        Interest Period shall be extended to the next succeeding Business Day
        (except that where the next succeeding Business Day falls in the next
        succeeding calendar month, then on the next preceding Business Day), (b)
        no Interest Period shall extend beyond the Maturity Date and (c) where
        an Interest Period begins on a day for which there is no numerically
        corresponding day in the calendar month in which the Interest Period is
        to end, such Interest Period shall end on the last Business Day of such
        calendar month.

               "Investment" means (a) the acquisition (whether for cash,
        property, services, assumption of Indebtedness, securities or otherwise)
        of (i) all or any substantial portion of the assets of any Person or
        (ii) the shares of Capital Stock, bonds, notes, debentures, partnership,
        joint ventures or other ownership interests or other securities of any
        Person or (b) any deposit with, or advance, loan or other extension of
        credit to, any Person (other than deposits made in connection with the
        purchase of equipment or other assets in the ordinary course of
        business) or (c) any other capital contribution to or investment in such
        Person, including, without limitation, any Guaranty Obligations
        (including any support for a letter of credit issued on behalf of such
        Person) incurred for the benefit of such Person.

                                       11
<PAGE>   17

               "Joint Development Agreement" means that certain Joint
        Development Agreement dated as of April 2, 1998 by and among the
        Guarantor, Seventh & Olive, Inc. and HRG.

               "Land" means the real property located at 1700 Seventh Avenue in
        Seattle, Washington more particularly described as Parcels A and B in
        Schedule 1.1(b).

               "Lender" means any of the Persons identified as a "Lender" on the
        signature pages hereto, and any Person which may become a Lender by way
        of assignment in accordance with the terms hereof, together with their
        successors and permitted assigns.

               "Letter of Credit Agreement" means that certain Agreement
        Regarding Letter of Credit to Secure Production of Low Income Housing
        for Floor Area Bonus with an effective date of February 3, 2000 between
        the Borrower and the City, acting through its Office of Housing.

               "Lien" means any mortgage, pledge, hypothecation, assignment,
        deposit arrangement, security interest, encumbrance, lien (statutory or
        otherwise), preference, priority or charge of any kind (including any
        agreement to give any of the foregoing, any conditional sale or other
        title retention agreement, any financing or similar statement or notice
        filed under the Uniform Commercial Code as adopted and in effect in the
        relevant jurisdiction or other similar recording or notice statute, and
        any lease in the nature thereof).

               "Loan" or "Loans" means the Revolving Loans (or a portion of any
        Revolving Loan bearing interest at the Adjusted Base Rate or the
        Adjusted Eurodollar Rate), individually or collectively, as appropriate.

               "Material Adverse Effect" means a material adverse effect on (i)
        the condition (financial or otherwise), operations, business, assets,
        liabilities or prospects of (a) the Borrower or (b) the Guarantor and
        its Subsidiaries taken as a whole, (ii) the ability of any Credit Party
        to perform any material obligation applicable to it under the Credit
        Documents to which it is a party or (iii) the material rights and
        remedies of the Administrative Agent and the Lenders under the Credit
        Documents.

               "LTV Ratio" means the ratio of (a) the Revolving Committed Amount
        to (b) the fair market value of the Project, as determined in accordance
        with appraisal delivered to the Agents pursuant to Section 2.2(h).

               "Materials of Environmental Concern" means any gasoline or
        petroleum (including crude oil or any fraction thereof) or petroleum
        products or any hazardous or toxic substances, materials or wastes,
        defined or regulated as such in or under any Environmental Laws,
        including, without limitation, asbestos, polychlorinated biphenyls and
        urea-formaldehyde insulation.

               "Maturity Date" means August 29, 2002, as such date may be
        extended pursuant to Section 2.2.

                                       12
<PAGE>   18

               "Moody's" means Moody's Investors Service, Inc., or any
        successor or assignee of the business of such company in the business of
        rating securities.

               "Mortgage Instrument" shall have the meaning assigned such term
        in Section 4.1(e).

               "Mortgage Policy" shall have the meaning assigned to such term
        in Section 4.2(e).

               "Multiple Employer Plan" means a Plan (other than a Multiemployer
        Plan) which the Borrower or any ERISA Affiliate and at least one
        employer other than the Borrower or any ERISA Affiliate are contributing
        sponsors.

               "Net Operating Income" means, (i) assuming the Project has been
        substantially complete for twelve months on the date of determination,
        for the twelve month period most recently ending, an amount equal to (A)
        the income of the Borrower with respect to the operation of the
        Improvements (utilizing the actual parking revenues, expense
        reimbursements and lease rates so long as such parking revenues, expense
        reimbursements and lease rates do not exceed fair market value) for such
        period, as determined in accordance with GAAP minus (B) the Vacancy
        Reserve for such period minus (C) the Capital Reserve minus (D) an
        amount equal to the greater of (I) the sum of all expenses (exclusive of
        interest expense, depreciation and amortization expense) incurred or
        accrued by the Borrower in connection with the ownership and/or
        operation of the Improvements for such period, as determined in
        accordance with GAAP and (II) the operating expenses at stabilization
        for such period as set forth in the appraisal provided to the Project
        Administrative Agent in accordance with Section 4.1(e)(vi) (provided,
        however, with respect to any space in the Improvements which has not
        been occupied for the complete twelve month period in question, the
        income and expenses associated with the leasing of such space during the
        twelve month period in question shall be annualized for purposes of
        determining Net Operating Income for such twelve month period), or (ii)
        if the Project has not been substantially complete for at least twelve
        months on the date of determination, for that period in which the
        Project has been substantially complete, an amount equal to (A)
        annualized income of the Borrower with respect to the operation of the
        Improvements (utilizing the actual parking revenues, expense
        reimbursements and lease rates so long as such parking revenues, expense
        reimbursements and lease rates do not exceed fair market value) for such
        period, as determined in accordance with GAAP minus (B) annualized
        Vacancy Reserve for such period minus (C) the Capital Reserve minus (D)
        an amount equal to the greater of (I) annualized expenses (exclusive of
        interest expense, depreciation and amortization expense) incurred or
        accrued by the Borrower in connection with the ownership and/or
        operation of the Improvements for such period, as determined in
        accordance with GAAP and (II) annualized operating expenses at
        stabilization for such period as set forth in the appraisal provided to
        the Project Administrative Agent in accordance with Section 4.1(e)(vi).

               "Nordstrom Credit Agreement" means that certain Amended and
        Restated Credit Agreement dated as of October 15, 1999 among the
        Guarantor, the lenders named therein, Banc One, NA, as syndication
        agent, Morgan Guaranty Trust Company of New York, as

                                       13
<PAGE>   19

        documentation agent and Bank of America, as administrative agent, as
        amended, modified, supplemented or restated from time to time.

               "Nordstrom Lease Agreement" means that certain agreement of lease
        dated May 12, 1998, as amended, by and between the Borrower and the
        Guarantor.

               "Nordstrom Loan" means that certain loan or line of credit in an
        amount not to exceed $20,000,000 in principal at any one time
        outstanding made by the Guarantor to the Borrower.

               "Note" or "Notes" means the Revolving Notes, individually or
        collectively, as appropriate.

               "Notice of Borrowing" means a written notice of borrowing in
        substantially the form of Exhibit 2.1(b)(i), as required by Section
        2.1(b)(i).

               "Notice of Extension/Conversion" means the written notice of
        extension or conversion in substantially the form of Exhibit 3.2, as
        required by Section 3.2.

               "Occupancy Rate" means, with respect to the Project, the ratio
        (expressed as a percentage) equal to (i) the gross leaseable area in the
        Project presently being rented by tenants pursuant to leases entered
        into by the Borrower in accordance with Section 7.15 to (ii) the actual
        gross leaseable area in the Project.

               "Operating Lease" means, as applied to any Person, any lease
        (including, without limitation, leases which may be terminated by the
        lessee at any time) of any Property (whether real, personal or mixed)
        which is not a Capital Lease other than any such lease in which that
        Person is the lessor.

               "Other Taxes" shall have the meaning assigned to such term in
        Section 3.11.

               "Participation Interest" means a purchase by a Lender of a
        participation in any Loans as provided in Section 3.14.

               "PBGC" means the Pension Benefit Guaranty Corporation established
        pursuant to Subtitle A of Title IV of ERISA and any successor thereof.

               "Permitted Investments" means Investments which are (i) cash and
        Cash Equivalents; (ii) accounts receivable created, acquired or made by
        the Borrower in the ordinary course of business and payable or
        dischargeable in accordance with customary trade terms; and (iii)
        Investments consisting of Capital Stock, obligations, securities or
        other property received by the Borrower in settlement of accounts
        receivable (created in the ordinary course of business) from bankrupt
        obligors.

                                       14
<PAGE>   20

               "Permitted Liens" means:

               (i) Liens in favor of the Administrative Agent to secure the
        Credit Party Obligations;

               (ii) Liens (other than Liens created or imposed under ERISA) for
        taxes, assessments or governmental charges or levies not yet due or
        Liens for taxes being contested in good faith by appropriate proceedings
        for which adequate reserves determined in accordance with GAAP have been
        established (and as to which the Property subject to any such Lien is
        not yet subject to foreclosure, sale or loss on account thereof);

               (iii) Liens in connection with attachments or judgments
        (including judgment or appeal bonds) provided that the judgments secured
        shall, (a) within 30 days after the entry thereof, have been discharged,
        (b) within 30 days after execution thereof have been stayed pending
        appeal and have been discharged within 30 days after the expiration of
        any such stay or (c) have been covered in full by insurance by an
        insurance carrier who has acknowledged coverage and has the ability to
        perform;

               (iv) easements, rights-of-way, restrictions (including zoning
        restrictions), minor defects or irregularities in title and other
        similar charges or encumbrances not, in any material respect, impairing
        the use of the encumbered Property for its intended purposes;

               (v) statutory Liens of mechanics, materialmen and suppliers and
        other Liens imposed by law or pursuant to customary reservations or
        retentions of title arising in the ordinary course of business, provided
        that such Liens secure only amounts not yet due and payable or, if due
        and payable, (A) are unfiled and no other action has been taken to
        enforce the same or are being contested in good faith by appropriate
        proceedings for which adequate reserves determined in accordance with
        GAAP have been established (and as to which the Property subject to any
        such Lien is not yet subject to foreclosure, sale or loss on account
        thereof) or (B) (I) the Borrower has deposited a bond or other security
        satisfactory to the Administrative Agent and the Project Administrative
        Agent in an amount reasonably required by the Administrative Agent and
        the Project Administrative Agent, but not more than the amounts
        specified in RCW 60.04.161, as now or hereafter amended, (II) the
        Borrower, to the extent the Borrower reasonably believes the Lien is
        frivolous and made without reasonable cause, or is clearly excessive,
        immediately commences its contest of such Lien, applies to court for a
        show of cause as provided for in RCW 60.04.221(9), as now or hereafter
        amended and continuously pursues the contest in good faith and with due
        diligence, (III) foreclosure of the Lien is stayed and (IV) the Borrower
        pays any judgment rendered for the lien claimant or other third party
        within ten (10) days after the entry of the judgment;

               (vi) leases or subleases granted to others not interfering in
        any material respect with the business of any Credit Party;

               (vii) any matters shown as an exception to title on the Mortgage
        Policy as of the Closing Date;

                                       15
<PAGE>   21

               (viii) in order to obtain a certificate of acceptance for the
        Housing Project from the City, (A) an agreement restricting the
        occupancy and rents of the Housing Project consistent with the terms of
        Section 4.2(b) of the Letter of Credit Agreement and (B) a deed of trust
        recorded by the City against the Tipp Property to secure the owner of
        the Housing Project's obligation to buyout the Housing Project in the
        event such owner fails to restore or replace the Housing Project
        following a casualty or condemnation; and

               (ix) Liens existing on the date hereof and identified on Schedule
        1.1(c); provided that no such Lien shall extend to any property other
        than the property subject thereto on the Closing Date.

               "Person" means any individual, partnership, joint venture, firm,
        corporation, limited liability company, association, trust or other
        enterprise (whether or not incorporated) or any Governmental Authority.

               "Plan" means any employee benefit plan (as defined in Section
        3(3) of ERISA) which is covered by ERISA and with respect to which the
        Borrower or any ERISA Affiliate is (or, if such plan were terminated at
        such time, would under Section 4069 of ERISA be deemed to be) an
        "employer" within the meaning of Section 3(5) of ERISA.

               "Plans and Specifications" shall have the meaning assigned to
        such term in Section 4.1(g).

               "Prime Rate" means the per annum rate of interest established
        from time to time by Bank of America as its prime rate, which rate may
        not be the lowest rate of interest charged by Bank of America to its
        customers.

               "Project" means the approximately 572,000 square foot office
        building and 198,000 square foot parking garage located on the Land as
        described in the Plans and Specifications.

               "Project Administrative Agent" means Bank of America, N.A. or
        any successor project administrative agent appointed pursuant to Section
        9.7.

               "Project Budget" shall have the meaning assigned to such term in
        Section 6.14.

               "Property" means any interest in any kind of property or asset,
        whether real, personal or mixed, or tangible or intangible.

               "Ratings Date" shall have the meaning assigned to such term in
        the definition of "Applicable Percentage" set forth in this Section 1.1.

               "Real Properties" means the collective reference to (a) the Land
        and the Improvements and (b) the Tipp Property.

               "Register" shall have the meaning assigned to such term in
        Section 11.3(c).

                                       16
<PAGE>   22

               "Regulation D, T, U, or X" means Regulation D, T, U or X,
        respectively, of the Board of Governors of the Federal Reserve System as
        from time to time in effect and any successor to all or a portion
        thereof.

               "Reportable Event" means any of the events set forth in Section
        4043(c) of ERISA, other than those events as to which the notice
        requirement has been waived by regulation.

               "Required Lenders" means, at any time, Lenders other than
        Defaulting Lenders which are then in compliance with their obligations
        hereunder (as determined by the Administrative Agent) and holding in the
        aggregate more than 66 2/3% of (i) the Revolving Commitments (and
        Participation Interests therein) or (ii) if the Revolving Commitments
        have been terminated, the outstanding Loans and Participation Interests.

               "Requirement of Law" means, as to any Person, the certificate of
        incorporation and by-laws or other organizational or governing documents
        of such Person, and any law, treaty, rule or regulation or determination
        of an arbitrator or a court or other Governmental Authority, in each
        case applicable to or binding upon such Person or to which any of its
        material property is subject.

               "Restricted Payment" means (i) any dividend or other payment or
        distribution, direct or indirect, on account of any shares of any class
        of Capital Stock of the Borrower or any of its Subsidiaries, now or
        hereafter outstanding, (ii) any redemption, retirement, sinking fund or
        similar payment, purchase or other acquisition for value, direct or
        indirect, of any shares of any class of Capital Stock of the Borrower or
        any of its Subsidiaries, now or hereafter outstanding or (iii) any
        payment made to retire, or to obtain the surrender of, any outstanding
        warrants, options or other rights to acquire shares of any class of
        Capital Stock of the Borrower or any of its Subsidiaries, now or
        hereafter outstanding.

               "Revolving Commitment" means, with respect to each Lender, the
        commitment of such Lender in an aggregate principal amount at any time
        outstanding of up to such Lender's Revolving Commitment Percentage of
        the Revolving Committed Amount to make Revolving Loans in accordance
        with the provisions of Section 2.1(a).

               "Revolving Commitment Percentage" means, for any Lender, the
        percentage identified as its Revolving Commitment Percentage on Schedule
        2.1(a), as such percentage may be modified in connection with any
        assignment made in accordance with the provisions of Section 10.3.

               "Revolving Committed Amount" shall have the meaning assigned to
        such term in Section 2.1(a).

               "Revolving Loans" shall have the meaning assigned to such term
        in Section 2.1(a).

               "Revolving Note" or "Revolving Notes" means the promissory notes
        of the Borrower in favor of each Lender provided pursuant to Section
        2.1(e) and evidencing the Revolving Loans of such Lender, individually
        or collectively, as appropriate, as such

                                       17
<PAGE>   23

        promissory notes may be amended, modified, restated, supplemented,
        extended, renewed or replaced from time to time.

               "S&P" means Standard & Poor's Ratings Group, a division of The
        McGraw Hill Companies, Inc., or any successor or assignee of the
        business of such division in the business of rating securities.

               "Sale and Leaseback Transaction" means any arrangement pursuant
        to which the Borrower, directly or indirectly, becomes liable as lessee,
        guarantor or other surety with respect to any lease, whether an
        Operating Lease or a Capital Lease, of any Property (a) which the
        Borrower has sold or transferred (or is to sell or transfer) to a Person
        which is not the Borrower or (b) which the Borrower intends to use for
        substantially the same purpose as any other Property which has been sold
        or transferred (or is to be sold or transferred) by the Borrower to
        another Person which is not the Borrower in connection with such lease.

               "SCIDPDA TDR Agreement" means that certain Agreement for Purchase
        and Sale of Transferable Development Rights dated as of December 28,
        1999 by and between Seattle Chinatown International District
        Preservation and Development Authority and the Borrower.

               "Securities Exchange Act" means the Securities Exchange Act of
        1934.

               "Senior Debt" shall have the meaning given such term in the
        definition of Senior Debt Rating.

               "Senior Debt Rating" means the publicly announced ratings by S&P
        and Moody's for the senior unsecured (non-credit enhanced) long term
        debt of the Guarantor ("Senior Debt").

               "Seventh and Stewart" means Seventh and Stewart LLC, a Washington
        limited liability company.

               "Single Employer Plan" means any Plan which is covered by Title
        IV of ERISA, but which is not a Multiemployer Plan or a Multiple
        Employer Plan.

               "Solvent" means, with respect to any Person on a particular date,
        that on such date (i) the property of such Person, at a fair valuation,
        is greater than the total amount of such Person's absolute and matured
        debts, and (b) such Person is generally paying his, her or its debts as
        they become due.

               "Stabilization" means, with respect to the Project, the condition
        where (i) the Project has an Occupancy Rate of at least 90% for two
        consecutive fiscal quarters and (ii) the Borrower has received a
        certificate of occupancy from the appropriate Governmental Authority
        with respect to the Project (in form and substance satisfactory to the
        Project Administrative Agent).

                                       18
<PAGE>   24

               "Subordinated Debt" shall have the meaning assigned to such term
        in Section 7.1(h).

               "Subsidiary" means, as to any Person at any time, (a) any
        corporation more than 50% of whose Capital Stock of any class or classes
        having by the terms thereof ordinary voting power to elect a majority of
        the directors of such corporation (irrespective of whether or not at
        such time, any class or classes of such corporation shall have or might
        have voting power by reason of the happening of any contingency) is at
        such time owned by such Person directly or indirectly through
        Subsidiaries, and (b) any partnership, association, joint venture or
        other entity of which such Person directly or indirectly through
        Subsidiaries owns at such time more than 50% of the Capital Stock. The
        Borrower is not a Subsidiary of the Guarantor.

               "Synthetic Lease" means any synthetic lease, tax retention
        operating lease, off-balance sheet loan or similar off-balance sheet
        financing product where such transaction is considered borrowed money
        indebtedness for tax purposes but is classified as an Operating Lease
        under GAAP.

               "Taxes" shall have the meaning assigned to such term in Section
        3.11.

               "Tipp Property" means the real property described as Parcel C in
        Schedule 1.1(b).

               "Title Insurance Company" shall have the meaning assigned to such
        term in Section 4.2(d).

               "Transferable Development Rights Agreements" means a collective
        reference to the SCIDPDA TDR Agreement and the YMCA TDR Agreement.

               "Treasury Rate" means, for any day, a rate of interest equal to
        the yield for actively traded U.S. Treasury securities having a ten (10)
        year maturity as determined by the Administrative Agent prior to 9:00
        a.m. (San Francisco, California time).

               "Unused Fee" shall have the meaning assigned to such term in
        Section 3.5(b).

               "Unused Fee Calculation Period" shall have the meaning assigned
        to such term in Section 3.5(b).

               "Unused Revolving Committed Amount" means, for any period, the
        amount by which (a) the then applicable Revolving Committed Amount
        exceeds (b) the daily average sum for such period of the outstanding
        aggregate principal amount of all Revolving Loans.

               "Upfront Fee" shall have the meaning assigned to such term in
        Section 3.5(a).

               "Vacancy Reserve" means an amount equal to 2.6% of the income
        generated by the Borrower from the operation of the Improvements for the
        applicable period.

                                       19
<PAGE>   25

               "Voting Stock" means, with respect to any Person, Capital Stock
        issued by such Person the holders of which are ordinarily, in the
        absence of contingencies, entitled to vote for the election of directors
        (or persons performing similar functions) of such Person, even though
        the right so to vote has been suspended by the happening of such a
        contingency.

               "Wholly Owned Subsidiary" of any Person means any Subsidiary 100%
        of whose Voting Stock is at the time owned by such Person directly or
        indirectly through other Wholly Owned Subsidiaries.

               "Year 2000 Problem" shall have the meaning assigned to such term
        in Section 5.21.

               "YMCA TDR Agreement" means that certain Agreement for Purchase
        and Sale of Transferable Development Rights dated as of December 3, 1999
        by and among Young Men's Christian Association of Greater Seattle, 909
        4th YMCA Limited Partnership and the Borrower.

        1.2 COMPUTATION OF TIME PERIODS.

        For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."

        1.3 ACCOUNTING TERMS.

        Except as otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the Administrative
Agent and/or the Lenders hereunder shall be prepared, in accordance with GAAP
applied on a consistent basis. All calculations made for the purposes of
determining compliance with this Credit Agreement shall (except as otherwise
expressly provided herein) be made by application of GAAP applied on a basis
consistent with the most recent annual or quarterly financial statements
delivered pursuant to Section 6.1 (or, prior to the delivery of the first
financial statements pursuant to Section 6.1, consistent with the financial
statements as at December 31, 1998); provided, however, if (a) the Borrower
shall object to determining such compliance on such basis at the time of
delivery of such financial statements due to any change in GAAP or the rules
promulgated with respect thereto or (b) the Administrative Agent or the Required
Lenders shall so object in writing within 60 days after delivery of such
financial statements, then such calculations shall be made on a basis consistent
with the most recent financial statements delivered by the Borrower to the
Lenders as to which no such objection shall have been made.

                                       20
<PAGE>   26

                                    SECTION 2

                                CREDIT FACILITIES

        2.1 REVOLVING LOANS.

                (a) Revolving Commitment. Subject to the terms and conditions
        hereof and in reliance upon the representations and warranties set forth
        herein, each Lender severally agrees to make available to the Borrower
        such Lender's Revolving Commitment Percentage of revolving credit loans
        requested by the Borrower in Dollars ("Revolving Loans") from time to
        time from the Funding Date until the Maturity Date, or such earlier date
        as the Revolving Commitments shall have been terminated as provided
        herein; provided, however, that the sum of the aggregate outstanding
        principal amount of Revolving Loans shall not exceed NINETY THREE
        MILLION DOLLARS ($93,000,000) (as such aggregate maximum amount may be
        reduced from time to time as provided in Section 3.4, the "Revolving
        Committed Amount"); provided, further, (A) with regard to each Lender
        individually, such Lender's outstanding Revolving Loans shall not exceed
        such Lender's Revolving Commitment Percentage of the Revolving Committed
        Amount, (B) the sum of the aggregate outstanding principal amount of
        Revolving Loans shall not exceed the Revolving Committed Amount, (C) a
        Revolving Loan borrowing shall only be made available once per calendar
        month and (D) each Revolving Loan borrowing is subject to the conditions
        set forth in Schedule 4.3. Revolving Loans may consist of Base Rate
        Loans or Eurodollar Loans, or a combination thereof, as the Borrower may
        request; provided, however, that no more than six Eurodollar Loans shall
        be outstanding hereunder at any time (it being understood that, for
        purposes hereof, Eurodollar Loans with different Interest Periods shall
        be considered as separate Eurodollar Loans, even if they begin on the
        same date, although borrowings, extensions and conversions may, in
        accordance with the provisions hereof, be combined at the end of
        existing Interest Periods to constitute a new Eurodollar Loan with a
        single Interest Period). Once repaid, the Revolving Loans cannot be
        reborrowed. No Revolving Loans shall be made available during the
        Extension Period.

                (b) Revolving Loan Borrowings.

                        (i) Notice of Borrowing. After having satisfied the
                terms and conditions of Schedule 4.3 hereof with respect to any
                request for the disbursement of Funds, the Borrower may then
                make a request for a Revolving Loan in the amount approved by
                the Project Administrative Agent with respect to such a request
                for Funds in accordance with the terms of Schedule 4.3;
                provided, however, if the Borrower submits a Notice of Borrowing
                to the Administrative Agent prior to having satisfied the terms
                and conditions of Schedule 4.3, the parties hereto agree that
                the Administrative Agent shall not accept such Notice of
                Borrowing, and the Borrower shall have to re-submit such Notice
                of Borrowing after the Project Administrative Agent has
                confirmed that the terms and conditions of Schedule 4.3 with
                respect to such borrowing have been satisfied. The Borrower
                shall request a Revolving Loan borrowing by written notice (or
                telephonic notice promptly confirmed in writing) to the
                Administrative Agent not later than 10:00 A.M. (San

                                       21
<PAGE>   27

                Francisco, California time) on the Business Day prior to the
                date of the requested borrowing in the case of Base Rate Loans,
                and on the third Business Day prior to the date of the requested
                borrowing in the case of Eurodollar Loans. Each such request for
                borrowing shall be irrevocable and shall specify (A) that a
                Revolving Loan is requested, (B) the date of the requested
                borrowing (which shall be a Business Day), (C) the aggregate
                principal amount to be borrowed, and (D) whether the borrowing
                shall be comprised of Base Rate Loans, Eurodollar Loans or a
                combination thereof, and if Eurodollar Loans are requested, the
                Interest Period(s) therefor. If the Borrower shall fail to
                specify in any such Notice of Borrowing (I) an applicable
                Interest Period in the case of a Eurodollar Loan, then such
                notice shall be deemed to be a request for an Interest Period of
                one month, or (II) the type of Revolving Loan requested, then
                such notice shall be deemed to be a request for a Base Rate Loan
                hereunder. The Administrative Agent shall give notice to each
                affected Lender promptly upon receipt of each Notice of
                Borrowing pursuant to this Section 2.1(b)(i), the contents
                thereof and each such Lender's share of any borrowing to be made
                pursuant thereto.

                        (ii) Minimum Amounts. (a) Each Eurodollar Loan shall be
                in a minimum aggregate principal amount of $2,000,000 and
                integral multiples of $100,000 in excess thereof (or the
                remaining amount of the Revolving Committed Amount, if less),
                and (b) each Base Rate Loan shall be in a minimum aggregate
                principal amount of $100,000 (or the remaining amount of the
                Revolving Committed Amount, if less).

                        (iii) Advances. Each Lender will make its Revolving
                Commitment Percentage of each Revolving Loan borrowing available
                to the Administrative Agent for the account of the Borrower as
                specified in Section 3.15(a), or in such other manner as the
                Administrative Agent may specify in writing, by 8:00 A.M. (San
                Francisco, California time) on the date specified in the
                applicable Notice of Borrowing in Dollars and in funds
                immediately available to the Administrative Agent. Such
                borrowing will then be made available to the Borrower by the
                Administrative Agent by crediting the account of the Borrower
                with Bank of America (the "Deposit Account") with the aggregate
                of the amounts made available to the Administrative Agent by the
                Lenders and in like funds as received by the Administrative
                Agent.

                (c) Repayment. The principal amount of all Revolving Loans shall
        be due and payable in full on the Maturity Date, unless accelerated
        sooner pursuant to Section 8.2.

                (d) Interest. Subject to the provisions of Section 3.1,

                        (i) Base Rate Loans. During such periods as Revolving
                Loans shall be comprised in whole or in part of Base Rate Loans,
                such Base Rate Loans shall bear interest at a per annum rate
                equal to the Adjusted Base Rate.

                                       22
<PAGE>   28

                        (ii) Eurodollar Loans. During such periods as Revolving
                Loans shall be comprised in whole or in part of Eurodollar
                Loans, such Eurodollar Loans shall bear interest at a per annum
                rate equal to the Adjusted Eurodollar Rate.

        Interest on Revolving Loans shall be payable in arrears on each
        applicable Interest Payment Date (or at such other times as may be
        specified herein).

                (e) Revolving Notes. The Revolving Loans made by each Lender
        shall be evidenced by a duly executed promissory note of the Borrower to
        such Lender in an original principal amount equal to such Lender's
        Revolving Commitment Percentage of the Revolving Committed Amount and in
        substantially the form of Exhibit 2.1(e).

        2.2 EXTENSION OF MATURITY DATE.

        Not more than 120 days and not less than 60 days prior to August 29,
2002 (the "Extension Date"), the Borrower may request in writing that the
Lenders extend the Maturity Date for an additional one year period (the
"Extension Period"). The Maturity Date shall be extended for an additional one
year period if, on the Extension Date, the following conditions are satisfied:

                (a) no Default or Event of Default then exists;

                (b) payment by the Borrower to each Lender of an extension fee
        in an amount equal to 0.25% of such Lender's outstanding Revolving Loans
        on the Extension Date;

                (c) the Guarantor shall have a Senior Debt Rating of no less
        than A- from S&P and A3 from Moody's;

                (d) certificates of occupancy with respect to the Project (in
        form and substance reasonably satisfactory to the Project Administrative
        Agent) shall have been issued by the appropriate Governmental Authority;

                (e) the Guarantor shall not be in default under any agreement
        governing Indebtedness of the Guarantor for borrowed money;

                (f) (i) the Nordstrom Lease Agreement shall be in full force and
        effect and (ii) the Administrative Agent shall have received from the
        Guarantor an estoppel certificate, in a form attached hereto as Exhibit
        2.2;

                (g) the Debt Service Coverage Ratio, as of the calendar month
        most recently ended, for the twelve month period ending on such date,
        shall be greater than or equal to 1.25 to 1.0;

                (h) the Administrative Agent and the Project Administrative
        Agent shall have received an appraisal of the Project prepared by a
        qualified appraiser designated by and satisfactory to the Administrative
        Agent and the Project Administrative Agent and otherwise satisfactory in
        form and substance to the Administrative Agent and the Project
        Administrative Agent, demonstrating an LTV Ratio less than or equal to
        0.75 to 1.0;

                                       23
<PAGE>   29

                (i) the construction of the Project has been substantially
        completed in accordance with the Plans and Specifications and a
        certificate (in form and substance satisfactory to the Project
        Administrative Agent) as to such completion shall have been issued by
        the project architect;

                (j) the Administrative Agent and the Project Administrative
        Agent shall have received an updated title report for the Project
        containing no exceptions not approved by the Administrative Agent and
        the Project Administrative Agent and otherwise in form and substance
        satisfactory to the Administrative Agent and the Project Administrative
        Agent; and

                (k) the Administrative Agent and the Project Administrative
        Agent shall have received an as-built survey of the Project, certified
        to the Administrative Agent by an independent professional licensed land
        surveyor showing all improvements in place on the Land and otherwise in
        form and substance satisfactory to the Administrative Agent and the
        Project Administrative Agent, together with any endorsements to the
        Title Policy reasonably requested by the Administrative Agent or the
        Project Administrative Agent to address changes in the state of title
        disclosed in such as-built survey.

                                    SECTION 3

                 OTHER PROVISIONS RELATING TO CREDIT FACILITIES

        3.1 DEFAULT RATE.

        Upon the occurrence, and during the continuance, of an Event of Default,
the principal of and, to the extent permitted by law, interest on the Loans and
any other amounts owing hereunder or under the other Credit Documents shall bear
interest, payable on demand, at a per annum rate 2% greater than the rate which
would otherwise be applicable (or if no rate is applicable, whether in respect
of interest, fees or other amounts, then the Adjusted Base Rate plus 2%).

        3.2 EXTENSION AND CONVERSION.

        The Borrower shall have the option, on any Business Day, to extend
existing Loans into a subsequent permissible Interest Period or to convert Loans
into Loans of another interest rate type; provided, however, that (i) except as
provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans
or extended as Eurodollar Loans for new Interest Periods only on the last day of
the Interest Period applicable thereto, (ii) without the consent of the Required
Lenders, Eurodollar Loans may be extended, and Base Rate Loans may be converted
into Eurodollar Loans, only if the conditions precedent set forth in Section 4.3
are satisfied on the date of extension or conversion, (iii) Loans extended as,
or converted into, Eurodollar Loans shall be subject to the terms of the
definition of "Interest Period" set forth in Section 1.1 and shall be in such
minimum amounts as provided in, with respect to Revolving Loans, Section
2.1(b)(ii), (iv) no more than six Eurodollar Loans shall be outstanding
hereunder at any time (it being understood that, for purposes hereof, Eurodollar
Loans with different Interest Periods shall be considered as separate Eurodollar

                                       24
<PAGE>   30

Loans, even if they begin on the same date, although borrowings, extensions and
conversions may, in accordance with the provisions hereof, be combined at the
end of existing Interest Periods to constitute a new Eurodollar Loan with a
single Interest Period) and (v) any request for extension or conversion of a
Eurodollar Loan which shall fail to specify an Interest Period shall be deemed
to be a request for an Interest Period of one month. Each such extension or
conversion shall be effected by the Borrower by giving a Notice of
Extension/Conversion (or telephonic notice promptly confirmed in writing) to the
office of the Administrative Agent specified in Schedule 2.1(a), or at such
other office as the Administrative Agent may designate in writing, prior to
10:00 A.M. (San Francisco, California time) on the Business Day of, in the case
of the conversion of a Eurodollar Loan into a Base Rate Loan, and on the third
Business Day prior to, in the case of the extension of a Eurodollar Loan as, or
conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed
extension or conversion, specifying the date of the proposed extension or
conversion, the Loans to be so extended or converted, the types of Loans into
which such Loans are to be converted and, if appropriate, the applicable
Interest Periods with respect thereto. Each request for extension or conversion
shall be irrevocable and shall constitute a representation and warranty by the
Borrower of the matters specified in subsections (b), (c), (d), (e), (g) and (h)
of Section 4.3. In the event the Borrower fails to request extension or
conversion of any Eurodollar Loan in accordance with this Section, or any such
conversion or extension is not permitted or required by this Section, then such
Eurodollar Loan shall be automatically converted into a Base Rate Loan at the
end of the Interest Period applicable thereto. The Administrative Agent shall
give each Lender notice as promptly as practicable of any such proposed
extension or conversion affecting any Loan.

        3.3 PREPAYMENTS.

                (a) Voluntary Prepayments. The Borrower shall have the right to
        prepay Loans in whole or in part from time to time; provided, however,
        that (i) each partial prepayment of Eurodollar Loans shall be in a
        minimum principal amount of $2,000,000 and integral multiples of
        $100,000 in excess thereof (or the then remaining principal balance of
        the Revolving Loans, if less) and (ii) each partial prepayment of Base
        Rate Loans shall be in a minimum principal amount of $100,000 and
        integral multiples of $100,000 in excess thereof (or the remaining
        principal balance of Base Rate Loans, if less). Subject to the foregoing
        terms, amounts prepaid under this Section 3.3(a) shall be applied as the
        Borrower may elect; provided that if the Borrower fails to specify a
        voluntary prepayment then such prepayment shall be applied to Revolving
        Loans, in each case first to Base Rate Loans and then to Eurodollar
        Loans in direct order of Interest Period maturities. All prepayments
        under this Section 3.3(a) shall be subject to Section 3.12, but
        otherwise without premium or penalty, and shall be accompanied by
        interest on the principal amount prepaid through the date of prepayment.

                (b) Mandatory Prepayments.

                        (i) Revolving Committed Amount. If at any time, the sum
                of the aggregate outstanding principal amount of Revolving Loans
                shall exceed the Revolving Committed Amount, the Borrower
                immediately shall prepay the Revolving Loans in an amount
                sufficient to eliminate such excess.

                                       25
<PAGE>   31

                        (ii) Application of Mandatory Prepayments. All amounts
                required to be paid pursuant to this Section 3.3(b) shall be
                applied to the Revolving Loans. Within the parameters of the
                applications set forth above, prepayments shall be applied first
                to Base Rate Loans and then to Eurodollar Loans in direct order
                of Interest Period maturities. All prepayments under this
                Section 3.3(b) shall be subject to Section 3.12, but otherwise
                without premium or penalty, and shall be accompanied by interest
                on the principal amount prepaid through the date of prepayment.

        3.4 TERMINATION AND REDUCTION OF REVOLVING COMMITTED AMOUNT.

                (a) Voluntary Reductions. The Borrower may from time to time
        permanently reduce or terminate the Revolving Committed Amount in whole
        or in part (in minimum aggregate amounts of $5,000,000 or in integral
        multiples of $1,000,000 in excess thereof (or, if less, the full
        remaining amount of the then applicable Revolving Committed Amount))
        upon five Business Days' prior written notice to the Administrative
        Agent; provided, however, no such termination or reduction shall be made
        which would cause the sum of the aggregate outstanding principal amount
        of Revolving Loans to exceed the Revolving Committed Amount, unless,
        concurrently with such termination or reduction, the Revolving Loans are
        repaid to the extent necessary to eliminate such excess. The
        Administrative Agent shall promptly notify each affected Lender of
        receipt by the Administrative Agent of any notice from the Borrower
        pursuant to this Section 3.4(a).

                (b) Maturity Date. The Revolving Commitments of the Lenders
        shall automatically terminate on the Maturity Date.

                (c) General. The Borrower shall pay to the Administrative Agent
        for the account of the Lenders in accordance with the terms of Section
        3.5(b), on the date of each termination or reduction of the Revolving
        Committed Amount, the Unused Fee accrued through the date of such
        termination or reduction on the amount of the Revolving Committed Amount
        so terminated or reduced.

        3.5 FEES.

                (a) Upfront Fees. The Borrower agrees to pay to the
        Administrative Agent for the benefit of the Lenders in immediately
        available funds on or before the Closing Date an upfront fee (the
        "Upfront Fee") in the amount provided in the Administrative Agent's Fee
        Letter.

                (b) Unused Fee. In consideration of the Revolving Commitments of
        the Lenders hereunder, the Borrower agrees to pay to the Administrative
        Agent for the account of each Lender a fee (the "Unused Fee") on the
        Unused Revolving Committed Amount computed at a per annum rate for each
        day during the applicable Unused Fee Calculation Period (hereinafter
        defined) at a rate equal to the Applicable Percentage in effect from
        time to time. The Unused Fee shall commence to accrue on the Funding
        Date and shall be due and payable in arrears on the last Business Day of
        each March, June, September and December (and on any date that the
        Revolving Committed Amount is reduced and on the

                                       26
<PAGE>   32

        Maturity Date) for the immediately preceding quarter (or portion
        thereof) (each such quarter or portion thereof for which the Unused Fee
        is payable hereunder being herein referred to as an "Unused Fee
        Calculation Period"), beginning with the first of such dates to occur
        after the Funding Date.

                (c) Administrative Fees. The Borrower agrees to pay to the
        Administrative Agent, for its own account, and for the account of BAS,
        as applicable, the fees referred to in the Administrative Agent's Fee
        Letter (collectively, the "Administrative Agent's Fees").

        3.6 CAPITAL ADEQUACY.

        If after the date hereof, the adoption or the becoming effective of, or
any change in, or any change by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof in
the interpretation or administration of, any applicable law, rule or regulation
regarding capital adequacy, or compliance by any Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or assets as a
consequence of its commitments or obligations hereunder to a level below that
which such Lender could have achieved but for such adoption, effectiveness,
change or compliance (taking into consideration such Lender's policies with
respect to capital adequacy), then, upon notice from such Lender to the
Borrower, the Borrower shall be obligated to pay to such Lender such additional
amount or amounts as will compensate such Lender for such reduction. Each
determination by any such Lender of amounts owing under this Section shall be
prima facie evidence of such amounts.

        3.7 LIMITATION ON EURODOLLAR LOANS.

        If on or prior to the first day of any Interest Period for any
Eurodollar Loan:

                (a) the Administrative Agent determines (which determination
        shall be conclusive) that by reason of circumstances affecting the
        relevant market, adequate and reasonable means do not exist for
        ascertaining the Eurodollar Rate for such Interest Period; or

                (b) the Required Lenders determine (which determination shall be
        conclusive) and notify the Administrative Agent that the Eurodollar Rate
        will not adequately and fairly reflect the cost to the Lenders of
        funding Eurodollar Loans for such Interest Period;

then the Administrative Agent shall give the Borrower prompt notice thereof, and
so long as such condition remains in effect, the Lenders shall be under no
obligation to make additional Eurodollar Loans, continue Eurodollar Loans, or to
convert Base Rate Loans into Eurodollar Loans and the Borrower shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Eurodollar Loans or convert such Eurodollar
Loans into Base Rate Loans in accordance with the terms of this Credit
Agreement.

                                       27
<PAGE>   33

        3.8 ILLEGALITY.

        Notwithstanding any other provision of this Credit Agreement, in the
event that it becomes unlawful for any Lender or its Applicable Lending Office
to make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's obligation to make or
continue Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as such Lender may again make, maintain, and
fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be
applicable).

        3.9 REQUIREMENTS OF LAW.

        If, after the date hereof, the adoption of any applicable law, rule, or
regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank, or comparable agency:

                        (i) shall subject such Lender (or its Applicable Lending
                Office) to any tax, duty, or other charge with respect to any
                Eurodollar Loans, its Notes, or its obligation to make
                Eurodollar Loans, or change the basis of taxation of any amounts
                payable to such Lender (or its Applicable Lending Office) under
                this Credit Agreement or its Notes in respect of any Eurodollar
                Loans (other than taxes imposed on the overall net income of
                such Lender by the jurisdiction in which such Lender has its
                principal office or such Applicable Lending Office);

                        (ii) shall impose, modify, or deem applicable any
                reserve, special deposit, assessment, or similar requirement
                (other than the Eurodollar Reserve Requirement utilized in the
                determination of the Adjusted Eurodollar Rate) relating to any
                extensions of credit or other assets of, or any deposits with or
                other liabilities or commitments of, such Lender (or its
                Applicable Lending Office), including the Commitment of such
                Lender hereunder; or

                        (iii) shall impose on such Lender (or its Applicable
                Lending Office) or the London interbank market any other
                condition affecting this Credit Agreement or its Notes or any of
                such extensions of credit or liabilities or commitments;

and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, converting into, continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Credit Agreement or
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.9, the Borrower may, by notice to such Lender
(with a copy to the Administrative Agent), suspend the obligation of such Lender
to make or continue Eurodollar Loans, or to convert Base Rate Loans into
Eurodollar Loans, until the event or condition giving rise to such request
ceases to

                                       28
<PAGE>   34

be in effect (in which case the provisions of Section 3.10 shall be applicable);
provided that such suspension shall not affect the right of such Lender to
receive the compensation so requested. Each Lender shall promptly notify the
Borrower and the Administrative Agent of any event of which it has knowledge,
occurring after the date hereof, which will entitle such Lender to compensation
pursuant to this Section 3.9 and will designate a different Applicable Lending
Office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable judgment of such Lender, be
otherwise disadvantageous to it. Any Lender claiming compensation under this
Section 3.9 shall furnish to the Borrower and the Administrative Agent a
statement setting forth the additional amount or amounts to be paid to it
hereunder which shall be prima facie evidence of such amount or amounts. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.

        3.10 TREATMENT OF AFFECTED LOANS.

        If the obligation of any Lender to make any Eurodollar Loan or to
continue, or to convert Base Rate Loans into, Eurodollar Loans shall be
suspended pursuant to Section 3.7, 3.8 or 3.9 hereof, such Lender's Eurodollar
Loans shall be automatically converted into Base Rate Loans on the last day(s)
of the then current Interest Period(s) for such Eurodollar Loans (or, in the
case of a conversion, on such earlier date as such Lender may specify to the
Borrower with a copy to the Administrative Agent) and, unless and until such
Lender gives notice as provided below that the circumstances specified in
Section 3.7, 3.8 or 3.9 hereof that gave rise to such conversion no longer
exist:

                (a) to the extent that such Lender's Eurodollar Loans have been
        so converted, all payments and prepayments of principal that would
        otherwise be applied to such Lender's Eurodollar Loans shall be applied
        instead to its Base Rate Loans; and

                (b) all Loans that would otherwise be made or continued by such
        Lender as Eurodollar Loans shall be made or continued instead as Base
        Rate Loans, and all Base Rate Loans of such Lender that would otherwise
        be converted into Eurodollar Loans shall remain as Base Rate Loans.

If such Lender gives notice to the Borrower (with a copy to the Administrative
Agent) that the circumstances specified in Section 3.7, 3.8 or 3.9 hereof that
gave rise to the conversion of such Lender's Eurodollar Loans pursuant to this
Section 3.10 no longer exist (which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Loans, to the extent necessary so that, after giving
effect thereto, all Loans held by the Lenders holding Eurodollar Loans and by
such Lender are held pro rata (as to principal amounts, interest rate basis, and
Interest Periods) in accordance with their respective Commitments....

        3.11 TAXES.

                (a) Any and all payments by any Credit Party to or for the
        account of any Lender or the Administrative Agent hereunder or under any
        other Credit Document shall be

                                       29
<PAGE>   35

        made free and clear of and without deduction for any and all present or
        future taxes, duties, levies, imposts, deductions, charges or
        withholdings, and all liabilities with respect thereto, excluding, in
        the case of each Lender and the Administrative Agent, taxes imposed on
        its income, and franchise taxes imposed on it, by the jurisdiction under
        the laws of which such Lender (or its Applicable Lending Office) or the
        Administrative Agent (as the case may be) is organized or any political
        subdivision thereof (all such non-excluded taxes, duties, levies,
        imposts, deductions, charges, withholdings, and liabilities being
        hereinafter referred to as "Taxes"). If any Credit Party shall be
        required by law to deduct any Taxes from or in respect of any sum
        payable under this Credit Agreement or any other Credit Document to any
        Lender or the Administrative Agent, (i) the sum payable shall be
        increased as necessary so that after making all required deductions
        (including deductions applicable to additional sums payable under this
        Section 3.11) such Lender or the Administrative Agent receives an amount
        equal to the sum it would have received had no such deductions been
        made, (ii) such Credit Party shall make such deductions, (iii) such
        Credit Party shall pay the full amount deducted to the relevant taxation
        authority or other authority in accordance with applicable law, and (iv)
        such Credit Party shall furnish to the Administrative Agent, at its
        address referred to in Section 11.1, the original or a certified copy of
        a receipt evidencing payment thereof.

                (b) In addition, the Borrower agrees to pay any and all present
        or future stamp or documentary taxes and any other excise or property
        taxes or charges or similar levies which arise from any payment made
        under this Credit Agreement or any other Credit Document or from the
        execution or delivery of, or otherwise with respect to, this Credit
        Agreement or any other Credit Document (hereinafter referred to as
        "Other Taxes").

                (c) The Borrower agrees to indemnify each Lender and the
        Administrative Agent for the full amount of Taxes and Other Taxes
        (including, without limitation, any Taxes or Other Taxes imposed or
        asserted by any jurisdiction on amounts payable under this Section 3.11)
        paid by such Lender or the Administrative Agent (as the case may be) and
        any liability (including penalties, interest, and expenses) arising
        therefrom or with respect thereto.

                (d) Each Lender that is not a United States Person under Section
        7701(a)(30) of the Code, on or prior to the date of its execution and
        delivery of this Credit Agreement in the case of each Lender listed on
        the signature pages hereof and on or prior to the date on which it
        becomes a Lender in the case of each other Lender, and from time to time
        thereafter if requested in writing by the Borrower or the Administrative
        Agent (but only so long as such Lender remains lawfully able to do so),
        shall provide the Borrower and the Administrative Agent with (i)
        Internal Revenue Service Form 1001 or 4224, as appropriate, or any
        successor form prescribed by the Internal Revenue Service, certifying
        that such Lender is entitled to benefits under an income tax treaty to
        which the United States is a party which reduces the rate of withholding
        tax on payments of interest or certifying that the income receivable
        pursuant to this Credit Agreement is effectively connected with the
        conduct of a trade or business in the United States, (ii) Internal
        Revenue Service Form W-8 or W-9, as appropriate, or any successor form
        prescribed by the Internal Revenue Service, and/or (iii) any other form
        or certificate required by any taxing authority (including any

                                       30
<PAGE>   36

        certificate required by Sections 871(h) and 881(c) of the Internal
        Revenue Code), certifying that such Lender is entitled to an exemption
        from or a reduced rate of tax on payments pursuant to this Credit
        Agreement or any of the other Credit Documents.

                (e) For any period with respect to which a Lender has failed to
        provide the Borrower and the Administrative Agent with the appropriate
        form pursuant to Section 3.11(d) (unless such failure is due to a change
        in treaty, law, or regulation occurring subsequent to the date on which
        a form originally was required to be provided), such Lender shall not be
        entitled to indemnification under Section 3.11(a) or 3.11(b) with
        respect to Taxes imposed by the United States; provided, however, that
        should a Lender, which is otherwise exempt from or subject to a reduced
        rate of withholding tax, become subject to Taxes because of its failure
        to deliver a form required hereunder, the Borrower shall take such steps
        as such Lender shall reasonably request to assist such Lender to recover
        such Taxes.

                (f) If any Credit Party is required to pay additional amounts to
        or for the account of any Lender pursuant to this Section 3.11 or
        Section 7.11 of the Guaranty Agreement, then such Lender will agree to
        use reasonable efforts to change the jurisdiction of its Applicable
        Lending Office so as to eliminate or reduce any such additional payment
        which may thereafter accrue if such change, in the reasonable judgment
        of such Lender, is not otherwise disadvantageous to such Lender.

                (g) Within thirty (30) days after the date of any payment of
        Taxes, the applicable Credit Party shall furnish to the Administrative
        Agent the original or a certified copy of a receipt evidencing such
        payment.

                (h) Without prejudice to the survival of any other agreement of
        the Credit Parties hereunder, the agreements and obligations of the
        Credit Parties contained in this Section 3.11 shall survive the
        repayment of the Loans and other obligations under the Credit Documents
        and the termination of the Commitments hereunder.

        3.12 COMPENSATION.

        Upon the request of any Lender, the Borrower shall pay to such Lender
such amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost, or expense incurred by it as a
result of:

                (a) any payment, prepayment (other than a prepayment to the
        Administrative Agent which is caused by the wrongful failure of a Lender
        to fund a Eurodollar Loan), or conversion of a Eurodollar Loan for any
        reason (including, without limitation, the acceleration of the Loans
        pursuant to Section 8.2) on a date other than the last day of the
        Interest Period for such Loan; or

                (b) any failure by the Borrower for any reason (including,
        without limitation, the failure of any condition precedent specified in
        Section 4 and Schedule 4.3 to be satisfied) to borrow, convert,
        continue, or prepay a Eurodollar Loan on the date for such borrowing,

                                       31
<PAGE>   37

        conversion, continuation, or prepayment specified in the relevant notice
        of borrowing, prepayment, continuation, or conversion under this Credit
        Agreement; or

                (c) any Eurodollar Loan for any reason not being made (other
        than a wrongful failure to fund by such Lender).

With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or continued,
for the period from the date of such prepayment or of such failure to borrow,
convert or continue to the last day of the applicable Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Loans provided for herein (excluding,
however, the Applicable Percentage included therein, if any) over (b) the amount
of interest (as reasonably determined by such Lender) which would have accrued
to such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The covenants of
the Borrower set forth in this Section 3.12 shall survive the repayment of the
Loans and other obligations under the Credit Documents and the termination of
the Commitments hereunder. Notwithstanding the foregoing, the Borrower shall not
be responsible to any Lender for any costs hereunder that result from the
application of Section 3.8.

        3.13 PRO RATA TREATMENT.

        Except to the extent otherwise provided herein:

                (a) Loans. Each Loan, each payment or (subject to the terms of
        Section 3.3) prepayment of principal of any Loan, each payment of
        interest on the Loans, each payment of Unused Fees, each reduction of
        the Revolving Committed Amount and each conversion or extension of any
        Loan, shall be allocated pro rata among the Lenders in accordance with
        the respective principal amounts of their outstanding Loans and
        Participation Interests.

                (b) Advances. No Lender shall be responsible for the failure or
        delay by any other Lender in its obligation to make its ratable share of
        a borrowing hereunder; provided, however, that the failure of any Lender
        to fulfill its obligations hereunder shall not relieve any other Lender
        of its obligations hereunder. Unless the Administrative Agent shall have
        been notified by any Lender prior to the date of any requested borrowing
        that such Lender does not intend to make available to the Administrative
        Agent its ratable share of such borrowing to be made on such date, the
        Administrative Agent may assume that such Lender has made such amount
        available to the Administrative Agent on the date of such borrowing, and
        the Administrative Agent in reliance upon such assumption, may (in its
        sole discretion but without any obligation to do so) make available to
        the Borrower a corresponding amount. If such corresponding amount is not
        in fact made available to the Administrative Agent, the Administrative
        Agent shall be able to recover such corresponding amount from such
        Lender. If such Lender does not pay such corresponding amount forthwith
        upon the Administrative Agent's demand therefor, the Administrative
        Agent will promptly notify the Borrower, and the Borrower shall
        immediately pay such corresponding amount to the

                                       32
<PAGE>   38

        Administrative Agent; provided, however, the Borrower shall maintain any
        claims against such Lender provided hereunder or under applicable law
        due to the failure of such Lender to pay such corresponding amount. The
        Administrative Agent shall also be entitled to recover from the Lender
        or the Borrower, as the case may be, interest on such corresponding
        amount in respect of each day from the date such corresponding amount
        was made available by the Administrative Agent to the Borrower to the
        date such corresponding amount is recovered by the Administrative Agent
        at a per annum rate equal to (i) from the Borrower at the applicable
        rate for the applicable borrowing pursuant to the Notice of Borrowing
        and (ii) from a Lender at the Federal Funds Rate.

        3.14 SHARING OF PAYMENTS.

        The Lenders agree among themselves that, in the event that any Lender
shall obtain payment in respect of any Loan or any other obligation owing to
such Lender under this Credit Agreement through the exercise of a right of
setoff, banker's lien or counterclaim, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, in excess of its pro rata share of such payment as provided for
in this Credit Agreement, such Lender shall promptly purchase from the other
Lenders a Participation Interest in such Loans and other obligations in such
amounts, and make such other adjustments from time to time, as shall be
equitable to the end that all Lenders share such payment in accordance with
their respective ratable shares as provided for in this Credit Agreement. The
Lenders further agree among themselves that if payment to a Lender obtained by
such Lender through the exercise of a right of setoff, banker's lien,
counterclaim or other event as aforesaid shall be rescinded or must otherwise be
restored, each Lender which shall have shared the benefit of such payment shall,
by repurchase of a Participation Interest theretofore sold, return its share of
that benefit (together with its share of any accrued interest payable with
respect thereto) to each Lender whose payment shall have been rescinded or
otherwise restored. The Borrower agrees that any Lender so purchasing such a
Participation Interest may, to the fullest extent permitted by law, exercise all
rights of payment, including setoff, banker's lien or counterclaim, with respect
to such Participation Interest as fully as if such Lender were a holder of such
Loan or other obligation in the amount of such Participation Interest. Except as
otherwise expressly provided in this Credit Agreement, if any Lender or the
Administrative Agent shall fail to remit to the Administrative Agent or any
other Lender an amount payable by such Lender or the Administrative Agent to the
Administrative Agent or such other Lender pursuant to this Credit Agreement on
the date when such amount is due, such payments shall be made together with
interest thereon for each date from the date such amount is due until the date
such amount is paid to the Administrative Agent or such other Lender at a rate
per annum equal to the Federal Funds Rate. If under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a setoff to which this Section 3.14 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders under this Section 3.14 to share in
the benefits of any recovery on such secured claim.

                                       33
<PAGE>   39

        3.15 PAYMENTS, COMPUTATIONS, ETC.

                (a) Generally. Except as otherwise specifically provided herein,
        all payments hereunder shall be made to the Administrative Agent in
        Dollars in immediately available funds, without setoff, deduction,
        counterclaim or withholding of any kind, at the Administrative Agent's
        office specified in Schedule 2.1(a) not later than 9:00 A.M. (San
        Francisco, California time) on the date when due. Payments received
        after such time shall be deemed to have been received on the next
        succeeding Business Day. The Administrative Agent may (but shall not be
        obligated to) debit the amount of any such payment which is not made by
        such time to any ordinary deposit account of the Borrower maintained
        with the Administrative Agent (with notice to the Borrower). The
        Borrower shall, at the time it makes any payment under this Credit
        Agreement, specify to the Administrative Agent the Loans, Fees, interest
        or other amounts payable by the Borrower hereunder to which such payment
        is to be applied (and in the event that it fails so to specify, or if
        such application would be inconsistent with the terms hereof, the
        Administrative Agent shall distribute such payment to the Lenders in
        such manner as the Administrative Agent may determine to be appropriate
        in respect of obligations owing by the Borrower hereunder, subject to
        the terms of Section 3.13(a)). The Administrative Agent will distribute
        such payments to such Lenders, if any such payment is received prior to
        9:00 A.M. (San Francisco, California time) on a Business Day in like
        funds as received prior to the end of such Business Day and otherwise
        the Administrative Agent will distribute such payment to such Lenders on
        the next succeeding Business Day. Whenever any payment hereunder shall
        be stated to be due on a day which is not a Business Day, the due date
        thereof shall be extended to the next succeeding Business Day (subject
        to accrual of interest and Fees for the period of such extension),
        except that in the case of Eurodollar Loans, if the extension would
        cause the payment to be made in the next following calendar month, then
        such payment shall instead be made on the next preceding Business Day.
        Unless the Administrative Agent receives notice from the Borrower prior
        to the date on which any payment is due to the Lenders that the Borrower
        will not make such payment in full as and when required, the
        Administrative Agent may assume that the Borrower has made such payment
        in full to the Administrative Agent on such date in immediately
        available funds and the Administrative Agent may (but shall not be so
        required), in reliance upon such assumption, distribute to each Lender
        on such date an amount equal to the amount then due such Lender. If and
        to the extent the Borrower has not made such payment in full to the
        Administrative Agent, each Lender shall repay to the Administrative
        Agent on demand such amount distributed to such Lender, together with
        interest thereon at the Federal Funds Rate for each day from the date
        such amount is distributed to such Lender until the date repaid. Except
        as expressly provided otherwise herein, all computations of interest and
        fees shall be made on the basis of actual number of days elapsed over a
        year of 360 days, except with respect to computation of interest on Base
        Rate Loans which shall be calculated based on a year of 365 or 366 days,
        as appropriate. Interest shall accrue from and include the date of
        borrowing, but exclude the date of payment.

                (b) Allocation of Payments After Event of Default.
        Notwithstanding any other provisions of this Credit Agreement to the
        contrary, after the occurrence and during the continuance of an Event of
        Default, all amounts collected or received by the Administrative

                                       34
<PAGE>   40

        Agent or any Lender on account of the Credit Party Obligations or any
        other amounts outstanding under any of the Credit Documents or in
        respect of the Collateral shall be paid over or delivered as follows:

                FIRST, to the payment of all reasonable out-of-pocket costs and
        expenses (including without limitation reasonable attorneys' fees) of
        the Administrative Agent in connection with enforcing the rights of the
        Lenders under the Credit Documents which have accrued as of the date of
        payment and any protective advances made by the Administrative Agent
        with respect to the Collateral under or pursuant to the terms of the
        Collateral Documents;

                SECOND, to payment of any fees owed to the Administrative Agent
        which have accrued as of the date of payment;

                THIRD, to the payment of all reasonable out-of-pocket costs and
        expenses (including without limitation, reasonable attorneys' fees) of
        the Administrative Agent in connection with enforcing its rights under
        the Credit Documents or otherwise with respect to the Credit Party
        Obligations which have accrued as of the date of payment;

                FOURTH, to the payment of all of the Credit Party Obligations
        consisting of accrued fees and interest;

                FIFTH, to the payment of the outstanding principal amount of the
        Credit Party Obligations;

                SIXTH, to the payment of all reasonable out-of-pocket costs and
        expenses (including without limitation, reasonable attorneys' fees) of
        each of the Lenders in connection with enforcing its rights under the
        Credit Documents or otherwise with respect to the Credit Party
        Obligations owing to such Lender which have accrued as of the date of
        payment;

                SEVENTH, to all other Credit Party Obligations and other
        obligations which shall have become due and payable under the Credit
        Documents or otherwise and not repaid pursuant to clauses "FIRST"
        through "SIXTH" above; and

                EIGHTH, to the payment of the surplus, if any, to whoever may be
        lawfully entitled to receive such surplus.

        In carrying out the foregoing, (i) amounts received shall be applied in
        the numerical order provided until exhausted prior to application to the
        next succeeding category and (ii) each of the Lenders shall receive an
        amount equal to its pro rata share (based on the proportion that the
        then outstanding Loans held by such Lender bears to the aggregate then
        outstanding Loans) of amounts available to be applied pursuant to
        clauses "FOURTH", "FIFTH", "SIXTH" and "SEVENTH" above.

                                       35
<PAGE>   41

        3.16 EVIDENCE OF DEBT.

                (a) Each Lender shall maintain an account or accounts evidencing
        each Loan made by such Lender to the Borrower from time to time,
        including the amounts of principal and interest payable and paid to such
        Lender from time to time under this Credit Agreement. Each Lender will
        make reasonable efforts to maintain the accuracy of its account or
        accounts and to promptly update its account or accounts from time to
        time, as necessary.

                (b) The Administrative Agent shall maintain the Register
        pursuant to Section 11.3(c), and a subaccount for each Lender, in which
        Register and subaccounts (taken together) shall be recorded (i) the
        amount, type and Interest Period of each such Loan hereunder, (ii) the
        amount of any principal or interest due and payable or to become due and
        payable to each Lender hereunder and (iii) the amount of any sum
        received by the Administrative Agent hereunder from or for the account
        of any Credit Party and each Lender's share thereof. The Administrative
        Agent will make reasonable efforts to maintain the accuracy of the
        subaccounts referred to in the preceding sentence and to promptly update
        such subaccounts from time to time, as necessary.

                (c) The entries made in the accounts, Register and subaccounts
        maintained pursuant to subsection (b) of this Section 3.16 (and, if
        consistent with the entries of the Administrative Agent, subsection (a))
        shall be prima facie evidence of the existence and amounts of the
        obligations of the Credit Parties therein recorded; provided, however,
        that the failure of any Lender or the Administrative Agent to maintain
        any such account, such Register or such subaccount, as applicable, or
        any error therein, shall not in any manner affect the obligation of the
        Credit Parties to repay the Credit Party Obligations owing to such
        Lender.

                                    SECTION 4

                                   CONDITIONS

        4.1 CLOSING CONDITIONS.

        The obligation of the Lenders to enter into this Credit Agreement shall
be subject to satisfaction of the following conditions:

                (a) Executed Credit Documents. Receipt by the Administrative
        Agent of duly executed copies of: (i) this Credit Agreement, (ii) the
        Guaranty Agreement, (iii) the Notes, (iv) the Environmental Indemnity
        Agreement, (v) the Collateral Documents and (vi) all other Credit
        Documents, each in form and substance acceptable to the Lenders.

                (b) Corporate Documents. Receipt by the Administrative Agent of
        the following:

                                       36
<PAGE>   42

                        (i) Charter Documents. Copies of the articles or
                certificates of incorporation or other charter documents of the
                Credit Parties certified to be true and complete as of a recent
                date by the appropriate Governmental Authority of the state or
                other jurisdiction of its incorporation or organization and
                certified by a secretary, assistant secretary or general partner
                of such Credit Party, to be true and correct as of the Closing
                Date.

                        (ii) Bylaws. A copy of the partnership agreement or
                bylaws of the Credit Parties certified by a secretary, assistant
                secretary or general partner of such Credit Party to be true and
                correct as of the Closing Date.

                        (iii) Resolutions. Copies of resolutions of the Credit
                Parties approving and adopting the Credit Documents to which it
                is a party, the transactions contemplated therein and
                authorizing execution and delivery thereof, certified by a
                secretary, assistant secretary or general partner of such Credit
                Party to be true and correct and in force and effect as of the
                Closing Date.

                        (iv) Good Standing. Copies of certificates of good
                standing, existence or its equivalent with respect to the Credit
                Parties certified as of a recent date by the appropriate
                Governmental Authorities of the state or other jurisdiction of
                organization or incorporation.

                        (v) Incumbency. An incumbency certificate of the Credit
                Parties certified by a secretary, assistant secretary or general
                partner of such Credit Party, to be true and correct as of the
                Closing Date.

                (c) Opinions of Counsel. The Administrative Agent shall have
        received an opinion, or opinions, in form and substance satisfactory to
        the Administrative Agent dated as of the Closing Date from counsel to
        the Credit Parties.

                (d) Personal Property Collateral. The Administrative Agent shall
        have received (in form and substance satisfactory to the Administrative
        Agent):

                        (i) searches of Uniform Commercial Code filings in the
                jurisdiction of the chief executive office of the Borrower and
                each jurisdiction where any Collateral is located or where a
                filing would need to be made in order to perfect the
                Administrative Agent's security interest, for the benefit of the
                Lenders in the Collateral, copies of the financing statements on
                file in such jurisdictions and evidence that no Liens exist with
                respect to the Collateral other than (A) Permitted Liens and (B)
                the Guarantor's Lien against the Collateral (which Lien will be
                terminated on or before the Funding Date);

                        (ii) duly executed UCC financing statements for each
                appropriate jurisdiction as is necessary, in the Administrative
                Agent's sole discretion, to perfect the Administrative Agent's
                security interest, for the benefit of the Lenders, in the
                Collateral which may be perfected under the UCC;

                                       37
<PAGE>   43

                        (iii) duly executed consents as are necessary, in the
                Administrative Agent's sole discretion, to perfect the
                Administrative Agent's security interest, for the benefit of the
                Lenders, in the Collateral.

                (e) Real Property Collateral. The Administrative Agent shall
        have received, in form and substance reasonably satisfactory to the
        Administrative Agent:

                        (i) a fully executed and notarized deed of trust and
                security agreement (as the same may be amended, modified,
                restated or supplemented from time to time, the "Mortgage
                Instrument") encumbering the Land and the Improvements, the
                leasehold interest of the Borrower in the Tipp Property, the
                personal property and fixtures more particularly described
                therein and the transferable development rights and low income
                housing credits or other such credits described therein;

                        (ii) a survey of the Land and the Tipp Property
                certified to the Administrative Agent, the Borrower and the
                Title Insurance Company in a manner reasonably satisfactory to
                each of the Administrative Agent and the Title Insurance
                Company, dated a date reasonably satisfactory to each of the
                Administrative Agent and the Title Insurance Company by an
                independent professional licensed land surveyor, which survey
                shall show all boundaries of the Land and the Tipp Property with
                courses and distances indicated and be sufficient to delete any
                standard printed survey exception contained in the applicable
                title policy and be made in accordance with the Minimum Standard
                Detail Requirements for Land Title Surveys jointly established
                and adopted by the American Land Title Association and the
                American Congress on Surveying and Mapping in 1992, and, without
                limiting the generality of the foregoing, there shall be
                surveyed and shown on such survey the following: (A) the
                locations on such sites of all the buildings, structures and
                other improvements and the established building setback lines;
                (B) the lines of streets abutting the sites and width thereof;
                (C) all access and other easements appurtenant to the sites
                necessary to use the sites; (D) all roadways, paths, driveways,
                easements, encroachments and overhanging projections and similar
                encumbrances affecting the site, whether recorded, apparent from
                a physical inspection of the sites or otherwise known to the
                surveyor; and (E) any encroachments on any adjoining property by
                the building structures and improvements on the sites;

                        (iii) evidence as to (A) whether the Land and the Tipp
                Property are in an area designated by the Federal Emergency
                Management Agency as having special flood or mud slide hazards
                (a "Flood Hazard Property") and (B) if the Land and the Tipp
                Property are a Flood Hazard Property, (1) whether the community
                in which the Land and the Tipp Property are located is
                participating in the National Flood Insurance Program, (2) the
                Borrower's written acknowledgment of receipt of written
                notification from the Administrative Agent (a) as to the fact
                that the Land and the Tipp Property are a Flood Hazard Property
                and (b) as to whether the community in which the Flood Hazard
                Property is

                                       38
<PAGE>   44

                located is participating in the National Flood Insurance Program
                and (3) copies of insurance policy or certificate of insurance
                of the Borrower evidencing flood insurance satisfactory to the
                Administrative Agent and naming the Administrative Agent as sole
                loss payee on behalf of the Lenders;

                        (iv) evidence satisfactory to the Administrative Agent
                that the Project, and the uses of the Project, are in compliance
                in all material respects with all applicable laws, regulations
                and ordinances including without limitation health and
                environmental protection laws, erosion control ordinances, storm
                drainage control laws, doing business and/or licensing laws,
                zoning laws (the evidence submitted as to zoning should include
                the zoning designation made for the Project, the permitted uses
                of the Project under such zoning designation and zoning
                requirements as to parking, lot size, ingress, egress and
                building setbacks) and laws regarding access and facilities for
                disabled persons including, but not limited to, the federal
                Architectural Barriers Act, the Fair Housing Amendments Act of
                1988, the Rehabilitation Act of 1973 and the Americans With
                Disabilities Act of 1990;

                        (v) an appraisal (in form and substance satisfactory to
                the Administrative Agent and the Project Administrative Agent)
                with respect to the Project from a qualified appraiser
                satisfactory to the Administrative Agent and Project
                Administrative Agent; and

                        (vi) with respect to the Tipp Property, (A) consent from
                the landlord of the Tipp Property (which consent shall be in
                form and substance satisfactory to the Administrative Agent) to
                the execution and recordation of the Mortgage Instrument and (B)
                evidence that a memorandum of lease with respect to the Tipp
                Property has been recorded to the extent necessary in the
                judgment of the Administrative Agent so as to enable the
                Mortgage Instrument to effectively create a valid and
                enforceable lien (subject only to Permitted Liens) on the
                leasehold interest of the Borrower in the Tipp Property.

                (f) Environmental Reports. The Administrative Agent shall have
        received, in form and substance satisfactory to the Administrative
        Agent, an environmental site assessment report with respect to the Land.

                (g) Plans. Receipt by the Administrative Agent and the Project
        Administrative Agent and the Consultant of the following (in form and
        substance satisfactory to the Administrative Agent, the Project
        Administrative Agent and the Consultant): (i) a set of the plans and
        specifications for the construction of the Improvements (the "Plans and
        Specifications"), (ii) a soil report made at the Land, such report to
        include the recommendations of the soil testing firm as to the
        preparation of the soil needed in order to adequately support the
        Project, (iii) a construction budget for the Improvements and (iv) the
        guaranteed maximum fixed price construction contract for the Project
        with a general contractor satisfactory to the Administrative Agent and
        the Project Administrative Agent.

                                       39
<PAGE>   45

                (h) Certified Copies. The Administrative Agent shall have
        received a copy of (i) the Development Agreement, (ii) the Ground Lease
        Agreement, (iii) the Nordstrom Lease Agreement and (iv) the Joint
        Development Agreement, each such contract in form and substance
        satisfactory to the Administrative Agent and the Project Administrative
        Agent and certified as a true and correct copy by the Borrower.

                (i) Consent of General Contractor. The Administrative Agent
        shall have received the consent of general contractor (in form and
        substance satisfactory to the Administrative Agent) to the Borrower's
        assignment to the Administrative Agent, for the benefit of the Lenders,
        of the Borrower's interests in the construction contract for the
        Improvements. In addition, the Administrative Agent shall have received
        the consent of the design architect (in form and substance satisfactory
        to the Administrative Agent) to the Borrower's assignment to the
        Administrative Agent, for the benefit of the Lenders, of the Borrower's
        interests in the plans and specifications for the construction of the
        Improvements.

                (j) Evidence of Insurance. Receipt by the Administrative Agent
        of copies of insurance policies or certificates of insurance of the
        Borrower evidencing liability, casualty and builder's risk insurance
        issued by companies satisfactory to the Lenders in their sole discretion
        and otherwise meeting the requirements set forth in the Credit
        Documents, including, but not limited to, naming the Administrative
        Agent as additional insured (in the case of liability insurance) and
        sole loss payee (in the case of hazard insurance and builder's risk
        insurance) on behalf of the Lenders.

                (k) Compliance with Laws. Receipt by the Project Administrative
        Agent of evidence that the Land, and the intended uses of the Land are
        in compliance with all applicable laws, regulations and ordinances. Such
        evidence may include letters, licenses, permits, certificates and other
        correspondence from the appropriate Governmental Authorities and such
        other evidence reasonably requested by the Project Administrative Agent.

                (l) Equity Investment. Receipt by the Administrative Agent of
        evidence that (i) a cash equity investment of at least $2,800,000 shall
        have been made by the Guarantor in the Borrower on terms that are
        satisfactory to the Administrative Agent and (ii) an equity investment
        by Seventh and Stewart shall have been made in the Borrower through the
        contribution of real estate (satisfactory to the Project Administrative
        Agent) valued at $12,500,000.

                (m) Material Adverse Effect. No material adverse change shall
        have occurred since January 31, 1999 in the business, assets,
        liabilities (actual or contingent), operations, condition (financial or
        otherwise), business, management or prospects of (i) the Borrower or
        (ii) the Guarantor.

                (n) Litigation. There shall not exist any pending or threatened
        action, suit, investigation or proceeding against the Borrower that
        could have a Material Adverse Effect. Except as disclosed on Schedule
        3.5 to the Guaranty Agreement, there shall not exist any

                                       40
<PAGE>   46

        pending or threatened action, suit, investigation or proceeding against
        the Guarantor or any of its Subsidiaries that could have a Material
        Adverse Effect.

                (o) Officer's Certificates.

                        (i) The Administrative Agent shall have received a
                certificate executed by an Executive Officer of Clise Properties
                as of the Closing Date, in form and substance satisfactory to
                the Administrative Agent, stating that (A) the Borrower is in
                material compliance with all existing financial obligations, (B)
                all governmental, shareholder and third party consents and
                approvals, if any, with respect to the Credit Documents and the
                transactions contemplated thereby have been obtained, (C) no
                action, suit, investigation or proceeding is pending or
                threatened in any court or before any arbitrator or governmental
                instrumentality that purports to affect the Borrower or any
                transaction contemplated by the Credit Documents, if such
                action, suit, investigation or proceeding could have a Material
                Adverse Effect, (D) no Default or Event of Default exists, and
                (E) all representations and warranties of the Borrower contained
                herein and in the other Credit Documents are true and correct in
                all material respects.

                        (ii) The Administrative Agent shall have received a
                certificate executed by an Executive Officer of the Guarantor as
                of the Closing Date, in form and substance satisfactory to the
                Administrative Agent, stating that (A) the Guarantor is in
                material compliance with all existing financial obligations, (B)
                immediately after giving effect to this Credit Agreement, the
                Credit Documents and all transactions contemplated therein, the
                Guarantor is Solvent and (C) the Guarantor is in compliance with
                each of the financial covenants set forth in the Guaranty
                Agreement.

                (p) Fees and Expenses. Payment by the Borrower of all fees and
        expenses owed by it to the Lenders, the Administrative Agent and the
        Project Administrative Agent with respect to the Loans and the Credit
        Documents, including, without limitation, payment to the Administrative
        Agent of the fees set forth in the Administrative Agent's Fee Letter.

                (q) Other. Receipt by the Lenders of such other documents,
        instruments, agreements or information as reasonably requested by the
        Administrative Agent on behalf of any Lender, including, but not limited
        to, information regarding litigation, tax, accounting, labor, insurance,
        pension liabilities (actual or contingent), real estate leases, material
        contracts, debt agreements, property ownership and contingent
        liabilities of the Borrower and the Guarantor.

        4.2 CONDITIONS TO INITIAL EXTENSION OF CREDIT.

        The obligations of each Lender to make the initial Loans are subject to
(i) satisfaction of the following conditions in addition to satisfaction on the
Closing Date of the conditions set forth in Section 4.1 and (ii) satisfaction of
the conditions set forth in Section 4.3:

                                       41
<PAGE>   47

                (a) Permits. The Project Administrative Agent shall have
        received evidence (in form and substance satisfactory to the Project
        Administrative Agent) that the Borrower has received all permits deemed
        reasonably necessary (including without limitation, the Master Use
        Permit Project No. 9606528 and foundation permit) by the Project
        Administrative Agent for the applicable stage of construction; and

                (b) Transferable Development Rights. Receipt by Project
        Administrative Agent on or before March 14, 2000 of certified copies of
        the fully executed Transferable Rights Development Agreements, each with
        terms and conditions acceptable to the Project Administrative Agent
        (including without limitation, approval of the City of the purchase
        price set forth therein), pursuant to which the Borrower will acquire
        the transferable development rights necessary for the Borrower to
        construct the Project; and

                (c) Low Income Housing Bonus Credits. Receipt by the Project
        Administrative Agent on or before March 14, 2000 of (i) a certified copy
        of the fully executed Letter of Credit Agreement with terms and
        conditions acceptable to the Project Administrative Agent and (ii)
        evidence that the Housing Credits Letter of Credit (in substantially the
        form of Exhibit C to the Letter of Credit Agreement) has been delivered
        to the City;

                (d) Title. The Administrative Agent shall have received on or
        before March 14, 2000 in form and substance satisfactory to the
        Administrative Agent, an ALTA mortgagee title insurance policy (the
        "Mortgage Policy") issued by a title insurer satisfactory to the
        Administrative Agent (the "Title Insurance Company"), in an amount
        satisfactory to the Administrative Agent, assuring the Administrative
        Agent that the Mortgage Instrument creates a valid and enforceable first
        priority mortgage lien on the Real Properties and the transferable
        development rights described therein, free and clear of all defects and
        encumbrances except Permitted Liens, which Mortgage Policy shall be in
        form and substance reasonably satisfactory to the Administrative Agent
        and shall provide for affirmative insurance and such reinsurance as the
        Administrative Agent may reasonably request; and

                (e) Refinancing. Receipt by the Administrative Agent on or
        before March 14, 2000 of evidence (satisfactory in form and substance to
        the Administrative Agent) that the Nordstrom Loan has been paid in full
        or will be so repaid from the proceeds of such Loans.

        4.3 CONDITIONS TO ALL EXTENSIONS OF CREDIT.

        The obligations of each Lender to make, convert or extend any Loan
(including the initial Loans) are subject to (i) satisfaction of the following
conditions in addition to satisfaction on the Closing Date of the conditions set
forth in Section 4.1 and (ii) satisfaction of the conditions set forth in
Section 4.2:

                (a) The Borrower shall have delivered an appropriate Notice of
        Borrowing or Notice of Extension/Conversion (each such Notice of
        Borrowing to include an update to the budget for the Improvements and a
        representation that the remaining availability under the

                                       42
<PAGE>   48

        Revolving Committed Amount is sufficient to finance the completion of
        the construction of the Improvements);

                (b) The representations and warranties made by the Credit
        Parties herein or in any other Credit Documents or which are contained
        in any certificate furnished at any time under or in connection herewith
        shall, subject to the limitations set forth therein, be true and correct
        in all material respects as of such date (except for those which
        expressly relate to an earlier date);

                (c) There shall not have been commenced against any Credit Party
        an involuntary case under any applicable bankruptcy, insolvency or other
        similar law now or hereafter in effect, or any case, proceeding or other
        action for the appointment of a receiver, liquidator, assignee,
        custodian, trustee, sequestrator (or similar official) of such Person or
        for any substantial part of its Property or for the winding up or
        liquidation of its affairs, and such involuntary case or other case,
        proceeding or other action shall remain undismissed, undischarged or
        unbonded;

                (d) No Default or Event of Default shall exist and be continuing
        either prior to or after giving effect thereto;

                (e) No development or event which has had or could have a
        Material Adverse Effect shall have occurred since January 31, 1999;

                (f) All of the conditions set forth in Schedule 4.3 shall have
        been satisfied in a manner acceptable to the Administrative Agent and
        the Project Administrative Agent;

                (g) No action, suit or proceeding against the Guarantor or any
        of its Subsidiaries has resulted in or caused a Material Adverse Effect.

                (h) Immediately after giving effect to the making of such Loan
        (and the application of the proceeds thereof), the sum of the aggregate
        outstanding principal amount of Revolving Loans shall not exceed the
        Revolving Committed Amount.

The delivery of each Notice of Borrowing and each Notice of Extension/Conversion
shall constitute a representation and warranty by the Credit Parties of the
correctness of the matters specified in subsections (b), (c), (d), (e), (g) and
(h) above.

Furthermore, the Lenders shall not be obligated to make any Loans subsequent to
the Funding Date until such time as the Title Insurance Company shall have
agreed to issue to the Administrative Agent an endorsement (in form and
substance satisfactory to the Administrative Agent) to the Mortgage Policy or
have otherwise agreed to insure that since the last Loan, there has been no
change in the state of title to the Land and the Improvements and the Tipp
Property (superior or subordinate to the interest of the Administrative Agent,
for the benefit of the Lenders, under the Mortgage Instrument) and there are no
liens (other than Permitted Liens) or other interests which have been permitted
to attach to the Land, the Improvements and/or the Tipp Property.

                                       43
<PAGE>   49

                                    SECTION 5

                         REPRESENTATIONS AND WARRANTIES

        The Borrower hereby represents to the Administrative Agent and each
Lender that:

        5.1 FINANCIAL CONDITION.

        The financial statements delivered to the Administrative Agent pursuant
to Section 6.1(a) and (b) have been prepared in accordance with GAAP and present
fairly in all material respects (on the basis disclosed in the footnotes to such
financial statements) the financial condition, results of operations and cash
flows of the applicable parties as of such date and for such periods. As of the
Closing Date and the Funding Date (as applicable), the Borrower has no material
liabilities (contingent or otherwise) that are not reflected in the financial
statements or in the notes thereto provided to the Administrative Agent on or
prior to the Closing Date or Funding Date (as applicable) (other than the
Nordstrom Loan which will be outstanding as of the Closing Date).

        5.2 NO MATERIAL CHANGE.

        Since January 31, 1999, (a) there has been no development or event
relating to or affecting the Borrower which has had or could have a Material
Adverse Effect and (b) except as otherwise permitted under this Credit
Agreement, no dividends or other distributions have been declared, paid or made
upon the Capital Stock in the Borrower, nor has any of the Capital Stock in the
Borrower been redeemed, retired, purchased or otherwise acquired for value.

        5.3 ORGANIZATION AND GOOD STANDING.

        The Borrower (a) is duly organized, validly existing and is in good
standing under the laws of the State of Washington and (b) has the power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged.

        5.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.

        The Borrower has the power and authority, and the legal right, to make,
deliver and perform the Credit Documents to which it is a party, and to obtain
extensions of credit hereunder, and has taken all necessary action to authorize
the borrowings and other extensions of credit on the terms and conditions of
this Credit Agreement and to authorize the execution, delivery and performance
of the Credit Documents to which it is a party. No consent or authorization of,
filing with, notice to or other similar act by or in respect of, any
Governmental Authority or any other Person is required to be obtained or made by
or on behalf of the Borrower in connection with the borrowings or other
extensions of credit hereunder or with the execution, delivery, performance,
validity or enforceability of the Credit Documents to which the Borrower is a
party. This Credit Agreement has been, and each other Credit Document to which
the Borrower is a party will be, duly executed and delivered on behalf of the
Borrower. This Credit Agreement constitutes, and each other Credit Document to
which the Borrower is a party when executed and delivered will constitute, a
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with

                                       44
<PAGE>   50

its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

        5.5 NO CONFLICTS.

        Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by the Borrower will (a)
violate or conflict with any provision of its partnership agreement or other
organizational or governing documents, (b) violate, contravene or materially
conflict with any Requirement of Law or any other law, regulation (including,
without limitation, Regulation U or Regulation X), order, writ, judgment,
injunction, decree or permit applicable to it, (c) violate, contravene or
conflict with contractual provisions of, or cause an event of default under, any
agreement or instrument to which it is a party or by which it may be bound, the
violation of which could have a Material Adverse Effect, or (d) result in or
require the creation of any Lien (other than those contemplated in or created in
connection with the Credit Documents) upon or with respect to its properties.

        5.6 NO DEFAULT.

        The Borrower is not in default in any respect under any contract, lease
or other agreement or obligation to which it is a party or by which any of its
properties is bound which default could have a Material Adverse Effect. No
Default or Event of Default has occurred or exists except as previously
disclosed in writing to the Lenders.

        5.7 OWNERSHIP.

        The Borrower is the owner of, and has good and marketable title to, all
of its respective assets and none of such assets is subject to any Lien other
than (i) the Permitted Liens and (ii) prior to the funding of the Loans
hereunder on the Funding Date, the Guarantor's Liens against the Collateral.

        5.8 INDEBTEDNESS.

        Except as otherwise permitted under Section 7.1, the Borrower has no
Indebtedness.

        5.9 LITIGATION.

        There are no actions, suits or legal, equitable, arbitration or
administrative proceedings, pending or, to the knowledge of any Executive
Officer of the Borrower, the general partner of the Borrower or of the managing
member of the general partner of the Borrower, threatened against the Borrower
which could be reasonably expected to have a Material Adverse Effect.

                                       45
<PAGE>   51

        5.10 TAXES.

        The Borrower has filed, or caused to be filed, all tax returns (federal,
state, local and foreign) required to be filed and paid (a) all amounts of taxes
shown thereon to be due (including interest and penalties) and (b) all other
taxes, fees, assessments and other governmental charges (including mortgage
recording taxes, documentary stamp taxes and intangibles taxes) owing by it,
except for such taxes (i) which are not yet delinquent or (ii) that are being
contested in good faith and by proper proceedings, and against which adequate
reserves are being maintained in accordance with GAAP. The Borrower is not aware
as of the Closing Date and the Funding Date (as applicable) of any proposed tax
assessments against it.

        5.11 COMPLIANCE WITH LAW.

        The Borrower is in compliance with all Requirements of Law and all other
laws, rules, regulations, orders and decrees (including without limitation
Environmental Laws) applicable to it, or to its properties, unless such failure
to comply could not reasonably be expected to have a Material Adverse Effect.

        5.12 ERISA.

                (a) During the five-year period prior to the date on which this
        representation is made or deemed made: (i) no ERISA Event has occurred,
        and, to the best knowledge of the Executive Officers of the Borrower,
        the general partner of the Borrower and the managing member of the
        general partner of the Borrower, no event or condition has occurred or
        exists as a result of which any ERISA Event could reasonably be expected
        to occur, with respect to any Plan; (ii) no "accumulated funding
        deficiency," as such term is defined in Section 302 of ERISA and Section
        412 of the Code, whether or not waived, has occurred with respect to any
        Plan; (iii) each Plan has been maintained, operated, and funded in
        compliance with its own terms and in material compliance with the
        provisions of ERISA, the Code, and any other applicable federal or state
        laws; and (iv) no lien in favor of the PBGC or a Plan has arisen or is
        reasonably likely to arise on account of any Plan.

                (b) The actuarial present value of all "benefit liabilities" (as
        defined in Section 4001(a)(16) of ERISA), whether or not vested, under
        each Single Employer Plan, as of the last annual valuation date prior to
        the date on which this representation is made or deemed made
        (determined, in each case, in accordance with Financial Accounting
        Standards Board Statement 87, utilizing the actuarial assumptions used
        in such Plan's most recent actuarial valuation report), did not exceed
        as of such valuation date the fair market value of the assets of such
        Plan.

                (c) Neither the Borrower nor any ERISA Affiliate has incurred,
        or, to the best knowledge of the Executive Officers of the Borrower, the
        general partner of the Borrower and the managing member of the general
        partner of the Borrower, could be reasonably expected to incur, any
        withdrawal liability under ERISA to any Multiemployer Plan or Multiple
        Employer Plan. Neither the Borrower nor any ERISA Affiliate would become
        subject to any withdrawal liability under ERISA if the Borrower or any
        ERISA Affiliate

                                       46
<PAGE>   52

        were to withdraw completely from all Multiemployer Plans and Multiple
        Employer Plans as of the valuation date most closely preceding the date
        on which this representation is made or deemed made. Neither the
        Borrower nor any ERISA Affiliate has received any notification that any
        Multiemployer Plan is in reorganization (within the meaning of Section
        4241 of ERISA), is insolvent (within the meaning of Section 4245 of
        ERISA), or has been terminated (within the meaning of Title IV of
        ERISA), and no Multiemployer Plan is, to the best knowledge of the
        Executive Officers of the Borrower, the general partner of the Borrower
        and the managing member of the general partner of the Borrower,
        reasonably expected to be in reorganization, insolvent, or terminated.

                (d) No prohibited transaction (within the meaning of Section 406
        of ERISA or Section 4975 of the Code) or breach of fiduciary
        responsibility has occurred with respect to a Plan which has subjected
        or may subject the Borrower or any ERISA Affiliate to any liability
        under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of
        the Code, or under any agreement or other instrument pursuant to which
        the Borrower or any ERISA Affiliate has agreed or is required to
        indemnify any Person against any such liability.

                (e) Neither the Borrower nor any ERISA Affiliates has any
        material liability with respect to "expected post-retirement benefit
        obligations" within the meaning of the Financial Accounting Standards
        Board Statement 106. Each Plan which is a welfare plan (as defined in
        Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section
        4980B of the Code apply has been administered in compliance in all
        material respects of such sections.

                (f) Neither the execution and delivery of this Credit Agreement
        nor the consummation of the financing transactions contemplated
        thereunder will involve any transaction which is subject to the
        prohibitions of Sections 404, 406 or 407 of ERISA or in connection with
        which a tax could be imposed pursuant to Section 4975 of the Code. The
        representation by the Borrower in the preceding sentence is made in
        reliance upon and subject to the accuracy of the Lenders' representation
        in Section 11.15 with respect to their source of funds and is subject,
        in the event that the source of the funds used by the Lenders in
        connection with this transaction is an insurance company's general asset
        account, to the application of Prohibited Transaction Class Exemption
        95-60, 60 Fed. Reg. 35,925 (1995), compliance with the regulations
        issued under Section 401(c)(1)(A) of ERISA, or the issuance of any other
        prohibited transaction exemption or similar relief, to the effect that
        assets in an insurance company's general asset account do not constitute
        assets of an "employee benefit plan" within the meaning of Section 3(3)
        of ERISA of a "plan" within the meaning of Section 4975(e)(1) of the
        Code.

        5.13 GOVERNMENTAL REGULATIONS, ETC.

                (a) No proceeds of the Loans will be used, directly or
        indirectly, for the purpose of purchasing or carrying any "margin stock"
        within the meaning of Regulation U, or for the purpose of purchasing or
        carrying or trading in any securities. If requested by any Lender or the
        Administrative Agent, the Borrower will furnish to the Administrative
        Agent and each Lender a statement to the foregoing effect in conformity
        with the requirements of FR Form

                                       47
<PAGE>   53

        U-1 referred to in Regulation U. No indebtedness being reduced or
        retired out of the proceeds of the Loans was or will be incurred for the
        purpose of purchasing or carrying any margin stock within the meaning of
        Regulation U or any "margin security" within the meaning of Regulation
        T. "Margin stock" within the meaning of Regulation U does not constitute
        more than 25% of the value of the consolidated assets of the Borrower.
        None of the transactions contemplated by this Credit Agreement
        (including, without limitation, the direct or indirect use of the
        proceeds of the Loans) will violate or result in a violation of the
        Securities Act of 1933, as amended, or the Securities Exchange Act of
        1934, as amended, or regulations issued pursuant thereto, or Regulation
        T, U or X.

                (b) The Borrower is not subject to regulation under the Public
        Utility Holding Company Act of 1935, the Federal Power Act or the
        Investment Company Act of 1940, each as amended. In addition, the
        Borrower is not (i) an "investment company" registered or required to be
        registered under the Investment Company Act of 1940, as amended, and is
        not controlled by such a company, or (ii) a "holding company", or a
        "subsidiary company" of a "holding company", or an "affiliate" of a
        "holding company" or of a "subsidiary" of a "holding company", within
        the meaning of the Public Utility Holding Company Act of 1935, as
        amended.

                (c) No director, executive officer, principal shareholder or
        partner of the Borrower is a director, executive officer or principal
        shareholder of any Lender. For the purposes hereof the terms "director",
        "executive officer" and "principal shareholder" (when used with
        reference to any lender) have the respective meanings assigned thereto
        in Regulation O issued by the Board of Governors of the Federal Reserve
        System.

                (d) The Borrower has obtained and holds in full force and
        effect, all franchises, licenses, permits, certificates, authorizations,
        qualifications, accreditations, easements, rights of way and other
        rights, consents and approvals which are necessary for the ownership of
        its respective Property and to the conduct of its respective businesses
        as presently conducted.

                (e) The Borrower is not in violation of any applicable statute,
        regulation or ordinance of the United States, or of any state, city,
        town, municipality, county or any other jurisdiction, or of any agency
        thereof (including without limitation, environmental laws and
        regulations), which violation could reasonably be expected to have a
        Material Adverse Effect.

                (f) The Borrower is current with all material reports and
        documents, if any, required to be filed with any state or federal
        securities commission or similar agency and is in full compliance in all
        material respects with all applicable rules and regulations of such
        commissions.

                                       48
<PAGE>   54

        5.14 PURPOSE OF LOANS.

        The proceeds of the Loans hereunder shall be used solely by the Borrower
to (a) finance the Construction Costs, (b) pay other costs included in the
Project Budget and otherwise approved by the Project Administrative Agent in
accordance with the terms of (c)(ii) of Schedule 4.3 and (c) refinance existing
Indebtedness.

        5.15 ENVIRONMENTAL MATTERS.

        Except as set forth on Schedule 5.15:

                (a) The Real Properties and all operations at the Real
        Properties are in compliance with all applicable Environmental Laws, and
        there is no violation of any Environmental Law with respect to the Real
        Properties or the Businesses, and there are no conditions relating to
        the Businesses or Real Properties that could give rise to liability
        under any applicable Environmental Laws.

                (b) None of the Real Properties contains, or has previously
        contained, any Materials of Environmental Concern at, on or under the
        Real Properties in amounts or concentrations that constitute or
        constituted a violation of, or could give rise to liability under,
        Environmental Laws.

                (c) The Borrower has not received any written or verbal notice
        of, or inquiry from any Governmental Authority regarding, any violation,
        alleged violation, non-compliance, liability or potential liability
        regarding environmental matters or compliance with Environmental Laws
        with regard to any of the Real Properties or the Businesses, nor does
        any Executive Officer of the Borrower, the general partner of the
        Borrower or the managing member of the general partner of the Borrower
        have knowledge or reason to believe that any such notice will be
        received or is being threatened.

                (d) Materials of Environmental Concern have not been transported
        or disposed of from the Real Properties, or generated, treated, stored
        or disposed of at, on or under any of the Real Properties or any other
        location, in each case by or on behalf of the Borrower in violation of,
        or in a manner that could reasonably be expected to give rise to
        liability under, any applicable Environmental Law.

                (e) No judicial proceeding or governmental or administrative
        action is pending or, to the best knowledge of any Executive Officer of
        the Borrower, the general partner of the Borrower and the managing
        member of the general partner of the Borrower, threatened, under any
        Environmental Law to which the Borrower is or will be named as a party,
        nor are there any consent decrees or other decrees, consent orders,
        administrative orders or other orders, or other administrative or
        judicial requirements outstanding under any Environmental Law with
        respect to the Real Properties or the Businesses.

                (f) There has been no release, or threat of release, of
        Materials of Environmental Concern at or from the Real Properties, or
        arising from or related to the

                                       49
<PAGE>   55

        operations (including, without limitation, disposal) of the Borrower in
        connection with the Real Properties or otherwise in connection with the
        Businesses, in violation of or in amounts or in a manner that could give
        rise to liability under Environmental Laws.

        5.16 INTELLECTUAL PROPERTY.

        The Borrower owns, or has the legal right to use, all trademarks,
tradenames, copyrights, patents, technology, know-how and processes (the
"Intellectual Property") necessary for it to conduct its business as currently
conducted except for those the failure to own or have such legal right to use
could not reasonably be expected to have a Material Adverse Effect. No claim has
been asserted and is pending by any Person challenging or questioning the use of
any such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower know of any such claim, and, to the
knowledge of the Executive Officers of the Borrower, the general partner of the
Borrower and the managing member of the general partner of the Borrower, the use
of such Intellectual Property by Borrower does not infringe on the rights of any
Person, except for such claims and infringements that, in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

        5.17 LOCATION OF COLLATERAL.

        Set forth on Schedule 5.17(a) is a list of all real property located in
the United States and owned or leased by the Borrower with street address and
state where located. Set forth on Schedule 5.17(b) is a list of all locations
where any tangible personal property of the Borrower is located, including
street address and state where located. Set forth on Schedule 5.17(c) is the
chief executive office and principal place of business of the Borrower.

        5.18 DISCLOSURE.

        Neither this Credit Agreement nor any financial statements delivered to
the Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of the Borrower in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein not misleading.

        5.19 BROKERS' FEES.

        The Borrower has no obligation to any Person (other than the
Administrative Agent and the Project Administrative Agent) in respect of any
finder's, broker's, investment banking or other similar fee in connection with
any of the transactions contemplated under the Credit Documents.

        5.20 LABOR MATTERS.

        There are no collective bargaining agreements or Multiemployer Plans
covering the employees of the Borrower, and the Borrower has not suffered any
strikes, walkouts, work stoppages or other material labor difficulty within the
last five years.

                                       50
<PAGE>   56

        5.21 YEAR 2000 COMPLIANCE.

        The Borrower has (i) completed a review and assessment of all areas
within its businesses and operations (including those affected by suppliers,
vendors and customers) that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications may be unable to
recognize and properly perform date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (iii)
substantially completed implementation of that plan in accordance with that
timetable. The Year 2000 Problem has not resulted in, and the Borrower
reasonably believes that the Year 2000 Problem will not result in, a Material
Adverse Effect.

                                    SECTION 6

                              AFFIRMATIVE COVENANTS

        The Borrower hereby covenants and agrees that, so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:

        6.1 INFORMATION COVENANTS.

        The Borrower will furnish, or cause to be furnished, to the
Administrative Agent (which shall promptly provide copies to each Lender), for
the benefit of the Lenders:

                (a) Annual Financial Statements. As soon as available, and in
        any event within 120 days after the close of each fiscal year of the
        Borrower, a balance sheet and income statement of the Borrower as of the
        end of such fiscal year, together with related statements of operations
        and retained earnings and of cash flows for such fiscal year, in each
        case setting forth in comparative form figures for the preceding fiscal
        year, all such financial information described above to be in reasonable
        form and detail and audited by independent certified public accountants
        of recognized national standing reasonably acceptable to the
        Administrative Agent and whose opinion shall be to the effect that such
        financial statements have been prepared in accordance with GAAP (except
        for changes with which such accountants concur) and shall not be limited
        as to the scope of the audit or qualified as to the status of the
        Borrower as a going concern or any other material qualifications or
        exceptions.

                (b) Quarterly Financial Statements. As soon as available, and in
        any event within 45 days after the close of each fiscal quarter of the
        Borrower (other than the fourth fiscal quarter, in which case 90 days
        after the end thereof) a balance sheet and income statement of the
        Borrower as of the end of such fiscal quarter, together with related
        statements of operations and retained earnings and of cash flows for
        such fiscal quarter, in each case setting forth in comparative form
        figures for the corresponding period of the preceding fiscal year, all
        such financial information described above to be in reasonable

                                       51
<PAGE>   57

        form and detail and reasonably acceptable to the Administrative Agent,
        and accompanied by a certificate of an Executive Officer of Clise
        Properties to the effect that such quarterly financial statements fairly
        present in all material respects the financial condition of the Borrower
        and have been prepared in accordance with GAAP, subject to changes
        resulting from audit and normal year-end audit adjustments.

                (c) Officer's Certificate. At the time of delivery of the
        financial statements provided for in Sections 6.1(a) and 6.1(b) above, a
        certificate of an officer of the authorized member of the general
        partner of the Borrower substantially in the form of Exhibit 6.1(c),
        stating that no Default or Event of Default exists, or if any Default or
        Event of Default does exist, specifying the nature and extent thereof
        and what action the Credit Parties propose to take with respect thereto.

                (d) Accountant's Certificate. Within the period for delivery of
        the annual financial statements provided in Section 6.1(a), a
        certificate of the accountants conducting the annual audit stating that
        they have reviewed this Credit Agreement and stating further whether, in
        the course of their audit, they have become aware of any Default or
        Event of Default and, if any such Default or Event of Default exists,
        specifying the nature and extent thereof.

                (e) Auditor's Reports. Promptly upon receipt thereof, a copy of
        any other report or "management letter" submitted by independent
        accountants to the Borrower in connection with any annual, interim or
        special audit of the books of such Person.

                (f) Reports. Promptly upon transmission or receipt thereof, (i)
        copies of any filings and registrations with, and reports to or from,
        the Securities and Exchange Commission, or any successor agency, and
        copies of all financial statements, proxy statements, notices and
        reports as the Borrower shall send to its shareholders and (ii) upon the
        request of the Administrative Agent, all reports and written information
        with respect to the Project to and from the United States Environmental
        Protection Agency, or any state or local agency responsible for
        environmental matters, the United States Occupational Health and Safety
        Administration, or any state or local agency responsible for health and
        safety matters, or any successor agencies or authorities concerning
        environmental, health or safety matters.

                (g) Notices. Upon any Executive Officer of the Borrower, the
        general partner of the Borrower or the managing member of the general
        partner of the Borrower obtaining knowledge thereof, the Borrower will
        give written notice to the Administrative Agent (i) immediately of the
        occurrence of an event or condition consisting of a Default or Event of
        Default, specifying the nature and existence thereof and what action the
        Borrower proposes to take with respect thereto, and (ii) promptly of the
        occurrence of any of the following with respect to the Borrower (A) the
        pendency or commencement of any litigation, arbitral or governmental
        proceeding against such Person which if adversely determined is likely
        to have a Material Adverse Effect or (B) the institution of any
        proceedings against such Person with respect to, or the receipt of
        notice by such Person of potential liability or responsibility for
        violation, or alleged violation of any federal, state or local law, rule
        or regulation,

                                       52
<PAGE>   58

        including but not limited to, Environmental Laws, the violation of which
        could have a Material Adverse Effect.

                (h) ERISA. Upon any Executive Officer of the Borrower, the
        general partner of the Borrower or the managing member of the general
        partner of the Borrower obtaining knowledge thereof, the Borrower will
        give written notice to the Administrative Agent promptly (and in any
        event within five Business Days) of: (i) any event or condition,
        including, but not limited to, any Reportable Event, that constitutes,
        or might reasonably lead to, an ERISA Event; (ii) with respect to any
        Multiemployer Plan, the receipt of notice as prescribed in ERISA or
        otherwise of any withdrawal liability assessed against the Borrower or
        any ERISA Affiliates, or of a determination that any Multiemployer Plan
        is in reorganization or insolvent (both within the meaning of Title IV
        of ERISA); (iii) the failure to make full payment on or before the due
        date (including extensions) thereof of all amounts which the Borrower or
        any ERISA Affiliate is required to contribute to each Plan pursuant to
        its terms and as required to meet the minimum funding standard set forth
        in ERISA and the Code with respect thereto; or (iv) any change in the
        funding status of any Plan that could have a Material Adverse Effect,
        together with a description of any such event or condition or a copy of
        any such notice and a statement by an Executive Officer of Clise
        Properties briefly setting forth the details regarding such event,
        condition, or notice, and the action, if any, which has been or is being
        taken or is proposed to be taken by the Borrower with respect thereto.
        Promptly upon request, the Borrower shall furnish the Administrative
        Agent and the Lenders with such additional information concerning any
        Plan as may be reasonably requested, including, but not limited to,
        copies of each annual report/return (Form 5500 series), as well as all
        schedules and attachments thereto required to be filed with the
        Department of Labor and/or the Internal Revenue Service pursuant to
        ERISA and the Code, respectively, for each "plan year" (within the
        meaning of Section 3(39) of ERISA).

                (i) Environmental.

                        (i) Subsequent to a receipt of notice by the
                Administrative Agent or the occurrence of an event where the
                subject matter of such notice or circumstances of such event
                would reasonably cause concern that a material environmental
                problem existed at the Real Properties, upon the written request
                of the Administrative Agent, the Borrower will furnish or cause
                to be furnished to the Administrative Agent, at the Borrower's
                expense, a report of an environmental assessment of reasonable
                scope, form and depth, (including, where appropriate, invasive
                soil or groundwater sampling) by a consultant reasonably
                acceptable to the Administrative Agent as to the nature and
                extent of the presence of any Materials of Environmental Concern
                on the Real Properties (as defined in Section 5.16) and as to
                the compliance by the Borrower with Environmental Laws at such
                Real Properties. If the Borrower fails to deliver such an
                environmental report within seventy-five (75) days after receipt
                of such written request then the Administrative Agent may
                arrange for same, and the Borrower hereby grants to the
                Administrative Agent and their representatives access to the
                Real Properties to reasonably undertake such an assessment
                (including, where appropriate, invasive soil or groundwater
                sampling). The reasonable cost of any

                                       53
<PAGE>   59

                assessment arranged for by the Administrative Agent pursuant to
                this provision will be payable by the Borrower on demand and
                added to the obligations secured by the Collateral Documents.

                        (ii) The Borrower will conduct and complete all
                investigations, studies, sampling, and testing and all remedial,
                removal, and other actions necessary to address all Materials of
                Environmental Concern on, from or affecting any of the Real
                Properties to the extent necessary to be in compliance with all
                Environmental Laws and with the validly issued orders and
                directives of all Governmental Authorities with jurisdiction
                over such Real Properties to the extent any failure could
                reasonably be expected to have a Material Adverse Effect.

                (j) Leases. Promptly upon consummation thereof, copies of each
        lease entered into by the Borrower with respect to the Improvements.

                (k) Other Information. With reasonable promptness upon any such
        request, such other information regarding the business, properties or
        financial condition of any Credit Party as the Administrative Agent, on
        behalf of any Lender, may reasonably request.

        6.2 PRESERVATION OF EXISTENCE AND FRANCHISES.

        The Borrower will do all things necessary to preserve and keep in full
force and effect its existence, rights, franchises and authority.

        6.3 BOOKS AND RECORDS.

        The Borrower will keep complete and accurate books and records of its
transactions in accordance with good accounting practices on the basis of GAAP
(including the establishment and maintenance of appropriate reserves).

        6.4 COMPLIANCE WITH LAW.

        The Borrower will comply with all laws, rules, regulations and orders,
and all applicable restrictions imposed by all Governmental Authorities,
applicable to it and its Property if noncompliance with any such law, rule,
regulation, order or restriction could reasonably be expected to have a Material
Adverse Effect.

        6.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.

        The Borrower will pay and discharge (a) all taxes, assessments and
governmental charges or levies imposed upon it, or upon its income or profits,
or upon any of its properties, before they shall become delinquent, (b) all
lawful claims (including claims for labor, materials and supplies) which, if
unpaid, might give rise to a Lien upon any of its properties, and (c) except as
prohibited hereunder, all of its other Indebtedness as it shall become due;
provided, however, that the Borrower shall not be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which is being contested in good
faith by appropriate proceedings and as to which adequate reserves therefor have
been established in accordance with GAAP, unless the failure to make any

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<PAGE>   60

such payment (i) could give rise to an immediate right to foreclose on a Lien
securing such amounts or (ii) could reasonably be expected to have a Material
Adverse Effect.

        6.6 INSURANCE.

                (a) The Borrower hereby agrees that it will at all times
        maintain in full force and effect insurance (including, but not limited
        to, liability insurance, casualty insurance and builders risk insurance)
        in such amounts and covering such risks and liabilities and with such
        deductibles as are in accordance with normal industry practice and the
        provisions set forth below:

                        (i) The builder's risk insurance policy with respect to
                the Land and the Improvements shall be an "all-risk" completed
                value, non-reporting builder's risk insurance policy and shall
                contain (A) coverage for vandalism and malicious mischief, (B)
                provisions for a minimum 45-day advance written notice to the
                Administrative Agent and the Project Administrative Agent of any
                intended policy cancellation or non-renewal and provide for
                copies of any notices of any policy cancellation or non-renewal
                to be delivered to the Project Administrative Agent and the
                Administrative Agent, (C) a standard mortgagee endorsement
                designating the Administrative Agent, for the benefit of the
                Lenders, as mortgagee and loss payee, (D) provisions sufficient
                to avoid the application of any co-insurance provisions and (E)
                a soft cost coverage endorsement.

                        (ii) The general accident and public liability insurance
                maintained by each of the Borrower and the general contractor
                with respect to the Land and the Improvements shall (A) be
                sufficient to insure against all claims for bodily injury, death
                or property damage occurring upon, in or about the Project and
                (B) include worker's compensation coverage in an amount
                sufficient to satisfy statutory requirements.

                        (iii) Following completion of the Project, the
                "all-risk" special form replacement cost insurance policy with
                agreed amount endorsement with respect to the Land and the
                Improvements must (i) eliminate all co-insurance provisions and
                replace such provisions with a replacement cost endorsement,
                (ii) include provisions for a minimum 30-day advance written
                notice to the Administrative Agent of any intended policy
                cancellation or non-renewal and (iii) designate the
                Administrative Agent, for the benefit of the Lenders, as
                mortgagee and loss payee in a standard mortgagee endorsement, as
                its interest may appear.

                        (iv) A commercial general liability insurance policy
                with respect to the Land and the Improvements insuring against
                claims of bodily injury, death or property damage, in an amount
                not less than $1,000,000, each occurrence form, naming the
                Administrative Agent as additional insured for the benefit of
                the Lenders.

                                       55
<PAGE>   61

                (b) In the event the Borrower fails to maintain insurance as
        required hereunder, the Administrative Agent shall have the right to
        procure such insurance whether or not the Borrower's failure to maintain
        such insurance constitutes a Default or an Event of Default. Any amounts
        paid by the Administrative Agent for insurance shall be due and payable
        to the Administrative Agent upon demand and shall be secured by the
        Collateral Documents.

                (c) In the event of any material loss, the Borrower shall
        promptly give written notice thereof to the Administrative Agent and the
        insurance carrier describing the nature and extent of such damage or
        destruction. The Administrative Agent may make proof of loss if not made
        promptly by the Borrower. The Administrative Agent is hereby authorized,
        upon the request and direction of the Required Lenders, to adjust,
        compromise and collect the proceeds of any insurance claims. The
        Borrower hereby assigns to the Administrative Agent, for the benefit of
        the Lenders, the proceeds of any such insurance policies and hereby
        directs and authorizes each insurance company to make payment for such
        loss directly to the Administrative Agent. In the event the Borrower
        shall receive any such insurance proceeds as a result of any loss,
        damage or destruction with respect to the Collateral, the Borrower shall
        immediately pay over such proceeds to the Administrative Agent as cash
        collateral for the Credit Party Obligations. The Administrative Agent
        agrees to release such insurance proceeds to the Borrower for
        restoration or repair of the Collateral damaged provided the following
        conditions are met:

                        (i) there exists no Default or Event of Default;

                        (ii) the Borrower presents sufficient evidence to the
                Administrative Agent that there are sufficient funds from the
                insurance proceeds and from equity funds, if needed, to
                completely restore or repair the damaged collateral;

                        (iii) parties having existing or expected leasehold
                interests in the Project constituting 75% of the gross leaseable
                square footage in the Project agree in a manner satisfactory to
                the Administrative Agent that they will continue or extend their
                interests and arrangements for the contract terms then in effect
                following the restoration or repair;

                        (iv) the Borrower presents sufficient evidence to the
                Administrative Agent that the damaged Collateral will be
                restored at least six (6) months prior to the Maturity Date;

                        (v) all parties having operating, management of
                franchise interests in, and arrangements concerning the Land and
                the Improvements agree that they will continue their interests
                and arrangements for the contract terms then in effect following
                the restoration;

                        (vi) the Administrative Agent and the Lenders will not
                incur any liability to any other Person as a result of such use
                or release of insurance proceeds;

                                       56
<PAGE>   62

                        (vii) the insurance proceeds shall be held by the
                Administrative Agent and disbursed as the repair or restoration
                work progresses substantially in accordance with the
                disbursement procedures of Sections 2.1 and 4.3 of this Credit
                Agreement as if such proceeds were Loans; provided however that
                insurance proceeds of $100,000 or less will be disbursed
                directly to the Borrower for restoration or repair;

                        (viii) the plans and specifications, cost breakdown,
                construction contract, construction schedule, contractor and
                payment and performance bond for the work of repair or
                reconstruction must all be acceptable to the Administrative
                Agent and the Project Administrative Agent; and

                        (ix) the Nordstrom Lease Agreement shall not have been
                terminated.

        If the above-referenced conditions of this Section 6.6(c)(i), (ii),
(iii), (iv), (v), (vi), (vii), (viii) and (ix) are not satisfied within one
hundred twenty (120) days of loss, then the Administrative Agent may, at its
option, apply any insurance proceeds to the payment of the Revolving Loans. The
insurance coverage of the Borrower is outlined as to carrier, policy number,
expiration date, type and amount on Schedule 6.6.

        6.7 MAINTENANCE OF PROPERTY.

        The Borrower will maintain and preserve its properties and equipment
material to the conduct of its business in good repair, working order and
condition, normal wear and tear and casualty and condemnation excepted, and will
make, or cause to be made, in such properties and equipment from time to time
all repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto as may be needed or proper, to the extent and in the manner
customary for companies in similar businesses.

        6.8 PERFORMANCE OF OBLIGATIONS.

        The Borrower will perform in all material respects all of its
obligations under the terms of all material agreements, indentures, mortgages,
security agreements or other debt instruments to which it is a party or by which
it is bound.

        6.9 USE OF PROCEEDS.

        The Borrower will use the proceeds of the Loans solely for the purposes
set forth in Section 5.14.

        6.10 AUDITS/INSPECTIONS.

        (a) Upon reasonable notice and during normal business hours, the
Borrower will permit representatives appointed by the Administrative Agent,
including, without limitation, independent accountants, agents, attorneys, and
appraisers to visit and inspect its property, including its books and records,
its accounts receivable and inventory, its facilities and its other business
assets, and to make photocopies or photographs thereof and to write down and
record any information such

                                       57
<PAGE>   63

representative obtains and shall permit the Administrative Agent or its
representatives to investigate and verify the accuracy of information provided
to the Lenders and to discuss all such matters with the officers, employees and
representatives of such Person. The Borrower agrees that the Administrative
Agent may enter upon the Land at any time for the purpose of inspecting the
construction of the Project. The Borrower agrees that the Administrative Agent
may order appraisals or reappraisals of the Project and/or the Improvements (at
the Borrower's expense) if the Administrative Agent has a reasonable belief that
there has been a material change to the Project. Such appraisals shall be by a
qualified appraiser designated by and satisfactory to the Administrative Agent
and must be satisfactory to the Administrative Agent in form and substance.

        (b) The Borrower will permit the Project Administrative Agent and its
authorized agents to enter upon the Land during normal working hours and as
often as the Project Administrative Agent desires, for the purpose of inspecting
the construction of the Project. Failure of the Project Administrative Agent or
its authorized agents to discover or to reject materials or workmanship shall
not make it liable to the Borrower or to any other person on account of such
deficiency, nor shall any prior failure constitute a waiver of the Project
Administrative Agent's right to subsequently reject any such workmanship or
materials.

        6.11 YEAR 2000 COMPLIANCE.

        The Borrower will promptly notify the Administrative Agent in the event
the Borrower discovers or determines that the Year 2000 Problem has resulted in,
or is reasonably expected to result in, a Material Adverse Effect.

        6.12 CONSTRUCTION.

        The Borrower hereby agrees that the Project shall be substantially
complete on or before October 31, 2001 in accordance with (a) the Plans and
Specifications and (b) all building, zoning and other applicable laws,
ordinances, codes, rules and regulations and requirements of all Federal, State
and municipal governments.

        6.13 EMINENT DOMAIN.

        (a) The Borrower hereby agrees that it will promptly notify the
Administrative Agent of any actual or threatened initiation of any eminent
domain proceeding as to any part of the Project and shall deliver to the
Administrative Agent copies of any and all papers served or received in
connection with such proceedings, and the Administrative Agent shall have the
right, upon the request and direction of the Required Lenders, to participate in
such proceedings at the expense of the Borrower (including, without limitation,
the Administrative Agent's attorney's fees) and the Borrower will execute such
documents and take such other steps as required to permit such participation.
The Administrative Agent is hereby authorized, upon the request and direction of
the Required Lenders, to adjust, compromise and collect any eminent domain award
or settle a claim for damages and to apply the same to the payment of the
Revolving Loans, subject to the provisions of subsection (b) below.

                                       58
<PAGE>   64

        (b) The Borrower assigns to the Administrative Agent, for the benefit of
the Lenders, any proceeds or awards which may become due by reason of any
condemnation or other taking for public use of the whole or any part of the Land
and the Improvements or any rights appurtenant thereto. The Administrative Agent
agrees to release the proceeds of any such condemnation award to the Borrower
for restoration or repair of the Collateral if the following conditions are met:

                (i)     there exists no Default or Event of Default;

                (ii)    the Borrower presents sufficient evidence to the
                        Administrative Agent that there are sufficient funds
                        from the condemnation proceeds and equity funds, if
                        needed, to completely restore or repair the damaged
                        Collateral;

                (iii)   parties having existing or expected leasehold interests
                        in the Project constituting 75% of the gross leaseable
                        square footage in the Project agree in a manner
                        satisfactory to the Administrative Agent that they will
                        continue to extend their interests and arrangements for
                        the contract terms then in effect following the
                        restoration or repair;

                (iv)    all parties having operating, management or franchise
                        interests in, and arrangements concerning, the Land and
                        the Improvements agree that they will continue their
                        interests and arrangements for the contract terms then
                        in effect following the restoration;

                (v)     the Borrower presents sufficient evidence to the
                        Administrative Agent that the damaged Collateral will be
                        restored at least six (6) months prior to the Maturity
                        Date;

                (vi)    the Administrative Agent and the Lenders will not incur
                        any liability to any other Person as a result of such
                        release of proceeds;

                (vii)   the condemnation award or proceeds shall be held by the
                        Administrative Agent and disbursed as the restoration
                        work progresses substantially in accordance with the
                        disbursement procedures of Sections 2.1 and 4.3 of the
                        Credit Agreement as if such proceeds were Loans;
                        provided, however, that condemnation awards or proceeds
                        of $100,000 or less will be disbursed directly to the
                        Borrower for restoration or repair;

                (viii)  the plans and specifications, cost breakdown,
                        construction contract, construction schedule, contractor
                        and payment and performance bond for the work of repair
                        or restoration work must all be acceptable to the
                        Administrative Agent and the Project Administrative
                        Agent; and

                (ix)    the Nordstrom Lease Agreement shall not have been
                        terminated.

        If the above-referenced conditions of this Section 6.13(b)(i), (ii),
(iii), (iv), (v), (vi), (vii), (viii) and (ix) are not satisfied within one
hundred twenty (120) days of the date of the taking,

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<PAGE>   65

then the Administrative Agent may, at its option, apply any condemnation
proceeds or award to the payment of the Revolving Loans.

        (c) The Borrower agrees to execute such further assignments and
agreements as may be reasonably required by the Administrative Agent to assure
the effectiveness of this Section 6.13.

        6.14. CHANGES IN PLANS AND SPECIFICATIONS; CHANGE ORDERS.

        The Borrower shall provide the Project Administrative Agent with notice
of all changes in the Plans and Specifications, changes to the terms of the
construction contract for the Improvements, orders for extra work, or other
changes to the Project. All changes to the Plans and Specifications or the
Project (other than minor changes which do not affect the cost of the Project or
the scheduled completion date) shall be made by a written change order signed by
the Borrower and its general contractor. The Project Administrative Agent's
prior written approval (such approval not to be unreasonably withheld, delayed
or conditioned) shall be required for (a) any single change order or
modification which will result in an increase or decrease of more than $500,000
of the direct construction costs ("Construction Costs") specified in the
construction budget for the Project approved by the Project Administrative Agent
(the "Project Budget"); (b) any change order or modification which together with
the aggregate of all previous change orders or modifications (whether or not
previously approved by the Project Administrative Agent) will result in a net
cumulative increase or decrease in the Construction Costs of more than
$1,500,000; or any change order or modification or any amendment or modification
to the construction contract or the Plans and Specifications which will affect
the scheduled completion date of the Project. The Borrower will not permit the
performance of any work pursuant to any change order unless and until the
Borrower has received the approval of the Project Administrative Agent (such
approval not to be unreasonably withheld, delayed or conditioned), if such
approval is required pursuant to this Section 6.14. The Borrower shall provide
the Project Administrative Agent with copies of all change orders and
modifications, irrespective of amount, whether or not the Project Administrative
Agent's prior approval is required pursuant to this Section 6.14. Each of the
parties hereto agrees that the terms of this Section 6.14 shall not restrict or
otherwise impair the Borrower's right to receive insurance proceeds from the
Administrative Agent in accordance with Section 6.6 or condemnation proceeds
from the Administrative Agent in accordance with Section 6.13 nor shall receipt
of such proceeds in accordance with the respective sections be included in the
cumulative increase or decrease for purposes of required approvals under this
Section 6.14.

        6.15 ABANDONMENT OF CONSTRUCTION.

        The Borrower agrees if construction of the Improvements is at any time
abandoned or discontinued for fifteen (15) consecutive days or more, or if the
Project Administrative Agent in good faith determines the work is not being
performed in accordance with the approved Plans and Specifications and the
approved construction contract, the Project Administrative Agent, on behalf of
Lenders, may enter onto the Project (or designate a third party to enter onto
the Project) to complete the construction or correct any work improperly done or
replace any defective material. If the Project Administrative Agent exercise the
foregoing option, it may employ such workmen and furnish such materials as it
believes are necessary or appropriate to complete the Improvements or

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<PAGE>   66

correct any errors or defects in construction or workmanship. All costs incurred
by the Project Administrative Agent pursuant to this Section 6.15, including
reasonable sums for supervision, attorneys' fees and all related costs and
expenses, shall be deemed additional advances to the Borrower and secured by the
Mortgage Instrument. On demand, the Borrower shall pay all costs and expenses
expended by the Project Administrative Agent pursuant to this Section 6.15. The
fifteen (15) day period set forth above shall be extended one (1) day for each
day that the abandonment or discontinuation of construction is caused by fire,
earthquake or other acts of God, strikes, lockout, acts of public enemy, riot,
insurrection or governmental regulation of the sale or transportation of
materials, supplies or labor, or any other cause beyond the reasonable control
of the Borrower; provided, in no event shall such fifteen (15) day period be
extended to a period of more than sixty (60) days, unless otherwise agreed in
writing by the Project Administrative Agent.

        6.16 ALLEY VACATION.

        At such time as the City vacates the alley abutting the Land, the
Borrower shall (i) promptly (and in any event within five (5) Business Days
thereafter) provide the Administrative Agent and the Project Administrative
Agent with notice of such vacation, (ii) (to the extent the Ground Lease
Agreement is still in effect), use commercially reasonable best efforts to,
enter into an amendment to the Ground Lease Agreement (in form and substance
reasonably satisfactory to the Administrative Agent) ground leasing to the
Borrower that portion of the alley vacated by the City to Stewart Avenue
Properties (or its successor or assignee, as ground lessor), (iii) within thirty
(30) days of the notice referenced in subclause (i) above, enter into an
amendment to the Mortgage Instrument which grants to the Administrative Agent,
for the benefit of the Lenders, a lien on and security interest in that portion
of the alley vacated to the Borrower and which is otherwise reasonably
satisfactory in form and substance to the Administrative Agent and (iv) within
thirty (30) days of the notice referenced in subclause (i) above, provide the
Administrative Agent with an endorsement to the Mortgage Policy (in form and
substance reasonably satisfactory to the Administrative Agent) with respect to
such alley vacation and amendment to Mortgage Instrument. If the Borrower enters
into the amendment to the Ground Lease Agreement referenced in subclause (ii)
above, the Borrower shall (within thirty (30) days of such amendment) provide
the Administrative Agent (a) with an amendment to the Mortgage Instrument (in
form and substance reasonably satisfactory to the Administrative Agent) which
grants to the Administrative Agent, for the benefit of the Lenders, a lien on
and security interest in all of the Borrower's rights and interests under the
Ground Lease Agreement (as amended pursuant to the amendment described in
subclause (ii) above) and (b) with an endorsement to the Mortgage Policy (in
form and substance reasonably satisfactory to the Administrative Agent) with
respect to such amendment to Ground Lease Agreement.

<PAGE>   67
                                    SECTION 7

                               NEGATIVE COVENANTS

        The Borrower hereby covenants and agrees that, so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:

        7.1    INDEBTEDNESS.

        The Borrower will not contract, create, incur, assume or permit to exist
any Indebtedness, except:

               (a) Indebtedness arising under this Credit Agreement and the
        other Credit Documents;

               (b) obligations of the Borrower in respect of Hedging Agreements
        entered into in order to manage existing or anticipated interest rate or
        exchange rate risks and not for speculative purposes;

               (c) Indebtedness of the Borrower with respect to that certain
        letter of credit issued by Bank of America in the amount of $1,328,340
        to secure the Borrower's obligations to construct the Housing Project
        and satisfy other conditions to qualification for additional square feet
        of floor area through the housing bonus (the "Housing Credits Letter of
        Credit").

               (d) obligation of the Borrower to pay (a) HRG $1,250,000 pursuant
        to the Joint Development Agreement on account of HRG's construction,
        development, ownership and operation of the Housing Project or (b) any
        other Person reasonably acceptable to the Project Administrative Agent
        up to $1,250,000 on account of such Person's construction, development,
        ownership and operation of the Housing Project;

               (e) obligation of the Borrower to purchase the Tipp Property in
        the amount of up to $2,000,000 following (i) the exercise by the Ground
        Lessor (as defined in the Ground Lease Agreement) of its right to sell
        pursuant to the Ground Lease Agreement or (ii) the exercise by the
        Borrower of its right to purchase pursuant to the Ground Lease Agreement
        or any other arrangement under which the Borrower may purchase the Tipp
        Property;

               (f) obligation of the Borrower to guarantee each third party
        lease on each retail space (at a triple net rent and on other market
        terms) located below the Housing Project for the life of the tax exempt
        bonds issued to finance the Housing Project, as required by (i) the
        Joint Development Agreement or (ii) any other agreement entered into by
        the Borrower with a Person reasonably acceptable to the Project
        Administrative Agent regarding the construction, development, ownership
        and operation of the Housing Project;

               (g) such other obligations of the Borrower to HRG under the Joint
        Development Agreement or any other Person reasonably acceptable to the
        Project Administrative Agent

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<PAGE>   68

        under any other agreement entered into by the Borrower regarding the
        construction, development, ownership and operation of the Housing
        Project, including the Borrower's obligation to reimburse such Person
        for out-of-pocket expenses related to the transfer of any unused housing
        bonus to a third party and to reimburse such Person for hard costs and
        soft costs related to the construction of the truck parking area on the
        Tipp Property;

               (h) additional unsecured subordinated Indebtedness of the
        Borrower, provided that (a) such Indebtedness shall be subordinated to
        the Loans pursuant to subordination terms satisfactory to the
        Administrative Agent, (b) such Indebtedness shall not exceed $15,000,000
        in the aggregate principal amount at any time outstanding, (c) no part
        of the principal amount of such Indebtedness shall have a maturity date
        earlier than the Maturity Date and (d) the Borrower shall not be
        required to make any payments of principal or interest with respect to
        such Indebtedness other than payments of interest in kind or made
        through additional borrowings under such Indebtedness rather than direct
        cash payments (collectively, the "Subordinated Debt"); and

               (i) prior to the funding of the Loans hereunder on the Funding
        Date, the Nordstrom Loan.

        7.2    LIENS.

        The Borrower will not contract, create, incur, assume or permit to exist
any Lien with respect to any of its Property, whether now owned or after
acquired, except for (i) Permitted Liens and (ii) prior to the funding of the
Loans hereunder on the Funding Date, the Guarantor's Liens against the
Collateral.

        7.3    NATURE OF BUSINESS.

        The Borrower will not substantively alter the character or conduct of
the business conducted by the Borrower as of the Closing Date, which shall be
limited to the ownership, development, improvement, leasing, operation and
management of the Project.

        7.4    CONSOLIDATION, MERGER, DISSOLUTION, ETC.

        The Borrower will not enter into any transaction of merger or
consolidation or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).

        7.5    ASSET DISPOSITIONS.

        The Borrower will not make any Asset Disposition (including without
limitation any Sale and Leaseback Transaction) other than (i) the sale of assets
in the ordinary course of business (ii) the sale or disposition of assets no
longer used or useful in the conduct of such Person's business, and (iii) the
transfer of the Tipp Property to HRG or any other Person reasonably acceptable
to the Project Administrative Agent; provided that, (a) use restrictions
(satisfactory in form and substance to the Project Administrative Agent) shall
have been placed on the Tipp Property such that the only permitted use of the
Tipp Property will be the construction and operation of the Housing Project and
construction of a truck parking area to serve the Project, (b) HRG or such other
Person shall

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<PAGE>   69

have agreed to construct the Housing Project and such truck parking area in
accordance with all applicable permits, declarations, ordinances and laws and
otherwise on terms reasonably satisfactory to the Project Administrative Agent,
and (c) a permanent easement shall have been granted to the Borrower (in form
and substance satisfactory to the Project Administrative Agent) providing for
the Borrower's unlimited use and maintenance of such truck parking area on the
Tipp Property.

        Upon the transfer of the Tipp Property permitted by this Section 7.5,
the Administrative Agent shall deliver to the Borrower, upon the Borrower's
request and at the Borrower's expense, such documentation as is reasonably
necessary to evidence the release of the Administrative Agent's Lien on the
Ground Lease Agreement or the Tipp Property (if the Borrower has purchased the
Tipp Property).

        7.6    INVESTMENTS.

        The Borrower will not make Investments in or to any Person, except for
Permitted Investments.

        7.7    RESTRICTED PAYMENTS.

        The Borrower will not directly or indirectly, declare, order, make or
set apart any sum for or pay any Restricted Payment, except (i) to make
dividends payable solely in the same class of Capital Stock of such Person, (ii)
for so long as the Borrower is not subject to federal, state or local taxes, the
Borrower shall be permitted to distribute from time to time such amounts as
Clise Venture reasonably determines are sufficient to enable each partner of the
Borrower to pay any federal, state or local tax liability attributable to its
distributive share of the income and gain of the Borrower and (iii) so long as
(a) the Project has achieved Stabilization and (b) no Default or Event of
Default exists or would result therefrom, the Borrower may make cash dividends
or distributions to its members not more than once per quarter; provided, that,
(x) the Debt Service Coverage Ratio, as of the end of the fiscal quarter
immediately preceding such cash dividend or distribution, for the twelve month
period ending on such date, shall be greater than 1.25 to 1.0 and (y) the
Borrower shall have provided advance written notice to the Administrative Agent
of the date and amount of such cash dividend or distribution.

        7.8    OTHER INDEBTEDNESS.

        The Borrower will not (i) after the issuance thereof, amend or modify
(or permit the amendment or modification of) any of the terms of any other
Indebtedness of the Borrower (including without limitation the Subordinated
Debt) if such amendment or modification would add or change any terms in a
manner adverse to the Borrower, or shorten the final maturity or average life to
maturity or require any payment to be made sooner than originally scheduled or
increase the interest rate applicable thereto or change any subordination
provision thereof, or (ii) make (or give any notice with respect thereto) any
voluntary or optional payment or prepayment or redemption or acquisition for
value of (including without limitation, by way of depositing money or securities
with the trustee with respect thereto before due for the purpose of paying when
due), refund, refinance or

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<PAGE>   70

exchange of any other Indebtedness of the Borrower (including without limitation
the Subordinated Debt) other than the Nordstrom Loan.

        7.9    TRANSACTIONS WITH AFFILIATES.

        Except for the agreements set forth on Schedule 7.9, the Borrower will
not enter into or permit to exist any transaction or series of transactions with
any officer, director, shareholder, Subsidiary or Affiliate of the Borrower
other than (a) normal compensation and reimbursement of expenses of officers and
directors and (b) except as otherwise specifically limited in this Credit
Agreement, other transactions which are entered into in the ordinary course of
the Borrower's business on terms and conditions substantially as favorable to
the Borrower as would be obtainable by it in a comparable arms-length
transaction with a Person other than an officer, director, shareholder,
Subsidiary or Affiliate.

        7.10   FISCAL YEAR; ORGANIZATIONAL DOCUMENTS.

        The Borrower will not change its fiscal year or amend, modify or change
its partnership agreement (or other similar organizational document).

        7.11   LIMITATION ON RESTRICTED ACTIONS.

        The Borrower will not directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of the Borrower to (a) pay dividends or make any other distributions to
any Credit Party on its Capital Stock or with respect to any other interest or
participation in, or measured by, its profits, (b) pay any Indebtedness or other
obligation owed to any Credit Party, (c) make loans or advances to any Credit
Party or (d) sell, lease or transfer any of its properties or assets to any
Credit Party, except (in respect of any of the matters referred to in clauses
(a)-(d) above) for such encumbrances or restrictions existing under or by reason
of (i) this Credit Agreement and the other Credit Documents or (ii) applicable
law.

        7.12   SUBSIDIARIES.

        The Borrower agrees that it shall not form any Subsidiaries.

        7.13   SALE LEASEBACKS.

        The Borrower will not enter into any Sale and Leaseback Transaction.

        7.14   NO FURTHER NEGATIVE PLEDGES.

        The Borrower will not enter into, assume or become subject to any
agreement prohibiting or otherwise restricting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired, or
requiring the grant of any security for any obligation if security is given for
any other obligation, except pursuant to this Credit Agreement and the other
Credit Documents.

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<PAGE>   71

        7.15   LEASES.

        The Borrower will not enter into any lease with respect to office space
in the Project which (i) is on a form of lease not previously approved by the
Project Administrative Agent, (ii) is for a term of more than five (5) years,
not including renewal periods, or more than ten (10) years including renewal
periods, (iii) contains an option or right to purchase all or any part of the
Project, (iv) covers more than a full floor of space in the Project, (v) is with
an Affiliate of the Borrower or (vi) is for a base rental rate less than ninety
percent (90%) of the pro forma base rental rate of $34.50 per square foot for
office space in the Project, or provides for a tenant improvement allowance or
for tenant improvements costing more than one hundred ten percent (110%) of the
pro forma tenant allowance of $35.00 per square foot for office space in the
Project unless the Borrower has notified the Project Administrative Agent of
such lease and provided the Project Administrative Agent seven (7) Business Days
to review such lease. Furthermore, with respect to any lease of the Project
requiring the review of the Project Administrative Agent pursuant to the terms
of the preceding sentence, the Borrower shall not (i) permit the assignment or
subletting of all or any part of the lessee's rights under such lease unless the
right to assign or sublet is expressly reserved by the lessee under such lease,
(ii) amend or modify such lease or (iii) accept surrender of such lease or
terminate such lease except in accordance with the terms of such lease unless
the Borrower has notified the Project Administrative Agent of such assignment,
amendment or termination, as applicable, and provided the Project Administrative
Agent seven (7) Business Days to review such assignment, amendment or
termination, as applicable. The Project Administrative Agent agrees that it will
review each lease, assignment of lease, or amendment to lease, as applicable,
within seven (7) Business Days of receipt of such lease, assignment or
amendment, as applicable. Nothing contained in this Section 7.15 shall prohibit
the Borrower from entering into any lease, consenting to the assignment or
subletting of any lease, or accepting the surrender or termination of any lease
so long as the Administrative Agent is provided the notice and review period
required by this Section 7.15.

        7.16   PLANS AND SPECIFICATIONS.

        The Borrower will not make any material amendments or material
modifications to any of (i) the Plans and Specifications, (ii) the Development
Agreement, (iii) the construction contract for the Improvements, (iv) the
architect's contract for the Improvements, (v) the Transferable Development
Agreements or (vi) the Letter of Credit Agreement without the prior written
consent of the Administrative Agent.

        7.17   FLOOR AREA RATIO.

        The Borrower shall not permit the floor area ratio for the Land to drop
below that necessary to construct and operate the Project to its intended height
size and dimensions and in accordance with the Plans and Specifications.

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                                    SECTION 8

                                EVENTS OF DEFAULT

        8.1    EVENTS OF DEFAULT.

        An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):

               (a) Payment. The Borrower shall

                   (i) default in the payment when due of any principal of any
               of the Loans, or

                   (ii) default, and such default shall continue for three (3)
               or more Business Days, in the payment when due of any interest on
               the Loans, or of any Fees or other amounts owing hereunder, under
               any of the other Credit Documents or in connection herewith or
               therewith; or

               (b) Representations. Any representation, warranty or statement
        made or deemed to be made by any Credit Party herein, in any of the
        other Credit Documents, or in any statement or certificate delivered or
        required to be delivered pursuant hereto or thereto shall prove untrue
        in any material respect on the date as of which it was deemed to have
        been made; or

               (c) Covenants. The Borrower shall

                   (i) default in the due performance or observance of any term,
               covenant or agreement contained in Sections 6.2, 6.4, 6.9, 6.11
               or 7.1, 7.3, 7.4, 7.5, 7.8, 7.10, 7.11, 7.12, 7.13, 7.16 or 7.17;

                   (ii) default in the due performance or observance of any
               term, covenant or agreement contained in Sections 6.1(a), (b) (c)
               or (d), 6.12, 6.13, 6.16, 7.2, 7.6, 7.9, 7.14 or 7.15 and such
               default shall continue unremedied for a period of at least 5
               Business Days after the earlier of any Executive Officer of the
               Borrower, the general partner of the Borrower or the managing
               member of the general partner of the Borrower becoming aware of
               such default or notice thereof by the Administrative Agent; or

                   (iii) default in the due performance or observance by it of
               any term, covenant or agreement (other than those referred to in
               subsections (a), (b), (c)(i) or (c)(ii) of this Section 8.1)
               contained in this Credit Agreement or any other Credit Document
               and such default shall continue unremedied for a period of at
               least 30 days after the earlier of any Executive Officer of the
               Borrower, the general partner of the Borrower or the managing
               member of the general partner of the Borrower becoming aware of
               such default or notice thereof by the Administrative Agent,
               except for a default of Section 6.7 of this Credit Agreement or a
               default of

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<PAGE>   73

               Section 2.8 of the Mortgage Instrument which cannot be cured
               within such 30 day period in which case if the Credit Parties
               have begun a cure within such 30 day period and are pursuing it
               with all due diligence, the Credit Parties shall have an
               additional 30 days to cure such default; or

               (d) Other Credit Documents. Any Credit Document shall fail to be
        in full force and effect or to give the Administrative Agent and/or the
        Lenders the Liens, rights, powers and privileges purported to be created
        thereby, or any Credit Party shall so state in writing; or

               (e) Guaranties. The guaranty given by the Guarantor under the
        Guaranty Agreement or any provision thereof shall cease to be in full
        force and effect, or the Guarantor under the Guaranty Agreement or any
        Person acting by or on behalf of the Guarantor shall deny or disaffirm
        the Guarantor's obligations under the Guaranty Agreement, or the
        Guarantor shall default in the due performance or observance of any
        term, covenant or agreement on its part to be performed or observed
        pursuant to the Guaranty Agreement; or

               (f) Bankruptcy, etc. Any Bankruptcy Event shall occur with
        respect to the Borrower; or

               (g) Defaults under Other Indebtedness.

                   (i) The Borrower shall default in the performance or
               observance (beyond the applicable grace period with respect
               thereto, if any) of any material obligation or condition of any
               contract or lease material to the Borrower; or

                   (ii) With respect to any Indebtedness (other than
               Indebtedness outstanding under this Credit Agreement) of the
               Borrower in an aggregate principal amount in excess of $500,000,
               (A) the Borrower shall (1) default in any payment (beyond the
               applicable grace period with respect thereto, if any) with
               respect to any such Indebtedness, or (2) default in the
               observance or performance relating to such Indebtedness or
               contained in any instrument or agreement evidencing, securing or
               relating thereto, or any other event or condition shall occur or
               condition exist, the effect of which default or other event or
               condition is to cause, or permit, the holder or holders of such
               Indebtedness (or trustee or Administrative Agent on behalf of
               such holders) to cause (determined without regard to whether any
               notice or lapse of time is required), any such Indebtedness to
               become due prior to its stated maturity; or (B) any such
               Indebtedness shall be declared due and payable, or required to be
               prepaid other than by a regularly scheduled required prepayment,
               prior to the stated maturity thereof; or

               (h) Judgments. One or more judgments or decrees shall be entered
        against the Borrower involving a liability of $500,000 or more in the
        aggregate (to the extent not paid or fully covered by insurance provided
        by a carrier who has acknowledged coverage and has

                                       68
<PAGE>   74

        the ability to perform) and any such judgments or decrees shall not have
        been vacated, discharged or stayed or bonded pending appeal within 30
        days from the entry thereof; or

               (i) ERISA. Any of the following events or conditions, if such
        event or condition could have a Material Adverse Effect: (i) any
        "accumulated funding deficiency," as such term is defined in Section 302
        of ERISA and Section 412 of the Code, whether or not waived, shall exist
        with respect to any Plan, or any lien shall arise on the assets of the
        Borrower or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an
        ERISA Event shall occur with respect to a Single Employer Plan, which
        is, in the reasonable opinion of the Administrative Agent, likely to
        result in the termination of such Plan for purposes of Title IV of
        ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer
        Plan or Multiple Employer Plan, which is, in the reasonable opinion of
        the Administrative Agent, likely to result in (A) the termination of
        such Plan for purposes of Title IV of ERISA, or (B) the Borrower or any
        ERISA Affiliate incurring any liability in connection with a withdrawal
        from, reorganization of (within the meaning of Section 4241 of ERISA),
        or insolvency (within the meaning of Section 4245 of ERISA) of such
        Plan; or (iv) any prohibited transaction (within the meaning of Section
        406 of ERISA or Section 4975 of the Code) or breach of fiduciary
        responsibility shall occur which may subject the Borrower or any ERISA
        Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of
        ERISA or Section 4975 of the Code, or under any agreement or other
        instrument pursuant to which the Borrower or any ERISA Affiliate has
        agreed or is required to indemnify any person against any such
        liability; or

               (j) Ownership. There shall occur a Change of Control; or

               (k) Nordstrom Credit Agreement. There shall occur an Event of
        Default (as defined in the Nordstrom Credit Agreement) under the
        Nordstrom Credit Agreement; or

               (l) Cross Default. There shall occur a default or event of
        default under (i) the Development Agreement, (ii) the Letter of Credit
        Agreement, (iii) the Guaranty Agreement, (iv) the Ground Lease Agreement
        or (v) any of the Transferable Development Rights Agreements.

        8.2    ACCELERATION; REMEDIES.

        Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived by the requisite Lenders
(pursuant to the voting requirements of Section 10.6) or cured to the
satisfaction of the requisite Lenders (pursuant to the voting procedures in
Section 10.6), the Administrative Agent shall, upon the request and direction of
the Required Lenders, by written notice to the Borrower take any of the
following actions:

               (a) Termination of Commitments. Declare the Commitments
        terminated whereupon the Commitments shall be immediately terminated.

               (b) Acceleration. Declare the unpaid principal of and any accrued
        interest in respect of all Loans and any and all other indebtedness or
        obligations of any and every kind

                                       69
<PAGE>   75

        owing by the Borrower to the Administrative Agent and/or any of the
        Lenders hereunder to be due whereupon the same shall be immediately due
        and payable without presentment, demand, protest or other notice of any
        kind, all of which are hereby waived by the Borrower.

               (c) Enforcement of Rights. Enforce any and all rights and
        interests created and existing under the Credit Documents including,
        without limitation, all rights and remedies existing under the
        Collateral Documents, all rights and remedies against the Guarantor and
        all rights of set-off.

        Notwithstanding the foregoing, (i) if an Event of Default specified in
Section 8.1(f) shall occur with respect to the Borrower or (ii) if an Event of
Default (as defined in the Guaranty Agreement) specified in Section 6.1(e) of
the Guaranty Agreement shall occur with respect to the Guarantor, then the
Commitments shall automatically terminate and all Loans, all accrued interest in
respect thereof, all accrued and unpaid Fees and other indebtedness or
obligations owing to the Administrative Agent and/or any of the Lenders
hereunder automatically shall immediately become due and payable without the
giving of any notice or other action by the Administrative Agent or the Lenders.

                                    SECTION 9

                                AGENCY PROVISIONS

        9.1 APPOINTMENT, POWERS AND IMMUNITIES.

            (a) Each Lender hereby irrevocably appoints and authorizes (i) the
Administrative Agent to act as its Administrative Agent under this Credit
Agreement and the other Credit Documents and (ii) the Project Administrative
Agent to act as its project administrative agent under this Credit Agreement and
the other Credit Documents with such powers and discretion as are specifically
delegated to the Administrative Agent and the Project Administrative Agent
respectively by the terms of this Credit Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto.
The Administrative Agent (which term as used in this sentence and in Section 9.5
and the first sentence of Section 9.6 hereof shall include its Affiliates and
its own and its Affiliates' officers, directors, employees, and Administrative
Agents) and the Project Administrative Agent: (a) shall not have any duties or
responsibilities except those expressly set forth in this Credit Agreement and
shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible
to the Lenders for any recital, statement, representation, or warranty (whether
written or oral) made in or in connection with any Credit Document or any
certificate or other document referred to or provided for in, or received by any
of them under, any Credit Document, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of any Credit Document, or any other
document referred to or provided for therein or for any failure by any Credit
Party or any other Person to perform any of its obligations thereunder; (c)
shall not be responsible for or have any duty to ascertain, inquire into, or
verify the performance or observance of any covenants or agreements by any
Credit Party or the satisfaction of any condition or to inspect the property

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<PAGE>   76

(including the books and records) of any Credit Party or any of its Subsidiaries
or Affiliates; (d) shall not be required to initiate or conduct any litigation
or collection proceedings under any Credit Document; and (e) shall not be
responsible for any action taken or omitted to be taken by it under or in
connection with any Credit Document, except for its own gross negligence or
willful misconduct. The Agents may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.

            (b) Each Lender hereby consents to and approves the terms of the
Guaranty Agreement. By execution hereof, the Lenders authorize and direct the
Administrative Agent to enter into the Guaranty Agreement on behalf of the
Lenders.

        9.2 RELIANCE BY ADMINISTRATIVE AGENT.

        The Agents shall be entitled to rely upon any certification, notice,
instrument, writing, or other communication (including, without limitation, any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants, and other experts selected by the
Agents. The Administrative Agent may deem and treat the payee of any Note as the
holder thereof for all purposes hereof unless and until the Administrative Agent
receives and accepts an Assignment and Acceptance executed in accordance with
Section 10.3(b) hereof. As to any matters not expressly provided for by this
Credit Agreement, the Agents shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders, and such instructions shall be binding on
all of the Lenders; provided, however, that the Agents shall not be required to
take any action that exposes the Agents to personal liability or that is
contrary to any Credit Document or applicable law or unless it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking any such action.

        9.3 DEFAULTS.

        An Agent shall not be deemed to have knowledge or notice of the
occurrence of a Default or Event of Default unless such Agent has received
written notice from a Lender or a Credit Party specifying such Default or Event
of Default and stating that such notice is a "Notice of Default". In the event
that the Administrative Agent receives such a notice of the occurrence of a
Default or Event of Default, the Administrative Agent shall give prompt notice
thereof to the Lenders. The Administrative Agent shall (subject to Section 8.2
hereof) take such action with respect to such Default or Event of Default as
shall reasonably be directed by the Required Lenders (or such other Lenders as
required by Section 10.6), provided that, unless and until the Administrative
Agent shall have received such directions, the Administrative Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable in
the best interest of the Lenders.

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<PAGE>   77

        9.4 RIGHTS AS A LENDER.

        With respect to its Commitment and the Loans made by it, Bank of America
(and any successor acting as the Administrative Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. Bank of America (and any successor acting as Administrative Agent) and
its Affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in, provide services to, and
generally engage in any kind of lending, trust, or other business with any
Credit Party or any of its Subsidiaries or Affiliates as if it were not acting
as Administrative Agent, and Bank of America (and any successor acting as
Administrative Agent) and its Affiliates may accept fees and other consideration
from any Credit Party or any of its Subsidiaries or Affiliates for services in
connection with this Credit Agreement or otherwise without having to account for
the same to the Lenders.

        9.5 INDEMNIFICATION.

        The Lenders agree to indemnify the Agents (to the extent not reimbursed
under Section 10.5 hereof, but without limiting the obligations of the Credit
Parties under such Section) ratably (in accordance with their respective (i)
Revolving Commitments (or, if the Revolving Commitments have been terminated,
the outstanding Revolving Loans) for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including attorneys' fees), or disbursements of any kind and nature whatsoever
that may be imposed on, incurred by or asserted against an Agent (including by
any Lender) in any way relating to or arising out of any Credit Document or the
transactions contemplated thereby or any action taken or omitted by an Agent
under any Credit Document: provided that no Lender shall be liable for any of
the foregoing to the extent they arise from the gross negligence or willful
misconduct of the Person to be indemnified. Without limitation of the foregoing,
each Lender agrees to reimburse an Agent promptly upon demand for its ratable
share of any costs or expenses payable by the Credit Parties under Section 10.5
and Section 6.6, to the extent that such Agent is not promptly reimbursed for
such costs and expenses by the Credit Parties. The agreements in this Section
9.5 shall survive the repayment of the Loans and other obligations under the
Credit Documents and the termination of the Commitments hereunder.

        9.6 NON-RELIANCE ON AGENTS AND OTHER LENDERS.

        Each Lender agrees that it has, independently and without reliance on
the Agents or any other Lender, and based on such documents and information as
it has deemed appropriate, made its own credit analysis of the Credit Parties
and their Subsidiaries and decision to enter into this Credit Agreement and that
it will, independently and without reliance upon the Agents or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under the Credit Documents. Except for notices, reports, and other
documents and information expressly required to be furnished to the Lenders by
an Agent hereunder, the Agents shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the

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<PAGE>   78

affairs, financial condition, or business of any Credit Party or any of its
Subsidiaries or Affiliates that may come into the possession of any Agent or any
of its Affiliates.

        9.7 SUCCESSOR AGENTS.

        An Agent may resign at any time by giving notice thereof to the Lenders
and the Credit Parties. An Agent may be removed at any time for cause by written
action of the Required Lenders delivered to such Agent. Upon any such
resignation or removal, the Required Lenders and, unless a Default or Event of
Default has occurred and is continuing, the Borrower shall have the right to
appoint a successor Administrative Agent or Project Administrative Agent, as
applicable. If no successor Administrative Agent shall have been so appointed
within thirty (30) days after the retiring Administrative Agent's giving of
notice of resignation or removal of the Administrative Agent, then the retiring
or removed Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a commercial bank organized under
the laws of the United States having combined capital and surplus of at least
$100,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor, such successor shall thereupon succeed to and become
vested with all the rights, powers, discretion, privileges, and duties of the
retiring or removed Administrative Agent, and the retiring or removed
Administrative Agent shall be discharged from its duties and obligations
hereunder. If no successor Administrative Agent has accepted appointment as
Administrative Agent within thirty (30) days after the retiring Administrative
Agent's giving notice of resignation or removal of the Administrative Agent, the
retiring Administrative Agent's resignation or removal shall nevertheless become
effective, and the Lenders shall perform all duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders and, unless a Default
or Event of Default has occurred and is continuing, the Borrower appoint a
successor Administrative Agent as provided above. If no successor Project
Administrative Agent shall have been so appointed by the Required Lenders within
thirty (30) days after the retiring Project Administrative Agent's giving of
notice of resignation or removal of the Project Administrative Agent, then the
retiring or removed Project Administrative Agent may, on behalf of the Lenders,
appoint a successor Project Administrative Agent which shall be a commercial
bank organized under the laws of the United States having combined capital and
surplus of at least $100,000,000. Upon the acceptance of any appointment as
Project Administrative Agent hereunder by a successor, such successor shall
thereupon succeed to and become vested with all the rights, powers, discretion
and duties of the retiring or removed Project Administrative Agent, and the
retiring or removed Project Administrative Agent shall be discharged from its
duties and obligations hereunder. If no successor Project Administrative Agent
has accepted appointment as Project Administrative Agent within thirty (30) days
after the retiring Project Administrative Agent's giving notice of resignation
or removal of the Project Administrative Agent, the retiring Project
Administrative Agent's resignation or removal shall nevertheless become
effective, and the Lenders shall perform all duties of the Project
Administrative Agent hereunder until such time, if any, as the Required Lenders
and, unless a Default or Event of Default has occurred and is continuing, the
Borrower shall appoint a successor Project Administrative Agent as provided
above. Upon any retiring Agent's resignation or removal, the provisions of this
Section 9 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as an Agent.

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                                   SECTION 10

                                  MISCELLANEOUS

        10.1 NOTICES.

        Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address, in the case of the Credit Parties and the
Administrative Agent, set forth below, and, in the case of the Lenders, set
forth on Schedule 2.1(a), or at such other address as such party may specify by
written notice to the other parties hereto:

        if to the Borrower:

               1700 Seventh L.P.
               c/o Clise Venture One LLC
               1904 Third Avenue, Suite #200
               Seattle, Washington  98101
               Attn:  A.M. Clise
               Telephone:  (206) 623-7500
               Telecopy:  (206) 624-8379

        with a copy to:

               Nordstrom, Inc.
               1617 6th Avenue
               Seattle, Washington  98101
               Attn:  Chief Financial Officer
               Telephone:  (206) 373-4090
               Telecopy:  (206) 373-4055

        if to the Guarantor:

               Nordstrom, Inc.
               1617 6th Avenue
               Seattle, Washington 98101
               Attn:  Chief Financial Officer
               Telephone:  (206) 373-4090
               Telecopy:  (206) 373-4055

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<PAGE>   80

        if to the Project Administrative Agent:

               Bank of America, N.A.
               701 Fifth Avenue, 15th Floor
               Mail Code WA1-102-15-01
               Seattle, Washington  98104
               Attn:  Laura Raynolds
               Telephone:  (206) 358-3668
               Facsimile:   (206) 358-3487

        if to the Administrative Agent:

               Bank of America, N.A.
               1850 Gateway Blvd., 5th Floor
               Mail Code CA4-706-05-09
               Concord, California  94520
               Attn:  Josephine T. Flores
               Telephone:  (925) 675-8374
               Facsimile:  (925) 969-2812

        with a copy to:

               Bank of America, N.A.
               555 California Street, 41st Floor
               Mail Code:  CA5-705-41-89
               San Francisco, California  94104
               Attn:  James Johnson
               Telephone:  (415) 622-6177
               Facsimile:   (415) 622-4585

        10.2 RIGHT OF SET-OFF; ADJUSTMENTS.

        Upon the occurrence and during the continuance of any Event of Default,
each Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender (or any of its Affiliates)
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Credit
Agreement, under the Notes, under any other Credit Document or otherwise,
irrespective of whether such Lender shall have made any demand hereunder or
thereunder and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such set-off and application made by
such Lender; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Lender
under this Section 10.2 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) that such Lender may have.

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<PAGE>   81

        10.3   BENEFIT OF AGREEMENT; ASSIGNMENTS.

               (a) This Credit Agreement shall be binding upon and inure to the
        benefit of and be enforceable by the respective successors and assigns
        of the parties hereto; provided that the Borrower may not assign or
        transfer any of its interests and obligations without prior written
        consent of each of the Lenders; provided further that the rights of each
        Lender to transfer, assign or grant participations in its rights and/or
        obligations hereunder shall be limited as set forth in this Section
        10.3.

               (b) Each Lender may assign to one or more Eligible Assignees all
        or a portion of its rights and obligations under this Credit Agreement
        (including, without limitation, all or a portion of its Loans, its
        Notes, and its Commitment); provided, however, that

                   (i) each such assignment shall be to an Eligible Assignee and
               subject to the restrictions contained in the definition of
               "Eligible Assignee";

                   (ii) except in the case of an assignment to another Lender,
               an Affiliate of an existing Lender or any fund that invests in
               bank loans and is advised or managed by an investment advisor to
               an existing Lender or an assignment of all of a Lender's rights
               and obligations under this Credit Agreement, any such partial
               assignment shall be in an amount at least equal to $5,000,000
               (or, if less, the remaining amount of the Commitment being
               assigned by such Lender) or an integral multiple of $1,000,000 in
               excess thereof; and

                   (iii) the parties to such assignment shall execute and
               deliver to the Administrative Agent for its acceptance an
               Assignment and Acceptance in the form of Exhibit 10.3(b) hereto,
               together with any Note subject to such assignment and a
               processing fee of $3,500.

        Upon execution, delivery, and acceptance of such Assignment and
        Acceptance, the assignee thereunder shall be a party hereto and, to the
        extent of such assignment, have the obligations, rights, and benefits of
        a Lender hereunder and the assigning Lender shall, to the extent of such
        assignment, relinquish its rights and be released from its obligations
        under this Credit Agreement. Upon the consummation of any assignment
        pursuant to this Section 10.3(b), the assignor, the Administrative Agent
        and the Borrower shall make appropriate arrangements so that, if
        required, new Notes are issued to the assignor and the assignee. If the
        assignee is not a United States person under Section 7701(a)(30) of the
        Code, it shall deliver to the Borrower and the Administrative Agent
        certification as to exemption from deduction or withholding of Taxes in
        accordance with Section 3.11.

               (c) The Administrative Agent shall maintain at its address
        referred to in Section 10.1 a copy of each Assignment and Acceptance
        delivered to and accepted by it and a register for the recordation of
        the names and addresses of the Lenders and the Commitment of, and
        principal amount of the Loans owing to, each Lender from time to time
        (the "Register"). The entries in the Register shall be conclusive and
        binding for all purposes, absent manifest error, and the Credit Parties,
        the Administrative Agent and the

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<PAGE>   82

        Lenders may treat each Person whose name is recorded in the Register as
        a Lender hereunder for all purposes of this Credit Agreement. The
        Register shall be available for inspection by the Credit Parties or any
        Lender at any reasonable time and from time to time upon reasonable
        prior notice. Any assignment of any Loan or other Credit Party
        Obligations shall be effective only upon an entry with respect thereto
        being made in the Register.

               (d) Upon its receipt of an Assignment and Acceptance executed by
        the parties thereto, together with any Note subject to such assignment
        and payment of the processing fee, the Administrative Agent shall, if
        such Assignment and Acceptance has been completed and is in
        substantially the form of Exhibit 10.3(b) hereto, (i) accept such
        Assignment and Acceptance, (ii) record the information contained therein
        in the Register and (iii) give prompt notice thereof to the parties
        thereto.

               (e) Each Lender may sell participations to one or more Persons in
        all or a portion of its rights, obligations or rights and obligations
        under this Credit Agreement (including all or a portion of its
        Commitment or its Loans); provided, however, that (i) such Lender's
        obligations under this Credit Agreement shall remain unchanged, (ii)
        such Lender shall remain solely responsible to the other parties hereto
        for the performance of such obligations, (iii) the participant shall be
        entitled to the benefit of the yield protection provisions contained in
        Sections 3.7 through 3.12, inclusive (but only to the extent that the
        costs of the Borrower resulting from such benefit does not exceed the
        costs which the Borrower would have incurred in respect of such Lender
        absent the participation), and the right of set-off contained in Section
        10.2, and (iv) the Credit Parties shall continue to deal solely and
        directly with such Lender in connection with such Lender's rights and
        obligations under this Credit Agreement, and such Lender shall retain
        the sole right to enforce the obligations of the Credit Parties relating
        to the Credit Party Obligations owing to such Lender and to approve any
        amendment, modification, or waiver of any provision of this Credit
        Agreement (other than amendments, modifications, or waivers decreasing
        the amount of principal of or the rate at which interest is payable on
        such Loans or Notes, extending any scheduled principal payment date or
        date fixed for the payment of interest on such Loans or Notes, or
        extending its Commitment).

               (f) Notwithstanding any other provision set forth in this Credit
        Agreement, any Lender may at any time assign and pledge all or any
        portion of its Loans and its Notes to any Federal Reserve Bank as
        collateral security pursuant to Regulation A and any Operating Circular
        issued by such Federal Reserve Bank. No such assignment shall release
        the assigning Lender from its obligations hereunder.

               (g) Any Lender may furnish any information concerning the Credit
        Parties in the possession of such Lender from time to time to assignees
        and participants (including prospective assignees and participants),
        subject, however, to the provisions of Section 10.14 hereof.

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<PAGE>   83

        10.4 NO WAIVER; REMEDIES CUMULATIVE.

        No failure or delay on the part of the Administrative Agent or any
Lender in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between the Administrative Agent or any
Lender and any of the Credit Parties shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
or under any other Credit Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies provided herein are cumulative and not
exclusive of any rights or remedies which the Administrative Agent or any Lender
would otherwise have. No notice to or demand on any Credit Party in any case
shall entitle the Credit Parties to any other or further notice or demand in
similar or other circumstances (except as specifically required by the Credit
Documents), or constitute a waiver of the rights of the Administrative Agent or
the Lenders to any other or further action in any circumstances without notice
or demand.

        10.5 EXPENSES; INDEMNIFICATION.

               (a) The Borrower agrees to pay on demand all costs and expenses
        of the Agents in connection with the syndication, preparation,
        execution, delivery, administration, modification, and amendment of this
        Credit Agreement, the other Credit Documents, and the other documents to
        be delivered hereunder, including, without limitation, the reasonable
        fees and expenses of counsel for the Agents (including the cost of
        internal counsel) with respect thereto and with respect to advising the
        Agents as to their rights and responsibilities under the Credit
        Documents. The Borrower further agrees to pay on demand all costs and
        expenses of the Agents and the Lenders, if any (including, without
        limitation, reasonable attorneys' fees and expenses and the cost of
        internal counsel), in connection with the enforcement (whether through
        negotiations, legal proceedings, or otherwise) of the Credit Documents
        and the other documents to be delivered hereunder.

               (b) The Borrower shall indemnity, defend and hold harmless the
        Agents and each Lender and each of their Affiliates and the officers,
        directors, employees, agents, attorneys, affiliates, successors and
        assigns of the Agents and each Lender and each of their Affiliates
        (collectively, the "Indemnitees") from and against (i) any and all
        transfer taxes, documentary taxes, assessments or charges made by any
        Governmental Authority by reason of the execution and delivery of the
        Credit Documents or the making of the Loans (provided that any Lender
        claiming any additional amounts payable pursuant to this Section
        10.5(b)(i) shall use reasonable efforts (consistent with its internal
        policy and legal and regulatory restrictions) to change the jurisdiction
        of its Applicable Lending Office if the making of such a change would
        avoid the need for, or reduce the amount of, any such additional amounts
        that may thereafter accrue and would not, in the reasonable judgment of
        such Lender, be otherwise disadvantageous to such Lender), and (ii) any
        and all liabilities, losses, damages, penalties, judgments, claims,
        costs and expenses of any kind or nature whatsoever (including
        reasonable attorneys' fees, including allocated costs of in-house
        counsel, and disbursements in connection with any actual or threatened
        investigative, administrative or judicial proceeding, whether or not
        such Indemnitee shall

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<PAGE>   84

        be designated a party thereto) that may be imposed on, incurred by or
        asserted against such Indemnitee, in any manner relating to or arising
        out of the Credit Documents, the Loans, or the use or intended use of
        the proceeds of the Loans (the "Indemnified Liabilities"); provided that
        no Indemnitee shall have the right to be indemnified or held harmless
        hereunder for its own gross negligence, or willful misconduct, as
        determined by a final judgment of a court of competent jurisdiction. The
        Borrower agrees not to assert any claim against the Agents, any Lender,
        any of their Affiliates, or any of their respective directors, officers,
        employees, attorneys, agents, and advisers, on any theory of liability,
        for special, indirect, consequential, or punitive damages arising out of
        or otherwise relating to the Credit Documents, any of the transactions
        contemplated herein or the actual or proposed use of the proceeds of the
        Loans.

               (c) To the extent that the undertaking to indemnify and hold
        harmless set forth in this Section 10.5 may be unenforceable as
        violative of any applicable law or public policy, the Borrower shall
        make the maximum contribution to the payment and satisfaction of each of
        the Indemnified Liabilities that is permissible under applicable law.
        All Indemnified Liabilities shall be payable on demand.

               (d) Without prejudice to the survival of any other agreement of
        the Borrower hereunder, the agreements and obligations of the Borrower
        contained in this Section 10.5 shall survive the repayment of the Loans
        and other obligations under the Credit Documents and the termination of
        the Commitments hereunder.

        10.6 AMENDMENTS, WAIVERS AND CONSENTS.

        Neither this Credit Agreement nor any other Credit Document nor any of
the terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Credit Parties, provided, however, that:

               (a) without the consent of each Lender affected thereby, neither
        this Credit Agreement nor any other Credit Document may be amended to

                   (i) extend the final maturity of any Loan or any portion
               thereof,

                   (ii) reduce the rate or extend the time of payment of
               interest (other than as a result of waiving the applicability of
               any post-default increase in interest rates) thereon or Fees
               hereunder,

                   (iii) reduce or waive the principal amount of any Loan,

                   (iv) increase the Commitment of a Lender over the amount
               thereof in effect (it being understood and agreed that a waiver
               of any Default or Event of Default or mandatory reduction in the
               Commitments shall not constitute a change in the terms of any
               Commitment of any Lender),

                   (v) release all or substantially all of the Collateral;

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<PAGE>   85

                   (vi) release the Borrower or the Guarantor from its or their
               obligations under the Credit Documents,

                   (vii) amend, modify or waive any provision of this Section
               10.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14,
               3.15, 8.1(a), 10.2, 10.3, 10.5 or 10.9,

                   (viii) reduce any percentage specified in, or otherwise
               modify, the definition of Required Lenders, or

                   (ix) consent to the assignment or transfer by the Borrower or
               the Guarantor of any of its or their rights and obligations under
               (or in respect of) the Credit Documents except as permitted
               thereby; and

               (b) without the consent of the Administrative Agent, no provision
        of Section 10 may be amended.

Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any bankruptcy reorganization plan that affects the
Loans, and each Lender acknowledges that the provisions of Section 1126(c) of
the Bankruptcy Code supersedes the unanimous consent provisions set forth herein
and (y) the Required Lenders may consent to allow a Credit Party to use cash
collateral in the context of a bankruptcy or insolvency proceeding.

        10.7 COUNTERPARTS.

        This Credit Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any of
the parties hereto of an executed counterpart of this Credit Agreement shall be
as effective as an original executed counterpart hereof and shall be deemed a
representation that an original executed counterpart hereof will be delivered.

        10.8 HEADINGS.

        The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.

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<PAGE>   86

        10.9 SURVIVAL.

        All indemnities set forth herein, including, without limitation, in
Section 2.2(i), 3.11, 3.12, 9.5 or 10.5 shall survive the execution and delivery
of this Credit Agreement, the making of the Loans, the repayment of the Loans
and other obligations under the Credit Documents and the termination of the
Commitments hereunder, and all representations and warranties made by the Credit
Parties herein or in any of the other Credit Documents shall survive delivery of
the Notes and the making of the Loans hereunder.

        10.10  GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.

               (a) THIS CREDIT AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY
        PROVIDED THEREIN, THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
        OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY
        AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
        OF WASHINGTON. Any legal action or proceeding with respect to this
        Credit Agreement or any other Credit Document may be brought in the
        courts of the State of Washington in King County, or of the United
        States for the Western District of Washington, and, by execution and
        delivery of this Credit Agreement, the Borrower hereby irrevocably
        accepts for itself and in respect of its property, generally and
        unconditionally, the nonexclusive jurisdiction of such courts. Nothing
        herein shall affect the right of the Administrative Agent or any Lender
        to serve process in any manner permitted by law or to commence legal
        proceedings or to otherwise proceed against the Borrower in any other
        jurisdiction.

               (b) The Borrower hereby irrevocably waives any objection which it
        may now or hereafter have to the laying of venue of any of the aforesaid
        actions or proceedings arising out of or in connection with this Credit
        Agreement or any other Credit Document brought in the courts referred to
        in subsection (a) above and hereby further irrevocably waives and agrees
        not to plead or claim in any such court that any such action or
        proceeding brought in any such court has been brought in an inconvenient
        forum.

               (c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE ADMINISTRATIVE
        AGENT, THE LENDERS, AND THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT
        TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
        OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT
        DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.

        10.11  SEVERABILITY.

        If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.

                                       81
<PAGE>   87

        10.12 ENTIRETY.

        This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein.

        10.13 BINDING EFFECT.

        This Credit Agreement shall become effective at such time on or after
the Closing Date when it shall have been executed by the Borrower and the
Administrative Agent, and the Administrative Agent shall have received copies
hereof (telefaxed or otherwise) which, when taken together, bear the signatures
of each Lender, and thereafter this Credit Agreement shall be binding upon and
inure to the benefit of the Borrower, the Administrative Agent and each Lender
and their respective successors and assigns; provided, however, unless the
conditions set forth in Section 4.2 have been satisfied by the Borrower on or
before March 14, 2000, none of the Administrative Agent, the Project
Administrative Agent or the Lenders shall have any obligations under the Credit
Agreement.

        10.14 CONFIDENTIALITY.

        The Administrative Agent and each Lender (each, a "Lending Party")
agrees to keep confidential any information furnished or made available to it by
the Credit Parties pursuant to this Credit Agreement that is marked
confidential; provided that nothing herein shall prevent any Lending Party from
disclosing such information (a) to any other Lending Party or any Affiliate of
any Lending Party, or any officer, director, employee, Administrative Agent, or
advisor of any Lending Party or Affiliate of any Lending Party, (b) to any other
Person if reasonably incidental to the administration of the Loans, (c) as
required by any law, rule, or regulation, (d) upon the order of any court or
administrative agency, (e) upon the request or demand of any regulatory agency
or authority, (f) that is or becomes available to the public or that is or
becomes available to any Lending Party other than as a result of a disclosure by
any Lending Party prohibited by this Credit Agreement, (g) in connection with
any litigation to which such Lending Party or any of its Affiliates may be a
party, (h) to the extent necessary in connection with the exercise of any remedy
under this Credit Agreement or any other Credit Document, (i) to the National
Association of Insurance Commissioners or any similar organization or any
nationally recognized rating agency that requires access to information about a
Lender's investment portfolio in connection with ratings issued with respect to
such Lender, (j) to any direct or indirect contractual counterparty in swap
agreements or such contractual counterparty's professional advisor (so long as
such contractual counterparty or professional advisor to such contractual
counterparty (i) has been approved in writing by the Borrower and (ii) agrees in
a writing enforceable by the Borrower to be bound by the provisions of this
Section 10.14) and (k) subject to provisions substantially similar to those
contained in this Section 10.14, to any actual or proposed participant or
assignee.

                                       82
<PAGE>   88

        10.15 SOURCE OF FUNDS.

        Each of the Lenders hereby represents and warrants to the Borrower that
at least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:

               (a) no part of such funds constitutes assets allocated to any
        separate account maintained by such Lender in which any employee benefit
        plan (or its related trust) has any interest;

               (b) to the extent that any part of such funds constitutes assets
        allocated to any separate account maintained by such Lender, such Lender
        has disclosed to the Borrower the name of each employee benefit plan
        whose assets in such account exceed 10% of the total assets of such
        account as of the date of such purchase (and, for purposes of this
        subsection (b), all employee benefit plans maintained by the same
        employer or employee organization are deemed to be a single plan);

               (c) to the extent that any part of such funds constitutes assets
        of an insurance company's general account, such insurance company has
        complied with all of the requirements of the regulations issued under
        Section 401(c)(1)(A) of ERISA; or

               (d) such funds constitute assets of one or more specific benefit
        plans which such Lender has identified in writing to the Borrower.

As used in this Section 10.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA. Nothing contained in this Section 10.15 shall be deemed a consent by
the Borrower to an assignment by a Lender of its rights and obligations under
this Credit Agreement.

        10.16 CONFLICT.

        To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.

        10.17 ORAL AGREEMENTS NOT BINDING.

        ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.

                           [Signature Page to Follow]

                                       83
<PAGE>   89

        IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Credit Agreement to be duly executed and delivered as of the date first
above written.

BORROWER:                    1700 SEVENTH L.P., a Washington limited partnership
--------

                             By:  CLISE VENTURE ONE LLC, a Washington limited
                                  liability company, its sole general partner

                             By:  CLISE PROPERTIES, INC., a Washington
                                  corporation, its authorized member

                             By:
                                 -----------------------------------------------
                             Name:
                                   ---------------------------------------------
                             Title:
                                   ---------------------------------------------

LENDERS:                     BANK OF AMERICA, N.A., individually in its
                             capacity as a Lender, in its capacity as
                             Administrative Agent and in its capacity as Project
                             Administrative Agent

                             By:
                                 -----------------------------------------------
                             Name:
                                   ---------------------------------------------
                             Title:
                                   ---------------------------------------------

                             WELLS FARGO BANK, NATIONAL ASSOCIATION

                             By:
                                 -----------------------------------------------
                             Name:
                                   ---------------------------------------------
                             Title:
                                   ---------------------------------------------

                             BANK ONE, NA (MAIN OFFICE-CHICAGO)

                             By:
                                 -----------------------------------------------
                             Name:
                                   ---------------------------------------------
                             Title:
                                   ---------------------------------------------

<PAGE>   90

                             U.S. BANK

                             By:
                                 -----------------------------------------------
                             Name:
                                   ---------------------------------------------
                             Title:
                                   ---------------------------------------------

                             KEYBANK NATIONAL ASSOCIATION

                             By:
                                 -----------------------------------------------
                             Name:
                                   ---------------------------------------------
                             Title:
                                   ---------------------------------------------

<PAGE>   91

                                  SCHEDULE 4.3

        Capitalized terms used in this Schedule 4.3 and not otherwise defined
shall have the meanings given to them in the Credit Agreement. In addition to
the terms of Section 2.1 and Section 4.3 of the Credit Agreement, each Revolving
Loan advance under the Credit Agreement, and the disbursement of any equity or
other funds deposited with the Project Administrative Agent pursuant to the
terms of this Schedule 4.3 (collectively the "Funds") shall be subject to the
following terms and provisions:

        (a) General Conditions to Disbursements. Each disbursement of Funds at
the request of the Borrower is subject to the following general conditions:

            (i) Neither the Improvements nor any other part of the Project shall
have been materially damaged by fire or other casualty, and there shall be no
eminent domain or condemnation proceeding pending or threatened against the
Project. This condition shall be deemed satisfied if the Borrower has satisfied
the conditions to the use of insurance and condemnation proceeds set forth in
Sections 6.6 and 6.13 of the Credit Agreement.

            (ii) Upon completion of the foundations of the Improvements, the
Administrative Agent shall have received a foundation endorsement to the
Mortgage Policy, in form and content acceptable to the Administrative Agent,
showing no encroachments of the foundations onto other property.

            (iii) The Project Administrative Agent must be satisfied that the
Revolving Loans are "in balance" pursuant to subparagraph (e) below, or the
Borrower must have deposited the additional Funds with the Project
Administrative Agent required pursuant to such subparagraph (e).

            (iv) The Lenders are not prohibited from disbursing Funds under any
applicable lien laws or stop notice statutes or otherwise except to the extent
that such Funds are withheld as provided in subparagraph (b) below.

            (v) No legal or administrative proceeding challenging the validity
of or seeking to enjoin, set aside, review or otherwise challenge any
governmental permit or approval applicable to the Project shall be pending or
threatened.

        Unless all the foregoing conditions of subsection (a) are met to the
Project Administrative Agent's satisfaction, neither the Lenders, nor the
Administrative Agent, nor the Project Administrative Agent shall have any
obligation to make any disbursement of Funds requested by the Borrower; however,
the Required Lenders may elect to make an advance of the Funds notwithstanding
that any one or more of the foregoing conditions is not satisfied, and by doing
so they shall not be deemed to have waived the right to require the satisfaction
of any such conditions with respect to any other advance of the Funds. The
proceeds of the Revolving Loans and other Funds will be deposited in the Deposit
Account and from which any payments that the Borrower is required to make will
be automatically withdrawn.

<PAGE>   92

        (b) Disbursements for Construction Costs.

            (i) The Borrower may request disbursements of Funds to pay direct
construction costs provided for in the Project Budget once a month. All requests
for payment of the Construction Costs specified in the Project Budget shall be
pursuant to a draw request ("Draw Request") submitted to the Project
Administrative Agent. Each Draw Request shall be on an AIA form of Application
and Certificate for Payment (or other form approved by the Project
Administrative Agent), signed by the general contractor, the Borrower and the
project architect, as required by the Project Administrative Agent. Subject to
the conditions set forth in Sections 2.1 and 4.3 of the Credit Agreement, and
the other conditions to disbursement set forth in this Schedule 4.3, Revolving
Loan advances shall be made after the Project Administrative Agent's receipt and
approval of the Draw Request and any supplementary documentation or information
required by the Project Administrative Agent in accordance with the terms of the
Credit Agreement and this Schedule 4.3. The Project Administrative Agent agrees
that it will review the Draw Request and any supplemental documentation or
information required by the Project Administrative Agent and make a
determination as to whether such Draw Request and other documentation or
information are acceptable to the Project Administrative Agent within seven (7)
Business Days of receipt of such items. The Project Administrative Agent
additionally agrees that it will immediately notify the Borrower of its approval
of any Draw Request and related materials. The Project Administrative Agent
agrees that it will provide copies of any Draw Request or any other supplemental
documentation or information provided to the Project Administrative Agent in
accordance with this Schedule 4.3 to any Lender which requests copies of any
such Draw Request, documentation or information. The Project Administrative
Agent also agrees to provide a copy of the Project Budget to any Lender which
requests a copy of the Project Budget.

            (ii) Unless otherwise agreed in writing by the Project
Administrative Agent, each Draw Request shall be accompanied by the following,
all of which must be acceptable to the Project Administrative Agent in its
reasonable discretion (l) a Certificate of Job Progress signed by the Borrower
and the general contractor stating the percentage of the Project completed
through the date payment is requested; (2) if requested by the Project
Administrative Agent, invoices (or other reasonable evidence) substantiating the
Construction Costs covered by the Draw Request; and (3) executed acknowledgments
of payment and releases of liens (through the date covered by the immediately
preceding monthly advance) from the general contractor and, if required by the
Project Administrative Agent, from all laborers, subcontractors and materialmen
performing labor or services or supplying materials in connection with the
Project ("Subcontractors").

            (iii) The Project Administrative Agent will withhold from each
advance for Construction Costs an amount (the "Retention") equal to five percent
(5%) of the amount of the Construction Costs for which disbursement is
requested. The amount of the Retention shall be held by the Project
Administrative Agent until the conditions for final advance set forth below are
satisfied. If a disbursement is requested to pay for materials stored off-site,
prior to making the disbursement, the Project Administrative Agent must receive
(1) a copy of a bill of sale or other acceptable evidence establishing that such
materials were purchased free and clear of liens and encumbrances and not
pursuant to a conditional sales contract, (2) evidence the materials are

<PAGE>   93

stored at a suitable location acceptable to the Project Administrative Agent,
and are insured against damage or destruction for the full insurable value under
a policy of insurance which names the Administrative Agent as an additional loss
payee on behalf of the Lenders, and (3) evidence the materials are segregated
from materials and equipment not intended to be incorporated into the Project.

            (iv) In the event the Project Administrative Agent receives a notice
of a potential lien pursuant to RCW 60.04.221, to the extent there is not bond
in place for such item pursuant to either RCW 60.04.161 or RCW 60.04.221, the
Project Administrative Agent shall withhold from the next and subsequent draws
the amount claimed to be due as stated in the notice. Sums so withheld shall not
be disbursed by the Project Administrative Agent, except by the written
agreement of the potential lien claimant owner, and prime contractor in such
form as may be prescribed by the Project Administrative Agent, or the order of a
court of competent jurisdiction, but the Project Administrative Agent shall not
otherwise refuse to allow a Draw Request on the basis of such a notice.

            (v) The Project Administrative Agent shall have no obligation to
approve a Draw Request for the payment of Construction Costs if (a) the
percentage of Construction Costs in the Project Budget which has already been
disbursed is greater than the percentage of completion of the Project, as
certified to the Project Administrative Agent in any Certificate of Job Progress
and verified by the Project Administrative Agent or the Consultant; or (b) the
percentage of any Construction Cost line item in the then current Project Budget
which is already paid out is greater than the percentage of completion of that
line item.

        (c) Disbursements for Other Costs.

            (i) Interest. If there is an interest reserve in the Project Budget,
prior to completion of Improvements (and after completion of the Improvements to
the extent the Net Operating Income is insufficient to pay interest due on the
Revolving Loans), the Project Administrative Agent will make monthly
disbursements of Funds from the interest reserve set forth in the Project Budget
to pay interest on the Revolving Loans. If in the Project Administrative Agent's
reasonable opinion, the undisbursed amount of the interest reserve in the
Project Budget (plus any anticipated Net Operating Income) is not sufficient to
pay interest on the Revolving Loans as it comes due under the Credit Agreement,
the Borrower shall pay the interest from its own monies (not Revolving Loan
proceeds or other Funds) in accordance with Section 2.1 of the Credit Agreement
or shall deposit additional funds with the Project Administrative Agent to be
added to the interest reserve, at the Project Administrative Agent's option. The
foregoing is not intended to alter or limit the Borrower's obligation to make
the interest payments on the Revolving Loans as required by Section 2.1 of the
Credit Agreement if the interest reserve is not adequate or if the Project
Administrative Agent otherwise is not required to make such disbursements.

            (ii) Non-Construction Costs. The Borrower may from time to time
request the disbursement of Funds to pay costs other than Construction Costs if
such other costs are included in the Project Budget, and the disbursement
request is otherwise approved by the Project Administrative Agent. With each
request, the Borrower will provide the Project Administrative

<PAGE>   94

Agent with such evidence as the Project Administrative Agent may require
verifying the amount and purpose of the costs for which disbursement is
requested. Prior to disbursing Funds for any Project management or development
fees, real estate fees or commissions or otherwise, the Project Administrative
Agent shall have received, reviewed and approved executed copies of the
applicable agreement providing for the payment of such fees or commissions, and
the Project Administrative Agent shall be reasonably satisfied the Person to be
paid has duly performed the services for which payment is requested.

        (d) Inspections by Project Administrative Agent. The Project
Administrative Agent may retain, at the Borrower's expense, an architect,
structural engineer or other construction consultant (the "Consultant") to
inspect the Project, review Draw Requests, the construction contract, the Plans
and Specifications, the Project Budget and such other documents or information
as the Project Administrative Agent may require, visit the Project and perform
such other duties as the Project Administrative Agent deems necessary or
desirable. The Project Administrative Agent shall instruct the Consultant and
shall otherwise take reasonable steps to cause the Consultant to provide such
services in a timely manner so as not to delay and reasonably complete the Draw
Request. The Consultant may make periodic inspections of the Improvements during
construction to review and comment on construction progress and percentage of
completion, conformity of the work with the Plans and Specifications, activity
and coordination among trades and quality of workmanship, and the accuracy of
the statement of percentage of completion reflected in any Certificate of Job
Progress submitted to the Project Administrative Agent. Any inspections by the
Project Administrative Agent or the Consultant shall be solely for the purpose
of protecting the interests of the Project Administrative Agent, the
Administrative Agent and the Lenders, and such inspections shall not be
construed as a representation to the Borrower or any other Person that there has
been or will be strict compliance on the part of any contractors or
subcontractors with the Plans and specifications or that construction of the
Improvements is or will be free from faulty materials or workmanship. If the
Consultant does not approve a Certificate of Job Progress, or any other
materials or information submitted to the Project Administrative Agent with a
Draw Request, the Project Administrative Agent will have no obligation to
approve the requested advance in an amount greater than the amount approved by
the Consultant.

        (e) Loan Balancing. The Lenders shall have no obligation to make a
Revolving Loan advances and the Project Administrative Agent has no obligation
to disburse any Funds if in the Project Administrative Agent's reasonable
opinion the Revolving Loans are not "in balance"; i.e., the undisbursed balance
of the Revolving Loans, plus any undisbursed Funds previously deposited by the
Borrower with the Project Administrative Agent, if any, are not sufficient to
pay all costs necessary to complete the Project (including without limitation
the payment of interest on the Revolving Loans) in accordance with the approved
Plans and Specifications and the Project Budget, free and clear of all liens,
encumbrances and conditional sales contracts, whether the deficiency is
attributable to changes in the work or in the Plans and Specifications or to any
other cause. If at any time the Project Administrative Agent determines the
Revolving Loans are not in balance, within five (5) days after demand, the
Borrower will deposit with the Project Administrative Agent the amount necessary
to "balance" the Revolving Loans, and all Funds so deposited with the Project
Administrative Agent shall be held and disbursed by the Project Administrative
Agent in accordance with this Schedule 4.3 prior to

<PAGE>   95

making any additional disbursement of Funds. If the Project Administrative Agent
makes such demand, the Lenders shall have no obligation to make further
Revolving Loan advances and the Project Administrative Agent shall have no
obligation to disburse any Funds until such additional funds are deposited with
the Project Administrative Agent by the Borrower. Each Draw Request or other
request for disbursement submitted to the Project Administrative Agent will
constitute the Borrower's representation and warranty to the Project
Administrative Agent and the Lenders that the Revolving Loans are "in balance".

        (f) Use and Application of Funds. The Project Administrative Agent shall
have no obligation to assure that Funds advanced to the Borrower or others are
applied against the cost of the Project. The Borrower accepts full
responsibility for the proper application of all Funds advanced at the
Borrower's request. The Project Administrative Agent may rely solely on Draw
Requests or other disbursement requests submitted by the Borrower or its agents
and upon other affidavits, statements or reports submitted by the Borrower or
its agents in making advances of Funds. The Borrower shall defend, indemnify and
hold the Project Administrative Agent, the Administrative Agent and the Lenders
harmless from any losses, demands, claims, attorneys' fees and expenses which
may arise out of the misapplication or misuse of Revolving Loans (or other
Funds) by the Borrower or by any other person paid at the Borrower's direction.

        (g) Final Disbursement. The final disbursement of Funds, including the
Retention, shall be made only if the conditions set forth below are met to the
Project Administrative Agent's satisfaction:

                (i) The Improvements and the Project are completed in accordance
with the Plans and Specifications as confirmed by the project architect and the
Project Administrative Agent or the Consultant, and the Project Administrative
Agent shall have received as-built Plans and Specifications for the Project.

                (ii) The Administrative Agent shall have received, at the
Borrower's expense, an endorsement (in form and substance satisfactory to the
Administrative Agent) to the Mortgage Policy insuring the lien-free completion
of the Project, without exceptions other than those previously approved by the
Administrative Agent.

                (iii) The Project Administrative Agent and the Administrative
Agent shall have received an as-built survey of the Project and an endorsement
to the Title Policy eliminating title exceptions regarding possible
encroachments and/or violations of easement rights.

                (iv) The Project Administrative Agent shall have received copies
of all licenses, permits and certificates necessary for the lawful use and
occupancy of the Project, including but not limited to a copy of the final
certificate of occupancy for the Project, which shall be unconditional unless
otherwise agreed by the Project Administrative Agent, or other evidence
acceptable to the Project Administrative Agent that the Project is completed and
accepted by all necessary governmental authorities.

<PAGE>   96

                (v) If requested by the Project Administrative Agent, the
Project Administrative Agent shall have received a final accounting of Project
costs from the Borrower and/or its general contractor.

                (vi) The Project Administrative Agent shall have received fully
executed lien releases from General Contractor and, if required by the Project
Administrative Agent, the Subcontractors, or the Borrower shall have provided
the Administrative Agent on behalf of the Lenders with an appropriate surety
bond from a surety acceptable to the Project Administrative Agent or affirmative
title insurance coverage with respect to potential laborers', mechanics' or
materialmen's liens.

        (h) Expenses, Fees and Interest. Notwithstanding any other provision of
this Schedule 4.3 or the Credit Agreement, the Project Administrative Agent may
elect (after having provided notice to the Borrower) to use Funds to pay when
due expenses of the Project Administrative Agent, the Administrative Agent or
the Lenders which are the Borrower's responsibility under the Credit Agreement
or any of the other Credit Documents, and such other sums as may be payable from
time to time by the Borrower to the Project Administrative Agent, the
Administrative Agent or the Lenders with respect to the Revolving Loans. Such
payments at the option of the Project Administrative Agent may be made by
debiting or charging the Funds in the amount of such payments without first
disbursing such amounts to Borrower. In addition, the Borrower hereby authorizes
the Administrative Agent, at its option, to make such other payments as the
Administrative Agent deems necessary or desirable to maintain the validity and
priority of the Mortgage Instrument, including the following, unless the
Borrower makes the payment within ten (10) days after written notice from
Administrative Agent: (i) pay delinquent assessments and taxes on the Project;
(ii) pay title insurance premiums, recording fees, and hazard, liability and
flood insurance premiums; (iii) pay contractor's liens or claims of liens
against the Project, subject to any right the Borrower may have to contest such
liens pursuant to the terms of the Mortgage Instrument or the other Credit
Documents, and (iv) pay judgments affecting the Project, subject to any right
the Borrower may have to contest such judgment's pursuant to the terms of the
Mortgage Instrument or the other Credit Documents.

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