-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B5cES2g9dH3kYOXB+T2GSNbb3icj1GYx7NhsvjBvOT/aOeBgv9kTYwCeKETwfxg3 lu8hCkmrxB6VuH5qwKKvrQ== 0001017062-00-001222.txt : 20000516 0001017062-00-001222.hdr.sgml : 20000516 ACCESSION NUMBER: 0001017062-00-001222 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAMPS COM INC CENTRAL INDEX KEY: 0001082923 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 770454966 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26427 FILM NUMBER: 634632 BUSINESS ADDRESS: STREET 1: 3420 OCEAN PARK BOULEVARD STREET 2: SUITE 1040 CITY: SANTA MONICA STATE: CA ZIP: 90405 BUSINESS PHONE: 3105817200 MAIL ADDRESS: STREET 1: 2900 31ST STREET SUITE 150 CITY: SANTA MONICA STATE: CA ZIP: 90405 10-Q 1 FORM 10-Q OMB APPROVAL --------------------------- OMB Number: 3235-0070 Expires: February 28, 2000 Estimated average burden hours per response: 190.00 --------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 ------------------------------------------------ or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- -------------------------- Commission file number: -------------------------------------------------------- Stamps.com Inc. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 77-0454966 - ------------------------------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3420 Ocean Park Boulevard, Suite 1040, Santa Monica, California 90405 - ------------------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
(310) 581-7200 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No The number of shares of the registrant's common stock, $0.001 par value, issued and outstanding as of May 8, 2000 was 48,852,025 - ------------------------------------------------------------------------------- PART I FINANCIAL INFORMATION Item 1. Financial Statements. STAMPS.COM INC. CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2000 1999 ------------------------------------- (unaudited) ASSETS (In thousands) Current assets: Cash and short-term investments................................... $368,289 $374,746 Accounts receivable............................................... 1,456 134 Prepaid expenses.................................................. 19,123 23,883 -------- -------- Total current assets................................................ 388,868 398,763 Property and equipment, net......................................... 22,505 9,702 Goodwill and other intangible assets, net........................... 215,764 -- Other assets........................................................ 2,336 1,977 -------- -------- Total assets........................................................ $629,473 $410,442 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit................................................... $ 1,000 $ 1,000 Accounts payable................................................. 2,903 2,707 Accrued expenses................................................. 3,389 4,004 Deferred revenue................................................. 144 182 Current portion of long-term debt and capital leases............. 1,177 513 -------- -------- Total current liabilities........................................... 8,613 8,406 Long-term debt and capital leases, less current portion............. 4,001 438 Commitments and contingencies Minority interest in consolidated subsidiary..................... 29,261 -- Stockholders' equity: Common stock..................................................... 48 42 Additional paid-in capital....................................... 718,506 472,714 Notes receivable from stock sales................................ (101) (101) Deferred compensation............................................ (32,344) (9,435) Accumulated deficit.............................................. (97,572) (60,683) Treasury stock at cost........................................... (939) (939) -------- -------- Total stockholders' equity.......................................... 587,598 401,598 -------- -------- Total liabilities and stockholders' equity.......................... $629,473 $410,442 ======== ========
The accompanying notes are an integral part of these financial statements. 2 STAMPS.COM INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, --------- 2000 1999 ---- ---- (In thousands, except per share data) Revenues......................................................... $ 2,036 $ -- Cost of revenues................................................. 3,733 -- -------- ------- Gross profit.................................................. (1,697) -- Operating expenses: Sales and marketing........................................... 22,500 -- Research and development...................................... 3,395 1,160 General and administrative.................................... 5,839 2,118 Amortization of goodwill and other intangibles................ 4,625 -- Acquired in-process research and development.................. 2,000 -- Deferred compensation amortization............................ 1,753 410 -------- ------- Total operating expenses................................... 40,112 3,688 -------- ------- Loss from operations............................................. (41,809) (3,688) Other income (expense): Interest expense.............................................. (46) (33) Interest income............................................... 4,967 35 -------- ------- Net loss......................................................... $(36,888) $(3,686) ======== ======= Basic and diluted net loss per share............................. $ (0.86) $ (0.53) ======== ======= Weighted average shares outstanding used in basic and diluted per-share calculation........................................... 43,021 6,901 ======== =======
The accompanying notes are an integral part of these financial statements. 3 STAMPS.COM INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, ----------------- 2000 1999 -------- ------- (In thousands) Operating activities: Net loss.................................................................. $(36,888) $(3,686) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................................ 5,791 63 Amortization of deferred compensation................................ 1,753 410 Charge for acquired in-process research and development.............. 2,000 -- Changes in operating assets and liabilities, net of effects of acquisition: Accounts receivable.............................................. (1,316) -- Prepaid expenses................................................. 5,236 (122) Accounts payable................................................. (2,169) 167 Accrued expenses................................................. (863) 304 Deferred revenue................................................. (39) -- -------- ------- Net cash used in operating activities...................................... (26,495) (2,864) Investing activities: Purchase of short-term investments, net................................. (50,268) -- Acquisition of property and equipment................................... (6,250) (311) Acquisition of iShip.com, net of cash acquired.......................... (2,111) -- Other................................................................... (1,520) (22) -------- ------- Net cash used in investing activities...................................... (60,149) (333) Financing activities: Repayment of long-term debt and capital leases.......................... (389) (48) Issuance of redeemable preferred stock of subsidiary, net............... 29,260 -- Issuance of redeemable preferred stock, net............................. -- 28,299 Issuance of common stock................................................ 1,048 -- -------- ------- Net cash provided by financing activities.................................. 29,919 28,251 -------- ------- Net (decrease) increase in cash and cash equivalents....................... (56,725) 25,054 Cash and cash equivalents at beginning of period........................... 326,820 3,470 -------- ------- Cash and cash equivalents at end of period................................. 270,095 28,524 Short-term investments..................................................... 98,194 -- -------- ------- Cash and short-term investments............................................ $368,289 $28,524 ======== =======
The accompanying notes are an integral part of these financial statements. 4 STAMPS.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL INFORMATION WITH RESPECT TO MARCH 31, 2000 AND 1999 IS UNAUDITED) 1. Summary of Significant Accounting Policies Basis of Presentation The financial statements are unaudited, other than the balance sheet at December 31, 1999, and, in the opinion of management, reflect all adjustments that are necessary for a fair presentation of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. These financial statements should be read in conjunction with the financial statements as of December 31, 1999 and related notes included in the Company's Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (the "SEC") on April 28, 2000. The Company formerly reported as a development stage company. Principles of Consolidation The consolidated financial statements include the accounts of Stamps.com Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. Cash and Short-term Investments The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. The Company's short-term investments are comprised of U.S. government obligations and public corporate debt securities with maturities of less than one year at the date of purchase. All short-term investments are classified as available for sale and are recorded at market using the specific identification method. Realized gains and losses are reflected in other income and expense while unrealized gains and losses, which to date have not been material, are included as a separate component of stockholders' equity. Reclassifications Certain prior period balances have been reclassified to conform to current period presentation. 5 2. Acquisition of iShip.com On March 7, 2000, Stamps.com (the Company) completed the acquisition of iShip.com, Inc. (iShip), a development stage enterprise developing Internet- based shipping technology. In connection with the acquisition, approximately 5.6 million shares of Stamps.com common stock were issued in exchange for all outstanding iShip stock. An additional 1.6 million shares of Stamps.com common stock have been reserved for issuance upon exercise of options and warrants assumed in the transaction. Finally, 800,000 shares of Stamps.com common stock have been deposited into an escrow account. The escrow amount is intended to compensate the Company for any inaccuracy or breach of any representation, warranty, covenant or agreement of iShip as contained in the merger agreement. The shares must remain in the escrow fund for a period of one year from the close of the acquisition. The parties are currently not aware of any inaccuracy or breach of any representation, warranty, covenant or agreement of iShip as contained in the merger agreement. The acquisition was accounted for as a purchase in accordance with the provisions of Accounting Principles Board Opinion ("APB") No. 16. Under the purchase method of accounting, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The Company recorded intangible assets of $220.3 million and deferred compensation of $24.7 million, which will be amortized over periods ranging from three to four years. Results of operations for iShip have been included with those of the Company for periods subsequent to the acquisition date. The purchase price was allocated as follows (in thousands): Goodwill $209,188 Deferred compensation 24,662 Purchased technology 11,200 In-process research and development 2,000 Tangible assets acquired 8,931 Liabilities assumed (7,232) -------- Purchase price $248,749 ======== Presented below is unaudited selected pro forma financial information, presenting the results of operations of the Company as if the acquisition had taken place on January 1 (in thousands, except per share amounts):
Three Months Ended March 31, --------------------------- 2000 1999 ---- ---- Revenues $ 2,036 $ -- Net loss $(49,900) $(9,877) Basic and diluted net loss per share $ (1.06) $ (0.79) Shares used in per share calculation - 47,062 12,473 basic and diluted
The unaudited pro forma information is not necessarily indicative of the actual results of operations had the acquisition occurred at the beginning of the periods indicated, nor should it be indicative of operations for any future date or period. 3. Change in Subsidiary Ownership On February 17, 2000, the Company announced that it sold approximately 38% of EncrypTix, Inc., until then a wholly owned subsidiary, in a private financing of approximately $30 million. The financing was completed in March 2000. In April 2000, EncrypTix received an additional $6 million in private financing. Upon completion of the financing, the Company will maintain an ownership percentage of approximately 58%. The Company includes EncrypTix's balances and results in its consolidated financial statements. The minority interest reflected in the attached consolidated balance sheet represents the investment received in the private financing. 4. Segment Information In connection with the acquisition of iShip, the Company announced the organization of three specialized strategic business units (SBUs) focused on the enterprise, e-commerce and small business market segments of the core mailing and shipping services. The Enterprise SBU will offer companies with more than 1,000 employees an Internet-based, multi-carrier mailing and shipping service. The E-commerce SBU addresses the shipping needs of e-tailers and other online businesses, including auctioneers. The Small 6 Business SBU provides small businesses and consumers with Internet Postage and shipping services. The Company will begin reporting under the SBUs in the second quarter of 2000. 5. Legal Proceedings Please refer to "Part II--Other Information--Item 1" of this report for a discussion of legal proceedings. 6. Computation Of Historical Net Loss Per Share Basic earnings per share is computed by dividing the net earnings available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net earnings for the period by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares, consisting of unvested restricted common stock and incremental common shares issuable upon the exercise of stock options and warrants and upon conversion of convertible preferred stock, are excluded from the diluted earnings per share calculation if their effect is anti-dilutive. 7. Subsequent Event In February 2000, Mr. Payne (Chairman of the Board and Chief Executive Officer) purchased 187,000 shares of the Company's common stock on the open market for an aggregate purchase price of approximately $6.0 million. The shares were purchased on margin by Mr. Payne and the margin account was secured by a pledge of 1,467,500 shares of the Company's common stock held by Mr. Payne. In April 2000, the Company agreed to guarantee Mr. Payne's margin account in the event the value of the shares pledged becomes insufficient collateral to secure the indebtedness outstanding under the margin account. The guarantee is in the form of a single-purpose line of credit extended to Mr. Payne which will have a balance due to the extent the value of the pledged shares is insufficient collateral to secure indebtedness outstanding under the margin account. This line of credit is secured by all of Mr. Payne's assets. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Statement This report on Form 10-Q contains forward-looking statements based on our current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," "may," "will" or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward- looking statements. Such statements include, but are not limited to, statements concerning the Internet postage market and commercial approval and release of our Internet postage service; pending litigation regarding intellectual property infringement allegations; postal service regulation of our business; projected operating losses; strategic relationships and distribution arrangements; the security of our Internet postage service; competition; the need for additional capital; and the commercial acceptance of our Internet postage service. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" set forth in this Form 10-Q and similar discussions in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission ("SEC") on April 28, 2000, discuss some of the important risk factors that may affect our business, results of operations and financial condition. You should carefully consider those risks, in addition to the other information in this report and in our other filings with the SEC, before deciding to invest in our company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC, including our Annual Report on Form 10-K/A filed with the SEC on April 28, 2000, that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition. Overview Stamps.com Inc. provides the easiest and smartest way to mail or ship letters, packages or small parcels anywhere or anytime by offering a convenient, cost effective and easy-to-use service for purchasing and printing postage over the Internet. On October 22, 1999, we commercially launched our Internet Postage Service and on March 7, 2000 we completed our acquisition of iShip.com, a development stage enterprise developing Internet-based shipping technology. As a result of the acquisition, our expanded offerings create an efficient marketplace where any size business can choose the best carrier, price and delivery terms for every mailing or shipping transaction based on sophisticated, real time rating, tracking and pricing tools. To date, our operating activities have consisted primarily of our efforts to promote our brand, build market awareness, attract new customers, recruit personnel, build operating infrastructure and develop our Web site and associated systems that we use to process customers' orders and payments. As of March 31, 2000, our customer base consisted of over 187,000 users who had downloaded our software and registered for our service. Small Business Services: Our small business services include our traditional business of serving small businesses and consumers with the easiest Internet Postage service as well as offering multi-carrier document and package shipping to companies with less than 100 employees. The revenues from our small business services consist primarily of the revenues from our Internet Postage Service and commission fees from our on-line store operated by a third-party. Service fee revenues are generated from our basic service plan that we are currently offering to our users. Under this plan, a user purchases postage at cost and is charged a monthly convenience fee of 10% of the value of postage printed during a month. There is a monthly minimum fee of $1.99 and a monthly maximum fee of $19.99. Service fees are calculated and charged at the end of a monthly billing cycle. Although we have established a basic pricing plan, we may need to change our pricing or add variations to the basic service plan given the lack of an established or proven commercial market for Internet Postage. The revenues from our Internet-based shipping services are primarily generated from recurring, transaction-based service fees. Also, we generate revenues from advertising and revenue share arrangements. We expect revenues to increase significantly in 2000 as we continue to grow our customer base in the Internet Postage service and as we fully rollout our Internet-based shipping services. Enterprise Services: We offer companies with more than 1,000 employees an Internet-based, multi-carrier mailing and shipping service. The enterprise service will allow corporations to centrally manage and control costs from mailing and shipping activities across multiple carriers and can be distributed to thousands of corporate desktops using only a Web browser. The largest customer to date of the enterprise service is Mail Boxes Etc., a retail business, communication and postal services franchiser. 8 Revenues from our enterprise service will be generated from recurring, transaction-based service fees as well as fixed monthly service fees. E-commerce Services: Our E-commerce services strategic business unit addresses the growing shipping needs of e-tailers and other online-businesses, including auctioneers. Through our current partnerships with premier auction Web sites such as eBay and AuctionRover.com, we will provide mailing and shipping services available at the conclusion of any transaction on the Internet. These services will be embedded in auction Web sites, e-tailer "shopping carts" and other points-of-purchase on various Web sites, enabling buyers and sellers to select precise pricing and delivery terms from among a variety of carrier choices. Revenues from our E-commerce services will be primarily generated from recurring, transaction-based service fees. From time to time, we may offer special promotions to attract new customers to our mailing and shipping services. Currently, these promotions involve waiving or discounting convenience fees, discounts on supplies offered through Stamps.com's online store, or free postage. We cannot predict the impact of any promotion or pricing plan changes and our ability to generate revenues or achieve profitability could be adversely affected by special promotions or changes to pricing plans. Furthermore, given the lack of an established or proven commercial market for our services, we are unable to quantify the total impact of these promotions on revenue and profitability. In addition, with the current limited commercial roll-out of our Internet shipping services and the early stage of the commercial market for Internet-shipping services, we cannot be sure of our ultimate pricing approach for such services or that fees from Internet shipping services will generate significant revenues, if at all. See "Risk Factors--We have a history of losses and expect to incur losses in the future and may never achieve profitability." Results of Operations Revenues. Revenues are generated from fees from our Internet-based mailing and shipping services, commission fees and advertising. Revenues were approximately $2.0 million for the three months ended March 31, 2000. There were no revenues during the three months ended March 31, 1999 as we launched our first service, Internet Postage, on October 22, 1999. During the three months ended March 31, 2000, more than 114,000 new customers were added for a net ending customer balance of 187,000 at March 31, 2000. We expect revenues to increase as we continue to add new customers and expand our service offerings in the enterprise and e-commerce strategic business units later this year. Cost of Revenues. Cost of revenues primarily consist of costs related to customer service activities and server and network operations and, to a lesser extent, bank processing charges for customer fees paid by credit card, Internet connection charges, depreciation of server and network equipment and allocation of overhead. Costs of revenues were $3.7 million for the three months ended March 31, 2000. As of March 31, 1999, there were no costs of revenues because we had not recognized any revenues to date. We expect cost of revenues to increase as we continue to add new customers and expand the enterprise and e- commerce strategic business units. Sales and Marketing Expenses. Sales and marketing expenses include costs to acquire and retain customers, including costs associated with strategic relationships, advertising and promotions and compensation and related expenses for personnel engaged in marketing and business development activities. Sales and marketing expenses were $22.5 million for the three months ended March 31, 2000. We incurred no sales and marketing expenses during the three months ended March 31, 1999. The increase in sales and marketing is principally due to our marketing campaign and advertising of our Internet-based mailing and shipping services. We expect sales and marketing expenses to increase significantly as we continue to promote our brand through new strategic relationships and marketing campaigns. Research and Development Expenses. Research and development expenses principally consist of compensation for personnel involved in the development of our Internet Postage service and expenditures for consulting services and third- party software. Research and development expenses for the three months ended March 31, 2000 were approximately $3.4 million compared to $1.2 million for the three months ended March 31, 1999. The increase is due to higher personnel and consulting costs associated with the ongoing development of our Internet-based mailing and shipping services. We believe that significant investments in research and development are required to remain competitive and expect to continue incurring significant research and development expenses. General and Administrative Expenses. General and administrative expenses primarily consist of compensation and related costs for executive and administrative personnel, facility costs, and fees for legal and other professional services. General and administrative expenses for the three months ended March 31, 2000 were $5.8 million compared to $2.1 million for the three months ended March 31, 1999. The increase is principally due to increased headcount and the expansion of our facilities related to the growth of our business, as well as legal fees related to the Pitney Bowes patent infringement claim. We expect general and administrative expenses to increase as we grow our business and incur additional costs related to the Pitney Bowes infringement claim. Amortization of Goodwill and Other Intangibles. Amortization of goodwill and other intangibles is principally due to the goodwill resulting from the acquisition of iShip.com in March 2000. Amortization expense is expected to increase significantly as the goodwill and other intangibles resulting from our acquisition are amortized over useful lives ranging from three to four years. Acquired in-Process Research and Development The Company incurred a total of $2 million in acquired in-process research and development charges in connection with its acquisition of iShip.com in March 2000. With regards to the in-process research and development projects, the Company considered, among other factors, the stage of development of each project at the time of acquisition and the projected incremental cash flow for the projects when completed as well as any associated risks. Deferred Compensation Amortization During 1998 and 1999, we granted stock options with exercise prices that were less than the estimated fair value of the underlying shares of common stock for accounting purposes on the date of grant. This will result in amortization expenses of deferred compensation over the period that these options vest, which ranges from three to four years from the date of grant. Interest Income (Expense), Net. Interest income (expense), net consists of income from our cash and cash equivalents net of interest expense related to financing our obligations. Interest income (expense), net for the three months ended March 31, 2000 was $4.9 million compared to $2,000 for the three months ended March 31, 1999. The increase is due to earnings on a higher average cash equivalent balance as a result of our initial public offering in June 1999 and our follow-on public offering in December 1999. 9 Liquidity and Capital Resources As of March 31, 2000, the Company had approximately $368.3 million in cash and short-term investments. In June 1999, we completed our initial public offering in which the underwriters sold to the public 5,750,000 shares of common stock at $11.00 per share. The net proceeds from the offering were $10.23 per share, or $58.8 million in the aggregate. In December 1999, we completed a follow-on public offering in which the underwriters sold to the public 5,750,000 shares of the common stock at $65.00 per share. Our net proceeds from the offering were $61.83 per share, or $355.5 million in the aggregate. We regularly invest excess funds in short-term money market funds and commercial paper and do not engage in hedging or speculative activities. Through April 2000, our majority-owned subsidiary, EncrypTix, raised approximately $36.0 million in private financing from a group of financial and strategic investors. The proceeds of this financing will be used by EncrypTix for research and development, sales and marketing and general working capital purposes. In February 2000, we entered into a facility lease agreement for our Bellevue, Washington location with aggregate minimum lease payments of approximately $15.2 million through fiscal year ending December 31, 2008. Net cash used in operating activities was $26.5 million for the three months ended March 31, 2000 compared to $2.9 million for the three months ended March 31, 1999. The increase in net cash used in operating activities resulted primarily from increases in net loss, principally due to sales and marketing expenses as well as research and development and general expenditures. Net cash used in investing activities was $60.1 million for the three months ended March 31, 2000 compared to $333,000 for the three months ended March 31, 1999. The increase in net cash used in investing activities resulted primarily from net purchases of short-term investments and increased capital expenditures for computer equipment, purchased software and office equipment. Net cash provided by financing activities was $29.9 million for the three months ended March 31, 2000 compared to $28.3 million for the three months ended March 31, 1999. The increase in net cash provided by financing activities resulted principally from the private financing of EncrypTix, our majority-owned subsidiary. We anticipate that our current cash balances will be sufficient to fund our operations, including the acquired operations of iShip.com, through fiscal year 2001. However, we may require substantial working capital to fund our business and may need to raise additional capital. We cannot be certain that additional funds will be available on satisfactory terms when needed, if at all. Quantitative and Qualitative Disclosure about Market Risk We are exposed to interest rate risk from the short-term investments and line of credit. At March 31, 2000, the short-term investments, which consist principally of corporate debt and commercial paper, approximated $330.7 million and had a related weighted average interest rate of 6.3%. At March 31, 2000, the line of credit balance totaled $1 million and the related interest rate was 9.5% (the bank's prime rate plus 1%). If market interest rates continue to rise, the value of the short-term investments will continue to decrease. We currently hold no derivative instruments and do not earn foreign-source income. We expect to invest only in short-term, investment grade and interest-bearing instruments. 10 RISK FACTORS BEFORE DECIDING TO INVEST IN OUR COMPANY OR TO MAINTAIN OR INCREASE YOUR INVESTMENT, YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT AND OUR OTHER FILINGS WITH THE SEC. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO AFFECT OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THAT COULD SERIOUSLY HARM OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS. IN SUCH CASE, THE MARKET PRICE FOR OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. We face risks associated with our operations If we do not effectively manage the commercial release of our Internet mailing and shipping services, our business will be harmed. On August 9, 1999, our Internet Postage service was approved by the US Postal Service for commercial release. On October 22, 1999, we began to offer our Internet Postage service commercially. Our Internet shipping services have not yet been introduced on a commercial scale. We face numerous risks coincident with the introduction of our services. For example, our mailing and shipping services have not yet been subjected to the demands of widespread commercial use. We cannot be sure that our services will successfully process large numbers of user transactions. If we experience problems with the scalability or functionality of our services, our full commercial deployment could be delayed and our results of operations would be adversely impacted. The continued commercial roll-out of our Internet Postage service is dependent upon our service continuing to meet US Postal Service performance specifications and regulations. For example, our service must continue to perform according to US Postal Service specifications in order to receive additional license certificates necessary to add customers. Meanwhile, our Internet mailing and shipping services must meet the commercial demands of our customers, which are primarily expected to range from small businesses to large enterprises. We are currently conducting a national customer registration campaign, particularly for our Internet Postage service; however, we have very limited experience conducting marketing campaigns, and we may fail to generate significant interest. Additionally, we have limited experience selling our services to enterprise customers and cannot predict the length of enterprise sales cycles or implementation times for our services. On the other hand, if we experience extensive interest in our services, we may fail to meet the expectations of customers due to limited experience in operating our services and the strains this demand will place on our Web site, network infrastructure and systems. Our ability to obtain and retain customers depends on the attractiveness of our service to our customers and on our customer service capabilities. If we are unable at any time to address customer service issues adequately or to provide a satisfactory customer experience for current or potential customers, our business and reputation may be harmed. Success by Pitney Bowes in its suit against us alleging patent infringement could prevent us from offering our Internet Postage service and severely harm our business or cause it to fail. On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against us. The suit alleges that we are infringing two patents held by Pitney Bowes related to postage application systems and electronic indicia. The suit seeks treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys' fees and other unspecified damages. We answered the complaint on August 6, 1999, denying the allegations of patent infringement and asserting a number of affirmative defenses. Pitney Bowes filed a similar complaint in early June 1999 against one of our competitors, E-Stamp Corporation, alleging infringement of seven Pitney Bowes patents. On April 13, 2000, Pitney Bowes asked the court for permission to amend its complaint to drop allegations of patent infringement with respect to one patent and to add allegations of patent infringement with respect to three other patents. The outcome of the litigation that Pitney Bowes has brought against us is uncertain. Therefore, we can give no assurance that Pitney Bowes will not prevail in its suit against us. If Pitney Bowes prevails in its suit against us, we may be prevented from selling postage on the Internet. Alternatively, the Pitney Bowes suit could result in limitations on how we implement our service, delays and costs associated with redesigning our service and payments of license fees and other payments. Thus, if Pitney Bowes prevails in its suit against us, our business could be severely harmed or fail. 11 In addition, the litigation could result in significant expenses and diversion of management time and other resources. On August 17, 1998, Pitney Bowes issued a press release stating that it holds dozens of US patents related to computer-based postage metering and that it intended to engage in discussions with other marketers of computer-based postal products to license Pitney Bowes technology. Prior to Pitney Bowes filing a lawsuit against us, we were in license discussions with Pitney Bowes. We intend to continue these discussions; however, we cannot predict whether these discussions will continue, the outcome of these discussions or the impact of Pitney Bowes' intellectual property claims on our business or the Internet postage market. If Pitney Bowes is able to prevail in its claims against us and if we do not enter into a license relationship with Pitney Bowes, our business could be impacted severely or fail. In addition, as described above, Pitney Bowes could obtain monetary and injunctive relief against us. The Internet postage and shipping markets are new and uncertain and our business may not develop. The markets for Internet postage and shipping have not developed, and their development is subject to substantial uncertainty. We cannot assure you that these markets will develop. We depend heavily on the commercial acceptance of our Internet Postage service. We cannot predict if our target customers will choose the Internet as a means of purchasing postage, or if customers will be willing to pay a fee to use our service, or if potential users will select our system over our competitors. Our target customers often have alternatives to the US Postal Service and shipping services, including online invoicing, bill payment and financial transactions. The General Accounting Office, in a report issued on October 21, 1999, stated that competition from these alternatives could lead to substantial declines in the US Postal Service's First Class Mail volume in the next decade. These trends could limit the market opportunity for our Internet Postage service. In addition, the US Postal Service could suspend, terminate or offer services which compete against Internet postage, any of which could stop or negatively impact the commercial adoption of our Internet Postage service. In addition, our acquisition of iShip.com in March 2000 represents our entry into the market for online shipping services. There can be no assurance that we will succeed in this business. The market for online shipping services is new and uncertain and may not develop. In addition, we have not released our shipping services on a commercial scale and we currently have no customers and no revenues attributable to our online shipping services. Our ability to obtain and retain customers will depend on the attractiveness of our service to our customers and on our customer service capabilities. If we experience significant system, customer service, security or other problems once we begin commercial operation of our shipping services, customers may stop using or refuse to try these and other services we offer. In addition, shippers may terminate or limit their relationships with us. The occurrence of these problems could have a material adverse effect on our business, financial condition or results of operations. The integration of our company and iShip.com will present significant challenges. We may not be able to realize the benefits we anticipate from the acquisition of iShip.com. As a result of our acquisition of iShip.com in March 2000, we face significant challenges in integrating organizations, operations, technology, product lines and services in a timely and efficient manner and in retaining key personnel and strategic partnerships of both companies. Cost synergies, revenue growth, technological development and other synergistic benefits may not materialize. Diversion of management attention, loss of management-level and other highly qualified employees, and an inability to integrate management, systems and operations of these two companies may all result from the acquisition. The failure to integrate our company and iShip.com successfully and to manage the challenges presented by the integration process may result in our company and iShip.com not achieving the anticipated potential benefits of the acquisition. Delays encountered in the transition process could have a material adverse effect upon the combined company. Further, the physical expansion in facilities that have occurred as a result of this acquisition may result in disruptions that seriously impair our business. In particular, we now have operations in multiple facilities in geographically distant areas. We are not experienced in managing facilities or operations in geographically distant areas. We have a history of losses and expect to incur losses in the future, and we may never achieve profitability. As of March 31, 2000, we had not generated any significant revenues and had an accumulated deficit of $97.6 million. Our accumulated deficit includes iShip.com's losses from the date of acquisition, March 7, 2000. Our lack of revenues can be attributed primarily to the fact that our Internet Postage service had not been released commercially until October 22, 1999 and that the Internet shipping services developed by iShip.com had yet to be released on a commercial scale. Due to the need to establish our brand and service, we expect to incur increasing sales 12 and marketing, research and development, and administrative expenses and therefore could continue to incur net losses for at least the next several years or longer. As a result of the iShip.com acquisition, we expect that our losses will increase even more significantly because of additional costs and expenses related to an increase in the number of employees; an increase in sales and marketing activities; additional facilities and infrastructure; and assimilation of operations and personnel. Overall, we will need to generate significant revenues to achieve and maintain profitability. In connection with the iShip.com acquisition, we will record a significant amount of intangibles, the amortization of which will significantly and adversely affect our operating results. To the extent we do not generate sufficient cash flow to recover the amount of the investment recorded, the investment may be considered impaired and could be subject to an immediate write-down of up to the full amount of the investment. In this event, our net loss in any given period could be greater than anticipated and the market price of our stock could decline. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our ability to generate gross margins generally assumes that if a market for our services develops, we must generate significant revenues from a large base of active customers. We currently charge our customers a fee to use our Internet Postage service. We have yet to determine how customers will be charged for our Internet shipping services. In order to attract customers, we may run special promotions and offer discounts on fees, postage and supplies. However, given the lack of an established or proven commercial market for our services, we cannot be sure that customers will be receptive to our fee structures. Even if we are able to establish a sizeable base of users, we still may not generate sufficient gross margins to become profitable. In addition, our ability to generate revenues or achieve profitability could be adversely affected by special promotions or changes to our pricing plans. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." If we cannot effectively manage our growth, our ability to provide services will suffer. Our reputation and ability to attract, serve and retain our customers depend upon the reliable performance of our Web site, network infrastructure and systems. We have a limited basis upon which to evaluate the capability of our systems to handle controlled or full commercial availability of our Internet Postage service or our online shipping services. We have recently expanded our operations significantly, and further expansion will be required to address the anticipated growth in our user base and market opportunities. To manage the expected growth of operations and personnel, we will need to improve existing and implement new systems, procedures and controls. In addition, we will need to expand, train and manage an increasing employee base. We will also need to expand our finance, administrative and operations staff. As a result of the iShip.com acquisition, we will need to assimilate substantially all of iShip.com's operations into our operations. We may not be able to manage our growth effectively. Our current expansion has and will continue to place a significant strain on our managerial, operational and financial resources. Our current and planned personnel, systems, procedures and controls may be inadequate to support our future operations. If we are unable to manage our growth effectively or experience disruptions during our expansion, our business will suffer and our financial condition and results of operations will be seriously affected. If we are unable to maintain and develop our strategic relationships and distribution arrangements, our Internet mailing and shipping services may not achieve commercial acceptance. We have established strategic relationships with a number of third parties. Our strategic relationships generally involve the promotion and distribution of our services through our partners' products, services and Web sites. Additionally, some of our relationships provide for the inclusion of our logo or promotional offers for our service in packaging and marketing materials utilized by our partners. In return for promoting our service, our partners may receive revenue-sharing opportunities. In order to achieve wide distribution of our services, we believe we must establish additional strategic relationships to market our services effectively. If one or more of our partners terminates or limits its relationship with us, our business could be severely harmed or fail. We have limited experience in establishing and maintaining strategic relationships and we may fail in our efforts to establish and maintain these relationships. Our current strategic relationships, including those established by iShip.com, have not yet resulted in significant revenues, primarily because we have only recently commercially released our Internet Postage service and our online shipping services have yet to be released on a commercial scale. As a result, our strategic partners may not view their relationships with us as significant or vital to their businesses and consequently, may not perform according to our expectations. We have little ability to control the efforts of our strategic partners and, even if we are successful in establishing strategic relationships, these relationships may not be successful. 13 We face risks typical of early stage companies and of new and rapidly changing markets. You should consider our prospects in light of the risks and difficulties frequently encountered by early stage companies and those in new and rapidly evolving markets. These risks include, among other things, our (a) ability to meet and maintain government specifications for our Internet Postage service, specifically US Postal Service requirements; (b) complete dependence on Internet mailing and shipping services that currently do not have broad market acceptance; (c) need to expand our sales and support organizations; (d) ability to establish and promote our brand name; (e) ability to expand our operations to meet the commercial demand for our services; (f) development of and reliance on strategic and distribution relationships; (g) ability to prevent and respond quickly to service interruptions; (h) ability to minimize fraud and other security risks; and (i) ability to compete with companies with greater capital resources and brand awareness. If we do not achieve the brand recognition necessary to succeed in the Internet mailing and shipping markets, our business will suffer. We must quickly build our Stamps.com brand to gain market acceptance for our services. We believe it is imperative to our long term success that we obtain significant market share for our services before other competitors enter the Internet postage and shipping markets. We must make substantial expenditures on product development, strategic relationships and marketing initiatives in an effort to establish our brand awareness. In addition, we must devote significant resources to ensure that our users are provided with a high quality online experience supported by a high level of customer service. We cannot be certain that we will have sufficient resources to build our brand and realize commercial acceptance of our services. If we fail to gain market acceptance for our services, our business will suffer dramatically or may fail. System and online security failures could harm our business and operating results. Our services depend on the efficient and uninterrupted operation of our computer and communications hardware systems. In addition, we must provide a high level of security for the transactions we execute. We rely on internally- developed and third-party technology to provide secure transmission of postage and other confidential information. Any breach of these security measures would severely impact our business and reputation and would likely result in the loss of customers. Furthermore, if we are unable to provide adequate security, the US Postal Service could prohibit us from selling postage over the Internet. Our systems and operations are vulnerable to damage or interruption from a number of sources, including fire, flood, power loss, telecommunications failure, break-ins, earthquakes and similar events. We have entered into an Internet hosting agreement with Exodus Communications, Inc. to maintain our Internet postage servers at Exodus' data center in Southern California. Our operations depend on Exodus' ability to protect its and our systems in its data center against damage or interruption. Exodus does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our servers are also vulnerable to computer viruses, physical, electrical or electronic break- ins and similar disruptions. We have experienced minor system interruptions in the past and may experience them again in the future. Any substantial interruptions in the future could result in the loss of data and could completely impair our ability to generate revenues from our service. We do have a business interruption plan that we continue to refine and update; however, we do not presently have a full disaster recovery plan in effect to cover loss of facilities and equipment. In addition, we do not have a "fail-over" site that mirrors our infrastructure to allow us to operate from a second location. We have business interruption insurance; however, we cannot be certain that our coverage will be sufficient to compensate us for losses that may occur as a result of business interruptions. A significant barrier to electronic commerce and communications is the secure transmission of confidential information over public networks. Anyone who is able to circumvent our security measures could misappropriate confidential information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems caused by any breach. We rely on specialized technology, both within our own infrastructure and that provided by Exodus, to provide the security necessary for secure transmission of postage and other confidential information. Advances in computer capabilities, new discoveries in security technology, or other events or developments may result in a compromise or breach of the algorithms we use to protect customer transaction data. Should someone circumvent our security measures, our reputation, business, financial condition and results of operations could be seriously harmed. Security breaches could also expose us to a risk of loss or litigation and possible liability for failing to secure confidential customer information. As a result, we may be required to expend a significant amount of financial and other resources to protect against security breaches or to alleviate any problems that they may cause. 14 If we do not expand our product and service offerings, our business may not grow. We may establish subsidiaries, enter into joint ventures or pursue the acquisition of new or complementary businesses, products or technologies in an effort to enter into new business areas, diversify our sources of revenue and expand our product and service offerings outside the Internet postage market. We have no commitments or agreements and are not currently engaged in discussions for any material acquisitions or investments. We continue to evaluate incremental revenue opportunities and derivative applications of our technology and may pursue and develop those opportunities with strategic partners and investors. To the extent we pursue new or complementary businesses, we may not be able to expand our service offerings and related operations in a cost- effective or timely manner. We may experience increased costs, delays and diversions of management's attention when integrating any new businesses or service. We may lose key personnel from our operations or those of any acquired business. Furthermore, any new business or service we launch that is not favorably received by users could damage our reputation and brand name in the Internet postage and shipping or other markets that we enter. We also cannot be certain that we will generate satisfactory revenues from any expanded services or products to offset related costs. Any expansion of our operations would also require significant additional expenses, and these efforts may strain our management, financial and operational resources. Additionally, future acquisitions may also result in potentially dilutive issuances of equity securities, the incurrence of additional debt, the assumption of known and unknown liabilities, and the amortization of expenses related to goodwill and other intangible assets, all of which could have a material adverse effect on our business, financial condition and operating results. New issuances of securities may also have rights, preferences and privileges senior to those of our common stock. Fluctuations in our operating results could cause our stock price to fall. Prior to our commercial launch on October 22, 1999, we had not generated any revenues from our operations. Accordingly, we have a limited basis upon which to predict future operating results. We expect that our revenues, margins and operating results will fluctuate significantly due to a variety of factors, many of which are outside of our control. These factors include: (a) the success of the commercial release of our Internet Postage and online shipping services; (b) the costs of defending ourselves in the Pitney Bowes litigation or against other intellectual property claims; (c) the costs of our marketing programs to establish and promote the Stamps.com brand name; (d) the demand for our Internet Postage and shipping services; (e) our ability to develop and maintain strategic distribution relationships; (f) the number, timing and significance of new products or services introduced by both us and our competitors; (g) our ability to develop, market and introduce new and enhanced services on a timely basis; (h) the level of service and price competition; (i) the increases in our operating expenses as we expand operations; (j) US Postal Service regulation and policies and (k) general economic factors. Our cost of revenues includes costs for systems operations, customer service, Internet connection and security services; all of these costs will fluctuate depending upon the demand for our services. In addition, a substantial portion of our operating expenses is related to personnel costs, marketing programs and overhead, which cannot be adjusted quickly and are therefore relatively fixed in the short term. Our operating expense levels are based, in significant part, on our expectations of future revenues. If our expenses precede increased revenues, both gross margins and results of operations would be materially and adversely affected. Due to the foregoing factors and the other risks discussed in this report, you should not rely on period-to-period comparisons of our results of operations as an indication of future performance. It is possible that in some future periods our results of operations will be below the expectations of public market analysts and investors. In this event, the market price of our common stock is likely to decline. We rely on a relatively new management team and need additional personnel to grow our business. Our management team is relatively new. We hired our Chairman and Chief Executive Officer in October 1998, our President and Chief Operating Officer in October 1999 and our Chief Financial Officer in September 1998. We have also recently hired or intend to hire senior managers for our strategic business units. There can be no assurance that we will successfully assimilate our recently hired managers or that we can successfully locate, hire, assimilate and retain qualified key management personnel. Our business is largely dependent on the personal efforts and abilities of our senior management, including our Chairman and Chief Executive Officer, our President and Chief Operating Officer, and our Chief Financial Officer. Any of our officers or employees can terminate his or her employment relationship at any time. The loss of these key employees or our inability to attract or retain other qualified employees could have a material adverse effect on our results of operations and financial condition. Our future success depends on our ability to attract, retain and motivate highly skilled technical, managerial, marketing and customer service personnel. Also, our success will also depend on a successful integration of iShip.com's management with our senior management team. We plan to hire additional personnel in all areas of our business. Competition for qualified personnel is intense, 15 particularly in the Internet and high technology industries. As a result, we may be unable to successfully attract, assimilate or retain qualified personnel. Further, we may be unable to retain the employees we currently employ or attract additional technical personnel. The failure to retain and attract the necessary personnel could seriously harm our business, financial condition and results of operations. Third party assertions of violations of their intellectual property rights could adversely affect our business. In addition to the Pitney Bowes claim described above, as is customary with technology companies, we may receive or become aware of correspondence claiming potential infringement of other parties' intellectual property rights. We could incur significant costs and diversion of management time and resources to defend claims against us regardless of their validity. We may not have adequate resources to defend against these claims and any associated costs and distractions could have a material adverse effect on our business, financial condition and results of operations. As an alternative to litigation, we may seek licenses for other parties' intellectual property rights. We may not be successful in obtaining all of the necessary licenses on commercially reasonable terms, if at all. Any loss resulting from intellectual property litigation could severely limit our operations, cause us to pay license fees, or prevent us from doing business. A failure to protect our own intellectual property could harm our competitive position. We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions to establish and protect our rights in our products, services, know-how and information. We have three issued US patents and have filed 40 patent applications in the United States, and one international patent application. We have also applied to register a number of trademarks and service marks. We plan to apply for other patents, trademarks and service marks in the future. We may not receive patents for any of our patent applications. Even if patents are issued to us, claims issued in these patents may not protect our technology. In addition, any of our patents, trademarks or service marks might be held invalid or unenforceable by a court. If our patents fail to protect our technology or our trademarks and service marks are successfully challenged, our competitive position could be harmed. Even if our patents are upheld or are not challenged, third parties may develop alternative technologies or products without infringing our patents. We generally enter into confidentiality agreements with our employees, consultants and other third parties to control and limit access and disclosure of our confidential information. These contractual arrangements or other steps taken to protect our intellectual property may not prove to be sufficient to prevent misappropriation of technology or deter independent third party development of similar technologies. Additionally, the laws of foreign countries may not protect our services or intellectual property rights to the same extent as do the laws of the United States. Our growth and operating results could be impaired if we are unable to meet our future capital requirements. We believe that our current cash balances will allow us to fund our operations through fiscal year 2001. However, we may require substantial working capital to fund our business and we may need to raise additional capital. We cannot be certain that additional funds will be available on satisfactory terms when needed, if at all. Our future capital needs depend on many factors, including market acceptance of our postage and shipping services; the level of promotion and advertising of our postage and shipping services; the level of our development efforts; rate of customer acquisition and retention of our postage and shipping services; and changes in technology. The various elements of our business and growth strategies, including our plans to support fully the commercial release of our service, our introduction of new products and services and our investments in infrastructure will require additional capital. If we are unable to raise additional necessary capital in the future, we may be required to curtail our operations significantly or obtain funding through the relinquishment of significant technology or markets. Also, raising additional equity capital would have a dilutive effect on existing stockholders. We could be required to register as an investment company and become subject to substantial regulation that would interfere with our ability to conduct our business. We invest in short-term instruments consistent with prudent cash management and not primarily for the purpose of achieving investment returns. This could result in our being treated as an investment company under the Investment Company Act of 1940 and therefore being required to register as an investment company under the Investment Company Act. The Investment Company Act requires the registration of companies which are engaged primarily in the business of investing, reinvesting or trading in securities or 16 which are engaged in investing, reinvesting, owning, holding or trading in securities and over 40% of whose assets on an unconsolidated basis (other than government securities and cash) consist of investment securities. While we do not believe that we are engaged primarily in the business of investing, reinvesting or trading in securities, we may invest our cash and cash equivalents in government securities to the extent necessary to avoid having over 40% of our assets consist of investment securities. Government securities are defined as securities issued by the U.S. government and certain federal agencies. These securities generally yield lower rates of income than other short-term instruments in which we have invested to date. Accordingly, investing substantially all of our cash and cash equivalents in government securities could result in lower levels of interest income, which could cause our losses to increase. If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure, management, operations, transactions with affiliated persons, if any, and other matters, incur substantial costs and experience a disruption of our business. Application of the provisions of the Investment Company Act to us would materially and adversely affect our business, prospects, financial condition and results of operations. If the software, hardware, computer technology and other systems and services we use are not Year 2000 compliant, our operations could suffer and we could lose customers. Many existing computer systems and software products are coded to accept only two digit entries in the date code field and cannot distinguish 21st century dates from 20th century dates. If these systems have not been properly corrected, there could be system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced to become "Year 2000" compliant. In addition, despite the fact that many computer systems are currently processing 21st century dates correctly, these companies, including us, could experience latent Year 2000 problems. We use and depend on third party equipment and software that may not be Year 2000 compliant. If Year 2000 issues prevent our customers from accessing the Internet or our Web site, processing transactions or using their credit cards, our business will suffer. Any failure of our third party equipment, software or services to operate properly could require us to incur unanticipated expenses, which could seriously harm our business and operating results. We face risks associated with our market If we do not respond effectively to technological change, our services could become obsolete and our business will suffer. The development of our services and other technology entails significant technical and business risks. To remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our online operations. The Internet and the electronic commerce industry are characterized by rapid technological change; changes in user and customer requirements and preferences; frequent new product and service introductions embodying new technologies; and the emergence of new industry standards and practices. The evolving nature of the Internet or the Internet postage and shipping markets could render our existing technology and systems obsolete. Our success will depend, in part, on our ability to license or acquire leading technologies useful in our business; enhance our existing services; develop new services or features and technology that address the increasingly sophisticated and varied needs of our current and prospective users; and respond to technological advances and emerging industry and regulatory standards and practices in a cost- effective and timely manner. Future advances in technology may not be beneficial to, or compatible with, our business. Furthermore, we may not be successful in using new technologies effectively or adapting our technology and systems to user requirements or emerging industry standards on a timely basis. Our ability to remain technologically competitive may require substantial expenditures and lead time. If we are unable to adapt in a timely manner to changing market conditions or user requirements, our business, financial condition and results of operations could be seriously harmed. If we are unable to compete successfully, particularly against large, traditional providers of postage products such as Pitney Bowes who enter the online postage and shipping markets, our revenues and operating results will suffer. The market for Internet postage products and services is new and we expect it to be intensely competitive. At present, E-Stamp has a hardware-based product commercially available and has announced that it begun testing a Web-based product through the 17 Information Based Indicia Program. Pitney Bowes has a software-based product commercially available and has a hardware-based product in beta testing. Neopost Industries has hardware and software products in beta testing. If any of our competitors, including Pitney Bowes, provide the same or similar service as we provide, our operations could be adversely impacted. See "Business-- Competition." Internet postage may not be adopted by customers. These customers may continue to use traditional means to purchase postage, including purchasing postage from their local post office. If Internet postage becomes a viable market, we may not be able to establish or maintain a competitive position against current or future competitors as they enter the market. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition, greater financial, marketing, service, support, technical, intellectual property and other resources than us. As a result, our competitors may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to Web site and systems development than us. This increased competition may result in reduced operating margins, loss of market share and a diminished brand. We may from time to time make pricing, service or marketing decisions or acquisitions as a strategic response to changes in the competitive environment. These actions could result in reduced margins and seriously harm our business. If the market for Internet postage develops, we could face competitive pressures from new technologies or the expansion of existing technologies approved for use by the US Postal Service. We may also face competition from a number of indirect competitors that specialize in electronic commerce and other companies with substantial customer bases in the computer and other technical fields. Additionally, companies that control access to transactions through a network or Web browsers could also promote our competitors or charge us a substantial fee for inclusion. Our competitors may also be acquired by, receive investments from or enter into other commercial relationships with larger, better-established and better-financed companies as use of the Internet and other online services increases. In addition, changes in postal regulations could adversely affect our service and significantly impact our competitive position. We may be unable to compete successfully against current and future competitors, and the competitive pressures we face could seriously harm our business. As a result of the iShip.com acquisition in March 2000, we also compete with companies that provide shipping solutions to businesses. Customers may continue using the direct services of the US Postal Service, UPS and other major shippers, instead of adopting our online service. Alternatively, potential competitors with greater resources than Stamps.com, like Pitney Bowes, may develop more successful Internet solutions. In addition, companies including TanData Corporation, GoShip.com, BITS, Inc./Intershipper.net, Kewill Systems, PackageNet and Virtan, Inc./SmartShip are competing in shipping services. We also face a significant risk that large shipping companies will collaborate in the development and operation of an online shipping system that could make our Internet shipping services obsolete. The success of our business will depend on the continued growth of the Internet and the acceptance by customers of the Internet as a means for purchasing postage and shipping services. Our success depends in part on widespread acceptance and use of the Internet as a way to purchase postage and shipping services. This practice is at an early stage of development, and market acceptance of Internet postage and shipping services is uncertain. We cannot predict the extent to which customers will be willing to shift their purchasing habits from traditional to online postage and/or shipping services. To be successful, our customers must accept and utilize electronic commerce to satisfy their product needs. Our future revenues and profits, if any, substantially depend upon the acceptance and use of the Internet and other online services as an effective medium of commerce by our target users. The Internet may not become a viable long-term commercial marketplace due to potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. The commercial acceptance and use of the Internet may not continue to develop at historical rates. Our business, financial condition and results of operations would be seriously harmed if use of the Internet and other online services does not continue to increase or increases more slowly than expected; the infrastructure for the Internet and other online services does not effectively support future expansion of electronic commerce or our services; concerns over security and privacy inhibit the growth of the Internet; or the Internet and other online services do not become a viable commercial marketplace. US Postal Service regulation may cause disruptions or the discontinuance of our business. Additionally, the US Postal Service could assess fees that would increase the cost of our service and possibly affect the adoption of Internet postage as a new method of mailing. We are subject to continued US Postal Service scrutiny and other government regulations. The US Postal Service could change its certification requirements or specifications for Internet postage or revoke the approval of our service at any time. Any changes in 18 requirements or specifications for Internet postage could adversely affect our pricing, cost of revenues, operating results and margins by increasing the cost of providing our Internet postage service. For example, the US Postal Service could decide to charge Internet postage vendors fees for the enrollment of each unique customer of the Internet postage product, which would be a cost that we would either absorb or pass through to customers. The US Postal Service has in fact invoiced each Internet postage vendor $8 for each digital certificate required for each consumer of Internet postage to securely print postage. We are currently discussing the necessity of this charge with the US Postal Service. If we are required to pay this per customer charge, the cost of our service could increase and the adoption of Internet postage as a new method of mailing could be adversely affected. The US Postal Service could also decide that Internet postage should no longer be an approved postage service due to security concerns or other issues. Our business would suffer dramatically if we are unable to adapt our Internet Postage service to any new requirements or specifications or if the US Postal Service were to discontinue Internet postage as an approved postage method. Alternatively, the US Postal Service could introduce competitive programs or amend Internet postage requirements to make certification easier to obtain, which could lead to more competition from third parties or the US Postal Service itself. See "Risk Factors--If we are unable to compete successfully, particularly against large, traditional providers of postage products like Pitney Bowes who enter the online postage and shipping markets, our revenues and operating results will suffer." In addition, US Postal Service regulations may require that our personnel with access to postal information or resources receive security clearance prior to doing relevant work. We may experience delays or disruptions if our personnel cannot receive necessary security clearances in a timely manner, if at all. The regulations may limit our ability to hire qualified personnel. For example, sensitive clearance may only be provided to US citizens or aliens who are specifically approved to work on US Postal Service projects. Our operating results could be impaired if we or the Internet become subject to additional government regulation and legal uncertainties. With the exception of US Postal Service and Department of Commerce regulations, we are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally, and laws or regulations directly applicable to electronic commerce. However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet, relating to user privacy; pricing; content; copyrights; distribution; characteristics and quality of products and services; and export controls. The adoption of any additional laws or regulations may hinder the expansion of the Internet. A decline in the growth of the Internet could decrease demand for our products and services and increase our cost of doing business. Moreover, the applicability of existing laws to the Internet is uncertain with regard to many issues, including property ownership, export of specialized technology, sales tax, libel and personal privacy. Our business, financial condition and results of operations could be seriously harmed by any new legislation or regulation. The application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could also harm our business. We offer our services in multiple states and plan to expand both domestically and internationally. These jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each state or foreign country. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties. Other states and foreign countries may also attempt to regulate our services or prosecute us for violations of their laws. Further, we might unintentionally violate the laws of foreign jurisdictions and those laws may be modified and new laws may be enacted in the future. If we market our services internationally, government regulation could disrupt our operations. One element of our strategy is to provide services in international markets. Our ability to provide our Internet Postage service in international markets would likely be subject to rigorous governmental approval and certification requirements similar to those imposed by the US Postal Service. For example, our Internet Postage service cannot currently be used for international mail because foreign postal authorities do not currently recognize information-based indicia postage. If foreign postal authorities accept postage generated by our service in the future, and if we obtain the necessary foreign certification or approvals, we would be subject to ongoing regulation by foreign governments and agencies. To date, efforts to create a certification process in Europe and other foreign markets are in a preliminary stage and these markets may not prove to be a viable opportunity for us. As a result, we cannot predict when, or if, international markets will become a viable source of revenues for a postage service similar to ours. Our ability to provide service in international markets may also be impacted by the export control laws of the United States. Our software technology makes us subject to stronger export controls, and may prevent us from being able to export our products and 19 services. Regulations and standards of the Universal Postal Union and other international bodies may also limit our ability to provide international mail services. If we achieve significant international acceptance of our services, our business activities will be subject to a variety of potential risks, including the adoption of laws and regulatory requirements, political and economic conditions, difficulties protecting our intellectual property rights and actions by third parties that would restrict or eliminate our ability to do business in these jurisdictions. If we begin to transact business in foreign currencies, we will become subject to the risks attendant to transacting in foreign currencies, including the potential adverse effects of exchange rate fluctuations. Our charter documents could deter a takeover effort, which could inhibit your ability to receive an acquisition premium for your shares. The provisions of our Amended and Restated Certificate of Incorporation, Bylaws and Delaware law could make it difficult for a third party to acquire us, even it would be beneficial to our stockholders. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which could prohibit or delay a merger or other takeover of our company, and discourage attempts to acquire us. Additional shares held by existing stockholders may be sold into the public market, which could cause our stock price to decline. Public sales of substantial amounts of common stock purchased in private financings prior to our initial public offering or upon the exercise of stock options or warrants could adversely affect the prevailing market price of our common stock. On December 22, 1999, upon the expiration of a lock-up entered into in connection with our initial public offering, an additional 2.1 million shares of our outstanding common stock were available for immediate sale. On February 7, 2000, a lock-up entered into in connection with our follow-on public offering expired for approximately 6.8 million shares of our outstanding common stock and, on March 6, 2000, the follow-on offering lock-up expired for all remaining shares subject to the lock-up. All of the shares subject to the lock- up were available for immediate sale, subject to the volume and other restrictions under Rule 144 of the Securities Act of 1933. Of these shares, approximately 22.5 million held by investment funds may be distributed by them from time to time to their investors. Upon distribution, those shares will be available for immediate sale. Sales of substantial amounts of common stock in the public market, or the perception that these sales could occur, could adversely affect the prevailing market price for our common stock and could impair our ability to raise capital through a public offering of equity securities. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to interest rate risk from the short-term investments and line of credit. At March 31, 2000, the short-term investments, which consist principally of corporate debt and commercial paper, approximated $330.7 million and had a related weighted average interest rate of 6.3%. At March 31, 2000, the line of credit balance totaled $1 million and the related interest rate was 9.5% (the bank's prime rate plus 1%). If market interest rates continue to rise, the value of the short-term investments will continue to decrease. We currently hold no derivative instruments and do not earn foreign-source income. We expect to invest only in short-term, investment grade and interest-bearing instruments. 20 PART II OTHER INFORMATION Item 1. Legal Proceedings. On June 16, 1999, Pitney Bowes sued us for alleged patent infringement in the United States District Court for the District of Delaware. The suit alleges that we are infringing two patents held by Pitney Bowes related to postage application systems and electronic indicia. The suit seeks treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys' fees and other unspecified damages. We answered the complaint on August 6, 1999, denying the allegations of patent infringement and asserting a number of affirmative defenses. Pitney Bowes filed a similar complaint in early June 1999 against one of our competitors, E-Stamp Corporation, alleging infringement of seven Pitney Bowes patents. On April 13, 2000, Pitney Bowes asked the court for permission to amend its complaint to drop allegations of patent infringement with respect to one patent and to add allegations of patent infringement with respect to three other patents. The outcome of the litigation that Pitney Bowes has brought against us is uncertain. Therefore, we can give no assurance that Pitney Bowes will not prevail in its suit against us. See "Risk Factors--Success by Pitney Bowes in its suit against us alleging patent infringement could prevent us from offering our Internet Postage service and severely harm our business or cause it to fail." On December 29, 1999, three individual plaintiffs filed a suit against us for alleged breach of oral contract, quantum meruit, fraud and negligent representation in the California Superior Court for the County of Los Angeles. The complaint was amended on January 28, 2000 to add Mohan Ananda, one of our directors, as a defendant and to remove one of the plaintiffs from the suit. The suit alleges that the plaintiffs were due cash consideration for securing a board member and investors for Stamps.com. The complaint seeks $13.3 .million plus other unspecified compensatory damages, punitive and exemplary damages and attorneys' fees and costs incurred. We answered the complaint on March 8, 2000, denying the allegations and asserting a number of affirmative defenses. The outcome of this litigation is uncertain and we can give no assurance that the plaintiffs will not prevail. We are not currently involved in any other material legal proceedings, nor have we been involved in any such proceeding that has had or may have a significant effect on our company. We are not aware of any other material legal proceedings pending against us. Item 2. Changes in Securities and Use of Proceeds. (d) Use of Proceeds from Sales of Registered Securities. On June 30,1999, we completed an initial public offering of 5,000,000 shares of common stock pursuant to our Registration Statement on Form S-1 (File No. 333-77025) that was declared effective by the Securities and Exchange Commission on June 24, 1999. On July 8, 1999, we sold an additional 750,000 shares of common stock pursuant to the exercise of the underwriters' over- allotment option. There has been no material change with respect to our use of proceeds from our initial public offering to the information discussed in our Quarterly Report on Form 10-Q for the period ended June 30, 1999 and all of the net proceeds from our initial public offering have been applied. Item 4. Submission of Matters to a Vote of Security Holders. (a) A special meeting of the stockholders of Stamps.com was held on March 7, 2000. (b) Not applicable. (c) At the special meeting, the stockholders: (1) voted to approve the Agreement and Plan of Merger, dated as of October 22, 1999, by and among Stamps.com, Rocket Acquisition Corp., a Washington corporation, and iShip.com, Inc., a Washington corporation, as amended on February 14, 2000, with the following vote: For 30,561,137 Against 25,480 Abstain 7,625; (2) voted to approve an amendment to the Stamps.com 1999 Stock Incentive Plan to increase by 2.5 million the number of shares of Stamps.com common stock issuable under the plan, with the following vote: 21 For 26,826,336 Against 3,757,393 Abstain 10,513; and (3) voted to withhold discretionary authority to vote on matters other than proposals 1 and 2, with the following vote: For 24,893,336 Against 5,212,193. (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10.40.1 Common Stock Purchase Warrant dated August 20, 1999 between the Company and Imperial Bank (Assumed by the Company on March 7, 2000 in connection with iShip.com acquisition). 10.40.2 Letter dated March 22, 2000 regarding assumption of Imperial Bank Warrant. 10.41 Common Stock Purchase Warrant dated April 29, 1999 between the Company and Mail Boxes Etc. USA, Inc. (Assumed, Amended and Restated on March 7, 2000 in connection with iShip.com acquisition). 10.42 Lease Agreement dated as of May 7, 2000 between Sterling Realty Organization Co. and iShip.com, Inc. 10.43+ License Agreement dated as of February 9, 2000 by and between EncrypTix, Inc. and Stamps.com, Inc. 27.1 Financial Data Schedule. (b) Reports on Form 8-K. Current Report on Form 8-K dated March 7, 2000 and filed with the Commission on March 9, 2000 (Announcement of Closing of iShip.com Acquisition). Current Report on Form 8-K dated March 7, 2000 and filed with the Commission on March 22, 2000 (Announcement that John A. Duffy and Stephen M. Teglovic joined Board of Directors in connection with the closing of the iShip.com Acquisition). - ------------- + Confidential treatment is being sought with respect to certain portions of this agreement. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Stamps.com Inc. ----------------------------------------------- (Registrant) May 15, 2000 /s/ John W. LaValle - ----------------------- ----------------------------------------------- Date John W. LaValle Executive Vice President and Chief Financial Officer (Principal Financial Officer) May 15, 2000 /s/ Candelario J. Andalon - ----------------------- --------------------------------- Date Candelario J. Andalon Corporate Controller (Principal Accounting Officer) 23 EX-10.40.1 2 COMMON STOCK PURCHASE WARRANT DATED AUG. 20, 1999 Exhibit 10.40.1 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. - -------------------------------------------------------------------------------- Warrant No. C-1 Number of Shares: 5,000 Date of Issuance: August 20, 1999 (subject to adjustment) iShip.com, Inc. Common Stock Purchase Warrant ----------------------------- iShip.com, Inc., a Washington corporation (the "Company"), for value ------- received, hereby certifies that Imperial Bancorp or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to ----------------- purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 6 below), up to 5,000 shares (as adjusted from time to time pursuant to the provisions of this Warrant) of Common Stock of the Company, at a purchase price of the lesser of (i) $5.00 per share and (ii) the price per share received by the Company in the Next Financing. As used herein, "Next Financing" means the transaction or series of related transactions after the date hereof in which the Company first sells its shares of its capital stock for aggregate consideration of not less than one million dollars ($1,000,000). The shares purchasable upon exercise of this Warrant and the purchase price per share shall be adjusted from time to time pursuant to the provisions of this Warrant and are hereinafter referred to as the "Warrant ------- Stock" and the "Purchase Price," respectively. -------------- 1. Exercise. -------- (a) Time of Exercise. This Warrant shall be exercisable: (i) after ---------------- the closing of the initial public offering of the Company's Common Stock pursuant to a registration statement under the Securities Act of 1933, as amended (ii) immediately prior to the consummation of the sale, conveyance, disposal, or encumbrance of all or substantially all of the Company's property or business or the Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary corporation) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of (other than a merger effected exclusively for the purpose of changing the domicile of the Company), or (iii) with the written consent of the Company. (b) Manner of Exercise. This Warrant may be exercised by the ------------------ Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit A duly executed by such Registered --------- Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (c) Effective Time of Exercise. Each exercise of this Warrant shall -------------------------- be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (d) Net Issue Exercise. ------------------ (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to holder a number of shares of Common Stock computed using the following formula: X = Y (A - B) --------- A Where X = The number of shares of Common Stock to be issued to the Registered Holder. Y = The number of shares of Common Stock purchasable under this Warrant (at the date of such calculation). A = The fair market value of one share of Common Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the fair market value of one share of Common Stock on the date of calculation shall mean: (A) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the Securities and Exchange Commission, then the fair market value per share of Common Stock shall be the initial "Price to Public" specified in the final prospectus with respect to the offering; (B) if this Warrant is exercised after, and not in connection with, the Company's initial public offering, and if the Company's Common Stock is traded on a securities exchange or The Nasdaq Stock Market or actively traded over-the-counter: -2- (1) if the Company's Common Stock is traded on a securities exchange or The Nasdaq Stock Market, the fair market value shall be deemed to be the average of the closing prices over a thirty (30) day period ending three days before date of calculation; or (2) if the Company's Common Stock is actively traded over-the-counter, the fair market value shall be deemed to be the average of the closing bid or sales price (whichever is applicable) over the thirty (30) day period ending three days before the date of calculation; or (C) if neither (A) nor (B) is applicable, the fair market value shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 5(b) below, in which case the fair market value per share of Common Stock shall be deemed to be the value of the consideration per share received by the holders of such stock pursuant to such acquisition. (d) Delivery to Holder. As soon as practicable after the exercise of ------------------ this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) above. 2. Adjustments. ----------- (a) Stock Splits and Dividends. If outstanding shares of the -------------------------- Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of -3- this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) Reclassification, Reorganization or Acquisition. In case there ----------------------------------------------- occurs, on or after the date hereof, (i) any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization, (ii) a merger or consolidation of the Company or similar acquisition transaction as a result of which shareholders of the Company immediately prior to such acquisition possess a minority of the voting power of the acquiring entity immediately following such transaction, or (iii) the sale of all or substantially all of the Company's properties and assets to any other person, then and in each such case the Registered Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, reorganization, merger or sale, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to the provisions of this Section 2. (c) Adjustment Certificate. When any adjustment is required to be ---------------------- made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. 3. Transfers. --------- (a) Unregistered Security. Each holder of this Warrant acknowledges --------------------- that this Warrant and the Warrant Stock have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to -------------- sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Stock and registration or qualification of this Warrant or such Warrant Stock under any applicable U.S. federal or state securities law then in effect or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) Transferability. Subject to the provisions of Section 3(a) hereof, --------------- this Warrant and all rights hereunder are transferable: (i) to an assignee of the Registered Holder's interest in that certain Loan and Security Agreement between the Registered Holder and the Company dated as of the date hereof; or (ii) with the consent of the Company, which consent shall not be unreasonably withheld, to any other individual or entity; provided that in either case -------- -4- any assignee shall be bound by the terms hereof. Notwithstanding the foregoing, this Warrant may not be transferred to any individual or entity engaged in any business that competes with any business of the Company, and any purported transfer to a such an individual or entity shall be void. A permitted transfer of this Warrant shall be effected by surrendering the Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of --------- the Company. This Warrant may not be transferred in part. (c) Warrant Register. The Company will maintain a register ---------------- containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in -------- ------- blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. Representations and Warranties of Holder. The Registered Holder ---------------------------------------- hereby represents and warrants to the Company as follows: (a) Purchase Entirely for Own Account. The Registered Holder --------------------------------- acknowledges that this Warrant is given to the Registered Holder in reliance upon the Registered Holder's representation to the Company, which by its acceptance of this Warrant the Registered Holder hereby confirms, that the Warrant, and the Warrant Shares (collectively, the "Securities") being acquired ---------- by the Registered Holder are being acquired for investment for the Registered Holder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Registered Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Registered Holder further represents that the Registered Holder does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Registered Holder represents that it has full power and authority to enter into this Agreement. The Registered Holder has not been formed for the specific purpose of acquiring any of the Securities. (b) Disclosure of Information. The Registered Holder has had an ------------------------- opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's facilities. The Registered Holder understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which it believes to be material. (c) Restricted Securities. The Registered Holder understands that the --------------------- Securities have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the -5- Registered Holder's representations as expressed herein. The Registered Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Registered Holder must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. the Registered Holder acknowledges that the Company has no obligation to register or qualify the Securities for resale. The Registered Holder further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Registered Holder's control, and which the Company is under no obligation and may not be able to satisfy. (d) No Public Market. The Registered Holder understands that no ---------------- public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Securities. (e) Legends. The Registered Holder understands that the Securities, ------- and any securities issued in respect of or exchange for the Securities, may bear one or all of the following legends: (i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (ii) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. (f) Accredited Investor. The Registered Holder is an accredited ------------------- investor as defined in Rule 501(a) of Regulation D promulgated under the Act. 5. No Impairment. The Company will not, by amendment of its charter or ------------- through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. Termination. This Warrant (and the right to purchase securities upon ----------- exercise hereof) shall terminate on the date that is five (5) years after the issuance of this Warrent (the "Expiration Date"). --------------- -6- 7. Notices of Certain Transactions. In case: ------------------------------- (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 8. Reservation of Stock. The Company will at all times reserve and keep -------------------- available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 9. Exchange of Warrants. Upon the surrender by the Registered Holder of -------------------- any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 10. Replacement of Warrants. Upon receipt of evidence reasonably ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably -7- required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 11. Notices. Any notice required or permitted by this Warrant shall be in ------- writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 12. No Rights as Shareholder. Until the exercise of this Warrant, the ------------------------ Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of the Company. 13. No Fractional Shares. No fractional shares of Common Stock will be -------------------- issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 14. Amendment or Waiver. Any term of this Warrant may be amended or ------------------- waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 15. Headings. The headings in this Warrant are for purposes of reference -------- only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. Governing Law. This Warrant shall be governed, construed and ------------- interpreted in accordance with the laws of the State of Washington, without giving effect to principles of conflicts of law. 17. "Market Stand-Off" Agreement. The Registered Holder hereby agrees ---------------------------- that, during the period of duration (up to, but not exceeding, 180 days) specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Securities Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: - -------- ------- (a) such agreement shall be applicable only during the two-year period following the date of the final prospectus distributed pursuant to the first such registration -8- statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and (b) all officers and directors of the Company, all one-percent securityholders, and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop- transfer instructions with respect to the Warrant Stock (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period, and the Registered Holder agrees that, if so requested, such Holder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 17. ISHIP.COM, INC. By: _______________________________________ Address: 3535 Factoria Blvd. SE, 5th Floor Bellevue, WA 98006 Fax Number: 425-602-5025 -9- EXHIBIT A --------- PURCHASE FORM ------------- To: iShip.com, Inc. Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase _______ shares of the Common Stock covered by such Warrant and herewith makes payment of $_________, representing the full purchase price for such shares at the price per share provided for in such Warrant. The undersigned further acknowledges that it has reviewed the representations and warranties contained in Section 4 of the Warrant and the covenants contained in Section 17 of the Warrant, and by its signature below the undersigned hereby makes such representations, warranties and covenants as of the date hereof. ________________________________________ Name of Registered Holder By:_____________________________________ Name:___________________________________ Title:__________________________________ Address:________________________________ ________________________________ EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee Address/Fax Number No. of Shares ---------------- ------------------ ------------- 1. 2. 3. 4.
Dated:_________________ __________________________________ Name of Registered Holder By:_______________________________ Name: ____________________________ Title:____________________________ EX-10.40.2 3 LETTER DATED MARCH 22, 2000 Exhibit 10.40.2 March 22, 2000 Imperial Bank 5330 Carillon Point Kirkland, Washington 98033 Re: Assumption of Warrant --------------------- To Whom It May Concern: This letter will serve to inform you that as of March 7, 2000 (the "Closing Date"), Stamps.com Inc., a Delaware corporation ("Stamps"), assumed the obligations of iShip.com, Inc. ("iShip") under that certain Warrant Agreement, dated August 20, 1999, between Imperial Bank and iShip and all other related agreements evidencing the option to purchase 10,000 shares of the common stock of iShip for $2.50 per share (the "Warrant"), subject to the modifications and amendments to the Warrant set forth herein. The Warrant shall continue and remain subject to the same terms and conditions after the Closing Date as were applicable to such Warrant immediately prior to the Closing Date; provided, however, that the entire Warrant shall be exercisable for 2,255 shares of Stamps common stock ("Stamps Common Stock"), at a price of $11.0885 per share of Stamps Common Stock. From and after the date hereof, the Warrant shall be exercisable only for shares of Stamps Common Stock upon the terms and conditions set forth herein. STAMPS.COM INC. /s/ Michael A. Zuercher --------------------------- Name: Michael A. Zuercher Title: Senior Director, Legal Affairs and Secretary EX-10.41 4 COMMON STOCK PURCHASE WARRANT DATED APRIL 27, 1999 EXHIBIT 10.41 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO STAMPS.COM THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. Date of Issuance: April 27, 1999, amended and restated in its entirety March 7, 2000 Number of Shares: 658,986 of Common Stock STAMPS.COM INC. Common Stock Purchase Warrant ----------------------------- Stamps.com Inc., a Delaware corporation ("Stamps.com"), hereby certifies ---------- that Mail Boxes Etc. USA, Inc. ("MBE"), or its registered assigns (collectively --- with MBE, the "Registered Holder"), is entitled, upon the terms and subject to ----------------- the conditions set forth below, to purchase from Stamps.com, as set forth in Section 1, at a purchase price of $6.07 per share, subject to adjustment in accordance with the terms hereof, up to 658,986 shares of Common Stock of Stamps.com ("Common Stock") subject to adjustment in accordance with the terms ------------ hereof. The shares of Common Stock purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Stock" ------------- and the "Purchase Price," respectively. -------------- This Warrant is issued pursuant to that certain Manifest System Services and Co-Branding Agreement (the "Agreement") dated as of April 27, 1999 and --------- amended March 7, 2000 between iShip.com, Inc., a Washington corporation and wholly owned subsidiary of Stamps.com, and MBE. The terms of this Warrant, as amended, were assumed by Stamps.com pursuant to the Acquisition (as defined in Amendment No. 1 to the Agreement dated March 7, 2000). 1. Exercise. -------- (a) Manner of Exercise. This Warrant may be exercised by the ------------------ Registered Holder, in whole or in part, at any time during the period commencing on March 7, 2000 and ending on the Expiration Date (as defined in Section 5) by surrendering this Warrant, with the purchase form appended hereto as Exhibit A --------- duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of Stamps.com, or at such other office or agency as Stamps.com may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of Stamps.com to the Registered Holder. (b) Effective Time of Exercise. Each exercise of this Warrant shall -------------------------- be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to Stamps.com as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) Net Issue Exercise. ------------------ (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of Stamps.com together with notice of such election in which event Stamps.com shall issue to such Holder a number of shares of Warrant Stock computed using the following formula: X = Y (A - B) --------- A Where X = The number of shares of Warrant Stock to be issued to the Registered Holder. Y = The number of shares of Warrant Stock purchasable under this Warrant (at the date of such calculation). A = The fair market value of one share of Warrant Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the fair market value of Warrant Stock on the date of calculation shall mean with respect to each share of Warrant Stock: (A) if Stamps.com's Common Stock is traded on a securities exchange or The Nasdaq Stock Market or actively traded over-the-counter: (1) if Stamps.com's Common Stock is traded on a securities exchange or The Nasdaq Stock Market, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a ten (10) trading day period, which period shall begin twelve (12) trading days prior to the effective time of exercise of this Warrant and end three (3) trading days prior to the effective day of exercise of this Warrant (i.e., if the Warrant is effectively exercised on April 27, 2000, the period shall begin on April 10, 2000 and run through April 24, 2000) and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible on such date; or -2- (2) if Stamps.com's Common Stock is actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid or sales price (whichever is applicable) over a ten (10) trading day period, which period shall begin twelve (12) trading days prior to the effective time of exercise of this Warrant and end three (3) trading days prior to the effective day of exercise of this Warrant (i.e., if the Warrant is effectively exercised on April 27, 2000, the period shall begin on April 10, 2000 and run through April 24, 2000) and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible on such date; or (B) if (A)(1) nor (A)(2) is applicable, the fair market value of Warrant Stock shall be at the highest price per share which Stamps.com could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Warrant Stock sold by Stamps.com, from authorized but unissued shares, as agreed by Stamps.com and the holders of a majority of the Warrant Stock issuable upon exercise of this Warrant, unless Stamps.com is at such time subject to an acquisition, in which case the fair market value of Warrant Stock shall be deemed to be the value received by the holders of such stock pursuant to such acquisition and shall be valued on a basis consistent with such acquisition consideration. (d) Delivery to Holder. As soon as practicable after the exercise of ------------------ this Warrant in whole or in part, and in any event within ten (10) days thereafter, Stamps.com at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for in the introductory paragraph to this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) or 1(c) above. 2. Adjustments. ----------- (a) Stock Splits and Dividends. If outstanding shares of Stamps.com's -------------------------- Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of -3- this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) Reclassification, Consolidation, Merger Etc. In case at any time -------------------------------------------- or from time to time, Stamps.com shall (i) effect a reorganization (other than a combination, reclassification, exchange or subdivision of shares, as otherwise provided for herein), (ii) consolidate with or merge into any other entity or person, or (iii) transfer all or substantially all of its properties or assets to any other entity or person including under any plan or arrangement contemplating the dissolution of Stamps.com, then, in each such case, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the Registered Holder, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation, merger, sale or transfer or the effective date of such reorganization, consolidation, merger, sale or transfer, as the case may be, shall be entitled to receive, in lieu of the Common Stock (or other securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which the Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if the Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in this Section 2. Upon any reorganization, consolidation, merger, or other such transaction referred to in this Section 2(b) (collectively, a "Corporate Transaction"), this Warrant shall, immediately after such Corporate Transaction, be appropriately adjusted to apply and pertain to the number and class of securities which would have been issued to the Holder in the consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the Purchase Price, provided the aggregate Purchase Price payable hereunder shall remain the same. (c) Adjustment Certificate. When any adjustment is required to be ---------------------- made in the Warrant Stock or the Purchase Price pursuant to this Section 2, Stamps.com shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. 3. Transfers. --------- (a) Unregistered Security. Each holder of this Warrant acknowledges --------------------- that this Warrant has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to sell, pledge, distribute, -------------- offer for sale, transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its exercise or any Common Stock issued upon conversion of the Warrant Stock in the absence of (i) an effective registration statement under the Act as to this Warrant, such Warrant Stock or such Common Stock and registration or qualification of this Warrant, such Warrant Stock or such Common Stock under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, -4- reasonably satisfactory to Stamps.com, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) Transferability. This Warrant may not be transferred or assigned, --------------- in whole or in part, by the Registered Holder except (i) to an affiliate of the Registered Holder (provided that such affiliate agrees in writing with Stamps.com and/or iShip.com to comply with Section 17 of the Agreement, as amended) or (ii) where the Registered Holder has provided the Company with written notice of its intent to assign or transfer the Warrant and the Company has consented to such assignment or transfer in writing. Any transfer in accordance with the immediately preceding sentence shall be effected upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of Stamps.com. - --------- (c) Warrant Register. Stamps.com will maintain a register containing ---------------- the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, Stamps.com may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank, -------- ------- Stamps.com may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to Stamps.com requesting such change. 4. No Impairment. Stamps.com will not, by amendment of its charter or ------------- through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 5. Termination. ----------- This Warrant (and the right to purchase securities upon exercise hereof) shall terminate on April 27, 2004 (the "Expiration Date"). --------------- 6. Notices of Certain Transactions. In case: ------------------------------- (a) Stamps.com shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of Stamps.com, any reclassification of the capital stock of Stamps.com, any consolidation or merger of Stamps.com, any consolidation or merger of Stamps.com with or into another corporation (other than a consolidation or merger in -5- which Stamps.com is the surviving entity), or any transfer of all or substantially all of the assets of Stamps.com, or any other Corporate Transaction, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of Stamps.com, then, and in each such case, Stamps.com will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least twenty (20) days prior to the record date or effective date for the event specified in such notice. 7. Reservation of Stock. Stamps.com will at all times reserve and keep -------------------- available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. Exchange of Warrants. Upon the surrender by the Registered Holder of -------------------- any Warrant or Warrants, properly endorsed, to Stamps.com at the principal office of Stamps.com, Stamps.com will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at Stamps.com's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. Replacement of Warrants. Upon receipt of evidence reasonably ----------------------- satisfactory to Stamps.com of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to Stamps.com, or (in the case of mutilation) upon surrender and cancellation of this Warrant, Stamps.com will issue, in lieu thereof, a new Warrant of like tenor. 10. Mailing of Notices. Any notice required or permitted pursuant to this ------------------ Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to Stamps.com and (b) if to Stamps.com, to the address set forth below or subsequently modified by written notice to the Registered Holder. -6- 11. No Rights as Shareholder. Until the exercise of this Warrant, the ------------------------ Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of Stamps.com. 12. No Fractional Shares. No fractional shares of Common Stock will be -------------------- issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, Stamps.com shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by Stamps.com's Board of Directors. 13. Amendment or Waiver. Any term of this Warrant may be amended or ------------------- waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 14. Headings. The headings in this Warrant are for purposes of reference -------- only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 15. Amended and Restated Warrant. This Warrant amends and restates in its ---------------------------- entirety the Warrant dated April 27, 1999 (the "Original Warrant") and the ---------------- Original Warrant shall be of no further force and effect. -7- 16. Governing Law. This Warrant shall be governed, construed and ------------- interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. STAMPS.COM INC. By: /s/ John M. Payne --------------------------------- John M. Payne, Chairman and CEO Address: 3420 Ocean Park Blvd. Suite 1040 Santa Monica, CA 90405 Attn: Corporate Secretary Fax Number: (310) 314-8523 Agreed to and Accepted: MAiL BOXES ETC. USA, INC. By:_______________________ Name:_____________________ Title:____________________ -8- EXHIBIT A --------- PURCHASE FORM ------------- To: Stamps.com Inc. Dated: ________________ The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby irrevocably elects to purchase ___________ shares of Common Stock of Stamps.com Inc., a Delaware corporation, covered by such Warrant and herewith makes payment of $_________________, representing the full purchase price for such shares at the price per share provided for in such Warrant. ------------------------------------ Name of Registered Holder By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock of Stamps.com Inc., a Delaware corporation, covered thereby set forth below, unto:
Name of Assignee Address/Fax Number No. of Shares - --------------------------------- ------------------------------------ ----------------------
Dated: _________________ _______________________________________ Name of Registered Holder By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Witness: ------------------------------ EX-10.42 5 LEASE AGREEMENT DATED AS OF MAY 7, 2000 EXHIBIT 10.42 STERLING PLAZA II - LEASE AGREEMENT THIS LEASE is made and entered into this 7th day of March, 2000, by and between STERLING REALTY ORGANIZATION CO., a Washington corporation ("Landlord"), and iSHIP.COM, INC., a Washington corporation ("Tenant"). As parties hereto, Landlord and Tenant hereby agree as follows: LEASE PROVISIONS 1. Lease Provisions and Exhibits. (a) Leased Premises. The leased premises (the "Premises") are situated on --------------- the real property as more particularly described in Exhibit A attached --------- hereto (the "Land"), and consists of those portions of the building located at 3545 Factoria Boulevard S.E. in Bellevue, King County, Washington, which are described in Section 1(b) below, which building is commonly known as Sterling Plaza II (the "Building"), which is part of a complex which will from time-to-time hereafter consist of one or more buildings, including the Building and related grounds and parking areas situated on the real property as more particularly described in Exhibit B attached hereto and shown thereon (the "Project"). --------- (b) Agreed Floor Areas. Landlord and Tenant agree that the floor area of ------------------ the Premises is approximately 75,510 rentable square feet, which area is comprised of the entire first, second, third and fourth floors of the Building. Landlord and Tenant agree that the total floor area of the Building is approximately 92,866 rentable square feet. Usable square feet shall be calculated according to Building Owners and Managers Association International ("BOMA") standards namely, the "Standard Method for Measuring Floor Area in Office Buildings ANSI - BOMA Z-65.1-1996". Rentable square feet shall also be determined in accordance with BOMA based on the usable square footage measured, except that the load factor for the apportioned common area of the Building to be added to the usable area shall, for each full floor occupied by Tenant, not be greater than seven percent (7%), and for any partial floor occupied by Tenant, not be greater than ten percent (10%) (subject to adjustment following actual measurement of the Premises and the Building). A floor plan of Premises is attached as Exhibit C. --------- Landlord and Tenant agree that (1) reasonable attempts have been made to determine the correct square footage used in this Lease based upon plans for the Building, and (2) exact square footage shall be determined following completion of the shell of the Building. Landlord shall, at such time, inform Tenant in writing of its calculation of exact square footage of the Premises and the Building. Landlord grants Tenant the option to re-measure and challenge the Premises square footage calculation, at Tenant's expense, within ninety (90) days after receipt of Landlord's calculation. If Tenant's square footage calculation differs from Landlord's calculation, Landlord will re- measure the Premises at Landlord's expense to determine which calculation is correct. Landlord and Tenant agree that any challenge of the square footage calculation must be carried out within ninety (90) days after the Commencement Date. Once the final areas of the Premises and Building have been so determined and agreed upon by Landlord and Tenant, rent, Tenant's Percentage of the Building, the Tenant Improvement Allowance, and all other amounts based on such areas shall be appropriately adjusted by written agreement between Landlord and Tenant. After such 90-day period has expired, Landlord and Tenant agree to mutually waive any and all rights, claims, or liabilities against one another as they relate to the calculation of square footage to determine rents and other costs in this Lease. -1- (c) Addition to Agreed Floor Area of Premises; Cancellation of Sterling ------------------------------------------------------------------- Plaza I Lease. Tenant shall have until October 2, 2000, to ------------- irrevocably notify Landlord in writing of Tenant's election to add the fifth floor of the Building, consisting of approximately 17,356 rentable square feet, to the Premises by no later than April 15, 2001 (as such date may be adjusted based on Landlord's substantial completion of the tenant improvements) (the "Fifth Floor Notice"). If Tenant has delivered the Fifth Floor Notice to Landlord prior to the end of business on October 2, 2000, then Tenant shall have until October 1, 2001, to provide Landlord with written notice of its election to cancel that certain lease between Landlord and Tenant dated July 15, 1999, relating to the Fifth Floor of Sterling Plaza I (the "Sterling Plaza I Lease"). Such cancellation must provide at least six (6) months notice of the termination date for the Sterling Plaza I Lease, but shall otherwise be without cost or penalty to Tenant. If Tenant does not deliver the Fifth Floor Notice to Landlord by October 2, 2000, then Tenant must give Landlord written notice of its election to cancel the Sterling Plaza I Lease prior to the close of business on October 2, 2000, with such cancellation effective no sooner than April 2, 2001. If Tenant fails to give Landlord such cancellation notice by October 2, 2000, then the Sterling Plaza I Lease shall remain in full force and effect for the remainder of its term. (d) Tenant's Percentage of the Building. "Tenant's Percentage of the ----------------------------------- Building" is equal to 81.3%, calculated by dividing the number of rentable square feet in the Premises (75,510) by the number of rentable square feet in the Building (92,866). Tenant's Percentage of the Building shall be appropriately adjusted as provided in Section 1(b) above and at any time during this Lease that the area of the Premises or the Building changes. (e) Lease Term. ---------- (1) Initial Lease Term. The "Initial Lease Term" for the Premises ------------------ will commence, on a floor-by-floor basis, fifteen (15) days following Landlord's substantial completion of the shell and core of the Building (as detailed on Exhibit D attached hereto) and --------- the tenant improvements (the scope of which is described on Exhibit E attached hereto), including without limitation the --------- following: (A) the utility and other systems servicing the Building and necessary for the operation of the Building or Tenant's occupancy and full enjoyment of the Premises (such as elevators, plumbing, heating, ventilating, air conditioning, electrical and security systems) shall be completed and in good order and operating condition except for details of construction, decoration and mechanical adjustments which do not materially interfere with Tenant's use of the Premises; (B) The lobby of the Building and the entrances and public portions (including the garage), stairways, corridors and elevators (including freight elevators) of the Building shall have been finished (except for details of construction, decoration and mechanical adjustments which do not materially detract from the appearance of such areas or materially interfere with their use for normal purposes) and shall be in a clean and orderly condition affording reasonable access to all portions of the Premises; (C) The exterior of the Building (including the installation of glass therein) shall have been completed except for minor portions thereof which in the aggregate do not materially affect Tenant's use of the Premises; and (D) the tenant improvements on such floor have been substantially completed (meaning they are fully completed in accordance with the approved plans and -2- specifications and ready for use by Tenant except for minor punchlist items that do not materially affect Tenant's use thereof). Additionally, Landlord shall have obtained a temporary Certificate of Occupancy for the Building and a temporary Certificate of Occupancy with respect to such floor of the Premises, each issued by the City of Bellevue. Tenant may use the fifteen (15) day period following substantial completion, as described above, to move its furniture and fixtures into the Premises. Each such date, on a floor-by-floor basis, is the "Commencement Date." The Initial Lease Term will expire on that date which is the last day of the month eight (8) years following the last Commencement Date to occur for floors one through four. Landlord and Tenant shall confirm in writing the Commencement Date applicable to each floor of the Premises. Landlord and Tenant estimate that the Commencement Date shall be as follows for each of the floors: (i) first floor: February 1, 2001; (ii) second floor: February 15, 2001; (iii) third floor: March 1, 2001; and (iv) fourth floor: March 15, 2001. (2) Conditions to Commencement of Initial Lease Term. In order for ------------------------------------------------ the Initial Lease Term to commence, the acquisition of Tenant by Stamps.com, Inc. must have occurred, and Tenant must have provided evidence of the same satisfactory to Landlord. (3) Boundary Line Adjustment. Landlord has caused a boundary line ------------------------ adjustment involving the Land and the land on which Sterling Plaza I is located (the "Sterling Plaza I Property") to be recorded in the real property records of King County, Washington. Landlord hereby indemnifies Tenant with respect to any loss, cost, damage or expense incurred by Tenant in the event Landlord fails to obtain written approval from New York Life Insurance Company ("NYLIC"), Landlord's lender on Sterling Plaza I, of the boundary line adjustment necessary to legally separate the Land from the Sterling Plaza I Property which is encumbered by a deed of trust in favor of NYLIC. (4) Option to Renew the Lease. Provided Tenant is not then in ------------------------- default under this Lease beyond any applicable notice an cure periods, either at the time notice of exercise is given or upon expiration of the initial term of this Lease, Tenant shall have the option to extend the term of this Lease for two (2) renewal terms of five (5) years (each, a "Renewal Term"). Except for the monthly rent described below and other economic terms, the terms, covenants, and conditions of this Lease shall remain unchanged during each Renewal Term (unless otherwise mutually agreed by Landlord and Tenant). Tenant may exercise the option by giving written notice of exercise ("Tenant's Exercise Notice") to Landlord not earlier than fourteen (14) months but at least eleven (11) months prior to the expiration of the Initial Lease Term or the first Renewal Term, as applicable. If Tenant's Exercise Notice is not timely given, the option to renew (and any subsequent option to renew) shall terminate. (5) Determination of Market Rental Rate. The rent to be paid during ----------------------------------- each Renewal Term will be the then-market rental rate based upon rates prevailing at the time of commencement of the Renewal Term for comparable leases in comparable office buildings located in the vicinity of the I-90 corridor in the City of Bellevue, Washington. Comparable leases shall include leases of a similar duration for tenants which are not directly or indirectly affiliated with their Landlord. Within ninety (90) days after receipt of Tenant's Exercise Notice, Landlord will provide Tenant with a written proposal for rent during the upcoming Renewal Term. Within sixty (60) days after Tenant's receipt of Landlord's written proposal, Tenant shall provide Landlord with a written response. If, within sixty (60) days after Tenant's written response is received by Landlord, the parties are unable to reach an agreement as to the rental rate applicable during the Renewal Term, the then-market rental rate will be established as follows: Landlord and Tenant shall each, by that date which is three (3) -3- months prior to the commencement of the upcoming Renewal Term, retain an individual with substantial experience in the appraisal of commercial office property located in the Seattle-Bellevue metropolitan area and holding a designation of "MAI" or equivalent professional qualification (an "Appraiser"). The two Appraisers retained shall, within two (2) weeks of their appointment, appoint a third Appraiser. By that date which is two (2) months prior to the commencement of the upcoming Renewal Term, each Appraiser shall, through his or her independent research, determine the then-market rental rate (exclusive of triple-net additional rent) that he or she believes to be applicable to the Premises during the upcoming Renewal Term, and shall provide written notice of the same to Landlord, Tenant and the other Appraisers (the "Appraised Rent"). The Appraised Rents determined by the two Appraisers that are closest in dollar amount to one another shall be averaged, and the resulting number shall be the base rent for the upcoming Renewal Term. Landlord and Tenant shall each bear the cost of the Appraiser it appoints, and shall share equally the cost of the third Appraiser. Notwithstanding the foregoing, in no event shall the base rent payable during any Renewal Term be less than the base rent payable during the last month of Initial Lease Term or the first Renewal Term, as applicable. (f) Rent. The monthly rent for the Premises shall commence, on a floor- ---- by-floor basis, on the Commencement Date. The annual base rent for the Premises, on a per rentable square foot basis, is as follows: 1st year of Initial Lease Term: $23.00 2nd year of Initial Lease Term: $23.58 3rd year of Initial Lease Term: $24.17 4th year of Initial Lease Term: $24.78 5th year of Initial Lease Term: $25.40 6th year of Initial Lease Term: $26.04 7th year of Initial Lease Term: $26.69 8th year of Initial Lease Term: $27.36 together with additional rent as provided in Section 8 of this Lease. The "first year" of the Initial Lease Term shall be the period from the first Commencement Date to the end of the twelfth (12th) month after the last Commencement Date. Such base rent shall be payable in equal monthly installments. Rent for any partial month at the beginning of the Initial Lease Term shall be prorated on the basis of the number of days elapsed. Landlord and Tenant shall confirm in writing the amount of base rent due based on the final calculations of, or any adjustments to, the floor area of the Premises. Rent is to be paid in advance on or before the first day of each month without offset or deduction at the offices of Landlord, Sterling Realty Organization Co., 600 - 106th Avenue NE, Suite 200, Bellevue, Washington 98004, or P.O. Box 91723, Bellevue, Washington 98009, or such other place designated by Landlord. (g) Letters of Credit; Security Deposit. ----------------------------------- (1) Letter of Credit No. 1. Tenant shall, on or before March 13, ---------------------- 2000, provide to Landlord an irrevocable letter of credit ("Letter of Credit No. 1") in the amount of $1,812,240.00 (calculated by multiplying the 75,510 rentable square foot floor area of the Premises by $24.00), issued by a bank reasonably satisfactory to Landlord and in the form attached hereto as Exhibit F, as security for Tenant's performance of its --------- obligations under this Lease. If Tenant fails to deliver Letter of Credit No. 1 to Landlord by March 13, 2000, then for each day thereafter until Letter of Credit No. 1 is delivered to Landlord, there will be a day-for-day delay in the target Commencement Dates set forth in Section 1(e) above. The amount of Letter of Credit No. 1 shall be adjusted based on the final determination of floor area under Section 1(b) above, and Tenant shall increase the amount of Letter of Credit No. 1 when any floor area is, during the Initial Lease Term, -4- added to the Premises in accordance with the provisions of this Lease. The amount of Letter of Credit No. 1 shall be reduced to zero in eight (8) annual reductions, each of 12.5% of the original amount of Letter of Credit No. 1, commencing on the last Commencement Date to occur (as set forth in Section 1(e)(1) above) and on each subsequent anniversary thereof. If Tenant is in default of its obligations under this Lease, Landlord may so certify to the issuer of Letter of Credit No. 1, and upon presentation, such issuer shall cause Letter of Credit No. 1 to be drawn down in its entirety and paid to Landlord. If the amount drawn down by Landlord under Letter of Credit No. 1 is in excess of the amount necessary to cure Tenant's default under this Lease, then Landlord shall hold the remainder of such funds as a security deposit (the "Security Deposit") for the account of Tenant. Landlord's obligations with respect to the Security Deposit are those of a debtor and not a trustee. Landlord may maintain such sums separate and apart from Landlord's general funds or may commingle them with Landlord's general or other funds. Landlord is not required to pay Tenant interest on such sums, or any portion thereof. (2) Letter of Credit No. 2. If, at any time after the first thirty ---------------------- (30) months of the Initial Lease Term, Stamps.com, Inc. has a net operating loss, measured over the previous four calendar quarters, that is greater than one-half the amount of Stamps.com, Inc.'s then-current working capital, all as determined in accordance with generally accepted accounting principles, Tenant shall provide to Landlord an additional irrevocable letter of credit issued by a bank reasonably satisfactory to Landlord and in the form attached hereto as Exhibit F in an amount equal to --------- the then-rentable square foot floor area of the Premises multiplied by $10.00 ("Letter of Credit No. 2"). Letter of Credit No. 2 shall remain posted with Landlord for so long as Stamps.com, Inc.'s financial condition remains as stated in the preceding sentence. If Tenant is in default of its obligations under this Lease, Landlord may so certify to the issuer of Letter of Credit No. 2, and upon presentation, such issuer shall cause Letter of Credit of Credit No. 2 to be drawn down in its entirety and paid to Landlord. If the amount drawn down by Landlord under Letter of Credit No. 2 is in excess of the amount necessary to cure Tenant's default under this Lease, then Landlord shall hold the remainder of such funds as a Security Deposit for the account of Tenant. (h) Financial Statements. Promptly following the end of each fiscal -------------------- quarter, Tenant shall provide Landlord with copies of financial statements for Tenant and Stamps.com, Inc. for the previous fiscal quarter, certified by Tenant's chief financial officer and the chief financial officer of Stamps.com, Inc., respectively, to be true, accurate and complete. Financial statements shall be required for only Stamps.com, Inc. if Tenant and Stamps.com, Inc. report on a consolidated basis. Landlord shall keep all such financial information confidential, provided that Landlord may disclose such information, on a confidential basis, to Landlord's mortgagee or prospective purchasers of the Land and the Building. (i) Guaranty of Lease. Stamps.com, Inc., Tenant's parent company ----------------- following the acquisition that is a condition to the commencement of this Lease, shall guaranty the payment and performance of all of Tenant's obligations under this Lease, as evidenced by its execution of the Guaranty of Lease, the form of which is attached hereto as Exhibit G. --------- (j) Permitted Uses. The Premises shall be used only for general office -------------- purposes and uses ancillary thereto (including without limitation a computer server room, auditorium, conference room, exercise facility and cafeteria and dining facility, but only so long as such uses are ancillary to the general office use of the Premises, used only by employees of Tenant (unless otherwise agreed in writing by Landlord), and such ancillary uses do not require any additional parking under City of Bellevue zoning ordinances) and for no other purpose or use without the written consent of Landlord. -5- GENERAL TERMS AND CONDITIONS 2. Premises. Landlord does hereby lease to Tenant, and Tenant does hereby lease from Landlord, upon the terms and conditions herein set forth, the Premises described in Section 1(a) hereof. 3. Term. The Lease term shall be for the period stated in Section 1(e) hereof. The Lease term shall commence on the Commencement Date specified in Section 1(e). Neither Landlord nor any agent or employee of Landlord shall be liable for any damage or loss due to Landlord's inability or failure to deliver possession of the Premises to Tenant as provided herein. 4. Rent. Tenant shall pay Landlord the monthly rent stated in Section 1(f) hereof without demand, deduction or offset (except as otherwise expressly provided in this Lease), payable in lawful money of the United States in advance on or before the day specified in Section 1(f) to Landlord at the offices of Landlord or its building manager at the place specified in Section 1(f), or to such other party or at such other place as Landlord may hereafter from time to time designate in writing. Rent for any partial month at the beginning or end of the Lease term shall be prorated. Notwithstanding anything in Section 8 hereof, the rent payable by Tenant shall in no event be less than the rent specified in Section 1(f) of this Lease. (a) Late Fees On Overdue Rent. With respect to the first two (2) times ------------------------- during any calendar year of the Lease term that Tenant fails to pay any rent, additional rent or other sums payable by Tenant to Landlord hereunder in a timely manner, Landlord shall provide written notice to Tenant so stating (each, a "Late Notice"). If such payment is not received within three (3) days following receipt of the Late Notice, then such rent, additional rent or other sums payable by Tenant to Landlord shall bear interest at a rate equal to three percent (3%) per annum, compounded monthly, above the prime lending rate as publicly announced from time to time by Bank of America, calculated from the date of delinquency to the date of payment (the "Default Rate"). If, during any calendar year of the Lease term Tenant has received two (2) Late Notices and Tenant fails to pay to Landlord any rent, additional rent or other sums due hereunder when due, then such amounts shall bear interest at the Default Rate from the date of delinquency to the date of payment. (b) Collection Fee on Overdue Rent. With respect to the first two (2) ------------------------------ times during any calendar year of the Lease term that Tenant fails to pay its rent in a timely manner, Landlord shall provide a Late Notice to Tenant. If such payment is not received within three (3) days following receipt of the Late Notice, then such rent, additional rent or other sums payable by Tenant to Landlord shall also be subject to a collection fee equal to three percent (3%) of the amount due. If, during any calendar year of the Lease term Tenant has received two (2) Late Notices and Tenant fails to pay to Landlord any rent, additional rent or other sums due hereunder when due, then such amounts shall be subject to a collection fee equal to three percent (3%) of the amount due. 5. Notices. All notices under this Lease shall be in writing and delivered in person or sent by facsimile or by registered or certified mail to Landlord at the address below, to Tenant at the Premises after the Commencement Date and at the address below prior to the Commencement Date, and to the holder of any first mortgage or deed of trust at such place as such holder shall specify to Tenant in writing; or at such other facsimile number or address as may from time to time be designated by each party in writing. Notices will be deemed to have been given on the date sent by facsimile with evidence of receipt by the intended party, on the date delivered in the case of personal delivery or, if mailed, on that date which is two (2) days after the postmark thereof. LANDLORD: Sterling Realty Organization Co. 600 - 106th Avenue NE, Suite 200 Bellevue, Washington 98004 Attention: Property Manager -6- Telephone: (425) 455-8100 Facsimile No.: (425) 455-8165 TENANT: iShip.com, Inc. 3535 Factoria Boulevard S.E., Suite 500 Bellevue, Washington 98006 Attention: Stephen M. Teglovic, CEO Telephone: (425) 602-4848 Facsimile No.: (425) 602-5025 with a courtesy copy to John E. Jamerson, CFO, at Tenant's address stated above, provided that Landlord's failure to provide the courtesy copy shall not delay or defeat the effectiveness of any notice given to Tenant. 6. Uses. The Premises are to be used only for the uses specified in Section 1(j) hereof (the "Permitted Uses") and for no other business or purpose without the written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall not commit or allow any acts to be done in or about the Premises that are unlawful or that will cause an increase to the existing rate of insurance on the Building. Tenant shall not commit or allow to be committed any waste upon the Premises, or create or allow to be created any public or private nuisance in the Building. Tenant shall not, without the written consent of Landlord, use any apparatus, machinery or device in or about the Premises which will cause any substantial noise or vibration or any increase in the normal use of electric power. If any of Tenant's office equipment should disturb the quiet enjoyment of any other tenant in the Building, then Tenant shall provide adequate insulation, or take other such action as may be necessary to eliminate the disturbance. Tenant shall comply with all laws and regulations relating to its use of the Premises, including laws relating to Hazardous Materials (defined in Section 43 below) and shall observe such reasonable rules and regulations as may be adopted and published by Landlord from time to time for the safety, care and cleanliness of the Premises or the Building, and for the preservation of good order therein, including but not limited to any Rules and Regulations currently in effect, which are attached to this Lease as Exhibit H. Such rules and regulations --------- shall not be inconsistent with the terms of this Lease and shall be enforced against all tenants of the Building in a non-discriminatory manner. 7. Services and Utilities. Landlord shall furnish the Premises with electricity for lighting and operation of customary office machines, water, and elevator service, and, during Normal Business Hours, lighting, heat and normal air conditioning. "Normal Business Hours" are defined as 7:00 a.m. to 6:00 p.m., Monday through Friday, and 7:00 a.m. to 12:00 p.m. on Saturdays. Outside Normal Business Hours, utility services will be provided to the Premises, and Tenant shall pay Landlord for the actual cost of providing lighting, heat and normal air conditioning, including the associated electrical and maintenance costs. Tenant shall have access to the Building 24 hours per day, 7 days per week, through use of the "key card" security system. (a) Extra Services. During all hours which are not business hours, -------------- Landlord shall furnish all of such services set forth above, except the following: (1) Utility Services. If requested by Tenant, Landlord shall furnish ---------------- heat and air conditioning to the Premises at times other than Normal Business Hours, and Landlord's actual cost of providing such services to Tenant shall be paid by Tenant to Landlord as Additional Rent. (2) Janitorial Services. Janitorial service shall be provided each ------------------- day except for Fridays, Saturdays or legal holidays, and shall be comparable to such services provided in Class A office buildings in Bellevue, Washington. The costs of any janitorial or other services provided or caused to be provided by Landlord to Tenant which are in addition to the services ordinarily provided to tenants of the Building shall be payable by Tenant as Additional Rent. -7- (3) Increased Utility Loads. Landlord shall be entitled to install ----------------------- and operate at Tenant's sole cost and expense a monitoring/metering system in the Premises to measure the demands on the electricity and HVAC systems of the Building. Landlord represents and warrants that the Building's electrical system will provide an electrical load of at least 4.5 total watts per square foot. Tenant shall comply with Landlord's reasonable instructions for the use of drapes, blinds and thermostats in the Building. (b) Interruption to Services. Landlord shall not be liable for any loss, ------------------------ injury or damage to property caused by or resulting from any variation, interruption, or failure of such services due to any cause outside of Landlord's reasonable control, except if such interruption or failure continues for forty-eight (48) hours or more, in which case rent shall be abated for that time after forty-eight (48) hours until such interruption ceases. In the event of such variation, interruption or failure, however, Landlord shall use reasonable diligence to restore such service. Except as provided above, no temporary interruption or failure of such service incident to the making of repairs, alterations or improvements or due to accident or strike, or conditions or events beyond Landlord's reasonable control shall be deemed an eviction of Tenant or relieve Tenant from any of Tenant's obligations hereunder. 8. Costs of Services and Utilities. (a) Definitions. As used herein, the following terms have the following ----------- respective meanings unless the context otherwise specifies or clearly requires. (1) "Lease Year" means a calendar year commencing January 1 and ---------- ending December 31. (2) "Operating Costs" means all reasonable and necessary expenses, --------------- based on Landlord's reasonable business judgment and customary practices, paid or incurred by Landlord for maintaining, operating and repairing the Building (including the parking facilities), the Land, and the personal property used in conjunction therewith, to the extent not paid directly by Tenant, including but not limited to all expenses paid or incurred by Landlord for Property Taxes as defined in Section 9 below; insurance required by Section 17(b)(2) below, by Landlord's mortgagee, or otherwise in Landlord's reasonable discretion; electricity during Normal Business Hours, water, gas, sewer, refuse collection, telephone charges and security service not chargeable to tenants and similar utilities services; the cost of supplies and window washing, cost of services of independent contractors, cost of compensation (including employment taxes and fringe benefits) of all persons who perform duties in connection with such Operating Costs and any other expense or charge which in accordance with generally accepted accounting and management principles would be considered an expense of maintaining, operating or repairing the Building, together with a property management fee equal to four percent (4%) of the monthly base rent for the Premises. Operating Costs shall include the cost of replacing cracked or broken exterior windows, but shall not include (A) costs for maintaining and repairing structural components of the Building; (B) any depreciation or amortization costs related to the Building or any portion or component of the Building or any equipment or other property used in connection with the Building, except as specifically permitted by the terms of this Lease; (C) any loan payments, principal or interest, or ground lease or similar payments; (D) any leasing costs, including brokerage commissions, legal fees, vacancy costs, and refurbishment or improvement expenses, in connection with the premises of a particular tenant; (E) any collection costs, including legal fees, or bad debt losses or reserves; (F) any costs or expenses resulting from Landlord's violation of any agreement to which it is a party or any applicable laws or ordinances or governmental rules, regulation, or orders; (G) Landlord's general corporate overhead and general and administrative expenses in excess of costs and expenses directly attributable to the operation and management of the Building; (H) any cost or expenses which would not, -8- under generally accepted accounting and management principles, be regarded as a maintenance and operating expense; or (I) the items listed on Exhibit I to this Lease. All Operating Costs --------- associated with the maintenance of the parking areas will be pro rated among users of the Project on the following basis: Tenant's pro rata share of such Operating Costs for the Parking areas of the Project will be the fraction, the numerator of which is 75,510 square feet (i.e. the rentable area of the Premises), as such area may be adjusted in accordance with the terms of this Lease, and the denominator of which is the sum of the rentable areas expressed in rentable square feet of all buildings now or hereafter located in the Project (pro rated as to the fraction of any year from the time any such new building is completed and placed in service). Currently there are three buildings located in the Project, the Building, Sterling Plaza I (which has 127,401 rentable square feet) and the Factoria Cinemas (which has 47,621 rentable square feet). All Operating Costs associated with the operation of the parking areas, including any parking control mechanism or valet parking service, will be pro rated among users of the Project and the users of the 12600 Building (which has 52,227 rentable square feet). (3) "Estimated Operating Costs" means Landlord's estimate of ------------------------- Operating Costs for the following Lease Year to be given by Landlord to Tenant pursuant to Section 8(b)(1). (b) Additional Rent. Tenant shall pay to Landlord as rent, in addition to --------------- the rent provided in Section 1(f) above, all Operating Costs allocable to the Premises and any and all other sums expressly provided for hereunder. (1) Rent Adjustment for Estimated Operating Costs. Landlord shall, --------------------------------------------- prior to the first Commencement Date and within 90 days after the commencement of each Lease Year thereafter, furnish to Tenant a written statement setting forth (A) Tenant's proportionate share of Estimated Operating Costs for such Lease Year, and (B) the amount of Additional Rent payable monthly during such Lease Year, which will equal one-twelfth (1/12) of the amount. If such Estimated Operating Costs are furnished after the commencement of the Lease Year, Tenant shall also make a retroactive lump-sum payment equal to the amount of such excess multiplied by the number of months during the Lease Year for which no such adjustment was paid. (2) Actual Operating Costs. Within ninety (90) days after the close ---------------------- of each Lease Year during the term hereof, Landlord shall deliver to Tenant a written statement setting forth the actual Operating Costs during the preceding Lease Year. If such costs for any Lease Year exceed the Estimated Operating Costs paid by Tenant to Landlord pursuant to Section 8(b)(1) for such Lease Year, Tenant shall pay the amount of such excess to Landlord as additional rent within thirty (30) days after receipt of such statement by Tenant. If such statement shows such costs to be less than the amount paid by Tenant to Landlord pursuant to Section 8(b)(1), then the amount of such overpayment shall be credited toward the next monthly rent payable by Tenant or, if this Lease has terminated, shall be paid to Tenant within thirty (30) days. (3) Determinations. The determination of Operating Costs and -------------- Estimated Operating Costs shall be made by Landlord in its reasonable business judgment. If Tenant notifies Landlord in writing within three (3) years after the receipt by Tenant of Landlord's statement setting forth the preceding years' Operating Costs, then Tenant may review or audit Landlord's books and records pertaining to Operating Costs. In the event that any such audit, conducted in accordance with generally accepted accounting principles, reveals a discrepancy of three percent (3%) or more between Landlord's statement of the actual Operating Costs for a Lease Year and the amount of such Operating Costs determined by such audit, then if the Operating Costs were overstated Landlord shall reimburse to Tenant the excess amount paid by Tenant and Landlord shall pay for the -9- reasonable cost of such audit; but if the Operating Costs were understated then Tenant shall pay to Landlord the amount of such deficiency and Tenant shall pay for the cost of such audit. Rent due pursuant to this section shall be Additional Rent payable by Tenant hereunder, and in the event of nonpayment thereof, Landlord shall have similar rights with respect to such nonpayment as it has with respect to any other nonpayment of rent hereunder. (4) Extra Services Requested by Tenant. If Tenant requests Landlord ---------------------------------- to provide extra services not included in Operating Costs, and Landlord agrees to do so, such services will, during the Initial Term of this Lease, be charged at a rate of Fifty Dollars ($50.00) per hour for Landlord's agent to perform or supervise such services for the repair, maintenance and operation of the Premises as Tenant may request. Landlord will separately invoice Tenant for the cost of such services, and the amount due shall be Additional Rent payable by Tenant hereunder. (5) End of Term. If this Lease terminates on a day other than the ----------- last day of a Lease Year, the amount of any adjustment between Estimated Operating Costs and Actual Operating Costs with respect to the Lease Year in which such termination occurs will be prorated on the basis which the number of days from the commencement of such Lease Year to and including such termination date bears to 365, and any amount payable by Landlord to Tenant or Tenant to Landlord with respect to such adjustment is payable within thirty (30) days after delivery of the Statement of Operating Costs with respect to such Lease Year. 9. Property Taxes. "Property Taxes" means all real property taxes and assessments and personal property taxes, charges and assessments levied with respect to the Land, the Building, and any improvements, fixtures and equipment, and all other property of Landlord, real or personal, located in or on the Building and used in connection with the operation of the Building. In addition to the foregoing, Property Taxes shall include a pro rata portion of all real property taxes and assessments for the driveway, parking, and related landscaped areas of the Project (the "Parking Lot Taxes"). The portion of the Parking Lot Taxes allocated to the Tenant shall be equal to the percentage of rentable space occupied by the Tenant compared to the total amount of rentable square feet contained in the Project (including the Factoria Cinemas). Tenant's share of Parking Lot Taxes shall be computed by multiplying the total Parking Lot Taxes by a fraction, the numerator of which is 75,510 (i.e. the rentable area of the Premises), and the denominator of which is the sum of the rentable areas expressed in square feet of all buildings now or hereafter located in the Project (pro rated as to the fraction of any year from the time any such new building is completed and placed in service). Currently there are three buildings located in the Project, the Building (which has 92,866 rentable square feet, Sterling Plaza I (which has 127,401 rentable square feet) and the Factoria Cinemas (which has 47,621 rentable square feet), for a total of 267,888 rentable square feet. 10. Taxes on Rents and Personal Property. If any governmental authority shall in any manner levy a tax on rents payable under this Lease or rents accruing from Tenant's use of property, or such a tax in any form against Landlord measured by income derived from the leasing or rental of the Building, such tax shall be paid by Tenant either directly or through Landlord; provided, however, that Tenant shall not be liable to pay any state or federal income tax imposed on Landlord. Tenant shall pay prior to delinquency all personal property taxes with respect to all property of Tenant located on the Premises or the Building and shall provide promptly upon request of Landlord written proof of such payment. 11. Acceptance of Premises. Landlord shall deliver the Premises to Tenant in a clean and orderly condition and in accordance with the provisions of Section 1(e) above. -10- 12. Improvements. Subject to Section 21 of this Lease, upon the expiration or sooner termination of this Lease, all improvements and additions to the Premises made by Tenant shall become the property of Landlord. 13. Alterations and Care of Premises. Tenant shall take good care of the Premises and shall promptly make all necessary repairs and maintenance, except those to be made by Landlord as provided herein. Additionally, if Tenant elects to upgrade the generator that Landlord would otherwise have provided to operate the life safety systems of the Building, Tenant shall, during the term of this Lease, maintain such generator in accordance with all manufacturer's instructions relating thereto. (a) Except as expressly permitted by the terms of this paragraph, Tenant shall not make any alterations, additions or improvements in or to the Premises, or make changes to locks on doors, or add, disturb or in any way change any floor covering, wall covering, fixtures, plumbing or wiring, without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Landlord may, in determining whether to grant or withhold its consent to a particular alteration, addition or improvement, consider the likelihood that the particular alteration, addition or improvement will be usable by a subsequent tenant of the Premises. Notwithstanding the foregoing, Landlord's consent shall not be required for changes that cost Fifty Thousand Dollars ($50,000) or less and do not affect Building systems. If Landlord withholds its consent to a particular alteration, addition or improvement based on the unlikelihood that a subsequent tenant would find that alteration, addition or improvement usable, then Tenant may proceed to make the particular alteration, addition or improvement, but shall remove it from the Premises prior to the expiration or earlier termination of this Lease. Within thirty (30) days following the completion of any alterations or improvements, Tenant shall provide Landlord with "as- built" plans showing the alterations or improvements made to the Premises. (b) If Landlord's consent is required, then prior to Tenant commencing work on any alteration, addition or improvement to the Premises, Tenant shall submit to Landlord two (2) copies, and, at the request of Landlord, shall submit to any mortgagee holding a mortgage or deed of trust encumbrance on the Land one (1) copy, of full and complete plans and specifications detailing the design and plan of improvements for any such alteration, addition or improvement. Landlord does not and will not make any covenant or warranty, express or implied, that any such plans or specifications submitted by Tenant are accurate, complete or in any way suited for their intended purpose. Landlord shall either approve or disapprove plans within five (5) business days and, if approved, return a signed, approved copy to Tenant. Landlord will not unreasonably withhold or delay its approval. In the event that the plans are not approved by Landlord, Landlord shall inform Tenant of the reasons for its disapproval and Tenant shall have twenty (20) days in which to submit revised plans to Landlord for approval. Tenant shall not unreasonably refuse to satisfy any objections made by Landlord to the plans and specifications. Any objections Tenant has to Landlord's objection shall be submitted to Landlord in writing within the twenty (20) day period. Landlord shall respond to such revised plans within five (5) business days after their submittal by Tenant. A failure of one party to give any notice to the other party within the period provided for doing so shall be deemed to constitute approval of the plans and specifications or the objections thereto, as appropriate. Within thirty (30) days following the completion of any alterations or improvements, Tenant shall provide Landlord with "as-built" plans showing the alterations or improvements made to the Premises. (c) All such work so done by Tenant shall be done in accordance with all laws, ordinances, and rules and regulations of any federal, state, county, municipal or other public authority and/or Board of Fire Underwriters. Tenant expressly covenants and agrees that no liens of mechanics, materialmen, laborers, architects, artisans, contractors or subcontractors engaged by or through Tenant, or any other lien of any kind whatsoever arising by or through Tenant, shall be created against or imposed upon the Premises, the Land or the Building, and that in the event any such -11- claims or liens of any kind whatsoever shall be asserted or filed by any persons, firms or corporations performing labor or furnishing material in connection with such work, Tenant shall pay off or cause the same to be discharged of record within five (5) days of notification thereof. Except as provided in Section 21 below, all alterations, improvements, or changes made by Tenant to the Premises shall be the property of Landlord and shall remain upon and be surrendered with the Premises upon the termination of this Lease; provided, however, that Tenant shall remove any alteration, addition or improvement made to the Premises by Tenant subsequent to the completion of the initial tenant improvements to be made pursuant to Exhibit E and to which Landlord withheld its consent under the terms --------- of Section 13(b) above. Tenant will remove any such alterations, additions or improvements made by Tenant prior to Tenant surrendering possession of the Premises to Landlord, and repair any damage caused to the Premises thereby, all at the sole cost and expense of Tenant. After the beginning of each Lease Year during the term of this Lease or any Renewal Term, Landlord may deliver a certificate to Tenant requesting that Tenant provide Landlord with an itemized list of all alterations, improvements or changes that Tenant has made to the Premises during the previous Lease Year. Tenant shall complete the certificate and return the same to Landlord within thirty (30) days following the date on which it was received. In the event no alterations or improvements were made during the previous Lease Year, Tenant shall so indicate on the certificate provided. All damage or injury done to the Building or the Premises or any appurtenances to either by Tenant, or by Tenant's agents, invitees, licensees, or employees, including the cracking or breaking of glass of any windows and doors, shall be paid for by Tenant. (d) Tenant shall not put curtains, draperies or other hangings on or beside the windows in the Premises or place any furniture on the patios or common areas without first obtaining Landlord's consent. All normal repairs necessary to maintain the Premises in a tenantable condition and consistent with the standards for a Class A office building in the Bellevue metropolitan area shall be done by or under the direction of Landlord, acting reasonably and in good faith. Tenant shall promptly notify Landlord of any damage to the Premises requiring repair, and if such repair is Landlord's obligation under the terms of this Lease, Landlord shall make such repair within thirty (30) days thereafter. If Landlord fails to respond to Tenant's notice within the 30-day period provided for doing so, then Tenant may cause the repairs to be accomplished. Landlord shall reimburse Tenant for all reasonable costs and expenses incurred by Tenant in making the repairs, and such reimbursement shall be made within thirty (30) days of Landlord's receipt of an invoice for the amount of such costs and expenses. (e) Landlord shall be responsible for maintaining and repairing the structural components of the Building at Landlord's sole cost. If Tenant believes that there is a problem or defect in the structural elements of the Building, including problems or defects in the foundation, exterior walls, floors or the roof system, and also including but not limited to safety aspects of the Building (as determined under applicable building codes as in effect on the date hereof), Tenant shall give Landlord notice of any such defect. Tenant and Landlord shall cooperate to determine promptly whether any such defect exists and to identify any damage to the Building resulting from such defect. Landlord shall repair any such defect and resulting damage. If Landlord fails to make any such repairs which can reasonably be completed within fifteen (15) days, within thirty (30) days after such determination, or fails to commence within thirty (30) days after such determination and diligently proceed to complete any such repairs which cannot reasonably be completed in fifteen (15) days, Tenant shall have the right, but not the obligation, to cause such repairs to be accomplished. Landlord shall reimburse Tenant for all reasonable costs and expenses incurred by Tenant in making the repairs, and such reimbursement shall be made within thirty (30) days of Landlord's receipt of an invoice for the amount of such costs and expenses. Landlord shall also maintain all common areas of the Building (including the Building exterior, landscaping -12- and parking areas) in first-class condition and repair and consistent with the standards for a Class A office building in the Bellevue metropolitan area, at Landlord's cost but subject to reimbursement as set forth in Section 8 above. (f) Tenant shall, at the expiration or sooner termination of this Lease, surrender and deliver the Premises to Landlord in as good or better condition as when received by Tenant from Landlord or as thereafter improved, reasonable use and wear and damage by fire or other insured casualty excepted. 14. Liens and Insolvency. Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, materials ordered or obligations incurred by Tenant. If Tenant becomes insolvent, voluntarily or involuntarily bankrupt, or if a receiver, assignee or other liquidating officer is appointed for the business of Tenant, then Tenant shall be deemed to be in default under the terms of this Lease and Landlord may, in addition to any other remedy provided in this Lease, terminate Tenant's right of possession under this Lease at Landlord's option and in no event shall the Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. 15. Access. Tenant shall permit Landlord and its agents (including, but not limited to any mortgagee holding a mortgage or deed of trust which is an encumbrance against the Land) to enter into and upon the Premises but, except in an emergency, only on advance reasonable notice and at reasonable times for the purpose of inspecting the same or for the purpose of repairing, altering or improving the Premises or the Building, with minimum interference to Tenant. Nothing contained in this Section 15 shall be deemed to impose any obligation upon Landlord not expressly stated herein or elsewhere in this Lease. Landlord shall, on the same basis, have the right to enter the Premises for the purpose of showing the Premises to prospective tenants within 270 days prior to the expiration or sooner termination of the Lease term. 16. Damage or Destruction. If the Building or the Premises are destroyed or damaged by fire or other casualty insured against under Landlord's fire and extended coverage insurance policy to the extent that more than fifty percent (50%) of either is rendered untenantable, or if the Building or the Premises are destroyed or materially damaged by any other casualty other than those covered by such insurance policy, notwithstanding that the Premises may be unaffected directly by such destruction or damage, Landlord may, at its election, terminate this Lease by notice in writing to Tenant within sixty (60) days after such destruction or damage. Such notice will be effective thirty (30) days after receipt thereof by Tenant. Landlord shall not be required to repair or restore fixtures, improvements, or other property of Tenant. If Landlord elects to restore the Premises, then Landlord shall so notify Tenant within sixty (60) days after such destruction or damage, and shall begin the restoration work within thirty (30) days of such date, in which event this Lease will continue in full force and effect. If Landlord fails to notify Tenant of its election within sixty (60) days after such destruction or damage, then Tenant may terminate this Lease immediately upon written notice to Landlord. Tenant may also terminate this Lease if the damage or destruction is reasonably anticipated to render the Premises untenantable for one hundred eighty (180) days or more, or if damage or destruction occurs within the last twelve (12) months of the Lease term. Rent and all other amounts owing hereunder shall abate for as long as and to the extent the Premises are rendered untenantable as a result of any such destruction or damage, unless such damage or destruction is due directly or indirectly to the intentional misconduct of Tenant or its officers, contractors, licensees, agents, servants, employees, guests, invitees or visitors, in which case there will be an abatement of rent only to the extent Landlord collects rental loss insurance proceeds. (a) Business Interruption. Other than as provided in this Section 16 --------------------- above, no damages, compensation, or claim shall be payable by Landlord to Tenant for inconvenience, loss of business, or annoyance arising from any repair or restoration of any portion of the Premises or of the Building as a result of fire or other casualty. Landlord shall use its best efforts to effect such repairs promptly. (b) Tenant Improvements and Personal Property. Landlord will not carry ----------------------------------------- insurance of any kind on Tenant's furniture or furnishings or on any other personal property fixtures, equipment, improvements, or appurtenances owned or installed by Tenant, and Landlord shall not be obligated to repair any damage thereto or replace the same. -13- 17. Indemnification, Insurance and Waiver of Subrogation. (a) Indemnification. It is understood and agreed that Landlord shall not --------------- be liable for injury to any person, or for the loss of or damage to any property (including property of Tenant) occurring in or about the Premises from any cause whatsoever, except for that caused by Landlord's negligence, willful misconduct or breach of its obligations under this Lease. Tenant hereby indemnifies and holds Landlord harmless from and against and agrees to defend Landlord against any and all claims, charges, liabilities, obligations, penalties, causes of action; liens, damages, costs and expenses (including attorneys' fees) arising, claimed, charged or incurred against or by Landlord from any matter or thing arising from Tenant's use of the Premises, the conduct of its business or from any activity, work or other thing done, permitted or suffered by Tenant in or about the Premises or Common Areas, or in connection with the installation, operation, maintenance, existence or removal of a satellite dish or antenna and related facilities, if any, installed by Tenant on the roof of the Building, whether arising from any breach or default in the performance of any obligation on Tenant's part or to be performed under the terms of this Lease, or arising from any act or negligence of Tenant, or any officers, contractor, agent, employee, guest, licensee, or invitee of tenant, and from all costs, attorneys' fees, and liabilities incurred in or about the defense of any such claim (including appeals) or any action or proceeding brought thereon and in the event that any action or proceeding is brought against Landlord by reason of such claim, except to the extent any of the foregoing is caused by the negligence or willful misconduct of Landlord or Landlord's breach of its obligations under this Lease. Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord. The indemnification provided for in this paragraph shall survive any termination or expiration of this Lease. Landlord and its agents shall not be liable for any loss or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Premises or from pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place resulting from dampness or any other cause whatsoever, unless caused by or due to the negligence or willful misconduct of Landlord, its agents or employees or Landlord's breach of its obligations under this Lease. Landlord and its agents shall not be liable for interference with the light or air to the Premises or for any latent defect on the Premises. Tenant shall give prompt notice to Landlord in case of casualty or accidents on or about the Premises. Landlord shall indemnify, defend and hold Tenant harmless from all loss, cost, expense and liability arising as a result of Landlord's negligence or breach of its obligations under this Lease. (b) Insurance. --------- (1) Tenant's Insurance. ------------------ (A) Liability Coverage. During the entire Lease Term and at any ------------------ time prior to the Lease Term commencing with the day on which possession of the Premises is delivered to Tenant for any reason, Tenant shall, at its own expense, maintain commercial general liability insurance with a reputable insurance company or companies with minimum amounts of Two Million Dollars ($2,000,000) combined single limit per occurrence and in the aggregate for personal injuries and property damage on or about the Premises, or in connection with the installation, operation, maintenance, existence or removal of a satellite dish or antenna and related facilities, if any, installed by Tenant on the roof of the Building, to indemnify both Landlord and Tenant against any such claims, demands, losses, damages, liabilities and expenses. Landlord and the management company, if any, employed by Landlord with respect to the Building shall be named as additional insureds and shall be furnished with a certificate of insurance which shall bear an endorsement that the same shall not -14- be canceled except upon not less than thirty (30) days' prior written notice to Landlord. (B) Property Coverage. Tenant shall, at its own expense, ----------------- maintain during the Lease Term and at any time prior to the Lease Term commencing with the date on which possession of the Premises is delivered to Tenant for any reason, insurance covering its furniture, fixtures, equipment, all leasehold improvements and inventory in an amount equal not less than 100% of the full replacement value thereof as provided by basic form coverage with a special form endorsement. (C) Business Income and Extra Expense Coverage. Tenant shall ------------------------------------------ maintain business income and extra expense coverage at 100% of Tenant's gross revenue for a period of twelve (12) months. (D) Commercial Auto Liability Coverage. Tenant shall maintain ---------------------------------- commercial auto liability insurance with a combined limit of not less than One Million Dollars ($1,000,000) for bodily injury and property damage for each accident. Such insurance shall cover liability relating to any auto (including owned, hired and non-owned autos). (2) Landlord's Insurance. Landlord shall procure and maintain -------------------- physical damage insurance covering all real and personal property, excluding property paid for by tenants and not reimbursed by Landlord or paid for by Landlord for which tenants have reimbursed Landlord, located on or in, or constituting a part of, the Building in an amount equal to one hundred percent (100%) of the replacement value of all such property. Such insurance shall afford coverage for damages resulting from (i) perils covered by what is commonly referred to as special form insurance (including water damage, but excluding flood), and (ii) boilers and machinery coverage as appropriate for apparatus located in the Building, and shall include Business Income and Extra Expense coverage in such amounts as Landlord reasonably deems appropriate. Landlord shall also procure and maintain commercial general liability insurance with broad form general liability endorsement covering all claims with respect to injuries or damages to persons or property sustained in, on or about the Building and the appurtenances thereto, including the sidewalks and alleyways adjacent thereto, with limits of liability no less than Two Million Dollars ($2,000,000) combined single limit per occurrence and in the aggregate. Such limits may be achieved through the use of umbrella liability insurance otherwise meeting the requirements of this Section. (c) Increase in Insurance Premium. Tenant shall not keep, use, sell or ------------------------------ offer for sale in or upon the Premises any article which may be prohibited by the form of property insurance policy required to be carried under this Lease. Tenant shall pay any increase in premiums for property (including special form coverage) insurance that may be charged during the term of this Lease on the amount of such insurance which may be carried by Landlord on the Premises, the Building or the Property of which the Premises are a part, resulting from Tenant's particular use of the Premises, whether or not Landlord has consented thereto. In such event, Tenant shall also pay any additional premiums on the insurance policy that Landlord may carry for its protection against the loss of business income through property damage. In determining whether increased premiums are the result of Tenant's particular use of the Premises, a schedule, issued by the organization setting the insurance rate on the Premises, showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up the property insurance rate on the Premises. Landlord shall deliver bills for such additional premiums to Tenant at such times as Landlord may elect, and Tenant shall immediately reimburse Landlord therefor. -15- (d) Waiver of Subrogation. Landlord and Tenant hereby mutually release --------------------- each other from liability and waive all rights of recovery against each other for any loss in or about the Premises, from perils insured against under their respective property insurance policies, including any special form endorsements thereof, whether due to negligence or any other cause. This paragraph shall, however, be inapplicable if it would have the effect, but only to the extent it would have the effect, of invalidating any insurance coverage of Landlord or Tenant. Each of Landlord and Tenant shall, at the request of the other, execute and deliver to the other a Waiver of Subrogation in the form and content as required by such party's insurance carrier. (e) Companies. Insurance required hereunder shall be issued by companies --------- rated A-VII or better in "Bests" Insurance Guide, or such other companies approved by Landlord. (f) Certificate of Insurance. A certificate issued by the insurance ------------------------ carrier for each policy of insurance required to be maintained by Tenant under the provisions of this Lease shall be delivered to Landlord upon or before the delivery of the Premises to Tenant for any purpose, and thereafter within thirty (30) days prior to the expiration of the term of each such policy. Each certificate of insurance and each policy of insurance required to be maintained by Tenant hereunder shall expressly evidence insurance coverage as required by this Lease. All such policies shall be written as primary policies not contributing with and not in excess of coverage which Landlord may carry. 18. Assignment and Subletting. (a) Assignment, Mortgage or Encumbrance. Except as provided below, Tenant ----------------------------------- shall not voluntarily or by operation of law assign, mortgage or otherwise encumber all or any part of Tenant's interest in this Lease or in the Premises without obtaining the prior written consent of Landlord in each instance, and any attempt to do so without first obtaining such consent shall be voidable at the option of Landlord. Landlord shall not, however, unreasonably withhold or delay such consent, but such consent shall require that such assignee, mortgagee or encumbrancer agree to be bound by all of the terms and conditions of this Lease. Notwithstanding any of the foregoing, without the consent of Landlord, Tenant may voluntarily or by operation of law assign and delegate this Lease to the surviving corporation upon any reorganization, merger, consolidation or acquisition of Tenant, and Tenant may assign, sublet and delegate this Lease for all or any portion of the Premises to its parent company, any wholly-owned subsidiary or any affiliate, provided that both Tenant and any such assignee shall both be bound by all of the terms and conditions of this Lease. Without in any way limiting the foregoing, Landlord hereby specifically approves the acquisition of Tenant, whether through merger or otherwise, by Stamps.com, Inc. (b) Sublease. Tenant shall not sublease the Premises without obtaining -------- the prior written consent of Landlord, which consent of Landlord shall not be unreasonably withheld or delayed, and which consent shall require that such sublessee agree to be bound by all of the terms and conditions of this Lease applicable to such subleased space. (c) Requirements for Request for Assignment or Sublease; Standards for ------------------------------------------------------------------ Consent. In the event Tenant desires to assign this Lease or sublet ------- the Premises or any part hereof, Tenant shall give Landlord written notice at least thirty (30) days in advance of the date on which Tenant desires to make such assignment or sublease, which notice shall specify: (a) the name, address and business of the proposed assignee or sublessee, (b) the amount and location of the space affected, (c) the proposed effective date and duration of the sublease or assignment, and (d) current financial statements of the proposed assignee or sublessee. Each request for an assignment or subletting must be accompanied by a Processing Fee, equal to no less than Five Hundred Dollars ($500.00) plus reasonable legal fees, in order to reimburse Landlord for expenses incurred in connection with such request. -16- In reviewing any request for an assignment of Tenant's interest under this Lease or a sublease of the Premises or a portion thereof, Landlord may take into consideration the credit-worthiness of the proposed assignee or sublessee, the purpose for which the proposed assignee or sublessee will use the Premises, and whether the proposed assignee or sublessee is anticipated to require parking in excess of the parking allocated to Tenant under this Lease. Use and occupancy of the Premises or any portion thereof by an assignee or sublessee will be consistent with operation and maintenance of a First Class office building and will not be in conflict with any other Lease in the Building. Consent to one assignment, subleasing or other transfer shall not be deemed to constitute consent to any subsequent assignment, subleasing or other transfer of Tenant's interest in this Lease. Except as expressly provided herein, no such assignment or sublease shall relieve Tenant of any liability under this Lease regardless of whether such liability arises by or through Tenant. Assignment or subletting shall not operate as a waiver of the necessity for a written consent to any subsequent assignment or sublease, and the terms of such consent shall be binding upon any person holding by, under or through Tenant. (d) Rent from Assignee or Sublessee. In the event of any sublease or ------------------------------- assignment to which Landlord's consent is requested and given, Landlord and Tenant shall share on an equal basis the rent paid by Tenant's sublessee or assignee which is in excess of the rent due under this Lease, on a per rentable square foot basis, after deducting all of Tenant's out-of-pocket costs incurred in connection with such sublease or assignment, including commissions, improvements and leasing concessions, which costs shall be amortized over the term of the sublease or assignment. Landlord may, at its election, collect rent directly from such assignee, and in the event of a default hereunder by Tenant, from any sublessee. (e) Landlord's Right to Recapture the Premises. Except as set forth in ------------------------------------------ the last sentence of this Section 18(e), with respect to any requested subletting or assignment requiring Landlord's consent, Landlord may, by written notice to Tenant, elect to terminate this Lease with respect to, and recapture from Tenant, that portion of the Premises specified in the request for sublease or assignment, as of the proposed effective date of the sublease or assignment. In such event, the area of the Premises, as defined in this Lease, shall be decreased by the portion of the Premises specified in such request, and the monthly base rent, Tenant's Percentage of the Building and all other amounts in this Lease based on the area of the Premises shall be reduced appropriately. If Tenant requests Landlord's consent to a sublease of the Premises, Landlord shall not have the right to recapture that portion of the Premises specified in the request for sublease unless the term of the sublease extends into the last twelve (12) months of the then-current term of this Lease, as extended from time to time. 19. Holdover. If Tenant, without the written consent of Landlord, holds over after the expiration or termination of the term of this Lease, Tenant shall be deemed to be occupying the Premises on a month-to-month tenancy, which tenancy may be terminated as provided by the laws of the State of Washington. During such tenancy, Tenant agrees to pay to Landlord rent equal to one hundred fifty percent (150%) of the rent as set forth herein, unless a different rate shall be agreed upon, and to be bound by all of the terms, covenants and conditions herein specified, so far as applicable. 20. Surrender of Premises. Upon the expiration or sooner termination of the term of this Lease, whether by lapse of time or otherwise, Tenant shall promptly and peacefully surrender the Premises to Landlord, and shall return to Landlord all keys thereto. 21. Removal of Property. Upon the expiration or sooner termination of this Lease, Tenant may remove its trade fixtures, office supplies and movable office furniture and equipment provided (a) such removal is made prior to the termination or expiration of this Lease, (b) Tenant is not in default under any provision of this Lease beyond any applicable notice and cure periods at the time of such removal, and (c) Tenant immediately repairs all damage caused by or resulting from such removal. If Tenant has, in connection with its lease of the Premises, elected to upgrade the generator that Landlord would otherwise have -17- provided to operate the life safety systems of the Building, then upon the expiration or sooner termination of this Lease, Landlord may retain such generator by paying to Tenant the depreciated value of the generator based on a fifteen (15) year useful life and the actual cost of such generator, including sales tax, less the amount that would be the depreciated value of the generator based on a fifteen (15) year useful life and a purchase price of $64,000.00 plus sales tax. All other property in the Premises and any alterations or additions thereto (including, without limitation, wall-to- wall carpeting, paneling, wall covering, or lighting fixtures and apparatus) and any other article affixed to the floor, wall or ceiling of the Premises shall become the property of Landlord and shall remain upon and be surrendered with the Premises, Tenant hereby waiving all rights to any payment or compensation therefor. If, however, Landlord so requests in writing, Tenant shall, upon termination of this Lease, remove such alterations, additions, fixtures, equipment and property placed or installed by Tenant in the Premises subsequent to the completion of the tenant improvements to be made pursuant to Exhibit E and to which Landlord --------- withheld its consent under the terms of Section 13 above, and shall immediately repair any damage caused by or resulting from such removal to the condition of the Premises prevailing upon commencement of this Lease, reasonable wear and tear excepted. If Tenant fails to remove any of its property of any nature whatsoever from the Premises or the Building at the termination of this Lease or when Landlord has the right of reentry, Landlord may, at its option, remove and store said property without liability for loss thereof or damage thereto, such storage to be for the account and at the expense of Tenant. If Tenant does not pay the cost of storing any such property after it has been stored for a period of thirty (30) days or more, Landlord may, at its option, sell or permit to be sold any or all of such property at public or private sale (and Landlord may become a purchaser at such sale), in such manner and at such times and places as Landlord in its reasonable discretion may deem proper without notice to Tenant, and shall apply the proceeds of such sale: first, to the cost and expense of such sale, including reasonable attorneys' fees actually incurred; second, to the payment of the costs or charges for storing any such property; third, to the payment or any other sums of money which may then be or thereafter become due Landlord from Tenant under any of the terms hereof; and fourth, the balance, if any, to Tenant. 22. Defaults. (a) Tenant's Defaults. Time is of the essence hereof, and in the event ----------------- Tenant violates or breaches or fails to keep or perform any covenant, agreement, term or condition of this Lease, and if such default or violation continues or is not remedied within five (5) business days (or, if no default in the payment of money is involved, then within twenty (20) days, or if such breach cannot be cured within twenty (20) days, then Tenant commences a cure within twenty (20) days and thereafter diligently prosecutes such cure to completion) after notice in writing thereof is given by Landlord to Tenant specifying the matter claimed to be in default, or if Tenant abandons or vacates the Premises or any significant portion thereof, Landlord, at its option, may immediately declare Tenant's rights under this Lease terminated, and reenter the Premises using such force as may be necessary, and repossess itself thereof, as of its former estate, and remove all persons and property from the Premises. Notwithstanding any such reentry, the liability of Tenant for the full payment of rent and other amounts owed hereunder or provided for herein shall not be extinguished for the balance of this Lease, and Tenant shall make good to Landlord any deficiency arising from a reletting of the Premises at a lesser rent, plus the reasonable costs and expenses of renovating, altering and reletting the Premises, including attorneys' fees or brokers' fees incident to Landlord's reentry or reletting. Tenant shall pay any such deficiency each month as the amount thereof is ascertained by Landlord or, at Landlord's option, Landlord may recover, in addition to any other sums, the amount at the time of judgment by which the unpaid rent for the balance of the term after judgment exceeds the amount of rental loss which Tenant proves could be reasonably avoided, discounted at the then Federal Discount Rate less three percent (3%). The calculation of any amount of rental loss which Tenant claims could be reasonably avoided shall take into account those sums which are reasonably anticipated to be expended by Landlord for tenant improvements, moving expenses, lease assumption costs, real estate commissions, and all other -18- costs associated with reletting the Premises. In reletting the Premises, Landlord may grant rent concessions and Tenant shall not be credited therefor. Nothing herein shall be deemed to affect the right of Landlord to recover for indemnification under Section 17 herein arising prior to the termination of this Lease, or for any other remedy at law or in equity. Landlord shall make reasonable efforts to mitigate its damages in the event of Tenant's default. (b) Landlord's Defaults. If Landlord fails to keep and perform any ------------------- covenants and agreements herein contained, and if after written notice from Tenant specifying such default and permitting Landlord at least thirty (30) days (except in the event of an emergency or a situation affecting the tenantable condition of the Premises, in which case Landlord will be permitted a reasonable time under the circumstances) to remedy same Landlord has failed to remedy such default, then Tenant may, but shall not be obligated to, remedy such default. Landlord shall reimburse Tenant for all reasonable costs and expenses incurred by Tenant in remedying such default, and such reimbursement shall be made within thirty (30) days of Landlord's receipt of an invoice for the amount of such costs and expenses. All rights and remedies of Tenant under this Lease are cumulative and are not exclusive of any other rights and remedies provided to Tenant under applicable law. 23. Right to Perform. If Tenant fails to pay any sum of money, other than rent, required to be paid by it hereunder or fails to perform any other act on its part to be performed hereunder, and such failure continues for five (5) business days after written notice thereof by Landlord, or such shorter time if reasonable under the circumstances, Landlord may, but shall not be obligated so to do, and without waiving or releasing Tenant from any obligations of Tenant, make any such payment or perform any such other act on Tenant's part to be made or performed as provided in this Lease. Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment of sums due under this section as in the case of default by Tenant in the payment of rent. 24. Nonwaiver. Waiver by Landlord or Tenant of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant, or condition of the Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 25. Costs and Attorneys' Fees. In the event of any action or proceeding arising out of or in connection with this Lease, the substantially prevailing party shall be entitled to all costs, expenses and reasonable attorneys' fees, with or without suit and on appeal. 26. Priority. Tenant agrees that this Lease will be subordinate to any mortgage, deed of trust or other lien covering the Premises, upon and subject to the following terms and conditions: Tenant's subordination hereunder is expressly conditioned on execution and delivery to Tenant by each mortgagee, each lienholder and each beneficiary of a deed of trust, of a nondisturbance agreement reasonably acceptable to Tenant. Such agreement shall be in a form typically used for commercial tenancies, shall be in recordable form and shall recognize Tenant's rights under this Lease in the event Landlord's interest is terminated while this Lease is in full force and effect. Such nondisturbance agreement shall include, among other things, a provision to the effect that in the event of a termination of the ground or underlying lease or foreclosure of the mortgage, deed of trust or other lien in favor of said secured party, or upon a sale of the property encumbered thereby pursuant to the trustee's power of sale contained therein, or upon a transfer of the Building or the Premises by deed in lieu of foreclosure, then for so long as Tenant is not in material default under the terms, covenants, and conditions of this Lease, this Lease shall continue in full force and effect as a direct lease between the owner or succeeding owner of the Premises or the Building (as appropriate), as Landlord, and Tenant for the balance of the term of this Lease, upon and subject to all of the terms, covenants and conditions of this Lease. Such nondisturbance agreement shall not include any terms which are inconsistent with the terms of this Lease or which adversely affect Tenant's rights or increase Tenant's obligations under this Lease. Tenant's obligations under this Lease are conditioned upon Landlord -19- obtaining, simultaneously with the execution of this Lease, a nondisturbance agreement from all mortgagees currently holding liens on the Property. Upon request by Landlord or the landlord under a ground lease or an underlying lease, or the holder of any mortgage, lien or deed of trust now existing or that may hereafter be placed upon the Land, Premises or the Building, Tenant will promptly execute a Subordination, Attornment, Notice and Non-Disturbance Agreement substantially in the form attached as Exhibit ------- J to this Lease, as it may be amended by Landlord's mortgagee. - 27. Estoppel Certificates. Landlord and Tenant shall, at any time and from time to time during any term of the Lease, upon not less than fifteen (15) days' prior written request from the other, execute, acknowledge and deliver to the other or its designee a statement in writing certifying: (1) the date this Lease was executed and the date it expires; (2) the date of occupancy; (3) the amount of minimum monthly rent and the date to which such rent has been paid; (4) that this Lease is unmodified and in full force and effect (or, if modified, stating with specificity the nature of such modification); (5) that this Lease represents the entire agreement between the parties as to this leasing; (6) that there is not, to its knowledge, any default by the other hereunder, or, if any default is alleged, then specifying such default; (7) that on that date there are no existing defenses or offsets which that party has against the enforcement of this Lease by the other; and (8) that no security has been deposited with Landlord (or, if so, the amount thereof). Any such statement shall be provided by the party requesting its completion, and such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or assignee or encumbrancer of Tenant's interest under this Lease. In the event of the failure to deliver such statement within such time, the requested party shall be conclusively deemed to have admitted the accuracy of any information supplied by the requestor to a prospective purchaser or mortgagee related to any of the matters described in (1) through (8) above, and such admission may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or assignee or encumbrancer of Tenant's interest under this Lease. 28. Transfer of Landlord's Interest. This Lease is assignable by Landlord without the consent of Tenant. In the event of any transfer or transfers of Landlord's interest in the Premises or the Building, other than a transfer for security purposes only, the transferor will be automatically relieved of any and all obligations and liabilities on the part of Landlord accruing from and after the date of such transfer, and Tenant agrees to attorn to the transferee, providing such transferee assumes the obligations of Landlord under this Lease. 29. Condemnation. If all of the Premises, or such portions of the Building as may be required for the reasonable use of the Premises, are taken by eminent domain, this Lease will automatically terminate as of the date Tenant is required to vacate the Premises and all rents will be paid to that date. In case of a taking of a part of the Premises equal to less than twenty percent (20%) of the floor area, or a portion of the Building not required for the reasonable use of the Premises, this Lease will continue in full force and effect and the rent will be equitably reduced based on the proportion by which the floor area of the Premises is reduced, such rent reduction to be effective as of the date possession of such portion is delivered to the condemning authority. In case of a taking of a part of the Premises equal to twenty percent (20%) or more of the floor area, Tenant may elect to terminate this Lease. Landlord reserves all rights to receive monetary damages to the Premises for any taking by eminent domain, and Tenant hereby assigns to Landlord any right Tenant may have to such damages or award; and Tenant shall make no claim against Landlord for damages for termination of the leasehold interest or interference with Tenant's business. Tenant shall have the right, however, to claim and recover from the condemning authority compensation for any loss to which Tenant may be put for Tenant's moving expenses, provided that such damages may be claimed only if they are awarded separately in the eminent domain proceedings and not as part of the damages recoverable by Landlord. 30. Advertising. Tenant shall not inscribe any inscription, or post, place or in any manner display any sign, notice, picture, placard or poster, or any advertising matter whatsoever, anywhere in or about the Premises or the Building at places visible (either directly or indirectly as an outline or shadow on a glass pane) from anywhere outside the Premises without first obtaining Landlord's written consent thereto, which consent -20- shall not be unreasonably withheld. Any such consent by Landlord shall be upon the understanding and condition that Tenant, at its sole cost and expense, will remove the same at the expiration or sooner termination of this Lease and will repair any damage to the Premises or the Building caused thereby. Notwithstanding the foregoing, Landlord hereby grants Tenant the non-exclusive right to install signs on the monument sign adjacent to the Building. Tenant's right to do so is subject to City of Bellevue regulations, the installation being completed in a good and workmanlike manner, and Landlord's review and approval of the design and location of the signs, which approval shall not be unreasonably withheld. The design, construction, installation and removal of all signs is at the sole cost and expense of Tenant. 31. Exterior Signage. So long as Tenant occupies a minimum of three (3) full floors in the Building, Tenant shall have the sole and exclusive right to install signage on the north and west sides of the exterior of the Building, subject to Landlord's reasonable approval and all applicable codes. All costs associated with installing exterior signage on the Building shall be borne by Tenant. Tenant may, however, include the cost of installing exterior signage on the Building as an item for which payment is to be made from the Tenant Improvement Allowance (defined in Section 33 below). 32. Parking. Parking shall at all times be governed by reasonable rules and regulations established by Landlord, which may be changed with reasonable discretion from time to time. Such rules and regulations shall not be inconsistent with the terms and conditions of this Lease and shall be enforced against all parking users in a non-discriminatory fashion. From 7:00 a.m. to 6:00 p.m., Monday through Friday, except for legal holidays, during the term of this Lease, as it may be extended, Landlord shall provide parking at a ratio of four (4) spaces per one thousand (1,000) rentable square feet of the Premises on a non-exclusive basis in the below ground and surface parking lots located on the real property comprising the Project and on which the 12600 Building is located. A plan showing the parking available for the Project and the 12600 Building is attached hereto as Exhibit K. Such parking shall be provided by Landlord --------- at no additional charge during the Initial Lease Term (except for the payment of any parking tax subsequently imposed by a governmental authority), Landlord represents and warrants to Tenant that Landlord is unable to provide parking to Tenant on an exclusive basis at any time during the Lease term. If Tenant experiences a problem with the parking at the Building such that Tenant's allotted parking spaces are unavailable to it on a consistent basis, and so informs Landlord, then Landlord shall take such measures, such as monitoring or valet parking, as are reasonably necessary to correct the problem, and such expenses shall be charged to Tenant as Additional Rent. Tenant acknowledges that the parking lot is used and may be used jointly by other tenants under a parking access agreement managed by Landlord. 33. Tenant Improvements. (a) Tenant Improvement Allowance. Landlord agrees to provide an allowance ---------------------------- of up to Two Million Three Hundred Twenty-five Thousand Seven Hundred Sixty-five Dollars ($2,325,765.00) (the "Tenant Improvement Allowance") to assist Tenant in the build-out of the tenant improvements for the Premises (the "Tenant Improvements"). The Tenant Improvement Allowance is calculated by multiplying the agreed floor area of the Premises, in usable square feet (71,562) by $32.50. The Tenant Improvement Allowance may be adjusted based on the actual floor area of the Premises. In addition to its use toward the hard costs of constructing the Tenant Improvements, the Tenant Improvement Allowance may be used for space planning and design, the cost of building permits, Washington State Sales Tax, cabling and wiring for the Premises and exterior building signage. Tenant expressly assumes responsibility for the cost and payment of any portion of the Tenant Improvements that are in excess of the Tenant Improvement Allowance. Tenant may, by written notice delivered to Landlord no later than September 1, 2000, elect to amortize the cost of Tenant Improvements that are in excess of the Tenant Improvement Allowance, up to an additional $12.50 per usable square foot of the agreed floor area of the Premises, on a -21- straight-line basis over a term of eight (8) years and based on an interest rate equal to Landlord's permanent loan rate on the Building plus one percent (1%); provided, however, that until such time as Landlord's permanent loan on the Building is in place, such amortization shall be based on the Bank of America prime rate plus one percent (1%). If Tenant elects to have any portion of cost of Tenant Improvements that are in excess of the Tenant Improvement Allowance amortized, as provided by the terms of the preceding sentence, then Tenant shall execute a promissory note in the form of Exhibit L --------- attached to this Lease (the "TI Note"), evidencing a loan payable to Landlord for such amount. The monthly payments due under the TI Note shall be additional rent due under this Lease, and shall be added to the monthly base rent due from Tenant to Landlord under the terms of Section 1(f) above. (b) Plans for Tenant Improvements. Landlord and Tenant shall mutually ----------------------------- agree on the selection of the architect (the "Architect") to plan, design and complete the construction documents for the Tenant Improvements, such approval not to be unreasonably withheld or delayed. Landlord shall pay for the cost of an initial "test fit" for one floor of the Premises by providing to Tenant an allowance of Two Thousand Seven Hundred Seventy-five Dollars ($2,775.00). Such allowance shall be a part of, and not in addition to, the Tenant Improvement Allowance set forth in Section 33(a) above. Prior to Landlord commencing work on the Tenant Improvements, Tenant shall submit to Landlord two (2) copies of plans detailing the design and plan of improvements prepared by the Architect. Landlord shall either approve or disapprove plans within ten (10) days and, if approved, return a signed, approved copy to Tenant. In the event that Landlord does not approve the plans, Landlord shall inform Tenant of the reasons for its disapproval and Tenant shall have ten (10) days in which to submit revised plans to Landlord for approval. Tenant shall not unreasonably refuse to satisfy any objections made by Landlord to the plans and specifications. Any objections Tenant has to Landlord's objection shall be submitted to Landlord in writing within the ten (10) day period. A failure of one party to give any notice to the other party within the ten (10) day period shall be deemed to constitute approval of the plans and specifications or the objections thereto, as appropriate. Landlord shall not unreasonably withhold or delay its approval of Tenant's plans for Tenant Improvements. (c) Construction of Tenant Improvements. Upon Landlord's approval of ----------------------------------- Tenant's plans, Landlord shall enter into a construction contract with Gall Landau Young ("GLY") for the construction of the Tenant Improvements. Landlord will guaranty the delivery dates for the Premises, on a floor by floor basis, set forth in Section 1(e) above, and shall be subject to the penalties set forth in Section 40 for failure to so deliver the Premises, if Tenant complies with the following dates regarding delivery of items necessary for construction of the Tenant Improvements: (1) March 15, 2000: begin preparation of design and drawings for the Tenant Improvements; (2) June 1, 2000: submit the plans for Tenant Improvements to the City of Bellevue for a preliminary permit; (3) July 1, 2000: finalize construction drawings for the Tenant Improvements; and (4) August 10, 2000: approval of bid price for construction of the Tenant Improvements by Landlord and Tenant, which approval shall not be unreasonably withheld. If Tenant does not comply with the dates set forth above, then the dates for delivery of the Premises set forth in Section 1(e) above shall, on a floor-by-floor basis, be moved back one day for each day that Tenant fails to meet its delivery date for any item. The construction of all improvements to be made on the Premises shall be performed in a first-class, workmanlike manner, in conformity with all applicable governmental laws, ordinances, rules, orders, regulations and other requirements, and in substantial accordance with plans and specifications. Tenant or Tenant's agents shall have the right to inspect the construction of the Tenant Improvements during the progress thereof at Tenant's sole cost and expense and at times -22- coordinated with Landlord and GLY. If, during the progress of construction of the Tenant Improvements, Tenant desires to have any changes made to the approved plans and specifications, then Landlord shall cause GLY to prepare and deliver to Tenant's designated representative a change order showing the cost therefor and the additional time necessary for substantial completion of the Tenant Improvements, if any. Tenant shall promptly inform Landlord and GLY whether such change order has been approved by Tenant. The dates for delivery of the Premises set forth in Section 1(e) above shall, on a floor-by-floor basis, be moved back one day for each additional day that a change order approved by Tenant will require. 34. Tenant's Approval Regarding Construction and Design of Building. Tenant has reviewed and approved the plans and specifications for the Building, as the same are described on Exhibit D attached hereto (the "Building Plans"). --------- With respect to any material changes to material design elements that Landlord desires to make to the Building Plans, Landlord shall notify Tenant of the nature of such material changes, and Tenant shall, within three (3) business days after receipt of such notice, inform Landlord whether it approves such material changes. Tenant shall not unreasonably withhold its consent to any material change to the Building Plans. Additionally, if the Building Plans are not specific as to some of the material design elements of the Building, then Landlord shall consult with Tenant and obtain Tenant's approval with respect thereto. Tenant shall not unreasonably withhold its consent to Landlord's plans for any material design elements of the Building. 35. Installation of Satellite Dishes on Roof of Building. Landlord hereby grants to Tenant, for no additional rent during the term of this Lease, as it may be extended, the exclusive use of up to fifty percent (50%) of the usable area of the roof of the Building on which to install and maintain satellite dishes and/or antennas, as shown by the cross-hatched area on Exhibit M-1 attached to this Lease. If at any time during the Lease term, ----------- Tenant occupies less than two (2) full floors of the Building, then the usable area of the roof designated for Tenant's exclusive use and for no additional rent shall decrease to twenty-five percent (25%) of the usable area of the roof of the Building, as shown by the cross-hatched area on Exhibit M-2 attached to this Lease. The right to use the roof for the ----------- installation and maintenance of satellite dishes and/or antennas is personal to Tenant (or Tenant's successor-in-interest through merger), and Tenant may not sublet or assign its right to use the roof of the Building, except to an assignee approved by Landlord or to a sublessee occupying at least 10,000 rentable square feet of the Premises, in which case Tenant may grant to such sublessee the right to use a pro rata share of Tenant's area of the roof. The installation and maintenance of such satellite dishes and/or antennas shall be at Tenant's sole cost and expense, and is conditioned on Tenant's (and any sublessee's) compliance with the terms of that certain Communications Site Lease attached as Exhibit N to this Lease. --------- 36. Fifth Floor Hold Period. Landlord shall not, for the period commencing upon the execution of this Lease and expiring as of 11:59 p.m. on October 2, 2000, market for lease the premises comprised of the Fifth Floor of the Building. 37. Terms Applicable to Expansion of Premises During Initial 12 Months. If Tenant and Landlord, prior to the expiration of twelve (12) months following the first Commencement Date under this Lease, enter into any agreement to expand the Premises such that the Premises will consist of space in the Building in addition to the floor area of the first, second, third and fourth floors, then such additional floor area shall be added to the Premises on the same terms and conditions as are contained in this Lease, including all economic terms set forth herein, and the lease term with respect to such additional floor area shall expire on the expiration date of the Initial Lease Term. If Tenant elects to amortize the cost of Tenant Improvements in excess of the Tenant Improvement Allowance applicable to any expansion space, up to an additional $12.50 per usable square foot, then Tenant shall provide written notice to Landlord of its election by October 1, 2001, and execute a promissory note in the form of the TI Note evidencing a loan payable to Landlord for such amount. The monthly payments due under the TI Note shall be calculated based on the then-remaining portion of the 8-year period of any TI Note executed pursuant to the terms of Section 33(a) above, shall be additional rent due under this Lease, and shall be added to the monthly base rent due from Tenant to Landlord under the terms of Section 1(f) above. -23- 38. Tenant's Right of First Offer. (a) Right of First Offer. Landlord hereby grants to Tenant, during the -------------------- Initial Lease Term, a continuing right of first offer (the "Right of First Offer") to lease all available space in the Building, whether such space is currently available or becomes available during the Initial Lease Term. In the event any space becomes available to lease, Landlord shall provide Tenant with a written notice of availability (the "Availability Notice"). The Availability Notice shall identify the space (the "ROFO Space"), the date on which it will be available, and the economic terms applicable to the ROFO Space (which economic terms shall be determined in accordance with Section 37 above if the Availability Notice either may or must be accepted by Tenant prior to the expiration of the twelve (12) month period following the first Commencement Date under this Lease). Tenant shall have ten (10) business days following receipt of the Availability Notice in which to exercise its Right of First Offer by giving written notice of such exercise to Landlord. If Tenant exercises its Right of First Offer within ten (10) business days following receipt of the Availability Notice or under the terms of Section 37 above, as applicable, then Landlord and Tenant shall promptly enter into an amendment to this Lease adding the ROFO Space to the Premises as of the date of availability and on the terms specified in the Availability Notice. If Tenant fails to exercise its Right of First Offer within ten (10) business days following receipt of the Availability Notice, then Landlord may lease the ROFO Space to third parties on terms and conditions equal to not less than ninety-five percent (95%) of the economic value of the terms proposed to Tenant. If Landlord desires submit to an offer to a third party, or receives an offer from a third party that it is willing to accept, and the economic value of such offer is less than ninety-five percent (95%) of that last offered to Tenant, or if Landlord has not entered into a binding lease for such space within six (6) months after the Availability Notice for such space was delivered to Tenant, then Tenant shall again have a Right of First Offer with respect to such space and the new economic terms. (b) Expansion of Right of First Offer to Other Buildings. At such time as ---------------------------------------------------- (1) the Premises are comprised of more than 70,000 rentable square feet, or (2) Tenant cannot, based on the remaining space available within the Building, expand by at least 10,000 rentable square feet within the Building, then the Right of First Offer set forth in Section 38(a) above shall also apply to (i) space available for lease in Sterling Plaza I, and (ii) any spaces in excess of 5,000 square feet available for lease in the 12600 Building (even if a portion of such space containing less than 5,000 square feet is offered to third parties), subject only to rights of existing tenants in Sterling Plaza I and the 12600 Building that are in existence as of the date of this Lease. (c) Termination of Rights. Tenant's Right of First Offer shall terminate --------------------- if: (1) Tenant assigns its interest in this Lease to a party other than a successor-in-interest by merger or reorganization; or (2) Tenant subleases a portion of the Premises constituting either (A) more than thirty-three percent (33%) of the then-existing floor area of the Premises, or (B) more than 44,000 rentable square feet, unless in either of cases (A) or (B) above such sublease(s) is/are for a term of two (2) years or less. 39. Option to Cancel Lease. (a) Tenant's Option to Cancel. Subject to delays by Tenant or Tenant's ------------------------- agents and delays due to labor disputes, fire, adverse weather, force majeure events or other causes that are beyond Landlord's control, Landlord hereby grants to Tenant the option to cancel this Lease (the "Option to Cancel") following the occurrence of any of the following: (1) Tenant fails to merge with Stamps.com, Inc. on or before March 10, 2000; (2) Landlord fails to obtain a building permit for the Building from the City of Bellevue on or before March 21, 2000; (3) Landlord has not commenced construction of the Building on or before April 1, 2000 (such commencement being defined as the beginning of excavation); or (4) the Building and Premises (including Tenant Improvements) are not 24 substantially complete by April 1, 2001. Tenant shall exercise its Option to Cancel by giving written notice to Landlord specifying the event giving rise to Tenant's Option to Cancel. (b) Landlord's Option to Cancel. Landlord may, by giving written notice --------------------------- to Tenant, cancel this Lease if either (1) Tenant fails to merge with Stamps.com, Inc. on or before March 10, 2000; (2) Landlord has not obtained a building permit for the Building from the City of Bellevue on or before the date that is two (2) weeks following the date on which Tenant informs Landlord in writing that the merger with Stamps.com, Inc. has occurred. (c) Effect of Cancellation of Lease. If either party validly exercises ------------------------------- its option to cancel this Lease under this Section 39, then neither party shall have any further rights or obligations hereunder (except those obligations which expressly survive the expiration or termination of this Lease), and Landlord shall promptly return to Tenant any prepaid rent or security instrument previously given by Tenant to Landlord in connection with this Lease. Tenant acknowledges that it will, in such event, be responsible for the cost of any drawings prepared or permits obtained in connection with the Tenant Improvements. 40. Delay in Lease Commencement; Additional Options to Cancel Lease. (a) Rent Credit for Delay in Lease Commencement. If neither Landlord nor ------------------------------------------- Tenant has exercised its option to cancel this Lease as set forth in Section 39 above, and taking into account on a day-for-day basis any delays caused by Tenant or Tenant's agents under Section 33 above or otherwise, labor disputes, fire, adverse weather, force majeure events or other causes that are beyond Landlord's control, the Premises (including the Tenant Improvements) are not substantially complete by: (1) April 1, 2001, then for each day after April 1, 2001, and through April 30, 2001, that the Building and the Premises, on a floor- by-floor basis, are not substantially complete, Tenant shall, on a floor-by-floor basis, receive a rent credit equal to one-half day's rent for each floor of the Premises not yet delivered; and (2) April 30, 2001, then for each day after April 30, 2001, that the Building and the Premises, on a floor-by-floor basis, are not substantially complete, Tenant shall, on a floor-by-floor basis, receive a rent credit equal to one day's rent for each floor of the Premises not yet delivered. In no event, however, shall the amount of the rent to be credited to Tenant under this Section 40(a) exceed Five Hundred Thousand Dollars ($500,000.00). (b) Additional Options to Cancel Lease. ---------------------------------- (1) Tenant's Additional Option to Cancel. If, for any reason other ------------------------------------ than delays caused by Tenant, Tenant is unable to occupy the entire Premises (except any portions added to the original Premises under the terms of Sections 37 and 38 above) by December 31, 2001, then Tenant may, by written notice to Landlord so stating, cancel this Lease. (2) Landlord's Additional Option to Cancel. If, due to any delays in -------------------------------------- completing Landlord's work that are outside of Landlord's control, Tenant is unable to occupy the entire Premises (except any portions added to the original Premises under the terms of Sections 37 and 38 above) by December 31, 2001, then Landlord may, by written notice to Tenant so stating, cancel this Lease. (3) Effect of Cancellation of Lease. If either party validly ------------------------------- exercises its option to cancel this Lease under this Section 40(b), then neither party shall have any further rights or 25 obligations hereunder (except those obligations which expressly survive the expiration or termination of this Lease), and Landlord shall promptly return to Tenant any prepaid rent or security instrument previously given by Tenant to Landlord in connection with this Lease. Tenant acknowledges that it will, in such event, be responsible for the cost of any drawings prepared or permits obtained in connection with the Tenant Improvements. 41. American With Disabilities Act (ADA) Compliance. Landlord and Tenant acknowledge that, in accordance with the provisions of the Americans With Disabilities Act (the "ADA"), responsibility for compliance with the terms and conditions of Title III of the ADA may be allocated as between Landlord and Tenant. Notwithstanding anything to the contrary contained in the Lease, Landlord and Tenant agree that the responsibility for compliance with the ADA (including, without limitation, the removal of architectural and communications barriers and the provision of auxiliary aids and services to the extent required) following substantial completion of the Building shall be allocated as follows: (a) Tenant shall, at Tenant's sole cost and expense, be responsible for compliance with the provisions of Title III of the ADA for any construction, renovations, alterations and repairs made within the Premises (except restrooms and elevators), whether such construction, renovations, alterations and repairs are completed by Landlord or Tenant and whether at Landlord's or Tenant's expense; and (b) Landlord shall, at Landlord's sole cost and expense, be responsible for compliance with the provisions of Title III of the ADA for (1) restrooms and elevators in the Building; (2) all areas of the Building which are exterior to the Premises (unless such renovations and alterations are required due to Tenant's particular use of such areas), and (3) all of the remaining portions of the Land. Landlord agrees to indemnify and hold Tenant harmless from and against any claims, damages, costs and liabilities arising out of Landlord's failure, or alleged failure, as the case may be, to comply with its obligations under this Section 41, which indemnification obligation shall survive the expiration or termination of this Lease. Tenant agrees to indemnify and hold Landlord harmless from and against any claims, damages, costs and liabilities arising out of Tenant's failure, or alleged failure, as the case may be, to comply with its obligations under this Section 41, which indemnification obligation shall survive the expiration or termination of this Lease. Landlord and Tenant each agree that the allocation of responsibility for ADA compliance shall not require Landlord or Tenant to supervise, monitor or otherwise review the compliance activities of the other with respect to its assumed responsibilities for ADA compliance as set forth in this Section 41. 42. Hazardous Materials. As used in this Lease, "Hazardous Materials" means any substance which is (i) designated, defined, classified or regulated as a hazardous substance, hazardous material, hazardous waste, pollutant or contaminant under any Environmental Law, as currently in effect or as hereafter amended or enacted, (ii) a petroleum hydrocarbon, including crude oil or any fraction thereof and all petroleum products, (iii) PCBs, (iv) lead, (v) asbestos, (vi) flammable explosives, (vii) infectious materials, or (viii) radioactive materials. "Environmental Law(s)" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601, et seq., the Resource Conservation and -- --- Recovery Act of 1976, 42 U.S.C. Sections 6901, et seq., the Toxic -- --- Substances Control Act, 15 U.S.C. Sections 2601, et seq., the Hazardous -- --- Materials Transportation Act, 49 U.S.C. 5101, et seq., the Clean Water Act, -- --- 33 U.S.C. Sections 1251, et seq., and the Washington Model Toxics Control -- --- Act, Revised Code of Washington Chapter 70.105D, as said laws have been supplemented or amended to date, the regulations promulgated pursuant to said laws and any other federal, state or local law, statute, rule, regulation or ordinance which regulates or proscribes the use, storage, disposal, presence, clean-up, transportation or release or threatened release into the environment of Hazardous Material. Tenant shall not cause, or allow any of Tenant's employees, agents, customers, visitors, invitees, licensees, contractors, assignees and subtenants to cause, any Hazardous Materials to be handled, used, generated, stored, released or disposed of in, on, under or about the Premises, the Building or the Project or surrounding land or environment in violation of any Environmental Laws. Tenant must obtain Landlord's written consent prior to the introduction of any Hazardous Materials onto the Premises, the Building or the Project. Notwithstanding the foregoing, Tenant may handle, store, use and dispose of products containing small quantities of Hazardous Materials for "general office purposes" (such as toner for copiers) to the 26 extent customary and necessary for the Permitted Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Uses of the Premises; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Premises, Building, or Project or surrounding land or environment. Tenant shall immediately notify Landlord in writing of any Hazardous Materials' contamination of any portion of the Premises, the Building or the Project of which Tenant becomes aware, whether or not caused by Tenant. Landlord shall have the right at all reasonable times to inspect the Premises and to conduct tests and investigations to determine whether Tenant is in compliance with the foregoing provisions, the costs of all such inspections, tests and investigations to be borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses (including attorneys' and consultants' fees and court costs), demands, causes of action, or judgments directly or indirectly arising out of or related to the use, generation, storage, release, or disposal of Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about the Premises, the Building or the Project or surrounding land or environment, which indemnity shall include, without limitation, damages for personal or bodily injury, property damage, damage to the environment or natural resources occurring on or off the Premises, losses attributable to diminution in value or adverse effects on marketability, the cost of any investigation, monitoring, government oversight, repair, removal, remediation, restoration, abatement, and disposal, and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the expiration or earlier termination of this Lease. Neither the consent by Landlord to the use, generation, storage, release or disposal of Hazardous Materials nor the strict compliance by Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation of indemnification pursuant to this Section 42. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. Landlord represents and warrants, to the best of its knowledge without special inquiry, that no Hazardous Materials are being or have in the past been generated, treated or disposed of or at the Premises or the Building. Landlord shall not use, generate, treat, store or dispose of any Hazardous Materials on the Premises or in the Building except in accordance with all Environmental Laws. If Landlord breaches the obligations stated in the preceding sentence, or if the presence of Hazardous Materials on the Premises or Building caused by Landlord results in contamination of the Premises or Building, then Landlord shall indemnify, defend and hold Tenant harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Premises, damages for the loss or restriction on the use of Tenant's rentable or usable space, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Lease term as a result of Landlord's violation of Environmental Laws. The foregoing representations and warranties contained in this paragraph shall not be binding upon any mortgagee, and such mortgagee's successors and assigns, who holds a mortgage or deed of trust encumbering the Land and who succeeds to the interest of Landlord under this Lease as a result of foreclosure or otherwise, or upon any successor in interest to Landlord who purchases the interest of Landlord in the Land at a foreclosure sale conducted for the benefit of such mortgagee. 43. Arbitration. If a dispute arises under this Lease, the parties shall proceed to resolve the dispute by arbitration in accordance with the provisions of this Section 43. The party desiring arbitration shall give written notice to that effect to the other party, specifying in the notice the nature of the dispute and the name and address of three persons acceptable to it to act as arbitrator on its behalf. Within five (5) business days after receipt of such notice, the other party shall give written notice to the first party, informing the first party if any of the arbitrators specified are acceptable, and if none are acceptable, submitting an additional three persons for consideration. If, within fifteen (15) days from the date of the first notice, the parties are unable to mutually agree on the person to serve as arbitrator, either party may apply to the presiding judge of the King County Superior Court to select the arbitrator. 27 Within five (5) business days following selection of the arbitrator, each party shall furnish the arbitrator with its written position. Each party may also include at this time any information, data, and/or reports supportive of its position. The arbitrator may request additional information, data, or reports from the parties or others if the arbitrator so desires. Within fifteen (15) business days following the arbitrator's receipt of information from the parties, the arbitrator shall notify both parties in writing of the arbitrator's decision. The arbitrator is not empowered to award any damages in excess of actual, compensatory damages. The decision of the arbitrator shall be final and binding upon the parties and effective as of the date of notification to the parties of the arbitrator's decision. The arbitrator shall be an individual with at least ten (10) years substantial experience in managing and/or operating commercial real property. Arbitration shall be conducted pursuant to the rules of the American Arbitration Association then in effect and the decision of the arbitrator may be entered and enforced as a judgment in accordance with the applicable laws of King County, Washington. Each party shall bear its own attorneys' fees and expenses and shall share equally those of the arbitrator. The place of arbitration shall be in either Bellevue or Seattle, Washington. 44. Quiet Enjoyment. Landlord warrants and covenants that, during all terms of this Lease, Tenant will have the exclusive right to possession and quiet enjoyment of the Premises and will have, hold and enjoy the Premises peacefully and quietly, without any manner of let, suit, trouble or hindrance so long as Tenant complies with all material provisions of this Lease. 45. Execution of Lease by Landlord. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for the Premises. No act or omission of any employee or agent of Landlord or of Landlord's broker shall alter, change or modify any of the provisions hereof. 46. Landlord's Liability. Anything in this Lease to the contrary notwithstanding, covenants, undertakings and agreements herein made on the part of Landlord are made and intended not as personal covenants, undertakings and agreements or for the purpose of binding Landlord personally or the assets of Landlord except Landlord's interest in the Premises and the Building and the proceeds thereof, but are made and intended for the purpose of binding only Landlord's interest in the Premises and the Building and the proceeds thereof. No personal liability or personal responsibility is assumed by, nor shall at anytime be asserted or enforceable against Landlord or its partners and their respective heirs, legal representatives, successors and assigns on account of this Lease or on account of any covenant, undertaking or agreement of Landlord contained in this Lease. 47. Brokers. (a) Identification of Brokers. Tenant was represented in this lease ------------------------- transaction by Paul Sweeney of The Broderick Group, Inc. Landlord was represented in this lease transaction by Geoff Boguch and Amy Bolich of Colliers International. No other finder or broker participated in this lease transaction or is entitled to compensation on account of this lease transaction. (b) Representation and Indemnity Regarding Brokers. Tenant and Landlord ---------------------------------------------- each represent and warrant to the other that they have not engaged any broker, finder or other person who would be entitled to any commission or fee in respect of the negotiation, execution or delivery of this Lease except for those brokers identified in this Section 47, and each shall indemnify and hold harmless the other against any loss, cost, liability or expense incurred by the other as a result of any claim asserted by any other broker, finder or other person on the basis of any arrangements or agreements made or alleged to have been made by or on behalf of Tenant or Landlord. 48. Corporate Authority. Where Tenant is a corporation, each individual executing this Lease on behalf of Tenant represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of Tenant, in accordance with a duly adopted resolution of the Board of Directors of Tenant. Tenant shall, 28 within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of a resolution of the Board of Directors of Tenant authorizing or ratifying the execution of this Lease, substantially in the form of Exhibit O attached to this Lease. --------- 49. General Provisions. (a) Standard for Consent or Approval. Wherever in this Lease a party may -------------------------------- not "unreasonably withhold its consent," "unreasonably withhold or delay its consent," "unreasonably withhold its approval", or phrases of like import, then such party's consent or approval shall be granted or withheld in its reasonable business judgment. (b) Section Headings. The title of sections of this Lease are not a part ---------------- of this Lease and shall have no effect upon the construction or interpretation of any part hereof. (c) Governing Law. This Lease shall be construed and governed by the laws ------------- of the State of Washington. (d) Binding on Successors. All of the covenants, agreements, terms and --------------------- conditions contained in this Lease shall apply to and be binding upon Landlord and Tenant and their respective heirs, executors, administrators, successors and assigns. (e) Entire Agreement. This Lease contains all covenants and agreements ---------------- between Landlord and Tenant relating in any manner to the rent, use and occupancy of the Premises and Tenant's use of the Building and other matters set forth in this Lease. No prior agreements or understanding pertaining to the same shall be valid or of any force or effect and the covenants and agreements of this Lease shall not be altered, modified, or added to except in writing signed by Landlord and Tenant. Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof and the remaining provisions hereof shall nevertheless remain in full force and effect. (f) Name of Building. Landlord reserves the right to name and re-name the ---------------- Building from time to time, and to install signs accordingly, without compensation, but only with prior written notice to Tenant. (g) Invalidity of Provisions. The invalidity of all or any part of any ------------------------ section of this Lease will not render invalid the remainder of this Lease or the remainder of such section. If any provision of this Lease is so broad as to be unenforceable, such provision will be interpreted to be only so broad as is enforceable. (h) Memorandum of Lease. Landlord and Tenant shall execute a Memorandum of ------------------- Lease in recordable form with respect to this Lease, which shall be in a form reasonably acceptable to both parties and which shall include, without limitation, Tenant's rights in Sterling Plaza I and the 12600 Building described in Section 38(b) above. Such Memorandum shall be recorded on the Land and on the land underlying Sterling Plaza I and the 12600 Building. (i) Exhibits. The following exhibits are made a part of this Lease: -------- Exhibit A Legal Description of Land Exhibit B Legal Description of Project Exhibit C Plan of the Premises Exhibit D Shell and Core Items for the Building List of Plans and Specifications for Building Exhibit E Scope of Tenant Improvements Exhibit F Form of Letter of Credit Exhibit G Form of Lease Guaranty Exhibit H Rules and Regulations Exhibit I Exclusions from Operating Costs Exhibit J Form of Subordination, Attornment, and Non-Disturbance Agreement Exhibit K Parking Plan Exhibit L Form of Tenant Improvement Promissory Note Exhibit M Sketches Showing Area of Roof Designated for Tenant's Exclusive Use Exhibit N Form of Communications Site Lease Exhibit O Certificate of Corporate Resolution of Tenant 29 IN WITNESS WHEREOF, this Lease has been executed the day and year first above set forth. LANDLORD: STERLING REALTY ORGANIZATION CO., a Washington corporation By: ------------------------------ David Schooler, President TENANT: iSHIP.COM, INC. a Washington corporation By: ------------------------------ Its: ----------------------------- STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) THIS IS TO CERTIFY that on this ______ day of ______, 2000, before me, the undersigned, a notary public in and for the State of Washington, duly commissioned and sworn, personally appeared DAVID SCHOOLER, to me known to be the President of STERLING REALTY ORGANIZATION CO., a Washington corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute said instrument. WITNESS my hand and official seal the day and year in this certificate first above written. ------------------------------------- (Signature) ------------------------------------- (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at -------------- My commission expires ---------------- STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) THIS IS TO CERTIFY that on this _____ day of ______, 2000, before me, the undersigned, a notary public in and for the State of Washington, duly commissioned and sworn, personally appeared _____________________________, to me known to be the _____________________ of iSHIP.COM, INC., a Washington corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that _____ was authorized to execute said instrument. WITNESS my hand and official seal the day and year in this certificate first above written. ------------------------------------------- (Signature) ------------------------------------------- (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at -------------------- My commission expires ---------------------- 30 EXHIBIT A TO LEASE AGREEMENT Legal Description of Land ------------------------- New Lot 2 - --------- A portion of Lot 1 of Short Plat No. 280070R, according to the short plat recorded under King County Recording No. 8011200686, being a revision of short plat recorded under Recording No. 8009300879. TOGETHER with that portion of the vacated portion of SE 38th Street lying with the projected lot lines of the property herein described as vacated by King County Ordinance No. 6582 as recorded under King County Recording No. 84030789; TOGETHER with a portion of Parcels C, D, E & F of King County Lot Line Adjustment No. LLA 8810004, according to the Lot Line adjustment recorded under King County Recording No. 9101239007, being a portion of the West 1/2 of the Southeast 1/4 of Section 9, Township 24 North, Range 5 East, W.M., described as follows: Commencing at the Northeast corner of the Southwest 1/4, of the Southeast 1/4 said Section 9; thence North 87 degrees 23 minutes 26 seconds West along the North line of said Southwest 1/4 of the Southeast 1/4, a distance of 180.00 feet to the TRUE POINT OF BEGINNING; thence South 01 degree 18 minutes 37 seconds West, a distance of 158.87 feet; thence North 87 degrees 23 minutes 26 seconds West, a distance of 437.33 feet; thence South 01 degree 15 minutes 22 seconds West, a distance 316.89 feet more or less to the Northerly margin of SE 38th Street; thence North 63 degrees 38 minutes 11 seconds West along said Northerly margin, a distance of 90.75 feet; thence North 01 degree 15 minutes 16 seconds East, a distance of 439.20 feet; North 01 degree 12 minutes 48 seconds East a distance of 14.22 feet; thence South 87 degrees 23 minutes 26 seconds East, a distance of 321.85 feet; thence North 02 degrees 36 minutes 31 seconds East, a distance of 3.78 feet; thence South 87 degrees 23 minutes 26 seconds East, a distance of 197.79 feet; thence South 01 degree 18 minutes 37 seconds West, a distance of 18.00 feet more or less to the POINT OF BEGINNING. ALSO known as New Lot 2 of Boundary Line Adjustment No. BLA-995313, recorded under King County Recording No. 20000228900003. SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON. A-1 EXHIBIT B TO LEASE AGREEMENT Legal Description of Project ---------------------------- New Lot 2 - --------- A portion of Lot 1 of Short Plat No. 280070R, according to the short plat recorded under King County Recording No. 8011200686, being a revision of short plat recorded under Recording No. 8009300879. TOGETHER with that portion of the vacated portion of SE 38th Street lying with the projected lot lines of the property herein described as vacated by King County Ordinance No. 6582 as recorded under King County Recording No. 84030789; TOGETHER with a portion of Parcel C, D, E & F of King County Lot Line Adjustment No. LLA 8810004, according to the Lot Line adjustment recorded under King County Recording No. 9101239007, being a portion of the West 1/2 of the Southeast 1/4 of Section 9, Township 24 North, Range 5 East, W.M., described as follows: Commencing at the Northeast corner of the Southwest 1/4, of the Southeast 1/4 said Section 9; thence North 87 degrees 23' 26" West along the North line of said Southwest 1/4 of the Southeast 1/4, a distance of 180.00 feet to the TRUE POINT OF BEGINNING; thence South 01 degree 18'37" West, a distance of 158.87 feet; thence North 87 degrees 23'26" West, a distance of 437.33 feet; thence South 01 degree 15'22" West, a distance 316.89 feet more or less to the Northerly margin of SE 38th Street; thence North 63 degrees 38'11" West along said Northerly margin, a distance of 90.75 feet; thence North 01 degree 15'16" East, a distance of 439.20 feet; North 01 degree 12'48" East a distance of 14.22 feet; thence South 87 degrees 23'26" East, a distance of 321.85 feet; thence North 02 degrees 36'31" East, a distance of 3.78 feet; thence South 87 degrees 23'26" East, a distance of 197.79 feet; thence South 01 degree 18'37" West, a distance of 18.00 feet more or less to the POINT OF BEGINNING. ALSO known as New Lot 2 of Boundary Line Adjustment No. BLA-995313, recorded under King County Recording No. 20000228900003. SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON. New Lot 3 - --------- A portion of Parcel F of King County Lot Line Adjustment No. LLA 8810004, according to the Lot line adjustment recorded under King County Recording No. 9101239007, being a portion of the West 1/2 of the Southwest 1/4 of Section 9, Township 24 North, Range 5 East, W.M., described as follows: Commencing at the Northeast corner of the Southwest 1/4, of the Southeast 1/4 of said Section 9; thence North 87 degrees 23'26" West along the North line of said Southwest 1/4 of the Southeast 1/4, a distance of 180.00 feet to the TRUE POINT OF BEGINNING; thence North 01 degree 18'37" East, a distance of 18.00 feet; thence North 87 degrees 23'26" West, a distance of 167.79; thence North 02 degrees 36'31" East, a distance of 200.60; thence South 87 degrees 22'55" East, a distance of 106.54; thence South 02 degrees 37'05" West, a distance of 15.00; thence South 87 degrees 22'55" East, a distance of 26.70; thence South 02 degrees 37'05" West, a distance of 126.68; thence South 87 degrees 22'55" East, a distance of 122.60; B-1 thence North 02 degrees 37'05" East, a distance of 298.25; thence North 87 degrees 22'55" West, a distance of 73.95; thence North 76 degrees 30'25" West, a distance of 65.88; thence North 87 degrees 22'55" West, a distance of 132.70; thence South 02 degrees 37'09" West, a distance of 169.00; thence North 87 degrees 22'55" West, a distance of 122.99; thence North 39 degrees 24'04" West, a distance of 166.08; thence North 50 degrees 35'26" East, a distance of 145.27; thence South 82 degrees 55'24" East, a distance of 452.11; thence South 01 degree 18'37" West, a distance of 386.45 feet to a point of curvature of a 537.50 foot radius non tangent curve whose radius point bears South 76 degrees 33'36" East; thence Southwesterly along the arc of said curve through a central angle of 12 degrees 07'47", an arc distance of 113.79 feet; thence South 01 degree 18'37" West, a distance of 33.20 feet; thence North 87 degrees 23'26" West, a distance of 137.99 feet; thence North 01 degree 18'37" East, a distance of 128.73 feet more or less to the POINT OF BEGINNING. ALSO known as New Lot 3 of Boundary Line Adjustment No. BLA-995313, recorded under King County Recording No. 20000228900003. SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON. New Lot 4 - --------- A portion of Parcels B, C & F of King County Lot Line Adjustment No. LLA 8810004, according to the Lot line adjustment recorded under King County Recording No. 9101239007, being a portion of the West 1/2 of the Southeast 1/4 of Section 9, Township 24 North, Range 5 East, W.M., described as follows: Commencing at the Northeast corner of the Southwest 1/4 of the Southeast 1/4 of said Section 9; thence North 87 degrees 23'26" West along the North line of said Southwest 1/4 of the Southeast 1/4, a distance of 180.00 feet; thence North 01 degree 18'37" East, a distance of 18.00 feet; thence North 87 degrees 23'26" West, a distance of 167.79 feet to the TRUE POINT OF BEGINNING; thence North 87 degrees 23'26" West, a distance of 30.00 feet; thence South 02 degrees 36'31" West, a distance of 3.78 feet; thence North 87 degrees 23'26" West, a distance of 321.85 feet; thence North 01 degree 12'48" East, a distance of 149.44 feet; thence North 01 degree 15'33" East, a distance of 81.37 feet; thence North 50 degrees 35'56" East, a distance of 145.02 feet; thence South 39 degrees 24'04" East, a distance of 166.08 feet; thence South 87 degrees 22'55" East, a distance of 138.50 feet; thence South 02 degrees 36'31" West, a distance of 200.60 feet more or less to the POINT OF BEGINNING. ALSO known as New Lot 4 of Boundary Line Adjustment No. BLA-995313, recorded under King County Recording No. 20000228900003. SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON. Parcel A - -------- All that certain real property situate in the County of King, State of Washington, being a portion of the Southeast quarter of the Northwest quarter of the Southeast quarter of Section 9, Township 24 North, Range 5 East, W.M., in King County, Washington, and being more particularly described as follows: Commencing at the intersection of the Southerly line of the lands condemned in King County Superior Court Cause No. 666834, with the Westerly right-of-way line of 128th Avenue Southeast, which point is on a line that is parallel with and 30.00 feet Westerly of the East line of said Southeast quarter of the Northwest quarter of the Southeast quarter of Section 9: B-2 Thence from said point of commencement along the Southerly line of said condemned lands North 82 degrees 54'52" West 50.76 feet; thence leaving said Southerly line at right angles South 07 degrees 05'08"West 32.95 feet to the TRUE POINT OF BEGINNING of this Parcel A; thence from said TRUE POINT OF BEGINNING, South 02 degrees 37'37" West 298.25 feet; thence North 87 degrees 22'23" West 122.60 feet; thence North 02 degrees 37'37" East 126.68 feet; thence North 87 degrees 22'23" West 26.70 feet; thence North 02 degrees 37'37" East 15.00 feet; thence North 87 degrees 22'23" West 122.05 feet; thence North 02 degrees 37'37" East 169.00 feet; thence South 87 degress 22'23" East 132.70 feet; thence South 76 degrees 29'53" East 65.88 feet; thence South 87 degrees 22'23" East 73.95 feet to the TRUE POINT OF BEGINNING. B-3 EXHIBIT C TO LEASE AGREEMENT Plan of the Premises -------------------- C-1 EXHIBIT D TO LEASE AGREEMENT Shell and Core Items for Building and List of Building Plans and Specifications - ------------------------------------------------------------------------------- Sterling Plaza II: Definition of Shell and Core Building Improvements (Revised - ---------------------------------------------------------------------- 3 March 00) The following work is to be provided by Landlord as the shell and core building improvements to support the Tenant's Tenant Improvements and occupancy. This Definition is supplemented by additional information shown in the Plans and Specifications prepared by Curtis Beattie & Associates Architects for the base building marked "Bid Set" 01 Feb 00, as specifically listed in this Exhibit D. --------- In the event of inconsistencies in the description of the shell and core building improvements between this Lease and the Plans and Specifications, this Lease will control. 1. The Landlord is to provide the completed and operational "shell and core" building, as that terminology is generally used in the local real estate development industry, as clarified in this Definition and in the Plans and Specifications. The shell and core shall meet or exceed local development standards, building codes and good industry practice. The completed shell and core is to include: a. Site improvements. b. Utilities serving the site and the building. c. Landscaping and irrigation. d. Exterior lighting. e. The building structure including: . 12'-6" floor to floor height at tenant floors. . Concrete floor slabs with troweled finish ready for tenant improvements. . A floor structural capacity in all tenant areas of 80 psf live load plus 20 psf tenant partition load in addition to the structure dead load. f. The exterior building enclosure. Glazing shall have a shading coefficient of 0.33 or less. g. A two level parking garage. h. Three passenger elevators, including two with 3,000 lb. capacity and one with 3,500 lb. capacity with a 9'-4" ceiling height for service. i. Building services areas in the parking garage and at the roof, complete. j. Shell interior construction including: . Thermal insulation at exterior walls, and under floors and roof structure where required. . Steel stud framing and GWB at exterior walls and columns facing tenant spaces taped and ready for paint. k. Core interior construction including: . Steel stud framing and GWB at core walls, columns and shear walls facing Tenant spaces taped and ready for paint. . Core rooms, stairways and shafts complete (other than supplemental electrical, HVAC and plumbing services added by the Tenant). . Building standard locksets at fire exit stair doors leading to tenant areas. . Elevator lobbies on each floor, substantially complete, including the automated smoke separation doors. . Main building lobby, substantially complete, including balcony on 2nd floor and related partitions, doors and relights separating the lobby areas from tenant areas. l. 2'x4' acoustical ceiling grid installed throughout tenant areas. m. Required quantities of 2'x4' Class A mineral and/or ceramic fiber acoustical ceiling tile stocked on each floor ready for installation. n. Building signs required by code at the exterior and interior core o. Shell and core access control systems (see item 2). p. Shell and core fire sprinkler systems (see item 3). q. Shell and core HVAC and related control systems (see item 4). r. Shell and core plumbing systems (see item 5) D-1 s. Shell and core electrical lighting and power systems (see item 6). t. Shell and core communications systems (see item 7). u. Shell and core electrical and electronic life safety systems (see item 8). 2. The shell and core access control system includes: a. A 24 hour / 7 day central proximity card access control system for the building. b. Base access control at the main building entrance, the two parking garage elevator lobby vestibules, exterior door 1-07 and the three elevators. 3. The shell and core fire sprinkler systems include: a. Central fire protection sprinkler systems for a fully sprinklered building. The dry system serves the garage areas and the wet system serves the office floors. b. Sprinkler systems installed complete and operational in all parking and core areas. Includes semi-recessed heads in areas with finish ceilings. c. Sprinkler system mains and laterals installed in tenant areas, with sufficient capacity and in a pattern to accommodate future typical office tenant improvements. d. Plain brass upright, pendant or side wall sprinkler heads installed in tenant areas at a minimum density required by code for unoccupied spaces in an occupied building. 4. The shell and core HVAC and related control systems include: a. The shell and core HVAC system shall be designed for the loads shown on drawing M0.1 using ASHRAE Design Data. b. Five main vertical self contained, water cooled, DX central air conditioning units with 100% outside air economizer capability. Each unit shall have a 50 ton capacity and serve one floor of the building. c. One central cooling tower and condenser water system sized to handle the central air conditioning units plus approximately 50 tons and approximately 100 gpm additional capacity available for tenant loads. The condenser water system shall be configured to allow extension to tenant areas, but no distribution below the roof is included. d. Centralized and vertical supply air ductwork and return air systems to each floor. e. Supply air ductwork systems at each tenant floor to the VAV boxes. Ductwork shown on the Plans as a solid line is included in the shell and core work. Ductwork shown dashed is not included. f. VAV boxes in tenant areas shown on the Plans as a solid line are included in the shell and core in operational condition. VAV units shown dashed are not included. VAV boxes include associated power and controls to make operational. g. Digital central energy management, control and monitoring systems installed and operational for all shell and core equipment. The system shall have the capacity to include the VAV boxes shown dashed on the Plans, and be expandable to include related control and monitoring for other tenant improvements. The system shall allow convenient after- hours tenant control on a floor by floor and zone by zone basis. 5. The shell and core plumbing systems include: a. Plumbing systems complete for the shell and core areas including all fixtures. b. Drinking fountains on each tenant floor. c. Cold water supply piping stubbed out of the core above the ceiling at each tenant floor for tenant improvements. d. 4" waste and 3" vent lines installed to a capped stub-out for each service at the outboard end of each tenant floor stairway for tenant improvements. 6. The shell and core electrical lighting and power systems include: a. A 3,000 amp 480Y/277 volt building service fed by a minimum 1,000 kva utility company transformer. The Landlord shall, with the Tenant's cooperation, resubmit application to Puget Sound Energy for service to have Puget Sound Energy provide a 1,500 kva transformer in lieu of the 1,000 kva. b. Electrical and lighting systems installed and operational at all parking and core areas, including all elevator lobbies and the main building lobby. c. Electrical power installed to VAV boxes in tenant areas installed as a part of shell and core (see item 4.f). D-2 d. A 200 kw, 480 volt standby generator to power building "life safety" systems and battery powered emergency lighting. e. Each tenant floor shall have one 480/277 volt panel one 112.5 kva transformer and two 208/120 volt panels as described on the Plans available for tenant lighting and power additions. f. The capacity of the electrical system shall provide for a minimum of 4.5 watts per square foot for tenant lighting and power. g. A microprocessor-based digital lighting control system installed and operational as required for all shell and core lighting. The system shall have the capacity to include the lighting installed as a part of Base Building Standard. The system shall allow after-hours tenant area lighting. 7. The shell and core communications systems include: a. Telephone and data utility conduits / access pathways and related provisions to a central telecommunications room located in the garage. b. Four 4" conduits from telecommunications room to the 1st floor electrical / telcom closet and four 4" conduit sleeves to each telcom closet above. c. Plywood telephone backboards at each tenant floor telcom closet. 8. The shell and core life safety systems include: a. Fire alarm systems installed and operational for the parking garage, all core areas and at shell and core HVAC and fire sprinkler systems. The systems shall have sufficient capacity to be expanded for fire alarm systems required as a part of future tenant improvements. b. Code required emergency power and required battery back-up systems for life safety systems. c. Fire extinguishers at parking garage and core areas. 9. Base shell and core improvements shall be designed to support the Tenant's Tenant Improvements. List of Plans and Specifications - -------------------------------- Architectural - ------------- A0.0 Cover Sheet A0.1 Statistics & General Notes A0.2 Site Survey A0.3 Average Grade/Lot Coverage Calculations A0.4 Landscape Area Calculations A0.5 Glazing Area Calculations A1.1 Site Plan A1.2 Enlarged Entry Plan A1.3 Site Sections & Elevations A2.1 Lower Parking Level Plan A2.2 Upper Parking Level Plan A2.3 First Floor Plan A2.4 Second Floor Plan A2.5 Third Floor Plan A2.6 Fourth Floor Plan A2.7 Fifth Floor Plan A2.8 Roof Plan A3.1 North and West Elevations A3.2 South and East Elevations A3.3 Building Sections D-3 A4.1 Enlarged Upper & Lower Parking Level Plans A4.2 Enlarged First & Second Floor Core Plans and Bathroom Elevations A4.3 Enlarged Third through Fifth Floor Core Plans A4.4 Enlarged Roof Plans A4.5 Mechanical Penthouse Sections/Elevations A4.6 Wall Sections A4.7 Wall Sections A4.8 Wall Sections A4.9 Enlarged Lobby / Reflected Ceiling Plans A4.10 Lobby Elevations A5.1 Stair Section and Plans - West Stair A5.2 Stair Section and Plans - East Stair A5.3 Miscellaneous Stair and Metal Details A6.1 Precast & Window Details A6.2 -Not Included With Permit Issue- A6.3 Roof Details A6.4 Exterior Wall Details A6.5 Exterior Wall Details A6.6 Parking Level Details A7.1 Wall Types A7.2 Interior Details A8.1 Door Schedule A8.2 Door Details A9.1 Typical Reflected Ceiling Plan A9.2 Second Floor Reflected Ceiling Plan A9.3 Third Floor Reflected Ceiling Plan A9.4 Fourth Floor Reflected Ceiling Plan A9.5 Fifth Floor Reflected Ceiling Plan Structural - ---------- S1.1 Structural Notes S1.2 Post-Tensioning Notes, Abbreviations & Symbols S2.1E Foundation and Lower Parking Level Plan, East S2.1W Foundation and Lower Parking Level Plan, West S2.2E Upper Parking Level Plan, East S2.2W Upper Parking Level Plan, West S2.3 First Floor Plan S2.4 Second Floor Plan S2.5 Third Floor Plan S2.6 Fourth Floor Plan S2.7 Fifth Floor Plan S2.8F Roof Framing Plan S2.8R Roof Reinforcing Plan S2.9 Partial Plans S3.1 Elevations S3.2 Elevations D-4 S4.1 Typical Details & Schedules - Foundations & Concrete Walls S4.2 Typical Details & Schedules - Columns & Beams S4.3 Typical Details & Schedules -Slabs and CMU Walls S4.4 Typical Details & Schedules -Shear Walls S4.5 Typical Details & Schedules -Moment Frames S4.6 Typical Details & Schedules -Post-Tensioned Slabs S5.1 Sections and Details S5.2 Sections and Details S5.3 Sections and Details S5.4 Sections and Details Landscape - --------- L-1 Landscape Plan, Legend & Details L-2 Irrigation Plan, Schedule & Notes L-3 Irrigation Details & Water Conservation Calculations Civil - ----- C-1 Cover Sheet C-2 & C-3 Topographic Survey C-4 Grading and Utility Plan C-5 Site Details C-6 T.E.S.C. Details C-7 Utility Profiles C-8 General Notes C-9 T.E.S.C. Plan C-10 Site Plan "B" C-11 Underslab Drainage Plan Mechanical - ---------- M0.1 Title Sheet, Legend & Abbreviations, Vicinity Map M1.1 Site Plan - Utility Coordination Plan [Not in Current Set] M2.0 Foundation Plan - Plumbing M2.1 Lower Parking Level Plan M2.2 Upper Parking Level Plan M2.3 First Floor Plan M2.4 Second Floor Plan M2.5 Third Floor Plan M2.6 Fourth Floor Plan M2.7 Fifth Floor Plan M2.8 Mechanical Penthouse Plan M3.1 Mechanical Diagrams M4.1 Core Plans - Plumbing M4.2 Plumbing Details M4.3 Plumbing Schematic D-5 M5.1 Mechanical Schedules M5.2 Mechanical Schedules Electrical - ---------- E-00 Legend / Cover Sheet E3-00 One-Line E2-00 Site Lighting E2-11P Lower Level Parking Lighting E2-12P Upper Level Parking Lighting E2-11 First Floor Lighting E2-12 Second Floor Lighting E2-13 Third Floor Lighting E2-14 Fourth Floor Lighting E2-15 Fifth Floor Lighting E2-16 Roof Lighting E2-21P Lower Level Parking Power E2-22P Upper Level Parking Power E2-21 First Floor Power E2-22 Second Floor Power E2-23 Third Floor Power E2-24 Fourth Floor Power E2-25 Fifth Floor Power E2-26 Roof Power E600 Panel Schedules [Included in Technical Specifications] E601 Panel Schedules [Included in Technical Specifications] Technical Specifications for Sterling Plaza Phase II dated February 1, 2000, including Addendum No. 1 dated February 10, 2000, and Addendum No. 2 dated February 16, 2000. D-6 EXHIBIT E TO LEASE AGREEMENT Scope of Tenant Improvements ---------------------------- [To be provided by Tenant] E-1 EXHIBIT F TO LEASE AGREEMENT Form of Letter of Credit ------------------------ FOR INTERNAL IDENTIFICATION PURPOSES ONLY Our No. __________ Other __________ Applicant ___________________________ TO: Sterling Realty Organization Co. 600 - 106th Avenue N.E., Suite 200] Bellevue, Washington 98108 IRREVOCABLE LETTER OF CREDIT NO. ___________ We hereby establish this irrevocable Letter of Credit in favor of the aforesaid addressee ("Beneficiary") for drawings up to United States $__________ effective immediately. This Letter of Credit is issued, presentable and payable at our office at [issuing bank's address] and expires with our close of business ------------------------ on ___________, 20__. The term "Beneficiary" includes any successor by operation of law of the named Beneficiary including, without limitation, any liquidator, rehabilitator, receiver or conservator. We hereby undertake to promptly honor your sight draft(s) drawn on us, indicating our Credit No. ________, for all or any part of this Credit if presented at our office specified in paragraph one on or before the expiry date or any automatically extended expiry date, along with a certificate in the form of Exhibit A attached hereto certifying that iShip.com, Inc., the tenant under --------- that certain Lease Agreement between Sterling Realty Organization Co. and iShip.com, Inc. dated March ___, 2000, is in default thereunder beyond any applicable notice and cure periods. Except as expressly stated herein, this undertaking is not subject to any agreement, condition or qualification. The obligation of [issuing bank] -------------- under this Letter of Credit is the individual obligation of [issuing bank], and -------------- is in no way contingent upon reimbursement with respect thereto. It is a condition of this Letter of Credit that it is deemed to be automatically extended without amendment for one year from the expiry date hereof, or any future expiration date, unless thirty (30) days prior to an expiration date we notify you by registered mail that we elect not to consider this Letter of Credit renewed for any such additional period. This Letter of Credit is subject to and governed by the Laws of the State of New York and the 1993 revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 500) and, in the event of any conflict, the Laws of the State of New York will control. If this Credit expires during an interruption of business as described in article 17 of said Publication 500, the bank hereby specifically agrees to effect payment if this Credit is drawn against within 30 days after the resumption of business. Very truly yours, _______________________ F-1 EXHIBIT A TO LETTER OF CREDIT Form of Certificate of Default by Tenant ---------------------------------------- To: [Issuing Bank] From: Sterling Realty Organization Co. Regarding: Letter of Credit No. ___________ CERTIFICATE OF DEFAULT BY TENANT Sterling Realty Organization Co., the landlord under that certain Lease Agreement between Sterling Realty Organization Co., a Washington corporation ("Landlord"), and iShip.com, Inc., a Washington corporation ("Tenant"), dated March ___, 2000 (the "Lease"), hereby certifies to [Issuing Bank] as follows: 1. that Tenant is in default of its obligations under the Lease beyond the notice and cure periods applicable to such default; and 2. based on Tenant's default, and under the provisions of the Lease, Landlord is entitled to draw down the entire amount of this Letter of Credit No. _______. STERLING REALTY ORGANIZATION CO., a Washington corporation By:_____________________________ Its:_________________________ Date:___________________________ F-2 EXHIBIT G --------- TO LEASE AGREEMENT Form of Lease Guaranty ---------------------- GUARANTY OF LEASE THIS GUARANTY OF LEASE is made and given by STAMPS.COM, INC., a Delaware corporation ("Guarantor"), to and for the benefit of STERLING REALTY ORGANIZATION CO., a Washington corporation ("Landlord"), with respect to that certain Lease Agreement between Landlord and iSHIP.COM, a Washington corporation and a wholly-owned subsidiary of Guarantor ("Tenant"), dated March 7, 2000 (the "Lease"). FOR VALUE RECEIVED and in consideration of and as an inducement to Landlord entering into the Lease, Guarantor unconditionally and continuously guarantees to Landlord, its successors and assigns, the full and timely performance and observance by Tenant of all the terms and conditions of the Lease to be performed and observed by Tenant. This Guaranty and the obligations of Guarantor hereunder shall not be terminated or impaired by reason of the granting by Landlord of any indulgences to Tenant or the assertion by Landlord against Tenant of any of Landlord's rights or remedies under the Lease, or by the relief of Tenant from any of Tenant's obligations under the Lease by operation of law or otherwise, whether or not Guarantor has received notice of same. Guarantor waives all suretyship defenses and waives notice of any breach by Tenant. This Guaranty shall continue in full force and effect as to any renewal, amendment, modification, extension, assignment or transfer of the Lease or any subletting of the Lease premises, whether or not Guarantor shall have received notice of or consented to the same. The liability of Guarantor under this Guaranty is primary and absolute, and Landlord may at its option proceed against Guarantor without proceeding against Tenant. Any action against Guarantor shall be brought in King County, Washington. Landlord's delay or failure to insist upon the strict performance or observance of any obligation of Tenant under the Lease or to exercise any right or remedy available under the Lease or at law or in equity, shall not be construed to be a waiver of Landlord's prerogative to insist upon such strict performance or observance or to exercise any such right or remedy. Receipt by Landlord of rent or other payment with knowledge of a breach of any term or condition of the Lease shall not be construed to be a waiver of such breach. The liability of Guarantor hereunder shall not be affected or limited by: (a) the release or discharge of Tenant in any creditors', receivership, bankruptcy or other proceedings; (b) the impairment, limitation or modification of the liability of the Tenant or the estate of Tenant in bankruptcy, or of any remedy for the enforcement of Tenant's liability under the Lease resulting from the operation of any present or future provision of the federal bankruptcy laws or other statutes or from the decision in any court; (c) the rejection or disaffirmance of the Lease in any such proceedings; (d) any disability or other defense of Tenant; or (e) the cessation, from any cause whatsoever, of the liability of Tenant. Until all the terms, conditions and agreements of the Lease are fully performed and observed by Tenant, Guarantor hereby waives the right to enforce any claim, right or remedy which Guarantor now has or hereafter shall have against Tenant by reason of any one or more payments or acts of performance in compliance with the obligations of Guarantor hereunder, and Guarantor hereby subordinates any liability or indebtedness of Tenant now or hereafter held by Guarantor to the obligations of Tenant to Landlord under the Lease. G-1 This Guaranty shall inure to the benefit of Landlord, its affiliates, successors and assigns, and shall be binding upon the successors and assigns of Guarantor. This Guaranty is irrevocable and may not be changed, affected, discharged or terminated other than by an agreement in writing signed by Guarantor and Landlord. Guarantor shall pay all costs and expenses paid or incurred by Landlord in enforcing either the Lease or this Guaranty, including court costs and a reasonable amount for legal services performed by counsel, whether employed or retained by Landlord. DATED this 7th day of March, 2000. GUARANTOR: STAMPS.COM, INC., a Delaware corporation By:________________________ Its:____________________ STATE OF _______________ ) ) ss. COUNTY OF ______________ ) On this ________ day of March, 2000, before me personally appeared _____________________________, to me known to be the ________________________ of STAMPS.COM, INC., a Delaware corporation, the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of such corporation for the uses and purposes therein mentioned, and on oath stated that ______ was authorized to execute said instrument. IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal the day and year first above written. ___________________________________ (Signature) ___________________________________ (Please print name legibly) NOTARY PUBLIC in and for the State of _____________, residing at ___________ My commission expires_________________ G-2 EXHIBIT H TO LEASE AGREEMENT Rules and Regulations --------------------- 1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building without the prior written consent of the Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person chosen by Landlord. 2. If Landlord objects in writing to any curtains, blinds, shadow, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, Tenant shall immediately discontinue such use. No awning shall be permitted on any part of the Premises. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises. 3. Tenant shall not obstruct any sidewalk, halls, passages, exits, entrances, elevators, escalators, or stairways of the Building. The halls, passages, exits, entrances, shopping malls, elevators, escalators and stairways are not open to the general public. Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Building and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course or its business, unless such persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building except in accordance with the provisions of the Communications Site Lease between Landlord and Tenant. 4. The directory of the Building will be provided exclusively for the display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom. 5. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage to Tenant's property by the janitor or any other employee or any other person. 6. Landlord will furnish Tenant, free of charge, two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of the Premises. If Tenant installs a separate security system, Tenant shall provide Landlord with card keys or passwords for emergency access. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of any keys so furnished, shall pay Landlord therefore. 7. If Tenant requires telegraphic, telephonic, security system or similar services, it shall first obtain, and comply with, Landlord's instructions for their installation. 8. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot for which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into H-1 the Building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein or to any other tenant in the Building, shall be placed and maintained by Tenant, at Tenant's expenses, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 9. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or about the Premises any birds or animals. 10. Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord. 11. Tenant shall not waste electricity, water or air-conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls. 12. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building. 13. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. 14. Tenant shall close and lock the doors of its Premises and entirely shutoff all water faucets or other water apparatus, and electricity, gas or air outlets before Tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule. 15. The Building is a no-smoking building. Tenant, its employees, agents, guests, invitees, and licensees are prohibited at all times from smoking within the Building, the Premises, the Common Area or the Land, except in designated smoking areas outside the Building and the Premises, which shall be identified by Landlord from time to time. 16. The toilet rooms, toilets, 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. The expenses of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, shall have caused it. 17. Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Building. Tenant shall not use the Premises for any business or activity other than that specifically provided or in Tenant's Lease. H-2 18. Tenant shall not install any radio or television antenna, telecom equipment, loudspeaker or other device on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 19. Tenant shall not mark, drive nails, screws or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule, except that Tenant shall be permitted to use nails, screws, or other hardware necessary to hang artwork, display boards and other standard office fixtures. 20. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Building are prohibited, and each tenant shall cooperate to prevent the same. 21. Landlord reserves the right to exclude or expel from the Building any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building. 22. Tenant shall store all trash and garbage within its Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. Disposal of any large debris will be at Tenant's expense. 23. The Premises shall not be used for the storage of merchandise hold for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper or immoral or objectionable purpose. 24. Microwave cooking is permitted on the Premises, as is use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages, provided that such equipment is used in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. Tenant is not allowed to use space heaters in the Premises. All appliance outlets shall be equipped and operated by mechanical timers. 25. Tenant shall not use in any space or in the public halls of the Building any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building. 26. 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. 27. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 28. Tenant shall take reasonable measures to protect its Premises from theft, robbery, and pilferage, which includes keeping doors locked and other means of entry into the Premises closed. 29. The requirements of Tenant will be attended to only upon appropriate application to the office of the Building by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. H-3 30. Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building. Tenant shall not leave vehicles in the Building parking areas overnight nor park any vehicles in the Building parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or four-wheeled trucks. 31. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant of any other tenant, nor prevent Landlord from thereafter reasonably enforcing any such Rules and Regulations against any or all of the tenants of the Building. 32. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building. 33. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted. 34. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. H-4 EXHIBIT I TO LEASE AGREEMENT Exclusions from Operating Costs ------------------------------- (1) attorneys' fees, accounting fees and other expenditures incurred in connection with negotiations, disputes and claims of other tenants or occupants of the Building or with other third parties, except as specifically otherwise provided in the Lease; (2) financing costs, including interest and principal amortization of debts, but excluding any local improvement district assessments made against the Property (unless such assessment was levied in connection with the development of the Building); (3) wages, bonuses and other compensation of employees above the grade of building manager; (4) any liabilities, costs or expenses associated with or incurred in connection with the removal, enclosure, encapsulation or other handling of asbestos or other hazardous or toxic materials or substances which were placed on the Property by Landlord and were deemed toxic or hazardous pursuant to then-applicable law at the time so placed; (5) costs of any items for which Landlord is paid or reimbursed by insurance (provided Landlord shall use its best effort to collect any insurance proceeds to which it is entitled); (6) increased insurance assessed specifically to any tenant of the Building; (7) charges for electricity, water or other utilities and applicable taxes for which Landlord is entitled to reimbursement from any other tenant; (8) cost of any HVAC, janitorial or other services charged to tenants on an extra cost basis after regular business hours; (9) cost of installing, operating and maintaining any specialty service, such as an observatory, broadcasting facilities, luncheon club, athletic or recreation club, or child-care facility; (10) cost of correcting defects in the design, construction or equipment of, or latent defects in, the Building; (11) cost of any work or services to the extent performed for any facility other than the Building (provided Landlord shall have the right to reasonably allocate the cost of services provided to more than one facility); (12) any cost representing an amount paid to a person, firm, corporation or other entity related to or affiliated with Landlord that is in excess of the amount which would have been paid in the absence of such relationship; (13) any cost of painting or decorating any interior parts of the Building other than common areas; (14) capital expenditures, other than those (a) required to be made by applicable laws first enacted after the Commencement Date; or (b ) incurred with a reasonable expectation of increasing the operating efficiency of the Building. All such capital improvements shall be amortized on a straight- line basis over their useful lives. (15) charitable or political contributions; (16) Landlord shall not recover any item of cost more than once; (17) cost of any work or service performed by Landlord for any tenant in the Building to the extent such work or service is provided to a materially greater extent or in a materially more favorable manner than furnished generally to the tenants and other occupants of the Building; and (18) assessments levied in connection with the development of the Building. I-1 EXHIBIT J TO LEASE AGREEMENT Form of Subordination, Attornment, Notice and Non-Disturbance Agreement ----------------------------------------------------------------------- RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: - ----------------------------- - ----------------------------- - ----------------------------- - ----------------------------- SUBORDINATION, ATTORNMENT, NOTICE AND NON-DISTURBANCE AGREEMENT ----------------------------- Grantor: ----------------------------- Grantee: ----------------------------- Legal Description: Abbreviated: ----------------------------- ----------------------------- Full: ----------------------------- Assessor's Property Tax Parcel Account Numbers: ----------------------------- THIS AGREEMENT is made and entered into as of the _____ day of _________________, ______, by and among (i) iSHIP.COM, INC., a Washington corporation ("Tenant"), whose principal address is 3545 Factoria Boulevard S.E., Bellevue, Washington 98006; (ii) _______________________, a ______________________________ ("Lender"), whose principal address is _______________________________________; and (iii) STERLING REALTY ORGANIZATION CO., a Washington corporation ("Borrower"), whose principal address is 600 - 106th Avenue N.E., Suite 200, Bellevue, Washington 98004. RECITALS: A. Lender has agreed to make a mortgage loan (the "Loan") to Borrower in the amount of ____________________________ Dollars ($_____________________) to be secured by a mortgage or deed of trust (the "Mortgage") on the real property legally described in Exhibit A attached hereto (the "Property"); --------- B. Tenant is the present lessee under a lease dated ______________________, made by Borrower as landlord ("Landlord"), demising a portion of the Premises and other property (said lease and all amendments thereto being referred to as the "Lease"); J-1 C. The Loan terms require that Tenant subordinate the Lease and its interest in the Premises in all respects to the lien of the Mortgage and that Tenant attorn to Lender; and D. In return, Lender is agreeable to not disturbing Tenant's possession of the portion of the Property covered by the Lease (the "Premises"), so long as Tenant is not in default under the Lease. NOW, THEREFORE, in consideration for the mutual covenants contained herein and other consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: AGREEMENTS: 1. Subordination. The Lease, and the rights of Tenant in, to and under the ------------- Lease and the Premises, are hereby subjected and subordinated to the lien of the Mortgage and to any modification, reinstatement, extension, supplement, consolidation or replacement thereof as well as any advances or re-advances with interest thereon and to any mortgages or deeds of trust on the Property which may hereafter be held by Lender. 2. Tenant Not to Be Disturbed. In the event it should become necessary to -------------------------- foreclose the Mortgage or Lender should otherwise come into possession of title to the Property, Lender will not join Tenant in summary or foreclosure proceedings unless required by law in order to obtain jurisdiction, but in such event no judgment foreclosing the Lease will be sought, and Lender will not disturb the use and occupancy of Tenant under the Lease so long as Tenant is not in default under any of the terms, covenants or conditions of the Lease beyond any applicable notice and cure period and has not prepaid the rent except monthly in advance as provided by the terms of the Lease. 3. Tenant to Attorn to Lender. Tenant agrees that in the event any -------------------------- proceedings are brought for foreclosure of the Mortgage, it will attorn to the purchaser as the landlord under the Lease. The purchaser by virtue of such foreclosure shall be deemed to have assumed and agreed to be bound, as substitute landlord, by the terms and conditions of the Lease until the resale or other disposition of its interest by such purchaser, except that such assumption shall not be deemed of itself an acknowledgment by such purchaser of the validity of any then existing claims of Tenant against any prior landlord (including Landlord). All rights and obligations under the Lease shall continue as though such foreclosure proceedings had not been brought, except as aforesaid. Tenant agrees to execute and deliver to any such purchaser such further assurance and other documents, including a new lease upon the same terms and conditions of the Lease, confirming the foregoing as such purchaser may reasonably request. Tenant waives the provisions (i) contained in the Lease or any other agreement relating thereto, and (ii) of any statute or rule of law now or hereafter in effect, which may give or purport to give it any right or election to terminate or otherwise adversely affect the Lease and the obligations of Tenant thereunder by reason of any foreclosure proceeding. 4. Limitations. Notwithstanding the foregoing, neither Lender nor such other ----------- purchaser shall in any event be: (a) liable for any act or omission of any prior landlord (including Landlord) unless such nonperformance constitutes a default under the Lease and continues during the period of the Lender's or such other purchaser's ownership of the Property; (b) obligated to cure any defaults of any prior landlord (including Landlord) which occurred prior to the time that Lender or such other purchaser succeeded to the interest of such prior landlord under the Lease unless such default continues during the period of the Lender's or such other purchaser's ownership of the Property; (c) subject to any offsets or defenses which Tenant may be entitled to assert against any prior landlord (including Landlord); J-2 (d) bound by any payment of rent or additional rent by Tenant to any prior landlord (including Landlord) for more than one month in advance; (e) bound by any amendment or modification of the Lease made without the written consent of Lender or such other purchaser, such consent not to be unreasonably withheld; (f) liable or responsible for, or with respect to, the retention, application and/or return to Tenant of any security deposit paid to any prior landlord (including Landlord), whether or not still held by such prior landlord, unless and until Lender or such other purchaser has actually received for its own account as landlord the full amount of such security deposit; or (g) bound by any provision in the Lease which obligates Landlord to erect or complete any building or to perform any construction work or to make any improvements to the Premises or to expand or rehabilitate any existing improvements or to restore any improvements following any casualty or taking or to make a future capital contribution to Tenant or to apply proceeds of casualty insurance or eminent domain awards other than as provided in the Mortgage. 5. Acknowledgment of Assignment of Lease and Rent. 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 Lender as security for the Loan secured by the Mortgage. In the event that Lender notifies Tenant of a default under the Mortgage and demands that Tenant pay its rent and all other sums due under the Lease to Lender, Tenant agrees that it will honor such demand and pay its rent and all other sums due under the Lease directly to Lender or as otherwise required pursuant to such notice. 6. Limited Liability. Tenant acknowledges that in all events, the liability ----------------- of Lender and any purchaser shall be limited and restricted to their interest in the Property and shall in no event exceed such interest. 7. Lender's Right to Notice of Default and Option to Cure. Tenant will give ------------------------------------------------------ written notice to Lender of any default by Landlord under the Lease by mailing a copy of the same by certified mail, postage prepaid, addressed as follows (or to such other address as may be specified from time to time by Lender to Tenant): To Lender: ----------------------------- ----------------------------- ----------------------------- Attn.: ----------------------- with copies to: ----------------------------- ----------------------------- ----------------------------- Attn.: ----------------------- Upon such notice, Lender shall be permitted and shall have the option, in its sole and absolute discretion, to cure any such default during the period of time during which the Landlord would be permitted to cure such default, but in any event Lender shall have a period of thirty (30) days after the receipt of such notification to cure such default; provided, however, that in the event Lender is unable to cure the default by exercise of reasonable diligence within such 30-day period, Lender shall have such additional period of time as may be reasonably required to remedy such default with reasonable dispatch. 8. Successors and Assigns. The provisions of this Agreement are binding upon ---------------------- and shall inure to the benefit of the heirs, successors and assigns of the parties hereof. J-3 IN WITNESS WHEREOF, the parties hereto have executed these presents the day and year first above written. TENANT: iSHIP.COM, a Washington corporation By: --------------------------- Name: ------------------------- Title: ------------------------ LENDER: ------------------------------ By: --------------------------- Name: ------------------------- Title: ------------------------ The terms of the above Agreement are hereby consented, agreed to and acknowledged. BORROWER: STERLING REALTY ORGANIZATION CO., a Washington corporation By: --------------------------- Name: ------------------------- Title: ------------------------ J-4 STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) I certify that I know or have satisfactory evidence that ______________________________ is the person who appeared before me, and said person acknowledged that he/she signed this instrument, and on oath stated that he/she was authorized to execute the instrument and acknowledged it as the __________________ of iSHIP.COM, INC., a Washington corporation, to be free and voluntary act of such party for the uses and purposes mentioned in the instrument. DATED: ------------------ ----------------------------------------- (Signature) ----------------------------------------- (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at ------------------ My commission expires -------------------- STATE OF ____________ ) ) ss. COUNTY OF __________ ) I certify that I know or have satisfactory evidence that _____________ is the person who appeared before me, and said person acknowledged that he/she signed this instrument, and on oath stated that he/she was authorized to execute the instrument and acknowledged it as the __________________ of ______________________________, a _________________ corporation, to be free and voluntary act of such party for the uses and purposes mentioned in the instrument. DATED: ----------------- ----------------------------------------- (Signature) ----------------------------------------- (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at ------------------ My commission expires -------------------- J-5 STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) I certify that I know or have satisfactory evidence that _________________________ is the person who appeared before me, and said person acknowledged that ________ signed this instrument, on oath stated that ________ was authorized to execute the instrument and acknowledged it as the ___________________ of STERLING REALTY ORGANIZATION CO., a Washington corporation, to be the free and voluntary act of such corporation for the uses and purposes mentioned in the instrument. DATED: ----------------- ------------------------------------------ (Signature) ------------------------------------------ (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at ------------------- My commission expires --------------------- J-6 EXHIBIT A TO SUBORDINATION, ATTORNMENT, NOTICE AND NON-DISTURBANCE AGREEMENT Legal Description of Property ----------------------------- New Lot 2 - --------- A portion of Lot 1 of Short Plat No. 280070R, according to the short plat recorded under King County Recording No. 8011200686, being a revision of short plat recorded under Recording No. 8009300879. TOGETHER with that portion of the vacated portion of SE 38th Street lying with the projected lot lines of the property herein described as vacated by King County Ordinance No. 6582 as recorded under King County Recording No. 84030789; TOGETHER with a portion of Parcels C, D, E & F of King County Lot Line Adjustment No. LLA 8810004, according to the Lot Line adjustment recorded under King County Recording No. 9101239007, being a portion of the West 1/2 of the Southeast 1/4 of Section 9, Township 24 North, Range 5 East, W.M., described as follows: Commencing at the Northeast corner of the Southwest 1/4, of the Southeast 1/4 said Section 9; thence North 87 degrees 23' 26" West along the North line of said Southwest 1/4 of the Southeast 1/4, a distance of 180.00 feet to the TRUE POINT OF BEGINNING; thence South 01 degrees 18'37" West, a distance of 158.87 feet; thence North 87 degrees 23'26" West, a distance of 437.33 feet; thence South 01 degress 15'22" West, a distance 316.89 feet more or less to the Northerly margin of SE 38th Street; thence North 63 degrees 38'11" West along said Northerly margin, a distance of 90.75 feet; thence North 01 degrees 15'16" East, a distance of 439.20 feet; North 01 degrees 12'48" East a distance of 14.22 feet; thence South 87 degrees 23'26" East, a distance of 321.85 feet; thence North 02 degrees 36'31" East, a distance of 3.78 feet; thence South 87 degrees 23'26" East, a distance of 197.79 feet; thence South 01 degrees 18'37" West, a distance of 18.00 feet more or less to the POINT OF BEGINNING. ALSO known as New Lot 2 of Boundary Line Adjustment No. BLA-995313, recorded under King County Recording No. 20000228900003. SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON. J-7 EXHIBIT K TO LEASE AGREEMENT Parking Plan ------------ K-1 EXHIBIT L TO LEASE AGREEMENT Form of Tenant Improvement Promissory Note ------------------------------------------ PROMISSORY NOTE $_____________ Bellevue, Washington _______________,200__ FOR VALUE RECEIVED, iSHIP.COM, INC., a Washington corporation (the "Maker"), promises to pay, in lawful money of the United States of America, to the order of STERLING REALTY ORGANIZATION CO., a Washington corporation, ("Holder"), at 600 - 106th Avenue N.E., Suite 200, Bellevue, Washington 98004, or such other place either within or without the State of Washington as Holder may designate in writing from time to time, the principal sum of ______________________________ Dollars ($__________) or so much thereof as may disbursed and outstanding, together with interest on the unpaid principal balance from the date of each advance at the rate stated below, in accordance with the terms of this Note. 1. Interest Rate. From the date of this Note, the principal balance shall bear interest at a rate equal to ___________________________ percent (___%) per annum. 2. Payments. Commencing on ___________________, and on the first day of each month thereafter through the Maturity Date, Maker shall pay to Holder payments of principal and interest in the amount _________________________ Dollars ($_________), which amount is calculated based on the outstanding principal balance of this Note, the interest rate stated in paragraph 1 above, and an amortization period of eight (8) years. Maker will pay Holder at Holder's address shown above or at such other place as Holder may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, and then to principal. If not sooner paid, the outstanding principal balance of this Note and all accrued unpaid interest is due on _______________________ (the "Maturity Date") 3. Prepayment. This Note may be prepaid in whole or in part at any time without premium or penalty. 4. Late Charge. If any monthly payment is not made within ten (10) days of the due date, Maker shall pay to Holder on demand a late charge equal to three percent (3%) of the amount of the payment to defray the overhead expenses of Holder incident to the delay. 5. Events of Default. The failure to timely make any payment under this Note shall be an Event of Default. 6. Remedies; Default Interest. Upon any Event of Default, Holder may declare the entire principal balance and all accrued interest immediately due and payable. Whether or not Holder exercises such option to accelerate, the entire principal balance and all accrued interest shall bear interest from the date of such Event of Default at a default rate of three percent (3%) above the interest rate otherwise payable under this Note. Default interest is payable on demand. Holder's failure to exercise any right or remedy shall not be a waiver of the right to exercise the same upon any subsequent Event of Default. 7. Collection Expenses. Maker shall reimburse Holder on demand for all reasonable legal fees and other costs and expenses incurred in collecting or enforcing this Note. Such fees, costs and expenses shall include those incurred with or without suit and in any appeal, any proceedings under any present or future federal bankruptcy act or state receivership, and any post-judgment collection proceedings. L-1 8. Waivers. Except as provided above, Maker waives all notices otherwise required by law, including without limitation presentment and demand for payment, protest, and notice of demand, protest, dishonor and nonpayment. 9. Miscellaneous. (a) This Note shall be construed, enforced and otherwise governed by the laws of the State of Washington. (b) Any notice to Maker under this Note shall be to the address noted below, or such other address as may be designated by Maker in writing, and shall be deemed to have been given on the date delivered in the case of personal delivery or, if mailed, three (3) days after the postmark thereof. MAKER ACKNOWLEDGES THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. MAKER: iSHIP.COM, INC., a Washington corporation By: ----------------------------- Its: ------------------------- L-1 EXHIBIT M TO LEASE AGREEMENT Sketches Showing Area of Roof Designated for Tenant's Exclusive Use ------------------------------------------------------------------- M-1 EXHIBIT N TO LEASE AGREEMENT Form of Communication Site Lease -------------------------------- COMMUNICATIONS SITE LEASE THIS COMMUNICATIONS SITE LEASE (the "Site Lease") dated March 7, 2000, is entered into by and between iSHIP.COM, INC., a Washington corporation ("Tenant"), having its principal place of business at 3545 Factoria Boulevard S.E., Bellevue, Washington 98006, and STERLING REALTY ORGANIZATION CO., a Washington corporation ("Landlord"), having its principal place of business 600- 106th Avenue N.E., Suite 200, Bellevue, Washington 98004. 1. The Property. Landlord is the owner of the building commonly known as Sterling Plaza II (the "Building"), constructed on that certain parcel of real property allocated in the State of Washington, County of King, City of Bellevue, located at 3545 Factoria Boulevard S.E., Bellevue, Washington 98006 (the "Property"). A legal description of the Property is contained in Exhibit A attached to this Site Lease. --------- 2. Lease of the Premises. (a) Premises. Landlord and Tenant have entered into that certain Lease -------- Agreement dated March 7, 2000 (the "Office Lease") with respect to office premises located in the Building. In connection therewith, Landlord has agreed that Tenant shall have the exclusive use of that portion of the roof of the Building generally described as follows: approximately ______square feet of space on the roof of the Building (equal to fifty percent (50%) of the usable area of the roof) for placement of Tenant's Communications Site (defined in paragraph 6 below) Equipment (collectively the "Roof Premises"). A sketch of the Roof Premises is attached as Exhibit B to this Site Lease. If at any --------- time during the term of this Site Lease, Tenant occupies less than two (2) full floors of the Building, then the area of the roof designated for Tenant's exclusive use shall decrease to twenty-five percent (25%) of the usable area of the roof of the Building, as shown on Exhibit C --------- attached to this Site Lease. (b) Tenant Improvements. Following the Commencement Date, Tenant shall ------------------- have the right to construct the Communications Site as shown on the attached Exhibit B and in accordance with the detailed plans and --------- specifications to be submitted by Tenant to Landlord and approved by Landlord prior to Tenant commencing any construction. The design of the improvements to be constructed by Tenant shall be consistent with the design and construction of the Building. In addition to plans and specifications, Tenant shall provide to Landlord such reports as Landlord, in Landlord's sole discretion, requires concerning the structural ability of the Building to support Tenant's proposed improvements or concerning the structural reinforcement required to support Tenant's proposed improvements. All plans and specifications for Tenant's proposed improvements must be reviewed and approved by Landlord, Landlord's architect, communications consultant, structural engineer and roofing manufacturer; Tenant shall pay for all reasonable costs associated with such reviews. Tenant shall obtain all necessary governmental approvals and permits prior to commencing construction and shall provide Landlord with ten (10) days notice prior to the start of construction. Landlord may post notices of non- responsibility if it so chooses. All Tenant contractors and subcontractors shall be duly licensed in the State of Washington and approved in advance by Landlord, such approval not to be unreasonably withheld. All construction activities must be coordinated with Landlord or Landlord's agents. If any damage to the Roof Premises is caused by the acts or omissions of Tenant's employees, contractors or agents during installation of the Equipment, Tenant shall repair any such damage and return the Roof Premises to the same N-1 condition as existed prior to the installation. If Tenant does not complete repairs to the satisfaction of the Landlord in a timely manner, then Landlord shall make such repairs as it deems necessary and such costs shall be paid by Tenant. 3. Rent. No rent shall be due from Tenant in connection with the Roof Premises. 4. Term of Lease. The term of this Site Lease shall, except with respect to the commencement date which is determined by the terms of Section 5 below, be for the same period of time as the Office Lease, as the same may expire, be terminated or be extended in accordance with the terms set forth therein. 5. Commencement Date; Governmental Permits. The term of this Site Lease shall commence on the first day of the month following Tenant's notice to Landlord in writing that Tenant has obtained all permits and approvals necessary for Tenant to be legally entitled to construct the communications site at the Roof Premises (the "Commencement Date"). Tenant shall be permitted to occupy the Roof Premises and commence construction of the Communications Site upon receipt of all such permits and approvals and notice to Landlord as required in paragraph 2. Any pre-Commencement Date occupancy by Tenant shall be under all the terms and conditions of this Site Lease. 6. Use of the Premises. Tenant shall use the Roof Premises for the installation and maintenance of satellite dishes and/or antennas or comparable equipment used in connection with the operation of Tenant's business from the Premises (a "Communications Site"). The Communications Site, for purposes of this Site Lease, is a site at which radio, telephone, paging, wireless voice, data, and other communications equipment is installed and used to send and receive radio and other signals to and from wireless telephones and other radio, paging or computer devices to connect those signals to radio, telephone, or other communications facilities and/or devices either directly, by means of cables, or indirectly, by means of transmitting and receiving facilities approved by Landlord and located at the Roof Premises. Tenant shall not use the Roof Premises for any other purposes without the written consent of Landlord. Landlord shall at all times have the ability to audit, inspect and monitor Tenant's use of the Roof Premises, and Tenant shall cooperate in all ways reasonably requested by Landlord. If Tenant's use of the Roof Premises increases the cost of the Landlord's insurance on the Building, Tenant shall promptly reimburse Landlord for such cost following receipt of an invoice therefor from Landlord. 7. License. Landlord hereby grants to Tenant for the duration of this Site Lease, a non-exclusive license in and over the common areas at the Property so that Tenant may have access to the Roof Premises (the "Access Areas") twenty-four (24) hours per day, seven (7) days per week. Tenant shall not have access to the penthouse located on the roof of the Building without being accompanied by Landlord or Landlord's agent, and when on the roof of the Building, Tenant and its contractors shall use every effort to walk only on the catwalk areas. The license granted to Tenant is for the purpose of installing, constructing, maintaining, restoring, replacing, and operating Tenant's equipment located within or on the Roof Premises or the Access Areas. Except in the event of an emergency endangering persons or property, or in the event Tenant's signal, for any reason, is interrupted or lost, access to the Roof Premises shall be granted only at such times during normal business hours of the Building as is reasonable for Landlord or Landlord's agents, and then only upon the request of Landlord by Tenant or Tenant's agents, made reasonably in advance of the time for such access. Outside of normal business hours of the Building, Landlord may require a member of its security or maintenance staff to be present during such times as Tenant requires access to the Roof Premises. Tenant shall reimburse Landlord for the cost of having a maintenance or security staff member present outside of normal business hours. 8. Protections Against Ongoing Interference. Following the effective date of this Site Lease, and promptly after such information is available to Tenant, Tenant shall inform Landlord in writing of its Communications Site requirements and signal frequencies, so as to allow Landlord (and tenants of Landlord) to determine whether any communications equipment they wish to install will create ongoing interference with Tenant's Communications Site. Tenant acknowledges that until such time as Tenant has notified Landlord of its specific frequency range, Landlord cannot guarantee the appropriateness of the N-2 Roof Premises as the location for Tenant's Communications Site. Tenant further acknowledges that Landlord has prior obligations to the tenants (the "Existing Tenants") of other properties owned by Landlord which are located adjacent to the Property, and that Landlord cannot allow Tenant's equipment and/or frequencies to interfere with the equipment and/or frequencies currently maintained by the Existing Tenants. Therefore, the installations of communications equipment, or use of a specific frequency by Tenant, or by any other tenant, is subject to the compatibility of such party's equipment and frequencies with that of communications equipment and frequencies then located on the Property or maintained by an Existing Tenant or of which Landlord has been adequately notified as required by this paragraph 8. Either Tenant or any other tenant desiring to locate new equipment or use additional frequencies shall, at that party's sole cost and expense, conduct such studies as are necessary to determine potential interference with then-existing equipment and frequencies and/or FCC permitted signals or frequencies of Tenant, other tenants of the Property and the Existing Tenants. Any change of frequency or additional frequencies to be used by Tenant shall be allowed, provided Tenant provides written notice of the same to Landlord. Landlord will not grant a lease to any party for use of the Property if such use would interfere with Tenant's ability to physically operate its Communications Site for the use described herein, as specifically approved in writing by Landlord and as Tenant's Communications Site exists immediately prior to the date on which any new lease is entered into by Landlord for the installation of communications equipment on the roof of the Building. Any future lease of the Property which permits the installation of communication equipment shall be conditioned upon not interfering with Tenant's operation of the Communications Site, based on Tenant's written notification to Landlord, as to its signal frequencies and any changes or additions thereto, as of the date of such lease, and any potential tenant shall be required to conduct an intermodulation study to determine potential interference with Tenant's signal and transmission. Without limiting any other remedy, in law or equity, Tenant shall have the right to terminate this Site Lease upon thirty (30) days' written notice in the event its reception or transmission is interfered with on an ongoing basis by other antenna equipment, or obstacles constructed or operated in Tenant's reception or transmission paths located upon or over Landlord's Property. Such termination shall not be the basis for any abatement of rent under the Office Lease. 9. Damage and Destruction. If the Roof Premises are, in whole or in part, damaged or destroyed, then there shall be no abatement of rent under the Office Lease. If the Roof Premises are only partially destroyed and still usable as a Communications Site, Landlord shall, within a reasonable time, repair the Roof Premises such that the Roof Premises are again as fully usable by Tenant as they were before such partial damage or destruction. Unless such partial damage or destruction is caused by Landlord, Landlord's agents or employees, Landlord shall be obligated to repair or replace the Roof Premises only, excluding any tenant improvements constructed, installed, or placed onto the Roof Premises by Tenant. A decision as to whether partially destroyed or partially condemned Premises are still usable as a Communications Site (for the purposes of this paragraph and of paragraph 10 below), shall be made jointly by Landlord and Tenant, and, if they cannot agree, by an arbitrator reasonably acceptable to both parties. If the Roof Premises are wholly destroyed, then Landlord shall inform Tenant, within sixty (60) days after the date of such destruction, whether it intends to restore the Roof Premises. 10. Condemnation. If all or part of the Roof Premises is taken by condemnation such that the Roof Premises are no longer usable for construction of or operation as a Communications Site, this Site Lease shall terminate unless Tenant's equipment and improvements can be relocated to another position at the Property mutually acceptable to Tenant and Landlord. Tenant shall be entitled only to that portion of the proceeds of condemnation which is directly attributable to the value of Tenant's equipment and improvements, and the cost of relocation, and under no circumstances shall Tenant receive any compensation for the value of the leasehold estate created by this Site Lease. 11. Relocation of System by Landlord. Upon not less than thirty (30) days advance written notice to Tenant from Landlord, Landlord may, at Landlord's expense, relocate Tenant's Communications Site to another location on the roof of the Building if Landlord, in its good faith judgment, deems such relocation necessary; provided, however, that Landlord may not do so if the result of the relocation would cause Tenant to lose, or experience degraded, transmission or reception. N-3 12. Access by Landlord. Landlord shall have access to the Roof Premises at all times, and Landlord agrees to give Tenant such notice as is reasonable under the circumstances. 13. Termination by Landlord. Landlord may terminate this Lease upon the occurrence of any of the following: (a) the termination of the Office Lease; (b) failure by Tenant to comply with any material term, condition or covenant of this Site Lease, if such failure is not cured within thirty (30) days after written notice thereof to Tenant, or in the event of a cure which requires in excess of thirty (30) days to complete, if Tenant has not commenced such cure within thirty (30) days of such notice and is not diligently prosecuting said cure to completion; (c) if Tenant becomes insolvent, or makes a transfer in fraud of creditors, or makes an assignment for the benefit of creditors, or files a petition under any section or chapter of the federal Bankruptcy code, as amended, or under any similar law or statute of the United States or any state thereof, or is adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder, or if a receiver or trustee is appointed for all or substantially all of the assets of Tenant due to Tenant's insolvency; or (d) during any Option Term, Landlord decides to demolish or reconfigure the Building in a manner that will impact the Roof Premises and provides Tenant with written notice of termination of this Lease at least twelve (12) months prior to the termination date. 14. Termination by Tenant. Tenant may terminate this Lease at any time upon thirty (30) days written notice to Landlord. 15. Warranties and Covenants of Tenant. Tenant warrants and covenants that throughout the term of this Site Lease, Tenant shall maintain comprehensive liability insurance, naming Landlord as an additional insured, protecting and indemnifying Landlord and Tenant against claims and liabilities for injury, damage to persons or property or for the loss of life or of property occurring upon the Roof Premises, Access Areas or other parts of Landlord's property resulting from Tenant's use of Landlord's property, including those resulting from any negligent act or omission of Tenant, its employees, agents, contractors, and subcontractors. Such insurance shall afford minimum protection of not less than One Million Dollars ($1,000,000) for injury to or death of any one person, Three Million Dollars ($3,000,000) for injury to or death of two or more persons, One Million Dollars ($1,000,000) for property damage, and Five Million Dollars ($5,000,000) for excess liability in the form of umbrella liability coverage. Tenant shall also maintain personal property insurance in an amount sufficient to fully protect all personal property, fixtures and tenant improvements constructed, owned or controlled by Tenant and brought upon Landlord's property from theft, fire or other loss or damage while upon the Property. Tenant shall provide to Landlord a certificate indicating the applicable coverage prior to the Commencement Date of the Lease and as necessary throughout the term of the Lease to evidence to Landlord's satisfaction that coverage remains in full force and effect. All insurance shall be procured from insurance companies satisfactory to Landlord. Tenant shall maintain the Roof Premises in a clean, safe and sanitary condition throughout the term of this Site Lease. 16. Liability and Indemnification. Tenant shall at all times comply with all laws and ordinances and all rules and regulations of municipal, state, and federal governmental authorities relating to the installation, maintenance, height, location, use, operation, and removal of improvements authorized herein, whether such laws, ordinances, rules and regulations are directed to Tenant or to Landlord, and shall fully indemnify Landlord against any loss, cost or expense which may be sustained or incurred by Landlord as a result of the installation, operation, maintenance or removal of such improvements, including but not limited to any damage to the roof of the Building, and any damage or injury to Landlord, Landlord's agents or employees, or other tenants or tenants' employees, agents or invitees of the Building caused by Tenant's operation of its Communications Site. Except for the negligent acts or willful misconduct of Landlord and Landlord's agents or employees, Landlord shall not be liable to Tenant for any loss or damages arising out of personal injuries or property damage on the Roof Premises or Access Areas. Tenant shall be fully responsible for any radio signal or electrical interference that its equipment may cause with respect to any other radio or telecommunications system authorized or licensed by the Federal Communications Commission and existing on the Commencement Date or any date thereafter. N-4 17. Title To and Removal of Tenant's Equipment. Title to Tenant's equipment, and all improvements installed at and affixed to the Roof Premises or the Property by Tenant shall be and shall remain the property of Tenant. Landlord hereby waives any lien rights it may have or acquire with respect to Tenant's property and shall promptly execute any document reasonably required by any supplier, lessor, or lender of such property which waives any rights Landlord may have or acquire with respect thereto. Tenant may, at any time, including any time it vacates the Roof Premises, remove Tenant's improvements, equipment, fixtures, and all of Tenant's personal property from the Roof Premises, and Tenant shall promptly restore the property and repair any damage thereto caused by such removal. Tenant shall remove any structural improvements installed to support Tenant's equipment upon Landlord's request to do so. Any of Tenant's property remaining on the Roof Premises after the expiration or earlier termination of this Site Lease or after Tenant's vacation or abandonment of the Roof Premises ("Abandoned Property") will be deemed to have been abandoned and to have become the property of Landlord to dispose of at Landlord's discretion. Tenant shall reimburse Landlord for any of Landlord's court costs, attorneys' fees, and storage charges related to Abandoned Property. Landlord may, at its option, sell Abandoned Property at private sale following written notice to Tenant thereof, for such price as Landlord may obtain, and apply the proceeds of such sale to any amounts due under this Site Lease from Tenant to Landlord, including expenses incident to the removal and sale of Abandoned Property, or Landlord may otherwise dispose of Abandoned Property. 18. Surrender. Upon termination of this Lease, Tenant shall remove the equipment and improvements installed at the Roof Premises by Tenant as set forth in paragraph 16. Tenant shall repair and restore any damage to the Roof Premises caused by such removal, and shall surrender the Roof Premises in as good order and condition as when first occupied by Tenant, normal wear and tear and damage by fire or other casualty excepted. 19. Assignment and Subletting. Tenant's right to use the Roof Premises is personal to Tenant (or Tenant's successor-in-interest through merger), and Tenant may not assign this Site Lease or sublease all or any portion of the Roof Premises to a third party except as permitted by the terms of Section 35 of the Lease. 20. Tenant's Costs. If Tenant fails to obtain all permits necessary for the construction of the Communications Site such that the term of this Site Lease never commences, Tenant shall pay to Landlord an amount equal to all costs incurred by Landlord for the preparation and negotiation of this Site Lease and all costs associated with Landlord's review of the plans and specifications for construction of Tenant's Communications Site on the Roof Premises. 21. Notices and Other Communications. Every notice required by this Lease shall be delivered either by (a) personal delivery, or (b) postage prepaid return receipt requested certified mail addressed to the party for whom intended at the addresses below or at such other address as the intended recipient shall have designated by written notice. If to Landlord: If to Tenant: Sterling Realty Organization Co. iShip.com, Inc. 600 - 106th Avenue N.E., Suite 200 3545 Factoria Boulevard, Suite_____ Bellevue, Washington 98004 Bellevue, Washington 98006 Attn: David Schooler Attn: --------------------- 22. Mutual Release; Waivers of Subrogation. Each party hereby releases the other and the other's officers, directors, partners, affiliates, agents and employees from liability or responsibility for any loss or damage to the extent resulting from any cause or hazard with respect to which insurance is carried pursuant to paragraph 15 of this Site Lease, including any loss or damage resulting from any loss of the use of any property. These releases shall apply between the parties and they shall also apply to any claims under or through either party as a result of any asserted right of subrogation. All policies of insurance obtained by N-5 either party pursuant to paragraph 15 of this Site Lease shall include a clause or endorsement waiving the insurer's right of subrogation against the other party. 23. Hazardous Substances. Tenant represents, warrants and agrees that Tenant will not use, generate, store or dispose of any Hazardous Material on, under, about or within the Property in violation of any law or regulation, or in any manner that would adversely affect Landlord's insurance coverage on the Property. Tenant agrees to defend, indemnify and hold harmless Landlord and Landlord's officers, directors, partners, affiliates, agents and employees against any and all losses, liabilities, claims and/or costs (including reasonable attorneys' fees and costs) arising from any breach of any representation, warranty or agreement contained in this paragraph. As used in this paragraph, "Hazardous Material" shall mean petroleum or any petroleum product, asbestos, any substance known by a department of the United States government or by the State of Washington to cause cancer and/or reproductive toxicity, and/or any substance, chemical or waste that is identified as hazardous, toxic or dangerous in any applicable federal, state or local law or regulation. Landlord represents that, to the best of its knowledge as of the date of this Site Lease, there is no Hazardous Material on the Property in violation of any applicable law or regulation. 24. Waivers. Any waiver of any right under this Site Lease must be in writing and signed by the wavering party. 25. Written Agreement to Govern. This Site Lease is the entire understanding between the parties relating to the subjects it covers. This Site Lease shall be governed by and construed in accordance with the laws of the State of Washington. 26. Attorneys' Fees. The substantially prevailing party in any action or proceeding brought to enforce this Site Lease shall be entitled to recover its reasonable attorneys' fees, costs, and expenses in connection with such action or proceeding from the other party. 27. Covenant of Cooperation. Tenant agrees to cooperate with Landlord and other tenants of Landlord, as more specifically set forth in the Rules and Regulations of Site Lease, attached hereto as Exhibit D. --------- 28. Further Assurances. In addition to the actions specifically mentioned in this Site Lease, the parties shall each do whatever may be reasonably necessary, without Landlord incurring any out-of-pocket costs, to accomplish the transactions contemplated in this Site Lease including, without limitation: execution of all applications, permits and approvals required of Landlord for construction of the Communications Site by Tenant; and cooperation in obtaining Non-Disturbance Agreements from holders of senior encumbrances on the Property, and execution of a Memorandum of Lease in the from attached as Exhibit E to this Lease. --------- 29. Execution of Lease by Landlord. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Roof Premises. This document will become effective and binding only upon approval of this Site Lease by the party holding the deed of trust encumbering the Property, and upon the full execution of this Site Lease by Landlord and its delivery to Tenant. No act or omission of any employee or agent of Landlord (or of Landlord's broker, if any) shall alter, change or modify any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. LANDLORD: STERLING REALTY ORGANIZATION CO., a Washington corporation, its general partner By: ------------------------------------------ David Schooler, President N-6 TENANT: iSHIP.COM, INC. a Washington corporation By: ------------------------------------------ Its: ------------------------------------------ STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) THIS IS TO CERTIFY that on this ______ day of ________, 2000, before me, the undersigned, a notary public in and for the State of Washington, duly commissioned and sworn, personally appeared DAVID SCHOOLER, to me known to be the President of STERLING REALTY ORGANIZATION CO., a Washington corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute said instrument. WITNESS my hand and official seal the day and year in this certificate first above written. -------------------------------- (Signature) -------------------------------- (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at --------------- My commission expires ----------------- N-7 STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) THIS IS TO CERTIFY that on this _____ day of _______, 2000, before me, the undersigned, a notary public in and for the State of Washington, duly commissioned and sworn, personally appeared ___________________, to me known to be the _______________ of iSHIP.COM, INC., a Washington corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that _____ was authorized to execute said instrument. WITNESS my hand and official seal the day and year in this certificate first above written. _____________________________________ (Signature) _____________________________________ (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at _____________ My commission expires________________ N-8 SCHEDULE OF EXHIBITS Exhibit A Legal Description of the Property Exhibit B Sketch of the Roof Premises (50% of Usable Area of Roof) Exhibit C Sketch of the Roof Premises (25% of Usable Area of Roof) Exhibit D Rules and Regulations of Site Lease Exhibit E Memorandum of Site Lease N-9 EXHIBIT A TO COMMUNICATIONS SITE LEASE Legal Description of Property ----------------------------- New Lot 2 - --------- A portion of Lot 1 of Short Plat No. 280070R, according to the short plat recorded under King County Recording No. 8011200686, being a revision of short plat recorded under Recording No. 8009300879. TOGETHER with that portion of the vacated portion of SE 38th Street lying with the projected lot lines of the property herein described as vacated by King County Ordinance No. 6582 as recorded under King County Recording No. 84030789; TOGETHER with a portion of Parcels C, D, E & F of King County Lot Line Adjustment No. LLA 8810004, according to the Lot Line adjustment recorded under King County Recording No. 9101239007, being a portion of the West 1/2 of the Southeast 1/4 of Section 9, Township 24 North, Range 5 East, W.M., described as follows: Commencing at the Northeast corner of the Southwest 1/4, of the Southeast 1/4 said Section 9; thence North 87 degrees 23' 26" West along the North line of said Southwest 1/4 of the Southeast 1/4, a distance of 180.00 feet to the TRUE POINT OF BEGINNING; thence South 01 degree 18'37" West, a distance of 158.87 feet; thence North 87 degrees 23'26" West, a distance of 437.33 feet; thence South 01 degree 15'22" West, a distance 316.89 feet more or less to the Northerly margin of SE 38th Street; thence North 63 degrees 38'11" West along said Northerly margin, a distance of 90.75 feet; thence North 01 degree 15'16" East, a distance of 439.20 feet; North 01 degree 12'48" East a distance of 14.22 feet; thence South 87 degrees 23'26" East, a distance of 321.85 feet; thence North 02 degrees 36'31" East, a distance of 3.78 feet; thence South 87 degrees 23'26" East, a distance of 197.79 feet; thence South 01 degree 18'37" West, a distance of 18.00 feet more or less to the POINT OF BEGINNING. ALSO known as New Lot 2 of Boundary Line Adjustment No. BLA-995313, recorded under King County Recording No. 20000228900003. SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON. N-10 EXHIBIT B TO COMMUNICATIONS SITE LEASE Sketch of the Roof Premises (50% of Roof Area) ---------------------------------------------- N-11 EXHIBIT C TO COMMUNICATIONS SITE LEASE Sketch of the Roof Premises (25% of Roof Area) ---------------------------------------------- N-12 EXHIBIT D TO COMMUNICATIONS SITE LEASE Rules and Regulations of Lease ------------------------------ Tenant recognizes that other tenants will be leasing antenna and equipment space from Landlord, and that effective use of the Property requires cooperation and good faith between itself, other tenants, and Landlord. Therefore, to avoid objectionable interference, engage in proper Telecommunications Activity, and facilitate the purposes of all leases, Tenant shall adhere to the following Rules and Regulations, which Landlord may modify from time to time upon advance notice to Tenant. 1. Definitions. a) Responsible Tenant: Means the tenant responsible for correcting objectionable interference. b) Telecommunications Activity: Means the conduct of transmissions (e.g., Amplitude modulated aural transmission or frequency modulated aural or visual transmission) from the Property upon a single frequency at any one time assigned to a tenant by the Federal Communications Commission ("FCC"). If a tenant conducts the same type of transmission on two or more assigned frequencies, each of them shall constitute a separate Telecommunication Activity. c) Transmission: Means the emission or reception of electromagnetic waves. 2. Plans For Telecommunications Activity. Prior to making any installations or material modifications of a Telecommunication Activity, every tenant shall submit plans and designs to Landlord. Landlord shall have twenty (20) days thereafter to approve or disapprove the plans and designs, based on the effect the installation may have on the Property and its structural components and the potential for objectionable interference. 3. Testing Required Prior to Installation. Prior to the installation of any equipment required for a Telecommunication Activity, Tenant, at its expense, shall conduct all tests that Landlord deems reasonably appropriate or necessary to determine that Tenant's proposed Telecommunication Activity can be conducted without causing objectionable interference to any Telecommunication Activity then being conducted by another tenant. The tests conducted shall be of the type then generally recognized as appropriate for such purposes. Following receipt by Landlord of acceptable test results, Tenant shall coordinate with Landlord as to the exact time of installation of the equipment required for the approved Telecommunication Activity. Tenant agrees that only authorized engineers, employees, or contractors, as reasonably selected by Tenant, will be permitted to enter the Property for the purpose of installing, modifying, or maintaining Tenant's facilities. Tenant further agrees that all engineers, contractors, or subcontractors hired by Tenant for the purpose of installing any equipment on the Property will by duly licensed in the State of Washington and approved by Landlord, which approval shall not be unreasonably withheld. 4. Subsequent Modifications to Telecommunication Activity. All modifications or subsequent changes in Tenant's Telecommunication Activity shall be subject to provisions of paragraphs 2 and 3. 5. Objectionable Interference. Objectionable interference to a Telecommunication Activity may be caused by: a) Initiation of a Telecommunication Activity, or the installation of equipment in preparation for the initiation of a Telecommunication Activity, without first complying with the provisions of paragraphs 2 and 3 above. With respect to the initial operation of a Telecommunication Activity, that activity may constitute objectionable interference even if such interference is not discovered N-13 until after a tenant's Telecommunication Activity is initiated. This shall be referred to as Type 1 interference. b) The failure by Tenant to maintain its equipment properly, to replace defective equipment, or to operate its Telecommunication Activity in accordance with good engineering practices. This shall be referred to as Type 2 interference. 6. Notice Of Need For Corrective Action. If Tenant is of the opinion that there is objectionable interference to its Telecommunications Activity, and that another tenant is under obligation to correct said interference, it may, without prejudice to its other remedies, give written notice to Landlord and the Responsible Tenant(s). The Responsible Tenant shall, within three (3) days of receiving such notice (or such longer period as consented to in writing by Tenant), comply with the provisions set forth herein regarding corrective action for objectionable interference. If the Responsible Tenant fails to respond as required, then the rights granted by Landlord to the Responsible Tenant shall terminate as to the interfering Telecommunication Activity. 7. Corrective Action. If objectionable interference results from either Type 1 or Type 2 interference, then the Responsible Tenant shall take all necessary corrective actions to eliminate the objectionable interference. If objectionable interference arises with Telecommunication Activity initiated in accordance with the Responsible Tenant's lease and these Results and Regulations, the Responsible Tenant shall: a) Immediately discontinue the interfering activity until such interference can be fully corrected; or b) Transfer its Telecommunication Activity to a temporary location and/or equipment operating configuration if objectionable interference will be eliminated by doing so. Whenever a Responsible Tenant discontinues a Telecommunication Activity or transfers to a temporary location pursuant to this paragraph, it shall not resume such Telecommunication Activity or transfer such Telecommunication Activity from the temporary location to its previous, permanent location until it fully complies with the conditions provided for engaging in the initial operation of a Telecommunication Activity. 8. Protective Devices. Tenant may request that Landlord, at Tenant's expense, attach protective devices to the equipment of other tenants. Tenant agrees that other tenants may, upon written approval of Tenant, which approval shall not be unreasonably withheld, attach protective devices to Tenant's equipment, provided that no objectionable interference occurs in the conduct or use of any of Tenant's equipment or Telecommunication Activity. The tenant attaching such equipment shall promptly have such protective devices removed if objectionable interference results at any time. 9. FCC Hearings. Nothing herein shall be deemed to limit the right of Tenant to request hearings before the FCC, or to appear before the FCC in any hearings held in such proceedings, or to oppose any application to the FCC filed by any other tenant as a result of such proceedings. 10. Compliance with FCC Rules and Regulations. If Tenant's operations or Telecommunication Activities fail to comply with FCC rules and regulations, and objectionable interference arises because of such noncompliance, then Tenant shall not be entitled to the protection of these Rules and Regulations regarding objectionable interference, until it fully complies with FCC standards. 11. Good Faith Conduct. Tenant shall conduct its Telecommunications Activity in good faith and in accordance with the purposes and intent of its lease for a portion of the Property. Tenant shall cooperate with other tenants to anticipate and prevent objectionable interference. 12. Interference with Third Parties. In the event a tenant's Telecommunication Activities result in interference with transmission or reception of signals or other services or activities by a party other than tenant, and if a legal obligation exists to correct such interference, then the responsibility for and expense of correcting such interference with be borne by the tenant or tenants involved, in accordance with principles established herein for corrective action. N-14 EXHIBIT E TO COMMUNICATIONS SITE LEASE Memorandum of Lease ------------------- RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: GRAHAM & DUNN 1420 Fifth Avenue, 33rd Floor Seattle, Washington 98101 Attn: Maren K. Gaylor MEMORANDUM OF COMMUNICATIONS SITE LEASE GRANTOR: Sterling Realty Organization Co., a Washington corporation GRANTEE: iShip.com, Inc., a Washington corporation LEGAL DESCRIPTION: New Lot 2 of Boundary Line Adjustment No. BLA-995313, recorded under King County Recording No. 20000228900003. TAX PARCEL IDENTIFICATION NO.: ------------------------------------ THIS MEMORANDUM OF COMMUNICATIONS SITE LEASE is made and entered into as of this 7th day of March, 2000, by and between STERLING REALTY ORGANIZATION CO., a Washington corporation ("Landlord"), and iSHIP.COM, INC., a Washington corporation ("Tenant"). RECITALS 1. Property Affected by Agreement. Tenant, in connection with that certain ------------------------------ Lease Agreement dated March 7, 2000, between Landlord and Tenant (the "Lease Agreement"), has the right to the exclusive use of a portion of the roof of the building to be located at 3545 Factoria Boulevard S.E. in Bellevue, King County, Washington (the "Property"). A legal description of the Property is attached to this Memorandum as Exhibit A. --------- 2. Term of Communications Site Lease. The Communications Site Lease shall --------------------------------- have a term concurrent with the Lease Agreement. 4. Purpose of Memorandum. This Memorandum is prepared for the purpose of --------------------- recordation to give notice of the Communications Site Lease, Agreement, including the option to purchase the Property contained therein, and shall not constitute an amendment or modification of the Agreement. N-15 IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of Option as of the day and year first above written. LANDLORD: STERLING REALTY ORGANIZATION CO., a Washington corporation By: ------------------------------ David Schooler, President TENANT: iSHIP.COM, INC., a Washington corporation By: -------------------------------- Its: ---------------------------- STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) THIS IS TO CERTIFY that on this ______ day of ______, 2000, before me, the undersigned, a notary public in and for the State of Washington, duly commissioned and sworn, personally appeared DAVID SCHOOLER, to me known to be the President of STERLING REALTY ORGANIZATION CO., a Washington corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute said instrument. WITNESS my hand and official seal the day and year in this certificate first above written. ----------------------------------- (Signature) ----------------------------------- (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at_____________ My commission expires_______________ N-16 STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) THIS IS TO CERTIFY that on this _____ day of ______, 2000, before me, the undersigned, a notary public in and for the State of Washington, duly commissioned and sworn, personally appeared _____________________________, to me known to be the _____________________ of iSHIP.COM, INC., a Washington corporation, the corporation that executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that _____ was authorized to execute said instrument. WITNESS my hand and official seal the day and year in this certificate first above written. ------------------------------------------ (Signature) ------------------------------------------ (Please print name legibly) NOTARY PUBLIC in and for the State of Washington, residing at _________________ My commission expires ___________________ N-17 EXHIBIT A TO MEMORANDUM OF OPTION Legal Description of Property ----------------------------- New Lot 2 - --------- A portion of Lot 1 of Short Plat No. 280070R, according to the short plat recorded under King County Recording No. 8011200686, being a revision of short plat recorded under Recording No. 8009300879. TOGETHER with that portion of the vacated portion of SE 38th Street lying with the projected lot lines of the property herein described as vacated by King County Ordinance No. 6582 as recorded under King County Recording No. 84030789; TOGETHER with a portion of Parcels C, D, E & F of King County Lot Line Adjustment No. LLA 8810004, according to the Lot Line adjustment recorded under King County Recording No. 9101239007, being a portion of the West 1/2 of the Southeast 1/4 of Section 9, Township 24 North, Range 5 East, W.M., described as follows: Commencing at the Northeast corner of the Southwest 1/4, of the Southeast 1/4 said Section 9; thence North 87 degrees 23' 26" West along the North line of said Southwest 1/4 of the Southeast 1/4, a distance of 180.00 feet to the TRUE POINT OF BEGINNING; thence South 01 degree 18'37" West, a distance of 158.87 feet; thence North 87 degrees 23'26" West, a distance of 437.33 feet; thence South 01 degree 15'22" West, a distance 316.89 feet more or less to the Northerly margin of SE 38th Street; thence North 63 degrees 38'11" West along said Northerly margin, a distance of 90.75 feet; thence North 01 degree 15'16" East, a distance of 439.20 feet; North 01 degree 12'48" East a distance of 14.22 feet; thence South 87 degrees 23'26" East, a distance of 321.85 feet; thence North 02 degrees 36'31" East, a distance of 3.78 feet; thence South 87 degrees 23'26" East, a distance of 197.79 feet; thence South 01 degree 18'37" West, a distance of 18.00 feet more or less to the POINT OF BEGINNING. ALSO known as New Lot 2 of Boundary Line Adjustment No. BLA-995313, recorded under King County Recording No. 20000228900003. SITUATE IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON. N-18 EXHIBIT O TO LEASE AGREEMENT Certificate of Corporate Resolution ----------------------------------- I, ___________________, hereby certify that I am the duly elected, qualified, and acting Secretary of iShip.com, Inc., a corporation duly organized under the laws of the state of Washington (the "Corporation"). I further certify that on the _____ day of ___________, 2000, the following resolution was duly adopted by the directors of the Corporation, and that the resolution is now in full force and effect and has not been altered, amended, modified or repealed: RESOLVED, that ____________________, the ________________ of the Corporation, or ______________, the ______________ of the Corporation, are hereby each individually authorized to sign the Lease Agreement between the Corporation and Sterling Realty Organization Co. (the "Landlord") dated _________________ with respect to Premises identified as Suite ______ of the building located at 3545 Factoria Boulevard S.E., Bellevue, Washington, and after its execution and delivery by the Corporation and the Landlord, the Lease will be a binding and enforceable obligation of the Corporation in accordance with its terms. I hereby certify that: (1) the above Resolution was duly passed at a special and/or general meeting of the Board of Directors of the Corporation held on ___________________ at which were present and voting a majority of the directors; (2) the above Resolution has been duly recorded in the minute book of the Corporation; (3) there are no provisions in the Articles of Incorporation or Bylaws of the Corporation that would impair or modify the effectiveness of the above Resolution; (4) the Resolution has not been altered or amended subsequent to its adoption; and (5) said Resolution is now in full force and effect. WITNESS MY HAND this _______ day of _____________, 2000. ________________________________ By: ----------------------------- O-1 LEASE AGREEMENT Dated March 7, 2000 between STERLING REALTY ORGANIZATION CO. as "Landlord" and iSHIP.COM, INC. as "Tenant" in STERLING PLAZA II STANDARD TERMS AND CONDITIONS LEASE PROVISIONS 1. Lease Provisions and Exhibits........................................ 1 GENERAL TERMS AND CONDITIONS 2. Premises............................................................. 6 3. Term................................................................. 6 4. Rent................................................................. 6 5. Notices.............................................................. 6 6. Uses................................................................. 7 7. Services and Utilities............................................... 6 8. Costs of Services and Utilities...................................... 8 9. Property Taxes....................................................... 10 10. Taxes on Rents and Personal Property................................. 10 11. Acceptance of Premises............................................... 10 12. Improvements......................................................... 10 13. Alterations and Care of Premises..................................... 11 14. Liens and Insolvency................................................. 13 15. Access............................................................... 13 16. Damage or Destruction................................................ 13 17. Indemnification, Insurance and Waiver of Subrogation................. 14 18. Assignment and Subletting............................................ 16 19. Holdover............................................................. 17 20. Surrender of Premises................................................ 17 21. Removal of Property.................................................. 17 22. Defaults............................................................. 18 23. Right to Perform..................................................... 19 24. Nonwaiver............................................................ 19 25. Costs and Attorneys' Fees............................................ 19 26. Priority............................................................. 19 27. Estoppel Certificates................................................ 20 28. Transfer of Landlord's Interest...................................... 20 29. Condemnation......................................................... 20 30. Advertising.......................................................... 20 31. Exterior Signage..................................................... 21 32. Parking.............................................................. 21 33. Tenant Improvements.................................................. 21 34. Main Lobby and Common Areas of Building.............................. 23 35. Installation of Satellite Dishes on Roof of Building................. 23 36. Fifth Floor Hold Period.............................................. 23 37. Terms Applicable to Expansion of Premises During Initial 12 Months... 23 38. Tenant's Right of First Offer........................................ 23 39. Option to Cancel Lease............................................... 24 40. Delay in Lease Commencement; Additional Option to Cancel Lease....... 25 41. Americans With Disabilities Act (ADA) Compliance..................... 25 42. Hazardous Materials.................................................. 26 43. Arbitration.......................................................... 27 44. Quiet Enjoyment...................................................... 28 45. Execution of Lease by Landlord....................................... 28 46. Landlord's Liability................................................. 28 47. Brokers.............................................................. 28 48. Corporate Authority.................................................. 28 49. General Provisions................................................... 28
EXHIBITS
Exhibit A Legal Description of Land...................................................... A-1 Exhibit B Legal Description of Project................................................... B-1 Exhibit C Plan of the Premises........................................................... C-1 Exhibit D Shell and Core Items for Building/List of Plans and Specifications for Building D-1 Exhibit E Scope of Tenant Improvements................................................... E-1 Exhibit F Form of Letter of Credit....................................................... F-1 Exhibit G Form of Guaranty of Lease...................................................... G-1 Exhibit H Rules and Regulations.......................................................... H-1 Exhibit I Exclusions from Operating Costs................................................ I-1 Exhibit J Form of Subordination, Attornment, Notice and Non-Disturbance Agreement........ J-1 Exhibit K Parking Plan................................................................... K-1 Exhibit L Form of Tenant Improvement Promissory Note..................................... L-1 Exhibit M Sketches Showing Area of Roof Designated for Tenant's Exclusive Use............ M-1 Exhibit N Form of Communications Site Lease.............................................. N-1 Exhibit O Certificate of Corporate Resolution of Tenant.................................. O-1
EX-10.43 6 LICENSE AGREEMENT CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT 10.43 LICENSE AGREEMENT THIS LICENSE AGREEMENT (this "Agreement") is made and entered into as of February 9, 2000 (the "Effective Date") by and between: EncrypTix, Inc., a Delaware corporation ("EncrypTix"), having its principal place of business at 101 N. Sepulveda Blvd., Suite 150, El Segundo, CA 90245 and Stamps.com, Inc., a Delaware corporation ("Stamps"), with principal offices at 3420 Ocean Park Blvd., Suite 1040, Santa Monica, CA 90405-3307. RECITALS A. Stamps is engaged in the business of providing mailing and shipping products and services via the Internet through the creation of technology for such purposes (as further defined herein, the "Stamps Technology"). B. EncrypTix, which is now being organized and capitalized, desires to exploit the Stamps Technology throughout the world exclusively in the events and travel industries and non-exclusively for certain uses within the financial services industry, each as further specified herein. C. In connection with the organization and capitalization of EncrypTix, the parties desire to enter into this agreement pursuant to which Stamps grants EncrypTix a perpetual, worldwide license to the Stamps Technology (subject to the reservation by Stamps of certain rights with respect to such technology) for the uses specified herein. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. DEFINITIONS ----------- For purposes of this Agreement, the following terms shall have the following meanings: (a) "Change of Control," as to a party shall mean (i) the consummation of a reorganization, merger or consolidation in which such party is not the surviving entity or in which it is the surviving entity but less than [***]* of the equity --- interests of such entity outstanding after such transaction are held, pursuant to the terms of the transaction, by the pre-transaction security holders of such party; (ii) a sale or other disposition of assets of such party affecting [***]* --- or more of the party's assets; or (iii) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial ownership (as defined for purposes of Section 13(d) of such Act) of more than [***]* of either (A) the --- then outstanding shares of common stock of such party or (B) the combined voting power of the then outstanding voting securities of such party entitled to vote generally in the election of directors or similar managers. (b) "Confidential Information" shall mean any and all information relating to or disclosed in the course of the negotiation or performance of this License or any related services agreements or otherwise disclosed between the parties to this Agreement, which is or should be - ----------------------------------- * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. reasonably understood by the receiving party to be confidential or proprietary to the disclosing party, including without limitation, the material terms of this Agreement, source code, trade secrets, inventions, discoveries, formulas, designs, techniques, applications, processes, ideas, concepts, research and development, and know-how. "Confidential Information" shall not, however, include information that: (i) is or shall become generally known or available by publication, commercial use or otherwise through no fault of the receiving party; (ii) is known by the receiving party at the time of disclosure and is not subject to restriction; (iii) is independently developed by the receiving party; (iv) is lawfully obtained from a third party that rightfully makes such disclosure without breach of a duty of confidentiality; or (v) is made generally available by the disclosing party without restriction on disclosure. (c) "Derivative Work" shall mean with respect to the Stamps Technology, any modification, improvement or enhancement thereof: (i) with respect to a pre- existing work entitled to copyright protection under federal law, any work that is based upon the relevant pre-existing work, such as a revision, modification, translation, abridgment, condensation or any other form in which the relevant pre-existing work may be recast, transformed or adapted, which, as a whole, represents an original work of authorship and the preparation, use and/or distribution of which, in the absence of this Agreement or other authorization from the owner, would constitute an infringement of copyright in such pre- existing work under federal law; (ii) with respect to any intellectual property for which a patent has Issued, any adaptation, subset, addition, improvement or combination of such intellectual property the preparation, manufacture, sale, practice, use and/or distribution of which, in the absence of this Agreement or other authorization from the owner, would constitute patent infringement of such intellectual property under federal law or the laws of any foreign jurisdiction; and (iii) with respect to information entitled to trade secret protection under California law, any new material, manufacture, invention, information, or data derived from such information (including new material (etc.) which may be protectable by copyright, patent or other proprietary rights) the preparation, manufacture, sale, practice, use and/or distribution of which, in the absence of this Agreement or other authorization from the owner, would constitute misappropriation of the trade secret under California law (provided that works created by or for EncrypTix without the use of any Stamps Confidential Information shall not be deemed to be "Derivative Works" under this clause "iii"). (d) "Event" shall mean [***]*. (e) "Events Field of Use" shall mean [***]*. (f) "Financial Services Field of Use" shall mean [***]*. (g) "Intellectual Property Rights" shall mean any and all secret, proprietary or confidential information, trade secrets, inventions, discoveries, formulas, designs, techniques, applications, processes, ideas, concepts, patents, copyrights, and similar rights of any type under the laws of any governmental authority including, without limitation, all applications and registrations relating to patents and copyrights, whether presently existing or created in the future. (h) "Issued," "Issuing," "Issues" and "Issuance" shall mean the awarding of a patent based upon a patent application, whether such awarding is effected by issuance, registration, - ----------------------------------- * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 2 deliverance, sealing, granting or any other act by the United States Patent and Trademark Office or any foreign governmental entity. (i) "Licensed Fields of Use" shall mean the Travel and Events Fields of Use and the Financial Services Field of Use. (j) "Mail and Postage Field of Use" shall mean [***]*. (k) "Patents" shall mean all patents (including without limitation, utility and design patents) Issued or Issuing at any time on patent applications entitled to an effective filing date on or prior to the third anniversary of the Effective Date for which, as of the Effective Date or at any time during the term of this Agreement, Stamps is an actual or beneficial owner or assignee. The term "Patents" shall also include any patent of the United States or foreign jurisdiction, which is a substitution, extension, reissue, reexamination or renewal of any of the foregoing, and any patent issuing on any patent application related as a divisional or a continuation or a continuation-in-part of any of the foregoing. Without limiting the foregoing, "Patents" includes the patents listed on Schedule 1(k) hereto. The foregoing definition shall not limit the rights, if any, licensed under other terms of this agreement, to technology that may be developed, reduced to practice, and put on sale or in public use by Stamps prior to such third anniversary but as to which a patent application is filed after such third anniversary. (l) "Stamps Client Software" shall mean the client side software that allows end-users to use the Stamps Technology in the Licensed Fields of Use. The foregoing shall not imply that existing client-side software of Stamps would allow end users to use Stamps Technology in the Licensed Fields of Use. (m) "Stamps Competitor" shall mean any Third Party that engages in, or that holds a 10% or greater interest (directly or indirectly) in another Third Party that engages in, activities that Stamps considers competitive with it in the mailing or shipping of products and/or services or activities ancillary thereto including activities related to payment for or in connection with such activities. (n) "Stamps Technology" shall mean any and all Intellectual Property Rights (A) that are now owned by or licensed to Stamps or (B) that are hereafter created or developed by Stamps at any time during the Technology Transfer Term or acquired by or licensed to Stamps at any time during the Technology Transfer Term. "Stamps Technology" shall include Stamps: (1) Patents; (2) software programs and components (in object code form and source code form, except as provided in Section 2(g)), including client and/or server software for all supported platforms along with all related products including, without limitation, upgrade packs, integrated databases and tools; (3) APIs and technical and end-user documentation for the programs and components described in clause "2"; (4) Derivative Works of the products described in clauses "1" through "3" that are created or developed by Stamps during the Technology Transfer Term or acquired by or licensed to Stamps during the Technology Transfer Term (including without limitation, any such Derivative Works that are created or developed by Stamps pursuant to the provisions of the Incubation, Technology Transfer and Maintenance Agreement (the "Incubation Agreement")); and (5) Derivative Works of the products described in clauses "1" through "3" that are created or developed by or for EncrypTix at any time, including - ------------------------------------ * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 3 without limitation, any such Derivative Works that are created or developed by or for EncrypTix pursuant to the provisions of this Agreement. (o) "Technology Transfer Term" means the period commencing on the Effective Date and ending upon the later of (i) the [***]* anniversary of the Effective Date and (ii) if exclusivity of rights licensed hereunder is extended pursuant to Section 2(b)(v) hereof in the Travel Field of Use or the Events Field of use or both such fields of use, the end of the period of such extension. (p) "Third Party" shall mean any individual, corporation, partnership, limited liability company, trust, association, governmental entity or other legal entity other than Stamps and EncrypTix. (q) "Travel Field of Use" shall mean [***]*. 2. LICENSE TO STAMPS TECHNOLOGY (a) License Grant. Subject to all the terms of this Agreement, Stamps ------------- hereby grants to EncrypTix, a fully paid-up, royalty free, perpetual, irrevocable and worldwide license to exploit the Stamps Technology only as follows: (i) distribute and transmit, solely for exploitation in connection with EncrypTix' business within the Licensed Fields of Use, any product embodying the Stamps Technology in all media now known or hereafter developed by all methods of distribution or transmission now known or hereafter developed provided that -------- reasonable precautions are taken to ensure that such product will be used solely in the Licensed Fields of Use; (ii) publicly perform and publicly display, solely for exploitation in connection with EncrypTix' business within the Licensed Fields of Use, any product embodying the Stamps Technology in all media now known or hereafter developed and by all methods of performance or display now known or hereafter developed within provided that reasonable precautions are taken to ensure that -------- such product will be used solely in the Licensed Fields of Use; (iii) make, have made, use, and have used any products or devices clamed by any Patent, and practice and have practiced any method or process claimed by any Patent, in either case solely for exploitation in connection with EncrypTix business within the Licensed Fields of Use, provided that reasonable precautions -------- are taken to ensure that any such product or device is not resold and is used only in the Licensed Fields of Use. (iv) make copies of the Stamps Technology solely for purposes of exercising the rights granted in this Section 2(a); (v) create and authorize the creation of Derivative Works of the Stamps Technology and exercise any of the rights granted in this Section 2(a) with respect to such Derivative Works provided that: (a) such Derivative Works are -------- ----- intended and adapted for use in the Licensed Fields of Use and (b) reasonable precautions are taken to ensure that such Derivative Works will be used only in connection with EncrypTix business within the Licensed Fields of Use; - ------------------------------------ * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 4 (vi) sublicense only the Stamps Client Software as necessary or appropriate in connection with the provision of EncrypTix' products and services in the ordinary course of its business within the Licensed Fields of Use; and (vii) upon prior written notice to Stamps, sublicense any or all of the rights granted in Sections 2(a)(i) through 2(a)(vi) to any one or more Third Parties in which EncrypTix owns no less than [***]* of the equity securities; provided that (A) such sublicensee(s) shall be prohibited from further - -------- sublicensing the Stamps Technology except for sublicenses of the Stamps Client Software as necessary or appropriate in connection with the provision of such sublicensees' products and services in the ordinary course of business within the Licensed Fields of Use and (B) that the sublicensee's rights corresponding to those in Sections 2(a)(i) through 2(a)(vi) shall be subject to the same limitations and requirements as to precautions reasonably acceptable to Stamps as are stated in the corresponding provisions above. (b) Exclusivity ----------- (i) Exclusivity in the Travel and Events Fields of Use. The license -------------------------------------------------- granted to EncrypTix pursuant to Section 2(a) is exclusive with respect to the Travel and Events Fields of Use for a period of [***]* years from the Effective Date; provided that to maintain exclusivity, EncrypTix must continue as a -------- going concern and maintain its ability to pay its debts as they become due. (ii) Termination of Exclusivity. At any time that EncrypTix fails to -------------------------- meet the criteria to maintain exclusivity set forth in Section 2(b)(i), the license of the Stamps Technology pursuant to Section 2(a) shall become a non- exclusive license in the Travel and Events Fields of Use. (iii) Exceptions to Exclusivity. EncrypTix shall be entitled to enforce the exclusivity set forth in this Section 2(b) against all Third Parties and Stamps, with the following limited exceptions: (A) Each of Stamps' existing (as of the Effective Date) non- exclusive licenses, as set forth on Schedule 2(b)(iii)(A) attached hereto (the ------------ "Existing Agreements"), shall remain in full force and effect until its expiration and the expiration of any renewal periods exercisable and exercised by the respective licensees, and EncrypTix shall not be entitled to enforce its exclusivity hereunder with respect to such Existing Agreements; provided that -------- Stamps shall not exercise any options to extend such licenses into any fields of use other than those fields of use licensed thereunder as of the Effective Date or to renew or extend the term of any such license; (B) Stamps shall have the right, with prompt notice to Encryptix, to grant licenses of the Stamps Technology (other than copyright licenses to Stamps' software) in the Travel and Events Fields of Use to one or more Third Parties [***]* involving the Stamps Technology; --- (C) Stamps shall have the right, with prompt notice to Encryptix, to [***]*; and --- (D) Stamps shall retain the right to: (i) use the Stamps Technology and all Derivative Works thereof in the Travel and Events Fields of Use for the sole purpose of fulfilling its - ------------------- * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 5 obligations under this Agreement or other agreements with EncrypTix and/or to provide EncrypTix with technical support and maintenance services; (ii) use the Stamps Technology and all Derivative Works thereof for all purposes outside of the Travel and Events Fields of Use; and (iii) copy, reproduce and create Derivative Works of the Stamps Technology (provided that copying pursuant to this clause (iii) shall not occur to permit, or in connection with, commercial exploitation of the technology by Stamps in the Travel and Events Fields of Use while exclusivity continues for that field of use). (iv) Non-Exclusivity of Financial Services Field of Use; --------------------------------------------------- Potential Termination. The license granted to EncrypTix pursuant to Section 2(a) - --------------------- is a non-exclusive license of rights in and to the Stamps Technology in the Financial Services Field of Use (except that, if an activity should exist that is within both the Travel and Events Fields of Use an the Financial Services Field of Use, the license will be exclusive as to that activity). Stamps may terminate EncrypTix' license in the Financial Services Field of Use in the event that EncrypTix: (i) fails to obtain no less than twenty million dollars ($20,000,000) of equity financing prior to the first anniversary of the Effective Date; or (ii) fails at any time to continue as a going concern or to maintain its ability to pay its debts as they become due. (v) Extension of Exclusivity in the Travel and Events Fields of ----------------------------------------------------------- Use. Upon the expiration of the [***]* year period of exclusivity defined in - ---- Section 2(b)(i), the license granted to EncrypTix pursuant to Section 2(a) shall remain exclusive with respect to any exclusive field of use (i.e., the Travel Field of Use or the Events Field of Use, or, if applicable, both of those fields of use) for an additional [***]* (to the extent that such exclusivity was not --- theretofore terminated pursuant to Section 2(b)(i) or 2(b)(ii)) if, in [***]*, --- EncrypTix shall have issued more than [***]* tickets in revenue-generating (for --- EncrypTix) issuances in such field of use. (c) Sublicensed Matter. ------------------ (i) To the extent that any of the Stamps Technology is acquired by or licensed to Stamps from any Third Party licensor that is not under direct or indirect common ownership with Stamps ("Third Party Technology"), the grant of license or sublicense rights to EncrypTix with respect to all Third Party Technology is subject to Stamps' right under its license from each respective Third Party licensor (the "Primary License") to sublicense the Third Party Technology, and, consistent with the rights granted to EncrypTix under Section 2.1(a) but subject to the further provisions in this paragraph, Stamps shall grant to EncrypTix such rights as the Primary License permits. Unless EncrypTix declines all rights under licenses of Third Party Technology as provided in the following sentence, EncrypTix shall pay or reimburse Stamps for appropriately prorated expenses and acquisition costs and any incremental royalties which Stamps becomes obligated to pay to such Third Party licensor by reason of EncrypTix' license or sublicense of, or exploitation of, the Third Party Technology. In connection with future acquisitions of Third Party Technology, Stamps will, to the extent consistent with any applicable confidentiality requirements and its other contractual commitments, provide EncrypTix with (i) a copy of such new license agreements and information on the subject technology and (ii) a period of ten (10) business days to decline, by notice to Stamps, any rights thereunder; in which case, notwithstanding the foregoing provisions of this Section 2, EncrypTix shall have no rights to the Third Party Technology licensed to Stamps thereunder. - ----------------------- * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 6 (ii) Stamps will maintain accurate records with regard to its obligations and payments for Third Party Technology and the amounts due from EncrypTix in connection with Third Party Technology. For the purpose verifying its payment obligations in connection with Third Party Technology, EncrypTix (or its representative) will have the right to conduct a reasonable inspection of the portions of such records that are relevant to those EncrypTix' payment obligations. Any such audit may be conducted after ten (10) business days prior written notice to Stamps. EncrypTix shall bear the expense of any audit conducted pursuant to this paragraph unless such audit shows overcharges in the amounts reported as payable to Stamps or actually paid to Stamps by EncrypTix for Third Party Technology for any quarterly period in excess of the greater of (a) ten percent (10%) of the actual or reported amounts paid or payable to Stamps for Third Party Technology for such period and (b) Five Thousand Dollars ($5,000.00), in which event Stamps shall bear the reasonable expenses of the audit. (d) Additional Field of Use. During the term of this license, EncrypTix ----------------------- shall have the right to petition Stamps to expand the license granted hereunder to specific fields of use in addition to the Travel and Events Fields of Use and the Financial Services Field of Use. Stamps shall consider such petitions in good faith, however, any grant of additional fields of use (whether exclusive or ------- non-exclusive) will be at Stamps' sole discretion and for additional compensation. (e) Restrictions. EncrypTix shall not (and shall not allow any Third Party ------------ to): (i) decompile, disassemble, or otherwise reverse engineer or attempt to reconstruct or discover any source code, underlying ideas, or algorithms of the Stamps Technology by any means whatsoever (except to the extent that applicable law prohibits reverse engineering restrictions), (ii) remove any product identification, copyright, patent or other notices, (iii) except to the extent expressly authorized in this Section 2, modify or incorporate into or with other software or create a derivative work of any part of the Stamps Technology, or (iv) sublicense or assign any rights hereunder to any Third Party (including without limitation, end-user licenses) unless otherwise expressly permitted under this Section 2. (f) Patent Markings and Copyright Notices. EncrypTix shall reproduce on or ------------------------------------- within all products, software, webpages and other media incorporating the Stamps Technology and on any related media all patent markings and copyright notices as supplied by Stamps and such additional notices as may reasonably be requested by Stamps. (g) Exception to License. Notwithstanding anything else in this Agreement, -------------------- no license whatsoever is or will be conveyed or granted by this Agreement as to: (i) the source code version of any Stamps Technology that consist(s) of [***]*, provided that nothing in this clause "i" limits EncrypTix's rights to --- obtain object code versions of the foregoing;" (ii) a new version of, or a replacement for, an item of source code not furnished to EncrypTix pursuant to the preceding clause "i" provided that Stamps ------------- will consult with EncrypTix and may include in the license new source code that would be included but for this restriction unless Stamps determines that it has legitimate security or other reasons not to do so, and provided that nothing in this clause "ii" limits EncrypTix's rights to obtain object code versions of the foregoing; or - -------------------- * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 7 (iii) as to which licensing and provision to EncrypTix as provided in this Agreement would (A) violate applicable laws or regulations including, without limitation, Postal Service or Department of Commerce laws or regulations; (B) violate contractual arrangements between Stamps and shippers or other entities connected with the Mail and Postage Field of Use; or (C) create a meaningful risk of a security violation. Schedule 2(g) hereto presents certain information on the Stamps Technology being licensed hereunder. 3. TRADEMARKS. The license granted hereunder does not include any license to use any of Stamps' trade names, trademarks or service marks; and Stamps reserves all of its rights and interest therein. Solely in connection with the marketing, promotion and distribution of its products and services in the Licensed Fields of Use, EncrypTix shall be entitled to state that its technology is licensed from, or is the same as, or is based upon, the technology used by Stamps, with wording approved in advance by Stamps, such approval not to be unreasonably withheld or delayed. 4. SUPPORT AND MAINTENANCE. As soon as reasonably practicable, Stamps and EncrypTix will enter into the Incubation Agreement that will set forth the parties' obligations with respect to the incubation services to be provided by Stamps to EncrypTix and the transfer, set-up, support and maintenance of the Stamps Technology being licensed to EncrypTix hereunder. 5. OWNERSHIP OF INTELLECTUAL PROPERTY (a) Stamps Technology. Subject to the licenses granted in Section 2, as ----------------- between Stamps and EncrypTix, Stamps owns and shall own all right, title and interest in and to the Stamps Technology, as of the Effective Date and at all times thereafter. EncrypTix agrees that it will not, at any time during or after the term of this Agreement, (i) do anything which may adversely affect the validity or enforceability of the Stamps Technology (including any act, or assistance to any act, which would infringe or lead to the infringement of the Stamps Technology), or (ii) exercise, or attempt to exercise, any proprietary rights in the Stamps Technology, other than as expressly set forth herein and in any other written agreement(s) that may be entered into by the Parties. (b) Derivative Works. Subject to the licenses granted in Sections 2, as ---------------- between Stamps and EncrypTix, Stamps owns and shall own all right, title and interest in and to all Derivative Works of the Stamps Technology, regardless of whether such Derivative Works are created by EncrypTix, Stamps, or any Third Parties. EncrypTix agrees that it will not, at any time during or after this Agreement, (i) do anything which may adversely affect the validity or enforceability of the Derivative Works (including any act, or assistance to any act, which would infringe or lead to the infringement of the Derivative Works), or (ii) exercise, or attempt to exercise, any proprietary rights in the Derivative Works, other than as expressly set forth herein and in any other written agreement(s) that may be entered into by the Parties. To the extent that any Derivative Works of the Stamps Technology are created by or for EncrypTix, such Derivative Works shall be included in the license granted under Section 2 and shall be subject to the terms of this Agreement. Furthermore, to the extent that EncrypTix creates or has created any patents that are Derivative Works of any of Stamps' Patents, EncrypTix shall assign such patents, and cause the patentee(s) to assign such patents to Stamps subject to such license thereto as this Agreement provides to EncrypTix. 8 (c) EncrypTix Technology. Except as provided in Section 5(b) and 5(d), -------------------- EncrypTix shall own all right, title and interest in and to all intellectual property created by EncrypTix (the "EncrypTix Technology"). EncrypTix hereby grants to Stamps a non-exclusive, fully paid-up, royalty free, perpetual, irrevocable and worldwide license, with right to sublicense, to use, reproduce, distribute, transmit, publicly perform and display, modify and create derivative works of EncrypTix Technology developed during the Technology Transfer Term and products embodying the EncrypTix Technology developed during the Technology Transfer Term, and to make, use, offer for sale and sell products and services that incorporate the EncrypTix Technology developed during the Technology Transfer Term or modifications thereof, each for exploitation solely in the Mailing and Shipping Field of Use. Stamps agrees that it will not, at any time during or after this Agreement, (i) do anything which may adversely affect the validity or enforceability of the EncrypTix Technology (including any act, or assistance to any act, which would infringe or lead to the infringement of the EncrypTix Technology), or (ii) exercise, or attempt to exercise, any proprietary rights in the EncrypTix Technology, other than as expressly set forth herein and in any other written agreement(s) that may be entered into by the Parties. (d) Co-Development. Any intellectual property resulting from co-development -------------- efforts of EncrypTix and Stamps that do not constitute Derivative Works of the Stamps Technology shall be owned by the parties jointly (the "Joint Technology"). Each of EncrypTix and Stamps hereby grants to the other party a non-exclusive, fully paid-up, royalty free, perpetual, irrevocable and worldwide license to use, reproduce, distribute, transmit, publicly perform and display, sublicense, modify and create derivative works of the Joint Technology and products embodying the Joint Technology, and to make, use, offer for sale and sell products and services that incorporate Joint Technology or modifications thereof; provided that EncrypTix shall have the sole right to use and sublicense -------- the Joint Technology in the Travel and Events Fields of Use, and Stamps shall have the sole right to use and sublicense the Joint Technology in the Mailing and Shipping Field of Use. 6. CONFIDENTIAL INFORMATION (a) Treatment of Confidential Information. Stamps and EncrypTix recognize ------------------------------------- that, in connection with the preparation or performance of this Agreement, each of them may disclose to the other its Confidential Information, or each may obtain Confidential Information of the other through preparation of or performance under this Agreement, including by the creation of materials and the development of technology and techniques that are not generally known. Except as permitted in connection with the license rights granted pursuant to this Agreement, a party who obtains any Confidential Information of the other agrees to maintain the confidential status of such Confidential Information, not to use any such Confidential Information for any purpose other than the purpose for which it was originally disclosed to the receiving party, to disclose such Confidential Information only to those of its employees having a need to know such information, and not to disclose any of such Confidential Information to any Third Party other than consultants, contractors and advisors under a written obligation to keep such information confidential and to use it only for the purposes set forth above. Neither Stamps and EncrypTix shall disclose the other's Confidential Information to any person except on a "need-to-know" basis. (b) Stamps Security Policies. EncrypTix shall comply at all times with ------------------------ Stamps' security policies as they may be amended from time to time. Stamps shall keep EncrypTix reasonably advised of Stamps security policies and changes therein. (c) Required Disclosure. The Parties recognize that each may be required ------------------- by law or order of a court or other governmental authority, SEC regulations, or the like, to disclose the other's 9 Confidential Information, and that each shall endeavor to stop or limit such disclosure and afford the other the opportunity to do so. Each party shall immediately give the other party written notice of any anticipated disclosure pursuant to this Section 6(c) and will provide reasonable assistance to the other party, at the other party's expense, in resisting such disclosure. Without limiting the foregoing, any party making filings with the Securities and Exchange Commission shall include a copy of this Agreement only if and to the extent required and shall withhold, or use its best efforts to prevent public disclosure of, Schedule 2(g) hereto. In the case of filings made by EncrypTix, EncrypTix shall also consult with Stamps, withhold Schedule 2(g) if possible, seek confidential treatment of Schedule 2(g) if it cannot be withheld entirely, and, to the extent necessary to secure confidential treatment of the material therein that Stamps seeks to protect, redact such schedule. (d) Third-party Confidential Information. Any confidential information of a ------------------------------------ third party disclosed by a party to the other shall be considered Confidential Information hereunder and shall be subject to such additional restrictions as may be imposed by such third party on the discloser and communicated in writing by the discloser to the recipient. (e) Injunctive Relief. Each party agrees that if a court of competent ----------------- jurisdiction determines that one party has breached, or attempted or threatened to breach, any of its confidentiality obligations to the other party or its proprietary rights, such other party will be entitled to obtain appropriate injunctive relief and other measures restraining further attempted or threatened breaches of such obligations. 7. ENFORCEMENT AND DEFENSE (a) Control. ------- (i) Stamps shall have the right, but not the obligation, to control the investigation, enforcement, defense and settlement of any action with respect to the Stamps Technology (including any action in which the ownership, validity, or enforceability of any of the Stamps Technology is or may be put at issue or in which any third party asserts or may assert that use of the Stamps Technology (including Derivative Works prepared by or for EncrypTix pursuant to authorization in this License Agreement) by Stamps or by EncrypTix infringes or will infringe the intellectual property rights of one or more third parties) provided that, with respect to copyrights and trade secrets only, and only for - -------- claims within the Travel and Events Fields of Use, EncrypTix shall have the right, at its own cost and expense, to participate in such action with counsel of its choice. Except as provided in Section 2(c)(i), any settlement that (A) grants to third parties any rights to the Stamps Technology in the Travel and Events Fields of Use, or (B) that limits any of EncrypTix' rights in any Licensed Fields of Use, shall be subject to EncrypTix' prior written consent, which shall not be unreasonably withheld. (ii) If Stamps elects not to pursue any enforcement or defense of an action referred to in the first sentence of the immediately preceding paragraph "i", EncrypTix shall have the right to pursue such enforcement or defense on its own, solely with respect the validity and use of the Stamps Technology in the Licensed Fields of Use, including the settlement of any claims solely within the Licensed Fields of Use. Any settlements that may affect the Stamps Technology outside of the Licensed Fields of Use will require Stamps' prior written consent, which shall not be unreasonably withheld. (b) Notice. Each party shall provide the other prompt notice of any claims ------ of infringement of which such party becomes aware. 10 (c) Assistance. Each party will provide the other all assistance ---------- reasonably necessary to enforce or defend the Stamps Technology. (d) Sharing of Economics. If EncrypTix participates in an action with -------------------- respect to the Stamps Technology, then Stamps and EncrypTix will share equitably the benefits (net of their respective burdens) of such enforcement action, such sharing to reflect: (i) the total benefits received collectively by Stamps and EncrypTix as a result of the action (including any appeals, etc.) and (ii) the extent to which those benefits reflected the efforts and contributions made in such action by Stamps or by EncrypTix respectively. 8. TERM AND TERMINATION (a) Term. Unless earlier terminated under the provisions of this Section, ---- this Agreement shall remain in full force and effect perpetually. (b) Termination for Breach Generally. -------------------------------- (i) Notwithstanding the provisions of Section 8(a), this Agreement may be terminated by either party (A) following a determination by the arbitrator pursuant to the expedited arbitration procedures set forth in Schedule 8(b), that the Terminating Party (as defined in Schedule 8(b)) would be likely to prevail at a full trial on the merits on the claim that the Responding Party (as there defined) has committed a material breach of the Agreement, unless (i) the breach is curable and (ii) the Responding Party provides notice of its intent to cure it and such cure is effected within the time stated in paragraph "9" of Schedule 8(b) or (B) after a judicial declaration or finding to the effect of the determination referred to in clause "A" above (or that a material breach has actually occurred) unless the breach is curable, a notice of intent to cure is provided thereafter, and the breach is cured as described (and pursuant to the time provisions referred to) in clause "A.ii" above. A breach involving an improper release of any Stamps Technology is not effectively cured unless and until (A) such improper release ends and (B) Stamps receives reasonable assurances that it will not suffer substantial injury or loss as a consequence of such improper release and reasonable assurances that such a breach will not occur again. (ii) The parties to this agreement will use their best efforts to agree on the pre-approved arbitrators for purposes of Schedule 8(b) hereof within fifteen calendar days after the date of this agreement and to list them on Attachment B to Schedule 8(b) hereof. If at least four (4) such pre-approved arbitrators are not so agreed upon in a specific order of priority as provided in that Schedule before the time that one party or the other to this Agreement delivers a written notice of material breach by the other party to such other party (or within five business days thereafter, as to which the parties will use their good faith efforts to agree), the requirement for an arbitrator's determination prior to the commencement of a cure period and prior to a termination of this Agreement for a material beach shall not apply. In that event, if there actually has been a material breach by one party, the other party may provide written notice thereof and terminate this agreement thirty calendar days thereafter unless the breach is curable and is cured within that thirty-day period. (iii) Nothing in Sections 8(a) or 8(b) shall limit the right of either party to seek and obtain judicial relief including, without limitation: (a) injunctive or other judicial relief to prevent or halt an improper disclosure, release, or use of either party's Intellectual Property Rights; (b) damages or other relief for a breach of this Agreement; and (c) a declaration that a material breach has occurred. 11 (c) Other Events of Early Termination. Stamps may, in Stamps' sole and --------------------------------- absolute discretion, terminate this Agreement immediately by notice to EncrypTix in the event of any of the following events: (i) except to the extent that an opportunity for cure may be available in accordance with the last sentence of this paragraph and a cure may be effected as provided there, any sublicense by EncrypTix of rights to any Stamps Competitor other than a sublicense by EncrypTix in the ordinary course of its business of only client-side software to such entity as an end user consistent with the rights of EncrypTix in Section 2 hereof; (ii) any assignment of rights (including a Change of Control) by EncrypTix to any Stamps Competitor; (iii) a Change of Control of EncrypTix at a valuation of that entire company, on a fully diluted basis, of less than [***]* dollars; and (iv) to the extent permitted under law, in the event that (A) any proceeding shall be instituted by or against EncrypTix seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property (if such proceeding shall not have been dismissed without any such relief within sixty days after such institution) or (B) EncrypTix shall take any action to authorize any of the foregoing actions, or (C) EncrypTix shall be unable at any time to pay its debts as they become due. In the case of clause "i" above only, EncrypTix shall have an opportunity to cure the event allowing termination if it provides notice to Stamps within twenty days after such sublicense occurs; and such a cure shall be deemed to have been effected if, within thirty (30) days after receipt of notice from Stamps that the licensee is a Stamps Competitor, EncrypTix terminates such sublicense fully and effectively. (d) No Waiver or Release. Termination of this Agreement by either party -------------------- shall not act as a waiver of any breach of this Agreement and shall not act as a release of either party from any liability for breach of such party's obligations under this Agreement. No termination of this Agreement shall affect the stock ownership or other rights or privileges obtained by Stamps in the organization and capitalization of EncrypTix or, except as provided in other agreements between the parties, the rights of the parties under those agreements. (e) Return of Confidential Information. Within thirty (30) calendar days ---------------------------------- after termination of this Agreement, each party hereunder shall either deliver to the other, or destroy, all copies of any materials provided hereunder in its possession or under its control, and shall furnish to the other party an affidavit signed by an officer of its company certifying that to the best of its knowledge, such delivery or destruction has been fully effected. (f) Survival of Certain Provisions. Notwithstanding the termination of ------------------------------ the Agreement for any reason, the provisions of Sections 5; 6; 8(e) and (f); 9; 10; and 11(c), (d), (e), (h), (i) and (k) of this Agreement shall survive such termination indefinitely. In addition, any obligations which expressly or by their nature are to continue after termination of the Agreement shall survive and remain in effect. 9. REPRESENTATIONS AND WARRANTIES (a) Mutual Representations and Warranties. Each party represents, ------------------------------------- warrants, and covenants to the other that: (i) it has the full corporate right, power and authority to enter into this Agreement and to perform the acts required of it pursuant to this Agreement; (ii) the execution of this Agreement and the performance of its obligations and duties under this Agreement will not violate any agreement to which it is a party or the rights of any other party; and (iii) it is not relying on nor does the other party make any representations, warranties or agreements not expressly stated in this Agreement. * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 12 (b) Stamps' Representations and Warranties. Stamps represents and warrants -------------------------------------- that the Stamps Technology, as used by Stamps, does not infringe any copyright or misappropriate any trade secret of any third party. [***]*. (c) [***]* (d) Remedy for Infringement. If EncrypTix is enjoined or restrained by a court of competent jurisdiction from exercising any of its rights under this Agreement as a result of an Infringement claim, Stamps shall take one of the following steps (determined as among those steps in Stamps' sole discretion) provided that at least one of them is commercially reasonable: (i) procure for - ------------- EncrypTix the right to continue using the Stamps Technology; (ii) modify the Stamps Technology to perform its intended function without infringing Third Party rights; or (iii) substitute technology of substantially comparable functionality and performance. Subject to compliance with the immediately preceding sentence, Stamps shall have no further obligations or liability to EncrypTix for the inability of EncrypTix to use any or all of the Stamps Technology because of conflicting Third Party reports. (e) [***]* - -------------------------- * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 13 (f) Exception. The provisions of Sections 9(c) and (d) shall not apply (i) --------- if the Stamps Technology is modified by EncrypTix or EncrypTix' designee (which includes Stamps acting as required by EncrypTix under the Incubation Agreement) (it being agreed that a Derivative Work prepared by EncrypTix or its designee shall be deemed "modified" Stamps Technology notwithstanding that such Derivative Work may fall within the definition of "Stamps Technology"), but solely to the extent the alleged Infringement is caused by such modification; (ii) if the Stamps Technology is combined with products, processes or materials by or for EncrypTix but solely to the extent the alleged Infringement is caused by such combination; (iii) to the extent that the allegedly Infringing activity continues after Stamps has provided EncrypTix modifications that would have avoided the alleged Infringement; or (iv) to the extent that the alleged Infringement is based on a United States patent [***]*. --- (g) Limited Remedy. Without limiting the effect of Section 10(b) hereof, in -------------- no event shall EncrypTix have any right to recover from Stamps any amount representing lost profits or lost business value of EncrypTix that might result from (i) EncrypTix being precluded from using any of the Stamps Technology in the Licensed Fields of Use because of conflicting proprietary rights of one or more Third Parties or (ii) the invalidity of any of the Stamps Technology. LIMITATIONS OF LIABILITY (a) Disclaimer. STAMPS MAKES NO REPRESENTATION OR WARRANTY TO ENCRYPTIX, ---------- NOR SHALL STAMPS BE LIABLE TO ENCRYPTIX, FOR THE FAILURE OF PERFORMANCE OF THE STAMPS TECHNOLOGY EXCEPT AS EXPRESSLY PROVIDED HEREIN. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE STAMPS TECHNOLOGY IS PROVIDED TO ENCRYPTIX BY STAMPS "AS-IS" AND STAMPS HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR, EXCEPT AS EXPRESSLY PROVIDED HEREIN, OF NON- INFRINGEMENT OF THIRD PARTIES' RIGHTS. (b) No Consequential Damages. EXCEPT FOR A BREACH OF SECTIONS 5 (OWNERSHIP ------------------------ OF INTELLECTUAL PROPERTY) AND 6 (CONFIDENTIAL INFORMATION), IN NO EVENT SHALL A PARTY TO THIS AGREEMENT BE LIABLE FOR LOST PROFITS, OR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES IN ANY WAY ARISING OUT OF OR RELATING TO THIS AGREEMENT, EVEN IN THE EVENT SUCH PARTY HAS BEEN ADVISED AS TO THE POSSIBILITY OF SUCH DAMAGES. 10. MISCELLANEOUS PROVISIONS (a) Exports; Re-Exports. EncrypTix shall adhere to The Export ------------------- Administration Act of 1979, as amended, The U.S. Export Administration Regulations (15 C.F.R. Parts 730-799), and any other applicable laws and regulations of the United States or any other countries governing the export or import of commodities and technical data. EncrypTix agrees not to export or re- export the Stamps Technology or any Intellectual Property Rights therein from the United States to any other country, or between two countries, without first obtaining any appropriate U.S. and foreign government export - ---------------------- * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. 14 and import licenses and permits, and the prior written consent of Stamps, which consent shall not be unreasonably withheld. (b) Bankruptcy. All rights and licenses granted under or pursuant to this ---------- Agreement by Stamps to EncrypTix with respect to the Stamps Technology are, and shall otherwise be deemed to be, for purposes of (S) 365(n) of the United States Bankruptcy Code, 11 U.S.C. (S) 101, et seq. (the "Bankruptcy Code"), licenses of rights to "intellectual property" as defined under (S) 101(56) of the Bankruptcy Code. The parties agree that EncrypTix, as a licensee of such rights and licenses, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code; provided it abides by the terms of this Agreement. The parties further agree that, in the event that any proceeding shall be instituted by or against Stamps seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property, or Stamps shall take any action to authorize any of the foregoing actions (each a "Proceeding"), EncrypTix shall have the right to retain and enforce its rights under this Agreement including, but not limited to, the right to continue to use the Stamps Technology and all versions and derivatives thereof, and all documentation and other supporting material related thereto, in accordance with the terms and conditions of this Agreement. (c) Notices. Except as expressly provided herein to the contrary, any ------- notice, request, demand or communication required or permitted hereunder shall be in writing and shall be deemed to be properly given upon the earlier of: (i) actual receipt by the addressee; and (ii) five (5) business days after deposit in the U.S. mail, postage prepaid, when mailed by registered or certified U.S. mail, return receipt requested, or two (2) business days after being sent via private industry courier to the respective parties at the addresses forth set forth above or to such other person or address as the parties may from time to time designate in a writing delivered pursuant to this Section 11(c). Notices to: (i) Stamps shall be attention to: John Payne, President and CEO with a copy to: Seth Weisberg, Senior Director, IP & Licensing, at the address for Stamps first indicated above; and (ii) EncrypTix shall be attention to: Jim Rowan, President, at the address for EncrypTix first indicated above. (d) Waiver and Amendment. The waiver by either party of a breach of or a -------------------- default under any provision of this Agreement, shall not be construed as a waiver of any subsequent breach of the same or any other provision of the Agreement, nor shall any delay or omission on the part of either party to exercise or avail itself of any right or remedy that it has or may have hereunder operate as a waiver of any right or remedy. (e) Remedies Cumulative. Except where otherwise specified, the rights and ------------------- remedies granted to a party under this Agreement are cumulative and in addition to, and not in lieu of, any other rights or remedies which the party may possess at law or in equity, including, without limitation, rights or remedies under applicable patent, copyright, trade secret or proprietary rights laws, rules or regulations. (f) Nature of Relationship. No agency, partnership, joint venture, or ---------------------- employment is created as a result of this Agreement and neither EncrypTix nor EncrypTix' agents shall have any authority of any kind to bind Stamps in any respect whatsoever, nor shall Stamps or Stamps' agents have any authority of any kind to bind EncrypTix. (g) Headings. The captions and section and paragraph headings used in this -------- Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement. 15 (h) Attorneys' Fees. If any party to this Agreement brings an action --------------- against the other party to enforce its rights under this Agreement, the prevailing party shall be entitled to recover its costs and expenses, including without limitation, attorneys' fees and costs incurred in connection with such action, including any appeal of such action. (i) Enforceability. If the application of any provision or provisions of -------------- this Agreement to any particular facts of circumstances shall be held to be invalid or unenforceable by any court of competent jurisdiction, then: (i) the validity and enforceability of such provision or provisions as applied to any other particular facts or circumstances and the validity of other provisions of this Agreement shall not in any way be affected or impaired thereby; and (ii) such provision or provisions shall be reformed without further action by the parties hereto and only to the extent necessary to make such provision or provisions valid and enforceable when applied to such particular facts and circumstances. (j) Entire Agreement. This Agreement, including the attachments hereto, ---------------- constitute the entire agreement between the parties concerning the subject matter hereof and supersedes all proposals or prior agreements whether oral or written, and all communications between the parties relating to the subject matter of this Agreement and all past courses of dealing or industry custom. The terms and conditions of this Agreement shall prevail, notwithstanding any variation with any purchase order or other written instrument submitted by EncrypTix, whether formally rejected by Stamps or not. (k) Applicable Law. This Agreement shall be interpreted and construed in -------------- accordance with the laws of the State of California without regard to the principles of conflicts of laws, and with the same force and effect as if fully executed and performed therein. Any action or proceeding brought by either party against the other arising out of or related to this Agreement shall be brought in a state or federal court of competent jurisdiction located in the county of Los Angeles, California and EncrypTix and Stamps each hereby submits to the in personam jurisdiction of such courts for purposes of any such action or proceeding. IN WITNESS WHEREOF, the parties to this Agreement by their duly authorized representatives have signed their names below: STAMPS.COM, INC. ENCRYPTIX, INC. By: /s/ John Payne By: /s/ Jim Rowan -------------------------- ------------------------------- John Payne, Chairman and CEO Jim Rowan, President and CEO 16 Schedule 1(k) Existing Stamps Patents -----------------------
Number Inventor Title ------ -------- ----- US5638513 Mohan Ananda Secure software rental system using continuous asynchronous password verification US5548645 Mohan Ananda Secure software rental system using distributed software US5495411 Mohan Ananda Secure software rental system using continuous asynchronous password verification
Schedule 2(b)(iii)(A) Existing Agreements ------------------- 1. License Agreement dated May 13, 1999 by and between Mohan Ananda and Stamps.com. Schedule 2(g) Licensed Software ----------------- 1. [***]* --- ____________________________ * Confidential treatment has been requested for redacted portion. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission. Schedule 8(b) Expedited Arbitration Procedures -------------------------------- The following procedures are applicable solely for an expedited confirmation for a material breach of the Agreement for purposes of Section 8(b). 1. A party desiring to terminate the Agreement for a material breach (the "Terminating Party") by the other party shell deliver a Demand for Expedited Determination ("Demand") to each of the following: a. The opposite party to the Agreement (the "Responding Party"), and b. Each of the individuals identified on Attachment B to this Schedule (the "Pre-Approved Arbitrators"). 2. The Demand shall be executed by the Terminating Party and shall: a. State that the Terminating Party demands an expedited determination regarding whether the Responding Party has committed a material breach of the Agreement and that this expedited determination is to be made under Section 8 of the Agreement and pursuant to the procedures set forth in this Schedule 8(b), b. Provide reasonable notice of the events and circumstances believed to amount to the material breach, and c. Be accompanied by (i) a Notice to Pre-Approved Arbitrators (the "Notice") which shall include, without limitation, substantially the statements set forth on Attachment A to this Schedule and (ii) a copy of this Agreement and its Schedules. 3. A single arbitrator shall decide the matter, and that person shall be the "available" Pre-Approved Arbitrator (as "available" is defined in the Notice) listed highest on Attachment B to this Schedule who responds to the parties as provided and within the time stated in the Notice. The parties to this Agreement agree to pay (initially in equal amounts but subject to an award of fees and costs to the prevailing party as provided below) the normal or customary charges of the arbitrator, to advance promptly and in equal amounts an aggregate amount requested by the arbitrator as a retainer (which shall be refundable if and to the extent not used), to replenish such retainer as used to the extent such arbitrator may request, and to execute such reasonably customary submission agreement as the arbitrator may request. 4. The arbitrator shall convene a hearing to determine the following issue: whether the Terminating Party would be likely to prevail at a full trial on the merits on the claim that the Responding Party has committed a material breach of the Agreement. The determination of the arbitrator shall be based upon the evidence and argument presented during the hearings as well as any written briefs and evidence that may be submitted to him/her (and the adverse party) prior to the hearing. The arbitrator shall select a date or dates for the hearing that are no less than ten days and no more than 20 days after delivery of the Demand. The hearing shall last not more than two full days, and the parties shall split equally the time available to them for the presentation of evidence. The arbitrator shall also state in writing whether he believes that the position of one party in and in connection with the arbitration was significantly more justified and correct than that of the other party. If so, the party identified as having had the more justified and correct position shall be deemed the "prevailing party," and the arbitrator's statement so identifying such party shall amount to an award of the reasonable costs and fees incurred by such party in connection with the arbitration, which shall be paid by the other party within thirty days after delivery to it of reasonable summary documentation thereof. 5. No later than five (5) calendar days before the hearing, each party may deliver to the other party a request for immediate production of such documents and/or other evidence or information as the requesting party believes are readily available to the other party and are important for preparation or presentation at the hearing. The requested documents shall be produced three (3) days prior to the hearing. The failure of either party to produce such available materials as are so requested by the other party shall not be grounds for sanctions but may be taken into consideration by the arbitrator to the extent, if any, that he/she believes it relevant. 6. Not later than twenty-four (24) hours before the hearing, each party may file with the arbitrator and serve on the adverse party a brief and any supporting evidence, including declarations or documentary materials. 7. The arbitrator's decision shall not be admissible in evidence or disclosed in any judicial proceeding; provided, however, that this provision shall not apply to any notice of the claimed breach (which shall not include the Demand) nor any action taken to cure the claimed breach. 8. To the extent they are consistent with the provisions of the Agreement (including this Schedule and its attachments), the arbitration shall be conducted under and pursuant to the Commercial Arbitration Rules of the AAA (the "AAA Rules") (but need not be administered by the AAA except as hereinafter provided). In the event that the procedures in this Schedule and the attachments hereto fail to produce an arbitrator able to proceed with the arbitration or fail in another respect(s) to permit the expedited determination to be made as contemplated in the Agreement, a single arbitrator shall be appointed by the AAA and the proceeding shall be conducted under the AAA Rules consistent, to the extent possible, with the provisions of this Schedule. (The parties shall request that the AAA select as the arbitrator a single person having experience in technology or technology licensing disputes or in disputes involving computer software.) The arbitration conducted by the AAA shall be for the limited purposes specified in paragraph 4 hereof and shall be decided within 30 days. Once an arbitrator is selected, the timing of the arbitration and the procedures for the arbitration shall be as specified in paragraphs 4 through 7 hereof. 9. If the arbitrator determines that the Terminating Party would be likely to prevail at a full trial on the merits on the claim that the Responding Party committed a material breach of the Agreement, and if the breach is curable, the Responding Party may decide whether to cure the confirmed breach and, if it is and such party provides notice to the Terminating Party within two (2) business days after receipt of the arbitrator's decision that it has elected to effect such a cure, shall have thirty (30) calendar days from the decision of the arbitrator to cure the breach. 10. If the arbitrator determines that there was a material breach of this Agreement, the parties hereby express their willingness to have the arbitrator comment upon and offer suggestions as to whether the breach is curable and, if so, how the cure may be effected. Any such statements, however, shall be non- binding and inadmissible for any purposes in any separate proceedings. In no event, 2 absent the written consent of both parties, shall there be continuing proceedings or additional hearings before the arbitrator on the nature or adequacy of the cure. These expedited procedures are intended to allow either party to the Agreement to terminate the Agreement without undue delay in the event of a material breach by the other party while giving the other party the benefit of an outside person's review of the matter prior to the termination and, if the breach is curable, an opportunity to cure. These procedures are intended to be summary in nature and non-exclusive. A party believing that the opposite party has committed a material breach may institute judicial proceedings (for damages and/or for declaratory, equitable, and/or other relief): (a) at the same time as utilizing these summary procedures or (b) after trying unsuccessfully to utilize these procedures or having begun but not having completed use of these procedures or (c) after and notwithstanding an adverse determination by the arbitrator in an expedited arbitration under these procedures. The doctrines of collateral estoppel and res judicata shall be inapplicable to the findings, rulings, and all other aspects of these summary proceedings. 3 Attachment A to Schedule 8(b) Notice to Pre-Approved Arbitrators ---------------------------------- An expedited arbitration has been initiated under the procedures set forth in the License Agreement between Stamps.com and EncrypTix, Inc. As you will recall, you and several other individuals are on the list of pre-approved arbitrators for that expedited arbitration. A copy of the Demand for Expedited Determination (which has an attached copy of the License Agreement) is enclosed with this notice. Under the License Agreement, the expedited arbitration hearing is to commence within ten (10) days after the date this Notice is delivered to your address and to the addresses of the other pre-approved arbitrators and to the responding party (the "Delivery Date"), or as soon thereafter as the top-listed available arbitrator on the list is able to schedule a hearing. The Delivery Date is - -----------. The pre-approved arbitrators such as you are considered "available" if they can schedule one full day for the hearing (which may be a Saturday, Sunday, or legal holiday) within twenty (20) days after the delivery date identified above and can commit to deliver a brief written statement of their determination (no explanation, findings, conclusion, or opinion necessary) within five (5) business days after that. Unless otherwise agreed by the parties, the location of the arbitration hearing is to be in Los Angeles or Santa Monica, California at 9:30 A.M. on the date and at a place set by the top-listed available arbitrator. The other procedures for the expedited arbitration are set forth in Schedule 8(b) to the License Agreement, a copy of which is enclosed herewith. Please fax, email or deliver to both of the parties to the License Agreement -- as soon as possible -- a statement of when you can be available to conduct a one-day hearing in this matter at some time from the tenth day to the twentieth day after the Delivery Date. The current addresses fax numbers and email numbers of the parties are: Stamps.com EncrypTix, Inc. ______________________ ______________________ ______________________ ______________________ If you are available to take part in these proceedings, it is important that you deliver your response to both of the parties listed above no later than the fourth (4th) day after the Delivery Date. 4 Attachment B to Schedule 8(b) Pre-Approved Arbitrators ------------------------ 1. __________________________________ __________________________________ __________________________________ fax: ___________________________ email: ___________________________ 2. __________________________________ __________________________________ __________________________________ fax: _____________________________ email: ___________________________ 3. __________________________________ __________________________________ __________________________________ fax: _____________________________ email: ___________________________ 4. __________________________________ __________________________________ __________________________________ fax: _____________________________ email: ___________________________ 5 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 368,289 0 1,456 0 0 388,868 25,817 3,312 629,473 8,613 0 0 0 48 587,550 629,473 2,036 2,036 3,733 43,845 0 0 46 (36,888) 0 (36,888) 0 0 0 (36,888) (0.86) (0.86)
-----END PRIVACY-ENHANCED MESSAGE-----