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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0001012870-02-001044.txt : 20020415
<SEC-HEADER>0001012870-02-001044.hdr.sgml : 20020415
ACCESSION NUMBER:		0001012870-02-001044
CONFORMED SUBMISSION TYPE:	S-1
PUBLIC DOCUMENT COUNT:		15
FILED AS OF DATE:		20020306

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NETFLIX COM INC
		CENTRAL INDEX KEY:			0001065280
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-VIDEO TAPE RENTAL [7841]
		IRS NUMBER:				770467272
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		S-1
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-83878
		FILM NUMBER:		02568726

	BUSINESS ADDRESS:	
		STREET 1:		750 UNIVERSITY AVE
		STREET 2:		SUITE 140
		CITY:			LOS GATOS
		STATE:			CA
		ZIP:			95032
		BUSINESS PHONE:		4083993700

	MAIL ADDRESS:	
		STREET 1:		750 UNIVERSITY AVENUE
		CITY:			LOS GATOS
		STATE:			CA
		ZIP:			95032-7606
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-1
<SEQUENCE>1
<FILENAME>ds1.txt
<DESCRIPTION>FORM S-1
<TEXT>
<PAGE>

     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 2002

                                                    REGISTRATION NO. 333-
================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933

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

                                 NETFLIX, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

<TABLE>
<S>                             <C>                          <C>
           DELAWARE                         7841                   77-0467272
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL    (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION  CLASSIFICATION CODE NUMBER)  IDENTIFICATION NUMBER)
</TABLE>

                             970 UNIVERSITY AVENUE
                              LOS GATOS, CA 95032
                                (408) 399-3700
  (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)

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

                            W. BARRY MCCARTHY, JR.
                            CHIEF FINANCIAL OFFICER
                             970 UNIVERSITY AVENUE
                              LOS GATOS, CA 95032
                                (408) 399-3700
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

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

                                  COPIES TO:

<TABLE>
<S>                              <C>                              <C>
     LARRY W. SONSINI, ESQ.            ROBERT SANCHEZ, ESQ.       JONATHAN A. SCHAFFZIN, ESQ.
WILSON SONSINI GOODRICH & ROSATI WILSON SONSINI GOODRICH & ROSATI   CAHILL GORDON & REINDEL
    PROFESSIONAL CORPORATION         PROFESSIONAL CORPORATION           80 PINE STREET
       650 PAGE MILL ROAD            7927 JONES BRANCH DRIVE       NEW YORK, NEW YORK 10005
      PALO ALTO, CA 94304          LANCASTER BUILDING WESTPARK,         (212) 701-3000
         (650) 493-9300                     SUITE 400
                                      MCLEAN, VIRGINIA 22102
                                          (703) 734-3100
</TABLE>

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

      APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  As soon
as practicable after the effective date of this Registration Statement.

      If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.  [_]

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

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

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

      If delivery of the prospectus is expected to be made pursuant to rule
434, please check the following box.  [_]

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


<TABLE>
<S>                                                    <C>                         <C>
======================================================================================================
                                                            PROPOSED MAXIMUM            AMOUNT OF
  TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED   AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------
Common Stock $0.001 par value.........................        $115,000,000               $10,580
======================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Amount shall be offset against the registration fee of $22,770 previously
    paid by Netflix.com, Inc., our prior name, in connection with Registration
    Statement on Form S-1(No. 333-35014) filed on April 18, 2000 and withdrawn
    by Registrant on July 21, 2000 pursuant to Rule 457(p) of the Securities
    Act of 1933.

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

      THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================

<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.


                             SUBJECT TO COMPLETION
                   PRELIMINARY PROSPECTUS DATED      , 2002

PROSPECTUS
- ----------

                                       SHARES

                            [LOGO] NETFLIX.COM, INC.

                                 COMMON STOCK

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

      This is Netflix, Inc.'s initial public offering of common stock. We are
selling all of the shares.

      We expect the public offering price to be between $      and $      per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National
Market under the symbol "NFLX."

      INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.

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

<TABLE>
<CAPTION>
                                                         PER SHARE TOTAL
                                                         --------- -----
       <S>                                               <C>       <C>
       Public offering price............................     $       $
       Underwriting discount............................     $       $
       Proceeds, before expenses, to Netflix, Inc.......     $       $
</TABLE>

      The underwriters may also purchase up to an additional      shares from
us at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus to cover over-allotments.

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

      The shares will be ready for delivery on or about      , 2002.

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

MERRILL LYNCH & CO.

                          THOMAS WEISEL PARTNERS LLC

                                                     U.S. BANCORP PIPER JAFFRAY

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

                  The date of this prospectus is      , 2002.

<PAGE>

                             [INSIDE FRONT COVER]

<PAGE>

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>                                                                                       <C>
Summary..................................................................................   1
Risk Factors.............................................................................   5
Forward-Looking Statements...............................................................  16
Use of Proceeds..........................................................................  16
Dividend Policy..........................................................................  16
Capitalization...........................................................................  17
Dilution.................................................................................  18
Selected Financial and Other Data........................................................  19
Management's Discussion and Analysis of Financial Condition and Results of Operations....  20
Business.................................................................................  32
Management...............................................................................  40
Certain Relationships and Related Transactions...........................................  50
Principal Stockholders...................................................................  53
Description of Capital Stock.............................................................  56
Shares Eligible for Future Sale..........................................................  59
Underwriting.............................................................................  61
Legal Matters............................................................................  64
Experts..................................................................................  64
Where You Can Find More Information......................................................  64
Index To Financial Statements............................................................ F-1
</TABLE>

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

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

      Netflix, Netflix.com, CineMatch and Mr. DVD are our trademarks. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.

<PAGE>

                                    SUMMARY

   THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND
OUR FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS BEFORE YOU DECIDE TO INVEST IN OUR COMMON STOCK.

                                  OUR COMPANY

      We are the world's largest online entertainment subscription service
providing more than 500,000 subscribers access to a comprehensive library of
more than 11,500 movie, television and other filmed entertainment titles. Our
standard subscription plan allows subscribers to have three titles out at the
same time with no due dates, late fees or shipping charges for $19.95 per
month. Subscribers can view as many titles as they want in a month. Subscribers
select titles at our Web site (WWW.NETFLIX.COM) aided by our proprietary
CineMatch technology, receive them on DVD by first-class mail and return them
to us at their convenience using our prepaid mailers. Once a title has been
returned, we mail the next available title in a subscriber's queue.

      In 2001, domestic consumers spent more than $32 billion on in-home filmed
entertainment, representing approximately 80% of total filmed entertainment
expenditures, according to Adams Media Research. Consumer video rentals and
purchases comprised the largest portion of in-home filmed entertainment,
representing $23 billion, or 73% of the market in 2001, according to Adams
Media Research.

      The home video segment of the in-home filmed entertainment market is
undergoing a rapid technology transition away from VHS to DVD. The DVD player
is the fastest selling consumer electronics device in history, according to DVD
Entertainment Group. In September 2001, standalone set-top DVD player shipments
outpaced VCR shipments for the first time in history, and this trend continued
throughout the remainder of 2001. At the end of 2001, approximately 25 million
U.S. households had a standalone set-top DVD player, representing an increase
of 97% in 2001. Adams Media Research estimates that the number of U.S.
households with a DVD player will grow to 67 million in 2006, representing
approximately 60% of U.S. television households in 2006.

      Our subscription service has grown rapidly since its launch in September
1999. We believe our growth has been driven primarily by our unrivalled
selection, consistently high levels of customer satisfaction, rapid customer
adoption of DVD players and our increasingly effective marketing strategy. We
primarily use pay-for-performance marketing programs and free trial offers to
acquire new subscribers. In the San Francisco Bay area, where the U.S. Post
Office can make one- or two-day deliveries from our San Jose distribution
center, more than 2.6% of all households subscribe to Netflix.

      Our proprietary CineMatch technology enables us to create a customized
store for each subscriber and to generate personalized recommendations which
effectively merchandize our comprehensive library of titles. We provide more
than 18 million personal recommendations daily. In January 2002, more than
10,500 of our 11,500 titles were selected by our subscribers.

      We currently provide titles on DVD only. We are focused on rapidly
growing our subscriber base and revenues and utilizing our proprietary
technology to minimize operating costs. Our technology is extensively employed
to manage and integrate our business, including our Web site interface, order
processing, fulfillment operations and customer service. We believe our
technology also allows us to maximize our library utilization and to run our
fulfillment operations in a flexible manner with minimal capital requirements.

      Our scalable infrastructure and online interface eliminate the need for
expensive retail outlets and allow us to service our large and expanding
subscriber base from a series of low-cost regional distribution centers. We

                                      1

<PAGE>

utilize proprietary technology developed in-house to manage the shipping and
receiving of a total of 5.1 million DVDs per month. Our software automates the
process of tracking and routing titles to and from each of our distribution
centers and allocates order responsibilities among them. We plan to operate
low-cost regional distribution centers throughout the United States to reduce
delivery times and increase library utilization.

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

      We were incorporated in Delaware in August 1997 and changed our name to
Netflix, Inc. in March 2002. Our executive offices are located at 970
University Avenue, Los Gatos, California 95032, and our telephone number at
that address is (408) 399-3700. Our Web site is located at
http://www.netflix.com. The information contained in our Web site does not
constitute a part of this prospectus.

                                      2

<PAGE>

                                 THE OFFERING

Common stock offered by Netflix........         shares

Common stock to be outstanding after
  the offering.........................         shares

Use of proceeds........................   We estimate that our net proceeds
                                          from this offering will be
                                          approximately $   million. We intend
                                          to use the net proceeds for:

                                          .   repayment of approximately $13.7
                                              million of indebtedness under our
                                              subordinated promissory notes,
                                              including accrued interest as of
                                              December 31, 2001; and

                                          .   general corporate purposes,
                                              including, among other things,
                                              additional working capital,
                                              financing of capital expenditures
                                              and additional marketing efforts.

Risk factors...........................   See "Risk Factors" and other
                                          information included in this
                                          prospectus for a discussion of
                                          factors you should carefully consider
                                          before deciding to invest in shares
                                          of our common stock.

Proposed Nasdaq National Market symbol.   NFLX

      Unless we indicate otherwise, all information in this prospectus: (1)
assumes no exercise of the over-allotment option granted to the underwriters;
(2) assumes the conversion into common stock of each outstanding share of our
preferred stock, which will occur automatically upon the completion of this
offering; (3) is based upon 45,129,402 shares outstanding as of February 28,
2002, including shares to be issued to certain studios immediately prior to
this offering based on our capitalization as of February 28, 2002; (4) does not
give effect to a        for        reverse stock split to be effected
in      2002; and (5) excludes:

      .   12,998,864 shares of common stock issuable upon the exercise of stock
          options outstanding as of February 28, 2002, with a weighted average
          exercise price of $1.00 per share and 3,331,456 shares of common
          stock available for future option grants under our 1997 Stock Plan
          and 2002 Stock Plan, each as of February 28, 2002;

      .   21,053,931 shares of common stock issuable upon exercise of warrants
          with a weighted average exercise price of $1.07 per share; and

      .   1,750,000 shares of common stock reserved for issuance under our 2002
          Employee Stock Purchase Plan.

                                      3

<PAGE>

                       SUMMARY FINANCIAL AND OTHER DATA

      The summary financial data below should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                  --------------------------------------
                                                    1999        2000           2001
                                                  --------  ------------- ---------------
                                                              (IN THOUSANDS)
<S>                                               <C>       <C>           <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................... $  5,006    $ 35,894       $ 75,912
Gross profit.....................................      633      11,033         26,005
Operating loss...................................  (30,031)    (57,557)       (36,867)
Net loss.........................................  (29,845)    (57,363)       (38,258)

OTHER DATA:
EBITDA(1) (unaudited)............................ $(21,223)   $(28,179)      $ (1,716)
Number of subscribers (unaudited)................      107         292            456
Net cash provided by (used in):
   Operating activities.......................... $(16,529)   $(22,706)      $  4,847
   Investing activities..........................  (19,742)    (24,972)       (12,670)
   Financing activities..........................   49,408      48,375          9,059

                                                          AS OF DECEMBER 31, 2001
                                                  --------------------------------------
                                                                             PRO FORMA
                                                   ACTUAL   PRO FORMA (2) AS ADJUSTED (3)
                                                  --------  ------------- ---------------
                                                              (IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 16,131    $ 16,131       $
Working capital (deficit)........................   (6,656)     (6,656)
Total assets.....................................   41,630      41,630
Long-term debt, less current portion.............    3,856       3,856
Redeemable convertible preferred stock...........  101,830          --
Stockholders' equity (deficit)...................  (90,504)     11,326
</TABLE>
- --------
(1) EBITDA consists of operating loss before depreciation, amortization,
    non-cash charges for equity instruments granted to non-employees and
    stock-based compensation. EBITDA provides an alternative measure of cash
    flow from operations. You should not consider EBITDA as a substitute for
    operating loss, as an indicator of our operating performance or as an
    alternative to cash flows from operating activities as a measure of
    liquidity. We may calculate EBITDA differently from other companies.
(2) The pro forma column gives effect to the conversion of all outstanding
    shares of our preferred stock, including shares to be issued to certain
    studios immediately prior to this offering, into shares of common stock
    automatically upon completion of this offering.
(3) The pro forma as adjusted column gives effect to the sale of       shares
    of common stock offered by us at an assumed initial public offering price
    of $       per share and the application of the net proceeds from the
    offering, after deducting underwriting discounts and commissions and
    estimated offering expenses, including repayment of our subordinated
    promissory notes.

                                      4

<PAGE>

                                 RISK FACTORS

      YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE BUYING
SHARES IN THIS OFFERING. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE HARMED. IN
THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD
LOSE ALL OR PART OF YOUR INVESTMENT.

RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY AND HISTORY OF NET LOSSES, AND WE
ANTICIPATE THAT WE WILL EXPERIENCE NET LOSSES FOR THE FORESEEABLE FUTURE.

      You should consider our business and prospects in light of the risks,
expenses and difficulties encountered by companies in their early stage of
development. We have experienced significant net losses since our inception
and, given the significant operating and capital expenditures associated with
our business plan, anticipate continuing net losses for the foreseeable future.
If we do achieve profitability, we cannot be certain that we will be able to
sustain or increase such profitability. We incurred net losses of $38.3 million
for the year ended 2001. As of December 31, 2001, we had stockholders' deficit
of $90.5 million. Only recently, beginning in 2001, have we generated positive
cash flow from operations, and we cannot be certain that we will be able to
sustain or increase such positive cash flow from operations from period to
period in the future.

      To achieve and sustain profitability, we must accomplish numerous
objectives, including:

      .   substantially increasing the number of paying subscribers to our
          service; and

      .   improving operating margins.

      We cannot assure you that we will be able to achieve these objectives.

IF OUR EFFORTS TO ATTRACT SUBSCRIBERS ARE NOT SUCCESSFUL, OUR REVENUE GROWTH
WILL BE AFFECTED ADVERSELY.

      We must continue to attract and retain subscribers. To succeed, we must
continue to attract a large number of subscribers who have traditionally used
video retailers, video rental outlets, pay cable channels, such as HBO and
Showtime, and pay-per-view and video-on-demand, or VOD, for in-home filmed
entertainment. Our ability to attract and retain subscribers will depend in
part on our ability to consistently provide our subscribers a high quality
experience for selecting, viewing, receiving and returning titles, including
providing accurate recommendations through our CineMatch technology. If
consumers do not perceive our service offering to be of high quality, or if we
introduce new services that are not favorably received by them, we may not be
able to attract or retain subscribers. In addition, many of our new subscribers
originate from word-of-mouth advertising and referrals from existing
subscribers. If our efforts to satisfy our existing subscribers are not
successful, we may not be able to attract new subscribers, and as a result, our
revenue growth will be affected adversely.

WE RELY HEAVILY ON OUR PROPRIETARY TECHNOLOGY AND THE FAILURE OF THIS
TECHNOLOGY TO OPERATE EFFECTIVELY COULD ADVERSELY AFFECT OUR BUSINESS.

      We use complex proprietary software to manage the processing and
allocation of deliveries and returns at our distribution centers. If we are
unable to enhance and maintain software to manage the delivery and returns
among our distribution centers in a timely and efficient manner, our ability to
retain existing subscribers and to add new subscribers will be impaired.

IF WE ARE NOT ABLE TO MANAGE OUR GROWTH, OUR SUBSCRIBER GROWTH COULD BE
AFFECTED ADVERSELY.

      We have expanded rapidly since we launched our Web site in April 1998. We
anticipate that further expansion of our operations will be required to address
any significant growth in our subscriber base and to take advantage of
favorable market opportunities. Any future expansion may place significant
demands on our

                                      5

<PAGE>

managerial, operational, administrative and financial resources. Our primary
distribution center is in San Jose, California. We recently began to open
regional distribution centers outside of the San Francisco Bay area.

IF WE EXPERIENCE EXCESSIVE RATES OF SUBSCRIBER CHURN, OUR REVENUES AND BUSINESS
WILL BE HARMED.

      We must minimize the rate of loss of existing subscribers while adding
new subscribers. Subscribers cancel their subscription to our service for many
reasons, including a perception that they do not use the service sufficiently,
delivery takes too long, the service is a poor value and customer service
issues are not satisfactorily resolved. We must continually add new subscribers
both to replace subscribers who cancel and to continue to grow our business
beyond our current subscriber base. If too many of our subscribers cancel our
service, or if we are unable to attract new subscribers in numbers sufficient
to grow our business, our operating results will be adversely affected.
Further, if excessive numbers of subscribers cancel our service, we may be
required to incur significantly higher marketing expenditures than we currently
anticipate to attract large numbers of new subscribers.

IF WE EXPERIENCE DELIVERY PROBLEMS OR IF OUR SUBSCRIBERS OR POTENTIAL
SUBSCRIBERS LOSE CONFIDENCE IN THE U.S. MAIL SYSTEM, WE COULD LOSE SUBSCRIBERS,
WHICH COULD ADVERSELY AFFECT OUR REVENUES.

      We rely on the U.S. Postal Service to deliver DVDs from our distribution
centers and for subscribers to return DVDs to us. We are subject to the risks
associated with the public mail system to meet our shipping needs, including
delays caused by bioterrorism, potential labor activism and inclement weather.
For example, in the fall of 2001 terrorists used the U.S. Postal Service to
deliver envelopes containing Anthrax, following which mail deliveries around
the United States experienced significant delays. Our DVDs also are subject to
risks of breakage during delivery and handling by the U.S. Postal Service. Our
failure to timely deliver DVDs to our subscribers could cause them to become
dissatisfied and cancel our service.

INCREASES IN THE COST OF DELIVERING DVDS WOULD ADVERSELY AFFECT OUR GROSS
MARGINS AND MARKETING EXPENSES.

      Increases in postage delivery rates would adversely affect our gross
margins if we are unable to raise our subscription rates to offset the
increase. Currently, most filmed entertainment is packaged on a single DVD. Our
delivery process is designed to accommodate the delivery of one DVD to fulfill
a selection. However, studios occasionally provide additional content on a
second DVD, or may package certain filmed entertainment on two DVDs. Also, DVDs
are generally manufactured on lightweight plastic allowing us to mail one
envelope containing a title using standard first-class postage. If packaging of
filmed entertainment on multiple DVDs were to become more prevalent, or if the
weight of DVDs were to increase, our costs of delivery and fulfillment
processing would increase. In addition, we expense shipping costs of free trial
programs to new subscribers as marketing expense. Therefore, if the cost of
delivering titles were to increase, our marketing expense would be adversely
affected.

IF WE DO NOT CORRECTLY ANTICIPATE OUR SHORT AND LONG-TERM NEEDS FOR TITLES, OUR
SUBSCRIBER SATISFACTION AND RESULTS OF OPERATIONS MAY BE AFFECTED ADVERSELY.

      We may not acquire sufficient numbers of certain titles to meet the
demands of our subscribers. If we do not accurately forecast subscriber demand
for new titles, our subscriber satisfaction and operating results will be
harmed. Under our revenue sharing agreements with studios, the number of copies
we buy before the street date of each title must be sufficient to meet
subscriber demand for the revenue sharing life of each title, typically
12 months. If we underestimate demand for particular titles under any revenue
sharing agreements, our subscribers may become dissatisfied and cancel our
service. Alternatively, if we overestimate demand and acquire excess quantities
of certain titles our inventory utilization would become less effective.

                                      6

<PAGE>

IF OUR SUBSCRIBERS SELECT MORE NEW RELEASES AS A PERCENTAGE OF TITLES SELECTED,
OR IF WE EXPERIENCE INCREASED DEMAND FOR TITLES ON A SUBSCRIBER-BY-SUBSCRIBER
BASIS, OUR EXPENSES AND GROSS MARGINS MAY BE AFFECTED ADVERSELY.

      Depending on the service, subscribers are allowed to have between two and
eight movies at a time. If our subscribers select new releases more often as a
percentage of overall titles selected, we may have to acquire more copies of
each new release. As a result, our costs of DVD acquisition and our revenue
sharing costs may increase. In addition, if our subscribers take more titles
per month than we have anticipated, we will incur increased shipping and
fulfillment costs and will be required to acquire more DVDs, which will
adversely affect our margins. Subscriber demand for movies, or new releases in
particular, may increase for a variety of reasons beyond our control, including
promotions by studios and seasonal variations in movie watching. Our subscriber
growth and retention may be affected adversely if we attempt to increase our
monthly subscription fee to offset increased costs.

WE FACE INTENSE COMPETITION FROM TRADITIONAL AND ONLINE COMPANIES, WHICH COULD
RESULT IN OUR FAILURE TO ACHIEVE ADEQUATE MARKET SHARE.

      The market for in-home filmed entertainment is intensely competitive and
subject to rapid change. Many consumers maintain simultaneous relationships
with multiple in-home filmed entertainment providers and can easily shift
spending from one provider to another. For example, consumers may subscribe to
HBO, rent a DVD from Blockbuster, buy a DVD from Wal-Mart and subscribe to
Netflix, or some combination thereof, all in the same month. Competitors may be
able to launch new businesses at relatively low cost. DVDs represent only one
of many existing and potential new technologies for viewing filmed
entertainment. In addition, the growth in adoption of DVD technology is not
mutually exclusive from the growth of other technologies. If we are unable to
successfully compete with current and new competitors and technologies, we may
not be able to achieve adequate market share. Our principal competitors
include, or could include:

      .   video rental outlets, such as Blockbuster Video and Hollywood
          Entertainment;

      .   movie retail stores, such as Best Buy, Wal-Mart and Amazon.com;

      .   subscription entertainment services, such as HBO and Showtime;

      .   pay-per-view and video-on-demand services;

      .   online DVD sites, such as dvdovernight and Rentmydvd.com;

      .   Internet movie providers, such as Movielink, backed by Columbia
          TriStar, Warner Bros. and a few other studios, Movies.com, backed by
          Walt Disney and Twentieth Century Fox, and CinemaNow.com;

      .   cable providers, such as AOL Time Warner and Comcast; and

      .   direct broadcast satellite providers, such as DirectTV and Echostar.

      Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we do. Some of our competitors have adopted, and may
continue to adopt, aggressive pricing policies and devote substantially more
resources to Web site and systems development than we do. Increased competition
may result in reduced operating margins, loss of market share and diminished
brand recognition. In addition, our competitors may form strategic alliances
with studios and distributors that could affect adversely our ability to obtain
filmed entertainment on favorable terms.

IF CONSUMER ADOPTION OF DVD PLAYERS SLOWS, OUR BUSINESS COULD BE ADVERSELY
AFFECTED.

      The rapid adoption of DVD players has been fueled by strong retail
support, strong studio support and falling DVD player prices. If retailers or
studios reduce their support of the DVD format, or if manufacturers

                                      7

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raise prices, continued DVD adoption by consumers would slow. If new or
existing technologies, such as D-VHS, were to become more popular at the
expense of the adoption or use of DVD technology, consumers may delay or avoid
purchasing a DVD player. Our subscriber growth will be substantially influenced
by future consumer adoption of DVD players, and if such adoption slows, our
subscriber growth may also slow.

WE DEPEND ON STUDIOS TO RELEASE TITLES ON DVD FOR AN EXCLUSIVE TIME PERIOD
FOLLOWING THEATRICAL RELEASE.

      Our ability to attract and retain subscribers is related to our ability
to offer new releases of filmed entertainment on DVD prior to their release to
other distribution channels. Except for theatrical release, DVD and VHS
currently enjoy a significant competitive advantage over other distribution
channels, such as pay-per-view and VOD, because of the early timing of the
distribution window for DVD and VHS. The window for DVD and VHS rental and
retail sales is generally exclusive against other forms of non-theatrical movie
distribution, such as pay-per-view, premium television, basic cable and network
and syndicated television. The length of the exclusive window for movie rental
and retail sales varies, typically ranging from 30 to 90 days.

      Our business could suffer increased competition if:

      .   the window for rental were no longer the first following the
          theatrical release; or

      .   the length of this window were shortened.

      The order, length and exclusivity of each window for each distribution
channel is determined solely by the studio releasing the title, and we cannot
assure you that the studios will not change their policies in the future in a
manner that would be adverse to our business and results of operations. In
addition, any conditions that adversely affect the movie industry, including
constraints on capital, financial difficulties, regulatory requirements and
strikes, work stoppages or other disruptions involving writers, actors or other
essential personnel, could affect adversely the availability of new titles,
consumer demand for filmed entertainment and our business.

IF WE ARE UNABLE TO RENEGOTIATE OUR REVENUE SHARING AGREEMENTS WHEN THEY EXPIRE
ON TERMS FAVORABLE TO US, OR IF THE COST TO US OF PURCHASING TITLES ON A
WHOLESALE BASIS INCREASES, OUR GROSS MARGINS MAY BE AFFECTED ADVERSELY.

      In 2001, we acquired approximately 80% of our titles through revenue
sharing agreements with studios and distributors. These revenue sharing
agreements generally have terms of up to five years. The length of time we
share revenue on each title ends after a fixed period. As our revenue sharing
agreements expire, we may be required to negotiate new terms that could be
disadvantageous to us.

      Titles that we do not acquire under a revenue sharing agreement are
purchased on a wholesale basis from studios or other distributors. If the price
of titles that we purchase wholesale increases, our gross margin will be
affected adversely.

IF THE SALES PRICE OF DVDS TO RETAIL CONSUMERS DECREASES, OUR ABILITY TO
ATTRACT NEW SUBSCRIBERS MAY BE AFFECTED ADVERSELY.

      The cost of manufacturing DVDs is substantially less than the price for
which new DVDs are generally sold in the retail market. Thus, we believe that
studios and other resellers of DVDs have significant flexibility in pricing
DVDs for retail sale. If the retail price of DVDs were to become significantly
lower, consumers may choose to purchase DVDs rather than subscribe to our
service.

IF DISPOSABLE DVDS ARE DEVELOPED, ADOPTED AND SUPPORTED AS A METHOD OF CONTENT
DELIVERY BY THE STUDIOS, OUR BUSINESS COULD BE ADVERSELY AFFECTED.

      We are currently aware that certain entities are attempting to develop
disposable DVDs. As currently contemplated, disposable DVDs would allow a
consumer to view a DVD for an unlimited number of times

                                      8

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during a given time period, following which the DVD becomes unplayable by a
chemical reaction, and is then disposable.

IF WE ARE UNABLE TO PROVIDE CONSISTENTLY ACCURATE PREDICTIONS THROUGH OUR
PERSONAL MOVIE RECOMMENDATION SERVICE OR OUR PERSONAL MOVIE RECOMMENDATION
SERVICE IS NOT WIDELY ADOPTED, OUR BUSINESS MAY SUFFER.

      Our CineMatch technology uses proprietary algorithms to predict and
recommend titles to our subscribers. We rely on this technology to effectively
merchandize our library. We cannot assure you that our personal movie
recommendation service or experts' recommendations will effectively entice
subscribers to select from our back catalogue of titles. In addition, our
CineMatch technology may not effectively predict titles that our subscribers
will enjoy. If our recommendations are not useful, we may not effectively
utilize our library or retain subscribers. In addition, we believe that in
order for CineMatch to function effectively, it must access a large database of
recommendation information from a large number of users. We cannot assure you
that we will be successful in continuing to attract a large number of users to
rate movies.

IF WE FAIL TO MAINTAIN OR ADEQUATELY REPLACE OUR RELATIONSHIPS WITH THIRD
PARTIES WITH WHOM WE HAVE MARKETING RELATIONSHIPS AND ON WHOM WE RELY FOR MANY
OF OUR SUBSCRIBERS, OUR SUBSCRIPTION ACQUISITION RATES MAY BE AFFECTED
ADVERSELY.

      We rely on third parties, including DVD player manufacturers, Web portals
and online advertising promoters, to aid in our marketing efforts. If we are
not able to continue our current or similar promotional campaigns, our ability
to attract new subscribers may be affected adversely. Our competitors may offer
our promotional affiliates better terms or otherwise provide them incentives to
discontinue their participation in our marketing campaigns. In addition, while
the DVD player manufacturers with whom we have promotional relationships are
required to include our promotional materials with every DVD player they sell,
we cannot effectively control what portion of DVD players sold by them actually
include the promotional materials.

FOLLOWING THE OFFERING, WE MAY NEED ADDITIONAL CAPITAL, AND WE CANNOT BE SURE
THAT ADDITIONAL FINANCING WILL BE AVAILABLE.

      Historically, we have funded our operating losses and capital
expenditures through proceeds from private equity and debt financings and
equipment leases. Although we currently anticipate that the proceeds of this
offering, together with our available funds and cash flow from operations, will
be sufficient to meet our cash needs for the foreseeable future, we may require
additional financing. Our ability to obtain financing will depend, among other
things, on our development efforts, business plans, operating performance and
condition of the capital markets at the time we seek financing. We cannot
assure you that additional financing will be available to us on favorable terms
when required, or at all. If we raise additional funds through the issuance of
equity, equity-linked or debt securities, those securities may have rights,
preferences or privileges senior to the rights of our common stock, and our
stockholders may experience dilution.

ANY SIGNIFICANT DISRUPTION IN SERVICE ON OUR WEB SITE OR IN OUR COMPUTER
SYSTEMS COULD RESULT IN A LOSS OF SUBSCRIBERS.

      Subscribers and potential subscribers access our service through our Web
site, where the title selection process is integrated with our delivery
processing systems and software. Our reputation and ability to attract, retain
and serve our subscribers is dependent upon the reliable performance of our Web
site, network infrastructure and fulfillment processes. Interruptions in these
systems could make our Web site unavailable and hinder our ability to fulfill
selections. Much of our software is proprietary, and we rely on the expertise
of members of our engineering and software development teams for the continued
performance of our software and computer systems. Service interruptions or the
unavailability of our Web site could diminish the overall attractiveness of our
subscription service to existing and potential subscribers.

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<PAGE>

      Our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions and delays
in our service and operations and loss, misuse or theft of data. Our Web site
periodically experiences directed attacks intended to cause a disruption in
service. Any attempts by hackers to disrupt our Web site service or our
internal systems, if successful, could harm our business, be expensive to
remedy and damage our reputation. Our general business disruption insurance
does not cover expenses related to direct attacks on our Web site or internal
systems. Efforts to prevent hackers from entering our computer systems are
expensive to implement and may limit the functionality of our services. Any
significant disruption to our Web site or internal computer systems could
result in a loss of subscribers and adversely affect our business and results
of operations.

      Our communications hardware and the computer hardware used to operate our
Web site are hosted at the facilities of a third party provider. Hardware for
our delivery systems is maintained in our distribution centers. Fires, floods,
earthquakes, power losses, telecommunications failures, break-ins and similar
events could damage these systems and hardware or cause them to fail
completely. Problems faced by our third party Web hosting provider, with the
telecommunications network providers with whom it contracts or with the systems
by which it allocates capacity among its subscribers, including us, could
impact adversely the experience of our subscribers. Any of these problems could
result in a loss of subscribers.

OUR EXECUTIVE OFFICES AND PRIMARY DISTRIBUTION CENTER ARE LOCATED IN THE SAN
FRANCISCO BAY AREA. IN THE EVENT OF AN EARTHQUAKE, OTHER NATURAL OR MAN-MADE
DISASTER OR POWER LOSS, OUR OPERATIONS WOULD BE AFFECTED ADVERSELY.

      Our executive offices and primary distribution center are located in the
San Francisco Bay area. Our business and operations could be materially
adversely affected in the event of electrical blackouts, fires, floods,
earthquakes, power losses, telecommunications failures, break-ins or similar
events. We may not be able to effectively shift our fulfillment and delivery
operations due to disruptions in service in the San Francisco Bay area or any
other facility. Because the San Francisco Bay area is located in an
earthquake-sensitive area, we are particularly susceptible to the risk of
damage to, or total destruction of, our primary distribution center and the
surrounding transportation infrastructure. We are not insured against any
losses or expenses that arise from a disruption to our business due to
earthquakes.

THE LOSS OF ONE OR MORE OF OUR EXECUTIVE OFFICERS OR OTHER KEY PERSONNEL, OR
OUR FAILURE TO ATTRACT, ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL
IN THE FUTURE, COULD SERIOUSLY HARM OUR EXISTING BUSINESS AND NEW SERVICE
DEVELOPMENTS.

      We depend on the continued services and performance of our executive
officers and other key personnel. Much of our key technology and systems are
custom made for our business by our personnel and the loss of our key
technology personnel could disrupt the operation of our title selection and
fulfillment systems and have an adverse effect on our ability to grow and
expand our systems. Our future success also depends upon the continued service
of our other key technology, marketing, finance and support personnel. Our
relationships with our executive officers and key employees are at will.

PRIVACY CONCERNS COULD LIMIT OUR ABILITY TO LEVERAGE OUR SUBSCRIBER DATA.

      In the ordinary course of business, and in particular, in connection with
providing our personal movie recommendation service, we collect and utilize
data supplied by our subscribers. We currently face certain legal obligations
regarding the manner in which we treat such information. Other businesses have
been criticized by privacy groups and governmental bodies for attempts to link
personal identities and other information to data collected on the Internet
regarding users' browsing and other habits. Increased regulation of data
utilization practices, including self-regulation, as well as increased
enforcement of existing laws could have an adverse effect on our business.

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<PAGE>

OUR REPUTATION AND RELATIONSHIPS WITH SUBSCRIBERS WOULD BE HARMED IF THE ONLINE
SECURITY MEASURES USED BY US OR ANY OTHER MAJOR CONSUMER WEB SITE FAIL OR IF WE
EXPERIENCE PROBLEMS WITH OUR BILLING SOFTWARE.

      To secure transmission of our subscribers' confidential information,
including their credit card numbers, we rely on licensed encryption and
authentication technology. In conjunction with the credit card companies, we
take measures to protect against unauthorized intrusion into our data that may
prove inadequate to protect our subscribers' personal information. A failure to
adequately control fraudulent credit card transactions would harm our results
of operations because we do not currently carry insurance against this risk. We
may suffer losses as a result of orders placed with fraudulent credit card data
even though the associated financial institution approved payment of the
orders. Under current credit card practices, we are liable for fraudulent
credit card transactions because we do not obtain a cardholder's signature. In
addition, if another major consumer Web site experienced significant credit
card fraud or a well-publicized breach of subscriber data security on the
Internet were to occur, there could be a general public loss of confidence in
use of the Internet, which could adversely affect our business.

      Further, we have occasionally experienced problems with our subscriber
billing software causing us to overbill subscribers. Problems with our billing
software may have an adverse effect on our subscriber satisfaction and may
cause one or more of the major credit companies to disallow our continued use
of their payment products.

IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BRAND MAY BE DIMINISHED, AND WE MAY ENCOUNTER INCREASED COMPETITION.

      We rely or may rely on confidentiality or license agreements with our
employees, partners and others, as well as trademark, copyright and patent law
and trade secret protection laws generally, to protect our proprietary rights.
Our failure to protect our proprietary rights could affect adversely our
business and competitive position. We have filed trademark applications in the
United States for the Netflix, Netflix.com, CineMatch and Mr. DVD names, and
have filed a U.S. patent application for aspects of our technology. We filed
for but did not receive approval for the Netflix design logo and thus, intend
to file an amended application for the Netflix design logo. From time to time,
we expect to file additional trademark and patent applications. We cannot
assure you that any of these applications will be approved, that any issued
patents will protect our intellectual property or that third parties will not
challenge any issued patents. Other parties may independently develop similar
or competing technology or design around any patents that may be issued to us.
We could incur significant expenses in preserving and defending our
intellectual property rights.

INTELLECTUAL PROPERTY CLAIMS AGAINST US COULD BE COSTLY AND RESULT IN THE LOSS
OF SIGNIFICANT RIGHTS RELATED TO, AMONG OTHER THINGS, OUR WEB SITE, CINEMATCH
TECHNOLOGY AND TITLE SELECTION PROCESSES.

      Trademark, patent and other intellectual property rights are becoming
increasingly important to us and other Internet companies. If there is a
successful claim of patent infringement against us and we are unable to develop
non-infringing technology or license the infringed or similar technology on a
timely basis, our business and competitive position may be affected materially
and adversely. Many companies are devoting significant resources to developing
patents that could potentially affect many aspects of our business. There are
numerous patents that broadly claim means and methods of conducting business on
the Internet. We may be accused of infringing certain of these patents. In
addition, other parties may assert infringement or unfair competition claims
against us that could relate to any aspect of our technology, business
processes or other intellectual property. We have not exhaustively searched
patents relative to our technology. We cannot predict whether third parties
will assert claims of infringement against us, the subject matter of any of
these claims or whether these assertions or prosecutions will adversely affect
our business. If we are forced to defend ourselves against any of these claims,
whether they are with or without merit or are determined in our favor, we may
face costly litigation, diversion of technical and management personnel,
inability to use our current Web site or CineMatch technology or product
shipment delays. As a result of a dispute, we may have to develop
non-infringing technology or enter into royalty

                                      11

<PAGE>

or licensing agreements. These royalty or licensing agreements, if required,
may be unavailable on terms acceptable to us, or at all.

IF WE ARE UNABLE TO PROTECT OUR DOMAIN NAMES, OUR REPUTATION AND BRAND COULD BE
AFFECTED ADVERSELY.

      We currently hold various domain names relating to our brand, including
Netflix.com. Failure to protect our domain names could affect adversely our
reputation and brand, and make it more difficult for users to find our Web site
and our service. The acquisition and maintenance of domain names generally are
regulated by governmental agencies and their designees. The regulation of
domain names in the United States may change in the near future. Governing
bodies may establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear. We may be
unable to prevent third parties from acquiring domain names that are similar
to, infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights.

BECAUSE OUR BUSINESS IS ACCESSED OVER THE INTERNET, IF THE INTERNET
INFRASTRUCTURE IS NOT DEVELOPED OR MAINTAINED, WE WILL LOSE SUBSCRIBERS.

      The Internet may not become a viable commercial marketplace for many
potential subscribers due to inadequate development of network infrastructure
and enabling technologies that address consumer concerns about:

      .   network performance;

      .   security;

      .   reliability;

      .   speed of access;

      .   ease of use; and

      .   bandwidth availability.

      The Internet has experienced a variety of outages and delays as a result
of damage to portions of its infrastructure, and it could face outages and
delays in the future. These outages and delays could frustrate public use of
the Internet, including use of our Web site offerings. In addition, the
Internet could lose its viability due to delays in the development or adoption
of new standards and protocols to handle increased levels of activity or due to
governmental regulation.

IF WE BECOME SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH OR
UPLOAD FROM OUR USERS, OUR RESULTS OF OPERATIONS WOULD BE AFFECTED ADVERSELY IF
SUCH LIABILITY EXCEEDS OUR INSURANCE COVERAGE.

      As a publisher of online content, we face potential liability for
negligence, copyright, patent or trademark infringement or other claims based
on the nature and content of materials that we publish or distribute. We also
may face potential liability for content uploaded from our users in connection
with our community-related content or movie reviews. If we become liable,
particularly for claims that are not covered by our insurance or are in excess
of our insurance coverage, then our business may suffer. Litigation to defend
these claims could be costly and harm our results of operations. We cannot
assure you that we are adequately insured to cover claims of these types or to
indemnify us for all liability that may be imposed on us.

                                      12

<PAGE>

WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS, OR INCUR
GREATER OPERATING EXPENSES, IF GOVERNMENT REGULATION OF THE INTERNET INCREASES.

      The adoption or modification of laws or regulations relating to the
Internet could limit or otherwise adversely affect the manner in which we
currently conduct our business. In addition, the growth and development of the
market for online commerce may lead to more stringent consumer protection laws,
which may impose additional burdens on us. If we are required to comply with
new regulations or legislation or new interpretations of existing regulations
or legislation, this compliance could cause us to incur additional expenses or
alter our business model.

      The manner in which Internet legislation may be interpreted and enforced
cannot be fully determined and may subject either us or our customers to
potential liability, which in turn could have an adverse effect on our
business, results of operations and financial condition. The adoption of any of
these laws or regulations may decrease the popularity or growth in use of the
Internet, which in turn could decrease the demand for our subscription service
and increase the cost of doing business or in some other manner have an adverse
effect on our business, results of operations and financial condition.

RISKS RELATED TO THIS OFFERING

OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL EXERCISE SIGNIFICANT
CONTROL OVER NETFLIX.

      After the completion of this offering, our executive officers and
directors, their immediate family members and affiliated venture capital funds
will beneficially own, in the aggregate, approximately       % of our
outstanding common stock. In addition, Jay Hoag, one of our directors, will
beneficially own approximately       % of our outstanding common stock, Reed
Hastings, our president, chief executive officer, and chairman of our board of
directors will beneficially own approximately       % of our outstanding common
stock and Michael Schuh, one of our directors, will beneficially own
approximately       % of our outstanding common stock. These stockholders may
have individual interests that are different from yours and will be able to
exercise significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which could delay or prevent someone from acquiring or merging
with us.

PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW COULD DISCOURAGE A
TAKEOVER THAT STOCKHOLDERS MAY CONSIDER FAVORABLE.

      Following this offering, our charter documents may discourage, delay or
prevent a merger or acquisition that a stockholder may consider favorable
because they:

      .   authorize our board of directors, without stockholder approval, to
          issue up to 10,000,000 shares of undesignated preferred stock;

      .   provide for a classified board of directors;

      .   prohibit our stockholders from acting by written consent;

      .   establish advance notice requirements for proposing matters to be
          approved by stockholders at stockholder meetings; and

      .   prohibit stockholders from calling a special meeting of stockholders.

      As a Delaware corporation, we are also subject to certain Delaware
anti-takeover provisions. Under Delaware law, a corporation may not engage in a
business combination with any holder of 15% or more of its capital stock unless
the holder has held the stock for three years or, among other things, the board
of directors has approved the transaction. Our board of directors could rely on
Delaware law to prevent or delay an acquisition of us. For a description of our
capital stock, see "Description of Capital Stock."

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OUR STOCK PRICE COULD BE VOLATILE AND COULD DECLINE FOLLOWING THIS OFFERING.

      Prior to this offering, there has been no public market for shares of our
common stock. An active market may not develop following completion of this
offering, or if developed, may not be maintained.

      The market prices of the securities of Internet and technology-related
companies have been extremely volatile. The price at which our common stock
will trade after this offering could be extremely volatile and may fluctuate
substantially due to the following factors, some of which are beyond our
control:

      .   variations in our operating results;

      .   variations between our actual operating results and the expectations
          of securities analysts, investors and the financial community;

      .   announcements of developments affecting our business, systems or
          expansion plans by us or others; and

      .   the operating results of our competitors.

      As a result of these and other factors, investors in our common stock may
not be able to resell their shares at or above the initial offering price.

      In the past, securities class action litigation often has been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation, if directed at us, could result in
substantial costs and a diversion of management's attention and resources.

WE WILL RECORD SUBSTANTIAL EXPENSES RELATED TO OUR ISSUANCE OF STOCK OPTIONS
THAT MAY HAVE A MATERIAL NEGATIVE IMPACT ON OUR OPERATING RESULTS FOR THE
FORESEEABLE FUTURE.

      We are required to recognize, as a reduction of stockholders' equity,
deferred compensation equal to the difference between the deemed fair market
value of our common stock for financial reporting purposes and the exercise
price of these options at the date of grant. This deferred compensation is
amortized over the vesting period of the applicable options, generally three to
four years, using the graded vesting method. At December 31, 2001,
approximately $3.6 million of deferred compensation related to employee stock
options remained unamortized. The resulting amortization expense will have a
material negative impact on our operating results in future periods. In
addition, in August and September 2001 we repriced options to purchase an
aggregate of 2,741,386 shares of our common stock to $1.00 per share. We will
recognize compensation expense for these repriced options for the life of these
options, generally ten years, to the extent that the intrinsic value of the
repriced option exceeds their original intrinsic value. We cannot predict the
amount of compensation expense that we will have to recognize on a quarterly
basis for these repriced options, and it could materially negatively impact our
operating results for future periods.

FUTURE SALES OF OUR COMMON STOCK, INCLUDING THOSE PURCHASED IN THIS OFFERING,
MAY DEPRESS OUR STOCK PRICE.

      Sales of substantial amounts of our common stock in the public market
following this offering by our existing stockholders may adversely affect the
market price of our common stock. Shares issued upon the exercise of
outstanding options also may be sold in the public market. Such sales could
create public perception of difficulties or problems with our business. As a
result, these sales might make it more difficult for us to sell securities in
the future at a time and price that we deem necessary or appropriate.

      Upon completion of this offering, we will have outstanding        shares
of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options and warrants after February 28,
2002. Of these shares, only shares sold in this offering to persons not subject
to a lock-up agreement with our underwriters are freely tradable without
restriction immediately following this offering.

                                      14

<PAGE>

      After the lockup agreements pertaining to this offering expire 180 days
from the date of this prospectus, an additional        shares will be eligible
for sale in the public market,        of which are currently held by directors,
executive officers and other affiliates and are subject to volume limitations
under Rule 144 of the Securities Act and certain other restrictions. Merrill
Lynch may also, in its sole discretion, permit our officers, directors and
current stockholders to sell shares prior to the expiration of the lockup
agreements. See "Shares Eligible for Future Sale" for more information
regarding shares of our common stock that may be sold by existing stockholders
after the closing of this offering.

FINANCIAL FORECASTING BY US AND FINANCIAL ANALYSTS WHO MAY PUBLISH ESTIMATES OF
OUR FINANCIAL RESULTS WILL BE DIFFICULT BECAUSE OF OUR LIMITED OPERATING
HISTORY, AND OUR ACTUAL RESULTS MAY DIFFER FROM FORECASTS.

      As a result of our recent growth and our limited operating history, it is
difficult to accurately forecast our revenues, operating expenses, number of
DVDs shipped per day and other financial and operating data. The inability by
us or the financial community to accurately forecast our operating results
could cause our net losses in a given quarter to be greater than expected,
which could cause a decline in the trading price of our common stock. We have a
limited amount of meaningful historical financial data upon which to base
planned operating expenses. We base our current and forecasted expense levels
and DVD acquisitions on our operating plans and estimates of future revenues,
which are dependent on the growth of our subscriber base and the demand for
titles by our subscribers. As a result, we may be unable to make accurate
financial forecasts or to adjust our spending in a timely manner to compensate
for any unexpected shortfalls in revenues. We believe that these difficulties
in forecasting are even greater for financial analysts that may publish their
own estimates of our financial results.

OUR MANAGEMENT MAY NOT USE THE PROCEEDS OF THIS OFFERING EFFECTIVELY.

      Our management has broad discretion over the use of proceeds of this
offering. In addition, our management has not designated a specific use for a
substantial portion of the proceeds of this offering. Accordingly, it is
possible that our management may allocate the proceeds in ways that do not
improve our operating results. In addition, these proceeds may not be invested
to yield a favorable rate of return.

                                      15

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                          FORWARD-LOOKING STATEMENTS

      You should not place undue reliance on forward-looking statements in this
prospectus. This prospectus contains forward-looking statements that involve
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. We use words such as "anticipates,"
"believes," "plans," "expects," "future," "intends" and similar expressions to
identify such forward-looking statements. Forward- looking statements include
statements regarding our business strategy, future operating performance, the
size of the market for our services and our prospects. You should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this prospectus. Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by us described in "Risk Factors" starting on page 5 and elsewhere
in this prospectus. We caution you not to rely on these statements without also
considering the risks and uncertainties associated with these statements and
our business that are addressed in this prospectus.

      This prospectus contains various estimates related to the Internet,
e-commerce and the filmed entertainment industry. These estimates have been
included in studies published or produced by market research and other firms
including Adams Media Research, DVD Entertainment Group and the National Cable
Television Association. These estimates have been produced by industry analysts
based on trends to date, their knowledge of technologies and markets, and
customer research, but these are forecasts only and are subject to inherent
uncertainty.

                                USE OF PROCEEDS

      We plan to use the net proceeds from our sale of common stock,
approximately $       million after underwriting discounts and commissions and
expenses, to repay all outstanding indebtedness under our subordinated
promissory notes of approximately $13.7 million, including accrued interest as
of December 31, 2001, and for general corporate purposes, including working
capital, capital expenditures and additional marketing efforts. Our
subordinated promissory notes, issued in July 2001, accrue interest at a stated
rate of 10% per year compounded annually and mature upon the earlier of July
10, 2011 and the completion of this offering. Proceeds from the sale of the
notes were used for general corporate purposes, including working capital and
capital expenditures. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in short-term, investment-grade securities.

                                DIVIDEND POLICY

      We have never declared or paid any cash dividends on our capital stock.
We currently expect to retain future earnings, if any, to finance the growth
and development of our business and do not anticipate paying any cash dividends
in the foreseeable future. Our existing lease financing agreements prohibit us
from paying any dividends.

                                      16

<PAGE>

                                CAPITALIZATION

      The following table sets forth our cash, cash equivalents and
capitalization as of December 31, 2001:

       .  on an actual basis;

       .  on a pro forma basis assuming the conversion of all shares of our
          preferred stock into shares of common stock automatically upon
          completion of this offering and the filing of our amended and
          restated certificate of incorporation upon completion of this
          offering, including shares to be issued to certain studios
          immediately prior to this offering; and

       .  on a pro forma as adjusted basis to reflect the sale of        shares
          of our common stock at an assumed initial public offering price of
          $     per share, less the underwriting discounts and commissions and
          estimated offering expenses, and the application of the net proceeds
          from this offering.

      This information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and
our financial statements and notes to those statements appearing elsewhere in
this prospectus.

<TABLE>
<CAPTION>
                                                                                             AS OF DECEMBER 31, 2001
                                                                                        --------------------------------
                                                                                                      PRO      PRO FORMA
                                                                                         ACTUAL      FORMA    AS ADJUSTED
                                                                                        ---------  ---------  -----------
                                                                                                 (IN THOUSANDS)
<S>                                                                                     <C>        <C>        <C>
Cash and cash equivalents.............................................................. $  16,131  $  16,131
                                                                                        =========  =========   =========

Subordinated promissory notes, net of unamortized discount of $10.9 million............ $   2,799  $   2,799   $      --
Capital lease obligations, net of current portion......................................     1,057      1,057       1,057
                                                                                        ---------  ---------   ---------
       Total long-term debt............................................................     3,856      3,856       1,057

Redeemable convertible preferred stock and warrants:
    Series B, C, D, E and E-1 Convertible Preferred Stock: 26,925,014 shares
     authorized; 20,316,909 shares issued and outstanding (actual); no shares issued
     or outstanding....................................................................   101,479         --          --
    Convertible preferred stock warrants...............................................       351         --          --
                                                                                        ---------  ---------   ---------
       Total redeemable convertible preferred stock and warrants.......................   101,830         --          --

Stockholders' equity (deficit):
    Preferred stock, $0.001 par value: 10,000,000 shares authorized (pro forma and
     pro forma as adjusted); no shares issued and outstanding..........................        --         --          --
    Series A Convertible Preferred Stock, $0.001 par value: 5,000,000 shares
     authorized; 4,444,545 shares issued and outstanding (actual); no shares issued
     or outstanding (pro forma and pro forma as adjusted)..............................         4         --          --
    Series F Convertible Preferred Stock, $0.001 par value: 3,500,000 shares
     authorized; 1,712,954 outstanding (actual); no shares issued and outstanding
     (pro forma and pro forma as adjusted).............................................         2         --          --
    Common stock, $0.001 par value: 100,000,000 shares authorized (actual);
     150,000,000 shares authorized (pro forma and pro forma as adjusted);
     6,485,737 shares issued and outstanding (actual); 44,849,633 shares issued and
     outstanding (pro forma) and         shares issued and outstanding (pro forma
     as adjusted)......................................................................         7         45          --
Additional paid-in capital.............................................................    49,974    151,772          --
Deferred stock-based compensation......................................................    (3,585)    (3,585)     (3,585)
Accumulated deficit....................................................................  (136,906)  (136,906)   (147,757)
                                                                                        ---------  ---------   ---------
       Total stockholders' equity (deficit)............................................ $ (90,504) $  11,326   $
                                                                                        ---------  ---------   ---------
       Total capitalization............................................................ $  15,182  $  15,182   $
                                                                                        =========  =========   =========
</TABLE>

                                      17

<PAGE>

                                   DILUTION

      If you invest in our stock, your interest will be diluted to the extent
of the difference between the public offering price per share of our common
stock and the pro forma net tangible book value per share of our common stock
after this offering.

      The pro forma net tangible book value of our common stock on December 31,
2001 was $    million or $     per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding, after giving effect to the automatic conversion of our preferred
stock into common stock upon the completion of this offering at an assumed
initial public offering price of $     per share. Dilution in net tangible book
value per share represents the difference between the amount per share paid by
purchasers of shares of our common stock in this offering and the net tangible
book value per share of our common stock immediately afterwards. After giving
effect to our sale of      million shares of common stock offered by this
prospectus at an assumed initial public offering price of $     per share and
after deducting the underwriting discounts, commissions and estimated offering
expenses payable by us, and the application of a portion of the net proceeds to
repay all outstanding indebtedness under our subordinated promissory notes, our
pro forma net tangible book value would have been $     million, or
approximately $     per share. This represents an immediate increase in pro
forma net tangible book value of $     per share to existing stockholders and
an immediate dilution in pro forma net tangible book value of $     per share
to new investors. The following table illustrates the per share dilution:

<TABLE>
<S>                                                                             <C> <C>
Estimated public offering price per share......................................     $
                                                                                    --
   Pro forma net tangible book value per share as of December 31, 2001......... $
                                                                                --
   Increase per share attributable to new investors............................
                                                                                --
Pro forma net tangible book value per share after this offering................
                                                                                    --
Dilution in pro forma net tangible book value per share to new investors.......     $
                                                                                    ==
</TABLE>

      This table excludes all options and warrants that will remain outstanding
upon completion of this offering. See Notes 4, 6 and 7 to Notes to Financial
Statements. The exercise of outstanding options and warrants having an exercise
price less than the offering price would increase the dilutive effect to new
investors.

      The following table sets forth on a pro forma basis, as of December 31,
2001, the differences between the number of shares of common stock purchased
from us, the total price and average price per share paid by existing
stockholders and by the new investors, before deducting expenses payable by us,
using the estimated public offering price of $     per share.

<TABLE>
<CAPTION>
                                         Shares Purchased     Total Consideration  Average
                                        -----------------     ------------------  Price Per
                                        Number     Percentage Amount   Percentage   Share
                                        -------    ---------- ------   ---------- ---------
<S>                                     <C>        <C>        <C>      <C>        <C>
Existing stockholders..................                   %     $             %      $
New investors..........................
                                        -------     -------     --      -------
   Total...............................               100.0%    $         100.0%
                                        =======     =======     ==      =======
</TABLE>

      If the underwriter's over-allotment option is exercised in full, the
number of shares held by new public investors will be increased to        or
approximately   % of the total number of shares of our common stock outstanding
after this offering.

                                      18

<PAGE>

                       SELECTED FINANCIAL AND OTHER DATA

      The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and are qualified by reference to our financial statements and
notes thereto appearing elsewhere in this prospectus. The audited statement of
operations data set forth below for the years ended December 31, 1999, 2000 and
2001 and the audited balance sheet data as of December 31, 2000 and 2001 are
derived from, and are qualified by reference to, the financial statements of
Netflix included elsewhere in this prospectus. The statement of operations data
for the years ended December 31, 1998 and for the period from August 29, 1997
(inception) to December 31, 1997 and the balance sheet data as of December 31,
1997, 1998 and 1999 are derived from, and are qualified by reference to, the
financial statements of Netflix not included elsewhere in this prospectus. The
historical results are not necessarily indicative of results to be expected for
any future period.

<TABLE>
<CAPTION>
                                                         PERIOD FROM
                                                       AUGUST 29, 1997
                                                       (INCEPTION) TO          YEAR ENDED DECEMBER 31,
                                                        DECEMBER 31,   --------------------------------------
                                                            1997         1998      1999      2000      2001
                                                       --------------- --------  --------  --------  --------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                    <C>             <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
 Subscription.........................................     $    --     $    585  $  4,854  $ 35,894  $ 74,255
 Sales................................................          --          754       152        --     1,657
                                                           -------     --------  --------  --------  --------
Total revenues........................................          --        1,339     5,006    35,894    75,912
Cost of revenues:
 Subscription.........................................          --          535     4,217    24,861    49,088
 Sales................................................          --          776       156        --       819
                                                           -------     --------  --------  --------  --------
 Total cost of revenues...............................          --        1,311     4,373    24,861    49,907
                                                           -------     --------  --------  --------  --------
Gross profit..........................................          --           28       633    11,033    26,005
Operating expenses:
 Fulfillment..........................................          --          763     2,153     8,267    10,267
 Technology and development...........................         100        3,857     7,413    16,823    17,734
 Marketing............................................         103        4,052    14,271    27,707    24,216
 General and administrative...........................         158        1,358     2,085     6,990     4,658
 Restructuring charges................................          --           --        --        --       671
 Stock-based compensation.............................          --        1,151     4,742     8,803     5,326
                                                           -------     --------  --------  --------  --------
 Total operating expenses.............................         361       11,181    30,664    68,590    62,872
                                                           -------     --------  --------  --------  --------
Operating loss........................................        (361)     (11,153)  (30,031)  (57,557)  (36,867)
                                                           -------     --------  --------  --------  --------
Interest and other income (expense), net..............           2           72       186       194    (1,391)
                                                           -------     --------  --------  --------  --------
Net loss..............................................     $  (359)    $(11,081) $(29,845) $(57,363) $(38,258)
                                                           =======     ========  ========  ========  ========
Basic and diluted net loss per share..................
Weighted average shares outstanding in computing net
 loss per share.......................................

OTHER DATA:
EBITDA(1) (unaudited).................................     $  (356)    $ (9,575) $(21,223) $(28,179) $ (1,716)
Number of subscribers (unaudited).....................          --           --       107       292       456
Net cash provided by (used in):
 Operating activities.................................        (261)      (5,408) $(16,529) $(22,706) $  4,847
 Investing activities.................................        (152)      (2,363)  (19,742)  (24,972)  (12,670)
 Financing activities.................................      (1,995)      (7,250)   49,408    48,375     9,059

                                                                         AS OF DECEMBER 31,
                                                       ------------------------------------------------------
                                                            1997         1998      1999      2000      2001
                                                       --------------- --------  --------  --------  --------
                                                                           (IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.............................     $ 1,582     $  1,061  $ 14,198  $ 14,895  $ 16,131
Working capital (deficit).............................       1,360       (4,704)   11,028    (1,655)   (6,656)
Total assets..........................................       1,901        4,849    34,773    52,488    41,630
Capital lease obligations, less current portion.......          --          172       811     2,024     1,057
Notes payable, less current portion...................          --           --     3,959     1,843        --
Subordinated notes payable............................          --           --        --        --     2,799
Redeemable convertible preferred stock................          --        6,321    51,819   101,830   101,830
Stockholders' equity (deficit)........................       1,636       (8,044)  (32,028)  (73,267)  (90,504)
</TABLE>
- --------
(1) See definition of EBITDA elsewhere in this prospectus.

                                      19

<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, THE
ACCURACY OF WHICH INVOLVES RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
FOR MANY REASONS, INCLUDING THE RISKS FACED BY US DESCRIBED IN "RISK FACTORS"
STARTING ON PAGE 5 AND ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

      We are the world's largest online entertainment subscription service
providing more than 500,000 subscribers access to a comprehensive library of
more than 11,500 movie, television and other filmed entertainment titles. Our
standard subscription plan allows subscribers to have three titles out at the
same time with no due dates, late fees or shipping charges for $19.95 per
month. Subscribers can view as many titles as they want in a month. Subscribers
select titles at our Web site (WWW.NETFLIX.COM) aided by our proprietary
CineMatch technology, receive them on DVD by first-class mail and return them
to us at their convenience using our prepaid mailers. Once a title has been
returned, we mail the next available title in a subscriber's queue.

      We were organized as a Delaware corporation in August 1997. We have
incurred significant losses since our inception. As of December 31, 2001, we
had a stockholders' deficit of $90.5 million. We expect that we will continue
to incur substantial losses for the foreseeable future. We also expect to incur
significant marketing, technology and development, and general and
administrative expenses. As a result, we will need to significantly increase
our operating margins to achieve profitability and may never achieve
profitability.

CRITICAL ACCOUNTING POLICIES

      We believe our change to the estimated life over which we amortize the
costs of acquiring titles for our library, and the selection of a method of
amortization for the costs we incur to acquire titles for our library, are
critical accounting policies because they involve some of the more significant
judgments and estimates used in the preparation of our financial statements.

CHANGE IN ESTIMATED LIFE OF THE COST OF OUR LIBRARY

      In late 2000 and early 2001, we entered into a series of revenue sharing
agreements with studios which substantially changed our business model for
acquiring DVDs and satisfying subscriber demand for titles. These revenue
sharing agreements enable us to acquire DVDs at a lower upfront cost than
traditional buying arrangements. We share a percentage of the net revenues
generated by the use of each particular title with these studios over a fixed
period of time, generally 12 months. Before the change in our business model,
we typically acquired fewer copies of a particular title and utilized each copy
over a longer period of time. The implementation of these revenue sharing
agreements improved our ability to acquire larger quantities of newly released
titles and satisfy a substantial portion of subscriber demand for such titles
over a shorter period of time. On January 1, 2001, we revised the amortization
policy for the cost of our library from an accelerated method using a three
year life to the same accelerated method of amortization using a one year life.

      The change in life has been accounted for as a change in accounting
estimate and is accounted for on a prospective basis from January 1, 2001. Had
the DVDs acquired prior to January 1, 2001 been amortized using a three year
life, amortization expense for 2001 would have been $4.7 million lower than the
amount recorded in our financial statements, representing a $0.78 per share
impact on loss per share in 2001.

                                      20

<PAGE>

SELECTION OF A METHOD OF AMORTIZATION OF UPFRONT COSTS OF OUR LIBRARY

      Under certain revenue sharing agreements, we remit an upfront payment to
acquire titles from the studios. This payment has two elements. The first
element is an initial fixed license fee that is capitalized. The second element
is a prepayment of future revenue sharing obligations. The amount attributable
to the second element is classified as prepaid revenue sharing expense and is
applied against future revenue sharing obligations. A nominal amount is also
capitalized upon acquisition of a particular title for the cost of the
estimated number of DVDs we expect to purchase at the end of the title term.
This cost is amortized with the cost of the initial license fee on an
accelerated basis over one year. We believe the use of an accelerated method is
appropriate because we normally experience heavy initial demand for a title,
which subsides once initial demand has been satisfied.

REVENUES

      We derive substantially all of our revenues from monthly subscription
fees. From the launch of our Web site in April 1998 through January 1999, we
generated revenues primarily from individual DVD rentals and sales to
customers. In March 1999, we stopped selling new DVDs. From February 1999
through October 1999, we generated revenues primarily from individual DVD
rentals to customers. In September 1999, we launched our subscription service,
and through February 2000, for a fixed monthly subscription fee of $15.95,
subscribers could have up to four titles per month with no due dates or late
fees, and for $3.98, could order an additional title. In February 2000, we
modified our standard subscription service to provide subscribers access to an
unlimited number of titles for $19.95 per month, with a maximum of four titles
out at any time. Existing subscribers were switched to our new service, some at
$15.95 per month and the rest at $19.95 per month. In October 2000, we again
modified our standard subscription service to provide subscribers access to an
unlimited number of titles for a fixed monthly fee, with a maximum of three
titles out at the same time.

      We had an insignificant amount of DVD sales in 1999 and no DVD sales in
2000. Beginning in late 2000, as part of the change in our business model, we
began acquiring larger quantities of particular titles through our revenue
sharing agreements. As a result, once initial demand for a particular title has
been satisfied, we may hold a number of titles in excess of the quantities
needed to satisfy ongoing subscriber demand. Several studios allow us to sell
the DVDs acquired from them at the end of the revenue sharing term. Before we
sell a particular title, we compare the number of copies we hold to estimated
future demand to determine the number of copies we can sell without
jeopardizing our ability to satisfy future subscriber demand. From time to
time, we expect to make bulk sales of our used DVDs to resellers.

      We recognize subscription revenues ratably during each subscriber's
monthly subscription period. We record refunds to subscribers as a reduction of
revenues. We recognize revenues from the sale of used DVDs to resellers when
the DVDs are shipped to the reseller from our distribution center.
Historically, revenues from DVD rentals and shipping revenues also were
recognized when the product was shipped to the customer from our distribution
center.

      In addition to our standard service, we also offer a lower priced plan in
which subscribers can keep two titles at the same time for $13.95 per month, as
well as higher priced plans offering four, five and eight titles out at the
same time for $24.95, $29.95 and $39.95 per month, respectively. Approximately
91% of our paying subscribers pay $19.95 or more per month.

COST OF REVENUES AND GROSS PROFIT

COST OF SUBSCRIPTION REVENUES

      We acquire titles for our library using traditional buying methods and
revenue sharing agreements. Traditional buying methods normally result in
higher upfront costs when compared to titles obtained through revenue sharing
agreements. Cost of subscription revenues consists of revenue sharing costs,
amortization of our

                                      21

<PAGE>

library, amortization of intangible assets related to equity instruments issued
to certain studios and postage and packaging costs related to shipping titles
to paying subscribers.

      REVENUE SHARING COSTS.  Many of our revenue sharing agreements commit us
to pay the greater of a minimum fee or a percentage of the net revenue we
realize on a monthly basis from each subscriber for the titles subject to
revenue sharing that are mailed to that subscriber. We characterize these
payments to the studios as revenue sharing costs. As of December 31, 2001, we
had revenue sharing agreements with over 40 studios that expire at various
dates beginning in 2002.

      AMORTIZATION OF THE COST OF DVDS.  Prior to January 1, 2001, we amortized
our cost of DVDs using an accelerated method over an estimated life of three
years and assumed no salvage value. On January 1, 2001, we revised the
estimated life to one year and assumed a salvage value of $2.00 for the DVDs
that we believe we will eventually sell.

      AMORTIZATION OF INTANGIBLE ASSETS RELATED TO EQUITY ISSUED TO
STUDIOS.  In 2000, in connection with signing revenue sharing agreements with
three studios, we agreed to issue each of these studios an equity interest
equal to 1.204% of our fully diluted equity securities outstanding. In 2001, in
connection with signing revenue sharing agreements with two additional studios,
we agreed to issue to each of the two studios an equity interest of 1.204% of
our fully diluted equity securities outstanding. As of December 31, 2001, the
aggregate equity interest granted to these five studios equaled 6.02% of our
fully diluted equity securities outstanding. Prior to this offering, these
studios are entitled to receive additional stock grants to maintain their
equity interests at 1.204% of our fully diluted equity securities outstanding.
Consequently, when we grant options or issue stock, we also are obligated to
issue additional equity interests to these studios to maintain their ownership
interest at 6.02% in the aggregate. These securities automatically convert into
our common stock upon consummation of this offering. We recognize our
obligation to grant these equity interests at fair value as an intangible asset
and we increase additional paid-in capital on our balance sheet. We then
amortize the intangible asset on a straight-line basis to cost of subscription
revenues over the term of each revenue sharing agreement with each studio. The
term for the three agreements entered into in 2000 is five years and the term
for the two agreements entered into 2001 is three years. Each time there is a
dilution event prior to the completion of this offering, we will determine the
value of our obligation to issue additional equity interests. The determined
value is added to the intangible asset and amortized to cost of subscription
revenues over the remaining term of the applicable revenue sharing agreement.

      POSTAGE AND PACKAGING.  Postage and packaging costs consist of the
postage costs to mail titles to and from our paying subscribers, each of which
is $0.34, and the packaging costs for the mailers.

COST OF SALES REVENUES

      Cost of revenues for DVD sales includes the salvage value for used DVDs
sold and, historically, cost of merchandise sold to customers.

OPERATING EXPENSES

FULFILLMENT

      Fulfillment expense represents those expenses incurred in operating and
staffing our fulfillment and customer service centers, including costs
attributable to receiving, inspecting and warehousing our library. Through
December 2001, we maintained only one fulfillment center in San Jose,
California. Since then, we have opened several additional fulfillment centers.
We plan to open more fulfillment centers in 2002 in various locations across
the United States. As we open and operate new fulfillment centers, we expect
that our fulfillment costs will increase.

                                      22

<PAGE>

TECHNOLOGY AND DEVELOPMENT

      Technology and development expense consists of payroll and related
expenses we incur related to testing, maintaining and modifying our Web site,
CineMatch technology, telecommunications systems and infrastructure and other
internal-use software systems. Technology and development expense also includes
depreciation of the computer hardware we use to run our Web site and store our
data. We continuously research and test a variety of potential improvements to
our internal hardware and software systems in an effort to improve our
productivity and enhance our subscribers' experience. We expect to continue to
invest in technology and improvements in our Web site and internal-use software
and, as a result, we expect our technology and development expense will
continue to increase. We believe certain costs we have incurred on several
improvement projects have ongoing benefit. Consequently, we capitalized
technology and development related expenses of $0.3 million in 1999, $1.3
million in 2000 and $1.2 million in 2001. The capitalized amounts are amortized
on a straight-line basis over the estimated period of benefit of each
improvement, ranging from one to two years.

MARKETING

      Marketing expense consists of marketing expenditures and other
promotional activities, including revenue sharing costs, postage and packaging
costs and library amortization costs related to free trial periods. In the
second half of 2001, we implemented several new subscriber acquisition
activities which provide incentives in the form of pay-for-performance payments
for each new subscriber provided to us. We anticipate that our marketing
expense will increase in future periods as a result of the overall growth in
our subscriber base, free trial offers and pay-for-performance arrangements.

GENERAL AND ADMINISTRATIVE

      General and administrative expense consists of payroll and related
expenses for executive, finance, content acquisition and administrative
personnel, as well as recruiting, professional fees and other general corporate
expenses.

STOCK-BASED COMPENSATION

      Stock-based compensation for equity instruments issued to employees
represents the aggregate difference, at the grant date, between the respective
exercise price of stock options or stock grants and the deemed fair market
value of the underlying stock. Stock-based compensation is generally amortized
over the vesting period of the underlying options or grants based on an
accelerated amortization method.

      In 2001, we offered our employees and directors the right to exchange
certain stock options. We exchanged employee options to purchase 2.7 million
shares of common stock with varying exercise prices in exchange for options to
purchase 2.7 million shares of common stock with an exercise price of $1.00.
The stock option exchange resulted in variable award accounting treatment for
all of the exchanged options. Variable award accounting will continue until all
options subject to variable accounting are exercised, cancelled or expire.
However, additional non-cash compensation will be recorded only to the extent
the intrinsic value of the repriced awards exceeds the original intrinsic value
of the replaced stock options. Variable accounting treatment will result in
unpredictable and potentially significant charges or credits to our operating
expenses from fluctuations in the market price of our common stock.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

REVENUES

      SUBSCRIPTION REVENUES.  Our subscription revenues increased from $4.9
million in 1999 to $35.9 million in 2000 and $74.3 million in 2001. The 639%
increase from 1999 to 2000 and the 107% increase from 2000 to

                                      23

<PAGE>

2001 were attributable to the unrivalled selection offered by our subscription
service, consistently high levels of customer satisfaction, the rapid consumer
adoption of DVD players and our increasingly effective marketing programs. In
addition, part of the increase in our subscription revenues for 2000 and 2001
was caused by a $4.00 increase in the monthly subscription fee charged to some
of our subscribers beginning in October 2000.

      SALES REVENUES.  Sales revenues were $0.2 million in 1999, $0.0 in 2000
and $1.7 million in 2001. The increase in sales revenues in 2001 was due to an
increase in the sale of used titles acquired through our revenue sharing
agreements.

COST OF REVENUES AND GROSS PROFIT

      COST OF SUBSCRIPTION REVENUES.  Cost of subscription revenues increased
from $4.2 million in 1999 to $24.9 million in 2000 and $49.1 million in 2001.
The 490% increase from 1999 to 2000 and the 97% increase from 2000 to 2001 were
primarily attributable to:

      .   REVENUE SHARING COSTS.  Our revenue sharing costs increased from $0.0
          in 1999 to $1.6 million in 2000 and $12.8 million in 2001. Our
          revenue sharing costs represented 4% of subscription revenues in 2000
          and 17% of subscription revenues in 2001. The increase in revenue
          sharing costs as a percentage of subscription revenues from 2000 to
          2001 was caused by a substantial increase in the percentage of titles
          mailed to our subscribers subject to revenue sharing agreements.

      .   AMORTIZATION OF DVD COSTS.  Our DVD amortization costs increased from
          $1.8 million in 1999 to $11.3 million in 2000 and $19.5 million in
          2001. Our DVD amortization costs represented 37% of subscription
          revenues in 1999, 31% of subscription revenues in 2000 and 26% of
          subscription revenues in 2001. The increase in DVD amortization costs
          as a percentage of subscription revenues from 1999 to 2000 resulted
          from building our library at a rate in excess of increases in the
          number of paying subscribers. The decrease in DVD amortization costs
          as a percentage of subscription revenues from 2000 to 2001 was
          primarily attributable to lower upfront prices paid for DVDs in
          connection with revenue sharing agreements.

      .   AMORTIZATION OF INTANGIBLE ASSETS RELATED TO EQUITY ISSUED TO CERTAIN
          STUDIOS.  We recorded deferred costs of $6.1 million in 2000 and $4.1
          million in 2001 related to our issuance of equity to certain studios.
          We recorded related amortization of intangible assets of $0.6 million
          in 2000 and $2.1 million in 2001. The increase in amortization of
          intangible assets from 2000 to 2001 is attributed to a full year of
          amortization in 2001 as compared to a partial year of amortization in
          2000, additional deferred charges for two new revenue sharing
          agreements in 2001 and increases in deferred charges caused by our
          obligation to issue additional equity securities to these studios.

      .   POSTAGE AND PACKAGING COSTS.  Postage and packaging costs increased
          from $2.4 million in 1999 to $11.4 million in 2000 and $14.7 million
          in 2001. The increases in postage and packaging costs each year were
          primarily attributable to increases in the number of DVDs mailed to
          our subscribers. As a percentage of subscription revenues, postage
          and packaging costs decreased from 49% in 1999 to 32% in 2000 and 20%
          in 2001. The decrease in postage and packaging costs as a percentage
          of subscription revenues from 1999 to 2000 was primarily attributable
          to lower postage costs per shipment due to a reduction in the weight
          of our packaging materials. The decrease in postage and packaging
          costs as a percentage of subscription revenues from 2000 to 2001 was
          primarily attributable to a decrease in the postage rate per title.

      COST OF SALES REVENUES.  Cost of sales revenues was $0.2 million in 1999,
$0.0 in 2000 and $0.8 million in 2001. The increase in cost of sales revenues
in 2001 was primarily attributable to the increase in the quantity of used DVDs
sold to resellers.

                                      24

<PAGE>

GROSS PROFIT

      Our gross profit increased from $0.6 million in 1999 to $11.0 million in
2000 and $26.0 million in 2001, representing gross profit percentages of 12% in
1999, 31% in 2000 and 34% in 2001. Our gross profit percentages increased each
year as a result of growth in our subscription revenues and a decrease in our
direct incremental costs of providing those subscription services.

OPERATING EXPENSES

      FULFILLMENT.  Fulfillment expenses increased from $2.2 million in 1999 to
$8.3 million in 2000 and $10.3 million in 2001. The 284% increase from 1999 to
2000 and the 24% increase from 2000 to 2001 was primarily attributable to
increases in the overall volume of the activities of our primary fulfillment
center. As a percentage of subscription revenues, fulfillment expenses
decreased from 44% in 1999 to 23% in 2000 and 14% in 2001. The decrease each
year in fulfillment expenses as a percentage of subscription revenues results
from a combination of an increasing revenue base and improvements in our
fulfillment productivity. The improvements in our fulfillment productivity were
due to continuous efforts to refine and streamline our fulfillment operations.

      TECHNOLOGY AND DEVELOPMENT.  Excluding capitalized software development
costs, our technology and development expense increased from $7.4 million in
1999 to $16.8 million in 2000 and $17.7 million in 2001. The 127% increase in
technology and development expense from 1999 to 2000 and the 5% increase from
2000 to 2001 were primarily the result of our investments in storing data,
handling large increases in traffic to our Web site and maintaining and
modifying our software related to our Web Site, CineMatch technology and our
internal-software infrastructure. As a percentage of subscription revenues,
technology and development expenses decreased from 153% in 1999 to 47% in 2000
and 24% in 2001. The decrease in technology and development expense as a
percentage of subscription revenues was primarily attributable to an increase
in our subscriber base.

      MARKETING.  Our marketing expense increased from $14.3 million in 1999 to
$27.7 million in 2000 and $24.2 million in 2001. The 94% increase in marketing
expense from 1999 to 2000 was primarily attributable to our intensified efforts
to acquire new subscribers through external advertising agencies, television
commercials and an increase in the length of our free trial period. The 13%
decrease in marketing expense from 2000 to 2001 was primarily attributable to
scaling back the number of free trial offers for part of 2001, and from a
reduction in our free trial period of 30 days to typically 14 days for the
balance of 2001. As a percentage of subscription revenues, marketing expense
decreased from 294% in 1999 to 77% in 2000 and 33% in 2001. The decrease in
marketing expense as a percentage of subscription revenues is primarily
attributable to a larger base of subscription revenues and paying subscribers.

      GENERAL AND ADMINISTRATIVE.  Our general and administrative expense was
$2.1 million in 1999, $7.0 million in 2000 and $4.7 million in 2001. The 235%
increase in general and administrative expense from 1999 to 2000 was primarily
attributable to increases in personnel and facility-related costs associated
with the expansion of our business and the cost of our withdrawn initial public
offering. The 33% decrease in general and administrative expense from 2000 to
2001 was primarily attributable to cost containment efforts in 2001 and the
one-time cost of the withdrawn public offering in 2000. As a percentage of
subscription revenues, general and administrative expense decreased from 43% in
1999 to 19% in 2000 and 6% in 2001. The decrease in general and administrative
expense as a percentage of subscription revenues is primarily attributable to a
larger base of subscription revenues and paying subscribers.

      RESTRUCTURING.  In 2001, we recorded a restructuring expense of $0.7
million relating to severance payments made to 45 employees we terminated in an
effort to restructure our organization to streamline our processes and reduce
expenses. We had no restructuring expense in prior years.

      STOCK-BASED COMPENSATION.  Stock-based compensation expense was $4.7
million in 1999, $8.8 million in 2000 and $5.3 million in 2001. The 86%
increase from 1999 to 2000 was primarily attributable to charges we

                                      25

<PAGE>

recorded related to issuing options to employees at exercise prices below the
deemed fair value at the dates of grant. The 39% decrease from 2000 to 2001 was
primarily attributable to reduced charges caused by utilization of the graded
vesting method of stock compensation amortization. The following table shows
the amounts of stock-based compensation expense that would have been recorded
under the following categories of operating expenses had stock-based
compensation expense not been separately stated on the statements of operations:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                     -----------------------
                                                      1999    2000    2001
                                                     ------  ------  ------
                                                         (IN THOUSANDS)
   <S>                                               <C>     <C>     <C>
   Fulfillment...................................... $  604  $1,469  $  705
   Technology and development.......................    907   2,855   1,788
   Marketing........................................  1,144   2,679   1,624
   General and administrative.......................  2,087   1,800   1,209
                                                     ------  ------  ------
                                                     $4,742  $8,803  $5,326
                                                     ======  ======  ======
</TABLE>

INTEREST AND OTHER INCOME (EXPENSE), NET

      Interest and other income (expense), net was $0.2 million in 1999, $0.2
million in 2000 and $(1.4) million in 2001. Interest and other income
(expense), net consists primarily of interest earned on our cash and cash
equivalents less non-cash interest expense related to accretion of discounts on
interest-bearing obligations from the issuance of our subordinated promissory
notes and capital lease obligations at an amount less than the face amount of
the debt.

                                      26

<PAGE>

SELECTED QUARTERLY OPERATING RESULTS

      The following tables set forth unaudited quarterly statement of
operations data for the eight quarters ended December 31, 2001 as well as the
percentage of total revenues represented for selected items. The information
for each of these quarters has been prepared on substantially the same basis as
the audited financial statements included elsewhere in this prospectus and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the results of
operations for such periods. This data should be read in conjunction with the
audited financial statements and the related notes included elsewhere in this
prospectus. These quarterly operating results are not necessarily indicative of
our operating results for any future period.

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                 ---------------------------------------------------------------------------
                                 MARCH 31  JUNE 30   SEPT. 30  DEC. 31   MARCH 31  JUNE 30  SEPT. 30 DEC. 31
                                   2000     2000       2000     2000       2001     2001      2001    2001
                                 --------  --------  --------  --------  --------  -------  -------- -------
                                                                (IN THOUSANDS)
<S>                              <C>       <C>       <C>       <C>       <C>       <C>      <C>      <C>
Revenues:
   Subscription................. $  5,174  $  7,147  $ 10,182  $ 13,391  $ 17,057  $17,392  $18,444  $21,362
   Sales........................       --        --        --        --        --      967      434      256
                                 --------  --------  --------  --------  --------  -------  -------  -------
     Total revenues.............    5,174     7,147    10,182    13,391    17,057   18,359   18,878   21,618

Cost of revenues:
   Subscription.................    3,128     5,150     7,213     9,370    18,177   10,776    9,667   10,468
   Sales........................       --        --        --        --        --      446      176      197
                                 --------  --------  --------  --------  --------  -------  -------  -------
     Total cost of revenues.....    3,128     5,150     7,213     9,370    18,177   11,222    9,843   10,665
                                 --------  --------  --------  --------  --------  -------  -------  -------
Gross profit....................    2,046     1,997     2,969     4,021    (1,120)   7,137    9,035   10,953

Operating expenses:
   Fulfillment..................    1,497     2,057     1,880     2,833     2,791    2,796    2,517    2,163
   Technology and development...    3,248     3,959     4,041     5,575     5,474    4,896    4,463    2,901
   Marketing....................    6,448     6,059     7,104     8,096     7,475    4,883    4,210    7,648
   General and administrative...      764     1,761     1,863     2,602     1,514    1,031    1,003    1,110
   Restructuring charges........       --        --        --        --        --       --      671       --
   Stock-based compensation.....    1,963     2,530     2,073     2,237     2,043    1,436    1,220      627
                                 --------  --------  --------  --------  --------  -------  -------  -------
     Total operating expenses...   13,920    16,366    16,961    21,343    19,297   15,042   14,084   14,449
                                 --------  --------  --------  --------  --------  -------  -------  -------
Operating loss..................  (11,874)  (14,369)  (13,992)  (17,322)  (20,417)  (7,905)  (5,049)  (3,496)
                                 --------  --------  --------  --------  --------  -------  -------  -------
Interest and other income
 (expense), net.................     (102)      302       210      (216)     (181)     (96)    (505)    (609)
                                 --------  --------  --------  --------  --------  -------  -------  -------
Net loss........................ $(11,976) $(14,067) $(13,782) $(17,538) $(20,598) $(8,001) $(5,554) $(4,105)
                                 ========  ========  ========  ========  ========  =======  =======  =======
Other Data:
   EBITDA (1) (unaudited)....... $ (6,248) $ (7,366) $ (6,175) $ (8,390) $ (3,610) $  (131) $   623  $ 1,402
   Number of subscribers
    (unaudited).................      156       194       239       292       303      308      334      456
</TABLE>
- --------
(1) EBITDA consists of operating loss before depreciation, amortization,
    non-cash charges for equity instruments granted to non-employees and
    stock-based compensation. EBITDA provides an alternative measure of cash
    flow from operations. You should not consider EBITDA as a substitute for
    operating loss, as an indicator of our operating performance or as an
    alternative to cash flows from operating activities as a measure of
    liquidity. We may calculate EBITDA differently from other companies.

                                      27

<PAGE>

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                  -----------------------------------------------------------------
                                  MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
                                    2000    2000     2000    2000     2001    2001     2001    2001
                                  -------- ------- -------- ------- -------- ------- -------- -------
<S>                               <C>      <C>     <C>      <C>     <C>      <C>     <C>      <C>
Revenues:
   Subscription..................    100%    100%     100%    100%     100%     95%     98%      99%
   Sales.........................      0       0        0       0        0       5       2        1
                                    ----    ----     ----    ----     ----     ---     ---      ---
      Total revenues.............    100     100      100     100      100     100     100      100
Cost of revenues:
   Subscription..................     60      72       71      70      107      59      51       48
   Sales.........................      0       0        0       0        0       2       1        1
                                    ----    ----     ----    ----     ----     ---     ---      ---
      Total cost of revenues.....     60      72       71      70      107      61      52       49
                                    ----    ----     ----    ----     ----     ---     ---      ---
Gross profit.....................     40      28       29      30       (7)     39      48       51
Total operating expenses.........    269     229      166     159      113      82      75       67
                                    ----    ----     ----    ----     ----     ---     ---      ---
Operating loss...................   (229)   (201)    (137)   (129)    (120)    (43)    (27)     (16)
                                    ----    ----     ----    ----     ----     ---     ---      ---
Interest and other expense, net..     (2)      4        2      (2)      (1)     (1)     (2)      (3)
                                    ----    ----     ----    ----     ----     ---     ---      ---
Net loss.........................   (231)%  (197)%   (135)%  (131)%   (121)%   (44)%   (29)%    (19)%
                                    ====    ====     ====    ====     ====     ===     ===      ===
</TABLE>

SUBSCRIPTION REVENUES

      The increase in total subscription revenues for all quarters presented
was caused by increases in the number of our paying subscribers. We believe the
number of paying subscribers increased for several reasons including the
unrivalled selection offered by our subscription service, consistently high
levels of customer satisfaction, the rapid consumer adoption of DVD players and
our increasingly effective marketing programs.

COST OF SUBSCRIPTION REVENUES

      On January 1, 2001, we revised the estimated life of our library from
three years to one year. Amortization expense for the quarter ended March 31,
2001 includes an increase in amortization caused by the effect of revising the
life of our library. The decrease in DVD amortization expense as a percentage
of subscription revenues between the quarter ended March 31, 2001 and the
quarter ended June 30, 2001 is caused primarily by a decrease in the
amortizable cost of our library.

TECHNOLOGY AND DEVELOPMENT

      The decrease between the quarter ended September 30, 2001 and the quarter
ended December 31, 2001 was caused by decreases in personnel costs as a result
of employees terminated as a part of our restructuring during the quarter ended
September 30, 2001.

MARKETING

      The decrease during each of the three quarters subsequent to the fourth
quarter of 2000 is due to scaling back our free trial offers during the first
two quarters of 2001. The increase in marketing expense in the fourth quarter
of 2001 results from an increase in the number of free trials offered to new
subscribers as well as an increase in the expense we incurred for
pay-for-performance subscriber referral programs.

GENERAL AND ADMINISTRATIVE

      The decrease between the quarter ended December 31, 2000 and the quarter
ended March 31, 2001 was caused by expenses incurred in relation to our
withdrawn initial public offering that were expensed during the quarter ended
December 31, 2000.

                                      28

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      We have financed our operations primarily with $117.5 million raised
through private sales of our common and preferred equity securities and
subordinated promissory notes. As of December 31, 2001, we had cash and cash
equivalents of $16.1 million.

      We expect to devote substantial resources to continue to expand our
subscriber base, expand our library to meet subscriber demand, automate our
fulfillment operations and maintain and enhance the systems necessary to
support our growth. Although we anticipate that the proceeds of this offering,
together with our current cash and cash equivalents and cash flows will be
sufficient to fund our activities for at least the next 12 months and the
foreseeable future, we cannot assure you that we will not require additional
financing within this time period or that additional funding, if needed, will
be available on terms acceptable to us, or at all. In addition, although there
are no present understandings, commitments or agreements with respect to any
acquisition of other businesses, products or technologies, we may, from time to
time, evaluate acquisitions of other businesses, products and technologies. If
we are unable to raise additional equity or debt financing, if and when needed,
we could be forced to significantly curtail our operations.

      In July 2001, we issued subordinated promissory notes and warrants to
purchase 20,456,866 shares of our common stock at an exercise price of $1.00
per share for net proceeds of $12.8 million. We allocated $10.9 million of the
proceeds to the warrants and recorded it as additional paid-in capital and $1.9
million to the notes payable. The resulting discount of $11.1 million is being
accreted to interest expense using an effective annual interest rate of 21%.
Our subordinated promissory notes accrue interest at a stated rate of 10% per
year compounded annually. The subordinated notes and all accrued interest are
due and payable upon the earlier to occur of July 10, 2011 or the completion of
this offering.

      At December 31, 2001 our current liabilities exceeded our current assets
by $6.7 million, and we had cash of $16.1 million, accounts payable of $13.7
million and accrued expenses of $4.5 million. At December 31, 2001 we also had
commitments to repay a note payable and make payments on capital leases and
operating leases of approximately $5.5 million in 2002, $3.7 million in 2003,
$2.6 million in 2004 and $1.5 million in 2005.

CASH FLOWS

      Net cash used in operating activities was $16.5 million in 1999 and $22.7
million in 2000. Net cash provided by operating activities was $4.8 million in
2001. Cash used in operating activities in 1999 was primarily attributable to a
net loss of $29.8 million, partially offset by deferred compensation expense,
depreciation and amortization expense, non-cash interest expense, increases in
accounts payable, accrued expenses, and deferred revenue. Cash used in
operating activities in 2000 was primarily attributable to a net loss of $57.4
million and an increase in prepaid and other current assets, partially offset
by deferred compensation expense, depreciation and amortization expense,
non-cash interest expenses, increases in accounts payable, accrued expenses and
deferred revenue. Cash provided by operating activities in 2001 was primarily
attributable to an increase in revenue, a decrease in operating expenses and an
increase in accounts payable.

      Net cash used in investing activities was $19.7 million in 1999, $25.0
million in 2000 and $12.7 million in 2001. Net cash used in investing
activities in 1999 was primarily attributable to our acquisition of titles for
our DVD library, short-term investments and property and equipment. Net cash
used in investing activities in 2000 was primarily attributable to our
acquisition of titles for our library and property and equipment, partially
offset by proceeds from the sale of short-term investments. Net cash used in
investing activities in 2001 was primarily attributable to our acquisition of
titles for our library and property and equipment. The 63% decrease in cash
used to acquire DVDs in 2001 from 2000, primarily reflects the reduced cash
requirements to acquire DVDs under our revenue sharing agreements. While DVD
acquisitive expenditures are classified as cash flows from investing activities
you may wish to consider these together with cash flows from operating
activities.

                                      29

<PAGE>

      Net cash provided by financing activities was approximately $49.4 million
in 1999, $48.4 million in 2000 and $9.1 million in 2001. Net cash provided by
financing activities in 1999 was primarily attributable to proceeds from the
sale of our Series C and Series D Convertible Preferred Stock and from a loan,
partially offset by payments on a note payable and capital lease obligations.
Net cash provided by financing activities in 2000 was primarily attributable to
proceeds from the sale of our Series E Convertible Preferred Stock, partially
offset by payments on notes payable and capital lease obligations. Net cash
provided by financing activities in 2001 was primarily attributable to proceeds
from the sale of common stock warrants and subordinated promissory notes,
partially offset by payments on notes payable and capital lease obligations.

GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY

      We anticipate that our business will be affected by general economic and
other consumer trends. Our business may be subject to fluctuations in future
operating periods due to a variety of factors, many of which are outside of our
control. These fluctuations may be caused by, among other things, a distinct
seasonal pattern to the sale of DVD players which accelerates during the
Christmas holiday season.

RECENT ACCOUNTING PRONOUNCEMENTS

      In June 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS, or
SFAS No. 141. The standard concludes that all business combinations within the
scope of the statement will be accounted for using the purchase method.
Previously, the pooling-of-interests method was required whenever certain
criteria were met. Because those criteria did not distinguish economically
dissimilar transactions, similar business combinations were accounted for using
different methods that produced dramatically different financial statement
results. SFAS No. 141 no longer permits the use of pooling-of-interest method
of accounting. In addition, the statement also requires separate recognition of
intangible assets apart from goodwill if they meet one of two criteria: the
contractual-legal criterion or the separability criterion. SFAS No. 141 also
requires the disclosure of the primary reasons for a business combination and
the allocation of the purchase price paid to the assets acquired and
liabilities assumed by major balance sheet caption. The provisions of SFAS No.
141 apply to all business combinations initiated after June 30, 2001. The
adoption of this standard will not impact our financial statements.

      In June 2001, the FASB also issued SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, or SFAS No. 142. It addressed how intangible assets that are
acquired individually or within a group of assets (but not those acquired in a
business combination) should be accounted for in the financial statements upon
their acquisition. SFAS No. 142 adopts a more aggregate view of goodwill and
bases the accounting on the units of the combined entity into which an acquired
entity is aggregated. SFAS No. 142 also prescribes that goodwill and intangible
assets that have indefinite useful lives will not be amortized but rather
tested at least annually for impairment. Intangible assets that have definite
lives will continue to be amortized over their useful lives, but no longer with
the constraint of the 40-year ceiling. SFAS No. 142 provides specific guidance
for the testing of goodwill for impairment, which may require re-measurement of
the fair value of the reporting unit. Additional ongoing financial statement
disclosures are also required. The provisions of the statement are required to
be applied starting with fiscal years beginning after December 15, 2001. The
statement is required to be applied at the beginning of the fiscal year and
applied to all goodwill and other intangible assets recognized in the
financials at that date. Impairment losses are to be reported as resulting from
a change in accounting principle. We implemented SFAS No. 142 beginning
January 1, 2002. The adoption of this standard will not impact our financial
statements.

      In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, or SFAS No. 144. It supersedes
SFAS No. 121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, and APB Opinion No. 30, REPORTING THE EFFECTS OF
DISPOSAL OF A SEGMENT OF A BUSINESS. It establishes a single account model
based upon the framework of SFAS No. 121. It removes goodwill and intangible
assets from its scope. It describes a probability-weighted cash flow estimation
approach to deal with certain situations. It also establishes a "primary asset"
approach to determine the cash flow estimation period for a group of assets and
liabilities that represents the unit of accounting for a long-lived asset to be
held and

                                      30

<PAGE>

used. The provisions of SFAS 144 are effective for fiscal years beginning after
December 15, 2001. The adoption of this standard will not impact our financial
statements.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

      The primary objective of our investment activities is to preserve
principal, while at the same time maximizing income we receive from investments
without significantly increased risk. Some of the securities we invest in may
be subject to market risk. This means that a change in prevailing interest
rates may cause the principal amount of the investment to fluctuate. For
example, if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later rises, the
value of our investment will decline. To minimize this risk in the future, we
intend to maintain our portfolio of cash equivalents and investments in a
variety of securities, including commercial paper, money market funds,
government and non-government debt securities and certificates of deposit with
maturities of less than thirteen months. In general, money market funds are not
subject to market risk because the interest paid on such funds fluctuates with
the prevailing interest rate.

                                      31

<PAGE>

                                   BUSINESS

OUR COMPANY

      We are the world's largest online entertainment subscription service
providing more than 500,000 subscribers access to a comprehensive library of
more than 11,500 movie, television and other filmed entertainment titles. Our
standard subscription plan allows subscribers to have three titles out at the
same time with no due dates, late fees or shipping charges for $19.95 per
month. Subscribers can view as many titles as they want in a month. Subscribers
select titles at our Web site (WWW.NETFLIX.COM) aided by our proprietary
CineMatch technology, receive them on DVD by first-class mail and return them
to us at their convenience using our prepaid mailers. Once a title has been
returned, we mail the next available title in a subscriber's queue.

      Our subscription service has grown rapidly since its launch in September
1999. We believe our growth has been driven primarily by our unrivalled
selection, consistently high levels of customer satisfaction, rapid consumer
adoption of DVD players and our increasingly effective marketing programs. In
the San Francisco Bay area, where we have one- or two-day delivery, more than
2.6% of all households subscribe to Netflix.

      Our proprietary CineMatch technology enables us to create a customized
store for each subscriber and to generate personalized recommendations which
effectively merchandize our comprehensive library of titles. We provide more
than 18 million personal recommendations daily. In January 2002, more than
10,500 of our 11,500 titles were selected by our subscribers. In comparison,
most entertainment service providers merchandize a narrow selection of box
office hits. A national video rental chain generates nearly 70% of its rental
revenues from new releases. We generate approximately 70% of our activity from
back catalogue titles. We believe that our CineMatch technology, based on
proprietary algorithms and the more than 70 million movie ratings we have
collected from our users during the past two years, enables us to build deep
subscriber relationships and maintain a high level of library utilization.

      We market our service to consumers primarily through pay-for-performance
marketing programs, including online promotions, advertising insertions with
most leading DVD player manufacturers and promotions with electronics and video
software retailers. These programs encourage consumers to subscribe to our
service and include a free trial period of typically 14 days. At the end of the
trial period, subscribers are automatically enrolled as paying subscribers,
unless they cancel their subscription. Approximately 90% of trial subscribers
become paying subscribers. All paying subscribers are billed monthly in advance
by credit card.

      We stock almost every title available on DVD, excluding mature and adult
content. We have established revenue sharing relationships with more than 50
studios and distributors. These relationships provide us access to titles on
terms attractive to us. We also purchase titles directly from studios,
distributors and independent producers.

      We are focused on rapidly growing our subscriber base and revenues and
utilizing our proprietary technology to minimize operating costs. Our
technology is extensively employed to manage and integrate our business,
including our Web site interface, order processing, fulfillment operations and
customer service. We believe that our technology also allows us to maximize our
library utilization and to run our fulfillment operations in a flexible manner
with minimal capital requirements.

      We currently provide titles to our subscribers on DVD only. However, we
continue to monitor additional delivery technologies and, when appropriate,
believe that we are well-positioned to offer digital distribution and
additional delivery options to our subscribers.

INDUSTRY OVERVIEW

      Filmed entertainment is distributed broadly through a variety of
distribution channels. Out-of-home distribution channels include movie
theaters, airlines and hotels. In-home distribution channels include home

                                      32

<PAGE>

video rental and retail outlets, cable and satellite television, pay-per-view,
video-on-demand, or VOD, and broadcast television. Currently, studios
distribute their filmed entertainment content approximately six months after
theatrical release to the home video market, seven to nine months to
pay-per-view and VOD, one year to satellite and cable and two to three years to
basic cable and syndicated networks.

IN-HOME FILMED ENTERTAINMENT MARKET

      Domestic consumer expenditures for in-home filmed entertainment reached
$32 billion in 2001 and are projected to grow to $46 billion in 2006, according
to Adams Media Research. This market is vital to studios. Consumer spending on
in-home filmed entertainment was nearly four times the $8.1 billion consumers
spent at theaters in 2001, according to Adams Media Research.

      Consumer rentals and purchases of VHS and DVD titles are the largest
source of domestic consumer expenditures on in-home filmed entertainment,
representing approximately $23.4 billion, or 73% of the market in 2001,
according to Adams Media Research. Video rental outlet inventory is generally
heavily weighted toward new releases to satisfy current consumer demand
generated by heavy advertising and promotional spending by the studios.

      Consumers access subscription-based services, such as HBO or Showtime,
primarily through cable or satellite providers. According to Adams Media
Research, subscription delivered content is the second largest source of
domestic consumer expenditures on in-home filmed entertainment, representing
approximately $7.5 billion, or 24% of the market in 2001. The National Cable
Television Association estimates that the number of available programming
networks has grown from 82 in 1991 to 231 in 2001.

      Pay-per-view and VOD currently represent the smallest segment of the
market. Consumer selection is generally limited to less than 100 titles.
Limited title selection may contribute to the relatively small size of the
pay-per-view and VOD markets. The market for pay-per-view and near-VOD was
$813 million in 2001, representing less than 3% of the in-home filmed
entertainment market, and is expected to grow to $1.3 billion in 2006,
according to Adams Media Research. The market for cable VOD was $85 million in
2001, representing less than 1% of the in-home filmed entertainment market, and
is expected to grow to $1.1 billion in 2006, according to Adams Media Research.

CONSUMER TRANSITION TO DVD

      The home video segment of the in-home filmed entertainment market is
undergoing a rapid technology transition away from VHS to DVD. We believe this
transition is analogous to the shift in the music industry from audio cassettes
to compact discs that resulted in significant additional demand for both new
releases and back catalogue inventory. Specifically, the music industry
benefited from consumers replacing their old library of audio cassettes with
higher quality compact discs. We believe the home video segment is likely to
see a similar trend as consumers rediscover back catalogue titles on higher
quality DVDs.

      The DVD player is the fastest selling consumer electronics device in
history, according to DVD Entertainment Group. At year-end 2001, there were 25
million U.S. television households with a standalone set-top DVD player,
representing 23% of U.S. television households. The number of homes with a
standalone set-top DVD player increased 97% in 2001, according to Adams Media
Research. In September 2001, DVD player shipments outpaced VCR shipments for
the first time in history, and this trend continued throughout the remainder of
2001. The number of U.S. households with a DVD player is expected to grow to 67
million by the end of 2006, representing approximately 60% of U.S. television
households in 2006, according to Adams Media Research.

      Every major domestic movie studio supports the DVD format. DVD rentals
reached $2.3 billion in 2001, up 214% from 2000 and are expected to account for
more than 50% of video rental revenue by 2003, up

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<PAGE>

from 7% in 2000, according to Adams Media Research. We believe this projected
growth in DVD rental revenue is the direct result of consumer adoption of the
DVD.

CHALLENGES FACED BY CONSUMERS IN SELECTING IN-HOME FILMED ENTERTAINMENT

      The proliferation of new releases available for in-home filmed
entertainment combined with the additional demand for back catalogue titles on
DVD create two primary challenges for consumers in selecting titles.

      Despite the large number of titles, consumers lack a deep selection of
titles from existing subscription channels and traditional video rental
outlets. Subscription channels, such as HBO and Showtime, and pay-per-view
services currently offer a narrow selection of titles at specified times due to
programming schedule constraints and technological issues relating to channel
capacity. Traditional video rental outlets primarily focus on offering new
releases and devote limited space to display and stock back catalogue titles.

      Even when consumers have access to the vast number of titles available,
they generally have limited means to effectively sort through the titles. In
2000, over 750 domestic and foreign films were rated for theatrical release in
the United States and over 5,300 new releases and back-catalogue titles,
excluding adult titles, were released on DVD. In addition, consumers are faced
with 161 network and cable television shows covering 126 hours of weekly
television viewing. We believe our CineMatch technology provides our
subscribers the tools to select titles within the vast array of options that
appeal to their individual preferences.

COMPETITIVE STRENGTHS

      We believe that our revenue and subscriber growth are a result of the
following competitive strengths:

      .   COMPREHENSIVE LIBRARY OF TITLES.  We have developed strategic
          relationships with top studios and distributors, enabling us to
          establish and maintain a broad and deep selection of titles. Since
          our service is available nationally, we believe that we can
          economically acquire and provide subscribers a broader selection of
          titles than video rental outlets, video retailers, subscription
          channels, pay-per-view and VOD services. We currently offer virtually
          every title available from the more than 50 studios and distributors
          from whom we acquire titles. To maximize our selection of titles, we
          continuously add newly released titles to our library. Our library
          contains numerous copies of popular new releases, as well as the many
          titles that appeal to more select audiences.

      .   PERSONALIZED MERCHANDIZING.  We utilize our proprietary CineMatch
          technology to create a custom interface for each subscriber to
          effectively merchandize our library. Titles are dynamically presented
          based upon proprietary algorithms that compare individual preferences
          to our ratings database and provides each subscriber a personalized
          list of "Best Bets." We believe that CineMatch allows us to create
          demand for our entire library and maximize utilization of each title.
          Although we offer a complete selection of new releases, many
          subscriber selections are from back catalogue titles. In January
          2002, subscribers selected more than 10,500 of our 11,500 titles,
          representing over 90% of all titles in our library. We believe that
          as the number of our subscribers and ratings database grows,
          CineMatch will be able to more accurately predict individual
          preferences.

      .   SCALABLE BUSINESS MODEL.  We believe that we have a scalable,
          low-cost business model designed to maximize our revenues and
          minimize our costs. Subscribers' prepaid monthly credit card payments
          and the recurring nature of our subscription business provide working
          capital benefits and significant near-term revenue visibility. In
          order to manage and contain subscriber acquisition costs, we
          primarily utilize pay-for-performance marketing programs with online
          affiliates and use low-cost inserts in DVD player boxes. We have
          entered into revenue sharing agreements with studios and distributors
          to lower our upfront cash payments which enhance our ability to expand

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<PAGE>

          the depth and breadth of our library. Our library remains active
          beyond the new release window. In January 2002, approximately 70% of
          the titles we delivered were from our back catalogue. Our scalable
          infrastructure and online interface eliminate the need for expensive
          retail outlets and allow us to service our large and expanding
          subscriber base from a series of low-cost regional distribution
          centers. We employ temporary, hourly and part-time workers to contain
          labor costs and provide maximum operating flexibility. Finally, we
          have low delivery costs through the use of standard first class mail
          to ship and return titles to and from subscribers.

      .   CONVENIENCE, SELECTION AND DELIVERY.  Subscribers can conveniently
          select titles by building and modifying a personalized queue of
          titles on our Web site. We create a unique experience for subscribers
          because most pages on our Web site are tailored to individual
          selection and ratings history. Under our standard service,
          subscribers can have three titles out at the same time with no due
          dates or late fees. Once selected, titles are sent to subscribers by
          first-class mail and returned to us in pre-paid mailers. Upon receipt
          of returned titles, we automatically mail subscribers the next
          available title in their queue of selected titles.

GROWTH STRATEGY

      Our strategy to provide a premier filmed entertainment subscription
service to our large and growing loyal subscriber base includes the following
key elements:

      .   PROVIDING A COMPELLING VALUE PROPOSITION FOR SUBSCRIBERS.    We
          provide subscribers access to our comprehensive library with no due
          dates, late fees or shipping charges for a fixed monthly fee. We
          merchandize titles in easy to recognize lists including new releases,
          genres and other targeted categories. Our convenient, easy to use Web
          site allows subscribers to quickly select current titles, reserve
          upcoming releases and build an individual queue for future viewing
          using our proprietary personalization technology. Our CineMatch
          technology provides subscribers with recommendations of titles from
          our library. We quickly deliver titles to subscribers from our
          regional distribution centers by standard first-class mail.

      .   UTILIZING TECHNOLOGY TO ENHANCE SUBSCRIBER EXPERIENCE AND OPERATE
          EFFICIENTLY.   We utilize proprietary technology developed in-house
          to manage the processing and distribution of more than 100,000 DVDs
          per day from our distribution centers. Our software automates the
          process of tracking and routing titles to and from each of our
          distribution centers and allocates order responsibilities among them.
          We continuously monitor, test and seek to improve the efficiency of
          our distribution, processing and inventory management systems as our
          subscriber base and shipping volume grows. We plan to operate
          low-cost regional distribution centers throughout the United States
          to reduce delivery time and increase library utilization. We believe
          that shorter delivery time will result in improved customer
          acquisition, retention and satisfaction.

      .   BUILDING MUTUALLY BENEFICIAL RELATIONSHIPS WITH FILMED ENTERTAINMENT
          PROVIDERS.   We have entered into revenue sharing agreements with
          studios that lower our upfront cost of acquiring titles, minimize our
          inventory risk and increase the depth and breadth of our library. Our
          growing subscriber base provides studios with an additional
          distribution outlet for popular movies and television series, as well
          as niche titles and programs. Through our growing subscriber and
          ratings database, we also help studios reach targeted audiences to
          promote new theatrical and home video releases.

      .   IMPLEMENTING DIGITAL DELIVERY.   We continuously monitor the
          development of additional digital distribution technologies.
          Historically, new technologies, including the VCR and more recently
          the DVD player, have led to the creation of additional distribution
          channels for filmed entertainment. We intend to utilize our strong
          relationships with the studios to obtain rights to acquire and
          deliver filmed entertainment through emerging digital distribution
          platforms as they become economically, commercially and
          technologically viable for those subscribers who prefer digital
          distribution.

                                      35

<PAGE>

OUR WEB SITE -- WWW.NETFLIX.COM

      We have applied substantial resources to plan, develop and maintain
proprietary technology to implement the features of our Web site, such as
subscription account signup and management, personalized movie merchandising,
inventory optimization and customer support. Our software is written in a
variety of languages and runs on industry standard platforms.

      Our CineMatch technology uses proprietary algorithms to compare
subscriber movie preferences with preferences of other users contained in our
database. This technology enables us to provide personalized predictions and
movie recommendations unique to each subscriber.

      We believe our dynamic store software optimizes subscriber satisfaction
and the management of our library by integrating CineMatch predictions,
subscribers' current queues and viewing histories, inventory levels and other
factors to determine which movies to merchandise to each subscriber.

      Our proprietary movie search engine indexes our extensive library by
title, actor, director and producer, and sorts them by genre into collections.

      Our account signup and management tools provide a subscriber interface
familiar to online shoppers. We use a real-time postal address validator to
help our subscribers enter correct postal addresses and to determine the
additional postal address fields required to assure speedy and accurate
delivery. We use an online credit card authorization service to help our
subscribers avoid typographic errors in their credit card entries. These
features help prevent fraud and subscriber disappointment resulting from
failures to initiate a trial.

      Throughout our Web site, we have extensive measurement and testing
capabilities, allowing us to continuously optimize our Web site according to
our needs as well as those of our subscribers. We use random control testing
extensively.

      Our Web site is run on hardware and software co-located at a service
provider offering reliable network connections, power, air conditioning and
other essential infrastructure. We manage the Web site 24 hours a day, seven
days a week. We utilize a variety of proprietary software, freely available
tools and commercially supported tools, integrated in a system designed to
rapidly and precisely diagnose and recover from failures. Many of our Web site
systems are redundant, including most of the networking hardware and the Web
servers. We conduct upgrades and installations of software in a manner designed
to minimize disruptions to our subscribers.

MERCHANDIZING

      The key to our merchandizing efforts is the personal recommendations
generated by our CineMatch technology. All subscribers and site visitors are
given many opportunities to rate titles. Based on the ratings we collect, we
are able to determine how a particular subscriber will likely feel about other
titles in our library. We can also generate "average" ratings for titles.

      CineMatch ratings also determine which titles are displayed to a
subscriber and in which order. For example, a list of new releases may be
ranked by user preference rather than by release date, allowing subscribers to
quickly find titles they are more likely to enjoy. Ratings also determine which
titles are featured in lead page positions on our Web site to increase customer
satisfaction and selection activity. Finally, CineMatch data is used to
generate lists of similar titles, which has proved to be a powerful method for
catalogue browsing. Subscribers often start from a familiar title and use our
CineMatch Similars to find other titles they may enjoy.

      Recommendations are available to anyone who has rated titles on our Web
site, whether or not they are a subscriber. By aggregating the ratings of our
subscribers and other visitors, we have built what we believe to be the world's
largest personal movie ratings database, containing more than 70 million
ratings.

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<PAGE>

      We also provide our subscribers with decision support information about
each title in our library. This information includes:

      .   factual data, including length, rating, cast and crew, special DVD
          features and screen formats;

      .   editorial perspective, including plot synopses, movie trailers and
          reviews written by our editors and by other Netflix subscribers; and

      .   CineMatch data, including personal rating, average rating and other
          similar titles the subscriber may enjoy.

MARKETING

      We have multiple marketing channels through which we attract subscribers
to our service. We compensate the majority of our channel partners on a
pay-for-performance basis. We believe that our paid marketing efforts are
significantly enhanced by the benefits of word-of-mouth advertising, our
subscriber referrals and our active public relations program. Approximately 30%
of our subscribers are referrals from existing subscribers or come from other
unpaid marketing channels. We believe that improvements we have made to the
subscriber experience have enhanced our subscriber acquisition efforts. In a
simple random sample conducted in January 2002, approximately 85% of
respondents said they would be likely to recommend our service to a friend. We
focus our paid marketing efforts on the following channels:

ONLINE ADVERTISING

      Online advertising is our largest paid source of new subscribers. A
significant portion of our subscribers acquired from this channel come from an
affiliate program managed for us by a third party. In addition to our affiliate
program, online advertising encompasses our relationships with online networks,
online brokers and a number of Web sites. We generally pay for our online
advertising based on the success of our affiliates and partners in referring
subscribers to us.

DVD PLAYER MANUFACTURERS

      We have agreements with leading DVD player manufacturers requiring them
to place a Netflix insert inside DVD player boxes that describes our service
and offers a free trial. Our insert advertisements were placed in approximately
84% of all standalone set-top DVD player boxes sold in the United States in
2001. Our DVD player manufacturer relationships include Apex Digital, JVC
Corporation of America, Panasonic Consumer Electronics, Philips Consumer
Electronics, RCA, Samsung, Sanyo-Fischer, Sharp, Sony Electronics and Toshiba.

OTHER CHANNELS

      We also work with a number of other channels on an opportunistic basis.
We have a relationship with a leading consumer electronics and video retailer,
which uses point-of-sale materials and stickers on product packaging to promote
Netflix in its stores.

CONTENT ACQUISITION

      We have entered into revenue sharing arrangements with more than 50
studios and distributors. The arrangements cover six of the top eight studios,
including Buena Vista Home Video, Columbia Tristar Home Entertainment,
Dreamworks International Distribution, Twentieth Century Fox Home
Entertainment, Universal Studios Home Video and Warner Bros. Under these
agreements we generally obtain titles for a low initial cost in exchange for a
commitment to share a percentage of our subscription revenues for a defined
period of time. After the revenue sharing period expires for a title, the
agreements generally grant us the right to acquire for a minimal fee a
percentage of the units for retention or sale by us. The balance of the units
are destroyed or returned to the

                                      37

<PAGE>

originating studio. The principal terms of each agreement are similar in nature
but are generally unique to each studio. In addition to revenue sharing
agreements, we also purchase titles from various studios and distributors,
including Paramount and MGM, and other suppliers, including Ingram
Entertainment, Inc. and Video Product Distributors, on a purchase order basis.

FULFILLMENT OPERATIONS

      We currently stock more than 11,500 titles on more than 2.9 million DVDs.
During January 2002, we shipped to and received from subscribers more than 5.1
million DVDs. We have applied substantial resources developing, maintaining and
testing the proprietary technology that helps us manage the fulfillment of
individual orders and the integration of our Web site, transaction processing
systems, fulfillment operations, inventory levels and coordination of our
distribution centers.

      Our primary fulfillment operation is housed in a 50,000 square foot
facility in San Jose, California. In addition, we operate several regional
distribution centers and are in the process of opening and operating additional
facilities. We estimate the set-up cost of a regional center to be
approximately $60,000. We believe that we can ship up to 500,000 DVDs per day
from our San Jose distribution center and an additional 50,000 DVDs per day
from each of our regional distribution centers.

      We believe our regional distribution centers allow us to improve the
subscription experience for non-San Francisco Bay area subscribers by
shortening the transit time for our DVDs in the U.S. Postal Service. Based on
performance standards established by the U.S. Postal Service for its postal
zones and our planned roll-out of additional regional distribution centers, we
expect to be able to provide one- or two-day delivery service to at least 90%
of the U.S. population by the second half of 2002.

CUSTOMER SERVICE

      We believe that our ability to establish and maintain long-term
relationships with subscribers depends, in part, on the strength of our
customer support and service operations. We encourage and utilize frequent
communication with and feedback from our subscribers in order to continually
improve our Web site and our service. Our customer service center operates 13
hours a day, seven days a week. We utilize email to proactively correspond with
subscribers. We also offer phone support for subscribers who prefer to talk
directly with a customer service representative. We focus on eliminating the
causes of customer support calls and automating certain self-service features
on our Web site, such as the ability to report and correct most shipping
problems. Currently, we support over 10,000 subscribers per customer support
representative. Our customer service operations are housed in our San Jose,
California facility.

COMPETITION

      The market for in-home filmed entertainment is intensely competitive and
subject to rapid change. Many consumers maintain simultaneous relationships
with multiple in-home filmed entertainment providers and can easily shift
spending from one provider to another. For example, consumers may subscribe to
HBO, rent a DVD from Blockbuster, buy a DVD from Wal-Mart and subscribe to
Netflix, or some combination thereof, all in the same month.

      Video rental outlets and retailers against whom we compete include
Blockbuster Video, Hollywood Entertainment, Amazon.com, Wal-Mart and Best Buy.
We believe that we compete with these video rental outlets and movie retailers
primarily on the basis of title selection, convenience and price. We believe
that our subscription service with home delivery and access to our
comprehensive library of titles competes favorably against traditional video
rental outlets.

      We also compete against online DVD sites, such as Rentmydvd.com and
dvdovernight, subscription entertainment services, such as HBO and Showtime,
pay-per-view and VOD providers and cable and satellite

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<PAGE>

providers. We believe we are able to provide greater subscriber satisfaction
due to our vast library, proprietary technology and extensive database of
subscriber preferences.

      VOD has received considerable media attention. VOD is now widely deployed
in most major hotels, and has early deployments in many major cable systems.
Within a few years, we believe VOD will become widely available to digital
cable and satellite subscribers. VOD carries as many titles as can be
effectively merchandized on a set-top box platform, generally up to 100 recent
releases, plus adult content. For consumers who primarily want the latest big
releases, VOD may be a convenient distribution channel. We believe that our
strategy of developing a large and growing subscriber base positions us
favorably to provide digital distribution of filmed entertainment as that
market develops.

EMPLOYEES

      As of December 31, 2001, we had 264 full-time employees. We utilize
part-time and temporary employees to respond to fluctuating seasonal demand for
DVD shipments. Our employees are not covered by a collective bargaining
agreement and we consider our relations with our employees to be good.

INTELLECTUAL PROPERTY

      We use a combination of trademark, copyright and trade secret laws and
confidentiality agreements to protect our proprietary intellectual property. We
have applied for several trademarks and one patent. Our trademark and patent
applications may not be allowed. Even if these applications are allowed, they
may not provide us a competitive advantage. To date, we have relied primarily
on proprietary processes and know-how to protect our intellectual property
related to our Web site and fulfillment processes. Competitors may challenge
successfully the validity and scope of our trademarks.

      From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We believe that our service offering does not
infringe the intellectual property rights of any third party. However, we
cannot assure you that we will prevail in any intellectual property dispute.

FACILITIES

      Our executive offices are located in Los Gatos, California, where we
lease approximately 25,000 square feet under a lease that expires in October
2005, subject to the right of the lessor to terminate our lease which expires
in 2003. We also lease approximately 50,000 square feet of space in San Jose,
California, where we maintain our customer service center, information
technology operations and primary distribution center under a lease that
expires in December 2004. We also lease a total of approximately 20,000 square
feet in five states, where we operate regional distribution centers.

LEGAL PROCEEDINGS

      We are not a party to any material legal proceedings.

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<PAGE>

                                  MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

      The following table sets forth certain information with respect to our
executive officers, directors and key employees as of February 28, 2002.

<TABLE>
<CAPTION>
              NAME               AGE                           POSITION
              ----               ---                           --------
<S>                              <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
   Reed Hastings................ 41  Chief Executive Officer, President and Chairman of the Board
   W. Barry McCarthy, Jr........ 48  Chief Financial Officer and Secretary
   Thomas R. Dillon............. 58  Vice President of Operations
   Leslie J. Kilgore............ 36  Vice President of Marketing
   Timothy M. Haley(1)(2)....... 47  Director
   Jay C. Hoag(2)............... 43  Director
   A. Robert Pisano(1).......... 58  Director
   Michael N. Schuh(1).......... 58  Director
KEY EMPLOYEES
   Marc B. Randolph............. 43  Vice President of New Markets
   Neil Hunt.................... 40  Vice President of Internet Engineering
   J. Mitchell Lowe............. 49  Vice President of Business Development
   Patricia J. McCord........... 48  Vice President of Human Resources
   Michael Osier................ 39  Vice President of IT Operations
   Ted Sarandos................. 37  Vice President of Content Acquisition
   David Hyman.................. 36  General Counsel
</TABLE>
- --------
(1) Member of the audit committee.
(2) Member of the compensation committee.

      REED HASTINGS has served as our Chief Executive Officer since September
1998, our President since July 1999 and Chairman of the Board since inception.
Mr. Hastings also currently serves as President of the California State Board
of Education. From June 1998 to July 1999, Mr. Hastings served as Chief
Executive Officer of Technology Network, a political service organization for
the technology industry. Mr. Hastings served as Chief Executive Officer of Pure
Atria Software, a maker of software development tools, from its inception in
October 1991 until it was acquired by Rational Software Corporation, a software
development company, in August 1997. Mr. Hastings holds an M.S.C.S. degree from
Stanford University and a B.A. from Bowdoin College.

      W. BARRY MCCARTHY, JR. has served as our Chief Financial Officer since
April 1999 and our Secretary since May 1999. From January 1993 to December
1999, Mr. McCarthy was Senior Vice President and Chief Financial Officer of
Music Choice, a music programming service distributed over direct broadcast
satellite and cable systems. From June 1990 to December 1992, Mr. McCarthy was
Managing Partner of BMP Partners, a financial consulting and advisory firm.
From 1982 to 1990, Mr. McCarthy was an Associate, Vice President and Director
with Credit Suisse First Boston, an investment banking firm. Mr. McCarthy holds
an M.B.A. from The Wharton School of Business at the University of Pennsylvania
and a B.A. from Williams College.

      THOMAS R. DILLON has served as our Vice President of Operations since
April 1999. From January 1998 to April 1999, Mr. Dillon served as Chief
Information Officer at Candescent Technologies Corp., a manufacturer of flat
panel displays. From May 1987 to December 1997, he served as Chief Information
Officer of Seagate Technology, a maker of computer peripherals. Mr. Dillon
currently serves on the board of directors of Tricord Systems, Inc., a
designer, developer and marketer of server appliances. Mr. Dillon holds a B.S.
from the University of Colorado.


                                      40

<PAGE>

      LESLIE J. KILGORE has served as our Vice President of Marketing since
March 2000. From February 1999 to March 2000, Ms. Kilgore served as a Director
of Marketing for Amazon.com, an Internet retailer. Ms. Kilgore served as a
brand manager for The Procter & Gamble Company, a manufacturer and marketer of
consumer products, from August 1992 to February 1999. Ms. Kilgore holds an
M.B.A. from the Stanford University Graduate School of Business and a B.S. from
The Wharton School of Business at the University of Pennsylvania.

      TIMOTHY M. HALEY has served as one of our directors since June 1998. Mr.
Haley is a co-founder of Redpoint Ventures, a venture capital firm, and has
been a Managing Director of the firm since November 1999. Mr. Haley has been a
Managing Director of Institutional Venture Partners, a venture capital firm,
since February 1998. From June 1986 to February 1998, Mr. Haley was the
President of Haley Associates, an executive recruiting firm in the high
technology industry. Mr. Haley currently serves on the Board of Directors of
several private companies. Mr. Haley holds a B.A. from Santa Clara University.

      JAY C. HOAG has served as one of our directors since June 1999. Since
June 1995, Mr. Hoag has been a General Partner at Technology Crossover
Ventures, a venture capital firm. Mr. Hoag serves on the board of directors of
EXE Technologies, Inc., eLoyalty Corporation, Expedia, Inc. and several private
companies. Mr. Hoag holds an M.B.A. from the University of Michigan and a B.A.
from Northwestern University.

      A. ROBERT PISANO has served as one of our directors since April 2000.
Since September 2001, Mr. Pisano has been the National Executive Director and
Chief Executive Officer of the Screen Actors Guild. From August 1993 to April
1999, Mr. Pisano served as Executive Vice President, and the Vice Chairman and
Director of Metro-Goldwyn-Mayer Inc., a motion picture and television studio.
Mr. Pisano holds an LL.B. from the Boalt Hall School of Law at the University
of California, Berkeley and a B.A. from San Jose State University.

      MICHAEL N. SCHUH has served as one of our directors since February 1999.
From August 1998 to the present, Mr. Schuh has served as a member of Foundation
Capital, a venture capital firm. Prior to joining Foundation Capital, Mr. Schuh
was a founder and Chief Executive Officer of Intrinsa Corporation, a supplier
of productivity solutions for software development organizations from 1994 to
1998. Mr. Schuh serves on the board of directors of several private companies.
Mr. Schuh holds a B.S.E.E. from the University of Maryland.

      MARC B. RANDOLPH has served as our Vice President of New Markets since
December 2001, as our Executive Producer since from October 1998 to November
2001, as our President and Chief Executive Officer from August 1997 to
September 1998 and as a member of our board of directors from inception to
February 2002. From October 1996 to August 1997, Mr. Randolph served as Vice
President of Marketing for IntegrityQA, a maker of software development tools,
and its successor, Pure Atria Software. Mr. Randolph holds a B.A. from Hamilton
College.

      NEIL HUNT has served as our Vice President of Internet Engineering since
January 1999. From August 1997 to January 1999, Mr. Hunt served as a Director
of Engineering of Rational Software Corporation, and from April 1992 to August
1997, in various engineering roles for its predecessor, Pure Atria Software.
Mr. Hunt holds a Ph.D. from the University of Aberdeen, U.K and a B.S. from the
University of Durham, U.K.

      J. MITCHELL LOWE has served as our Vice President of Business Development
since February 1998 and was a consultant to Netflix from October 1997 to
February 1998. Mr. Lowe is a founder of and served as Chief Executive Officer
and director of Interaction, Inc., a video rental chain, from January 1984 to
June 2000. Mr. Lowe served on the Board of Directors of the Video Software
Dealers Association from 1991 to 1998 and as its Chairman of the Board from
1996 to 1997.

      PATRICIA J. MCCORD has served as our Vice President of Human Resources
since November 1998. From January 1998 to November 1998, Ms. McCord was a
principal of Patty McCord Consulting, consulting various startup businesses.
From June 1994 to July 1997, Ms. McCord served as Director of Human Resources
at Rational Software Corporation and Pure Atria Software.

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<PAGE>

      MICHAEL OSIER has served as our Vice President of IT Operations since
March 2000. From July 1997 to March 2000, Mr. Osier served as Director of
Enterprise Operations for Quantum Corporation, a supplier of tape drives. From
March 1995 to July 1997 Mr. Osier served as Senior Manager for Conner
Peripherals, a storage company and Seagate Technologies.

      TED SARANDOS has served as our Vice President of Content Acquisitions
since March 2000. From May 1999 to March 2000, Mr. Sarandos served as Vice
President of Product and Merchandising at Video City, a video rental company.
From 1993 to May 1999, Mr. Sarandos served as Western Regional Director of
Sales and Operations for ETD, a video rental company.

      DAVID HYMAN has served as our general counsel since February 2002. From
August 1999 to February 2002, Mr. Hyman served as General Counsel and Senior
Corporate Counsel for Webvan Group, Inc., an Internet retailer. From November
1995 to August 1999, Mr. Hyman served as an associate at Morrison & Foerster
LLP, a law firm. Mr. Hyman holds a J.D. from the University of Virginia School
of Law and a B.A. from the University of Virginia.

CLASSIFIED BOARD OF DIRECTORS

      Our certificate of incorporation will provide for a classified board of
directors consisting of three classes of directors, each serving staggered
three year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, one of the nominees to the board will be elected
to a one year term, two will be elected to two year terms and two will be
elected to three-year terms. Thereafter, directors will be elected for three
year terms. Mr. Pisano has been designated a Class I director whose term
expires at the 2003 annual meeting of stockholders. Messrs. Schuh and Haley
have been designated Class II directors whose term expires at the 2004 annual
meeting of stockholders. Messrs. Hastings and Hoag have been designated Class
III directors whose term expires at the 2005 annual meeting of stockholders.

      Our executive officers are appointed by the board of directors on an
annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of our directors or
executive officers.

BOARD COMMITTEES

      We established an audit committee and compensation committee in March
2000.

      Our audit committee consists of Messrs. Haley, Pisano and Schuh. The
audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants.

      Our compensation committee consists of Messrs. Haley and Hoag. The
compensation committee reviews and recommends to the board of directors the
compensation and benefits of our employees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      No member of our board of directors or compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of
directors or compensation committee.

DIRECTOR COMPENSATION

      In September 2001, we granted A. Robert Pisano an option to purchase
100,000 shares of our common stock. In June 2000, we granted Mr. Pisano an
option to purchase 100,000 shares of our common stock. This option was repriced
in September 2001. These options now have an exercise price of $1.00 per share
and expire ten years after the date of grant. We do not currently have a plan
to compensate our directors for their service as members of the board of
directors.

                                      42

<PAGE>

EXECUTIVE COMPENSATION

      The table below summarizes the compensation earned for services rendered
to Netflix in all capacities for each of the years in the three-year period
ended December 31, 2001 by our Chief Executive Officer and our executive
officers in 2001. These executives are referred to as the named executive
officers elsewhere in this prospectus.

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                             LONG-TERM
                                                                            COMPENSATION
                                                                               AWARDS
                                                                            ------------
                                                                             SECURITIES       ALL
                                                                             UNDERLYING      OTHER
                NAME AND PRINCIPAL POSITIONS                  YEAR  SALARY    OPTIONS     COMPENSATION
                ----------------------------                  ---- -------- ------------  ------------
<S>                                                           <C>  <C>      <C>           <C>
Reed Hastings(1)............................................. 2001 $ 13,800  1,500,000      $    --
   Chief Executive Officer, President, Chairman of the Board  2000   13,800         --           --
                                                              1999   15,510         --           --

W. Barry McCarthy, Jr........................................ 2001  200,000    305,000        3,501(2)
   Chief Financial Officer                                    2000  196,538         --       64,794(3)
                                                              1999  131,540    330,000       32,451(4)

Thomas R. Dillon............................................. 2001  200,000    583,000(5)     5,389(6)
   Vice President of Operations                               2000  195,962     50,000          774(7)
                                                              1999  131,250    330,000           --

Leslie J. Kilgore............................................ 2001  190,000    853,000(8)     3,914(9)
   Vice President of Marketing                                2000  141,038    350,000       64,168(10)
                                                              1999       --         --           --
Marc B. Randolph(11)......................................... 2001  200,000    500,000        2,315(12)
   Vice President of New Markets                              2000  196,538         --          180(7)
                                                              1999  169,768         --           --
</TABLE>
- --------
 (1) Mr. Hastings' annual salary for 2002 has been increased to $200,000.
 (2) Includes $3,231 representing our matching contribution made under our
     401(k) plan and $270 for taxable amounts attributable to Mr. McCarthy
     under our group term life insurance policy.
 (3) Includes $64,524 representing taxable amounts attributable to Mr. McCarthy
     for relocation expenses paid by us and $270 for taxable amounts
     attributable to Mr. McCarthy under our group term life insurance policy.
 (4) Includes amounts attributable to Mr. McCarthy for relocation expenses paid
     by us.
 (5) Includes 105,000 shares underlying options that were repriced in January
     2001 and 155,000 shares underlying options that were repriced in August
     2001. The options repriced in January 2001 were originally granted to Mr.
     Dillon in December 1999 and the options repriced in August 2001 include
     the options repriced in January 2001 and the options granted to Mr. Dillon
     in August 2000.
 (6) Includes $4,615 representing our matching contribution made under our
     401(k) plan and $774 for taxable amounts attributable to Mr. Dillon under
     our group term life insurance policy.
 (7) Includes taxable amounts attributable to the employee under our group term
     life insurance policy.
 (8) Includes 300,000 shares underlying options that were repriced in January
     2001 and 350,000 shares underlying options that were repriced in August
     2001. The options repriced in January 2001 were originally granted to Ms.
     Kilgore in March 2000 and the options repriced in August 2001 include the
     options repriced in January 2001 and an additional option granted to Ms.
     Kilgore in August 2000.
 (9) Includes $3,752 representing our matching contribution made under our
     401(k) plan and $162 for taxable amounts attributable to Ms. Kilgore under
     our group term life insurance policy.
(10) Includes $64,043 representing amounts attributable to Ms. Kilgore for
     relocation expenses paid by us and $125 for taxable amounts attributable
     to Ms. Kilgore under our group term life insurance policy.
(11) Mr. Randolph is no longer one of our executive officers.
(12) Includes $2,135 representing our matching contribution made under our
     401(k) plan and $180 for taxable amounts attributable to Mr. Randolph
     under our group term life insurance policy.

                                      43

<PAGE>

OPTION GRANTS DURING LAST FISCAL YEAR

      The following table sets forth certain information with respect to stock
options granted to each of the named executive officers in the year ended
December 31, 2001. The potential realizable value is calculated based on the
term of the option, which is ten years and an assumed initial public offering
price of $       and assumed rates of stock appreciation of 5% and 10%,
compounded annually. These assumed rates of appreciation comply with the rules
of the Securities and Exchange Commission and do not represent our estimate of
future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock.

      In 2001, we granted options to purchase an aggregate of 10,372,978 shares
to employees, including the repricing of options to purchase 1,354,600 shares
in January 2001 and options to purchase 2,641,386 shares in August 2001. All
options have a term of ten years. Optionees may pay the exercise price of their
options by cash, check, promissory note or delivery of already-owned shares of
our common stock. All options are immediately exercisable upon grant for
restricted stock which is subject to repurchase by us at cost in the event of
the optionee's termination of employment for any reason (including death or
disability) to the extent our right of repurchase has not lapsed. See
"--Employment Agreements and Change in Control Arrangements." Most options vest
over four years, with 25% of the options vesting on the date one year after the
vesting commencement date, and 1/48th of the remaining options vesting each
month thereafter.

<TABLE>
<CAPTION>
                                                                               POTENTIAL REALIZABLE
                                                                                 VALUE AT ASSUMED
                                                                               ANNUAL RATES OF STOCK
                                                                                PRICE APPRECIATION
                                             INDIVIDUAL GRANTS                    FOR OPTION TERM
                              ------------------------------------------------ ---------------------
                                              % OF TOTAL
                                                OPTIONS
                                 NUMBER OF    GRANTED TO
                                SECURITIES     EMPLOYEES  EXERCISE
                                UNDERLYING      IN LAST     PRICE   EXPIRATION
NAME                          OPTIONS GRANTED FISCAL YEAR PER SHARE    DATE        5%        10%
- ----                          --------------- ----------- --------- ----------  --------   --------
<S>                           <C>             <C>         <C>       <C>        <C>        <C>
Reed Hastings................    1,500,000       14.5%      $1.00    07/18/11  $          $
W. Barry McCarthy, Jr........      305,000(1)     3.0        1.00    07/18/11
Thomas R. Dillon.............      583,000(2)     5.6        1.00    07/18/11
Leslie J. Kilgore............      853,000(3)     8.2        1.00    07/18/11
Marc B. Randolph.............      500,000        4.8        1.00    07/18/11
</TABLE>
- --------
(1) Mr. McCarthy disclaims beneficial ownership of 23,400 shares of common
    stock underlying these options. See "Principal Stockholders."
(2) Includes 105,000 shares underlying options that were repriced in January
    2001 and 155,000 shares underlying options that were repriced in August
    2001. The options repriced in January 2001 were originally granted to Mr.
    Dillon in December 1999 and the options repriced in August 2001 include the
    options repriced in January 2001 and the options granted to Mr. Dillon in
    August 2000.
(3) Includes 300,000 shares underlying options that were repriced in January
    2001 and 350,000 shares underlying options that were repriced in August
    2001. The options repriced in January 2001 were originally granted to Ms.
    Kilgore in March 2000 and the options repriced in August 2001 include the
    options repriced in January 2001 and an additional option granted to Ms.
    Kilgore in August 2000.

                                      44

<PAGE>

AGGREGATE OPTION EXERCISES DURING THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES

      The following table sets forth information with respect to the named
executive officers concerning option exercises for the year ended December 31,
2001, and exercisable and unexercisable options held as of December 31, 2001.

      The "Value of Unexercised In-the-Money Options at December 31, 2001" is
based on an assumed initial public offering price of $       per share, less
the per share exercise price of the option multiplied by the number of shares
issued upon exercise of the option.

<TABLE>
<CAPTION>
                                                   NUMBER OF SECURITIES
                                                        UNDERLYING            VALUE OF UNEXERCISED
                               SHARES             UNEXERCISED OPTIONS AT     IN-THE-MONEY OPTIONS AT
                              ACQUIRED               DECEMBER 31, 2001          DECEMBER 31, 2001
- -                                ON     VALUE   ------------------------    -------------------------
NAME                          EXERCISE REALIZED UNEXERCISABLE EXERCISABLE   UNEXERCISABLE EXERCISABLE
- ----                          -------- -------- ------------- -----------   ------------- -----------
<S>                           <C>      <C>      <C>           <C>           <C>           <C>
Reed Hastings................      --    $ --        --        1,500,000        $ --          $
W. Barry McCarthy, Jr........  30,000      --        --          585,000(1)       --
Thomas R. Dillon.............      --      --        --          703,000          --
Leslie J. Kilgore............      --      --        --          553,000          --
Marc B. Randolph.............      --      --        --          500,000          --
</TABLE>
- --------
(1) Mr. McCarthy disclaims beneficial ownership of 127,992 shares of common
    stock underlying these options. See "Principal Stockholders."

COMPENSATION PLANS

1997 STOCK PLAN

      Our 1997 Stock Plan was adopted by our board of directors and approved by
our stockholders in 1997 and was last amended and restated in October 2001. Our
1997 Stock Plan provided for the grant of incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code, to our employees, and for
the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants. The number of shares reserved under our
1997 Stock Plan will be reduced at the effective time of this offering in an
amount equal to the number of shares then reserved for issuance, but not yet
granted. Shares returned to the 1997 Stock Plan after this offering will be
available for issuance at the discretion of our board of directors. As of
February 28, 2002, we had reserved a total of 11,198,864 shares of our common
stock for issuance pursuant to outstanding and unexercised options and an
additional 1,331,456 shares available for future option grants.

      Our 1997 Stock Plan provides that in the event of a merger or sale of
substantially all of the assets, the successor corporation will assume or
substitute each option or stock purchase right. If the outstanding options or
stock purchase rights are not assumed or substituted, the administrator will
provide notice to the optionee that he or she has the right to exercise the
option or stock purchase right as to all of the shares subject to the option or
stock purchase right, including shares which would not otherwise be
exercisable, for a period of 15 days from the date of the notice. The option or
stock purchase right will terminate upon the expiration of the 15-day period.
In addition, if, within 12 months of a merger or sale of assets, a holder of an
option under our 1997 Stock Plan is terminated involuntarily other than for
cause, the vesting schedule for such holder's option will accelerate with
respect to an amount of shares equal to the number of shares that would
otherwise vest within 12 months after the date of the termination of such
holder.

2002 STOCK PLAN

      Our board of directors adopted the 2002 Stock Plan in February 2002 and
our stockholders approved the 2002 Stock Plan in 2002. The 2002 Stock Plan
provides for the grant of incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, to our employees, and for the grant
of nonstatutory stock options and stock purchase rights to our employees,
directors and consultants.

                                      45

<PAGE>

      NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 2002 STOCK PLAN.  We
have reserved 2,000,000 shares of our common stock for issuance pursuant to the
2002 Stock Plan, in addition to the number of shares which have been reserved
but not issued under our 1997 Stock Plan as of the effective date of this
offering. In addition, our 2002 Stock Plan provides for annual increases in the
number of shares available for issuance under our 2002 Stock Plan on the first
day of each fiscal year, beginning with our fiscal year 2003, equal to the
lesser of 5% of the outstanding shares of common stock on the first day of the
applicable fiscal year, 3,000,000 shares, and another amount as our board of
directors may determine.

      ADMINISTRATION OF THE 2002 STOCK PLAN.  Our board of directors or, with
respect to different groups of optionees, different committees appointed by our
board, will administer the 2002 Stock Plan. In the case of options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Internal Revenue Code, the committee will consist of two or more
"outside directors" within the meaning of Section 162(m). The administrator has
the power to determine the terms of the options and stock purchase rights
granted, not inconsistent with the terms of the 2002 Stock Plan, including the
exercise price (which may be reduced by the administrator after the date of
grant), the number of shares subject to each option or stock purchase right,
the exercisability of the options and stock purchase rights and the form of
consideration payable upon exercise.

      OPTIONS.  The administrator will determine the exercise price of options
granted under the 2002 Stock Plan, but with respect to all incentive stock
options and nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must at least equal the fair market
value of our common stock on the date of grant. The term of an incentive stock
option may not exceed ten years, except that with respect to any participant
who owns 10% of the voting power of all classes of our outstanding capital
stock, the term may not exceed five years and the exercise price must equal at
least 110% of the fair market value on the grant date. The administrator
determines the term of all other options.

      No optionee may be granted an option to purchase more than 1,500,000
shares in any fiscal year. In connection with his or her initial service as an
employee, an optionee may be granted an option to purchase up to an additional
500,000 shares.

      After termination of employment, a participant may exercise his or her
option for the period of time stated in the option agreement. Generally, if
termination is due to death or disability, the option will remain exercisable
for 12 months. In all other cases, the option will generally remain exercisable
for three months. However, an option may never be exercised later than the
expiration of its term.

      STOCK PURCHASE RIGHTS.  Stock purchase rights, which represent the right
to purchase our common stock, may be issued under our 2002 Stock Plan. The
administrator will determine the purchase price of stock purchase rights
granted under our 2002 Stock Plan. Unless the administrator determines
otherwise, a restricted stock purchase agreement will grant us a repurchase
option that we may exercise upon the voluntary or involuntary termination of
the purchaser's service with us for any reason, including death or disability.
The purchase price for shares we repurchase will generally be the original
price paid by the purchaser and may be paid by cancellation of any indebtedness
of the purchaser to us. The administrator determines the rate at which our
repurchase option will lapse.

      TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.  Unless otherwise
determined by the administrator, our 2002 Stock Plan generally does not allow
for the transfer of options or stock purchase rights and only the optionee may
exercise an option or stock purchase right during his or her lifetime.

      ADJUSTMENTS UPON CHANGE IN CONTROL.  Our 2002 Stock Plan provides that in
the event of a change in control, the successor corporation will assume or
substitute each option or stock purchase right. If the outstanding options or
stock purchase rights are not assumed or substituted, the administrator will
provide notice to the optionee that he or she has the right to exercise the
option or stock purchase right as to all of the shares subject to the option

                                      46

<PAGE>

or stock purchase right, including shares which would not otherwise be
exercisable, for a period of 15 days from the date of the notice. The option or
stock purchase right will terminate upon the expiration of the 15-day period.

      AMENDMENT AND TERMINATION OF THE 2002 STOCK PLAN.  Our 2002 Stock Plan
will automatically terminate in 2012, unless we terminate it sooner. In
addition, our board of directors has the authority to amend, suspend or
terminate the 2002 Stock Plan provided it does not impair the rights of any
optionee.

2002 EMPLOYEE STOCK PURCHASE PLAN

      Concurrently with this offering, we intend to implement an employee stock
purchase plan. Our board of directors adopted the 2002 Employee Stock Purchase
Plan in February 2002 and our stockholders approved our 2002 Employee Stock
Purchase Plan in 2002.

      NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 2002 EMPLOYEE STOCK
PURCHASE PLAN.  A total of 1,750,000 shares of our common stock will be made
available for sale under the 2002 Employee Stock Purchase Plan. In addition,
the plan provides for annual increases in the number of shares available for
issuance under the 2002 Employee Stock Purchase Plan on the first day of each
fiscal year, beginning with our fiscal year 2003, equal to the lesser of:

      .   2% of the outstanding shares of our common stock on the first day of
          the applicable fiscal year;

      .   1,000,000 shares; and

      .   such other amount as our board may determine.

      ADMINISTRATION OF THE 2002 EMPLOYEE STOCK PURCHASE PLAN.  Our board of
directors or a committee established by our board will administer the 2002
Employee Stock Purchase Plan. Our board of directors or its committee has full
and exclusive authority to interpret the terms of the plan and determine
eligibility.

      ELIGIBILITY TO PARTICIPATE.  Our employees and employees of future
designated subsidiaries are eligible to participate in the 2002 Employee Stock
Purchase Plan if they are customarily employed for at least 20 hours per week
and more than five months in any calendar year. However, an employee may not be
granted an option to purchase stock under the 2002 Employee Stock Purchase Plan
if:

      .   the employee immediately after grant owns stock possessing 5% or more
          of the total combined voting power or value of all classes of our
          capital stock, or

      .   the employee's rights to purchase stock under all of our employee
          stock purchase plans accrues at a rate that exceeds $25,000 worth of
          stock for each calendar year.

      OFFERING PERIODS AND CONTRIBUTIONS.  Our 2002 Employee Stock Purchase
Plan is intended to qualify under Section 423 of the Internal Revenue Code and
contains consecutive, overlapping 24-month offering periods. Each offering
period includes four six-month purchase periods. The offering periods generally
start on the first trading day on or after May 1 and November 1 of each year,
except for the first such offering period which will commence on the first
trading day on or after the effective date of this offering and most likely
will end on the first trading day on or after May 1, 2004 and the second
offering period which will commence on November 1, 2002. All eligible employees
automatically will be enrolled in the first offering period, but payroll
deductions and continued participation in the first offering period will not be
determined until after the effective date of the Form S-8 registration
statement which is intended to register the shares reserved for issuance under
the plan. The plan permits participants to purchase common stock through
payroll deductions of up to 15% of their eligible compensation which generally
includes a participant's base salary, commissions, overtime pay, shift premium,
incentive compensation, incentive payments and bonuses, but excludes all other
compensation. A participant may purchase a maximum of 12,500 shares during a
six-month purchase period.

      PURCHASE OF SHARES.  Amounts deducted and accumulated by the participant
are used to purchase shares of our common stock at the end of each six-month
purchase period. The price is 85% of the lower of the fair

                                      47

<PAGE>

market value of our common stock at the beginning of an offering period or at
the end of a purchase period. If the fair market value at the end of a purchase
period is less than the fair market value at the beginning of the offering
period, participants will be withdrawn from the current offering period
following their purchase of shares on the purchase date and automatically will
be re-enrolled in a new offering period. Participants may end their
participation at any time during an offering period, and will be paid their
payroll deductions to date. Participation ends automatically upon termination
of employment with us.

      TRANSFERABILITY OF RIGHTS.  A participant may not transfer rights granted
under the 2002 Employee Stock Purchase Plan other than by will, the laws of
descent and distribution or as otherwise provided under the plan.

      ADJUSTMENTS UPON CHANGE IN CONTROL.  In the event of a change in control,
a successor corporation may assume or substitute each outstanding option. If
the successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened, and a new
exercise date will be set, which shall be before the date of the proposed
change in control. In such event, the administrator will provide notice of the
new exercise date to each optionee at least ten business days before the new
exercise date.

      AMENDMENT AND TERMINATION OF THE 2002 EMPLOYEE STOCK PURCHASE PLAN.  The
administrator has the authority to amend or terminate our plan, except that,
subject to certain exceptions described in the 2002 Employee Stock Purchase
Plan, no such action may adversely affect any outstanding rights to purchase
stock under the plan.

401(K) RETIREMENT PLAN

      On January 1, 1998, we adopted the Netflix 401(k) Retirement Plan which
covers all of our eligible employees who are at least 21 years old and have
completed one month of service with us. The 401(k) Plan currently excludes from
participation employees of affiliated employers, employees under a collective
bargaining agreement and nonresident alien employees. The 401(k) Plan is
intended to qualify under Sections 401(a), 401(m) and 401(k) of the Internal
Revenue Code and the 401(k) Plan trust is intended to qualify under Section
501(a) of the Internal Revenue Code. All contributions to the 401(k) Plan by
eligible employees, and the investment earnings thereon, are not taxable to
such employees until withdrawn and are 100% vested immediately. Our eligible
employees may elect to reduce their current compensation up to the maximum
statutorily prescribed annual limit and to have such salary reductions
contributed on their behalf to the 401(k) Plan.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

      In a change in control, if the options under our amended and restated
1997 Stock Plan are not assumed or substituted for, each outstanding option
will fully vest and become immediately exercisable. In addition, if, within 12
months of a change in control, a holder of an option under our amended and
restated 1997 Stock Plan is terminated involuntarily other than for cause, the
vesting schedule for such holder's option will accelerate with respect to an
amount of shares equal to the number of shares that would otherwise vest over
the following 12 months.

      In April 1999, our board of directors awarded W. Barry McCarthy, Jr. an
option to purchase 330,000 shares of our common stock under a stock option
agreement. One-quarter of the shares underlying Mr. McCarthy's option vested in
April 2000 and 1/48 of the total shares vest each month thereafter. Pursuant to
an offer letter from us to Mr. McCarthy, upon a change of control of Netflix,
the vesting schedule will accelerate with respect to an amount of shares equal
to the number of shares that would otherwise vest over the following 12 months
or 50% of the unvested options, whichever is greater. All of the shares
underlying this option will be fully vested on April 14, 2003, subject to Mr.
McCarthy continuing to be our employee through that date.

      In March 1999, our board of directors awarded Tom Dillon an option to
purchase 225,000 shares of our common stock under a stock option agreement.
One-quarter of the shares underlying Mr. Dillon's option vested

                                      48

<PAGE>

in March 2000 and 1/48th of the total shares vest each month thereafter.
Pursuant to an offer letter from us to Mr. Dillon, if, upon a change of control
of Netflix, Mr. Dillon is terminated, the vesting schedule will accelerate with
respect to an amount of shares equal to the number of shares that would
otherwise vest over the following 12 months. In the event that Mr. Dillon's
employment is terminated by us not for cause, Mr. Dillon will be entitled to
severance of three months continued salary and benefits. In addition, Mr.
Dillon is entitled to an annual bonus targeted at $15,000 based on our
performance.

      In March 2000, our board of directors awarded Leslie Kilgore an option to
purchase 300,000 shares of our common stock under a stock option agreement.
One-quarter of the shares underlying Ms. Kilgore's option were to vest in March
2001 and 1/48 of the total shares each month thereafter. In January 2001,
Ms. Kilgore's options were repriced and the terms adjusted such that
one-quarter of the shares underlying Ms. Kilgore's option vested in December
2000 and 1/48 of the total shares vest each month thereafter. Pursuant to an
offer letter from us to Ms. Kilgore, if, upon a change of control of Netflix,
Ms. Kilgore is involuntarily terminated or her role within the subsequent
company is substantially and materially altered without her consent, the
vesting schedule will accelerate with respect to an amount of shares equal to
the number of shares that would otherwise vest over the following 12 months.
All of the shares underlying Ms. Kilgore's option will be fully vested on
December 20, 2004, subject to Ms. Kilgore continuing to be our employee through
that date. In the event that Ms. Kilgore's employment is terminated by us not
for cause, Ms. Kilgore will be entitled to severance of three months continued
salary and benefits.

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

      Our certificate of incorporation provides that our directors will not be
personally liable to us or our stockholders for monetary damages for breach of
their fiduciary duties as directors, except liability for any of the following:

      .   any breach of their duty of loyalty to the corporation or its
          stockholders;

      .   acts or omissions not in good faith or which involve intentional
          misconduct or a knowing violation of law;

      .   payments of dividends or approval of stock repurchases or redemptions
          that are prohibited by Delaware law; or

      .   any transaction from which the director derived an improper personal
          benefit.

      This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

      Our certificate of incorporation and bylaws will provide that we shall
indemnify our directors, officers, employees and other agents to the fullest
extent permitted by law. We believe that indemnification under our bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. Our bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether Delaware law would
permit indemnification.

      We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our certificate of
incorporation and bylaws. These agreements, among other things, provide for
indemnification of our directors and officers for expenses, judgments, fines,
penalties and settlement amounts incurred by any such person in any action or
proceeding arising out of such person's services as a director or officer or at
our request.

      We believe that these provisions and agreements are necessary to attract
and retain qualified persons as directors and executive officers. There is no
pending litigation or proceeding involving any of our directors, officers,
employees or agents. We are not aware of any pending or threatened litigation
or proceeding that might result in a claim for indemnification by a director,
officer, employee or agent.

                                      49

<PAGE>

                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SUBORDINATED PROMISSORY NOTE AND WARRANT FINANCING

      In July 2001, we issued $13.0 million aggregate original principal amount
of subordinated promissory notes and warrants to acquire an aggregate of
20,456,866 shares of common stock to raise capital to finance our operations.
The warrants were sold for $0.001 per underlying share of common stock and have
an exercise price of $1.00 per share. The following executive officers, 5%
stockholders and certain family members of our executive officers and directors
participated in the subordinated promissory note and warrant financing:

<TABLE>
<CAPTION>
                                                            PRINCIPAL
                                                            AMOUNT OF  UNDERLYING   AGGREGATE
PURCHASER                                                     NOTES     WARRANTS  CONSIDERATION
- ---------                                                   ---------- ---------- -------------
<S>                                                         <C>        <C>        <C>
Entities affiliated with Technology Crossover Ventures/(1)/ $8,290,287 13,815,411  $8,304,102
Entities affiliated with Foundation Capital................  2,772,388  4,620,067   2,777,008
Entities affiliated with Institutional Venture Partners....  1,670,667  1,670,666   1,672,337
W. Barry McCarthy, Jr......................................     30,000     30,000      30,030
Randolph Randolph..........................................      2,500      2,842       2,503
</TABLE>
- --------
(1)Consists of: (i) TCV II, VOF; (ii) Technology Crossover Ventures II, C.V.;
   (iii) TCV II Strategic Partners, L.P.; (iv) TCV II (Q), L.P.; (v) Technology
   Crossover Ventures II, L.P.; (vi) TCV IV, L.P.; (vii) TCV IV Strategic
   Partners, L.P.; and (viii) TCV Franchise Fund, L.P. These entities hold more
   than 5% of our stock in the aggregate. Jay C. Hoag, one of our directors, is
   the managing member of Technology Crossover Management II, LLC, Technology
   Crossover Management IV, LLC and TCVF Management, LLC. Technology Crossover
   VentureTechnology Crossover Management IV, LLC is the sole general partner
   of Technology Crossover Ventures II, L.P., TCV II (Q), L.P. and TCV II
   Strategic Partners, L.P. and the investment general partner of TCV II, VOF
   and Technology Crossover Ventures II, C.V. Technology Crossover Management
   IV, LLC is the general partner of CV IV, L.P. and TCV IV Strategic Partners,
   L.P. TCVF Management, LLC is the general partner of TCV Franchise Fund, L.P.

      Entities affiliated with Foundation Capital hold more than 5% of our
stock in the aggregate. Michael N. Schuh, one of our directors, is a member of
the limited liability companies that serve as the investment advisers for
certain funds affiliated with Foundation Capital. Entities and persons
affiliated with Institutional Venture Partners hold more than 5% of our stock
in the aggregate. Timothy M. Haley, one of our directors, is a Managing
Director of the limited liability company that serves as the investment adviser
for certain funds related to Institutional Venture Partners. Randolph Randolph
is the brother of Marc B. Randolph, a former director and our Vice President of
New Markets.

PREFERRED STOCK SALES

      SERIES E PREFERRED STOCK.  In April 2000, we sold 5,332,689 shares of
Series E Preferred Stock, at a purchase price of $9.38 per share, and sold
warrants to acquire Series E Preferred Stock, at a purchase price of $0.01 per
underlying share of Series E Preferred Stock, to raise capital to finance our
operations. The warrants have an exercise price of $14.07 per share. Each share
of Series E Preferred Stock will convert into 2.0441 shares of common stock and
each warrant to purchase shares of Series E Preferred Stock will represent a
warrant to purchase such number of shares of common stock multiplied by 2.0441
upon completion of this offering. The following 5% stockholders and certain
family members of our executive officers and directors purchased shares and
warrants in that financing:

<TABLE>
<CAPTION>
                                                                        SHARES
                                                             NUMBER   UNDERLYING   AGGREGATE
PURCHASER                                                   OF SHARES  WARRANTS  CONSIDERATION
- ---------                                                   --------- ---------- -------------
<S>                                                         <C>       <C>        <C>
Entities affiliated with Technology Crossover Ventures/(1)/ 4,359,876  435,988    $40,899,997
Entities affiliated with Foundation Capital................   319,829   31,983      3,000,316
Entities affiliated with Institutional Venture Partners....   319,829   31,983      3,000,316
Europ@web B.V..............................................   319,829   31,983      3,000,316
Muriel Randolph............................................     5,330      533         50,001
Randolph Randolph..........................................     5,330      533         50,001
</TABLE>

                                      50

<PAGE>

- --------
(1)Consists of: (i) TCV II, VOF; (ii) Technology Crossover Ventures II, C.V.;
   (iii) TCV II Strategic Partners, L.P.; (iv) TCV II (Q), L.P.; (v) Technology
   Crossover Ventures II, L.P.; (vi) TCV IV, L.P.; and (vii) TCV Franchise
   Fund, L.P. Of the shares acquired by TCV IV, L.P., 147,690 of such shares
   were subsequently transferred to TCV IV Strategic Partners, L.P. by TCV IV,
   L.P.

      Europ@web B.V. was a holder of more than 5% of our stock. The shares
purchased by Europ@web were transferred to Finanzas B.V., an affiliate of
Europ@web. Muriel Randolph is the mother of Marc B. Randolph. The shares of
Series E Preferred Stock held by Finanzas, B.V. and Muriel Randolph were
converted into shares of Series E-1 Preferred Stock in connection with our
subordinated promissory note and warrant financing. Other than the warrants to
purchase Series E Preferred Stock held by Finanzas, B.V. and Muriel Randolph,
all warrants to purchase shares of Series E Preferred Stock have been
cancelled. Each share of Series E-1 Preferred Stock will convert into one share
of common stock upon completion of this offering.

      SERIES D PREFERRED STOCK.  In June 1999 and October 1999, we sold an
aggregate of 4,649,927 shares of Series D Preferred Stock, at a purchase price
of $6.52 per share, to raise capital to finance our operations. Each share of
Series D Preferred Stock will convert into 1.4209 shares of common stock upon
completion of this offering. The following 5% stockholders purchased shares in
that financing:

<TABLE>
<CAPTION>
                                                             NUMBER     AGGREGATE
PURCHASER                                                   OF SHARES CONSIDERATION
- ---------                                                   --------- -------------
<S>                                                         <C>       <C>
Forum Holding Amsterdam B.V................................ 4,081,118  $26,608,889
Entities affiliated with Technology Crossover Ventures/(1)/   366,735    2,391,112
Entities affiliated with Foundation Capital................   153,374      999,998
</TABLE>
- --------
(1)Consists of: (i) TCV II, VOF; (ii) Technology Crossover Ventures II, C.V.;
   (iii) TCV II Strategic Partners, L.P.; (iv) TCV II (Q), L.P.; and (v)
   Technology Crossover Ventures II, L.P.

      The shares of Series D Preferred Stock acquired by Forum Holding
Amsterdam B.V. have been transferred to Finanzas, B.V.

      SERIES C PREFERRED STOCK.  In February 1999 and June 1999, we sold an
aggregate of 4,650,269 shares of Series C Preferred Stock, at a purchase price
of $3.27 per share, to raise capital to finance our operations. Each share of
Series C Preferred Stock will convert into 1.3207 shares of common stock upon
completion of this offering. The following 5% stockholders, directors,
executive officers and certain of their family members purchased shares in that
financing:

<TABLE>
<CAPTION>
                                                             NUMBER     AGGREGATE
PURCHASER                                                   OF SHARES CONSIDERATION
- ---------                                                   --------- -------------
<S>                                                         <C>       <C>
Entities affiliated with Foundation Capital................ 1,834,863  $6,000,002
Entities affiliated with Technology Crossover Ventures/(1)/ 1,834,862   5,999,999
Entities affiliated with Institutional Venture Partners....   611,621   2,000,001
Reed Hastings..............................................   234,557     767,001
Muriel Randolph............................................    22,936      75,001
Hastings 1996 Irrevocable Trust............................     9,174      29,999
Wil Hastings...............................................     9,174      29,999
Joan Hastings..............................................     5,505      18,001
</TABLE>
- --------
(1)Consists of: (i) TCV II, VOF; (ii) Technology Crossover Ventures II, C.V.;
   (iii) TCV II Strategic Partners, L.P.; (iv) TCV II (Q), L.P.; and (v)
   Technology Crossover Ventures II, L.P.

      Reed Hastings currently serves as our Chief Executive Officer, President
and Chairman of the Board. Wil Hastings is the father and Joan Hastings is the
mother of Mr. Hastings. Wil and Joan Hastings are the trustees of the Hastings
1996 Irrevocable Trust.

                                      51

<PAGE>

LETTER AGREEMENT WITH CERTAIN STOCKHOLDERS

      In connection with our sale of Series C Preferred Stock in February 1999,
we entered into a letter agreement with Technology Crossover Ventures,
Institutional Venture Partners and Foundation Capital, and in connection with
our sale of Series D Preferred Stock in June 1999, we entered into an amendment
to that letter agreement to add Europ@web as a party. Under this agreement, as
amended, we have agreed to require the managing underwriters in this offering
to offer up to 10% of the shares in this offering to these Series C and Series
D preferred stockholders, subject to compliance with applicable law.

COMMON STOCK SALES

      Since December 31, 1998, we have issued an aggregate of 2,062,000 shares
of our common stock to our executive officers and directors for an aggregate
consideration of $241,100.

                                      52

<PAGE>

                            PRINCIPAL STOCKHOLDERS

      The table below sets forth information regarding the beneficial ownership
of our common stock as of February 28, 2002, by the following individuals or
groups:

      .   each person or entity who is known by us to own beneficially more
          than 5% of our outstanding stock;

      .   each of the named executive officers;

      .   each of our directors; and

      .   all of our directors and executive officers as a group.

      Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to the securities. Except as otherwise indicated, and
subject to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of common
stock held by them. Shares of common stock subject to options or warrants that
are currently exercisable or exercisable within 60 days are deemed to be
outstanding and beneficially owned for the purpose of computing the percentage
ownership of that person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Because all options
granted under our 1997 Stock Plan are exercisable upon grant for restricted
stock, all of the shares of our common stock underlying options held by our
executive officers and directors are deemed to be beneficially owned by such
person. Unless otherwise indicated, the address for each stockholder listed in
the following table is c/o Netflix, Inc., 970 University Avenue, Los Gatos, CA
95032.

      Applicable percentage ownership in the following table is based on
45,129,402 shares of common stock outstanding as of February 28, 2002, pro
forma to reflect the conversion of all outstanding shares of preferred stock
into common stock upon the closing of this offering and the issuance of
additional shares to certain studios immediately prior to the closing of this
offering.

      To the extent that any shares are issued upon exercise of options,
warrants or other rights to acquire our capital stock that are presently
outstanding or granted in the future or reserved for future issuance under our
stock plans, there will be further dilution to new public investors.

                                      53

<PAGE>

<TABLE>
<CAPTION>
                                                                                          PERCENT OF SHARES
                                                                                NUMBER       OUTSTANDING
                                                                              OF SHARES   -----------------
                                                                             BENEFICIALLY  BEFORE   AFTER
                             NAME AND ADDRESS                                   OWNED     OFFERING OFFERING
                             ----------------                                ------------ -------- --------
<S>                                                                          <C>          <C>      <C>
Jay C. Hoag and entities affiliated with Technology Crossover Ventures(1)...  25,671,830    43.6%
  528 Ramona Street
  Palo Alto, CA 94301

Reed Hastings(2)............................................................   9,452,794    20.1

Michael N. Schuh and entities affiliated with Foundation Capital(3).........   7,915,062    15.9
  70 Willow Road, Suite 200
  Menlo Park, CA 94025

Entities affiliated with Institutional Venture Partners(4)..................   6,789,603    14.5
  3000 Sand Hill Road
  Building 2, Suite 290
  Menlo Park, CA 94025

Timothy M. Haley(5).........................................................   6,753,029    14.4
  c/o Redpoint Ventures
  3000 Sand Hill Road
  Building 2, Suite 290
  Menlo Park, CA 94025

Finanzas B.V.(6)............................................................   6,184,065    13.7
  Locatellikade 1
  Parnassustoren
  1076 AZ Amsterdam
  The Netherlands

Marc B. Randolph(7).........................................................   2,522,000     5.5

Leslie J. Kilgore(8)........................................................     962,000     2.1

W. Barry McCarthy, Jr.(9)...................................................     957,000     2.1

Thomas R. Dillon(10)........................................................     946,000     2.1

A. Robert Pisano(11)........................................................     200,000       *

All directors and executive officers as a group (8 persons)(12).............  52,857,715    75.4%
</TABLE>
- --------
  *  Less than 1% of our outstanding shares of common stock.
 (1) Consists of: (i) 1,550,166 shares and a warrant to purchase 1,307,371
     shares held by Technology Crossover Ventures II, L.P.; (ii) 211,500 shares
     and a warrant to purchase 178,374 shares held by TCV II Strategic
     Partners, L.P.; (iii) 236,681 shares and a warrant to purchase 199,610
     shares held by Technology Crossover Ventures II, C.V.; (iv) 1,191,790
     shares and a warrant to purchase 1,005,125 shares held by TCV II (Q),
     L.P.; (v) 50,357 shares and a warrant to purchase 42,470 shares held by
     TCV II, V.O.F.; (vi) 8,096,134 shares and a warrant to purchase 10,413,867
     shares held by TCV IV, L.P.; (vii) 301,893 shares and a warrant to
     purchase 388,319 shares held by TCV IV Strategic Partners, L.P.; and
     (viii) 217,897 shares and a warrant to purchase 280,275 shares held by TCV
     Franchise Fund, L.P. Mr. Hoag is the Managing Member of: (a) Technology
     Crossover Management II, LLC, the General Partner of TCV II (Q), L.P., TCV
     II Strategic Partners, L.P. and Technology Crossover Ventures II, L.P. and
     the Investment General Partner of TCV II, V.O.F. and Technology Crossover
     Ventures II, C.V.; (b) Technology Crossover Management IV, LLC, the
     General Partner of TCV IV, L.P. and TCV IV Strategic Partners, L.P.; and
     (c) TCVF Management, LLC the General Partner of TCV Franchise Fund, L.P.
     Mr. Hoag disclaims beneficial ownership of the shares and warrants held by
     the affiliated entities of Technology Crossover Ventures, except to the
     extent of his pecuniary interest therein.
 (2) Includes options to purchase an aggregate of 1,800,000 shares.

                                      54

<PAGE>

 (3) Consists of: (i) 2,800,750 shares held by Foundation Capital II, L.P.;
     (ii) 329,498 shares held by Foundation Capital II Entrepreneurs Fund, LLC;
     (iii) 164,746 shares held by Foundation Capital II Principals, LLC; (iv) a
     warrant to purchase 4,500,065 shares held by Foundation Capital Leadership
     Fund, L.P.; and (v) a warrant to purchase 120,002 shares held by
     Foundation Capital Leadership Principals Fund, LLC. Mr. Schuh is a Member
     of (a) Foundation Capital Management Co. II, LLC, the Manager of
     Foundation Capital II Entrepreneurs Fund, LLC, the Manager of Foundation
     Capital II Principals Fund, LLC and the General Partner of Foundation
     Capital II, L.P. and (b) FC Leadership Management Co., LLC, the General
     Partner of Foundation Capital Leadership Fund, L.P. and the Manager of
     Foundation Capital Leadership Principals Fund, LLC. Mr. Schuh disclaims
     beneficial ownership of the shares and warrants held by the affiliated
     entities of Foundation Capital, except to the extent of his pecuniary
     interest therein.
 (4) Consists of: (i) 5,003,292 shares and a warrant to purchase 1,639,759
     shares held by Institutional Venture Partners VIII, L.P.; (ii) 62,614
     shares and a warrant to purchase 30,907 shares held by IVM Investment Fund
     VIII, LLC; (iii) 36,574 shares held by IVP Founders Fund I, L.P.; and (iv)
     16,458 shares held by IVM Investment Fund VIII-A, LLC. Institutional
     Venture Management VIII, LLC is the General Partner of Institutional
     Venture Partners VIII, L.P. and the Manager of IVM Investment Fund VIII,
     LLC and IVM Investment Fund VIII-A, LLC. Institutional Venture Management
     VI, L.P. is the General Partner of IVP Founders Fund I, L.P.
 (5) Includes the shares and warrants listed in footnote (4) above, except for
     the 36,574 shares held by IVP Founders I, L.P. Mr. Haley is the Managing
     Director of Institutional Venture Management VIII, LLC, the General
     Partner of Institutional Venture Partners VIII, L.P. and the Manager of
     IVM Investment Fund VIII, LLC and IVM Investment Fund VIII-A, LLC. Mr.
     Haley disclaims beneficial ownership of the shares and warrants held by
     the affiliated entities of Institutional Venture Partners, except to the
     extent of his pecuniary interest therein.
 (6) Includes a warrant to purchase 65,376 shares.
 (7) Includes: (i) 65,000 shares held by Mr. Randolph in his capacity as
     trustee of the Marc & Lorraine Randolph 2000 Logan B. Randolph Trust; (ii)
     65,000 shares held by Mr. Randolph in his capacity as trustee of the Marc
     & Lorraine Randolph 2000 Morgan B. Randolph Trust; (iii) 65,000 shares
     held by Mr. Randolph in his capacity as trustee of the Marc & Lorraine
     Randolph 2000 Hunter B. Randolph Trust; and (iv) options to purchase an
     aggregate of 500,000 shares. Mr. Randolph disclaims beneficial ownership
     of the shares of common stock held of record by each of Marc Randolph,
     Trustee of the Marc & Lorraine Randolph 2000 Logan B. Randolph Trust, Marc
     Randolph, Trustee of the Marc & Lorraine Randolph 2000 Hunter B. Randolph
     Trust and Marc Randolph, Trustee of the Marc & Lorraine Randolph 2000
     Morgan B. Randolph Trust.
 (8) Includes options to purchase an aggregate of 962,000 shares.
 (9) Includes: (i) options to purchase an aggregate of 893,000 shares; (ii) a
     warrant to purchase 30,000 shares; and (iii) 20,000 shares held by W.
     Barry McCarthy, Jr., Trustee of the Peter Dudley McCarthy Trust--2001 u/i
     dtd. December 31, 2001. Mr. McCarthy disclaims beneficial ownership of the
     20,000 shares he holds as Trustee of the Peter Dudley McCarthy Trust--2001
     u/i dtd. December 31, 2001 and 117,992 shares underlying options for which
     he has agreed to transfer investment power.
(10) Includes options to purchase an aggregate of 946,000 shares.
(11) Includes options to purchase an aggregate of 200,000 shares.
(12) Includes the shares, options and warrants listed in footnotes (1) through
     (3), (5) and (8) through (11) above.

                                      55

<PAGE>

                         DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

      Our preferred stock outstanding prior to this offering will automatically
be converted into common stock upon the closing of this offering. We will file
an amended certificate of incorporation to be effective upon the closing of
this offering that creates a new class of preferred stock. No shares of the new
preferred stock will be outstanding upon completion of this offering. Upon the
completion of this offering, we will be authorized to issue 150,000,000 shares
of common stock, $0.001 par value, and 10,000,000 shares of undesignated
preferred stock, $0.001 par value. The following description of our capital
stock is only a summary and is subject to and qualified in its entirety by our
amended certificate of incorporation and bylaws, which are included as exhibits
to the registration statement of which this prospectus forms a part, and by the
applicable provisions of Delaware law.

COMMON STOCK

      As of February 28, 2002, there were 45,129,402 shares of common stock
outstanding which were held of record by approximately 159 stockholders, pro
forma for conversion of all outstanding shares of convertible preferred stock
upon completion of this offering into an aggregate of 38,621,521 shares of
common stock, which will occur upon the closing of this offering.

      Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, common stockholders are entitled
to receive ratably such dividends, if any, as may be declared from time to time
by the board of directors out of funds legally available for that purpose. In
the event of a liquidation, dissolution or winding up of Netflix, the common
stockholders are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding. Common stockholders have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock.

PREFERRED STOCK

      The board of directors is authorized, without action by the stockholders,
to designate and issue preferred stock in one or more series and to designate
the powers, preferences and rights of each series, which may be greater than
the rights of the common stock. It is not possible to state the actual effect
of the issuance of any shares of preferred stock upon the rights of holders of
the common stock until the board of directors determines the specific rights of
the holders of such preferred stock. However, the effects might include, among
other things:

      .   impairing dividend rights of the common stock;

      .   diluting the voting power of the common stock;

      .   impairing the liquidation rights of the common stock; and

      .   delaying or preventing a change in control of us without further
          action by the stockholders.

      Upon the completion of this offering, no shares of preferred stock will
be outstanding, and we have no present plans to issue any shares of preferred
stock.

WARRANTS

      At February 28, 2002, warrants to purchase 21,053,931 shares of our
common stock were outstanding. These warrants generally expire five years from
the date of issue and have an average weighted exercise price of $1.07 per
share.

                                      56

<PAGE>

REGISTRATION RIGHTS

      Following this offering, the holders of shares of common stock are
entitled to the following rights with respect to registration of such shares
under the Securities Act. These rights are provided under the terms of an
agreement between us and the holders of our registrable securities. Beginning
six months following the date of this prospectus, if holders of at least 50% of
the then outstanding registrable securities request that an amount of
registrable securities having a reasonably anticipated aggregate offering price
to the public, before deduction of underwriter discounts and commissions, of at
least $20,000,000 be registered, we may be required, on up to two occasions, to
register their shares for public resale. Also, holders of registrable
securities may require on four separate occasions, but no more than twice
within any 12-month period, that we register their shares for public resale on,
if available, Form S-3 or similar short-form registration if the value of the
securities to be registered is at least $2,000,000. Depending on market
conditions, however, we may defer such registration for up to 90 days.
Furthermore, in the event we elect to register any of our shares of common
stock for purposes of effecting any public offering, the holders of the
registrable securities described above are entitled to include a portion of
their shares of common stock in the registration, but we may reduce the number
of shares proposed to be registered in view of market conditions. All expenses
in connection with any registration, other than underwriting discounts and
commissions, will be borne by us. All registration rights will terminate five
years following the consummation of this offering, or, with respect to each
holder of registrable securities, at such time as the holder is entitled to
sell all of its shares in any three month period under Rule 144 of the
Securities Act.

ANTI-TAKEOVER PROVISIONS

      Certain provisions of Delaware law and our certificate of incorporation
and bylaws could make the following more difficult:

      .   the acquisition of Netflix by means of a tender offer;

      .   acquisition of control of Netflix by means of a proxy contest or
          otherwise; and

      .   the removal of our incumbent officers and directors.

      These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids, and are
designed to encourage persons seeking to acquire control of us to negotiate
with our board of directors. We believe that the benefits of increased
protection against an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging such proposals. Among
other things, negotiation of such proposals could result in an improvement of
their terms.

      DELAWARE ANTI-TAKEOVER LAW.  We are subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved by our board of directors in a prescribed
manner. Generally, a "business combination" includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an
anti-takeover effect with respect to transactions not approved in advance by
the board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.

      ELECTION AND REMOVAL OF DIRECTORS.  Our board of directors is divided
into three classes. The directors in each class will serve for a three-year
term, one class being elected each year by our stockholders. Directors may be
removed only for cause and with the approval of the holders of two-thirds of
our outstanding stock. The board of directors has the exclusive right to
increase or decrease the size of the board and to fill vacancies on the

                                      57

<PAGE>

board. This system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of us,
because it generally makes it more difficult for stockholders to replace a
majority of the directors.

      STOCKHOLDER MEETINGS.  Under our bylaws, only the board of directors, the
chairman of the board, the chief executive officer and the president may call
special meetings of stockholders.

      REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS.  Our bylaws contain advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.

      ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT.  Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting. This provision will make it more difficult for stockholders
to take action opposed by the board of directors

      NO CUMULATIVE VOTING.  Our certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors.

      UNDESIGNATED PREFERRED STOCK.  The authorization of undesignated
preferred stock makes it possible for the board of directors without
stockholder approval to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to obtain control of
us. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management of Netflix.

      AMENDMENT OF PROVISIONS IN THE CERTIFICATE OF INCORPORATION.  The
certificate of incorporation will generally require the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock in order to
amend any provisions of the certificate of incorporation concerning:

      .   the required vote to amend the certificate of incorporation;

      .   management of the business by the board of directors;

      .   the authority of stockholders to act by written consent;

      .   calling of a special meeting of stockholders;

      .   procedure and content of stockholder proposals concerning business to
          be conducted at a meeting of stockholders;

      .   number of directors and structure of the board of directors;

      .   removal and appointment of directors;

      .   director nominations by stockholders;

      .   personal liability of directors to us and our stockholders; and

      .   indemnification of our directors, officers, employees and agents.

TRANSFER AGENT AND REGISTRAR

      The transfer agent and registrar for our common stock is Equiserve Trust
Company, N.A.

NASDAQ NATIONAL MARKET LISTING

      We have applied for listing on the Nasdaq National Market under the
symbol "NFLX."

                                      58

<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

      Prior to this offering, there has been no market for our common stock,
and there can be no assurance that a significant public market for the common
stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair our ability to raise capital through sale of our equity securities. As
described below, no shares currently outstanding will be available for sale
immediately after this offering because of certain contractual restrictions on
resale. Sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.

      Upon completion of this offering, we will have        outstanding shares
of common stock based upon shares outstanding as of February 28, 2002, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants after that date of this offering. Of these
shares,        shares together with the shares sold in this offering will be
freely tradable without restriction under the Securities Act, except for any
shares purchased by our "affiliates" as that term is defined in Rule 144 under
the Securities Act. The remaining shares of common stock held by existing
stockholders are "restricted shares" as that term is defined in Rule 144.
      % of such restricted shares are subject to lock-up agreements providing
that, with certain limited exceptions, the stockholder will not offer, sell,
contract to sell or otherwise dispose of any common stock or any securities
that are convertible into common stock for a period of 180 days after the date
of this prospectus without the prior written consent of Merrill Lynch. As a
result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) or 701, none of
these shares will be resellable until 181 days after the date of this
prospectus. Beginning 181 days after the date of this prospectus, approximately
       restricted shares will be eligible for sale in the public market, all of
which are subject to volume limitations under Rule 144, except        shares
eligible for sale under Rule 144(k) and        shares eligible for sale under
Rule 701. An additional        restricted shares will be eligible for sale
subject to volume limitations, beginning       . In addition, as of February
28, 2002, there were outstanding options to purchase 12,998,864 shares of
common stock and warrants to purchase 21,053,931 shares of common stock.
      % of the shares of common stock underlying such options and warrants are
subject to lock-up agreements. Merrill Lynch may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements.

RULES 144 AND 701

      In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned
Restricted Shares for at least one year including the holding period of any
prior owner except an affiliate of Netflix would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:

      .   1% of the number of shares of common stock then outstanding which
          will equal to approximately shares immediately after this offering;
          and

      .   the average weekly trading volume of the common stock during the four
          calendar weeks preceding the filing of a Form 144 with respect to
          such sale.

      Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have
been our affiliate at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years including the holding period of any prior owner except an affiliate of
Netflix, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.

                                      59

<PAGE>

      Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions. Any employee,
officer, director or consultant who purchased shares under a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, in this offering       % of
Rule 701 shares are subject to lock-up agreements and will only become eligible
for sale at the earlier of the expiration of the 180-day lock-up agreements or
no sooner than 90 days after the offering upon obtaining the prior written
consent of Merrill Lynch.

STOCK OPTIONS

      Following the effectiveness of this offering, we will file a registration
statement on Form S-8 registering shares of common stock subject to outstanding
options and reserved for future issuance under our stock plans. As of February
28, 2002, options to purchase a total of 12,998,864 shares were outstanding. In
addition, a total of 5,081,456 shares were reserved for future issuance under
our 1997 Stock Plan, 2002 Stock Plan and 2002 Employee Stock Purchase Plan.
Common stock issued upon exercise of outstanding vested options or issued under
our 2002 Employee Stock Purchase Plan, other than common stock issued to
affiliates are available for immediate resale in the open market.

REGISTRATION RIGHTS

      Also beginning six months after the date of this prospectus, holders of
       restricted shares and holders of warrants to purchase        shares of
common stock will be entitled to certain demand registration rights for sale in
the public market. Registration of such shares under the Securities Act would
result in such shares becoming freely tradable without restriction under the
Securities Act, except for shares purchased by affiliates, immediately upon the
effectiveness of such registration.

                                      60

<PAGE>

                                 UNDERWRITING

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

<TABLE>
<CAPTION>
                                                                  NUMBER
               UNDERWRITER                                       OF SHARES
               -----------                                       ---------
      <S>                                                        <C>
      Merrill Lynch Pierce Fenner & Smith
               Incorporated.....................................
      Thomas Weisel Partners LLC................................
      U.S. Bancorp Piper Jaffray, Inc...........................
                                                                  -------
               Total............................................
                                                                  =======
</TABLE>

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

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

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

COMMISSIONS AND DISCOUNTS

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

      The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment options.

<TABLE>
<CAPTION>
                                                        PER  WITHOUT  WITH
                                                       SHARE OPTION  OPTION
                                                       ----- ------- ------
     <S>                                               <C>   <C>     <C>
     Public offering price............................   $      $      $
     Underwriting discount............................   $      $      $
     Proceeds, before expenses, to Netflix............   $      $      $
</TABLE>

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

                                      61

<PAGE>

OVER-ALLOTMENT OPTION

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

RESERVED SHARES

      At our request, the underwriters have reserved for sale, at the initial
public offering price, up to       % of the shares offered hereby to be sold to
some of our directors, officers, employees, distributors, dealers, business
associates and related persons. The number of shares of common stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of this offering will be
offered by the underwriters to the general public on the same terms as the
other shares offered in this prospectus.

      In connection with the purchase of our Series C Preferred Stock, we
entered into a letter agreement with Foundation Capital II, L.P., Technology
Crossover Ventures II, L.P. and Institutional Venture Partners VIII, L.P.,
dated February 16, 1999, pursuant to which we agreed to require the managing
underwriter or underwriters of our initial public offering to offer to each of
the foregoing parties the right to purchase, in the aggregate, 10% of the total
shares to be issued by us in this offering. In connection with the purchase of
our Series D Preferred Stock, we amended the letter agreement to add Forum
Holding Amsterdam B.V. as a party. At our request, the underwriters will offer
   % of the shares available for sale in this offering to these investors.

NO SALES OF SIMILAR SECURITIES

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

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

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

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

      .   grant any option, right or warrant for the sale of any common stock;

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

      .   request or demand that we file a registration statement related to
          the common stock; or

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

QUOTATION ON THE NASDAQ NATIONAL MARKET LISTING

      We have applied to list our common stock for quotation on the Nasdaq
National Market under the symbol "NFLX."

                                      62

<PAGE>

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

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

      .   our financial information;

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

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

      .   the present state of our development; and

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

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

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

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

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

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

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

                                      63

<PAGE>

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

                                 LEGAL MATTERS

      The validity of the common stock offered hereby will be passed upon for
us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters will be passed upon for the Underwriters by
Cahill Gordon & Reindel, New York, New York. As of the date of this prospectus,
WS Investment Company 99A, WS Investment Company 98A and WS Investments '97B,
investment partnerships composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as well as certain individual attorneys of this firm, beneficially
own an aggregate of 126,640 shares of our common stock.

                                    EXPERTS

      The financial statements of Netflix, Inc. as of December 31, 2000 and
2001 and for each of the years in the three-year period ended December 31, 2001
appearing in this prospectus and registration statement have been audited by
KPMG LLP, independent auditors, as set forth in their report thereon, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

      We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules which are part of the
registration statement. For further information with respect to us and our
common stock, see the registration statement and the exhibits and schedules
thereto. Any document we file may be read and copied at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information about the
public reference rooms. Our filings with the Commission are also available to
the public from the Commission's Web site at HTTP://WWW.SEC.GOV.

      Upon completion of this offering, we will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934
and, accordingly, will file periodic reports, other reports, proxy statements
and other information with the Commission. Such periodic reports, other
reports, proxy statements and other information will be available for
inspection and copying at the Commission's public reference rooms, and the Web
site of the Commission referred to above.

                                      64

<PAGE>

                                 NETFLIX, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>                                                                                       <C>
Independent Auditors' Report............................................................. F-2

Balance Sheets as of December 31, 2000 and 2001.......................................... F-3

Statements of Operations for the three years ended December 31, 2001..................... F-4

Statements of Stockholders' Deficit for the three years ended December 31, 2001.......... F-5

Statements of Cash Flows for the three years ended December 31, 2001..................... F-6

Notes to Financial Statements............................................................ F-7
</TABLE>

                                      F-1

<PAGE>

                         INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
NETFLIX, INC.

      We have audited the accompanying balance sheets of Netflix, Inc.
(formerly known as NetFlix.com, Inc.) as of December 31, 2000 and 2001, and the
related statements of operations, stockholders' deficit, and cash flows for
each of the years in the three-year period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Netflix, Inc. as of
December 31, 2000 and 2001, and its results of operations and its cash flows
for each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States
of America.

/s/  KPMG LLP

Mountain View, California
February 27, 2002

                                      F-2

<PAGE>

                                 NETFLIX, INC.

                                BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                   AS OF DECEMBER 31,
                                                                                                  --------------------
                                                                                                    2000       2001
                                                                                                  ---------  ---------
<S>                                                                                               <C>        <C>
ASSETS
Current assets:
    Cash and cash equivalents.................................................................... $  14,895  $  16,131
    Prepaid expenses ............................................................................     2,738      1,019
    Prepaid revenue sharing expense..............................................................       636        732
    Other current assets.........................................................................        32      1,670
                                                                                                  ---------  ---------
       Total current assets......................................................................    18,301     19,552

DVD library, net.................................................................................    16,909      3,633
Intangible assets, net...........................................................................     5,582      7,917
Property and equipment, net......................................................................     9,959      8,205
Deposits.........................................................................................       643      1,677
Other assets.....................................................................................     1,094        646
                                                                                                  ---------  ---------
       Total assets.............................................................................. $  52,488  $  41,630
                                                                                                  =========  =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
    Accounts payable............................................................................. $   7,690  $  13,715
    Accrued expenses.............................................................................     5,919      4,544
    Deferred revenue.............................................................................     2,773      4,937
    Current portion of capital lease obligations.................................................     1,282      1,345
    Notes payable................................................................................     2,292      1,667
                                                                                                  ---------  ---------
       Total current liabilities.................................................................    19,956     26,208

Deferred rent....................................................................................       102        240
Capital lease obligations, less current portion..................................................     2,024      1,057
Note payable.....................................................................................     1,843         --
Subordinated notes payable, net of unamortized discount of $10,851 at December 31, 2001..........        --      2,799
                                                                                                  ---------  ---------
       Total liabilities.........................................................................    23,925     30,304

Commitments and contingency (notes 4 and 5)

Redeemable convertible preferred stock (note 6)..................................................   101,830    101,830
Stockholders' deficit (note 7):
  Convertible preferred stock, $0.001 par value; 8,500,000 shares authorized; 4,444,545 and
   6,157,499 shares issued and outstanding at 2000 and 2001, respectively; aggregate liquidation
   preference of $2,222..........................................................................         4          6
  Common stock, $0.001 par value; 100,000,000 shares authorized; 6,407,476 and 6,485,737 shares
   issued and outstanding in 2000 and 2001, respectively;........................................         7          7
  Additional paid-in capital.....................................................................    34,636     49,974
  Deferred stock-based compensation..............................................................   (9,266)     (3,585)
  Accumulated deficit............................................................................  (98,648)   (136,906)
                                                                                                  ---------  ---------
       Total stockholders' deficit...............................................................   (73,267)   (90,504)
                                                                                                  ---------  ---------
       Total liabilities and stockholders' deficit............................................... $  52,488  $  41,630
                                                                                                  =========  =========
</TABLE>

                See accompanying notes to financial statements.

                                      F-3

<PAGE>

                                 NETFLIX, INC.

                           STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                             ----------------------------
                                                                               1999      2000      2001
                                                                             --------  --------  --------
<S>                                                                          <C>       <C>       <C>
Revenues:
   Subscription............................................................. $  4,854  $ 35,894  $ 74,255
   Sales....................................................................      152        --     1,657
                                                                             --------  --------  --------
       Total revenues.......................................................    5,006    35,894    75,912
                                                                             --------  --------  --------
Cost of revenues:
   Subscription.............................................................    4,217    24,861    49,088
   Sales....................................................................      156        --       819
                                                                             --------  --------  --------
       Total cost of revenues...............................................    4,373    24,861    49,907
                                                                             --------  --------  --------
Gross profit................................................................      633    11,033    26,005
                                                                             --------  --------  --------
Operating expenses:
   Fulfillment*.............................................................    2,153     8,267    10,267
   Technology and development*..............................................    7,413    16,823    17,734
   Marketing*...............................................................   14,271    27,707    24,216
   General and administrative*..............................................    2,085     6,990     4,658
   Restructuring charges....................................................       --        --       671
   Stock-based compensation*................................................    4,742     8,803     5,326
                                                                             --------  --------  --------
       Total operating expenses.............................................   30,664    68,590    62,872
                                                                             --------  --------  --------
Operating loss..............................................................  (30,031)  (57,557)  (36,867)
                                                                             --------  --------  --------
Other income (expense):
   Interest and other income................................................      924     1,645       461
   Interest expense.........................................................     (738)   (1,451)   (1,852)
                                                                             --------  --------  --------
Net loss.................................................................... $(29,845) $(57,363) $(38,258)
                                                                             ========  ========  ========

Net loss per share--basic and diluted....................................... $  (5.60) $  (9.71) $  (6.34)
                                                                             ========  ========  ========

Weighted average shares--basic and diluted..................................    5,328     5,907     6,033

*Amortization of stock-based compensation not included in expense line-item:
   Fulfillment.............................................................. $    604  $  1,469  $    705
   Technology and development...............................................      907     2,855     1,788
   Marketing................................................................    1,144     2,679     1,624
   General and administrative...............................................    2,087     1,800     1,209
                                                                             --------  --------  --------
                                                                             $  4,742  $  8,803  $  5,326
                                                                             ========  ========  ========
</TABLE>

                See accompanying notes to financial statements.

                                      F-4

<PAGE>

                                 NETFLIX, INC.

                      STATEMENTS OF STOCKHOLDERS' DEFICIT
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                            CONVERTIBLE
                                          PREFERRED STOCK    COMMON STOCK    ADDITIONAL   DEFERRED                   TOTAL
                                          ---------------- -----------------  PAID-IN   STOCK-BASED  ACCUMULATED STOCKHOLDERS'
                                           SHARES   AMOUNT  SHARES    AMOUNT  CAPITAL   COMPENSATION   DEFICIT      DEFICIT
                                          --------- ------ ---------  ------ ---------- ------------ ----------- -------------
<S>                                       <C>       <C>    <C>        <C>    <C>        <C>          <C>         <C>
Balances as of January 1, 1999........... 4,444,545  $ 4   2,580,250   $ 3    $ 8,100     $ (4,711)   $ (11,440)   $ (8,044)
 Exercise of options and repurchases of
   restricted stock......................        --   --   3,370,911     3        323           --           --         326
 Issuance of common stock upon exercise
   of warrants...........................        --   --     271,489     1         30           --           --          31
 Warrants issued in connection with debt
   financing.............................        --   --          --    --        762           --           --         762
 Deferred stock-based compensation.......        --   --          --    --      6,872       (6,872)          --          --
 Stock-based compensation expense........        --   --          --    --         --        4,742           --       4,742
 Net loss................................        --   --          --    --         --           --      (29,845)    (29,845)
                                          ---------  ---   ---------   ---    -------     --------    ---------    --------
Balances as of December 31, 1999......... 4,444,545  $ 4   6,222,650   $ 7    $16,087     $ (6,841)   $ (41,285)   $(32,028)
 Exercise of options and issuance of
   restricted stock......................        --   --     243,009    --        422           --           --         422
 Repurchase of restricted stock..........        --   --     (79,960)   --       (141)          --           --        (141)
 Issuance of common stock for services
   rendered..............................        --   --      21,777    --        306           --           --         306
 Warrants issued in connection with
   operating lease.......................        --   --          --    --        216           --           --         216
 Warrants issued in connection with
   services rendered.....................        --   --          --    --        285           --           --         285
 Warrants issued in connection with debt
   financing.............................        --   --          --    --        105           --           --         105
 Subscribed Series F non-voting preferred
   stock.................................        --   --          --    --      6,128           --           --       6,128
 Deferred stock-based compensation.......        --   --          --    --     11,228      (11,228)          --          --
 Stock-based compensation expense........        --   --          --    --         --        8,803           --       8,803
 Net loss................................        --   --          --    --         --           --      (57,363)    (57,363)
                                          ---------  ---   ---------   ---    -------     --------    ---------    --------
Balances as of December 31, 2000......... 4,444,545  $ 4   6,407,476   $ 7    $34,636     $ (9,266)   $ (98,648)   $(73,267)
 Exercise of options.....................        --   --      90,137    --        125           --           --         125
 Repurchases of restricted common stock..        --   --     (16,876)   --        (12)          --           --         (12)
 Issuance of common stock in exchange for
   services rendered.....................        --   --       5,000    --         10           --           --          10
 Warrants issued in connection with
   subordinated notes payable............        --   --          --    --     10,884           --           --      10,884
 Warrants issued in connection with
   capital lease obligation..............        --   --          --    --        172           --           --         172
 Warrants issued in exchange for services
   rendered..............................        --   --          --    --         18           --           --          18
 Issued Series F non-voting preferred
   stock................................. 1,712,954    2          --    --      4,279           --           --       4,281
 Subscribed Series F non-voting preferred
   stock.................................        --   --          --    --        217           --           --         217
 Deferred stock-based compensation
   (forfeitures) net.....................        --   --          --    --       (355)         355           --          --
 Stock-based compensation expense........        --   --          --    --         --        5,326           --       5,326
 Net loss................................        --   --          --    --         --           --      (38,258)    (38,258)
                                          ---------  ---   ---------   ---    -------     --------    ---------    --------
Balances as of December 31, 2001......... 6,157,499  $ 6   6,485,737   $ 7    $49,974     $ (3,585)   $(136,906)   $(90,504)
                                          =========  ===   =========   ===    =======     ========    =========    ========
</TABLE>

                See accompanying notes to financial statements.

                                      F-5

<PAGE>

                                 NETFLIX, INC.

                           STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          YEARS ENDED DECEMBER 31,
                                                                                        ----------------------------
                                                                                          1999      2000      2001
                                                                                        --------  --------  --------
<S>                                                                                     <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss........................................................................... $(29,845) $(57,363) $(38,258)
    Adjustments to reconcile net loss to net cash (used in) provided by operating
     activities:
       Depreciation of property and equipment..........................................      884     3,605     5,507
       Amortization of DVD library.....................................................    3,182    15,681    22,127
       Amortization of intangible assets...............................................       --       546     2,163
       Noncash charges for equity instruments granted to non-employees.................       --       598        28
       Stock-based compensation expense................................................    4,742     8,803     5,326
       Loss on disposal of property and equipment......................................       --       145        --
       Noncash interest expense........................................................      398       497     1,017
       Changes in operating assets and liabilities:
          Prepaid expenses and other current assets....................................      (85)   (2,686)      (15)
          Accounts payable.............................................................    2,271     2,356     6,025
          Accrued expenses.............................................................    1,571     2,708    (1,375)
          Deferred revenue.............................................................      353     2,302     2,164
          Deferred rent................................................................       --       102       138
                                                                                        --------  --------  --------
              Net cash (used in) provided by operating activities......................  (16,529)  (22,706)    4,847
                                                                                        --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of short-term investments................................................   (6,322)       --        --
    Proceeds from sale of short-term investments.......................................       --     6,322        --
    Purchases of property and equipment................................................   (3,295)   (6,210)   (3,233)
    Acquisitions of DVD library........................................................   (9,866)  (23,895)   (8,851)
    Deposits and other assets..........................................................     (259)   (1,189)     (586)
                                                                                        --------  --------  --------
              Net cash used in investing activities....................................  (19,742)  (24,972)  (12,670)
                                                                                        --------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of redeemable convertible preferred stock...................   45,498    50,011        --
    Proceeds from issuance of common stock.............................................      357       422       125
    Net proceeds from issuance of subordinated notes payable and detachable warrants...       --        --    12,831
    Repurchases of common stock........................................................       --      (141)      (12)
    Proceeds from issuance of notes payable............................................    5,000        --        --
    Principal payments on notes payable and capital lease obligations..................   (1,447)   (1,917)   (3,885)
                                                                                        --------  --------  --------
              Net cash provided by financing activities................................   49,408    48,375     9,059
                                                                                        --------  --------  --------
Net increase cash and cash equivalents.................................................   13,137       697     1,236
Cash and cash equivalents, beginning of year...........................................    1,061    14,198    14,895
                                                                                        --------  --------  --------
Cash and cash equivalents, end of year................................................. $ 14,198  $ 14,895  $ 16,131
                                                                                        ========  ========  ========
SUPPLEMENTAL DISCLOSURE:
    Cash paid for interest............................................................. $    283  $    948  $    860
                                                                                        ========  ========  ========
    Noncash investing and financing activities:
    Purchase of assets under capital lease obligations................................. $  1,026  $  3,000  $    520
                                                                                        ========  ========  ========
    Discount on capital lease obligation............................................... $    762  $    105  $    172
                                                                                        ========  ========  ========
    Warrants issued as a deposit on an operating lease................................. $     --  $    216  $     --
                                                                                        ========  ========  ========
    Exchange of Series F non-voting convertible preferred stock for intangible asset... $     --  $  6,128  $  4,498
                                                                                        ========  ========  ========
</TABLE>

                See accompanying notes to financial statements

                                      F-6

<PAGE>

                                 NETFLIX, INC.

                         NOTES TO FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

      Netflix, Inc. (the Company), was incorporated on August 29, 1997
(inception) and began operations on April 14, 1998. The Company provides an
online entertainment subscription service providing subscribers access to a
comprehensive library of filmed entertainment titles formatted on digital video
disk (DVD). The standard subscription plan provides subscribers access to an
unlimited number of titles for $19.95 per month with no due dates or late fees.
The subscribers select titles at the Company's website at www.netflix.com.

CASH AND CASH EQUIVALENTS

      The Company considers highly liquid instruments with original maturities
of three months or less, at the date of purchase, to be cash equivalents. The
Company's cash and cash equivalents are principally on deposit in short-term
asset management accounts at three large financial institutions.

DVD LIBRARY

      Historically, the Company purchased DVDs from studios and distributors.
In 2000 and 2001, the Company completed a series of revenue sharing agreements
with several studios which changed the business model for acquiring DVDs and
satisfying subscribers' demand. These revenue sharing agreements enable the
Company to obtain DVDs at a lower up front cost than under traditional buying
arrangements. The Company shares a percentage of the actual net revenues
generated by the use of each particular title with the studios over a fixed
period of time, which is typically 12 months for each DVD title (hereinafter
referred to as the "title term"). At the end of the title term, the Company has
the option of either returning the DVD title to the studio or purchasing the
title. Before the change in business model, the Company typically acquired
fewer copies of a particular title upfront and utilized each copy acquired over
a longer period of time. The implementation of these revenue sharing agreements
improved the Company's ability to obtain larger quantities of newly released
titles and satisfy subscriber demand for such titles over a shorter period of
time.

      In connection with the change in business model, on January 1, 2001, the
Company revised the amortization policy for the cost of its DVD library from an
accelerated method using a three year life to the same accelerated method of
amortization over one year. The change in life has been accounted for as a
change in accounting estimate and is accounted for on a prospective basis from
January 1, 2001. Had the DVDs acquired prior to January 1, 2001 been amortized
using the three year life, amortization expense for 2001 would have been $4.7
million lower than the amount recorded in the accompanying financial
statements, which represents a $0.78 per share impact on loss per share in 2001.

      Under certain revenue sharing agreements the Company remits an upfront
payment to acquire titles from the studios. This payment has two elements. The
first element is an initial fixed license fee that is capitalized and amortized
in accordance with the Company's DVD library amortization policy. The second
element is a prepayment of future revenue sharing obligations. The amount
attributable to the second element is classified as prepaid revenue sharing
expense and is applied against future revenue sharing obligations. A nominal
amount is also capitalized upon acquisition of a particular title for the cost
of the estimated number of DVDs the Company expects to purchase at the end of
the title term. This cost is amortized with the cost of the initial license fee
on an accelerated basis over one year.

      Several studios permit the Company to sell used DVDs upon the expiration
of the title term. For those DVDs that the Company estimates it will sell at
the end of the title term, a salvage value of two-dollars per DVD is provided.
For those DVDs that the Company does not expect to sell, no salvage value is
provided. The

                                      F-7

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Company currently estimates that approximately 15% of DVDs acquired will be
sold at the end of the title term. As of December 31, 2001, the aggregate
salvage value provided was $578.

      During 1999 and 2000, the Company's DVDs were amortized on an accelerated
method (sum of the years digits method) over a period of three years with no
salvage value.

      DVD library and accumulated amortization as of December 31 are as follows:

<TABLE>
<CAPTION>
                                                        AS OF DECEMBER 31,
                                                        ------------------
                                                          2000      2001
                                                         -------  -------
      <S>                                               <C>       <C>
      DVD library...................................... $26,188   $35,039
      Less accumulated amortization....................   9,279    31,406
                                                         -------  -------
      DVD library, net................................. $16,909   $ 3,633
                                                         =======  =======
</TABLE>

INTANGIBLE ASSETS

      During 2000, in connection with revenue sharing agreements with three
studios, the Company agreed to issue each studio an equity interest equal to
1.204% of its fully diluted equity securities outstanding in the form of Series
F Non-Voting Convertible Preferred Stock ("Series F Preferred Stock"). In 2001,
in connection with revenue sharing agreements with two additional studios, the
Company agreed to issue each studio an equity interest of 1.204% of its fully
diluted equity securities outstanding in the form of Series F Preferred Stock.

      As of December 31, 2001, the aggregate equity interests of these five
studios equaled 6.02% of the outstanding fully diluted equity interests. If, at
any time prior to the effective date of an initial public offering, these
interests represent less than 6.02% of the Company's outstanding fully diluted
equity securities, then the Company is obligated to issue additional shares of
Series F Preferred Stock for no additional consideration to maintain those
studios' aggregate fully diluted equity interest at 6.02%. The Series F
Preferred Stock automatically converts into common stock on a one-for-one basis
just prior to the effective date of an initial public offering with at least
$20 million in aggregate gross proceeds. Upon conversion, the Company's
obligation to maintain the studios' equity interests at 6.02% expires.

      The Company measures the original issuances and any subsequent
adjustments using the deemed fair value of the securities at the issuance and
any subsequent adjustment dates. The deemed value is recorded as an intangible
asset and is amortized to cost of subscription revenues ratably over the
remaining term of the agreements which are either three or five years. Total
gross intangible assets related to these agreements as of December 31, 2000 and
2001 was $6,128 and $10,210, respectively. Accumulated amortization as of
December 31, 2000 and 2001 was $546 and $2,622, respectively.

      During 2001, in connection with a strategic marketing alliance agreement,
the Company issued 416,440 shares of Series F Preferred Stock. Under the
agreement, the strategic partner has committed to provide, on a best-efforts
basis, a stipulated number of impressions to a co-branded Web site and the
Company's Web site over a period of 24 months. In addition, the Company is
allowed to use the partner's trademark and logo in marketing the Company's
subscription services. The Company recognized the deemed fair value of these
instruments as an intangible asset with a corresponding credit to additional
paid-in capital. The intangible asset is being amortized on a straight-line
basis to marketing expense over the two year term of the strategic marketing
alliance. The gross intangible asset and accumulated amortization related to
this agreement as of December 31, 2001 was $416 and $87, respectively.

                                      F-8

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


PROPERTY AND EQUIPMENT

      Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the shorter of
the estimated useful lives of the respective assets, generally up to three
years, or the lease term, if applicable.

      The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If such assets are considered to be impaired, the impairment to
be recognized is measured as the difference between the carrying amount of the
long-lived asset and its fair value. Fair value for impairment purposes is
measured based on quoted market prices in active markets; where quoted prices
in active markets are not available, fair value is estimated using undiscounted
estimated cash flows over the remaining life of the respective asset.

CAPITALIZED SOFTWARE COSTS

      The Company capitalizes costs related to developing or obtaining
internal-use software. Capitalization of costs begins after the conceptual
formulation stage has been completed. Capitalized software costs are included
in internal-use software in property and equipment and amortized over the
estimated useful life of the software, which ranges from one to two years.

REVENUE SHARING

      Revenue sharing expense is recorded as DVD's subject to revenue sharing
are shipped to subscribers.

REVENUE RECOGNITION

      Subscription revenues are recognized ratably during each subscriber's
monthly subscription period. Refunds to customers are recorded as a reduction
of revenues. Revenues from sales of DVDs are recorded upon shipment. Prior to
adopting a subscription model, revenues from individual DVD rentals were
recorded upon shipment.

COST OF REVENUES

      Cost of subscription revenues consists of revenue sharing costs,
amortization of the DVD library, amortization of intangible assets related to
equity instruments issued to studios and postage and packaging costs related to
DVDs provided to paying subscribers. Cost of revenues for DVD sales includes
the salvage value of used DVDs that have been sold.

SUBSCRIBER ACQUISITION AND ADVERTISING EXPENSES

      The Company expenses subscriber acquisition and advertising costs as
incurred. These amounts are included in marketing expenses in the accompanying
financial statements. Subscriber acquisition and advertising expenses were
approximately $3,913, $10,424, and $12,041 for the years ended December 31,
1999, 2000 and 2001, respectively.

STOCK-BASED COMPENSATION

      The Company accounts for its stock-based employee compensation plans
using the intrinsic-value method. Deferred stock-based compensation expense is
recorded if, on the date of grant, the current market value

                                      F-9

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

of the underlying stock exceeds the exercise price. The Company amortizes
deferred stock-based compensation using the graded vesting method which is
prescribed by Financial Accounting Standards Board (FASB) Interpretation No. 28
("FIN 28"). Deferred compensation resulting from repriced options is calculated
pursuant to FASB Interpretation No. 44 and amortized using FIN 28. Options
granted to nonemployees are considered compensatory and are accounted for at
fair value pursuant to Statement of Financial Accounting Standards (SFAS) No.
123. The Company discloses the pro forma effect of using the fair value method
of accounting for all employee stock-based compensation arrangements in
accordance with SFAS No. 123.

INCOME TAXES

      The Company accounts for income taxes using the asset and liability
method. Deferred income taxes are recognized by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. The measurement of deferred tax
assets is reduced, if necessary, by a valuation allowance for any tax benefits
for which future realization is uncertain.

COMPREHENSIVE LOSS

      Net loss, as reported in the statements of operations, is the Company's
only component of comprehensive loss during all periods presented.

NET LOSS PER SHARE

      Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock, excluding common stock subject to
repurchase. Diluted net loss per share is computed using the weighted-average
number of outstanding shares of common stock and, when dilutive, potential
common stock from outstanding options and warrants to purchase common stock,
using the treasury stock method, and convertible securities using the
"if-converted" method. All potential common stock issuances have been excluded
from the computations of diluted net loss per share for all periods presented
because the effect would be antidilutive.

      Diluted net loss per share does not include the effect of the following
antidilutive common equivalent shares (rounded to nearest thousand):

<TABLE>
<CAPTION>
                                                     AS OF DECEMBER 31,
                                              --------------------------------
                                                 1999       2000       2001
                                              ---------- ---------- ----------
 <S>                                          <C>        <C>        <C>
 Stock options...............................  1,594,000  3,418,000  8,999,000
 Warrants....................................     93,000    708,000 21,054,000
 Common stock subject to repurchase..........  1,069,000    486,000    419,000
 Redeemable convertible preferred stock...... 14,984,000 20,317,000 28,994,000
 Convertible preferred stock.................  4,445,000  4,445,000  6,157,000
 Subscribed preferred stock..................         --  1,321,000  3,213,000
                                              ---------- ---------- ----------
                                              22,185,000 30,695,000 68,836,000
                                              ========== ========== ==========
</TABLE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

      The fair value of the Company's cash, accounts payable and borrowings
approximates their carrying values due to their short maturity or fixed-rate
structure.

                                     F-10

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


USE OF ESTIMATES

      The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

SEGMENT REPORTING

   The Company is organized in a single operating segment for purposes of
making operating decisions and assessing performance. The chief operating
decision maker evaluates performance, makes operating decisions and allocates
resources based on financial data consistent with the presentation in the
accompanying financial statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

      In July 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS, and
SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 addresses the
accounting for and reporting of business combinations and requires that all
business combinations be accounted for using the purchase method of accounting.
SFAS No. 141 is effective for all business combinations initiated after June
30, 2001. The adoption of SFAS No. 141 did not have any effect on the Company's
financial statements.

      SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. SFAS No. 142 changes the accounting for
goodwill from amortization method to an impairment-only method. The
amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of SFAS No. 142. For goodwill acquired
by June 30, 2001, SFAS No. 142 is effective for all fiscal years beginning
after December 15, 2001. Goodwill and intangible assets acquired after June 30,
2001, will be subject to immediate adoption of SFAS No. 142. The adoption of
SFAS No. 142 will not have any effect on the Company's financial statements.

      In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (SFAS No. 144). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. SFAS No. 144 requires companies to
separately report discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by sale, abandonment,
or in a distribution to owners) or is classified as held for sale. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The Company is required to adopt SFAS No. 144 on January 1,
2002. The provisions of SFAS No. 144 for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities. Management does not expect the adoption of
SFAS No. 144 to have a material impact on the Company's financial statements.

                                     F-11

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


2.  PROPERTY AND EQUIPMENT, NET

      Property and equipment consisted of the following as of December 31, 2000
and 2001:

<TABLE>
<CAPTION>
                                                        AS OF DECEMBER 31,
                                                        ------------------
                                                          2000      2001
                                                         -------  -------
      <S>                                               <C>       <C>
      Computer equipment............................... $ 8,644   $ 9,245
      Internal-use software............................   3,500     5,285
      Furniture and fixtures...........................   1,608     2,033
      Leasehold improvements...........................     868     1,627
                                                         -------  -------
                                                         14,620    18,190
      Less accumulated depreciation....................   4,661     9,985
                                                         -------  -------
                                                        $ 9,959   $ 8,205
                                                         =======  =======
</TABLE>

      Property and equipment includes approximately $5,101 and $5,500 of assets
under capital leases as of December 31, 2000 and 2001, respectively.
Accumulated depreciation of assets under these leases totaled $2,185 and $2,276
as of December 31, 2000 and 2001, respectively. Internal-use software includes
approximately $1,595 and $2,795 of internally incurred capitalized software
development costs as of December 31, 2000 and 2001, respectively. Accumulated
amortization of capitalized software development costs totaled $1,080 and
$1,835 as of December 31, 2000 and 2001, respectively.

3.  ACCRUED EXPENSES

      Accrued expenses consisted of the following as of December 31, 2000 and
2001:

<TABLE>
<CAPTION>
                                                        AS OF DECEMBER 31,
                                                        ------------------
                                                          2000      2001
                                                         ------    ------
      <S>                                               <C>       <C>
      Accrued state sales and use tax.................. $2,663    $2,379
      Employee benefits................................  1,918     1,476
      Other............................................  1,338       689
                                                         ------    ------
                                                        $5,919    $4,544
                                                         ======    ======
</TABLE>

4.  DEBT AND RELATED WARRANTS

CAPITAL LEASE OBLIGATIONS

      The Company has entered into capital leases for the acquisition of
equipment. The Company has outstanding capitalized lease obligations under
these arrangements of $3,306 and $2,402 as of December 31, 2000 and 2001,
respectively. Such amounts are payable in monthly installments of principal and
interest with effective interest rates ranging between 16.3% and 27.4% per
annum.

NOTES PAYABLE

      The Company has a note payable with an unpaid balance of $4,135 and
$1,667 as of December 31, 2000 and 2001, respectively. The note payable is
secured by the assets of the Company, accrues interest at 12% per annum and is
payable in monthly installments of principal and interest through September
2002.

                                     F-12

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


SUBORDINATED NOTES PAYABLE

      In July 2001, the Company issued subordinated promissory notes and
warrants to purchase 20,456,866 shares of its common stock at an exercise price
of $1.00 per share for net proceeds of $12,831. The subordinated notes have an
aggregate face value of $13,000 and stated interest rate of 10%. Approximately
$10,884 of the proceeds was allocated to the warrants as additional paid-in
capital and $1,947 was allocated to the subordinated notes payable. The
resulting discount of $11,053 is being accreted to interest expense using an
effective annual interest rate of 21%. The face value of the subordinated notes
and all accrued interest are due and payable upon the earlier of July 2011 or
the consummation of a qualified initial public offering. As of December 31,
2001, accrued unpaid interest of $650 is included in the carrying amount of the
subordinated notes payable balance of $2,799 in the accompanying financial
statements. Upon a change in control, as defined, the subordinated note holders
are entitled to consideration equal to three times the face value of the notes
plus accrued interest.

WARRANTS AND COMMON STOCK ISSUED WITH DEBT INSTRUMENTS

      In February 1999, in connection with borrowings under a note payable, the
Company issued to the lender 271,489 shares of common stock at $0.11 per share.
The Company accounted for the fair value of the common stock of approximately
$762 as an increase to additional paid-in capital with a corresponding
provision to debt discount. The debt discount was accreted to interest expense
over 24 months.

      In May 2000, in connection with a capital lease, the Company issued a
warrant that provided the lender the right to purchase 23,007 shares of common
stock at $6.52 per share. The Company accounted for the fair value of the
warrant of approximately $105 as an increase to additional paid-in capital with
a corresponding provision to debt discount. The debt discount is being accreted
to interest expense over the term of the related debt, which is 36 months.

      In July 2001, in connection with borrowings under subordinated promissory
notes, the Company issued to the note holders warrants to purchase 20,456,866
shares of common stock. The Company accounted for the fair value of the
warrants of $10,884 as an increase to additional paid-in capital with a
corresponding discount on subordinated notes payable.

      In July 2001, in connection with a capital lease agreement, the Company
granted warrants to purchase 255,000 shares of common stock at an exercise
price of $1.00 per share. The fair value of approximately $172 was recorded as
an increase to additional paid-in capital with a corresponding reduction to the
capitalized lease obligation. The debt discount is being accreted to interest
expense over the term of the lease agreement which is 45 months.

      The fair values of warrants were estimated at the date of issuance of
each warrant using the Black-Scholes valuation model with the following
assumptions: the term of the warrant; risk-free rates between 4.92% to 6.37%;
volatility of 80% for all periods; and a dividend yield of 0.0%.

WARRANTS, OPTIONS AND COMMON STOCK ISSUED IN EXCHANGE FOR CASH AND SERVICES
RENDERED

      In March 2000, in consideration for employee recruiting and placement
services rendered, the Company issued 21,777 shares of common stock to a
consultant. The Company recorded the deemed fair value of the common stock
issued of $306 as marketing expense.

                                     F-13

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


   Also in March 2000, in consideration for marketing services rendered, the
Company issued an option to a consultant to purchase 15,000 shares of common
stock at $4.50 per share. The Company recorded the fair value of the option of
approximately $195 as marketing expense.

      In April 2000, in connection with the sale of Series E preferred stock,
the Company sold warrants to purchase 533,003 shares of Series E preferred
stock at a price of $0.01 per share. The warrants have an exercise price of
$14.07 per share. The proceeds from the sale of these warrants were recorded as
part of the issuance of Series E preferred stock in the accompanying statement
of stockholders' deficit. In July 2001, in connection with a modification of
the terms of the Series E preferred stock, certain Series E warrant holders
agreed to the cancellation of warrants to purchase 500,487 of Series E
preferred stock. The remaining warrants to purchase 32,516 shares are
exercisable at $14.07 per share.

      In November 2000, in connection with an operating lease, the Company
issued a warrant that provided the lessor the right to purchase 60,000 shares
of common stock at $2.00 per share. The Company also issued an option, in
connection with the lease to a consultant to purchase 25,000 shares of common
stock at $2.00 per share. The Company accounted for the fair value of the
warrant of approximately $216 as an increase to additional paid-in capital with
a corresponding increase to other assets. This asset is being amortized over
the term of the related operating lease, which is five years. The Company
recorded the fair value of the option of approximately $90 as general and
administrative expense.

      In July 2001, the Company issued a warrant to purchase 100,000 shares of
Series F non-voting preferred stock at $9.38 per share to a Web portal company
in connection with an integration and distribution agreement. The fair market
value of the warrants of approximately $18 was recorded as sales and marketing
expense and an increase to additional paid-in capital.

      The Company calculated the fair value of the warrants and nonemployee
stock options using the Black-Scholes valuation model with the following
assumptions: the term of the warrant or option; risk-free rates between 5.83%
to 6.37%; volatility of 80% for all periods; and dividend yield of 0.0%.

                                     F-14

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


5.  COMMITMENTS

LEASE COMMITMENTS

      The Company leases its primary facilities under noncancelable-operating
leases. The Company also has capital leases with various expiration dates
through October 1, 2004. Future minimum lease payments under noncancelable
capital and operating leases as of December 31, 2001, are as follows:

<TABLE>
<CAPTION>
                                                             CAPITAL  OPERATING
 YEAR ENDING DECEMBER 31,                                    LEASES    LEASES
 ------------------------                                    -------  ---------
 <S>                                                         <C>      <C>
 2002....................................................... $ 1,763   $ 2,473
 2003.......................................................   1,267     2,543
 2004.......................................................     176     2,484
 2005.......................................................      --     1,466
 Thereafter.................................................      --        --
                                                             -------   -------
 Total minimum payments..................................... $ 3,206   $ 8,966
                                                                       =======
 Less interest and unamortized discount.....................    (804)
                                                             -------
 Present value of net minimum lease payments................   2,402
 Less current portion of capital lease obligations..........  (1,345)
                                                             -------
 Capital lease obligations, noncurrent...................... $ 1,057
                                                             =======
</TABLE>

      Rent expense for the years ended December 31, 1999, 2000 and 2001 was
$783, $1,533 and $2,450, respectively. Rent expense is computed using the
straight-line method and the minimum operating lease payments required over the
lease term.

OTHER COMMITMENTS

      In 2001, the Company entered into two strategic marketing alliances for
the primary purpose of generating new subscribers. The first alliance provides
that the Company will pay a specified bounty in cash for each referred
subscriber as well as an ongoing share of revenues for every new subscriber
referral for the two year term of the agreement. In addition, after a minimum
threshold of subscribers has been referred, the Company is obligated to issue
additional shares of Series F Preferred Stock for every subscriber referred.
Under the second alliance, the Company will pay a specified bounty for every
new referred subscriber in excess of a specified minimum. In addition, the
Company will share a portion of revenues for the term of the agreement for each
referred subscriber. Through December 31, 2001, the Company had paid $415 under
these agreements. Also, through December 31, 2001, no amounts of Series F
Preferred Stock had been earned or issued under the first alliance.

                                     F-15

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


6.  REDEEMABLE CONVERTIBLE PREFERRED STOCK

      The redeemable convertible preferred stock at December 31, 2000 consists
of the following:

<TABLE>
<CAPTION>
                                           NUMBER OF             REDEMPTION AND
                              NUMBER OF  SHARES ISSUED            LIQUIDATION
                                SHARES        AND      DIVIDENDS     VALUE      TOTAL LIQUIDATION
                    PAR VALUE AUTHORIZED  OUTSTANDING  PER SHARE   PER SHARE          VALUE
                    --------- ---------- ------------- --------- -------------- -----------------
<S>                 <C>       <C>        <C>           <C>       <C>            <C>
Series B...........  $0.001    5,776,616   5,684,024    $0.0864      $1.08          $  6,139
Series C...........   0.001    4,750,000   4,650,269     0.2616       3.27            15,205
Series D...........   0.001    4,650,000   4,649,927     0.5216       6.52            30,318
Series E...........   0.001    5,874,199   5,332,689     0.7500       9.38            50,021
                              ----------  ----------                                --------
                              21,050,815  20,316,909                                $101,683
                              ==========  ==========                                ========
</TABLE>

      The redeemable convertible preferred stock at December 31, 2001 consists
of the following:

<TABLE>
<CAPTION>
                                           NUMBER OF             REDEMPTION AND
                              NUMBER OF  SHARES ISSUED            LIQUIDATION
                                SHARES        AND      DIVIDENDS     VALUE      TOTAL LIQUIDATION
                    PAR VALUE AUTHORIZED  OUTSTANDING  PER SHARE   PER SHARE          VALUE
                    --------- ---------- ------------- --------- -------------- -----------------
<S>                 <C>       <C>        <C>           <C>       <C>            <C>
Series B...........  $0.001    5,776,616   5,684,024    $0.0864      $1.08          $  6,139
Series C...........   0.001    4,750,000   4,650,269     0.2616       3.27            15,205
Series D...........   0.001    4,650,000   4,649,927     0.5216       6.52            30,318
Series E...........   0.001    5,874,199   5,007,530     0.7500       9.38            46,971
Series E-1.........   0.001    5,874,199     325,159     0.7500       9.38             3,050
                              ----------  ----------                                --------
                              26,925,014  20,316,909                                $101,683
                              ==========  ==========                                ========
</TABLE>

      The rights, preferences and privileges of the preferred stockholders are
as follows:

DIVIDENDS

      The holders of redeemable convertible preferred stock are entitled to
receive annual dividends per share at the rates stated above. Such dividends,
which are in preference to any dividends on common stock, are payable whenever
funds are legally available and when declared by the Board of Directors. The
right of the holders of the redeemable convertible preferred stock to receive
dividends is not cumulative. No dividends on redeemable convertible preferred
stock have been declared from inception through December 31, 2001.

REDEMPTION

      The holders of redeemable convertible preferred stock have the option to
redeem their shares for cash during a 60-day period commencing June 12, 2004.

LIQUIDATION

      After payment to holders of Series A, B, C, D, E and E-1 convertible
preferred stock, each share of common stock and preferred stock is entitled to
receive pro rata any remaining assets of the Company until such time as the
holders of Series A, B, C, D, E and E-1 convertible preferred stock receive
aggregate amounts totaling $1.50, $3.24, $9.81, $19.56, $28.14 and $28.14 per
share, respectively. Thereafter, all remaining proceeds are to be allocated to
the holders of common stock and Series F Preferred Stock on a pro rata basis.

                                     F-16

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


CONVERSION

      At December 31, 2000, each share of Series C, D and E redeemable
convertible preferred stock was convertible into one share of common stock.

      At December 31, 2001, each share of Series B and E-1 redeemable
convertible preferred stock was convertible into one share of common stock.

      In July 2001, the conversion rates for the Series C and D preferred stock
were adjusted in accordance with the anti-dilution provisions as set forth in
the Company's Certificate of Incorporation such that each share of the Series C
and D preferred stock converts into 1.3207 and 1.4209 shares of common stock,
respectively.

      The original terms of the Series E preferred stock contained a special
anti-dilution provision that guaranteed a value of $14.07 per share in the
event of an initial public offering. The unrecorded measured value of this
contingent beneficial conversion feature was $30,120. This conversion feature
was cancelled in July 2001. At the same time the conversion rate for Series E
preferred stock was modified to 1.4387 shares of common stock for each share of
Series E preferred stock. In addition, in accordance with the antidilution
right included in the Certificate of Incorporation, the conversion rate for
Series E preferred stock was further changed, resulting in a conversion rate of
2.0441 shares of common stock for each share of Series E preferred stock. The
cancellation of the beneficial conversion feature and the modification of the
conversion rate of the Series E preferred stock had no financial accounting
effect because the holders of these shares received no net benefit.

      Conversion of each share of Series B, C and D preferred stock is
automatic upon closing of a public offering of the Company's common stock for
aggregate gross proceeds of at least $20 million. Conversion of each share of
Series E and E-1 redeemable convertible preferred stock is automatic upon
closing of a public offering of the Company's common stock for aggregate
proceeds of at least $40 million and a minimum price per share of $5.00. Series
B, C and D preferred stock may be automatically converted by an affirmative
vote of 75% of the then outstanding shares of each respective series. Each
share of Series E and E-1 redeemable convertible stock may be automatically
converted by a vote of 75% of the then outstanding shares of Series E and E-1
(voting together as a single class on an if-converted basis).

VOTING RIGHTS

      The holders of each share of redeemable convertible preferred stock are
entitled to the number of votes equal to the number of shares of common stock
on an if-converted-basis. The holders of Series E and E-1 redeemable
convertible preferred stock do not have the right to vote with respect to such
shares for the election of directors of the Company. The holders of Series B, C
and D, redeemable convertible preferred stock voting as separate classes are
each entitled to elect one director of the Company's Board of Directors.

7.  STOCKHOLDERS' EQUITY AND CONVERTIBLE PREFERRED STOCK

DIVIDENDS

      The holders of Series A convertible preferred stock are entitled to
receive annual dividends per share of $0.05. Such dividends, which are in
preference to any dividends on common stock are payable whenever funds are
legally available and when declared by the Board of Directors. The right of the
holders of Series A convertible preferred stock to receive dividends is not
cumulative. No dividends on convertible preferred stock have been declared from
inception through December 31, 2001. Series F Non-Voting convertible preferred
stock is not entitled to any preferred dividends.

                                     F-17

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


LIQUIDATION

      The liquidation value of one share of Series A convertible preferred
stock is $0.50, resulting in a total liquidation value of $2,222. After payment
to holders of Series A, B, C, D, E and E-1 convertible preferred stock, each
share of common stock and preferred stock is entitled to receive pro rata any
remaining assets of the Company until such time as the holders of Series A
convertible preferred stock receive aggregate amounts totaling $1.50 per share,
respectively. Thereafter, all remaining proceeds are to be allocated to the
holders of common stock and Series F Preferred Stock on a pro rata basis.

CONVERSION

      Each share of Series A convertible preferred stock is convertible, at the
option of the holder, at any time, into one share of common stock. Series F
Preferred Stock may not be converted into common stock until the earlier of (1)
immediately prior to a change in control, or (2) such time as such shares have
been sold or transferred to a third party not affiliated with the initial
holders of Series F Preferred Stock. Conversion of each share of Series A
convertible preferred stock and Series F Preferred Stock is automatic upon
closing of a public offering of the Company's common stock for aggregate gross
proceeds of at least $20 million. Each share of Series A convertible preferred
stock shall be automatically converted by a vote of a majority of the then
outstanding shares of Series A preferred stock.

VOTING RIGHTS

      The holders of each share of Series A convertible preferred stock shall
be entitled to the number of votes equal to the number of shares of common
stock on an if-converted-basis. The holders of Series F Preferred Stock have no
voting rights.

STOCK OPTION PLAN

      As of December 31, 2001, the Company was authorized to issue up to
14,639,935 shares of common stock in connection with its 1997 stock option plan
for directors, employees and consultants. The 1997 stock option plan provides
for the issuance of stock purchase rights, incentive stock options or
non-statutory stock options.

      Stock purchase rights are subject to a restricted stock purchase
agreement whereby the Company has the right to repurchase the stock at the
original issue price upon the voluntary or involuntary termination of the
purchaser's employment with the Company. The repurchase rights lapse at a rate
determined by the stock plan administrator but at a minimum rate of 25% per
year.

      The exercise price for incentive stock options is at least 100% of the
stock's deemed fair value on the date of grant for employees owning less than
10% of the voting power of all classes of stock, and at least 110% of the
deemed fair value on the date of grant for employees owning more than 10% of
the voting power of all classes of stock. For nonstatutory stock options, the
exercise price is also at least 110% of the deemed fair value on the date of
grant for service providers owning more than 10% of the voting power of all
classes of stock and no less than 85% of the deemed fair value on the date of
grant for service providers owning less than 10% of the voting power of all
classes of stock.

      Options generally expire in 10 years however, they may be limited to 5
years if the optionee owns stock representing more than 10% of the Company.
Vesting periods are determined by the stock plan administrator and generally
provide for shares to vest ratably over three or four years.

                                     F-18

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


      Generally, the Company's Board of Directors grants options at an exercise
price of not less than the deemed fair value of the Company's common stock at
the date of grant. In 2001, the Company offered its employees the right to
exchange certain employee stock options. The exchange resulted in the
cancellation of employee stock options to purchase 2.7 million shares of common
stock with varying exercise prices in exchange for 2.7 million employee stock
options with an exercise price of $1.00. The option exchange resulted in
variable award accounting treatment for all of the exchanged options. Variable
award accounting will continue until all options subject to variable accounting
are exercised, cancelled or expired. However, additional non-cash compensation
will be recorded only to the extent the intrinsic value of the repriced awards
exceeds the original intrinsic value of the replaced stock options.

      SFAS No. 123 requires the disclosure of net loss as if the Company had
adopted the fair value method for its stock-based compensation arrangements for
employees since the inception of the Company. Had compensation cost been
determined consistent with SFAS No. 123, the Company's net loss and net loss
per share would have been as follows:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                  ----------------------------
                                                    1999      2000      2001
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Net loss:
   As reported................................... $(29,845) $(57,363) $(38,258)
   Pro forma.....................................  (29,949)  (58,274)  (39,209)
Basic and diluted net loss per share:
   As reported...................................    (5.60)    (9.71)    (6.34)
   Pro forma.....................................    (5.62)    (9.87)    (6.50)
</TABLE>

      The fair value of each option was estimated on the date of grant using
the minimum-value method with the following weighted-average assumptions: no
dividend yield; volatility of 0%; risk-free interest rate of 5.40%, 6.24% and
4.14% for the years ended 1999, 2000 and 2001, respectively; and expected life
of 3.5 years for all periods.

                                     F-19

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


      A summary of the activities related to the Company's options for the
years ended December 31, 1999, 2000 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                     OPTIONS OUTSTANDING
                                                    ---------------------
                                                                WEIGHTED-
                                         SHARES                  AVERAGE
                                        AVAILABLE    NUMBER     EXERCISE
                                        FOR GRANT   OF SHARES     PRICE
                                       -----------  ----------  ---------
<S>                                    <C>          <C>         <C>
Balances as of January 1, 1999........     883,179   4,167,971   $0.084
   Authorized.........................   1,746,683          --
   Granted............................  (2,001,063)  2,001,063    1.213
   Exercised..........................          --  (3,971,361)   0.090
   Canceled...........................     603,834    (603,834)   0.450
   Repurchased........................     600,450          --
                                       -----------  ----------   ------
Balances as of December 31, 1999......   1,833,083   1,593,839    1.347
   Authorized.........................   1,761,852          --       --
   Granted............................  (2,548,397)  2,548,397    3.126
   Exercised..........................          --    (243,009)   1.743
   Canceled...........................     481,425    (481,425)   2.515
   Repurchased........................      79,960          --    1.770
                                       -----------  ----------   ------
Balances as of December 31, 2000......   1,607,923   3,417,802    2.481
   Authorized.........................   9,400,000          --       --
   Granted............................ (10,372,978) 10,372,978    1.068
   Exercised..........................          --     (90,137)   1.382
   Canceled...........................   4,701,477  (4,701,477)   2.445
   Repurchased........................      16,876          --
                                       -----------  ----------   ------
Balances as of December 31, 2001......   5,353,298   8,999,166   $0.994
                                       ===========  ==========   ======
Options exercisable as of December 31:
       1999...........................                 117,746   $0.421
       2000...........................                 557,053   $1.250
       2001...........................               2,754,755   $0.979
</TABLE>

      The weighted-average fair value of options granted in fiscal 1999, 2000,
and 2001 was $4.66, $8.55 and $0.14, respectively.

                                     F-20

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


      As of December 31, 2001, the range of exercise prices and
weighted-average remaining contractual life of outstanding options were as
follows:

<TABLE>
<CAPTION>
                    OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
     ------------------------------------------------- -------------------
                                 WEIGHTED-
                                  AVERAGE    WEIGHTED-           WEIGHTED-
                                 REMAINING    AVERAGE             AVERAGE
                      NUMBER OF CONTRACTUAL  EXERCISE  NUMBER OF EXERCISE
     EXERCISE PRICES   OPTIONS  LIFE (YEARS)  PRICES    OPTIONS   PRICES
     ---------------  --------- ------------ --------- --------- ---------
     <S>              <C>       <C>          <C>       <C>       <C>
     $0.055 to $0.110   167,137     6.22      $0.059     167,012  $0.059
          $1.000      8,769,800     9.26        1.00   2,525,754    1.00
     $2.000 to $2.250    47,229     8.55        2.00      46,989    2.00
          $4.500         15,000     8.25        4.50      15,000    4.50
                      ---------                        ---------
                      8,999,166                        2,754,755
                      =========                        =========
</TABLE>

8.  INCOME TAXES

      Income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to pretax loss as a result of the following:

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                                ----------------------------
                                                                                  1999      2000      2001
                                                                                --------  --------  --------
<S>                                                                             <C>       <C>       <C>
Expected tax benefit at U.S. federal statutory rate of 34%..................... $(10,147) $(19,503) $(13,307)
Current year net operating losses for which no tax benefit is recognized.......    7,800    16,574    11,507
Stock based compensation.......................................................    1,496     2,957     1,864
Other..........................................................................      851       (28)      (64)
                                                                                --------  --------  --------
   Total income tax expense.................................................... $     --  $     --  $     --
                                                                                ========  ========  ========
</TABLE>

      The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 2000 and
2001, are presented below:

<TABLE>
<CAPTION>
                                                       AS OF DECEMBER 31,
                                                       ------------------
                                                         2000      2001
                                                       --------  --------
     <S>                                               <C>       <C>
     Deferred tax assets:
        Net operating loss carryforward............... $ 26,824  $ 32,626
        Accruals and reserves.........................    6,993    13,885
        Other.........................................        1        20
                                                       --------  --------
            Gross deferred tax assets.................   33,818    46,531
     Less valuation allowance.........................  (33,818)  (46,531)
                                                       --------  --------
            Net deferred tax assets................... $     --  $     --
                                                       ========  ========
</TABLE>

      Management has established a valuation allowance for the portion of
deferred tax assets for which realization is uncertain. The total valuation
allowance for the years ended December 31, 2000 and 2001 increased $18,219 and
$12,713, respectively.

      As of December 31, 2001, the Company had net operating loss carry
forwards for federal and California income tax purposes of approximately
$83,699 and $56,260, respectively, to reduce future income subject to

                                     F-21

<PAGE>

                                 NETFLIX, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

income tax. The federal net operating loss carry forward will expire beginning
in 2012 to 2021 and the California net operating loss carry forwards expire
beginning in 2002 to 2011, if not utilized.

      The Tax Reform Act of 1986, imposes restrictions on the utilization of
net operating loss carryforwards and tax credit carryforwards in the event of
an "ownership change," as defined by the Internal Revenue Code. The Company's
ability to utilize its net operating loss carry forwards is subject to
restrictions pursuant to these provisions.

9.  EMPLOYEE BENEFIT PLAN

      The Company maintains a 401(k) savings plan covering substantially all of
its employees. Eligible employees may contribute through payroll deductions.
The Company matches employee contributions at the discretion of the Company's
Board of Directors. In the years ended December 31, 1999, 2000 and 2001, the
Company has matched a total of $0, $0 and $304, respectively.

10.  SUBSEQUENT EVENTS

      In February 2002, the Company adopted the 2002 Stock Plan. The 2002 Stock
Plan provides for the grant of incentive stock options to employees and for the
grant of nonstatutory stock options and stock purchase rights to employees,
directors and consultants. The Company reserved a total of 2,000,000 shares of
common stock for issuance under the 2002 Stock Plan. Any remaining shares
reserved but not yet issued under the 1997 plan as of the effective date of an
initial public offering will be added to the total reserved shares under the
2002 Stock Plan.

      In February 2002, the Company adopted the 2002 Employee Stock Purchase
Plan. The Company reserved a total of 1,750,000 shares of common stock for
issuance under the 2002 Employee Stock Purchase Plan.

                                     F-22

<PAGE>

                              [INSIDE BACK COVER]

<PAGE>

================================================================================

      Through and including     , 2002 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters with respect to their unsold allotments or subscriptions.

                                        SHARES

                            [LOGO] NETFLIX.COM, INC.

                                 COMMON STOCK

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

                                  PROSPECTUS

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

                              MERRILL LYNCH & CO.

                          THOMAS WEISEL PARTNERS LLC

                          U.S. BANCORP PIPER JAFFRAY

                                        , 2002

================================================================================

<PAGE>

                                    PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

      The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Netflix in connection with
the sale and distribution of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.

<TABLE>
        <S>                                                         <C>
        SEC registration fee....................................... $
        NASD filing fee............................................
        Nasdaq National Market listing fee.........................
        Blue Sky fees and expenses.................................
        Printing and engraving costs...............................
        Legal fees and expenses....................................
        Accounting fees and expenses...............................
        Transfer Agent and Registrar fees..........................
        Insurance Premiums.........................................
        Miscellaneous expenses.....................................
                                                                    --
               Total............................................... $
                                                                    ==
</TABLE>

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

      Section 145 ("Section 145") of the General Corporation Law of the State
of Delaware, as the same exists or may hereafter be amended (the "General
Corporation Law") provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal.

      Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against such person and incurred by
such person in any such capacity, arising out of such person's status as such,
whether or not the corporation would otherwise have the power to indemnify such
person against such liability under Section 145.

      Registrant's Amended and Restated Certificate of Incorporation and Bylaws
provide that Registrant will indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
Registrant or any predecessor of Registrant, or serves or served at any other
corporation, partnership, joint venture, trust or other enterprise as a
director, officer, employee or agent at the request of Registrant or any
predecessor of Registrant.

      Registrant's Bylaws provide for mandatory indemnification to the fullest
extent permitted by General Corporation Law against all expense, liability and
loss including attorney's fees, judgments, fines, ERISA excise

                                     II-1

<PAGE>

taxes or penalties and amounts paid in settlements, provided that Registrant
shall not be required to indemnify unless the proceeding in which
indemnification is sought was authorized in advance by our board of directors.

      Registrant's directors and officers are covered by insurance maintained
by Registrant against specified liabilities for actions taken in their
capacities as such, including liabilities under the Securities Act of 1933, as
amended. In addition, the Registrant has entered into contracts with its
directors and officers providing indemnification of such directors and officers
by the Registrant to the fullest extent permitted by law, subject to certain
limited exceptions.

      The Purchase Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of Registrant and its officers and directors, and by
Registrant of the underwriters, for certain liabilities arising under the
Securities Act or otherwise in connection with this offering.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

      The following is a summary of Registrant's transactions within the last
three years, involving sales of Registrant's securities that were not
registered under the Securities Act:

            (a)  On June 22, 1999 and October 31, 1999, Registrant issued and
      sold an aggregate of 4,649,927 shares of Series D preferred stock to a
      total of 10 private investors for $6.52 per share, or an aggregate of
      $30,317,524. The foregoing purchase and sale was exempt from registration
      under the Securities Act pursuant to Section 4(2) thereof on the basis
      that the transaction did not involve a public offering.

            (b)  On April 13 and April 17, 2000, Registrant issued and sold (i)
      an aggregate of 5,332,689 shares of Series E non-voting preferred stock
      at a price per share of $9.38, and (ii) warrants to purchase up to an
      aggregate of 533,003 shares of Series E non-voting preferred stock each
      with an exercise price of $14.07 per share, at a price per warrant share
      of $0.01, to a total of 16 private investors for an aggregate of
      $50,025,619. The foregoing purchases and sales were exempt from
      registration under the Securities Act pursuant to Section 4(2) thereof on
      the basis that the transactions did not involve a public offering.

            (c)  On May 19, 2000, Registrant issued and sold a warrant to
      purchase 23,007 shares of common stock to a private investor at an
      exercise price of $6.52 per share, in connection with a lease agreement.
      The foregoing purchase and sale was exempt from registration under the
      Securities Act pursuant to Section 4(2) thereof on the basis that the
      transaction did not involve a public offering.

            (d)  On October 26, 2000, Registrant issued 436,393 shares of
      Series F non-voting preferred stock to a movie studio in connection with
      a revenue sharing agreement. The foregoing was exempt from registration
      under the Securities Act pursuant to Section 4(2) thereof on the basis
      that the transaction did not involve a public offering.

            (e)  On October 31, 2000, Registrant issued a warrant to purchase
      60,000 shares of common stock to a private investor at an exercise price
      of $2.00 per share, in connection with a real estate lease. The foregoing
      was exempt from registration under the Securities Act pursuant to Section
      4(2) thereof on the basis that the transaction did not involve a public
      offering.

            (f)  On February 22, 2001, Registrant issued an aggregate of
      860,121 shares of Series F non-voting preferred stock to certain movie
      studios, in connection with certain revenue share agreements. The
      foregoing was exempt from registration under the Securities Act pursuant
      to Section 4(2) thereof on the basis that the transaction did not involve
      a public offering.

            (g)  On April 2, 2001, Registrant issued 436,393 shares of Series F
      non-voting preferred stock to a movie studio, in connection with a
      revenue share agreement. The foregoing was exempt from registration under
      the Securities Act pursuant to Section 4(2) thereof on the basis that the
      transaction did not involve a public offering.

                                     II-2

<PAGE>

            (h)  On June 1, 2001, Registrant issued and sold a warrant to
      purchase 255,000 shares of common stock to a private investor at an
      exercise price of $1.00 per share, in connection with an equipment lease
      agreement. The foregoing purchase and sale was exempt from registration
      under the Securities Act pursuant to Section 4(2) thereof on the basis
      that the transaction did not involve a public offering.

            (i)  On June 5, 2001, Registrant issued and sold a warrant to
      purchase 100,000 shares of Series F Preferred Stock to a private investor
      at an exercise price of $9.38 per share, in connection with an
      integration and distribution agreement. The foregoing purchase and sale
      was exempt from registration under the Securities Act pursuant to Section
      4(2) thereof on the basis that the transaction did not involve a public
      offering.

            (j)  On July 10, 2001, Registrant issued and sold (i) an aggregate
      of $13 million of subordinated promissory notes, and (ii) warrants to
      purchase an aggregate of 20,456,866 shares of common stock each with an
      exercise price of $1.00 per share, at a price per warrant share of $0.01,
      to a total of 23 private investors for an aggregate of $13,020,456.88.
      The foregoing purchases and sales were exempt from registration under the
      Securities Act pursuant to Section 4(2) thereof on the basis that the
      transactions did not involve a public offering.

            (k)  On August 21, 2001, Registrant issued 416,440 shares of Series
      F non-voting preferred stock to a consumer electronics retailer, in
      connection with a strategic marketing agreement. The foregoing was exempt
      from registration under the Securities Act pursuant to Section 4(2)
      thereof on the basis that the transaction did not involve a public
      offering.

            (l)  On March  , 2002, Registrant issued 423,415 shares of Series F
      non-voting preferred stock to a movie studio in connection with a revenue
      sharing agreement. The foregoing was exempt from registration under the
      Securities Act pursuant to Section 4(2) thereof on the basis that the
      transaction did not involve a public offering

            (m)  On        , 2002, Registrant issued an aggregate of
      shares of Series F non-voting preferred stock to certain movie studios
      holding Series F non-voting preferred stock of Registrant pursuant to
      certain anti-dilution provisions for the benefit of such studios. The
      foregoing were exempt from registration under the Securities Act pursuant
      to Section 4(2) thereof on the basis that the transaction did not involve
      a public offering.

            (n)  As of         , Registrant has issued and sold an aggregate of
               shares of common stock upon exercise of options issued to
      certain employees and consultants under Registrant's amended and restated
      1997 Stock Plan for an aggregate consideration of $      . The foregoing
      purchases and sales were exempt from registration under the Securities
      Act pursuant to Rule 701 of the Securities Act.

      Except as indicated above, none of the foregoing transactions involved
any underwriters, underwriting discounts or commissions, or any public
offering, and Registrant believes that each transaction was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients in such transactions represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate
legends were affixed to the share certificates and instruments issued in such
transactions. All recipients either received adequate information about
Registrant or had access, through their relationships with Registrant, to such
information.

                                     II-3

<PAGE>

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                               DESCRIPTION
- ------                                               -----------
<C>      <S>

   1.1*  Form of Purchase Agreement.

   3.1*  Amended and Restated Certificate of Incorporation of Registrant.

   3.2   Proposed Amended and Restated Certificate of Incorporation of Registrant.

   3.3   Amended and Restated Bylaws of Registrant.

   3.4*  Proposed Amended and Restated Bylaws of Registrant.

   4.1*  Form of Registrant's Common Stock Certificate.

   5.1   Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.

  10.1*  Form of Indemnification Agreement between Registrant and each of its directors and officers.

  10.2   2002 Employee Stock Purchase Plan.

  10.3   Amended and Restated 1997 Stock Plan.

  10.4   2002 Stock Plan.

  10.5   Amended and Restated Stockholders' Rights Agreement dated July 10, 2001.

  10.6   Amended and Restated Agreement Concerning the Right to Participate dated June 22, 1999.

  10.7   Office Lease dated October 27, 2000 between Registrant and BR3 Partners.

  10.8   Lease Agreement dated August 11, 1999 between Registrant and Lincoln-Recp Old Oakland Opco,
           LLC; First Amendment to Lease Agreement dated December 3, 1999; Second Amendment to
           Lease Agreement dated January 4, 2000; Third Amendment to Lease Agreement dated June 12,
           2001 between Registrant and Joseph Sully.

  10.9   Offer letter dated April 19, 1999 with W. Barry McCarthy, Jr., Chief Financial Officer of
           Registrant.

  10.10  Offer letter dated March 25, 1999 with Tom Dillon, Vice President of Operations of Registrant.

  10.11  Offer letter dated March 13, 2000 with Leslie J. Kilgore, Vice President of Marketing of Registrant.

  10.12* Letter Agreement dated May 1, 2000 between Registrant and Columbia TriStar Home
           Entertainment, Inc.

  10.13* Revenue Sharing Output License Terms between Registrant and Warner Home Video.

  23.1   Consent of KPMG LLP.

  23.2   Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (contained in Exhibit 5.1).

  24.1   Power of Attorney (See page II-6).
</TABLE>
- --------
*  To be filed by amendment.

(B) FINANCIAL STATEMENT SCHEDULES

      Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or
notes thereto.

                                     II-4

<PAGE>

ITEM 17.  UNDERTAKINGS

      The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Purchase Agreement certificates in
such denominations and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.

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

      The undersigned Registrant hereby undertakes that:

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

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

                                     II-5

<PAGE>

                                  SIGNATURES

      Pursuant to the requirements of the Securities Act, Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Gatos, State of
California, on the 6th day of March, 2002.

                                          NETFLIX, INC.

                                          By: /S/  REED HASTINGS
                                             -----------------------------------
                                             Reed Hastings
                                             CHIEF EXECUTIVE OFFICER

                               POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Reed
Hastings and W. Barry McCarthy, Jr., and each of them acting individually, as
his attorney-in-fact, each with full power of substitution, for him in any and
all capacities, to sign any and all amendments (including, without limitation,
post-effective Amendments and any amendments or abbreviated registration
statements increasing the amount of securities for which registration is being
sought) to this Registration Statement, with all exhibits and any and all
documents required to be filed with respect thereto, with the Securities and
Exchange Commission or any regulatory authority, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
order to effectuate the same as fully to all intents and purposes as he or she
might or could do if personally present, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This Power
of Attorney may be signed in several counterparts.

      Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.

         SIGNATURE                        TITLE                    DATE
         ---------                        -----                    ----

    /S/  REED HASTINGS      President, Chief Executive Officer March 6, 2002
- --------------------------- and Director (principal executive
       Reed Hastings        officer)

/S/  W. BARRY MCCARTHY, JR. Chief Financial Officer (principal March 6, 2002
- --------------------------- financial and accounting officer)
  W. Barry McCarthy, Jr.

   /S/  TIMOTHY M. HALEY    Director                           March 6, 2002
- ---------------------------
     Timothy M. Haley

     /S/  JAY C. HOAG       Director                           March 6, 2002
- ---------------------------
        Jay C. Hoag

   /S/  A. ROBERT PISANO    Director                           March 6, 2002
- ---------------------------
     A. Robert Pisano

   /S/  MICHAEL N. SCHUH    Director                           March 6, 2002
- ---------------------------
     Michael N. Schuh

                                     II-6

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                               DESCRIPTION
- ------                                               -----------
<C>      <S>

   1.1*  Form of Purchase Agreement.

   3.1*  Amended and Restated Certificate of Incorporation of Registrant.

   3.2   Proposed Amended and Restated Certificate of Incorporation of Registrant.

   3.3   Amended and Restated Bylaws of Registrant.

   3.4*  Proposed Amended and Restated Bylaws of Registrant.

   4.1*  Form of Registrant's Common Stock Certificate.

   5.1   Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.

  10.1*  Form of Indemnification Agreement between Registrant and each of its directors and officers.

  10.2   2002 Employee Stock Purchase Plan.

  10.3   Amended and Restated 1997 Stock Plan.

  10.4   2002 Stock Plan.

  10.5   Amended and Restated Stockholders' Rights Agreement dated July 10, 2001.

  10.6   Amended and Restated Agreement Concerning the Right to Participate dated June 22, 1999.

  10.7   Office Lease dated October 27, 2000 between Registrant and BR3 Partners.

  10.8   Lease Agreement dated August 11, 1999 between Registrant and Lincoln-Recp Old Oakland Opco,
           LLC; First Amendment to Lease Agreement dated December 3, 1999; Second Amendment to
           Lease Agreement dated January 4, 2000; Third Amendment to Lease Agreement dated June 12,
           2001 between Registrant and Joseph Sully.

  10.9   Offer letter dated April 19, 1999 with W. Barry McCarthy, Jr., Chief Financial Officer of
           Registrant.

  10.10  Offer letter dated March 25, 1999 with Tom Dillon, Vice President of Operations of Registrant.

  10.11  Offer letter dated March 13, 2000 with Leslie J. Kilgore, Vice President of Marketing of Registrant.

  10.12* Letter Agreement dated May 1, 2000 between Registrant and Columbia TriStar Home
           Entertainment, Inc.

  10.13* Revenue Sharing Output License Terms between Registrant and Warner Home Video.

  23.1   Consent of KPMG LLP.

  23.2   Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (contained in Exhibit 5.1).

  24.1   Power of Attorney (See page II-6).
</TABLE>
- --------
*  To be filed by amendment.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>dex32.txt
<DESCRIPTION>CERTIFICATE OF INCORPORATION
<TEXT>
<PAGE>

                                                                     Exhibit 3.2

                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                       OF
                                  NETFLIX, INC.
                             a Delaware corporation

         Netflix, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law") hereby
certifies as follows:


         1. That this corporation was originally incorporated on August 29, 1997
under the name Kibble, Inc., pursuant to the General Corporation Law.

         2. Pursuant to Sections 242 and 228 of the General Corporation Law of
the State of Delaware, the amendments and restatement herein set forth have been
duly approved by the Board of Directors and stockholders of NetFlix.com, Inc.

         3. Pursuant to Section 245 of the General Corporation Law, this Amended
and Restated Certificate of Incorporation (this "Certificate") restates and
integrates and further amends the provisions of the Amended and Restated
Certificate of Incorporation of this corporation.

         4. The text of the Amended and Restated Certificate of Incorporation is
hereby amended and restated in its entirety as follows:

                                   ARTICLE I
                                   ---------

         The name of this corporation is Netflix, Inc. (the "corporation").

                                   ARTICLE II
                                   ----------

         The address of the registered office of the corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.

                                  ARTICLE III
                                  -----------

         The nature of the business or purposes to be conducted by the
corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware, as the same
exists or may hereafter be amended.

                                   ARTICLE IV
                                   ----------

         The corporation is authorized to issue two classes of stock, to be
designated, respectively, "Common Stock" and "Preferred Stock". The total number
of shares which the corporation shall have authority to issue is 160,000,000
consisting of 150,000,000 shares of Common Stock, par value $0.001 per share,
and 10,000,000 shares of Preferred Stock, par value $0.001 per share.

<PAGE>

     The Board of Directors of the corporation (the "Board") is authorized,
subject to any limitations prescribed by law, to provide for the issuance of
shares of Preferred Stock in series, and to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof.

     Each outstanding share of Common Stock shall entitle the holder thereof to
one vote on each matter properly submitted to the stockholders of the
corporation for their vote; provided, however, that, except as otherwise
required by law, holders of Common Stock shall not be entitled to vote on any
amendment to this Certificate of Incorporation (including any certificate of
designation of Preferred Stock relating to any series of Preferred Stock) that
relates solely to the terms of one or more outstanding series of Preferred Stock
if the holders of such affected series are entitled, either separately or
together as a class with the holders of one or more other such series, to vote
thereon by law or pursuant to this Certificate of Incorporation (including any
certificate of designation of Preferred Stock relating to any series of
Preferred Stock).

                                   ARTICLE V
                                   ---------

     The following provisions are inserted for the management of the business
and the conduct of the affairs of the corporation, and for further definition,
limitation and regulation of the powers of the corporation and of its directors
and stockholders:

          A. The business and affairs of the corporation shall be managed by or
under the direction of the Board. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of Incorporation
or the Bylaws of the corporation, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the corporation.

          B. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.

          C. Any action required or permitted to be taken by the stockholders of
the corporation must be effected at a duly called annual or special meeting of
stockholders of the corporation and may not be effected by any consent in
writing by such stockholders.

          D. Special meetings of stockholders of the corporation may be called
only by the Chairman of the Board, the Chief Executive Officer, the President or
by the Board acting pursuant to a resolution adopted by a majority of the Whole
Board, and any power of stockholders to call a special meeting is specifically
denied. Only such business shall be considered at a special meeting of
stockholders as shall have been stated in the notice for such meeting. For
purposes of this Certificate of Incorporation, the term "Whole Board" shall mean
the total number of authorized directors of the corporation whether or not there
exist any vacancies in previously authorized directorships.

                                      -2-

<PAGE>

                                   ARTICLE VI
                                   ----------

          A. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the number of
directors shall be fixed from time to time exclusively by the Board pursuant to
a resolution duly adopted by a majority of the Board. The directors, other than
those who may be elected by the holders of any series of Preferred Stock under
specified circumstances, shall be classified, with respect to the time for which
they severally hold office, into three classes, as nearly equal in number as
possible, one class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2003, another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
2004, and another class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 2005, with each class to hold
office until its successor is duly elected and qualified. At each succeeding
annual meeting of stockholders, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election.

          B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding and unless the Board otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall, unless otherwise
provided by law or by resolution of the Board, be filled only by a majority vote
of the directors then in office, whether or not less than a quorum, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
chosen expires. No reduction in the authorized number of directors shall have
the effect of removing any director before such director's term of office
expires.

          C. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.

          D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, unless otherwise restricted by statue, by the
Certificate of Incorporation or the Bylaws of the corporation, any director, or
all of the directors, may be removed from the Board, but only for cause and only
by the affirmative vote of the holders of at least 66 2/3% of the voting power
of all of the then outstanding shares of capital stock of the corporation then
entitled to vote at the election of directors, voting together as a single
class.

                                   ARTICLE VI
                                   ----------

     The Board is expressly empowered to adopt, amend or repeal any of the
Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of
the corporation by the Board shall require the approval of a majority of the
Whole Board. The stockholders shall also have power to adopt, amend or repeal
the Bylaws of the corporation; provided, however, that, in addition to any vote
of the holders of any class or series of stock of the corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the holders
of at least 66 2/3% of the voting power of the then outstanding shares of voting
stock entitled to vote generally in the election of

                                      -3-

<PAGE>

directors, voting together as a single class, shall be required to adopt, amend
or repeal all or any portion of Article II, Section 3.2, Section 3.3, Section
3.4, Section 3.15, Article VI or Article IX of the Bylaws of the corporation.

                                  ARTICLE VII
                                  -----------

     A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the General Corporation Law of
Delaware, or (d) for any transaction from which the director derived an improper
personal benefit. If the General Corporation Law of Delaware is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware as so amended.

     The corporation shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
she, his or her testator or intestate is or was a director, officer, employee or
agent of the corporation (or any predecessor thereof), or serves or served at
any other corporation, partnership, joint venture, trust or other enterprise as
a director, officer, employee or agent at the request of the corporation (or any
predecessor).

     Any amendment, repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such amendment, repeal or modification.

                                  ARTICLE VIII
                                  ------------

     The corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; provided, however, that, notwithstanding
any other provision of this Certificate of Incorporation, or any provision of
law that might otherwise permit a lesser vote or no vote, but in addition to any
vote of the holders of any class or series of the stock of this corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 66 2/3% of the voting power of the then outstanding
shares of voting stock entitled to vote generally in the election of directors,
voting together as a single class, shall be required to amend or repeal this
Article IX, Article V, Article VI, Article VII or Article VIII.

                                      -4-

<PAGE>

          IN WITNESS WHEREOF, Netflix, Inc. has caused this Amended and Restated
Certificate of Incorporation to be executed by its President and Chief Executive
Officer this ______________, 2002.


                                             NETFLIX, INC.


                                             ___________________________________
                                             Reed Hastings
                                             President and Chief Executive
                                             Officer

                                       -5-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>4
<FILENAME>dex33.txt
<DESCRIPTION>AMENDED AND RESTATED BYLAWS
<TEXT>
<PAGE>

                                                                     Exhibit 3.3

                              AMENDED AND RESTATED

                                     BYLAWS

                                       OF

                                  KIBBLE, INC.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>                                                                          <C>
ARTICLE I - CORPORATE OFFICES ................................................  1

     1.1    REGISTERED OFFICE ................................................  1
     1.2    OTHER OFFICES ....................................................  1

ARTICLE II -  MEETINGS OF STOCKHOLDERS .......................................  1

     2.1    PLACE OF MEETINGS ................................................  1
     2.2    ANNUAL MEETING ...................................................  1
     2.3    SPECIAL MEETING ..................................................  2
     2.4    NOTICE OF STOCKHOLDERS' MEETINGS .................................  2
     2.5    MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE .....................  2
     2.6    QUORUM ...........................................................  2
     2.7    ADJOURNED MEETING; NOTICE ........................................  3
     2.8    VOTING ...........................................................  3
     2.9    WAIVER OF NOTICE .................................................  3
     2.10   STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ..........  4
     2.11   RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING-CONSENTS ......  4
     2.12   PROXIES ..........................................................  5
     2.13   LIST OF STOCKHOLDERS ENTITLED TO VOTE ............................  5

ARTICLE III -  DIRECTORS .....................................................  6

     3.1    POWERS ...........................................................  6
     3.2    NUMBER OF DIRECTORS ..............................................  6
     3.3    ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS ..........  6
     3.4    RESIGNATION AND VACANCIES ........................................  7
     3.5    PLACE OF MEETINGS; MEETINGS BY TELEPHONE .........................  8
     3.6    FIRST MEETINGS ...................................................  8
     3.7    REGULAR MEETINGS .................................................  8
     3.8    SPECIAL MEETINGS; NOTICE .........................................  8
     3.9    QUORUM ...........................................................  8
     3.10   WAIVER OF NOTICE .................................................  9
     3.11   ADJOURNED MEETING; NOTICE ........................................  9
</TABLE>

                                      -i-

<PAGE>

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>                                                                          <C>
     3.12   BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ...............   9
     3.13   FEES AND COMPENSATION OF DIRECTORS ..............................   9
     3.14   APPROVAL OF LOANS TO OFFICERS ...................................   9
     3.15   REMOVAL OF DIRECTORS ............................................  10

ARTICLE IV - COMMITTEES .....................................................  10

     4.1    COMMITTEES OF DIRECTORS .........................................  10
     4.2    COMMITTEE MINUTES ...............................................  11
     4.3    MEETINGS AND ACTION OF COMMITTEES ...............................  11

ARTICLE V - OFFICERS ........................................................  11

     5.1    OFFICERS ........................................................  11
     5.2    ELECTION OF OFFICERS ............................................  12
     5.3    SUBORDINATE OFFICERS ............................................  12
     5.4    REMOVAL AND RESIGNATION OF OFFICERS .............................  12
     5.5    VACANCIES IN OFFICES ............................................  12
     5.6    CHAIRMAN OF THE BOARD ...........................................  12
     5.7    PRESIDENT .......................................................  13
     5.8    VICE PRESIDENT ..................................................  13
     5.9    SECRETARY .......................................................  13
     5.10   TREASURER .......................................................  14
     5.11   ASSISTANT SECRETARY .............................................  14
     5.12   ASSISTANT TREASURER .............................................  14
     5.13   AUTHORITY AND DUTIES OF OFFICERS ................................  14

ARTICLE VI - INDEMNITY ......................................................  15

     6.1    INDEMNIFICATION OF DIRECTORS AND OFFICERS .......................  15
     6.2    INDEMNIFICATION OF OTHERS .......................................  15
     6.3    INSURANCE .......................................................  15
</TABLE>

                                      -ii-

<PAGE>

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
ARTICLE VII - RECORDS AND REPORTS .........................................  16

     7.1    MAINTENANCE AND INSPECTION OF RECORDS .........................  16
     7.2    INSPECTION BY DIRECTORS .......................................  16
     7.3    ANNUAL STATEMENT TO STOCKHOLDERS ..............................  17
     7.4    REPRESENTATION OF SHARES OF OTHER CORPORATIONS ................  17

ARTICLE VIII - GENERAL MATTERS ............................................  17

     8.1    CHECKS ........................................................  17
     8.2    EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS ..............  17
     8.3    STOCK CERTIFICATES; PARTLY PAID SHARES ........................  17
     8.4    SPECIAL DESIGNATION ON CERTIFICATES ...........................  18
     8.5    LOST CERTIFICATES .............................................  18
     8.6    CONSTRUCTION; DEFINITIONS .....................................  19
     8.7    DIVIDENDS .....................................................  19
     8.8    FISCAL YEAR ...................................................  19
     8.9    SEAL ..........................................................  19
     8.10   TRANSFER OF STOCK .............................................  19
     8.11   STOCK TRANSFER AGREEMENTS .....................................  20
     8.12   REGISTERED STOCKHOLDERS .......................................  20

ARTICLE IX - AMENDMENTS ...................................................  20

ARTICLE X - DISSOLUTION ...................................................  20

ARTICLE XI - CUSTODIAN ....................................................  21

     11.1   APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES ...................  21
     11.2   DUTIES OF CUSTODIAN ...........................................  22
</TABLE>

                                      -iii-

<PAGE>

                                     BYLAWS
                                     ------

                                       OF
                                       --

                                  KIBBLE, INC.
                                  ------------

                                   ARTICLE I

                                CORPORATE OFFICES
                                -----------------

         1.1      REGISTERED OFFICE
                  -----------------

         The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.

         1.2      OTHER OFFICES
                  -------------

         The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.

                                   ARTICLE II

                            MEETINGS OF STOCKHOLDERS
                            ------------------------

         2.1      PLACE OF MEETINGS
                  -----------------

         Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.

         2.2      ANNUAL MEETING
                  --------------

         The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the 31st day of
July at 9:00 A.M. However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected and any other proper
business may be transacted.

<PAGE>

         2.3      SPECIAL MEETING
                  ---------------

         A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more stockholders holding shares in the aggregate entitled to cast not
more stockholders holding shares in the aggregate entitled to cast not less than
ten percent (10%) of the votes at that meeting.

         If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of stockholders called by action of the board of directors may be held.

         2.4      NOTICE OF STOCKHOLDERS' MEETINGS
                  --------------------------------

         All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.

         2.5      MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
                  --------------------------------------------

         Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.

         2.6      QUORUM
                  ------

         The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the

                                      -2-

<PAGE>

certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.

         2.7      ADJOURNED MEETING; NOTICE
                  -------------------------

         When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.

         2.8      VOTING
                  ------

         The stockholders entitled to vote at any meeting of stock-holders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).

         Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.

         2.9      WAIVER OF NOTICE
                  ----------------

         Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.

         2.10     STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
                  -------------------------------------------------------

                                      -3-

<PAGE>

         Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.

         Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.

         2.11     RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING-CONSENTS
                  -----------------------------------------------------------

         In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.

         If the board of directors does not so fix a record date:

         (i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.

         (ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.

         (iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.

                                      -4-

<PAGE>

         A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.

         2.12     PROXIES
                  -------

         Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.

         2.13     LIST OF STOCKHOLDERS ENTITLED TO VOTE
                  -------------------------------------

         The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

                                  ARTICLE III

                                   DIRECTORS
                                   ---------

         3.1      POWERS
                  ------

         Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.

                                      -5-

<PAGE>

     3.2   NUMBER OF DIRECTORS
           -------------------

     The number of directors of the corporation shall be not less than two (2)
nor more than six (6). The exact number of directors shall be four (4). This
number may be changed by a duly adopted amendment to the certificate of
incorporation or by an amendment to this bylaw adopted by the vote or written
consent of the holders of a majority of the stock issued and outstanding and
entitled to vote or by resolution of a majority of the board of directors.

     No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.

     3.3   ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
           -------------------------------------------------------

     Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.

     Elections of directors need not be by written ballot.

     3.4   RESIGNATION AND VACANCIES
           -------------------------

     Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.

     Unless otherwise provided in the certificate of incorporation or these
bylaws:

           (i)   Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.

           (ii)  Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the

                                       -6-

<PAGE>

directors elected by such class or classes or series thereof then in office, or
by a sole remaining director so elected.

     If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.

     If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.

     3.5   PLACE OF MEETINGS; MEETINGS BY TELEPHONE
           ----------------------------------------

     The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.

     Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.

     3.6   FIRST MEETINGS
           --------------

     The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.

                                      -7-

<PAGE>

     3.7   REGULAR MEETINGS
           ----------------

     Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.

     3.8   SPECIAL MEETINGS; NOTICE
           ------------------------

     Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, the secretary
or any two (2) directors.

     Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.

     3.9   QUORUM
           ------

     At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.

     3.10  WAIVER OF NOTICE
           ----------------

     Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or

                                      -8-

<PAGE>

special meeting of the directors, or members of a committee of directors, need
be specified in any written waiver of notice unless so required by the
certificate of incorporation or these bylaws.

     3.11   ADJOURNED MEETING; NOTICE
            -------------------------

     If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.

     3.12   BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
            -------------------------------------------------

     Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.

     3.13   FEES AND COMPENSATION OF DIRECTORS
            ----------------------------------

     Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.

     3.14   APPROVAL OF LOANS TO OFFICERS
            -----------------------------

     The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.

     3.15   REMOVAL OF DIRECTORS
            --------------------

     Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.

     No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.

                                       -9-

<PAGE>

                                   ARTICLE IV

                                   COMMITTEES
                                   ----------

     4.1   COMMITTEES OF DIRECTORS
           -----------------------

     The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation
Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.

     4.2   COMMITTEE MINUTES
           -----------------

     Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.

     4.3   MEETINGS AND ACTION OF COMMITTEES
           ---------------------------------

                                      -10-

<PAGE>

     Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.

                                   ARTICLE V

                                    OFFICERS
                                    --------

     5.1   OFFICERS
           --------

     The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.

     5.2   ELECTION OF OFFICERS
           --------------------

     The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.

     5.3   SUBORDINATE OFFICERS
           --------------------

     The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.

     5.4   REMOVAL AND RESIGNATION OF OFFICERS
           -----------------------------------

                                      -11-

<PAGE>

         Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.

         Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.

         5.5      VACANCIES IN OFFICES
                  --------------------

         Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.

         5.6      CHAIRMAN OF THE BOARD
                  ----------------------

         The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.

         5.7      PRESIDENT
                  ---------

         Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.

         5.8      VICE PRESIDENT
                  --------------

         In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such

                                      -12-

<PAGE>

other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.

         5.9      SECRETARY
                  ---------

         The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.

         The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.

         The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.

         5.10     TREASURER
                  ---------

         The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained
earnings, and shares. The books of account shall at all reasonable times be open
to inspection by any director.

         The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or these bylaws.

         5.11     ASSISTANT SECRETARY
                  -------------------

                                      -13-

<PAGE>

         The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.

         5.12     ASSISTANT TREASURER
                  -------------------

         The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.

         5.13     AUTHORITY AND DUTIES OF OFFICERS
                  --------------------------------

         In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.

                                   ARTICLE VI

                                   INDEMNITY
                                   ---------

         6.1      INDEMNIFICATION OF DIRECTORS AND OFFICERS
                  -----------------------------------------

         The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.

         6.2      INDEMNIFICATION OF OTHERS
                  -------------------------

                                      -14-

<PAGE>

         The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.

         6.3      INSURANCE
                  ---------

         The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.

                                  ARTICLE VII

                               RECORDS AND REPORTS
                               -------------------

         7.1      MAINTENANCE AND INSPECTION OF RECORDS
                  -------------------------------------

         The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.

         Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent

                                      -15-

<PAGE>

to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.

         The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

         7.2      INSPECTION BY DIRECTORS
                  -----------------------

         Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.

         7.3      ANNUAL STATEMENT TO STOCKHOLDERS
                  --------------------------------

         The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.

         7.4      REPRESENTATION OF SHARES OF OTHER CORPORATIONS
                  ----------------------------------------------

         The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.

                                      -16-

<PAGE>

                                  ARTICLE VIII

                                 GENERAL MATTERS
                                 ---------------
         8.1      CHECKS
                  ------

         From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.

         8.2      EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
                  ------------------------------------------------

         The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.

         8.3      STOCK CERTIFICATES; PARTLY PAID SHARES
                  --------------------------------------

         The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.

         The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the

                                      -17-

<PAGE>

corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.

         8.4      SPECIAL DESIGNATION ON CERTIFICATES
                  -----------------------------------

         If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.

         8.5      LOST CERTIFICATES
                  -----------------

         Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.

         8.6      CONSTRUCTION; DEFINITIONS
                  -------------------------

         Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.

         8.7      DIVIDENDS
                  ---------

         The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the

                                      -18-

<PAGE>

General Corporation Law of Delaware. Dividends may be paid in cash, in property,
or in shares of the corporation's capital stock.

         The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.

         8.8      FISCAL YEAR
                  -----------

         The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.

         8.9      SEAL
                  ----

         This corporation may have a corporate seal, which may be adopted or
altered at the pleasure of the Board of Directors, and may use the same by
causing it or a facsimile thereof, to be impressed or affixed or in any other
manner reproduced.

         8.10     TRANSFER OF STOCK
                  -----------------

         Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.

         8.11     STOCK TRANSFER AGREEMENTS
                  -------------------------

         The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.

         8.12     REGISTERED STOCKHOLDERS
                  -----------------------

         The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.

                                      -19-

<PAGE>

                                   ARTICLE IX

                                   AMENDMENTS
                                   ----------

         The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.

                                   ARTICLE X

                                  DISSOLUTION
                                  -----------

         If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.

         At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.

         Whenever all the stockholders entitled to vote on a dissolution
consent in writing, either in person or by duly authorized attorney, to a
dissolution, no meeting of directors or stockholders shall be necessary. The
consent shall be filed and shall become effective in accordance with Section 103
of the General Corporation Law of Delaware. Upon such consent's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved. If the consent is signed by an
attorney, then the original power of attorney or a photocopy thereof shall be
attached to and filed with the consent. The consent filed with the Secretary of
State shall have attached to it the affidavit of the secretary or some other
officer of the corporation stating that the consent has been signed by or on
behalf of all the stockholders entitled to vote on a dissolution; in addition,
there shall be attached to the consent a certification by the secretary or some
other

                                      -20-

<PAGE>

officer of the corporation setting forth the names and residences of the
directors and officers of the corporation.

                                   ARTICLE XI

                                   CUSTODIAN
                                   ---------

         11.1     APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
                  -------------------------------------------

         The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:

                  (i)    at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or

                  (ii)   the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or

                  (iii)  the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.

         11.2     DUTIES OF CUSTODIAN
                  -------------------

         The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.

                                      -21-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5.1
<SEQUENCE>5
<FILENAME>dex51.txt
<DESCRIPTION>OPINION OF WILSON SONSINI GOODRICH & ROSATI
<TEXT>
<PAGE>

                                                                    EXHIBIT 5.1

                 [WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]

                                           , 2002

Netflix, Inc.
970 University Avenue
Los Gatos, California 95032

      RE:   REGISTRATION STATEMENT ON FORM S-1

Ladies and Gentlemen:

      We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission ("SEC") on           , 2002 (as such may
be further amended or supplemented, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of up to          shares of your Common Stock (the "Shares"). The Shares
include an over-allotment option granted to the underwriters of the offering to
purchase          shares. We understand that the Shares are to be sold to the
underwriters of the offering for resale to the public as described in the
Registration Statement. As your legal counsel, we have examined the proceedings
taken, and are familiar with the proceedings proposed to be taken, by you in
connection with the sale and issuance of the Shares.

      It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and nonassessable.

      We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendments thereto.

                                          Very truly yours,


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>6
<FILENAME>dex102.txt
<DESCRIPTION>2002 EMPLOYEE STOCK PURCHASE PLAN
<TEXT>
<PAGE>
                                                                    Exhibit 10.2

                                  NETFLIX, INC.

                        2002 EMPLOYEE STOCK PURCHASE PLAN

                            Adopted February 27, 2002

     The following constitutes the provisions of the 2002 Employee Stock
Purchase Plan of Netflix, Inc.

     1. Purpose. The purpose of the Plan is to provide Employees with an
        -------
opportunity to purchase Common Stock through accumulated payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit Plan participation in
a manner that is consistent with the requirements of that section of the Code.

     2. Definitions.
        -----------

        (a) "Administrator" means the Board or any committee thereof designated
             -------------
by the Board in accordance with Section 14.

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

        (c) "Change of Control" means the occurrence of any of the following
             -----------------
events:

            (i)   Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 of
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or

            (ii)  The consummation of the sale or disposition by the Company of
all or substantially all of the Company's assets; or

            (iii) The consummation of a merger or consolidation of the Company,
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or its parent) at least
fifty percent (50%) of the total voting power represented by the voting
securities of the Company, or such surviving entity or its parent outstanding
immediately after such merger or consolidation.

            (iv)  A change in the composition of the Board, as a result of which
fewer than a majority of the Directors are Incumbent Directors. "Incumbent
Directors" means Directors who either (A) are Directors as of the effective date
of the Plan (pursuant to Section 23), or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of
those Directors whose election or nomination was not in connection with any
transaction described in subsections (i), (ii) or (iii) or in connection with an
actual or threatened proxy contest relating to the election of Directors.

<PAGE>

            (d) "Code" means the Internal Revenue Code of 1986, as amended. Any
                 ----
reference to a section of the Code herein shall be a reference to any successor
or amended section of the Code.

            (e) "Common Stock" means the common stock of the Company.
                 ------------

            (f) "Company" means Netflix, Inc., a Delaware corporation.
                 -------

            (g) "Compensation" shall mean all salary, wages (including amounts
                 ------------
elected to be deferred by the employee, that would otherwise have been paid,
under a cash or deferred arrangement established by the Company), overtime pay,
commissions, bonuses and any other remuneration paid directly to the employee,
but excluding profit sharing, the cost of employee benefits paid for by the
Company, education or tuition reimbursements, imputed income arising under any
Company group insurance or benefit program, traveling expenses, business and
moving expense reimbursements, income recognized in connection with stock
options, contributions made by the Company under any employee benefit plan, and
similar items of compensation.

            (h) "Designated Subsidiary" means any Subsidiary that has been
                 ---------------------
designated by the Administrator from time to time in its sole discretion as
eligible to participate in the Plan.

            (i) "Director" means a member of the Board.
                 --------

            (j) "Employee" means any individual who is a common law employee of
                 --------
an Employer and is customarily employed for at least twenty (20) hours per week
and more than five (5) months in any calendar year by the Employer. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Employer. Where the period of leave exceeds ninety (90) days and the
individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.

            (k) "Employer" means any one or all of the Company and its
                 --------
Designated Subsidiaries.

            (l) "Enrollment Date" means the first Trading Day of each Offering
                 ---------------
Period.

            (m) "Exchange Act" means the Securities Exchange Act of 1934, as
                 ------------
amended, including the rules and regulations promulgated thereunder.

            (n) "Exercise Date" means the first Trading Day on or after May
1/st/ and November 1/st/ of each year. The first Exercise Date under the Plan
shall be November 1, 2002.

            (o) "Fair Market Value" means, as of any date, the value of Common
                 -----------------
Stock determined as follows:

                (i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for the Common Stock (or the
closing bid, if no sales were reported) as quoted on such exchange or

                                       -2-

<PAGE>

system on the date of determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable, or;

              (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable, or;

              (iii) In the absence of an established market for the Common
Stock, its Fair Market Value shall be determined in good faith by the
Administrator, or;

              (iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus deemed to be included within the
registration statement on Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Common Stock (the
"Registration Statement").

          (p) "Offering Periods" means the periods of approximately twenty-four
               ----------------
(24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1st and November
1st of each year and terminating on the first Trading Day on or after the May
1st and November 1st Offering Period commencement date approximately twenty-four
(24) months later; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the first Trading Day on or after the earlier of (i) May
1, 2004 or (ii) twenty-seven (27) months from the beginning of the first
Offering Period; and provided, further, that the second Offering Period under
the Plan shall commence on November 1, 2002. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.

          (q) "Parent" means a "parent corporation," whether now or hereafter
               ------
existing, as defined in Section 424(e) of the Code.

          (r) "Plan" means this 2002 Employee Stock Purchase Plan.
               ----

          (s) "Purchase Period" means the approximately six (6) month period
               ---------------
commencing on one Exercise Date and ending with the next Exercise Date, except
that the first Purchase Period of any Offering Period shall commence on the
Enrollment Date and end with the next Exercise Date.

          (t) "Purchase Price" means an amount equal to eighty-five percent
               --------------
(85%) of the Fair Market Value of a share of Common Stock on the Enrollment Date
or on the Exercise Date, whichever is lower; provided however, that the Purchase
Price may be adjusted by the Administrator pursuant to Section 20.

          (u) "Subsidiary" means a "subsidiary corporation," whether now or
               ----------
hereafter existing, as defined in Section 424(f) of the Code.

                                       -3-

<PAGE>

         (v) "Trading Day" means a day on which the U.S. national stock
              -----------
exchanges and the Nasdaq System are open for trading.


     3.  Eligibility.
         -----------

         (a) First Offering Period. Any individual who is an Employee
             ---------------------
immediately prior to the first Offering Period under the Plan shall be
automatically enrolled in the first Offering Period.

         (b) Subsequent Offering Periods. Any individual who is an Employee as
             ---------------------------
of the Enrollment Date of any future Offering Period shall be eligible to
participate in such Offering Period, subject to the requirements of Section 5.

         (c) Limitations. Any provisions of the Plan to the contrary
             -----------
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company or any Parent or Subsidiary of
the Company and/or hold outstanding options to purchase such stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of the capital stock of the Company or of any Parent or Subsidiary of
the Company, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans (as defined in Section 423 of the Code)
of the Company or any Parent or Subsidiary of the Company accrues at a rate
which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined
at the Fair Market Value of the stock at the time such option is granted) for
each calendar year in which such option is outstanding at any time.

     4.  Offering Periods. The Plan shall be implemented by consecutive,
         ----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1st and November 1st of each year, or on such other
date as the Administrator shall determine, and continuing thereafter until
terminated in accordance with Section 20; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the first Trading Day
on or after the earlier of (i) May 1, 2004 or (ii) twenty-seven (27) months from
the beginning of the first Offering Period; and provided, further, that the
second Offering Period under the Plan shall commence on November 1, 2002. The
Administrator shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings and
create new Offering Periods without stockholder approval.

     5.  Participation.
         --------------

         (a) First Offering Period. An Employee who has become a participant in
             ---------------------
the first Offering Period under the Plan pursuant to Section 3 shall be entitled
to continue his or her participation in such Offering Period only if he or she
submits to the Company's payroll office (or its designee) a properly completed
subscription agreement authorizing payroll deductions in the form provided by
the Administrator for such purpose (i) no earlier than the effective date of the
filing of the Company's Registration Statement on Form S-8 with respect to the
shares of Common Stock issuable under the Plan (the "Effective Date") and (ii)
no later than five (5) business days from the Effective Date (the "Enrollment
Window"). A participant's failure to submit the subscription

                                      -4-

<PAGE>

agreement during the Enrollment Window pursuant to this Section 5(a) shall
result in the automatic termination of his or her participation in the first
Offering Period under the Plan.

          (b) Subsequent Offering Periods. An Employee who is eligible to
              ---------------------------
participate in the Plan pursuant to Section 3(b) may become a participant by (i)
submitting to the Company's payroll office (or its designee), on or before a
date prescribed by the Administrator prior to an applicable Enrollment Date, a
properly completed subscription agreement authorizing payroll deductions in the
form provided by the Administrator for such purpose, or (ii) following an
electronic or other enrollment procedure prescribed by the Administrator.

      6.  Payroll Deductions.
          ------------------

          (a) At the time a participant enrolls in the Plan pursuant to Section
5, he or she shall elect to have payroll deductions made on each payday during
the Offering Period in an amount not exceeding 15% of the Compensation which he
or she receives on each such payday.

          (b) Payroll deductions authorized by a participant shall commence on
the first payday following the Enrollment Date and shall end on the last payday
in the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10; provided, however, that
for the first Offering Period under the Plan, payroll deductions shall commence
on the first payday on or following the end of the Enrollment Window.

          (c) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.

          (d) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or may change the rate of his or her payroll
deductions during the Offering Period by (i) properly completing and submitting
to the Company's payroll office (or its designee), on or before a date
prescribed by the Administrator prior to an applicable Exercise Date, a new
subscription agreement authorizing the change in payroll deduction rate in the
form provided by the Administrator for such purpose, or (ii) following an
electronic or other procedure prescribed by the Administrator; provided,
however, that a participant may only make two payroll deduction changes during
each Purchase Period. If a participant has not followed such procedures to
change the rate of payroll deductions, the rate of his or her payroll deductions
shall continue at the last properly elected rate throughout the Offering Period
and future Offering Periods (unless terminated as provided in Section 10). The
Administrator may, in its sole discretion, limit the nature and/or number of
payroll deduction rate changes that may be made by participants during any
Offering Period. Any change in payroll deduction rate made pursuant to this
Section 6(d) shall be effective as of the first full payroll period following
five (5) business days after the date on which the change is made by the
participant (unless the Company, in its sole discretion, elects to process a
given change in payroll deduction rate more quickly).

          (e)Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(c), a participant's payroll
deductions may be decreased to zero percent (0%) at any time during a Purchase
Period. Payroll deductions shall recommence at the rate originally elected by
the participant effective as of the beginning of the first Purchase Period

                                      -5-

<PAGE>

which is scheduled to end in the following calendar year, unless terminated by
the participant as provided in Section 10.

          (f) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to the sale or early disposition of
Common Stock by the Employee.

     7.   Grant of Option. On the Enrollment Date of each Offering Period, each
          ---------------
Employee participating in such Offering Period shall be granted an option to
purchase on each Exercise Date during such Offering Period (at the applicable
Purchase Price) up to a number of shares of Common Stock determined by dividing
such participant's payroll deductions accumulated prior to such Exercise Date
and retained in the participant's account as of the Exercise Date by the
applicable Purchase Price; provided that in no event shall a participant be
permitted to purchase during each Purchase Period more than 12,500 shares of
Common Stock (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(c) and 13. The Employee may accept the grant of such option by
submitting a properly completed subscription agreement in accordance with the
requirements of Section 5. The Administrator may, for future Offering Periods,
increase or decrease, in its absolute discretion, the maximum number of shares
of Common Stock that a participant may purchase during each Purchase Period of
such Offering Period. Exercise of the option shall occur as provided in Section
8, unless the participant has withdrawn pursuant to Section 10. The option shall
expire on the last day of the Offering Period.

     8.   Exercise of Option.
          ------------------

          (a) Unless a participant withdraws from the Plan as provided in
Section 10, his or her option for the purchase of shares of Common Stock shall
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares of Common Stock shall be purchased; any payroll
deductions accumulated in a participant's account which are not sufficient to
purchase a full share shall be retained in the participant's account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal by
the participant as provided in Section 10. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.

          (b) Notwithstanding any contrary Plan provision, if the Administrator
determines that, on a given Exercise Date, the number of shares of Common Stock
with respect to which options are to be exercised may exceed (i) the number of
shares of Common Stock that were available for sale under the Plan on the
Enrollment Date of the applicable Offering Period, or (ii) the number of shares
of Common Stock available for sale under the Plan on such Exercise Date, the
Administrator

                                      -6-

<PAGE>

may in its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares of Common Stock
available for purchase on such Enrollment Date or Exercise Date, as applicable,
in as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Exercise Date, and terminate any or all Offering
Periods then in effect pursuant to Section 20. The Company may make pro rata
allocation of the shares of Common Stock available on the Enrollment Date of any
applicable Offering Period pursuant to the preceding sentence, notwithstanding
any authorization of additional shares of Common Stock for issuance under the
Plan by the Company's shareholders subsequent to such Enrollment Date.

     9.  Delivery. As soon as administratively practicable after each Exercise
         --------
Date on which a purchase of shares of Common Stock occurs, the Company shall
arrange the delivery to each participant, as appropriate, the shares purchased
upon exercise of his or her option in a form determined by the Administrator (in
its sole discretion). No participant shall have any voting, dividend, or other
shareholder rights with respect to shares of Common Stock subject to any option
granted under the Plan until such shares have been purchased and delivered to
the participant as provided in this Section 9.

     10. Withdrawal.
         ----------

         (a) Under procedures established by the Administrator, a participant
may withdraw all but not less than all the payroll deductions credited to his or
her account and not yet used to exercise his or her option under the Plan at any
time by (i) submitting to the Company's payroll office (or its designee) a
written notice of withdrawal in the form prescribed by the Administrator for
such purpose, or (ii) following an electronic or other withdrawal procedure
prescribed by the Administrator. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant as promptly as
practicable after the effective date of his or her withdrawal and such
participant's option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant re-enrolls in the Plan in accordance with the
provisions of Section 5.

         (b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.

     11. Termination of Employment. Upon a participant's ceasing to be an
         -------------------------
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to purchase shares of Common Stock
under the Plan shall be returned to such participant or, in the case of his or
her death, to the person or persons entitled thereto under Section 15, and such
participant's

                                      -7-

<PAGE>

option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.

     12. Interest. No interest shall accrue on the payroll deductions of a
         --------
participant in the Plan.

     13. Stock.
         -----

         (a) Subject to adjustment upon changes in capitalization of the Company
as provided in Section 19, the maximum number of shares of Common Stock which
shall be made available for sale under the Plan shall be 1,750,000 shares plus
an annual increase to be added on the first day of the Company's fiscal year
beginning in fiscal year 2003, equal to the lesser of (i) 1,000,000 shares, (ii)
two percent (2%) of the outstanding shares on such date or (iii) an amount
determined by the Board.

         (b) Shares of Common Stock to be delivered to a participant under the
Plan shall be registered in the name of the participant or in the name of the
participant and his or her spouse.

     14. Administration. The Board or a committee of members of the Board who
         --------------
shall be appointed from time to time by, and shall serve at the pleasure of, the
Board, shall administer the Plan. The Administrator shall have full and
exclusive discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility and to adjudicate all disputed claims filed
under the Plan. The Administrator, in its sole discretion and on such terms and
conditions as it may provide, may delegate to one or more individuals all or any
part of its authority and powers under the Plan. Every finding, decision and
determination made by the Administrator (or its designee) shall, to the full
extent permitted by law, be final and binding upon all parties.

     15. Designation of Beneficiary.
         --------------------------

         (a) A participant may designate a beneficiary who is to receive any
shares of Common Stock and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may designate a beneficiary who
is to receive any cash from the participant's account under the Plan in the
event of such participant's death prior to exercise of the option. If a
participant is married and the designated beneficiary is not the spouse, spousal
consent shall be required for such designation to be effective.

         (b) Such designation of beneficiary may be changed by the participant
at any time. In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.

                                      -8-

<PAGE>

         (c) All beneficiary designations under this Section 15 shall be made
in such form and manner as the Administrator may prescribe from time to time.

     16. Transferability. Neither payroll deductions credited to a participant's
         ---------------
account nor any rights with regard to the exercise of an option or to receive
shares of Common Stock under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw from an
Offering Period in accordance with Section 10.

     17. Use of Funds. All payroll deductions received or held by the Company
         ------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions. Until
shares of Common Stock are issued under the Plan (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), a participant shall only have the rights of an unsecured
creditor with respect to such shares.

     18. Reports. Individual accounts shall be maintained for each participant
         -------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares of Common Stock purchased
and the remaining cash balance, if any.

     19. Adjustments, Dissolution, Liquidation or Change of Control.
         ----------------------------------------------------------

         (a) Adjustments. In the event that any dividend or other distribution
             -----------
(whether in the form of cash, Common Stock, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Common Stock or other securities of the Company, or other change in the
corporate structure of the Company affecting the Common Stock such that an
adjustment is determined by the Administrator (in its sole discretion) to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Administrator shall, in such manner as it may deem equitable, adjust the number
and class of Common Stock which may be delivered under the Plan, the Purchase
Price per share and the number of shares of Common Stock covered by each option
under the Plan which has not yet been exercised, and the numerical limits of
Sections 7 and 13.

         (b) Dissolution or Liquidation. In the event of the proposed
             --------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10.

                                       -9-

<PAGE>

          (c) Change of Control. In the event of a Change of Control, each
              -----------------
outstanding option shall be assumed or an equivalent option substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or substitute for the
option, any Purchase Periods then in progress shall be shortened by setting a
new Exercise Date (the "New Exercise Date") and any Offering Periods then in
progress shall end on the New Exercise Date. The New Exercise Date shall be
before the date of the Company's proposed Change of Control. The Administrator
shall notify each participant in writing, at least ten (10) business days prior
to the New Exercise Date, that the Exercise Date for the participant's option
has been changed to the New Exercise Date and that the participant's option
shall be exercised automatically on the New Exercise Date, unless prior to such
date the participant has withdrawn from the Offering Period as provided in
Section 10.

     20.  Amendment or Termination.
          ------------------------

          (a) The Administrator may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 19, no such termination can affect
options previously granted under the Plan, provided that an Offering Period may
be terminated by the Administrator on any Exercise Date if the Administrator
determines that the termination of the Plan is in the best interests of the
Company and its stockholders. Except as provided in Section 19 and this Section
20, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.

          (b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Administrator shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Administrator determines in its sole discretion advisable which are
consistent with the Plan.

          (c) In the event the Administrator determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:

              (i)  altering the Purchase Price for any Offering Period including
an Offering Period underway at the time of the change in Purchase Price;

              (ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and

                                      -10-

<PAGE>

               (iii) allocating shares.

Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.

     21. Notices. All notices or other communications by a participant to the
         -------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

     22. Conditions Upon Issuance of Shares. Shares of Common Stock shall not be
         ----------------------------------
issued with respect to an option under the Plan unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, including the rules
and regulations promulgated thereunder, the Exchange Act and the requirements of
any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

         As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

     23. Term of Plan. The Plan shall become effective upon the earlier to occur
         ------------
of its adoption by the Board or its approval by the stockholders of the Company.
It shall continue in effect until terminated under Section 20.

     24. Automatic Transfer to Low Price Offering Period. To the extent
         -----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period.

                                      -11-

<PAGE>

                          SAMPLE SUBSCRIPTION AGREEMENT
                          -----------------------------

                                  NETFLIX, INC.

                        2002 EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT

_____ Original Application                            Offering Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)


1.  ____________________ hereby elects to participate in the Netflix, Inc. 2002
    Employee Stock Purchase Plan (the "Plan") and subscribes to purchase shares
    of the Company's Common Stock in accordance with this Subscription Agreement
    and the Plan.

2.  I hereby authorize payroll deductions from each paycheck in the amount of
    ____% of my Compensation on each payday (from 0 to 15%) during the Offering
    Period in accordance with the Plan. (Please note that no fractional
    percentages are permitted.)

3.  I understand that said payroll deductions shall be accumulated for the
    purchase of shares of Common Stock at the applicable Purchase Price
    determined in accordance with the Plan. I understand that if I do not
    withdraw from an Offering Period, any accumulated payroll deductions will be
    used to automatically exercise my option.

4.  I have received a copy of the complete Plan. I understand that my
    participation in the Plan is in all respects subject to the terms of the
    Plan. I understand that my ability to exercise the option under this
    Subscription Agreement is subject to shareholder approval of the Plan.

5.  Shares of Common Stock purchased for me under the Plan should be issued in
    the name(s) of Employee or Employee and Spouse only.

6.  I understand that if I dispose of any shares received by me pursuant to the
    Plan within 2 years after the Offering Date (the first day of the Offering
    Period during which I purchased such shares) or one year after the Exercise
    Date, I will be treated for federal income tax purposes as having received
    ordinary income at the time of such disposition in an amount equal to the
    excess of the fair market value of the shares at the time such shares were
    purchased by me over the price which I paid for the shares. I hereby agree
                                                                --------------
    to notify the Company in writing within 30 days after the date of any
    ---------------------------------------------------------------------
    disposition of my shares and I will make adequate provision for Federal,
    ------------------------------------------------------------------------
    state or other tax withholding obligations, if any, which arise upon the
    ------------------------------------------------------------------------
    disposition of the Common Stock. The Company may, but will not be obligated
    -------------------------------
    to, withhold from my compensation the amount necessary to meet any
    applicable withholding obligation including any withholding necessary to
    make available to the Company any tax deductions or

<PAGE>

     benefits attributable to sale or early disposition of Common Stock by me.
     If I dispose of such shares at any time after the expiration of the 2-year
     and 1-year holding periods, I understand that I will be treated for federal
     income tax purposes as having received income only at the time of such
     disposition, and that such income will be taxed as ordinary income only to
     the extent of an amount equal to the lesser of (1) the excess of the fair
     market value of the shares at the time of such disposition over the
     purchase price which I paid for the shares, or (2) 15% of the fair market
     value of the shares on the first day of the Offering Period. The remainder
     of the gain, if any, recognized on such disposition will be taxed as
     capital gain.

7.   I hereby agree to be bound by the terms of the Plan. The effectiveness of
     this Subscription Agreement is dependent upon my eligibility to participate
     in the Plan.

8.   In the event of my death, I hereby designate the following as my
     beneficiary(ies) to receive all payments and/or shares due me under the
     Plan:


     NAME:  (Please print)_____________________________________________________
                             (First)         (Middle)          (Last)



     _________________________               ___________________________________
     Relationship

     _________________________               ___________________________________
     Percentage Benefit                      (Address)


     NAME:  (Please print)_____________________________________________________
                             (First)         (Middle)          (Last)


     _________________________               ___________________________________
     Relationship

     _________________________               ___________________________________
     Percentage Benefit                      (Address)


                                      -2-

<PAGE>

         Employee's Social
         Security Number:                   ____________________________________

         Employee's Address:                ____________________________________

                                            ____________________________________

                                            ____________________________________

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:_________________________         ________________________________________
                                        Signature of Employee

                                        ________________________________________
                                        Spouse's Signature (If beneficiary other
                                        than spouse)

                                      -3-

<PAGE>

                            SAMPLE WITHDRAWAL NOTICE
                            ------------------------

                                  NETFLIX, INC.

                        2002 EMPLOYEE STOCK PURCHASE PLAN

                              NOTICE OF WITHDRAWAL

         The undersigned participant in the Offering Period of the Netflix, Inc.
2002 Employee Stock Purchase Plan which began on ____________, ______ (the
"Offering Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.

                                                Name and Address of Participant:

                                                ________________________________

                                                ________________________________

                                                ________________________________

                                                Signature:

                                                ________________________________

                                                Date:___________________________

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>7
<FILENAME>dex103.txt
<DESCRIPTION>AMENDED AND RESTATED 1997 STOCK PLAN
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.3

                                NETFLIX.COM, INC.

                                 1997 STOCK PLAN

                            Adopted December 17, 1997

              Amended and Restated Effective as of October 17, 2001


     1.   Purposes of the Plan. The purposes of this Stock Plan are to attract
          --------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.

     2.   Definitions. As used herein, the following definitions shall apply:
          -----------

          (a)  "Administrator" means the Board or any of its Committees as shall
                -------------
be administering the Plan in accordance with Section 4 hereof.

          (b)  "Applicable Laws" means the requirements relating to the
                ---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.

          (c)  "Board" means the Board of Directors of the Company.
                -----

          (d)  "Code" means the Internal Revenue Code of 1986, as amended.
                ----

          (e)  "Committee" means a committee of Directors appointed by the Board
                ---------
in accordance with Section 4 hereof.

          (f)  "Common Stock" means the Common Stock of the Company.
                ------------

          (g)  "Company" means NetFlix, Inc., a Delaware corporation.
                -------

          (h)  "Consultant" means any person who is engaged by the Company or
                ----------
any Parent or Subsidiary to render consulting or advisory services to such
entity.

          (i)  "Director" means a member of the Board of Directors of the
                --------
Company.

          (j)  "Disability" means total and permanent disability as defined in
                ----------
Section 22(e)(3) of the Code.

<PAGE>

          (k)  "Employee" means any person, including Officers and Directors,
                --------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

          (l)  "Exchange Act" means the Securities Exchange Act of 1934, as
                ------------
amended.

          (m)  "Fair Market Value" means, as of any date, the value of Common
                -----------------
Stock determined as follows:

               (i)   If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

               (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.

          (n)  "Incentive Stock Option" means an Option intended to qualify as
                ----------------------
an incentive stock option within the meaning of Section 422 of the Code.

          (o)  "Nonstatutory Stock Option" means an Option not intended to
                -------------------------
qualify as an Incentive Stock Option.

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

          (q)  "Option" means a stock option granted pursuant to the Plan.
                ------

          (r)  "Option Agreement" means a written or electronic agreement
                ----------------
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.

                                      -2-

<PAGE>

          (s)  "Option Exchange Program" means a program whereby outstanding
                -----------------------
Options are exchanged for Options with a lower exercise price.

          (t)  "Optioned Stock" means the Common Stock subject to an Option or a
                --------------
Stock Purchase Right.

          (u)  "Optionee" means the holder of an outstanding Option or Stock
                --------
Purchase Right granted under the Plan.

          (v)  "Parent" means a "parent corporation," whether now or hereafter
                ------
existing, as defined in Section 424(e) of the Code.

          (w)  "Plan" means this 1997 Stock Plan.
                ----

          (x)  "Restricted Stock" means shares of Common Stock acquired pursuant
                ----------------
to a grant of a Stock Purchase Right under Section 11 below.

          (y)  "Section 16(b) " means Section 16(b) of the Securities Exchange
                -------------
Act of 1934, as amended.

          (z)  "Service Provider" means an Employee, Director or Consultant.
                ----------------

          (aa) "Share" means a share of the Common Stock, as adjusted in
                -----
accordance with Section 12 below.

          (bb) "Stock Purchase Right" means a right to purchase Common Stock
                --------------------
pursuant to Section 11 below.

          (cc) "Subsidiary" means a "subsidiary corporation," whether now or
                ----------
hereafter existing, as defined in Section 424(f) of the Code.

     3.   Stock Subject to the Plan. Subject to the provisions of Section 12 of
          -------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 14,639,935 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.

     If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

     4.   Administration of the Plan.
          --------------------------

                                      -3-

<PAGE>

          (a)  Administrator. The Plan shall be administered by the Board or a
               -------------
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.

          (b)  Powers of the Administrator. Subject to the provisions of the
               ---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:

               (i)    to determine the Fair Market Value;

               (ii)   to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;

               (iii)  to determine the number of Shares to be covered by each
such award granted hereunder;

               (iv)   to approve forms of agreement for use under the Plan;

               (v)    to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

               (vi)   to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(e) instead of Common Stock;

               (vii)  to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;

               (viii) to initiate an Option Exchange Program;

               (ix)   to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

               (x)    to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by Optionees to
have Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable; and

                                      -4-

<PAGE>

               (xi)   to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.

          (c)  Effect of Administrator's Decision. All decisions, determinations
               ----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.

     5.   Eligibility.
          -----------

          (a)  Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

          (b)  Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

          (c)  Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.

     6.   Term of Plan. The Plan shall become effective upon its adoption by the
          ------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.

     7.   Term of Option. The term of each Option shall be stated in the Option
          --------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.

     8.   Option Exercise Price and Consideration.
          ---------------------------------------

          (a)  The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

               (i)    In the case of an Incentive Stock Option

                      (1)  granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of

                                      -5-

<PAGE>

stock of the Company or any Parent or Subsidiary, the exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.

                    (2) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

              (ii)  In the case of a Nonstatutory Stock Option

                    (1) granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.

                    (2) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.

              (iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.

          (b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.

     9.   Exercise of Option.
          ------------------

          (a) Procedure for Exercise; Rights as a Shareholder. Any Option
              -----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder shall be tolled during any unpaid leave of absence.

     An Option may not be exercised for a fraction of a Share. An Option shall
be deemed exercised when the Company receives: (i) written or electronic notice
of exercise (in accordance with the Option Agreement) from the person entitled
to exercise the Option, and (ii) full payment for the Shares with respect to
which the Option is exercised. Full payment may consist of any consideration and
method of payment authorized by the Administrator and permitted by the Option
Agreement and the Plan. Shares issued upon exercise of an Option shall

                                      -6-

<PAGE>

be issued in the name of the Optionee or, if requested by the Optionee, in the
name of the Optionee and his or her spouse. Until the Shares are issued (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Shares,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such Shares promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 12 of the Plan.

     Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

          (b)  Termination of Relationship as a Service Provider. If an Optionee
               -------------------------------------------------
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

          (c)  Disability of Optionee. If an Optionee ceases to be a Service
               ----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

          (d)  Death of Optionee. If an Optionee dies while a Service Provider,
               -----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

                                       -7-

<PAGE>

          (e)  Buyout Provisions. The Administrator may at any time offer to buy
               -----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

     10.  Limited Transferability of Options and Stock Purchase Rights. Unless
          ------------------------------------------------------------
determined otherwise by the Administrator, Options and Stock Purchase Rights may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.

     11.  Stock Purchase Rights.
          ---------------------

          (a)  Rights to Purchase. Stock Purchase Rights may be issued either
               ------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.

          (b)  Repurchase Option. Unless the Administrator determines otherwise,
               -----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.

          (c)  Other Provisions. The Restricted Stock purchase agreement shall
               ----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

          (d)  Rights as a Shareholder. Once the Stock Purchase Right is
               -----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.

     12.  Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
          ----------------------------------------------------------------

                                      -8-

<PAGE>

          (a)  Changes in Capitalization. Subject to any required action by the
               -------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.

          (b)  Dissolution or Liquidation. In the event of the proposed
               --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.

          (c)  Merger or Asset Sale. In the event of a merger of the Company
               --------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company (a "Merger"), each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation (the
"Successor Corporation").

     Following such assumption or substitution in connection with a Merger, if
the Optionee's status as an Employee or employee of the Successor Corporation,
as applicable, is terminated by the Successor Corporation as a result of an
Involuntary Termination (as defined below) other than for Cause (as defined
below) within twelve months following a Merger, the Optionee shall vest in and
have the right to exercise that portion of Optionee's Option or Stock Purchase
Right, if any, that would have vested within one year after the date of
Optionee's termination. Thereafter, the Option or Stock Purchase Right shall
remain exercisable in accordance with Sections 10(b) through (d) above.

                                      -9-

<PAGE>

     For purposes of this section, any of the following events shall constitute
an "Involuntary Termination": (i) a significant reduction of the Employee's
duties, authority or responsibilities, relative to the Employee's duties,
authority or responsibilities as in effect immediately prior to the Merger, or
the assignment to Employee of such reduced duties, authority or
responsibilities; (ii) a substantial reduction of the facilities and perquisites
(including office space and location) available to the Employee immediately
prior to the Merger; (iii) a reduction in the base salary of the Employee as in
effect immediately prior to the Merger; (iv) a material reduction in the kind or
level of employee benefits, including bonuses, to which the Employee was
entitled immediately prior to the Merger with the result that the Employee's
overall benefits package is significantly reduced; (v) the relocation of the
Employee to a facility or a location more than fifty (50) miles from the
Employee's then present location, without the Employee's express written
consent; (vi) any purported termination of the Employee by the Successor
Corporation which is not effected for Disability or for Cause, or any purported
termination for which the grounds relied upon are not valid; (vii) or any act or
set of facts or circumstances which would, under California case law or statute
constitute a constructive termination of the Employee.

     For purposes of this section, "Cause" shall mean (i) any act of personal
dishonesty taken by the Employee in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Employee, (ii) the conviction of a felony, (iii) a willful act by the Employee
which constitutes gross misconduct and which is injurious to the Successor
Corporation, and (iv) following delivery to the Employee of a written demand for
performance from the Successor Corporation which describes the basis for the
Successor Corporation's belief that the Employee has not substantially performed
his duties, continued violations by the Employee of the Employee's obligations
to the Successor which are demonstrably willful and deliberate on the Employee's
part.

     In the event that the Successor Corporation refuses to assume or substitute
for the Option or Stock Purchase Right, the Optionee shall fully vest in and
have the right to exercise the Option or Stock Purchase Right as to all of the
Optioned Stock, including Shares as to which Optionee would not otherwise be
vested or exercisable. If an Option or Stock Purchase Right becomes fully vested
and exercisable in lieu of assumption or substitution in connection with a
Merger, the Administrator shall notify the Optionee in writing that the Option
or Stock Purchase Right shall be fully vested and exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the Merger, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the Merger, the consideration (whether
stock, cash, or other securities or property) received in the Merger by holders
of Common Stock for each Share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the Merger is not
solely common stock of the Successor Corporation or its Parent, the
Administrator may, with the consent of the Successor Corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase

                                      -10-

<PAGE>

Right, to be solely common stock of the Successor Corporation or its Parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the Merger.

         13.      Time of Granting Options and Stock Purchase Rights. The date
                  --------------------------------------------------
of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option or
Stock Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.

         14.      Amendment and Termination of the Plan.
                  -------------------------------------

                  (a)      Amendment and Termination.  The Board may at any time
                           -------------------------
 amend, alter, suspend or terminate the Plan.

                  (b)      Shareholder Approval.  The Board shall obtain
                           --------------------
shareholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws.

                  (c)      Effect of Amendment or Termination. No amendment,
                           ---------------------------------
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.

         15.      Conditions Upon Issuance of Shares.
                  -----------------------------------

                  (a)      Legal Compliance. Shares shall not be issued pursuant
                           ----------------
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

                  (b)      Investment Representations. As a condition to the
                           --------------------------
exercise of an Option, the Administrator may require the person exercising such
Option to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.

         16.      Inability to Obtain Authority. The inability of the Company to
                  -----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

         17.      Reservation of Shares. The Company, during the term of this
                  ---------------------
Plan, shall at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.

                                      -11-

<PAGE>

         18.      Shareholder Approval.  The Plan shall be subject to approval
                  --------------------
by the shareholders of the Company within twelve (12) months after the date the
Plan is adopted.  Such shareholder approval shall be obtained in the degree and
manner required under Applicable
Laws.
         19.      Information to Optionees and Purchasers. The Company shall
                  ---------------------------------------
provide to each Optionee and to each individual who acquires Shares pursuant to
the Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.

                                      -12-

<PAGE>



                                      -13

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>8
<FILENAME>dex104.txt
<DESCRIPTION>2002 STOCK PLAN
<TEXT>
<PAGE>

                                                                    Exhibit 10.4
                                  NETFLIX, INC.

                                 2002 STOCK PLAN

                            Adopted February 27, 2002

     1.   Purposes of the Plan. The purposes of this 2002 Stock Plan are:
          --------------------

          .    to attract and retain the best available personnel for positions
               of substantial responsibility,

          .    to provide additional incentive to Employees, Directors and
               Consultants, and

          .    to promote the success of the Company's business.

          Options  granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the  time of
grant. Stock Purchase Rights may also be granted under the Plan.

     2.   Definitions. As used herein, the following definitions shall apply:
          -----------

          (a)  "Administrator"  means the Board or any of its Committees as
                -------------
shall be administering the Plan, in accordance with Section 4.

          (b)  "Applicable Laws" means the requirements relating to the
                ---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

          (c)  "Board" means the Board of Directors of the Company.
                -----

          (d)  "Change in Control" means the occurrence of any of the following
                -----------------
events:

               (i)   Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or

               (ii)  The consummation of the sale or disposition by the Company
of all or substantially all of the Company's assets;

               (iii) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" means directors who either (A) are
Directors as of the effective date of the Plan, or (B) are elected, or nominated
for election, to the Board with the affirmative votes of at least

<PAGE>

a majority of the Incumbent Directors at the time of such election or nomination
(but will not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or

               (iv) The consummation of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or its parent) at least
fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation.

          (e) "Code" means the Internal Revenue Code of 1986, as amended. Any
               ----
reference to a section of the Code herein shall be a reference to any successor
or amended section of the Code.

          (f) "Committee" means a committee appointed by the Board in accordance
               ---------
with Section 4 of the Plan.

          (g) "Common Stock" means the common stock of the Company.
               ------------

          (h) "Company" means Netflix, Inc., a Delaware corporation.
               -------

          (i) "Consultant" means any natural person, including an advisor,
               ----------
engaged by the Company or a Parent or Subsidiary to render services to such
entity.

          (j) "Director" means a member of the Board.
               --------

          (k) "Disability" means total and permanent disability as defined in
               ----------
Section 22(e)(3) of the Code.

          (l) "Employee" means any person, including officers and Directors,
               --------
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.

          (m) "Exchange Act" means the Securities Exchange Act of 1934, as
               ------------
amended.

          (n) "Exercise Price" means the price at which a Share may be purchased
               --------------
by an Optionee pursuant to the exercise of an Option or Stock Purchase Right.

          (o) "Fair Market Value" means, as of any date, the value of Common
               -----------------
Stock determined as follows:

              (i)   If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system

                                       -2-

<PAGE>

on the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;

               (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share shall be the mean between the high bid and low asked prices for the
Common Stock on the day of determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable; or

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

          (p)  "Incentive Stock Option" means an Option intended to qualify as
                ----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

          (q)  "Nonstatutory Stock Option" means an Option not intended to
                -------------------------
qualify as an Incentive Stock Option.

          (r)  "Notice of Grant" means a written or electronic notice evidencing
                ---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.

          (s)  "Option" means a stock option granted pursuant to the Plan.
                ------

          (t)  "Option Agreement" means an agreement between the Company and an
                ----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

          (u)  "Option Exchange Program" means a program whereby outstanding
                -----------------------
Options are surrendered in exchange for Options with a lower Exercise Price.

          (v)  "Optioned Stock" means the Common Stock subject to an Option or
                --------------
Stock Purchase Right.

          (w)  "Optionee" means the holder of an outstanding Option or Stock
                --------
Purchase Right granted under the Plan.

          (x)  "Parent" means a "parent corporation," whether now or hereafter
                ------
existing, as defined in Section 424(e) of the Code.

          (y)  "Plan" means this 2002 Stock Plan.
                ----

          (z)  "Registration Date" means the effective date of the first
                -----------------
registration statement which is filed by the Company and declared effective
pursuant to Section 12(g) of the Exchange Act, with respect to any class of the
Company's securities.

          (aa) "Restricted Stock" means Shares acquired pursuant to a grant of
                ----------------
Stock Purchase Rights under Section 12 of the Plan.

                                       -3-

<PAGE>

          (bb) "Restricted Stock Purchase Agreement" means a written agreement
                -----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.

          (cc) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
                ----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

          (dd) "Section 16(b)" means Section 16(b) of the Exchange Act.
                -------------

          (ee) "Service Provider" means an Employee, Director or Consultant.
                ----------------

          (ff) "Share" means a share of the Common Stock, as adjusted in
                -----
accordance with Section 14.

          (gg) "Stock Purchase Right" means the right to purchase Common Stock
                --------------------
pursuant to Section 12, as evidenced by a Notice of Grant.

          (hh) "Subsidiary" means a "subsidiary corporation", whether now or
                ----------
hereafter existing, as defined in Section 424(f) of the Code.

     3.   Stock Subject to the Plan. The maximum aggregate number of Shares that
          -------------------------
may be optioned and sold under the Plan consists of (a) the 2,000,000 Shares
initially reserved for issuance under the Plan, (b) any Shares which have been
reserved but not issued under the Company's 1997 Stock Plan (the "1997 Plan"),
as of the Registration Date, and (c) an annual increase to be added on the first
day of the Company's fiscal year beginning in fiscal year 2003, equal to the
lesser of (i) 3,000,000 shares, (ii) 5% of the outstanding shares on such date
or (iii) an amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.

     If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
             --------  -------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if unvested Shares are repurchased by the Company at their original
purchase price or, if less than their original purchase price, their fair market
value, such Shares shall become available for future grant under the Plan.

     4.   Administration of the Plan.
          --------------------------

          (a)  Procedure.
               ---------

               (i)  Multiple Administrative Bodies.  Different Committees with
                    ------------------------------
respect to different groups of Service Providers may administer the Plan.

               (ii) Section 162(m).  To the extent that the Administrator
                    -------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the

                                       -4-

<PAGE>

meaning of Section 162(m) of the Code, the Plan shall be administered by a
Committee of two or more "outside directors" within the meaning of Section
162(m) of the Code.

               (iii)  Rule 16b-3. To the extent desirable to qualify
                      ----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

               (iv)   Other Administration. Other than as provided above, the
                      --------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.

          (b)  Powers of the Administrator. Subject to the provisions of the
               ---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

               (i)    to determine the Fair Market Value;

               (ii)   to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;

               (iii)  to determine the number of Shares to be covered by each
Option and Stock Purchase Right granted hereunder;

               (iv)   to approve forms of agreement for use under the Plan;

               (v)    to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
Exercise Price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the Shares relating thereto,
based in each case on such factors as the Administrator, in its sole discretion,
shall determine;

               (vi)   to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

               (vii)  to institute an Option Exchange Program;

               (viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

               (ix)   to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;

                                       -5-

<PAGE>

             (x)    to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;

             (xi)   to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the minimum amount required to be withheld. The Fair Market Value
of the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined. All elections by an Optionee to have
Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable;

             (xii)  to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;

             (xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.

         (c) Effect of Administrator's Decision. The Administrator's decisions,
             ----------------------------------
determinations and interpretations shall be final and binding on all persons and
shall be given the maximum deference permitted by law.

     5.  Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
         -----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

     6.  Limitations.
         -----------

         (a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

         (b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.

         (c) The following limitations shall apply to grants of Options:

             (i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,500,000 Shares.

                                       -6-

<PAGE>

             (ii)  In connection with his or her initial service as an Employee,
a Service Provider may be granted Options to purchase up to an additional
500,000 Shares, which shall not count against the limit set forth in subsection
(i) above.

             (iii) The foregoing limitations shall be adjusted proportionately
in connection with any change described in Section 14(a).

             (iv)  If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
Exercise Price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

     7.  Term of Plan. Subject to Section 20, the Plan shall become effective
         ------------
upon its adoption by the Board. It shall continue in effect for a term of ten
(10) years unless terminated earlier under Section 16.

     8.  Term of Option. The term of each Option shall be stated in the Option
         --------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.

     9.  Option Exercise Price and Consideration.
         ---------------------------------------

         (a) Exercise Price. The Exercise Price for the Shares to be issued
             --------------
pursuant to exercise of an Option shall be determined by the Administrator, s
ubject to the following:

             (i)   In the case of an Incentive Stock Option

                   (A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the Exercise Price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.

                   (B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the Exercise Price shall be no less than
100% of the Fair Market Value per Share on the date of grant.

             (ii)  In the case of a Nonstatutory Stock Option, the Exercise
Price shall be determined by the Administrator. In the case of a Nonstatutory
Stock Option intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the Exercise Price shall be no less than
100% of the Fair Market Value per Share on the date of grant.

                                       -7-

<PAGE>

             (iii) Notwithstanding the foregoing, Options may be granted with an
Exercise Price of less than 100% of the Fair Market Value per Share on the date
of grant pursuant to a merger or other corporate transaction.

         (b) Waiting Period and Exercise Dates. At the time an Option is
             ---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.

         (c) Form of Consideration. The Administrator shall determine the
             ---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

             (i)    cash;

             (ii)   check;

             (iii)  promissory note;

             (iv)   other Shares which, in the case of Shares acquired from the
Company, (A) have been owned by the Optionee for more than six (6) months on the
date of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised;

             (v)    consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

             (vi)   a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

             (vii)  any combination of the foregoing methods of payment; or

             (viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

     10. Exercise of Option.
         ------------------

         (a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
             -----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. An Option may not be exercised for a fraction of a
Share.

             An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of

                                       -8-

<PAGE>

an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 14.

             Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

         (b) Termination of Relationship as a Service Provider. If an Optionee
             -------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

         (c) Disability of Optionee. If an Optionee ceases to be a Service
             ----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

         (d) Death of Optionee. If an Optionee dies while a Service Provider,
             -----------------
the Option may be exercised following the Optionee's death within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of death (but in no event may the option be exercised later
than the expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee's designated beneficiary, provided such beneficiary
has been designated prior to Optionee's death in a form acceptable to the
Administrator. If no such beneficiary has been designated by the Optionee, then
such Option may be exercised by the personal representative of the Optionee's
estate or by the person(s) to whom the Option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. In
the absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following Optionee's death. If, at the time
of death, Optionee is not vested as to his or her entire

                                       -9-

<PAGE>

Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

     11. Leaves of Absence. Unless the Administrator provides otherwise, vesting
         -----------------
of Options and Stock Purchase Rights granted hereunder shall be suspended during
any unpaid leave of absence. A Service Provider shall not cease to be an
Employee in the case of (i) any leave of absence approved by the Company or (ii)
transfers between locations of the Company or between the Company, its Parent,
or any Subsidiary. For purposes of Incentive Stock Options, no such leave may
exceed ninety days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, then three (3) months
following the 91st day of such leave any Incentive Stock Option held by the
Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option.

     12. Stock Purchase Rights.
         ---------------------

         (a) Rights to Purchase. Stock Purchase Rights may be issued either
             ------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.

         (b) Repurchase Option. Unless the Administrator determines otherwise,
             -----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.

         (c) Other Provisions. The Restricted Stock Purchase Agreement shall
             ----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

         (d) Rights as a Stockholder. Once the Stock Purchase Right is
             -----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.

     13. Transferability of Options and Stock Purchase Rights. Unless determined
         ----------------------------------------------------
otherwise by the Administrator, an Option or Stock Purchase Right may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent

                                      -10-

<PAGE>

or distribution and may be exercised, during the lifetime of the Optionee, only
by the Optionee. If the Administrator makes an Option or Stock Purchase Right
transferable, such Option or Stock Purchase Right shall contain such additional
terms and conditions as the Administrator deems appropriate.

     14. Adjustments, Dissolution or Liquidation or Change in Control.
         ------------------------------------------------------------

         (a) Adjustments. In the event that any dividend or other distribution
             -----------
(whether in the form of cash, Shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the Shares such that an adjustment is
determined by the Administrator (in its sole discretion) to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Administrator shall, in
such manner as it may deem equitable, adjust the number and class of Shares
which may be delivered under the Plan, the number, class, and price of Shares
covered by each outstanding Option and Stock Purchase Right, and the numerical
Share limits of Sections 3 and 6.

         (b) Dissolution or Liquidation. In the event of the proposed
             --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. To the extent it has not been previously exercised, an Option or
Stock Purchase Right will terminate immediately prior to the consummation of
such proposed action.

         (c) Change in Control. In the event of a Change in Control, each
             -----------------
outstanding Option and Stock Purchase Right shall be assumed or an equivalent
option or right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a Change in Control, the Administrator shall
notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable (subject to the
consummation of the Change of Control) for a period of fifteen (15) days from
the date of such notice, and the Option or Stock Purchase Right shall terminate
upon the expiration of such period.

             For the purposes of this subsection (c), the Option or Stock
Purchase Right shall be considered assumed if, following the Change in Control,
the option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the Change in Control, the consideration (whether stock, cash, or other
securities or property) received in the Change in Control by holders of Common
Stock for each Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares); provided, however, that
                                                         --------  -------
if such consideration received in the Change in Control is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the

                                      -11-

<PAGE>

Option or Stock Purchase Right, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the Change in Control.

     15. Date of Grant. The date of grant of an Option or Stock Purchase Right
         -------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

     16. Amendment and Termination of the Plan.
         -------------------------------------

         (a) Amendment and Termination. The Administrator may at any time amend,
             -------------------------
alter, suspend or terminate the Plan.

         (b) Stockholder Approval. The Company shall obtain stockholder approval
             --------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.

         (c) Effect of Amendment or Termination. No amendment, alteration,
             ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

     17. Conditions Upon Issuance of Shares.
         ----------------------------------

         (a) Legal Compliance. Shares shall not be issued pursuant to the
             ----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

         (b) Investment Representations. As a condition to the exercise of an
             --------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.

     18. Inability to Obtain Authority. The inability of the Company to obtain
         -----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

     19. Reservation of Shares. The Company, during the term of this Plan, will
         ---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

                                      -12-

<PAGE>

     20. Stockholder Approval. The Plan shall be subject to approval by the
         --------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

     21. Withholding. The Company's obligation to deliver Shares pursuant to any
         -----------
Options or Stock Purchase Rights granted under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.

                                      -13-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>9
<FILENAME>dex105.txt
<DESCRIPTION>STOCKHOLDERS' RIGHTS AGREEMENT
<TEXT>
<PAGE>

                                                                    Exhibit 10.5

                                NETFLIX.COM, INC.

               AMENDED AND RESTATED STOCKHOLDERS' RIGHTS AGREEMENT

     THIS AMENDED AND RESTATED STOCKHOLDERS' RIGHTS AGREEMENT (this "Agreement")
is made as of July 10, 2001 by and among NetFlix.com, Inc., a Delaware
corporation (the "Company"), Reed Hastings and Marc Randolph (such individuals
collectively, the "Founders" and each a "Founder"), the holders of the Company's
Series A Preferred Stock (the "Series A Preferred"), the holders of the
Company's Series B Preferred Stock (the "Series B Preferred"), the holders of
the Company's Series C Preferred Stock (the "Series C Preferred"), the holders
of the Company's Series D Preferred Stock (the "Series D Preferred"), the
holders of the Company's Series E Preferred Stock (the "Series E Preferred"),
the holders of the Company's Series F Non-Voting Preferred Stock ("Series F
Preferred"), and the purchasers of warrants to purchase common stock of the
Company (the "Warrants") pursuant to the Note and Warrant Purchase Agreement
dated as of July 10, 2001 by and among the Company and certain stockholders of
the Company (the "Purchase Agreement"). The holders of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred
and Series F Preferred shall be referred to hereinafter individually as an
"Existing Holder" and collectively as the "Existing Holders." The purchasers of
the Warrants shall be referred to hereinafter individually as a "Purchaser" and
collectively as the "Purchasers."

                                    RECITALS

     A.   The Company has granted the Existing Holders registration and certain
other rights under the Amended and Restated Stockholders' Rights Agreement dated
as of February 22, 2001 (the "Prior Agreement").

     B.   As a condition of entering into the Purchase Agreement, the Purchasers
have requested that the Company extend to them registration and certain other
rights with respect to the Warrants as set forth below, and the Existing Holders
are willing to amend the rights given to them pursuant to the Prior Agreement by
replacing such rights in their entirety with the rights set forth in this
Agreement.

     C.   Following the date hereof, the Company may enter into one or more
revenue sharing agreements for the license of DVDs to the Company and other
strategic business relationships, pursuant to which the Company may issue equity
securities of the Company to the other parties (the "Strategic Parties") to such
agreements and/or relationships.

     D.   Upon the determination of the Board of Directors of the Company, such
Strategic Parties may be added as parties to this Agreement for purposes of
receiving registration and certain other rights with respect to such equity
securities.

<PAGE>

     NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties
mutually agree as follows:

     1.   General
          -------

          (a)  Amendment of Prior Agreement. Certain of the undersigned parties,
               ----------------------------
who constitute the requisite parties necessary to amend the Prior Agreement,
hereby agree that effective upon the date hereof, the Prior Agreement is null
and void and superseded in all respects by the rights and obligations set forth
in this Agreement, and any application of the rights of participation (including
any notice requirements) set forth in Section 17 of the Prior Agreement as to
the issuance of the Warrants under the Purchase Agreement(s) is hereby waived.

          (b)  Certain Definitions. As used in this Agreement, the following
               -------------------
terms shall have the following respective meanings:

               "Commission" shall mean the Securities and Exchange Commission or
any successor agency.

               "Common Stock" shall mean the Common Stock of the Company.

               "Family Member" shall have the meaning ascribed to it in Section
15 hereof.

               "Form S-3" means Form S-3 under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the Commission which permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the Commission.

               "Holder" shall mean any person owning of record Registrable
Securities or any transferee of Registrable Securities who, pursuant to Section
15 below, is entitled to registration rights hereunder.

               "Preferred Holder" shall mean any Holder owning of record shares
of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred or Series E-1 Preferred.

               "Restricted Securities" shall have the meaning ascribed to it in
Section 3 hereof.

               "Registrable Securities" shall mean (i) shares of the Common
Stock issued or issuable upon the conversion of the Shares, including Shares
issuable or issued upon exercise of the Warrants; and (ii) Common Stock issued
as (or issuable upon conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, securities described in clause (i)
above. Notwithstanding the foregoing, Registrable Securities shall not include
any securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the transferor's
rights under this Agreement are not assigned.

                                      -2-

<PAGE>

     The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

               "Registration Expenses" shall mean all reasonable out-of-pocket
expenses incurred by the Company in complying with Sections 5, 6 and 9 hereof,
including, without limitation, the legal fees of one special counsel to the
Holders, and all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, accounting fees of the Company, and the expense of any special
audits incident to or required by any such registration.

               "Sale of the Company" shall mean when the Company shall sell,
convey or otherwise dispose of all or substantially all of its property or
business or merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary corporation) or effect any other transaction or series
of related transactions in which more than fifty (50%) of the voting power of
the Company is disposed of.

               "Securities Act" shall mean the Securities Act of 1933, as
amended.

               "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders as well as fees and expenses of any special counsel in addition to
the one special counsel included in Registration Expenses, if any, to the
Holders.

               "Shares" shall mean shares of the Company's Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred
and Series F Preferred, shares of the Company's Series E-1 Preferred Stock
("Series E-1 Preferred") issuable upon conversion of the Series E Preferred,
shares of Common Stock issuable upon exercise of the Warrants and shares of
capital stock of the Company issued or issuable to Strategic Parties.

     2.   Restrictions on Transferability. The Restricted Securities shall not
          -------------------------------
be transferable except upon the conditions specified in this Agreement, which
conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act and other provisions, contained herein. Each
Holder of Restricted Securities will cause any proposed transferee of the
Restricted Securities held by such Holder to agree in writing to take and hold
such Restricted Securities subject to the provisions and upon the conditions
specified in this Agreement and to be bound by this Agreement in the same manner
as the transferring Holder. Without limiting the foregoing, a condition to any
valid transfer of any Restricted Securities shall be the addition of the
transferee to this Agreement and the execution by such transferee of a signature
page hereto.

     3.   Restrictive Legend. Each certificate representing (i) Shares or (ii)
          ------------------
Registrable Securities (any such securities listed in the preceding subsections
(i) or (ii), "Restricted Securities"), shall (unless otherwise permitted by the
provisions of Section 4 below) be stamped or otherwise imprinted with a legend
in the following form (in addition to any legend required under applicable state
securities laws or the Purchase Agreement):

                                      -3-

<PAGE>

     THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
     INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
     AS AMENDED (THE "SECURITIES ACT"). THESE SHARES MAY NOT BE SOLD OR
     TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
     UNDER THE SECURITIES ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF
     THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
     WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
     SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
     CORPORATION.

     4.   Notice of Proposed Transfers. The Holder of each certificate
          ----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the Holder thereof
shall give written notice to the Company of such Holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if the Company so
requests, be accompanied (except in transactions in compliance with Rule 144) by
an unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, provided, however, that no opinion need
                                       --------  -------
be obtained with respect to a transfer to (A) a partner or member, active or
retired, of a Holder of Restricted Securities, (B) the estate of any such
partner, (C) an "affiliate" of a Holder of Restricted Securities as that term is
defined in Rule 405 promulgated by the Commission under the Securities Act (an
"Affiliate"), or (D) the spouse, children, grandchildren or spouse of such
children or grandchildren of any Holder or to trusts for the benefit of any
Holder or such persons, if the transferee agrees to be subject to the terms
hereof. Notwithstanding the foregoing, any transferee receiving shares that (A)
have been registered under the Securities Act or (B) are resaleable under Rule
144 shall not be required to agree in writing to be subject to the terms of this
Section 4. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in 3
above, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for the Company such legend is not required in order to
establish compliance with any provisions of the Securities Act.

     5.   Requested Registration.
          ----------------------

          (a)  Request for Registration. If at any time beginning the earlier of
               ------------------------
(i) June 12, 2004 or (ii) six (6) months after the effective date of the first
firm commitment underwritten public offering of equity securities of the Company
to the general public (an "IPO"), the Company shall receive from any Holder or
group of Holders holding more than fifty percent (50%) of the Registrable
Securities then outstanding (any such holder, or group of holders, the
"Initiating Holders") a written request that the Company affect any
registration, qualification or compliance with respect to Registrable Securities
having a reasonably anticipated aggregate offering price to the

                                      -4-

<PAGE>

public, before deduction of underwriter discounts and commissions, of at least
$20,000,000, the Company will:

               (x)  within ten (10) days of receipt thereof, give written notice
of the proposed registration, qualification or compliance to all other Holders
who are not Initiating Holders; and

               (y)  as soon as practicable and in any event within sixty (60)
days of the receipt of such request, use its reasonable efforts to affect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder(s)
joining in such request as are specified in a written request received by the
Company within thirty (30) days after the date of such written notice from the
Company;

          Provided, however, that the Company shall not be obligated to take any
action to affect any such registration, qualification or compliance pursuant to
this Section 5:

                    (A)  In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
affecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;

                    (B)  After the Company has effected two (2) such
registrations pursuant to this Section 5(a), such registrations have been
declared or ordered effective and the securities offered pursuant to such
registrations have been sold; or

                    (C)  During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
three (3) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration
statement relating to the sale of the Company's securities in connection with a
Rule 145 transaction, an employee benefit plan or the IPO), provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;

          Subject to the foregoing clauses (A) through (C), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders. If, however, the Company shall furnish to the
Initiating Holders a certificate signed by the Chief Executive Officer or
President of the Company stating that, in the good faith judgment of the Board
of Directors of the Company (the "Board of Directors"), it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore advisable to defer the filing of such

                                      -5-

<PAGE>

registration statement, the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Initiating Holders, provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.

          (b)  Underwriting. If the Initiating Holders intend to distribute the
               ------------
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 5(a) and the Company shall include such information in the written
notice referred to in Section 5(a)(x). The right of any Holder to registration
pursuant to Section 5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent requested and to the extent provided herein.

     The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter which managing underwriter shall be
selected by the Company. Upon the request of such underwriter, the Company
agrees to provide all necessary cooperation in connection with such underwriting
including participation in meetings, due diligence sessions, road shows, the
preparation of prospectuses and similar documents, and the preparation and
delivery of customary certificates or documents. Notwithstanding any other
provision of this Section 5, if the managing underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then, subject to the provisions of Section 5(a), the
Company shall so advise all Holders and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders requesting inclusion in the following priority: (i)
the Common Stock (other than shares as to which any person holds contractual
rights to inclusion) held by all persons other than the Holders shall first be
excluded from such registration and underwriting to the extent required; and
(ii) if a limitation of the number of shares to be included in such registration
and underwriting is still required, such limitation shall be allocated among the
Holders (including the Initiating Holders), in proportion, as nearly as
practicable, to the respective amounts of securities contractually entitled to
inclusion (determined without regard to any requirement of a request to be
included in such registration) in such registration held by all such Holders at
the time of filing the registration statement. No Registrable Securities
excluded from the underwriting by reason of the managing underwriter's marketing
limitation shall be included in such registration.

     If any Holder proposing to participate in an underwriting pursuant to this
Section 5(b) disapproves of the terms of such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities and/or other
securities so withdrawn shall also be withdrawn from registration; provided,
however, that if by the withdrawal of such Registrable Securities a greater
number of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities in the same proportion used in determining the underwriter limitation
in this Section 5(b). If the registration does not become effective due to the
withdrawal of Registrable Securities, then either (1) the Holders requesting
registration shall reimburse the Company for expenses incurred in

                                       -6-

<PAGE>

complying with the request or (2) the aborted registration shall be treated as
affected for purposes of Section 5(a)(B) and Section 9.

     6.   Company Registration.
          --------------------

          (a)  Notice of Registration. If the Company shall determine to
               ----------------------
register any of its securities, either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights, other than (i) a registration relating to employee benefit plans or,
(ii) a registration relating solely to a Commission Rule 145 transaction, the
Company will:

               (i)  promptly give to each Holder written notice thereof; and

               (ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within thirty (30) days after receipt of such written notice from
the Company, by any Holder, except as set forth in Section 6(b) below.

          (b)  Underwriting. If the registration of which the Company gives
               ------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 6(a)(i). In such event the right of any Holder to
registration pursuant to Section 6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 6, if the managing
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter may limit the number of Registrable Securities to be included in the
registration and underwriting by reducing the number of Registrable Securities
included on behalf of the Holders, on a pro-rata basis (or in such other
proportions as shall mutually be agreed upon by such Holders), based on the
total number of Registrable Securities entitled to registration held by each
Holder, but in no event shall the amount of securities of the Holders included
in the offering be reduced below ten percent (10%) of the total amount of
securities included in such offering, unless such offering is the initial public
offering of the Company, in which case the securities of the Holders can be
excluded in their entirety; provided, however, that any such limitation or
"cutback" shall be first applied to all shares proposed to be sold in such
offering other than for the account of the Company which are not Registrable
Securities. The Company shall advise all Holders of Registrable Securities which
would otherwise be registered and underwritten pursuant hereto of any such
limitations. If any Holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be included in such registration.

     7.   Expenses of Registration. All Registration Expenses incurred in
          ------------------------
connection with any registration, qualification or compliance pursuant to
Sections 5, 6 and 9 shall be borne by the

                                       -7-

<PAGE>

Company. All Selling Expenses relating to securities registered by the Holders
shall be borne by the Holders of such securities pro rata on the basis of the
number of shares so registered.

     8.   Registration Procedures. In the case of each registration,
          -----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:

          (a)  Prepare and file with the Commission a registration statement
with respect to such securities and use its reasonable efforts to cause such
registration statement to become and remain effective for at least one hundred
twenty (120) days or until the distribution described in the registration
statement has been completed; provided, however, that such one hundred twenty
(120) day period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company;

          (b)  Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;

          (c)  Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;

          (d)  Use its reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;

          (e)  In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering; provided that each Holder
participating in such underwriting shall also enter into and perform its
obligations under such underwriting agreement;

          (f)  Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
known to the Company as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing;

                                       -8-

<PAGE>

          (g)  Cause such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued by
the Company are then listed; and

          (h)  Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.

          (i)  Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Agreement, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Agreement, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and the
Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.

     9.   Registration on Form S-3. In addition to the rights set forth in
          ------------------------
Section 5, if the Holders request in writing that the Company file a
registration statement on Form S-3 (or any successor form thereto) for a public
offering of shares of Registrable Securities the reasonably anticipated
aggregate price to the public of which is at least two million dollars
($2,000,000), and the Company is a registrant entitled to use Form S-3 to
register securities for such an offering, the Company shall use its reasonable
efforts to cause such shares to be registered for the offering on such form (or
any successor thereto). The Company will promptly give written notice of the
request for the proposed registration to all other Holders and include all
Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within thirty (30) days
after the date of such written notice from the Company. The substantive
provisions of Section 5(b) shall be applicable to each registration initiated
under this Section 9. Notwithstanding Section 5(a)(B), the Holders shall be
entitled to four (4) registrations on Form S-3, but not more than two (2) in any
twelve month period.

     10.  Termination of Registration Rights. Except as provided elsewhere in
          ----------------------------------
this Agreement, the registration rights granted pursuant to this Agreement shall
terminate (i) as to all Holders on the fifth anniversary of the closing of the
IPO and (ii) as to any Holder, at such time as such Holder is able to sell all
of its Registrable Securities under Rule 144 in a three (3) month period or such
Holder is able to sell all Registrable Securities held by it pursuant to Rule
144(k) promulgated under the Securities Act.

     11.  Indemnification.
          ---------------

          (a)  The Company will indemnify each Holder, each of its officers,
directors, partners and members and such Holder's legal counsel and independent
accountants, and each person

                                       -9-

<PAGE>

controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
affected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance affected pursuant to this Agreement, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors, partners
and members and such Holder's legal counsel and independent accountants, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission contained in any registration
statement, prospectus, offering circular or other document or any amendment or
supplement thereto, incident to any registration, qualification or compliance
affected pursuant to this Agreement, made in reliance upon and in conformity
with written information furnished to the Company by an instrument duly executed
by such Holder or underwriter and stated to be specifically for use therein.

          (b)  Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, severally indemnify the Company, each of its
directors and officers and its legal counsel and independent accountants, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other such Holder, each of
its officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, legal counsel, independent accountants, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the obligations of any
such Holder

                                      -10-

<PAGE>

hereunder shall be limited to an amount equal to the gross proceeds before
expenses and commissions to such Holder of Registrable Securities sold as
contemplated herein.

          (c)  Each party entitled to indemnification under this Section 11 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnified Party (together with
all other Indemnified Parties that may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding; and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, except to the extent, but only to the extent,
that the Indemnifying Party's ability to defend against such claim or litigation
is impaired as a result of such failure to give notice. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.

          (d)  If the indemnification provided for in paragraphs (a) and (b) of
this Section 11 is unavailable or insufficient to hold harmless an Indemnified
Party thereunder, then each Indemnifying Party thereunder shall contribute to
the account paid or payable by such Indemnified Party as a result of the losses,
claims, damages, costs, expenses, liabilities or actions referred to in
paragraphs (a) and (b) of this Section 11 in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one hand and the
Indemnified Party on the other in connection with statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statements or omission. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) of Section 11 were to be determined by pro rata
or per capita allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the first sentence
of this paragraph (d) of Section 11. The amount paid by an Indemnified Party as
a result of the losses, claims, damages or liabilities referred to in the first
sentence of this paragraph (d) of Section 11 shall be deemed to include any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any action or claim which is the
subject of this paragraph (d) of

                                      -11-

<PAGE>

Section 11. Promptly after receipt by an Indemnified Party of notice of the
commencement of any action against such party in respect of which a claim for
contribution may be made against an Indemnifying Party under this paragraph (d)
of Section 11, such Indemnified Party shall notify the Indemnifying Party in
writing of the commencement thereof if the notice specified in paragraph (c) of
this Section 11 has not been given with respect to such action; provided that
the omission so to notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability which it may have to any Indemnified Party
otherwise under this paragraph (d) of Section 11, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice. The
parties hereto agree with each other and shall agree with the underwriters of
the Common Stock of the Company pursuant to the terms hereof, if requested by
such underwriters, that (a) the underwriters' portion of such contribution shall
not exceed the underwriting discount, commission and other compensation and (b)
except for the Company, the amount of such contribution shall not exceed an
amount equal to the proceeds received by such Indemnifying Party from the sale
of securities in the offering to which the losses, claims, damages or
liabilities of the indemnified parties relate. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.

     12.  Lock-up Agreement. In consideration for the Company agreeing to its
          -----------------
obligations under this Agreement each Holder of Registrable Securities and each
transferee pursuant to Section 15 hereof agrees, in connection with the first
registration of the Company's securities, upon request of the underwriters
managing such underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities or other securities of the Company (other
than those included in the registration and securities acquired in open market
transactions on or after the effective date of such registration) without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time from the effective date of such registration as the
Company or the underwriters may specify, which period shall not exceed one
hundred eighty (180) days following the effective date of the IPO; provided,
however that (i) all directors, officers and 1% stockholders of the Company
agree to the same lockup and (ii) such agreement shall provide that any
discretionary waiver or termination of the restrictions of such agreements by
the Company or representatives of the underwriters shall apply to all persons
subject to such agreements pro rata based on the number of shares subject to
such agreements. Each Holder agrees that the Company may instruct its transfer
agent to place stop transfer notations in its records to enforce the provisions
of this Section 12.

     13.  Information by Holder. The Holder or Holders of Registrable Securities
          ---------------------
included in any registration shall furnish to the Company such information
regarding such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.

     14.  Rule 144 Reporting. With a view to making available the benefits of
          ------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:

                                      -12-

<PAGE>

          (a)  Use its reasonable efforts to make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the IPO;

          (b) Use its reasonable efforts to then file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements); and

          (c)  Furnish to Holders of Registrable Securities forthwith upon
request, a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time after ninety (90) days after the
effective date of the IPO, and of the Securities Act and the Securities Exchange
Act of 1934, as amended, (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents of the Company as a Holder of
Registrable Securities may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell any such securities
without registration.

     15.  Transfer of Registration Rights. The right to cause the Company to
          -------------------------------
register securities granted hereunder may be assigned to a transferee or
assignee who is an affiliate (as that term is defined in Rule 405 promulgated by
the Commission under the Securities Act), or who acquires at least two hundred
thousand (200,000) shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred, Series E-1 Preferred, Series
F Preferred, or the Common Stock issued upon conversion thereof (adjusted for
stock splits, reverse stock splits or similar events after the date hereof), or
Warrants to purchase at least two hundred thousand (200,000) shares of Common
Stock (adjusted for stock splits, reverse stock splits or similar events after
the date hereof), provided that the Company is given written notice of such
assignment prior to such assignment. In addition, rights to cause the Company to
register securities may be freely assigned (a) to any constituent partner or
retired partner of a Holder, where such Holder is a partnership, to any member
or retired member of a Holder, where such Holder is a limited liability company,
(b) to any officer, director or principal shareholder thereof, where such Holder
is a corporation or (c) to the spouse, children, grandchildren or spouse of such
children or grandchildren of any Holder or to trusts for the benefit of any
Holder or such persons where the Holder is a natural person (each person or
entity in this subsection (c), a "Family Member").

     16.  Information Rights. The Company hereby covenants and agrees as
          ------------------
follows:

          (a)  Annual Financial Information. The Company will furnish to each
               ----------------------------
Holder who holds at least ten percent (10%) of the number of originally issued
shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred, Series E-1 Preferred or Series F Preferred
(adjusted for stock splits, reverse stock splits or similar events after the
date hereof), as the case may be, as soon as practicable after the end of each
fiscal year, and in any event within ninety (90) days thereafter, an income
statement for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance

                                      -13-

<PAGE>

with generally accepted accounting principles ("GAAP"), and audited and
certified by an independent public accounting firm of nationally recognized
standing selected by the Company, and the Company's annual financial plan for
the upcoming fiscal year to be in reasonable detail and broken down on a monthly
basis.

          (b)  Monthly Financial Information. Upon written request, the Company
               -----------------------------
will deliver to each Holder who holds at least ten percent (10%) of the number
of originally issued shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred, Series E-1 Preferred or
Series F Preferred (adjusted for stock splits, reverse stock splits or similar
events after the date hereof), as the case may be, as soon as practicable after
the end of each month, and in any event within thirty (30) days thereafter, an
unaudited income statement and schedule as to the sources and applications of
funds and balance sheet and comparison to prior year results and budget for and
as of the end of such month.

          (c)  Assignment of Rights to Financial Information. The rights to
               ---------------------------------------------
receive information pursuant to this Section 16 may be assigned or otherwise
conveyed to any transferee of Shares.

          (d)  Termination of Information Rights. The information rights set
               ---------------------------------
forth in this Section 16 shall expire upon the earlier of (i) the IPO or (ii)
the date of a Sale of the Company.

     17.  Right to Maintain.
          -----------------

          (a)  In the event the Company desires to sell and issue any shares of,
or securities convertible into or exchangeable or exercisable for any shares of,
any class of its capital stock ("New Securities"), then the Company shall first
notify each Preferred Holder of the material terms of the proposed sale and
shall permit each such Preferred Holder to acquire, at the time of consummation
of such proposed issuance and sale and on such terms as are specified in the
Company's notice pursuant hereto, a certain number of the New Securities (such
right, the "Right to Maintain"). Each Preferred Holder shall have thirty (30)
days after the date of such notice to elect by notice to the Company to purchase
up to the number of such New Securities available to them pursuant to Section
17(b) below.

          (b)  The number of New Securities that each Preferred Holder may
acquire hereunder shall be determined by calculating such number as would result
in such Preferred Holder maintaining its voting rights in the Company following
such proposed issuance of New Securities, on an as-converted, outstanding
percentage basis, at the level held by it immediately prior to such issuance of
New Securities after giving effect to the anti-dilution protections, if any, set
forth in the Company's Certificate of Incorporation. In addition, each Preferred
Holder shall have a right of over-allotment such that if any Preferred Holder
fails to exercise its rights hereunder to purchase the maximum number of New
Securities which it is entitled to purchase pursuant to the preceding sentence,
the other Preferred Holders may purchase on a proportional basis (determined
with respect to the number of shares which the Preferred Holders are entitled to
purchase pursuant to the preceding sentence) such shortfall number of New
Securities by notice to the Company within the thirty (30) day period after the
date of the Company notice pursuant to Section 17(a) above.

                                      -14-

<PAGE>

          (c)  Notwithstanding anything in this Section 17, New Securities shall
not be deemed to include (and no Right to Maintain shall apply to the issuance
of) any securities issued or issuable (i) to employees, consultants or directors
of the Company pursuant to any employee benefit plan; (ii) to banks, building
developers or equipment lessors in connection with commercial credit
arrangements, equipment financings or similar transactions provided such
issuances are for other than primarily equity financing purposes and are
approved by the Board of Directors; (iii) in connection with any stock split,
dividend or distribution in respect of the Company's capital stock; (iv) in the
IPO; (v) upon conversion of the Shares; (vi) in connection with a Sale of the
Company, a business combination, a strategic partnership, a joint venture or a
similar transaction, approved and designated as such by the Board of Directors;
or (vii) to movie studios or other movie or DVD distributors, provided such
issuances are for other than primarily equity financing purposes and are
approved by the Board of Directors.

          (d)  The Right to Maintain for all Preferred Holders shall terminate
and be of no further force or effect upon the earlier of and with respect to (i)
the date of the IPO or (ii) the date of a Sale of the Company.

     18.  Co-Sale Rights. The sale or transfer of any Shares or Common Stock by
          --------------
either Founder to a purchaser other than any Family Member, shall be subject to
the Co-Sale Rights set forth in this Section 18 with respect to such sale or
transfer. The Co-Sale Rights shall not apply to the sale or transfer of Shares
or Common Stock by either of the Founders up to an aggregate of ten percent
(10%) of the aggregate holdings of such Founder immediately following the
closing of the transactions contemplated by the Purchase Agreement.

          (a)  Rights Granted. In the event that any Founder proposes to sell or
               --------------
otherwise transfer (a "Selling Founder") any Shares or Common Stock ("Founder
Shares") to a purchaser other than any Family Member (a "Proposed Founder
Sale"), the Selling Founder shall deliver to each Preferred Holder a written
notice (a "Founder Co-Sale Notice") stating: (i) his bona fide intention to sell
such Founder Shares; (ii) the name of each proposed buyer of such Founder Shares
(each a "Proposed Founder Buyer"); (iii) the number of Founder Shares to be
transferred to each Proposed Founder Buyer; and (iv) the bona fide cash price or
other consideration for which he proposes to transfer the Founder Shares. Each
Preferred Holder shall have the right, exercisable upon written notice to the
Selling Founder within twenty (20) days after receipt of a Founder Co-Sale
Notice, to participate in the Proposed Founder Sale pursuant to the specified
terms and conditions of such Proposed Founder Sale in the manner described
below.

          (b)  Participation. Each Preferred Holder may sell all or any part of
               -------------
that number of Shares (including Common Stock issuable upon conversion thereof),
equal to the product obtained by multiplying (i) the number of Founder Shares
specified in the Founder Co-Sale Notice by (ii) a fraction, the numerator of
which is the number of shares of Registrable Securities held by such Preferred
Holder immediately prior to the Proposed Founder Sale, and the denominator of
which is the total number of shares of Common Stock (including shares of Common
Stock issuable upon conversion of shares of Preferred Stock and upon exercise of
any option to purchase Common Stock) owned by the Selling Founder, and all of
the Preferred Holders in the aggregate on the date of the Founder Co-Sale
Notice.

                                      -15-

<PAGE>

          (c)  Delivery. Each Preferred Holder shall effect its participation in
               --------
the Proposed Founder Sale, if any, by delivering to the Selling Founder for
transfer to the Proposed Founder Buyer(s) one or more certificates, properly
endorsed for transfer, which represent the number of Shares (including shares of
Common Stock issuable upon conversion thereof) that such Preferred Holder elects
to sell pursuant to this Section 18.

          (d)  Price; Payment. The consideration for the Shares transferred to
               --------------
the Selling Founder pursuant to this Section 18 shall be equal to the per share
price specified in the Founder Co-Sale Notice or such higher price as the
Selling Founder may be paid for such shares. The Selling Founder shall, no later
than five (5) days after the closing of the Proposed Founder Sale, remit to each
participating Preferred Holder the consideration described in the preceding
sentence for the Shares transferred pursuant to this Section 18.

          (e)  Termination. The Co-Sale Rights set forth in this Section 18
               -----------
shall terminate and be of no further force or effect immediately upon the
closing of an IPO which results in aggregate gross proceeds to the Company equal
to or in excess of $20,000,000, prior to deduction of underwriting commissions
and offering expenses.

          (f)  If, from time to time during the term of this Agreement, there is
any consolidation or merger immediately following which stockholders of the
Company hold more than 50% of the voting equity securities of the surviving
corporation, then, in such event, any and all new, substituted or additional
securities to which any Founder is entitled by reason of his or her ownership of
the Founder Shares shall be immediately subject to the provisions of this
Agreement and be included in the term "Founder Shares" for all purposes of this
Agreement with the same force and effect as the Founder Shares presently subject
to this Agreement and with respect to which such securities were distributed.

          (g)  In the event a Founder sells any Founder Shares in contravention
of the Co-Sale Rights of a Preferred Holder under this Agreement (a "Prohibited
Transfer"), such Preferred Holder, in addition to such other remedies as may be
available at law, in equity or hereunder, shall have the put option provided in
Section 18(h) below, and such Founder shall be bound by the applicable
provisions of such put option.

          (h)  In the event of a Prohibited Transfer, such Preferred Holder
shall have the right to sell to the Founder who effected the Prohibited
Transfer, and, if such right is exercised, the Founder shall have the obligation
to purchase from such Preferred Holder, a number of Shares (including Common
Stock issuable upon conversion thereof) equal to the number of Shares (including
Common Stock issuable upon conversion thereof) such Preferred Holder would have
been entitled to transfer to the purchaser in the Prohibited Transfer pursuant
to the terms hereof. Such sale shall be made on the following terms and
conditions:

               (i)  The price per share at which the Shares (including Common
Stock issuable upon conversion thereof) are to be sold to the Founder shall be
equal to the price per share paid by the purchaser to the Founder in the
Prohibited Transfer.

                                      -16-

<PAGE>

               (ii)  Within twenty (20) days after the later of the dates on
which the Preferred Holder (i) received notice from the Founder of the
Prohibited Transfer or (ii) otherwise became aware of the Prohibited Transfer,
the Preferred Holder shall, if exercising the put option created hereby, deliver
to Founder the certificate(s), properly endorsed for transfer, which represent
the Shares (including shares of Common Stock issuable upon conversion thereof)
to be sold.

               (iii) The Founder shall, within ten (10) days of its receipt of
the certificate(s) for the Shares to be sold by a Preferred Holder pursuant to
this Section 18(h), pay the aggregate purchase price therefor by certified check
or bank draft or by wire transfer made payable to the order of such Preferred
Holder.

               (iv)  NOTWITHSTANDING THE FOREGOING, ANY ATTEMPT TO TRANSFER
SHARES OF THE COMPANY IN VIOLATION OF SECTION 18 HEREOF SHALL BE DEEMED NULL AND
VOID AND THE COMPANY AGREES IT WILL NOT EFFECT SUCH A TRANSFER NOR WILL IT TREAT
ANY ALLEGED TRANSFEREE AS THE HOLDER OF SUCH SHARES WITHOUT THE WRITTEN CONSENT
OF A MAJORITY IN INTEREST OF THE PREFERRED HOLDERS. THE COMPANY AND THE FOUNDERS
AGREE THAT ANY AND ALL CERTIFICATES REPRESENTING ANY FOUNDER SHARES HELD FROM
TIME TO TIME DURING THE TERM OF THIS AGREEMENT SHALL BEAR A LEGEND REFERRING TO
THE RESTRICTIONS IMPOSED BY THIS AGREEMENT.

               (v)   Each Founder agrees that the Company may instruct its
transfer agent to impose transfer restrictions on the Founder Shares represented
by certificates bearing the legend referred to in Section 18(h)(iv) to enforce
the provisions of this Agreement. The legend shall be removed upon termination
of the Co-Sale Rights herein.

     19.  Governing Law. This Agreement and the legal relations between the
          -------------
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the exclusive jurisdiction and venue of the United States District Court for the
Northern District of California with respect to the breach or interpretation of
this Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under this
Agreement.

     20.  Entire Agreement. This Agreement constitutes the full and entire
          ----------------
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.

     21.  Notices, etc. All notices and other communications required or
          ------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon delivery to the party to be notified in person or by courier service, by
facsimile upon proper confirmation of receipt, or five (5) days after deposit
with the United States mail, by registered or certified mail, postage prepaid,
addressed (a) if to a Holder, to such holder's address or addresses set forth
below or at such other address as such holder shall have furnished to the
Company in writing, (b) if to any other holder of any Registrable Securities, to
such address as such holder shall have furnished the Company in writing, or,
until any

                                      -17-

<PAGE>

such holder so furnishes an address to the Company, then to the address of the
last holder of such securities who has so furnished an address to the Company,
or (c) if to the Company, to its address set forth below, to the attention of
the Corporate Secretary, or at such other address as the Company shall have
furnished to the Holders.

     22.  Counterparts. This Agreement may be executed in any number of
          ------------
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one and
the same instrument.

     23.  Amendment. Any provision of this Agreement may be amended, waived or
          ---------
modified only upon the written consent of each of the following (i) the Company;
and (ii) the holders of 50% or more of the Registrable Securities. Any amendment
or waiver effected in accordance with this Section 23 shall be binding upon each
Holder, the Founders and the Company; provided, however, that with respect to
the amendment of any provision hereunder that solely affects the rights of a
specific class of stockholders, only the consent of the Company and the holders
of not less than a majority of the then outstanding shares of such class or
group, as the case may be, shall be required to amend such provision. Any Holder
may waive any of his or her rights or the Company's obligations hereunder
without obtaining the consent of any other person. Notwithstanding anything in
this Agreement to the contrary, Strategic Parties may be added as parties to
this Agreement upon the approval of the Board of Directors of the Company,
including the approval of a majority of the directors elected by the holders of
the Company's Series B Preferred, Series C Preferred and Series D Preferred, and
without the approval of the other parties hereto in connection with the purchase
by such Strategic Parties of equity securities of the Company, and each such
addition will be evidenced by Strategic Parties' execution of a signature page
hereto.

     24.  Successors and Assigns. Except as otherwise provided herein, the
          ----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

     25.  Severability. In the event that any provision of this Agreement
          ------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.

     26.  Aggregation of Stock. All shares of Registrable Securities held or
          --------------------
acquired by affiliated entities or affiliated persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.

                                      -18-

<PAGE>

     IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Stockholders' Rights Agreement as of the date set forth above.

"COMPANY"                                    "FOUNDERS"

NETFLIX.COM, INC.
a Delaware Corporation

By: /s/   W. Barry McCarthy, Jr.              /s/ Reed Hastings
   -----------------------------------       -----------------------------------
   Name:  W. Barry McCarthy, Jr.             Reed Hastings
   Title:  CFO
                                              /s/ Marc Randolph
                                             -----------------------------------
                                             Marc Randolph

"EXISTING HOLDERS"

STEPHEN J. KAHN and KAREN B. HENKEN,
tees KAHN/HENKEN T/A dtd 8/29/95

By:  /s/ Stephen J. Kahn                      /s/ Muriel Randolph
    ----------------------------------       -----------------------------------
    Name: Stephen J. Kahn                    Muriel Randolph
    Title: Trustee

Steven J. Rosston and Louisa R.H. La Farge,   /s/ Randolph B. Randolph
Community Property                           -----------------------------------
                                             Randolph B. Randolph

By:  /s/ Stephen J. Rosston                   /s/ Richard Schell
    ----------------------------------       -----------------------------------
                                             Richard Schell

Name: Stephen J. Rosston
      --------------------------------

Title: _______________________________

WS Investment Company 97B

By:  /s/ [ILLEGIBLE]
    ----------------------------------

Name: ________________________________


Title: _______________________________

     [Signature Page to Amended and Restated Stockholders' Rights Agreement]

<PAGE>

WS Investment Company 98A

By: /s/ [ILLEGIBLE]
    --------------------------------         ___________________________________
    Name:                                    Christopher McLeod and Jessica Abbe
    Title:

                                             ___________________________________
                                             Don Shalvey

John Mark Box, Trustee of the MARKBOX
LIVING TRUST U/A dated December 5, 1995,
as amended

By:                                           /s/ Joe Wagner
    --------------------------------         -----------------------------------
    Name:                                    Joe Wagner
    Title:

                                              /s/ Noah Salzman
                                             -----------------------------------
                                             Noah Salzman

____________________________________         ___________________________________
Poonam Dayal                                 Peter C. Gotcher


- ------------------------------------
Atma Daya

/s/ Joan Hastings
- ------------------------------------
Joan Hastings

/s/ Wil Hastings
- ------------------------------------
Wil Hastings

/s/ Joan and Wil Hastings
- ------------------------------------
Joan and Wil Hastings

Hastings 1996 Irrevocable Trust

By: /s/ Joan Hastings
    --------------------------------
    Name: Joan Hastings
    Title: Trustee

    [Signature Page to Amended and Restated Stockholders' Rights Agreement]

<PAGE>

Foundation Capital II, L.P.

By:   Foundation Capital Management II, LLC
Its:  Manager

By:   /s/ [ILLEGIBLE]
      ---------------------------------------
      Name:
      Title:


Foundation Capital II Entrepreneurs Fund, LLC

By:   Foundation Capital Management II, LLC
Its:  Manager

By:   /s/ [ILLEGIBLE]
      ---------------------------------------
      Name:
      Title:


Foundation Capital II Principals Fund, LLC

By:   Foundation Capital Management II, LLC
Its:  Manager

By:   /s/ [ILLEGIBLE]
      ---------------------------------------
      Name:
      Title:


TCV II, V.O.F.
a Netherlands Antilles General Partnership

By:   Technology Crossover Management II, L.L.C.
Its:  Investment General Partner

By:    /s/ Carla S. Newell
      ---------------------------------------
      Name:    Carla S. Newell
      Title:   Attorney-In-Fact

    [Signature Page to Amended and Restated Stockholders' Rights Agreement]

<PAGE>

Technology Crossover Ventures II, L.P.
a Delaware Limited Partnership

By:  Technology Crossover Management II, L.L.C.
Its: General Partner

By:  /s/ Carla S. Newell
     ----------------------------------------
     Name: Carla S. Newell
     Title: Attorney-In-Fact


TCV II (Q), L.P.
a Delaware Limited Partnership

By: Technology Crossover Management II, L.L.C.
Its: General Partner

By:  /s/ Carla S. Newell
     ----------------------------------------
     Name: Carla S. Newell
     Title: Attorney-In-Fact


TCV II Strategic Partners, L.P.
a Delaware Limited Partnership

By: Technology Crossover Management II, L.L.C.
Its: General Partner

By:  /s/ Carla S. Newell
     ----------------------------------------
     Name: Carla S. Newell
     Title: Attorney-In-Fact


Technology Crossover Ventures II, L.P.
a Netherlands Antilles General Partnership

By:  Technology Crossover Management II, L.L.C.
Its: Investment General Partner

By:  /s/ Carla S. Newell
     ----------------------------------------
     Name: Carla S. Newell
     Title: Attorney-In-Fact

     [Signature Page to Amended and Restated Stockholders' Rights Agreement]

<PAGE>

TCV IV Strategic Partners, L.P.
TCV IV, L.P.
a Delaware Limited Partnership
By:  Technology Crossover Management IV, L.L.C.,
Its: General Partner

By:  /s/ Carla S. Newell
     -----------------------------------------------
     Name:  Carla S. Newell
     Title: Attorney in Fact

TCV Franchise Fund, L.P.
a Delaware Limited Partnership
By:  TCVF Management, L.L.C.
Its: General Partner

By:  /s/ Carla S. Newell
     -----------------------------------------------
     Name:  Carla S. Newell
     Title: Attorney in Fact

Institutional Venture Partners VIII, L.P.

By:   Institutional Venture Management VIII, LLC
Its:  General Partner

By:  /s/ Illegible
     -----------------------------------------------
      Name:
      Title: Managing Director

IVM Investment Fund VIII, LLC

By:   Institutional Venture Management VIII, LLC
Its:  General Partner

By:  /s/ Illegible
     -----------------------------------------------
      Name:
      Title: Managing Director



IVM Investment Fund VIII-A, LLC

    [Signature Page to Amended and Restated Stockholders' Rights Agreement]

<PAGE>

By:  Institutional Venture Management VIII, LLC
Its: Manager

By: /s/ Illegible
    ----------------------------------------
     Name:
     Title:


IVP Founders Fund I, L.P.

By:  Institutional Venture Management VII, L.P.
Its: General Partner

By: /s/ Illegible
    ----------------------------------------
    Name:
    Title:

/s/ Robert Sanchez
- --------------------------------------------
Robert D. Sanchez


WS Investment Company 99A

By:  /s/ Robert Sanchez
    ----------------------------------------
    Name: Robert Sanchez
    Title: Partner


Comdisco, Inc.

By: ----------------------------------------
    Name:
    Title:

- --------------------------------------------
Anantha Srirama

Finanzas B.V.

By:  /s/  Maria C. van der Sluijs Plantz
    ----------------------------------------
    Name: Maria C. van der Sluijs Plantz
    Title: Managing Director

- --------------------------------------------
Larry Marcus


     [Signature Page to Amended and Restated Stockholders' Rights Agreement]

<PAGE>
Warner Home Video

By: /s/ Illegible
    --------------------------------------
    Name:
    Title:



Universal Studios Home Video, Inc.

By: /s/ [ILLEGIBLE]
    --------------------------------------
    Name: [ILLEGIBLE]
    Title: Sr. V.P. Bus. Affairs



Twentieth Century Fox Home Entertainment, Inc.

By: /s/ Illegible
    --------------------------------------
    Name:
    Title:



DreamWorks L.L.C.

By:  /s/ Anthony E. Hull
    --------------------------------------
    Name: Anthony E. Hull
    Title: Authorized Signatory



CPE Holdings, Inc.

By:
    --------------------------------------
    Name:
    Title:


     [Signature Page to Amended and Restated Stockholders' Rights Agreement]

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>10
<FILENAME>dex106.txt
<DESCRIPTION>LETTER RIGHTS AGREEMENT DATED JUNE 22, 1999
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.6

                                NETFLIX.COM, INC.

                                  June 22, 1999

TO CERTAIN INVESTORS IN THE
SERIES C PREFERRED STOCK AND SERIES D PREFERRED STOCK
OF NETFLIX.COM, INC.

     Re: Amended and Restated Agreement Concerning the
         Right to Participate in Initial Public Offering

Ladies and Gentlemen:

     In connection with the purchase of Series C Preferred Stock of NetFlix.com,
Inc. (the "Company") by Foundation Capital II, L.P., Technology Crossover
Ventures II, L.P., Institutional Venture Partners VIII, L.P. and certain of
their affiliates (the "Original IPO Holders"), the Company and the Original IPO
Holders entered into a letter agreement dated February 16, 1999 (the "Original
Letter Agreement"), pursuant to which the Company agreed to take certain actions
on behalf of the Original IPO Holders in connection with the initial public
offering of the Company's Common Stock (the "IPO"). In consideration of the
Company's closing of its Series D Preferred Stock financing and the rights
granted pursuant to this letter agreement (this "New Letter Agreement"), the
Original IPO Holders hereby waive any and all rights and obligations arising
under the Original Letter Agreement and agree that the Original Letter Agreement
shall be null and void and of no further force or effect.

     This New Letter Agreement sets forth the agreement by and among the
Company, the Original IPO Holders and Forum Holding Amsterdam B.V. (together
with the Original IPO Holders, the "IPO Holders") that, subject to and in
consideration of the purchase of shares of Series C Preferred Stock and Series D
Preferred Stock of the Company by the IPO Holders, in connection with the IPO,
the Company shall require the managing underwriter or underwriters of such IPO
to offer to each IPO Holder the right to purchase their Pro-Rata Share (as
defined below) of that number of shares of capital stock to be sold in the IPO
equal to ten percent (10%) of the total number of primary shares issued by the
Company in the IPO (the "IPO Shares"). For purposes of this New Letter
Agreement, "Pro-Rata Share" shall mean that fraction, the numerator of which is
equal to the total number of shares of Series C Preferred Stock and/or Series D
Preferred Stock (determined on an as-converted basis) held by such IPO Holder
and the denominator of which is the total number of shares of Series C Preferred
Stock and Series D Preferred Stock (determined on an as-converted basis) held by
all IPO Holders. To the extent that one or more of the IPO Holders does not
offer to purchase its full Pro-Rata Share of the IPO Shares, the Company shall
require the managing underwriter or underwriters to offer any remaining IPO
Shares to the participating IPO Holders based on each such holder's Pro-Rata
Share. Notwithstanding the foregoing, all action taken pursuant to this New
Letter Agreement shall be made in accordance with all federal and state
securities laws, including Rule 134 of the Securities Act of 1933, as amended,
and in no event shall the Company be required to take any action pursuant to
this New Letter Agreement that would be in violation of applicable law or rules
or regulations promulgated thereunder. Further, the Company shall in no event be
liable to the

<PAGE>

IPO Holders to the extent it is prohibited from taking action pursuant to this
New Letter Agreement because such action would be in violation of applicable law
or such rules or regulations thereunder.

                                       Very truly yours,

                                       NETFLIX.COM, INC.

                                       By:  /s/ Reed Hastings
                                           -------------------------------------

                                       Title:  CEO
                                              ----------------------------------


Accepted and Agreed on June 22, 1999:

Foundation Capital II, L.P.
     a Delaware Limited Partnership
     By:  Foundation Capital Management II, LLC,
     Its: General Partner

     By: /s/ Theodore R. Meyer
         ------------------------------
         Name: Theodore R. Meyer
         Title: Chief Financial Officer

Technology Crossover Ventures II, L.P.
     a Delaware Limited Partnership
     By:  Technology Crossover Management II, L.L.C.,
     Its: General Partner

     By: /s/ Robert C. Bensky
         ------------------------------
         Name: Robert C. Bensky
         Title: Chief Financial Officer

Institutional Venture Partners VIII, L.P.
     a Delaware Limited Partnership
     By:  Institutional Venture Management VIII, LLC
     Its: General Partner

     By: /s/ Timothy M. Haley
         ------------------------------
         Name: Timothy M. Haley
         Title: Manager

Forum Holding Amsterdam B.V.
By:  /s/ Maria C. Van der Sluijs Plantz
    -----------------------------------
Name: Maria C. Van der Sluijs Plantz
Title: Managing Director

                                      -2-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>11
<FILENAME>dex107.txt
<DESCRIPTION>LEASE AGREEMENT DATED OCTOBER 27, 2000
<TEXT>
<PAGE>

                                                                    Exhibit 10.7


                                  OFFICE LEASE




                                  BR3 Partners,

                                  as "Landlord"

                                       and

                                   NetFix.Com,

                                   as "Tenant"

<PAGE>


                                  OFFICE LEASE

                          SUMMARY OF BASIC LEASE TERMS
                          ----------------------------

<TABLE>
<CAPTION>
       SECTION                           TERMS
  (LEASE REFERENCE)
<S>                     <C>                    <C>
          A.            Lease Reference Date:  October 27, 2000
                        ---------------------
    (Introduction)

          B.            Landlord:              BR3 Partners
                        ---------
    (Introduction)


          C.            Tenant:                NetFlix.com
                        -------
    (Introduction)

          D.            Premises:              That area consisting of approximately 25,070
                        ---------
    (Section 1.21)                             rentable square feet, the address of which is
                                               980 University Avenue, Building "B", within
                                               the Building as shown on Exhibit B.
                                                                        ---------

          E.            Project:               The land and improvements shown Exhibit A
                        --------                                               ---------
    (Section 1.22)                             consisting of one (1) building(s) the
                                               aggregate area of which is approximately
                                               66,400 rentable square feet.

          F.            Building               The building in which the Premises are
                        --------
    (Section 1.7)                              located known as 980 University Avenue, Los
                                               Gatos, CA containing approximately 66,400
                                               rentable square feet.

          G.            Tenant's Share:        37.76%
                        ---------------
    (Section 1.30)

          H.            Tenant's Allocated     66 parking stalls, 41 of which shall be
                        ------------------
    (Section 4.6)       Parking Stalls:        unreserved and non-exclusive, the remaining
                        ---------------
                                               25 shall be assigned stalls as shown as the
                                               crosshatched stalls on Exhibit "I".

          I.            Scheduled
                        ---------
    (Section 1.28)      Commencement Date:     November 1, 2000.
                        ------------------

          J.            Lease Term:            Sixty (60) calendar months (plus the partial
                        -----------
    (Section 1.18)                             month following the Commencement Date if such
                                               date is not the first day of the month)
                                               subject to early expiration as set forth in
                                               Section 4.9.

          K.            Based Monthly Rent:    Nov. 1, 2000 - Oct. 31, 2001     $ 125,350.00
                        -------------------
    (Section 3.1)                              Nov. 1, 2001 - Oct. 31, 2002     $ 130,364.00
                                               Nov. 1, 2002 - Oct. 31, 2003     $ 135,579.00
                                               Nov. 1, 2003 - Oct. 31, 2004     $ 141,002.00
                                               Nov. 1, 2004 - Oct. 31, 2005     $ 146,642.08

          L.            Prepaid Rent:          $125,350.00
                        -------------
    (Section 3.3)

          M.            Security Deposit:      $500,000.00 - cash (Section 3.5)
                        -----------------
(Sections 3.5 and 36)                          $500,000.00 - Letter of Credit
                                               (Section 3.6)

          N.            Premitted Use:         Offices
                        --------------
</TABLE>

                                       1

<PAGE>

<TABLE>
    <S>                  <C>                      <C>
    (Section 4.1)

           O.            Permitted Tenant's
                         ------------------
    (Section 5.2)        Alterations Limit:       $5,000.00
                         ------------------

           P.            Direct Expenses:         See Article 8
                         ----------------
    (Section 8.1)

           Q.            Tenant's Liability
                         ------------------
    (Section 9.1)        Insurance Minimum:       $2,000,000.00
                         ------------------

           R.            Landlord's Address:      985 University Avenue
                         -------------------      Suite 12
    (Section 1.3)                                 Los Gatos, CA 95032


           S.            Tenant's Address:        970 University Avenue
                         -----------------        Los Gatos, CA 95032
    (Section 1.3)

           T.            Retained Real Estate
                         --------------------
    (Section 15.13)      Brokers:                Colliers Parrish
                         --------

           U.            Lease:                  This Office Lease includes the Summary of
                                                 the Basic Lease Terms, the Lease, and the
    (Section 1.17)                               following exhibits and addenda: Exhibit A
                                                                                 ---------
                                                 (site plan of the Project), Exhibit B
                                                                             ---------
                                                 (diagram of Premises shown as cross-hatched),
                                                 Exhibit C (Work Letter), Exhibit D
                                                 ---------                ---------
                                                 (Memorandum of Commencement Date), Exhibit E
                                                                                    ---------
                                                 (form of Subordination Agreement), Exhibit F
                                                                                    ---------
                                                 (Landlord Services), Exhibit G (Rules and
                                                                      ---------
                                                 Regulations), Exhibit H (Acknowledgement of
                                                               ---------
                                                 Early Expiration), and Exhibit I (Parking).
                                                                        ---------
</TABLE>

     The foregoing Summary is hereby incorporated into and made a part of this
Lease. Each reference in this Lease to any term of the Summary shall mean the
respective information set forth above and shall be construed to incorporate all
of the terms provided under the particular paragraph pertaining to such
information. In the event of any conflict between the Summary and the Lease, the
Summary shall control.

LANDLORD:                                       TENANT:


By: /s/ [ILLEGIBLE]                             By: /s/ W. Barry McCarthy, Jr.
  -------------------------------                  -----------------------------

Title: Managing Partner                         Title: CFO
      ---------------------------                     --------------------------

By:______________________________               By:_____________________________


Title:___________________________               Title:__________________________

Dated:  10/31/00                                Dated: October 31, 2000
      ---------------------------                     --------------------------

                                       2

<PAGE>

                                  OFFICE LEASE
                                  ------------

     This Office Lease ("Lease") is dated, for reference purposes only, as of
the Lease Reference Date specified in Section A of the Summary of Basic Lease
                                      ---------
Terms ("Summary"), and is made by and between the party identified as Landlord
in Section B of the Summary and the party identified as Tenant in Section C of
   ---------                                                      ---------
the Summary.

                                   ARTICLE 1
                                   ---------

                                  DEFINITIONS
                                  -----------

     1.1   General. Any initially capitalized term that is given a special
           -------
meaning by this Article 1, the Summary, or by any other provision of this Lease
(including the exhibits attached hereto) shall have such meaning when used in
this Lease or any addendum or amendment hereto unless otherwise clearly
indicated by the context.

     1.2   Additional Rent. The term "Additional Rent" is defined in Section
           ---------------
3.2.

     1.3   Address for Notices. The term "Address for Notices" shall mean the
           -------------------
addresses set forth in Sections R and S of the Summary; provided, however, that
                       ----------     -
after the Commencement Date, Tenant's Address for Notices shall be the address
of the Premises.

     1.4   Agents. The term "Agents" shall mean the following: (i) with respect
           ------
to Landlord or Tenant, the agents, employees, contractors and invitees of such
party, and (ii) in addition with respect to Tenant, Tenant's subtenants and
their respective agents, employees, contractors and invitees.

     1.5   Agreed Interest Rate. The term "Agreed Interest Rate" shall mean that
           --------------------
interest rate determined as of the time it is to be applied that is equal to the
lesser of (i) the higher of five percent (5%) in excess of the discount rate
established by the Federal Reserve Bank of San Francisco as it may be adjusted
from time to time, or ten percent (10%) per annum, or (ii) the maximum interest
rate permitted by Law.

     1.6   Base Monthly Rent. The term "Base Monthly Rent" shall mean the fixed
           -----------------
monthly rent payable by Tenant pursuant to Section 3.1 which is specified in
Section K of the Summary.
- ---------

    1.7   Building. The term "Building" shall mean the building in which the
           --------
Premises are located which Building is identified in Section F of the Summary,
                                                     ---------
the rentable area of which is referred to herein as the "Building Rentable
Area."

     1.8   Commencement Date. The term "Commencement Date" is the date the Lease
           -----------------
Term commences, which term is defined in Section 2.2.

     1.9   Common Area. The term "Common Area" shall mean all areas and
           -----------
facilities within the Project that are not designated by Landlord for the
exclusive use of Tenant or any other lessee or other occupant of the Project,
including, without limitation, the parking areas, access and perimeter roads,
pedestrian sidewalks, landscaped areas, trash enclosures, recreation areas and
the like.

     1.10  Direct Expenses. The term "Direct Expenses" is defined in Section
           ---------------
8.2.

     1.11  Consumer Price Index. The term "Consumer Price Index" shall refer to
           --------------------
the Consumer Price Index, All Urban Consumers, subgroup "All Items", for the San
Francisco-Oakland-San Jose metropolitan area (base year 1982-84 equals 100),
which is presently being published monthly by the United States Department of
Labor, Bureau of Labor Statistics. However, if this Consumer Price Index is
changed so that the base year is altered from that used as of the commencement
of the Lease Term, the Consumer Price Index shall be converted in accordance
with the conversion factor published by the United States Department of Labor,
Bureau of Labor Statistics to obtain the same results that would have been
obtained had the base year not been changed. If no conversion factor is
available, or if the Consumer Price Index is otherwise changed, revised or
discontinued for any reason, there shall be substituted in lieu thereof, and the
term "Consumer Price Index" shall thereafter refer to, the most nearly
comparable official price index of the United States government in order to
obtain substantially the same result as would have been obtained had the
original Consumer Price Index not been discontinued, revised or changed, which
alternative index shall be selected by Landlord in its reasonable judgment.

     1.12  Effective Date. The term "Effective Date" shall mean the date the
           --------------
last signatory to this Lease whose execution is required to make it binding on
the parties hereto shall have executed this Lease.

     1.13  Event of Tenant's Default. The term "Event of Tenant's Default" is
           -------------------------
defined in Section 13.1

     1.14  Hazardous Materials. The terms "Hazardous Materials" and "Hazardous
           -------------------
Materials Laws" are defined in Section 7.2E.

     1.15  Insured and Uninsured Peril. The terms "Insured Peril" and "Uninsured
           ---------------------------
Peril" are defined in Section 11.2E.

     1.16  Law(s). The term "Law(s)" shall mean any judicial decision, statute,
           ------
constitution, ordinance, resolution, regulation, rule, administrative order or
other requirement of any municipal, county, state, federal or other governmental
agency or authority having jurisdiction over the parties to this Lease or the
Premises, or both, in effect either at the Effective Date or any time during the
Lease Term.

     1.17  Lease. The term "Lease" shall mean the Summary and all elements of
           -----
this Lease identified in Section U of the Summary, all of which are attached
                         ---------
hereto and incorporated herein by this reference.

     1.18  Lease Term. The term "Lease Term" shall mean the term of this Lease.
           ----------
which shall commence on the Commencement Date and, unless sooner expiring or
terminated pursuant to this Lease, shall continue for the period specified in
Section J of the Summary.
- ---------

     1.19  Lender. The term "Lender" shall mean any beneficiary, mortgagee,
           ------
secured party, ground or underlying lessor, or other holder of any Security
Instrument now or hereafter affecting the Project or any portion thereof.

     l.20  Permitted Use. The term "Permitted Use" shall mean the use specified
           -------------
in Section N of the Summary, and no other use shall be permitted.
   ---------

                                       3

<PAGE>

          1.21  Premises. The term "Premises" shall mean that space described in
                --------
Section D of the Summary that is within the Building.
- ---------

          1.22  Project. The term "Project" shall mean that real property and
                -------
the improvements thereon which are specified in Section E of the Summary, the
                                                ---------
aggregate rentable area of which is referred to herein as the "Project Rentable
Area."

          1.23  Private Restrictions. The term "Private Restrictions" shall mean
                --------------------
all recorded covenants, conditions and restrictions, private agreements,
reciprocal easement agreements, and any other recorded instruments affecting the
use of the Premises and/or the Project which exist as of the Effective Date or
which are recorded after the Effective Date.

          1.24  Real Property Taxes. The term "Real Property Taxes" is defined
                -------------------
in Section 8.3.

          1.25  Rent. The term "Rent" or "rent" shall mean, collectively, Base
                ----
Monthly Rent, Additional Rent and all other payments of money payable to
Landlord under this Lease, whether or not such payments are specifically
denominated as rent hereunder.

          l.26  Rentable Area. The term "Rentable Area" as used in this Lease
                -------------
shall mean, with respect to the Premises, the rentable square feet set forth in
Section D of the Summary, and, with respect to the Project, the rentable square
- ---------
feet set forth in Section E of the Summary (subject to reformulation pursuant to
                  ---------
Section 1.32 below). Landlord and Tenant agree that (i) each has had an
opportunity to determine to its satisfaction the actual area of the Project, the
Building and the Premises, (ii) all measurements of area contained in this Lease
are conclusively agreed to be correct and binding upon the parties, even if a
subsequent measurement of any one of these areas determines that it is more or
less than the amount of area reflected in this Lease, and (iii) any such
subsequent determination that the area is more or less than shown in this Lease
shall not result in a change in any way of the computations of rent, improvement
allowances, or other matters described in this Lease where area is a factor.

          1.27  Rules and Regulations. The term "Rules and Regulations" shall
                ---------------------
mean the rules and regulations attached hereto as Exhibit G and any amendments
                                                  ---------
or supplements thereto and any additional rules and regulations, all as may be
adopted and promulgated by Landlord from time to time.

          1.28  Scheduled Commencement Date. The term "Scheduled Commencement
                ---------------------------
Date" shall mean the date specified in Section 1 of the Summary.
                                       ---------

          1.29  Security Instrument. The term "Security Instrument" shall mean
                -------------------
any ground or underlying lease, mortgage or deed of trust which now or hereafter
affects the Project (or any portion thereof), and any renewal, modification,
consolidation, replacement or extension thereof.

          1.30  Summary. The term "Summary shall mean the Summary of Basic Lease
                -------
Terms executed by Landlord and Tenant that is part of this Lease.

          1.31  Tenant's Alterations. The term "Tenant's Alterations" shall mean
                --------------------
all improvements, additions, alterations and fixtures installed in the Premises
by or for the benefit of Tenant following the Commencement Date which are not
Trade Fixtures.

          1.32  Tenant's Share. The term "Tenant's Share" shall mean the
                --------------
percentage obtained by dividing Tenant's Rentable Area by the Project Rentable
Area, which, as of the Effective Date, is the percentage identified in Section G
                                                                       ---------
of the Summary. In the event Landlord constructs other buildings on the Project,
Landlord may, in Landlord's sole discretion, reformulate Tenant's Share, as to
any or all of the items which comprise Direct Expenses, to reflect the rentable
square footage of the Premises as a percentage of all rentable square footage of
the Project. In the event Tenant's Share is reformulated in accordance with this
Section 1.32, Landlord shall promptly provide Tenant notice of such
reformulation, together with a written statement showing in reasonable detail
the manner in which Tenant's Share was reformulated and a List of all items of
Direct Expenses which will be accounted for using the reformulated percentage.
Any items of Direct Expenses to which the reformulated share is not applied
shall be accounted for using the original Tenant's Share set forth in Section G
                                                                      ---------
of the Summary.

          1.33  Trade Fixtures. The term "Trade Fixtures" shell mean (i)
                --------------
Tenant's inventory, furniture, signs, business equipment and other personal
property, and (ii) anything affixed to the Premises by Tenant at its expense for
purposes of trade (except replacement of similar work or material originally
installed by Landlord) which can be removed without material injury to the
Premises unless such thing has, by the manner in which it is affixed, become an
integral part of the Premises.

                                   ARTICLE 2
                                   ---------

                      DEMISE, CONSTRUCTION, AND ACCEPTANCE
                      ------------------------------------

          2.1   Demise of Premises. Landlord hereby leases to Tenant, and Tenant
                ------------------
hereby leases from Landlord, for the Lease Term upon the terms and conditions of
this Lease, the Premises for Tenant's own use in the conduct of Tenant's
business together with (i) the non-exclusive right to use the number of Tenant's
Allocated Parking Stalls within the Common Area (subject to the limitations set
forth in Section 4.6), and (ii) the non-exclusive right to use the Common Area
for ingress to and egress from the Premises. Landlord reserves the use of the
exterior walls, the roof and the area beneath and above the Premises, together
with the right to install, maintain, use and replace ducts, wires, conduits and
pipes leading through the Premises in locations which will not materially
interfere with Tenant's use of the Premises.

          2.2   Commencement Date. If Landlord is not obligated to construct
                -----------------
improvements to the Premises prior to the Commencement Date pursuant to Section
2.3, then, on the Scheduled Commencement Date. Landlord shall deliver possession
of the Premises to Tenant and the Lease Term shall commence on such date (and
such date shall be referred to herein as the "Commencement Date"), subject to
Section 2.4. If Landlord is required to construct improvements to the Premises
prior to the Commencement Date pursuant to Section 2.3, then the Scheduled
Commencement Date shall be only an estimate of the actual Commencement Date, and
the Lease Term shall begin on the first to occur of the following, which,
subject to acceleration under the Work Letter attached hereto as Exhibit C,
                                                                 ---------
shall be the "Commencement Date": (i) the date Landlord offers to deliver
possession of the Premises to Tenant following substantial completion of all
improvements to be constructed by Landlord pursuant to Section 2.3 except for
punchlist items which do not prevent Tenant from using the Premises for the
Permitted Use, or (ii) the date Tenant enters into occupancy of the Premises.
Tenant shall accept possession and enter into good faith occupancy of the entire
Premises and commence the operation of its business therein within thirty (30)
days after the Commencement Date. Promptly following the delivery of possession
of the Premises by Landlord to Tenant, Landlord and Tenant shall together
execute a Memorandum of Commencement Date in the form attached as Exhibit D,
                                                                  ---------
appropriately completed (but the failure to execute such Memorandum of
Commencement Date shall not affect the Commencement Date or Tenant's obligations
hereunder).

                                       4

<PAGE>

     2.3 Construction of Improvements. Landlord shall construct certain
         ----------------------------
improvements that shall constitute or become part of the Premises if required
by, and then in accordance with, the terms of the Work Letter attached hereto as
Exhibit C (and, if Exhibit C is left blank, then Landlord shall not be obligated
- ---------          ---------
to construct any improvement to the Premises). Except as specifically provided
in Exhibit C attached hereto, Landlord shall have no obligation whatsoever to
   ---------
in any way alter or improve the Premises. Tenant acknowledges that it has had an
opportunity to conduct, and has conducted, such inspections of the Premises as
it deems necessary to evaluate its condition. Except as otherwise specifically
provided herein, Tenant agrees to accept possession of the Premises in its then
existing condition "as-is", including all patent and latent defects. Tenant's
taking possession of any part of the Premises shall be deemed to be an
acceptance by Tenant of any work of improvement done by Landlord in such part as
complete and in accordance with the terms of this Lease, subject to Landlord's
obligations, if any, under Exhibit C attached hereto.
                           ---------

     2.4 Delay in Delivery of Possession. If for any reason Landlord cannot
         -------------------------------
deliver possession of the Premises to Tenant on or before the Scheduled
Commencement Date, Landlord shall not be subject to any liability therefor, and
such failure shall not affect the validity of this Lease or the obligations of
Tenant hereunder, but, in such case, Tenant shall not be obligated to pay Base
Monthly Rent or Tenant's Share of Direct Expenses until the Commencement Date
has occurred; provided, however, if Landlord cannot deliver possession of the
Premises to Tenant on or before the date ("Outside Commencement Date") that is
one hundred eighty (180) days following the Scheduled Commencement Date, Tenant
shall have the right, as its sole and exclusive remedy, to terminate this Lease
by providing Landlord with written notice thereof within five (5) days following
the Outside Commencement Date (provided, however, in the event that Landlord's
failure to deliver possession of the Premises to Tenant on or before the Outside
Commencement Date is attributable, in whole or in part, to any action or
inaction by Tenant or Tenant's Agents (including, without limitation, any Tenant
Delay described in the Work Letter attached hereto as Exhibit C) or by reason of
                                                      ---------
any causes beyond the reasonable control of Landlord ("Force Majeure Delay"),
the Outside Commencement Date shall be extended for the period of delay
attributable to the action or inaction by Tenant or Tenant's Agents in question
and/or the Force Majeure Delay in question, as applicable). In the event Tenant
provides Landlord with written notice of termination within such five (5) day
period, this Lease shall terminate upon such notice and Landlord shall promptly
return to Tenant any deposits made by Tenant to Landlord under this Lease. In
the event Tenant fails to provide Landlord with written notice of termination
within such five (5) day period, this Lease shall continue in full force and
effect.

     2.5 Early Occupancy. If Tenant enters or permits its Agents to enter the
         ---------------
Premises prior to the Commencement Date with the written permission of Landlord,
it shall do so upon all of the terms of this Lease (including its obligations
regarding indemnity and insurance) except those regarding the obligation to pay
rent, which shall commence on the Commencement Date.

                                       5

<PAGE>

     2.6 Relocation. Intentionally deleted.
         ----------

     2.7 No Roof Rights. In no event shall Tenant have any rights whatsoever to
         --------------
use all or any portion of the roof of the Building without prior written
approval from Landlord, which shall not be unreasonably withheld.

                                   ARTICLE 3
                                   ---------

                                      RENT
                                      ----

     3.1 Base Monthly Rent. Commencing on the Commencement Date and continuing
         -----------------
throughout the Lease Term, Tenant shall pay to Landlord the Base Monthly Rent
set forth in Section K of the Summary.
             ---------

     3.2 Additional Rent. Commencing on the Commencement Date and continuing
         ---------------
throughout the Lease Term, Tenant shall pay the following as additional rent
(the "Additional Rent"): (i) any late charges or interest due Landlord pursuant
to Section 3.4; (ii) Tenant's Share of Direct Expenses as provided in Section
8.1; (iii) Landlord's share of any Transfer Consideration received by Tenant
upon certain assignments and sublettings as required by Section 14.1; (iv) any
legal fees and costs due Landlord pursuant to Section 15.9; and (v) any other
sums or charges payable by Tenant pursuant to this Lease.

     3.3 Payment of Rent. Concurrently with Tenant's execution of this Lease,
         ---------------
Tenant shall pay to Landlord the amount set forth in Section L of the Summary as
                                                     ---------
prepayment of rent for credit against the first installment(s) of Base Monthly
Rent. All rent required to be paid in monthly installments shall be paid in
advance on the first day of each calendar month during the Lease Term. If
Section K of the Summary provides that the Base Monthly Rent is to be increased
- ---------
during the Lease Term and if the date of such increase does not fall on the
first day of a calendar month, such increase shall become effective on the first
day of the next calendar month. All rent shall be paid in lawful money of the
United States, without any abatement, deduction or offset whatsoever (except as
specifically provided in Sections 11.4 and 12.3), and without any prior demand
therefor. Rent shall be paid to Landlord at its address set forth in Section R
                                                                     ---------
the Summary, or at such other place as Landlord may designate from time to time.
Tenant's obligation to pay Base Monthly Rent and Tenant's Share of Direct
Expenses shall be prorated at the commencement and expiration of the Lease Term.

     3.4 Late Charge and Interest. Tenant acknowledges that late payment by
         ------------------------
Tenant to Landlord of Rent under this Lease will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which is extremely difficult
or impracticable to determine. Such costs include, but are not limited to,
processing and accounting charges, late charges that may be imposed on Landlord
by the terms of any Security Instrument, and late charges and penalties that may
be imposed due to late payment of Real Property Taxes. Therefore, if any
installment of Base Monthly Rent or any payment of Additional Rent or other rent
due from Tenant is not received by Landlord in good funds by the applicable due
date, Tenant shall pay to Landlord an additional sum equal to ten percent (10%)
of the amount overdue as a late charge. The parties acknowledge that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. In no event shall this provision for
a late charge be deemed to grant to Tenant a grace period or extension of time
within which to pay any rent or prevent Landlord from exercising any right or
remedy available to Landlord upon Tenant's failure to pay any rent due under
this Lease in a timely fashion, including any right to terminate this Lease
pursuant to Section 13.2C. If any rent remains delinquent for a period in excess
of thirty (30) days then, in addition to such late charge, Tenant shall pay to
Landlord interest on any rent that is not paid when due at the Agreed Interest
Rate following the date such amount became due until paid.

     3.5 Security Deposit. Concurrently with its execution of this Lease, Tenant
         ----------------
shall deposit with Landlord the amount of cash set forth in Section M of the
                                                            ---------
Summary as partial security for the performance by Tenant of its obligations
under this Lease, and not as prepayment of rent (the "Security Deposit").
Landlord may from time to time apply such portion of the Security Deposit as is
necessary for the following purposes: (i) to remedy any default by Tenant in the
payment of rent; (ii) to repair damage to the Premises caused by Tenant (iii) to
clean the Premises upon the expiration or sooner termination of the Lease;
and/or (iv) to remedy any other default of Tenant to the extent permitted by
Law, including, without limitation, on account of damages owing to Landlord
under Section 13.2, and, in this regard, Tenant hereby waives any restriction on
the uses to which the Security Deposit may be put contained in California Civil
Code Section 1950.7. In the event the Security Deposit or any portion thereof is
so used, Tenant agrees to pay to Landlord promptly upon demand an amount in cash
sufficient to restore the Security Deposit to the full original amount. Landlord
shall not be deemed a trustee of the Security Deposit, may use the Security
Deposit in business, and shall not be required to segregate it from its general
accounts. Tenant shall not be entitled to any interest on the Security Deposit.
If Landlord transfers the Premises during the Lease Term, Landlord may pay the
Security Deposit to any transferee of Landlord's interest in conformity with the
provisions of California Civil Code Section 1950.7 and/or any successor statute,
in which event the transferring Landlord will be released from all liability for
the return of the Security Deposit. If Tenant performs every provision of this
Lease to be performed by Tenant, the unused portion of the Security Deposit
shall be returned to Tenant (or the last assignee of Tenant's interest under
this Lease) within fifteen (15) days following the expiration or sooner
termination of this Lease and the surrender of the Premises by Tenant to
Landlord in accordance with the terms of this Lease. If this Lease is terminated
following an Event of Tenant's Default, the unpaid portion of the Security
Deposit, if any, shall be returned to Tenant two (2) weeks after final
determination of all damages due Landlord, and, in this respect, the provisions
of California Civil Code Section 1950.7 are hereby waived by Tenant.

         3.6 Additional Security - Letter of Credit. As additional security for
             --------------------------------------
the performance of every provision of this Lease to be performed by Tenant,
Tenant shall deposit with a Landlord concurrently with Tenant's execution and
delivery of this Lease an unconditional, irrevocable sight draft letter of
credit in the principal amount of $500,000.00 (as modified, amended and/or
replaced, "Letter of Credit"), in form and content acceptable to Landlord
(including, without limitation, a provision that any termination or cancellation
thereof not be effective until at least ten (10) days after delivery of written
notice to Landlord of such termination or cancellation) and drawn on a
commercial lender acceptable to Landlord, having a term equal to (or being
automatically renewable to) November 30, 2005, subject to the second paragraph
of this Section 3.6 below. Upon any Event of Default, without waiver of any
rights that Landlord may have under this Lease or at law or in equity as a
result of an Event of Default, Landlord shall have the right to draw upon the
Letter of Credit, in whole or in part, either prior to, concurrently with or
after Landlord's application of all or any portion of the Security Deposit. If
all or any portion of the Letter of Credit is drawn upon by Landlord hereunder,
Tenant shall, within ten (10) days after written demand therefore, restore the
Letter of Credit to its original amount (or if drawn upon in full, deliver to
Landlord a replacement Letter of Credit), and Tenant's failure to do so shall
constitute an Event of Default under this Lease. In addition, the failure at any
time by Tenant to keep the Letter of Credit in full force and effect as required

                                       6

<PAGE>

hereunder shall constitute an Event of Default under this Lease. In addition,
the failure at any time by Tenant to keep the Letter of Credit in full force and
effect as required hereunder shall constitute an Event of Default under this
Lease.

     In the event that the Letter of Credit has an expiration date that is prior
to November 30, 2005, and does not provide for automatic renewals through and
including November 30, 2005, then, no later than thirty (30) days prior to each
scheduled expiration date of the Letter of Credit, Tenant shall cause the Letter
of Credit to be either extended for a period of at least one (1) year or
replaced to the satisfaction of Landlord, such that the Letter of Credit shall
remain in full force and effect and drawable by Landlord through and including
November 30, 2005. If Landlord has not received any such extension or
replacement on or before the date that is thirty (30) days prior to the then-
scheduled expiration date of the Letter of Credit, Landlord shall be entitled to
draw down on the Letter of Credit in full, and the funds so drawn by Landlord
shall be added to the Security Deposit then-held by Landlord under this Lease
and shall thereafter be held by Landlord as part of such Security Deposit,
subject to and in accordance with the terms and conditions of this Section 3.5
above.

                                   ARTICLE 4
                                   ---------

                                USE OF PREMISES
                                ---------------

     4.1  Limitation on Use. Tenant shall use the Premises solely for the
          -----------------
Permitted Use specified in Section N of the Summary and for no other purpose
                           ---------
whatsoever without the prior written consent of Landlord, which consent may be
withheld and/or conditioned by Landlord in its sole and absolute discretion.
Tenant shall not do anything in or about the Premises which will (i) cause
structural injury to the Building, or (ii) cause damage to any part of the
Building except to the extent reasonably necessary for the installation of
Tenant's Trade Fixtures and Tenant's Alterations, and then only in a manner
which has been first approved by Landlord in writing. Tenant shall not operate
any equipment within the Premises which will (i) materially damage the Building
or the Common Area, (ii) overload existing electrical systems or other
mechanical equipment servicing the Building, (iii) impair the efficient
operation of the sprinkler system or the heating ventilating or air conditioning
("HVAC") equipment within or servicing the Building, or (iv) damage, overload or
corrode the sanitary sewer system. Tenant shall not attach, hang or suspend
anything from the ceiling, roof, walls or columns of the Building or set any
load on the floor in excess of the load limits for which such items are designed
nor operate hard wheel forklifts within the Premises. Any dust, fumes, or waste
products generated by Tenant's use of the Premises shall be contained and
disposed so that they do not (i) create an unreasonable fire or health hazard,
(ii) damage the Premises, or (iii) result in the violation of any Laws. Tenant
shall not change the exterior of the Building or install any equipment or
antennas on or make any penetrations of the exterior or roof of the Building.
Tenant shall not commit any waste in or about the Premises, and Tenant shall
keep the Premises in a neat, clean, attractive and orderly condition, free of
any nuisances. If Landlord designates a standard window covering for use
throughout the Building, Tenant shall use this standard window covering to cover
all windows in the Premises. Tenant shall not conduct on any portion of the
Premises or the Project any sale of any kind, including, without limitation, any
public or private auction, fire sale, going-out-of-business sale, distress sale
or other liquidation sale.

     4.2  Compliance with Regulations. Tenant shall not use the Premises in any
          ---------------------------
manner which violates any Laws or Private Restrictions which affect the
Premises. Tenant shall abide by and promptly observe and comply with all Laws
and Private Restrictions. Tenant shall not use the Premises in any manner which
will cause a cancellation of any insurance policy covering the Premises, the
Building, Tenant's Alterations or any improvements installed by Landlord at its
expense or which poses an unreasonable risk of damage or injury to the Premises.
Tenant shall not sell, or permit to be kept, used, or sold in or about the
Premises any article which may be prohibited by the standard form of fire
insurance policy. Tenant shall comply with all reasonable requirements of any
insurance company, insurance underwriter or Board of Fire Underwriters which are
necessary to maintain the insurance coverage carried by either Landlord or
Tenant pursuant to this Lease.

     4.3  Outside Areas. No materials, supplies, tanks or containers, equipment,
          -------------
finished products or semi-finished products, raw materials, inoperable vehicles
or articles of any nature shall be stored upon or permitted to remain outside of
the Premises.

     4.4  Signs. Tenant shall not place on any portion of the Premises any sign,
          -----
placard, lettering in or on windows, banner, displays or other advertising or
communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord. All such approved signs shall
strictly conform to all Laws, Private Restrictions, and any sign criteria
established by Landlord for the Building from time to time, and shall be
installed at the expense of Tenant. Tenant shall maintain such signs in good
condition and repair, and, upon the expiration or sooner termination of this
Lease, remove the same and repair any damage caused thereby, all at its sole
cost and expense and to the reasonable satisfaction of Landlord.

     4.5  No Light, Air or View Easement. Any diminution or shutting off of
          ------------------------------
light, air or view by any structure which may be erected on the Project or any
lands adjacent to the Project shall in no way affect this Lease or impose any
liability on Landlord.

     4.6  Parking. Tenant is allocated and shall have the non-exclusive right to
          -------
use the non-exclusive parking spaces located within the Project from time to
time, for its use and the use of Tenant's Agents, in common with other tenants
of the Project, up to, but not exceeding, the lesser of (i) the number of
allocated parking spaces set forth in Section H of the Summary, or (ii) the
                                      ---------
Tenant's Share of the non-exclusive parking spaces available for use within the
Project from time to time (which as of the Effective Date is the percentage set
forth in Section G of the Summary), the location of which parking spaces may be
         ---------
designated from time to time by Landlord. Tenant shall not at any time use more
parking spaces than the number so allocated to Tenant or park its vehicles or
the vehicles of others in any portion of the Project not designated by Landlord
as a non-exclusive parking area. Tenant shall not have the exclusive right to
use any specific parking space. If Landlord grants to any other tenant the
exclusive right to use any particular parking space(s), Tenant shall not use
such spaces. Tenant shall not park or store vehicles at the Project for more
that (24) hours without the Landlord's written consent in Landlord's sole and
absolute discretion. Such unauthorized vehicles may be towed at Tenant's
expense. Landlord reserves the right, after having given Tenant reasonable
notice, to have any vehicles owned by Tenant or Tenant's Agents utilizing
parking spaces in excess of the parking spaces allowed for Tenant's use to be
towed away at Tenant's cost. All trucks and delivery vehicles shall be (i)
parked in such areas as Landlord may designate from time to time, (ii) loaded
and unloaded in a manner which does not interfere with the businesses of other
occupants of the Project, and (iii) permitted to remain on the Project only so
long as is reasonably necessary to complete loading and unloading. In the event
Landlord elects or is required by any Law to limit or control parking in the
Project, whether by validation of parking tickets or any other method of
assessment, Tenant agrees to participate in such validation or assessment
program under such rules and regulations as are from time to time established by
Landlord.

     4.7  Rules and Regulations. Landlord may from time to time promulgate such
          ---------------------
Rules and Regulations applicable to the Project and/or the Building as Landlord
may, in its sole discretion, deem necessary or appropriate for the care and
orderly management of the Project and the safety of its tenants and invitees.
Such Rules and Regulations shall be binding upon Tenant upon delivery of a copy
thereof to Tenant, and Tenant agrees to abide by such Rules and Regulations. If
there is a conflict

                                       7

<PAGE>

between the Rules and Regulations and any of the provisions of this Lease, the
provisions of this Lease shall prevail. Landlord shall not be responsible for
the violation by any other tenant of the Project of any such Rules and
Regulations.

     4.8   Telecommunications. The use of the Premises by Tenant for the
           ------------------
Permitted Use specified in Section N of the Summary shall not include using the
                           ---------
Premises to provide telecommunications services (including, without limitation,
Internet connections) to third parties, it being intended that Tenant's
telecommunications activities within the Premises be strictly limited to such
activities as are incidental to general office use.

     4.9   Early Expiration of Lease Term. Tenant acknowledges that Landlord has
           ------------------------------
granted to UltraCard an option to lease the Premises commencing on November 1,
2003. Notwithstanding any provision contained in this Lease to the contrary, in
the event that UltraCard exercises such option, Landlord shall have the right to
cause this Lease to expire on October 31, 2003 ("Early Expiration Date"), by
providing Tenant written notice ("Early Expiration Notice") of such early
expiration no later than five (5) months prior to the Early Expiration Date. In
the event Landlord provides Tenant with the Early Expiration Notice, any and all
provisions of this Lease regarding expiration of the Lease, vacation and
delivery of the Premises shall apply, including, but not limited to Sections
15.2 and 15.3; provided, however, the expiration date for the Lease Term shall
be the Early Expiration Date. Within ten (10) days of delivery of the Early
Expiration Notice Tenant shall execute and deliver to Landlord an
acknowledgement of the Early Expiration Date in the form attached hereto as
Exhibit H ("Early Expiration Acknowledgement"). In the event Tenant fails to
- ---------
timely deliver the Early Expiration Acknowledgement, Tenant shall be in material
default of this Lease and Landlord shall be permitted any and all remedies set
forth in Section 13 of this Lease.

/s/ McCarthy                                                 /s/ [ILLEGIBLE]
- ---------------------                                        -------------------
Tenant's Initials                                            Landlord's Initials

                                    ARTICLE 5

                         TRADE FIXTURES AND ALTERATIONS
                         ------------------------------

     5.1   Trade Fixtures. Throughout the Lease Term, Tenant may provide and
           --------------
install, and shall maintain in good condition, any Trade Fixtures required in
the conduct of its business in the Premises; provided, however, if the
installation of any Trade Fixtures will necessitate the making of any Tenant's
Alterations, then Tenant shall not be permitted to make such installation unless
and until the applicable Tenant's Alterations have been approved by Landlord
pursuant to Section 5.2. All Trade Fixtures shall remain Tenant's property.

     5.2   Tenant's Alterations. Construction by Tenant of Tenant's Alterations
           --------------------
shall be governed by the following:

           A.  Tenant shall not construct any Tenant's Alterations or otherwise
alter the Premises without Landlord's prior written approval, which approval may
be withheld and/or conditioned by Landlord in its sole and absolute discretion.
Tenant shall be entitled, without Landord's prior approval, to make Tenant's
Alterations (i) which do not affect the structural or exterior pans or water
tight character of the Building, (ii) do not affect the HVAC, electrical,
plumbing or life safety systems of the Building, and (iii) the reasonably
estimated cost of which, plus the original cost of any part of the Premises
removed or materially altered in connection with such Tenant's Alterations,
together do not exceed the Permitted Tenant Alterations Limit specified in
Section O of the Summary per work of improvement (and, for purposes thereof, all
- ---------
work performed or commenced within a six (6) month period shall he considered a
single work of improvement). In the event Landlord's approval for any Tenant's
Alterations is required, Tenant shall not construct the Tenant's Alterations
until Landlord has approved in writing the plans and specifications therefor,
and such Tenant's Alterations shall be constructed substantially in compliance
with such approved plans and specifications by a licensed contractor first
approved by Landlord. All Tenant's Alterations constructed by Tenant shall be
constructed by a reputable licensed contractor (approved in writing by Landlord)
in accordance with all Laws using new materials of good quality.

           B.  Tenant shall not commence construction of any Tenant's
Alterations until (i) all required governmental approvals and permits have been
obtained, (ii) all requirements regarding insurance imposed by this Lease have
been satisfied, (iii) Tenant has given Landlord at least five (5) day's prior
written notice of its intention to commence such construction, and (iv) if
requested by Landlord, Tenant has obtained contingent liability and broad form
builders, risk insurance in an amount reasonably satisfactory to Landlord if
there are any perils relating to the proposed construction not covered by
insurance carried pursuant to Article 9.

           C.  All Tenant's Alterations shall remain the property of Tenant
during the Lease Term but shall not be altered or removed from the Premises. At
the expiration or sooner termination of the Lease Term, all Tenant's Alterations
shall be surrendered to Landlord as part of the realty and shall then become
Landlord's property, and Landlord shall have no obligation to reimburse Tenant
for all or any portion of the value or cost thereof; provided, however, Landlord
expressly reserves the right to require Tenant to remove any Tenant's
Alterations. prior to the expiration or sooner termination of the Lease Term by
providing Tenant with written notice thereof prior to or upon such expiration or
sooner termination.

     5.3   Alterations Required by Law. Tenant shall, at its sole cost and
           ----------------------------
expense, make any alteration, addition or change of any sort to the Premises,
the Building and the Project, that is required by any Law because of (i)
Tenant's particular use or change of use of the Premises; (ii) Tenant's
application for any permit or governmental approval; (iii) Tenant's construction
or installation of any Tenant's Alterations or Trade Fixtures; or (iv) an Event
of Tenant's Default. Any such alterations, additions or changes shall be made by
Tenant in accordance with and subject to the provisions of Section 5.3. Any
other alteration, addition, or change required by Law which is not the
responsibility of Tenant pursuant to the foregoing shall be made by Landlord
(subject to Landlord's right to reimbursement from Tenant specified in Section
5.4).

     5.4   Amortization of Certain Capital Improvements. Tenant shall pay as
           --------------------------------------------
Additional Rent in the event Landlord reasonably elects or is required to make
any of the following kinds of capital improvements to the Project and the cost
thereof is not reimbursable as a Direct Expense or is not the responsibility of
Tenant pursuant to Section 5.3: (i) capital improvements required to be
constructed in order to comply with any Laws (excluding any Hazardous Materials
Laws) not in effect or applicable to the Project as of the Effective Date; (ii)
modification of existing or construction of additional capital improvements or
building service equipment for the purpose of reducing the consumption of
utility services or Direct Expenses; (iii) replacement of capital improvements
or building service equipment existing as of the Effective Date when required
because of normal wear and tear; and (iv) restoration of any part of the
Project that has been damaged by any peril to the extent the cost thereof is not
covered by insurance proceeds actually recovered by Landlord up to a maximum
amount per occurrence of ten percent (10%) of the then replacement cost of the
Project. The amount of Additional Rent Tenant is to pay with respect to each
such capital improvement shall be determined as follows:

           A.  All costs paid by Landlord to construct such improvements
(including financing costs) shall be amortized over the useful life of such
improvement (as reasonably determined by Landlord in accordance with generally
accepted

                                       8

<PAGE>

accounting principles) with interest on the unamortized balance at the then
prevailing market rate Landlord would pay if it borrowed funds to construct such
improvements from an institutional lender, and Landlord shall inform Tenant of
the monthly amortization payment required to so amortize such costs, and shall
also provide Tenant with the information upon which such determination is made;
and

          B.  As Additional Rent, Tenant shall pay at the same time the Base
Monthly Rent is due an amount equal to Tenant's Share of such monthly
amortization payment for each month after such improvements are completed until
the first to occur of (i) the expiration of the Lease Term (as it may be
extended), or (ii) the end of the term over which such costs were amortized.

     5.5  Mechanic's Liens. Tenant shall keep the Project free from any liens
          ----------------
and shall pay when due all bills arising out of any work performed, materials
furnished, or obligations incurred by or at the direction of Tenant or Tenant's
Agents relating to the Project. If Tenant fails to cause the release of record
of any lien(s) filed against the Project (or any portion thereof) or its
leasehold interest therein by payment or posting of a proper bond within ten
(10) days from the date of the lien filing(s), then Landlord may, at Tenant's
expense, cause such lien(s) to be released by any means Landlord deems proper,
including, but not limited to, payment of or defense against the claim giving
rise to the lien(s). All sums disbursed, deposited or incurred by Landlord in
connection with the release of the lien(s) shall be due and payable by Tenant to
Landlord on demand by Landlord, together with interest at the Agreed Interest
Rate from the date of demand until paid by Tenant.

     5.6  Taxes on Tenant's Property. Tenant shall pay before delinquency any
          --------------------------
and all taxes, assessments, license fees and public charges levied, assessed or
imposed against Tenant or Tenant's estate in this Lease or the property of
Tenant situated within the Premises which become due during the Lease Term,
including, without limitation, Tenant's Alterations and Trade Futures. If any
tax or other charge is assessed by any governments agency because of the
execution of this Lease, such tax shall be paid by Tenant. On demand by
Landlord, Tenant shall furnish Landlord with satisfactory evidence of these
payments.

                                   ARTICLE 6
                                   ---------

                             REPAIR AND MAINTENANCE
                             ----------------------

     6.1  Tenant's Obligation to Maintain. By taking possession of the Premises,
          -------------------------------
Tenant shall be deemed to have accepted the Premises as being in good, sanitary
order, condition and repair. Tenant shall, at Tenant's sole cost and expense,
keep the Premises and every part thereof in good condition and repair, damage
thereto from causes beyond the control of Tenant and ordinary wear and tear
excepted. Tenant shall upon the expiration or sooner termination of this Lease
hereof surrender the Premises in the condition described in Section 15.2. Except
as specifically provided in an addendum, if any, to this Lease, Landlord shall
have no obligation whatsoever to alter, remodel, improve, decorate or paint the
Premises or any part thereof and the parties hereto affirm that Landlord has
made no representations to Tenant respecting the condition of the Premises or
the Building except as expressly herein set forth.

     6.2  Landlord's Obligation to Maintain. Landlord shall repair and maintain,
          ---------------------------------
in reasonably good condition, except as provided in Sections 11.2 and 12.3, the
following: (i) the structural components of the Building, (ii) the Common Area
of the Building, and (iii) the electrical, life safety, plumbing, sewage and
HVAC systems serving the Building, installed or furnished by Landlord except to
the extent such items exclusively serve the Premises. It is an express condition
precedent to all Landlord's obligations to repair and maintain that Tenant shall
have first notified Landlord in writing of the need for such repairs and
maintenance. The cost of such maintenance, repair and services shall be included
as part of Direct Expenses unless such maintenance, repairs or services are
necessitated, in whole or in part, by the act, neglect, fault or omission of
Tenant or Tenant's Agents, or such services are to be a separate charge to
Tenant as described on Exhibit F, in which case Tenant shall pay to Landlord the
cost of such maintenance, repairs and services within ten (10) days following
Landlord's written demand therefor. Tenant hereby waives all rights provided for
by the provisions of Sections 1941 and 1942 of the California Civil Code and any
present or future Laws regarding Tenant's right to make repairs at the expense
of Landlord and/or to terminate this Lease because of the condition of the
Premises.

     6.3  Control of Common Area. Landlord shall at all times have exclusive
          ----------------------
control of the Common Area. Landlord shall have the right, exercisable in its
sole and absolute discretion and without the same constituting an actual or
constructive eviction and without entitling Tenant to any abatement of rent, to:
(i) close any part of the Common Area to whatever extent required in the opinion
of Landlord's counsel to prevent a dedication thereof or the accrual of any
prescriptive rights therein; (ii) temporarily close the Common Area to perform
maintenance or for any other reason deemed sufficient by Landlord; (iii) change
the shape, size, location and extent of the Common Area; (iv) eliminate from or
add to the Project any land or improvement, including multi-deck parking
structures; (v) make changes to the Common Area, including, without limitation,
changes in the location of driveways, entrances, passageways, doors and
doorways, elevators, stairs, restrooms, exits, parking spaces, parking areas,
sidewalks or the direction of the flow of traffic and the site of the Common
Area; (vi) remove unauthorized persons from the Project; and/or (vii) change the
name or address of the Building or Project. Tenant shall keep the Common Area
clear of all obstructions created or permitted by Tenant. If, in the opinion of
Landlord, unauthorized persons are using any of the Common Area by reason of the
presence of Tenant in the Building, Tenant, upon demand of Landlord, shall
restrain such unauthorized use by appropriate proceedings. In exercising any
such rights regarding the Common Area, (i) Landlord shall make a reasonable
effort to minimize any disruption to Tenant's business, and (ii) Landlord shall
not exercise its rights to control the Common Area in a manner that would
materially interfere with Tenant's use of the Premises without first obtaining
Tenant's consent, which consent shall not be unreasonably withheld, conditioned
or delayed.

                                   ARTICLE 7
                                   ---------

                          WASTE DISPOSAL AND UTILITIES

     7.1  Waste Disposal. Tenant shall store its waste either inside the
          --------------
Premises or within outside trash enclosures provided by Landlord

     7.2  Hazardous Materials. Landlord and Tenant agree as follows with respect
          -------------------
to the existence or use of Hazardous Materials in, on or about the Project;

          A.  Except as otherwise permitted pursuant to Section 7.2C below, any
handling, transportation, storage, treatment, disposal or use of Hazardous
Materials by Tenant and Tenant's Agents after the Effective Date in or about the
Project is strictly prohibited. Tenant shall indemnify, defend upon demand with
counse1 reasonably acceptable to Landlord and hold harmless Landlord from and
against any liabilities, losses, claims, damages, lost profits, consequential
damages, interest, penalties, fines, monetary sanctions, attorneys' fees,
experts' fees, court costs, remediation costs, investigation costs, and other
expenses which result from or arise in any manner whatsoever out of the use,
storage, treatment, transportation, release, or disposal of any Hazardous
Materials on or about the Project caused or permitted by Tenant or Tenant's
Agents.

                                       9

<PAGE>

          B.  If the presence of Hazardous Materials in, on or about the Project
caused or permitted by Tenant or Tenant's Agents results in contamination or
deterioration of water or soil resulting in a level of contamination greater
than the levels established as acceptable by any governmental agency having
jurisdiction over such contamination, then Tenant shall promptly take any and
all action necessary to investigate and remediate such contamination if required
by Law or as a condition to the issuance or continuing effectiveness of any
governmental approval which relates to the use of the Project or any part
thereof. Tenant shall further be solely responsible for, and shall defend
indemnify and hold Landlord and its Agents harmless from and against, all
claims, costs and liabilities, including, without limitation, attorneys' fees
and costs, arising out of or in connection with any investigation and
remediation required hereunder to return the Project to its condition existing
prior to the appearance of such Hazardous Materials.

          C.  Tenant shall give written notice to Landlord as soon as reasonably
practicable of (i) any communication received from any governmental authority
concerning Hazardous Materials which relates to the Project, and (ii) any
contamination of the Project by Hazardous Materials which constitutes a
violation of any Hazardous Materials Laws. Tenant may use small quantities of
household chemicals such as adhesives, lubricants and cleaning fluids in order
to conduct its business at the Premises and such other Hazardous Materials as
are reasonably necessary for the operation of Tenant's business of which
Landlord receives notice prior to such Hazardous Materials being brought onto
the Premises and which Landlord consents in writing may be brought onto the
Premises. At any time during the Lease Term, Tenant shall within five (5) days
after written request therefor received from Landlord, disclose in writing all
Hazardous Materials that are being used by Tenant in, on or about the Project,
the nature of such use, and the manner of storage and disposal.

          D.  Landlord may cause testing wells to be installed on the Project,
and may cause the ground water to be tested to detect the presence of Hazardous
Materials by the use of such tests as are then customarily used for such
purposes. If Tenant so requests, Landlord shall supply Tenant with copies of
such test results. The cost of such tests and of the installation, maintenance,
repair and replacement of such wells shall be paid by Tenant if such tests
disclose the existence of facts which give rise to liability of Tenant pursuant
to its indemnity given in Section 7.2A and/or Section 7.2B.

          E.  As used herein, the term "Hazardous Materials" means any hazardous
or toxic substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States government.
The term "Hazardous Materials" includes, without limitation, petroleum products,
asbestos, PCB's, and any material or substance which is (i) listed under Article
9 or defined as hazardous or extremely hazardous pursuant to Article 11 of Title
22 of the California Administrative Code, Division 4, Chapter 20, (ii) deemed as
a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C. 6903), or (iii)
defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S C. 9601 et seq.
(42 U.S.C. 9601). As used herein, the term "Hazardous Material Law(s)" shall
mean any statute, law, ordinance, or regulation of any governmental body or
agency (including the U.S. Environmental Protection Agency, the California
Regional Water Quality Control Board, and the California Department of Health
Services) which regulates the use, storage, release or disposal of any Hazardous
Materials.

          F.  The obligations of Landlord and Tenant under this Section 7.2
shall survive the expiration or earlier termination of the Lease Term. The
rights and obligations of Landlord and Tenant with respect to issues relating to
Hazardous Materials are exclusively established by this Section 7.2. In the
event of any inconsistency between any other part of this Lease and this Section
7.2, the terms of this Section 7.2 shall control.

     7.3  Utilities and Services. Tenant shall be solely responsible for
          ----------------------
procuring and contracting directly for all water, gas, electricity, sewer
service, waste pick-up, janitorial service, telephone and other
telecommunications services and all other utilities and services necessary for
Tenant's use and occupancy of the Premises, and Landlord shall have no
responsibility whatsoever to procure or provide any such utilities or services.
Tenant shall pay, prior to delinquency, directly to the appropriate supplier
thereof, all charges (including taxes) for all such utilities and services;
provided, however, if any such utilities or services are not separately metered,
then Landlord, at its election, may (a) periodically charge Tenant, as
Additional Rent, a sum equal to Landlord's reasonable estimate of the cost of
such utilities or services, or (b) install a separate meter (at Tenant's
expense) to measure such utilities or services and periodically charge Tenant,
as Additional Rent, a sum equal to the cost of Tenant's use of such utilities or
services as measured by such separate meter. Landlord shall not be in default
hereunder or be liable for any damages directly or indirectly resulting from,
nor shall rent be abated by reason of, any failure or interruption of any such
utilities or services. No such failure or interruption shall be deemed an
eviction, actual or constructive, of Tenant or entitle Tenant to terminate this
Lease or withhold Rent due hereunder.

     7.4  Intentionally Deleted.
          ---------------------

     7.5  Compliance with Regulations. Tenant shall comply with all rules,
          ---------------------------
regulations and requirements promulgated by national, state or local
governmental agencies or utility suppliers concerning the use of utility
services, including, without limitation, any rationing, limitation or other
control, together with all rules, regulations and requirements promulgated by
Landlord from time to time to conserve utilities and/or reduce utilities costs.
Tenant shall not be entitled to terminate this Lease nor to any abatement in
rent by reason of such compliance.

     7.6  Window Treatments. Landlord reserves the right, exercisable in its
          -----------------
sole and absolute discretion, to install and/or apply any treatments to the
interior and/or exterior surfaces of any windows of the Premises as Landlord may
from time to time desire.

                                   ARTICLE 8
                                   ---------

                                DIRECT EXPENSES
                                ---------------

     8.1  Tenant's Obligation to Reimburse. As Additional Rent, Tenant shall pay
          --------------------------------
Tenant's Share (specified in Section G of the Summary) of the amount of Direct
                             ---------
Expenses paid or incurred in any calender year. The following provision shall
apply to the foregoing obligation of Tenant:

          A.  Payment shall be made by whichever of the following methods is
from time to time designated by Landlord, and Landlord reserves the right to
change the method of payment at any time in its sole and absolute discretion.
After each calendar year during the Lease Term, Landlord may invoice Tenant for
Tenant's Share of the Direct Expenses for such calendar year, and Tenant shall
pay such amounts so invoiced within five (5) days after receipt of such notice.
Alternatively, (i) Landlord shall deliver to Tenant Landlord's reasonable
estimate of the Direct Expenses it anticipates will be paid or incurred for the
calendar year in question; (ii) during such calendar year, Tenant shall pay such
Tenant's Share of the estimated Direct Expenses in advance in equal monthly
installments due with each installment of Base Monthly Rent; and (iii) within
one hundred twenty (120) days after the end of such calendar year (or as soon
thereafter as is reasonably practical), Landlord shall

                                       10

<PAGE>

furnish to Tenant a statement in reasonable detail of the actual Direct Expenses
for the just ending calendar year. If Tenant's estimated payments are less than
Tenant's Share of actual Direct Expenses as shown by the applicable statement.
Tenant shall pay the difference to Landlord within fifteen (15) days after
delivery of such statement. If Tenant shall have overpaid Tenants Share of
actual Direct Expenses, then Landlord shall credit such over payment toward
Tenants next installment payment of Tenant's Share of estimated Direct Expenses.
When the final determination is made of Tenant's Share of actual Direct
Expenses for the calendar year in which this Lease expires or sooner terminates,
Tenant shall, even though this Lease has terminated, pay the difference to
Landlord within fifteen (15) days after delivery of the final statement.
Conversely, any overpayment by Tenant shall be rebated by Landlord to Tenant
concurrently with the delivery of such final statement.

                    B.   Within sixty (60) days after the date of Tenant's
receipt of Landlord's statement of actual Direct Expenses for any calender year,
Tenant may give Landlord written notice of its intent to review records,
invoices and receipts relating to the actual Direct Expenses for such calender
year. Tenant shall provide Landlord with at least ten (10) days prior written
notice of the date upon which it intends to review such records, invoices and
receipts. The review shall be performed during normal business hours at
Landlord's principal place of business or such other location as may be
designated by Landlord, and shall be performed at Tenant's sole cost and
expense. Promptly following Tenant's review of such records, invoices and
receipts, Tenant shall provide Landlord with a copy of the results of such
review and Tenant's conclusions regarding any overstatement or understatement by
Landlord of actual Direct Expenses for such calendar year. If Landlord disputes
Tenant's conclusions regarding any such overstatement or understatement,
Landlord shall select a certified public accountant (which accountant may be
Landlord's accountant) ("Auditor") to review the accuracy of Tenant's
determination. During such Auditor's review, Tenant shall continue to pay,
without abatement or offset, all Base Monthly Rent and Additional Rent (as
calculated by Landlord) payable by Tenant under this Lease. Tenant shall be
responsible for the cost and expense of such audit unless (a) the Auditor finds
greater than an overall five (5%) discrepancy resulting in overpayment by
Tenant, and (b) there is not a commercially reasonable justification for
Landlord's determinations. The Auditor's decision shall be final and binding on
the parties. In the event Tenant fails to object in writing to Landlord's
determination of actual Direct Expenses within sixty (60) days following
delivery of Landlord's statement, Landlord's determination of actual Direct
Expenses for the applicable calendar year shall be conclusive and binding on
Tenant and any future claims to the contrary shall be barred.

          8.2  Direct Expenses Defined. The term "Direct Expenses" shall be
               -----------------------
determined as if the Project were one hundred percent (100%) occupied and shall
mean the following:

               A.   All costs and expenses paid or incurred by Landlord in doing
the following (including payments to independent contractors providing services
related to the performance of the following): (i) maintaining, cleaning,
repairing and resurfacing the roof (including repair of leaks) and the exterior
surfaces (including painting) of all buildings located on the Project and
maintaining and repairing the structural components of the Building; (ii)
maintenance of the liability, fire, property damage and any other insurance
covering the Project carried by Landlord pursuant to Section 9.2 or otherwise
(including the prepayment of premiums for coverage of up to one year); (iii)
maintaining, repairing, operating and replacing when necessary HVAC equipment,
utility facilities and other building service equipment; (iv) providing
utilities to the Project (including lighting, trash removal and water for
landscaping irrigation); (v) complying with all applicable Laws and Private
Restrictions; (vi) operating, maintaining, repairing, cleaning, painting,
restriping and resurfacing the Common Area; (vii) replacement or installation of
lighting fixtures, directional or other signs and signals, irrigation systems,
trees, shrubs, ground cover and other plant materials, and all landscaping in
the Common Area; (viii) providing the utilities and services described on
Exhibit E other than those which are described therein as being separately
- ---------
chargeable to Tenant; and (ix) providing security, if any;

               B.   The following costs: (i) Real Property Taxes as defined in
Section 8.3; (ii) the amount of any deductible paid by Landlord under any
insurance maintained by Landlord; (iii) the cost to repair damage caused by an
Uninsured Peril up to a maximum amount in any twelve (12) month period equal to
four percent (4%) of the replacement cost of the Project; and (iv) that portion
of all compensation (including benefits and premiums for workers' compensation
and other insurance) paid to or on behalf of employees of Landlord but only to
the extent they are involved in the performance of the work described by
Sections 8.2A or 8.2D that is fairly allocable to the Project;

               C.   Fees for management services rendered by either Landlord or
a third party manager engaged by Landlord (which may be a party affiliated with
Landlord); and

               D.   All additional costs and expenses incurred by Landlord with
respect to the operation, protection, maintenance, repair and replacement of the
Project which would be considered a current expense (and not a capital
expenditure but subject to Tenant's obligations under Section 5.4) pursuant to
generally accepted accounting principles; provided, however, that Direct
Expenses shall not include any of the following: (i) debt payments on any loans
affecting the Project; (ii) depreciation of any buildings or any major systems
of building service equipment within the Project; (iii) leasing commissions; and
(iv) the cost of tenant improvements installed for the exclusive use of other
tenants of the Project.

          8.3  Real Property Taxes. The term "Real Property Taxes" shall mean
               -------------------
all taxes, assessments, levies, and other charges of any kind or nature
whatsoever, general and special, foreseen end unforeseen (including all
installments of principal and interest required to pay any existing or future
general or special assessments for public improvements, services or benefits,
and any increases resulting from reassessments resulting from a change in
ownership, new construction, or any other cause), now or hereafter imposed by
any governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of all or any
portion of the Project (as now constructed or as may at any time hereafter be
constructed, altered or otherwise changed) or Landlord's interest therein, the
fixtures, equipment and other property of Landlord, real or personal, that are
an integral part of and located on the Project, the gross receipts, income, or
rentals from the Project, or the use of parking areas, public utilities, or
energy within the Project, or Landlord's business of leasing the Project. If at
any time during the Lease Term the method of taxation or assessment of the
Project prevailing as of the Effective Date shall be altered so that in lieu of
or in addition to any Real Property Taxes described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Project or
Landlord's interest therein, or (ii) on or measured by the gross receipts,
income or rentals from the Project, on Landlord's business of leasing the
Project, or computed in any manner with respect to the operation of the Project,
then any such tax or charge, however designated, shall be included within the
meaning of the term "Real Property Taxes" for purposes of this Lease. If any
Real Property Tax is based upon property or rents unrelated to the Project, then
only that part of such Real Property Taxes that is fairly allocable to the
Project shall be included within the meaning of the term "Real Property Taxes".
Notwithstanding the foregoing the term "Real Property Taxes" shall not include
estate, inheritance, transfer, gift or franchise taxes of Landlord or the
federal or state net income tax imposed on Landlord's income from all sources.
"Real Property Taxes" shall also include any costs and expenses incurred by
Landlord in connection with appealing and/or contesting any Real Property Taxes.

                                       11

<PAGE>

                                   ARTICLE 9
                                   ---------

                                   INSURANCE
                                   ---------

          9.1  Tenant's Insurance. Tenant shall maintain insurance complying
               ------------------
with all of the following:


               A.   Tenant shall procure, pay for and keep in full force and
effect the following:

                    (1)  Commercial general liability insurance, including
          property damage, against liability for personal injury, bodily injury,
          death and damage to property occurring in or about, or resulting from
          an occurrence in or about, the Premises with combined single limit
          coverage of not less than the amount of Tenant's Liability Insurance
          Minimum specified in Section Q of the Summary, which insurance shall
                               ---------
          contain a "contractual liability" endorsement insuring Tenant's
          performance of Tenant's obligation to indemnify Landlord contained in
          Section 10.3;

                    (2)  Fire and property damage insurance in so-called "all
          risk" form insuring Tenant's Trade Fixtures and Tenant's Alterations
          for the full actual replacement cost thereof; and

                    (3)  Such other insurance that from time to time is either
          (i) required by any Lender, or (ii) reasonably required by Landlord
          and customarily carried by tenants of similar property in similar
          businesses in the vicinity of the Project.

               B.   Each policy of insurance required to he carried by Tenant
pursuant to this Section 9.1: (i) shall name Landlord and such other parties in
interest as Landlord reasonably designates as additional insured; (ii) shall be
primary insurance which provides that the insurer shall be liable for the full
amount of the loss up to and including the total amount of liability set forth
in the declarations without the right of contribution from any other insurance
coverage of Landlord; (iii) shall be in a form satisfactory to Landlord; (iv)
shall be carried with companies reasonably acceptable to Landlord and having a
rating of A+, AAA or better in "Best's Insurance Guide;" (v) shall provide that
such policy shall not be subject to cancellation, lapse or change except after
at least thirty (30) days prior written notice to Landlord so long as such
provision of thirty (30) days notice is reasonably obtainable, but in any event
not less than ten (10) days prior written notice; (vi) shall not have a
"deductible" in excess of such amount as is approved by Landlord; (vii) shall
contain a cross liability endorsement; (viii) shall contain a "severability"
clause; and (ix) shall be in such form and include such endorsements as may be
required by any Lender or insurance advisor of Landlord. If Tenant has in full
force and effect a blanket policy of liability insurance with the same coverage
for the Premises as described above, as well as other coverage of other premises
and properties of Tenant, or in which Tenant has some interest, such blanket
insurance shall satisfy the requirements of this Section 9.1 provided such
blanket insurance shall have a Landlord's protective liability endorsement
attached thereto in a form acceptable to Landlord.

               C.   A copy of each paid-up policy evidencing the insurance
required to be carried by Tenant pursuant to this Section 9.1 (appropriately
authenticated by the insurer) or a certificate of the insurer, certifying that
such policy has been issued, providing the coverage required by this Section
9.1, and containing the provisions specified herein, shall be delivered to
Landlord prior to the time Tenant or any of its Agents enters the Premises and
upon renewal of such policies, but not less than five (5) days prior to the
expiration of the term of such coverage. Landlord may, at any time, and from
time to time, inspect and/or copy any and all insurance policies required to be
procured by Tenant pursuant to this Section 9.1. If any Lender or insurance
advisor reasonably determines at any time that the amount of coverage required
for any policy of insurance Tenant is to obtain pursuant to this Section 9.1 is
not adequate, then Tenant shall increase such coverage for such insurance to
such amount as such Lender or insurance advisor reasonably deems adequate.

          9.2  Landlord's Insurance:
               --------------------

               A.   Landlord shall maintain a policy or policies of fire and
property damage insurance in so-called "all risk" form insuring Landlord (and
such others as Landlord may designate) against loss of rents for a period of not
less than twelve (12) months and from physical damage to the Project with
coverage of not less than the full replacement cost thereof. Landlord may so
insure the Project separately, or may insure the Project with other property
owned by Landlord which Landlord elects to insure together under the same policy
or policies. Such fire and property damage insurance (i) may be endorsed to
cover loss caused by such additional perils against which Landlord may elect to
insure, including, without limitation, earthquake and/or flood, and to provide
such additional coverage as Landlord reasonably requires, and (ii) shall contain
reasonable "deductibles" which, in the case of earthquake and flood insurance,
may be up to fifteen percent (15%) of the replacement value of the property
insured or such higher amount as is then commercially reasonable. Landlord shall
not be required to cause such insurance to cover any Trade Fixtures or Tenants
Alterations.

               B.   Landlord may, at its election, maintain (i) a policy or
policies of commercial general liability insurance insuring Landlord (and such
others as are designated by Landlord) against liability for personal injury,
bodily injury, death and damage to property occurring or resulting from an
occurrence in, on or about the Project, with combined single limit coverage in
such amount as Landlord from time to time determines is reasonably necessary for
its protection, and/or (ii) such other forms of insurance as Landlord may desire
to maintain with respect to the Project.

          9.3  Tenant's Obligation to Reimburse. The cost of all insurance
               --------------------------------
maintained by Landlord with respect to the Project shall be included as part of
Direct Expenses, except that if Landlord's insurance rates for the Project are
increased at any time during the Lease Term as a result of the nature of
Tenant's use of the Premises, Tenant shall reimburse Landlord for the full
amount of such increase within fifteen (15) days following receipt of a bill
from Landlord therefor.

          9.4  Release and Waiver of Subrogation. Landlord and Tenant each
               ---------------------------------
hereby waives all rights of recovery against the other and the other's Agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is required to be insured against under
any "all risk" property insurance policies required by this Article 9; provided,
however, that (i) the foregoing waiver shall not apply to the extent of Tenant's
obligations to pay deductibles under any such policies and this Lease, and (ii)
if any loss is due to the act, omission or negligence or willful misconduct of
Tenant or its agents, employees, contractors, guests or invitees, Tenant's
liability insurance shall be primary and shall cover all losses and damages
prior to any other insurance hereunder. By this waiver it is the intent of the
parties that neither Landlord nor Tenant shall be liable to any insurance
company (by way of subrogation or otherwise) insuring the other party for any
loss or damage insured against under any "all-risk" property insurance policies
required by this Article 9, even though such loss or damage might be occasioned
by the negligence of such party or its Agents. The provisions of this Section
9.4 shall not limit the indemnification, hold harmless and/or defense provisions
elsewhere contained in this Lease.

                                       12

<PAGE>

                                   ARTICLE 10
                                   ----------

                            LIMITATION ON LANDLORD'S
                            ------------------------
                            LIABILITY AND INDEMNITY
                            -----------------------

     10.1 Limitation on Landlord's Liability. Landlord shall not be liable to
          ----------------------------------
Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement
of rent (except as expressly provided otherwise herein), for any injury to
Tenant or Tenant's Agents, damage to the property of Tenant or Tenant's Agents,
or loss to Tenants business resulting from any cause, including, without
limitation, any of the following: (i) failure, interruption or installation of
any HVAC or other utility system or service; (ii) failure to furnish or delay in
furnishing any utilities or services when such failure or delay is caused by
fire or other peril, the elements, labor disturbances of any character, or any
other accidents or any other conditions; (iii) limitation, curtailment,
rationing or restriction on the use of water or electricity, gas or any other
form of energy or any services or utility serving the Project; (iv) vandalism or
forcible entry by unauthorized persons or the criminal act of any person: or (v)
penetration of water into or onto any portion of the Premises or the Building
through roof leaks or otherwise. Notwithstanding the foregoing but subject to
Section 9.4 end Section 10.2, Landlord shall be liable for any such injury,
damage or loss which is caused solely by Landlord's willful misconduct or gross
negligence of which Landlord has actual notice and a reasonable opportunity to
cure but which it fails to so cure; provided, however, notwithstanding anything
contained in this Lease to the contrary, in no event shall Landlord be liable to
Tenant for lost profits, consequential damages and/or incidental damages of any
kind or nature.

     10.2 Limitation on Tenant's Recourse. If Landlord is a corporation, trust,
          -------------------------------
partnership, limited liability company, joint venture, unincorporated
association or other form of business entity: (i) the obligations of Landlord
shall not constitute personal obligations of the officers, directors, trustees,
partners, joint venturers, members, managers, owners, stockholders, or other
principals or representatives of such business entity, and (ii) Tenant shall not
have recourse to the assets of such of officers, directors, trustees, partners,
joint venturers, members, managers, owners, stockholders, principals or
representatives except to the extent of their interest in the Project. Tenant
hereby waives and releases the officers, directors, trustees, partners, joint
venturers, members, managers, owners, stockholders, principals or representative
from personal liability for the obligations of Landlord under this Lease, and
Tenant shall have recourse only to the interest of Landlord in the Project for
the satisfaction of the obligations of Landlord hereunder and shall not have
recourse to any other assets of Landlord for the satisfaction of such
obligations.

     10.3 Indemnification of Landlord. To the fullest extent permitted by law,
          ---------------------------
Tenant shall hold harmless, indemnify and defend Landlord, and its Agents, with
competent counsel reasonably satisfactory to Landlord (and Landlord agrees to
accept counsel that any insurer requires be used), from all liability,
penalties, losses, damages, costs, expenses, causes of action, claims and/or
judgments arising by reason of any death, bodily injury, personal injury or
property damage resulting from (i) any cause or causes whatsoever (other than
solely by the willful misconduct or gross negligence of Landlord of which
Landlord has had notice and a reasonable time to cure, but which Landlord has
failed to cure) occurring in or about or resulting from an occurrence in or
about the Premises during the Lease Term, (ii) the negligence or willful
misconduct of Tenant or its Agents, wherever the same may occur, or (iii) an
Event of Tenant's Default. The provisions of this Section 10.3 shall survive the
expiration or sooner termination of this Lease.

                                   ARTICLE 11
                                   ----------

                              DAMAGES TO PREMISES
                              -------------------


     11.1 Landlord's Duty to Restore. If the Premises are damaged by any peril
          --------------------------
after the Effective Date, Landlord shall restore the Premises unless the Lease
is terminated by Landlord pursuant to Section 11.2 or by Tenant pursuant to
Section 11.3. All insurance proceeds available from the fire and property damage
insurance carried by Landlord pursuant to Section 9.2 shall be paid to and
become the property of Landlord. If this Lease is terminated pursuant to either
Section 11.2 or Section 11.3, then all insurance proceeds available from
insurance carried by Tenant which covers loss to property that is Landlord's
property or would become Landlord's property on expiration or termination of
this Lease shall be paid to and become the property of Landlord. If this Lease
is not so terminated then upon receipt of the insurance proceeds (if the loss is
covered by insurance) and the issuance of all necessary governmental permits,
Landlord shall commence and diligently prosecute to completion the restoration
of the Premises, to the extent then allowed by Law, to substantially the same
condition in which the Premises were immediately prior to such damage.
Landlord's obligation to restore shall be limited to the Premises and interior
improvements constructed by Landlord as they existed as of the Commencement
Date, excluding any Tenant's Alterations, Trade Fixtures and/or personal
property constructed or installed by Tenant in the Premises. Tenant shall
forthwith replace or fully repair all Tenant's Alterations end Trade Fixtures
installed by Tenant and existing at the time of such damage or destruction, and
all insurance proceeds received by Tenant from the insurance carried by it
pursuant to Section 9.1A(2) shall be used for such purpose.

     11.2 Landlord's Right to Terminate. Landlord shall have the right to
          -----------------------------
terminate this Lease in the event any of the following occurs, which right may
be exercised by delivery to Tenant of a written notice of election to terminate
within forty-five (45) days after the date of such damage:

          A. The Project is damaged by an Insured Peril to such an extent that
the estimated cost to restore exceeds ten percent (10%) of the then actual
replacement cost thereof, or the Building in which the Premises is located is
damaged to such an extent that the estimated cost to restore exceeds twenty-five
percent (25%) of the then actual replacement cost thereof;

          B. Either the Project or the Building is damaged by an Uninsured Peril
to such an event that the estimated cost to restore exceeds two percent (2%) of
the then actual replacement cost of the Building;

          C. The Premises are damaged by any peril within twelve (12) months of
the last day of the Lease Term to such an extent that the estimated cost to
restore equals or exceeds an amount equal to six (6) times the Base Monthly Rent
then due; or

          D. Either the Project or the Building is damaged by any peril and,
because of the Laws then in force, (i) cannot be restored at reasonable cost to
substantially the same condition in which it was prior to such damage, or (ii)
cannot be used for the same use being made thereof before such damage if
restored as required by this Article.

          E. As used herein, the following terms shall have the following
meanings: (i) the term "Insured Peril" shall mean a peril actually insured
against for which the insurance proceeds actually received by Landlord (and
which are not required to be paid to any Lender) are sufficient (except for any
"deductible" amount specified by such insurance) to restore the Project under
then existing Laws to the condition existing immediately prior to the damage;
and (ii) the term "Uninsured Peril" shall mean any peril which is not an Insured
Peril. Notwithstanding the foregoing, if the "deductible" for earthquake or
flood

                                       13

<PAGE>

insurance exceeds two percent (2%) of the replacement cost of the improvements
insured, such peril shall, at Landlord's election, be deemed an "Uninsured
Peril" for purposes of this Lease.

     11.3 Tenant's Right to Terminate. If the Premises are damaged by any peril
          ---------------------------
and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to Section 11.2, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
landlord's architect or construction consultant as to when the restoration work
required of Landlord may be completed. Tenant shall have the right to terminate
this Lease in the event any of the following occurs, which right may be
exercised only by delivery to Landlord of a written notice of election to
terminate within seven (7) days after Tenant receives from Landlord the estimate
of the time needed to complete such restoration.

          A. The Premises are damaged by any peril and, in the reasonable
opinion of Landlord's architect or construction consultant, the restoration of
the Premises cannot be substantially completed within two hundred seventy (270)
days after the date of such damage; or

          B. The Premises are damaged by any peril within twelve (12) months of
the last day of the Lease Term and, in the reasonable opinion of Landlord's
architect or construction consultant, the restoration of the Premises cannot be
substantially completed within ninety (90) days after the date of such damage
and such damage renders unusable more than thirty percent (30%) of the Premises.

     11.4 Abatement of Rent. In the event of damage to the Premises which does
          -----------------
not result in the termination of this Lease, the Base Monthly Rent and Tenant's
Share of Direct Expenses shall be temporarily abated during the period of
restoration in proportion to the degree to which Tenant's use of the Premises is
impaired by such damage, but in no event shall such abatement exceed the rental
interruption insurance proceeds actually received by Landlord. Tenant shall not
be entitled to any compensation or damages from Landlord for loss of Tenant's
business or property or for any inconvenience or annoyance caused by such damage
or restoration. Tenant hereby waives the provisions of California Civil Code
Sections 1932(2) and 1933(4) and the provisions of any similar law hereinafter
enacted.

                                   ARTICLE 12
                                   ----------

                                  CONDEMNATION
                                  ------------

     12.1 Total Taking, Premises. If title to the Premises or so much thereof is
          ----------------------
taken for any public or quasi-public use under any statute or by right of
eminent domain so that reconstruction of the Premises will not result in the
Premises being reasonably suitable for Tenant's continued occupancy for the uses
and purposes permitted by this Lease, this Lease shall terminate as of the date
possession of the Premises or part thereof is so taken.

     12.2 Partial Taking, Project. If title to ten percent (10%) of more of the
          -----------------------
Project is taken for any public or quasi-public use under any statute or by
right of eminent domain, Landlord shall have the right to terminate this Lease
as of the date possession of such portion of the Project is so taken by
providing Tenant with written notice thereof no less than sixty (60) days prior
to possession being so taken.

     12.3 Partial Taking, Premises. If any part of the Premises is taken for any
          ------------------------
public or quasi-public use under any statute or by right of eminent domain and
the remaining part is reasonably suitable for Tenant's continued occupancy for
the uses permitted by this Lease, this Lease shall, as to the part so taken,
terminate as of the date possession of such part of the Premises is taken and
Base Monthly Rent shall be reduced in the same proportion that the floor area of
the portion of the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Premises, as reasonably
determined by Landlord. Landlord shall, at its own cost and expense, make all
necessary repairs and alterations to the Premises so as to make the portion of
the Premises not taken a complete architectural unit. Such work shall not,
however, exceed the scope of the work done by Landlord in originally
constructing the Premises. If severance damages from the condemning authority
are not available to Landlord in sufficient amounts to permit such restoration,
Landlord may terminate this Lease upon written notice to Tenant. Base Monthly
Rent due and payable hereunder shall be temporarily abated during such
restoration period in proportion to the degree to which there is substantial
interference with Tenant's use of the Premises, as reasonably determined by
Landlord. Each party hereby waives the provisions of Sections 1265.130 of the
California Code of Civil Procedure and any present or future law allowing either
party to petition the Superior Court to terminate this Lease in the event of a
partial taking of the Building or the Premises.

     12.4 No Apportionment of Award. No award for any partial or total taking
          -------------------------
shall be apportioned, it being agreed and understood that Landlord shall be
entitled to the entire award for any partial or entire taking. Tenant assigns to
Landlord its interest in any award which may be made in such taking or
condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof. Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant's Trade Fixtures, for the
interruption of Tenant's business or its moving costs, or for the loss of
goodwill.

     12.5 Temporary Taking. No temporary taking of the Premises (which for
          ----------------
purposes hereof shall mean a taking of all or any part of the Premises for one
hundred eighty (180) days or less) shall terminate this Lease or give Tenant any
right to abatement or reduction in Rent. Any award made to Tenant by reason of
such temporary taking shall belong entirely to Tenant and Landlord shall not be
entitled to share therein. Each party agrees to execute and deliver to the other
all instruments that may be required to effectuate the provisions of this
Section 12.5.

     12.6 Sale Under Threat of Condemnation. A sale made in good faith to any
          ---------------------------------
authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this Article 12.

                                   ARTICLE 13
                                   ----------

                              DEFAULT AND REMEDIES
                              --------------------

     13.1 Events of Tenant's Default. Tenant shall be in default of its
          --------------------------
obligations under this Lease if any of the following events occurs (an "Event of
Tenant's Default"):

          A. Tenant shall have failed to pay any Rent when due, and such failure
is not cured within three (3) days after delivery of written notice from
Landlord or Landlord's counsel specifying such failure to pay; or

          B. Tenant shall have failed to perform any term, covenant, or
condition of this Lease except those requiring the payment of Rent, and Tenant
shall have failed to cure such breach within thirty (30) days after written
notice from

                                       14

<PAGE>

Landlord specifying the nature of such breach where such breach could reasonably
be cured within said thirty (30) day period, or if such breach could not be
reasonably cured within said thirty (30) day period, Tenant shall have failed to
commence such cure within said thirty (30) day period and thereafter continue
with due diligence to prosecute such cure to completion within such time period
as is reasonably needed but not to exceed ninety (90) days from the date of
Landlord's notice; or

      C.  Tenant shall have sublet the Premises or assigned its interest in the
Lease in violation of the provisions contained in Article 14; or

      D.  Tenant shall have abandoned the Premises or left the Premises
substantially vacant; or

      E. The occurrence of the following: (i) the making by Tenant of any
general arrangements or assignments for the benefit of creditors: (ii) Tenant
becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute
thereto (unless, in the case of a petition filed against Tenant, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within thirty (30) days; or (iv) the attachment execution or
other judicical seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this Section 13.lE is contrary to any applicable Law, such
provision shall be of no force or effect;

      F  Tenant shall have failed to deliver documents required of it pursuant
to Section 4.9, SectIon 15.4 or Section 15.6 within the time periods specified
therein; or

      G. Chronic delinquency by Tenant in the payment of any Rent. For purposes
of this Lease, "Chronic delinquency" shall mean failure by Tenant to pay within
five (5) days of the due date any Rent for any three (3) months (consecutive or
non-consecutive) during any twelve (12) month period during the Lease Term. This
section shall in no way limit, nor be construed as a waiver of the rights and
remedies of Landlord provided hereunder or by law in the event of even one (1)
instance of delinquency in the payment of Rent by Tenant. In the event of
chronic delinquency, at Landlord's option, Landlord shall have the right, in
addition to all other rights under this Lease and at law, to require that all
Rent be paid by Tenant on a quarterly basis, in advance. In addition, the
occurrence of a chronic delinquency shall automatically void any options granted
to Tenant under this Lease.

   13.2   Landlord's Remedies. If an Event of Tenant's Default occurs, Landlord
          -------------------
shall have the following remedies, in addition to all other rights and remedies
provided by any Law or otherwise provided in this Lease, to which Landlord may
resort to cumulatively or in the alternative:

      A. Landlord may keep this Lease in effect and enforce by an action at law
or in equity all of its rights and remedies under this Lease, including (i) the
right to recover the rent and other sums as they become due by appropriate legal
action, (ii) the right to make payments required of Tenant or perform Tenant's
obligations and be reimbursed by Tenant for the cost thereof with interest at
the Agreed Interest Rate from the date the sum is paid by Landlord until
Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive relief
and specific performance to compel Tenant to perform its obligations under this
Lease. Notwithstanding anything contained in this Lease, in the event of a
breach of an obligation by Tenant which results in a condition which poses an
imminent danger to safety of persons or damage to property, an unsightly
condition visible from the exterior of the Building, or a threat to insurance
coverage, then if Tenant does not cure such breach within three (3) days after
delivery to it of written notice from Landlord identifying the breach, Landlord
may cure the breach of Tenant and be reimbursed by Tenant for the cost thereof
with interest at the Agreed Interest Rate from the date the sum is paid by
Landlord until Landlord is reimbursed by Tenant.

      B. Landlord may enter the Premises and re-lease them to third parties for
Tenant's account for any period, whether shorter or longer than the remaining
Lease Term. Tenant shall be liable immediately to Landlord for all costs
Landlord incurs in releasing the Premises, including, without limitation,
brokers' commissions, expenses of altering and preparing the Premises required
by the releasing. Tenant shall pay to Landlord the rent and other sums due under
this Lease on the date the rent is due, less the rent and other sums Landlord
received from any releasing. No act by Landlord allowed by this subparagraph
shall terminate this Lease unless Landlord notices Tenant in writing that
Landlord elects to terminate this Lease. Notwithstanding any releasing without
termination, Landlord may later elect to terminate this Lease because of the
default by Tenant.

      C. Landlord may terminate this Lease by giving Tenant written notice of
termination, in which event this Lease shall terminate on the date set forth for
termination in such notice. Any termination under this Section 13.2C shall not
relieve Tenant from its obligation to pay sums then due Landlord or from any
claim against Tenant for damages or rent previously accrued or then accruing. In
no event shall any one or more of the following actions by Landlord, in the
absence of a written election by Landlord to terminate this Lease, constitute a
termination of this Lease: (i) appointment of a receiver or keeper in order to
protect Landlord's interest hereunder; (ii) consent to any subletting of the
Premises or assignment of this Lease by Tenant, whether pursuant to the
provisions hereof or otherwise; or (iii) any other action by Landlord or
Landlord's Agents intended to mitigate the adverse effects of any breach of this
Lease by Tenant, including, without limitation, any action taken to maintain and
preserve the Premises or any action taken to relet the Premises or any
portions thereof to the event such action do not affect a termination of
Tenant's right to possession of the Premises.

      D. In the event Tenant breaches this Lease and abandons the Premises, this
Lease shall not terminate unless Landlord gives Tenant written notice of its
election to so terminate this Lease. No act by or on behalf of Landlord intended
to mitigate the adverse effect of such breach, including those described by
Section 13.2C, shall constitute a termination of Tenant's right to possession
unless Landlord gives Tenant written notice of termination. Should Landlord not
terminate this Lease by giving Tenant written notice, Landlord may enforce all
its rights and remedies under this Lease and/or any Laws, including, without
limitation, the remedy described in California Civil Code Section 1951.4 (lessor
may continue lease in effect after lessee's breach and abandonment and recover
rent as it becomes due, if lessee has right to sublet or assign, subject only to
reasonable limitations). Tenant acknowledges and agrees that the express
standards and conditions set forth in Article 14 below relating to assignments
of this Lease and sublettings of the Premises are reasonable at the time this
Lease is executed by Tenant.

      E. In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2 as in effect on the Effective Date. For
purposes of computing damages pursuant to California Civil Code Section 1951.2,
(i) an interest rate equal to the Agreed Interest Rate shall be used where
permitted, and (iii) the term "rent" includes Base Monthly Rent and Additional
Rent. Such damages shall include, without limitation:

                                       15

<PAGE>

        (1)  The worth at the time of award of the amount by which the unpaid
     rent for the balance of the Lease Term after the time of award exceeds the
     amount of such rental loss that Tenant proves could be reasonably avoided,
     computed by discounting such amount at the discount rate of the Federal
     Reserve Bank of San Francisco at the time of award plus one percent (1%);
     and

        (2)  Any other amount necessary to compensate Landlord for all detriment
     proximately caused by Tenant's failure to perform Tenant's obligations
     under this Lease, or which in the ordinary course of things would be likely
     to result therefrom, including the following: (i) expenses for cleaning,
     repairing or restoring the Premises; (ii) expenses for altering, remodeling
     or otherwise improving the Premises for the purpose of reletting, including
     installation of leasehold improvements (whether such installation be funded
     by a reduction of rent, direct payment or allowance to a new tenant, or
     otherwise); (iii) broker's fees, advertising costs and other expenses of
     reletting the Premises; (iv) costs of carrying the Premises, such as taxes,
     insurance premiums, utilities and security precautions; (v) expenses in
     retaking possession of the Premises; and (vi) attorney's fees and court
     costs incurred by Landlord in retaking possession of the Premises and in
     releasing the Premises or otherwise incurred as a result of Tenant's
     default.

         F.  Nothing in this Section 13.2 shall limit Landlords's right to
indemnification from Tenant as provided in Section 7.2 and Section 10.3. Any
notice given by Landlord in order to satisfy the requirements of Section 13.1A
or 13.lB above shall also satisfy the notice requirements of California Code of
Civil Procedure Section 1161 regarding unlawful detainer proceedings.

     13.3    Waiver. One party's consent to or approval of any act by the other
             ------
party requiring the first party's consent or approval shall not be deemed
to waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any rent
or payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach unless such waiver is in writing
and signed by Landlord. No delay or omission in the exercise of any right or
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any such
breach theretofore or thereafter occurring. The waiver by either party of any
breach of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other provisions herein contained.

     13.4    Limitation On Exercise of Rights. At any time that an Event of
             --------------------------------
Tenants Default has occurred and remains uncured, (i) it shall not be
unreasonable for Landlord to deny or withhold any consent or approval requested
of it by Tenant which Landlord would otherwise be obligated to give, and (ii)
Tenant may not exercise any option to extend, right to terminate this Lease, or
other right granted to it by this Lease which would otherwise be available to
it.

     13.5    Waiver by Tenant of Certain Remedies. Tenant waives the provisions
             ------------------------------------
of Sections 1932(l), 1941 and 1942 of the California Civil Code and any similar
or successor law regarding Tenant's right to terminate this Lease or to make
repairs and deduct the expenses of such repairs from the rent due under this
Lease. Tenant hereby waives any right of redemption or relief from forfeiture
under the laws of the State of California, or under any other present or future
law, including, without limitation, the provisions of Sections 1174 and 1179 of
the California Code of Civil Procedure.

     13.6    Landlord's Default. Landlord shall not be deemed to be in default
             ------------------
in the performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligation within thirty (30)
days after receipt of written notice from Tenant to Landlord (and any Lender who
have provided Tenant with notice) specifying the nature of such default;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are reasonably required for its performance, then Landlord
shall not be deemed to be in default if is shall commence such performance
within such thirty (30) day period and thereafter diligently prosecutes the same
to completion. Tenant expressly waives any right to terminate this Lease or to
claim a constructive eviction by reason of any default by Landlord hereunder.

     13.7    Limitation of Actions Against Landlord. Any claim, demand or right
             --------------------------------------
of any kind by Tenant which is based upon or arises in connection with this
Lease shall be barred unless Tenant commences an action thereon within six (6)
months after the date that the act, omission, event or default upon which the
claim, demand or right in question arises, has occurred.

                                   ARTICLE 14
                                   ----------

                           ASSIGNMENT AND SUBLETTING
                           -------------------------

     14.1    Transfer By Tenant. The following provisions shall apply to any
             ------------------
assignment, subletting or other transfer by Tenant or any subtenant or assignee
or other successor in interest of the original Tenant (collectively referred to
in this Section 14.1 as "Tenant"):

             A.  Tenant shall not do any of the following (collectively referred
 to herein as a  "Transfer"), whether voluntarily, involuntarily or by
operation of law, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed (subject to Section 14.lB and
Section 14.lC below): (i) sublet all or any part of the Premises or allow it to
be sublet, occupied or used by any person or entity other than Tenant; or (ii)
assign its interest in this Lease. In no event shall Tenant mortgage or encumber
the Lease (or otherwise use the Lease as a security device) in any manner, or
materially amend or modify an assignment, sublease or other transfer that has
been previously approved by Landlord. Tenant shall reimburse Landlord for all
reasonable costs and attorneys' fees incurred by Landlord in connection with the
evaluation, processing and/or documentation of any requested Transfer, plus an
amount equal to 5% of the Base Monthly Rent as a fee for Landlord's review
whether or not Landlord's consent is granted. Landlord's reasonable costs shall
include the cost of any review or investigation performed by Landlord or
consultant acting on Landlord's behalf of (i) Hazardous Materials (as defined in
Section 7.2E of this Lease) used, stored, released, or disposed of by the
potential subtenant or assignee, and/or (ii) violations of Hazardous Materials
Law (as defined in Section 7.2E of this lease) by Tenant or the proposed
subtenant or assignee. Any Transfer so approved by Landlord shall not be
effective until Tenant has delivered to Landlord an executed counterpart of the
document evidencing the Transfer which (i) is in a form reasonably approved by
Landlord, (ii) contains the same terms and conditions as stated in Tenant's
notice given to Landlord pursuant to Section 14.lB, and (iii) in the case of an
assignment of the Lease, contains the agreement of the proposed transferee to
assume all obligations of Tenant under this Lease arising after the effective
date of such Transfer and to remain jointly and severally liable therefor with
Tenant. Any attempted Transfer without Landlord's consent shall constitute an
Event of Tenant's Default and shall be voidable at Landlord's option. Landlord's
consent to any one Transfer shall not constitute a waiver of the provisions of
this Section 14.1 as to any subsequent Transfer or a consent to any subsequent
Transfer. No Transfer, even with the consent of Landlord, shall relieve Tenant
of its personal and primary obligation to pay the rent and to perform all of the
other obligations to be performed by Tenant hereunder. The acceptance of rent by
Landlord from any perform shall not be deemed to be a waiver by Landlord of any
provision of this Lease nor to be a consent to any Transfer.


                                       16

<PAGE>

                B.      At least thirty (30) days before a proposed Transfer is
to become effective, Tenant shall give Landlord written notice of the proposed
terms of such Transfer and request Landlord's approval, which notice shall
include the following: (i) the name and legal composition of the proposed
transferee; (ii) a current financial statement of the transferee, financial
statements of the transferee covering the preceding three (3) years if the same
exist, and (if available) an audited financial statement of the transferee for a
period ending not more than one year prior to the proposed effective date of the
Transfer, all of which statements are prepared in accordance with generally
accepted accounting principles; (iii) the nature of the proposed transferee's
business to be carried out in the Premises; (iv) all consideration to be given
on account of the Transfer; (v) a current financial statement of Tenant; and
(vi) an accurately filled out response to Landlord's then-standard Hazardous
Materials Questionnaire, if any. Tenant shall provide to Landlord such other
information as may be reasonably requested by Landlord within seven (7) days
after Landlord's receipt of such notice from Tenant. Landlord shall respond in
writing to Tenant's request for Landlord's consent to a Transfer within the
later of (i) fifteen (15) business days of receipt of such request together with
the required accompanying documentation, or (ii) seven (7) days after Landlord's
receipt of all information which Landlord reasonably requests within seven (7)
days after it receives Tenant's first notice regarding the Transfer in question.
If Landlord fails to respond in writing within said period, Landlord will be
deemed to have withheld its consent to such Transfer, provided that if Tenant
specifically requests from Landlord, within five (5) days following the
expiration of said period a statement of reasons for withholding consent,
Landlord shall have thirty (30) days following such request within which to
provide Tenant with a written statement of its reasonable objections to the
Transfer in question (and, if Landlord fails to provide such statement to Tenant
within such thirty (30) day, then Landlord shall be deemed to have consented to
the Transfer in question). Tenant shall immediately notify Landlord of any
material modification to the proposed terms of such Transfer.

     Tenant agrees, by way of example and without limitation, that its shall not
be unreasonable for Landlord to withhold its consent to a proposed Transfer if
any of the following situations exist or may exist:

                        (1)  Landlord determines that the proposed assignee's or
          sublessee's use of the Premises conflicts with Article 4 above,
          presents an unacceptable risk, as determined by Landlord, under
          Section 7.2 above, or conflicts with any other provision under this
          Lease;

                        (2)  Landlord determines that the proposed assignee or
          sublessee is not financially responsible as Tenant as of the date of
          Tenant's request for consent or as of the effective date of such
          proposed assignment or subletting;

                        (3)  Landlord determines that the proposed assignee or
          sublessee lacks sufficient business reputation or experience to
          conduct on the Premises a business of a type and quality equal to that
          conducted by Tenant;

                        (4)  Landlord determines that the proposed assignment or
          subletting would breach a covenant, condition or restriction in some
          other lease, financing agreement or other agreement relating to the
          Project, the Building, the Premises or this Lease;

                        (5)  An Event of Tenant's Default (or any act or
          omission which, with the giving of notice or the passage of time, or
          both, would constitute an Event of Tenant's Default) has occurred and
          is continuing at the time of Tenant's request for Landlord's consent,
          or as of the effective date of such assignment or subletting;

                        (6)  With respect to a proposed assignment, the
          consideration to be paid by the proposed assignee for such assignment
          is less than the fair market value thereof (as reasonably determined
          by Landlord), and, with respect to a proposed subletting, the rent to
          be paid by the proposed sublessee under the sublease is less than the
          fair market rental value of the Premises or the applicable portion
          thereof (as reasonably determined by Landlord);

                        (7)  The proposed assignment or subletting would require
          alterations, additions or changes to the Premises not otherwise
          approved by Landlord pursuant to Section 5.2; or

                        (8)  The proposed assignee's or sublessee's use of the
          Premises would place additional burdens on the Project and/or its
          operation, including, without limitation, the Common Area and the
          utilities.

                C.      Notwithstanding anything contained in this Article 14 to
the contrary, in the event that Tenant seeks to make any Transfer, Landlord
shall have the right to terminate this Lease or, in the case of a sublease of
less than all of the Premises, terminate this Lease as to that part of the
Premises proposed to be so sublet, either (i) on the condition that the proposed
transferee immediately enter into a direct lease of the Premises with Landlord
(or, in the case of a partial sublease, a lease for the portion proposed to be
so sublet) on the same terms and conditions contained in Tenant's notice, or
(ii) so that Landlord is thereafter free to lease the Premises (or, in the case
of a partial sublease, the portion proposed to be so sublet) to whomever
(including, without limitation, the proposed transferee) it pleases on whatever
terms are acceptable to Landlord. In the event Landlord elects to so terminate
this Lease, then (i) if such termination is conditioned upon the execution of a
lease between Landlord and the proposed transferee, Tenant's obligations under
this Lease shall not be terminated until such transferee executes a new lease
with Landlord, enters into possession and commences the payment of rent, and
(ii) if Landlord elects simply to terminate this Lease (or, in the case of a
partial sublease, terminate this Lease as to the portion to be so sublet), the
Lease shall so terminate in its entirety (or as to the space to be so sublet)
fifteen (15) days after Landlord has notified Tenant in writing of such
election. Upon such termination, Tenant shall be released from any further
obligation under this Lease if it is terminated in its entirety (or shall be
released from any further obligation under the Lease with respect to the space
proposed to be sublet in the case of a proposed partial sublease), except that
the foregoing release shall not apply to, and Tenant shall not be released from,
(i) any obligations under this Lease accruing prior to such termination, (ii)
any obligations under Section 15.2 below relating to the surrender of the
Premises or such space proposed to be sublet, as applicable, and (iii) any
obligations which, by their terms, are to survive the expiration or sooner
termination of this Lease. In the case of a partial termination of the Lease,
the Base Monthly Rent and Tenant's Share shall be reduced to an amount which
bears the same relationship to the original amount thereof as the area of that
part of the Premises which remains subject to the Lease bears to the original
area of the Premises, all as reasonably determined by Landlord. Upon Landlord's
request, Tenant shall execute a separate termination agreement evidencing any
termination of this Lease pursuant to this Section 14.1C.

                D.      If Landlord consents to a Transfer proposed by Tenant,
Tenant may enter into such Transfer, and if Tenant does so, the following shall
apply:

                        (1)  Tenant shall not be released of its liability for
the performance of all of its obligations under this Lease.

                        (2)  If Tenant assigns its interest in this Lease, then
Tenant shall pay to Landlord one hundred percent (100%) of all Transfer
Consideration (as defined in Section 14.1D(5)) received by Tenant over and

                                       17

<PAGE>

          above (i) the assignee's agreement to assume the obligations of Tenant
          under this Lease, and (ii) all Permitted Transfer Costs related to
          such assignment. In the case of assignment, the amount of Transfer
          Consideration owed to Landlord shall be paid to Landlord on the same
          basis, whether periodic or in lump sum, that such Transfer
          Consideration is paid to Tenant by the assignee.

                        (3)     If Tenant sublets any part of the Premises, then
          with respect to the space so subleased, Tenant shall pay to Landlord
          one hundred percent (100%) of the positive difference, if any, between
          (i) all Transfer Consideration paid by the subtenant to Tenant, less
          (ii) the sum of all Base Monthly Rent and Tenant's Share of Direct
          Expenses allocable to the space sublet and all Permitted Transfer
          Costs related to such sublease. Such amount shall be paid to Landlord
          on the same basis, whether periodic or in lump sum, that such Transfer
          Consideration is paid to Tenant by its subtenant. In calculating
          Landlord's share of any periodic payments, all Permitted Transfer
          Costs shall be first recovered by Tenant.

                        (4)     Tenant's obligations under this Section 14.1D
          shall survive any Transfer, and Tenant's failure to perform its
          obligations hereunder shall be an Event of Tenant's Default. At the
          time Tenant makes any payment to Landlord required by this Section
          14.1D, Tenant shall deliver to Landlord an itemized statement of the
          method by which the amount to which Landlord is entitled was
          calculated, certified by Tenant as true and correct. Landlord shall
          have the right at reasonable intervals to inspect Tenant's books and
          records relating to the payments due hereunder. Upon request therefor,
          Tenant shall deliver to Landlord copies of all bills, invoices or
          other documents upon which its calculations are based. Landlord may
          condition its approval of any Transfer upon obtaining a certification
          from both Tenant and the proposed transferee of all Transfer
          Consideration and other amounts that are to be paid to Tenant in
          connection with such Transfer.

                        (5)     As used in this Section 14.1D, the term
          "Transfer Consideration" shall mean: any consideration of any kind
          received, or to be received, by Tenant as a result of the Transfer, if
          such sums are related to Tenant's interest in this Lease or in the
          Premises, including payments from or on behalf of the transferee (in
          excess of the book value thereof) for Tenant's assets, fixtures,
          leasehold improvements, inventory, accounts, goodwill, equipment,
          furniture, and general intangibles. As used in this Section 14.1D, the
          term "Permitted Transfer Costs" shall mean (i) all reasonable leasing
          commissions paid to third parties not affiliated with Tenant in order
          to obtain the Transfer in question, and (ii) all reasonable attorney's
          fees incurred by Tenant with respect to negotiating the Transfer in
          question.

                  E.    The sale of all or substantially all of Tenant's assets
(other than bulk sales in the ordinary course of business), any dissolution of
Tenant, or, if Tenant is a corporation, an unincorporated association, a
partnership or a limited liability company, the transfer, assignment and/or
hypothecation of any stock or other interest in such corporation, association,
partnership or limited liability company in the aggregate in excess of
twenty-five percent (25%) during the Term (except for publicly traded shares of
stock constituting a transfer of twenty-five percent (25%) or more in the
aggregate, so long as no change in the controlling interests of Tenant occurs as
a result thereof) shall be deemed an assignment within the meaning and
provisions of this Article 14. As used in the Section 14.1E, the term "Tenant"
shall mean Tenant and/or any person or entity that owns, directly or indirectly,
in whole or in part, Tenant (e.g., a parent corporation of Tenant).

          14.2    Transfer By Landlord. Landlord and its successors in interest
                  --------------------
shall have the right to transfer their interest in this Lease, the Building and
the Project at any time and to any person or entity. In the event of any such
transfer, the Landlord originally named herein (and, in the case of any
subsequent transfer, the transferor) from the date of such transfer, shall be
automatically relieved, without any further act by any person or entity, of all
liability for the performance of the obligations of the Landlord hereunder which
may accrue after the date of such transfer. After the date of any such transfer,
term "Landlord" as used herein shall mean the applicable transferee of such
interest in the Premises.

                                   ARTICLE 15
                                   ----------

                               GENERAL PROVISIONS
                               ------------------

          15.1    Landlord's Right to Enter. Landlord and its Agents may enter
                  -------------------------
the Premises at any reasonable time after giving reasonable prior written or
verbal notice to Tenant (except in the case of any emergency or regularly
scheduled services, in which case no prior notice shall be required) for the
purpose of: (i) inspecting the same; (ii) posting notices of non-responsibility;
(iii) supplying any service to be provided by Landlord to Tenant; (iv) showing
the Premises to prospective purchasers, Lenders or tenants; (v) making necessary
alterations, additions or repairs; (vi) performing Tenant's obligations when
Tenant has failed to do so after written notice from Landlord; (vii) placing
upon the Premises ordinary "for lease" signs or "for sale" signs; and (viii)
responding to an emergency. Landlord shall have the right to use any and all
means Landlord may deem necessary and proper to enter the Premises in an
emergency. Any entry into the Premises obtained by Landlord in accordance with
this Section 15.1 shall not be deemed to be a forcible or unlawful entry into,
or a detainer of, the Premises, or an eviction, actual or constructive, of
Tenant from the Premises. Tenant hereby waives any claims for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby.

          15.2    Surrender of the Premises. Upon the expiration or sooner
                  -------------------------
termination of this Lease, Tenant shall vacate and surrender the Premises to
Landlord in the same condition as existed on the Commencement Date, except for
(i) reasonable wear and tear, (ii) damage caused by any casualty not caused by
Tenant or Tenant's Agents or condemnation, and (iii) contamination by Hazardous
Materials for which tenant is not responsible pursuant to Section 7.2A or
Section 7.2B. In this regard, normal wear and tear shall be construed to mean
wear and tear caused to the Premises by the natural aging process which occurs
in spite of prudent application of the best standards for maintenance, repair
and janitorial practices, and does not include items of neglected or deferred
maintenance. In any event, Tenant shall cause the following to be done prior to
the expiration or the sooner termination of this Lease: (i) all interior walls
shall be painted or cleaned so that they appear freshly painted; (ii) all
non-carpeted floor coverings shall be cleaned and waxed; (iii) all carpets shall
be cleaned and shampooed; (iv) all broken, marred, stained or nonconforming
acoustical ceiling tiles shall be replaced; and (v) all windows shall be washed.
If Landlord so requests, Tenant shall, prior to the expiration or sooner
termination of this Lease, (i) remove any Tenant's Alterations which Tenant is
required to remove pursuant to Section 5.2 and repair all damage caused by such
removal, and (ii) return the Premises or any part thereof to its original
configuration existing as of the time the Premises were delivered to Tenant. If
the Premises are not so surrendered upon the expiration or sooner termination of
this Lease, Tenant shall be liable to Landlord for all costs incurred by
Landlord in returning the Premises to the required condition, plus interest on
all costs incurred at the Agreed Interest Rate. Tenant shall indemnify Landlord
against loss or liability resulting from delay by Tenant in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant or losses to Landlord due to lose opportunities to lease to succeeding
tenants.

          15.3    Holding Over. This Lease shall terminate without further
                  ------------
notice at the expiration of the Lease Term. Any holding over by Tenant after
expiration of the Lease Term shall not constitute a renewal or extension of this
Lease or give Tenant any rights in or to the Premises except as expressly
provided in this Lease. Any holding over after such expiration with

                                       18

<PAGE>


the written consent of Landlord shall be construed to be a tenancy from month to
month on the same terms and conditions herein specified insofar as applicable
except that Base Monthly Rent shall be increased to an amount equal to two
hundred percent (200%) of the full unabated Base Monthly Rent payable during the
last full calendar month of the Lease Term.

      15.4   Subordination.  The following provisions shall govern the
             -------------
relationship of this Lease to any Security Instrument:

             A.     The Lease is subject and subordinate to all Security
Instruments existing as of the Effective Date. However, if any Lender so
requires, this Lease shall become prior and superior to any such Security
Instrument.

             B.     At LandLord's election, this Lease shall become subject and
subordinate to any Security Instrument created after the Effective Date.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in default and performs
all of its obligations under this Lease, unless this Lease is otherwise
terminated pursuant to its terms.

             C.     Tenant shall upon request execute and acknowledge any
document or instrument reasonably required by any Lender to make this Lease
either prior or subordinate to a Security Instrument, which may include such
other matters as the Lender customarily requires in connection with such
agreements, including provisions that the Lender not be liable for (i) the
return of any security deposit unless the Lender receives it from Landlord, (ii)
any defaults on the part of Landlord occurring prior to the time the Lender
takes possession of the Project in connection with the enforcement of its
Security Instrument, and/or (iii) completion of any improvements to the Premises
or the Project agreed to or undertaken by Landlord. Tenant's failure to execute
any such document or instrument within ten (10) days after written demand
therefor shall constitute an Event of Tenant's Default. Tenant approves as
reasonable the form of subordination agreement attached to this Lease as Exhibit
                                                                         -------
E; provided, however, the attachment of such form as an exhibit to this Lease
- -
shall in no way limit the form of document or instrument that Landlord may
request Tenant to execute and acknowledge pursuant to this Section 15.4C.

      15.5   Mortgage Protection and Attornment.  In the event of any default on
             ----------------------------------
the part of the Landlord, Tenant will use reasonable efforts to give notice by
registered mail to any Lender whose name has been provided to Tenant and shall
offer such Lender a reasonable opportunity to cure the default, including time
to obtain possession of the Premises by power of sale or judicial foreclosure or
other appropriate legal proceedings, if such should prove necessary to effect a
cure. Tenant shall attorn to any purchaser of the Premises at any foreclosure
sale or private sale conducted pursuant to any Security Instrument encumbering
the Premises, or to any grantee or transferee designated in any deed given in
lieu of foreclosure.

       15.6  Estoppel Certificates and Financial Statements.  At all times
             ----------------------------------------------
during the Lease Term, Tenant agrees, following any request by Landlord, to
execute and deliver to Landlord within (10) days following delivery of such
request an estoppel certificate: (i) certifying that this Lease is unmodified
and in full force and effect or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect, (ii) stating the date to which the Rent and other charges are paid
in advance, if any, (iii) acknowledging that there are not any uncured defaults
on the part of any party hereunder or, if there are uncured defaults, specifying
the nature of such defaults, and (iv) certifying such other information about
the status of the Lease and the Premises as may be required by Landlord. A
failure to deliver an estoppel certificate within ten (10) days after delivery
of a request therefor shall be a conclusive admission that, as of the date of
the request for such statement: (i) this Lease is unmodified except as may be
represented by Landlord in said request and is in full force and effect, (ii)
there are no uncured defaults in Landlord's performance, (iii) no rent has been
paid more than thirty (30) days in advance, and (iv) the information regarding
the status of this Lease, as represented by Landlord in said request, is true
and correct. At any time during the Lease Term Tenant shall, upon ten (10) days'
prior written notice from landlord, provide Tenant's most recent financial
statement and financial statements covering the twenty-four (24) month period
prior to the date of such most recent financial statement to any existing Lender
or to any potential Lender or buyer of the Premises. Such statements shall be
prepared in accordance with generally accepted accounting principles and shall
be certified by Tenant's chief financial officer as true and correct in all
material respects or, if such is the normal practice of Tenant, shall be audited
by an independent certified public accountant.

      15.7   Landlord's Consent.  Wherever Landlord's approval or consent is
             ------------------
required under this Lease before any action may be taken by Tenant, such
approval or consent may be withheld or conditioned in Landlord's sole and
absolute discretion unless a different standard is specifically provided for
with respect to the required approval or consent in question.

      15.8   Notices.  Any notice required or desired to be given regarding
             -------
this Lease shall be in writing and may be given by personal delivery, by
facsimile telecopy, by courier service, or by mail. A notice shall be deemed to
have been given (i) on the third business day after mailing if such notice was
deposited in the United States mail, certified or registered, postage prepaid,
addressed to the party to be served at its Address for Notices specified in
Section R or Section S of the Summary (as applicable), (ii) when delivered if
- ---------    ---------
given by personal delivery, and (iii) in all other cases when actually received
at the party's Address for Notices. Either party may change its address by
giving notice of the same in accordance with this Section 15.8, provided
however, that any address to which notices may be sent must be a California
address.

      15.9   Attorneys' Fees.  In the event either Landlord or Tenant shall
             ---------------
bring any action or legal proceeding or any appeal therefrom, for an alleged
breach of any provision of this Lease, to recover rent, to terminate this Lease
or otherwise to enforce, protect or establish any term or covenant of this
Lease, the prevailing party shall be entitled to recover as a part of such
action or proceeding, or in a separate action brought for that purpose,
reasonable attorneys' fees, court costs, and experts' fees as may be fixed by
the court.

      15.10  Authority.  If Tenant is a corporation (or partnership or limited
             ---------
liability company), each individual executing this Lease on behalf of Tenant
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of such corporation in accordance with the by-laws of such
corporation (or partnership in accordance with the partnership agreement of such
partnership or limited liability company in accordance with the operating
agreement of such limited liability company) and that this Lease is binding upon
such corporation (or partnership or limited liability company) in accordance
with its terms. Each of the persons executing this Lease on behalf of a
corporation, partnership or limited liability company does hereby covenant and
warrant that the party for whom it is executing this Lease is a duly authorized
and existing corporation, partnership or limited liability company, that such
entity is qualified to do business in California, and that such entity has full
right and authority to enter into this Lease.

      15.11  Miscellaneous.  Should any provision of this Lease prove to be
             -------------
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. The captions used in this Lease are for convenience only and shall not
to be considered in the construction or interpretation of any provision hereof.
Any executed copy of this Lease shall be deemed an original for all purposes.
This Lease shall, subject to the provisions regarding assignment, apply to and
bind the respective heirs, successors, executors,

                                       19

<PAGE>

administrators and assigns of Landlord and Tenant. "Party" shall mean Landlord
or Tenant, as the context implies. If Tenant consists of more than one person or
entity, then all persons or entities so comprising Tenant shall be jointly and
severally liable hereunder. This Lease shall be construed and enforced in
accordance with the laws of the State of California. The language in all parts
of this Lease shall in all cases be construed as a whole according to its fair
meaning, and not strictly for or against either Landlord or Tenant. When the
context of this Lease requires, the neuter gender includes the masculine, the
feminine, a partnership or corporation or joint venture, and the singular
includes the plural. The terms "shall", "will" and "agree" are mandatory. The
term "may" is permissive. When a party is required to do something by this
Lease, it shall do so at its sole cost and expense without right of
reimbursement from the other party unless a provision of this Lease expressly
requires reimbursement. Landlord and Tenant agree that (i) the gross leasable
area of the Premises includes any atriums, depressed loading docks, covered
entrances or egresses, and covered loading areas, (ii) each has had an
opportunity to determine to its satisfaction the actual area of the Project and
the Premises, (iii) all measurements of area contained in this Lease are
conclusively agreed to be correct and binding upon the parties, even if a
subsequent measurement of any one of these areas determines that it is more or
less than the amount of area reflected in this Lease, determination that the
area is more or less than shown in this Lease shall not result in a change in
any of the computations of rent, improvement allowances, or other matters
described in this Lease where area is a factor. Where a party hereto is
obligated not to perform any act, such party is also obligated to restrain any
others within its control from performing said act, including the Agents of such
party. Landlord shall not become or be deemed a partner or a joint venturer with
Tenant by reason of the provisions of this Lease.

      15.12  Termination by Exercise Right.  If this Lease is terminated
             -----------------------------
pursuant to its terms by the proper exercise of a right to terminate

specifically granted to Landlord or Tenant by this Lease, then this Lease shall
terminate thirty (30) days after the date the right to terminate is properly
exercised (unless another date is specified in that part of the Lease creating
the right, in which event the date so specified for termination shall prevail),
the rent and all other charges due hereunder shall be prorated as of the date of
termination, and neither Landlord nor Tenant shall have any further rights or
obligations under this Lease except for those that have accrued prior to the
date of termination or those obligations which this Lease specifically provides
are to survive the expiration or sooner termination of this Lease. This Section
15.12 does not apply to a termination of this Lease by Landlord as a result of
an Event of Tenant's Default.

      15.13  Brokerage Commissions.  Each party hereto (i) represents and
             ---------------------
warrants to the other that it has not had any dealings with any real estate
brokers, leasing agents or salesmen, or incurred any obligations for the payment
of real estate brokerage commissions or finder's fees which would be earned or
due and payable by reason of the execution of this Lease, other than to the
Retained Real Estate Brokers described in Section T of the Summary (and then
                                          ---------
only to the extent set forth in such separate agreement), and (ii) agrees to
indemnify, defend, and hold harmless the other party from any claim for any such
commission or fees which allegedly result from the actions of the indemnifying
party. Landlord shall be responsible for the payment of any commission owed to
the Retained Real Estate Brokers if, and only to the extent, there is a separate
written commission agreement between Landlord and the Retained Real Estate
Brokers for the payment of a commission as a result of the execution of this
Lease by Tenant. The indemnity, defense and hold harmless obligations under this
Section 15.13 shall survive the expiration or sooner termination of this Lease.

      15.14  Force Majeure.  Any prevention, delay or stoppage due to strikes,
             -------------
lock-outs, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of the party obligated to
perform (except financial inability) shall excuse the performance, for a period
equal to the period of any said prevention, delay or stoppage, of any obligation
hereunder except the obligation of Tenant to pay rent or any other sums due
hereunder.

      15.15  Entire Agreement.  This Lease constitutes the entire agreement
             ----------------
between the parties, and there are no binding agreements or representations
between the parties except as expressed herein. Tenant acknowledges that neither
Landlord nor Landlord's Agents has made any legally binding representation or
warranty as to any matter except those expressly set forth herein, including any
warranty as to (i) whether the Premises may be used for Tenant's intended use
under existing Laws, (ii) the suitability of the Premises or the Project for the
conduct of Tenant's business, or (iii) the condition of any improvements. There
are no oral agreements between Landlord and Tenant affecting this Lease, and
this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between Landlord
and Tenant or displayed by Landlord to Tenant with respect to the subject matter
of this Lease. This instrument shall not be legally binding until it is executed
by both Landlord and Tenant. No subsequent change or addition to this Lease
shall be binding unless in writing and signed by Landlord and Tenant.

      16.16  JURY TRIAL WAIVER.  LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT
             -----------------
IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS
RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY
WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST
ITS OFFICERS, DIRECTORS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR
AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY
CLAIM OF INJURY OR DAMAGE.

LANDLORD'S INITIALS:  /s/ [ILLEGIBLE]    TENANT'S INITIALS:  /s/ McCarthy
                     -------------------                    -------------------

                                   ARTICLE 16

                                    WARRANTS

       16.   Warrants.  Concurrently herewith, Tenant grants to Landlord, or its
             --------
assigns, warrants to purchase up to sixty thousand (60,000) shares of common
stock ("Warrants") of Tenant pursuant to the terms of that certain Stock Warrant
Agreement ("Stock Warrant Agreement"), in the form attached hereto as Exhibit J.
                                                                      ---------
As a condition precedent to the effectiveness if this Lease, concurrently with
the execution of this Lease, Tenant shall deliver to Landlord two (2) fully
executed originals of the Stock Warrant Agreement and a corporate resolution of
Tenant authorizing the grant and issuance to Landlord of the Warrants.

                                       20

<PAGE>

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the
intent to be legally bound thereby, to be effective as of the Effective Date.

LANDLORD:

BR3 PARTNERS
- ---------------------------------

By:    /s/ James C. Rees
   ------------------------------

       James C. Rees
- ---------------------------------
typed or printed name

Its:   Managing Partner
     ----------------------------

Dated: 10/31/00
      ---------------------------


TENANT:

Netflix.Com
- ---------------------------------
a      Delaware Corporation
  -------------------------------

By:    /s/ W. Barry McCarthy, Jr.
   ------------------------------

       Barry McCarthy
- ---------------------------------
typed or printed name

Title:  CFO
      ---------------------------

By: _____________________________

_________________________________
typed or printed name

Title:___________________________

Dated: __________________________

                                       21

<PAGE>

                                   EXHIBIT A
                                   ---------
                               PROJECT SITE PLAN

                                [To be attached]

                                  [SITE PLAN]

<PAGE>

                                   EXHIBIT B
                                   ---------
                              DIAGRAM OF PREMISES

             [To be attached with Premises shown as cross-hatched]

                                    [DIAGRAM]

<PAGE>

                                   EXHIBIT C
                                   ---------

                                  WORK LETTER
                                     (As-Is)

                           [INTENTIONALLY LEFT BLANK]
               Tenant to accept Premises in its "As-Is" condition;
         no Tenant Improvements of any kind being provided by Landlord.

<PAGE>

                                   EXHIBIT D
                                   ---------

                         MEMORANDUM OF COMMENCEMENT DATE

                                     (As-Is)

                               Landlord:   ___________

                               Tenant:     ___________

                               Project:    ___________

                               Premises:   ___________

       In connection with that certain Office Lease dated  _________, the
undersigned hereby certify as follows:

       1.    That the undersigned Tenant occupies the above-described Premises
consisting of approximately ________ rentable square feet.

       2.    That the Lease Term commenced (and the Commencement Date occurred)
on _________, and, unless sooner terminated pursuant to the terms of said
Office Lease, shall expire on __________.

       3.    That Tenants obligation to pay Base Monthly Rent in the amount of
$___________ commenced [or will commence] on __________.

       4.    That a security deposit of $_______ has been paid by Tenant to
Landlord.

       5.    That the Premises has been accepted by Tenant in good and sanitary
order, condition and repair in its present "as-is" condition.


LANDLORD                                   TENANT

___________________                        _____________________
___________________                        _____________________


By:________________                        By:__________________
Name:______________                        Name:________________
Its:_______________                        Its:_________________

<PAGE>

                                   EXHIBIT E
                                   ---------

                            SUBORDINATION, NON-DISTURBANCE
                            AND ATTORNMENT AGREEMENT

       THIS AGREEMENT is entered into as of the _____ day of ____________, ____,
by and between ___________________, a _______________ (the "Beneficiary"),
_______________, a ____________ (the "Tenant") and __________, a _______________
(the "Landlord").

                                   W I T N E S S E T H

       A.    Tenant has entered into a certain lease dated ___________, ______
(the "Lease") with Landlord covering certain spaces (the "Premises") located in
and upon the real property described in Schedule 1 attached hereto (the
                                        ----------
"Property");

       B.    Beneficiary is the holder of a mortgage loan (the "Loan") to
Landlord in the amount of ___________ Dollars ($___________) which is secured by
a ______________ (the "Deed of Trust") covering the Property;

       C.    The parties hereto desire expressly to confirm the subordination of
the Lease to the lien of the Deed of Trust, it being a requirement by
Beneficiary that the lien and charge of the Deed of Trust be unconditionally and
at all times prior and superior to the leasehold interests and estates created
by the Lease; and

       D.    Tenant has requested that Beneficiary agree not to disturb Tenant's
possessory rights in the Premises in the event Beneficiary should foreclose the
Deed of Trust, provided that Tenant is not in default under the Lease and
provided that Tenant attorns to Beneficiary or the purchaser at any foreclosure
or Trustee's sale of the Property.

       NOW, THEREFORE, in consideration of the mutual covenants contained herein
and of other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:

       1.    Notwithstanding anything to the contrary set forth in the Lease,
the Lease and the leasehold estate created thereby and all of Tenant's rights
thereunder shall be and shall at all times remain subject, subordinate to the
Deed of Trust and the lien thereof and all rights of Beneficiary thereunder and
to any and a11 renewals, modifications, consolidations, replacements and
extensions thereof.

       2.    Tenant hereby declares, agrees and acknowledges that:

             A.    Beneficiary would not have agreed to recognize the Lease
without this Agreement; and

             B.    Beneficiary, in making disbursements pursuant to the
agreements evidencing and securing the Loan, is under no obligation or duty to
oversee or direct the application of the proceeds of such disbursements and such
proceeds may be used by Landlord for purposes other than improvement of the
Premises.

       3.    In the event of foreclosure of the Deed of Trust, or upon a sale of
the Property pursuant to the Trustee's power of sale contained therein, or upon
a transfer of the Property by deed in lieu of foreclosure, then so long as
Tenant is not in default under any of the terms, covenants, or conditions of the
Lease, the Lease shall continue in full force and effect as a direct lease
between the succeeding owner of the Property and Tenant, upon and subject to all
of the terms, covenants and conditions of the Lease for the balance of the term
of the Lease. Tenant hereby agrees to attorn to and accept any such successor
owner as landlord under the Lease, and to be bound by and perform all of the
obligations imposed by the Lease and Beneficiary or any such successor owner of
the Property will not disturb the possession of Tenant, and will be bound by all
of the obligations imposed by the Lease upon the landlord thereunder; provided,
however, that the Beneficiary, or any purchaser at a trustee's or sheriff's sale
or any successor owner of the Property shall not be:

             A.    liable for any act or omission of a prior landlord (including
Landlord); or

             B.    subject to any offsets or defenses which the Tenant might
have against any prior landlord (including Landlord); or

             c.    bound by any rent or additional rent which the Tenant might
have paid in advance to any prior landlord (including Landlord) for a period in
excess of one month; or

             D.    bound by any agreement or modification of the Lease made
without the written consent of the Beneficiary; or

             E.    liable or responsible for or with respect to the retention,
application and/or return to Tenant of any security deposit paid to any prior
lessor (including Landlord), whether or not still held by such prior lessor,
unless and until Beneficiary or such other purchaser has actually received for
its own account as 1essor the full amount of such security deposit; or

             F.    bound by or liable under any representations, warranties,
covenants or indemnities made to Tenant by any prior landlord (including
Landlord) regarding Hazardous Materials (as defined in the Lease); or

             G.    obligated to construct the building in which the Premises are
located or any improvements for Tenant's use.

       4.    Upon the written request of Beneficiary at the time of a
foreclosure, Trustee's sale or deed in lieu thereof or at any time thereafter,
the parties agree to execute a lease of the Premises upon the same terms and
conditions as the Lease between Landlord and Tenant, which lease shall cover any
unexpired term of the Lease existing prior to such foreclosure, Trustee's sale
or conveyance in lieu of foreclosure.

                                       1

<PAGE>

     5.  Tenant agrees to give to Beneficiary, by registered mail, a copy of any
notice or statement served upon Landlord. Tenant agrees not to exercise any
rights of termination available by virtue of a default unless (i) Landlord shall
have failed to cure such default, and (ii) following expiration of the
applicable period under the Lease for cure Landlord of such default, Tenant
shall have furnished to Beneficiary notice of Landlord's failure to cure such
default, and afforded Beneficiary an additional thirty (30) days following
receipt of such notice within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
if within such thirty (30) days Beneficiary has commenced and is diligently
pursuing the remedies necessary to cure such default (including, but not limited
to, commencement of foreclosure proceedings if necessary to effect such cure),
in which event such right, if any, as Tenant might otherwise have to terminate
the Lease shall not be exercised while such remedies are being so diligently
pursued.

     6.  Landlord, as landlord under the lease and trustor under the Deed of
Trust, agrees for itself and its heirs, successors, and assigns, that: (i) this
Agreement does not constitute a waiver by Beneficiary of any of its rights under
the Deed of Trust or in any way release Landlord from its obligation to comply
with the terms, provisions, conditions, covenants, agreements and clauses of
the Deed of Trust; and (ii) the provisions of the Deed of Trust remain in full
force and effect and must be complied with by Landlord, if Beneficiary so
requires.

     7.  Tenant acknowledges that it has notice that the Lease and the rent and
all other sums due thereunder have been assigned or are to be assigned to
Beneficiary as security for the Loan secured by the Deed of Trust. In the event
the Beneficiary notifies Tenant of a default under the Deed of Trust and demands
that Tenant pay its rent and all other sums due under the Lease to the
Beneficiary Tenant agrees that it will honor such demand and pay its rent and
all other sums due under the Lease to the Beneficiary or as otherwise required
pursuant to such notice.

     8.  All notices hereunder shall be deemed to have been duly given if mailed
by United States registered or certified mail with return receipt requested,
postage prepaid, to Beneficiary at the following address (or at such other
address as shall be given in writing by Beneficiary to the Tenant) and shall be
deemed complete upon any such mailing:

        __________________________________
        __________________________________
        __________________________________
        __________________________________

        Attention:________________________

        with a copy
        to: _________________________________
            _________________________________
            _________________________________
            _________________________________

     9.  This agreement supersedes any inconsistent provisions of the Lease.

     10. This Agreement shall inure to the benefit of the parties hereto, their
successors and permitted assigns; provided, however, that in the event of the
assignment or transfer of the interest of Beneficiary, all obligations and
liabilities of Beneficiary under this Agreement shall terminate, and thereupon
all such obligations and liabilities shall be the responsibility of the party to
whom Beneficiary's interest is assigned or transferred.

     11. Tenant agrees that this Agreement satisfies any condition or
requirement in the Lease relating to the granting of a non-disturbance
agreement.

     12. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.

     IN WITNESS WHEREOF, the pirates have executed this Agreement on the date
and year first set forth above.

"Beneficiary"                           "Landlord"
____________________________            ________________________________
a___________________________            a_______________________________

By: ________________________            By: ____________________________
Printed                                 Printed
Name: ______________________            Name: __________________________

Title: _____________________            Title: _________________________

"Tenant"
____________________________
a___________________________

By: ________________________

Printed
Name: ______________________

Title: _____________________




<PAGE>

                                   EXHIBIT G
                                   ---------

                               RULES & REGULATIONS

        1.  No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, or printed or affixed on or to any part of the outside or
inside of the Building without the written consent of landlord first had and
obtained and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Tenant.

        All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.

        Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises; provided, however, that Landlord may furnish end install
a Building standard window covering at all exterior windows. Tenant shall not
without prior written consent of Landlord cause or otherwise sunscreen any
window.

        2.  The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective Premises.

        3.  Tenant shall not alter any lock or install any new or additional
locks or any bolts on any doors or windows of the Premises.

        4.  Tenant shall not allow any chairs with wheels or casters to be used
without a carpet protector or chairmat. Failure to follow this requirement
which results in carpet damage will result in Tenant being charged for
replacement of the carpet.

        5.  The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by Tenant who, or whose employees or invitees shall
have caused it,

        6.  Tenant ahall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.

        7.  No furniture, freight or equipment of any kind shall be brought in
the Building without the prior notice to Landlord and all moving of the same
into or out of the Building shall he done in such manner as Landlord shall
designate. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the Building and
also the times and manner of moving the same in and out of the Building. Safes
or other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary by properly distribute the weight.
Landlord would not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the Building by movmg or
maintaining any such safe or other property shall be repaired at the expense of
Tenant.

        8.  Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason or noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business  therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.

        9.  No cooking, except by microwave oven, shall be done or permitted by
any Tenant on the Premises, nor shall the Premises be used for the storage of
merchandise, for washing clothes, for lodging, or for any improper,
objectionable or immoral purposes.

        10. Tenant shall not use or keep in the Premises of the Building any
kerosene, gasoline, or inflammable or combustible fluid or material, or use
any method of heating or air conditioning other than that supplied by
Landlord.

        11. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The locations of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to
the approval of landlord.

        12. On Saturdays, Sundays, and legal holidays, and on other days between
the hours of 6:00 PM and 8:00 AM the following day, access to the Building, or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking excess is known to the
person or employee of the Building in charge and has a pass or is properly
identified. Landlord shall in no case be liable for damages for any error with
regard to admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, Landlord reserve
the right to prevent access to the Building during the continuance of the same
by closing of the doors or otherwise, for the safety of the tenants and
protection of property in the Building and the Building.

        13. Landlord reserves the right to exclude or expel from tbe Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.

        14. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises wthout the written consent
of the Landlord.

        15. Landlord shall have the right, exercisable without notice and
without liability to Tenant, to change the name end street address of the
Building of which the Premises are a part.

        16. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate to prevent the same.

        17. Without the written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.

                                       1

<PAGE>

     18.  Landlord shall have the right to control and operate the public
portions of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the tenants,
in such manner as it deems best for the benefit of the tenants generally.

     19.  All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.

     20.  Landlord shall clean the Premises as provided in the Lease, and except
with the written consent of Landlord, no person or persons other than those
approved by Landlord will be permitted to enter the Building for such purposes.
Tenant shall not cause unnecessary labor by reason of Tenant's carelessness and
indifference in the preservation of good order and cleanliness. All cardboard
boxes must be "broken down", and all styrofoam chips must be bagged or otherwise
contained so as not to constitute a nuisance. Landlord shall have no
responsibility whatsoever for the theft of or damage to any property of Tenant
or its employees resulting from any acts or omissions of janitorial personnel,
and Tenant hereby waives any and all claims against Landlord therefor.

     21.  Landlord reserves the right to amend or supplement the foregoing Rules
and Regulations and to adopt and promulgate additional rules and regulations
applicable to the Project, the Building and/or the Premises.

     22.  Neither Landlord nor Landlord's Agents or any other person or entity
shall be responsible to Tenant or to any other person for the violation of these
or other Rules and regulations by any other tenant or other person. Tenant shall
be deemed to have read these Rules and Regulations and to have agreed to abide
by them as a condition precedent, waivable only by Landlord, to Tenant's
occupancy of the Premises.

     23.  Tenant shall be solely responsible for procuring and contracting
directly for all water, gas, electricity, sewer service, waste pick-up,
janitorial service, telephone and other telecommunications services and all
other utilities and services necessary for Tenant's use and occupancy of the
Premises, and landlord shall have no responsibility whatsoever to procure or
provide any such utilities or services. Tenant shall pay, prior to delinquency,
directly to the appropriate supplier thereof, all charges (including taxes) for
all such utilities and services; provided, however, if any such utilities or
services are not separately metered, then Landlord, at its election, may (a)
periodically charge Tenant, as Additional Rent, a sum equal to Landlord's
reasonable estimate of the cost of such utilities or services, or (b) install a
separate meter (at Tenant's expense) to measure such utilities or services and
periodically charge Tenant, as Additional Rent, a sum equal to the cost of
Tenant's use of such utilities or services as measured by such separate meter.
Landlord shall not be in default hereunder or be liable for any damages directly
or indirectly resulting from, nor shall rent be abated by reason of, any failure
or interruption of any such utilities or services. No such failure or
interruption shall be deemed an eviction, actual or constructive, of Tenant or
entitle Tenant to terminate this Lease or withhold Rent due hereunder.

                                       2

<PAGE>

                                    EXHIBIT H
                       ACKNOWLEDGEMENT OF EARLY EXPIRATION

     The undersigned, NetFlix.com, as tenant ("Tenant"), pursuant to that
certain Office Lease ("Lease") dated _____________, with BR3 Partners, as
landlord ("Landlord"), hereby acknowledges receipt of written notice from
Landlord that Landlord is exercising its right to cause the Lease to expire
early, on October 31, 2003, pursuant to the terms of Section 4.9 of the Lease.
Tenant shall vacate the Premises (as such term is defined in the Lease) on or
before October 31, 2003, pursuant to the applicable provisions of the Lease. In
the event that Tenant has not vacated the Premises by said date, Tenant
acknowledges that it is required to pay, and it shall pay, holdover rent to
Landlord at the rate of two hundred percent (200%) of the then Base Monthly Rent
(as such term is defined in the Lease) pursuant to Section 15.3 of the Lease.

 Date: ___________________              Netflix.com


                                        By: _____________________________
                                        Name: ___________________________
                                        Its: _______________________


                                       1

<PAGE>

                                   EXHIBIT I
                                   ---------
                                    PARKING

              [To be attached with Parking shown as cross-hatched]

                              [MAP OF PARKING LOT]

                               University avenue

<PAGE>

                                    EXHIBIT J
                            STOCK WARRANT AGREEMENT

                                 [see attached]

                                       1





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>12
<FILENAME>dex108.txt
<DESCRIPTION>LEASE AGREEMENT DATED AUGUST 11, 1999
<TEXT>
<PAGE>

                                                                    Exhibit 10.8

                                 Lease Agreement
                                    (NNN R&D)
                             Basic Lease Information

Lease Date:                  August 11, 1999

Landlord:                    LINCOLN-RECP OLD OAKLAND OPCO, LLC,
                             a Delaware limited liability company

Landlord's Address:          c/o Legacy Partners Commercial, Inc.
                             101 Lincoln Centre Drive, Fourth Floor
                             Foster City, California 94404-l167

Tenant:                      NetFlix.com,
                             a Delaware corporation

Tenant's Address:            Before Commencement Date:
                             750 University Avenue
                             Los Gatos, California  95032-7606
                             Attention: Barry McCarthy

                             After Commencement Date:
                             750 University Avenue
                             Los Gatos, California 95032-7607
                             Attention: Barry McCarthy

Premises:                    Approximately 31,830 rentable square feet as shown
                             on Exhibit A
                                ---------

Premises Address:            2219 Old Oakland Road
                             San Jose, California 95131-1402

Building:                    Approximately 55,976 rentable square feet
Lot (Building's tax parcel): APN 237-01-044
Park::                       Approximately 138,366 rentable square feet

Term:                        November 1, 1999 ("Commencement Date"), through
                             October 31, 2004 ("Expiration Date")

Base Rent ((P)3):            Thirty Six Thousand Six Hundred Five and 00/100
                             Dollars (36,605.00)

Adjustment to Base Rent:     November 1, 2000       $38,196.00
                             November 1, 2001       $39,788.00
                             November 1, 2002       $41,379.00
                             November 1, 2003       $42,971.00

Security Deposit ((P)4):     Two Hundred Nineteen Thousand Six Hundred Thirty
                             and 00/100 Dollars ($219,630.00), subject to the
                             adjustments set forth in Section 4 of the Lease.

*Tenant's Share of Operating Expenses ((P)6.1):      56.86% of the Building, 23%
                                                     of the Park
*Tenant's Share of Tax Expenses ((P)6.2):            23% of the Park
*Tenant's Share of Common Area Utility Costs ((P)7): 56.86% of the Building, 23%
                                                     of the Park
*Tenant's Share of Utility Expenses ((P)17):         23% of the Building
*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.

Permitted Uses ((P)9):       Fulfillment and distribution center of DVD rental
                             including general office and administration,
                             marketing, R&D, storage, distribution and light
                             manufacturing, but only to extent permitted by the
                             City of San Jose and all agencies and governmental
                             authorities having jurisdiction thereof.

Unreserved
Parking Spaces:              One hundred twenty-seven (127) non-exclusive and
                             non-designated spaces

Broker ((P)38):              Cornish & Carey Commercial Tenant
                             Grubb & Ellis for Landlord

                                        1

<PAGE>


Exhibits:  Exhibit A -  Premises, Building, Lot and/or Park
           Exhibit B -  Tenant Improvements
           Exhibit C -  Rules and Regulations
           Exhibit D -  Covenants, Conditions and Restrictions (Intentionally
                        omitted)
           Exhibit E -  Hazardous Materials Disclosure Certificate - Example
           Exhibit F -  Change of Commencement Date - Example
           Exhibit G -  Tenant's Initial Hazardous Materials Disclosure
                        Certificate
           Exhibit H -  Sign Criteria (Intentionally omitted)
           Exhibit I -  Subordination, Non-Disturbance and Attornment Agreement

                                       2

<PAGE>

                                Table of Contents

Section                                                                   Page
- -------                                                                   ----

1.  Premises ...........................................................     4
2.  Adjustment of Commencement Date; Condition of the Premises .........     4
3.  Rent ...............................................................     5
4.  Security Deposit ...................................................     5
5.  Tenant Improvements ................................................     6
6.  Additional Rent ....................................................     6
7.  Utilities ..........................................................     8
8.  Late Charges .......................................................     9
9.  Use of Premises ....................................................     9
10. Alterations and Additions; and Surrender of Premises ...............    10
11. Repairs and Maintenance ............................................    11
12. Insurance ..........................................................    12
13. Waiver of Subrogation ..............................................    14
14. Limitation of Liability and Indemnity ..............................    14
15. Assignment and Subleasing ...........................................   15
16. Ad Valorem Taxes ...................................................    16
17. Subordination ......................................................    16
18. Right of Entry .....................................................    17
19. Estoppel Certificate ...............................................    17
20. Tenant's Default ...................................................    18
21. Remedies for Tenant's Default ......................................    18
22. Holding Over .......................................................    19
23. Landlord's Default .................................................    20
24. Parking ............................................................    20
25. Sale of Premises ...................................................    20
26. Waiver .............................................................    20
27. Casualty Damage ....................................................    20
28. Condemnation .......................................................    22
29. Environmental Matters/Hazardous Materials ..........................    22
30. Financial Statements ...............................................    24
31. General Provisions .................................................    25
32. Signs ..............................................................    26
33. Mortgagee Protection ...............................................    26
34. Quitclaim ..........................................................    27
35. Modifications for Lender ...........................................    27
36. Warranties of Tenant ...............................................    27
37. Compliance with Americans with Disabilities Act ....................    27
38. Brokerage Commission ...............................................    28
39. Quiet Enjoyment ....................................................    28
40. Landlord's Ability to Perform Tenant's Unperformed Obligations .....    28
41. Tenant's Early Termination Option:..................................    28

                                       3

<PAGE>

                                 LEASE AGREEMENT

Date:  This Lease is made and entered into as of the Lease Date set forth on
       Page 1. The Basic Lease Information set forth on Page 1 and this
       Lease are and shall be construed as a single instrument.

1.   Premises

     Landlord hereby leases the Premises to Tenant upon the terms and conditions
contained herein. Landlord hereby grants to Tenant a license for the right to
use, on a non-exclusive basis, parking areas and ancillary facilities located
within the Common Areas of the Park, subject to the terms of this Lease.
Landlord and Tenant hereby agree that for purposes of this Lease, as of the
Lease Date, the rentable square footage area of the Premises, the Building, the
Lot and the Park shall be deemed to be the number of rentable square feet as set
forth in the Basic Lease Information on Page 1. Tenant hereby acknowledges that
the rentable square footage of the Premises may include a proportionate share of
certain areas used in common by all occupants of the Building and/or the Park
(for example an electrical room or telephone room). Tenant further agrees that
the number of rentable square feet of the Building, the Lot and the Park may
subsequently change after the Lease Date commensurate with any modifications to
any of the foregoing by Landlord, and Tenant's Share shall accordingly change.

2.   Adjustment of Commencement Date; Condition of the Premises

     2.1  If Landlord cannot deliver possession of the Premises on the
Commencement Date, Landlord shall not be subject to any liability nor shall the
validity of the Lease be affected; provided, the Lease Term and the obligation
to pay Rent shall commence on the date possession is tendered in the condition
required under this Lease (including the substantial completion of the Tenant
Improvements), with all governmental permits required for such improvements, and
the Base Rent Adjustment dates and the Expiration Date shall be extended
commensurately. In the event the Commencement Date and/or the Expiration Date of
this Lease is other than the Commencement Date and/or Expiration Date specified
in the Basic Lease Information, as the case may be, Landlord and Tenant shall
execute a written amendment to this Lease, substantially in the form of Exhibit
                                                                        -------
F hereto, wherein the parties shall specify the actual commencement date,
- -
expiration date and the date on which Tenant is to commence paying Rent.
The word "Term" whenever used herein refers to the initial term of this Lease
and any extension thereof. By taking possession of the Premises, Tenant shall be
deemed to have accepted the Premises in good condition and state of repair.
Tenant hereby acknowledges and agrees that neither Landlord nor Landlord's
agents or representatives has made any representations or warranties as to the
suitability. safety or fitness of the Premises for the conduct of Tenant's
business, Tenant's intended use of the Premises or for any other purpose.
Landlord shall deliver possession of the Premises with the roof, HVAC system,
electrical, plumbing and lighting in good working condition, all carpets
cleaned, walls and ceiling in good repair "like new". Landlord shall repair,
at its sole cost and expense, after receipt of Tenant's written notice thereof,
which notice must be delivered to Landlord within the first ninety (90) days of
the term of this Lease, any (i) defects in the Premises, and (ii) any mechanical
and electrical systems serving the Premises which are not in good working order
to the extent Tenant has not caused such systems to not be in good working
order. If Tenant fails to timely deliver to Landlord any such written notice of
the aforementioned defects or deficiencies within said 90-day period, Landlord
shall have no obligation to perform any such work thereafter, except as
specifically provided in this Lease.

Notwithstanding the foregoing to the contrary, (A) in the event that for reasons
other than the occurrence of a Force Majeure Delay (as hereinafter defined) or a
Tenant Delay (as hereinafter defined) the substantial completion of the Tenant
Improvements ("T.I. Completion") has not occurred by the date which is one
hundred twenty (120) days after the date the Lease is fully executed
("Termination Date"), Tenant may elect to terminate the Lease. Termination of
the Lease by Tenant as provided for herein shall be the sole and exclusive
remedy of Tenant for Landlord's failure to deliver the Premises. Tenant shall
exercise the right to terminate provided for herein by giving Landlord written
notice of its intent to so terminate ("Termination Notice"). The Termination
Notice shall be given, if at all, on or before the date which is five (5) days
after the Termination Date. Termination of the Lease shall he effective sixty
(GO) days after Landlord's receipt of the Termination Notice. In the event that
Tenant gives the Termination Notice, and in the further event that during such
sixty (60) day period, the TI Completion Date occurs, the Tenant shall not be
entitled to terminate the Lease as provided for herein. For purposes of this
paragraph the term "Force Majeure Delay" shall mean any actual delay beyond
the reasonable control of Landlord in completion of the Tenant Improvements
which is not a Tenant Delay and which is caused by, without limitation, any one
or more of the following: (a) wars; (b) fire; (c) earthquake, flood or other
natural disaster, (d) unusual and unforeseeable delay not within the reasonable
control of Landlord: (e) casualties; (f) other acts of God; or (g) governmental
action or inaction (including failure, refusal or delay in issuing permits,
approvals and/or

                                        4

<PAGE>


authorizations), or injunction, permit appeal or court order requiring cessation
of construction taking place in the Premises.

The Term "Tenant Delay" shall mean any delay in completion of the Tenant
Improvements resulting from any or all of the following: (i) Tenant's failure to
timely perform any of its obligations under the Lease, including any failure to
complete on or before the date due thereof, any actual item which is Tenant's
responsibility to complete or perform; (ii) Tenant's delay in approving plans,
specifications, drawings, and any other documents setting forth and/or
describing the Tenant Improvements, including, without limitation, the Final
Drawings, beyond those periods of time permitted by the terms of the Lease;
(iii) Tenant's changes to Landlord and Tenant approved plans, specifications,
drawings or any other documents describing and/or depicting the Tenant
Improvements; (iv) Tenant's request for materials, finishes, or installations
which are not readily available or which are incompatible with Landlord's
standard materials, finishes or installations for the Premises; (v) Tenant's use
or occupancy of the Premises during the construction of the Tenant Improvements
or any act or failure to act by Tenant in connection with its use or occupancy
of the Premises during the construction of the Tenant Improvements. Upon
termination of the Lease by Tenant pursuant to the terms of this paragraph,
Landlord shall promptly return all prepaid Rent to Tenant.

     2.2  In the event Landlord permits Tenant to occupy the Premises prior to
the Commencement Date, such occupancy shall be at Tenant's sole risk and subject
to all the provisions of this Lease, including, but not limited to, the
requirement to pay Rent and the Security Deposit, and to obtain the insurance
required pursuant to this Lease and to deliver insurance certificates as
required herein. Landlord shall permit Tenant to enter the Premises following
full execution of this Lease, prior to the Commencement Date, for the purpose of
installing its furniture, equipment, data, telecommunications and cabling
systems and trade fixtures. Such use of the Premises shall be subject to all of
the provisions the Lease, except the obligation to pay any Rent thereunder. In
addition to the foregoing, Landlord shall have the right to impose such
additional conditions on Tenant's early entry as Landlord shall deem
appropriate. Landlord shall not allow any other tenant to occupy the portion of
the Building adjacent to the Premises until the demising wall is installed.

3.   Rent

     On the date that Tenant executes this Lease, Tenant shall deliver to
Landlord the original executed Lease, the Base Rent (which shall be applied
against the Rent payable for the first month Tenant is required to pay Base
Rent), the Security Deposit, and all insurance certificates evidencing the
insurance required to be obtained by Tenant under Section 12 of this Lease.
Tenant agrees to pay Landlord, without prior notice or demand, or abatement,
offset, deduction or claim, the Base Rent specified in the Basic Lease
Information, payable in advance at Landlord's address specified in the Basic
Lease Information on the Commencement Date and thereafter on the first (1st) day
of each month throughout the balance of the Term of the Lease. In addition to
the Base Rent set forth in the Basic Lease Information, Tenant shall pay
Landlord in advance on the Commencement Date and thereafter on the first (1st)
day of each month throughout the balance of the Term of this Lease, as
Additional Rent, Tenant's Share of Operating Expenses, Tax Expenses, Common Area
Utility Costs, and Utility Expenses. Tenant shall also pay to Landlord as
Additional Rent hereunder, immediately on Landlord's demand therefor, any and
all costs and expenses incurred by Landlord to enforce the provisions of this
Lease, including, but not limited to, costs associated with the delivery of
notices, delivery and recordation of notice(s) of default, attorneys' fees,
expert fees, court costs and filing fees (collectively, the "Enforcement
Expenses"). The term "Rent" whenever used herein refers to the aggregate of
all these amounts. If Landlord permits Tenant to occupy the Premises without
requiring Tenant to pay rental payments for a period of time, the waiver of the
requirement to pay rental payments shall only apply to waiver of the Base Rent
and Tenant shall otherwise perform all other obligations of Tenant required
hereunder. The Rent for any fractional part of a calendar month at the
commencement or termination of the Lease term shall be a prorated amount of the
Rent for a full calendar month based upon a thirty (30) day month. The prorated
Rent shall be paid on the Commencement Date and the first day of the calendar
month in which the date of termination occurs, as the case may be.

4.   Security Deposit

     Upon Tenant's execution of this Lease, Tenant shall deliver to Landlord, as
a Security Deposit for the performance by Tenant of its obligations under this
Lease, the amount specified in the Basic Lease Information. If Tenant is in
default, Landlord may, but without obligation to do so, use the Security
Deposit, or any portion thereof, to cure the default or to compensate Landlord
for all damages sustained by Landlord resulting from Tenant's default,
including, but not limited to the Enforcement Expenses. Tenant shall,
immediately on demand, pay to Landlord a sum equal to the portion of the
Security Deposit so applied or used so as to replenish the amount of the
Security Deposit held to increase such deposit to the amount initially deposited
with Landlord. As soon as practicable after the termination of this Lease,
Landlord shall return the Security Deposit to Tenant, less such amounts as are
reasonably necessary, as determined solely by Landlord, to remedy Tenant's
default(s) hereunder or to

                                        5

<PAGE>

 otherwise restore the Premises to a clean and safe condition, reasonable wear
 and tear excepted. If the cost to restore the Premises exceeds the amount of
 the Security Deposit, Tenant shall promptly deliver to Landlord any and all of
 such excess sums as reasonably determined by Landlord. Landlord shall not be
 required to keep the Security Deposit separate from other funds, and, unless
 otherwise required by law, Tenant shall not be entitled to interest on the
 Security Deposit. In no event or circumstance shall Tenant have the right to
 any use of the Security Deposit and, specifically, Tenant may not use the
 Security Deposit as a credit or to otherwise offset any payments required
 hereunder, including, but not limited to, Rent or any portion thereof.
 Notwithstanding the foregoing, on the third anniversary of the Commencement
 Date of the Lease, or following Tenant's public offering of its stock and
 subsequent achievement of a net worth of at least Forty Million Dollars
 ($40,000,000.00) and such net worth is then sustained for three consecutive
 financial quarters and substantiated by financial reports provided by Tenant to
 Landlord, which ever event occurs sooner, and, so long as Tenant has not been
 in material default of the Lease beyond any applicable cure period, the
 Security Deposit shall be reduced to Forty Two Thousand Nine Hundred
 Seventy-One and OO/lOO Dollars ($42,971.00). In the event that the Security
 Deposit is reduced, as set forth herein, Landlord and Tenant shall execute an
 Amendment to the Lease signifying such reduction in the Security Deposit and
 the excess amount of Security Deposit held by Landlord shall be
 immediately returned to Tenant.

 5.     TENANT IMPROVEMENTS

        Tenant hereby accepts the Premises as suitable for Tenant's intended use
 and as being in good operating order, condition and repair, "AS IS", except as
 specified in Exhibit B attached hereto or elsewhere expressed in this Lease.
 Landlord or Tenant, as the case may be, shall install and construct the Tenant
 Improvements (as such term is defined in Exhibit B hereto) in accordance with
 the terms, conditions, criteria and provisions set forth in Exhibit B. Landlord
 and Tenant hereby agree to and shall be bound by the terms, conditions and
 provisions of Exhibit B. Tenant acknowledges and agrees that neither Landlord
 nor any of Landlord's agents, representatives or employees has made any
 representations as to the suitability, fitness or condition of the Premises for
 the conduct of Tenant's business or for any other purpose, including without
 limitation, any storage incidental thereto. Any exception to the foregoing
 provisions must be made by express written agreement by both parties.

 6.     ADDITIONAL RENT

        It is intended by Landlord and Tenant that this Lease be a "triple net
 lease." The costs and expenses described in this Section 6 and all other sums,
 charges, costs and expenses specified in this Lease other than Base Rent are to
 be paid by Tenant to Landlord as additional rent (collectively, "Additional
 Rent").

        6.1    Operating Expenses: In addition to the Base Rent set forth in
 Section 3, Tenant shall pay Tenant's Share, which is specified in the Basic
 Lease Information, of all Operating Expenses as Additional Rent. The term
 "Operating Expenses" as used herein shall mean the total amounts paid or
 payable by Landlord in connection with the ownership, maintenance, repair and
 operation of the Premises, the Building and the Lot, and where applicable, of
 the Park referred to in the Basic Lease Information. The amount of Tenant's
 Share of Operating Expenses shall be reviewed from time to time by Landlord and
 shall be subject to modification by Landlord if there is a change in the
 rentable square footage of the Premises, the Building and/or the Park. These
 Operating Expenses may include, but are not limited to:

               6.1.1    Landlord's cost of repairs to, and maintenance of, the
 roof, the roof membrane and the exterior walls of the Building;

               6.1.2    Landlord's cost of maintaining the outside paved area,
 landscaping and other common areas for the Park. The term "Common Areas" shall
 mean all areas and facilities within the Park exclusive of the Premises and the
 other portions of the Park leasable exclusively to other tenants. The Common
 Areas include, but are not limited to, interior lobbies, mezzanines, parking
 areas, access and perimeter roads, sidewalks, rail spurs, landscaped areas and
 similar areas and facilities;

               6.1.3    Landlord's annual cost of insurance insuring against
 fire and extended coverage (including, if Landlord elects, "all risk" or
 "special purpose" coverage) and all other insurance, including, but not limited
 to, earthquake, flood and/or surface water endorsements for the Building, the
 Lot and the Park (including the Common Areas), rental value insurance against
 loss of Rent in an amount equal to the amount of Rent for a period of at least
 six (6) months commencing on the date of loss, and subject to the provisions of
 Section 27 below, any deductible;

               6.1.4    Landlord's cost of: (i) modifications and/or new
 improvements to the Building, the Common Areas and/or the Park occasioned by
 any rules, laws or regulations effective subsequent to the date on which the
 Building was originally constructed; (ii) reasonably necessary replacement
 improvements to the Building, the Common Areas and the Park after the Lease
 Date; and (iii) new

                                       6

<PAGE>

 improvements to the Building, the Common Areas and/or the Park that reduce
 operating costs (to the extent of the reduction) or improve life/safety
 conditions, all as reasonably determined by Landlord, provided, however, if any
 of the foregoing are in the nature of capital improvements, then the cost of
 such capital improvements shal1 be amortized over the life of the improvement
 at an interest rate reasonably determined by Landlord, and Tenant shall pay
 Tenant's Share of the monthly amortized portion of such costs (including
 interest charges) as part of the Operating Expenses herein;

               6.1.5    If Landlord elects to so procure, Landlord's cost of
 preventative maintenance, and repair contracts including, but not limited to,
 contracts for elevator systems and heating, ventilation and air conditioning
 systems, lifts for disabled persons, and trash or refuse collection;

               6.1.6    Landlord's cost of security and fire protection services
 for the Building and/or the Park, as the case may be, if in Landlord's sole
 discretion such services are provided;

               6.1.7    Landlord's cost for the maintenance and repair of any
 rail spur and rail crossing, and for the creation and negotiation of, and
 pursuant to, any rail spur or track agreements, licenses, easements or other
 similar undertakings;

               6.1.8    Landlord's cost of supplies, equipment, rental equipment
 and other similar items used in the operation and/or maintenance of the Park;

               6.1.9    Landlord's cost for the repairs and maintenance items
 set forth in Section 11.2 below; and

               6.1.10   Landlord's cost for the management and administration of
 the Premises, the Building and/or Park or any part thereof, including, without
 limitation, a property management fee, accounting, auditing, billing, postage,
 salaries and benefits for clerical and supervisory employees, whether located
 on the Park or off-site, payroll taxes and legal and accounting costs and all
 fees, licenses and permits related to the ownership, operation and management
 of the Park in an amount not to exceed three percent (3%) of the gross rents of
 the Park for the calendar year, or the amounts charged by comparable buildings
 in the area, whichever is less.

                        Notwithstanding anything to the contrary herein,
 Operating Expenses shall not include and Tenant shall in no event have any
 obligation to perform or to pay directly, or to reimburse Landlord for, any of
 the following repairs, maintenance, improvements, replacements, premiums,
 claims, charges, costs and expenses (collectively, "Costs"): (a) Costs
 occasioned by casualties excluding any deductibles or by the exercise of the
 power of eminent domain to the extent insurance proceeds subject to Section 24
 of this Lease or a condemnation award is actually received by Landlord for such
 purposes; (b) Costs of any renovation, improvement or redecorating of any other
 premises in the Park; (c) Costs, including commissions, incurred in connection
 with negotiations or disputes with any other occupant (or prospective occupant)
 of the Park; (d) expense reserves; (e) interest, charges and fees incurred on
 debt; (f) Costs associated with the investigation, presence and/or remediation
 of Hazardous Materials (hereafter defined) present in, on or about the
 Premises, the Building or the Park, unless such costs and expenses are the
 responsibility of Tenant as provided in Section 29 of this Lease, in which
 event such costs and expenses shall be paid solely by Tenant in accordance with
 the provisions of Section 29 of this Lease; and (g) Costs incurred by Landlord
 with respect to the performance of its obligations in Section 11.3 below.

        6.2    Tax Expenses: In addition to the Base Rent set forth in Section
 3, Tenant shall pay its share, which is specified in the Basic Lease
 Information, of all real property taxes applicable to the land and improvements
 included within the Lot on which the Premises are situated and one hundred
 percent (100%) of all personal property taxes now or hereafter assessed or
 levied against the Premises or Tenant's personal property. The amount of
 Tenant's Share of Tax Expenses shall be reviewed from time to time by Landlord
 and shall be subject to modification by Landlord if there is a change in the
 rentable square footage of the Premises, the Building and/or the Park. Tenant
 shall also pay one hundred percent (100%) of any increase in real property
 taxes attributable, in Landlord's sole discretion, to any and all alterations,
 Tenant Improvements or other improvements of any kind, which are above standard
 improvements customarily installed for similar buildings located within the
 Building or the Park (as applicable), whatsoever placed in, on or about the
 Premises for the benefit of, at the request of, or by Tenant. The term "Tax
 Expenses" shall mean and include, without limitation, any form of tax and
 assessment (general, special, supplemental, ordinary or extraordinary),
 commercial rental tax, payments under any improvement bond or bonds, license
 fees, license tax, business license fee, rental tax, transaction tax, levy, or
 penalty imposed by authority having the direct or indirect power of tax
 (including any city, county, state or federal government, or any school,
 agricultural, lighting, drainage or other improvement district thereof) as
 against any legal or equitable interest of Landlord in the Premises, the
 Building, the Lot or the Park, as against Landlord's right to rent, or as
 against Landlord's business of leasing the Premises or the occupancy of Tenant
 or any other tax, fee, or excise, however described, Including, but not limited
 to, any value added tax, or any tax imposed in substitution (partially or
 totally) of any tax previously included within the definition of real property
 taxes, or any additional tax the nature of which was previously included within
 the definition of real property taxes. The term "Tax

                                       7

<PAGE>

       Expenses" shall not include any franchise, estate, inheritance, net
       income, or excess profits tax imposed upon Landlord, any assessments in
       excess of the amount which would be payable if such tax or assessment
       expense were paid in installments over the longest permitted term, any
       increases in taxes due to the improvement of the Park for the sole use of
       other occupants.

           6.3   Payment of Expenses: Landlord shall estimate Tenant's Share of
       the Operating Expenses and Tax Expenses for the calendar year in which
       the Lease commences. Commencing on the Commencement Date, one-twelfth
       (l/12th) of this estimated amount shall be paid by Tenant to Landlord, as
       Additional Rent, and thereafter on the first (1st) day of each month
       throughout the remaining months of such calendar year. Thereafter,
       Landlord may estimate such expenses as of the beginning of each calendar
       year during the Term of this Lease and Tenant shall pay one-twelfth
       (1/12th) of such estimated amount as Additional Rent hereunder on the
       first (1st) day of each month during such calendar year and for each
       ensuing calendar year throughout the Term of this Lease. Tenant's
       obligation to pay Tenant's Share of Operating Expenses and Tax Expenses
       shall survive the expiration or earlier termination of this Lease.

           6.4   Annual Reconciliation: By June 30th of each calendar year, or
        as soon thereafter as reasonably possible, Landlord shall endeavor to
       furnish Tenant with an accounting of actual Operating Expenses and Tax
       Expenses. Within thirty (30) days of Landlord's delivery of such
       accounting, Tenant shall pay to Landlord the amount of any underpayment.
       Notwithstanding the foregoing, failure by Landlord to give such
       accounting by such date shall not constitute a waiver by Landlord of its
       right to collect any of Tenant's underpayment at any time. Landlord shall
       credit the amount of any overpayment by Tenant toward the next estimated
       monthly installment(s) falling due, or where the Term of the Lease has
       expired, refund the amount of overpayment to Tenant. If the Term of the
       Lease expires prior to the annual reconciliation of expenses Landlord
       shall have the right to reasonably estimate Tenant's Share of such
       expenses, and if Landlord determines that an underpayment is due, Tenant
       hereby agrees that Landlord shall be entitled to deduct such underpayment
       from Tenant's Security Deposit. If Landlord reasonably determines that an
       overpayment has been made by Tenant, Landlord shall refund said
       overpayment to Tenant as soon as practicable thereafter. Notwithstanding
       the foregoing, failure of Landlord to accurately estimate Tenant's Share
       of such expenses or to otherwise perform such reconciliation of expenses,
       including without limitation, Landlord's failure to deduct any portion of
       any underpayment from Tenant's Security Deposit, shall not constitute a
       waiver of Landlord's right to collect any of Tenant's underpayment at any
       time during the Term of the Lease or at any time after the expiration or
       earlier termination of this Lease.

           6.5   Audit: After delivery to Landlord of at least thirty (30) days
       prior written notice, Tenant, at its sole cost and expense through any
       accountant designated by it, shall have the right to examine and/or audit
       the books and records evidencing such costs and expenses for the previous
       one (1) calendar year, during Landlord's reasonable business hours but
       not more frequently than once during any calendar year. The results of
       any such audit (and any negotiations between the parties related thereto)
       shall be maintained strictly confidential by Tenant and its accounting
       firm and shall not be disclosed, published or otherwise disseminated to
       any other party other than to Landlord and its authorized agents.
       Landlord and Tenant shall use their best efforts to cooperate in such
       negotiations and to promptly resolve any discrepancies between Landlord
       and Tenant in the accounting of such costs and expenses.

       7.  Utilities

           Utility Expenses, Common Area Utility Costs and all other sums or
       charges set forth in this Section 7 are considered part of Additional
       Rent. In addition to the Base Rent set forth in Section 3 hereof, Tenant
       shall pay the cost of all water, sewer use, sewer discharge fees and
       sewer connection fees, gas, heat, electricity, refuse pickup, janitorial
       service, telephone and other utilities billed or metered separately to
       the Premises and/or Tenant. Tenant shall also pay Tenant's Share of any
       assessments or charges for utility or similar purposes included within
       any tax bill for the Lot on which the Premises are situated, including,
       without limitation, entitlement fees, allocation unit fees, and/or any
       similar fees or charges, and any penalties related thereto. For any such
       utility fees or use charges that are not billed or metered separately to
       Tenant, including without limitation, water and refuse pick up charges,
       Tenant shall pay to Landlord, as Additional Rent, without prior notice or
       demand, on the Commencement Date and thereafter on the first (1st) day of
       each month throughout the balance of the Term of this Lease the amount
       which is attributable to Tenant's use of the utilities or similar
       services, as reasonably estimated and determined by Landlord based upon
       factors such as size of the Premises and intensity of use of such
       utilities by Tenant such that Tenant shall pay the portion of such
       charges reasonably consistent with Tenant's use of such utilities and
       similar services ("Utility Expenses"). If Tenant disputes any such
       estimate or determination, then Tenant shall either pay the estimated
       amount or cause the Premises to be separately metered at Tenant's sole
       expense. In addition, Tenant shall pay to Landlord Tenant's Share of any
       Common Area utility costs, fees, charges or expenses ("Common Area
       Utility Costs"). Tenant shall pay to Landlord one-twelfth (1/12th) of the
       estimated amount of Tenant's Share of the Common Area Utility Costs on
       the Commencement Date and thereafter on the first (1st) day of each month
       throughout the balance of the Term of this Lease and any reconciliation
       thereof shall be substantially in the same

                                       8

<PAGE>


       manner as specified in Section 6.4 above. The amount of Tenant's Share of
       Common Area Utility Costs shall be reviewed from time to time by Landlord
       and shall be subject to modification by Landlord if there is a change in
       the rentable square footage of the Premises, the Building and/or the
       Park. Tenant acknowledges that the Premises may become subject to the
       rationing of utility services or restrictions on utility use as required
       by a public utility company, governmental agency or other similar entity
       having jurisdiction thereof. Notwithstanding any such rationing or
       restrictions on use of any such utility services, Tenant acknowledges and
       agrees that its tenancy and occupancy hereunder shall be subject to such
       rationing restrictions as may be imposed upon Landlord, Tenant, the
       Premises, the Building or the Park, and Tenant shall in no event be
       excused or relieved from any covenant or obligation to be kept or
       performed by Tenant by reason of any such rationing or restrictions.
       Tenant further agrees to timely and faithfully pay, prior to delinquency,
       any amount, tax, charge, surcharge, assessment or imposition levied,
       assessed or imposed upon the Premises, or Tenant's use and occupancy
       thereof. Notwithstanding anything to the contrary contained herein, if
       permitted by applicable Laws, Landlord shall have the right at any time
       and from time to time during the Term of this Lease to either contract
       for service from a different company or companies (each such company
       shall be referred to herein as an "Alternate Service Provider") other
       than the company or companies presently providing electricity service for
       the Building or the Park (the "Electric Service Provider") or continue to
       contract for service from the Electric Service Provider, at Landlord's
       sole discretion. Tenant hereby agrees to cooperate with Landlord, the
       Electric Service Provider, and any Alternate Service Provider at all
       times and, as reasonably necessary, shall allow Landlord, the Electric
       Service Provider, and any Alternate Service Provider reasonable access to
       the Building's electric lines, feeders, risers, wiring, and any other
       machinery within the Premises.

       8.    Late Charges

             Any and all sums or charges set forth in this Section 8 are
       considered part of Additional Rent. Tenant acknowledges that late payment
       (the fifth day of each month or any time thereafter) by Tenant to
       Landlord of Base Rent, Tenant's Share of Operating Expenses, Tax
       Expenses, Common Area Utility Costs, and Utility Expenses or other sums
       due hereunder, will cause Landlord to incur costs not contemplated by
       this Lease, the exact amount of such costs being extremely difficult and
       impracticable to fix. Such costs include, without limitation, processing
       and accounting charges, and late charges that may be imposed on Landlord
       by the terms of any note secured by any encumbrance against the Premises,
       and late charges and penalties due to the late payment of real property
       taxes on the Premises . Therefore, if any installment of Rent or any
       other sum due from Tenant is not received by Landlord when due, Tenant
       shall promptly pay to Landlord all of the following, as applicable: (a)
       an additional sum equal to ten percent (10%) of such delinquent amount
       (except on the first occasion that a late fee is charged in which case
       the additional sum shall be equal to eight percent (8%) plus interest on
       such delinquent amount at the rate equal to the prime rate plus three
       percent (3%) for the time period such payments are delinquent as a late
       charge for every month or portion thereof that such sums remain unpaid,
       (b) the amount of seventy-five dollars ($75) for each three-day notice
       prepared for, or served on, Tenant, (c) the amount of fifty dollars
       ($50) relating to checks for which there are not sufficient funds.
       Notwithstanding the foregoing, no late charge shall be due if Tenant has
       not been delinquent beyond the grace period in its payment of rent owed
       under this Lease during the one (1) year period preceding the rent
       delinquency in question. If Tenant delivers to Landlord a check for which
       there are not sufficient funds, Landlord may, at its sole option, require
       Tenant to replace such check with a cashier's check for the amount of
       such check. The parties agree that this late charge and the other charges
       referenced above represent a fair and reasonable estimate of the costs
       that Landlord will incur by reason of late payment by Tenant. Acceptance
       of any late charge or other charges shall not constitute a waiver by
       Landlord of Tenant's default with respect to the delinquent amount, nor
       prevent Landlord from exercisng any of the other rights and remedies
       available to Landlord for any other breach of Tenant under this Lease. If
       a late charge or other charge becomes payable for any three (3)
       installments of Rent within any twelve (12) month period, then Landlord,
       at Landlord's sole option, can either require the Rent be paid quarterly
       in advance, or be paid monthly in advance by cashier's check or by
       electronic funds transfer.

       9.    Use of Premises

             9.1 Compliance with Laws, Recorded Matters, and Rules and
       Regulations: The Premises are to be used solely for the purposes and uses
       specified in the Basic Lease Information and for no other uses or
       purposes without Landlord's prior written consent, which consent shall
       not be unreasonably withheld or delayed so long as the proposed use (i)
       does not involve the use of Hazardous Materials other than as expressly
       permitted under the provisions of Section 29 below, (ii) does not require
       any additional parking in excess of the parking spaces already licensed
       to Tenant pursuant to the provisions of Section 24 of this Lease, and
       (iii) is compatible and consistent with the other uses then being made in
       the Park and in other similar types of buildings in the vicinity of the
       Park, as reasonably determined by Landlord. The use of the Premises by
       Tenant and its employees, representatives, agents, invitees, licensees,
       subtenants, customers or contractors (coliectiveiy, "Tenant's
       Representatives") shall subject to, and at all times in compliance with,
       (a) any and all applicable laws, ordinances, statutes, orders and
       regulations as same exist from time to time (collectively, the "Laws"),
       (b) any and all documents, matters or instruments, including without
       limitation, any declarations of covenants,

                                       9

<PAGE>

        conditions and restrictions, and any supplements thereto, each of which
        has been or hereafter is recorded in any official or public records with
        respect to the Premises, the Building, the Lot and/or the Park, or any
        portion thereof (collectively, the "Recorded Matters"), and (c) any and
        all rules and regulations set forth in Exhibit C, attached to and made a
                                               ---------
        part of this Lease, and any other reasonable rules and regulations
        promulgated by Landlord now or hereafter enacted relating to parking and
        the operation of the Premises, the Building and the Park (collectively,
        the "Rules and Regulations"). Tenant agrees to, and does hereby, assume
        full and complete responsibility to ensure that the Premises are
        adequate to fully meet the needs and requirements of Tenant's intended
        operations of its business within the Premises, and Tenant's use of the
        Premises and that same are in compliance with all applicable Laws
        throughout the Term of this Lease. Notwithstanding the foregoing, Tenant
        shall be solely responsible for the payment of all costs, fees and
        expenses associated with any modifications, improvements or alterations
        to the Premises, Building, the Common Areas and/or the Park occasioned
        by the enactment of, or changes to, any Laws arising from Tenant's
        particular use of the Premises or alterations, improvements or additions
        made to the Premises regardless of when such Laws became effective.

              9.2    Prohibition on Use: Tenant shall not use the Premises or
        permit anything to be done in or about the Premises nor keep or bring
        anything therein which will in any way conflict with any of the
        requirements of the Board of Fire Undewriters or similar body now or
        hereafter constituted or in any way increase the existing rate of or
        affect any policy of fire or other insurance upon the Building or any of
        its contents, or cause a cancellation of any insurance policy. No
        auctions may be held or otherwise conducted in, on or about the
        Premises, the Building, the Lot or the Park without Landlord's written
        consent thereto, which consent may be given or withheld in Landlord's
        sole discretion. Tenant shall not do or permit anything to be done in or
        about the Premises which will in any way obstruct or interfere with the
        rights of Landlord, other tenants or occupants of the Building, other
        buildings in the Park, or other persons or businesses in the area, or
        injure or annoy other tenants or use or allow the Premises to be used
        for any unlawful or objectionable purpose, as determined by Landlord, in
        its reasonable discretion, for the benefit, quiet enjoyment and use by
        Landlord and all other tenants or occupants of the Building or other
        buildings in the Park; nor shall Tenant cause, maintain or permit any
        private or public nuisance in, on or about the Premises, Building, Park
        and/or the Common Areas, including, but not limited to, any offensive
        odors, noises, fumes or vibrations. Tenant shall not damage or deface or
        otherwise commit any waste in, upon or about the Premises. Tenant shall
        not place or store, nor permit any other person or entity to place or
        store, any property, equipment, materials, supplies, personal property
        or any other items or goods outside of the Premises for any period of
        time. Tenant shall not permit any animals, including, but not limited
        to, any household pets, to be brought or kept in or about the Premises.
        Tenant shall place no loads upon the floors, walls, or ceilings in
        excess of the maximum designed load permitted by the applicable Uniform
        Building Code or which may damage the Building or outside areas; nor
        place any harmful liquids in the drainage systems; nor dump or store
        waste materials, refuse or other such materials, or allow such to remain
        outside the Building area, except for any non-hazardous or non-harmful
        materials which may be stored in refuse dumpsters or in any enclosed
        trash areas provided. Tenant shall honor the terms of all Recorded
        Matters relating to the Premises, the Building, the Lot and/or the
        Park. Tenant shall honor the Rules and Regulations. If Tenant fails to
        comply with such Laws, Recorded Matters, Rules and Regulations or the
        provisions of this Lease, Landlord shall have the right to collect from
        Tenant a reasonable sum as a penalty, in addition to all rights and
        remedies of Landlord hereunder including, but not limited to, the
        payment by Tenant to Landlord of all Enforcement Expenses and Landlord's
        costs and expenses, if any, to cure any of such failures of Tenant, if
        Landlord, at its sole option, elects to undertake such cure.

        10.   Alterations and Additions; and Surrender of Premises

              10.1   Alterations and Additions: Tenant shall not install any
        signs, fixtures, improvements, nor make or permit any other alterations
        or additions to the Premises without the prior written consent of
        Landlord which shall not be unreasonably withheld. If any such
        alteration or addition is expressly permitted by Landlord, Tenant shall
        deliver at least fifteen (15) days prior notice to Landlord, from the
        date Tenant intends to commence construction, sufficient to enable
        Landlord to post a Notice of Non-Responsibility. In all events, Tenant
        shall obtain all permits or other governmental approvals prior to
        commencing any of such work and deliver a copy of same to Landlord. All
        alterations and additions shall be installed by a licensed contractor
        approved by Landlord, at Tenant's sole expense in compliance with all
        applicable Laws (including, but not limited to, the ADA as defined
        herein), Recorded Matters, and Rules and Regulations. Tenant shall keep
        the Premises and the property on which the Premises are situated free
        from any liens arising out of any work performed, materials furnished or
        obligations incurred by or on behalf of Tenant. As a condition to
        Landlord's consent to the installation of any fixtures, additions or
        other improvements, Landlord may require Tenant to post and obtain a
        completion and indemnity bond for up to one hundred percent (100%) of
        the cost of the work. Tenant may request, upon submission of its written
        request to complete such alterations or additions, that Landlord inform
        Tenant at that time if Tenant will be required to remove such
        alterations or additions, upon Tenant's vacancy of the Premises,
        Landlord may, but shall have no obligation to, provide Landlord's
        determination, along with approval of the requested alterations or
        additions, as to whether such alterations or additions shall be required
        to be removed upon Tenant's vacancy.



                                       10

<PAGE>

          Notwithstanding anything to the contrary contained herein, Tenant may
     install, make and permit to be made improvements, alterations and additions
     to the Premises without first obtaining Landlord's written consent thereto,
     provided that such improvements, alterations or additions to the Premises
     (a) are not structural and do not affect the structural integrity of the
     Premises and/or the Building, and/or (b) do not require the issuance of a
     building permit by the City of San Jose, and/or (c) do not require
     penetrations to the roof of the Building, and provided further that the
     cumulative cost of all such improvements, alterations and additions does
     not exceed ten thousand and 00/100 dollars (l0,000.00) in the aggregate
     over each twelve month period of the Term ("Permitted Improvements"). In
     all events, Tenant shall be required to submit to Landlord, at least ten
     (10) business days prior to commencement of any improvements, written
     notification of Tenant's intention to complete improvements along with all
     plans, specifications, or construction drawings of such improvements or
     alterations, Tenant shall cause all Permitted Improvements to be installed
     by a licensed contractor and Tenant shall keep the Premises and the
     property on which the Premises are situated free from any liens arising out
     of any work performed, materials furnished or obligations incurred by or on
     behalf of Tenant. Upon Landlord's request, at Tenant's sole expense, all
     such Permitted Improvements installed by Tenant shall be removed and the
     Premises shall be restored to its original condition at the expiration or
     earlier termination of this Lease.

          10.2   Surrender of Premises: Upon the termination of this Lease,
     whether by forfeiture, lapse of time or otherwise, or upon the termination
     of Tenant's right to possession of the Premises, Tenant will at once
     surrender and deliver up the Premises, together with the fixtures (other
     than trade fixtures), additions and improvements which Landlord has
     notified Tenant, in writing, that Landlord will require Tenant not to
     remove, to Landlord in good condition and repair (including, but not
     limited to, replacing all light bulbs and ballasts not in good working
     condition) and in the condition in which the Premises existed as of the
     Commencement Date, except for reasonable wear and tear, and casualty and
     condemnation, subject to the provisions of Section 27 and Section 28.
     Reasonable wear and tear shall not include any damage or deterioration to
     the floors of the Premises arising from the use of forklifts in, on or
     about the Premises (including, without limitation, any marks or stains of
     any portion of the floors), and any damage or deterioration that would have
     been prevented by proper maintenance by Tenant or Tenant otherwise
     performing all of its obligations under this Lease. Upon such termination
     of this Lease, Tenant shall remove all tenant signage, trade fixtures,
     furniture, furnishings, personal property, and any additions, and
     improvements unless Landlord requests, in writing, that Tenant not remove
     some or all of such fixtures (other than trade fixtures), additions or
     improvements installed by, or on behalf of Tenant or situated in or about
     the Premises. By the date which is twenty (20) days prior to such
     termination of this Lease, Landlord shall notify Tenant in writing of those
     fixtures (other than trade fixtures), alterations, additions and other
     improvements which Landlord shall require Tenant not to remove from the
     Premises. Tenant shall repair any damage caused by the installation or
     removal of such signs, trade fixtures, furniture, furnishings, fixtures,
     additions and improvements which are to be removed from the Premises by
     Tenant hereunder. If Landlord fails to so notify Tenant at least twenty
     (20) days prior to such termination of this Lease, then Tenant shall remove
     all tenant signage, alterations, furniture, furnishings, trade fixtures,
     additions and other improvements (other than the Tenant Improvements)
     installed in or about the Premises by, or on behalf of Tenant. Tenant shall
     ensure that the removal of such items and the repair of the Premises will
     be completed prior to such termination of this Lease.

     11.  Repairs and Maintenance

          11.1   Tenant's Repairs and Maintenance Obligations: Except for those
     portions of the Building to be maintained by Landlord, as provided in
     Sections 11.2 and 11.3 below, Tenant shall, at Tenant's sole cost and
     expense, keep and maintain the Premises and the adjacent dock and staging
     areas in good, clean and safe condition and repair to the reasonable
     satisfaction of Landlord including, but not limited to, repairing any
     damage caused by Tenant or Tenant's Representatives and replacing any
     property so damaged by Tenant or Tenant's Representatives. Without limiting
     the generality of the foregoing, Tenant shall be solely responsible for
     maintaining, repairing and replacing (a) components of all mechanical
     systems, heating, ventilation and air conditioning systems exclusively
     serving the Premises, except in the event that the entire replacement of
     such systems is necessary, then such cost shall be subject to Section 6.1.4
     of the Lease, (b) all plumbing, electrical wiring and equipment serving the
     Premises, (c) all interior lighting (including, without limitation, light
     bulbs and/or ballasts) and exterior lighting serving the Premises or
     adjacent to the Premises, (d) all glass, windows, window frames, window
     casements, skylights, interior and exterior doors, door frames and door
     closers, (e) all roll-up doors, ramps and dock equipment, including without
     limitation, dock bumpers, dock plates, dock seals, dock levelers and dock
     lights, (f) all tenant signage, (g) lifts for disabled persons serving the
     Premises, (h) sprinkler systems, fire protection systems and security
     systems, (i) all partitions, fixtures, equipment. Interior painting, and
     interior walls and floors of the Premises and every part thereof
     (including, without limitation, any demising walls contiguous to any
     portion of the Premises).

          11.2   Reimbursable Repairs and Maintenance Obligations: Subject to
     the provisions of Sections 6 and 9 of this Lease and except for (i) the
     obligations of Tenant set forth in Section 11.1 above, (ii) the obligations
     of Landlord set forth in Section 11.3 below, and (iii) the repairs rendered
     necessary by

                                       11

<PAGE>


         the intentional or negligent acts or omissions of Tenant or any of
         Tenant's Representatives, Landlord agrees, at Landlord's expense,
         subject to reimbursement pursuant to Section 6 above, to keep in good
         repair the plumbing and mechanical systems exterior to the Premises,
         any rail spur and rail crossing, the roof, roof membranes, exterior
         walls of the Building, signage (exclusive of tenant signage), and
         exterior electrical wiring and equipment, exterior lighting, exterior
         glass, exterior doors/entrances and door closers, exterior window
         casements, exterior painting of the Building (exclusive of the
         Premises), and underground utility and sewer pipes outside the exterior
         walls of the Building. For purposes of this Section 11.2, the term
         "exterior" shall mean outside of and not exclusively serving the
         Premises. Unless otherwise notified by Landlord, in writing, that
         Landlord has elected to procure and maintain the following described
         contract(s), Tenant shall procure and maintain (a) the heating,
         ventilation and air conditioning systems preventative maintenance and
         repair contract(s); such contract(s) to be on a bimonthly or quarterly
         basis, as reasonably determined by Landlord, and (b) the fire and
         sprinkler protection services and preventative maintenance and repair
         contract(s) (including, without limitation, monitoring services); such
         contract(s) to be on a bi-monthly or quarterly basis, as reasonably
         determined by Landlord. Landlord reserves the right, but without the
         obligation to do so, to procure and maintain (i) the heating,
         ventilation and air conditioning systems preventative maintenance and
         repair contract(s), and/or (ii) the fire and sprinkler protection
         services and preventative maintenance and repair contract(s)
         (including, without limitation, monitoring services). If Landlord so
         elects to procure and maintain any such contract(s), Tenant will
         reimburse Landlord for the cost thereof in accordance with the
         provisions of Section 6 above. If Tenant procures and maintains any of
         such contract(s), Tenant will promptly deliver to Landlord a true and
         complete copy of each such contract and any and all renewals or
         extensions thereof, and each service report or other summary received
         by Tenant pursuant to or in connection with such contract(s).

               11.3   Landlord's Repairs and Maintenance Obligations: Except for
         repairs rendered necessary by the intentional or negligent acts or
         omissions of Tenant or any of Tenant's Representatives, Landlord
         agrees, at Landlord's sole cost and expense, to (a) keep in good repair
         the structural portions of the floors, foundations and exterior
         perimeter walls of the Building (exclusive of glass and exterior
         doors), and (b) replace the structural portions of the roof of the
         Building (excluding the roof membrane) as, and when, Landlord
         determines such replacement to be necessary in Landlord's reasonable
         discretion.

               11.4   Tenant's Failure to Perform Repairs and Maintenance
         Obligations: Except for normal maintenance and repair of the items
         described above, Tenant shall have no right of access to or right to
         install any device on the roof of the Building nor make any
         penetrations of the roof of the Building without the express prior
         written consent of Landlord. If Tenant refuses or neglects to repair
         and maintain the Premises and the adjacent areas properly as required
         herein and to the reasonable satisfaction of Landlord within applicable
         cure periods, Landlord may, but without obligation to do so, at any
         time make such repairs and/or maintenance without Landlord having any
         liability to Tenant for any loss or damage that may accrue to Tenant's
         merchandise, fixtures or other property, or to Tenant's business by
         reason thereof, except to the extent any damage is caused by the
         willful misconduct or gross negligence of Landlord or its authorized
         agents and representatives. In the event Landlord makes such repairs
         and/or maintenance, upon completion thereof Tenant shall pay to
         Landlord, as additional rent, the Landlord's costs for making such
         repairs and/or maintenance, plus twenty percent (20%) for overhead,
         upon presentation of a bill therefor, plus any Enforcement Expenses.
         The obligations of Tenant hereunder shall survive the expiration of the
         Term of this Lease or the earlier termination thereof. Tenant hereby
         waives any right to repair at the expense of Landlord under any
         applicable Laws now or hereafter in effect respecting the Premises.

         12.   Insurance

               12.1   Types of Insurance: Tenant shall maintain in full force
         and effect at all times during the Term of this Lease, at Tenant's sole
         cost and expense, for the protection of Tenant and Landlord, as their
         interests may appear, policies of insurance issued by a carrier or
         carriers reasonably acceptable to Landlord and its lender(s) which
         afford the following coverages: (i) worker's compensation: statutory
         limits; (ii) employer's liability, as required by law, with a minimum
         limit of $100,000 per employee and $500,000 per occurrence; (iii)
         commercial general liability insurance (occurrence form) providing
         coverage against any and all claims for bodily injury and property
         damage occurring in, on or about the Premises arising out of Tenant's
         and Tenant's Representatives' use and/or occupancy of the Premises.
         Such Insurance shall include coverage for blanket contractual
         liability, fire damage, premises, personal injury, completed
         operations, products liability, personal and advertising, and a
         plate-glass rider to provide coverage for all glass in, on or about the
         Premises including, without limitation, skylights. Such insurance shall
         have a combined single limit of not less than One Million Dollars
         ($1,000,000) per occurrence with a Two Million Dollar ($2,000,000)
         aggregate limit and excess/umbrella insurance in the amount of Two
         Million Dollars ($2,000,000). If Tenant has other locations which it
         owns or leases, the policy shall include an aggregate limit per
         location endorsement. If necessary, as reasonably determined by
         Landlord, Tenant shall provide for restoration of the aggregate limit;
         (iv) comprehensive automobile liability insurance: a combined single
         limit of not less than $2,000,000 per occurrence and insuring Tenant
         against liability for claims arising out of the ownership, maintenance,
         or use of any owned, hired

                                       12

<PAGE>

or non-owned automobiles; (v) "all risk" or "special purpose" property
insurance, including without limitation, sprinkler leakage, boiler and machinery
comprehensive form, if applicable, covering damage to or loss of any personal
property, trade fixtures, inventory, fixtures and equipment located in, on or
about the Premises, and in addition, coverage for flood, earthquake, if flood
and earthquake was available at commercially reasonable rates, and business
interruption of Tenant, together with, if the property of Tenant's invitees is
to be kept in the Premises, warehouser's legal liability or bailee customers
insurance for the full replacement cost of the property belonging to invitees
and located in the Premises. Such insurance shall be written on a replacement
cost basis (without deduction for depreciation) in an amount equal to one
hundred percent (100%) of the full replacement value of the aggregate of the
items referred to in this subparagraph (v); and (vi) such other insurance as may
otherwise be reasonably required by any of Landlord's lenders or joint venture
partners.

     12.2   Insurance Policies: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State of
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of at least A:X (or such higher rating as may be
required by a lender having a lien on the Premises) as set forth in the most
current issue of "A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed Ten Thousand
Dollars ($l0,000) unless specifically agreed to by Landlord on a case by case
basis. Tenant shall deliver to Landlord certificates of insurance and true and
complete copies of any and all endorsements required herein for all insurance
required to be maintained by Tenant hereunder at the time of execution of this
Lease by Tenant. Tenant shall, at least thirty (30) days prior to expiration of
each policy, furnish Landlord with certificates of renewal or "binders" thereof.
Each certificate shall expressly provide that such policies shall not be
cancelable or otherwise subject to reduction except after thirty (30) days prior
written notice to the parties named as additional insureds as required in this
Lease (except for cancellation for nonpayment of premium, in which event
cancellation shall not take effect until at least ten (10) days' notice has been
given to Landlord). Tenant shall have the right to provide insurance coverage
which it is obligated to carry pursuant to the terms of this Lease under a
blanket insurance policy, provided such blanket policy expressly affords
coverage for the Premises and for Landlord as required by this Lease.

     12.3   Additional Insureds and Coverage: Landlord, any property management
company and/or agent of Landlord for the Premises, the Building, the Lot or the
Park, and any lender(s) of Landlord having a lien against the Premises, the
Building, the Lot or the Park shall be named as additional insureds under all of
the policies required in Section 12.l(iii) above. Additionally, such policies
shall provide for severability of interest, All insurance to be maintained by
Tenant shall, except for workers' compensation and employer's liability
insurance, be primary subject to any waiver of subrogation, without right of
contribution from insurance maintained by Landlord. Any umbrella/excess
liability policy (which shall be in "following form") shall provide that if the
underlying aggregate is exhausted, the excess coverage will drop down as primary
insurance. The limits of insurance maintained by Tenant shall not limit Tenant's
liability under this Lease. It is the parties' intention that the insurance to
be procured and maintained by Tenant as required herein shall provide coverage
for any and all damage or injury arising from or related to Tenant's operations
of its business and/or Tenant's or Tenant's Representatives' use of the Premises
and/or any of the areas within the Park, whether such events occur within the
Premises (as described in Exhibit A hereto) or in any other areas of the Park.
                          ---------
It is not contemplated or anticipated by the parties that the
aforementioned risks of loss be borne by Landlord's insurance carriers, rather
it is contemplated and anticipated by Landlord and Tenant that such risks of
loss be borne by Tenant's insurance carriers pursuant to the insurance policies
procured and maintained by Tenant as required herein.

     12.4   Failure of Tenant to Purchase and Maintain Insurance: In the event
Tenant does not purchase the insurance required in this Lease or keep the same
in full force and effect throughout the Term of this Lease (including any
renewals or extensions), Landlord may, but without obligation to do so, purchase
the necessary insurance and pay the premiums therefor. If Landlord so elects to
purchase such insurance, Tenant shall promptly pay to Landlord as Additional
Rent, the amount so paid by Landlord, upon Landlord's demand therefor. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
Additional Rent, any and all Enforcement Expenses and damages which Landlord may
sustain by reason of Tenant's failure to obtain and maintain such insurance. If
Tenant fails to maintain any insurance required in this Lease, Tenant shall be
liable for all losses, damages and costs resulting from such failure.

     12.5   Landlord's Insurance: Landlord shall maintain in full force and
effect during the Term of this Lease, subject to reimbursement as provided in
Section 6, policies of insurance which afford such coverages as are commercially
reasonable and as is consistent with other properties in Landlord's portfolio.
Landlord shall also procure such additional insurance coverage as Tenant shall
reasonably request Landlord to obtain; provided, however, notwithstanding
anything to the contrary contained herein, Tenant shall pay, and shall be solely
responsible for, any and all costs, premiums and expenses of any such additional
insurance, as Additional Rent, and Tenant shall pay same to Landlord within ten
(10) days of Landlord's demand therefor. Landlord shall obtain and keep in force
during the Term of this


                                       13




<PAGE>


Lease, as an item of Operating Expenses, a policy or policies in the name of
Landlord, with loss payable to Landlord and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or
damage to the Building, including all improvements, fixtures (other than trade
fixtures) and permanent additions. However, all alterations, additions and
improvements made to the Premises by Tenant (other than the Tenant Improvements)
shall be insured by Tenant rather than by Landlord. The amount of such insurance
procured by Landlord shall be equal to one hundred percent (100%) of the full
replacement cost of the Building (excluding the cost of excavation and
installation of footings), including all improvements and permanent additions as
the same shall exist from time to time, or the amount required by Lenders. At
Landlord's option, such policy or policies shall insure against all risks of
direct physical loss or damage (including, without limitation, the perils of
earthquake), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections
of the Building required to be demolished or removed by reason of the
enforcement of any building, zoning, safety or land use laws as the result of a
covered cause of loss. If any such insurance coverage procured by Landlord has a
deductible clause, the deductible shall not exceed commercially reasonable
amounts, and in the event of any casualty, the amount of such deductible shall
be an item of Operating Expenses as so limited. Notwithstanding anything to the
contrary contained herein, to the extent the cost of maintaining insurance with
respect to the Building and/or any other buildings within the Park is increased
as a result of Tenant's acts, omissions, alterations, improvements (including
without limitation, the Tenant Improvements), use or occupancy of the Premises,
Tenant shall pay one hundred percent (100%) of, and for, such increase(s) as
Additional Rent.

13. Waiver of Subrogation

    Notwithstanding anything to the contrary in this Lease, Landlord and Tenant
hereby mutually waive their respective rights of recovery against each other for
any loss of, or damage to, either parties' property to the extent that such loss
or damage is insured by an insurance policy required to be in effect at the time
of such loss or damage or would have been insured had the waiving party carried
the type of insurance required to be carried by such party under this Lease.
Each party shall obtain any special endorsements, if required by its insurer
whereby the insurer waives its rights of subrogation against the other party.
This provision is intended to waive fully, and for the benefit of the parties
hereto, any rights and/or claims which might give rise to a right of subrogation
in favor of any insurance carrier. The coverage obtained by Tenant pursuant to
Section 12 of this Lease shall include, without limitation, a waiver of
subrogation endorsement attached to the certificate of insurance. The provisions
of this Section 13 shall not apply in those instances in which such waiver of
subrogation would invalidate such insurance coverage or would cause either
party's insurance coverage to be voided or otherwise uncollectible.
Notwithstanding anything to the contrary in this Lease, all of Landlord's and
Tenant's repair and indemnity obligations under this Lease shall be subject to
the waiver contained in this paragraph.

14. Limitation of Liability and Indemnity

    Except to the extent of damage resulting from the gross negligence or
willful misconduct of Landlord or its authorized representatives or Landlord's
material default of this Lease beyond any applicable cure periods, Tenant agrees
to protect, defend (with counsel acceptable to Landlord) and hold Landlord and
Landlord's lenders, partners, members, property management company (if other
than Landlord), agents, directors, officers, employees, representatives,
contractors, shareholders, successors and assigns and each of their respective
partners, members, directors, employees, representatives, agents, contractors,
shareholders, successors and assigns (collectively, the "Indemnitees") harmless
and indemnify the Indemnitees from and against all liabilities, damages, claims,
losses, judgments, charges and expenses (including reasonable attorneys' fees,
costs of court and expenses necessary in the prosecution or defense of any
litigation including the enforcement of this provision) arising from or in any
way related to, directly or indirectly, (i) Tenant's or Tenant's
Representatives' use of the Premises, Building and/or the Park, (ii) the conduct
of Tenant's business, (iii) from any activity, work or thing done, permitted or
suffered by Tenant in or about the Premises, (iv) in any way connected with the
Premises or with the improvements or personal property therein, including, but
not limited to, any liability for injury to person or property of Tenant,
Tenant's Representatives, or third party persons, and/or (v) Tenant's failure to
perform any covenant or obligation of Tenant under this Lease. Tenant agrees
that the obligations of Tenant herein shall survive the expiration or earlier
termination of this Lease.

    Except to the extent of damage resulting from the gross negligence or
willful misconduct of Landlord or its authorized representatives or Landlord's
default of this Lease and failure to cure such default beyond any applicable
cure period, to the fullest extent permitted by law, Tenant agrees that neither
Landlord nor any of Landlord's lender(s), partners, members, employees,
representatives, legal representatives, successors or assigns shall at any time
or to any extent whatsoever be liable, responsible or in any way accountable for
any loss, liability, injury, death or damage to persons or property which at any
time may be suffered or sustained by Tenant or by any person(s) whomsoever who
may at any time be using, occupying or visiting the Premises, the Building or
the Park, including, but not limited to, any

                                       14

<PAGE>

acts, errors or omissions by or on behalf of any other tenants or occupants of
the Building and/or the Park. Tenant shall not, in any event or circumstance, be
permitted to offset or otherwise credit against any payments of Rent required
herein for matters for which Landlord may be liable hereunder. Landlord and its
authorized representatives shall not be liable for any interference with light
or air, or for any latent defect in the Premises or the Building, subject to the
repair requirements in Section 2.1.

15. Assignment and Subleasing

   15.1 Prohibition: Except as expressly set forth herein with respect to a
Related Entity, Tenant shall not assign, mortgage, hypothecate, encumber, grant
any license or concession, pledge or otherwise transfer this Lease
(collectively, "assignment"), in whole or in part, whether voluntarily or
involuntarily or by operation of law, nor sublet or permit occupancy by any
person other than Tenant of all or any portion of the Premises without first
obtaining the prior written consent of Landlord, which consent shall not be
unreasonably withheld. Tenant hereby agrees that Landlord may withhold its
consent to any proposed sublease or assignment if the proposed sublessee or
assignee or its business is subject to compliance with additional requirements
of the ADA (defined below) and/or Environmental Laws (defined below) beyond
those requirements which are applicable to Tenant, unless the proposed sublessee
or assignee shall (a) first deliver plans and specifications for complying with
such additional requirements and obtain Landlord's written consent thereto, and
(b) comply with all Landlord's conditions for or contained in such consent,
including without limitation, requirements for security to assure the lien-free
completion of such improvements. If Tenant seeks to sublet or assign all or any
portion of the Premises, Tenant shall deliver to Landlord at least fifteen (15)
days prior to the proposed commencement of the sublease or assignment (the
"Proposed Effective Date") the following: (i) the name of the proposed assignee
or sublessee; (ii) such information as to such assignee's or sublessee's
financial responsibility and standing as Landlord may reasonably require; and
(iii) the aforementioned plans and specifications, if any. Within ten (10) days
after Landlord's receipt of a written request from Tenant that Tenant seeks to
sublet or assign all or any portion of the Premises, Landlord shall deliver to
Tenant a copy of Landlord's standard form of sublease or assignment agreement
(as applicable), which instrument shall be utilized for each proposed sublease
or assignmentt (as applicable), and such instrument shall include a provision
whereby the assignee or sublessee assumes all of Tenant's obligations hereunder
and agrees to be bound by the terms hereof. As Additional Rent hereunder, Tenant
shall pay to Landlord a fee in the amount of five hundred dollars ($500) plus
Tenant shall reimburse Landlord for actual reasonable legal and other expenses
incurred by Landlord in connection with any actual or proposed assignment or
subletting. In the event the sublease or assignment (1) by itself or taken
together with prior sublease(s) or partial assignment(s) covers or totals, as
the case may be, more than twenty-five percent (25%) of the rentable square feet
of the Premises or (2) is for a term which by itself or taken together with
prior or other subleases or partial assignments is greater than seventy-five
percent (75%) of the period remaining in the Term of this Lease as of the time
of the Proposed Effective Date, then Landlord shall have the right, to be
exercised by giving written notice to Tenant, to recapture the space described
in the sublease or assignment. If such recapture notice is given, it shall serve
to terminate this Lease with respect to the proposed sublease or assignment
space, or, if the proposed sublease or assignment space covers all the Premises,
it shall serve to terminate the entire term of this Lease in either case, as of
the Proposed Effective Date. Notwithstanding the foregoing Landlord's recapture
rights shall not apply to a Related Entity. However, no termination of this
Lease with respect to part or all of the Premises shall become effective without
the prior written consent, where necessary, of the holder of each deed of trust
encumbering the Premises or any part thereof. Within fifteen (15) days of
Landlord's receipt or Tenant's written request to sublease or assign the Lease
or upon Landlord's notice to recapture to Tenant, Landlord will contact the
holder of each deed of trust encumbering the Premises and attempt to obtain the
required approval of such transaction. If this Lease is terminated pursuant to
the foregoing with respect to less than the entire Premises, the Rent shall be
adjusted on the basis of the proportion of square feet retained by Tenant to the
square feet originally demised and this Lease as so amended shall continue
thereafter in full force and effect. Each permitted assignee or sublessee,
including without limitation, a Related Entity, shall assume and be deemed to
assume this Lease and shall be and remain liable jointly and severally with
Tenant for payment of Rent and for the due performance of, and compliance with
all the terms, covenants, conditions and agreements herein contained on Tenant's
part to be performed or complied with, for the term of this Lease. No assignment
or subletting shall affect the continuing primary liability of Tenant (which,
following assignment, shall be joint and several with the assignee), and Tenant
shall not be released from performing any of the terms, covenants and conditions
of this Lease. Tenant hereby acknowledges and agrees that it understands that
Landlord's accounting department may process and accept Rent payments without
verifying that such payments are being made by Tenant, a permitted sublessee or
a permitted assignee in accordance with the provisions of this Lease. Although
such payments may be processed and accepted bY such accounting department
personnel, any and all actions or omissions by the personnel of Landlord's
accounting department shall not be considered as acceptance by Landlord of any
proposed assignee or sublessee nor shall such actions or omissions be deemed to
be a substitute for the requirement that Tenant obtain Landlord's prior written
consent to any such subletting or assignment, and


                                       15

<PAGE>

any such actions or omissions by the personnel of Landlord's accounting
department shall not be considered as a voluntary relinquishment by Landlord of
any of its rights hereunder nor shall any voluntary relinquishment of such
rights be inferred therefrom. For purposes hereof, and except with respect to a
Related Entity, in the event Tenant is a corporation, partnership, joint
venture, trust or other entity other than a natural person, any change in the
direct or indirect ownership of Tenant which results in a transfer of the
controlling interest of Tenant (51% or more of stock) by one party prior to a
public offering shall be deemed to be an assignment within the meaning of this
Section 15 and shall be subject to all the provisions hereof provided however
that the sale or other transfer of stock by Tenant shall not constitute a
"change in ownership" requiring the prior written consent of Landlord if the
sale or other transfer is traded through an exchange or over the counter. Except
for a permissible assignment to a Related entity, any and all options, first
rights of refusal, tenant improvement allowances and other similar rights
granted to Tenant in this Lease, if any, shall not be assignable by Tenant
unless expressly authorized in writing by Landlord. Notwithstanding anything to
the contrary contained herein, so long as Tenant delivers to Landlord (1) at
least fifteen (15) business days after written notice of its intention to assign
or sublease the Premises to any Related Entity, which notice shall set forth the
name of the Related Entity, (2) a copy of the proposed agreement pursuant to
which such assignment or sublease shall be effectuated, and (3) such other
information concerning the Related Entity as Landlord may reasonably require,
including without limitation, information regarding any change in the proposed
use of any portion of the Premises and any financial information with respect to
such Related Entity, and so long as Landlord approves, in writing of any change
in the proposed use of the subject portion of the Premises, then Tenant may
assign this Lease or sublease any portion of the Premises to any Related Entity
without having to obtain the prior written consent of Landlord thereto. For
purposes of this Lease the term "Related Entity" shall mean and refer to (a) any
corporation or entity which controls, is controlled by or is under common
control with Tenant, as all of such terms are customarily used in the industry,
(b) an entity related to Tenant by merger, consolidation non bankruptcy,
reorganization, or government action, or (c) a purchaser of substantially all of
Tenant's assets, all with an equal or greater net worth as Tenant has as of the
proposed transfer date.

   15.2   Excess Sublease Rental or Assignment Consideration: In the event of
any sublease or assignment of all or any portion of the Premises, except for
Related Entity transfers or stock transfers, where the rent or other
consideration provided for in the sublease or assignment either initially or
over the term of the sublease or assignment exceeds the Rent or pro rata portion
of the Rent, as the case may be, for such space reserved in the Lease, Tenant
shall pay the Landlord monthly, as Additional Rent, at the same time as the
monthly installments of Rent are payable hereunder, seventy-five percent (75%)
of the excess of each such payment of rent or other consideration in excess of
the Rent called for hereunder net of Tenant's reasonable costs to effectuate
such assignment or sublease, limited to actual commissions paid, reasonable
attorney's fees and standard tenant improvements installed by Tenant
specifically for such transfer.

     15.3 Waiver: Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee, or failure by Landlord to take action against any assignee or
sublessee, Tenant agrees that Landlord may, at its option, proceed against
Tenant without having taken action against or joined such assignee or sublessee,
except that Tenant shall have the benefit of any indulgences, waivers and
extensions of time granted to any such assignee or sublessee.

16.  Ad Valorem Taxes

     Prior to delinquency, Tenant shall pay all taxes and assessments levied
upon trade fixtures, alterations, additions, improvements, inventories and
persona1 property located and/or installed on or in the Premises by, or on
behalf of, Tenant (other than the Tenant Improvements which Tenant shall pay
Tenant's Share of pursuant to Section 6.2 above) and if requested by Landlord,
Tenant shall promptly deliver to Landlord copies of receipts for payment of all
such taxes and assessments. To the extent any such taxes are not separately
assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced by
Landlord.

17.  Subordination

Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, and at the election of Landlord or any
bona fide mortgagee or deed of trust beneficiary with a lien on all or any
portion of the Premises or any ground lessor with respect to the land of which
the Premises are a part, the rights of Tenant under this Lease and this Lease
shall be subject and subordinate at all times to: (i) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Building or the land upon which the Building is situated or both, and (ii) the
lien of any mortgage or deed of trust which may now exist or hereafter be
executed in any amount for which the Building, the Lot, ground leases or
underlying leases, or Landlord's interest or estate in any of said items is
specified as security. Notwithstanding the foregoing, Landlord or any such
ground lessor, mortgagee, or any beneficiary shall have the right to subordinate
or cause to be subordinated any such ground leases or underlying leases or any
such liens to this Lease. If any ground lease or underlying

                                       16

<PAGE>

lease terminates for any reason or any mortgage or deed of trust is foreclosed
or a conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination and upon the request of such successor to
Landlord, attorn to and become the Tenant of the successor in interest to
Landlord, provided such successor in interest will not disturb Tenant's use,
occupancy or quiet enjoyment of the Premises so long as Tenant is not in default
of the terms and provisions of this Lease. The successor in interest to Landlord
following foreclosure, sale or deed in lieu thereof shall not be (a) liable for
any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (b) subject to any offsets which Tenant might
have against any prior lessor; (c) bound by prepayment of more than one (1)
month's Rent, except in those instances when Tenant pays Rent quarterly in
advance pursuant to Section 8 hereof, then not more than three months' Rent; or
(d) liable to Tenant for any Security Deposit not actually received by such
successor in interest to the extent any portion or all of such Security Deposit
has not already been forfeited by, or refunded to, Tenant. Landlord shall be
liable to Tenant for all or any portion of the Security Deposit not forfeited
by, or refunded to Tenant, until and unless Landlord transfers such Security
Deposit to the successor in interest. Tenant covenants and agrees to execute
(and acknowledge if required by Landlord, any lender or ground lessor) and
deliver, within ten (10) days of a demand or request by Landlord and in the
form reasonably requested by Landlord, ground lessor, mortgagee or beneficiary,
any additional documents evidencing the priority or subordination of this Lease
with respect to any such ground leases or underlying leases or the lien of any
such mortgage or deed of trust. Tenant's failure to timely execute and deliver
such additional documents shall, at Landlord's option, constitute a material
default hereunder. It is further agreed that Tenant shall be liable to Landlord,
and shall indemnify Landlord from and against any loss, cost, damage or expense,
incidental, consequential, or otherwise, arising or accruing directly or
indirectly, from any failure of Tenant to execute or deliver to Landlord any
such additional documents, together with any and all Enforcement Expenses.
Notwithstanding any of the foregoing, prior to the Commencement Date, Landlord
shall use reasonable efforts to cause the lender under any existing mortgages or
deeds of trust encumbering the Building promptly to execute a nondisturbance and
attornment agreement in a form mutually and reasonably acceptable to the
beneficiary, Landlord and Tenant similar to the form attached in Exhibit I to
this Lease. The subordination of this Lease to future loans is conditioned upon
the execution by any such future lender to a nondisturbance agreement reasonably
satisfactory to the beneficiary, Landlord and Tenant.

18. Right of Entry

Tenant grants Landlord or its agents the right to enter the Premises at all
reasonable times upon 24 hours notice (except in cases of emergency) for
purposes of inspection, exhibition, posting of notices, repair or alteration.
Any such entry by Landlord and Landlord's agents shall comply with all
reasonable security measures of Tenant and shall not impair Tenant's operations
more than reasonably necessary. At Landlord's option, Landlord shall at all
times have and retain a key with which to unlock all the doors in, upon and
about the Premises, excluding Tenant's vaults and safes. It is further agreed
that Landlord shall have the right to use any and all means Landlord deems
necessary to enter the Premises in an emergency. Landlord shall have the right
to place "for rent" or "for lease" signs on the outside of the Premises, the
Building and in the Common Areas. Landlord shall also have the right to place
"for sale" signs on the outside of the Building and in the Common Areas. Tenant
hereby waives any claim from damages or for any injury or inconvenience to or
interference with Tenant's business, or any other loss occasioned thereby except
for any claim for any of the foregoing to the extent arising out of the gross
negligence or willful misconduct of Landlord or its authorized representatives.

19. Estoppel Certificate

Tenant shall execute (and acknowledge if required by any lender or ground
lessor) and deliver to Landlord, within ten (10) days after Landlord provides
such to Tenant, a statement in writing certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification), the date to which the Rent and other charges are paid in advance,
if any, acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder or specifying such defaults as are
claimed, and such other matters as Landlord may reasonably require. Any such
statement may be conclusively relied upon by Landlord and any prospective
purchaser or encumbrancer of the Premises. Tenant's failure to deliver such
statement within such time shall be conclusive upon the Tenant that (a) this
Lease is in full force and effect, without modification except as may be
represented by Landlord; (b) there are no uncured defaults in Landlord's
performance; and (c) not more than one month's Rent has been paid in advance,
except in those instances when Tenant pays Rent quarterly in advance pursuant to
Section 8 hereof, then not more than three month's Rent has been paid in
advance. Failure by Tenant to so deliver such certified estoppel certificate
shall be a material default of the provisions of this Lease. Tenant shall be
liable to Landlord, and shall indemnify Landlord from and against any loss,
cost, damage or expense, incidental, consequential, or otherwise, arising or
accruing directly or indirectly, from any failure of Tenant to execute or
deliver to Landlord any such certified estoppel certificate, together with any
and all Enforcement Expenses.


                                       17

<PAGE>

20.  Tenant's Default

     The occurrence of any one or more of the following events shall, at
Landlord's option, constitute a material default by Tenant of the provisions of
this Lease:

     20.1   The abandonment of the Premises by Tenant or the vacation of the
Premises by Tenant which would cause any insurance policy to be invalidated or
otherwise lapse. Tenant agrees to notice and service of notice as provided for
in this Lease and waives any right to any other or further notice or service of
notice which Tenant may have under any statute or law now or hereafter in
effect;

     20.2   The failure by Tenant to make any payment of Rent, Additional Rent
or any other payment required hereunder within five (5) days of written notice
of a delinquency. Tenant agrees that such written notice by Landlord shall serve
as the statutorily required notice under the Law (including without limitation,
any unlawful detainer statutes), and Tenant further agrees to notice and service
of notice as provided for in this Lease and waives any right to any other or
further notice or service of notice which Tenant may have under any statute or
law now or hereafter in effect on the date said payment is due.;

     20.3   The failure by Tenant to observe, perform or comply with any of the
conditions, covenants or provisions of this Lease (except failure to make any
payment of Rent and/or Additional Rent) and such failure is not cured within (i)
thirty (30) days of the date on which Landlord delivers written notice of such
failure to Tenant for all failures other than with respect to Hazardous
Materials (defined in Section 29 hereof), and (ii) ten (10) days of the date on
which Landlord delivers written notice of such failure to Tenant for all
failures in any way related to Hazardous Materials. However, Tenant shall not be
in default of its obligations hereunder if such failure cannot reasonably be
cured within such thirty (30) or ten (10) day period, as applicable, and Tenant
promptly commences, and thereafter diligently proceeds with same to completion,
all actions necessary to cure such failure as soon as is reasonably possible,
but in no event shall the completion of such cure be later than sixty (60) days
after the date on which Landlord delivers to Tenant written notice of such
failure, unless Landlord, acting reasonably and in good faith, otherwise
expressly agrees in writing to a longer period of time based upon the
circumstances relating to such failure as well as the nature of the failure and
the nature of the actions necessary to cure such failure thirty (30) days after
written notice of such failure, or such longer time as may reasonably be
required to cure the default;

     20.4   The making of a general assignment by Tenant for the benefit of
creditors, the filing of a voluntary petition by Tenant or the filing of an
involuntary petition by any of Tenant's creditors seeking the rehabilitation,
liquidation, or reorganization of Tenant under any law relating to bankruptcy,
insolvency or other relief of debtors and, in the case of an involuntary action,
the failure to remove or discharge the same within sixty (60) days of such
filing, the appointment of a receiver or other custodian to take possession of
substantially all of Tenant's assets or this leasehold, Tenant's insolvency or
inability to pay Tenant's debts or failure generally to pay Tenant's debts when
due, any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenant's assets, Tenant taking
any action toward the dissolution or winding up of Tenant's affairs, the
cessation or suspension of Tenant's use of the Premises, or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets or
this leasehold;

     20.5   Tenant's use or storage of Hazardous Materials in, on or about the
Premises, the Building, the Lot and/or the Park other than as expressly
permitted by the provisions of Section 29 below; or

     20.6   The making of any intentional material misrepresentation or omission
by Tenant in any materials delivered by or on behalf of Tenant to Landlord
pursuant to this Lease.

21.  Remedies for Tenant's Default

     21.1   Landlord's Rights: In the event of Tenant's material default under
this Lease, Landlord may terminate Tenant's right to possession of the Premises
by any lawful means in which case upon delivery of written notice by Landlord
this Lease shall terminate on the date specified by Landlord in such notice and
Tenant shall immediately surrender possession of the Premises to Landlord. In
addition, the Landlord shall have the immediate right of re-entry whether or not
this Lease is terminated, and if this right of re-entry is exercised following
abandonment of the Premises by Tenant, Landlord may consider any personal
property belonging to Tenant and left on the Premises to also have been
abandoned. No re-entry or taking possession of the Premises by Landlord pursuant
to this Section 21 shall be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant. If Landlord relets
the Premises or any portion thereof, (i) Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in reletting the Premises or any part
thereof, including, without limitation, broker's commissions, expenses of
cleaning, redecorating, and further improving the Premises and other similar
costs (collectively, the "Reletting Costs"), and (ii) the rent received by
Landlord from

                                       18

<PAGE>

such reletting shall be applied to the payment of, first, any indebtedness from
Tenant to Landlord other than Base Rent, Operating Expenses, Tax Expenses,
Common Area Utility Costs, and Utility Expenses; second, all costs including
maintenance, incurred by Landlord in reletting; and, third, Base Rent, Operating
Expenses, Tax Expenses, Common Area Utility Costs, Utility Expenses, and all
other sums due under this Lease. Any and all of the Reletting Costs shall be
fully chargeable to Tenant and shall not be prorated or otherwise amortized in
relation to any new lease for the Premises or any portion thereof. After
deducting the payments referred to above, any sum remaining from the rental
Landlord receives from reletting shall be held by Landlord and applied in
payment of future Rent as Rent becomes due under this Lease. In no event shall
Tenant be entitled to any excess rent received by Landlord. Reletting may be for
a period shorter or longer than the remaining term of this Lease. No act by
Landlord other than giving written notice to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. So
long as this Lease is not terminated, Landlord shall have the right to remedy
any default of Tenant, to maintain or improve the Premises, to cause a receiver
to be appointed to administer the Premises and new or existing subleases and to
add to the Rent payable hereunder all of Landlord's reasonable costs in so
doing, with interest at the maximum rate permitted by law from the date of such
expenditure.

     21.2   Damages Recoverable: If Tenant's right to possession is terminated
by Landlord because of a breach or default under this Lease, then Landlord may
recover from Tenant all damages suffered by Landlord as a result of Tenant's
failure to perform its obligations hereunder, including, but not limited to, the
cost of any Tenant Improvements constructed by or on behalf of Tenant pursuant
to Exhibit B hereto to the extent allocated to the remainder of the Lease term,
   ---------
the portion of any broker's or leasing agent's commission incurred with respect
to the leasing of the Premises to Tenant for the balance of the Term of the
Lease remaining after the date on which Tenant is in default of its obligations
hereunder, and all Reletting Costs, and the worth at the time of the award
(computed in accordance with paragraph (3) of SubdivisIon (a) of Section 1951.2
of the California Civil Code) of the amount by which the Rent then unpaid
hereunder for the balance of the Lease Term exceeds the amount of such loss of
Rent for the same period which Tenant proves could be reasonably avoided by
Landlord and in such case, Landlord prior to the award, may relet the Premises
for the purpose of mitigating damages suffered by Landlord because of Tenant's
failure to perform its obligations hereunder; provided, however, that even
though Tenant has abandoned the Premises following such breach, this Lease shall
nevertheless continue in full force and effect for as long as Landlord does not
terminate Tenant's right of possession, and until such termination, Landlord
shall have the remedy described in Section 1951.4 of the California Civil Code
(Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover Rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations) and may enforce all
its rights and remedies under this Lease, including the right to recover the
Rent from Tenant as it becomes due hereunder. The "worth at the time of the
award" within the meaning of Subparagraphs (a)(l) and (a)(2) of Section 1951.2
of the California Civil Code shall be computed by allowing interest at the rate
of ten percent (10%) per annum. Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure SectIons 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises by reason of any default of Tenant
hereunder.

     21.3   Rights and Remedies Cumulative: The foregoing rights and remedies of
Landlord are not exclusive; they are cumulative in addition to any rights and
remedies now or hereafter existing at law, in equity by statute or otherwise, or
to any equitable remedies Landlord may have, and to any remedies Landlord may
have under bankruptcy laws or laws affecting creditor's rights generally. In
addition to all remedies set forth above, if Tenant materially defaults under
this Lease, any and all Base Rent waived by Landlord under Section 3 above
shall be immediately due and payable to Landlord and all options granted to
Tenant hereunder shall automatically terminate, unless otherwise expressly
agreed to in writing by Landlord.

     21.4   Waiver of a Default: The waiver by Landlord of any default of any
provision of this Lease shall not be deemed or construed a waiver of any other
default by Tenant hereunder or of any subsequent default of this Lease, except
for the default specified in the waiver.

22.  Holding Over

     If Tenant holds possession of the Premises after the expiration of the Term
of this Lease with Landlord's consent, Tenant shall become a tenant from
month-to-month upon the terms and provisions of this Lease, provided the monthly
Base Rent during such hold over period shall be 150% of the Base Rent due on the
last month of the Lease Term, payable in advance on or before the first day of
each month. Acceptance by Landlord of the monthly Base Rent wIthout the
additional fifty percent (50%) Increase of Base Rent shall not be deemed or
construed as a waiver by Landlord of any of its rights to collect the increased
amount of the Base Rent as provided herein at any time. Such month-to-month
tenancy shall not constitute a renewal or extension for any further term. All
options, if any, granted under the terms of this Lease shall be deemed
automatically terminated and be of no force or effect during said month-to-

                                       19

<PAGE>

month tenancy. Tenant shall continue in possession until such tenancy shall be
terminated by either Landlord or Tenant giving written notice of termination to
the other party at least thirty (30) days prior to the effective date of
termination. This paragraph shall not be construed as Landlord's permission for
Tenant to hold over. Acceptance of Base Rent by Landlord following expiration or
termination of this Lease shall not constitute a renewal of this Lease.

23.  Landlord's Default

     Landlord shall not be deemed in breach or default of this Lease unless
Landlord fails within a reasonable time to perform an obligation required to be
performed by Landlord hereunder. For purposes of this provision, a reasonable
time shall not be less than thirty (30) days after receipt by Landlord of
written notice specifying the nature of the obligation Landlord has not
performed; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days, after receipt of written notice, is
reasonably necessary for its performance, then Landlord shall not be in breach
or default of this Lease if performance of such obligation is commenced within
such thirty (30) day period and thereafter diligently pursued to completion.

24.  Parking

     Tenant shall have a license to use the number of non-designated and
non-exclusive parking spaces specified in the Basic Lease Information. Landlord
shall exercise reasonable efforts to insure that such spaces are available to
Tenant for its use.

25.  Sale of Premises

     In the event of any sale of the Premises by Landlord or the cessation
otherwise of Landlord's Interest therein, Landlord shall be and is hereby
entirely released from any and all of its obligations to perform or further
perform under this Lease and from all liability hereunder accruing from or after
the date of such sale; and the purchaser, at such sale or any subsequent sale of
the Premises shall be deemed, without any further agreement between the parties
or their successors in interest or between the parties and any such purchaser,
to have assumed and agreed to carry out any and all of the covenants and
obligations of the Landlord under this Lease. For purposes of this Section 25,
the term "Landlord" means only the owner and/or agent of the owner as such
parties exist as of the date on which Tenant executes this Lease. A ground lease
or similar long term lease by Landlord of the entire Building, of which the
Premises are a part, shall be deemed a sale within the meaning of this Section
25. Tenant agrees to attorn to such new owner provided such new owner does not
disturb Tenant's use, occupancy or quiet enjoyment of the Premises so long as
Tenant is not in default of any of the provisions of this Lease.

26.  Waiver

     No delay or omission in the exercise of any right or remedy of Landlord on
any default by Tenant shall impair such a right or remedy or be construed as a
waiver. The subsequent acceptance of Rent by Landlord after default by Tenant of
any covenant or term of this Lease shall not be deemed a waiver of such default,
other than a waiver of timely payment for the particular Rent payment involved,
and shall not prevent Landlord from maintaining an unlawful detainer or other
action based on such breach. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly Rent and other sums due hereunder shall be deemed
to be other than on account of the earliest Rent or other sums due, nor shall
any endorsement or statement on any check or accompanying any check or payment
be deemed an accord and satisfaction; and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
Rent or other sum or pursue any other remedy provided in this Lease. No failure,
partial exercise or delay on the part of the Landlord in exercising any right,
power or privilege hereunder shall operate as a waiver thereof.

27.  Casualty Damage

     27.1   Casualty. If the Premises or any part thereof (excluding any
alterations or improvements installed by or for the benefit of Tenant) shall be
damaged or destroyed by fire or other casualty, Tenant shall give immediate
written notice thereof to Landlord. Within thirty (30) days after receipt by
Landlord of such notice, Landlord shall notify Tenant, in writing, whether the
necessary repairs can reasonably be made: (a) within ninety (90) days; (b) in
more than ninety (90) days but in less than one hundred eighty (180) days; or
(c) in more than one hundred eighty (180) days, from the date of such notice.

            27.1.1   Minor Insured Damage. If the Premises are damaged only to
such extent that repairs, rebuilding and/or restoration can be reasonably
completed within ninety (90) days, this Lease shall not terminate and, provided
that insurance proceeds are available to fully repair the damage, or if Landlord
has failed to procure and maintain the insurance required in Section 12.5, then
Landlord shall provide the insurance proceeds that would have otherwise been
provided therefore. Landlord shall repair

                                       20

<PAGE>

the Premises to substantially the same condition that existed prior to the
occurrence of such casualty, except Landlord shall not be required to rebuild,
repair, or replace any alterations or improvements installed by or for the
benefit of Tenant or any part of Tenant's furniture, furnishings or fixtures and
equipment removable by Tenant. The Rent payable hereunder shall be abated
proportionately from the date Tenant vacates the Premises only to the extent
rental abatement insurance proceeds are received by Landlord and the Premises
are unfit for occupancy.

            27.1.2   Insured Damage Requiring More Than 90 Days To Repair. If
the Premises are damaged only to such extent that repairs, rebuilding and/or
restoration can be reasonably completed in more than ninety (90) days but in
less than one hundred eighty (180) days, then Landlord shall have the option of
(a) terminating the Lease effective upon the occurrence of such damage, in which
event the Rent shall be abated from the date Tenant vacates the Premises; or (b)
electing to repair the Premises to substantially the same condition that existed
prior to the occurrence of such casualty, provided insurance proceeds are
available to fully repair the damage, or if Landlord has failed to procure and
maintain the insurance required in Section 12.5, then Landlord shall provide the
insurance proceeds that would have otherwise been provided therefore (except
that the Landlord shall not be required to rebuild, repair, or replace any
alterations or improvements installed by or for the benefit of Tenant or any
part of Tenant's furniture, furnishings or fixtures and equipment removable by
Tenant). The Rent payable hereunder shall be abated proportionately from the
date Tenant vacates the Premises only to the extent rental abatement insurance
proceeds are received by Landlord and the Premises are until for occupancy. If
Landlord should fail to substantially complete such repairs within one hundred
eighty (180) days after the date on which Landlord is notified by Tenant of the
occurrence of such casualty (such 180-day period to be extended for delays
caused by Tenant or any force majeure events), Tenant may within twenty (20)
days after expiration of such one hundred eighty (180) day period (as same may
be extended), terminate this Lease by delivering written notice to Landlord as
Tenant's exclusive remedy, whereupon all rights of Tenant hereunder shall cease
and terminate twenty (20) days after Landlord's receipt of such notice.

            27.1.3   Major Insured Damage. If the premises are damaged to such
extent that repairs, rebuilding and/or restoration cannot be reasonably
completed within one hundred eighty (180) days, than either Landlord or Tenant
may terminate this Lease by giving written notice within twenty (20) days after
notice from Landlord regarding the time period of repair. If either party
notifies the other of its intention to so terminate the Lease, then this Lease
shall terminate and the Rent shall be abated from the date Tenant vacates the
Premises. If neither party elects to terminate this Lease, Landlord shall
promptly commence and diligently prosecute to completion the repairs to the
Premises, provided insurance proceeds are available to fully repair the damage,
or if Landlord has failed to procure and maintain the insurance required in
Section 12.5, then Landlord shall provide the insurance proceeds that would have
otherwise been provided therefore (except that Landlord shall not be required to
rebuild, repair, or replace any alterations or improvements installed by or for
the benefit of Tenant or any part of Tenant's furniture, furnishings or fixtures
and equipment removable by Tenant). During the time when Landlord is prosecuting
such repairs to completion, the Rent payable hereunder shall be abated
proportionately from the date Tenant vacates the Premises only to the extent
rental abatement insurance proceeds are received by Landlord and only during the
time period that the Premises are unfit for occupancy,

            27.1.4   Damage Near End of Term. Notwithstanding anything to the
contrary contained in this Lease except for the provisions of Section 27.2
below, if the Premises are substantially damaged or destroyed during the last
year of then applicable term of this Lease, Landlord may, at its option, cancel
and terminate this Lease by giving written notice to Tenant of its election to
do so within thirty (30) days after receipt by Landlord of notice from Tenant of
the occurrence of such casualty. If Landlord so elects to terminate this Lease,
all rights of Tenant hereunder shall cease and terminate thirty (30) days after
Tenant's receipt of such notice.

     27.2   Uninsured Casualty. Tenant shall be responsible for and shall pay to
Landlord, as Additional Rent, any deductibles amount under the property
insurance for the Premises and/or the Building. If any portion of the Premises
is damaged and is not fully covered by insurance by insurance proceeds received
by Landlord (and Tenant elects not to pay any such difference) or if the holder
of any Indebtedness secured by the Premises requires that the insurance proceeds
be applied to such indebtedness, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to the other party within
thirty (30) days after the date of notice to Tenant of any such event, whereupon
all rights and obligations shall cease and terminate hereunder, except for those
obligations expressly provided for in this Lease to survive such termination of
the Lease.

     27.3   Tenant's Waiver. Landlord shall not be liable for any inconvenience
or annoyance to Tenant, injury to the business of Tenant, loss of use of any
part of the Premises by Tenant or loss of Tenant' personal property, resulting
in any way from such damage, destruction or the repair thereof, except that,
Landlord shall allow Tenant a fair diminution of Rent during the time and to the
extent the Premises are until for occupancy as specifically provided above in
this Section 27. With respect to any damage or destruction which Landlord is
obligated to repair or may elect to repair, Tenant hereby waives

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<PAGE>

all rights to terminate this Lease or offset any amounts against Rent pursuant
to rights accorded Tenant by any law currently existing or hereafter enacted,
including but not limited to, all rights pursuant to the provisions of Sections
1932(2.), 1933(4.), 1941 and 1942 of the California Civil Code, as the same may
be amended or supplemented from time to time. Whenever Base Rent is to be abated
under this Lease, all Base Rent and Additional Rent shall be equitably abated
based upon the extent to which Tenant's use of the Premises is diminished.

28.  Condemnation

     If twenty-five percent (25%) or more of the Premises is condemned by
eminent domain, inversely condemned or sold in lieu of condemnation for any
public or quasi-public use or purpose ("Condemned"), then Tenant or Landlord may
terminate this Lease as of the date when physical possession of the Premises is
taken and title vests in such condemning authority, and Rent shall be adjusted
to the date of termination. Tenant shall not because of such condemnation assert
any claim against Landlord or the condemning authority for any compensation
because of such condemnation, and Landlord shall be entitled to receive the
entire amount of any award without deduction for any estate of interest or other
interest of Tenant; provided, however, that Tenant shall be entitled to receive,
or to prosecute a separate claim for, a condemnation award for a temporary
taking of the Premises or a portion thereof by a condemnor where this Lease is
not terminated (to the extent such award related to the unexpired Term), or an
award or portion thereof separately designated for relocation and moving
expenses or the interruption of or damage to Tenant's business or as
compensation for Tenant's personal property, trade fixtures or alterations or
for loss of goodwill provided such award is separate from Landlord's award and
provided further such separate award does not diminish or impair the award
otherwise payable to landlord If neither party elects to terminate this Lease,
Landlord shall, if necessary, promptly proceed to restore the Premises or the
Building to substantially its same condition prior to such partial condemnation,
allowing for the reasonable effects of such partial condemnation, and a
proportionate allowance shall be made to Tenant, as solely determined by
Landlord, for the Rent corresponding to the time during which, and to the part
of the Premises of which, Tenant is deprived on account of such partial
condemnation and restoration. Landlord shall not be required to spend funds for
restoration in excess of the amount received by Landlord as compensation
awarded.

29.  Environmental Matters/hazardous Materials

     29.1   Hazardous Materials Disclosure Certificate: Prior to executing this
Lease, Tenant has completed, executed and delivered to Landlord Tenant's initial
Hazardous Materials Disclosure Certificate (the "Initial HazMat Certificate"), a
copy of which is attached hereto as Exhibit G and incorporated herein by this
                                    ---------
reference. Tenant covenants, represents and warrants to Landlord that the
information on the Initial HazMat Certificate is true and correct and accurately
describes the use(s) of Hazardous Materials which will be made and/or used on
the Premises by Tenant. Tenant shall commencing with the date which is one year
from the Commencement Date and continuing every year thereafter, complete,
execute, and deliver to Landlord, a Hazardous Materials Disclosure Certificate
("the "HazMat Certificate") describing Tenant's present use of Hazardous
Materials on the Premises, and any other reasonably necessary documents as
requested by Landlord. The HazMat Certificate required hereunder shall be in
substantially the form as that which is attached hereto as Exhibit E.
                                                           ---------

     29.2   Definition of Hazardous Materials: As used in this Lease, the term
Hazardous Materials shall mean and include (a) any hazardous or toxic wastes,
materials or substances, and other pollutants or contaminants, which are or
become regulated by any Environmental Laws; (b) petroleum, petroleum by
products, gasoline, diesel fuel, crude oil or any fraction there06 (c) asbestos
and asbestos containing material, in any form, whether friable or non-friable;
(d) polychlorinated biphenyls; (e) radioactive materials; (0 lead and
lead-containing materials; (g) any other material, waste or substance displaying
toxic, reactive, ignitable or corrosive characteristics, as all such terms are
used in their broadest sense, and are defined or become defined by any
Environmental Law (defined below); or (h) any materials which cause or threatens
to cause a nuisance upon or waste to any portion of the Premises, the Building,
the Lot, the Park or any surrounding property; or poses or threatens to pose a
hazard to the health and safety of persons on the Premises or any surrounding
property.

     29.3   Prohibition; Environmental Laws: Tenant shall not be entitled to use
nor store any Hazardous Materials on, in, or about the Premises, the Building,
the Lot and the Park, or any portion of the foregoing, without, in each
instance, obtaining Landlord's prior written consent thereto. If Landlord
consents to any such usage or storage, then Tenant shall be permitted to use
and/or store only those Hazardous Materials that are necessary for Tenant's
business and to the extent disclosed in the HazMat Certificate and as expressly
approved by Landlord in writing, provided that such usage and storage is only to
the extent of the quantities of Hazardous Materials as specified in the then
applicable HazMat Certificate as expressly approved by Landlord and provided
further that such usage and storage is in full compliance with any and ail
local, state and federal environmental, health and/or safety-related laws,

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<PAGE>

statutes, orders, standards, courts' decisions, ordinances, rules and
regulations (as interpreted by judicial and administrative decisions), decrees,
directives, guidelines, permits or permit conditions, currently existing and as
amended, enacted, issued or adopted in the future which are or become applicable
to Tenant or all or any portion of the Premises (collectively, the
"Environmental Laws"). Tenant agrees that any changes to the type and/or
quantities of Hazardous Materials specified in the most recent HazMat
Certificate may be implemented only with the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion. Tenant
shall not be entitled nor permitted to install any tanks under, on or about the
Premises for the storage of Hazardous Materials without the express written
consent of Landlord, which may be given or withheld in Landlord's sole
discretion. Landlord shall have the right at all times during the Term of this
Lease to (i) inspect the Premises, (ii) conduct tests and investigations to
determine whether Tenant is in compliance with the provisions of this Section
29, and (iii) request lists of all Hazardous Materials used, stored or otherwise
located on, under or about any portion of the Premises and/or the Common Areas.
The cost of all such inspections, tests and investigations shall be borne solely
by Tenant, if Landlord reasonably determines that Tenant or any of Tenant's
Representatives are directly or indirectly responsible in any manner for any
contamination revealed by such inspections, tests and investigations. The
aforementioned rights granted herein to Landlord and its representatives shall
not create (a) a duty on Landlord's part to inspect, test, investigate, monitor
or otherwise observe the Premises or the activities of Tenant and Tenant's
Representatives with respect to Hazardous Materials, including without
limitation, Tenant's operation, use and any remediation related thereto, or (b)
liability on the part of Landlord and its representatives for Tenant's use,
storage, disposal or remediation of Hazardous Materials, it being understood
that Tenant shall be solely responsible for all liability in connection
therewith.

        29.4   Tenant's Environmental Obligations: Tenant shall give to Landlord
immediate verbal and follow-up written notice of any spills, releases,
discharges, disposals, emissions, migrations, removals or transportation of
Hazardous Materials on, under or about any portion of the Premises or in any
Common Areas. Tenant, at its sole cost and expense, covenants and warrants to
promptly investigate, clean up, remove, restore and otherwise remediate
(including, without limitation, preparation of any feasibility studies or
reports and the performance of any and all closures) any spill, release,
discharge, disposal, emission, migration or transportation of Hazardous
Materials arising from or related to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives such that the affected portions
of the Park and any adjacent property are returned to the condition existing
prior to the appearance of such Hazardous Materials. Any such investigation,
clean up, removal, restoration and other remediation shall only be performed
after Tenant has obtained Landlord's prior written consent, which consent shall
not be unreasonably withheld so long as such actions would not potentially have
a material adverse long-term or short-term effect on any portion of the
Premises, the Building, the Lot or the Park. Notwithstanding the foregoing,
Tenant shall be entitled to respond immediately to an emergency without first
obtaining Landlord's prior written consent. Tenant, at its sole cost and
expense, shall conduct and perform, or cause to be conducted and performed, all
closures as required by any Environmental Laws or any agencies or other
governmental authorities having jurisdiction thereof. If Tenant fails to so
promptly investigate, clean up, remove, restore, provide closure or otherwise so
remediate, Landlord may, but without obligation to do so, take any and all steps
necessary to rectify the same and Tenant shall promptly reimburse Landlord, upon
demand, for all costs and expenses to Landlord of performing investigation,
clean up, removal, restoration, closure and remediation work. All such work
undertaken by Tenant, as required herein, shall be performed in such a manner so
as to enable Landlord to make full economic use of the Premises, the Building,
the Lot and the Park after the satisfactory completion of such work.

        29.5   Environmental Indemnity: In addition to Tenant's obligations as
set forth hereinabove, Tenant and Tenant's officers and directors agree to, and
shall, protect, indemnify, defend (with counsel acceptable to Landlord) and hold
Landlord and the other Indemnitees harmless from and against any and all claims,
judgments, damages, penalties, fines, liabilities, losses (including, without
limitation, diminution in value of any portion of the Premises, the Building,
the Lot or the Park, damages for the loss of or restriction on the use of
rentable or usable space, and from any adverse impact of Landlord's marketing of
any space within the Building and/or Park), suits, administrative proceedings
and costs (including, but not limited to, attorneys' and consultant fees and
court costs) arising at any time during or after the Term of this Lease in
connection with or related to, directly or indirectly, the use, presence,
transportation, storage, disposal, migration, removal, spill, release or
discharge of Hazardous Materials on, in or about any portion of the Premises,
the Common Areas, the Building, the Lot or the Park as a result (directly or
indirectly) of the presence of storage, use, release or emission of Hazardous
Materials by Tenant or any of Tenant's Representatives. The written consent of
Landlord to the presence, use or storage of Hazardous Materials in, on, under or
about any portion of the Premises, the Building, the Lot and/or the Park, or the
strict compliance by Tenant with all Environmental Laws shall not excuse Tenant
and Tenant's officers and directors from its obligations of indemnification
pursuant hereto. Tenant shall not be relieved of its indemnification obligations
under the provisions of this Section 29.5 due to Landlord's status as either an
"owner" or "operator" under any Environmental Laws.

                                       23

<PAGE>

        29.6   Survival: Tenant's obligations and liabilities pursuant to the
provisions of this Section 29 shall survive the expiration or earlier
termination of this Lease. If it is determined by Landlord that the condition of
all or any portion of the Premises, the Building, the Lot and/or the Park is not
in compliance with the provisions of this Lease with respect to Hazardous
Materials, including without limitation all Environmental Laws at the expiration
or earlier termination of this Lease, then in Landlord's sole discretion,
Landlord may require Tenant to hold over possession of the Premises until Tenant
can surrender the Premises to Landlord in the condition in which the Premises
existed as of the Commencement Date and prior to the appearance of such
Hazardous Materials except for reasonable wear and tear, including without
limitation, the conduct or performance of any closures as required by any
Environmental Laws. The burden of proof hereunder shall be upon Tenant. For
purposes hereof, the term "reasonable wear and tear" shall not include any
deterioration in the condition or diminution of the value of any portion of the
Premises, the Building, the Lot and/or the Park in any manner whatsoever related
to directly, or indirectly, Hazardous Materials. Any such holdover by Tenant
will be with Landlord's consent, will not be terminable by Tenant in any event
or circumstance and will otherwise be subject to the provisions of Section 22 of
this Lease. This Section 29 constitutes the entire agreement of Landlord and
Tenant regarding Hazardous Materials. No other provision of this Lease shall be
deemed to apply thereto.

        29.7   Disclosure: Pursuant to the provisions of California Health &
Safety Code (S)25359.7 (as amended, supplemented and replaced from time to
time), Landlord hereby discloses to Tenant that as of the Lease Date the Lot
contains certain Hazardous Materials as such Hazardous Materials are more
particularly described and set forth in that certain Phase I Environmental Site
Assessment, dated December 1997, prepared by Brown and Caldwell (the
"Environmental Report"). Landlord acknowledges and agrees that none of the
environmental conditions or presence of Hazardous Materials on, in or under the
Lot as described in the Environmental Report has been in any way caused by
Tenant or any of Tenant's Representatives. Tenant hereby acknowledges and agrees
as follows: (a) prior to executing this Lease a copy has been made available at
Landlord's offices located at 2026 West Winton Avenue in Hayward, California for
Tenant's review; (b) except for permissibly disclosing such information to its
employees and invitees, to maintain the information contained therein strictly
confidential and not to make or disseminate copies of such documents or the
information contained therein to any party or person without first obtaining
Landlord's written consent thereto, (c) not to disseminate or otherwise permit
any employee, agent or other person over which Tenant has lawful authority to
copy, publish or otherwise disseminate the Environmental Report or the
information contained therein (except as may be lawfully compelled or otherwise
required by valid rule, regulation or law); and (d) Landlord has made available
to Tenant the Environmental Report for informational purposes only and Tenant
may not rely upon the information contained in the Environmental Report unless
and until Tenant obtains the environmental firms' written consent to such
reliance thereon by Tenant.

        29.8   Tenant's Exculpation. Tenant shall not be liable for nor
               --------------------
otherwise obligated to Landlord under any provision of the lease with respect to
(i) any claim, remediation obligation, investigation obligation, liability,
cause of action, attorney's fees, consultants' cost, expense or damage resulting
from any Hazardous Material present in, on or about the Premises or any of the
Buildings in the Park to the extent not caused nor otherwise permitted, directly
or indirectly, by Tenant or Tenant's Representatives; or (ii) the removal,
investigation, monitoring or remediation of any Hazardous Material present in,
on or about the Premises, the Building or the Park caused by any source,
including third parties other than Tenant and Tenant's Representatives, as a
result of or in connection with the acts or omissions of persons other than
Tenant or Tenant's Representatives: provided, however, Tenant shall be fully
liable for and otherwise obligated to Landlord under the provisions of this
Lease for all liabilities, costs, damages, penalties, claims judgments, expenses
(including without limitation, attorneys' and experts' fees and costs) and
losses to the extent (a) Tenant or any of Tenant's Representatives contributes
to the presence of such Hazardous Materials or Tenant and/or any of Tenant's
Representatives exacerbates the conditions caused by such Hazardous Materials,
or (b) Tenant and/or Tenant's Representatives allows or permits persons over
which Tenant or any of Tenant's Representatives has control and/or for which
Tenant or any of Tenant's Representatives are legally responsible for, to cause
such Hazardous Materials to be present in, on, under, through or about any
portion of the Premises, the Building or the Park, or does not take a reasonably
appropriate actions to prevent such persons over which Tenant or any of Tenant's
Representatives has control and/or for which Tenant or any of Tenant's
Representatives are legally responsible from causing the presence of Hazardous
Materials in, on, under, through or about any portion of the Premises, the
Building or the Park.

30.     Financial Statements

        Tenant, for the reliance of Landlord, any lender holding or anticipated
to acquire a lien upon the Premises, the Building or the Park or any portion
thereof, or any prospective purchaser of the Building or the Park or any portion
thereof, within ten (10) days after Landlord's request therefor, but not more
often than once annually so long as Tenant is not in material default of this
Lease, shall deliver to Landlord the

                                       24

<PAGE>

then current publicly available audited financial statements of Tenant
(including interim periods following the end of the last fiscal year for which
annual statements are available) which statements shall be prepared or compiled
in accordance with generally accepted accounting principles and shall present
fairly the financial condition of Tenant at such dates and the result of its
operations and changes in its financial positions for the periods ended on such
dates. If an audited financial statement has not been prepared, Tenant shall
provide Landlord with an unaudited financial statement and/or such other
information, the type and form of which are acceptable to Landlord in Landlord's
reasonable discretion, which reflects the financial condition of Tenant.

 31.    General Provisions

        31.1   Time. Time is of the essence in this Lease and with respect to
each and all of its provisions in which performance is a factor.

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

        31.3   Recordation. Tenant shall not record this Lease or a short form
 memorandum hereof without the prior written consent of the Landlord.

        31.4   Landlord's Personal Liability. The liability of Landlord (which,
for purposes of this Lease, shall include Landlord and the owner of the Building
if other than Landlord) to Tenant for any default by Landlord under the terms of
this Lease shall be limited to the actual interest of Landlord and its present
or future partners or members in the Building, and Tenant agrees to look solely
to the Building for satisfaction of any liability and shall not look to other
assets of Landlord nor seek any recourse against the assets of the individual
partners, members, directors, officers, shareholders, agents or employees of
Landlord (including without limitation, any property management company of
Landlord); it being intended that Landlord and the individual partners, members,
directors, officers, shareholders, agents and employees of Landlord (including
without limitation, any property management company of Landlord) shall not be
personally liable in any manner whatsoever for any judgment or deficiency. The
liability of Landlord under this Lease is limited to its actual period of
ownership of title to the Building, and Landlord shall be automatically released
from further performance under this Lease upon transfer of Landlords interest in
the Premises or the Building.

        31.5   Separability. Any provisions of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provisions hereof and such other provision shall remain in full force and
effect.

        31.6   Choice of Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.

        31.7   Attorneys' Fees. In the event any dispute between the parties
 results in litigation or other proceeding, the prevailing party shall be
 reimbursed by the party not prevailing for all reasonable costs and expenses,
 including, without limitation, reasonable attorneys' and experts' fees and
 costs incurred by the prevailing party in connection with such litigation or
 other proceeding, and any appeal thereof. Such costs, expenses and fees shall
 be included in and made a part of the judgment recovered by the prevailing
 party, if any.

        31.8   Entire Agreement. This Lease supersedes any prior agreements,
representations, negotiations or correspondence between the parties, and
contains the entire agreement of the parties on matters covered. No other
agreement, statement or promise made by any party, that is not in writing and
signed by all parties to this Lease, shall be binding.

        31.9   Warranty of Authority. Landlord and Tenant each represent and
warrant that (1) the person executing this Lease on such party's behalf is duly
and validly authorized to do so on behalf of the entity it purports to so bind,
and (2) if such party is a partnership, corporation or trustee, that such
partnership, corporation or trustee has full right and authority to enter into
this Lease and perform all of its obligations hereunder. Tenant hereby warrants
that this Lease is valid and binding upon Tenant and enforceable against Tenant.

        31.10  Notices. Any and all notices and demands required or permitted to
be given hereunder to Landlord shall be in writing and shall be sent: (a) by
United States mail, certified and postage prepaid; or (b) by personal delivery;
or (c) by overnight courier, addressed to Landlord at 101 Lincoln Centre Drive,
Fourth Floor, Foster City, California 94404-1 167. Any and all notices and
demands required or permitted to be given hereunder to Tenant shall be in
writing and shall be sent: (i) by United States mail, certified and postage
prepaid; or (ii) by personal delivery to any employee or agent of Tenant over
the age of eighteen (18) years of age; or (iii) by overnight courier, all of
which shall be addressed to Tenant

                                       25

<PAGE>

at the address on the front page hereof. Notice and/or demand shall be deemed
given upon the earlier of actual receipt or the third business day following
deposit in the United States mail. Any notice or requirement of service required
by any statute or law now or hereafter in effect, including, but not limited to,
California Code of Civil Procedure Sections 1161, 1161.l, and 1162 (including
any amendments, supplements or substitutions thereof), is hereby waived by
Tenant.

        31.11  Joint and Several. If Tenant consists of more than one person or
entity, the obligations of all such persons or entities shall be joint and
several.

        31.12  Covenants and Conditions. Each provision to be performed by
Tenant hereunder shall be deemed to be both a covenant and a condition.

        31.13  Waiver of Jury Trial. The parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out of
or in any way related to this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the Premises, the Building or the Park, and/or any
claim of injury, loss or damage.

        31.14  Underlining. The use of underlining within the Lease is for
Landlord's reference purposes only and no other meaning or emphasis is intended
by this use, nor should any be inferred.

        31.15  Merger. The voluntary or other surrender of this Lease by Tenant,
the mutual termination or cancellation hereof by Landlord and Tenant, or a
termination of this Lease by Landlord for a material default by Tenant
hereunder, shall not work a merger, and, at the sole option of Landlord, (i)
shall terminate all or any existing subleases or subtenancies, or (ii) may
operate as an assignment to Landlord of any or all of such subleases or
subtenancies. Landlord's election of either or both of the foregoing options
shall be exercised by delivery by Landlord of written notice thereof to Tenant
and all known subtenants under any sublease.

32.     Signs

        Tenant shall have the right to share the signage with the occupant of
the balance of the Building all signs and graphics of every kind visible in or
from public view or corridors or the exterior of the Premises shall be subject
to Landlord's prior written approval and shall be subject to any applicable
governmental laws, ordinances, and regulations and in compliance with Landlord's
sign criteria as same may exist from time to time or as set forth in Exhibit H
hereto and made a part hereof. Tenant shall remove all such signs and graphics
prior to the termination of this Lease. Such installations and removals shall be
made in a manner as to avoid damage or defacement of the Premises; and Tenant
shall repair any damage or defacement, including without limitation,
discoloration caused by such installation removal. Landlord shall have the
right, at its option, to deduct from the Security Deposit such sums as are
reasonably necessary to remove such signs, including, but not limited to, the
costs and expenses associated with any repairs necessitated by such removal.
Notwithstanding the foregoing, in no event shall any: (a) neon, flashing or
moving sign(s) or (b) sign(s) which shall interfere with the visibility of any
sign, awning, canopy, advertising matter, or decoration of any kind of any other
business or occupant of the Building or the Park be permitted hereunder. Tenant
further agrees to maintain any such sign, awning, canopy, advertising matter,
lettering, decoration or other thing as may be approved in good condition and
repair at all times.

33.     Mortgagee Protection

        Upon any default on the part of Landlord, Tenant will give written
     notice by registered or certified mail to any beneficiary of a deed of
trust or mortgagee of a mortgage covering the Premises who has provided Tenant
with notice of their interest together with an address for receiving notice, and
shall offer such beneficiary or mortgagee a reasonable opportunity to cure the
default (which, in no event shall be less than ninety (90) days), including time
to obtain possession of the Premises by power of sale or a judicial foreclosure,
if such should prove necessary to effect a cure. If such default cannot be cured
within such time period, then such additional time as may be necessary will be
given to such beneficiary or mortgagee to effect such cure so long as such
beneficiary or mortgagee has commenced the cure within the original time period
and thereafter diligently pursues such cure to completion, in which event this
Lease shall not be terminated while such cure is being diligently pursued.
Tenant agrees that each lender to whom this Lease has been assigned by Landlord
is an express third party beneficiary hereof. Tenant shall not make any
prepayment of Rent more than one (1) month in advance without the prior written
consent of each such lender, except if Tenant is required to make quarterly
payments of Rent in advance pursuant to the provisions of Section 8 above.
Tenant waives the collection of any deposit from lender(s) or any purchaser at a
foreclosure sale of such lender(s)' deed of trust unless the lender(s) or such
purchaser shall have actually received and not refunded the deposit. Tenant
agrees to make all payments under this Lease to the lender with the most senior
encumbrance upon receiving a direction, in

                                       26

<PAGE>

writing, to pay said amounts to such lender. Tenant shall comply with such
written direction to pay without determining whether an event of default exists
under such lender's loan to Landlord.

34.     Quitclaim

        Upon any termination of this Lease, Tenant shall, at Landlord's request,
execute, have acknowledged and deliver to Landlord a quitclaim deed of Tenant's
interest in and to the Premises.

35.     Modifications For Lender

        If, in connection with obtaining financing for the Premises or any
portion thereof, Landlord's lender shall request reasonable modification(s) to
this Lease as a condition to such financing, Tenant shall not unreasonably
withhold, delay or defer its consent thereto, provided such modifications do not
materially adversely affect Tenant's rights hereunder or the use, occupancy or
quiet enjoyment of Tenant hereunder or increase Tenant's obligations or decrease
Tenant's rights hereunder.

36.     Warranties of Tenant

        Tenant hereby warrants and represents to Landlord, for the express
benefit of Landlord, that Tenant has undertaken an independent evaluation of the
risks inherent in the execution of this Lease and the operation of the Premises
for the use permitted hereby, and that, based upon said independent evaluation,
Tenant has elected to enter into this Lease and except as expressly set forth
herein hereby assumes all risks with respect thereto. Tenant hereby further
warrants and represents to Landlord, for the express benefit of Landlord, that
in entering into this Lease, Tenant has not relied upon any statement, fact,
promise or representation (whether express or implied, written or oral) not
specifically set forth herein in writing and that any statement, fact, promise
or representation (whether express or implied, written or oral) made at any time
to Tenant, which is not expressly incorporated herein in writing, is hereby
waived by Tenant.

37.     Compliance with Americans with Disabilities Act

        Landlord and Tenant hereby agree and acknowledge that the Premises, the
Building and/or the Park may be subject to the requirements of the Americans
with Disabilities Act, a federal law codified at 42 U.S.C. 12101 et seq,
including, but not limited to Title III thereof, all regulations and guidelines
related thereto, together with any and all laws, rules, regulations, ordinances,
codes and statutes now or hereafter enacted by local or state agencies having
jurisdiction thereof, including all requirements of Title 24 of the State of
California, as the same may be in effect on the date of this Lease and may be
hereafter modified, amended or supplemented (collectively, the "ADA"). Any
Tenant Improvements to be constructed hereunder shall be in compliance with the
requirements of the ADA, and all costs incurred for purposes of compliance
therewith shall be a part of and included in the costs of the Tenant
Improvements. Tenant shall be solely responsible for conducting its own
independent investigation of this matter with respect to the condition of the
Building, Tenant's use of the Premises and for all improvements to be made to
the Premises after the actual Commencement Date other than the Tenant
Improvements; provided, however, with respect to the Tenant Improvements
Landlord shall be solely responsible for ensuring that the design of all Tenant
Improvements strictly comply with all requirements of the ADA. Subject to
reimbursement pursuant to Section 6 of the Lease, if any barrier removal work or
other work is required to the Building, the Common Areas or the Park under the
ADA, then such work shall be the responsibility of Landlord; provided, if such
work is required under the ADA as a result of Tenant's particular use of the
Premises or any work or alteration made to the Premises by or on behalf of
Tenant (other than any initial improvements), then such work shall be performed
by Landlord at the sole cost and expense of Tenant. Except as otherwise
expressly provided in this provision, Tenant shall be responsible at its sole
cost and expense for fully and faithfully complying with all applicable
requirements of the ADA, including without limitation, not discriminating
against any disabled persons in the operation of Tenant's business in or about
the Premises, and offering or otherwise providing auxiliary aids and services
as, and when, required by the ADA. Within ten (1O) days after receipt, Landlord
and Tenant shall advise the other party in writing, and provide the other with
copies of (as applicable), any notices alleging violation of the ADA relating to
any portion of the Premises or the Building; any claims made or threatened in
writing regarding noncompliance with the ADA and relating to any portion of the
Premises or the Building; or any governmental or regulatory actions or
investigations instituted or threatened regarding noncompliance with the ADA and
relating to any portion of the Premises or the Building. Tenant shall and hereby
agrees to protect, defend (with counsel acceptable to Landlord) and hold
Landlord and the other Indemnitees harmless and indemnify the Indemnitees from
and against all liabilities, damages, claims, losses, penalties, judgments,
charges and expenses (including reasonable attorneys' fees, costs of court and
expenses necessary in the prosecution or defense of any litigation including the
enforcement of this provision) arising from or in any way related to, directly
or indirectly, Tenant's or Tenant's Representatives' violation or alleged
violation of the

                                       27

<PAGE>


ADA.      Tenant agrees that the obligations of Tenant herein shall survive the
expiration or earlier termination of this Lease.

38.       Brokerage Commission

          Landlord and Tenant each represents and warrants for the benefit of
the other that it has had no dealings with any real estate broker, agent or
finder in connection with the Premises and/or the negotiation of this Lease,
except for the Broker(s) (as set forth on Page 1), and that it knows of no other
real estate broker, agent or finder who is or might be entitled to a real estate
brokerage commission or finder's fee in connection with this Lease or otherwise
based upon contacts between the claimant and Tenant. Each party shall indemnify
and hold harmless the other from and against any and ail liabilities or expenses
arising out of claims made for a fee or commission by any real estate broker,
agent or finder in connection with the Premises and this Lease other than
Broker(s), if any, resulting from the actions of the indemnifying party. Any
real estate brokerage commission or finder's fee payable to the Broker(s) in
connection with this Lease shall only be payable and applicable to the extent of
the initial Term of the Lease and to the extent of the Premises as same exist as
of the date on which Tenant executes this Lease. Unless expressly agreed to in
writing by Landlord and Broker(s), no real estate brokerage commission or
finder's fee shall be owed to, or otherwise payable to, the Broker(s) for any
renewals or other extensions of the initial Term of this Lease or for any
additional space leased by Tenant other than the Premises as same exists as of
the date on which Teant executes this Lease. Tenant further represents and
warrants to Landlord that Tenant will not receive (i) any portion of any
brokerage commission or finder's fee payable to the Broker(s) in connection with
this Lease or (ii) any other form of compensation or incentive from the
Broker(s) with respect to this Lease.

39.       Quiet Enjoyment

          Landlord covenants with Tenant, upon the paying of Rent and observing
and keeping the covenants, agreements and conditions of this Lease on its part
to be kept, and during the periods that Tenant is not otherwise in default of
any of the terms or provisions of this Lease, and subject to the rights of any
of Landlord's lenders, (i) that Tenant shall and may peaceably and quietly hold,
occupy and enjoy the Premises and the Common Areas during the Term of this
Lease, and (ii) neither Landlord, nor any successor or assign of Landlord, shall
disturb Tenant's occupancy or enjoyment of the Premises and the Common Areas.

40.       Landlord's Ability to Perform Tenant's Unperformed Obligations

          Notwithstanding anything to the contrary contained in this Lease, if
Tenant shall fail to perform any of the terms, provisions, covenants or
conditions to be performed or complied with by Tenant pursuant to this Lease
within the applicable cure periods, and/or if the failure of Tenant relates to a
matter which in Landlord's judgment reasonably exercised is of an emergency
nature and such failure shall remain uncured for a period of time commensurate
with such emergency, then Landlord may, at Landlord's option without any
obligation to do so, and in its sole discretion as to the necessity therefor,
perform any such term, provision, covenant, or condition, or make any such
payment and Landlord by reason of so doing shall not be liable or responsible
for any loss or damage thereby sustained by Tenant or anyone holding under or
through Tenant. If Landlord so performs any of Tenant's obligations hereunder,
the full amount of the cost and expense entailed or the payment so made or the
amount of the loss so sustained shall immediately be owing by Tenant to
Landlord, and Tenant shall promptly pay to Landlord upon demand, as Additional
Rent, the full amount thereof with interest thereon from the date of payment at
the greater of (i) ten percent (10%) per annum, or (ii) the highest rate
permitted by applicable law and Enforcement Expenses.

41.       Tenant's Early Termination Option:

     41.1         Termination Date: Tenant shall have a one-time option (the
              "Termination Option") to terminate this Lease, effective as of the
              37/th/ month of the Lease Term (the "Termination Date"). The
              Termination Option is granted subject to the following terms and
              conditions:

          41.1.1  Notice: Tenant delivers to Landlord written notice of Tenant's
                  election to exercise the Termination Option, which notice is
                  given no later than nine (9) full calendar months prior to the
                  Termination Date; and

          41.1.2  No Default: Tenant is not then in default under this Lease
                  beyond any applicable cure periods either on the date that
                  Tenant exercises the Termination Option, or unless waived in
                  writing by Landlord, on the Termination Date; and

          41.1.3  Termination Fee: Tenant pays to Landlord on the 30/th/ month
                  of the Lease Term, a cash lease termination fee (the "Fee")
                  equal to two hundred six thousand eight hundred ninety-five
                  and 00/100 dollars ($2O6,895.00).

                                       28

<PAGE>

     41.2 Terms: If Tenant timely and properly exercises the Termination Option,
(i) all rent payable under this Lease shall be paid through and apportioned as
of the Termination Date (in addition to payment by Tenant of the Fee); (ii)
neither party shall have any rights, estates, liabilities, or obligations under
this Lease for the period accruing after the Termination Date, except those
which by the provisions of this Lease, expressly survive the expiration or
termination of the Term of this Lease; (iii) Tenant shall surrender and vacate
the Premises and deliver possession thereof to Landlord on or before the
Termination Date in the condition required under this Lease for surrender of the
Premises; and (iv) Landlord and Tenant shall enter into a written agreement
reflecting the termination of this Lease upon the terms provided for herein,
which agreement shall be executed within thirty (30) days after Tenant exercises
the Termination Option and delivers to Landlord the written notice required
above. It is the parties' intention that nothing contained herein shall impair,
diminish or otherwise prevent Landlord from recovering from Tenant such
additional sums as may be necessary for payment of Tenant's Share of the
Operating Expenses, Tax Expenses, Common Area Utility Costs, Utility Expenses,
Administrative Charges and any other sums due and payable under this Lease
allocated to any period prior to the Termination Date, including, any sums
required to repair any damage to the Premises and/or restore the Premises to the
condition required under the provisions of this Lease.

     41.3 Termination: The Termination Option shall automatically terminate and
become null and void upon the earlier to occur of (i) the breach or default by
Tenant of any of the terms of this Lease beyond any applicable cure periods
either on the date that tenant exercises the Termination Option, or unless
waived in writing by Landlord, on the Termination Date; (ii) Landlord or
Tenant's the termination of Tenant's right to possession of the Premises under
the provisions of this Lease; or (iii) the failure of Tenant to timely or
properly exercise the Termination option as contemplated herein. This
Termination Option is personal to Tenant and may not be assigned voluntarily,
separate from or as part of the Lease, except to a Related Entity.

     IN WITNESS WHEREOF, this Lease is executed by duly authorized signatories
of the parties as of the Lease Date referenced on Page 1 of this Lease.

Tenant:

NetFlix.com,
a Delaware Corporation

By:    /s/ W. Barry McCarthy, Jr.
       -------------------------

Its:   CFO & Secretary
       -------------------------

Date:  10/8/99
       -------------------------

By:
       -------------------------

Its:   Secretary

Date:
       -------------------------

Landlord:

LINCOLN-RECP OLD OAKLAND OPCO, LLC,
a Delaware limited liability company

By:    LEGACY PARTNERS COMMERCIAL, INC.,
       as manager and agent for Lincoln-RECP Old Oakland OPCO, LLC

       By:     /s/ [ILLEGIBLE]
               -------------------------
               Senior Vice President

       Date:
               -------------------------

If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
               -----------

corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president and the secretary or assistant
                                               ---
secretary, unless the bylaws or a resolution of the board of directors shall
           ------
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.

                                       29

<PAGE>

                                   Exhibit A
                                    Premises

This exhibit, entitled "Premises" is and shall constitute EXHIBIT A to that
certain Lease Agreement dated August 11, 1999 (the "Lease"), by and between
LINCOLN-RECP OLD OAKLAND OPCO, LLC, a Delaware limited liability company
("Landlord") and NetFlix.com, a Delaware corporation ("Tenant") for the leasing
of certain premises located at 2219 Old Oakland Road, San Jose, California (the
"Premises").

The Premises consist of the rentable square footage of space specified in the
Basic Lease Information and has the address specified in the Basic Lease
Information. The Premises are a part of and are contained in the Building
specified in the Basic Lease Information. The non cross-hatched area depicts the
Premises within the [Building, Project]:

                                     [MAP]

<PAGE>


                          Exhibit B to Lease Agreement
                               Tenant Improvements



This exhibit, entitled "Tenant Improvements", is and shall constitute EXHIBIT B
                                                                      ---------
to that certain Lease Agreement dated August 11, 1999 (the "Lease"), by and
between LINCOLN-RECP OLD OAKLAND OPCO, LLC, a Delaware limited liability company
("Landlord") and NetFlix.com, a Delaware corporation ("Tenant") for the leasing
of certain premises located at 2219 Old Oakland Road, San Jose, California (the
"Premises"). The terms, conditions and provisions of this EXHIBIT B are hereby
                                                          ---------
incorporated into and are made a part of the Lease. Any capitalized terms used
herein and not otherwise defined herein shall have the meaning ascribed to such
terms as set forth in the Lease:

1.   Tenant Improvements. Subject to the conditions set forth below, Landlord
     -------------------
agrees to construct and install at its sole cost and expense certain
improvements ("Tenant Improvements") in the Building of which the Premises are a
part in accordance with Section 2 below and pursuant to the terms of this
EXHIBIT B.
- ---------

2.   Definition. "Tenant Improvements" as used in this Lease shall include only
     ----------
those portions of the Building which are described below. "Tenant Improvements"
shall specifically not include any alterations, additions or improvements
installed or constructed by Tenant, and any of Tenant's trade fixtures,
equipment, furniture, furnishings, telephone equipment or other personal
property (collectively, "Personal Property"). The Tenant Improvements shall
include only those improvements as specified in this Section 2 below and made a
part hereof. Such work, as set forth below and as shown in the Initial Plans
shall be hereinafter referred to as the "Work". Landlord shall not be obligated
to pay for any improvements which are not expressly set forth herein below. The
Tenant Improvements shall consist of the following Work as described more fully
on Exhibit B-2 hereto:

          (a)  Install full floor to roof joist demising wall and separately
               metered PG&E.
          (b)  Remove wall partitions in former restroom area and install 12' of
               upper and 12' of lower cabinets, kitchenette sink and outlets for
               microwave and refrigerator.
          (c)  Install exterior lighting in shipping and receiving area which
               will be operational on a 24-hour, 7 days per week basis.

3.   Tenant Improvement Costs. The Tenant Improvements' cost (Tenant Improvement
     ------------------------
Costs") shall mean and include any and all costs and expenses of the Work,
including, without limitation, all of the following:

          (a)  All costs of preliminary space planning and final architectural
and engineering plans and specifications (including, without limitation, the
scope of work, all plans and specifications, the Initial Plans and the Final
Drawings) for the Tenant Improvements, and architectural fees, engineering costs
and fees, and other costs associated with completion of said plans;

          (b)  All costs of obtaining building permits and other necessary
authorizations and approvals from the City of San Jose and other applicable
jurisdictions;

          (c)  All costs of interior design and finish schedule plans and
specifications including as-built drawings;

          (d)  All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee for overhead and profit, the cost of all on-site
supervisory and administrative staff, office, equipment and temporary services
rendered by Landlord's consultants and the General Contractor in connection with
construction of the Tenant Improvements, and all labor (including overtime) and
materials constituting the Work;

          (e)  All fees payable to the General Contractor, architect and
Landlord's engineering firm if they are required by Tenant to redesign any
portion of the Tenant Improvements following Tenant's approval of the Final
Drawings; and

          (f)  A construction management fee payable to Landlord in the amount
of five percent (5%) of all direct and indirect costs of procuring, constructing
and installing the Tenant Improvements in the Premises and the Building.

4.   Building Standard Work. Landlord shall provide that the Tenant Improvements
     ----------------------
be at least equal, in quality, to Landlord's building standard materials,
quantities and procedures then in use by Landlord ("Building Standards")
attached hereto as Exhibit B-1, and shall consist of improvements which are
generic in nature. Landlord shall obtain all government approvals of the Work to
the full extent necessary for the issuance of a building permit for the Tenant
Improvements. Such Tenant Improvements shall he constructed in a good and
workmanlike manner, free of defects and using new

                                       1

<PAGE>

materials and equipment of good quality. Tenant shall have the right to submit a
written "punch list" to Landlord, setting forth any defective item of
construction, and Landlord shall promptly cause such items to be corrected.
Tenant's acceptance of the Premises or submission of a "punch list" shall not be
deemed a waiver of Tenant's right to have defects in the Tenant Improvements or
the Premises repaired at no cost to Tenant. Tenant shall give notice to
Landlord, within the first year of the Lease Term, whenever any such defect
becomes reasonably apparent, and Landlord shall repair such defect as soon as
practicable.

 5. Landlord shall not be obligated to pay for any Tenant Improvements which
 are not specifically set forth in Section 2 above or in Exhibit B-1.

6. Lease Provisions; Conflict. The terms and provisions of the Lease, insofar as
   --------------------------
they are applicable, in whole or in part, to this EXHIBIT B, are hereby
                                                  ---------
incorporated herein by reference, and specfically including all of the
provisions of Section 31 of the Lease. In the event of any conflict between the
terms of the Lease and this EXHIBIT B, the terms of this EXHIBIT B shall
                            ---------                    ---------
prevail.

                                       2

<PAGE>

                                   Exhibit B-1
                                Building Standards

                               Outline Specification for
                        New Office Build-Out in R&D Buildings

OFFICE AREA
- -----------

Demising Partition and Corridor Walls:

Note: One hr. rated walls where required based on occupancy group.

A.    6" 20-gage metal studs at 24" O.C. (or as required by code based on
roof height) framed full height from finish floor to surface above.

B.    One (1) layer 5/8" drywall Type "X" both sides of wall, fire taped only.

Interior Partitions:

A.    3-5/8" 25-gage metal studs at 24" 0.C. to bottom of T-Bar ceiling grid
approximately 9' 0" high.

B.    One (1) layer 5/8" drywall both sides of wall, smooth ready for paint.

C.    3-5/8" metal studs including all lateral bracing as required by code.

Perimeter Drywall (At Office Areas):

A.    3-5/8" metal studs @ 24" O.C. to 12' 0" above finished floor. (or as
required by Title-24 for full height envelope then use demising wall spec.)

B.    One (1) layer 5/8" Type "X" drywall taped smooth and ready for paint.

Column Furring:

A.    Furring channel all sides of 2-l/2" metal studs per details.

B.    One (1) layer 5/8" drywall taped smooth and ready for paint.

C.    Columns within walls shall be furred-out.


Acoustical Ceilings:

Note: Gyp. Bd. ceiling at all restroom Typ.

A.    2' x 4' standard white T-Bar grid system as manufactured by Chicago
Metallic of equal.

B.    2' x 4' x 5/8" white, no-directional acoustical tile to be regular second
look as manufactured by Armstrong or equal.

Painting:

A.    Sheetrock walls within office to receive two (2) coats of interior latex
paint as manufactured by Kelly Moore or equal. Some portions of second coat to
be single accent color.

B.    Semi-gloss paint all restrooms and lunch rooms.

Window Covering:

A.    1" aluminum mini-blinds as manufactured by Levelor, Bali or equal, color
to be selected by Legacy Partners Commercial, Inc. (brushed aluminum or white).

B.    Blinds to be sized to fit window module.

                                       1

<PAGE>

VCT:
- ---

A.   VCT to be l/8" x 12" x 12" as manufactured by Armstrong -Excelon Series or
equal.

B.   Slabs shall be water proofed per manufacturer recommendations, at sheet
vinyl or VCT areas.

Light Fixtures:

A.   2" x 4" T-bar lay in 3-tube energy efficient fixture with cool white
fluorescent tubes with parabolic lens as manufactured by Lithonia or equal.
(Approximately 50 F.C.)

Light Switches:

A.   Switching as required by Title 24.

B.   Switch assembly to be Levinton or equal, color - White

Electrical Outlet:

A.   11OV duplex outlet in demising or interior partitions only, as manufactured
by Leviton or equal, color to be White.

B.   Maximum eight (8) outlets per circuit, spacing to meet code or minimum 2
per office, conference room, reception and 2 dedicated over cabinet at lunch
room junction boxes above ceiling for large open area with furniture partitions.

C.   Transformers to be a minimum of 20% or over required capacity.

D.   Contractors to inspect electric room and to include all necessary metering
cost.

E.   No aluminum wiring is acceptable.

Telephone/Data Outlet:

A.   One (1) single outlet box in wall with pullwire from outlet box to area
above T-bar ceiling per office.

B.   Cover plate for phone outlets by telephone/data vendors.

Fire Sprinklers:

As required by fire codes.

Topset Base:

A.   4" rubber base as manufactured by Burke or equal, standard colors only.

B.   4" rubber base at VCT areas.

Toilet Areas:

Wet walls to receive Duraboard or Wonder Board and ceramic tile up to 48".
Floors to receive ceramic tile with self coved base as required by code.

Carpet:

Note any of the following carpets are acceptable

Designweave: Alumni 28 oz., Windswept Classic 30 oz, or Stratton Design Series
III 30 OZ, Structure II 28 oz.

Wood Doors:

Shall be 3' 0" x 9' 0" x l-3/4" (unless otherwise specified) solid core,
prefinished harmony (rotary N. birch).

                                       2

<PAGE>

Door Frames:

Shall be ACI or equal, 3-3/4" or 4-7/8" throat, brushed, standard aluminum,
snap-on trim.

Hardware:

l-1/2 pr. butts F179 Stanley, Latchset Dl0S Rhodes Schlage, Lockset D53PD Rhodes
Schlage, Dome Type floor stop Gylnn Johnson FB13, Closer 4110LCN (where
required) brushed chrome.

Insulation:

By Title 24 insulation.

Plumbing:

A.   Shall comply with all local codes and handicapped code requirements.
Fixtures shall be either "American Standard", "Kohler" or "Norris". All toilet
accessories and grab bars shall be "Bobrick" or equal and approved by owner.

B.   Plumbing bid shall include 5 gallon minimum hot water heater, or insta hot
with mixer valve including all connections.

Toilet Partitions:

Shall be as manufactured by Fiat, global or equal if approved by owner. Color to
be white or gray.

HVAC:

HVAC units per specifications.

Five (5) year warranty provided on all HVAC compressor units. All penetrations
including curbs and sleepers to be hot moped to Legacy Partners Commercial,
Inc. standard.

Warehouse Areas:

Floor - seal concrete with water base clear acrylic sealer.
Fire Extinguishers - 2A 10 BC surface mount by code x by S.F.

400 W metal halide lighting at warehouse minimum 5-7 foot candles.

Note:  All high pile storage requirements are excluded for standard building
T.I.

                                        3

<PAGE>

                                  Exhibit B-2
                              Tenant Improvements

The floor plan below shows the Work to be provided by Landlord pursuant to
Section 2 of this Exhibit B of the Lease.

                                       1

<PAGE>

                          Exhibit C to Lease Agreement
                               Rules & Regulations



This exhibit, entitled "Rules & Regulations", is and shall constitute EXHIBIT C
                                                                      ---------
to that certain Lease Agreement dated August 11, 1999 (the "Lease"), by and
between LINCOLN-RECP OLD OAKLAND OPCO, LLC, a Delaware limited liability company
("Landlord") and NetFlix.com, a Delaware corporation ("Tenant") for the leasing
of certain premises located at 2219 Old Oakland Road, San Jose, California (the
"Premises"). The terms, conditions and provisions of this EXHIBIT C are hereby
                                                          ---------
incorporated into and are made a part of the Lease. Any capitalized terms used
herein and not otherwise defined herein shall have the meaning ascribed to such
terms as set forth in the Lease:


1.   No advertisement, picture or sign of any sort shall be displayed on or
outside the Premises or the Building without the prior written consent of
Landlord. Landlord shall have the right to remove any such unapproved item
without notice and at Tenant's expense.

2.   Tenant shall not regularly park motor vehicles in designated parking areas
after the conclusion of normal daily business activity.

3.   Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord without the prior written consent of Landlord.

4.   All window coverings installed by Tenant and visible from the outside of
the Building require the prior written approval of Landlord.

5.   Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance or any flammable or combustible materials on or around the
Premises, the Building or the Park.

6.   Tenant shall not alter any lock or install any new locks or bolts on any
door at the Premises without the prior consent of Landlord.

7.   Tenant agrees not to make any duplicate keys without the prior consent of
Landlord.

8.   Tenant shall park motor vehicles in those general parking areas as
designated by Landlord except for loading and unloading. During those periods of
loading and unloading, Tenant shall not unreasonably interfere with traffic flow
within the Park and loading and unloading areas of other Tenants.

9.   Tenant shall not disturb, solicit or canvas any occupant of the Building or
Park and shall cooperate to prevent same.

10.  No person shall go on the roof without Landlord's permission.

11.  Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building, to
such a degree as to be objectionable to Landlord or other Tenants, shall be
placed and maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate noise or vibration.

12.  All goods, including material used to store goods, delivered to the
Premises of Tenant shall be immediately moved into the Premises and shall not be
left in parking or receiving areas overnight.

13.  Tractor trailers which must be unhooked or parked with dolly wheels beyond
the concrete loading areas must use steel plates or wood blocks under the dolly
wheels to prevent damage to the asphalt paving surfaces. No parking or storing
of such trailers will be permitted in the auto parking areas of the Park or on
streets adjacent thereto.

14.  Forklifts which operate on asphalt paving areas shall not have solid
rubber tires and shall only use tires that do not damage the asphalt.

15.  Tenant is responsible for the storage and removal of all trash and refuse.
All such trash and refuse shall be contained in suitable receptacles stored
behind screened enclosures at locations approved by Landlord.

                                       1

<PAGE>

16.  Tenant shall not store or permit the storage or placement of goods, or
merchandise or pallets or equipment of any sort in or around the Premises, the
Building, the Park or any of the Common Areas of the foregoing. No displays or
sales of merchandise shall be allowed in the parking lots or other Common Areas.

17.  Tenant shall not permit any animals, including, but not limited to, any
household pets, to be brought or kept in or about the Premises, the Building
the Park or any of the Common Areas of the foregoing.

18.  Tenant shall not permit any motor vehicles to be washed on any portion of
the Premises or in the Common Areas of the Park, nor shall Tenant permit
mechanical work or maintenance of motor vehicles to be performed on any portion
of the Premises or in the Common Areas of the Park.

                                        2

<PAGE>

                                   Exhibit E
                   Hazardous Materials Disclosure Certificate

Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:

Landlord:       ______________________________________________________
                ______________________________________________________
                c/o Legacy Partners Commercial, Inc.
                101 Lincoln Centre Drive, Fourth Floor
                Foster City, California 94404
                Attn: ________________________________
                Phone: (650) 571-2200

Name of (Prospective) Tenant: ________________________________________________

Mailing Address: _______________________________________________________________
________________________________________________________________________________

Contact Person, Title and Telephone Number(s): _________________________________

Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):____________________________________________________________
________________________________________________________________________________

Address of (Prospective) Premises:______________________________________________

Length of (Prospective) Initial Term: __________________________________________
________________________________________________________________________________


1.   General Information:

     Describe the initial proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or otherwise
conducted. Existing Tenants should describe any proposed changes to on-going
operations.

     ___________________________________________________________________________
     ___________________________________________________________________________

2.   Use, Storage and Disposal of Hazardous Materials

     2.1  Will any Hazardous Materials be used, generated, stored or disposed of
in, on or about the Premises? Existing Tenants should describe any Hazardous
Materials which continue to be used, generated, stored or disposed of in, on or
about the Premises.

          Wastes                      Yes  [_]     No  [_]
          Chemical Products           Yes  [_]     No  [_]
          Other                       Yes  [_]     No  [_]

          If Yes is marked, please explain: ____________________________________
          ______________________________________________________________________
          ______________________________________________________________________

                                       1

<PAGE>

     2.2  If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or about the
Premises, including the applicable hazard class and an estimate of the
quantities of such Hazardous Materials at any given time; estimated annual
throughput; the proposed location(s) and method of storage (excluding nominal
amounts of ordinary household cleaners and janitorial supplies which are not
regulated by any Environmental Laws); and the proposed location(s) and method of
disposal for each Hazardous Material, including, the estimated frequency, and
the proposed contractors or subcontractors. Existing Tenants should attach a
list setting forth the information requested above and such list should include
actual data from on-going operations and the identification of any variations in
such information from the prior year's certificate.

3.   Storage Tanks and Sumps

     3.1  Is any above or below ground storage of gasoline, diesel, petroleum,
or other Hazardous Materials in tanks or sumps proposed in, on or about the
Premises? Existing Tenants should describe any such actual or proposed
activities.

          Yes  [_]      No  [_]

          If yes, please explain: ______________________________________________
          ______________________________________________________________________
          ______________________________________________________________________

4.   Waste Management

     4.1  Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing Tenants should describe any additional identification numbers
issued since the previous certificate.

          Yes  [_]      No  [_]

     4.2  Has your company filed a biennial or quarterly reports as a hazardous
waste generator? Existing Tenants should describe any new reports filed.

          Yes  [_]      No  [_]

          If yes, attach a copy of the most recent report filed.

5.   Wastewater Treatment and Discharge

     5.1  Will your company discharge wastewater or other wastes to:

          ____ storm drain?     ____  sewer?
          ____ surface water?   ____  [no wastewater or other wastes discharged.

          Existing Tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
          ______________________________________________________________________
          ______________________________________________________________________

     5.2  Will any such wastewater or waste be treated before discharge?

          Yes  [_]      No  [_]

          If yes, describe the type of treatment proposed to be conducted.
Existing Tenants should describe the actual treatment conducted.
          ______________________________________________________________________
          ______________________________________________________________________

6.   Air Discharges

     6.l  Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will discharge into
the air; and will such air emissions be monitored? Existing Tenants should
indicate whether or not there are any such air filtration systems or stacks in
use in, on or about the Premises which discharge into the air and whether such
air emissions are being monitored.

                                       2

<PAGE>

          Yes  [_]      No  [_]

          If yes, please describe: _____________________________________________
          ______________________________________________________________________
          ______________________________________________________________________

     6.2  Do you propose to operate any of the following types of equipment, or
any other equipment requiring an air emissions permit? Existing Tenants should
specify any such equipment being operated in, on or about the Premises.

          ____ Spray booth(s)          ____ Incinerator(s)
          ____ Dip tank(s)             ____ Other (Please describe)
          ____ Drying oven(s)          ____ No Equipment Requiring Air Permits

          If yes, please describe: _____________________________________________
          ______________________________________________________________________
          ______________________________________________________________________

7.   Hazardous Materials Disclosures

     7.1  Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to Fire
Department or other governmental or regulatory agencies' requirements? Existing
Tenants should indicate whether or not a Management Plan is required and has
been prepared.

          Yes  [_]      No  [_]

          If yes, attach a copy of the Management Plan. Existing Tenants should
attach a copy of any required updates to the Management Plan.

     7.2  Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises regulated
under Proposition 65? Existing Tenants should indicate whether or not there are
any new Hazardous Materials being so used which are regulated under Proposition
65.

          Yes  [_]      No  [_]

          If yes, please explain: ______________________________________________
          ______________________________________________________________________
          ______________________________________________________________________

8.   Enforcement Actions and Complaints

     8.1  With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement actions, administrative
orders, or consent decrees or has your company received requests for
information, notice or demand letters, or any other inquiries regarding its
operations? Existing Tenants should indicate whether or not any such actions,
orders or decrees have been, or are in the process of being, undertaken or if
any such requests have been received.

          Yes  [_]      No  [_]

          If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders or decrees
and also describe any requests, notices or demands, and attach a copy of all
such documents. Existing Tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not already delivered to
Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.

          ______________________________________________________________________
          ______________________________________________________________________

     8.2  Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety concerns?

          Yes  [_]      No  [_]

                                        3

<PAGE>

          If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents related
thereto as requested by Landlord. Existing Tenants should describe and attach a
copy of any new complaint(s), cross-complaint(s), pleadings and other related
documents not already delivered to Landlord pursuant to the provisions of
Section 29 of the signed Lease Agreement.

          ______________________________________________________________________
          ______________________________________________________________________

     8.3  Have there been any problems or complaints from adjacent Tenants,
owners or other neighbors at your company's current facility with regard to
environmental or health and safety concerns? Existing Tenants should indicate
whether or not there have been any such problems or complaints from adjacent
Tenants, owners or other neighbors at, about or near the Premises.

          Yes  [_]    No  [_]

          If yes, please describe. Existing Tenants should describe any such
problems or complaints not already disclosed to Landlord under the provisions
of the signed Lease Agreement.

          ______________________________________________________________________
          ______________________________________________________________________

9.   Permits and Licenses

     9.1  Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company with respect to its
proposed operations in, on or about the Premises, including, without limitation,
any wastewater discharge permits, air emissions permits, and use permits or
approvals. Existing Tenants should attach copies of any new permits and licenses
as well as any renewals of permits or licenses previously issued.

The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the Hazardous Material
Certificate notwithstanding Landlord's/Tenant's receipt and/or approval of such
certificate. Tenant further agrees that none of the following described acts or
events shall be construed or otherwise interpreted as either (a) excusing,
diminishing or otherwise limiting Tenant from the requirement to fully and
faithfully perform its obligations under the Lease with respect to Hazardous
Materials, including, without limitation, Tenant's indemnification of the
Indemnitees and compliance with all Environmental Laws, or (b) imposing upon
Landlord, directly or indirectly, any duty or Liability with respect to any such
Hazardous Materials, including, without limitation, any duty on Landlord to
investigate or otherwise verify the accuracy of the representations and
statements made therein or to ensure that Tenant is in compliance with all
Environmental Laws; (i) the delivery of such certificate to Landlord and/or
Landlord's acceptance of such certificate, (ii) Landlord's review and approval
of such certificate, (iii) Landlord's failure to obtain such certificate from
Tenant at any time, or (iv) Landlord's actual or constructive knowledge of the
types and quantities of Hazardous Materials being used, stored, generated,
disposed of or transported on or about the Premises by Tenant or Tenant's
Representatives. Notwithstanding the foregoing or anything to the contrary
contained herein, the undersigned acknowledges and agrees that Landlord and its
partners, lenders and representatives may, and will, rely upon the statements,
representations, warranties and certifications made herein and the truthfulness
thereof in entering into the Lease Agreement and the continuance thereof
throughout the term, and any renewals thereof, of the Lease Agreement.

I (print name)_____________________________, acting with full authority to bind
the (proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent
and warrant that the information contained in this certificate is true and
correct.

(Prospective) Tenant:

By:     ____________________________________
Title:  ____________________________________
Date:   ____________________________________

                                       4

<PAGE>


                                   Exhibit F
                       First Amendment to Lease Agreement
                           Change of Commencement Date

This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of ________________, by and between ___________________
("Landlord"), and _________________ ("Tenant"), with reference to the following
facts:

                                    Recitals

A.   Landlord and Tenant have entered into that certain Lease Agreement dated
____________________ (the "Lease"), for the leasing of certain premises
containing approximately __________ rentable square feet of space located at
___________________, California (the "Premises") as such Premises are more fully
described in the Lease.

B.   Landlord and Tenant wish to amend the Commencement Date of the Lease.

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:

     1.   Recitals: Landlord and Tenant agree that the above recitals are true
          --------
          and correct.

     2.   The Commencement Date of the Lease shall be__________________________.

     3.   The last day of the Term of the Lease (the "Expiration Date") shall be
          __________________.

     4.   The dates on which the Base Rent will be adjusted are:

          for the period _________ to ________ the monthly Base Rent shall be
          $_______________;
          for the period _________ to ________ the monthly Base Rent shall be
          $_______________; and
          for the period _________ to ________ the monthly Base Rent shall be
          $_______________.

     5.   Effect of Amendment: Except as modified herein, the terms and
          -------------------
conditions of the Lease shall remain unmodified and continue in full force and
effect. In the event of any conflict between the terms and conditions of the
Lease and this Amendment, the terms and conditions of terms Amendment shall
prevail.

     6.   Definitions: Unless otherwise defined in this Amendment, all terms
          -----------
not defined in this Amendment shall have the meaning set forth in the Lease.

     7.   Authority: Subject to the provisions of the Lease, this Amendment
          ---------
shall be binding upon and inure to the benefit of the parties hereto, their
respective heirs, legal representatives, successors and assigns. Each party
hereto and the persons signing below warrant that the person signing below on
such party's behalf is authorized to do so and to bind such party to the terms
of this Amendment.

     8.   The terms and provisions of the Lease are hereby incorporated in this
Amendment.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.

[PROPERTY MANAGER: Please provide Tenant Information and Word Processing will
complete the signature block]

                                       1

<PAGE>

                                    Exhibit G
           Tenant's Initial Hazardous Materials Disclosure Certificate

Your cooperation in this matter is appreciated. Initially. the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:

Landlord:     ____________________________________________
              ____________________________________________
              c/o Legacy Partners Commercial, Inc.
              101 Lincoln Centre Drive, Fourth Floor
              Foster City, California 94404
              Attn: ___________________________________
              Phone: (650) 571-2200

Name of (Prospective) Tenant: __________________________________________________

Mailing Address: _______________________________________________________________
________________________________________________________________________________

Contact Person, Title and Telephone Number(s): _________________________________

Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s): ___________________________________________________________
________________________________________________________________________________

Address of (Prospective) Premises: _____________________________________________

Length of (Prospective) Initial Term: __________________________________________


1.   General Information:

     Describe the Initial proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or otherwise
conducted. Existing Tenants should describe any proposed changes to on-going
operations.

     ___________________________________________________________________________
     ___________________________________________________________________________

2.   Use, Storage and Disposal of Hazardous Materials

     2.1  Will any Hazardous Materials be used, generated, stored or disposed of
in, on or about the Premises? Existing Tenants should describe any Hazardous
Materials which continue to be used, generated, stored or disposed of in, on or
about the Premises.

          Wastes                 Yes [_]     No [_]
          Chemical Products      Yes [_]     No [_]
          Other                  Yes [_]     No [_]

          If Yes is marked. please explain: ____________________________________
          ______________________________________________________________________
          ______________________________________________________________________

                                       1

<PAGE>

     2.2  If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or about the
Premises, including the applicable hazard class and an estimate of the
quantities of such Hazardous Materials at any given time; estimated annual
throughput; the proposed location(s) and method of storage (excluding nomina1
amounts of ordinary household cleaners and janitorial supplies which are not
regulated by any Environmental Laws); and the proposed location(s) and method of
disposal for each Hazardous Material, including, the estimated frequency, and
the proposed contractors or subcontractors. Existing Tenants should attach a
list setting forth the information requested above and such list should include
actual data from on-going operations and the identification of any variations in
such information from the prior year's certificate.

3.   Storage Tanks and Sumps

     3.1  Is any above or below ground storage of gasoline, diesel, petroleum,
or other Hazardous Materials in tanks or sumps proposed in, on or about the
Premises? Existing Tenants should describe any such actual or proposed
activities.

          Yes [_]     No [_]

          If yes, please explain: ______________________________________________
          ______________________________________________________________________
          ______________________________________________________________________

4.   Waste Management

     4.1  Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing Tenants should describe any additional identification numbers
issued since the previous certificate.

          Yes [_]     No [_]

     4.2  Has your company filed a biennial or quarterly reports as a hazardous
waste generator? Existing Tenants should describe any new reports filed.

          Yes [_]     No [_]

          If yes, attach a copy of the most recent report filed.

5.   Wastewater Treatment and Discharge

     5.1  Will your company discharge wastewater or other wastes to:

          _____ storm drain?     _____ sewer?
          _____ surface water?   _____ no wastewater or other wastes discharged.

          Existing Tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).

     5.2  Will any such wastewater or waste be treated before discharge?

          Yes [_]     No [_]

          If yes, describe the type of treatment proposed to be conducted.
Existing Tenants should describe the actual treatment conducted.

6.   Air Discharges

     6.1  Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will discharge into
the air; and will such air emissions be monitored? Existing Tenants should
indicate whether or not there are any such air filtration systems or stacks in
use in, on or about the Premises which discharge into the air and whether such
air emissions are being monitored.

                                       2

<PAGE>

          Yes [ ]       No [ ]

          If yes, please describe: ________________________________________
          _____________________________________________________________________
          _____________________________________________________________________

     6.2  Do you propose to operate any of the following types of equipment, or
any other equipment requiring an air emissions permit? Existing  Tenants should
specify any such equipment being operated in, on or about the Premises.

          ______ Spray booth(s)      _______ Incinerator(s)
          ______ Dip tank(s)         _______ Other (Please describe)
          ______ Drying oven(s)      _______ No Equipment Requiring Air Permits

          If yes, please describe: ________________________________________
          _____________________________________________________________________
          _____________________________________________________________________

7.   Hazardous Materials Disclosures

     7.1  Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to Fire
Department or other governmental or regulatory agencies' requirements? Existing
Tenants should indicate whether or not a Management Plan is required and has
been prepared.

          Yes [ ]       No [ ]

          If yes, attach a copy of the Management Plan. Existing Tenants should
attach a copy of any required updates to the Management Plan.

     7.2  Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises regulated
under Proposition 65? Existing Tenants should indicate whether or not there are
any new Hazardous Materials being so used which are regulated under Proposition
65.

          Yes [ ]       No [ ]

          If yes, please describe: ________________________________________
          _____________________________________________________________________
          _____________________________________________________________________


 8.     Enforcement Actions and Complaints

     8.1 With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement actions, administrative
orders, or consent decrees or has your company received requests for
information, notice or demand letters, or any other inquiries regarding its
operations? Existing Tenants should indicate whether or not any such actions,
orders or decrees have been, or are in the process of being, undertaken or if
any such requests have been received.

          Yes [ ]       No [ ]

          If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders or decrees
and also describe any requests, notices or demands, and attach a copy of all
such documents. Existing Tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not already delivered to
Landlord pursuant to the provisions of Section 29 of the signed Lease
Agreement.

          _____________________________________________________________________
          _____________________________________________________________________

     8.2  Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety concerns?

          Yes [ ]       No [ ]

                                       3

<PAGE>

          If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents related
thereto as requested by Landlord. Existing Tenants should describe and attach a
copy of any new complaint(s), cross-complaint(s), pleadings and other related
documents not already delivered to Landlord pursuant to the provisions of
Section 29 of the signed Lease Agreement.

          _____________________________________________________________________
          _____________________________________________________________________

     8.3  Have there been any problems or complaints from adjacent Tenants,
owners or other neighbors at your company's current facility with regard to
environmental or health and safety concerns? Existing Tenants should indicate
whether or not there have been any such problems or complaints from adjacent
Tenants, owners or other neighbors at, about or near the Premises.

          Yes [ ]       No [ ]

          If yes, please describe. Existing Tenants should describe any such
problems or complaints not already disclosed to Landlord under the provisions of
the signed Lease Agreement.

          _____________________________________________________________________
          _____________________________________________________________________

9.   Permits and Licenses

     9.1  Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company with respect to its
proposed operations in, on or about the Premises, including, without limitation,
any wastewater discharge permits, air emissions permits, and use permits or
approvals. Existing Tenants should attach copies of any new permits and licenses
as well as any renewals of permits or licenses previously issued.

The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenant's indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlord's review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time, or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenant's Representatives. Notwithstanding the
foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement.

I (print name) ______________ , acting with full authority to bind the
(proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent
and warrant that the information contained in this certificate is true and
correct.

(Prospective) Tenant:

By:    ___________________________
Title: ___________________________
Date:  ___________________________

                                       4

<PAGE>

                                    EXHIBIT 1

                         SUBORDINATION, NON-DISTURBANCE
                            AND ATTORNMENT AGREEMENT
                            ------------------------

          This Subordination, Non-Disturbance and Attornment Agreement (this
"Agreement") is as of the ___day of __________, 19__, between Credit Suisse
First Boston Mortgage Capital LLC ("Lender") and ____________ ("Tenant").

                                    RECITALS
                                    --------

          A.   Tenant is the tenant under a certain lease (the "Lease"), dated
as of __________, 19__, with ___________ ("Landlord"), of premises described in
the Lease (the "Premises") as more particularly described in Exhibit A hereto.
                                                             ---------

          B.   This Agreement is being entered into in connection with a certain
loan (the "Loan") which Lender has made to Landlord, and secured in part by a
Deed of Trust, assignment of leases and rents and security agreement on the
Premises (the "Deed of Trust") dated as of _________, 199_ and an assignment of
leases and rents dated as of __________, 199_ (the "Assignment": the Deed of
Trust, the Assignment and the other documents executed and delivered in
connection with the Loan are hereinafter collectively referred to as the "Loan
Documents").

                                    AGREEMENT
                                    ---------

         For mutual consideration, including the mutual covenants and
agreements set forth below, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

          1.   Tenant agrees that the Lease and all terms and conditions
contained therein and all rights, options, liens and charges created thereby is
and shall be subject and subordinate in all respects to the Loan Documents and
to all present or future advances under the obligations secured thereby and all
renewals, amendments, modifications, consolidations, replacements and extensions
of secured obligations and the Loan Documents, to the full extent of all amounts
secured by the Loan Documents from time to time.

          2.   Lender agrees that, if Lender exercises any of its rights under
the Loan Documents such that it becomes the owner of the Premises, including
but not limited to an entry by Lender pursuant to the Deed of Trust, a
forec1osure of the Deed of Trust, a power of sale under the Deed of Trust or
otherwise: (a) the Lease shall continue in full force and effect as a direct
lease between Lender and Tenant, and subject to all the terms, covenants and
conditions of the Lease, and (b) Lender shall not disturb Tenant's right of
quiet possession of the Premises under the terms of the Lease so long as Tenant
is not in default beyond any applicable grace period of any term, covenant or
condition of the Lease.

          3.   Tenant agrees that, in the event of a exercise of the power of
sale or foreclosure of the Deed of Trust by Lender or the acceptance of a deed
in lieu of foreclosure by Lender or any other succession of Lender to
ownership of the Premises. Tenant will attorn to and recognize Lender as its
landlord under the Lease for the remainder of the term of the Lease (including
all extension periods which have been or are hereafter exercised) upon the same
terms and conditions as are set forth in the Lease, and Tenant hereby agrees to
pay and perform all of the obligations of Tenant pursuant to the Lease.

          4.   Tenant agrees that, in the event Lender succeeds to the interest
of Landlord under the Lease, Lender shall not be:

          (a)  liable in any way for any act, omission, neglect or default of
any prior Landlord (including, without limitation, the then defaulting
Landlord), or

          (b)  subject to any claim, defense, counterclaim or offsets which
Tenant may have against any prior Landlord (including, without limitation, the
then defaulting Landlord), or

          (c)  bound by any payment of rent or additional rent which Tenant
might have paid for more than one month in advance of the due date under the
Lease to any prior Landlord (including, without limitation, the then defaulting
Landlord), or

          (d)  bound by any obligation to make any payment to Tenant which was
required to be made prior to the time Lender succeeded to any prior Landlord's
interest, or

          (e)  accountable for any monies deposited with any prior Landlord
(including security deposits), except to the extent such monies are actually
received by Lender, or

          (f)  bound by any amendment or modification of the Lease made without
the written consent of Lender.

                                       1

<PAGE>

          Nothing contained herein shall prevent Lender from naming Tenant in
any foreclosure or other action or proceeding initiated in order for Lender to
avail itself of and complete any such foreclosure or other remedy.

          5.   Tenant hereby agrees to give to Lender copies of all notices of
Landlord default(s) under the Lease in the same manner as, and whenever, Tenant
shall give any such notice of default to Landlord and no such notice of default
shall be deemed given to Landlord unless and until a copy of such notice shall
have been so delivered to Lender. Lender shall have the right but no obligation
to remedy any landlord default under the Lease, or to cause any default of
Landlord under the Lease to be remedied, and for such purpose Tenant hereby
grants Lender, in addition the period given to Landlord for remedying defaults,
an additional 30 days to remedy, or cause to be remedied, any such default.
Tenant shall accept performance by Lender of any term, covenant, condition or
agreement to be performed by Landlord under the Lease with the same force and
effect as though performed by Landlord. No Landlord default under the Lease
shall exist or shall be deemed to exist (i) as long as Lender, in good faith,
shall have commenced to cure such default within the above reference time period
and shall be prosecuting the same to completion with reasonable diligence,
subject to force majeure, or (ii) if possession of the Premises is required in
order to cure such default, or if such default is not susceptible of being cured
by Lender, as long as Lender, in good faith, shall have notified Tenant that
Lender intends to institute proceedings under the Loan Documents, and,
thereafter, as long as such proceedings shall have been instituted and shall be
prosecuted with reasonable diligence. In the event of the termination of the
Lease by reason of any default thereunder by Landlord, upon Lender's written
request, given within thirty (30) days after any such termination, Tenant,
within fifteen (15) days after receipt of such request, shall execute and
deliver to Lender or its designee or nominee a new lease of the Premises for
the remainder of the term of the Lease upon all of the terms, covenants and
conditions of the Lease. Neither Lender nor its designee or nominee shall become
liable under the Lease unless and until Lender or its designee or nominee
becomes, and then only with respect to periods in which Lender or its designee
or nominee remains, the owner of the Premises. In no event shall Lender have
any personal liability as successor to Landlord and Tenant shall look only to
the estate and property of Lender in the Premises for the satisfaction
of Tenant's remedies for the collection of a judgment (or other judicial
process) requiring the payment of money in the event of any default by Lender as
Landlord under the Lease, and no other property or assets of Lender shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to the Lease. Lender shall have the
right, without Tenant's consent, to foreclose the Deed of Trust or to accept a
deed in lieu of foreclosure of the Deed of Trust or to exercise any other
remedies under the Loan Documents.

          6.   Tenant has no knowledge of any prior assignment or pledge of the
rents accruing under the Lease by Landlord. Tenant hereby acknowledges the
making of the Assignment from Landlord to Lender in connection with the Loan.
Tenant acknowledges that the interest of the Landlord under the Lease is to be
assigned to Lender solely as security for the purposes specified in said
assignments, and Lender shall have no duty, liability or obligation whatsoever
under the Lease or any extension or renewal thereof, either by virtue of said
assignments or by any subsequent receipt or collection of rents thereunder,
unless Lender shall specifically undertake such liability in writing.

          7.   If Tenant is a corporation, each individual executing this
Agreement on behalf of said corporation represents and warrants that s/he is
duly authorized to execute and deliver this Agreement on behalf of said
corporation, in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the by-laws of said
corporation, and that this Agreement is binding upon said corporation in
accordance with its terms. If Landlord is a partnership, each individual
executing this Agreement on behalf of said partnership represents and warrants
the s/he is duly authorized to execute and deliver this Agreement on behalf of
said partnership in accordance with the partnership agreement for said
partnership.

          8.   Any notice, election, communication, request or other document or
demand required or permitted under this Agreement shall be in writing and shall
be deemed delivered on the earlier to occur of (a) receipt or (b) the date of
delivery, refusal or nondelivery indicated on the return receipt, if deposited
in a United States Postal Service Depository, postage prepaid, sent certified or
registered mail, return receipt requested, or if sent via recognized commercial
courier service providing for a receipt, addressed to Tenant or Lender, as the
case may be at the following addresses:

     If to Tenant:

     NetFlix.Com
     ---------------------------------
     750 University Ave
     ---------------------------------
     Los Gatos CA 95032  ATTN: CFO
     ---------------------------------

     with a copy to:

     _________________________________

     _________________________________

     _________________________________

     _________________________________

                                       2

<PAGE>

          If to Lender:    Credit Suisse First Boston Mortgage Capital LLC
                           11 Madison Avenue,
                           New York, New York 10010
                           Attention: _____________________

          with a copy to:  Cadwalader, Wickersham & Taft
                           100 Maiden Lane
                           New York, New York 10038
                           Attention: William P. McInerney, Esq.

          9.  The term "Lender" as used herein includes any successor or assign
of the named Lender herein, including without limitation, any co-lender at the
time of making the Loan, any purchaser at a foreclosure sale and any transferee
pursuant to a deed in lieu of foreclosure, and their successors and assigns, and
the term "Tenant" as used herein includes any successor and assign of the named
Tenant herein.

          10. If any provision of this Agreement is held to be invalid or
unenforceable by a court of competent jurisdiction, such provision shall be
deemed modified to the extent necessary to be enforceable, or if such
modification is not practicable such provision shall be deemed deleted from this
Agreement, and the other provisions of this Agreement shall remain in full force
and effect.

          11. Neither this Agreement nor any of the terms hereof may be
terminated, amended, supplemented, waived or modified orally, but only by an
instrument in writing executed by the party against which enforcement of the
termination, amendment, supplement, waiver or modification is sought.

          12. This Agreement shall be construed in accordance with the laws of
the State of ____________________.


          Witness the execution hereof as of the date first above written.

                                         [LENDER]

                                          By:___________________________________
                                             Name: _____________________________
                                             Title: ____________________________

                                         [TENANT]

                                         By:  /s/ Netflix.com
                                            ------------------------------------
                                            Name:  /s/ W. Barry McCarthy, Jr.
                                                   -----------------------------
                                            Title: CFO
                                                   -----------------------------

          The undersigned Landlord hereby consents to the foregoing Agreement
and confirms the facts stated in the foregoing Agreement.

                                         [LANDLORD]

                                         By:____________________________________
                                            Name: ______________________________
                                            Title:______________________________

                                       3

<PAGE>

                       First Amendment to Lease Agreement
                           Change of Commencement Date


This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of December 3, 1999, by and between LINCOLN-RECP OLD
OAKLAND OPCO, LLC, a Delaware limited liability company ("Landlord"), and
NetFlix.com, a Delaware corporation ("Tenant"), with reference to the following
facts:

                                    Recitals

A.  Landlord and Tenant have entered into that certain Lease Agreement dated
August 11, 1999 (the "Lease"), for the leasing of certain premises containing
approximately 31,830 rentable square feet of space located at 2219 Old Oakland
Road, San Jose, California (the "Premises") as such Premises are more fully
described in the Lease.

B.  Landlord and Tenant wish to amend the Commencement Date of the Lease.

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:

    1. Recitals: Landlord and Tenant agree that the above recitals are true and
       --------
       correct.

    2. The Commencement Date of the Lease shall be December 7, 1999.

    3. The last day of the Term of the Lease (the "Expiration Date") shall be
       December 6, 2004.

    4. The dates on which the Base Rent will be adjusted are:

       for the period December 7, 2000 to December 6, 2001 the monthly Base Rent
       shall be $38,196.00;
       for the period December 7, 2001 to December 6, 2002 the monthly Base Rent
       shall be $39,788.00;
       for the period December 7, 2002 to December 6, 2003 the monthly Base Rent
       shall be $41,379.00; and
       for the period December 7, 2003 to December 6, 2004 the monthly Base Rent
       shall be $42,971.00.

    5. Effect of Amendment: Except as modified herein, the terms and conditions
       -------------------
of the Lease shall remain unmodified and continue in full force and effect. In
the event of any conflict between the terms and conditions of the Lease and this
Amendment, the terms and conditions of this Amendment shall prevail.

    6. Definitions: Unless otherwise defined in this Amendment, all terms not
       -----------
defined in this Amendment shall have the meaning set forth in the Lease.

    7. Authority: Subject to the provisions of the Lease, this Amendment shall
       ---------
be binding upon and inure to the benefit of the parties hereto, their respective
heirs, legal representatives, successors and assigns. Each party hereto and the
persons signing below warrant that the person signing below on such party's
behalf is authorized to do so and to bind such party to the terms of this
Amendment.

    8. The terms and provisions of the Lease are hereby Incorporated in this
Amendment.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.

Tenant:

NetFlix.com,
a Delaware corporation

By:   /s/ W. Barry McCarthy, Jr.
      --------------------------

Its:  CFO/Secretary
      --------------------------

Date: 1-24-00
      --------------------------

By:   _____________________

Its:  Secretary

Date: _____________________


Landlord:

LINCOLN-RECP OLD OAKLAND, LLC.
a Delaware limited liability company

By: LEGACY PARTNERS COMMERCIAL, INC.,
    as manager and agent for Lincoln-RECP Old Oakland OPCO, LLC

    By:  /s/ [ILLEGIBLE]
        ------------------------------
             Senior Vice President

    Date: ____________________________

If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
               -----------
corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president and the secretary or assistant
                                               ---
secretary, unless the bylaws or a resolution of the board of directors shall
           ------
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.

                                       1

<PAGE>

                                    Exhibit A
                    Original Premises and Additional Premises



     The non cross-hatched area below represents the "Additional Premises".

                                  [FLOOR PLAN]
                              2219 OLD OAKLAND ROAD
                              SAN JOSE, CALIFORNIA

<PAGE>

                       Second Amendment to Lease Agreement

This Second Amendment to Lease Agreement (the "Amendment") is made and entered
into as of January 4, 2000, by and between LINCOLN-RECP OLD OAKLAND OPCO, LLC, a
Delaware limited liability company ("Landlord"), and NETFLIX.COM, a Delaware
corporation ("Tenant"), with reference to the following facts.

                                    Recitals

A.   Landlord and Tenant have entered into that certain Lease Agreement dated as
of August 11, 1999 (the "Lease"), for the leasing of certain premises consisting
of approximately 31,830 rentable square feet located at 2219 Old Oakland Road,
San Jose, California (the "Original Premises") as such Original Premises are
more fully described in the Lease.

B.   Landlord and Tenant now wish to amend the Lease to provide for, among other
things, the addition of certain contiguous space to the Original Premises, all
upon and subject to each of the terms, conditions, and provisions set forth
herein.


NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant agree as follows:

     1.   Recitals: Landlord and Tenant agree that the above recitals are true
          --------
and correct and are hereby incorporated herein as though set forth in full.

     2.   Premises:
          --------

          2.1  Commencing on February 1, 2000 (the "AP Commencement Date") there
shall be added to the Original Premises those certain premises consisting of
approximately 26,490 rentable square feet located at 2217 Old Oakland Road, San
Jose, California (the "Additional Premises"), which Additional Premises are
depicted on the buildinq plan attached hereto and made a part hereof as Exhibit
A.

          2.2  For purposes of the Lease, from and after the AP Commencement
Date, the "Premises" as defined in Section 1 of the Lease shall mean and refer
to the aggregate of the Original Premises and the Additional Premises consisting
of a combined total of approximately 57,850 rentable square feet located at
2219 Old Oakland Road. Accordingly, from and after the AP Commencement Date, all
references in this Amendment and in the Lease to the term "Premises" shall mean
and refer to the Original Premises and the Additional Premises. Landlord and
Tenant hereby agree that for purposes of the Lease, from and after the AP
Commencement Date, the rentable square footage area of the Premises shall be
conclusively deemed to be 58,320 rentable square feet. In addition to the
foregoing, it is the parties express intention that the balance of the Term of
the Lease for the Original Premises and the Additional Premises be coterminous
with the Expiration Date of the initial Term as specified in the Lease and that
any option or renewal term described in the Lease shall be applicable to both
the Premises and the Additional Premises.

          2.3  Notwithstanding anything to the contrary contained herein or in
the Lease, Landlord shall neither be subject to any liability, nor shall the
validity of the Lease be affected if Landlord is not able to deliver to Tenant
possession of the Additional Premises by the AP Commencement Date. Provided,
however, Tenant's obligation to pay Rent on the Additional Premises shall
commence on the date possession is tendered.

     3.   Base Rent: The Basic Lease Information and Section 3 of the Lease are
          ---------
hereby modified to provide that during the Term of the Lease the monthly Base
Rent payable by Tenant to Landlord, in accordance with the provisions of Section
3 of the Lease shall be as follows:

<TABLE>
<CAPTION>
                                  Original Premises     Additional Premises  Aggregated Amount of
            Period                Monthly Base Rent      Monthly Base Rent     Monthly Base Rent
            <S>                   <C>                   <C>                  <C>
            02/01/00 - 12/06/00     $   36,464.00          $   30,464.00         $   67,069.00
            12/07/00 - 12/06/01     $   38,196.00          $   31,788.00         $   69,984.00
            12/07/01 - 12/06/02     $   39,788.00          $   33,113.00         $   72,901.00
            12/07/02 - 12/06/03     $   41,379.00          $   34,437.00         $   75,816.00
            12/07/03 - 12/06/04     $   42,971.00          $   35,762.00         $   78,733.00
</TABLE>

                                       1

<PAGE>

     4.   Condition of the Additional Premises: Subject to the provisions of
          ------------------------------------
Section 2 above, on the AP Commencement Date Landlord shall deliver to Tenant
possession of the Additional Premises in its then existing condition and state
of repair, "AS IS", without any obligation of Landlord to remodel, improve or
alter the Additional Premises, to perform any other construction or work of
improvement upon the Additional Premises, or to provide Tenant with any
construction or refurbishing allowance. Tenant acknowledges that no
representations or warranties of any kind, express or implied, respecting the
condition of the Additional Premises, Building, or Park or have been made by
Landlord or any agent of Landlord to Tenant, except as expressly set forth
herein. Tenant further acknowledges that neither Landlord nor any of Landlord's
agents, representatives or employees have made any representations as to the
suitability or fitness of the Additional Premises for the conduct of Tenant's
business, including without limitation, any storage incidental thereto, or for
any other purpose. Any exception to the foregoing provisions must be made by
express written agreement signed by both parties.

     5.   Security Deposit: Tenant's existing Security Deposit of Two Hundred
          ----------------
Nineteen Thousand Six Hundred Thirty and 00/100 Dollars ($219,630.00) shall be
reduced to Zero Dollars ($0.00) and such Security Deposit amount shall be
returned to Tenant upon Landlord's receipt of the Letter of Credit (which must
be in form and content acceptable to Landlord as set froth in Section 14)
pursuant to Section 14 of this Amendment. In addition, the final two (2)
sentences of Section 4 of the Lease are hereby deleted and of no further force
or effect.

     6.   Tenant's Share of Operating Expenses: As of the AP Commencement Date,
          ------------------------------------
the Lease shall be modified to provide that Tenant's Share of Operating Expenses
(as defined in the Basic Lease Information and Section 6 of the Lease) shall be
increased to 100% of the Building, 41% of the Park.

     7.   Tenant's Share of Tax Expenses: As of the AP Commencement Date, the
          ------------------------------
Lease shall be modified to provide that Tenant's Share of Tax Expenses (as
defined in the Basic Lease Information and Section 6.2 of the Lease) shall be
increased to 41%.

     8.   Tenant's Share of Utility Expenses: As of the AP Commencement Date,
          ----------------------------------
the Lease shall be modified to provide that Tenant's Share of Utility Expenses
(as defined in the Basic Lease Information and Section 7 of the Lease) shall be
increased to 100% of the Building, 41% of the Park.

     9.   Tenant's Share of Common Area Utility Costs: As of the AP Commencement
          -------------------------------------------
Date, the Lease shall be modified to provide that Tenant's Share of Common Area
Utility Costs (as defined in the Basic Lease Information and Section 7 of the
Lease) shall be increased to 100% of the Building, 41% of the Park.

     10.  Unreserved Parking Spaces: As of the AP Commencement Date, the Lease
          -------------------------
shall be modified to provide that Tenant's Unreserved Parking Spaces (as defined
in the Basic Lease Information) shall be increased to two hundred thirty-three
(233).

     11.  Insurance: Tenant shall deliver to Landlord, upon execution of this
          ---------
Amendment, a certificate of insurance evidencing that the Additional Premises
are included within and covered by Tenant's insurance policies required to be
carried by Tenant pursuant to the Lease.

     12.  Brokers: Tenant warrants that it has had no dealings with any real
          -------
estate broker or agent in connection with the negotiation of this Amendment
other than Cornish & Carey. If Tenant has dealt with any other person, real
estate broker or agent with respect to this Amendment other than Cornish &
Carey, Tenant shall be solely responsible for the payment of any fee due to said
person or firm, and Tenant shall indemnify, defend and hold Landlord free and
harmless against any claims, judgments, damages, costs, expenses, and
liabilities with respect thereto, including attorneys' fees and costs.

     13.  Park and Building: The Park, as defined in the Basic Lease
          -----------------
Information, shall herein be modified to reflect the current aggregate building
area of 140,710 rentable square feet, and the Building, as defined in the Basic
Lease Information shall herein be modified to 58,306 rentable square feet.

     14.  Collateral for Performance of Lease Obligations: Simultaneously with
          -----------------------------------------------
Tenant's execution and delivery of this Amendment to Landlord and as a condition
precedent to the effectiveness of this Amendment, Tenant shall deliver to
Landlord, as collateral for the full and faithful performance by Tenant of all
of its obligations under this Lease and for all losses and damages Landlord may
suffer as a result of any default by Tenant under this Lease, an irrevocable and
unconditional negotiable letter of credit, in the form and containing the terms
required herein, payable in the City of Foster City, California running in favor
of Landlord issued by a solvent bank under the supervision of the Superintendent
of Banks of the State of California, or a National Banking Association, in the
amount of Four Hundred Two Thousand and 00/100 Dollars ($402,000.00)(the
"Letter of Credit"). The Letter of Credit shall be (a) at sight and irrevocable,
(b) maintained in effect, whether through replacement, renewal or extension, for
the entire Lease Term (the "Letter of Credit Expiration Date") and Tenant shall
deliver a new Letter of Credit or certificate of renewal or extension to

                                       2

<PAGE>

Landlord at least thirty (30) days prior to the expiration of the Letter of
Credit, without any action whatsoever on the part of Landlord, (c) subject to
the Uniform Customs and Practices for Documentary Credits (1993-Rev)
International Chamber of Commerce Publication #500, (d) acceptable to Landlord
in its sole discretion, and (e) fully assignable by Landlord by amendment
thereto in accordance with customary letter of credit practice and permit
partial draws. In addition to the foregoing, the form and terms of the Letter of
Credit (and the bank issuing the same) shall be acceptable to Landlord, in
Landlord's sole discretion, and shall provide, among other things, in effect
that: (1) Landlord, or its then managing agent, shall have the right to draw
down an amount up to the face amount of the Letter of Credit upon the
presentation to the issuing bank of Landlord's (or Landlord's then managing
agent's) statement that such (A) amount is due to Landlord under the terms and
conditions of this Lease, it being understood that if Landlord or its managing
agent be a corporation, partnership or other entity, then such statement shall
be signed by an officer (if a corporation), a general partner (if a
partnership), or any authorized party (if another entity), and (B) an event of
default has occurred under this Lease and all applicable notice and cure periods
have elapsed; (2) the Letter of Credit will be honored by the issuing bank
without inquiry as to the accuracy thereof and regardless of whether the Tenant
disputes the content of such statement; and (3) in the event of a transfer of
Landlord's interest in the Building, Landlord shall transfer the Letter of
Credit, in whole or in part (or cause a substitute letter of credit to be
delivered, as applicable), to the transferee and thereupon the Landlord shall,
without any further agreement between the parties, be released by Tenant from
all liability therefor, and it is agreed that the provisions hereof shall apply
to every transfer or assignment of the whole or any portion of said Letter of
Credit to a new Landlord. If, as a result of any such application of all or any
part of the Letter of Credit, the amount of the Letter of Credit shall be less
than Four Hundred Two Thousand and 00/100 Dollars ($402,000.00), Tenant shall
within five (5) days thereafter provide Landlord with additional letter(s) of
credit in an amount equal to the deficiency (or a replacement letter of credit
in the total amount of Four Hundred Two Thousand and 00/100 Dollars
($402,000.00) and each such additional (or replacement) letter of credit shall
comply with all of the provisions of this Section 14, and if Tenant fails to do
so, the same shall constitute an incurable default by Tenant. Tenant further
covenants and warrants that it will neither assign nor encumber the Letter of
Credit or any part thereof and that neither Landlord nor its successors or
assigns will be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance. Without limiting the generality of the foregoing, if
the Letter of Credit expires earlier than the Letter of Credit Expiration Date,
Landlord will accept a renewal thereof or substitute letter of credit (such
renewal or substitute letter of credit to be in effect not later than thirty
(30) days prior to the expiration thereof), which shall be irrevocable an
automatically renewable as above provided through the Letter of Credit
Expiration Date upon the same terms as the expiring letter of credit or such
other terms as may be acceptable to Landlord in its reasonable discretion.
However, if the Letter of Credit is not timely renewed or a substitute letter of
credit is not timely received, or if Tenant fails to maintain the Letter of
Credit in the amount and terms set forth in this Section 14, Landlord shall have
the right to present such Letter of Credit to the bank in accordance with the
terms of this Section 14, and the entire sum evidenced thereby shall be paid to
and held by Landlord as collateral for performance of all of Tenant's
obligations under this Lease and for all losses and damages Landlord may suffer
as a result of any default by Tenant under this Lease. If there shall occur a
default under this Lease as set forth in Section 20 of this Lease, Landlord may,
but without obligation to do so, draw upon the Letter of Credit, in part or in
whole, to cure any default of Tenant and/or to compensate Landlord for any and
all damages of any kind or nature sustained or which may be sustained by
Landlord resulting from Tenant's default. Tenant agrees not to interfere in any
way with payment to Landlord of the proceeds of the Letter of Credit, either
prior to or following a "draw" by Landlord of any portion of the Letter of
Credit, regardless of whether any dispute exists between Tenant and Landlord as
to Landlord's right to draw from the Letter of Credit. No condition or term of
this Lease shall be deemed to render the Letter of Credit conditional to justify
the issuer of the Letter of Credit in failing to honor a drawing upon such
Letter of Credit in a timely manner. Landlord and Tenant acknowledge and agree
that in no event or circumstance shall the Letter of Credit or any renewal
thereof or substitute therefor be (i) deemed to be or treated as a "security
deposit" within the meaning of California Civil Code Section 1950.7 (as
supplemented, amended, replaced and substituted from time to time), (ii) subject
to the terms of such Section 1950.7 (as supplemented, amended, replaced and
substituted from time to time), or (iii) intended to serve as a "security
deposit" within the meaning of such Section 1950.7 (as supplemented, amended,
replaced and substituted from time to time). The parties hereto (x) recite that
the Letter of Credit is not intended to serve as a security deposit and such
Section 1950.7 (as supplemented, amended, replaced and substituted from time to
time) and any and all other laws, rules and regulations applicable to security
deposits in the commercial context ("Security Deposit Laws") shall have no
applicability or relevancy to the Letter of Credit and (y) waive any and all
rights, duties and obligations either party may now or, in the future, will have
relating to or arising from the Security Deposit Laws.

 Notwithstanding the foregoing, on the third anniversary of the Commencement
Date of the Lease, or following Tenant's public offering of its stock and
subsequent achievement of a net worth of at least Forty Million Dollars
($40,000,000.00) and such net worth is then sustained for three consecutive
financial quarters and substantiated by financial reports provided by Tenant to
Landlord, which ever event occurs sooner, and, so long as Tenant has not been in
material default of the Lease beyond any applicable cure period, then Tenant
shall have the right to provide a cash Security Deposit to Landlord in the
amount of Seventy Eight Thousand Seven Hundred Thirty-Three and 00/100 Dollars
($78,733.00) (the "New Deposit"). In the event that Tenant has met the financial
and other requirements set forth above and Tenant is no longer required to
maintain the Letter of Credit, so long as Tenant delivers the New Deposit to
Landlord, as set forth herein, Landlord and Tenant shall execute an Amendment to
the Lease signifying such removal of the Letter of Credit requirement and Tenant
shall deposit the New Deposit with Landlord and Landlord shall return the Letter
of Credit to

                                       3

<PAGE>

Tenant. Thereafter, for the purposes of this Lease, the New Deposit shall be
(i) deemed to be the "Security Deposit" under the terms of the Lease and (ii)
subject to all of the provisions of the Lease relating to the "Security
Deposit".

     15. Tenant's Early Termination Option: The parties hereby acknowledge and
         ---------------------------------
agree that effective as of the date of this Amendment the Termination Option
pursuant to Section 41 of the Lease shall be deleted in its entirety and shall
be of no further force and effect and Tenant shall have no further right to
terminate the Lease.

     16. Effect of Amendment: Except as modified herein, the terms and
         -------------------
conditions of the Lease shall remain unmodified and continue in full force and
effect. In the event of any conflict between the terms and conditions of the
Lease and this Amendment, the terms and conditions of this Amendment shall
prevail.

     17. Definitions: Unless otherwise defined in this Amendment, all terms
         -----------
not defined in this Amendment shall have the meanings assigned to such terms in
the Lease.

     18. Authority: Subject to the assignment and subletting provisions of the
         ---------
Lease, this Amendment shall be binding upon and inure to the benefit of the
parties hereto, their respective heirs, legal representatives, successors and
assigns. Each party hereto and the persons signing below warrant that the person
signing below on such party's behalf is authorized to do so and to bind such
party to the terms of this Amendment.

     19. Incorporation: The terms and provisions of the Lease are hereby
         -------------
incorporated in this Amendment.

     IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first above written.

Tenant:

NETFLIX.COM,
a Delaware corporation

By:       /s/ W. Barry McCarthy, Jr.
       -----------------------------

Its:             CFO
       -----------------------------

Date:           1/5/00
       -----------------------------


By:       /s/ [ILLEGIBLE]
       -----------------------------

Its:             COO
       -----------------------------

Date:          1/2/00
       -----------------------------


Landlord:

LINCOLN-RECP OLD OAKLAND OPCO, LLC,
a Delaware limited liability company

By:   LEGACY PARTNERS COMMERCIAL, INC.,
      as manager and agent for Lincoln-RECP Old Oakland OPCO, LLC

      By:   _________________________________
            Senior Vice President

Date: _________________________________

If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
               -----------
corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president and the secretary or assistant
secretary, unless the bylaws or a resolution of the board of directors shall
           ------
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.

                                    Exhibit A
                    Original Premises and Additional Premises

                                       4

<PAGE>

The non cross-hatched area below represents the "Additional Premises".

                                       5

<PAGE>

                            THIRD AMENDMENT TO LEASE
                            ------------------------

          THIS THIRD AMENDMENT TO LEASE (this "Amendment") is made as of the 12
day of June, 2001 (the "Effective Date"), by and between JOSEPH A. SULLY, an
individual ("Landlord"), and NETFLIX.COM, a Delaware corporation ("Tenant"),
with reference to the following facts and objectives:

                                    RECITALS

          A.    Lincoln RECP Old Oakland OPCO, LLC, a Delaware limited liability
company ("Lincoln"), as predecessor in interest to Landlord, and Tenant entered
into that certain Lease Agreement (NNN R&D) dated August 19, 1999 (the "Lease"),
as amended by that certain First Amendment to Lease Agreement (the "First
Amendment") dated January 4, 2000 by and between Lincoln and Tenant and that
certain Second Amendment to Lease Agreement (the "Second Amendment") dated
January 4, 2000 by and between Lincoln and Tenant, pursuant to which Tenant has
leased approximately 57,580 square feet of space located at 2219 Old Oakland
Road, San Jose, California, as more particularly described therein (the
"Premises"). The Lease, the First Amendment and the Second Amendment shall
hereinafter collectively be referred to as the "Lease Agreement." The Lease
Agreement was subsequently assigned by Lincoln to Landlord.

          B.    Upon execution of the Lease, Tenant deposited with Lincoln Two
Hundred Nineteen Thousand Six Hundred Thirty and 00/100 Dollars ($219,630.00),
in cash, as a security deposit (the "Security Deposit"). Subsequently, pursuant
to the Second Amendment, the Security Deposit was replaced with a letter of
credit (the "Letter of Credit") provided by Tenant to Lincoln (and now held by
Landlord) in the amount of Four Hundred Two Thousand and 00/100 Dollars
($402,000.00). Landlord is currently refinancing the property of which the
Premises are a part and, in connection therewith, Landlord and Tenant would like
to replace the Letter of Credit with cash to be held as a cash security deposit.

          C.    Landlord and Tenant now desire to amend the Lease Agreement to
provide for replacement of the Letter of Credit with a cash security deposit.

                                    AGREEMENT

          NOW, THEREFORE, in consideration of good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

          1.  Security Deposit.  Sections 5 and 14 of the Second Amendment are
              ----------------
hereby deleted in their entirety. The "Security Deposit" section of the Basic
Lease Information of the Lease is hereby deleted in its entirety and replaced
with the following: "Security Deposit ((P)4): Four Hundred Two Thousand and
00/100 dollars ($402,000.00), subject to the adjustments set forth in Section 4
of the Lease." In addition, in lines twenty-three and twenty-four of Section 4
of the Lease, the phrase "Forty Two Thousand Nine Hundred Seventy-One and 00/100
Dollars ($42,971.00)" is hereby deleted and replaced with the following phrase:
"Seventy-Eight Thousand Seven Hundred Thirty-Three and 00/100 Dollars
($78,733.00)".

          Upon the Effective Date, Landlord shall return the Letter of Credit to
Tenant and, within three (3) days after Tenant receives the Letter of Credit
from Landlord, Tenant shall deposit with Landlord the sum of Four Hundred Two
Thousand and 00/100 Dollars ($402,000.00), in cash, to be held as a security
deposit pursuant to and in accordance with and subject to Section 4 of the
Lease.

                                       1

<PAGE>

          2.  Miscellaneous. If any one or more of the provisions contained in
              -------------
this Amendment shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. Captions are
inserted for convenience only and will not affect the construction hereof.
Unless otherwise defined herein, all capitalized terms used herein shall have
the meanings ascribed to them in the Lease Agreement. This Amendment, together
with the Lease Agreement, constitutes the entire agreement between Landlord and
Tenant regarding the Lease Agreement and the subject matter contained herein and
supersedes any and all prior and/or contemporaneous oral or written
negotiations, agreements or understandings. This Amendment may not be orally
changed or terminated, nor any of its provisions waived, except by an agreement
in writing signed by the party against whom enforcement of any changes,
termination or waiver is sought. This Amendment shall be binding upon, and inure
to the benefit of the parties hereto, their respective legal representatives,
successors and assigns.

          IN WITNESS WHEREOF, the parties have executed this Amendment, by their
duly authorized signatories, as of the day and year first above written.

LANDLORD:                               TENANT:



                                        NETFLIX.COM,
                                        a Delaware corporation

     /s/ Joseph A. Sully               By      /s/ W. Barry McCarthy, Jr.
- -------------------------------           ----------------------------------
    JOSEPH A. SULLY                    Name        W. BARRY MCCARTHY, JR.
                                            --------------------------------
                                       Title       CFO
                                            --------------------------------

                                        2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>13
<FILENAME>dex109.txt
<DESCRIPTION>OFFER LETTER TO W. BARRY MCCARTHY
<TEXT>
<PAGE>

                                                                    Exhibit 10.9

                                                 [LETTERHEAD OF NETFLIX.COM(TM)]

April 19, 1999



W. Barry McCarthy
113 Gallup Road
Princeton, NJ 08540


Dear Barry:

On behalf of NetFlix, Inc., it is my pleasure to offer to you for the position
of Chief Financial Officer reporting to Reed Hastings, CEO. Your annual salary
will be $170,000 to be paid bi-weekly. You will also receive an annual bonus
targeted at $20,000.00 based on mutually determined factors and paid in
six-month increments.

In addition, we are pleased to offer you an option to purchase 330,000 shares of
the Company's Common Stock, subject to final approval by the Board of Directors.
The purchase price will be equal to the fair market value at the date of the
grant in accordance with the NetFlix, Inc. 1997 Stock Plan. These options will
vest over four years with one year cliff vesting and monthly vesting thereafter.
Should NetFlix.com be acquired, 50% (fifty percent) of these unvested options,
or 12 months worth whichever is greater, will vest immediately. If the Company
is acquired prior to May 1, 2000, total vested options shall be 206,250.

The Company will provide relocation assistance for you and your family to
relocate from Princeton, New Jersey to the San Francisco Bay Area to a cap of
$50,000. This does not include your temporary travel and short term
accommodations until your family joins you (anticipated to be July 1999). These
expenses will be either pre-paid by the Company or reciepted and reimbursed to
you.

As a full-time employee of NetFlix, you are entitled to standard company
employee benefits such as vacation, sick leave and full medical insurance.

It should be noted that as a condition of employment, you will be required to
sign an agreement which addresses the issues of confidentiality, conflicts of
interest, non-competition, and patent assignments. Additionally, on your first
day of employment, you will be required to provide the Company documentary
evidence of your identity and eligibility for employment in the United States to
satisfy the requirements of Employment Eligibility Verifications (Form I-9) as
required by Federal law.

While we hope and expect that this will be the beginning of a long and rewarding
employment relationship, your employment is at-will, and either you or NetFlix
may terminate this employment relationship at anytime and for any reason, with
or without cause. We will provide you severance of six months with continued
salary and benefits if your employment is terminated for reason other than cause
during your first year of employment.

The entire NetFlix team is looking forward to working with you!

Sincerely,



/s/ Reed Hastings
- -------------------------
Reed Hastings
CEO

Agreed to and accepted:


/s/ W. Barry McCarthy, Jr.             4/19/99                   4/19/99
- --------------------------            ---------                 ----------
W. Barry McCarthy                        Date                   Start Date

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>14
<FILENAME>dex1010.txt
<DESCRIPTION>OFFER LETTER TO TOM DILLION
<TEXT>
<PAGE>

                                                                   Exhibit 10.10


                                                 [LETTERHEAD OF NETFLIX.COM(TM)]

March 25, 1999



Tom Dillon
102 Bell Flower Way
Scotts Valley, CA 95066


Dear Tom:

On behalf of NetFlix. Inc., it is my pleasure to offer to you for the position
of Vice President of Operations reporting to Reed Hastings, CEO. Your annual
salary will be $160,000.00 to be paid bi-weekly.

In addition, we are pleased to offer you an option to purchase 225,000 shares of
the Company's Common Stock, subject to final approval by the Board of Directors.
The purchase price will be equal to the fair market value at the date of the
grant in accordance with the NetFlix, Inc. 1997 Stock Plan. These options will
vest over four years with one-year cliff vesting and monthly vesting thereafter.
This stock option plan includes twelve-month acceleration in the event of
termination due to a change of control.

Also, you will receive an annual bonus targeted at $ 15,000.00 based on company
performance. Metrics for payment of this bonus will be mutually determined upon
your employment with the Company.

As a full-time employee of NetFlix, you are entitled to standard company
employee benefits such as vacation. sick leave and full medical insurance.

It should be noted that as a condition of employment, you will be required to
sign an agreement which addresses the issues of confidentiality, conflicts of
interest, non-competition, and patent assignments. Additionally, on your first
day of employment, you will be required to provide the Company documentary
evidence of your identity and eligibility for employment in the United States to
satisfy the requirements of Employment Eligibility Verifications (Form I-9) as
required by Federal law.

While we hope and expect that this will be the beginning of a long and rewarding
employment relationship, your employment is at-will, and either you or NetFlix
may terminate this employment relationship at anytime and for any reason, with
or without cause. We will provide you severance of three months with continued
salary and benefits if your employment is terminated for reasons other than
cause.

Please confirm your acceptance of this offer and start date by returning a
signed copy of this letter to me by 5:00 PM, Monday, March 29, 1999.

The entire NetFlix team is looking forward to working with you!

Sincerely,



/s/ Reed Hastings
- -------------------------
Reed Hastings
CEO


Agreed to and accepted:



/s/ Tom Dillon                      4-5-99
- -------------------------         ----------              -------------
Tom Dillon                           Date                  Start Date


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>15
<FILENAME>dex1011.txt
<DESCRIPTION>OFFER LETTER TO LESLIE J. KILGORE
<TEXT>
<PAGE>
                                                                   Exhibit 10.11

March 13, 2000

Leslie J. Kilgore
2509 Nob Hill Avenue North
Seattle, WA 98109

Dear Leslie,

On behalf of NetFlix.com Inc., it is my pleasure to formalize our offer to you
for the position of Vice President, Marketing, reporting to Reed Hastings. Your
annual salary will be $190,000 to be paid bi-weekly, beginning Wednesday, March
22, 2000.

In addition, we are pleased to offer you an option to purchase 300,000 shares of
the Company's Common Stock, subject to final approval by the Board of Directors.
The purchase price will be equal to the fair market value at the date of the
grant in accordance with the NetFlix, Inc. 1997 Stock Plan. These options will
vest over four years with one year cliff vesting and monthly vesting thereafter.
If upon change of control you are involuntarily terminated, or your role within
the subsequent company is substantially and materially altered against your
will, there will be a twelve month acceleration of vesting of your options.

The Company agrees to compensate you for expenses associated with selling your
Seattle, Washington home, transportation of household goods and vehicles to the
San Francisco Bay Area, temporary housing for you up to 30 days, and up to 6
round trip airfares from SJO or SFO to Seattle to be completed by October 31,
2000, if required to settle your personal affairs. The Company will reimburse
you for the actual costs of the relocation expenses not to exceed $60,000,
providing that the move to the Bay Area occurs within eighteen months of your
employment with the Company.

As a full-time employee of NetFlix, you are entitled to standard company
employee benefits such as vacation, sick leave and full medical insurance.

Your employment is at-will, and either you or NetFlix.com, Inc. may terminate
this employment relationship at anytime and for any reason, with or without
cause. We will provide you severance of three months with continued salary and
benefits if your employment is terminated for reasons other than cause. Although
your job duties, title, compensation

<PAGE>

and benefits, as well as the Company's personnel policies and procedures, may
change from time to time, the "at-will" nature of your employment may only be
changed in an express written agreement signed by you and duly authorized
officer of the Company.

It should be noted that as a condition of employment, you will be required to
sign an agreement which addresses issues of confidentiality, conflict of
interest, non-competition, and patent assignments. Additionally, on your first
day of employment, you will be required to provide the Company documentary
evidence of your identity and eligibility for employment in the United States to
satisfy the requirements of Employment Eligibility Verifications (Form I-9) as
required by Federal law.

I hope and expect that this will be the beginning of a long and rewarding
employment relationship. I look forward to working together.

Sincerely,


/s/ Reed Hastings
CEO

Agreed to and accepted:

/s/ Leslie J. Kilgore
- ----------------------       ---------------------      ----------------------
    Leslie J. Kilgore        Date                       Start Date

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>16
<FILENAME>dex231.txt
<DESCRIPTION>CONSENT OF KPMG LLP
<TEXT>
<PAGE>

                                                                   EXHIBIT 23.1

                              CONSENT OF KPMG LLP

The Board of Directors
Netflix, Inc.:

   We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts."

/S/  KPMG LLP

Mountain View, California
March 5, 2002

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
