<PAGE>
As filed with the Securities and Exchange Commission on June 7, 1999
Registration No. 333-77025
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STAMPS.COM INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
Delaware 5961 77-0454966
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
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3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
(310) 581-7200
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------
John M. Payne
President and Chief Executive Officer
STAMPS.COM INC.
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
(310) 581-7200
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
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Copies to:
<TABLE>
<S> <C>
Bruce R. Hallett, Esq. Alan K. Austin, Esq.
Allen Z. Sussman, Esq. Mark L. Reinstra, Esq.
Sean M. Pence, Esq. James C. Creigh, Esq.
Brobeck, Phleger & Harrison LLP Brian M. McDaniel, Esq.
38 Technology Drive Wilson Sonsini Goodrich & Rosati
Irvine, California 92618 650 Page Mill Road
(949) 790-6300 Palo Alto, California 94304
(650) 493-9300
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed Maximum Maximum Amount of
Title of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share (1) Offering Price Fee(2)
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 5,750,000 $11.00 $63,250,000 $17,583.50
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of registration
fee pursuant to Rule 457(c) under the Securities Act of 1933.
(2) $15,985 of the registration fee was previously paid by the registrant in
connection with the filing of the Registration Statement on April 26,
1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 7, 1999
5,000,000 Shares
Common Stock
This is our initial public offering and no public market currently exists
for our shares. We anticipate that the initial public offering price will be
between $9.00 and $11.00 per share. We have applied to list our common stock
for quotation on the Nasdaq National Market under the symbol "STMP."
---------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
---------------
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Stamps.com...................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover any over-allotments. If the
underwriters exercise the right in full, the public offering price will total
$ , the underwriting discounts and commissions will total $ , and our
proceeds will total $ .
We have requested that the underwriters reserve up to ten percent of the
shares of common stock for sale at the initial public offering price to
directors, officers, employees and other individuals designated by Stamps.com.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common
stock on , 1999.
---------------
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
Wit Capital Corporation
The date of this Prospectus is , 1999.
<PAGE>
[DESCRIPTION OF ARTWORK]
Images of the different screens from Stamps.com.
INSIDE FRONT COVER
The inside front cover of the prospectus has the three steps a consumer
will use to obtain postage with Stamps.com. The following are the steps to be
taken:
1. Download Software and Sign-up: Start printing postage in a matter of
minutes. Simply download the free software from our web site, www.stamps.com,
register and you're ready to go.
2. Select your Address: Type in a new address or select from an existing
address book and Stamps.com corrects and formats your addresses online.
Stamps.com also integrates with the most popular contact managers and word
processors.
3. Print Postage: Just click print. Your postage, bar code and address is
printed from your inkjet or laser printer right onto envelopes, labels or
business forms. It's that easy.
INSIDE GATEFOLD (two pages)
The first page is a picture of a printer with an envelope with postage
coming out. Across the top of the page are the words INTERNET POSTAGE. The
picture is green and blue striped.
The second page is a picture of a keyboard with centered text which reads
POSTAGE FROM YOUR PRINTER.(TM) Across the bottom of the page are the following
words:
WE RUN SECURE POSTAGE SERVERS(TM) ON THE INTERNET CONNECTING THE U.S.
POSTAL SERVICE WITH CONSUMERS, SMALL BUSINESSES AND CORPORATE CUSTOMERS
ALLOWING THEIR ORDINARY LASER AND INKJET PRINTERS TO APPLY A NEW FORM OF
DIGITAL POSTAGE CALLED "INDICIUM".
Stamps.com offers a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. Our core service is
designed to enable users to print information based indicia, or electronic
stamps, directly onto envelopes, labels, or business documents using
ordinary laser or inkjet printers. No additional hardware is necessary for
a user to purchase and print our Internet Postage; the user's existing PC,
printer and Internet set-up are sufficient.
In the bottom right corner is the Stamps.com logo.
INSIDE BACK COVER
The inside back cover of the prospectus has an envelope with an enlarged
indicia. Each item of the indicia is explained in detail directly in the center
of the page. The explanation is as follows:
There is a vertical barcode called the FIM, or Facing Identification Mark.
The Post Office uses this to sort the mail. There is a postage amount in number
format with human readable information, including the postage value, mail
class, and date. There is a two-dimensional barcode. It contains information to
make this mailpiece unique, such as delivery and routing information, postage
value, and your digital signature. Under the barcode on the left side is the
licensing post office and on the right side is the unique meter number for the
mailpiece.
Across the bottom section of this page is an iconic list of Stamps.com
Current Partnerships which includes Office Depot.com; Quicken.com; America
Online; and Avery.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotment or subscriptions.
---------------------
TABLE OF CONTENTS
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Page
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Summary.................................................................. 4
Risk Factors............................................................. 6
Information Regarding Forward Looking Statements......................... 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 22
Business................................................................. 25
Management............................................................... 37
Related Party Transactions............................................... 49
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 59
Experts.................................................................. 59
Where You Can Find Additional Information................................ 59
Index to Financial Statements............................................ F-1
</TABLE>
Except as otherwise noted, all information in this prospectus:
. reflects the automatic conversion of our outstanding preferred stock
into common stock immediately prior to the closing of this offering;
. reflects a three-for-two common stock dividend to our common
stockholders authorized by the Board of Directors on June 3, 1999; and
. assumes that the underwriters' over-allotment option will not be
exercised.
3
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information and financial statements and the notes to those statements
appearing elsewhere in this prospectus. This prospectus contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from the results anticipated in these forward-looking
statements as a result of the factors set forth under "Risk Factors" and
elsewhere in this prospectus.
Stamps.com Inc.
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Our core service is designed
to enable users to print information based indicia, or electronic stamps,
directly onto envelopes, labels or business documents using ordinary laser or
inkjet printers. No additional hardware is necessary for a user to purchase and
print our Internet postage; the user's existing PC, printer and Internet set-up
are sufficient. Accessing our service is simple. A user will obtain our free
software either via a download from the Internet or through an install from a
CD-ROM. After installing the software and completing a brief registration
process, the user will connect via the Internet to our secure Postage Server
and purchase postage electronically 24 hours a day, seven days a week. We will
act as an ongoing intermediary between the US Postal Service and users by
offering the ability to purchase postage through our secure Postage Server. Our
technology works within rigorous US Postal Service requirements to provide
secure access to postage. Our Postage Server will be designed to interact with
word processing, contact and address management, accounting and corporate
applications to stamp letters, invoices, statements, checks and other business
documents automatically.
Our Strategy
Our objective is to be the leading provider of convenient, cost effective
and easy to use software-based Internet postage services. To achieve this
objective, our strategy includes the following key elements:
. Enhancing our brand name through a variety of marketing and promotional
techniques;
. Forming strategic partnerships with companies in the Internet,
software, original equipment manufacturer, office supply and media
industries;
. Establishing first-to-market advantages by becoming the first software-
based Internet postage solution approved for commercial release;
. Rapidly growing our customer base by enhancing our brand name, forming
strategic partnerships and establishing first-to-market advantages;
. Utilizing our software-based solution and technology to enhance our
service offering and expand the benefits of secure online transactions;
and
. Pursuing additional revenue opportunities, including postage related
products and insurance, the international Internet postage market, and
authenticated document delivery.
Corporate Information
In September 1996, our founders began to investigate the feasibility of
entering into the US Postal Service's Information Based Indicia Program and
initiated the certification process. In January 1998, we were incorporated in
Delaware as StampMaster, Inc. and changed our name to Stamps.com Inc. in
December 1998. Our executive offices are located at 3420 Ocean Park Boulevard,
Suite 1040, Santa Monica, California 90405, and our telephone number is (310)
581-7200. Information contained on our Web site does not constitute part of
this prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered....................... 5,000,000 shares
Common stock to be outstanding after this
offering................................. 34,771,454 shares
Use of proceeds............................ To expand marketing and
distribution partnerships, for
further development our
technology and for working
capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol..... STMP
</TABLE>
The number of shares outstanding after this offering excludes, as of the
date of this prospectus:
. 1,915,041 shares of common stock that may, but have not yet been issued
under our stock option and stock purchase plans; and ,
. options and warrants to purchase a total of 5,382,909 shares of common
stock at a weighted average exercise price of $0.84. See
"Capitalization."
Summary Financial Data
(in thousands, except share and per share data)
The following table should be read with the financial statements and notes
to those statements appearing elsewhere in this prospectus. The pro forma
calculations give effect to the conversion of all outstanding shares of our
preferred stock into common stock upon the closing of this offering as if the
conversion occurred at inception, or the date of original issuance, if later.
Our as adjusted column reflects the sale of 5,000,000 shares of common stock
offered by this prospectus at an assumed initial public offering price of
$10.00 per share after deducting underwriter discounts and commissions and
estimated expenses payable by us.
<TABLE>
<CAPTION>
January 9, 1998 January 9, 1998
(inception) (inception) Three Months
through through Ended
December 31, 1998 March 31, 1998 March 31, 1999
----------------- --------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Net revenues................. $ -- $ -- $ --
Loss from operations......... (4,180) (363) (3,688)
Net loss..................... (4,195) (363) (3,686)
----------- ---------- -----------
Basic and diluted net loss
per share.................. $ (0.85) $ (0.09) $ (0.53)
Pro forma basic and diluted
net loss per share......... $ (0.36) $ (0.05) $ (0.15)
Weighted shares outstanding
used in basic and diluted
net loss per share
calculations............... 4,955,913 4,240,518 6,900,975
Weighted shares outstanding
used in pro forma basic and
diluted net loss per share
calculation................ 11,593,380 6,863,917 25,057,782
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
1999
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................................. $28,524 $74,374
Working capital............................................ 26,090 71,940
Total assets............................................... 29,872 75,722
Line of credit and capital lease obligations............... 1,425 1,425
Redeemable preferred stock................................. 34,278 --
Total stockholders' equity (deficit)....................... (7,227) 72,901
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. 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 impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected, the value of our stock could decline, and you may lose all or part of
your investment. This prospectus also contains forward looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward looking statements as a result of the
risks described below and elsewhere in this prospectus.
We face risks associated with our operations
If our service is not approved for commercial release, our business will fail.
Our service for purchasing postage over the Internet has not been approved
by the US Postal Service. We depend entirely on US Postal Service approval of
our Internet postage service. We are currently in the pre-approval testing
stage of the US Postal Service's Information Based Indicia Program. We cannot
be certain that our service will successfully emerge from this testing phase or
that the US Postal Service will ever approve our service for commercial
release.
We believe that US Postal Service approval of our software-based service,
prior to approval of our competitors' software-based products, is critical to
our success. If we don't receive the required regulatory approval in a timely
manner, our business and ability to compete in the Internet postage market will
suffer dramatically.
Ongoing US Postal Service regulation may cause disruptions or the
discontinuance of our business.
If we achieve US Postal Service approval of our Internet postage service,
we will remain subject to continued US Postal Service scrutiny and other
government regulations. For example, US Postal Service regulations may require
that our personnel with access to postal information or resources receive a
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.
The US Postal Service could change its certification requirements or
specifications for Internet postage or revoke the approval of our service. 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 amend its requirements to make
certification easier to obtain, which could lead to more competition from third
parties. See "Risk Factors--If we are unable to compete successfully, our
revenues and operating results will suffer."
The Internet postage market is new and uncertain and our business may not
develop.
The market for Internet postage has not developed, and its development is
subject to substantial uncertainty. We cannot assure you that the Internet
postage market will develop. We depend on the commercial acceptance of our
service for purchasing postage over the Internet. We do not know if our target
customers will transition to the Internet as a means of purchasing postage. If
potential users choose the Internet to purchase postage, we cannot be certain
that these users will adopt our system.
We have a history of losses and expect to incur losses in the future, and we
may never achieve profitability.
As of March 31, 1999, we had not generated any revenues and had a deficit
accumulated during the development stage of $7.9 million. Our lack of revenues
can be attributed primarily to the fact that Internet postage has not been
approved for commercial release. In the course of our pre-commercial
development activities, we have not achieved profitability and expect to
continue to incur net losses for at least the next
6
<PAGE>
several quarters. Due to the need to establish our brand and service, we expect
to incur increasing sales and marketing, product development and administrative
expenses. As a result, we will need to generate significant revenues to achieve
and maintain profitability. In this regard, you should disregard our gross
margin projections of 85% contained in an online article published by a third
party in December 1998 and linked to our Web site. Our gross margins are very
uncertain given that our Internet postage service may never receive US Postal
Service approval, attain commercial acceptance or develop into a significant
source of revenues for us. We have additional uncertainty related to the lack
of a proven pricing model in the untested Internet postage market. It is likely
that our gross margins and pricing strategies will vary in the short and long
term. In addition, projections published by market analysts regarding our
margins may differ from our actual results.
Our ability to generate gross margins generally assumes that if a market
for Internet postage develops, we must generate significant revenues from a
large base of active consumers. Even if we are able to establish any sizable
base of users, we may still not generate significant gross margins. For
instance, you should not rely on published statements that indicate our
intention to generate revenues from a 10% convenience fee. Given the current
limited beta use of our service and the lack of a commercial market for
Internet postage, we cannot be sure that a percentage fee will be our ultimate
pricing approach or that a percentage fee would generate significant customer
use of our service. We continue to evaluate many different pricing and fee
structures, none of which have been tested on a commercial basis. As a result,
we cannot predict whether any contemplated pricing or fee structure, including
a percentage convenience fee, will ever generate revenues or profits for us.
Overall, you should not base your decision as to whether to invest in shares of
our common stock on any other published article or any calculation of our gross
margins, if any, or pricing strategies. Any projection or other forward looking
statements are subject to a great deal of uncertainty and change. You should be
aware that our future revenue and operating results will be affected by a
number of factors, including those discussed in this section.
We must effectively manage our commercial release to achieve acceptance of our
service.
If we receive US Postal Service approval of our Internet postage service,
we will face numerous risks coincident with the introduction of our services.
We will be initially subject to a limited launch of 10,000 customers after our
commercial release. We intend to conduct a controlled national launch of our
service; however, we have very limited experience conducting marketing
campaigns, and we may fail to generate significant interest. On the other hand,
if we experience extensive interest in our services, we may fail to meet the
expectations of customers due to the strains this demand will place on our Web
site, network infrastructure and our systems.
Our ability to obtain and retain customers depends on our customer service
capabilities. We cannot predict whether the quantity or quality of our customer
service will be sufficient to address our customers' needs. If we are unable at
any time during and after our controlled national launch to appropriately
address customer service issues or provide a satisfactory customer experience
for current or potential customers, our business and reputation may be damaged.
If we cannot effectively manage our growth, our ability to provide services
will suffer.
Our reputation and our ability to attract, retain and serve 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. 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. We may not be able to
effectively manage this
7
<PAGE>
growth. Our current expansion has placed and we expect our future expansion to
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 growth effectively or experience disruptions during our expansion,
our business will suffer and our financial condition and results of operations
will be seriously affected.
We have a limited operating history and cannot predict our ability to
successfully launch and maintain our Internet postage service.
In September 1996, our founders began to investigate the feasibility of
entering into the US Postal Service's Information Based Indicia Program and
initiated the certification process. In January 1998, we were incorporated in
Delaware and accordingly, we have a very limited operating history. As of March
31, 1999, we had generated no revenues and do not expect to generate any
significant revenues until the US Postal Service approves our Internet postage
service for commercial release. You should consider our prospects in light of
the risks and difficulties frequently encountered by early stage companies in
new and rapidly evolving markets. These risks include, among other things, our:
. ability to meet and maintain government specifications for our service,
specifically US Postal Service requirements;
. complete dependence on a service that currently has no market
acceptance;
. need to expand our sales and support organizations;
. ability to establish and expand our brand name;
. ability to expand our operations to meet the commercial demand for our
service;
. development of and reliance on strategic and distribution
relationships;
. ability to prevent and respond quickly to service interruptions;
. ability to minimize fraud and other security risks; and
. competition from competitors with greater capital resources and brand
awareness.
If we are unable to maintain and develop our strategic relationships and
distribution arrangements, our Internet postage service may not achieve
commercial acceptance.
We have established strategic relationships with a very limited number of
third parties. If we receive US Postal Service approval, our strategic
relationships will generally involve the promotion and distribution of our
service through our partners' 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 service, we believe
we must establish additional similar relationships to effectively market our
service. We have limited experience in establishing and maintaining these
strategic relationships and we may fail in our efforts to establish and
maintain our strategic relationships. In addition to establishing and
maintaining these relationships, our distribution agreements are dependent upon
US Postal Service approval of our Internet postage service. For example, we
regard our marketing and distribution agreement with America Online as one of
our most strategic relationships and it is subject to termination at the option
America Online if we do not receive US Postal Service approval for our service
by August 15, 1999.
None of our current strategic relationships have resulted in revenues,
primarily because the US Postal Service has not approved our Internet postage
service for commercial release. 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 strategic
relationships may not be successful.
8
<PAGE>
Potential intellectual property infringement claims, particularly from Pitney
Bowes, could delay our development and harm our results of operations.
We face substantial uncertainty regarding the impact that other parties'
intellectual property positions will have on the Internet postage market. For
example, on at least three occasions, Pitney Bowes sent formal comments to the
US Postal Service asserting that intellectual property of Pitney Bowes related
to postage metering products and systems would be infringed by products meeting
the Information Based Indicia Program requirements. Specifically, in a number
of letters, Pitney Bowes identified a total of 19 US patents and four US patent
applications that it contends would be infringed by postage metering systems
that meet the requirements of the Information Based Indicia Program. Our
Internet postage service is designed to meet these requirements, which means
that Pitney Bowes may well contend that our service infringes some or all of
the patents identified by Pitney Bowes, or other patents to Pitney Bowes. If
Pitney Bowes successfully asserts an infringement claim against us, our
operations would be impacted severely.
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 intends to engage in discussions with other marketers of computer-based
postal products to license Pitney Bowes technology. To that end, we are
currently in license discussions with Pitney Bowes. We cannot predict 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 successfully assert claims against us and if we do not enter into a
license relationship with Pitney Bowes, our business could be impacted
severely. For example, Pitney Bowes could obtain monetary relief from us or
permanent or temporary injunctive relief against us. Any injunction could
eliminate our ability to market critical products or services.
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 regardless of the validity of
these claims. We may not have adequate resources to defend 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 any necessary licenses on
commercially reasonable terms, if at all.
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 three patent applications in the United States. We have also
applied for several trademarks and service marks. We plan to apply for other
patents in the future. We may not receive patents for any of our patent
applications. Even if patents are issued, claims covered by these patents may
be substantially reduced from the claims covered by our patent applications.
Moreover, any of our patents might be held invalid or unenforceable by a court.
If our patents fail to protect our technology, 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.
If our Internet postage service does not achieve commercial acceptance, our
operating results will suffer.
Assuming we receive US Postal Service approval, we will rely on a single
service for our revenues for the foreseeable future. As a result, our ability
to gain commercial acceptance of our Internet postage service is critical to
our success. Any failure to successfully gain commercial acceptance of our
Internet postage service would not only have a material adverse effect on our
business and results of operations but also on our ability to seek any
additional revenue opportunities.
9
<PAGE>
System and online security failures could harm our business and operating
results.
Our Internet postage service depends 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. For example, all of our
Internet postage processing hardware is located in our facility in Southern
California, a seismically active region. Our servers are also vulnerable to
computer viruses, physical 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 not presently have a formal disaster recovery
plan in effect. We are currently evaluating our business interruption insurance
to determine whether we have sufficient coverage to compensate us for losses
that may occur after our commercial launch.
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 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, it could seriously harm our reputation, business, financial condition
and results of operations. 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.
If we do not expand our product and service offerings, our business may not
grow.
We may 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. At present, we have no commitments or agreements and
are not currently engaged in discussions for any material acquisitions or
investments. 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
services. 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 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.
We expect that fluctuations in our operating results could cause our stock
price to fall.
As of March 31, 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
10
<PAGE>
operating results will fluctuate significantly due to a variety of factors,
many of which are outside of our control. These factors include:
. timing of the commercial release of our Internet postage service;
. the costs of our marketing programs to establish the Stamps.com brand
name;
. demand for our Internet postage service;
. our ability to develop and maintain strategic and distribution
relationships;
. the number, timing and significance of new products or services
introduced by both us and our competitors;
. our ability to develop, market and introduce new and enhanced services
on a timely basis;
. the level of service and price competition;
. changes in our operating expenses as we expand operations; and
. 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 service. 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 because a relatively small amount of our
costs and expenses varies with our revenues in the short term.
Due to the foregoing factors and the other risks discussed in this
prospectus, 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 fall.
If we do not achieve brand recognition necessary to succeed in the Internet
postage market, our business will suffer.
We must quickly build our Stamps.com brand to gain market acceptance for
our service. 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 market. 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 service. If we fail to gain market acceptance for
our service, our business will suffer dramatically.
If we are unable to compete successfully, 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, three other vendors seeking
certification through the Information Based Indicia Program have hardware
products available for beta testing. One of the hardware vendors also has a
software-based product in beta testing. Another of these hardware vendors,
Pitney Bowes, has made formal comments to the US Postal Service asserting that
it holds several patents and has patent applications pending which are
infringed by the product specifications that Information Based Indicia Program
participants are required to follow. Pitney Bowes may have the technology
available to duplicate the products and services offered by other Internet
postage providers, including Stamps.com. In a May 1999 press release, Pitney
Bowes announced its
11
<PAGE>
intention to demonstrate both a hardware and software-based Internet postage
solution. If any of our competitors, including Pitney Bowes, could provide the
same or similar service as us, our operations could be adversely impacted.
Based on current participants in the Information Based Indicia Program, we
expect that our competitors will initially include:
. traditional providers of postage products and services, including
Pitney Bowes and Neopost Industrie;
. potential providers of Internet postage products and services,
including Pitney Bowes, E-Stamp and Neopost;
Internet postage may not be adopted by postage consumers. These consumers
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. See "Business--Our Competition."
We rely on a relatively new management team and need additional personnel to
grow our business.
Our management team is relatively new and we intend to continue to hire key
management personnel, including a Chief Operating Officer. For example, our
Chief Executive Officer was hired in October 1998 and our Chief Financial
Officer was hired in September 1998. 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 Mr. Payne, our Chief Executive Officer, Mr.
LaValle, our Chief Financial Officer, and other key personnel. 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, editorial, merchandising, marketing and
customer service personnel. We plan to hire additional personnel in all areas
of our business. Competition for qualified personnel is intense, 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.
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<PAGE>
If we do not respond effectively to technological change, our service could
become obsolete and our business will suffer.
The development of our service 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 market 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 service;
. develop new services 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 successfully use new technologies
effectively or adapt 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 market our Internet postage service internationally, foreign governments'
regulation could disrupt our operations.
One element of our strategy is to provide our service in international
markets. Our ability to provide our 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 service cannot currently be used for international mail because foreign
postal authorities do not currently recognize information based indicia
postage. If foreign postal authorities in the future accept postage generated
by our service and if we obtain the necessary foreign certification or
approvals, we would likely be subject to ongoing regulation by international
governments and agencies. To date, efforts to create a certification process in
Europe and other foreign markets are in a very 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.
If we achieve significant international acceptance of our service, 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.
If the internal and third-party equipment and software that we use are not Year
2000 compliant, our operating results, brand and reputation could be impaired
and we could lose users.
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 not corrected, there could
13
<PAGE>
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 comply with these "Year
2000" requirements.
We use and depend on third-party equipment and software that may not be
Year 2000 compliant. If Year 2000 issues prevent our users from accessing the
Internet or our service, purchasing postage or using their credit cards, our
business and operations will suffer. Any failure of our third-party equipment
or software to operate properly could result in system and online security
failures and require us to incur unanticipated expenses, resulting in serious
harm to our business, operating results and financial condition. For example,
we rely on the US Postal Service's secure postage accounting vault to purchase
postage credit for our customers. If the US Postal Service systems are not Year
2000 compliant, users of our service may not be able to purchase additional
postage.
Our failure to make our service Year 2000 compliant could result in:
. a decrease in sales of our service;
. an increase in the allocation of resources to address Year 2000
problems of our users without additional revenue commensurate with the
dedication of our resources; and
. an increase in litigation costs relating to losses suffered by our
users due to Year 2000 problems.
Furthermore, the purchasing patterns of users or potential users may be
affected by Year 2000 issues as companies expend significant resources to
correct their current systems. These expenditures may result in reduced funds
available to purchase our service, which could seriously harm our business,
operating results and financial condition. We have conducted a preliminary
review of our internal computer systems to identify the systems that could be
affected by the Year 2000 issue. Based on this preliminary review, we believe
that our internal software systems are Year 2000 compliant. However, we
continually evaluate our systems and intend to develop a contingency plan to
address any Year 2000 issues we discover. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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 together with the net proceeds of
this offering will allow us to fund our operations for at least the next 12
months. 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:
. the timing of our development efforts and US Postal Service approval of
our service;
. market acceptance of Internet postage;
. the level of promotion and advertising required to launch our service;
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.
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<PAGE>
We face risks related to the Internet industry
The success of our business will depend on the continued growth of the Internet
and the acceptance by consumers of the Internet as a means for purchasing
postage.
Our success depends in part on widespread acceptance and use of the
Internet as a way to purchase postage. This practice is at an early stage of
development, and market acceptance of Internet postage is uncertain. We cannot
predict the extent to which users will be willing to shift their purchasing
habits from traditional to online postage purchasing. To be successful, our
users 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 Internet
postage;
. 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.
Our operating results could be impaired if we become subject to burdensome
government regulation and legal uncertainties.
With the exception of US Postal Service 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; and
. characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease 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.
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<PAGE>
We plan to offer our service over the Internet in multiple states and
foreign countries. 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 Internet postage
service 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.
We are subject to risks related to the offering
We cannot be certain that an active trading market will develop for our common
stock.
Prior to this offering, there has been no public market for our common
stock and we cannot assure you that an active trading market for the common
stock will develop or continue as a result of this offering. If no active
trading market develops for our common stock, you may have difficulty
purchasing or selling our common stock, which could adversely affect the price
you are able to obtain for our common stock.
The rights of our stockholders could be adversely affected because of the
concentrated control of our stock.
After this offering, our executive officers, directors and 5% stockholders
will control 79.9% of our voting stock. These stockholders will have
significant influence and ability to control most matters requiring board and
stockholder approval, including a significant corporate transaction like the
sale of our company, a change in control, or the terms of future equity
financings. These stockholders could use their control in ways that may not be
beneficial to our stockholders.
Our stock price could fluctuate dramatically which could result in substantial
losses to investors.
The trading price of our common stock is likely to be volatile and could
fluctuate dramatically in response to the following factors, some of which are
beyond our control:
. changes in expectations of our future financial performance, including
financial estimates by securities analysts and investors;
. changes in operating and stock price performance of other Internet and
online companies similar to us;
. future sales of our common stock; or
. general economic factors.
Domestic and international stock markets often experience significant price
and volume fluctuations. These fluctuations, as well as general economic and
political conditions unrelated to our performance, may adversely affect the
price of our common stock. In particular, following initial public offerings,
the market prices for stocks of Internet and technology-related companies often
reach levels that bear no relationship to the operating performance of these
companies. These market prices are generally not sustainable and could vary
widely. The market prices of the securities of Internet-related and online
companies have been especially volatile. If our common stock trades to high
levels following this offering, it could eventually experience a significant
decline.
Our offering price does not necessarily relate to any established criteria of
value and our stock price may trade at prices below our offering price.
Through negotiations with the underwriters, we will determine the public
offering price of the shares of our common stock. This price will not
necessarily relate to our book value, assets, past operating results, financial
condition or any other established criteria of value. As a result, the shares
being offered may trade at market prices below the initial public offering
price.
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<PAGE>
Additional shares held by existing stockholders may be sold into the public
market in the near future, which could cause our stock price to decline.
Sales of substantial amounts of our common stock in the public market after
this offering could adversely affect the prevailing market price of our common
stock. Upon completion of this offering, we will have 34,771,454 shares of
common stock outstanding assuming no exercise of the underwriters over-
allotment option and no exercise of outstanding options after March 31, 1999.
Of those shares, a total of 5,000,000 shares will be freely tradable under the
Securities Act unless purchased or held by our "affiliates," as that term is
defined in Rule 144 under the Securities Act. As part of this offering, our
executive officers, directors and stockholders have agreed with the
underwriters that they will not offer or sell any shares of common stock for a
period of 180 days after the date of this prospectus without the prior written
consent of BancBoston Robertson Stephens Inc., except for options granted under
our stock incentive plan. BancBoston Robertson Stephens Inc. may, in its sole
discretion, at any time and without notice, release all of our portion of the
shares of common stock subject to these agreements. 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.
Our management has broad discretion over use of the proceeds from this offering
and may not use the proceeds effectively.
The net proceeds of this offering are estimated to be approximately
$45,850,000 million at an assumed initial public offering price of $10.00 per
share and after deducting the estimated underwriting discount and estimated
offering expenses. Our management will retain broad discretion as to the
allocation of the proceeds of this offering. See "Use of Proceeds."
Our charter documents could deter a takeover effort, which could inhibit your
ability to receive an acquisition premium for your shares.
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. In addition, we are
subject to the provisions of Section 203 of the Delaware General Corporation
Law. This statute could prohibit or delay the accomplishment of mergers or
other takeover or change in control in attempts with respect to us and,
accordingly, may discourage attempts to acquire us. See "Description of Capital
Stock."
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates," "intends," "believes" and similar expressions are intended to
identify forward looking statements. These statements include, but are not
limited to, statements under the captions "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus. These forward looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. The cautionary statements
made in this prospectus should be read as being applicable to all related
forward looking statements wherever they appear in this prospectus.
---------------------
Stamps.com(TM) and Postage Server(TM) are our trademarks. This prospectus
also includes trademarks of entities other than Stamps.com.
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<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 5,000,000 shares of common stock
offered by this prospectus are estimated to be approximately $45,850,000 based
upon an assumed offering price of $10.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us.
We currently estimate that the net proceeds of the offering will be used as
follows:
. 60% for expansion of our marketing and distribution partnerships;
. 5% to enhance our server and network infrastructure and the
functionality of our Web site; and
. 35% for working capital and other general corporate purposes.
Pending these uses, the net proceeds of the offering will be invested in
short-term, interest-bearing, investment-grade instruments. As of the date of
this prospectus, we can only estimate the particular uses for the net proceeds
to be received upon completion of the offering. As a result, the above
estimates and our use of proceeds are subject to change at our management's
discretion. The amounts actually expended for each of the purposes listed above
may vary significantly depending upon a number of factors, including the
progress of our marketing programs, capital spending requirements, and
developments in the Internet postage market and Internet commerce.
From time to time, in the ordinary course of business, we may 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. A portion of the net proceeds may be
used to fund acquisitions or investments. We currently have no arrangements,
agreements or understandings, and are not engaged in active negotiations for
any material acquisitions or investments.
DIVIDEND POLICY
We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain all available funds for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Any future determination to pay dividends will be at
the discretion of our Board of Directors and will depend on our results of
operations, financial conditions, contractual and legal restrictions and other
factors it deems relevant.
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CAPITALIZATION
The following table indicates our capitalization as of March 31, 1999 on an
actual basis and on a pro forma as adjusted basis:
. to reflect the automatic conversion of all outstanding shares of
preferred stock into shares of common stock upon the closing of this
offering; and
. to give effect to the receipt of the estimated net proceeds from the
sale of 5,000,000 shares of common stock at an assumed initial public
offering price of $10.00 per share.
<TABLE>
<CAPTION>
March 31, 1999
--------------------
(Unaudited)
Pro Forma
Actual As Adjusted
------- -----------
(in thousands,
except share data)
<S> <C> <C>
Line of credit and capital lease obligations ............. $ 1,425 $ 1,425
------- -------
Redeemable preferred stock, par value $0.001, (Series A, B
and C); 15,500,000 shares authorized; 15,246,986 shares
issued and outstanding, actual; 5,000,000 shares
authorized; no shares issued and outstanding, pro forma
as adjusted............................................. 34,278 --
Stockholders' equity (deficit):
Common stock, par value $0.001; 40,000,000 shares
authorized, 6,900,975 issued and outstanding, actual;
95,000,000 shares authorized, 34,771,454 issued and
outstanding, pro forma as adjusted..................... 7 35
Additional paid-in capital................................ 4,785 84,885
Notes receivable for stock sales.......................... (117) (117)
Deferred compensation..................................... (4,020) (4,020)
Accumulated deficit during development stage.............. (7,882) (7,882)
------- -------
Total stockholders' equity (deficit)..................... (7,227) 72,901
------- -------
Total capitalization.................................... $28,476 $74,326
======= =======
</TABLE>
The number of shares outstanding after this offering is 34,771,454
excluding, as of the date of this prospectus:
. 1,915,041 shares of common stock that may, but have not yet been issued
under our stock option and stock purchase plans; and
. options and warrants to purchase a total of 5,382,909 shares of common
stock at a weighted average exercise price of $0.84.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was
approximately $26,974,784, or $0.91 per share of common stock. Pro forma net
tangible book value per share represents the amount of our pro forma total
tangible assets less pro forma total liabilities divided by the pro forma
number of shares of common stock outstanding as of March 31, 1999. Without
taking into account any other changes in pro forma net tangible book value,
other than to give effect to our sale of the 5,000,000 shares of common stock
in this offering and the receipt and application of the net proceeds from this
offering, the pro forma net tangible book value of as of March 31, 1999 would
have been approximately $72,824,784, or $2.09 per share of common stock. This
represents an immediate increase in pro forma net tangible book value of $1.18
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $7.91 per share to investors purchasing common stock in
this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of March 31,
1999....................................................... $ 0.91
Increase per share attributable to new investors............. 1.18
------
Pro forma net tangible book value per share after this
offering.................................................... 2.09
------
Dilution per share to new investors........................... $ 7.91
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the difference between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by new investors, assuming an initial public offering price of
$10.00 per share and before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 29,771,454 85.6% $36,214,788 42.0% $ 1.22
New investors.............. 5,000,000 14.4 50,000,000 58.0 $10.00
---------- ----- ----------- -----
Total.................... 34,771,454 100.0% $86,214,788 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options and warrants. As of March 31,
1999, options to purchase 4,491,159 shares of common stock were outstanding at
a weighted average exercise price of $0.31 per share. To the extent that these
options are exercised, new investors will experience further dilution.
20
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial data should be read with our financial
statements and the notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The statement of operations data for the period from
inception through December 31, 1998 and the balance sheet data at December 31,
1998, are derived from our financial statements which have been audited by
Arthur Andersen LLP, our independent public accountants, and are included
elsewhere in this prospectus. The statements of operations data for the period
January 9, 1998 (inception) through March 31, 1998 and the three month period
ended March 31, 1999, and the balance sheet data at March 31, 1999, are derived
from our unaudited interim financial statements included elsewhere in this
prospectus. Our unaudited financial statements have been prepared on
substantially the same basis as the audited consolidated financial statements
and, in the opinion of our management, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for these periods. Please be advised that historical results are
not necessarily indicative of the results to be expected in the future, and
results of interim periods are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
January 9, 1998 January 9, 1998
(inception) through (inception) through Three Months Ended
December 31, 1998 March 31, 1998 March 31, 1999
------------------- ------------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ --
Costs and expenses:
Research and
development.......... 1,532 83 1,160
General and
administrative....... 2,648 280 2,528
----------- ---------- -----------
Total costs and
expenses............ 4,180 363 3,688
----------- ---------- -----------
Loss from operations.... (4,180) (363) (3,688)
Interest expense, net... (16) -- 2
----------- ---------- -----------
Net loss................ $ (4,196) $ (363) $ (3,686)
=========== ========== ===========
Basic and diluted net
loss per share........ $ (0.85) $ (0.09) $ (0.53)
=========== ========== ===========
Pro forma basic and
diluted net loss per
share................. $ (0.36) $ (0.05) $ (0.15)
=========== ========== ===========
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation........... 4,955,913 4,240,518 6,900,975
Weighted average shares
outstanding used in
pro forma basic and
diluted net loss per
share calculation..... 11,593,380 6,863,917 25,057,782
</TABLE>
<TABLE>
<CAPTION>
As of As of
December 31, 1998 March 31, 1999
----------------- --------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $3,470 $28,524
Working capital......... 1,385 26,090
Total assets............ 4,426 29,872
Line of credit and
capital lease
obligations........... 1,473 1,425
Redeemable preferred
stock................. 5,978 34,278
Total stockholders'
equity (deficit)...... (3,951) (7,227)
</TABLE>
Our statement of operations data for the period from inception through
December 31, 1998 includes approximately $35,000 of expenses incurred prior to
incorporation. Prior to incorporation, the founders primarily investigated the
feasibility of entering into the US Postal Service's Information Based Indicia
Program and initiated the certification process.
All expenses other than those related to research and development are
classified as general and administrative until we recognize revenue from our
principal business activities. In addition, the provision for income taxes
which consist solely of minimum state taxes is classified as general and
administrative.
Please refer to note 1 of the notes to our financial statements for a
description of the method used to compute basic and diluted loss per share and
pro forma basic and diluted loss per share. Our pro forma calculations give
effect to the conversion of all outstanding shares of our preferred stock into
common stock upon closing of this offering as if the conversion occurred on
January 9, 1998, or the date of original issuance, if later.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward looking statements that involve risks and
uncertainties. Actual events or results may differ materially from those
projected in these forward looking statements. See "Information Regarding
Forward Looking Statements." The following discussion of our financial
condition and results of operations also should be read in conjunction with the
financial statements and notes to those statements included elsewhere in this
prospectus.
Overview
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Beginning in September 1996,
our founders investigated the feasability of entering into the US Postal
Service Information Based Indicia Program and initiated the certification
process. We had no revenues and immaterial expenses prior to our incorporation
in Delaware on January 9, 1998. In February 1998, we raised $1.5 million in a
private placement transaction and commenced development of our Internet postage
service within the US Postal Service framework of specification and performance
requirements.
In August 1998, we received US Postal Service approval for Phase I beta
testing. Also in August 1998, we raised an additional $0.6 million in private
placements and commenced hiring key executives. In September 1998, we hired a
core technology team to continue development of our Internet postage service
and in October and November 1998, we closed another private placement
transaction for $3.9 million.
In December 1998, we changed our name from StampMaster, Inc. to Stamps.com
Inc. and received US Postal Service approval for Phase II beta testing, which
resulted in an increase to our user base for our service from 25 to 500. From
the end of December 1998 to the end of March 1999, we grew from 34 employees to
77 employees, including key executive hires. In February and March 1999, we
also completed a private placement transaction that raised $30.0 million. We
had deferred compensation of $6,725,000 and we will amortize that amount over
four years.
To date, we have not recognized any revenue and do not expect to recognize
any revenues until after we receive US Postal Service approval for our Internet
postage service.
Our Results of Operations
Revenues. We have recognized no revenues to date and we do not expect to
recognize revenues until after our Internet postage service is approved by the
US Postal Service for commercial release. If the US Postal Service approves our
Internet postage service for commercial release, we will offer service plans
that provide access to our Internet Postage Server and we plan to assess a
convenience fee based on the customer's postage use. We have not determined the
amount of the convenience fee.
Cost of Revenues. We currently have no cost of revenues because we have not
recognized any revenues to date. Once we begin to charge convenience fees, cost
of revenues will 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.
Sales and Marketing Expenses. Costs related to our sales and marketing
efforts, which to date have not been significant, are currently classified as
general and administrative expenses until we commence charging convenience
fees. Our sales and marketing expenses will consist of compensation for sales
and marketing personnel, advertising, creative development and promotional
costs and commissions. The majority of these costs will be directed to programs
designed to build brand name recognition, attract a customer base and retain
the anticipated customer base.
Research and Development Expenses. Our research and development expenses
principally consist of compensation for personnel involved in the development
effort of our Internet postage service, which includes our Web site and
systems, and expenditures for consulting services, third-party software and
other costs related to development. Our research and development expenses for
the year ended December 31, 1998 were $1.5 million. Our research and
development expenses increased to $1.2 million for the quarter ended March 31,
1999 from approximately $83,000 for the quarter ended March 31, 1998. The
increase is due to our expanded
22
<PAGE>
development efforts in the latest quarter, including increased personnel and
consulting costs. We believe that significant investments in research and
development are required to remain competitive. We expect that we will continue
to incur significant research and development expenses.
General and Administrative Expenses. Our general and administrative
expenses consist primarily of salaries and related costs for general corporate
functions, including finance, accounting, facilities and fees for legal and
other professional services. Our general and administrative expenses for the
year ended December 31, 1998 were $2.6 million. Our general and administrative
expenses increased to $2.5 million for the quarter ended March 31, 1999 from
approximately $280,000 for the quarter ended March 31, 1998. The increase is
principally due to increase in personnel, facility costs, professional service
fees and the amortization of deferred compensation.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the
private placement of equity securities, raising $36.0 million through March 31,
1999. At March 31, 1999, we had $28.5 million, in cash and cash equivalents,
and at March 31, 1998, we had $1.0 million in cash and cash equivalents. We
have had significant negative cash flows from operating activities in each
fiscal and quarterly period to date.
Net cash used in our operating activities was $2.9 million for the quarter
ended March 31, 1999, $0.3 million for the quarter ended March 31, 1998 and
$3.1 million for the year ended December 31, 1998. Cash used in operating
activities consisted primarily of net operating losses and increases in prepaid
expenses, which were partially offset by increases in accrued expenses and
accounts payable.
Net cash used in our investing activities was $0.3 million for the quarter
ended March 31, 1999, $0.1 million for the quarter ended March 31, 1998 and
$0.4 million for the year ended December 31, 1998. Net cash used in investing
activities in these periods consisted primarily of capital expenditures for
computer equipment, purchased software and office equipment.
Net cash provided by our financing activities was $28.3 million for the
quarter ended March 31, 1999, $1.5 million for the quarter ended March 31, 1998
and $6.9 million for the year ended December 31, 1998. Net cash provided by
financing activities was principally attributable to the private sale of
preferred stock and, to a lesser extent, to the proceeds from a line of credit.
We believe that our current cash balances together with the net proceeds of
this offering will allow us to fund our operations for at least the next 12
months. 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. See "Risk Factors--Our growth and operating results could be impaired if
we are unable to meet our future capital requirements."
Year 2000
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 not 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 comply with these "Year 2000"
requirements.
The US Postal Service requires participants in the Information Based
Indicia Program to maintain Year 2000 compliant systems and software. As a
result, we have reviewed the Year 2000 compliance of our systems. This review
has included testing to determine how our systems will function at and beyond
the Year 2000. Since inception, we have internally developed substantially all
of the systems for the operation of our Internet postage service. These systems
include the software used to provide customer interaction and transactional and
distribution functions to our service, as well as monitoring and back-up
capabilities. Based upon our assessment to date, we believe that our systems
are Year 2000 compliant and have submitted Year 2000 readiness disclosure
statements to the US Postal Service to indicate our Year 2000 compliance.
However, we cannot be sure how our software will integrate with other vendor-
provided software.
23
<PAGE>
We use and depend on third-party equipment and software, including systems
operated by the US Postal Service, that may not be Year 2000 compliant.
Consequently, our ability to address Year 2000 issues is, to a large extent,
dependent upon the Year 2000 readiness of these third parties' hardware and
software products. We are currently assessing the Year 2000 readiness of other
third-party supplied software, computer technology and other services and of
our vendors. We have initiated communications or obtained information from our
vendors and suppliers of third-party equipment and software to validate that
their products and systems are Year 2000 compliant. Based on the
representations that we have received and obtained from our third party vendors
and suppliers, we believe that their systems are Year 2000 compliant. We will
develop and implement, if necessary, a remediation plan with respect to third-
party software, third-party vendors and computer technology and service that
may fail to be Year 2000 compliant.
To date, the expenses associated with the assessment of our Year 2000
compliance have not been material and our potential remediation costs and
potential remediation plan cannot be determined at this time. If Year 2000
issues prevent our users from accessing the Internet or our service, purchasing
postage or using their credit cards, our business and operations will suffer.
Any failure of our third-party equipment or software to operate properly could
require us to incur unanticipated expenses, which could seriously harm our
business, operating results and financial condition. For example, we rely on
the US Postal Service's secure postage accounting vault to purchase postage
credit for our customers. If the US Postal Service systems are not Year 2000
compliant, users of our service may not be able to purchase additional postage.
The Year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
Year 2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support our operations
consists of a network of computers and telecommunications systems located
throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
Year 2000 issues that may impact the entire infrastructure. Our ability to
assess the reliability of this infrastructure is limited and relies solely on
generally available news reports, surveys and comparable industry data. Based
on these sources, we believe most entities and individuals that rely
significantly on the Internet are carefully reviewing and attempting to
remediate issues relating to Year 2000 compliance, but it is not possible to
predict whether these efforts will be successful in reducing or eliminating the
potential negative impact of Year 2000 issues. A significant disruption in the
ability of consumers to reliably access the Internet or to use their credit
cards or other electronic payment methods would have an adverse effect on
demand for our services and would harm our results of operations.
At this time, we have not yet developed a contingency plan to address
situations that may result if we or our vendors are unable to achieve Year 2000
compliance. The cost of developing and implementing this plan, if necessary,
could be material. Any failure of our material systems, our vendors' material
systems or the Internet to be Year 2000 compliant could have material adverse
consequences for us. These consequences could include difficulties in operating
our service effectively or conducting other fundamental parts of our business.
Recently Issued Accounting Pronouncements
The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1, "Software for Internal Use," which provides guidance on
accounting for the costs of computer software developed or obtained for
internal use. Currently, we capitalize costs of computer software obtained for
internal use in our Web design and network operations. These capitalized costs
are amortized based on their estimated useful life. Payroll and related costs
are not capitalized, as the amounts are immaterial and principally relate to
maintenance. Purchased or leased computer software used in research and
development activities are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 2., "Accounting for Research
and Development Costs." Statement of Financial Accounting Standards No. 2
generally requires all research and development costs to be charged to expense
when incurred if no alternative future uses exist. Statement of Position No.
98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. We do not expect that the adoption of Statement of Position
No. 98-1 will have a material impact on our financial statements.
24
<PAGE>
BUSINESS
This prospectus contains forward looking statements that involve risks and
uncertainties. Actual results and the timing of events could differ materially
from those projected in the forward looking statements due to a number of
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Our Company
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Our core service is designed
to enable users to print information based indicia, or electronic stamps,
directly onto envelopes, labels or business documents using ordinary laser or
inkjet printers. No additional hardware is necessary for a user to purchase and
print our Internet postage; the user's existing PC, printer and Internet set-up
are sufficient. Accessing our service is simple. A user will obtain our free
software either via a download from the Internet or through an install from a
CD-ROM. After installing the software and completing a brief registration
process, the user will connect via the Internet to our secure Postage Server
and purchase postage electronically 24 hours a day, seven days a week. We will
act as an ongoing intermediary between the US Postal Service and users by
offering the ability to purchase postage through our secure Postage Server. Our
technology works within rigorous US Postal Service requirements to provide
secure access to postage. Our Postage Server will be designed to interact with
word processing, contact and address management, accounting and corporate
applications to stamp letters, invoices, statements, checks and other business
documents automatically.
Overview of Our Industry
Growth of Internet Commerce
The Internet has emerged as a significant global communications medium,
enabling millions of people to share information and conduct business
electronically. A number of factors have contributed to the growth of the
Internet and its commercial use, including:
. the large and growing usage of personal computers in homes and
businesses;
. improvements in network infrastructure and bandwidth;
. easier and cheaper access to the Internet;
. increased awareness of the Internet among consumer and business users;
and
. the rapidly expanding availability of online content and commerce.
According to International Data Corporation, the number of Web users
worldwide will grow from an estimated 100 million in 1998 to 319 million by
2002. In addition, International Data Corporation estimates that the percentage
of Web users buying goods and services on the Internet will grow from 26% in
December 1997 to 40% in December 2002. International Data Corporation further
estimates that the total value of goods and services purchased over the Web
will increase from approximately $12.4 billion in 1997 to approximately $425.0
billion in 2002. Business-to-business commerce is expected to contribute
significantly to the future growth of Internet commerce. For example,
International Data Corporation estimates that business-to-consumer commerce on
the Internet will grow from approximately $5.0 billion in 1997 to approximately
$95.0 billion in 2002 while business-to-business commerce on the Internet will
grow from approximately $7.3 billion in 1997 to approximately $330.5 billion in
2002.
Rapid Growth in Internet Usage by Small Businesses
The small office/home office and small business markets represent a large
and growing customer segment. According to International Data Corporation,
there were a combined 44.7 million small businesses and home offices in the
United States in 1998, a number which International Data Corporation forecasts
will grow to 57.6 million by 2002. For 1998, International Data Corporation
reported that small businesses with less than 100 employees numbered 7.4
million of which 77% had fewer than 10 employees. In addition, home
25
<PAGE>
offices numbered 37.3 million, of which 22.2 million were income producing home
offices, and the remainder were home offices used for corporate after hours
work or telecommuting.
We believe that small businesses increasingly will rely on the
functionality and pervasiveness of the Internet to reach and serve a large and
global group of end users. The reduced cost of selling and marketing on the
Internet, the ability to build and serve a large base of customers
electronically and the potential for personalized low-cost customer interaction
provide significant economic advantages. These overall benefits, combined with
accessibility, have led to adoption of the Internet by small businesses and
home offices. According to International Data Corporation, there will be 30.2
million US home offices accessing the Internet by 2002. According to Cyber
Dialogue/FindSVP's 1999 US Small Business Internet Survey, 43% of businesses
with fewer than 100 employees are estimated to be online in 1999. Of those
small businesses that are currently online, 63% are already ordering products
online and are spending an average of $171 monthly on postage. The Cyber
Dialogue/FindSVP survey also found that 64% of online small businesses have
employees who are online multiple times a day. This increased use of the
Internet has resulted in small businesses becoming significant participants in
the electronic commerce market. International Data Corporation estimates that
small businesses accounted for $4.4 billion of electronic commerce in 1998 and
will account for approximately $100.4 billion of electronic commerce activity
in 2002.
Traditional Postage Industry and the Emergence of the Internet Postage
The traditional postage industry is large and growing. According to the US
Postal Service Annual Report, the total postage market was $58.0 billion in
1998, of which $38.9 billion was represented by first class, priority and
express mail with the remainder consisting of other classes of mail including
periodicals, bulk and international. In addition, the US Postal Service
processed over 197 billion pieces of mail in 1998 and, despite the growth in
the use of e-mail, the total US postage market increased by 3.1% in 1998 from
1997. Keenan Vision, an independent research firm, estimates that revenues from
first class, priority and express mail will grow to $46.2 billion by 2002.
Despite this consistent growth in the postage market, the US Postal Service has
experienced:
. strong competition from overnight delivery services;
. loss of revenue due to postal fraud; and
. continued public demand for more convenient access to US Postal Service
products and services.
In response to these challenges, in 1995 the US Postal Service announced a
program for its first new postage method since the approval of the postage
meter in 1920. The Information Based Indicia Program is a ten-stage
certification process for commercial release of Information Based Indicia
products, or electronic postage, that can be purchased over the Internet and
printed from a computer using ordinary laser or inkjet printers. Indicia are a
new type of US Postal Service approved postage marks similar to stamps or
metered postage. Information Based Indicia, which are essentially digital
stamps, consist of a two dimensional bar code containing an encrypted digital
signature that make each indicium unique. Through the Information Based Indicia
Program, the US Postal Service is seeking to enhance user convenience with a
new access channel for postage that allows users to print postage from their
personal computer 24 hours a day, seven days a week. The Information Based
Indicia Program is intended to achieve the US Postal Service's security and
revenue objectives by incorporating technological security features in each
unique digitally-signed indicium and a secure postage accounting vault to
provide greater revenue security. All Internet postage products, including any
subsequent enhancements or additional implementation of a product, must
complete US Postal Service testing and evaluation to ensure operational
reliability, financial integrity and security to become certified for
commercial distribution. Overall, the Information Based Indicia Program aims to
provide improved, accurate mail processing and increased productivity, a result
which is intended to:
. reduce US Postal Service costs and postal fraud;
. increase US Postal Service service to underserved markets, including
the rapidly growing small office/home office and other small business
markets; and
. improve the US Postal Service's competitive position against overnight
delivery services.
26
<PAGE>
The emergence of Internet postage though the US Postal Service's
Information Based Indicia Program has created an attractive channel for the
sale of postage, particularly to small office/home office and other small
businesses. According to a 1997 US Postal Service survey of over 1,600 home
offices, 98% of the respondents would likely use commercial software products
to print postage directly from their computers, 88% of the respondents did not
use a postage meter and 43% of the respondents purchased over $50 of postage
per month. We believe that small businesses consider cost-effective mail
generation, elimination of trips to the post office and the production of
professional-looking mail as key components of an effective mailing system.
Internet postage satisfies these requirements by providing 24 hours a day,
seven day a week access to metered mail from the desktop. Furthermore, when
considering the total cost of a traditional postage meter, including lease fees
for both the meter and scale, meter resetting fees and special ink cartridges,
small businesses pay a significant premium in addition to their normal postage
expenditures for leasing a postage meter. Leasing a postage meter also requires
space for additional hardware and the purchase of specialized materials and
supplies. Meanwhile, small businesses that find leasing a postage meter
uneconomical are still faced with the inconvenience of travelling to the post
office, ATM or other locations to purchase stamps.
Our Solution
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. We target the small
office/home office, other small business, corporate and consumer user markets
and provide an Internet service that is accessible via a free software
downloaded from the Internet or installed from a free CD-ROM; the user's
existing PC, printer and Internet set up are sufficient to purchase and print
postage. Using our service requires no purchase or installation of a hardware
device for a user's PC and users can access and print postage without the US
Postal Service address matching CD-ROM needed by hardware-based Internet
postage products. Our Internet postage solution was the first software-based
service approved for beta testing by the US Postal Service and provides the
following benefits to the user and the US Postal Service:
Benefits to the User. Our Internet postage service is designed to be
convenient, cost effective and easy to use and provides the following benefits
to the user:
. unlimited, convenient access to postage from the desktop 24 hours a
day, 7 days a week;
. prints address and postage in one easy step;
. secure and accurate tracking of postage expenditures;
. cost effective relative to traditional postage meter solutions; and
. no additional hardware is required.
Using our free software, which can be downloaded from the Internet or
installed from a CD-ROM, users can purchase postage with their PC from our
secure Postage Server where and when it is most convenient. Our solution allows
users to avoid common inconveniences, including running out of postage, using
too much postage for a letter or parcel and enduring long lines at the post
office. The Stamps.com service is designed to enable users to print postage in
any denomination and rely on secure, accurate management of their postal
dollars. Finally, we will seek to enhance our convenient, easy to use service
with other benefits, including integrating our software with a wide range of
software applications to increase the efficiency of the everyday tasks of
writing letters, paying bills or generating invoices.
Benefits to the US Postal Service. Our Internet postage service provides
several benefits to the US Postal Service including:
. increased convenience to the postal consumer;
. increased security to protect postal revenues;
. the ability to more effectively compete with overnight delivery
services;
. the use of advanced technology for more cost efficient mail processing
and tracking; and
. cost savings relating to printing and distribution of traditional
postage stamps.
27
<PAGE>
We believe our convenient, cost effective, easy to use Internet postage
solution addresses the US Postal Service's goals for the Information Based
Indicia Program. Our service is designed to provide a high level of security
and auditing capabilities, helping to reduce the millions of dollars of known
postal fraud to the US Postal Service. As additional security and as required
by US Postal Service specifications, our solution will provide for the printing
of unique, secure Information Based Indicia, or electronic postage, on ordinary
laser or inkjet printers. Our service is designed to promote postal
efficiencies and cost savings for the US Postal Service with address
verification and correction and extended zip code printing capabilities.
Finally, our solution is designed to allow the US Postal Service to capitalize
on advances in technology, especially as the US Postal Service seeks to phase
out traditional postage methods.
Our Strategy
Our objective is to be the leading provider of convenient, cost effective
and easy to use software-based Internet postage services. To achieve this
objective, our strategy includes the following key elements:
Enhance Our Brand Name. We intend to increase our brand recognition through
a variety of marketing and promotional techniques, including the prominent
display of our logo on all pieces of mail generated through our service and co-
marketing and co-branding agreements with strategic partners. We also intend to
promote our brand by conducting an ongoing public relations campaign and
developing affiliations and affinity programs. We believe that building the
brand awareness of our Internet Postage Server is critical to attracting and
expanding our customer base.
Leverage Our Strategic Partnerships. We intend to develop and utilize
strategic partnerships to gain access to large numbers of potential users,
cooperatively market products and services, cross-sell additional services and
gain entry into new markets. As of May 1999, we have entered into strategic
partnerships with AOL, Intuit and Office Depot, among others. We believe that
we can further utilize our premier strategic partnerships to enhance our brand
name and grow our customer base.
Establish First-to-Market Advantages. Our Internet postage solution was the
first software-based Internet postage solution approved for the beta testing
that is required for US Postal Service certification. We believe that we will
have significant first-to-market advantages as a software-based solution in the
Internet postage market. We intend to use this first-to-market advantage to
rapidly establish our brand and grow our customer base. We believe our
potential market position will be enhanced by significant barriers to entry,
including:
. a ten-step US Postal Service certification process, including a three
phase beta testing requirement;
. our anticipated lead in providing a software-based Internet postage
solution that does not require additional hardware or a CD-ROM to be
employed with a user's PC;
. significant up-front time and investment by potential competitors in
technology and technical infrastructure;
. strong brand awareness for our software-based Internet postage
solution; and
. inconvenience of switching from one metered postage provider to
another.
Rapidly Grow Our Customer Base. We intend to broaden our customer base by
enhancing our brand, forming strategic partnerships and establishing first-to-
market advantages. We believe that our service can achieve rapid distribution
because there is no investment in hardware beyond a PC and printer, and users
can obtain our software for free. We are primarily targeting the small
office/home office and small business markets as well as various segments of
the corporate and consumer markets.
Leverage Our Software-Based Solution and Technology. We intend to utilize
our scaleable, e-commerce platform to enhance our service offerings and expand
the benefits of secure online transactions. We believe that we have an inherent
advantage relative to our competitors in the Internet postage industry because
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our solution does not require the use of additional hardware. We believe we can
achieve rapid distribution of our services as users download or install our
free software. Additionally, we provide increased flexibility and scalability
over competing solutions because transactions are processed through our secure
Postage Server while competing hardware solutions require each user to utilize
a CD-ROM and peripheral hardware device for each PC that is engaged in a
postage transaction. We will continue to invest in and enhance our technology
in order to increase efficiency, reliability and bandwidth, and to expand our
services and reduce our costs.
Pursue Additional Revenue Opportunities. We intend to utilize our brand,
electronic commerce capabilities, infrastructure and user base to develop
additional revenue opportunities. We will consider the following opportunities:
. Sale of Postage Related Products. We intend to use our Web site to
offer mailing-related products, including labels and envelopes,
mechanical scales, PC-enabled digital scales and label printers. We
also intend to offer package insurance to our customers through third-
party insurance companies.
. International Internet Postage Market. We believe that if foreign
postal authorities accept the use of Internet postage there will be
significant opportunities in international markets for our Internet
postage service. We intend to focus on those regions where there is a
critical mass of Internet use and a large current postage market with a
need for highly secure, transaction-oriented Internet services.
. Document Fulfillment Market. We will consider investing in technology
that will allow us to extend our core Internet postage technology to
print authenticated documents, including airline, movie and concert
tickets, from laser or inkjet printers.
Our Internet Postage Service
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Our core service is designed
to enable users to print information based indicia, or electronic stamps,
directly onto envelopes, labels or business documents using ordinary laser or
inkjet printers. No additional hardware is necessary for a user to purchase and
print our Internet postage; the user's existing PC, printer and Internet set-up
are sufficient.
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Accessing our service is simple. A user will obtain our free software
either via a download from the Internet or through an install from a CD-ROM.
After installing the software and completing a brief registration process, the
user can connect via the Internet to our secure Postage Server and purchase
postage electronically 24 hours a day, seven days a week. We act as an ongoing
intermediary between the US Postal Service and users by offering users the
ability to purchase postage through our secure Postage Server. We use
sophisticated technologies which meet strict US government security standards
and our service incorporates the US Postal Service mandated address
verification features to enhance the efficiency of mail processing and
delivery. Finally, our Postage Server is designed to interact with word
processing, contact and address management, accounting and corporate
applications to provide postage for letters, invoices, statements, checks and
other business documents automatically. Our customers will sign up for a
service plan that provides access to our Internet Postage Server and we plan to
assess a "convenience" fee based on the customer's postage use. The service
plan will also offer benefits that could include various items, such as free
postage, free labels and envelopes and discounts on scales or printers.
As part of our Internet postage service, we intend to roll out functional
modules of our Web site to address our strategic initiatives, including:
. a Virtual Post Office through which we plan to provide a variety of
mailing services and resources including bulk mail fulfillment, free e-
mail, Express and Priority Mail tracking, ZIP Code look-up, and other
postal information;
. a Product Center through which we plan to feature mailing supplies and
general office supplies; and
. a Small Business Resource Center through which we plan to feature
products, services, and editorial content targeted to the small business
market.
The US Postal Service Certification Process
All Internet postage products must complete extensive US Postal Service
testing and evaluation in the areas of operational reliability, financial
integrity and security to become certified for commercial distribution. Each
additional implementation of a particular product or function requires
additional evaluation and approval by the US Postal Service prior to commercial
delivery.
The US Postal Service certification process for Internet postage is a
standardized, ten-stage process concluding with commercial release. Each stage
requires US Postal Service review and authorization to proceed to the next
stage of the certification process. The US Postal Service has no published
timeline or estimated time to complete each of the ten stages of the program.
The ten stages of the US Postal Service certification process are defined
at the US Postal Service Web site and are as follows:
<TABLE>
<S> <C>
1. Letter of Intent 6. US Postal Service Address
2. Non-Disclosure Agreements Matching System CD-ROM Integration
3. Concept of Operations 7. Product Submission/Testing
4. Software and Documentation 8. Product Infrastructure Testing
Requirements 9. Three Phase Beta Test Approval
5. Provider Infrastructure Plan (Limited Distribution)
10. Vendor Product Approval (Full
Distribution)
</TABLE>
Our Certification Progress and Commercial Release
In March 1997, we submitted our letter of intent to join the Information
Based Indicia Program. From March 1997 through August 1998, we progressed
through the first eight stages of the US Postal Service certification process.
On August 24, 1998, the US Postal Service announced that we were approved for
beta
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<PAGE>
testing and our Internet postage service became the first software-based
postage solution approved by the US Postal Service for market testing.
Subsequent to US Postal Service approval for beta testing, we selected 25 users
from approximately 1,000 beta test applications. Beta users are small
office/home office, other small business and home consumer users with an
average mail volume of 30 to 500 pieces per month. Most of the beta users we
selected do not have postage meters, but all have some form of Internet access.
The following describes the planned three phase beta test that we are currently
conducting:
Phase I. We completed Phase I testing in December 1998. All Phase I
participants were located in the Washington, D.C. area. In this phase, we
performed on-site software installations for all beta testers, including five
US Postal Service users. User feedback was largely positive and focused on
feature enhancements and US Postal Service regulations. We provided user
support through an 800-number, online help, and printed or viewable manuals. We
generated weekly usage reports and log files that were forwarded to the US
Postal Service Beta Program Manager. Phase I users and data requirements
continued for Phases II and III.
Phase II. We completed Phase II testing in May 1999. Phase II of our beta
testing included the expansion of the user base by an additional 475 users.
These users were in the Washington, D.C. and San Francisco Bay Areas per US
Postal Service specification. Installations in Phase II were executed via a
software download over the Internet or with a CD-ROM provided to users. Our
recruiting process for testers included use of our Web site, local advertising,
small office/home office lists and business development relationships. During
Phase II beta testing, we developed electronic file submission requirements,
continued to strengthen our US Postal Service relationship, maintained heavy
user focus and dialogue and continued to develop support strategy and
infrastructure.
Phase III. We commenced Phase III testing on May 6, 1999. Phase III of beta
testing includes expansion of the user base from 500 to 1,500 users in the
Washington, D.C. and California regions. Phase III will provide us and the US
Postal Service the opportunity to perform statistically significant market
analyses to determine marketing and pricing strategies and to further evaluate
our systems in preparation for a national launch.
US Postal Service Approval. Upon satisfactory completion of Phase III, the
US Postal Service will publish and announce in the federal register the
approval of the Stamps.com service for commercial release.
Commercial Release. Following US Postal Service approval, we will conduct a
readiness review and then be subject to a US Postal Service mandated limited
launch of 10,000 customers following the initial commercial release of our
service. After completion of the limited launch, we will conduct a controlled
national launch of our service through our strategic distribution partners.
Our Strategic Distribution Partners
Our objective is to achieve significant market penetration through
relationships with strategic partners in each of the four following categories:
. Web portals, content sites and Internet service providers, including
AOL;
. independent software vendors, including Intuit/Quicken.com;
. PC, printer and other equipment manufacturers; and
. office/postal supplies vendors, including Office Depot and Avery
Dennison.
We believe we will benefit from these relationships by achieving positive
brand association and a cost effective means of customer acquisition. We
believe our partners can utilize their relationships with us to derive
additional revenue opportunities, including revenue-sharing arrangements with
us, and provide more value-added services to their customers.
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<PAGE>
America Online. In December 1998, we entered into a two phase co-marketing
and distribution agreement with AOL and are currently in the first phase, or
Pre-Launch Phase, of the program. During the Pre-Launch Phase, we are
collaboratively conducting development, testing, advertising and educational
activities over the AOL network. The second phase of the Stamps.com/AOL
program, or Launch Phase, becomes active when the US Postal Service approves
the commercial release of our Internet postage service. Subject to conditions,
the Launch Phase provides the following benefits to us:
. our software will be bundled exclusively on CD-ROMs that are
distributed to AOL prospects and customers;
. our software CD-ROMs will exclusively be inserted in boxes with select
products purchased through AOL Store;
. we will be featured prominently when AOL Keyword "stamps" is used;
. we will receive top positioning on the AOL Network postage category
page; and
. we will collaboratively develop and present an exclusive three day
Internet postage educational program for the AOL customer base.
The Launch Phase will also include a significant advertising impression
commitment throughout select AOL properties, including the AOL Service,
aol.com, Digital Cities and CompuServe.
Office Depot. In February 1999, we entered into a partnership with Office
Depot, Inc., a leading seller of office products. Our agreement with Office
Depot provides us with a download link to sign up for our service available
from the Office Depot Online Superstore, including "above the fold" positioning
of the link, which means our link will appear on the portion of the Office
Depot Web site that doesn't require a user to scroll down the page to access
our link. The agreement also contemplates a "point of purchase" advertisement
campaign.
Avery Dennison. In March 1999, we entered into to a distribution
relationship with Avery Dennison Corporation, a leading supplier of adhesive
materials, office products and label systems. Our agreement with Avery Dennison
provides that through 1999 our service will be exclusively offered for download
from the Avery Web Site and exclusively distributed on Avery Label Pro Software
CD-ROMs through retail channels. During this time period, we will exclusively
promote Avery Label products.
Dymo/CoStar. In March 1999, we entered into a distribution relationship
with Dymo, a leading label-making brand available in 160 countries worldwide.
Dymo is part of Esselte, an international office and business supply company,
which recently acquired CoStar Corporation. CoStar is a leading manufacturer of
specialty printers, software and supplies for printing labels, bar codes,
receipts and identification badges. Our agreement with Dymo/CoStar provides
that our software will be bundled on all software installation CD-ROMs included
in all CoStar LabelWriter printer boxes. In addition, our software will be
downloadable from the CoStar Web site.
Seiko Instruments. In March 1999, we entered into a distribution agreement
with Seiko Instruments USA Inc., a leading supplier and marketer of electronic
components, consumer electronics, printer mechanisms, PC peripheral color
printers, and specialty black and white printers. Our agreement with Seiko
provides that our software will be bundled on software installation CD-ROMs
included in all Seiko Smart Label Printer boxes. In addition, our software will
be downloadable from the Seiko Web site.
Westvaco. In April 1999, we entered into a distribution and co-development
agreement with Westvaco Corporation, a leading manufacturer and supplier of
paper materials, envelopes and other packaging products. Our agreement with
Westvaco provides that our service will be promoted on boxes of Westvaco's
Columbian brand laser and inkjet envelopes sold through several channels,
including office superstores. In addition, our service will be promoted on the
Columbian brand Web site.
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Intuit. In May 1999, we entered into a promotional agreement with Intuit,
Inc., a leading supplier of small business software. Our agreement provides us
with an electronic link to our Web site available from various channels within
the Intuit network of Web sites, including the "small business channel" of the
Quicken.com, Excite Money & Investing and WebCrawler Money & Investing Web
sites. Our agreement also provides us with promotional advertisements on the
"QuickBooks.com" Web site and on the home page of the "Quicken.com" Web site.
In addition, we have promotional advertisements and electronic links to our Web
site available from Quicken '99 software products.
Our Marketing and Sales
We intend to establish a strong brand name by allocating significant
resources to our marketing and distribution efforts. We intend to distribute
our postage printing software through our Web site. In addition, we will rely
on traditional media and several other channels to achieve rapid distribution
of our services, including:
Web Sites. We intend to work with high traffic Web sites including portals,
commerce and content sites, and other high visibility Internet sites. This
channel will provide the opportunity for users to download our software and
access our Internet postage service.
Affiliate Programs. We intend to utilize the traffic and customers of other
online sites by offering revenue-sharing opportunities to affiliates that
provide a link on their Web site to download our Internet postage software and
access other related services. Affiliates can capitalize on the ability to
offer new, value-added services and increase repeat visits to their site.
Preloaded/Bundled Hardware and Services. We intend to take advantage of
relationships with vendors of hardware products, including computers, printers
and label makers, and with Internet service providers to offer our software to
buyers of their products. Resellers can capitalize on the ability to promote
new features on commodity, non-differentiated products and services.
Embedded Software. We intend to seek further partnerships with software
publishing companies. Software packages that would benefit from our current
services would include word processing, contact and address management,
accounting, billing and retail software.
Postal Supplies. We will target companies in the postal supplies industry,
including manufacturers of envelopes, labels, checks, forms, digital scales and
postage meters.
Financial Services. We will seek distribution and co-branding opportunities
with banks and brokerages by incorporating our Internet postage service into
online banking and investing offered by financial service providers.
Direct Sales. We will target specific large industries or vertical markets
where distributed use of the mail is prevalent, including insurance, travel and
hospitality, financial services, law firms or other businesses where branch
offices or agent organizational structures are common. We believe that
significant benefits in the form of usability, convenience and cost savings to
large corporate users may result from integrating our Internet postage service
into the everyday work flow.
Customer Retention Programs. We believe we can increase customer retention
by offering co-branded affinity marketing programs, including frequent flyer
miles based on postage and other related expenditures. Further, we intend to
create strong customer loyalty by offering discounts to our online store that
are tied to customer postage volume.
Our Competition
The market for Internet postage products and services is new and we expect
it to be intensely competitive. At present, three other Internet postage
vendors have hardware products available for beta testing, one of which was
approved for Phase III beta testing at the same time as our software-based
service. One of
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<PAGE>
the vendors also has a software-based product in beta testing. However, we were
the first participant authorized for beta testing by the US Postal Service with
a software-based solution that does not require the purchase or use of
additional hardware for a user's PC and printer set-up. We were approved for
beta testing on August 25, 1998 and the other software-based product vendor
announced their approval for the first stage of beta testing on March 29, 1999.
As a result, we believe we have a significant development lead over software-
based solutions given the length of time associated with security evaluation
and beta testing to which the US Postal Service subjects all new product
offerings.
The following is a summary of our competitors in the Information Based
Indicia Program program:
E-Stamp Corporation. E-Stamp is a developer and marketer of a hardware-
based solution enabling users to generate postage transactions from their
existing personal computers and printers. E-Stamp was the first company to gain
US Postal Service approval for market testing of a hardware storage device
identified as the Postal Service Device. E-Stamp is currently in beta testing
for its PC Postal Security Device product and announced their approval for
Phase III beta testing in May 1999.
Neopost. Neopost is a large French postage company with a small percentage
of US market share in the traditional postage meter industry. Similar to E-
Stamp, Neopost has developed an online postage product that requires a special
purpose hardware device, and announced their approval for Phase I beta testing
in September 1998. Neopost has also announced a software-based postage product
for which it is seeking US Postal Service certification. On March 29, 1999,
Neopost announced approval for their software based postage product for Phase I
beta testing.
Pitney Bowes, Inc. Pitney Bowes is the current market leader in the
traditional postage meter business and according to its most recent annual
report had approximately $4.2 billion in revenues in 1998. Pitney Bowes has
developed a product similar to E-Stamp which requires the use of a specialized
hardware device for postage transactions. Pitney Bowes announced the approval
of their hardware-based product for Phase II beta testing on March 9, 1999.
In addition to competing with Internet postage vendors for market share of
Internet postage sales, we will also compete with traditional postage methods
including stamps and metered mail. While we believe our Internet postage
service provides benefits over traditional postage methods, we cannot be
certain that Internet postage will be adopted by postage consumers on a
commercial scale, if at all. These customers may continue to use traditional
means to purchase postage, including purchasing postage from their local post
office. Any failure by us or other Internet postage vendors to displace
traditional postage methods would seriously impact our ability to compete with
providers of traditional postage.
We may also face competition from hardware-based products. Although, we
believe our software-based solution is easier to use than hardware-based
products, hardware-based products have some advantages. For example, our
service requires a user to connect to the Internet each time the user prints
postage, while the hardware-based solution allows users to download postage
onto a storage device that is connected to the user's computer. If users of
hardware-based products do not transition to software-based solution we could
face continuing competition from this market.
Overall, we may not be able to maintain a competitive position against
current or future competitors as they enter the markets in which we compete.
This is particularly true with respect to competitors with greater financial,
marketing, service, support, technical, intellectual property and other
resources than us. Our failure to maintain a competitive position within the
market could seriously harm our business, financial condition and results of
operations. We believe that the principal competitive factors in our market
include:
. US Postal Service product certification;
. ability to successfully achieve commercial release of an Internet
postage product;
. brand recognition;
. convenience;
. ease of use;
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. price;
. accountability;
. security;
. compatibility;
. accuracy; and
. integration.
For further discussion of the competitive risks and factors to be
considering in making an investment in our common stock, see "Risk Factors--If
we are unable to compete successfully, our revenues and operating results will
suffer."
Our Technology
Our service is comprised of the following key components:
System Architecture. Our servers are located in a high-security, off-site
data center and operate with internally developed security software. These
servers create the information based indicia. These servers also process
postage purchases using secure technology that meets US Postal Service security
requirements.
Our service currently supports Windows-based client applications, which we
believe is easier for customers to use and provides the power and flexibility
necessary to support a variety of label and envelope options and a wide range
of printers. In addition, our application employs an internally developed user
authentication mechanism for additional security.
Transaction Processing. Our transaction processing servers are a
combination of secure, commercially available technologies that are designed to
provide secure and reliable transactions. Our system implements hardware to
exceed the highest government standard for security and data integrity
currently in effect. The performance and scalability of our Internet postage
system allows a wide range of users to process postage transactions through our
Web site.
Database Processing. Our database servers are designed to complement
industry leading database technologies and can be built to scale incrementally
as needed.
Client Interoperability. Our system utilizes a secure client module for
authentication, which has been designed to minimize transmission time over the
Internet. The client module is designed to be the building block for Internet
postage capabilities that are accessible from popular software applications.
Our client module will be used by our postage application as well as add-ins
for popular word processing applications and third party mailing and business
systems.
Our Intellectual Property
We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and protect intellectual
property rights in our products, services, know-how and information. We have
three issued US patents and have filed three patent applications in the United
States. We have also applied for several trademarks and service marks. We plan
to apply for other patents in the future.
Despite efforts to protect our intellectual property rights, we face
substantial uncertainty regarding the impact that other parties' intellectual
property positions will have on the Internet postage market. In particular,
Pitney Bowes has sent formal comments to the US Postal Service asserting that
intellectual property of Pitney Bowes related to postage metering and systems
would be infringed by products meeting the requirements of the Information
Based Indicia Program's specifications. For a discussion of claims by Pitney
Bowes and risks
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<PAGE>
associated with intellectual property, please refer to "Risk Factors--Potential
intellectual property infringement claims, particularly from Pitney Bowes,
could delay our development and harm our results of operations."
Our Employees
As of May 31, 1999, we had 99 full time employees, of which 40 were
employed in research and development, 32 were employed in network operations,
11 were employed in sales and marketing, and 16 were employed in administrative
positions. None of our employees are represented by a labor union, and we
consider our employee relations to be good. We intend to expand significantly
our employee base in 1999. See "Risk Factors--We rely on a relatively new
management team and need additional personnel to grow our business."
Our Properties
Our corporate headquarters is located in a 41,000 square foot facility in
Santa Monica, California under a lease expiring on May 31, 2004. We also have a
5,000 square foot satellite research and development site in Irvine, California
under a lease expiring in September 1999. We believe that our current
facilities and other facilities that will be available to us will be adequate
to accommodate our needs for the foreseeable future.
Legal Proceedings
We are not currently involved in any legal proceedings, nor have we been
involved in any such proceedings that has had or may have a significant effect
on our financial position. We are not aware of any material legal proceedings
pending against us. See "Risk Factors--Potential intellectual property
infringement claims, particularly from Pitney Bowes, could delay our
development and harm our results of operations."
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding our executive
officers and directors as of May 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
John M. Payne........... 43 Chief Executive Officer, President and Director
John W. LaValle......... 42 Chief Financial Officer, Senior Vice President of Operations, and Secretary
Michael D. Walther...... 45 Senior Vice President, Network Operations
Timothy A. Von Kaenel... 33 Senior Vice President, Product Development
Douglas J. Walner....... 29 Vice President, Business Development
Jeffrey L. Green........ 28 Vice President, Marketing
Candelario J. Andalon... 30 Corporate Controller
Thomas H. Bruggere (2).. 53 Chairman of the Board of Directors
Mohan P. Ananda......... 52 Director
David C. Bohnett (1).... 43 Director
Jeffrey J. Brown (1).... 38 Director
Thomas N. Clancy (2).... 41 Director
G. Bradford Jones (2)... 44 Director
Marvin Runyon (1)....... 74 Director
Loren E. Smith.......... 61 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
John M. Payne has been our Chief Executive Officer and President and a
Director since October 1998, and was a consultant to us from May 1998 to
October 1998. From June 1994 to January 1998, Mr. Payne served as the President
and Chief Operating Officer and later the President and Chief Executive Officer
of Airmedia, Inc., a wireless communications software and service provider. On
April 15, 1999, Airmedia filed for Chapter 11 bankruptcy protection. From
October 1992 to June 1994, Mr. Payne was the founding Chief Executive Officer
of Fingertip Technologies, Inc., a software company. Previously, Mr. Payne co-
founded and served as President of two specialty software firms, Financial
Microsystems from June 1986 to October 1992, and LoanStar Computer from
September 1979 to November 1986. Mr. Payne received his B.A. in Economics from
the University of California, Irvine.
John W. LaValle has been our Chief Financial Officer, Senior Vice President
of Operations, and Secretary since September 1998. From July 1997 to September
1998, Mr. LaValle served as Chief Financial Officer of Comcore Semiconductor,
Inc., a semiconductor manufacturer. From November 1994 to July 1997, he was the
Chief Financial Officer of Trikon Technologies; a semiconductor equipment
manufacturer. Previously, Mr. LaValle served as the Chief Financial Officer at
Superconductor Technologies, a manufacturer of high temperature thin film
superconductors used in cellular base station applications from September 1989
to November 1994. From April 1987 to September 1989, he was the Chief Financial
Officer of PS Medical, a manufacturer of implantable neurosurgery products.
From August 1984 to February 1987, Mr. LaValle served as a senior financial
analyst for Chevron Corporation, and from December 1980 to September 1982, he
served as a senior analyst for Andersen Consulting. Mr. LaValle received his
B.A. in Government from Boston College and his M.B.A. from Harvard University.
Michael D. Walther has been our Senior Vice President of Network Operations
since April 1999 after having served as a consultant since January 1999. From
December 1997 to December 1998, Mr. Walther provided interim CEO/COO support to
early stage venture companies. In June 1994, he co-founded Artios Corporation,
an enterprise solutions company, and served as its President until December
1997. From October 1989 to June 1994, Mr. Walther served as President of AEI, a
computer aided design software firm. Mr. Walther received his B.S. in Computer
Science from the Texas A&M University--School of Commerce.
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Timothy A. Von Kaenel has been our Senior Vice President of Product
Development since January 1999. From July 1998 to January 1999, Mr. Von Kaenel
was Director, Product Management at IMA, a customer service software company.
From July 1995 to July 1998, Mr. Von Kaenel was Senior Vice President of
Product Development at AirMedia, Inc., a wireless communications software and
service provider. On April 15, 1999, Airmedia filed for Chapter 11 bankruptcy
protection. Before AirMedia, Mr. Von Kaenel was Vice President, Interactive
Technologies at Advanced Media, a multimedia software and interactive services
company. In 1990, he founded and was President of Vision Imaging, an
international developer and publisher of multimedia software products, which
was later acquired by Advanced Media. Mr. Von Kaenel received his B.A. in
Economics and M.B.A. from the University of California, Irvine.
Douglas J. Walner has been our Vice President of Business Development since
September 1998, and from March 1998 to August 1998, Mr. Walner served as a
business development and strategic relationship consultant. From January 1996
to March 1998, Mr. Walner was the Director of Business Development at
CyberMedia, a software company. Mr. Walner served as the Original Equipment
Manufacturer Sales Manager at Airmedia, Inc., from April 1994 to January 1996.
Prior to 1994, Mr. Walner served as a Program Manager at Mortgage Capital
Group/City National Bank. Mr. Walner received his B.A. in History from Tulane
University.
Jeffrey L. Green has been our Vice President of Marketing since co-founding
Stamps.com in September 1996. From August 1992 to May 1995, Mr. Green served as
an account executive at Ziff Davis, Inc., a publishing company. Mr. Green also
worked at Hewlett Packard in Product Marketing in 1996 while attending the
Anderson School at UCLA. Mr. Green received his B.A. in Political Science from
Dartmouth and his M.B.A. from UCLA.
Candelario J. Andalon has been our Corporate Controller since October 1998.
From September 1991 to September 1998, Mr. Andalon served in various capacities
at Ernst & Young LLP, most recently as Manager in the firm's Technology,
Communications and Entertainment group. Mr. Andalon received his B.S. degree in
Accounting from Loyola Marymount University and is a Certified Public
Accountant.
Thomas H. Bruggere has been our Chairman of the Board of Directors since
April 1998. Since 1994, Mr. Bruggere has been a private investor. In 1995 and
1996, Mr. Bruggere was the Democratic Nominee for the US Senate from Oregon.
Mr. Bruggere founded Mentor Graphics, an electronic design automation software
company, in 1981 and served as its Chief Executive Officer until 1994. Mr.
Bruggere also serves on the Board of Directors of Open Market, Inc., a software
development company, and several privately-held companies. Mr. Bruggere
received his B.S. in Mathematics from UC Santa Barbara, his M.S. in Computer
Science from the University of Wisconsin and his M.B.A. from Pepperdine
University.
Mohan P. Ananda has been a Director since January 1998. Mr. Ananda is a
founder and currently serves as the Chief Executive Officer and Chairman of the
Board of AmazingHitz.com, Inc., an Internet-based entertainment company. From
January 1997 to October 1998, Mr. Ananda served as our Chief Executive Officer.
From June 1986 to December 1996, Mr. Ananda was a partner of Ananda & Krause, a
law firm. Mr. Ananda also serves on the Board of Directors of other privately-
held companies. Mr. Ananda received his B.S. in Engineering from Coimbature
Institute of Technology in India, his M.S. in Aeronautics from the California
Institute of Technology, his Ph.D. in Astrodynamics and Control from UCLA, and
his J.D. from the University of West Los Angeles.
David C. Bohnett has been a Director since March 1999. Until May 1999, Mr.
Bohnett served as Chairman of the Board and Secretary of GeoCities, an Internet
hosting company, which he founded in November 1994. From November 1994 to April
1998, Mr. Bohnett also served as GeoCities' Chief Executive Officer and
President. From November 1994 to November 1997, Mr. Bohnett also served as
GeoCities' Chief Financial Officer. Prior to founding GeoCities, from February
1990 to May 1994, Mr. Bohnett served as Director of Product Marketing at Goal
Systems, which merged with LEGENT, a software company. From 1988 to 1990, Mr.
Bohnett was Chief Financial Officer of Essential Software, which merged with
Goal Systems. Mr. Bohnett also was a director of GeoCities until May 1999, and
he continues to serve on the Board of Directors
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<PAGE>
of several private companies. Mr. Bohnett was elected to our Board of Directors
as a representative of the class of Series C investors under a voting agreement
which will terminate upon the closing of this offering. Mr. Bohnett received
his B.S. degree in Business Administration from the University of Southern
California and his M.B.A. degree in Finance from the University of Michigan.
Jeffrey J. Brown has been a Director since February 1998. In June 1993, Mr.
Brown founded and, since that time, he has been a director, executive officer
and shareholder of Forrest Binkley & Brown Venture Co., the general partner of
Forrest Binkley & Brown L.P., the Managing Partner of SBIC Partners. Mr. Brown
is also a founder, director, executive officer and shareholder of Forrest
Binkley & Brown Venture Advisor Co., an affiliate of SBIC Partners. From 1987
to 1992, Mr. Brown served in various executive capacities at Security Pacific
Venture Capital Group. From April 1992 until June 1993, Mr. Brown acted as
Senior Vice President of BankAmerica Venture Capital Group. Mr. Brown is a
director of Golden State Vintners, Inc., a supplier of premium bulk wines and
wine processing services, and serves on the boards of a number of private
companies. Mr. Brown was elected to our Board of Directors as a representative
of SBIC Partners under a voting agreement which will terminate upon the closing
of this offering. Mr. Brown received his B.S. in Mathematics from Willamette
University and his M.B.A. from Stanford University.
Thomas N. Clancy has been a Director since February 1998. Mr. Clancy has
been a Venture Partner at Enterprise Partners Venture Capital since February
1997. Prior to joining Enterprise Partners in September 1996, Mr. Clancy was a
Partner at Technical Resource Connection, now Perot Systems, a provider of
information technology services, from March 1996 to July 1996. Previously, Mr.
Clancy served as the Chief Executive Officer at Expersoft from May 1994 to
January 1996 and as Vice President of Product Marketing at Expersoft from
October 1993 to May 1994. From March 1983 to November 1991, Mr. Clancy worked
at Citibank in engineering management and product development. Mr. Clancy
serves on the board of a number of private companies. Mr. Clancy was elected to
our Board of Directors as a representative of Enterprise Partners under a
voting agreement which will terminate upon the closing of this offering. Mr.
Clancy received his Computer and Systems Engineering degree from Rensselaer
Polytechnic Institute in New York.
G. Bradford Jones has been a Director since October 1998. Mr. Jones is
currently a General Partner at Brentwood Venture Capital, which he joined in
1981. Mr. Jones also currently serves on the board of directors of Onyx
Acceptance Corporation, a specialized consumer finance company, Interpore
International, a medical device company, and ISOCOR, a software developer, and
several privately-held companies. Mr. Jones was elected to our Board of
Directors as a representative of Brentwood Associates under a voting agreement
which will terminate upon the closing of this offering. Mr. Jones received his
B.S. in Chemistry from Harvard University, his Master degree in Physics from
Harvard University and his J.D./M.B.A. from Stanford University.
Marvin Runyon has been a Director since February 1999. From 1992 to 1999,
Mr. Runyon served as Postmaster General of the United States. Prior to joining
the US Postal Service, he served as Chairman of the Tennessee Valley Authority
from 1988 to 1992. From 1980 to 1988, Mr. Runyon was the founding President and
CEO of Nissan Motor Manufacturing Corporation U.S.A. Previously, Mr. Runyon
spent 37 years at Ford Motor Co., leaving in 1980 with the position of Vice
President, Body and Assembly Operations. Mr. Runyon serves as a board member of
Genesis Direct, Inc., a specialty retailer. Mr. Runyon received his B.S. from
Texas A&M University.
Loren E. Smith has served as a Director since February 1999. Since November
1996, Mr. Smith has been a Principal at Threshold Management, a consulting firm
that specializes in strategic growth management for leading businesses in a
diverse range of industries. He was also employed as a Principal at Threshold
Management from July 1993 to October 1994. From October 1994 to October 1996,
he served as the Senior Vice President and Chief Marketing Officer of the US
Postal Service. In 1985, Mr. Smith joined Citibank and was responsible for
establishing the national marketing organization of its Consumer Services
Group. From 1975 to 1995, he founded Threshold Management. Previously, Mr.
Smith held various management positions at General Foods Corporation and
Colgate Palmolive Co. Mr. Smith received his A.B. in Economics from Albion
College and his M.B.A. from the University of Michigan.
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<PAGE>
Classified Board of Directors
Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board
of directors will be elected each year. These provisions, together with the
provision of our amended and restated certificate of incorporation, allow the
board of directors to fill vacancies of or increase the size of the board of
directors, and may deter a stockholder from removing incumbent directors and
filling such vacancies with its own nominees in order to gain control of the
board.
Our board has resolved that Messrs. Bohnett, Bruggere and Jones will serve
as Class I Directors whose terms expire at the 2000 annual meeting of
stockholders. Messrs. Ananda, Clancy and Runyon will serve as Class II
directors whose terms expire at the 2001 annual meeting of stockholders.
Messrs. Brown, Payne and Smith will serve as Class III directors whose terms
expire at the 2002 annual meeting of stockholders.
Board Committees
The Board has established an Audit Committee to meet with and consider
suggestions from members of management and our internal accounting personnel,
as well as our independent accountants, concerning our financial operations.
The Audit Committee also has the responsibility to review our audited financial
statements and consider and recommend the employment of, and approve the fee
arrangements with, independent accountants for both audit functions and for
advisory and other consulting services. The Audit Committee is currently
comprised of Messrs. Runyon, Bohnett and Brown. The Board has also established
a Compensation Committee to review and approve the compensation and benefits
for our key executive officers, administer our stock purchase, equity incentive
and stock option plans and make recommendations to the Board regarding these
matters. The Compensation Committee is currently comprised of Messrs. Bruggere,
Clancy and Jones.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Bruggere, Clancy and Jones.
Neither of these individuals was an employee of ours at any time since our
formation. None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of our Board of Directors or
Compensation Committee.
Director Compensation and Other Arrangements
Our directors receive no cash remuneration for serving on the Board of
Directors or any board committee. In March 1999, Messrs. Bohnett, Runyon and
Smith were each granted an option to purchase 108,000 shares of common stock.
The options were granted at fair market value on the date of grant and vest
ratably over three year periods. In April 1999, Messrs. Clancy, Jones and Brown
were each granted an option to purchase 36,000 shares of common stock. These
options were granted at fair market value on the date of grant and vest in full
on the first anniversary of the grant. In addition, directors are reimbursed
for all reasonable expenses incurred by them in attending Board and Committee
meetings.
In February 1999, we entered into a three-year consulting agreement with
Loren Smith under which he will provide marketing and strategic planning
services. Mr. Smith also agreed to serve as a director on our Board of
Directors and to serve as a member on a board committee. In exchange for these
services, we will compensate Mr. Smith $120,000 per year, and in consideration
of his consulting services, grant him an option to purchase 135,000 shares of
our common stock at $0.33 per share.
Directors who are also our employees are eligible to receive options and be
issued shares of common stock directly under our 1999 Stock Incentive Plan.
Non-employee directors will also receive automatic option grants under our 1999
Stock Incentive Plan. See "--1999 Stock Incentive Plan."
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<PAGE>
Executive Compensation
The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 1998 by our Chief
Executive Officer and each of our other four highest paid executive officers
whose total compensation exceeded or would have exceeded $100,000 during 1998
had those officers provided services to us for the entire fiscal year.
Summary Compensation Table for Fiscal Year 1998
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Positions Salary ($) Bonus ($) Compensation ($) Options (#) Compensation ($)
------------------ ---------- --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
John M. Payne
President and Chief
Executive
Officer (October 1998
to present).......... 27,897 -- -- -- 112,800(1)
John W. LaValle
Chief Financial Officer
and Senior
Vice President of
Operations........... 42,000 -- -- 395,802 --
Mohan P. Ananda
Chief Executive Officer
and
President (January 1998
to October 1998)..... 85,500 -- -- -- --
Douglas J. Walner
Vice President of
Business
Development............ 35,000 25,000 -- 366,357 7,434(2)
</TABLE>
- --------
(1) Represents total payments to Mr. Payne for consulting services performed
during the period from May 1998 to October 1998.
(2) Represents total payments to Mr. Walner for consulting services performed
during the period from August 1998 to September 1998.
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<PAGE>
Stock Options Granted During Fiscal Year 1998
During the fiscal year ended December 31, 1998, we granted options to
purchase 2,347,471 shares of common stock. All options were granted at an
exercise price equal to the fair market value of our common stock as determined
by our Board of Directors on the date of grant. The exercise price may be paid
in cash, check, promissory note, shares of our common stock valued at fair
market value on the exercise date or a cashless exercise procedure involving a
same-day sale of the purchased shares. The following table indicates
information regarding options to purchase common stock granted to our officers
listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Appreciation
Individual Grants For Option Term
------------------------------------------------------------- ---------------
Number of
Securities Percentage of Exercise
Underlying Options Total Options Granted Price Per Expiration
Name Granted to Employees in 1998 Share Date 5% 10%
---- ------------------ --------------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John W. LaValle......... 395,802 16.9% $0.07 9/24/08 $16,594 $42,054
Douglas J. Walner....... 366,357 15.6% $0.07 8/20/08 $15,360 $38,925
</TABLE>
Each option listed in the table was granted under our 1998 Stock Plan,
which will be succeeded by our 1999 Stock Incentive Plan upon the closing of
this offering. The options shown in the table are immediately exercisable. The
shares underlying the options are subject to a repurchase option which expires
over a four year period. One year after the option grant date, 1/4 of the
shares are no longer subject to the repurchase option and the repurchase option
expires for 1/48 of the shares each month thereafter. The shares underlying the
options may also vest fully upon a change in control. See "--1999 Stock
Incentive Plan."
Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical gains
that could be achieved for the respective options if exercised at the end of
the option term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission
and do not represent our estimate or projection of our future common stock
prices. These amounts represent assumed rates of appreciation in the value of
the common stock from the fair market value on the date of grant. Actual gains,
if any, on stock option exercises are dependent on the future performance of
the common stock and overall stock market conditions. The amounts reflected in
the table may not necessarily be achieved.
Aggregated Option Exercises and Year-End Option Values
The following table indicates the number and value of unexercised options
held by our officers listed on the Summary Compensation Table. There was no
public trading market for the common stock as of December 31, 1998.
Accordingly, these values of unexercised options have been calculated by
subtracting the exercise price from the fair market value of the underlying
securities as determined by the Board of Directors. No options were exercised
by our executive officers in 1998.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Options at
December 31, December 31,
1998 1998
--------------- ---------------
Name Vested Unvested Vested Unvested
---- ------ -------- ------ --------
<S> <C> <C> <C> <C>
John W. LaValle................................. 0 395,802 0 $105,547
Douglas J. Walner............................... 0 366,357 0 $ 97,695
</TABLE>
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<PAGE>
Employment Agreements and Change in Control Arrangements
John M. Payne has entered into a letter agreement, effective as of October
29, 1998, to serve as our President and Chief Executive Officer. Mr. Payne's
1999 compensation includes a base salary of $210,000 per year and a potential
bonus of $90,000. In addition, we gave Mr. Payne benefits that we make
available to our employees in comparable positions, and upon his execution of
the letter agreement, we sold 1,500,000 shares of our common stock to him at
$0.07 per share, the fair market value on the purchase date. Mr. Payne is an
at-will employee and his employment may be terminated at any time by him or by
us. If Mr. Payne's employment is constructively terminated or terminated by us
or a successor entity involuntarily within 12 months following a change in
control, or if we terminate or constructively terminate Mr. Payne's employment
for any reason other than for cause, he will be entitled to receive monthly
installments of his base salary for six months and all of his unvested stock
will become immediately vested. After two years of employment, Mr. Payne's
severance period will increase to nine months, and after three years of
service, the severance period will increase to one year.
John W. LaValle entered into a letter agreement, effective as of August
16, 1998, to serve as our Chief Financial Officer and Senior Vice President.
Mr. LaValle receives a base salary of $156,000 per year and was granted an
option to purchase 395,802 shares of common stock at $0.07 per share, the fair
market value on the grant date. In addition, Mr. LaValle receives standard
medical and dental benefits available to our other employees. Mr. LaValle is
an at-will employee and his employment can be terminated at any time by him or
by us. If Mr. LaValle's employment is constructively terminated or terminated
by us or a successor entity within 12 months following a change in control,
all of his unvested stock will become immediately vested.
For purposes of Messrs. Payne and LaValle, "constructive termination"
shall occur upon the following:
. a relocation without consent;
. disability or death;
. an assignment to a new position that is not commensurate with the
individual's seniority and compensation level; or
. any reduction in the individual's compensation.
Mohan P. Ananda entered into an employment agreement, effective as of
January 20, 1998, under which Mr. Ananda served as our President, Chief
Executive Officer and the Chairman of the Board of Directors. Mr. Ananda
received an initial base salary of $60,000, which was increased to $120,000
per year in October 1998. In addition, we sold 2,172,595 shares of our common
stock to Mr. Ananda at $0.01 per share, the fair market value on the purchase
date. Mr. Ananda has ceased active involvement with our operations, but he
continues as a director.
Douglas J. Walner is subject to an agreement which partially accelerates
the vesting of his options upon a change in control and his subsequent
termination.
In April 1999, we amended our 1998 Stock Plan to adopt a change in control
provision. As a result of this provision, should any optionee have his or her
service involuntarily terminated within eighteen (18) months following a
Corporate Transaction in which his or her options are assumed by the successor
corporation and do not otherwise accelerate at that time, then those options
will accelerate and become fully exercisable for all of the option shares as
fully-vested shares of common stock upon an involuntary termination. A
"Corporate Transaction" under the 1998 Stock Plan is defined as a merger or
consolidation in which securities possessing more than 50% of the total
combined voting power of our outstanding securities are transferred to a
person or persons different from those who held those securities immediately
prior to the transaction, or the sale, transfer or other disposition of all or
substantially all of our assets in complete liquidation of us. "Involuntary
Termination" is defined under the 1998 Stock Plan as the optionee's
involuntary dismissal or discharge by us for reasons other than misconduct, or
the optionee's voluntary resignation following:
. a change in his or her position with us which materially reduces his or
her responsibilities;
. a reduction in his or her level of compensation by more than 15%; or
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<PAGE>
. a relocation of the optionee's place of employment by more than 50
miles, and this change, reduction or relocation is effected by us
without the optionee's consent.
Our 1999 Stock Incentive Plan, which will serve as a successor plan to our
1998 Stock Plan, will include change in control provisions which may result in
the accelerated vesting of outstanding option grants and stock issuances. See
"--1999 Stock Incentive Plan--Change in Control."
1999 Stock Incentive Plan
Introduction. The 1999 Stock Incentive Plan is intended to serve as the
successor program to our 1998 Stock Plan. The 1999 plan was adopted by the
board and approved by the stockholders in June 1999. The 1999 plan will become
effective when the underwriting agreement for this offering is signed. At that
time, all outstanding options under our existing 1998 plan will then be
transferred to the 1999 plan, and no further option grants will be made under
the 1998 plan. The transferred options will continue to be governed by their
existing terms, unless our compensation committee decides to extend one or more
features of the 1999 plan to those options. Except as otherwise noted below,
the transferred options have substantially the same terms as will be in effect
for grants made under the discretionary option grant program of our 1999 stock
plan.
Share Reserve. 7,290,000 shares of our common stock have been authorized
for issuance under the 1999 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1998 plan. The share reserve
under our 1999 plan will automatically increase on the first trading day in
January each year, beginning with calendar year 2000, by an amount equal to
three percent (3%) of the total number of shares of our common stock
outstanding on the last trading day of December in the prior year, but in no
event will this annual increase exceed 1,564,715 shares. In addition, no
participant in the 1999 plan may be granted stock options or direct stock
issuances for more than 1,125,000 shares of common stock in total in any
calendar year.
Programs. Our 1999 plan has five separate programs:
. the discretionary option grant program, under which eligible employees
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on
the grant date;
. the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or upon the completion of a period of service or
as a bonus for past services;
. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition
of special below market stock option grants;
. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
. the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash for the year to the
acquisition of special below-market option grants.
Eligibility. The individuals eligible to participate in our 1999 plan
include our officers and other employees, our board members and any consultants
we hire.
Administration. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to
be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding.
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<PAGE>
The compensation committee will also have the authority to select the executive
officers and other highly compensated employees who may participate in the
salary investment option grant program in the event that program is put into
effect for one or more calendar years.
Plan Features. Our 1999 plan will include the following features:
. The exercise price for any options granted under the plan may be paid
in cash or in shares of our common stock valued at fair market value on
the exercise date. The option may also be exercised through a same-day
sale program without any cash outlay by the optionee.
. The compensation committee will have the authority to cancel
outstanding options under the discretionary option grant program,
including any transferred options from our 1998 Stock Plan, in return
for the grant of new options for the same or different number of option
shares with an exercise price per share based upon the fair market
value of our common stock on the new grant date.
. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from us equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the
payment in cash or in shares of our common stock. None of the options
under our 1998 Stock Plan have any stock appreciation rights.
Change in Control. The 1999 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
. In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which
is not to be assumed by the successor corporation will immediately
become exercisable for all the option shares, and all outstanding
unvested shares will immediately vest, except to the extent our
repurchase rights with respect to those shares are to be assigned to
the successor corporation.
. The compensation committee will have complete discretion to grant one
or more options which will become exercisable for all the option shares
in the event those options are assumed in the acquisition but the
optionee's service with us or the acquiring entity is subsequently
terminated. The vesting of any outstanding shares under our 1999 plan
may be accelerated upon similar terms and conditions.
. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than fifty percent of our outstanding voting stock or a change in
the majority of our board through one or more contested elections. This
accelerated vesting may occur either at the time of the transaction or
upon the subsequent termination of the individual's service.
. The options currently outstanding under our 1998 Stock Plan will
immediately vest in the event we are acquired and the acquiring company
does not assume those options. Any options which are assumed will
immediately vest upon an involuntary termination of the optionee's
employment within 18 months after the acquisition.
Salary Investment Option Grant Program. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees
may elect to reduce his or her base salary for the calendar year by an amount
not less than $10,000 nor more than $50,000. Each selected individual who makes
this election will automatically be granted, on the first trading day in
January of the calendar year for which his or her salary reduction is to be in
effect, an option to purchase that number of shares of common stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of our common stock on the grant date. The option will have exercise
price per share equal to one-third of the fair market value of the option
shares on the grant date. As a result, the option will be structured so that
the fair market value of the option shares on the
45
<PAGE>
grant date less the exercise price payable for those shares will be equal to
the amount of the salary reduction. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which
the salary reduction is to be in effect.
Automatic Option Grant Program. Each individual who first becomes a non-
employee board member at any time after the effective date of this offering
will receive an option grant for 10,000 shares of common stock on the date such
individual joins the board. In addition, on the date of each annual
stockholders meeting held after the effective date of this offering, each non-
employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 2,500 shares of common stock,
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid
per share, any shares purchased under the option which are not vested at the
time of the optionee's cessation of board service. The shares subject to each
annual automatic grant will be fully-vested when granted. The shares subject to
each initial 10,000-share automatic option grant will vest in a series of 36
successive equal monthly installments upon the optionee's completion of each
month of board service over the 36 month period measured from the grant date.
However, the shares will immediately vest in full upon certain changes in
control or ownership or upon the optionee's death or disability while a board
member.
Director Fee Option Grant Program. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a below-
market option grant. The option grant will automatically be made on the first
trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third
of the fair market value of the option shares on the grant date, and the number
of shares subject to the option will be determined by dividing the amount of
the retainer fee applied to the program by two-thirds of the fair market value
per share of our common stock on the grant date. As a result, the option will
be structured so that the fair market value of the option shares on the grant
date less the exercise price payable for those shares will be equal to the
portion of the retainer fee applied to that option. The option will become
exercisable in a series of twelve equal monthly installments over the calendar
year for which the election is in effect. However, the option will become
immediately exercisable for all the option shares upon the death or disability
of the optionee while serving as a board member.
Additional Program Features. Our 1999 plan will also have the following
features:
. Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50%
of our outstanding voting stock or a change in the majority of our
board through one or more contested elections.
. Limited stock appreciation rights will automatically be included as
part of each grant made under the salary investment option grant
program and the automatic and director fee option grant programs, and
these rights may also be granted to one or more officers as part of
their option grants under the discretionary option grant program.
Options with this feature may be surrendered to us upon the successful
completion of a hostile tender offer for more than 50% of our
outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount
per surrendered option share based upon the highest price per share of
our common stock paid in that tender offer.
. The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later
than the last business day of June 2009.
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<PAGE>
1999 Employee Stock Purchase Plan
Introduction. Our 1999 Employee Stock Purchase Plan was adopted by the
board and approved by the stockholders in June 1999. The plan will become
effective immediately upon the signing of the underwriting agreement for this
offering. The plan is designed to allow our eligible employees and the eligible
employees of our participating subsidiaries to purchase shares of common stock,
at semi-annual intervals, with their accumulated payroll deductions.
Share Reserve. 300,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each year, beginning in calendar year 2000, by an amount
equal to one percent (1%) of the total number of outstanding shares of our
common stock on the last trading day in December in the prior year. In no event
will any annual increase exceed 521,571 shares.
Offering Periods. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for the offering covered is
signed and will end on the last business day in June 2001. The next offering
period will start on the first business day in December 2001, and subsequent
offering periods will be set by our compensation committee.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period. Semi-annual
entry dates will occur on the first business day of January and July each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.
Payroll Deductions. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will
be applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per
share on the participant's entry date into the offering period or, if lower,
85% of the fair market value per share on the semi-annual purchase date.
Semi-annual purchase dates will occur on the last business day of January
and July each year. In no event, however, may any participant purchase more
than 1,200 shares on any purchase date, and not more than 75,000 shares may be
purchased in total by all participants on any purchase date.
Reset Feature. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start
date of the two-year offering period, then that offering period will
automatically terminate, and a new two-year offering period will begin on the
next business day. All participants in the terminated offering will be
transferred to the new offering period.
Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of the acquisition. The purchase price will be equal to
85% of the market value per share on the participant's entry date into the
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.
Plan Provisions. The following provisions will also be in effect under the
plan:
. The plan will terminate no later than the last business day of June
2009.
. The board may at any time amend, suspend or discontinue the plan.
However, some amendments may require stockholder approval.
47
<PAGE>
Limitation on Liability and Indemnification Matters
The certificate of incorporation that we will adopt immediately prior to
the closing of this offering provides that, except to the extent prohibited by
the Delaware General Corporation Law, our directors will not be personally
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty as directors. Under the Delaware General Corporation Law, the
directors have a fiduciary duty to Stamps.com which is not eliminated by this
provision of the certificate of incorporation and, in appropriate
circumstances, equitable remedies including injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the Delaware law for:
. breach of the director's duty of loyalty;
. acts or omissions which are found by a court of competent jurisdiction
to be not in good faith or which involve intentional misconduct, or
knowing violations of law;
. actions leading to improper personal benefit to the director; and
. payment of dividends or approval of stock repurchases or redemptions
that are prohibited by Delaware law.
This provision also does not affect the director's responsibilities under any
other laws, including the federal securities laws or state or federal
environmental laws. We have obtained liability insurance for our officers and
directors.
Section 145 of the Delaware law empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided
that this provision shall not eliminate or limit the liability of a director:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. arising under Section 174 of the Delaware law; or
. for any transaction from which the director derived an improper
personal benefit.
The Delaware law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors and officers may be entitled under the corporation's bylaws, any
agreement, a vote of stockholders or otherwise. The certificate of
incorporation provides that we
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding by reason of
the fact that the person is or was a director or officer, or is or was serving
at our request as a director or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses, judgements, fines and amounts paid in settlement actually and
reasonably incurred by the person in the action, suit or proceeding.
We plan to enter into indemnification agreements with our directors and our
executive officers containing provisions that may require us, among other
things, to indemnify our directors and officers against liabilities that may
arise by reason of their status or service as directors or officers other than
liabilities arising from willful misconduct of a culpable nature, to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' liability
insurance if maintained for other directors or officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.
48
<PAGE>
RELATED PARTY TRANSACTIONS
Sales of Securities
We have issued a total of 6,900,975 shares of common stock for a total
purchase price of $193,760.00. John M. Payne, our President and Chief Executive
Officer, purchased 1,500,000 shares of common stock in November 1998 for a
purchase price of $100,000.00, which amount includes a note payable to
Stamps.com for $99,000.00. Thomas Bruggere, our Chairman of the Board of
Directors, purchased 488,475 shares of common stock in October 1998 and
December 1998 for a total purchase price of $28,460.00. Mohan Ananda, a member
of our board of directors, purchased 2,172,595 shares of common stock in
January 1998 for a total purchase price of $28,967.94. As payment of the
purchase price, Mr. Ananda assigned to us intellectual property rights in his
inventions developed for us and received a license back from us to use those
intellectual property rights in a restricted field of use. A more detailed
description of transactions with Mr. Ananda appears below. In January 1998, we
also sold 423,993 shares of common stock to each of our co-founders, James
McDermott, Ari Engelberg and Jeffrey Green, for a total purchase price of
$16,959.72, which amount includes $9,000.00 in notes payable to Stamps.com.
We have issued, in private placement transactions, shares of preferred
stock as follows:
. 3,762,500 shares of Series A preferred stock at $0.40 per share in
February 1998;
. 6,020,000 shares of Series B preferred stock at $0.75 per share in
August, October and November 1998; and
. 5,464,486 shares of Series C preferred stock at $5.49 per share in
February and March 1999.
Transactions with Mr. Ananda
We paid $61,000 in March 1998 to Safeware Corporation for employee salary
and patent prosecution expenses incurred on our behalf to attain patents for
us. These patent prosecution expenses consisted primarily of fees paid to
patent counsel and fees paid to the US Patent and Trademark Office. Mr. Ananda
is the majority shareholder in Safeware Corporation. We also reimbursed Mr.
Ananda for approximately $20,000 for expenses incurred on our behalf.
Under our previous agreements with Mr. Ananda, we own all of the
intellectual property developed by Mr. Ananda during the course of his
employment and all of the intellectual property he developed for us before his
formal employment began. Mr. Ananda resigned as our Chief Executive Officer on
January 1, 1999. In May 1999, we entered into a separation agreement and a
license agreement with Mr. Ananda to formalize his resignation and to redefine
his intellectual property rights relative to us. The new license agreement
reaffirmed our ownership of the intellectual property invented by Mr. Ananda.
In addition, the license agreement clarified and narrowed Mr. Ananda's field of
use restrictions to limit his license to a few narrowly defined electronic
commerce applications that do not compete with our Internet postage service.
Consulting Services
We paid Mr. Payne $112,800 for consulting services he rendered to us
between May 1998 and October 1998.
In February 1999, Loren Smith, a director, entered into a three-year
consulting agreement with us to provide marketing and strategic planning
services. In exchange for his consulting services, Mr. Smith will receive
consulting fees of $120,000 per annum and an option to purchase 135,000 shares
of common stock at $0.33 per share. The term of this agreement expires in
February 2002.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates beneficial ownership of our common stock as
of May 31, 1999, after giving effect to the conversion of convertible preferred
stock, and as adjusted to reflect the sale of the shares of common stock
offered in this offering, by:
. each stockholder whom we know to beneficially own 5% or more of the
outstanding shares of common stock;
. each of our directors and our executive officers named in the Summary
Compensation Table, and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed below
is c/o Stamps.com Inc., 3420 Ocean Park Boulevard, Suite 1040, Santa Monica,
California 90405.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by the footnotes below,
we believe, based on information furnished to us, that the persons and entities
named in the table below have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. Percentage of
beneficial ownership is based on 29,771,454 shares of common stock outstanding
as of May 31, 1999 and 34,771,454 shares of common stock outstanding after the
completion of this offering. In computing the number of shares of common stock
subject to options held by that person that are exercisable within 60 days of
May 31, 1999, these shares are deemed outstanding for the purpose of
determining the percentage ownership of the optionee. These shares, however,
are not deemed outstanding for the purpose of computing the percentage
ownership of any other stockholder.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
------------------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned Offering Offering
------------------------ ------------------ ---------- ----------
<S> <C> <C> <C>
Named executive officers and
Directors:
Jeffrey J. Brown(1)........... 5,421,448 18.2% 15.6%
Thomas N. Clancy(2)........... 5,421,448 18.2% 15.6%
G. Bradford Jones(3).......... 5,421,448 18.2% 15.6%
Mohan P. Ananda(4)............ 2,172,595 7.3% 6.2%
John M. Payne................. 1,500,000 5.0% 4.3%
Thomas H. Bruggere(5)......... 488,475 1.6% 1.4%
John W. LaValle (6)........... 395,802 1.3% 1.1%
Douglas J. Walner(7).......... 366,357 1.2% 1.0%
Loren E. Smith(8)............. 243,000 * *
David C. Bohnett(9)........... 135,322 * *
Marvin Runyon(10)............. 114,831 * *
Other 5% Stockholders:
Brentwood Venture
Capital (3)................... 5,421,448 18.2% 15.6%
11150 Santa Monica Blvd,
Suite 1200
Los Angeles, CA 90025
Enterprise Partners IV,
L.P.(2)..................... 5,421,448 18.2% 15.6%
5000 Birch Street, Suite
6200
Newport Beach, CA 92660
SBIC Partners, L.P. .......... 5,421,448 18.2% 15.6%
201 Main Street, Suite 2302
Fort Worth, TX 76102
Vulcan Ventures Inc........... 2,732,241 9.2% 7.9%
110-110th Ave., N.E.,
Suite 550
Bellevue, WA 98004
Chase Venture Capital
Partners, L.P............... 2,185,792 7.3% 6.3%
380 Madison Ave.,
12th Floor
New York, NY 10017
All directors and executive
officers as a group
(15 people) (11).............. 22,292,086 71.5% 64.1%
</TABLE>
50
<PAGE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) Consists of 5,421,448 shares held by SBIC Partners, L.P. Jeffrey Brown
is a director and executive officer of Forrest Binkley & Brown Venture
Co., the general partner of Forrest Binkley & Brown L.P., the Managing
Partner of SBIC Partners. Mr. Brown disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein.
(2) Includes 4,987,732 shares and 433,716 held by Enterprise Partners IV,
L.P. and Enterprise Partners IV Associates, L.P., respectively. Thomas
N. Clancy is a Venture Partner at Enterprise Partners Venture Capital.
Mr. Clancy disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(3) Includes 5,204,590 shares and 216,858 shares held by Brentwood
Associates VIII, L.P. and Brentwood Affiliates Fund, L.P., respectively.
G. Bradford Jones is a General Partner at Brentwood Venture Capital. Mr.
Jones disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(4) Includes 240,000 shares held in trust for the benefit of Mr. Ananda's
family.
(5) Includes 75,000 shares held in trust for the benefit of his children as
to which Mr. Bruggere disclaims beneficial ownership.
(6) Includes 395,802 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(7) Includes 366,357 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(8) Includes 243,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(9) Includes 108,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(10) Includes 108,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(11) Includes 1,408,659 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days of March 31, 1999.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and provisions of our
certificate of incorporation and bylaws is only a summary. You should also
refer to the copies of our certificate and bylaws which have been filed with
the Securities and Exchange Commission as exhibits to our registration
statement, of which this prospectus forms a part. The description of common
stock and preferred stock reflect changes to our capital structure that will
occur upon the closing of this offering in accordance with the terms of the
certificate of incorporation that will be adopted by us immediately prior to
the closing of this offering.
Upon the closing of this offering, our authorized capital stock will
consist of 95,000,000 shares of common stock, par value $0.001, and 5,000,000
shares of preferred stock, par value $0.001.
Common Stock
As of May 31, 1999, there were 29,771,454 shares of common stock
outstanding and held of record by 36 stockholders, assuming conversion of all
shares of preferred stock into common stock. Based on the number of shares
outstanding as of that date and giving effect to the issuance of the 5,000,000
shares of common stock in this offering, there will be 34,771,454 shares of
common stock outstanding upon the closing of the offering.
Holders of the common stock are entitled to one vote for each share held on
all matters submitted to a vote of the stockholders. Holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared by
the Board of Directors out of legally available funds, subject to any
preferential dividend rights of any outstanding preferred stock. Upon our
liquidation, dissolution or winding up, the holders of common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are,
and the shares offered by us in this offering will be, upon receipt of payment
for the shares, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of holders of shares of any series of preferred stock
which we may designate and issue in the future without further stockholder
approval. Upon the closing of the offering, there will be no shares of
preferred stock outstanding.
Preferred Stock
Upon the closing of this offering, all outstanding shares of our redeemable
preferred stock will convert into shares of common stock. Thereafter, the Board
of Directors will be authorized without further stockholder approval, to issue
from time to time up to a total of 5,000,000 shares of preferred stock in one
or more series and to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting
rights, term of redemption, redemption price or prices, liquidation preferences
and the number of shares constituting any series or designations of these
series without further vote or action by the stockholders. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of our management without further action by the stockholders
and may adversely affect the voting and other rights of the holders of common
stock. The issuance of preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of common stock, including the
loss of voting control to others. We have no present plans to issue any shares
of preferred stock.
Warrant
On May 1, 1998, we issued a warrant which is currently exercisable for
4,700 shares of our Series A redeemable preferred stock at $0.40 per share. The
warrant may be exercised at any time on or before May 1, 2005.
52
<PAGE>
Anti-Takeover Effects of Provisions of Delaware Law and our Certificate of
Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years from the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained this status with the approval of the board of
directors or unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, fifteen
percent (15%) or more of the corporation's voting stock. This statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control in attempts with respect to us and, accordingly, may discourage
attempts to acquire us.
In addition, provisions of our certificate of incorporation and bylaws, may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in his best
interest, including those attempts that might result in a premium over the
market price for the shares held by our stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices not less
than one hundred twenty (120) days prior to the date of our annual meeting. The
bylaws also specify requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at
an annual meeting of stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
Classified Board of Directors; Removal. Prior to the closing of this
offering, our directors will be divided into three classes. The number of
directors will be distributed among the three classes so that each class will
consist of one-third of the Board of Directors. The classification of the Board
of Directors will have the effect of requiring at least two annual stockholder
meetings, instead of one, to replace a majority of the directors which could
have the effect of delaying or preventing a change in control of Stamps.com.
Subject to the rights of the holders of any outstanding series of preferred
stock, the certificate of incorporation will authorizes only the Board of
Directors to fill vacancies, including newly created directorships. The
certificate of incorporation will also provide that directors may be removed by
stockholders only for cause and only by the affirmative vote of holders of two-
thirds of the outstanding shares of voting stock.
Supermajority Vote to Amend Charter and Bylaws. Our certificate of
incorporation and bylaws will each provide that our bylaws may only be amended
by a two-thirds vote of the outstanding shares. In addition, our certificate of
incorporation will provide that its provisions related to bylaw amendments,
staggered board and indemnification may only be amended by a two-thirds vote of
the outstanding shares.
53
<PAGE>
Registration Rights
After this offering, holders of approximately 25,043,074 shares of common
stock issuable upon conversion of the outstanding preferred stock upon the
closing of this offering will be entitled to registration rights with respect
to their shares. Of these shares, 2,172,595 shares of common stock are only
entitled to "piggy-back" registration rights. The holders of securities with
registration rights can require us to register all or part of their shares at
any time following six months after this offering. In addition these holders
may also require us to include their shares in future registration statements
that we file and may require us to register their shares on Form S-3. Upon
registration, these shares are freely tradable in the public market without
restriction.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock will be U.S. Stock
Transfer Corporation.
Listing
Application has been made for listing the common stock on the Nasdaq
National Market under the trading symbol "STMP."
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 34,771,454 shares of common
stock outstanding assuming no exercise of the underwriters' over-allotment
option or outstanding options as of May 31, 1999. Of this amount, the 5,000,000
shares offered by this prospectus will be available for immediate sale in the
public market as of the date of this prospectus. Approximately 10,313,199
additional shares will be available for sale in the public market following the
expiration of 180-day lock-up agreements with the representatives of our
underwriters, subject in some cases to compliance with the volume and other
limitations of Rule 144.
<TABLE>
<CAPTION>
Days after the Approximate Shares
Date of this Eligible for
Prospectus Future Sale Comment
-------------- ------------------ ---------------------------------------
<C> <C> <S>
Upon Effectiveness 5,000,000 Freely tradable shares sold in offering
and shares salable under Rule 144(k)
that are not subject to 180-day lock-up
90 days 209,301 Shares salable under Rules 144 or 701
that are not subject to 180-day lock-up
180 days 10,313,199 Lock-up released; shares salable under
Rules 144 or 701
</TABLE>
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year is entitled to sell within any
three-month period commencing 90 days after the date of this prospectus a
number of shares that does not exceed the greater of (a) 1% of the then
outstanding shares of common stock (approximately 348,000 shares immediately
after the offering) or (b) the average weekly trading volume during the four
calendar weeks preceding the sale, subject to the filing of a Form 144 with
respect to the sale. A person who is not deemed to have been an affiliate of
Stamps.com at any time during the 90 days immediately preceding the sale and
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares under Rule 144(k) without regard to the limitations
described above. Persons deemed to be affiliates must always sell under Rule
144, even after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to the offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
Our directors, executive officers, and other significant stockholders have
agreed that they will not sell any common stock without the prior written
consent of BancBoston Robertson Stephens Inc. for a period of 180 days from the
date of this prospectus. We have also agreed not to issue any shares during the
lock-up period without the consent of BancBoston Robertson Stephens Inc.,
except that we may, without this consent, grant options and sell shares under
our stock incentive and purchase plans although the shares may not be resold
into the public market during the lock-up period.
Any of our employees or consultants who purchased his or her shares under a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to resell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
resell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of May 31, 1999, there were outstanding options to purchase
5,382,909 shares of common stock under our stock plans.
55
<PAGE>
We intend to file a registration statement on Form S-8 under the Securities
Act shortly after the completion of the offering to register the shares of
common stock subject to outstanding stock options that may be issued under
these plans, which will permit the resale of these shares in the public market
without restriction after the lock-up period expires.
In addition, some of our stockholders have registration rights with respect
to approximately 25,043,074 shares of common stock and common stock
equivalents. Registration of these securities under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act provided their shares were not purchased by any of our
affiliates.
56
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Thomas Weisel Partners LLC, Volpe Brown
Whelan & Company, LLC and Wit Capital Corporation have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock indicated opposite their
names below. The underwriters are committed to purchase and pay for all of the
shares if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ----------
<S> <C>
BancBoston Robertson Stephens Inc. ..............................
Thomas Weisel Partners LLC.......................................
Volpe Brown Whelan & Company, LLC................................
Wit Capital Corporation..........................................
----------
Total.......................................................... 5,000,000
==========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not
in excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional shares of common stock at the same price per
share as we will receive for the 5,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of additional shares that the number of shares of common
stock to be purchased by it shown in the above table represents as a percentage
of the 5,000,000 shares offered by this prospectus. If purchased, the
additional shares will be sold by the underwriters on the same terms as those
on which the 5,000,000 shares are being sold. We will be obligated, under this
option, to sell shares to the extent the option is exercised. The underwriters
may exercise the option only to cover over-allotments made in connection with
the sale of the 5,000,000 shares of common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public offering price................................... $ $ $
Underwriting discounts and commissions.................. $ $ $
Proceeds, before expenses, to us........................ $ $ $
</TABLE>
The expenses of the offering are estimated at $700,000 and are payable entirely
by us. BancBoston Robertson Stephens Inc. expects to deliver the shares of
common stock to purchasers on , 1999.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representation and warranties contained in the underwriting agreement.
Future Sales. Each of our executive officers, directors and other
significant stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock, any options or warrants to
purchase any shares of common stock, or
57
<PAGE>
any securities convertible into or exchangeable for shares of common stock
owned as of the date of this prospectus or acquired directly from us by these
holders or with respect to which they have or may acquire the power of
disposition, without the prior written consent of BancBoston Robertson Stephens
Inc. However, BancBoston Robertson Stephens Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. There are no agreements between the
representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the 180-day
lock-up period. In addition, we have generally agreed that, during the 180-day
lock-up period, we will not, without the prior written consent of BancBoston
Robertson Stephens Inc., (a) consent to the disposition of any shares held by
stockholders prior to the expiration of the 180-day lock-up period or (b)
issue, sell, contract to sell or otherwise dispose of, any shares of common
stock, any options or warrants to purchase any shares of common stock, or any
securities convertible into, exercisable for or exchangeable for shares of
common stock, other than our sale of shares in the offering, our issuance of
common stock upon the exercise of currently outstanding options and warrants,
and our issuance of incentive awards under our stock incentive plans. See
"Shares Eligible for Future Sale."
Directed Shares. We have requested that the underwriters reserve up to ten
percent of the shares of common stock for sale at the initial public offering
price to directors, officers, employees and other individuals designated by
Stamps.com.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
No Prior Public Market. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price
for the common stock offered by this prospectus has been determined through
negotiations between us and the representatives. Among the factors considered
in these negotiations were prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Bayview Investors, Ltd., an investment partnership affiliated with
BancBoston Robertson Stephens Inc., purchased 60,717 shares of Series C
Preferred Stock from us on February 17, 1999 at a price of $5.49 per share and
on the same terms and conditions as all other purchasers in our Series C
Preferred Stock financing. BancBoston Robertson Stephens Inc. acted as
placement agent for our Series C Preferred Stock financing and received for its
services a fee of approximately $1.4 million from us.
Electronic Prospectus Delivery. A prospectus in electronic format is being
made available on an Internet Web site maintained by Wit Capital. In addition,
pursuant to an e-Dealer Agreement, all dealers purchasing shares from Wit
Capital in the offering similarly have agreed to make a prospectus in
electronic format available on Web sites maintained by each of the e-Dealers.
New Underwriters. Thomas Weisel Partners LLC, one of the representatives of
the underwriters, was organized and registered as a broker-dealer in December
1998. Since December 1998, Thomas Weisel Partners has been named as a lead or
co-manager on 37 filed public offerings of equity securities, of which 16 have
been completed, and has acted as a syndicate member in an additional 10 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
Wit Capital, a member of the National Association of Securities Dealers,
Inc. will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
co-manager or selected dealer in over 70 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with Stamps.com, Inc. or any of its founders or significant stockholders.
58
<PAGE>
Stabilization. The representatives have advised us that, under Regulation M
under the Securities Exchange Act, some participants in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by the underwriter or syndicate member. The
representatives have advised us that these transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Brobeck, Phleger & Harrison LLP, Irvine, California. As of March
31, 1999, affiliates of Brobeck, Phleger & Harrison LLP beneficially owned a
total of 51,609 shares of our Series C redeemable preferred stock that will
convert to common stock on a 3-for-2 basis in the offering. Legal matters
relating to the sale of common stock in this offering will be passed upon for
the underwriters by Wilson Sonsini Goodrich & Rosati, Palo Alto, California.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares to be
sold in the offering. This prospectus does not contain all the information
contained in the registration statement. For further information with respect
to Stamps.com and the shares to be sold in the offering, reference is made to
the registration statement and the exhibits and schedules filed with the
registration statement. We have described all material information for each
contract, agreement or other document filed with the registration statement in
the prospectus. However, statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. As a result, you should refer to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement for a complete description of the matter involved.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information that we file at the Securities and
Exchange Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents, upon payment
of a duplicating fee, by writing to the Securities and Exchange Commission.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. The
Securities and Exchange Commission's filings, including the registration
statement are also available to you without charge on their Web site
(http://www.sec.gov).
59
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Balance Sheets at December 31, 1998 and March 31, 1999 (unaudited)....... F-3
Statements of Operations for the period from January 9, 1998 (date of
inception) to December 31, 1998, the period from January 9, 1998 (date
of inception) to March 31, 1998 (unaudited), the three months ended
March 31, 1999 (unaudited) and the period from January 9, 1998 (date of
inception) to March 31, 1999 (unaudited)............................... F-4
Statements of Stockholders' Equity (Deficit) for the period from January
9, 1998 (date of inception) through December 31, 1998 and the three
months ended March 31, 1999 (unaudited)................................ F-5
Statements of Cash Flows for the period from January 9, 1998 (date of
inception) to December 31, 1998, the period from January 9, 1998 (date
of inception) to March 31, 1998 (unaudited), the three months ended
March 31, 1999 (unaudited) and the period from January 9, 1998 (date of
inception) to March 31, 1999 (unaudited)............................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Stamps.com Inc.:
We have audited the accompanying balance sheet of Stamps.com Inc. (a
Delaware corporation in the development stage) as of December 31, 1998, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the period from January 9, 1998 (date of inception) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Stamps.com Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from January 9, 1998 (date of inception) through December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 13, 1999
F-2
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999
------------------------
December 31, Pro Forma
1998 Historical (Note 1)
------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 3,470,207 $28,523,897 $28,523,897
Prepaid expenses................... 48,118 170,809 170,809
----------- ----------- -----------
Total current assets................. 3,518,325 28,694,706 28,694,706
Property and equipment, net.......... 670,301 920,255 920,255
Patents, trademarks and other
intangibles, net................... 78,122 75,854 75,854
Other................................ 159,071 181,437 181,437
----------- ----------- -----------
Total assets......................... $ 4,425,819 $29,872,252 $29,872,252
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Line of credit..................... $ 1,000,000 $ 1,000,000 $ 1,000,000
Accounts payable................... 392,372 559,158 559,158
Accrued expenses................... 192,528 537,106 537,106
Accrued payroll and related........ 140,942 300,751 300,751
Accrued professional............... 200,000 -- --
Current portion of capital lease
obligations...................... 207,683 207,683 207,683
----------- ----------- -----------
Total current liabilities............ 2,133,525 2,604,698 2,604,698
Capital lease obligations, less
current portion.................... 265,070 216,916 216,916
Commitments
Redeemable preferred stock, $.001 par
value (Series A, B & C):
Authorized shares 10,000,000 at
December 31, 1998 and 15,500,000
at March 31, 1999 (pro forma:
5,000,000).......................
Issued and outstanding shares
9,782,500 at December 31, 1998
and 15,246,986 at March 31, 1999
(pro forma: none)................
Liquidation preference of
$6,020,000 at December 31, 1998
and $36,020,028 at March 31, 1999
(pro forma: none)................ 5,978,344 34,277,938 --
Stockholders' equity (deficit):
Common stock, $.001 par value:
Authorized shares 20,000,000 at
December 31, 1998 and 40,000,000
at March 31, 1999 (pro forma:
95,000,000).....................
Issued and outstanding shares
6,900,975 at December 31, 1998
and March 31, 1999 (pro forma:
29,771,454)..................... 6,901 6,901 29,771
Additional paid-in capital......... 1,437,859 4,784,859 39,039,927
Notes receivable from stock sales.. (117,000) (117,000) (117,000)
Deferred compensation.............. (1,083,000) (4,020,000) (4,020,000)
Deficit accumulated during the
development stage................ (4,195,880) (7,882,060) (7,882,060)
----------- ----------- -----------
Total stockholders' equity
(deficit).......................... (3,951,120) (7,227,300) 27,050,638
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)................... $ 4,425,819 $29,872,252 $29,872,252
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from Period from
January 9, 1998 January 9, 1998 Three Months January 9, 1998
(inception) to (inception) Ended (inception) to
December 31, 1998 to March 31, 1998 March 31, 1999 March 31, 1999
----------------- ----------------- -------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development......... 1,531,811 83,381 1,159,772 2,691,583
General and
administrative...... 2,648,279 279,713 2,528,426 5,176,705
----------- --------- ----------- -----------
Total costs and
expenses......... 4,180,090 363,094 3,688,198 7,868,288
----------- --------- ----------- -----------
Loss from operations.... (4,180,090) (363,094) (3,688,198) (7,868,288)
Other income (expense):
Interest expense...... (27,624) -- (33,001) (60,625)
Interest income....... 11,834 -- 35,019 46,853
----------- --------- ----------- -----------
Net loss................ $(4,195,880) $(363,094) $(3,686,180) $(7,882,060)
=========== ========= =========== ===========
Basic and diluted net
loss per share........ $ (0.85) $ (0.09) $ (0.53) $ (1.48)
=========== ========= =========== ===========
Pro forma basic and
diluted net loss per
share................. $ (0.36) $ (0.05) $ (0.15) $ (0.55)
=========== ========= =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Notes Accumulated
Common Stock Additional Receivable During the
----------------- Paid-in from Deferred Development
Shares Amount Capital Stock Sales Compensation Stage Total
---------- ------ ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 9,
1998 (inception)....... -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock................. 4,912,500 4,913 61,387 (18,000) -- -- 48,300
Issuance of restricted
common stock.......... 1,988,475 1,988 126,472 (99,000) -- -- 29,460
Deferred compensation.. -- -- 1,250,000 -- (1,250,000) -- --
Amortization of
deferred
compensation.......... -- -- -- -- 167,000 -- 167,000
Net loss............... -- -- -- -- -- (4,195,880) (4,195,880)
---------- ------ ---------- --------- ----------- ----------- -----------
Balance at December 31,
1998................... 6,900,975 6,901 1,437,859 (117,000) (1,083,000) (4,195,880) (3,951,120)
Deferred compensation
(unaudited)........... -- -- 3,347,000 -- (3,347,000) -- --
Amortization of
deferred compensation
(unaudited)........... -- -- -- -- 410,000 -- 410,000
Net loss (unaudited)... -- -- -- -- -- (3,686,180) (3,686,180)
---------- ------ ---------- --------- ----------- ----------- -----------
Balance at March 31,
1999 (unaudited)....... 6,900,975 $6,901 $4,784,859 $(117,000) $(4,020,000) $(7,882,060) $(7,227,300)
========== ====== ========== ========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
January 9 Period from
1998 January 9, Three Period from
(inception) 1998 Months January 9, 1998
to (inception) to Ended (inception) to
December 31, March 31, March 31, March 31,
------------ -------------- ----------- ---------------
1998 1998 1999 1999
------------ -------------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net loss.............. $(4,195,880) $ (363,094) $(3,686,180) $(7,882,060)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization..... 81,540 4,126 63,480 145,020
Amortization of
deferred
compensation..... 167,000 4,000 410,000 577,000
Changes in
operating assets
and liabilities:
Prepaid
expenses....... (48,118) (10,023) (122,691) (170,809)
Accounts
payable........ 392,372 20,928 166,786 559,158
Accrued
expenses....... 533,470 -- 304,387 837,857
----------- ---------- ----------- -----------
Net cash used in
operating activities.. (3,069,616) (344,063) (2,864,218) (5,933,834)
Investing activities:
Capital
expenditures........ (195,297) (111,513) (311,166) (506,463)
Other................. (209,071) (24,512) (22,366) (231,437)
----------- ---------- ----------- -----------
Net cash used in
operating activities.. (404,368) (136,025) (333,532) (737,900)
Financing activities:
Net proceeds from
line of credit...... 1,000,000 -- -- 1,000,000
Repayment of capital
lease obligations... (81,945) -- (48,154) (130,099)
Issuance of series A
redeemable
preferred stock,
net................. 1,463,344 1,463,344 -- 1,463,344
Issuance of series B
redeemable
preferred stock..... 4,515,000 -- -- 4,515,000
Issuance of series C
redeemable
preferred stock,
net................. -- -- 28,299,594 28,299,594
Issuance of common
stock............... 47,792 18,332 -- 47,792
----------- ---------- ----------- -----------
Net cash provided by
financing activities.. 6,944,191 1,481,676 28,251,440 35,195,631
----------- ---------- ----------- -----------
Net increase in cash and
cash equivalents...... 3,470,207 1,001,588 25,053,690 28,523,897
Cash and cash
equivalents at
beginning of period... -- -- 3,470,207 --
----------- ---------- ----------- -----------
Cash and cash
equivalents at end of
period................ $ 3,470,207 $1,001,588 $28,523,897 $28,523,897
=========== ========== =========== ===========
Supplemental cash flow
disclosure:...........
Cash paid for:
Interest.............. $ 27,624 $ -- $ 33,001 $ 60,625
Income taxes.......... $ 800 $ 800 $ 800 $ 1,600
Noncash investing and
financial activity:
Issuance of common
stock in exchange
for a patent and a
trademark name...... $ 29,968 $ 28,968 $ -- $ 29,968
Equipment acquired
under capital
lease............... $ 554,698 $ -- $ -- $ 554,698
Issuance of notes
receivable from
stock sales......... $ 117,000 $ 117,000 $ -- $ 117,000
</TABLE>
See accompanying notes.
F-6
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
Stamps.com Inc. (Stamps.com Inc. or the Company), formerly known as
StampMaster, Inc., was incorporated in Delaware on January 9, 1998, and is a
development stage company. Its primary activities since inception have been to
develop an internet-based postal service delivery system for end-users and
raise capital to finance operations.
The Company is subject to the normal risks associated with a development
stage enterprise in the technology industry. These risks include, among others,
the risks associated with product development, approval of product by the
United States Postal Service, acceptance of the product by end users and the
ability to raise additional capital to sustain operations.
The Company's Internet postage service for purchasing postage over the
Internet has not yet been approved by the US Postal Service. The Company is
currently in the pre-approval testing stage of the US Postal Service's
Information Based Indicia Program. There can be no assurance that the Company's
service will successfully emerge from this testing phase or that the US Postal
Service will approve the service for commercial use.
The statement of operations for the period from inception through December
31, 1998 includes approximately $35,000 of expenses incurred prior to
incorporation. In September 1996, the founders began to investigate the
feasibility of entering into the United States Postal Service's Information
Based Indicia Program and initiated the certification process.
Unaudited Interim Financial Information and Pro Forma Balance Sheet
The interim financial statements of the Company for the period from January
9, 1998 (date of inception) to March 31, 1998 and the three months ended March
31, 1999, included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at March 31, 1999, the
results of operations and its cash flows for the period from January 9, 1998
(date of inception) to March 31, 1998 and the three months ended March 31,
1999.
The unaudited pro forma balance sheet is presented to show the effects on
the unaudited March 31, 1999 balance sheet of the conversion of all outstanding
shares of redeemable preferred stock into 15,246,986 shares of common stock
which will occur upon the completion of the anticipated initial public offering
(see Note 6 and 7) as if the conversions took place at inception, or the date
of original issuance, if later.
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 Equivalents
Cash equivalents include demand deposits and short-term investments with a
maturity of three months or less when purchased.
Concentration of Risk
The financial instrument that potentially exposes the Company to
concentrations of credit risks consists primarily of cash equivalents. The
Company places its cash equivalents with high quality financial institutions.
At times, such balances may be in excess of the FDIC insurance limit.
F-7
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Computation of Historical Net Loss per Share and Pro Forma Net Loss Per Share
In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Computation of Earnings 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.
A summary of the shares used to compute earnings per share is as follows:
<TABLE>
<CAPTION>
Period from Period from Period from
January 9, 1998 January 9, 1998 Three Months January 9, 1998
(inception) to (inception) to Ended (inception) to
December 31, 1998 March 31, 1998 March 31, 1999 March 31, 1999
----------------- --------------- -------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighted average common
shares used to compute
basic net loss per
share.................. 4,955,913 4,240,518 6,900,975 5,344,926
Effect of dilutive
securities............. -- -- -- --
---------- --------- ---------- ----------
Weighted average common
shares used to compute
dilutive net loss per
share.................. 4,955,913 4,240,518 6,900,975 5,344,926
---------- --------- ---------- ----------
Conversion of preferred
stock.................. 6,637,467 2,623,399 18,156,807 8,941,335
---------- --------- ---------- ----------
Weighted average common
shares used to compute
pro forma basic and
diluted net loss per
share.................. 11,593,380 6,863,917 25,057,782 14,286,261
========== ========= ========== ==========
</TABLE>
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A, B and C Preferred Stock into shares of
the Company's Common Stock effective upon the closing of the Company's Initial
Public Offering as if such conversion occurred at inception or the date of
original issuance, if later. Pro forma diluted earnings per share is computed
using the pro forma weighted average number of common and common equivalents
shares outstanding during the period, to the extent such shares are dilutive.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
computed principally on a straight-line method over the estimated useful lives
of the assets ranging from three to five years. Assets acquired under
capitalized lease arrangements are recorded at the present value of the minimum
lease payments. Amortization of assets capitalized under capital leases is
computed using the straight-line method over the life of the asset or term of
the lease, whichever is shorter. Expenditures for repairs and maintenance are
charged to expense as incurred.
Patents, Trademarks and Other Intangibles
Patents, trademarks and other intangibles are carried at cost less
accumulated amortization that is calculated on a straight-line basis over the
estimated useful lives of the assets, not to exceed 40 years. Patents are
currently amortized over an estimated useful live of 17 years. Trademarks and
other intangibles have useful lives that range from 5 to 15 years. Accumulated
amortization as of December 31, 1998 is $1,846.
F-8
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Company accounts for income taxes in accordance with FASB 109,
"Accounting for Income Taxes." Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statements
and the tax basis of assets and liabilities using the enacted tax rate in
effect for the years in which the differences are expected to reverse.
Research and Development Costs
Research and development costs are expensed as incurred. These costs
primarily consist of salaries, development materials, supplies and applicable
overhead expenses of personnel directly involved in the research and
development of new technology and products.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123)
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen
to continue to account for stock-based compensation using the intrinsic-value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."
2. Line of Credit
On May 1, 1998, the Company entered into a credit line agreement with a
lender. The initial $300,000 borrowing base was increased to $1 million based
on the Company's net equity balance, as defined, through December 31, 1998.
Borrowings bear interest at the lender's prime rate plus 1% (8.75% at
December 31, 1998) and are collateralized by certain of the Company's assets.
The Company used the amount drawn for working capital purposes. The unpaid
balance due under the line of credit at February 9, 1999 may be converted to a
term loan payable in 24 equal monthly installments commencing on such date.
Otherwise, the credit line agreement matures on October 8, 1999.
In connection with this indebtedness agreement, the Company issued a
detachable warrant which permits the holder to purchase 4,700 shares of the
Company's Series A Redeemable Preferred Stock for $.40 per share. The term of
this warrant is for a period of seven years from the date of grant.
3. Income Taxes
The provision for income taxes consists solely of minimum state taxes. The
Company's effective tax rate differs from the statutory federal income tax rate
primarily as a result of the establishment of a valuation allowance for the
future benefits to be received from the net operating loss carryforwards and
research tax credit carryforwards. The tax effect of temporary differences that
give rise to a significant portion of the deferred tax assets and liabilities
at December 31, 1998 are presented below.
<TABLE>
<S> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards............................. $ 537,154
Research credits............................................. 150,000
Depreciation................................................. (28,006)
Capitalized start-up costs................................... 988,403
Accruals..................................................... 46,068
-----------
Total deferred tax assets...................................... 1,693,619
Valuation allowance............................................ (1,693,619)
-----------
Net deferred tax assets........................................ $ --
===========
</TABLE>
F-9
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Because the Company is uncertain when it may realize the benefits of its
favorable tax attributes in future returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets. In 1998, the
valuation allowance recorded was $1,693,619.
The Company has a net operating loss carryforward for federal and state
income tax purposes at December 31, 1998 of $1,348,467, and an available tax
credit carryforward at December 31, 1998 of $150,000, each of which can be
carried forward to offset future taxable income, if any. The Company's federal
net operating loss expires starting in 2018, state net operating loss expires
starting in 2006, and credits expire starting in 2018. The Federal Tax Reform
Act of 1986 and similar state tax laws contain provisions which may limit the
net operating losses carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership
interests.
4. Capital Leases, Commitments and Contingencies
The Company leases certain equipment under capital lease arrangements
expiring on various dates through 2001. Included in property and equipment are
the following assets held under capital lease at December 31, 1998:
<TABLE>
<S> <C>
Computer equipment................................................ $ 554,698
Accumulated depreciation.......................................... (58,129)
---------
$ 496,569
=========
</TABLE>
The following is a schedule of future minimum lease payments:
<TABLE>
<S> <C>
Year ending December 31, 1998:
1999............................................................. $254,148
2000............................................................. 254,520
2001............................................................. 31,007
--------
539,675
Less amount representing interest................................ (66,922)
--------
Present value of net minimum lease payments ($207,683 payable
currently)..................................................... $472,753
========
</TABLE>
The Company currently rents its facilities on a month-to-month basis or for
terms less than one year. Total rent expense for the period from January 9,
1998 through December 31, 1998 was $109,428 and includes $23,400 paid to a
stockholder/officer for rental of office space.
In December 1998, the Company entered into a Distribution and Marketing
Agreement with America Online, Inc. (AOL) that provides broad distribution and
marketing campaigns amongst AOL's diverse properties. In exchange for these
services, the Company is required to make minimum payments that approximate
$1,700,000 and $525,000 in 1999 and 2000, respectively. In exchange for these
services, the Company is required to pay $2.3 million in varied amounts through
February 2000 ($75,000 in 1998, $1,700,000 in 1999 and $525,000 in 2000). The
Company may purchase additional advertising under this Marketing and
Distribution Agreement but it is not required. The Company will recognize the
related expense upon performance of services.
F-10
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Stock Options
In January 1998, the Company adopted the 1998 Stock Option Plan (the Plan)
which authorizes the Board of Directors to grant incentive stock options,
nonqualified stock options and stock purchase rights (collectively options) to
employees, directors, consultants and advisors of the Company. The maximum
number of shares of common stock to be issued under the Plan is 4,852,500. All
options granted under the Plan have been made at prices not less than fair
value of the stock at the date of grant, as determined by the Board of
Directors. Options granted under the Plan are generally exercisable
immediately, however, they vest 25% per year, and the Board of Directors has
the discretion with respect to vesting periods applicable to a particular
grant. During 1998 the Company issued options to purchase approximately
2,313,909 shares of common stock at prices which included approximately
$600,000 of a compensation element, the $600,000 is being recognized as expense
over the vesting periods of the related options and has been presented as a
reduction of stockholders' equity (deficit) in the accompanying balance sheets.
The following tabulation summarizes certain information related to options
for common stock:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding options at January 9, 1998................... -- $ --
Grants................................................... 2,347,471 .07
Surrendered, forfeited or expired........................ (36,562) .03
Exercised................................................ -- --
--------- ----
Outstanding options at December 31, 1998................. 2,310,909 $.06
========= ====
</TABLE>
As of December 31, 1998, all options were exercisable. However no options
were vested and 2,541,591 were available for future grant. The weighted average
remaining contractual life of the outstanding stock options at December 31,
1998, is 9.7 years.
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair-value method of that statement. The fair value for these options
was estimated at the date of grant using the minimum-value method, which
utilizes a near-zero volatility factor. The remaining assumptions, which are
weighted average, under this method are as follows:
<TABLE>
<S> <C>
Expected life (years)................................. 5
Risk-free interest rate............................... 5.50%
Dividend yield........................................ --
</TABLE>
This option-valuation method requires input of highly subjective
assumptions. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because change in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing method does not necessarily provide a
reliable single measure of the fair value of its employee stock options. The
effects of applying SFAS 123 in this pro forma disclosure are not indicative of
future amounts and additional awards in future years are anticipated.
If the Company recognized employee stock related compensation expense in
accordance with SFAS 123 under the minimum value method, its net loss for 1998
would not be materially different.
F-11
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Stock Transactions
During 1998, the Company issued restricted stock to an employee and a
director totaling 1,988,475 shares. These shares vest one-fourth on May 30,
1999 and the remaining shares vest monthly over thirty-six months. The Company
issued these shares at prices which included approximately $650,000 of a
compensation element, the $650,000 is being recognized as expense over the
vesting periods and has been presented as a reduction of stockholders' equity
(deficit) in the accompanying balance sheets.
In February 1998, the Company issued 3,762,500 shares of its Series A
Redeemable Preferred Stock at $0.40 per share and warrants which permit the
holders to acquire 6,020,000 shares of the Company's its Series B Redeemable
Preferred Stock at $0.75 per share. In August and October 1998, 6,020,000
shares of Series B Redeemable Preferred Stock were issued under these warrants.
Redeemable Preferred stock is convertible to common stock on a one-for-one
basis at the option of the holder at any time after issuance, subject to anti-
dilution protection. Each share of Redeemable Preferred Stock automatically
converts to Common Stock upon (i) the sale of Common Stock by the Company in an
underwritten public offering with a public offering price of $2.00 per share
and net proceeds of $15 million or (ii) written consent of the majority holders
of outstanding shares of Preferred Stock (see Note 7).
The holders of Redeemable Preferred Stock are entitled to receive non-
cumulative dividends in preference to the Common stock at a rate of $0.040 and
$0.075 per share per annum, respectively, or if greater (as determined on a per
annum basis and an as converted basis for Redeemable Preferred Stock), an
amount equal to that paid on any other outstanding share, payable quarterly
when, as and if declared. No dividends can be paid or declared on any Common
Stock unless full cash dividends, including past dividends declared, have been
paid on the Redeemable Preferred Stock.
The Series A and Series B Redeemable Preferred Stock have a liquidation
preference over Common Stock of $0.40 and $0.75 per share, respectively.
The Redeemable Preferred Stock may be redeemed at any time after February
26, 2003 at the written consent of the majority holders of outstanding shares
of Redeemable Preferred Stock. The redemption price for Series A and Series B
Redeemable Preferred Stock is $0.40 and $0.75 per share, respectively. Series A
and Series B Redeemable Preferred Stock has been reflected in the accompanying
balance sheets outside of stockholders' equity (deficit) due to its redemption
feature.
In connection with the issuance of Common Stock during the period, the
Company exchanged shares with a fair value of $117,000 for notes receivable of
the same amount. These notes receivable bear interest at 9% per annum and are
payable in February 2003.
7. Events Subsequent to the Date of the Auditors' Report (Unaudited)
Redeemable Preferred Stock
On February 10, 1999, the Board of Directors approved the sale of Series C
Redeemable Preferred Stock. In February and March 1999, the Company issued
5,464,486 shares of its Series C Redeemable Preferred Stock at $5.49 per share.
Series C Redeemable Preferred Stock is convertible to common stock on a one-
for-one basis at the option of the holder at any time after issuance, subject
to anti-dilution protection. In connection with the sale of Series C Redeemable
Preferred Stock, the board of directors amended the certificate of
incorporation and each share of Series A, Series B and Series C Redeemable
Preferred Stock automatically converts to
F-12
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Common Stock upon (i) the sale of Common Stock by the Company in an
underwritten public offer with a public offering price of at least $10.98 per
share and net proceeds of $20 million or (ii) written consent of the majority
of holders of outstanding shares of Redeemable Preferred Stock.
The holders are entitled to receive a noncumulative dividends in preference
of the Common Stock at a rate of $0.55 per share per annum or if greater (as
determined on a per annum basis and as a converted bases for Preferred Stock),
an amount equal to that paid on any other outstanding share, payable quarterly
when, as and if declared. No dividends can be paid or declared on any Common
Stock unless full cash dividends, including past dividends declared, have been
paid on the Redeemable Preferred Stock. The Series C Redeemable Preferred Stock
have a liquidation preference over Common Stock or $5.49 per share and may be
redeemed at any time after February 27, 2003, at the written consent of the
majority holders of outstanding shares of Redeemable Preferred Stock at the
redemption price of $5.49 per share. Series C Redeemable Preferred Stock has
been reflected in the accompanying balance sheets outside of stockholders'
equity (deficit) due to its redemption feature.
Authorized Stock and Stock Dividend
On February 17, 1999, the Company increased the number of authorized shares
of common stock and preferred stock to 40,000,000 shares and 15,500,000 shares,
respectively. Subsequent to year end, the Board of Directors increased the
number of shares reserved for issuance under the 1998 Stock Option Plan by
1,625,000 shares.
On June 3, 1999 the Board of Directors declared a stock dividend of 3
shares of Common Stock for every 2 shares of Common Stock then outstanding and
revised the conversion ratio of the Series A, B and C redeemable preferred
stock to a three-for-two basis. The stock dividend will become effective at the
date the Company's public offering of Common Stock is closed. Accordingly, the
accompanying financial statements and footnotes have been restated to reflect
the stock dividend. In addition the board increased the number of authorized
shares of Common Stock and Preferred Stock to 95,000,000 and 5,000,000 shares,
respectively.
Stock options
During the period from January 1, 1999 through June 3, 1999, the Company
issued 3,072,000 additional stock options under the 1998 stock option plan. A
summary of the options granted is as follows:
<TABLE>
<CAPTION>
Exercise Estimated
Number of options Price Fair Value
----------------- -------- ----------
<S> <C> <C>
189,150.............................................. $5.60 $1.33
892,050.............................................. $3.00 $0.71
1,990,800.............................................. $0.33 $0.08
</TABLE>
The estimated fair value for these options was estimated at the date of
grant using the minimum-value method using the same assumptions as Note 5. From
January 1, 1999 through March 31, 1999 the Company issued options to purchase
approximately 2,180,250 shares of common stock at prices which included
approximately $3,347,000 of a compensation element, the $3,347,000 is being
recognized as expense over the vesting periods of the related options and has
been presented as a reduction of stockholders' equity (deficit) in the
accompanying balance sheets.
Commitments
In May 1999, the Company entered into a facility lease agreement for its
corporate headquarters with minimum lease payments approximating $4.8 million
over 5 years. Also, in May 1999, the Company entered into a Sponsorship
Agreement with Intuit.com (Intuit) that markets our Internet postage service on
various Intuit Internet sites and software. In exchange for this sponsorship,
the Company is required to pay $3.3 million ($2 million in 1999 and $1.3
million in 2000). Additional payments may be required if this Sponsorship
Agreement results in certain customer levels. The related expense will be
recognized as the services are provided.
F-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD. All of the expenses
below will be paid by the Company.
<TABLE>
<CAPTION>
Item
----
<S> <C>
Registration fee................................................... $ 17,583
NASD filing fee.................................................... 6,250
Nasdaq National Market listing fee................................. 50,000
Blue sky fees and expenses......................................... 10,000
Printing and engraving expenses.................................... 100,000
Legal fees and expenses............................................ 250,000
Accounting fees and expenses....................................... 150,000
Transfer Agent and Registrar fees.................................. 5,000
Miscellaneous...................................................... 66,167
--------
Total............................................................ $700,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that, except to the extent prohibited by the Delaware
General Corporation Law (the "DGCL"), the Company's directors shall not be
personally liable to the Company or its stockholders for monetary damages for
any breach of fiduciary duty as directors of the Company. Under the DGCL, the
directors have a fiduciary duty to the Company which is not eliminated by this
provision of the Certificate and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available. In addition, each director will continue to be subject to liability
under the DGCL for breach of the director's duty of loyalty to the Company, for
acts or omissions which are found by a court of competent jurisdiction to be
not in good faith or involving intentional misconduct, for knowing violations
of law, for actions leading to improper personal benefit to the director, and
for payment of dividends or approval of stock repurchases or redemptions that
are prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws. The Company has obtained liability
insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the Company
shall fully indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that such person is or was a director or officer of the Company, or is or
was serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
II-1
<PAGE>
The Company, with the approval of the Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of this
offering. In addition, the Company intends to enter into indemnification
agreements with each of its directors and executive officers, a form of which
is filed as Exhibit 10.20 hereto.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. Moreover, the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
The Company believes that the foregoing indemnification provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
The Underwriting Agreement (the form of which is filed as Exhibit 1.1
hereto) provides for indemnification by the Underwriters of the Company and its
officers and directors, and by the Company of the Underwriters, for certain
liabilities arising under the Securities Act or otherwise.
Item 15. Recent Sales of Unregistered Securities.
The following is a summary of transactions by the Company since the
Company's inception in September 1996 involving sales of the Company's
securities that were not registered under the Securities Act. Prior to the
Company's incorporation in Delaware in January 1998, it had been operating as a
sole proprietorship.
On January 20, 1998, we issued an aggregate of 4,897,500 shares of Common
Stock at $.01 per share to certain employees, consultants and other individual
investors.
On May 1, 1998, we granted a warrant to a lender to purchase up to 4,700
shares of Series A Preferred Stock at $0.40 per share.
In October 1998, we issued an aggregate of 307,875 shares of Common Stock
at $.05 per share to Thomas Bruggere.
In November 1998, we issued an aggregate of 1,500,000 shares of Common
Stock at $.07 per share to John Payne.
In December 1998, we issued an aggregate of 186,000 shares of Common Stock
at $.07 per share to Thomas Bruggere.
In December 1998, we issued 15,000 shares of Common Stock to Gregory Deeter
in exchange for all rights and goodwill in connection with the Stamps.com
domain name.
In January and February of 1998, we issued an aggregate of 3,762,500 shares
of our Series A Redeemable Preferred Stock to certain accredited investors for
an aggregate offering price of $1,505,000, or $0.40 per share, less $42,000 in
offering expenses.
In August, October and November of 1998, we issued an aggregate of
6,020,000 shares of Series B Redeemable Preferred Stock upon the exercise of
warrants to certain accredited investors for an aggregate offering price of
$4,515,000.50, or $0.75 per share.
In February and March of 1999, we issued an aggregate of 5,464,486 shares
of Series C Redeemable Preferred Stock to certain accredited investors for an
aggregate offering price of $30,000,028, or $5.49 per share, less $1,645,000 in
offering expenses.
II-2
<PAGE>
From January 1998 to June 1999, we have granted options to purchase an
aggregate of 5,430,421 shares of common stock to our directors, executive
officers, employees and consultants at a weighted exercise price of $0.84.
The foregoing transactions were effected under Section 4(2) of the
Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following Exhibits are attached hereto and incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Proposed Amended and Restated Certificate of Incorporation of the
Registrant.
3.3** Bylaws of the Registrant.
3.4 Proposed Bylaws of the Registrant.
4.1** See Exhibit 3.1, 3.2 and 3.3 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights of
holders of the Registrant's common stock. See Exhibit 10.3 for the
rights of certain holders of registration rights.
4.2* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.2** Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.
10.3** Patent Assignment from Mohan P. Ananda to the Registrant dated
January 20, 1998.
10.4** Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.
10.5** Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.
10.6** Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.
10.7** 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.
10.8** 1999 Stock Incentive Plan.
10.9** 1999 Employee Stock Purchase Plan
10.10** Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.11** Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8, 1999.
10.12**+ Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.
10.13** Master Lease Agreement between the Registrant and FirstCorp dated
June 5, 1998.
10.14** Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.15** Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.
10.16** Consulting Agreement dated February 1, 1999 between the Registrant and
Loren Smith.
10.17 Lease dated April 12, 1999 between the Registrant and Spieker
Properties, L.P.
10.18*+ Sponsorship Agreement dated May 14, 1999 between Registrant and
Intuit, Inc.
10.19*+ Distributor Agreement dated March 30, 1999 between Registrant and
Westvaco.
10.20*+ Distributor Agreement dated January 15, 1999 between Registrant and
Office Depot, Inc.
10.21*+ Distributor Agreement dated March 31, 1999 between Registrant and
Seiko Instruments USA, Inc.
10.22*+ Distributor Agreement dated March 30, 1999 between Registrant and
Avery Dennison Office Products Company.
10.23*+ Distributor Agreement dated March 11, 1999 between Registrant and
Dymo-Costar Corporation.
10.24 Series A Preferred Stock and Warrant Purchase Agreement dated February
26, 1998 between Registrant and certain investors.
10.25 Amended and Restated Voting Agreement dated February 17, 1999 between
Registrant and certain investors.
10.26 Separation Agreement and Release dated May 13, 1999 between Registrant
and Mohan Ananda.
10.27 License Agreement dated May 13, 1999 between Registrant and Mohan
Ananda.
10.28 Series C Preferred Stock Purchase Agreement dated February 17, 1999
between Registrant and certain investors.
10.29 Amendment Letter to AOL dated June 4, 1999.
23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
24.1** Power of Attorney (Included on signature pages hereto).
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed by the registrant with the Commission.
+ Confidential treatment is requested for certain confidential portions of
this exhibit pursuant to Rule 406 under the Securities Act. In accordance
with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.
(b) Financial Statement Schedules
All such Schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
Item 17. Undertakings.
The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
II-4
<PAGE>
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by us pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Monica, State of California, on the 4th day of June, 1999.
STAMPS.COM INC.
By: /s/ John M. Payne
-----------------------------------
John M. Payne
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John M. Payne Chief Executive Officer, June 4, 1999
____________________________________ President and Director
John M. Payne (Principal Executive
Officer)
/s/ John W. LaValle Chief Financial Officer, June 4, 1999
____________________________________ Senior Vice President of
John W. LaValle Operations and Secretary
(Principal Financial and
Accounting Officer)
Thomas H. Bruggere* Chairman of the Board of June 4, 1999
____________________________________ Directors
Thomas H. Bruggere
Mohan P. Ananda* Director June 4, 1999
____________________________________
Mohan P. Ananda
David C. Bohnett* Director June 4, 1999
____________________________________
David C. Bohnett
Jeffrey J. Brown* Director June 4, 1999
____________________________________
Jeffrey J. Brown
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Thomas N. Clancy* Director June 4, 1999
____________________________________
Thomas N. Clancy
G. Bradford Jones* Director June 4, 1999
____________________________________
G. Bradford Jones
Marvin Runyon* Director June 4, 1999
____________________________________
Marvin Runyon
Loren E. Smith* Director June 4, 1999
____________________________________
Loren E. Smith
</TABLE>
* Power of Attorney
By: /s/ John W. LaValle
----------------------------
John W. LaValle
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Proposed Amended and Restated Certificate of Incorporation of the
Registrant.
3.3** Bylaws of the Registrant.
3.4 Proposed Bylaws of the Registrant.
4.1** See Exhibit 3.1, 3.2 and 3.3 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights of
holders of the Registrant's common stock. See Exhibit 10.3 for the
rights of certain holders of registration rights.
4.2* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.2** Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.
10.3** Patent Assignment from Mohan P. Ananda to the Registrant dated
January 20, 1998.
10.4** Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.
10.5** Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.
10.6** Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.
10.7** 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.
10.8** 1999 Stock Incentive Plan.
10.9** 1999 Employee Stock Purchase Plan
10.10** Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.11** Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8, 1999.
10.12**+ Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.
10.13** Master Lease Agreement between the Registrant and FirstCorp dated
June 5, 1998.
10.14** Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.15** Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.
10.16** Consulting Agreement dated February 1, 1999 between the Registrant
and Loren Smith.
10.17 Lease dated April 12, 1999 between the Registrant and Spieker
Properties, L.P.
10.18*+ Sponsorship Agreement dated May 14, 1999 between Registrant and
Intuit, Inc.
10.19*+ Distributor Agreement dated March 30, 1999 between Registrant and
Westvaco.
10.20*+ Distributor Agreement dated January 15, 1999 between Registrant and
Office Depot, Inc.
10.21*+ Distributor Agreement dated March 31, 1999 between Registrant and
Seiko Instruments USA, Inc.
10.22*+ Distributor Agreement dated March 30, 1999 between Registrant and
Avery Dennison Office Products Company.
10.23*+ Distributor Agreement dated March 11, 1999 between Registrant and
Dymo-Costar Corporation.
10.24 Series A Preferred Stock and Warrant Purchase Agreement dated
February 26, 1998 between Registrant and certain investors.
10.25 Amended and Restated Voting Agreement dated February 17, 1999 between
Registrant and certain investors.
10.26 Separation Agreement and Release dated May 13, 1999 between
Registrant and Mohan Ananda.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.27 License Agreement dated May 13, 1999 between Registrant and Mohan
Ananda.
10.28 Series C Preferred Stock Purchase Agreement dated February 17, 1999
between Registrant and certain investors.
10.29 Amendment Letter from AOL dated June 4, 1999
23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
24.1** Power of Attorney (Included on signature pages hereto).
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed by the registrant with the Commission.
+ Confidential treatment is requested for certain confidential portions of
this exhibit pursuant to Rule 406 under the Securities Act. In accordance
with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STAMPS.COM INC.
The undersigned John M. Payne and John W. LaValle, hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
---
respectively, of said corporation.
TWO: The original Certificate of Incorporation of the Corporation was
---
filed with the Secretary of State of Delaware on January 9, 1998, under the name
"Stampmaster, Inc." On February 25, 1998, the Corporation filed an Amended and
Restated Certificate of Incorporation. On December 4, 1998, the Corporation
filed a Certificate of Amendment changing the name of the Corporation to
"Stamps.com." On February 17, 1999, the Corporation filed an Amended and
Restated Certificate of Incorporation.
THREE: The Amended and Restated Certificate of Incorporation of said
-----
corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is STAMPS.COM Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "GCL").
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that the Corporation is authorized to issue is One Hundred
Million (100,000,000). Ninety Five Million (95,000,000) shares shall be Common
Stock, par value $0.001 per share, and Five Million (5,000,000) shares shall be
Preferred Stock, par value $0.001 per share.
<PAGE>
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors of the
Corporation is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon each series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or of any of them. The rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, pari passu
----------
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote), or senior to any of those of any present or future class or series of
Preferred Stock or Common Stock. The Board of Directors is also authorized to
increase or decrease the number of shares of any series prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation. In addition, the
Bylaws may be amended by the affirmative vote of holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of
the Corporation entitled to vote at an election of directors.
ARTICLE VI
The number of directors of the Corporation shall be determined by
resolution of the Board of Directors.
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide. Advance notice of stockholder nominations
for the election of directors and of any other business to be brought before any
meeting of the stockholders shall be given in the manner provided in the Bylaws
of this Corporation.
At each annual meeting of stockholders, directors of the Corporation
shall be elected to hold office until the expiration of the term for which they
are elected, or until their successors have been duly elected and qualified;
except that if any such election shall not be so held, such election shall take
place at a stockholders' meeting called and held in accordance with the GCL.
The directors of the Corporation shall be divided into three (3)
classes as nearly equal in size as is practicable, hereby designated Class I,
Class II and Class III. For the purposes hereof, the initial Class I, Class II
and Class III directors shall be those directors so designated by a resolution
of the Board of Directors. At the first annual meeting of stockholders
following the closing of the initial public offering of the Corporation's Common
Stock, the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three (3) years. At the second
annual meeting of stockholders following the closing of the initial public
offering of the Corporation's Common Stock, the term of office of the Class II
directors shall
2
<PAGE>
expire and Class II directors shall be elected for a full term of three (3)
years. At the third annual meeting of stockholders following the initial public
offering of the Corporation's Common Stock, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three (3) years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three (3) years to succeed the directors of
the class whose terms expire at such annual meeting. If the number of directors
is hereafter changed, each director then serving as such shall nevertheless
continue as a director of the Class of which he is a member until the expiration
of his current term and any newly created directorships or decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of Directors,
even if less than a quorum, at any meeting of the Board of Directors. A person
so elected by the Board of Directors to fill a vacancy shall hold office for the
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been duly elected and
qualified. A director may be removed from office by the affirmative vote of the
holders of 66 2/3% of the outstanding shares of voting stock of the Corporation
entitled to vote at an election of directors, provided that such removal is for
cause.
ARTICLE VII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. Special meetings of the stockholders, for
any purpose or purposes, may only be called by the Board of Directors of the
Corporation. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
ARTICLE VIII
To the fullest extent permitted by applicable law, this Corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and agents (and any other persons to which
Delaware law permits this Corporation to provide indemnification) through Bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the GCL, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to action for breach of duty to the Corporation, its stockholders, and
others.
No director of the Corporation shall be personally liable to the
Corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the GCL or any amendment thereto or shall be liable
by reason that, in addition to any and all other requirements for such
liability, such director (1) shall have breached the director's duty or loyalty
to the
3
<PAGE>
Corporation or its stockholders, (2) shall have acted in manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (3) shall have derived an improper personal benefit. If the
GCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
Each person who was or is made a party or is threatened to be made a
party to or is in any way involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or a direct
or indirect subsidiary of the Corporation, or is or was serving at the request
of the Corporation as a director or officer of another entity or enterprise, or
was a director or officer of a foreign or domestic corporation which was
predecessor corporation of the Corporation or of another entity or enterprise at
the request of such predecessor corporation, shall be indemnified and held
harmless by the Corporation, and the Corporation shall advance all expenses
incurred by any such person in defense of any such proceeding prior to its final
determination, to the fullest extent authorized by the GCL. In any proceeding
against the Corporation to enforce these rights, such person shall be presumed
to be entitled to indemnification and the Corporation shall have the burden of
proving that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article VIII shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a direct or
indirect subsidiary of the Corporation, or by a person serving at the request of
the Corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the GCL, as amended and in effect from time to time.
If a claim under this Article VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the Corporation ) that the claimant
has not met the standards of conduct which make it permissible under the GCL for
the Corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the Corporation
shall have the burden of proving that the claimant has not met the standards of
conduct for permissible indemnification set forth in the GCL.
If the GCL is hereafter amended to permit the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such
4
<PAGE>
amendment, the indemnification rights conferred by this Article VIII shall be
broadened to the fullest extent permitted by the GCL, as so amended.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in
Articles V, VI, VII, VIII and IX of this Amended and Restated Certificate of
Incorporation may not be repealed or amended in any respect without the
affirmative vote of holders at least 66-2/3% of the outstanding voting stock of
the Corporation entitled to vote at election of directors.
FOURTH: The foregoing amendment and restatement has been duly adopted
------
by the Corporation's Board of Directors in accordance with the applicable
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
FIFTH: The foregoing amendment and restatement was approved by the
-----
holders of the requisite number of shares of the Corporation in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
June _____, 1999.
------------------------------------
John M. Payne
President
------------------------------------
John W. LaValle
Secretary
5
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
STAMPS.COM INC.
(as amended _____, 1999)
ARTICLE I
OFFICES
Section 1. The registered office in the State of Delaware is 1013
----------
Centre Road, Wilmington, County of New Castle.
Section 2. The corporation may also have offices at such other places
----------
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
----------
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date
----------
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. At each annual meeting, the stockholders
shall elect directors to succeed those directors whose terms expire in that year
and shall transact such other business as may properly be brought before the
meeting.
Section 3. Written notice of the annual meeting stating the place,
----------
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
----------
corporation shall prepare and make available, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
<PAGE>
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
----------
purposes, may only be called by the Board.
Section 6. Written notice of a special meeting stating the place,
----------
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
----------
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
----------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, either the Chairman of the
Board, or the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted that might have been
transacted at the meeting as originally notified. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
----------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of applicable statute
or of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
Section 10. Unless otherwise provided in the certificate of
-----------
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Nominations for election to the Board of Directors must
-----------
be made by the Board of Directors or by a committee appointed by the Board of
Directors for such purpose or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations by stockholders must be preceded by notification in
2
<PAGE>
writing received by the secretary of the corporation not less than one-hundred
twenty (120) days prior to any meeting of stockholders called for the election
of directors. Such notification shall contain the written consent of each
proposed nominee to serve as a director if so elected and the following
information as to each proposed nominee and as to each person, acting alone or
in conjunction with one or more other persons as a partnership, limited
partnership, syndicate or other group, who participates or is expected to
participate in making such nomination or in organizing, directing or financing
such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence, address, and business address
of each proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned
beneficially, either directly or indirectly, by each proposed nominee and each
such person; and
(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such business
-----------
shall be conducted as shall have been brought before the meeting (a) pursuant to
the corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
For business to be properly brought before any meeting by a
stockholder pursuant to clause (c) above of this Section 12, the stockholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than one hundred twenty (120) days prior to the date of the meeting. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any
3
<PAGE>
material interest of such stockholder of record and the beneficial owner, if
any, on whose behalf the proposal is made in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 12. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 12, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 12, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 12.
ARTICLE III
DIRECTORS
Section 1. The number of directors of this corporation that shall
----------
constitute the whole board shall be determined by resolution of the Board of
Directors; provided, however, that no decrease in the number of directors shall
have the effect of shortening the term of an incumbent director. The Board of
Directors shall be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, as
determined by the Board of Directors, one class to hold office initially for a
term expiring at the annual meeting to be held in 2000, another class to hold
office initially for a term expiring at the annual meeting of stockholders held
in 2001 and another class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 2002, with the members of each
class to hold office until their successors are elected and qualified. At each
annual meeting of stockholders, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election.
Section 2. Vacancies and newly created directorships resulting from
----------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, even if less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
election of the class for which such directors were chosen and until their
successors are duly elected and qualified or until earlier resignation or
removal. If there are no directors in office, then an election of directors may
be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or
----------
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do
4
<PAGE>
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
----------
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
----------
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
----------
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
----------
Chairman of the Board or the president on twelve (12) hours' notice to each
director by phone, fax or electronic mail; special meetings shall be called by
the Chairman of the Board, the president or secretary in like manner and on like
notice on the written request of a majority of the Board unless the Board
consists of only one director, in which case special meetings shall be called by
the Chairman of the Board, the president or secretary in like manner and on like
notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
----------
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
----------
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons
5
<PAGE>
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
-----------
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
-----------
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
6
<PAGE>
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
----------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
----------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
----------
Board of Directors and shall be a president, a chief financial officer and a
secretary. The Board of Directors may elect from among its members a Chairman
of the Board. The Board of Directors may also choose one or more vice-
presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
----------
annual meeting of stockholders shall choose a president, a chief financial
officer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
----------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
----------
fixed by the Board of Directors or any committee established by the Board of
Directors for such purpose. The salaries of agents of the corporation shall,
unless fixed by the Board of Directors, be fixed by the president or any vice-
president of the corporation.
Section 5. The officers of the corporation shall hold office until
----------
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be
7
<PAGE>
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the corporation shall be
filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
----------
meetings of the Board of Directors and of the stockholders at which he/she shall
be present. He/she shall have and may exercise such powers as are, from time to
time, assigned to him/her by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the
----------
president, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He shall have and may exercise such
powers as are, from time to time, assigned to him by the Board and as may be
provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of the
----------
corporation; and in the absence of the Chairman of the Board he/she shall
preside at all meetings of the stockholders and the Board of Directors; he/she
shall have general and active management of the business of the corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
Section 9. The president or any vice president shall execute bonds,
----------
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 10. In the absence of the president or in the event of his
-----------
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
-----------
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he/she shall be. He/she shall have custody
of the corporate seal of the corporation and he/she, or an assistant secretary,
shall have authority to affix the same to any instrument
8
<PAGE>
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
Section 12. The assistant secretary, or if there be more than one,
-----------
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE CHIEF FINANCIAL OFFICER
Section 13. The chief financial officer shall be the chief financial
-----------
officer of the corporation, shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He/she shall disburse the funds of the corporation as may
-----------
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the corporation.
Section 15. If required by the Board of Directors, he/she shall give
-----------
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his/her office and for the
restoration to the corporation, in case of his/her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his/her control
belonging to the corporation.
Section 16. The treasurer or an assistant treasurer, in the order
-----------
determined by the Board of Directors (or if there be no such determination, then
in the order of their election) shall, in the absence of the Chief Financial
Officer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Chief Financial Officer and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
----------
to have a certificate, signed by, or in the name of the corporation by, the
Chairman of the Board of Directors, or the president or a vice-president and the
treasurer or an assistant treasurer, or the
9
<PAGE>
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by him/her in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he/she were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
----------
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his/her
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
----------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
10
<PAGE>
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 5. The corporation shall be entitled to recognize the
----------
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
----------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
----------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
----------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
11
<PAGE>
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
----------
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
----------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
----------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section
6 shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this
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<PAGE>
bylaw is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
----------
bylaws may be adopted by the affirmative vote of holders of at least 66-2/3%
vote of the outstanding voting stock of the corporation. These bylaws may also
be altered, amended or repealed or new bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation. The foregoing may occur at any regular meeting of
the stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal bylaws is conferred
upon the Board of Directors by the certificate of incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal bylaws.
13
<PAGE>
CERTIFICATE OF ADOPTION BY THE
SECRETARY OF
STAMPS.COM, INC.
The undersigned, John W. LaValle, hereby certifies that he is the duly
elected and acting Secretary of STAMPS.COM Inc., a Delaware corporation (the
"Corporation"), and that the Bylaws attached hereto constitute the Bylaws of
said Corporation as duly adopted by the Board of Directors on June _____, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this _____ day of _______, 1999.
_______________________________________
John W. LaValle
Secretary
<PAGE>
EXHIBIT 10.17
BASIC LEASE INFORMATION
OFFICE GROSS
<TABLE>
<S> <C>
LEASE DATE:
(same as date in first paragraph of Lease) April 12, 1999
TENANT: Stamps.com, Inc., a Delaware corporation
TENANT'S NOTICE ADDRESS: 3420 Ocean Park Blvd., Suite 1040
Santa Monica, CA 90405
TENANT'S BILLING ADDRESS: 3420 Ocean Park Blvd., Suite 1040
Santa Monica, CA 90405
TENANT CONTACT: Susan Blymyer PHONE NUMBER: (310) 450-1444
FAX NUMBER: (310) 450-3474
LANDLORD: Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS: 3250 Ocean Park Boulevard, Suite 150
Santa Monica, California 90405
LANDLORD'S REMITTANCE
ADDRESS: P.O. Box 60077
Department 12351
Los Angeles, California 90060-0077
PROJECT DESCRIPTION: A project commonly known as Santa Monica Business Park consisting of nineteen (19)
buildings, as further shown on Exhibit "B" attached hereto.
BUILDING DESCRIPTIONS: A three (3) story office building containing approximately 113,667 rentable square
feet, located at 3420 Ocean Park Boulevard, Santa Monica, California, as shown on
Exhibit B attached hereto (the "3420 Building").
PREMISES: The Tenant will occupy Suite 1040 comprising 19,865 rentable square feet, such space
shall be referred to as the "Initial Space" and as of December 1, 1999 Tenant will
occupy the Suites 1000 and 2000, known as the "Must Take Space" all of which for
purpose of this Agreement is hereinafter known as "The Premises". The Premises shall
include collectively 41,041 rentable square feet of space commonly known as Suites
1040, 1000 and 2000 of the 3420 Building, shown on Exhibit B attached hereto. The
Premises are demised as follows: Suite 1040: 19,865 rentable square feet; Suite
1000: 12,000 rentable square feet; and Suite 2000: 9,176 rentable square feet.
Landlord and Tenant hereby stipulate and agree to the foregoing square footage
figures.
PERMITTED USE: General office, non-medical use
OCCUPANCY DENSITY: Six (6) people per 1,000 rentable square feet of the Premises.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
PARKING DENSITY: Subject to the terms of Article 4 below, up to five (5) non-exclusive parking spaces
per 1,000 rentable square feet of the Premises which will be in common with other
tenants of the Project. Landlord and Tenant agree that Tenant will utilize four (4)
non-exclusive parking spaces per 1,000 rentable square feet of the Premises on the
east area of the Premises (hereinafter called "East Campus") as designated in
Exhibit B, as long as parking spaces are available for all tenants on the East
Campus as determined by Landlord. Tenant agrees that for that portion of the parking
requirements of Tenant at any given time during the Term (i) which exceed four (4)
non-exclusive parking spaces per 1,000 rentable square feet of the Premises or if
determined by Landlord, which exceed three (3) non-exclusive parking spaces per
1,000 rentable square feet of the Premises, Tenant will utilize parking in the
parking structure as designated by Landlord (which parking structure is located at
3010 31st Street, Santa Monica, California, and is hereinafter referred to as the
"The Parking Structure"), and (ii) which exceed 4.5 non-exclusive parking spaces per
1,000 rentable square feet of the Premises, Tenant will utilize valet parking
services (provided by Landlord as an Operating Expense) on certain levels in The
Parking Structure to be designated by Landlord. In addition to non-exclusive parking
spaces, the Original Tenant (as defined in Article 39E below) and any Affiliate (but
not any other assignee or subtenant of the Original Tenant) shall have the right to
lease five (5) reserved parking spaces on the east side of the 3420 Building (the
exact location of which is delineated on Exhibit "B" attached hereto).
PARKING AND PARKING CHARGE: Five (5) non-exclusive parking spaces per 1,000 rentable square feet of the
Premises, subject to the preceding paragraph, including five (5) reserved parking
spaces at Landlord's prevailing market rates plus applicable governmental taxes.
Landlord's prevailing market rates for parking are $60.00 per unreserved parking
space per month and $85.00 per reserved parking space per month plus applicable
governmental taxes, which rates are subject to change from time to time (subject to
a cap on increases in parking rates in accordance with Article 37 below).
Estimated Term Commencement Date: June 1, 1999, subject to the terms of Article 2 of the Lease.
Estimated Length of Term: Sixty (60) months.
Term Expiration Date: May 31, 2004
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Rent:
3420 SPACE
----------
<S> <C> <C>
Months 1-3 $19,865.00 per month ($1.00 per rentable square foot per month)
Months 4-6* $38,736.75 per month ($1.95 per rentable square foot per month)
Months 7-9 $59,912.75 per month ($1.00 per rentable square foot per month
for Suites 1000 and 2000/$1.95 per rentable
square foot per month for Suite 1040)
Months 10-12 $80,029.95 per month ($1.95 per rentable square foot per month)
Months 13-24 $83,313.23 per month ($2.03 per rentable square foot per month)
Months 25-36 $86,596.51 per month ($2.11 per rentable square foot per month)
Months 37-48 $90,290.20 per month ($2.20 per rentable square foot per month)
Months 49-60 $94,394.30 per month ($2.30 per rentable square foot per month)
</TABLE>
* Tenant will pay rent for Suites 1000 and 2000 when notified by Landlord that
suites are ready for occupancy which will be no later than December 1, 1999.
3420 Building Base Year -- Calendar Year 1999
Security Deposit: $625,000 (which amount shall be paid to Landlord by
means of a cash security deposit and/or letter(s) of
credit in accordance with paragraph 39C below)
Landlord and Tenant acknowledge that (i) Landlord is
currently holding an amount equal to $23,028.25 as a
security deposit for Tenant's obligations under the
Existing Lease (as defined in Article 39G below), (ii)
Landlord shall continue to hold said security deposit
as part of the security deposit which Tenant is
obligated to deliver to Landlord hereunder, and (iii)
Tenant shall be credited against its obligations to
provide a security deposit to Landlord under this Lease
with the amount of the security deposit being held by
Landlord under the Existing Lease, $23,028.25.
Tenant's 3420 Space Proportionate Share:
Suite 1040 17.47%
Suite 1000 10.55%
Suite 2000 8.07%
The foregoing proportionate shares are hereby stipulated by Landlord and Tenant
to be true and correct.
<PAGE>
The foregoing Basic Lease Information is incorporated into and made a part
of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information above and shall be construed
to incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By:_____________________________
John Davenport
Regional Senior Vice President
Date:____________________
TENANT
Stamps.com, Inc.,
a Delaware corporation
By:_____________________________
Its:__________________________
By:_____________________________
Its:__________________________
<PAGE>
EXHIBIT A
RULES AND REGULATIONS
---------------------
1. Sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall not be obstructed by tenants or used by
tenants for any purpose other than for ingress to and egress from their
respective premises. The halls, passages, exits, entrances, elevators and
stairways are not for the use of the general public and Landlord shall in
all cases retain the right to control and prevent access thereto by all
persons whose presence, in the reasonable judgment of Landlord, shall be
prejudicial to the safety, character, reputation and interests of the
Building, the Project 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 of such tenant's business
unless such persons are engaged in illegal activities. No tenant, and no
employees or invitees of any tenant, shall go upon the roof of any
Building, except as authorized by Landlord or for purposes related to
satellite dishes in strict accordance with the terms of this Lease. No
tenant, and no employees or invitees of any tenant shall move any common
area furniture without Landlord's consent.
2. Except as otherwise set forth in this Lease, no sign, placard,
banner, picture, name, advertisement or notice, visible from the exterior
of the Premises or the Building or the common areas of the Building shall
be inscribed, painted, affixed, installed or otherwise displayed by Tenant
either on its Premises or any part of the Building or Project without the
prior written consent of Landlord in Landlord's sole and absolute
discretion. Landlord shall have the right to remove any such sign,
placard, banner, picture, name, advertisement, or notice without notice to
and at the expense of the Tenant, which were installed or displayed in
violation of this rule. If Landlord shall have given such consent to
Tenant at anytime, whether before or after the execution of Tenant's
Lease, such consent shall in no way operate as a waiver or release of any
of the provisions hereof or of the Lease, and shall be deemed to relate
only to the particular sign, placard, banner, picture, name, advertisement
or notice so consented to by Landlord and shall not be construed as
dispensing with the necessity of obtaining the specific written consent of
Landlord with respect to any other such sign, placard, banner, picture,
name, advertisement or notice.
All approved signs or lettering on doors and walls shall be
printed, painted, affixed or inscribed at the expense of Tenant by a
person or vendor reasonably approved by Landlord and shall be removed by
Tenant at the time of vacancy at Tenant's expense.
3. The directory of the Building will be provided exclusively for
the display of the name and location of tenants only (and approved
assignees or subtenants) and Landlord reserves the right to charge a
reasonable fee for the installation thereof.
4. No curtains, draperies, blinds, shutters, shades, screens or
other coverings, awnings, hangings or decorations shall be attached to,
hung or placed in, or used in connection with, any window or door on the
Premises without the prior written reasonable consent of Landlord. In any
event with the prior written consent of Landlord, all such items shall be
installed inboard of Landlord's standard window covering and shall in no
way be visible from the exterior of the Building. All electrical ceiling
fixtures hung in offices or spaces along the perimeter of the Building
must be fluorescent or of a quality, type, design, and bulb color
reasonably approved by Landlord. No articles shall be placed or kept on
the window sills so as to be visible from the exterior of the Building.
No articles shall be placed against glass partitions or doors which
Landlord considers unsightly from outside Tenant's Premises.
5. Landlord reserves the right to exclude from the Building and the
Project, between the hours of 6 p.m. and 8 a.m. and at all hours on
Saturdays, Sundays and legal holidays, all persons who are not tenants or
their guests in the
<PAGE>
Building. Each tenant shall be responsible for all persons for whom it
allows to enter the Building or the Project and shall be liable to
Landlord for all acts of such persons, except as otherwise provided in
this Lease.
Landlord and its agents shall not be liable for damages for any
error concerning the admission to, or exclusion from, the Building or the
Project of any person, except to the extent resulting from Landlord's
negligence or willful misconduct.
During the continuance of any invasion, mob, riot, public
excitement or other circumstance rendering such action advisable in
Landlord's opinion, Landlord reserves the right (but shall not be
obligated) to prevent access to the Building and the Project during the
continuance of that event by any means it considers appropriate for the
safety of tenants and protection of the Building, property in the Building
and the Project.
6. All cleaning and janitorial services for the Building and the
Premises shall be provided exclusively through Landlord. Except with the
written consent of Landlord, no person or persons other than those
reasonably approved by Landlord shall be permitted to enter the Building
for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by reason of Tenant's carelessness or indifference in
the preservation of good order and cleanliness of its Premises. Landlord
shall in no way be responsible to Tenant for any loss of property on the
Premises, however occurring, or for any damage done to Tenant's property
by the janitor or any other employee or any other person, except to the
extent resulting from Landlord's negligence or willful misconduct.
7. Tenant shall use commercially reasonable efforts to see that all
doors of its Premises are closed and securely locked and to observe
strict care and caution that all water faucets or water apparatus, coffee
pots or other heat-generating devices are entirely shut off before Tenant
or its employees leave the Premises, and that all utilities shall likewise
be carefully shut off, so as to prevent waste or damage. Tenant shall be
responsible for any damage or injuries sustained by other tenants or
occupants of the Building or Project or by Landlord for noncompliance with
this rule. On multiple-tenancy floors, all tenants shall keep the door or
doors to the Building corridors closed at all times except for ingress and
egress.
8. Except as provided in this Lease, Tenant shall not use any
method of heating or air-conditioning other than that supplied by
Landlord. As more specifically provided in the Tenant's lease of the
Premises, 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 shall
refrain from attempting to adjust any controls other than room thermostats
installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to
each door in the Premises. Landlord may make a reasonable charge for any
additional keys (provided such charge shall not exceed the charge to any
other tenant in the Project for said additional keys), and Tenant shall
not make or have made additional keys. Tenant shall not alter any lock or
access device or install a new or additional lock or access device or bolt
on any door of its Premises, without the prior written consent of
Landlord, which shall not be unreasonably withheld. If Landlord shall
give its consent, Tenant shall in each case furnish Landlord with a key
for any such lock (except for any secured areas which Landlord has
approved). Tenant, upon the termination of its tenancy, shall deliver to
Landlord the keys for all doors which have been furnished to Tenant, or
which have otherwise been made for Tenant, and in the event of loss of any
keys so furnished or made, shall pay Landlord therefor.
10. The restrooms, 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 into them. The expense of
<PAGE>
any breakage, stoppage, or damage resulting from violation of this rule
shall be borne by the tenant who, or whose employees or invitees, shall
have caused the breakage, stoppage, or damage.
11. Tenant shall not use or keep in or on the Premises, the
Building or the Project any kerosene, gasoline, or inflammable or
combustible fluid or material, except incidental to the Permitted Use and
in compliance with all Regulations and subject to Landlord's approval.
12. Tenant shall not use, keep or permit to be used or kept in its
Premises any foul or noxious gas or substance. Tenant shall not allow the
Premises to be occupied or used in a manner which unreasonably interferes
with Landlord or other occupants of the Building by reason of noise, odors
and/or vibrations or interfere in any way with other tenants or those
having business therein, nor shall any animals (other than guide dogs) or
birds be brought or kept in or about the Premises, the Building, or the
Project.
13. No cooking shall be done or permitted by any tenant on the
Premises, except that use by the tenant of Underwriters' Laboratory (UL)
approved equipment, refrigerators and microwave ovens may be used in the
Premises for the preparation of coffee, tea, hot chocolate and similar
beverages, storing and heating food for tenants and their employees shall
be permitted. All uses must be in accordance with all applicable federal,
state and city laws, codes, ordinances, rules and regulations and the
Lease.
14. Except with the prior written consent of Landlord, Tenant shall
not sell, or permit the sale, at retail, of newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise in or on
the Premises, nor shall Tenant carry on, or permit or allow any employee
or other person to carry on, the business of stenography, typewriting or
any similar business in or from the Premises for the service or
accommodation of occupants of any other portion of the Building, nor shall
the Premises be used for the storage of merchandise or for manufacturing
of any kind, or the business of a public barber shop, beauty parlor, nor
shall the Premises be used for any illegal, improper or immoral purpose,
or any business or activity other than that specifically provided for in
such Tenant's Lease. Tenant shall not accept hairstyling, barbering,
shoeshine, nail, massage or similar services in the Premises or common
areas except as authorized by Landlord.
15. If Tenant requires telegraphic, telephonic, telecommunications,
data processing, burglar alarm or similar services, it shall first obtain,
and comply with, Landlord's instructions in their installation, except as
otherwise provided in this Lease.
16. Landlord will direct electricians as to where and how
telephone, telegraph and electrical wires are to be introduced or
installed. No boring or cutting for wires will be allowed without the
prior consent of Landlord. The location of burglar alarms, telephones,
call boxes and other office equipment affixed to the Premises shall be
subject to the written approval of Landlord.
17. Except as otherwise set forth in this Lease, Tenant shall not
install any radio or television antenna, satellite dish, loudspeaker or
any other device on the exterior walls or the roof of the Building,
without Landlord's consent. Tenant shall not interfere with radio or
television broadcasting or reception from or in the Building, the Project
or elsewhere.
18. Except in connection with the normal hanging of pictures or
other decorative items of art, Tenant shall not mark, or drive nails,
screws or drill into the partitions, woodwork or drywall or in any way
deface the Premises or any part thereof without Landlord's consent.
Tenant may install nails and screws in areas of the Premises that have
been identified for those purposes to Landlord by Tenant at the time those
walls or partitions were installed in the Premises. Tenant shall not lay
<PAGE>
linoleum, tile, carpet or any other floor covering so that the same shall
be affixed to the floor of its Premises in any manner except as approved
in writing by Landlord. The expense of repairing any damage resulting
from a violation of this rule or the removal of any floor covering shall
be borne by the tenant by whom, or by whose contractors, employees or
invitees, the damage shall have been caused.
19. No bulk furniture, freight, equipment, materials, supplies,
packages, merchandise or other property will be received in the Building
or carried up or down the elevators except between such hours and in such
elevators as shall be designated by Landlord.
Tenant shall not place a load upon any floor of its Premises
which exceeds the load per square foot which such floor was designed to
carry or which is allowed by law. Landlord shall have the right to
prescribe the weight, size and position of all safes, furniture or other
heavy equipment brought into the Building. Safes or other heavy objects
shall, if considered necessary by Landlord, stand on wood strips of such
thickness as determined by Landlord to be necessary to properly distribute
the weight thereof. Landlord will not be responsible for loss of or
damage to any such safe, equipment or property from any cause, and all
damage done to the Building by moving or maintaining any such safe,
equipment or other property shall be repaired at the expense of Tenant.
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 to such a degree as to be
objectionable to Landlord or to any tenants in the Building shall be
placed and maintained by Tenant, at Tenant's expense, 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 reasonably acceptable to Landlord.
20. Intentionally Omitted.
21. There shall not be used in any space, or in the public areas of
the Project either by Tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord may approve. Tenants using hand trucks shall be
required to use the freight elevator, or such elevator as Landlord shall
designate. No other vehicles of any kind shall be brought by Tenant into
or kept in or about its Premises.
22. Each tenant shall store all its trash and garbage within the
interior of the Premises. Tenant shall not place in the trash boxes or
receptacles any personal trash or any material that may not or cannot be
disposed of in the ordinary and customary manner of removing and disposing
of trash and garbage in the city, without violation of any law or
ordinance governing such disposal. All trash, garbage and refuse disposal
shall be made only through entry-ways and elevators provided for such
purposes and at such times as Landlord shall designate. If the Building
has implemented a building-wide recycling program for tenants, Tenant
shall use good faith efforts to participate in said program.
23. Canvassing, soliciting, distribution of handbills or any other
written material and peddling in the Building and the Project are
prohibited and each tenant shall cooperate to prevent the same. No tenant
shall make room-to-room solicitation of business from other tenants in the
Building or the Project, without the written consent of Landlord.
24. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name and address of the
Building and the Project.
25. Landlord reserves the right to exclude or expel from the
Project any person who, in Landlord's reasonable judgment, is under the
influence of alcohol or drugs or who commits any act in violation of any
of these Rules and Regulations.
<PAGE>
26. Without the prior written consent of Landlord, Tenant shall not
use the name of the Building or the Project or any photograph or other
likeness of the Building or the Project in connection with, or in
promoting or advertising, Tenant's business except that Tenant may include
the Building's or Project's name in Tenant's address.
27. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations reasonably established by Landlord
or any governmental agency.
28. Except for Landlord's negligence or willful misconduct, Tenant
assumes any and all responsibility for protecting its Premises from theft,
robbery and pilferage, which includes keeping doors locked and other means
of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon
appropriate application at 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 employees of Landlord will admit any person (tenant
or otherwise) to any office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the parking
spaces on the Project. Tenant or Tenant's guests shall park between
designated parking lines only, and shall not occupy two parking spaces
with one car. Parking spaces shall be for passenger vehicles, sport
utility vehicles and pick-up trucks only; no boats, trucks, trailers,
recreational vehicles or other types of vehicles may be parked in the
parking areas (except that trucks may be loaded and unloaded in designated
loading areas). Vehicles in violation of the above shall be subject to
tow-away, at vehicle owner's expense. Vehicles parked on the Project
overnight without prior written consent of the Landlord shall be deemed
abandoned and shall be subject to tow-away at vehicle owner's expense. No
tenant of the Building shall park in visitor or reserved parking areas.
Any tenant found parking in such designated visitor or reserved parking
areas shall be subject to tow-away at vehicle owner's expense. The
parking areas shall not be used to provide car wash, oil changes,
detailing, automotive repair or other services unless otherwise approved
or furnished by Landlord.
31. No smoking of any kind shall be permitted anywhere within the
Building, including, without limitation, the Premises and those areas
immediately adjacent to the entrances and exits to the Building, or any
other area as Landlord elects. Smoking in the Project is only permitted
in smoking areas identified by Landlord, which may be relocated from time
to time.
32. If the Building furnishes common area conferences rooms for
tenant usage, Landlord shall have the right to control each tenant's usage
of the conference rooms, including limiting tenant usage so that the rooms
are equally available to all tenants in the Building. Any common area
amenities or facilities shall be provided from time to time at Landlord's
discretion.
33. Tenant shall not swap or exchange building keys or cardkeys
with other employees or tenants in the Building or the Project.
34. Tenant shall be responsible for the observance of all of the
foregoing Rules and Regulations by Tenant's employees, agents, clients,
customers, invitees and guests.
35. These Rules and Regulations are in addition to, and shall not
be construed to in any way modify, alter or amend, in whole or in part,
the terms, covenants, agreements and conditions of any lease of any
premises in the Project.
<PAGE>
36. Subject to the terms of this Lease,
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 the
Project and for the preservation of good order therein. Tenant agrees to
abide by all such Rules and Regulations herein stated and any additional
rules and regulations which are adopted.
<PAGE>
EXHIBIT C
LEASE IMPROVEMENT AGREEMENT
---------------------------
This Lease Improvement Agreement ("Improvement Agreement") sets forth
the terms and conditions relating to construction of the initial tenant
improvements described in the Plans referred to below (the "Tenant
Improvements") in the Premises. Capitalized terms used but not otherwise
defined herein shall have the meanings set forth in the Lease (the "Lease") to
which this Improvement Agreement is attached and forms a part.
1. Plans and Specifications.
------------------------
1.1. Landlord shall construct the Tenant Improvements in the
Premises pursuant to the final construction drawings signed by Tenant and
Landlord signifying approval of the drawings no later than April, 1999
(collectively, the "Plans"). Tenant Improvement costs on a rentable square
foot basis for Suite 2000 shall not exceed the Tenant Improvement costs on
a rentable square foot basis for either the greater of Suite 1000 or 1040.
Landlord hereby approves Bena Design Partnership Inc. as the space
planner. Tenant shall make no changes or modifications to the Plans or
submit any change orders without the prior written approval of Landlord,
which shall not be unreasonably withheld.
1.2. Notwithstanding Landlord's review and approval of the
Plans, Landlord shall have no responsibility or liability whatsoever for
any errors or omissions contained in the Plans, or to verify dimensions or
conditions, or for the quality, design or compliance with applicable
Regulations of any improvements described therein or constructed in the
Premises. Landlord shall assign to Tenant all warranties and guarantees by
the contractor who constructs the Tenant Improvements relating to the
Tenant Improvements, and Tenant hereby waives all claims against Landlord
relating to, or arising out of the construction of, the Tenant
Improvements.
2. Specifications for Standard Tenant Improvements.
-----------------------------------------------
2.1. Specifications and quantities of standard building
components which will comprise and be used in the construction of the
Tenant Improvements ("Standards") are set forth in Schedule 1 to this
Exhibit C. As used herein, "Standards" or "Building Standards" shall mean
the standards for a particular item selected from time to time by Landlord
for the Building, including those set forth on Schedule 1 of this Exhibit
C.
2.2. No deviations from the Standards are permitted, except as
per approved drawings signed by Landlord and Tenant.
3. Construction of Tenant Improvements.
-----------------------------------
3.1. Promptly upon the execution of this Improvement Agreement,
Landlord shall secure a building permit and commence construction of the
Tenant Improvements provided that Tenant shall cooperate with Landlord in
executing permit applications and performing other actions reasonably
necessary to enable Landlord to obtain any required permits or
certificates of occupancy. Without limiting the provisions of Paragraph 35
of the Lease, Landlord shall not be liable for any direct or indirect
damages suffered by Tenant as a result of delays in construction beyond
Landlord's reasonable control, including, but not limited to, delays due
to strikes or unavailability of materials or labor, or delays caused by
Tenant (including delays by the contractor or anyone else performing
services on behalf of Landlord or Tenant).
3.2. If any work is to be performed on the Premises by Tenant or
Tenant's contractor or agents:
(a) Such work shall proceed upon Landlord's written
approval of Tenant's contractor, public liability and property damage
insurance carried by Tenant's contractor, and detailed plans and
specifications for such work shall be at Tenant's sole cost and expense,
and shall further be subject to the provisions of Paragraphs 12 and 27 of
the Lease.
(b) All work shall be done in conformity with a valid
building permit when required, a copy of which shall be furnished to
Landlord before such work is commenced, and in any case, all such work
shall be performed in accordance with all applicable Regulations.
Notwithstanding any failure by Landlord to object to any such work,
Landlord shall have no responsibility for Tenant's failure to comply with
all applicable Regulations.
(c) If required by Landlord or any lender of Landlord, all
work by Tenant or Tenant's contractor or agents shall be done with union
labor in accordance with all union labor agreements applicable to the
trades being employed.
(d) All work by Tenant or Tenant's contractor or agents
shall be scheduled through Landlord.
(e) Tenant or Tenant's contractor or agents shall arrange
for necessary utility, hoisting and elevator service with Landlord's
contractor and shall pay such reasonable charges for such services as may
be charged by Tenant's or Landlord's contractor.
(f) Tenant's entry to the Premises for any purpose,
including, without limitation, inspection or performance of Tenant
construction by Tenant's agents, prior to the date Tenant's obligation to
pay rent commences shall be subject to all the terms and conditions of the
Lease except the payment of Rent. Tenant's entry shall mean entry by
Tenant, its officers, contractors, licensees, agents, servants, employees,
guests, invitees, or visitors.
(g) Tenant shall promptly reimburse Landlord upon demand
for any reasonable expense actually incurred by the Landlord by reason of
faulty work done by Tenant or its contractors or by reason of any delays
caused by such work, or by reason of inadequate clean-up.
4. Completion and Rental Commencement Date.
---------------------------------------
4.1. Tenant's obligation to pay Rent under the Lease shall
commence on the applicable date described in Paragraph 2 of the Lease.
However:
(a) If Tenant delays in approving any matter requiring
Tenant's approval within the time limits specified herein; or
<PAGE>
(b) If the construction period is extended because Tenant
requests any changes in construction or modifies the Plans or if the same
do not comply with applicable Regulations; or
(c) If Landlord is otherwise delayed in the construction
of the Tenant Improvements for any act or omission of or breach by Tenant
or anyone performing services on behalf of Tenant or on account of any
work performed on the Premises by Tenant or Tenant's contractors or
agents, then the date described in Paragraph 2 of the Lease shall be
deemed to be accelerated by the total number of days of Tenant delays
described in (a) through (c) above (each, a "Tenant Delay"), calculated in
accordance with the provisions of Paragraph 4.2 below.
4.2. If the Term of the Lease has not already commenced pursuant
to the provisions of Paragraph 2 of the Lease and substantial completion
of the Tenant Improvements has been delayed on account of any Tenant
Delays, then upon actual substantial completion of the Tenant Improvements
(as defined in Paragraph 2 of the Lease), Landlord shall notify Tenant in
writing of the date substantial completion of the Tenant Improvements
would have occurred but for such Tenant Delays, and such date shall
thereafter be deemed to be the Term Commencement Date for all purposes
under the Lease. Tenant shall pay to Landlord, within three (3) business
days after receipt of such written notice (which notice shall include a
summary of Tenant Delays), the per diem Base Rent times the number of days
between the date the Term Commencement Date would have otherwise occurred
but for the Tenant Delays (as determined by Landlord's contractor), and
the date of actual substantial completion of the Tenant Improvements.
4.3. Promptly after substantial completion of the Tenant
Improvements, Landlord shall give notice to Tenant and Tenant shall
conduct an inspection of the Premises with a representative of Landlord
and develop with such representative of Landlord a punchlist of items, if
any, of the Tenant Improvements that are not complete or that require
correction. Upon receipt of such punchlist, Landlord shall proceed
diligently to remedy such items at Landlord's cost and expense provided
such items are part of the Tenant Improvements to be constructed by
Landlord hereunder and are otherwise consistent with Landlord's
obligations under this Improvement Agreement (with any dispute between
Landlord and Tenant pertaining thereto to be resolved by Landlord's
architect or general contractor). Substantial completion shall occur
notwithstanding delivery of any such punchlist.
4.4. A default under this Improvement Agreement shall constitute
a default under the Lease, and the parties shall be entitled to all rights
and remedies under the Lease in the event of a default hereunder by the
other party (notwithstanding that the Term thereof has not commenced).
4.5. Without limiting the "as-is" provisions of the Lease,
except for the Tenant Improvements to be constructed by Landlord pursuant
to this Improvement Agreement, Tenant accepts the Premises in its "as-is"
condition and acknowledges that it has had an opportunity to inspect the
Premises prior to signing the Lease. Not withstanding, the Landlord shall
be obligated to make all corrections pursuant to Lease Article 2.
POSSESSION AND LEASE COMMENCEMENT, Paragraph C. Complicance With
Regulations.
<PAGE>
EXHIBIT "D"
First Offer Space
To the best of Landlord's knowledge following is the information required
regarding availability of space at the 3420, 3340, 3350 and 3250 Ocean Park
Boulevard buildings.
<TABLE>
<CAPTION>
Suite Square Feet Expiration Superior Rights
- ----------------------------------------------------------
Building located at 3420 Ocean Park Boulevard
<S> <C> <C> <C>
1000 28,926 03/1999
1050 781 06/2003
1055 597 09/1999
1058 1,077 08/1999
1060 1,674 10/1999
1070 1,430 03/1999
1075 2,939 03/1999
2000 9,176 06/1999 One 3-year renewal
2010 20,016 03/2001 One 3-year renewal
2030 8,831 08/2002
3000 1,938 09/2002
3010 6,521 11/2003 One 5-year renewal
3020 852 03/1999
3030 5,172 12/2004 Right to contiguous space
3050 7,281 09/2000 One 5-year renewal
3051 1,452 11/2003 One 5-year renewal
3055 2,050 03/1999
3060 2,485 02/2000
3070 1,806 08/2002
3073 1,431 09/2002
3075 2,293 04/2000 One 3-year renewal
3080 4,939 11/2003 One 5-year renewal
Building located at 3340 Ocean Park Boulevard
1000 12,336 05/1999
1005 1,580 05/1999
1010 5,306 05/1999
1020 608 03/1999
1050 8,608 11/2003
1060 4,550 05/1999
1065 1,205 03/1999
2000 35,952 09/1999 One 5-year renewal
3005 2,099 05/1999
3030 2,224 10/2002 One 5-year renewal
3040 1,404 10/2002 Right to 3rd floor
3045 1,335 10/2002 One 5-year renewal
3050 4,013 10/2002 One 5-year renewal
3053 909 05/1999
3055 20,567 10/2002 One 5-year renewal
3070 5,937 10/2002 One 5-year renewal; right to 3/rd/ floor
Building located at 3350 Ocean Park Boulevard
100 6,501 05/2001 One 5-year renewal
110 13,268 03/2002 One 5-year renewal
205 5,352 03/2004 One 5-year renewal
Building located at 3250 Ocean Park Boulevard*
100 6,550 05/2000 One 3-year renewal
115 2,544 04/2000 One 5-year renewal
120 1,940 06/2000
130 2,267 10/2003 One 5-year renewal
160 1,666 06/2000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suite Square Feet Expiration Superior Rights
- ----------------------------------------------------------
<S> <C> <C> <C>
170 1,175 07/2001
185 512 07/2001
200 17,200 07/2001 One 5-year renewal; right to 2/nd/ floor
204 1,720 11/2000
206 1,981 12/2002
230 1,244 06/1999
300 7,427 11/2001
325 2,044 08/2000
330 682 10/2001
350 2,513 01/2000 One 1-year renewal; rt. to adj. Space
360 1,304 09/2001
365 870 09/2000
370 1,837 01/2000
380 2,654 10/2001
385 2,318 09/2001
</TABLE>
* An existing tenant has a right to all space in 3250 Ocean Park that is
secondary to rights above however is superior to Tenant's right. This existing
tenant has one 5-year option to renew.
<PAGE>
EXHIBIT "E"
IRREVOCABLE STANDBY LETTER OF CREDIT NO. _______________
____________, 199_
__________________________
__________________________
__________________________
Ladies and Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit in your favor
for the account of ______________: for an aggregate amount of
$_____________________ available to you by your drafts as SIGHT ON US and
accompanied by the following documents:
1. Original Irrevocable Standby Letter of Credit; and
2. Beneficiary's or its designee's signed certificate dated not more
than ten (10) calendar days before the date of the drawing under this
letter of credit, executed by Beneficiary or its designee and stating
that either one or more of the following events has occurred:
(a) Tenant has defaulted under any of the terms, covenants or
conditions under that certain Lease Agreement dated _________, 199_,
by and between Landlord and Tenant ("Lease"), beyond all applicable
notice and cure periods; or
(b) The filing of any voluntary petition by Tenant (or involuntary
petition by Tenant's creditors) under the United States Bankruptcy
Code; or
(c) Tenant has failed to procure and deliver a replacement Letter of
Credit reasonably satisfactory to Beneficiary in compliance with the
terms of Paragraph 39C of the Lease on or before thirty (30) days
prior to the expiration of the Letter of Credit.
It is a condition of this Irrevocable Standby Letter of Credit that it
shall be deemed automatically extended for a period of one year from the
present or each future expiration date, unless thirty (30) days prior to
the expiration date we shall notify the Beneficiary by registered mail
that we elect not to renew this Letter of Credit.
Each draft drawn hereunder must bear the clause: "Drawn under __________
Irrevocable Standby Letter of Credit No. __________ dated __________."
We hereby agree with you that drafts drawn under and in compliance with
the terms of this Credit will be duly honored upon presentation and
delivery of documents as specified to _______________ on or before
_______________.
This Letter of Credit is freely transferrable in its entirety without our
consent or approval to a subsequent owner or lender of the Building, but
with written notice to us. In the event of such transfer, the transferee
shall be deemed the beneficiaries hereunder in the full place and stead
and with all the rights hereunder of the Original Beneficiary.
This Credit is subject to the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500.
______________________________
Authorized Signature
<PAGE>
EXHIBIT F
JANITORIAL SPECIFICATIONS
<PAGE>
EXHIBIT G
EXTERIOR SIGNS
--------------
1. Tenant shall not install the monument signage referenced in
Paragraph 39D of this Lease ("Tenant's Exterior Sign") or thereafter
replace or make alterations to Tenant's Exterior Sign, until: (a) Landlord
has approved in writing the sign planner, engineer and installation
company and professionally prepared sign plans submitted by Tenant showing
the design, size, content, color and quality of materials and placement of
the sign, all required engineering (which approval shall not be
unreasonably withheld and which Landlord shall give or deny within five
(5) business days after Landlord's receipt of Tenant's request therefor
and all back-up documentation requested by Landlord with respect thereto),
and (b) Tenant has obtained and submitted to Landlord evidence of the
insurance required hereunder and any permits or approvals required by law.
The original installation work for Tenant's Exterior Sign shall be
performed in a manner so as to avoid damage to the Project or unreasonable
interference with the operation of the Project or any of its occupants.
Without limiting the generality of the foregoing, Landlord shall have the
right to reasonably approve all staging and other construction procedures.
All installation or other work hereunder shall be performed in a good and
workmanlike manner, in accordance with all governmental requirements, and
at Tenant's sole cost and expense. If Tenant is required to remove any
glass or other material from the Project, Tenant will obtain Landlord's
prior written consent (not to be unreasonably withheld) to such removal
(unless such removal is shown on the plans previously approved by
Landlord) and shall store all such material with appropriate care and
replace it when Tenant's Exterior Sign is removed.
2. Once installation of Tenant's Exterior Sign has commenced, it
shall be completed as soon as possible, and (subject to force majeure
delays and delays caused by Landlord) in no event later than three (3)
months thereafter.
3. Tenant shall maintain Tenant's Exterior Sign in good, sightly
and first-class appearance, condition and repair, and so as not to detract
from the appearance of the Project. Landlord shall have the right to
approve the maintenance personnel. If Tenant shall fail to maintain or
repair Tenant's Exterior Sign in the condition required hereunder within
thirty (30) days after written notice by Landlord, Landlord may so repair
and maintain Tenant's Exterior Sign, at Tenant's sole cost and expense
(which Tenant shall pay to Landlord as additional rent when billed by
Landlord), without limiting Landlord's other rights and remedies.
4. Intentionally Omitted.
5. Landlord does not represent or warrant that installation of
Tenant's Exterior Sign hereunder will comply with any applicable federal,
state, county or local law or ordinances or the regulations of any of
their agencies or any quasi-governmental requirements or any other
applicable agreements. Landlord shall use its best efforts (without the
expenditure of any money unless paid by Tenant in advance of the required
expenditure) to assist Tenant in obtaining such approvals. Tenant shall at
all times comply with any applicable laws, ordinances, regulations and
requirements pertaining to Tenant's Exterior Sign.
6. Except to the extent arising out of the negligence or
intentional acts of Landlord, its agents or employees, Tenant shall
defend, indemnify and hold Landlord harmless from and against any and all
loss, cost, claim, damage, liability or expense which Landlord may incur
as a direct or indirect result of Tenant's installation, maintenance or
other activities in connection therewith, and including but not limited to
attorneys' fees, whether or not any legal action is instituted. This
indemnity obligation shall include Landlord's partners, officers,
directors, employees, trustees, beneficiaries, affiliates and agents
("Indemnitees"). Tenant shall maintain commercial
<PAGE>
general liability insurance covering risks of bodily injury, death or
property damage arising directly or indirectly out of Tenant's
installation, maintenance or other activities in connection therewith, in
the amount of at least $3,000,000 combined single limit per occurrence
with a responsible insurance company reasonably satisfactory to Landlord
having a rating of not less than A-X in Best's Insurance Guide and
licensed to do business in the State of California, which policy shall
include a contractual liability endorsement and shall include Landlord and
the other Indemnitees (as defined above) as additional insureds. Tenant
shall provide a certificate of such insurance to Landlord prior to
commencing the installation work for Tenant's Exterior Sign, and such
insurance policy shall not be cancelable without at least thirty (30) days
written notice to Landlord. Except to the extent arising out of the
negligence or intentional acts of Landlord, its agents and employees,
Landlord shall not be responsible for Tenant's Exterior Sign in the event
of loss or damage thereto from any cause whatsoever. Tenant, on behalf of
its insurers, hereby waives any rights of subrogation against Landlord (or
the "Indemnitees" defined above).
7. Landlord shall have the right to use photographs of the Project,
including Tenant's Exterior Sign, in Landlord's brochures and other
materials without compensation to Tenant.
8. Upon termination of this Lease, or the sign rights hereunder by
expiration or otherwise, unless Landlord requests Tenant to leave Tenant's
Exterior Sign in place, Tenant shall (and may at any time during the Term
upon three (3) months' prior written notice) remove Tenant's Exterior Sign
and fully repair and restore the Project to the same or better condition
than prior to installation of Tenant's Exterior Sign. If Tenant does not
commence to repair any damage or injury to Tenant's Exterior Sign or to
the Project as a result of the installation or removal of Tenant's
Exterior Sign, or does not commence to remove (after Tenant's sign rights
hereunder have terminated) Tenant's Exterior Sign within ten (10) days
after written request, or if Tenant does not thereafter proceed to
diligently complete such work, Tenant hereby authorizes Landlord to make
such repairs or remove and dispose of Tenant's Exterior Sign, and Tenant
shall promptly pay Landlord's reasonable charges for doing so as
additional rent. Landlord shall not be liable for any property so disposed
or removed by Landlord.
9. Tenant acknowledges that Tenant's signage rights with respect to
Tenant's Exterior Sign were negotiated by Landlord and Tenant in
consideration of, and would not have been granted by Landlord but for, the
high quality, first-class reputation of Tenant and the size and intended
use of the Premises. Tenant may not assign, sublease, or otherwise
transfer such signage rights to any third party or transferee (other than
an Affiliate) or change the name on Tenant's Exterior Sign without the
prior consent of Landlord (which may be withheld in Landlord's reasonable
discretion).
10. Tenant's rights to Tenant's Exterior Sign as set forth in this
Exhibit "G" shall constitute a license coupled with an interest. Landlord
agrees not to revoke this license until the Term (including any options to
renew thereunder validly exercised) expires or is sooner terminated,
except pursuant to Paragraph 39D of this Lease.
11. Tenant shall pay all costs directly or indirectly related to
Tenant's Exterior Sign, including, but not limited to their design,
installation, maintenance, replacement and removal, and except as
expressly set forth in this Lease, or this Exhibit, shall reimburse
Landlord for any out-of-pocket costs reasonably incurred by Landlord that
Landlord would not have incurred but for Tenant's exercise of its rights
with respect to Tenant's Exterior Sign.
<PAGE>
ADDENDUM TO
LEASE AGREEMENT
RE: Lease of Premises at
3420 Ocean Park Boulevard
Santa Monica, California
(the "Premises")
NOTWITHSTANDING anything to the contrary contained in the Lease
Agreement (the "Lease"), between Spieker Properties, L.P., a California
limited partnership ("Lessor"), and Stamps.com, a Delaware corporation
("Tenant"), the following provisions of this Addendum to Lease Agreement
(this "Addendum") shall be incorporated into and be a part of the Lease
and shall supersede any inconsistent provisions of the Lease.
1. Grant of License. Landlord hereby grants Tenant, at no charge,
----------------
a nonexclusive license to install on the roof of the 3420 Building one (1)
satellite dish which is no more than eighteen (18) inches in diameter
which shall be enclosed by a screen (such satellite dish and such
connecting lines and equipment herein referred to as the "Equipment").
Tenant shall not penetrate the roof in connection with any installation or
reinstallation of the Equipment without Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. The plans
and specifications for all the Equipment shall be approved by Landlord in
writing prior to any installation. Tenant shall be responsible for any
damage to the roof or conduit system as a result of Tenant's installation,
maintenance and/or removal of the Equipment.
2. Location. The location of the satellite dish and the rest of
--------
the Equipment shall be subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld or delayed. Tenant shall not
change the location of, or alter or install additional Equipment or paint
the satellite dish or the other Equipment without Landlord's prior written
reasonable consent. Tenant agrees that Landlord shall direct the
placement of the satellite dish inside the roof well (in a location which
provides Tenant with good reception), other than locations that are
scheduled to accommodate building equipment or services.
3. Compliance with Law. Tenant, at Tenant's sole expense, shall
-------------------
comply with all laws, rules, orders and regulations regarding the
installation, construction, operation, maintenance and removal of the
Equipment and shall be solely responsible for obtaining and maintaining in
force all permits, licenses and approvals necessary for such operations.
4. Taxes. Tenant shall be responsible for and promptly shall pay
-----
all taxes, assessments, charges, fees and other governmental impositions
levied or assessed on the Equipment or based on the operation thereof.
5. Relocation. Landlord may require Tenant, at Tenant's sole cost
----------
and expense, to relocate the Equipment during the term of the Lease to a
location approved by Tenant, which approval shall not be unreasonably
withheld, conditioned or delayed.
6. Termination. Upon any termination of the Lease, Landlord
-----------
reserves the right to terminate Tenant's right pursuant to this Addendum
immediately.
7. Interference. Operation of the Equipment shall not unreasonably
------------
interfere in any manner with equipment systems or utility systems of other
tenants, including without limitation, telephones, dictation equipment,
lighting, heat and air conditioning, computers, electrical systems and
elevators. If operation of the
<PAGE>
Equipment causes such unreasonable interference, Tenant immediately shall
suspend operation of the Equipment until such unreasonable interference is
eliminated.
8. Maintenance and Repair. Tenant shall maintain the Equipment in
----------------------
good condition and repair, at Tenant's sole cost and expense. Landlord
may from time to time require that Tenant repaint the satellite dishes at
Tenant's expense to keep the same in an attractive condition. In the
event that Tenant fails to repair and maintain the Equipment in accordance
with this paragraph 8, Landlord may, but shall not be obligated to, make
any such repairs or perform any maintenance to the Equipment after 30 days
notice to Tenant and Tenant shall reimburse Landlord upon demand for all
out-of-pocket costs and expenses incurred by Landlord in connection
therewith.
9. Access. Tenant may access the roof for repair and maintenance
------
of each satellite dish, only during normal business hours, on not less
than 24 hours prior written notice to Landlord unless otherwise approved
by Landlord. Tenant shall designate in writing to Landlord all persons
whom Tenant authorizes to have access to the roof for such purposes. Upon
such designation and prior identification to Landlords' building security
personnel, such authorized persons shall be granted access to the roof by
Landlord's building engineer. Tenant shall be responsible for all costs
and expenses incurred by Landlord in connection with Tenant's access to
the roof pursuant to this Paragraph 9.
10. Indemnity and Insurance. Tenant shall indemnify, defend,
-----------------------
protect and hold harmless Landlord from and against any and all claims
related to the Equipment or operation of the same as if the Equipment were
located wholly within the Premises. Tenant shall provide evidence
satisfactory to Landlord that Tenant's property and liability insurance
policies required under the Lease include coverage for the Equipment and
any claim, loss, damage, or liability relating to the Equipment.
11. No Landlord Responsibility. Landlord shall have no
--------------------------
responsibility or liability whatsoever relating to (i) maintenance or
repair of the Equipment, (ii) damage to the Equipment; (iii) damage to
persons or property relating to the Equipment or the operation thereof, or
(iv) interference with use of the Equipment arising out of utility
interruption or any other cause, except for injury to persons or damage to
property caused by the negligence or intentional misconduct of Landlord,
its agents or the Landlord Related Parties. If no event shall Landlord be
responsible for consequential damages. Upon installation of the
Equipment, Tenant shall accept the area where the Equipment is located in
its "as is" condition. Tenant acknowledges that Landlord shall have no
obligation whatsoever to improve, maintain or repair the area in which the
Equipment will be installed.
12. Use. Tenant shall use the Equipment solely for the operations
---
within the Premises and shall not use or allow use of the Equipment, for
consideration or otherwise, for the benefit of other tenants in the
Project or any other person or entity.
13. Removal. Tenant shall, at Tenant's sole expense, remove each
-------
satellite dish and such other portions of the Equipment as Landlord may
designate, and restore the affected areas to their condition prior to
installation of the Equipment (i) if Tenant fails to perform any of its
obligations under this Addendum within fifteen (15) days after request of
Landlord, or immediately in the event of emergency, (ii) immediately if
such removal is required by any governmental agency having jurisdiction
over the Equipment, and (iii) in any event, no later than fifteen (15)
days after expiration or earlier termination of the Lease. If Tenant
fails to remove the Equipment when and as required under this Addendum,
Landlord reserves the right to do so, and the expense of the same shall be
immediately due and payable from Tenant to Landlord as additional rent,
together with interest and late charges as provided in the Lease.
14. Survival. The covenants, obligations and indemnities under
--------
this Addendum shall survive expiration or earlier termination of the Lease
for any reason.
<PAGE>
Except as expressly modified above, all terms and conditions of the
Lease remain in full force and effect and are hereby ratified and
confirmed.
<TABLE>
<CAPTION>
LANDLORD: TENANT:
<S> <C>
Spieker Properties, L.P., a California limited Stamps.com, Inc., a Delaware corporation
partnership
By: Spieker Properties, Inc., a Maryland By:____________________________
corporation Name:_______________________
Its General Partner Its:________________________
Date: _______________________
By:_____________________________
Name:John Davenport
Its: Regional Senior Vice President
Date: _____________________
</TABLE>
<PAGE>
TABLE OF CONTENTS
Page
----
1. PREMISES ............................................1
2. POSSESSION AND LEASE COMMENCEMENT ...................2
3. TERM ................................................2
4. USE .................................................2
5. RULES AND REGULATIONS ...............................5
6. RENT ................................................6
7. OPERATING EXPENSES ..................................6
8. INSURANCE AND INDEMNIFICATION ......................15
9. WAIVER OF SUBROGATION ..............................18
10. LANDLORD'S REPAIRS AND MAINTENANCE ................18
11. TENANT'S REPAIRS AND MAINTENANCE ..................20
12. ALTERATIONS .......................................20
13. SIGNS .............................................22
14. INSPECTION/POSTING NOTICES ........................22
15. SERVICES AND UTILITIES ............................23
16. SUBORDINATION .....................................26
17. FINANCIAL STATEMENTS ..............................27
18. ESTOPPEL CERTIFICATE ..............................27
19. SECURITY DEPOSIT ..................................27
20. LIMITATION OF TENANT'S REMEDIES ...................28
21. ASSIGNMENT AND SUBLETTING .........................28
22. AUTHORITY .........................................31
23. CONDEMNATION ......................................31
24. CASUALTY DAMAGE ...................................32
25. HOLDING OVER ......................................34
26. DEFAULT ...........................................35
27. LIENS .............................................37
<PAGE>
29. TRANSFERS BY LANDLORD .............................38
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS ...38
31. WAIVER ............................................38
32. NOTICES ...........................................39
33. ATTORNEYS' FEES ...................................39
34. SUCCESSORS AND ASSIGNS ............................39
35. FORCE MAJEURE .....................................39
36. SURRENDER OF PREMISES .............................40
37. PARKING ...........................................40
38. MISCELLANEOUS .....................................41
39. ADDITIONAL PROVISIONS .............................43
40. STANDARD FOR CONDUCT AND CONSENT ..................53
41. JURY TRIAL WAIVER .................................53
<PAGE>
LEASE
THIS LEASE is made as of the 12th day of April, 1999, by and between
Spieker Properties, L.P., a California limited partnership (hereinafter called
"Landlord"), and Stamps.com, Inc., a Delaware corporation (hereinafter called
"Tenant").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises (the "Premises") outlined
in red on Exhibit B and described in the Basic Lease Information.
Tenant's rights to the Premises shall include the limited right to use and
access upon reasonable prior notice to Landlord, the janitorial closet and the
electrical and telephone rooms on the floors containing the Premises as
reasonably necessary for Tenant's effective and efficient use of the Premises.
Upon reasonable prior notice to Landlord, Tenant, at its sole expense, shall
also be permitted to enter such areas to service its equipment. Upon reasonable
prior notice to Landlord, Tenant, at its sole expense, shall have the right to
use, or access, any ceilings or space above the ceilings on the floors or walls
containing the Premises to the extent necessary to service Tenant's equipment in
the Premises and to run wires, cables and other conduits to the Premises to the
extent permitted by applicable laws. In addition, upon reasonable prior notice
to Landlord, Tenant, at its sole expense, shall be allowed to use such space as
necessary for providing utility services such as the installation of computer
cable conduits. Notwithstanding anything to the contrary set forth in this
Lease, (i) in no event shall Tenant (A) take any action in the Premises or the
Project which may affect the base, shell and core or any of the Project's
systems or equipment, (B) take any action which may interfere with the use or
occupancy by another tenant in the Project of its premises or the exercise by
another tenant in the Project of similar rights, or and (ii) Landlord shall have
the right to have a representative of Landlord present to supervise or otherwise
coordinate any such action by Tenant.
The Premises shall be all or part of a building (the "Building") and of a
project (the "Project"), which may consist of more than one building and
additional facilities, as described in the Basic Lease Information. The
Building and Project are outlined in blue and green respectively on Exhibit B.
Landlord and Tenant acknowledge that physical changes may occur from time to
time in the Premises, Building or Project, and that the number of buildings and
additional facilities which constitute the Project may change from time to time,
which may result in an adjustment in Tenant's Proportionate Share, as defined in
the Basic Lease Information, as provided in Paragraph 7.A; provided that
Tenant's obligations under Paragraph 7 below shall not be increased as a result
of additional buildings or facilities being added to the Project and such
changes shall not materially and adversely interfere with Tenant's use of or
access to the Premises.
2. POSSESSION AND LEASE COMMENCEMENT
A. Construction of Improvements. The term commencement date ("Term
Commencement Date") shall be the earlier of the date on which: (1) Tenant takes
possession of some or all of the 3420 Space and commences business therefrom;
(the "Tenant Improvements") shall have been substantially completed in
accordance with the plans and specifications described on Exhibit C. Landlord
shall use its commercially reasonable efforts to provide Tenant with at least
ten (10) business days' advance notice of Landlord's estimated date of
substantial completion of the Premises. The terms "substantially completed" or
"substantial completion" shall mean: (1) all the Building systems and equipment
are operational to the extent necessary to service the Premises; (2) Landlord
has completed all work required to be performed by Landlord in accordance with
the Plans as certified by Landlord's architect, excluding "punch-list" items
which do not adversely and materially affect Tenant's use and occupancy of the
Premises shall be completed as soon thereafter as reasonably practicable; (3)
Landlord has obtained a certificate of occupancy for the Premises, or its legal
equivalent; and (4) Tenant has been provided the number of parking privileges
and spaces to which it is entitled under the Lease and has been provided
1
<PAGE>
access to the Premises, Building and Project parking facilities in accordance
with the terms of this Lease. If for any reason Landlord cannot deliver
possession of the Premises to Tenant on the scheduled Term Commencement Date,
Landlord shall not be subject to any liability therefor, nor shall Landlord be
in default hereunder nor shall such failure affect the validity of this Lease,
and Tenant agrees to accept possession of the Premises at such time as such
improvements have been substantially completed, which date shall then be deemed
the Term Commencement Date. Tenant shall not be liable for any Rent for any
period prior to the Term Commencement Date (but without affecting any
obligations of Tenant under any improvement agreement appended to this Lease).
Substantial completion shall have occurred notwithstanding Tenant's submission
of a punchlist to Landlord, which Tenant shall submit, if at all, within thirty
(30) days after the Term Commencement Date or otherwise in accordance with any
improvement agreement appended to this Lease. Landlord shall deliver within
sixty (60) days of the Term Commencement Date to Tenant a "Start-Up Letter" in
which Tenant shall agree, among other things, to acceptance of the Premises
(subject to latent defects and Tenant's rights under any warranties assigned to
Tenant pursuant to the Improvement Agreement attached hereto as Exhibit "C") and
to the determination of the Term Commencement Date, in accordance with the terms
of this Lease. Tenant shall execute and return said Start-Up Letter to Landlord
within ten (10) business days following Tenant's receipt of the same, but
Tenant's failure or refusal to do so shall not negate Tenant's acceptance of the
Premises or affect determination of the Term Commencement Date.
Landlord represents to Tenant that, to the best of Landlord's actual
knowledge (without any independent inquiry or investigation), Landlord has not
received any notice from any governmental authority informing Landlord that the
3420 Building is in violation of the Americans With Disabilities Act of 1990 (41
U.S.C. 12101 et seq.), as well as the regulations and accessibility guidelines
promulgated thereunder (collectively, "ADA"), or any laws, ordinances or
statutes of the City of Santa Monica or State of California based upon or
similar to ADA (collectively, the "Santa Monica Disability Codes") for new
construction without regard to grandfathering. In the event any portion of the
Project (including the Premises) does not comply with ADA or Santa Monica
Disability Codes, and Tenant is not responsible for such non-compliance in
accordance with the terms of this Lease, then as Tenant's sole remedy (other
than Tenant's right to recover from Landlord any claims, losses or damages
suffered by Tenant as a result of a third party claim brought against Tenant),
Landlord shall be obligated to promptly, at Landlord's sole cost and expense
(and not as an Operating Expense pass-through item), rectify said violation and
cause the 3420 Building and/or Project to be in material compliance with ADA or
the Santa Monica Disability Codes, as applicable.
3. TERM
The term of this Lease (the "Term") shall commence on the Term Commencement
Date and continue in full force and effect until May 31, 2004, or until this
Lease is terminated as otherwise provided herein. If the Term Commencement Date
is a date other than the first day of the calendar month, the Term shall be the
number of months of the Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date.
4. USE
A. General. Tenant shall use the Premises for the permitted use
specified in the Basic Lease Information ("Permitted Use") and for no other use
or purpose. Tenant shall control Tenant's (and Tenant's assignees' and
subtenants') employees, independent contractors and agents (collectively,
"Tenant's Parties") in such a manner that Tenant and Tenant's Parties
cumulatively do not exceed the occupant density (the "Occupancy Density") or the
parking density (the "Parking Density") specified in the Basic Lease Information
at any time. Notwithstanding the definition of Occupancy Density set forth in
the Basic Lease Information, unless otherwise approved by Landlord, upon an
assignment of this Lease or a sublease of all or a portion of the Premises to
other than an Affiliate, the "Occupancy Density" with respect to the portion of
the Premises affected by the assignment or sublease shall be reduced to 5 people
per 1,000 rentable square feet of office space. If Tenant and Tenant's Parties
exceed the Occupancy Density, Tenant shall be directly responsible for any
additional costs actually incurred by Landlord as a result of such excessive
Occupancy Density, including without limitation, costs for excess use and excess
2
<PAGE>
wear and tear (i.e. additional costs to maintain elevators, elevator lobbies, .
. .). Notwithstanding the definition of Parking Density set forth in the Basic
Lease Information, upon an assignment of this Lease or a sublease of all or a
portion of the Premises to other than an Affiliate, the "Parking Density" with
respect to the portion of the Premises affected by the assignment or sublease
shall be reduced to 4.5 non-exclusive parking spaces per 1,000 rentable square
feet of office space . Tenant shall pay the Parking Charge specified in the
Basic Lease Information for spaces leased by Tenant as Additional Rent (as
hereinafter defined) hereunder. Tenant and Tenant's Parties and any approved
subtenants and/or assignees shall have the nonexclusive right to use, in common
with other parties occupying the Building or Project, the parking areas,
driveways and other common areas of the Building and Project, subject to the
terms of this Lease and such reasonable, non-discriminatory rules and
regulations as Landlord may from time to time prescribe. Landlord reserves the
right, without notice or liability to Tenant, and without the same constituting
an actual or constructive eviction, to alter or modify the common areas from
time to time, including the location and configuration thereof, and the
amenities and facilities which Landlord may determine to provide from time to
time, provided Landlord agrees to use its commercially reasonable efforts not to
materially and adversely interfere with Tenant's use of or access to the
Premises and parking facilities.
Landlord shall have the right to alter the Common Areas from time to time
so long as any such alteration does not materially and adversely impair Tenant's
use or access to the Premises; provided, however, Landlord shall use its best
efforts to provide Tenant with fifteen (15) business days prior notice of any of
the actions set forth in this Section 4A, above, to be taken by Landlord if such
action will materially and adversely interfere with Tenant's ability to (i)
conduct business in the Premises, (ii) gain access to and from the Building and
the parking facilities and adjacent streets, or (iii) use the parking
facilities. All of Landlord's entries and the performance of Landlord's work
pursuant to this Lease, shall be scheduled and performed, as applicable, so as
to use commercially reasonable efforts to minimize interference with Tenant's
use of and access to the Premises and parking facilities. Tenant may, subject
to Landlord's prior approval, designate certain areas of the Premises as
"Security Areas" should Tenant require such areas for the purpose of securing
certain valuable property or confidential information. Landlord may only enter
such Security Areas upon two (2) business days' notice to Tenant which notice
shall specify the date and time of such entry by Landlord; provided, however,
that Landlord may enter the Security Areas without notice to Tenant in the event
of an emergency, in which case Landlord shall provide Tenant with notice of such
entry promptly thereafter.
Landlord shall maintain the Building and Project in a manner
consistent with the manner in which the Building and Project are being
maintained as of the date of this Lease. Subject to the terms and conditions of
this Lease, Tenant shall have access to the Premises and the parking facilities
serving the Premises twenty-four (24) hours per day, three hundred sixty-five
(365) days per year.
B. Limitations. Tenant shall not permit unreasonable amounts (as
reasonably determined by Landlord) of any odors, smoke, dust, gas, substances,
noise or vibrations to emanate from the Premises or from any portion of the
common areas as a result of Tenant's or any Tenant's Party's use thereof, nor
take any action which would constitute a nuisance or would disturb, obstruct or
endanger any other tenants or occupants of the Building or Project or elsewhere,
or interfere with their use of their respective premises or common areas.
Storage outside the Premises of materials, vehicles or any other items is
prohibited. Tenant shall not use or allow the Premises to be used for any
immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer the commission of any waste in, on or about the Premises. Tenant shall
not allow any sale by auction upon the Premises, or place any loads upon the
floors, walls or ceilings which could endanger the structure, or place any
harmful substances in the drainage system of the Building or Project. No waste,
materials or refuse shall be dumped upon or permitted to remain outside the
Premises. Landlord shall not be responsible to Tenant for the non-compliance by
any other tenant or occupant of the Building or Project with any of the above-
referenced rules or any other terms or provisions of such tenant's or occupant's
lease or other contract, provided that Landlord agrees to use its reasonable
efforts to enforce said rules and other terms or provisions in order to ensure
compliance therewith.
3
<PAGE>
C. Compliance with Regulations. By entering the Premises, Tenant accepts
the Premises in its "AS-IS" condition existing as of the date of such entry,
subject to any punchlist items, latent defects, structural defects and any
covenants and/or representations set forth in this Lease and Tenant's rights
under any warranties assigned to Tenant pursuant to the Improvement Agreement
attached hereto as Exhibit "C". Except for items which are Landlord's
responsibility hereunder, Tenant shall at its sole cost and expense cause its
use and occupancy of the Premises and any Alterations (defined in Paragraph 12
below) performed by or on behalf of Tenant (except those performed by Landlord)
to strictly comply with all existing or future applicable municipal, state and
federal and other governmental statutes, rules, requirements, regulations, laws
and ordinances, including zoning ordinances and regulations, ADA and the Santa
Monica Disability Codes, and covenants, easements and restrictions of record
governing and relating to the use, occupancy or possession of the Premises, to
Tenant's use of the common areas, or to the use, storage, generation or disposal
of Hazardous Materials caused by Tenant or any employee, agent, representative,
contractor, licensee or invitee of Tenant (hereinafter defined) (collectively
"Regulations"). Tenant shall at its sole cost and expense obtain any and all
licenses or permits necessary for Tenant's use of the Premises. Tenant shall at
its sole cost and expense promptly comply with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted. Tenant
shall not do or permit anything to be done in, on, under or about the Project or
bring or keep anything which will in any way increase the rate of any insurance
upon the Premises, Building or Project or upon any contents therein or cause a
cancellation of said insurance . Tenant shall indemnify, defend (by counsel
reasonably acceptable to Landlord), protect and hold Landlord harmless from and
against any loss, cost, expense, damage, attorneys' fees or liability arising
out of the failure of Tenant to comply with any Regulation. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease. Notwithstanding the foregoing, Tenant shall
not be responsible for any capital improvements, costs incurred to comply with
ADA or the Santa Monica Disability Codes, for costs to comply with environmental
or fire/life/safety laws or structural work required to be performed unless such
work is required by reason of Tenant's particular use of the Premises (other
than as general office use), any Alterations performed by or on behalf of
Tenant, any Tenant Improvements which do not constitute normal general office
improvements, or as a result of any act of Tenant or any of Tenant's agents,
representatives, employees, contractors or invitees (in which event Tenant shall
be responsible for said capital improvement costs, compliance costs or
structural work, as applicable).
D. Hazardous Materials. As used in this Lease, "Hazardous Materials"
shall include, but not be limited to, hazardous, toxic and radioactive materials
and those substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation. Tenant shall not cause, or allow any of Tenant's Parties 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 Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials onto 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
extent customary and necessary for the Permitted Use of the Premises; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the 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 Project of which Tenant
becomes aware if 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 to
the extent it is determined Tenant is not in compliance with said provisions.
Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord),
protect and hold Landlord and its directors, officers, employees, agents,
successors and assigns 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
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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
Paragraph 4.D.
E. Landlord represents to Tenant that, to the best of Landlord's actual
knowledge (without any independent inquiry or investigation), the Premises and
the Building are in material compliance with all Regulations as of the date of
this Lease. Landlord shall indemnify, defend, protect and hold harmless Tenant,
its affiliates, their respective directors, officers, employees , agents and
successors and assigns harmless from and against any and all claims, demands,
causes of action, judgments, injuries, damages, penalties, fines, costs,
liabilities or losses and attorneys' fees, consultant fees and court costs
arising out of, directly or indirectly, any Hazardous Material in, on or about
the Project or the Premises which was created, handled, placed, stored, used,
transported or disposed of by Landlord, excluding, however, any Hazardous
Material whose presence was caused by Tenant or its affiliates or their
respective agents.
F. To the extent the representation set forth in the first sentence of
paragraph 4E above is breached or to the extent otherwise required by any
Regulations, Landlord agrees, at its sole cost and expense and not as an
Operating Expense, to (i) commence to remove, restore, remediate and/or
otherwise abate any Hazardous Materials located in the Project not caused by
Tenant or any of Tenant's employees, agents, representatives, contractors,
licensees or invitees, and (ii) diligently pursue such removal, restoration,
remediation or abatement to completion.
G. Notwithstanding anything to the contrary set forth in this Lease, the
provisions of this Section 4 and the obligation of each party hereunder shall
survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as Exhibit A and any other reasonable, non-
discriminatory rules and regulations and any modifications or additions thereto
which Landlord may from time to time prescribe in writing for the purpose of
maintaining the proper care, cleanliness, safety, traffic flow and general order
of the Premises or the Building or Project. Tenant shall cause Tenant's Parties
to comply with such rules and regulations. Landlord shall not be responsible to
Tenant for the non-compliance by any other tenant or occupant of the Building or
Project with any of such rules and regulations, any other tenant's or occupant's
lease or any Regulations, provided that Landlord agrees to use its reasonable
efforts to enforce said rules and regulations in a uniform, non-discriminatory
manner against all tenants of the Project.
Notwithstanding anything to the contrary contained in this Lease, Landlord
agrees that the rules and regulations for the Project shall not be (i) modified
or enforced in any way by Landlord so as to unreasonably and materially
interfere with the permitted use set forth in this Lease or Tenant's access to
the Premises, Building or Project parking facility, or (ii) discriminatorily
enforced against Tenant and not against other tenants of the Project. Landlord
agrees that none of the rules and regulations for the Project shall be used to
prohibit the conduct of any business from the Premises which Tenant is permitted
to conduct, unless said conduct constitutes a nuisance to other tenants of the
Project or materially injures or impairs the reputation or image of the Project
as a professional office park. In the event any other tenant or occupant fails
to comply with the rules and regulations for the Project, and such non-
compliance unreasonably and materially interferes with Tenant's use of the
Premises, Landlord shall use its reasonable efforts to cause such other tenants
and/or occupants to comply with such rules and regulations.
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6. RENT
A. Base Rent. Tenant shall pay to Landlord and Landlord shall receive,
without notice or demand, except as otherwise provided herein, throughout the
Term, Base Rent as specified in the Basic Lease Information, payable in monthly
installments in advance on or before the first day of each calendar month, in
lawful money of the United States, without deduction or offset whatsoever,
except as otherwise provided herein, at the Remittance Address specified in the
Basic Lease Information or to such other place as Landlord may from time to time
designate in writing. Base Rent for the first full month of the Term shall be
paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base Rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
As used herein, the term "Base Rent" shall mean the Base Rent specified in the
Basic Lease Information as it may be so adjusted from time to time.
B. Additional Rent. All monies other than Base Rent required to be paid
by Tenant hereunder, including, but not limited to, Tenant's Proportionate Share
of the Building Operating Expenses, as specified in Paragraph 7 of this Lease,
charges to be paid by Tenant under Paragraph 15, the interest and late charge
described in Paragraphs 26.C. and D., and any monies spent by Landlord pursuant
to Paragraph 30, shall be considered additional rent ("Additional Rent").
"Rent" shall mean Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. Operating Expenses. In addition to the Base Rent required to be paid
hereunder, beginning with the expiration of the applicable Base Year specified
in the Basic Lease Information, Tenant shall pay as Additional Rent, (i)
Tenant's Proportionate Share of increases in the Building Operating Expenses
(defined below) over the Building Operating Expenses incurred by Landlord during
the Building Base Year ("3420 Building Base Year Operating Expenses"), all as
determined in the manner set forth below. Landlord and Tenant acknowledge that
if the number of buildings which constitute the Project increases or decreases,
or if physical changes are made to the Premises, Building or Project or the
configuration of any thereof, Landlord shall, to the extent appropriate,
reasonably adjust Tenant's Proportionate Share to reflect the change, provided
that Tenant's obligations under this Paragraph 7 shall not be increased as a
result thereof.
"Operating Expenses" shall mean all expenses and costs of every kind and
nature which Landlord shall pay, because of or in connection with the
ownership, management, maintenance, repair, preservation, replacement and
operation of the Building, as applicable, and its supporting facilities and such
additional facilities now and in subsequent years as may be determined by
Landlord to be reasonably necessary or desirable to the Building, as applicable,
(as determined in a reasonable manner in accordance with sound real estate
management principles) other than those expenses and costs which are
specifically attributable to Tenant or which are expressly made the financial
responsibility of Landlord or specific tenants of the Building, as applicable,
pursuant to this Lease or such other tenants' leases. The "3420 Building
Operating Expenses" shall mean those Operating Expenses which relate to the
ownership, management, maintenance, repair, preservation, replacement and/or
operation of the 3420 Building. The Operating Expenses shall include, but are
not limited to, the following:
(1) Taxes. All real property taxes and assessments, possessory
interest taxes, sales taxes, personal property taxes, business or license
taxes or fees, gross receipts taxes, service payments in lieu of such taxes
or fees, annual or periodic license or use fees, excises, mandatory transit
charges, and other impositions, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind (including fees
"in-lieu" of any such tax or assessment) which are now or hereafter
assessed, levied, charged, confirmed, or imposed by any public authority
upon the Building, as applicable, its operations or the Rent (or any
portion or component thereof), or any tax, assessment or fee imposed in
substitution, partially or totally, of any of the above. The Operating
Expenses shall also include any taxes, assessments, reassessments, or other
fees or impositions with respect to the development, leasing, management,
maintenance,
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alteration, repair, use or occupancy of the Premises or Building, as
applicable, or any portion thereof, including, without limitation, by or
for Tenant, and all, except as otherwise provided herein, increases therein
or reassessments thereof whether the increases or reassessments result from
increased rate and/or valuation (whether upon a transfer of the Building,
as applicable, or any portion thereof or any interest therein or for any
other reason). Operating Expenses shall not include inheritance or estate
taxes imposed upon or assessed against the interest of any person in the
Building, as applicable, or taxes computed upon the basis of the net income
of any owners of any interest in the Building, as applicable. If it shall
not be lawful for Tenant to reimburse Landlord for all or any part of such
taxes, the monthly rental payable to Landlord under this Lease shall be
revised to net Landlord the same net rental after imposition of any such
taxes by Landlord as would have been payable to Landlord prior to the
payment of any such taxes. There shall be included within the definition of
"Taxes" with respect to any calendar year only the amount currently payable
on any bonds or assessments, including interest for such tax calendar year
or the current annual installment for such calendar year, and such shall be
paid in the maximum number of installments allowable. Tax refunds shall be
credited against Taxes and refunded to Tenant, regardless of when received,
based on the year to which the refund is applicable. For purposes of this
Lease, Taxes shall be calculated as if the tenant improvements in the
Building were fully constructed and the Building, all parking facilities
and all tenant improvements in the 3420 Building were fully assessed for
real estate tax purposes, specifically excluding any Proposition 8
reduction. Notwithstanding anything to the contrary contained in the Lease,
Taxes shall not include (i) any excess profits taxes, franchise taxes, gift
taxes, capital stock taxes, inheritance and succession taxes, estate taxes,
federal and state income taxes, and other taxes to the extent applicable to
Landlord's general or net income (as opposed to rents or receipts), (ii)
any items for which Tenant or other tenants are liable pursuant to their
lease (other than as Operating Expense pass through item), or (iii)
penalties incurred as a result of Landlord's negligence, inability or
unwillingness to make payments of, and/or to file any tax or informational
returns with respect to, any real property taxes or assessment, when due,
or (iv) taxes on tenant improvements in any space in the Building or the
Project based upon an assessed level in excess of $25.00 per rentable
square foot. After written request (the "Tax Notice") by Tenant, at
Landlord's option, either (i) Landlord shall diligently pursue claims for
reductions in the Taxes of the Building, Project or any part thereof, in
which event Landlord shall provide Tenant with detailed information as to
how Landlord will pursue such claims, (ii) Tenant may pursue such claims
with Landlord's concurrence, in the name of Landlord, or (iii) Tenant may
pursue such claims, at Tenant's expense (except as otherwise set forth in
this paragraph), in the name of Landlord without Landlord's concurrence. In
the event that Landlord does not elect either item (i) or (ii), above,
within thirty (30) days of receipt of the Tax Notice, Tenant shall
thereafter have the right to pursue such claims under item (iii), above. If
either Landlord agrees to pursue such claims or concurs in the decision to
pursue such claims but elects to have them pursued by Tenant, the cost of
such proceedings shall be paid by Landlord and included in taxes in the
fiscal year such expenses are paid. If Tenant pursues such claims without
obtaining Landlord's concurrence and such contest is successful, then the
cost of such proceedings, but in no event more than the cumulative tax
savings achieved, shall be included in Operating Expenses in the fiscal
year such expenses are paid, and Landlord shall pay or reimburse to Tenant
such cost. Tenant may give a Tax Notice prior to the issuance of the actual
tax bill by the taxing authority or receipt by Tenant of a billing from
Landlord for Tenant's proportionate share thereof. If Tenant pursues any
claims for reductions in Taxes pursuant to the terms hereof, Tenant shall
notify Landlord in writing, on a regular basis, of the status of such
claims and provide Landlord with a copy of any correspondence or other
information delivered to or received by Tenant in connection therewith.
(a) Proposition 13 Protection. Despite any other provision of this
Lease, if (x), any sale, refinancing, or change in ownership of the
3420 Building is consumated and, as a result, all or part of the 3420
Building is reassessed ("Reassessment") for real estate tax purposes
by the appropriate government authority under the terms of Proposition
13 (as adopted by the voters of the State of California in the June
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1978 election), if during the initial Term there is a Reassessment of
the Building, the terms of this Paragraph 7(A)(1)(a) shall apply.
I. For purposes of this Paragraph 7(A)(1)(a), the term "Tax
Increase" shall mean that portion of the Taxes, as calculated
immediately following the Reassessment, that is attributable
solely to the Reassessment. Accordingly, a Tax Increase shall not
include any portion of the Taxes, as calculated immediately
following the Reassessment, that is:
(1) Attributable to the initial assessment of the value of
the Building, as applicable, the base, shell and core,
as applicable, or the tenant improvements located in
the Building, as applicable;
(2) Attributable to assessments pending immediately before
the Reassessment, but not otherwise excludable, that
were conducted during, and included in, that
Reassessment or that were otherwise rendered
unnecessary following the Reassessment;
(3) Attributable to the annual inflationary increase in
real estate taxes; or
(4) Part of Taxes incurred or considered to be incurred
during the applicable Base Year as determined under
this Lease.
II. During the initial Term, Tenant shall not be obligated to
pay any portion of the Tax Increase relating to a Reassessment of
the Building occurring during the initial Term.
IV. The amount of Taxes that Tenant is not obligated to pay or
shall not be obligated to pay during the Term in connection with
a particular Reassessment under the terms of this Paragraph
7(A)(1)(a) shall be referred to as the Proposition 13 Protection
Amount. If a Reassessment is reasonably foreseeable by Landlord
and the Proposition 13 Protection Amount attributable to that
Reassessment may be reasonably quantified or estimated for each
Lease Year beginning with the Lease Year in which the
Reassessment will occur, the terms of this Paragraph 7(A)(1)(a)
shall apply to each such Reassessment. On notice to Tenant,
Landlord shall have the right to purchase the entire Proposition
13 Protection Amount relating to the applicable Reassessment
(Applicable Reassessment), at any time during the Term, by paying
to Tenant an amount equal to the Proposition 13 Purchase Price,
as defined below, as long as the right of any successor of
Landlord to exercise its right of repurchase under this Lease
shall not apply to any Reassessment that results from the event
under which that successor became Landlord under this Lease. As
used in this Lease, the term "Proposition 13 Purchase Price"
shall mean the present value of the Proposition 13 Protection
Amount remaining during the Term, as of the date of payment of
the Proposition 13 Purchase Price by Landlord. The present value
shall be calculated by:
(1) Using the portion of the Proposition 13 Protection
Amount attributable to each remaining Lease Year (as
though the portion of that Proposition 13 Protection
Amount benefited Tenant at the end of each Lease Year)
as the amounts to be discounted; and
(2) Using discount rates for each amount to be discounted
equal to:
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(A) The average rates of yield for United States
Treasury Obligations with maturity dates as close as
reasonably possible to the end of each Lease Year
during which the portions of the Proposition 13
Protection Amount would have benefited Tenant, using
the rates in effect as of Landlord's exercise of its
right to purchase, as set forth in this Paragraph
7(A)(1)(a); plus
(B) two percent (2%) per annum.
On payment of the Proposition 13 Purchase Price, subparagraph
(III), as applicable, of this Paragraph 7(A)(1)(a) shall not
apply to any Taxes attributable to the Applicable Reassessment.
Because Landlord is estimating the Proposition 13 Purchase Price
because a Reassessment has not yet occurred, an adjustment shall
be made when a Reassessment occurs. If Landlord has
underestimated the Proposition 13 Purchase Price, Landlord shall,
on notice to Tenant, credit Tenant's Rent next due with the
amount of that underestimation (and Landlord's successor in
interest shall be bound by any such underestimation). If Landlord
has overestimated the Proposition 13 Purchase Price, Landlord
shall, on notice to Tenant, increase Tenant's Rent next due by
the amount of the overestimation.
(2) Insurance. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of insurance
incurred by Landlord with respect to the Building, as applicable, including
for the insurance coverage set forth in Paragraph 8.A. herein.
(3) Common Area Maintenance.
(a) Repairs, replacements, and general maintenance of and
for the Building, as applicable, and public and common areas and
facilities of and comprising the Building, as applicable,
including, but not limited to, the roof and roof membrane,
windows, elevators, restrooms, conference rooms, health club
facilities (if any), lobbies, mezzanines, balconies, mechanical
rooms, building exteriors, alarm systems, pest extermination,
landscaped areas, parking and service areas, driveways,
sidewalks, loading areas, fire sprinkler systems, sanitary and
storm sewer lines, utility services, heating/ventilation/air
conditioning systems, electrical, mechanical or other systems,
telephone equipment and wiring servicing, plumbing, lighting, and
any other items or areas which affect the operation or appearance
of the Building except for: those items expressly made the
financial responsibility of Landlord pursuant to Paragraph 10
hereof; those items to the extent paid for by the proceeds of
insurance; those items attributable solely or jointly to
specific tenants of the Building, as applicable, and those items
specifically excluded from Operating Expenses.
(b) Repairs, replacements, and general maintenance shall
include the cost of any capital improvements made to or capital
assets acquired for the Building , as applicable, that in
Landlord's discretion may reduce any other Operating Expenses
(only to the extent of cost savings), including present or future
repair work, are reasonably necessary for the health and safety
of the occupants of the Building, as applicable, or are required
to comply with any Regulation, such costs or allocable portions
thereof to be amortized over their respective useful life,
together with interest on the unamortized balance at the publicly
announced "prime rate" charged by Wells Fargo Bank, N.A. (San
Francisco) or its successor at the time such improvements or
capital assets are constructed or acquired, plus two (2)
percentage points, or in the absence of such prime rate, then at
the U.S. Treasury six-month market note (or bond, if so
designated) rate as published by any national financial
publication selected by Landlord, plus
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two (2) percentage points, but in no event more than the maximum
rate permitted by law.
(c) Payment under or for any easement, license, permit,
operating agreement, declaration, restrictive covenant or
instrument relating to the Building, as applicable.
(d) All expenses and rental related to services and costs
of supplies, materials and equipment used in operating, managing
and maintaining the Premises and the Building, as applicable, the
equipment therein and the adjacent sidewalks, driveways, parking
and service areas, including, without limitation, expenses
related to service agreements regarding security, fire and other
alarm systems, janitorial services, window cleaning, elevator
maintenance, Building, as applicable, exterior maintenance,
landscaping and expenses related to the administration,
management and operation of the Building, as applicable,
including without limitation salaries, wages and benefits of
personnel up to the level of the Project director (and/or vice
president responsible for the Project) and building engineer and
fair market management office rent (based on size and rent per
square foot).
(e) The cost of supplying any services and utilities which
benefit all or a portion of the Premises Building, as applicable,
including without limitation services and utilities provided
pursuant to Paragraph 15 hereof.
(f) Reasonable legal expenses and the cost of audits by
certified public accountants (other than in connection with
defending operating expense audits performed by other tenants)
relating to the Building, as applicable; provided, however, that
legal expenses chargeable as Operating Expenses shall not include
the cost of negotiating leases, collecting rents, evicting
tenants nor shall it include costs incurred in legal proceedings
with or against any tenant or to enforce the provisions of any
lease.
(g) The deductible portion of any repair costs for the
Building, as applicable, covered by earthquake insurance,
provided that said deductible portion shall be amortized over a
fifteen (15) year period.
(h) A management and accounting cost recovery fee equal to
five percent (5%) of the sum of the Project's base rents and
Operating Expenses to the extent not included in such base rents
(other than such management and accounting fee).
If the rentable area of the Building, as applicable, is not at least
ninety-five percent (95%) occupied during any fiscal year of the Term
(including the applicable Base Year), an adjustment shall be made in
computing the variable components of the Building Operating Expenses, as
applicable, for such year so that Tenant pays an equitable portion of all
variable items (e.g., utilities, janitorial services and other component
expenses that are affected by variations in occupancy levels) of the
Building Operating Expenses, as applicable, as reasonably determined by
Landlord; provided, however, that in no event shall Landlord be entitled to
collect in excess of one hundred percent (100%) of the total Operating
Expenses from all of the tenants in the Building or Project, as the case
may be.
Operating Expenses shall not include the cost of providing tenant
improvements or other specific costs incurred for the account of,
separately billed to and paid by specific tenants of the Project, the
initial construction cost of the Project, or debt service on any mortgage
or deed of trust recorded with respect to the other than pursuant to
Paragraph 7.A.(3)(b) above. Notwithstanding anything herein to the
contrary, in any instance wherein Tenant uses excessive services of the
Building, as applicable, or otherwise creates a greater burden on the
operation of the Building, as applicable, than other tenants, except as
specifically allowed by this Lease (such determination to be adjusted
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based on relative square footages of the space leased by Tenant and other
tenants), Landlord shall have the right to reasonably allocate any such
additional costs.
Landlord (x) shall not collect or be entitled to collect from Tenant
an amount in excess of Tenant's applicable share of one hundred percent
(100%) of the Building Operating Expenses actually paid or incurred by
Landlord; and (y) shall reduce the amount of the Building Operating
Expenses, as applicable, by any refund or discount received by Landlord in
connection with any expenses previously included in the Building Operating
Expenses (such reduction to be credited to Tenant in the year in which the
refund or discount is received by Landlord). Notwithstanding the foregoing,
for purposes of this Lease, the Operating Expenses shall not, however,
include:
I. bad debt expenses and interest, principal, points and fees on
debts (except in connection with the financing of items which may be
included in the Operating Expenses) or amortization on any mortgage or
mortgages or any other debt instrument encumbering the Building or the
Project;
II. marketing costs, including leasing commissions, attorneys' fees
in connection with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments, space planning
costs, and other costs and expenses incurred in connection with lease,
sublease and/or assignment negotiations and transactions with present or
prospective tenants or other occupants of the Project, including attorneys'
fees and other costs and expenditures incurred in connection with disputes
with present or prospective tenants or other occupants of the Project;
III. costs of inspecting and correcting defects in the Project
(including without limitation, defects discovered as a result of earthquake
damage) and costs, including permit, license and inspection costs, incurred
with respect to the installation of other tenants' or occupants'
improvements made for tenants or other occupants in the Project or incurred
in renovating or otherwise improving, decorating, painting or redecorating
vacant space for tenants or other occupants in the Project;
IV. the cost of providing any service directly to and paid directly
by any tenant;
V. any costs expressly excluded from the Operating Expenses
elsewhere in this Lease;
VI. costs of any items (including, but not limited to, costs incurred
by Landlord for the repair or damage to the Project or Building) to the
extent Landlord receives reimbursement from insurance proceeds (such
proceeds to be deducted from the Operating Expenses in the year in which
received) or from a third party (such proceeds to be credited to the
Operating Expenses in the year in which received, except that any
deductible amount under any insurance policy shall be included within the
Operating Expenses of the Project);
VII. Costs of a capital nature, including, without limitation,
capital improvements, capital repairs and capital equipment; except for
those (i) acquired to reduce the Operating Expenses (amortized at an
annual rate reasonably calculated to equal the amount of the Operating
Expenses to be saved in each calendar year throughout the Term of the
Lease, as reasonably determined at the time Landlord elected to proceed
with the capital improvement or acquisition of the capital equipment to
reduce the Operating Expenses), together with interest at the actual
interest rate incurred by Landlord, or (ii) incurred after the Term
Commencement Date in order to comply with any governmental law or
regulation that was enacted subsequent to the Term Commencement Date (but
specifically not including any re-enactment or subsequent codification,
local or otherwise, of any laws or regulations existing as of the Term
Commencement Date, including without limitation the Americans with
Disabilities Act or any state or local codifications thereof) provided
that such capital costs shall be amortized over their useful
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life, together with interest at the actual interest rate incurred by
Landlord; all other capital expenditures and improvements shall be
excluded from the Operating Expenses;
VIII. rentals and other related expenses for leasing a HVAC system,
elevators, or other items (except when needed in connection with normal
repairs and maintenance of the Project) which if purchased, rather than
rented, would constitute a capital improvement not included in the
Operating Expenses pursuant to this Lease;
IX. depreciation, amortization and interest payments, except as
specifically included in the Operating Expenses pursuant to the terms of
this Lease and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services
Landlord might otherwise contract for with a third party, where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined
in accordance with generally accepted accounting principles, consistently
applied, and when depreciation or amortization is permitted or required,
the item shall be amortized over its reasonably anticipated useful life;
X. costs incurred by Landlord for alterations (including
structural additions), repairs, equipment and tools which are of a capital
nature and/or which are considered capital improvements or replacements
under generally accepted accounting principles, consistently applied,
except as specifically included in the Operating Expenses pursuant to the
terms of this Lease;
XI. expenses in connection with services or other benefits which
are not offered to Tenant or for which Tenant is charged for directly but
which are provided to another tenant or occupant of the Project, without
charge;
XII. costs incurred by Landlord due to the violation by Landlord or
any tenant of the terms and conditions of any lease of space in the
Project;
XIII. overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for goods and/or services in the
Project to the extent the same exceeds the costs of such by unaffiliated
third parties on a competitive basis;
XIV. Landlord's general corporate overhead and general and
administrative expenses, excluding on-site management to the level of
Project director (and/or vice president responsible for the Project) and
Project engineer and on-site accounting attributable to the Project, but
including costs associated with the operation of the business of the
ownership or entity which constitutes "Landlord," as distinguished from
the costs of building operations, including, but not limited to,
partnership accounting and legal matters, costs of defending any lawsuits
with any mortgagee, costs of selling, syndicating, financing, mortgaging
or hypothecating any of Landlord's interest in the Project, costs of any
disputes between Landlord and its employees or with its Project
management;
XV. advertising and promotional expenditures, and costs of signs in
or on the Project identifying the owner of the Project or other tenants'
signs, except for Project directories or Project standard signage;
XVI. electric power costs or other utility costs for which any
tenant directly contracts with the local public service company (but
Landlord shall have the right to "gross up" as if the floor was vacant);
XVII. tax penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments or file returns when due;
XVIII. costs arising from Landlord's charitable or political
contributions;
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XIX. costs of installing, maintaining and operating any specialty
service operated by landlord including without limitation, any luncheon
club or athletic facility, or the repair thereof;
XX. costs necessitated by or resulting from the gross negligence of
Landlord, or any of its agents, employees or independent contractors;
XXI. any ground lease rental;
XXII. costs of capital acquisition of sculptures, paintings or other
objects of art;
XXIII. costs of earthquake insurance (except to the extent maintained
in the applicable Base Year);
XXIV. notwithstanding any contrary provision of this Lease, including
without limitation, any provision relating to capital expenditures, costs
arising from the presence of "hazardous materials," "hazardous
substances," and/or "toxic substances," as defined in any federal, state,
county or local law, including asbestos, in or about the Building and the
Project; and
XXV. Management fees to the extent in excess of that specifically
includable in Operating Expenses.
The Operating Expenses shall also include the Building's share of
Project Operating Costs (defined below), such share to be based upon the
rentable square footage of the Building, as applicable, divided by the
rentable square footage of all of the office buildings comprising the
Project. The term "Project Operating Costs" shall include all expenses
incurred of the type included in the Operating Expenses but which are
directly and separately identifiable to the ownership, operation and
maintenance of areas of the Project which are owned by Landlord other than
the Building or other office buildings within the Project, such as real
property taxes applicable to the Common Areas, liability insurance with
respect to the Common Areas, maintenance service for all of the buildings
within the Project and repair costs with respect to the entire Project.
To the extent that, in Landlord's reasonable judgment, it may not be
equitable to allocate certain Project Operating Costs on a pro rata basis
based upon the rentable areas of the buildings in the Project, then
Landlord may allocate the same on such basis as Landlord, in its
reasonable judgment, determines to be equitable.
The above enumeration of services and facilities shall not be deemed
to impose an obligation on Landlord to make available or provide such
services or facilities except to the extent if any that Landlord has
specifically agreed elsewhere in this Lease to make the same available or
provide the same. Without limiting the generality of the foregoing,
Tenant acknowledges and agrees that it shall be responsible for providing
adequate security for its use of the Premises, the Building and the
Project and that Landlord shall have no obligation or liability with
respect thereto, except to the extent of Landlord's negligence or willful
misconduct or to the extent that Landlord has specifically agreed
elsewhere in this Lease to provide the same.
B. Payment of Estimated Operating Expenses. "Estimated Operating
Expenses" for any particular year shall mean Landlord's estimate of the
Operating Expenses for such fiscal year made with respect to such fiscal
year as hereinafter provided. Landlord shall have the right from time to
time to revise its fiscal year and interim accounting periods so long as
the periods as so revised are reconciled with prior periods in a
reasonable manner and do not result in any net increase to Tenant. During
the last month of each fiscal year during the Term, or as soon thereafter
as practicable, Landlord shall give Tenant written notice of the Estimated
Operating Expenses for the ensuing fiscal year on a line item by line item
basis. Tenant shall pay Tenant's applicable share of the difference
between Estimated Operating Expenses for the respective building and the
applicable Base Year Operating Expenses for each building with
installments of
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Base Rent for the fiscal year to which the Estimated Operating Expenses
applies in monthly installments on the first day of each calendar month
during such year, in advance. Such payment shall be construed to be
Additional Rent for all purposes hereunder. If at any time during the
course of the fiscal year, Landlord reasonably determines that Operating
Expenses are projected to vary from the then Estimated Operating Expenses
by more than five percent (5%), Landlord may, by written notice to Tenant,
revise the Estimated Operating Expenses for the balance of such fiscal
year, and Tenant's monthly installments for the remainder of such year
shall be adjusted so that by the end of such fiscal year Tenant has paid
to Landlord Tenant's applicable share of the revised difference between
Estimated Operating Expenses and the applicable Base Year Operating
Expenses for each building for such year, such revised installment amounts
to be Additional Rent for all purposes hereunder.
C. Computation of Operating Expense Adjustment. "Operating Expense
Adjustment" shall mean the difference between Estimated Operating Expenses
and actual Operating Expenses for any fiscal year, over the applicable
Base Year Operating Expenses for each building, determined as hereinafter
provided. Within one hundred twenty (120) days after the end of each
fiscal year, or as soon thereafter as practicable (but in no event beyond
two (2) years following such 120th day), Landlord shall deliver to Tenant
a reasonably detailed statement (line item by line item basis) of actual
Operating Expenses for the fiscal year just ended, accompanied by a
computation of Operating Expense Adjustment. If such statement shows that
Tenant's payment based upon Estimated Operating Expenses is less than
Tenant's applicable share of actual increases in each building's
Operating Expenses over the applicable Base Year Operating Expenses for
each building, then Tenant shall pay to Landlord the difference within
thirty (30) days after receipt of such statement, such payment to
constitute Additional Rent for all purposes hereunder. If such statement
shows that Tenant's payments of Estimated Operating Expenses exceed
Tenant's applicable share of actual increases in each building's
Operating Expenses over the applicable Base Year Operating Expenses for
each building, then (provided that Tenant is not in default under this
Lease beyond applicable notice and cure periods) Landlord shall pay to
Tenant the difference within thirty (30) days after delivery of such
statement to Tenant. If this Lease has been terminated or the Term hereof
has expired prior to the date of such statement, then the Operating
Expense Adjustment shall be paid by the appropriate party within thirty
(30) days after the date of delivery of the statement (which Landlord
agrees to use its commercially reasonable efforts to deliver within six
(6) months following the end of the applicable fiscal year). Tenant's
obligation to pay increases in each building's Operating Expenses over
the applicable Base Year Operating Expenses for each building, shall
commence on January 1 of the year succeeding the applicable Base Year.
Should this Lease terminate at any time other than the last day of the
fiscal year, Tenant's applicable share of the Operating Expense Adjustment
shall be prorated based on a month of 30 days and the number of calendar
months during such fiscal year that this Lease is in effect. Tenant shall
in no event be entitled to any credit if applicable Operating Expenses in
any year are less than applicable Base Year Operating Expenses.
Notwithstanding anything to the contrary contained in Paragraph 7.A or
7.B, Landlord's failure to provide any notices or statements within the
time periods specified in those paragraphs shall in no way excuse Tenant
from its obligation to pay Tenant's applicable share of increases in
building's Operating Expenses (unless Landlord still has not provided any
required statement within two (2) years following the date said statement
was required to be delivered pursuant to the terms hereof).
D. Gross Lease. This shall be a gross Lease; however, it is
intended that Base Rent shall be paid to Landlord absolutely net of all
costs and expenses other than Operating Expenses each year equal to
Tenant's applicable share of applicable Base Year Operating Expenses for
each building, except as otherwise specifically provided to the contrary
in this Lease. The provisions for payment of increases in building's
Operating Expenses and the Operating Expense Adjustment are intended to
pass on to Tenant and reimburse Landlord for all costs and expenses of the
nature described in Paragraph 7.A. incurred in connection with the
ownership, management, maintenance, repair,
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preservation, replacement and operation of the Building and/or Project and
its supporting facilities and such additional facilities, in excess of the
applicable Base Year Operating Expenses, now and in subsequent years as
may be reasonably determined by Landlord to be necessary or desirable to
the Building and/or Project.
E. Tenant Audit. If Tenant shall dispute the amount set forth in
any statement provided by Landlord under Paragraph 7.B. or 7.C. above,
Tenant shall have the right, not later than two hundred seventy (270)
days following receipt of such statement and upon the condition that
Tenant shall first deposit with Landlord the full amount in dispute,
without waiving its rights, to cause Landlord's books and records with
respect to applicable Operating Expenses for such fiscal year to be
audited by certified public accountants selected by Tenant and subject to
Landlord's reasonable right of approval. The Operating Expense Adjustment
shall be appropriately adjusted on the basis of such audit. If such audit
discloses a liability for a refund in excess of five percent (5%) of
Tenant's applicable share of the applicable Operating Expenses previously
reported, the cost of such audit shall be borne by Landlord; otherwise the
cost of such audit shall be paid by Tenant. If Tenant shall not request
an audit in accordance with the provisions of this Paragraph 7.E. within
two hundred seventy (270) days after receipt of Landlord's statement
provided pursuant to Paragraph 7.B. or 7.C., such statement shall be final
and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. Landlord's Insurance. All insurance maintained by Landlord shall
be for the sole benefit of Landlord and under Landlord's sole control.
(1) Property Insurance. Landlord agrees to maintain All Perils
property insurance insuring the Building at all times against damage
or destruction due to risk including fire, vandalism, and malicious
mischief in an amount not less than the replacement cost thereof, in
the form and with deductibles and endorsements as selected by Landlord
(in its reasonable discretion). At its election, Landlord may (but
shall have no obligation to) obtain earthquake, and/or pollution, in
amounts selected by Landlord (in its reasonable discretion). Landlord
represents to Tenant that as of the date of this Lease, Landlord
carries "All-Perils" coverage and rental income insurance for twelve
(12) months.
(2) Optional Insurance. Landlord shall carry insurance against
loss of rent, in an amount equal to the amount of Base Rent and
Additional Rent that Landlord could be required to abate to all
Building tenants in the event of condemnation or casualty damage for a
period of twelve (12) months. Landlord may also (but shall have no
obligation to) carry such other insurance as Landlord may deem prudent
or advisable, including, without limitation, liability insurance in
such amounts and on such terms as Landlord shall determine (in its
reasonable discretion), provided such insurance is reasonably
comparable (as determined by Landlord) to that being carried by other
landlords of Comparable Projects (as defined in paragraph 39E below).
Landlord shall not be obligated to insure, and shall have no
responsibility whatsoever for any damage to, any furniture, machinery,
goods, inventory or supplies, or other personal property or fixtures
which Tenant may keep or maintain in the Premises, or any leasehold
improvements, additions or alterations within the Premises, except as
otherwise provided herein.
B. Tenant's Insurance.
(1) Property Insurance. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and at
all times until the end of the Term, insurance on all personal
property and fixtures of Tenant and all improvements, additions or
alterations made by or for Tenant to the Premises on
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an "All Perils" basis, insuring such property for the full
replacement value of such property.
(2) Liability Insurance. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and at
all times until the end of the Term Commercial General Liability
insurance covering bodily injury and property damage liability
occurring in or about the Premises or arising out of the use and
occupancy of the Premises and the Project, and any part of either, and
any areas adjacent thereto, and the business operated by Tenant or by
any other occupant of the Premises. Such insurance shall include
contractual liability insurance coverage insuring all of Tenant's
indemnity obligations under this Lease. Such coverage shall have a
minimum combined single limit of liability of at least Two Million
Dollars ($2,000,000.00), and a minimum general aggregate limit of
Three Million Dollars ($3,000,000.00), with an "Additional Insured -
Managers or Lessors of Premises Endorsement." All such policies shall
be written to apply to all bodily injury (including death), property
damage or loss, personal and advertising injury and other covered
loss, however occasioned, occurring during the policy term, shall be
endorsed to add Landlord and any party holding an interest to which
this Lease may be subordinated as an additional insured, and shall
provide that such coverage shall be "primary" and non-contributing
with any insurance maintained by Landlord, which shall be excess
insurance only. Such coverage shall also contain endorsements
including employees as additional insureds if not covered by Tenant's
Commercial General Liability Insurance. All such insurance shall
provide for the severability of interests of insureds; and shall be
written on an "occurrence" basis, which shall afford coverage for all
claims based on acts, omissions, injury and damage, which occurred or
arose (or the onset of which occurred or arose) in whole or in part
during the policy period.
(3) Workers' Compensation and Employers' Liability Insurance.
Tenant shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit for
bodily injury by disease; and One Million Dollars ($1,000,000) each
employee for bodily injury by disease, throughout the Term at Tenant's
sole cost and expense.
(4) General Insurance Requirements. All coverages described in
this Paragraph 8.B. shall be endorsed to provide Landlord with thirty
(30) days' notice of cancellation or change in terms. If at any time
during the Term the amount or coverage of insurance which Tenant is
required to carry under this Paragraph 8.B. is, in Landlord's
reasonable judgment, materially less than the amount or type of
insurance coverage typically carried by tenants of properties located
in the general area in which the Premises are located which are
similar to and operated for similar purposes as the Premises or if
Tenant's use of the Premises should change with or without Landlord's
consent, Landlord shall have the right to require Tenant to increase
the amount or change the types of insurance coverage required under
this Paragraph 8.B. All insurance policies required to be carried by
Tenant under this Lease shall be written by companies rated A X or
better in "Best's Insurance Guide" and authorized to do business in
the State of California. In any event deductible amounts under all
insurance policies required to be carried by Tenant under this Lease
shall not exceed Seven Thousand Five Hundred Dollars ($7,500.00) per
occurrence. Tenant shall deliver to Landlord on or before the Term
Commencement Date, and thereafter at least thirty (30) days before the
expiration dates of the expired policies, a certificate evidencing the
same issued by the insurer thereunder; and, if Tenant shall fail to
procure such insurance, or to deliver such certificates, Landlord may,
at Landlord's option and in addition to Landlord's other remedies in
the event of a default by Tenant hereunder, after five
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(5) business days prior notice to Tenant, procure the same for the
account of Tenant, and the cost thereof shall be paid to Landlord as
Additional Rent.
C. Indemnification. 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 reasonable attorneys' and
consultants' fees and court costs, demands, causes of action, or
judgments, directly or indirectly arising out of or related to or
resulting from: (1) claims of injury to or death of persons or damage to
property occurring or resulting directly or indirectly from the use or
occupancy of the Premises by Tenant or Tenant's Parties, or from
activities or failures to act of Tenant or Tenant's Parties within the
Premises; (2) claims arising from work or labor performed, or for
materials or supplies furnished to or at the request or for the account of
Tenant in connection with performance of any work done for the account of
Tenant within the Premises or Project (other than by Landlord); (3) claims
arising from any breach or default on the part of Tenant in the
performance of any covenant contained in this Lease; and (4) claims
arising from the negligence or intentional acts or omissions of Tenant or
Tenant's Parties. The foregoing indemnity by Tenant shall not be
applicable to claims to the extent arising from the gross negligence or
willful misconduct of Landlord. Landlord shall not be liable to Tenant
and Tenant hereby waives all claims against Landlord for any injury or
damage to any person or property in or about the Premises by or from any
cause whatsoever (other than Landlord's gross negligence or willful
misconduct) and, without limiting the generality of the foregoing, whether
caused by water leakage of any character from the roof, walls, basement or
other portion of the Premises, Building or Project, or caused by gas,
fire, oil or electricity in, on or about the Premises, Building or
Project. The provisions of this Paragraph shall survive the expiration or
earlier termination of this Lease.
Landlord shall indemnify, defend, protect and hold harmless
Tenant from any and all loss, cost, liability, damage , claims, injuries
or expense, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action or judgments, directly or
indirectly arising out of or related to or resulting from (1) the
negligence or willful misconduct of Landlord or its agents, servants,
employees, contractors or licensees (collectively, "Landlord's Parties")
within the Project (but outside of the Premises), (2) the activities or
failures to act of Landlord or Landlord's Parties within the Project (but
outside of the Premises), (3) any default by Landlord under the terms of
this Lease, or (4) Tenant's use of the Project in general (other than its
occupancy and use of the Premises) (except for damage to the tenant
improvements and Tenant's personal property, fixtures, furniture and
equipment in the Premises to the extent such damage is covered by
insurance Tenant is required to carry pursuant to Paragraph 8B). The
foregoing indemnity by Landlord shall not be applicable to claims to the
extent arising from the gross negligence or wilful misconduct of Tenant or
Tenant's Parties.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage
provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive any right to recover against the
other for: (a) damages for injury to or death of persons; (b) damages to
property, including personal property; (c) damages to the Premises or any
part thereof; and (d) claims arising by reason of the foregoing due to
hazards covered by insurance maintained or required to be maintained
pursuant to this Lease to the extent of proceeds recovered therefrom, or
proceeds which would have been recoverable therefrom in the case of the
failure of any party to maintain any insurance coverage required to be
maintained by such party pursuant to this Lease. This provision is
intended to waive fully, any rights and/or claims arising by reason of the
foregoing, but only to the extent that any of the foregoing damages and/or
claims referred to above are covered or would be covered, and only to the
extent of such coverage, by insurance actually carried or required to be
maintained pursuant to this Lease by either Landlord
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or Tenant. This provision is also intended to waive fully, and for the
benefit of each party, any rights and/or claims which might give rise to a
right of subrogation on any insurance carrier. Subject to all
qualifications of this Paragraph 9, Landlord waives its rights as
specified in this Paragraph 9 with respect to any subtenant that it has
approved pursuant to Paragraph 21 but only in exchange for the written
waiver of such rights to be given by such subtenant to Landlord upon such
subtenant taking possession of the Premises or a portion thereof. Each
party shall cause each insurance policy obtained by it to provide that the
insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair,
reasonable wear and tear excepted, the structural soundness of the roof,
foundations, and exterior walls of the Building. Landlord shall
furthermore be responsible, at its sole cost and expense (not as an
Operating Expense), for repairing any latent or patent structural defects
in the Building, except to the extent any such defect is caused,
exacerbated or aggravated by any acts of Tenant or any of Tenant's
Parties. Landlord shall also use its commercially reasonable efforts to
keep the Building and Project free from any infestation of insects,
rodents, bugs or other animals. The term "exterior walls" as used herein
shall not include windows, glass or plate glass, doors, special store
fronts or office entries.
Without limiting the generality of the foregoing, Landlord shall
diligently maintain, repair and keep in a clean and sanitary working order
and condition equal to the standards of the Comparable Projects as part of
Operating Expenses to the extent allowable under this Lease: (i) the
foundations, roof and all structural aspects of the Building, the Common
Areas, and the parking facilities; (ii) all nonstructural aspects of the
Building which relate to more than one (1) tenant's premises, or which no
tenant of the Building is required to maintain and repair, including all
systems and facilities necessary for the operation of the Building and the
provision of services and utilities as required herein, and the
electrical, mechanical, plumbing, lighting, lifesafety, fire sprinkler,
HVAC and security systems, fixtures, and equipment located in the Premises
and all other elements thereof; (iii) the parking facilities; and (iv) the
Common Areas, including, but not limited to, elevators and escalators,
electrical, mechanical and plumbing systems, fixtures and equipment,
restrooms, structural components, lighting, heating, ventilating and air
conditioning equipment and systems and security systems and all other
areas or elements thereof. Any damage caused by or repairs necessitated
by any negligence or wilful misconduct of Tenant or Tenant's Parties may
be repaired by Landlord at Landlord's option and Tenant's expense. Tenant
shall immediately give Landlord written notice of any defect or need of
repairs in such components of the Building for which Landlord is
responsible, after which Landlord shall have a reasonable opportunity and
the right to enter the Premises at all reasonable times to repair same
(subject to the immediately succeeding paragraph). Landlord's liability
with respect to any defects, repairs, or maintenance for which Landlord is
responsible under any of the provisions of this Lease shall be limited to
the cost of such repairs or maintenance, and there shall be no abatement
of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of repairs,
alterations or improvements in or to any portion of the Premises, the
Building or the Project or to fixtures, appurtenances or equipment in the
Building, except as provided in Paragraph 24 or elsewhere in this Lease.
By taking possession of the Premises, Tenant accepts them "as is," as
being in good order, condition and repair and the condition in which
Landlord is obligated to deliver them and suitable for the Permitted Use
and Tenant's intended operations in the Premises, whether or not any
notice of acceptance is given, subject to punchlist items, latent defects,
structural defects, any covenants and/or representations set forth in this
Lease, Tenant's rights under any warranties assigned to Tenant pursuant to
the Improvement Agreement attached hereto as Exhibit "C" and the
performance by Landlord of its obligations under this Paragraph 10.
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Except in the case of emergency, Landlord shall use its best efforts
to provide Tenant with at least forty-eight (48) hours prior written
notice (unless such entry is approved by the on-site manager for a lesser
time period or with respect to janitorial or normal periodic minor
maintenance and upkeep) of Landlord's intent to enter the Premises, shall
use reasonable efforts to minimize any interference to Tenant, shall
attempt to reasonably schedule such entry with Tenant and shall attempt to
make all such entries during normal business hours.
If Tenant provides notice to Landlord of an event or circumstance
which requires the action of Landlord with respect to the provision of
utilities and/or services and/or repairs and/or maintenance as set forth
in Articles 10 and 15 of this Lease, and Landlord fails to provide such
action as required by the terms of this Lease, then Tenant may proceed to
take the required action upon delivery of an additional ten (10) business
days notice (or less in the event of an emergency) to Landlord specifying
that Tenant is taking such required action, and if such action was
required under the terms of this Lease to be taken by Landlord, then
Tenant shall be entitled to prompt reimbursement by Landlord of Tenant's
reasonable costs and expenses in taking such action plus interest at the
Applicable Interest Rate (defined below). In the event Tenant takes such
action, and such work will affect, in Landlord's reasonable determination,
any of the Building systems and equipment, structural integrity or
exterior appearance of the Building, Tenant shall use only those
contractors used by Landlord in the Project for such work unless such
contractors are unwilling or unable to perform such work within a
reasonable period of time, in which event Tenant may utilize the services
of any other qualified contractor which normally and regularly performs
similar work in comparable projects. Further, if Landlord does not
deliver a detailed written objection to Tenant, within thirty (30) days
after receipt of an invoice by Tenant of its costs of taking action which
Tenant claims should have been taken by Landlord, and if such invoice from
Tenant sets forth a reasonably particularized breakdown of its costs and
expenses in connection with taking such action on behalf of Landlord, then
Tenant shall be entitled to deduct from Rent payable by Tenant under this
Lease, the amount set forth in such invoice together with interest at the
Applicable Interest Rate. If, however, Landlord delivers to Tenant within
thirty (30) days after receipt of Tenant's invoice, a written objection to
the payment of such invoice, setting forth with reasonable particularity
Landlord's reasons for its claim that such action did not have to be taken
by Landlord pursuant to the terms of this Lease or that the charges are
excessive (in which case Landlord shall pay the amount it contends would
not have been excessive), then Tenant shall not be entitled to such
deduction from Rent, but as Tenant's sole remedy, Tenant may proceed to
institute legal proceedings against Landlord to collect the amount set
forth in the subject invoice. For purposes of the first sentence of this
paragraph, Landlord shall not be deemed to have "failed to provide such
action as required by the terms of this Lease" if Landlord commences any
requisite repair work within a reasonable period of time (in light of the
required repair) following Landlord's receipt of written notice of the
need for repairs and Landlord prosecutes such repair work toward
completion with reasonable diligence.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain
all parts of the Premises (including partitions and interior dry walls)
(other than Building systems and equipment and the structural parts of the
Premises) and such portions of the Building as are within the exclusive
control of Tenant in good repair and condition, reasonable wear and tear
excepted, clean and secure condition and promptly make all necessary
repairs and replacements with materials and workmanship of the same
character, kind and quality as the original, except to the extent the
necessity for any such repairs or replacements results from Landlord's
negligence or willful misconduct of Landlord. Notwithstanding anything to
the contrary contained herein, but subject to the terms of the last
paragraph of Article 8 above, Tenant shall, at its expense, promptly
repair any damage to the Premises or the Building or Project resulting
from or caused by the negligence or wilful misconduct of Tenant or
Tenant's Parties.
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12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations,
physical additions, improvements or partitions, including without
limitation the attachment of any fixtures or equipment, in, about or to
the Premises ("Alterations") without obtaining the prior written consent
of Landlord, which consent shall not be unreasonably withheld with respect
to proposed Alterations (and shall be granted or denied within fifteen
(15) business days following Landlord's receipt of Tenant's request
therefor [together with all relevant information required by Landlord
with respect to such Alterations], stating detailed reasons for denial)
which: (a) comply with all applicable Regulations; (b) in Landlord's
reasonable opinion, do not adversely affect the structure of the Building
or the Project and its mechanical, plumbing, electrical,
heating/ventilation/air conditioning systems, and will not cause the
Building or Project or such systems to be required to be modified to
comply with any Regulations (including, without limitation, the Americans
With Disabilities Act); and (c) will not interfere with the use and
occupancy of any other portion of the Building or Project by any other
tenant or its invitees. Specifically, but without limiting the generality
of the foregoing, Landlord shall have the right of written consent for all
plans and specifications for the proposed Alterations (to the extent plans
and specifications are reasonably required), construction means and
methods, all appropriate permits and licenses, any contractor or
subcontractor to be employed on the work of Alterations, and the time for
performance of such work, and may impose reasonable, non-discriminatory
rules and regulations for contractors and subcontractors performing such
work, all of which shall not be unreasonably withheld or delayed. Tenant
shall also supply to Landlord any documents and information reasonably
requested by Landlord in connection with Landlord's consideration of a
request for approval hereunder. Tenant shall cause all Alterations to be
accomplished in a good and workmanlike manner, and to comply with all
applicable Regulations and Paragraph 27 hereof. Tenant shall at Tenant's
sole expense, perform any additional work required under applicable
Regulations due to the Alterations hereunder. Tenant shall have the right
to use non-union contractors to perform all or a portion of the
Alterations, but only to the extent (i) Tenant provides Landlord with
prior written notice of its request to hire a non-union contractor, and
(ii) hiring non-union contractors does not violate any contracts to which
Landlord is a party. No review or consent by Landlord of or to any
proposed Alteration or additional work shall constitute a waiver of
Tenant's obligations under this Paragraph 12, nor constitute any warranty
or representation that the same complies with all applicable Regulations,
for which Tenant shall at all times be solely responsible. Tenant shall
reimburse Landlord for all actual, out-of-pocket costs which Landlord may
incur in connection with granting approval to Tenant for any such
Alterations, including any costs or expenses which Landlord may incur in
electing to have outside architects and engineers review said plans and
specifications, and shall pay no administration fee to Landlord. All
such Alterations shall remain the property of Tenant until the expiration
or earlier termination of this Lease, at which time they shall be and
become the property of Landlord; provided, however, that Landlord may, at
Landlord's option, at the time of Landlord's consent (or if Landlord's
consent is not required, within ten (10) business days following Tenant's
notice to Landlord of its intention to perform any Alterations) require
that Tenant, at Tenant's expense, remove any or all Alterations made by
Tenant (but not the Tenant Improvements constructed in accordance with the
Improvement Agreement attached hereto as Exhibit "C") and restore the
Premises by the expiration or earlier termination of this Lease, to their
condition existing prior to the construction of any such Alterations. All
such removals and restoration shall be accomplished in a good and
workmanlike manner so as not to cause any damage to the Premises or
Project whatsoever. If Tenant fails to remove such Alterations which
Landlord timely required Tenant to remove or Tenant's trade fixtures or
furniture or other personal property at the expiration or earlier
termination of this Lease, Landlord may keep and use them or remove any of
them and cause them to be stored or sold all in accordance with applicable
law, at Tenant's sole expense. In addition to and wholly apart from
Tenant's obligation to pay Tenant's Proportionate Share of Operating
Expenses, Tenant shall be responsible for and shall pay prior to
delinquency any taxes or governmental service fees, possessory interest
taxes, fees or
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charges in lieu of any such taxes, capital levies, or other charges
imposed upon, levied with respect to or assessed against its fixtures or
personal property, on the value of Alterations within the Premises, and on
Tenant's interest pursuant to this Lease, or any increase in any of the
foregoing based on such Alterations. To the extent that any such taxes are
not separately assessed or billed to Tenant, Tenant shall pay the amount
thereof as invoiced to Tenant by Landlord within thirty (30) days.
Notwithstanding anything to the contrary contained herein, Tenant may
make any cosmetic Alterations which do not affect the Building systems and
equipment, exterior appearance of the Building, or structural aspects, by
providing Landlord with notice not less than ten (10) business days prior
to the commencement thereof. Landlord's consent shall not be required
with respect to any such Alterations provided the cost of said Alterations
do not exceed $50,000 in any twelve (12) month period. Tenant may not
make any Alterations which may affect the Building systems and equipment,
exterior appearance of the Building, or structural aspects or which
require a permit from the applicable governmental authorities, without
first procuring the prior written consent of Landlord to such Alterations,
which consent shall be requested by Tenant not less than fifteen (15) days
prior to commencement thereof, and which consent may be withheld by
Landlord in its reasonable discretion. Any time Tenant proposes to make
Alterations which require the consent of Landlord pursuant to this
Section, Tenant's notice regarding the proposed Alterations shall be
provided together with the plans and specifications for the Alterations,
and Landlord shall approve or disapprove of the same within fifteen (15)
business days after its receipt of all of the same.
B. In compliance with Paragraph 27 hereof, at least ten (10)
business days before beginning construction of any Alteration, Tenant
shall give Landlord written notice of the expected commencement date of
that construction to permit Landlord to post and record a notice of non-
responsibility. Upon substantial completion of construction, if the law
so provides, Tenant shall cause a timely notice of completion to be
recorded in the office of the recorder of the county in which the Building
is located.
13. SIGNS
Except as otherwise set forth in Paragraph 39D below, Tenant shall not
place, install, affix, paint or maintain any signs, notices, graphics or
banners whatsoever or any window decor which is visible in or from public
view or corridors, the common areas or the exterior of the Premises or the
Building, in or on any exterior window or window fronting upon any common
areas or service area without Landlord's prior written approval which
Landlord shall have the right to withhold in its absolute and sole
discretion; provided that Tenant's name and/or logo shall be included in
any Building-standard door and directory signage in buildings containing
the Premises (such directory signage not to exceed one (1) line per 1,000
rentable square feet of the Premises), if any, in accordance with
Landlord's Building signage program, including without limitation, payment
by Tenant of any Project standard reasonable fee charged by Landlord for
installing and/or maintaining such signage, which fee shall constitute
Additional Rent hereunder. Any installation of signs, notices, graphics
or banners on or about the Premises or Project approved by Landlord shall
be subject to any Regulations and to any other requirements imposed by
Landlord. Tenant shall remove all such signs or graphics (except
directories) by the expiration or any earlier termination of this Lease.
Such installations and removals shall be made in such manner as to avoid
injury to or defacement of the Premises, Building or Project and any other
improvements contained therein, and Tenant shall repair any injury or
defacement including without limitation discoloration caused by such
installation or removal.
14. INSPECTION/POSTING NOTICES
After forty-eight (48) hours prior notice (unless approved by
Tenant's on-site manager for lesser time period or with respect to
janitorial or normal periodic minor maintenance and upkeep), except in
emergencies where no such notice shall be required,
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Landlord and Landlord's agents and representatives, shall have the right
to enter the Premises at all reasonable times to inspect the same, to
clean, to perform such work as may be permitted or required hereunder, to
make repairs, improvements or alterations to the Premises, Building or
Project or to other tenant spaces therein, to deal with emergencies, to
post such notices as may be permitted or required by law to prevent the
perfection of liens against Landlord's interest in the Project or to
exhibit the Premises to prospective tenants (only during the last nine
months of the Term), purchasers, encumbrancers or to others, or for any
other purpose as Landlord may deem reasonably necessary or desirable;
provided, however, that Landlord shall use reasonable efforts not to
unreasonably interfere with Tenant's business operations or access to the
Premises and Landlord shall attempt to reasonably schedule any such entry
with Tenant and make entries during normal business hours. Tenant shall
not be entitled to any abatement of Rent by reason of the exercise of any
such right of entry, except as otherwise provided herein. Tenant waives
any claim for damages for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. Landlord shall at all
times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults and safes or special
security areas (designated in advance), and Landlord shall have the right
to use any and all means which Landlord may deem reasonably necessary or
proper to open said doors in an emergency, in order to obtain entry to any
portion of the Premises, and any entry to the Premises or portions thereof
obtained by Landlord by any of said means, or otherwise, shall not be
construed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction, actual or constructive, of Tenant from the
Premises or any portions thereof. At any time within nine (9) months prior
to the expiration of the Term or following any earlier termination of this
Lease or agreement to terminate this Lease, Landlord shall have the right
to erect on the Building and/or Project a suitable sign indicating that
the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Subject to the provisions elsewhere herein contained and to the
rules and regulations of the Building, Landlord shall furnish to the
Premises during ordinary business hours (which business hours, as of the
date of this Lease, are 7:00 a.m. to 6:00 p.m. Monday through Friday, as
such hours may change from time to time, excluding legal holidays
generally recognized by most Comparable Projects (as defined in Paragraph
39E below)), water for kitchen, lavatory and drinking purposes and
electricity, heat and air conditioning as usually furnished or supplied
for use of the Premises for reasonable and normal office use (consistent
with other tenants in the Project) . Notwithstanding the foregoing, and
subject to all of the other terms and conditions of this Lease, water,
elevator service, electricity and heat and air conditioning shall be
furnished or supplied for use of the Premises twenty-four (24) hours per
day, three hundred sixty-five (365) days per year. Subject to Landlord's
approval (not to be unreasonably withheld or delayed), Tenant shall have
the right to provide supplemental water systems in order to service the
Premises.
B. Landlord shall provide adequate electrical wiring, facilities and
power for normal general office use as reasonably determined by Landlord
(but not including above-standard or continuous cooling for excessive
heat-generating machines, excess lighting or equipment), and elevator
service, which shall mean service either by nonattended automatic
elevators or elevators with attendants, or both, at the option of
Landlord. For purposes of this Paragraph 15B, the term "power for normal
general office use" shall equal five (5) watts connected load per usable
square foot of the Premises on an annual basis. Landlord represents to
Tenant that the electrical capacity for the Premises equals seven (7)
watts demand load per usable square foot of the Premises on an annual
basis.
C. Tenant shall have the right to install its own supplemental air-
conditioning units, provided that Landlord approves of the installation
of such units pursuant to
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Section 12 and the same does not interfere with the operation systems and
equipment, including without limitation, the Building heating, ventilation
and air-conditioning systems (as determined by Landlord in its reasonable
discretion); provided, however, Tenant shall be solely responsible for all
costs relating to the installation and operation of such units, and shall,
upon Landlord's request, remove such units upon the expiration or earlier
termination of the Term and shall cause such units to be separately
metered at Tenant's expense.
D. Landlord shall provide janitorial services in accordance with the
janitorial specifications attached hereto as Exhibit "F".
E. Landlord will maintain reasonable security measures at the
Project, as determined by Landlord in its reasonable discretion given the
character and nature of the Project. Subject Landlord's approval as to
the method of installation and type of security system, Tenant shall have
the right to install its own security system and/or personnel provided (i)
Landlord and its agents, representatives and employees shall be able to
reasonably access the Premises for any purposes for which Landlord is
entitled to access the Premises under this Lease (including, without
limitation, for emergency purposes), (ii) the same does not interfere with
the Building systems or equipment, (iii) Tenant shall indemnify, defend
and hold harmless Landlord from and against any and all claims, loss,
damage or expenses suffered by Landlord resulting from or arising out of
the installation of said security system or maintenance of security
personnel, and (iv) upon Landlord's request (and notwithstanding anything
to the contrary set forth in Paragraph 26 below), Tenant shall remove any
such system upon the expiration or earlier termination of this Lease and
repair any damage caused by such removal.
F. Tenant acknowledges that Landlord currently charges Twenty-five
Dollars ($25.00) per hour for after-hours heat or air-conditioning.
Tenant further acknowledges that such hourly charge shall be applicable to
any after-hours heat or air-conditioning which Tenant requests and obtains
from the Building's heating and air-conditioning system.
G. Landlord agrees that the charge for after-hours heating or air
conditioning shall not be increased in any calendar year by more than 10%
from that charged for the preceding calendar year (calculated on a
cumulative basis). Tenant agrees to keep and cause to be kept closed all
window covering when necessary because of the sun's position, and Tenant
also agrees at all times to cooperate fully with Landlord and to abide by
all of the reasonable, non-discriminatory regulations and requirements
which Landlord may prescribe for the proper functioning and protection of
electrical, heating, ventilating and air conditioning systems. Wherever
heat-generating machines, excess lighting or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system (other than standard office equipment), Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation and the
cost of operation and maintenance thereof, shall be paid by Tenant to
Landlord within thirty (30) days after demand by Landlord.
H. Tenant shall not without written consent of Landlord (which shall
not be unreasonably withheld or delayed) use any apparatus, equipment or
device in the Premises, including without limitation, electronic data
processing machines, and other over-standard machines using electric
current or water, in excess of or which will in any way increase the
amount of electricity or water being furnished or supplied for the use of
the Premises (which, with respect to electricity consumption, is in
excess of 5 watts per usable square foot of the Premises) or which will
require additions or alterations to or interfere with the Building power
distribution systems; nor connect with electric current, except through
existing electrical outlets in the Premises or water pipes, any apparatus,
equipment or device for the purpose of using electrical current, water, or
any other resource. If Tenant shall require water or electric current or
any other resource in excess of that being furnished or supplied for the
use of the Premises , Tenant shall first
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procure the written consent of Landlord (which shall not be unreasonably
withheld or delayed), and Landlord may cause a special meter to be
installed in the Premises so as to measure the amount of water, electric
current or other resource consumed for any such other use. Tenant shall
pay directly to Landlord as an addition to and separate from payment of
Operating Expenses the cost of all such additional resources, energy,
utility service and meters (and of installation, maintenance and repair
thereof and of any additional circuits or other equipment necessary to
furnish such additional resources, energy, utility or service). Landlord
may add to the separate or metered charge a recovery of additional expense
incurred in keeping account of the excess water, electric current or other
resource so consumed. Except as otherwise provided herein, Landlord shall
not be liable for any damages directly or indirectly resulting from nor
shall the Rent or any monies owed Landlord under this Lease herein
reserved be abated by reason of: (a) the installation, use or interruption
of use of any equipment used in connection with the furnishing of any such
utilities or services, or any change in the character or means of
supplying or providing any such utilities or services or any supplier
thereof; (b) the failure to furnish or delay in furnishing any such
utilities or services when such failure or delay is caused by acts of God
or the elements, labor disturbances of any character, or any other
accidents or other conditions beyond the reasonable control of Landlord or
because of any interruption of service due to Tenant's use of water,
electric current or other resource in excess of that being supplied or
furnished for the use of the Premises ; (c) the inadequacy, limitation,
curtailment, rationing or restriction on use of water, electricity, gas or
any other form of energy or any other service or utility whatsoever
serving the Premises or Project, whether by Regulation or otherwise beyond
Landlord's reasonable control; or (d) the partial or total unavailability
of any such utilities or services to the Premises or the Building, whether
by Regulation or otherwise beyond Landlord's reasonable control; nor shall
any such occurrence constitute an actual or constructive eviction of
Tenant. Provided the utility services provided to Tenant are not
materially reduced or impaired, Landlord shall be entitled to cooperate
voluntarily and in a reasonable manner with the efforts of national, state
or local governmental agencies or utility suppliers in reducing energy or
other resource consumption. In addition, Landlord reserves the right to
change the supplier or provider of any such utility or service from time
to time, so long as the cost to provide said utilities or services are
reasonably competitive with that of other providers or suppliers. Tenant
shall have no right to contract with or otherwise obtain any electrical
service for or with respect to the Premises or Tenant's operations therein
from any supplier or provider of any such service. Tenant shall cooperate,
at no expense to Tenant, with Landlord and any supplier or provider of
such services designated by Landlord from time to time to facilitate the
delivery of such services to Tenant at the Premises and to the Building
and Project, including without limitation allowing Landlord and Landlord's
suppliers or providers, and their respective agents and contractors,
reasonable access to the Premises for the purpose of installing,
maintaining, repairing, replacing or upgrading such service or any
equipment or machinery associated therewith. Landlord agrees to use its
best efforts to minimize any interference caused to Tenant's business
operations as a result of such access.
I. In the event that Tenant requires utilities (other than
electricity, water and HVAC) and/or services in excess of what Landlord is
required to provide during Business Hours, Landlord agrees to use its
commercially reasonable efforts to provide such extra utilities and
services, and Tenant agrees to pay to Landlord its then standard charge
for any such extra utilities or services.
J. For all utilities furnished to the Premises and separately billed
to or metered to Tenant in accordance with the terms of this Paragraph 15,
Tenant shall pay the charges therefor within 30 days after written demand
from Landlord. For all other utilities furnished to the Premises, Tenant
shall pay Tenant's applicable share of all charges jointly serving the
Project in accordance with Paragraph 7. All sums payable under this
Paragraph 15 shall constitute Additional Rent hereunder.
K. In the event that Tenant is prevented from using, and does not
use, the Premises or any portion thereof, for more than three (3)
consecutive business days or ten
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(10) business days in any twelve (12) month period following Landlord's
receipt of written notice from Tenant (which notice shall not be deemed
given until the following non-holiday weekday if it is given on a
Saturday, Sunday or holiday) (the "Eligibility Period") as a result of any
(i) repair, maintenance or alteration performed by Landlord, or which
Landlord failed to perform and which was required by this Lease (which is
not necessitated by the negligence of Tenant or its employees, agents,
contractors or invitees) and which substantially interferes with Tenant's
use of the Premises, and (ii) interruption in any of the following
building services required to be provided by Landlord (so long as it is
not due to the fault or neglect of Tenant, its agents, employees,
contractors or invitees): heating, ventilation and air conditioning, fire
life safety, electrical services, janitorial service or water or any other
"essential" building service (each such circumstance to be known as an
"Abatement Event"), then Tenant's rent and parking charges shall be abated
or reduced, as the case may be, after expiration of the Eligibility Period
for such time that Tenant continues to be so prevented from using, and
does not use, the Premises, or a portion thereof, in the proportion that
the rentable area of the portion of the Premises that Tenant is prevented
from using, and does not use, bears to the total rentable area of the
Premises. However, in the event that Tenant is prevented from conducting,
and does not conduct, its business in any portion of the Premises for a
period of time in excess of the Eligibility Period, and the remaining
portion of the Premises is not sufficient to allow Tenant to effectively
conduct its business therein, and if Tenant does not conduct its business
from such remaining portion, then for such time after expiration of the
Eligibility Period during which Tenant is so prevented from effectively
conducting its business therein, the rent for the entire Premises and all
of Tenant's parking charges shall be abated; provided, however, if Tenant
reoccupies and conducts its business from any portion of the Premises
during such period, the rent and parking charges allocable to such
reoccupied portion, based on the proportion that the rentable area of such
reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date such business
operations commence. If the Eligibility Period continues for more than six
(6) consecutive months, and the Abatement Event is reasonably capable of
being remedied by Landlord (and is not an event covered by Articles 23 or
24 below), then Tenant shall have the right to elect to terminate this
Lease effective ninety (90) days thereafter by notifying Landlord in
writing of such election within five (5) business days following the end
of such six (6) consecutive month period and thereafter during the first
five (5) business days after each calendar month following the end of such
six (6) consecutive month period until such time as the Abatement Event is
remedied and Tenant is able to conduct its business from the Premises. The
six (6) consecutive month period set forth in this paragraph shall not be
extended by any delays in remedying the Abatement Event which result from
a Force Majeure Delay (as defined in Paragraph 35 below).
Notwithstanding anything to the contrary contained herein, the
terms of Article 23 and 24 shall govern and control Tenant's right to any
rental abatement as a result of any event covered by Article 23 or 24
below.
L. Landlord agrees to maintain and operate the Common Areas in a
manner consistent with the manner in which the Common Areas are being
maintained and operated as of the date of this Lease.
16. SUBORDINATION
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, the Lease shall be
and is hereby declared to be subject and subordinate at all times to: (a)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Premises and/or the land upon which the Premises
and Project are situated, or both; and (b) any mortgage or deed of trust
which may now exist or be placed upon the Building, the Project and/or the
land upon which the Premises or the Project are situated, or said ground
leases or underlying leases, or Landlord's interest or estate in any of
said items which is specified as security.
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Notwithstanding the foregoing, Landlord shall have the right to
subordinate or cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. If any ground lease or
underlying lease terminates for any reason or any mortgage or deed of
trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord provided that
such successor agrees that Tenant shall not be disturbed in its possession
under this Lease by such successor in interest so long as Tenant is not in
default under this Lease. Within fifteen (15) business days after request
by Landlord, Tenant shall execute and deliver any additional documents
evidencing Tenant's attornment or the subordination of this Lease with
respect to any such ground leases or underlying leases or any such
mortgage or deed of trust, in a commercially reasonable form requested by
Landlord or by any ground landlord, mortgagee, or beneficiary under a deed
of trust, subject to such nondisturbance requirement.
Landlord shall provide Tenant within sixty (60) days from the date of
Tenant's execution of the Lease, a commercially reasonable non-disturbance
agreement in favor of Tenant, from any ground lessors, mortgage holders or
lien holders then in existence. Landlord also agrees to provide Tenant
with commercially reasonable non-disturbance agreement(s) in favor of
Tenant from any ground lessors, mortgage holders or lien holders of
Landlord who later come into existence at any time prior to the expiration
of the Term of the Lease in consideration of, and as a condition precedent
to, Tenant's agreement to be bound by Article 16 of the Lease.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time and, if Tenant is not a
public company, upon Landlord's signing a commercially reasonable
confidentiality agreement, Tenant shall provide to Landlord, Tenant's
current financial statements prepared in the normal course of business,
which Landlord shall use solely for purposes of this Lease and in
connection with the ownership, management, financing and disposition of
the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time (but no more than two (2) times per
year), within fifteen (15) business days after request of Landlord, to
deliver to Landlord, or Landlord's designee, an estoppel certificate
stating that this Lease is in full force and effect, that this Lease has
not been modified (or stating all modifications, written or oral, to this
Lease), the date to which Rent has been paid, the unexpired portion of
this Lease, to Tenant's actual knowledge, that there are no current
defaults by Landlord or Tenant under this Lease (or specifying any such
defaults), that the leasehold estate granted by this Lease is the sole
interest of Tenant in the Premises and/or the land at which the Premises
are situated, and such other matters pertaining to this Lease as may be
reasonably requested by Landlord or any mortgagee, beneficiary, purchaser
or prospective purchaser of the Building or Project or any interest
therein. Failure by Tenant to execute and deliver such certificate shall
constitute an acknowledgment by Tenant that the statements included are
true and correct without exception. Tenant agrees that if Tenant fails to
execute and deliver such certificate within such fifteen (15) business
day period, Landlord may execute and deliver such certificate on Tenant's
behalf and that such certificate shall be binding on Tenant. Landlord and
Tenant intend that any statement delivered pursuant to this Paragraph may
be relied upon by any mortgagee, beneficiary, purchaser or prospective
purchaser of the Building or Project or any interest therein. The parties
agree that Tenant's obligation to furnish such estoppel certificates in a
timely fashion is a material inducement for Landlord's execution of the
Lease, and shall be an event of default (without any cure period that
might be provided under Paragraph 26.A(3) of this Lease) if Tenant fails
to fully comply within two (2) business days after Tenant's receipt of a
notice from Landlord notifying Tenant of its failure to provide said
estoppel certificate within the foregoing fifteen (15) business day
period or makes any material misstatement in any such certificate.
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Landlord hereby agrees to provide to Tenant an estoppel certificate
signed by Landlord, containing the same types of information, and within
the same period of time, as set forth above, with such changes as are
reasonably necessary to reflect that the estoppel certificate is being
granted and signed by Landlord to Tenant, rather than from Tenant to
Landlord or a lender.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a
security deposit as stated in the Basic Lease Information (the "Security
Deposit"), which sum shall be held by Landlord, as security for the
performance of Tenant's covenants and obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of damages
incurred by Landlord in case of Tenant's default. Upon the occurrence of
any event of default by Tenant, beyond any applicable notice and cure
period, Landlord may from time to time, without prejudice to any other
remedy provided herein or by law, use such fund as a credit to the extent
necessary to credit against any arrears of Rent or other payments due to
Landlord hereunder, and any other damage, injury, expense or liability
caused by such event of default, and Tenant shall pay to Landlord, on
demand, the amount so applied in order to restore the Security Deposit to
its original amount. Any remaining balance of such deposit shall be
returned by Landlord to Tenant within ninety (90) days after termination
of this Lease , reduced by such amounts as may be required by Landlord to
remedy defaults on the part of Tenant in the payment of Rent or other
obligations of Tenant under this Lease, to repair damage to the Premises,
Building or Project caused by Tenant or any Tenant's Parties , to clean
the Premises and to compensate Landlord for Landlord's reasonable estimate
of any additional amounts to be owed by Tenant to Landlord on account of
Tenant's proportionate share of Operating Expenses. Landlord agrees to
invest the amount of the cash portion of the Security Deposit provided by
Tenant under this Lease which exceeds $23,028.25 into a three (3) month
certificate of deposit account at a financial institution selected by
Landlord (with such certificate of deposit to rollover for successive
periods of three (3) months each). The interest earned on such
certificate of deposit account shall accrue for the benefit of Tenant,
subject to Landlord's right to apply the Security Deposit (including said
interest) in accordance with the terms hereof against any of Tenant's
obligations under this Lease. To the extent Landlord properly applies any
portion of the Security Deposit against Tenant's obligations under this
Lease and a penalty is incurred in connection with such application due to
the early withdrawal of said funds from the certificate of deposit
account, then Tenant shall be responsible for restoring the Security
Deposit to its original amount immediately prior to said application,
subject to the terms of Paragraph 39C below. Accordingly, the amount
received by Landlord from the certificate of deposit account, together
with any penalty amount assessed in connection with said withdrawal, shall
be paid by Tenant to Landlord to replenish the Security Deposit.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease are not personal obligations of
Landlord or of the individual or other partners of Landlord or its or
their partners, directors, officers, or shareholders, and Tenant agrees to
look solely to Landlord's interest in the Project for the recovery of any
amount from Landlord, including all rental income, insurance, condemnation
and net sale proceeds, and shall not look to other assets of Landlord nor
seek recourse against the assets of the individual or other partners of
Landlord or its or their partners, directors, officers or shareholders.
Any lien obtained to enforce any such judgment and any levy of execution
thereon shall be subject and subordinate to any lien, mortgage or deed of
trust on the Project. Under no circumstances shall Tenant have the right
to offset against or recoup Rent or other payments due and to become due
to Landlord hereunder except as expressly provided in this Lease,
including Paragraph 23.B. below, which Rent
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and other payments shall be absolutely due and payable hereunder in
accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) General. Tenant shall not assign or pledge this Lease or
sublet the Premises or any part thereof, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises or
any part thereof by anyone other than Tenant, or suffer or permit any
such assignment, pledge, subleasing or occupancy, without Landlord's
prior written consent except as provided herein. If Tenant desires to
assign this Lease or sublet any or all of the Premises, Tenant shall
give Landlord written notice (the "Transfer Notice") at least twenty
(20) days prior to the anticipated effective date of the proposed
assignment or sublease, which shall contain all of the information
reasonably requested by Landlord to address Landlord's decision
criteria specified hereinafter. Within twenty (20) days following
Landlord's receipt of the Transfer Notice, Landlord shall notify
Tenant in writing that Landlord elects either: (i) to terminate this
Lease as to the space so affected as of the date so requested by
Tenant for the period of time so requested by Tenant (provided that
Landlord shall have no such termination right during the initial
Term); or (ii) to consent to the proposed assignment or sublease, or
(iii) deny consent for reasonable grounds detailed to Tenant. Consent
to any assignment or subletting shall not constitute consent to any
subsequent transaction to which this Paragraph 21 applies.
(2) Conditions of Landlord's Consent. Without limiting the
other instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be reasonable for Landlord to withhold
Landlord's consent in the following instances: if the proposed
assignee does not agree to be bound by and assume the obligations of
Tenant under this Lease in a commercially reasonable form and
substance reasonably satisfactory to Landlord; the use of the Premises
by such proposed assignee or subtenant would not be a Permitted Use or
would violate any exclusivity or other arrangement which Landlord has
with any other tenant or occupant or any Regulation or would violate
the Occupancy Density or Parking Density of the Building or Project;
the proposed assignee or subtenant is not of sound financial condition
in light of its obligations under any such sublease or assignment; the
proposed assignee or subtenant is a governmental agency with the power
of condemnation or high foot traffic or otherwise of a character which
is not consistent (in Landlord's reasonable opinion) with the
professional image of the Building or the character of the other
tenants therein; the proposed assignee or subtenant does not have a
good reputation as a tenant of property or a good business reputation
(as determined by Landlord in its reasonable discretion); the proposed
assignee or subtenant is a person with whom Landlord is actively
negotiating to lease space in the Project (which for purposes of this
Lease shall mean that a written lease proposal/counter-proposals
setting forth the material business terms of a proposal lease
transaction have been exchanged within the immediately proceeding
three (3) month period between Landlord and the proposed transferee)
or is a present tenant of the Project; the assignment or subletting
would entail any use of any Hazardous Materials or other noxious use
or use which may disturb other tenants of the Project; or Tenant is in
default of any obligation of Tenant under this Lease, beyond
applicable notice and cure provision. Failure by or refusal of
Landlord to consent to a proposed assignee or subtenant shall not
cause a termination of this Lease. Upon a termination under Paragraph
21.A.(1)(i), Landlord may lease the Premises to any party, including
parties with whom Tenant has negotiated an assignment or sublease,
without incurring any liability to Tenant. At the option of Landlord,
a surrender and termination of this Lease shall operate as an
assignment to Landlord of some or all subleases or subtenancies.
Landlord shall exercise this option by giving notice of that
assignment to such subtenants on or before the effective date of the
surrender and termination. In connection with
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each request for assignment or subletting, Tenant shall pay to
Landlord Landlord's actual out-of-pocket costs for approving such
requests, as well as all costs incurred by Landlord or any mortgagee
or ground lessor in approving each such request and effecting any such
transfer, including, without limitation, reasonable attorneys' fees
(not to exceed $1,500 in the aggregate).
B. Bonus Rent. Any Rent or other consideration realized by Tenant
under any such sublease or assignment in excess of the Rent payable
hereunder, after deducting any Subleasing Costs (defined below) incurred
by Tenant in connection with said sublease or assignment (which Subleasing
Costs shall be amortized over the term of said sublease or assignment),
shall be divided and paid, fifty percent (50%) to Tenant, fifty percent
(50%) to Landlord. "Subleasing Costs" shall mean reasonable, out-of-
pocket expenses for (i) any changes, alterations and improvements to the
Premises in connection with the transfer, (ii) any brokerage commissions
in connection with the transfer, (iii) any costs to buy-out or takeover
the previous lease of a transferee, (iv) reasonable legal fees incurred in
connection with the transfer including those fees and costs reimbursed to
Landlord pursuant to this Lease, (v) provided Tenant is marketing the
Premises (or a portion thereof) for sublease or assignment after Tenant is
no longer occupying said space, the amount of Base Rent paid by Landlord
during the period from the date Tenant is no longer occupying all or a
portion of the Premises until the commencement date of such sublease or
assignment (with such Base Rent payments to be appropriately prorated in
the event of a sublease of a portion of the Premises) and (vi) any other
"out-of-pocket" monetary concessions reasonably provided in connection
with the transfer including, but not limited to, tenant improvement or
decorating allowances (collectively, the "Subleasing Costs"). Tenant may
recoup all Subleasing Costs before any profit is paid to Landlord pursuant
to the terms hereof.
C. Corporation. If Tenant is a corporation, a transfer of corporate
shares by sale, assignment, bequest, inheritance, operation of law or
other disposition (including such a transfer to or by a receiver or
trustee in federal or state bankruptcy, insolvency or other proceedings)
resulting in a change in the present control of such corporation or any of
its parent corporations by the person or persons owning a majority of said
corporate shares, shall constitute an assignment for purposes of this
Lease. The terms of this Paragraph 21B shall not apply if Tenant becomes
a publicly traded company on a nationally or regionally recognized stock
exchange or in connection with Tenant becoming a publicly traded company
or in connection with the investment of money into Tenant (without a
change in the present control of Tenant).
D. Unincorporated Entity. If Tenant is a partnership, joint
venture, unincorporated limited liability company or other unincorporated
business form, a transfer of the interest of persons, firms or entities
responsible for managerial control of Tenant by sale, assignment, bequest,
inheritance, operation of law or other disposition, so as to result in a
change in the present control of said entity and/or of the underlying
beneficial interests of said entity and/or a change in the identity of the
persons responsible for the general credit obligations of said entity
shall constitute an assignment for all purposes of this Lease.
E. Liability. No assignment or subletting by Tenant, permitted or
otherwise, shall relieve Tenant of any obligation under this Lease or
alter the primary liability of the Tenant named herein for the payment of
Rent or for the performance of any other obligations to be performed by
Tenant, including obligations contained in Paragraph 25 with respect to
any assignee or subtenant. From and after the date of any default by
Tenant under this Lease, beyond any applicable notice and cure period,
until such default is cured, Landlord may collect rent or other amounts or
any portion thereof from any assignee, subtenant, or other occupant of the
Premises, permitted or otherwise, and apply the net rent collected to the
Rent payable hereunder, but no such collection shall be deemed to be a
waiver of this Paragraph 21, or the acceptance of the assignee, subtenant
or occupant as tenant, or a release of Tenant from the further performance
by Tenant of
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the obligations of Tenant under this Lease. Any assignment or subletting
which conflicts with the provisions hereof shall be void to such extent.
F. Sublease and Assignment. Notwithstanding anything to the
contrary contained in this Section, neither (i) an assignment or
subletting of all or a portion of the Premises (A) to an entity which is
controlled by, controls or is under common control with Tenant (or a valid
assignee of this Lease), or (B) to a purchaser of all or substantially all
of the assets of Tenant or of an entity which is controlled by, controls
or is under common control with Tenant (or a valid assignee of this
Lease), (ii) a transfer, by operation of law or otherwise, in connection
with the merger, consolidation or other reorganization of Tenant or of an
entity which is controlled by, controls or is under common control with
Tenant (or a valid assignee of this Lease), nor (iii) the temporary use or
occupancy of portions of the Premises (not to exceed 8,000 rentable
square feet, in the aggregate) by a party or parties in connection with
the transaction of business with Tenant or with an entity which is
controlled by, controls or is under common control with Tenant (or with a
valid assignee of this Lease), shall be subject to the Landlord's consent
(collectively, such entities, purchasers, and parties shall be referred to
herein collectively or individually as an "Affiliate"), provided such
assignment or sublease is not a subterfuge by Tenant to avoid its
obligations under this Lease. Tenant shall immediately notify Landlord of
any such assignment, purchase, transfer, sublease, action, or use. For
purposes of this Lease, "control" shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management
and policies of a person or entity, or majority ownership of any sort,
whether through the ownership of voting securities, by contract or
otherwise.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority
to enter into this Lease and to perform all of Landlord's obligations
hereunder and that all persons signing this Lease on its behalf are
authorized to do. Tenant represents and warrants that Tenant has full
right and authority to enter into this Lease, and to perform all of
Tenant's obligations hereunder, and that all persons signing this Lease on
its behalf are authorized to do so.
23. CONDEMNATION
A. Condemnation Resulting in Termination. If the whole or any
substantial part of the Premises should be taken or condemned for any
public use under any Regulation, or by right of eminent domain, or by
private purchase in lieu thereof, and the taking would prevent or
materially interfere with the Permitted Use of the Premises, either party
shall have the right to terminate this Lease at its option. If any
material portion of the Building or Project is taken or condemned for any
public use under any Regulation, or by right of eminent domain, or by
private purchase in lieu thereof, Landlord may terminate this Lease at its
option. In either of such events, the Rent shall be abated during the
unexpired portion of this Lease, effective when the physical taking of
said Premises shall have occurred.
B. Condemnation Not Resulting in Termination. If a portion of the
Project of which the Premises are a part should be taken or condemned for
any public use under any Regulation, or by right of eminent domain, or by
private purchase in lieu thereof, and the taking prevents or materially
interferes with the Permitted Use of the Premises, and this Lease is not
terminated as provided in Paragraph 23.A. above, the Rent payable
hereunder during the unexpired portion of the Lease shall be reduced,
beginning on the date when the physical taking shall have occurred, to
such amount as may be fair and reasonable under all of the circumstances,
but only after giving Landlord credit for all sums received or to be
received by Tenant by the condemning authority. Notwithstanding anything
to the contrary contained in this Paragraph, if the temporary
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use or occupancy of any part of the Premises shall be taken or
appropriated under power of eminent domain during the Term, this Lease
shall be and remain unaffected by such taking or appropriation and Tenant
shall continue to pay in full all Rent payable hereunder by Tenant during
the Term; in the event of any such temporary appropriation or taking,
Tenant shall be entitled to receive that portion of any award which
represents compensation for the use of or occupancy of the Premises during
the Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration of the Premises and the use
and occupancy of the Premises beyond the Term.
C. Award. Landlord shall be entitled to (and Tenant shall assign to
Landlord) any and all payment, income, rent, award or any interest therein
whatsoever which may be paid or made in connection with such taking or
conveyance and Tenant shall have no claim against Landlord or otherwise
for any sums paid by virtue of such proceedings, whether or not
attributable to the value of any unexpired portion of this Lease, except
as expressly provided in this Lease. Notwithstanding the foregoing, any
compensation awarded Tenant for Tenant's personal property, fixtures and
moving costs, shall be and remain the property of Tenant.
D. Waiver of CCP (S) 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a
partial taking.
24. CASUALTY DAMAGE
A. General. If the Premises or Building should be damaged or
destroyed by fire, tornado, or other casualty (collectively, "Casualty")
and Tenant has determined that Landlord is not otherwise aware of such
Casualty, Tenant shall give immediate written notice thereof to Landlord.
Within sixty (60) days after the earlier of Landlord's receipt of such
notice or Landlord's becoming aware of the Casualty, Landlord shall notify
Tenant whether in Landlord's estimation (as reasonably certified by
Landlord's contractor) restoration of the Premises can reasonably be made
within two hundred ten (210) days from the date of such notice
("Landlord's Damage Notice"). Landlord's contractor's reasonable
determination shall be binding on Tenant.
B. Within 210 Days. If the Premises or Building should be damaged
by Casualty to such extent that restoration can in Landlord's estimation
be reasonably completed within two hundred ten (210) days after the
earlier of the date of such notice, or Landlord's becoming aware of the
Casualty, this Lease shall not terminate. Provided that insurance
proceeds are received by Landlord to fully repair the damage, Landlord
shall proceed to rebuild and repair the Premises to its pre-existing
condition, except that Landlord shall not be required to rebuild, repair
or replace any part of the Alterations which may have been placed on or
about the Premises by Tenant. If the Premises are untenantable in whole
or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately, but
only to the extent the Premises are unfit for occupancy and Tenant does
not occupy the same.
C. Greater than 210 Days. If the Premises or Building should be
damaged by Casualty to such extent that rebuilding or repairs cannot in
Landlord's estimation be reasonably completed within two hundred ten
(210) days after the earlier of the date of such notice or Landlord's
becoming aware of the Casualty, then Landlord shall have the option of
either: (1) terminating this Lease effective upon the date of the
occurrence of such damage, in which event the Rent shall be abated during
the unexpired portion of this Lease; or (2) electing to rebuild or repair
the Premises diligently and to its pre-existing condition. Landlord shall
notify Tenant of its election within thirty (30) days after the earlier of
Landlord's receipt of notice of the damage or destruction or Landlord's
becoming aware of the Casualty. Landlord may only elect to terminate this
Lease hereunder if Landlord terminates all leases of similarly damaged
space in the Building. Notwithstanding the above, Landlord shall not be
required to rebuild, repair or replace any part of any Alterations which
may have been placed, on or about the Premises by
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Tenant. If the Premises are untenantable in whole or in part following
such damage, the Rent payable hereunder during the period in which they
are untenantable shall be abated proportionately, but only to the extent
the Premises are unfit for occupancy and Tenant does not occupy the same.
D. Tenant's Fault. Notwithstanding anything herein to the contrary,
if the Premises or any other portion of the Building are damaged by
Casualty resulting from the fault, negligence, or breach of this Lease by
Tenant or any of Tenant's Parties, Base Rent and Additional Rent shall not
be diminished during the repair of such damage (except to the extent of
rental income insurance proceeds actually received by Landlord) and Tenant
shall be liable to Landlord for the cost and expense of the repair and
restoration of the Building caused thereby to the extent such cost and
expense is not covered by insurance proceeds.
E. Insurance Proceeds. Notwithstanding anything herein to the
contrary, if the Premises or Building are damaged or destroyed and are not
fully covered by the insurance proceeds received by Landlord (other than
any deductible portion and an additional amount up to 5% of the total
replacement cost of the Building, as applicable) or if the holder of any
indebtedness secured by a mortgage or deed of trust covering the Premises
requires that the insurance proceeds be applied to such indebtedness, then
in either case Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within thirty (30) days
after the date of notice to Landlord that said damage or destruction is
not fully covered by insurance (other than any deductible portion and an
additional amount up to 5% of the total replacement cost of the Building,
as applicable) or such requirement is made by any such holder, as the case
may be, whereupon this Lease shall terminate.
F. Waiver. This Paragraph 24 shall be Tenant's sole and exclusive
remedy in the event of damage or destruction to the Premises or the
Building. As a material inducement to Landlord entering into this Lease,
Tenant hereby waives any rights it may have under Sections 1932, 1933(4),
1941 or 1942 of the Civil Code of California with respect to any
destruction of the Premises, Landlord's obligation for tenantability of
the Premises and Tenant's right to make repairs and deduct the expenses of
such repairs, or under any similar law, statute or ordinance now or
hereafter in effect.
G. Tenant's Personal Property. In the event of any damage or
destruction of the Premises or the Building, except to the extent
resulting from Landlord's negligence or willful misconduct, under no
circumstances shall Landlord be required to repair any injury or damage
to, or make any repairs to or replacements of, Tenant's personal property.
H. Tenant's Termination Right. If Landlord does not elect to
terminate this Lease pursuant to Paragraph 24C above and if the estimated
date by which Landlord's repair obligations are expected to be
sufficiently completed so that Tenant can resume normal business
operations in the affected portions of the Premises (the "Estimated
Completion Date") is greater than two hundred ten (210) days after the
earlier of the date Landlord receives notice of the Casualty or Landlord's
becoming aware of the Casualty, Tenant may elect, no later than thirty
(30) days after Tenant's receipt of Landlord's Damage Notice, to terminate
this Lease by written notice to Landlord effective as of the date
specified in Tenant's notice, which date shall be not greater than ninety
(90) days after the date of delivery of Tenant's notice. Furthermore, if
neither Landlord nor Tenant have terminated this Lease and the repairs are
not actually completed within two hundred ten (210) days after the date
Landlord receives notice of the Casualty (which two hundred ten (210) day
period shall be extended by Force Majeure Delays [which delays shall not
exceed sixty (60) days] and by any delays resulting from the acts or
omissions of Tenant and/or its agents, employees or contractors), Tenant
shall have the right to terminate this Lease within five (5) business days
after the end of such period and thereafter during the first five (5)
business days after each calendar month following the end of such period
until such time as the repairs are complete, by notice to Landlord (the
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"Damage Termination Notice"), effective as of the date set forth in the
Damage Termination Notice (the "Damage Termination Date"), which Damage
Termination Date shall not be less than five (5) business days following
the end of such period or each such month, as the case may be.
Notwithstanding the foregoing, if Tenant delivers a Damage Termination
Notice to Landlord, then Landlord shall have the right to suspend the
occurrence of the Damage Termination Date for a period ending thirty (30)
days after the Damage Termination Date set forth in the Damage Termination
Notice by delivering to Tenant, within five (5) business days of
Landlord's receipt of the Damage Termination Notice, a certificate of
Landlord's contractor responsible for the repair of the damage certifying
that it is such contractor's good faith judgment that the repairs shall be
substantially completed within thirty (30) days after the Damage
Termination Date. If repairs shall be substantially completed prior to
the expiration of such thirty (30) day period, then the Damage Termination
Notice shall be of no force or effect but if the repairs shall not be
substantially completed within such thirty (30) day period, then this
Lease shall terminate upon the expiration of such thirty (30) day period.
If Landlord undertakes repair and/or restoration pursuant to Paragraph 24B
and thereafter determines that it will not be able to complete the same
within the two hundred ten (210) day period set forth herein, then
Landlord shall promptly notify Tenant thereof and shall provide Tenant
with Landlord's revised estimate of the date upon which Landlord will
complete the same ("Revised Completion Date"). Within ten (10) business
days after Tenant's receipt of such notice, Tenant shall have the right to
elect to terminate this Lease or to agree to extend the two hundred ten
(210) day period to the Revised Completion Date. Such notice by Landlord
shall identify Tenant's option pursuant to the preceding sentence.
Tenant's failure to elect to terminate or to extend such time period to
the Revised Completion Date by written notice to Landlord within such ten
(10) business day period shall be conclusively deemed to be Tenant's
election to extend the time to the Revised Completion Date. Upon any such
termination of this Lease pursuant to this Paragraph 24, Tenant shall pay
the monthly Base Rent and Additional Rent, properly apportioned up to such
date of termination, and both parties hereto shall thereafter be freed and
discharged of all further obligations hereunder, except as provided for in
provisions of this Lease which by their terms survive the expiration or
earlier termination of the Term.
I. Last 12 Months of Term. Landlord and Tenant shall each have the
right to terminate this Lease in the event any material damage by Casualty
occurs during the last twelve (12) months of the Term.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding
over, Tenant shall be unlawfully and illegally in possession of the
Premises, whether or not Landlord accepts any rent from Tenant or any
other person while Tenant remains in possession of the Premises without
Landlord's written consent. If Tenant shall retain possession of the
Premises or any portion thereof without Landlord's consent following the
expiration of this Lease or sooner termination for any reason, then (i)
for the first two (2) months of such retention, Tenant shall pay to
Landlord Base Rent (in addition to its other obligations under this Lease)
for each day of such retention in an amount equal to one hundred twenty-
five percent (125%) of the amount of Base Rent as of the last month prior
to the date of expiration or earlier termination, and (ii) thereafter,
Tenant shall pay to Landlord Base Rent (in addition to its other
obligations under this Lease) for each day of such retention in an amount
equal to one hundred fifty percent (150%) of the amount of Base Rent as of
the last month prior to the date of expiration or earlier termination.
Tenant shall also indemnify, defend, protect and hold Landlord harmless
from any loss, liability or cost, including consequential and incidental
damages and reasonable attorneys' fees, incurred by Landlord resulting
from delay by Tenant in surrendering the Premises, including, without
limitation, any claims made by the succeeding tenant founded on such
delay. Acceptance of Rent by Landlord following expiration or earlier
termination of this
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Lease, or following demand by Landlord for possession of the Premises,
shall not constitute a renewal of this Lease, and nothing contained in
this Paragraph 25 shall waive Landlord's right of reentry or any other
right. Additionally, if upon expiration or earlier termination of this
Lease, or following demand by Landlord for possession of the Premises,
Tenant has not fulfilled its obligation with respect to repairs and
cleanup of the Premises or any other Tenant obligations as set forth in
this Lease, then, upon notice to Tenant and the expiration of two (2) days
following said notice, Landlord shall have the right to perform any such
obligations as it deems necessary at Tenant's sole cost and expense, and
any commercially reasonable time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of
this Paragraph 25 shall apply to the extent Landlord is delayed in causing
a new tenant to take occupancy of all or a portion of the Premises. The
provisions of this Paragraph 25 shall survive any expiration or earlier
termination of this Lease.
26. DEFAULT
A. Events of Default. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
(1) Abandonment. Abandonment of the Premises for a continuous
period in excess of five (5) business days after written notice.
Tenant waives any right to notice Tenant may have under Section 1951.3
of the Civil Code of the State of California, the terms of this
Paragraph 26.A. being deemed such notice to Tenant as required by said
Section 1951.3.
(2) Nonpayment of Rent. Failure to pay any installment of Rent
or any other amount due and payable hereunder within five (5) days
following written notice that said amount is due, as to which time is
of the essence (which notice shall be in lieu of, and not in addition
to, the notice requirements of Section 1161 of the California Code of
Civil Procedure or any similar or successor law).
(3) Other Obligations. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters
specified in subparagraphs (1) and (2) of this Paragraph 26.A., such
failure continuing for thirty (30) days after written notice of such
failure, as to which time is of the essence; provided that if the
nature of such default is such that the same cannot reasonably be
cured within a thirty (30) day period, Tenant shall not be deemed to
be in default if it diligently commences such cure within such period
and thereafter diligently proceeds to rectify and cure said default.
(4) General Assignment. A general assignment by Tenant for the
benefit of creditors.
(5) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition by
Tenant's creditors, which involuntary petition remains undischarged
for a period of sixty (60) days. If under applicable law, the
trustee in bankruptcy or Tenant has the right to affirm this Lease and
continue to perform the obligations of Tenant hereunder, such trustee
or Tenant shall, in such time period as may be permitted by the
bankruptcy court having jurisdiction, cure all defaults of Tenant
hereunder outstanding as of the date of the affirmance of this Lease
and provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's
obligations under this Lease.
(6) Receivership. The employment of a receiver to take
possession of substantially all of Tenant's assets or Tenant's
leasehold of the Premises, if such appointment remains undismissed or
undischarged for a period of sixty (60) days after the order
therefor.
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(7) Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or Tenant's
leasehold of the Premises, if such attachment or other seizure remains
undismissed or undischarged for a period of sixty (60) days after the
levy thereof.
(8) Insolvency. The admission signed by Tenant in writing of
its inability to pay its debts as they become due.
B. Remedies Upon Default.
(1) Termination. In the event of the occurrence of any event of
default, Landlord shall have the right to give a written termination
notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate
unless on or before such date all Rent in arrears and all costs and
expenses incurred by or on behalf of Landlord hereunder shall have
been paid by Tenant and all other events of default of this Lease by
Tenant at the time existing shall have been fully remedied to the
satisfaction of Landlord. At any time after such termination,
Landlord may recover possession of the Premises or any part thereof
and expel and remove therefrom Tenant and any other person occupying
the same, including any subtenant or subtenants notwithstanding
Landlord's consent to any sublease, by any lawful means, and again
repossess and enjoy the Premises without prejudice to any of the
remedies that Landlord may have under this Lease, or at law or equity
by any reason of Tenant's default or of such termination. Landlord
hereby reserves the right, but shall not have the obligation, to
recognize the continued possession of any subtenant. The delivery or
surrender to Landlord by or on behalf of Tenant of keys, entry codes,
or other means to bypass security at the Premises shall not terminate
this Lease.
(2) Continuation After Default. Even though an event of default
may have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under
Paragraph 26.B.(1) hereof, and Landlord may enforce all of Landlord's
rights and remedies under this Lease and at law or in equity,
including without limitation, the right to recover Rent as it becomes
due, and Landlord, without terminating this Lease, may exercise all of
the rights and remedies of a landlord under Section 1951.4 of the
Civil Code of the State of California or any successor code section.
Acts of maintenance, preservation or efforts to lease the Premises or
the appointment of a receiver under application of Landlord to protect
Landlord's interest under this Lease or other entry by Landlord upon
the Premises shall not constitute an election to terminate Tenant's
right to possession.
C. Damages After Default. Should Landlord terminate this Lease
pursuant to the provisions of Paragraph 26.B.(1) hereof, Landlord shall
have the rights and remedies of a Landlord provided by Section 1951.2 of
the Civil Code of the State of California, or any successor code sections.
Upon such termination, in addition to any other rights and remedies to
which Landlord may be entitled under applicable law or at equity, Landlord
shall be entitled to recover from Tenant: (1) the worth at the time of
award of the unpaid Rent and other amounts which had been earned at the
time of termination, (2) the worth at the time of award of the amount by
which the unpaid Rent and other amounts that would have been earned after
the date of termination until the time of award exceeds the amount of such
Rent loss that Tenant proves could have been reasonably avoided; (3) the
worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds
the amount of such Rent loss that the Tenant proves could be reasonably
avoided; and (4) any other amount and court costs necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform Tenant's obligations under this Lease or which, in the ordinary
course of things, would be likely to result therefrom. The "worth at the
time of award" as used in (1) and (2) above shall be computed at the
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Applicable Interest Rate (defined below). The "worth at the time of
award" as used in (3) above shall be computed by discounting such amount
at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%).
D. Late Charge. In addition to its other remedies, Landlord shall
have the right to add to the amount of any payment required to be made by
Tenant hereunder, and which is not paid and received by Landlord within
five (5) days following written notice that said amount is past due, an
amount equal to five percent (5%) of the delinquency for each month or
portion thereof that the delinquency remains outstanding to compensate
Landlord for the loss of the use of the amount not paid and the
administrative costs caused by the delinquency, the parties agreeing that
Landlord's damage by virtue of such delinquencies would be extremely
difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any
late charges or failure to claim the same shall not constitute a waiver of
other late charges or any other remedies available to Landlord.
E. Interest. Interest shall accrue on all sums not paid when due
hereunder at the lesser of the "prime rate" charged by Wells Fargo Bank,
N.A. (San Francisco) or its successor plus 2% per annum or the maximum
interest rate allowed by law ("Applicable Interest Rate") from the due
date until paid.
F. Remedies Cumulative. All rights, privileges and elections or
remedies of the parties are cumulative and not alternative, to the extent
permitted by law and except as otherwise provided herein.
G. Landlord's Default. Landlord shall not be in default under this
Lease unless Landlord fails to perform obligations required of Landlord
within thirty (30) days after written notice is delivered by Tenant to
Landlord and to the holder of any mortgages or deeds of trust
(collectively, "Lender") covering the Premises whose name and address
shall have theretofore been furnished to Tenant in writing, specifying the
obligation which Landlord has failed to perform; provided, however, that
if the nature of Landlord's obligation is such that more than thirty (30)
days are required for performance, then Landlord shall not be in default
if Landlord or Lender commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from
liens arising out of or related to work or services performed, materials
or supplies furnished or obligations incurred by or on behalf of Tenant or
in connection with work made, suffered or done by or on behalf of Tenant
in or on the Premises or Project. If Tenant shall not, within fifteen
(15) business days following receipt of notice of the imposition of any
such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause
the same to be released by such means as Landlord shall deem proper,
including payment of the claim giving rise to such lien. All sums paid by
Landlord on behalf of Tenant and all expenses incurred by Landlord in
connection therefor shall be payable to Landlord by Tenant on demand with
interest at the Applicable Interest Rate as Additional Rent. Landlord
shall have the right at all times to post and keep posted on the Premises
any notices permitted or required by law, or which Landlord shall deem
proper, for the protection of Landlord, the Premises, the Project and any
other party having an interest therein, from mechanics' and materialmen's
liens, and Tenant shall give Landlord not less than ten (10) business days
prior written notice of the commencement of any work in the Premises or
Project which could lawfully give rise to a claim for mechanics' or
materialmen's liens to permit Landlord to post and record a timely notice
of non-responsibility, as Landlord may elect to proceed or as the law may
from time to time provide, for which purpose, if Landlord shall so
determine, Landlord may enter the Premises in accordance with provisions
of this Lease. Tenant shall not
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remove any such notice posted by Landlord without Landlord's consent, and
in any event not before completion of the work which could lawfully give
rise to a claim for mechanics' or materialmen's liens.
28. INTENTIONALLY OMITTED
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord and provided said transferee
(other than a creditor of Landlord) assumes Landlord's obligations under
this Lease, the same shall operate to release Landlord from any liability
upon any of the covenants or conditions, express or implied, herein
contained in favor of Tenant, to the extent required to be performed after
the passing of title to Landlord's successor-in-interest. In such event,
Tenant agrees to look solely to the responsibility of the successor-in-
interest of Landlord under this Lease with respect to the performance of
the covenants and duties of "Landlord" to be performed after the passing
of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any abatement of Rent, except as otherwise
provided herein. If Tenant shall fail to pay any sum of money, other than
Base Rent, required to be paid by Tenant hereunder or shall fail to
perform any other act on Tenant's part to be performed hereunder,
including Tenant's obligations under Paragraph 11 hereof, and such failure
shall continue for fifteen (15) days after written notice thereof by
Landlord, in addition to the other rights and remedies of Landlord,
Landlord may make any such payment and perform any such act on Tenant's
part. In the case of an emergency, no prior notification by Landlord
shall be required. Landlord may take such actions without any obligation
and without releasing Tenant from any of Tenant's obligations. All sums
so paid by Landlord and all incidental costs incurred by Landlord and
interest thereon at the Applicable Interest Rate, from the date of payment
by Landlord, shall be paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be
deemed to be a waiver of any subsequent breach of the same or any other
term, covenant or condition contained herein, or constitute a course of
dealing contrary to the expressed terms of this Lease. The acceptance of
Rent by Landlord shall not constitute a waiver of any preceding breach by
Tenant of any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time Landlord
accepted such Rent. Payment by Tenant of any amount due and owing
hereunder shall not constitute a waiver of any preceding breach by
Landlord of any term, covenant or condition of this Lease. Failure by
Landlord or Tenant to enforce any of the terms, covenants or conditions of
this Lease for any length of time shall not be deemed to waive or decrease
the right of Landlord or Tenant, as applicable, to insist thereafter upon
strict performance by the other party. Waiver by Landlord or Tenant of
any term, covenant or condition contained in this Lease may only be made
by a written document signed by Landlord or Tenant, as applicable.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by
Landlord or Tenant to the other shall be deemed to be complied with when
and if the following steps are taken:
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A. Rent. All Rent and other payments required to be made by Tenant
to Landlord hereunder shall be payable to Landlord at Landlord's
Remittance Address set forth in the Basic Lease Information, or at such
other address as Landlord may specify from time to time by written notice
delivered in accordance herewith. Tenant's obligation to pay Rent and any
other amounts to Landlord under the terms of this Lease shall not be
deemed satisfied until such Rent and other amounts have been actually
received by Landlord.
B. Other. All notices, demands, consents and approvals which may or
are required to be given by either party to the other hereunder shall be
in writing and either personally delivered, sent by commercial overnight
courier, mailed, certified or registered, postage prepaid or sent by
facsimile with confirmed receipt (and with an original sent by commercial
overnight courier), and in each case addressed to the party to be notified
at the Notice Address for such party as specified in the Basic Lease
Information or to such other place as the party to be notified may from
time to time designate by at least fifteen (15) days notice to the
notifying party. Notices shall be deemed served upon receipt or refusal
to accept delivery.
C. Required Notices. Tenant shall immediately notify Landlord in
writing of any notice of a violation or a potential or alleged violation
of any Regulation that relates to the Premises or the Project, or of any
inquiry, investigation, enforcement or other action that is instituted or
threatened by any governmental or regulatory agency against Tenant or any
other occupant of the Premises, or any claim that is instituted or
threatened by any third party that relates to the Premises or the Project.
33. ATTORNEYS' FEES
In any action which Landlord or Tenant brings to enforce its
respective rights hereunder, the unsuccessful party shall pay all costs
incurred by the prevailing party including reasonable attorneys' fees, to
be fixed by the court, and said costs and attorneys' fees shall be a part
of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord,
its successors and assigns, and shall be binding upon and inure to the
benefit of Tenant, its successors, and to the extent assignment is
approved by Landlord as provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
Except as otherwise provided herein, if performance by a party of any
portion of this Lease is made impossible by any prevention, delay, or
stoppage caused by strikes, lockouts, labor disputes, acts of God,
inability to obtain services, labor, or materials or reasonable
substitutes for those items, government actions, civil commotions, fire or
other casualty, or other causes beyond the reasonable control of the party
obligated to perform, performance by that party for a period equal to the
period of that prevention, delay, or stoppage (a "Force Majeure Delay") is
excused. Tenant's obligation to pay Rent, however, is not excused by this
Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease,
surrender the Premises to Landlord in the same condition as existed on the
date Tenant originally took possession thereof, reasonable wear and tear,
damage and destruction which is not Tenant's obligation to repair, and
approved Alterations which Landlord has not required Tenant to remove
excepted. Tenant shall remove all of its debris from the Project. At or
before the time of surrender, Tenant shall comply with the terms of
Paragraph 12.A.
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hereof with respect to Alterations to the Premises and all other matters
addressed in such Paragraph. If the Premises are not so surrendered at the
expiration or sooner termination of this Lease, the provisions of
Paragraph 25 hereof shall apply. All keys to the Premises or any part
thereof in Tenant's possession shall be surrendered to Landlord upon
expiration or sooner termination of the Term. Within a reasonable period
of time prior to the expiration of the Term, Landlord shall notify Tenant
in writing of (i) Landlord's intent to conduct a joint inspection of the
Premises immediately prior to the date of Tenant's vacating the Premises,
(ii) at least three (3) different times and dates that Landlord proposes
for such a joint inspection to be conducted at the Premises, and (iii) the
consequences to Tenant, as set forth in the immediately succeeding
sentence, if Tenant fails to timely respond or if Tenant fails to have a
representative available at the designated time and date. If Tenant either
fails to respond to Landlord within five (5) days following Tenant's
receipt of such notice regarding its selection of a proposed time and date
or if Tenant timely responds, but Tenant fails to have a representative
available at such scheduled time and date to conduct the joint inspection
with Landlord, then Landlord's inspection at or after Tenant's vacating
the Premises shall conclusively be deemed correct for purposes of
determining Tenant's responsibility for repairs and restoration.
Notwithstanding anything to the contrary contained herein, but subject to
the terms of Paragraph 15E above, upon the expiration of the term of this
Lease, or upon any earlier termination of this Lease, Tenant may, at its
expense, remove or cause to be removed from the Premises any security
system installed by Tenant in the Premises provided that Tenant shall
repair all damage resulting from such removal.
37. PARKING
Tenant and Tenant's Parties shall have the right to use up to the
number of parking spaces, if any, specified in the Basic Lease Information
on an unreserved, nonexclusive basis, for passenger-size automobiles, for
use in common by tenants of the Building, and also for certain reserved
parking spaces in on the east side of the 3420 Building (the exact
location of which is identified on Exhibit "B" attached hereto), as same
may be modified in the Basic Lease Information.
Tenant may request additional parking spaces from time to time and if
Landlord in its reasonable discretion agrees to make such additional
spaces available for use by Tenant, such spaces shall be provided on a
month-to-month unreserved and nonexclusive basis (unless otherwise agreed
in writing by Landlord), and subject to such parking charges as Landlord
shall determine (provided that such parking rates shall not increase
annually, on a percentage basis, by more than the annual percentage
increase in parking rental rates during the same period of time at the
Comparable Buildings [defined below]), and shall otherwise be subject to
such terms and conditions as Landlord may reasonably require. For
purposes of this paragraph, the term "Comparable Buildings" shall mean the
following office buildings in West Los Angeles: (i) the office building
located at 11150 Olympic Boulevard (Marathon Building), (ii) the office
building located at 11444 Olympic Boulevard, (iii) the office buildings
located at 11835 and 11845 Olympic Boulevard (Westside Towers), (iv) the
office buildings located at 2401-2500 Colorado Boulevard (MGM Plaza), (v)
the office building located at 2600 Colorado Boulevard (MTV Building), and
(vi) the office building located at 1601 Cloverfield (Water Garden).
Tenant shall at all times comply and shall cause all Tenant's Parties
and visitors to comply with all Regulations and any reasonable, non-
discriminatory rules and regulations established from time to time by
Landlord relating to parking at the Project, including any keycard,
sticker or other identification or entrance system, as applicable.
Except to the extent resulting from Landlord's negligence or willful
misconduct, and subject to the terms of Articles 8 and 9 above, Landlord
shall have no liability for any damage to property or other items located
in the parking areas of the Project, nor for
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any personal injuries or death arising out of the use of parking areas in
the Project by Tenant or any Tenant's Parties. Without limiting the
foregoing, except to the extent resulting from Landlord's negligence or
willful misconduct, and subject to the terms of Articles 8 and 9 above, if
Landlord arranges for the parking areas to be operated by an independent
contractor not affiliated with Landlord, Tenant acknowledges that Landlord
shall have no liability for claims arising through acts or omissions of
such independent contractor. Except as otherwise provided herein, in all
events, Tenant agrees to look first to its insurance carrier and to
require that Tenant's Parties look first to their respective insurance
carriers for payment of any losses sustained in connection with any use of
the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to
park in any such assigned or reserved spaces. Tenant may validate visitor
parking by such non-discriminatory method as Landlord may approve, at the
validation rate from time to time generally applicable to visitor parking.
Landlord also reserves the right to temporarily alter, modify, relocate or
close all or any portion of the parking areas in order to make repairs or
perform maintenance service, or to restripe or renovate the parking areas,
or if required by casualty, condemnation, act of God, Regulations or for
any other reason deemed reasonable by Landlord, provided that if any such
work restricts Tenant from parking the number of automobiles to which it
is entitled to park in the parking structure and/or lot serving the
Building, Landlord shall use its commercially reasonable efforts to
provide Tenant with alternate parking within a reasonable proximity to the
Premises.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so
directed in writing by Landlord), as Additional Rent hereunder, the
monthly charges established from time to time by Landlord for parking in
such parking areas (which shall initially be the charge specified in the
Base Lease Information, as applicable). Such parking charges shall be
payable in advance with Tenant's payment of Base Rent. No deductions from
the monthly parking charge shall be made for days on which the Tenant does
not use any of the parking spaces entitled to be used by Tenant. Tenant
shall not be separately charged for the use of any valet parking services
identified in the Basic Lease Information (except as an Operating Expense
pass-through item), provided that any subtenant or assignee of Tenant
which uses such valet parking services shall be directly charged for said
valet parking services at the actual out-of-pocket cost incurred by
Landlord to provide such valet parking services plus a management fee of
10% of such costs.
38. MISCELLANEOUS
A. General. The term "Tenant" or any pronoun used in place thereof
shall indicate and include the masculine or feminine, the singular or
plural number, individuals, firms or corporations, and their respective
successors, executors, administrators and permitted assigns, according to
the context hereof.
B. Time. Time is of the essence regarding this Lease and all of its
provisions.
C. Choice of Law. This Lease shall in all respects be governed by
the laws of the State of California.
D. Entire Agreement. This Lease, together with its Exhibits,
addenda and attachments and the Basic Lease Information, contains all the
agreements of the parties hereto and supersedes any previous negotiations.
There have been no representations made by the Landlord or understandings
made between the parties other than those set forth in this Lease and its
Exhibits, addenda and attachments and the Basic Lease Information.
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E. Modification. This Lease may not be modified except by a written
instrument signed by the parties hereto. Tenant and Landlord accept the
area of the Premises as specified in the Basic Lease Information as the
approximate area of the Premises for all purposes under this Lease, and
acknowledge and agree that no other definition of the area (rentable,
usable or otherwise) of the Premises shall apply. Neither Landlord nor
Tenant shall be entitled to a recalculation of the square footage of the
Premises, rentable, usable or otherwise, and no recalculation, if made,
irrespective of its purpose, shall modify Tenant's or Landlord's
obligations under this Lease in any manner, including without limitation
the amount of Base Rent payable by Tenant or Tenant's Proportionate Share
of the Building and of the Project.
F. Severability. If, for any reason whatsoever, any of the
provisions hereof shall be unenforceable or ineffective, all of the other
provisions shall be and remain in full force and effect.
G. Recordation. Tenant shall not record this Lease or a short form
memorandum hereof.
H. Examination of Lease. Submission of this Lease to Tenant does
not constitute an option or offer to lease and this Lease is not effective
otherwise until execution and delivery by both Landlord and Tenant.
I. Accord and Satisfaction. No payment by Tenant of a lesser amount
than the total Rent due nor any endorsement on any check or letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction of full payment of Rent, and Landlord may accept such payment
without prejudice to Landlord's right to recover the balance of such Rent
or to pursue other remedies. All offers by or on behalf of Tenant of
accord and satisfaction are hereby rejected in advance.
J. Easements. Landlord may grant easements on the Project and
dedicate for public use portions of the Project without Tenant's consent;
provided that no such grant or dedication shall materially interfere with
Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant
shall execute, acknowledge and deliver to Landlord documents, instruments,
maps and plats necessary to effectuate Tenant's covenants hereunder.
K. Drafting and Determination Presumption. The parties acknowledge
that this Lease has been agreed to by both the parties, that both Landlord
and Tenant have consulted with attorneys with respect to the terms of this
Lease and that no presumption shall be created against Landlord because
Landlord drafted this Lease. Except as otherwise specifically set forth
in this Lease, with respect to any consent, determination or estimation of
Landlord required or allowed in this Lease or requested of Landlord,
Landlord's consent, determination or estimation shall be given or made
solely by Landlord in Landlord's good faith opinion, whether or not
objectively reasonable. If Landlord fails to respond to any request for
its consent within the time period, if any, specified in this Lease,
Landlord shall be deemed to have disapproved such request.
L. Exhibits. The Basic Lease Information, and the Exhibits, addenda
and attachments attached hereto are hereby incorporated herein by this
reference and made a part of this Lease as though fully set forth herein.
M. No Light, Air or View Easement. Any diminution or shutting off
of light, air or view by any structure which may be erected on lands
adjacent to or in the vicinity of the Building shall in no way affect this
Lease or impose any liability on Landlord.
N. No Third Party Benefit. This Lease is a contract between
Landlord and Tenant and nothing herein is intended to create any third
party benefit.
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O. Quiet Enjoyment. Upon payment by Tenant of the Rent, and upon
the observance and performance of all of the other covenants, terms and
conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Premises for the term hereby
demised without hindrance or interruption by Landlord or any other person
or persons lawfully or equitably claiming by, through or under Landlord,
subject, nevertheless, to all of the other terms and conditions of this
Lease. Landlord shall not be liable for any hindrance, interruption,
interference or disturbance by other tenants or third persons, nor shall
Tenant be released from any obligations under this Lease because of such
hindrance, interruption, interference or disturbance, except as otherwise
provided herein.
P. Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original.
Q. Multiple Parties. If more than one person or entity is named
herein as Tenant, such multiple parties shall have joint and several
responsibility to comply with the terms of this Lease.
R. Prorations. Any Rent or other amounts payable to Landlord by
Tenant hereunder for any fractional month shall be prorated based on a
period of thirty (30) days in such month. As used herein, the term
"fiscal year" shall mean the calendar year or such other fiscal year as
Landlord may deem appropriate.
S. Confidentiality. Tenant and Landlord each acknowledge that the
content of this Lease and any related documents are confidential
information. Tenant and Landlord shall keep such confidential information
strictly confidential and shall not disclose such confidential information
to any person or entity other than Tenant's or Landlord's financial, legal
and space planning consultants and any proposed subtenants or assignees.
39. ADDITIONAL PROVISIONS
A. Early Entry into Premises. Tenant may enter into the Space
fifteen (15) days prior to the Term Commencement Date, solely for the
purpose of installing furniture, trade fixtures, telephones, computers,
photocopy equipment, and other business equipment. Such early entry will
not advance the Term Commencement Date so long as Tenant does not commence
business operations from any part of the Premises. All of the provisions
of this Lease shall apply to Tenant during any early entry, including the
indemnity in Section 8.c, but excluding the obligation to pay Rent on the
Space unless and until Tenant has commenced business operations in the
Space, whereupon Rent for the Space shall commence. Tenant shall not be
obligated to pay any charges for electricity, restrooms, HVAC, water,
elevators, parking or access to loading docks with respect to the Space
during such early entry period. Landlord may revoke its permission for
Tenant's early entry if Tenant's activities or workers interfere with the
completion of the Tenant Improvements, provided that (i) Landlord and
Tenant agree to use their commercially reasonable efforts to coordinate
their respective schedules and improvement work to enable Tenant's early
entry work to be performed concurrently with the completion of the Tenant
Improvements, and (ii) Tenant acknowledges that in the event of a conflict
between Landlord's and Tenant's respective schedules or any interference
by Tenant with the performance of the Tenant Improvements, the completion
of the Tenant Improvements shall have first priority and accordingly
Tenant will accommodate Landlord's scheduling requests and not interfere
with the performance of the Tenant Improvements. If Tenant is granted
early entry, Landlord shall not be responsible for any loss, including
theft, damage or destruction to any work or material installed or stored
by Tenant at the Premises or for any injury to Tenant or Tenant's Parties.
Landlord shall have the right to post appropriate notices of non-
responsibility and to require Tenant to provide Landlord with evidence
that Tenant has fulfilled its obligation to provide insurance pursuant to
this Lease.
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B. Right of First Offer. Provided Tenant is not in default under
--------------------
this Lease, beyond the expiration of any applicable notice and cure
period, Landlord hereby grants to Tenant a right of first offer with
respect to all of that certain space in the buildings outlined on Exhibit
"D" attached hereto and made a part hereof ("First Offer Space").
Notwithstanding the foregoing, such first offer right shall be subordinate
and secondary to all rights of expansion, first refusal, first offer or
similar rights identified on Exhibit "D" attached hereto (which rights
shall hereafter be known collectively as "Superior Rights"). Tenant's
right of first offer shall be on the terms and conditions set forth in
this Paragraph 39B.
(1) Procedure for Offer. Landlord shall notify Tenant (the
-------------------
"First Offer Notice") when Landlord first has received from a third
party a lease proposal or offer for the First Offer Space which
Landlord intends to respond to with a counter-offer or counter-lease
proposal, where no holder of a Superior Right desires to lease such
space. The First Offer Notice shall describe the space so offered to
Tenant and shall set forth Landlord's proposed good faith economic
terms and conditions applicable to Tenant's lease of such space
(collectively, the "Economic Terms"). Notwithstanding the foregoing,
Landlord's obligation to deliver the First Offer Notice shall not
apply during the last nine (9) months of the initial Term.
(2) Procedure for Acceptance. If Tenant wishes to exercise
------------------------
Tenant's right of first offer with respect to the space described in
the First Offer Notice, then within five (5) business days after
delivery of the First Offer Notice to Tenant, Tenant shall deliver
notice to Landlord of Tenant's intention to exercise its right of
first offer with respect to the entire space described in the First
Offer Notice . If Tenant does not exercise its right of first offer
within the five (5) business day period, then Landlord shall be free
to lease the space described in the First Offer Notice to anyone to
whom Landlord desires on any terms which are not substantially more
favorable to said prospective tenant than the Economic Terms set forth
in the First Offer Notice and if Landlord enters into such a lease
with said prospective tenant, Tenant's right of first offer shall
terminate as to the First Offer Space described in the First Offer
Notice. The term "substantially more favorable" shall mean that the
net effective rent offered to the prospective tenant is ninety percent
(90%) or less of the net effective rent set forth in the First Offer
Notice. The term "net effective rent" shall mean the net rental
amount to be paid to Landlord, taking into account any tenant
improvement expenses or allowances to be incurred by Landlord and any
other monetary concessions granted by Landlord. Notwithstanding the
foregoing, if Tenant fails to exercise its right of first offer in
accordance with the terms of this Paragraph 39B (2), Tenant's right of
first offer shall continue with respect to any applicable First Offer
Space if Landlord has not entered into a lease for such First Offer
Space within six (6) months following that date of Landlord's First
Offer Notice to Tenant or if such First Offer Space thereafter becomes
vacant. Notwithstanding anything to the contrary contained herein,
Tenant must elect to exercise its right of first offer, if at all,
with respect to all of the space offered by Landlord to Tenant at any
particular time, and Tenant may not elect to lease only a portion
thereof.
(3) Construction of First Offer Space. Except as set forth
---------------------------------
above, including the determination of the Economic Terms, Tenant shall
take the First Offer Space in its "as-is" condition, and Tenant shall
be entitled to construct improvements in the First Offer Space in
accordance with the provisions of Paragraph 12 of this Lease.
(4) Lease of First Offer Space. If Tenant timely exercises
--------------------------
Tenant's right to lease the First Offer Space as set forth herein,
Landlord and Tenant shall execute an amendment adding such First Offer
Space to this Lease upon the same non-economic terms and conditions as
applicable to the initial Premises, and the economic terms and
conditions as provided in this Paragraph 39B. Tenant shall
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commence payment of rent for the First Offer Space and the Term of the
First Offer Space shall commence upon the date set forth in the
Economic Terms (the "First Offer Space Delivery Date"). The Term for
the First Offer Space shall expire co-terminously with Tenant's lease
of the initial Premises.
(5) No Defaults. The rights contained in this Paragraph 39B
-----------
shall be personal to the Original Tenant or an Affiliate, and may only
be exercised by the Original Tenant or Affiliate (and not any
assignee, sublessee or other transferee of the Original Tenant's
interest in this Lease) if Tenant occupies the entire Premises as of
the date of the First Offer Notice. Tenant shall not have the right
to lease First Offer Space as provided in this Paragraph 39B if, as of
the date of the First Offer Notice, or, at Landlord's option, as of
the scheduled date of delivery of such First Offer Space to Tenant,
Tenant is in default under this Lease, beyond all applicable notice
and cure periods.
C. Letter of Credit. Concurrently with the execution of this Lease
by Tenant, Tenant shall either (i) deliver the non-cash portion of its
security deposit to Landlord in the form of an irrevocable standby letter
of credit in favor of Landlord in an amount equal to Six Hundred One
Thousand Nine Hundred Seventy-One Dollars and Seventy-Five Cents
($601,971.75) (the "Letter of Credit"), or (ii) deposit with Landlord an
amount equal to Six Hundred One Thousand Nine Hundred Seventy-One Dollars
and Seventy-Five Cents ($601,971.75) in lawful money of the United States,
or any combination of the two. Tenant's obligations under the preceding
sentence may be satisfied by the delivery to Landlord of two (2) letters
of credit in a total amount equal to Six Hundred One Thousand Nine Hundred
Seventy-One Dollars and Seventy-Five Cents ($601,971.75) or one (1)
letter of credit and cash in a total amount equal to Six Hundred One
Thousand Nine Hundred Seventy-One Dollars and Seventy-Five Cents
($601,971.75), provided each such letter(s) of credit may be drawn against
by Landlord after any default by Tenant under this Lease (after the
expiration of any applicable notice and cure period) and is otherwise in
accordance with the terms of this Paragraph 39C (including a proration
between such letters of credit of the applicable reduction in the total
amount of the Letter of Credit pursuant to the schedule set forth below).
If Tenant elects to initially deposit with Landlord all or a portion of
the Six Hundred One Thousand Nine Hundred Seventy-One Dollars and Seventy-
Five Cents ($601,971.75) in lawful money of the United States as its
security deposit, Tenant shall retain the right, from time to time, upon
ten (10) days prior written notice to Landlord, to replace up to Six
Hundred One Thousand Nine Hundred Seventy-One Dollars and Seventy-Five
Cents ($601,971.75) of the Security Deposit with the Letter (s) of Credit.
Tenant shall also retain from time to time the right to cancel the
Letter(s) of Credit at any time provided Tenant concurrently replaces such
Letter(s) of Credit being canceled with cash in an amount equal to the
then outstanding amount of the Letter(s) of Credit which were canceled.
The Letter(s) of Credit, if any, shall be (i) from a bank reasonably
acceptable to Landlord, (ii) in the form and content of that attached
hereto as Exhibit "E" (or on a different form which is reasonably
acceptable to Landlord), and (iii) subject to the conditions stated in
this paragraph. The Letter(s) of Credit shall have a term of at least
twelve (12) months and be automatically renewed (or a reasonably
satisfactory replacement Letter(s) of Credit from a bank reasonably
acceptable to Landlord shall be in place in strict accordance with the
terms hereof) at least thirty (30) days prior to expiration of each twelve
(12) month period for additional periods of twelve (12) months each until
the 30th day following the expiration of the Term. The Letter(s) of
Credit shall be held by Landlord as additional security for the full and
faithful performance by Tenant of the terms, covenants and conditions of
this Lease during the Term. Provided that Tenant is not in default under
this Lease, beyond all applicable notice and cure periods, and based upon
a Letter(s) of Credit in the original amount of Six Hundred One Thousand
Nine Hundred Seventy-One Dollars and Seventy-Five Cents ($601,971.75), the
amount of the Letter(s) of Credit shall be reduced on the first day of
each of the following months of the Term by the amounts set forth in the
schedule set forth below:
44
<PAGE>
<TABLE>
<CAPTION>
Month of Term Amount of Reduction of Letter(s) of Credit
<S> <C>
13 $90,295.75
25 $76,751.40
37 $65,238.69
49 $55,452.89
</TABLE>
If Tenant becomes a publicly traded company on a nationally recognized
stock exchange with a market capitalization in excess of Two Hundred Fifty
Million Dollars ($250,000,000) for no less than three (3) consecutive
months, Tenant shall have the right to cancel the Letter(s) of Credit
(even if the Letter(s) of Credit was previously canceled and then
reinstated pursuant to the following sentence), provided that Tenant
maintains a cash security deposit or letter of credit (in accordance with
the terms hereof) with Landlord in an amount not less than One Hundred
Ninety-Four Thousand Three Hundred Ninety-Four Dollars and Thirty Cents
($194,394.30). If Tenant cancels the Letter(s) of Credit pursuant to the
preceding sentence and thereafter the market capitalization of Tenant
falls below One Hundred Fifty Million Dollars ($150,000,000) for thirty
(30) consecutive days, Tenant shall be obligated to reinstate the
Letter(s) of Credit immediately following the end of such thirty (30) day
period, and within ten (10) days following written notice from Landlord
demanding the reinstatement of the Letter(s) of Credit (which notice shall
include supporting documentation from a third party stock brokerage
company or credit bureau reporting agency evidencing such reduced market
capitalization value).
In the event Tenant elects to initially deposit all or a portion of the
Six Hundred One Thousand Nine Hundred Seventy-One Dollars and Seventy-Five
Cents ($601,971.75) in lawful money of the United States, and thereafter
exercise its right to deposit the Letter(s) of Credit with Landlord in
lieu of such cash security deposit, within five (5) days following
Landlord's demand therefor, Tenant shall execute an amendment to this
Lease to reflect Tenant's election to replace all or a portion of the cash
Security Deposit with the Letter(s) of Credit. If Tenant breaches any of
the terms or conditions of this Lease, beyond the expiration of all
applicable notice and cure periods, or if Tenant has filed a voluntary
petition under the United States Bankruptcy Code, or Tenant's creditors
have filed an involuntary petition under the United States Bankruptcy
Code, then Landlord may draw upon all or a portion of the Letter(s) of
Credit for the payment of the required amount of any sum in default, and
for the payment of any amount that Landlord may spend or may become
obligated to spend by reason of Tenant's default, and to compensate
Landlord for any other loss or damage that Landlord suffers by reason of
Tenant's default to the extent Landlord is entitled to compensation
therefor pursuant to the terms of this Lease (any amount of the Letter(s)
of Credit which is drawn upon by Landlord in accordance with the
provisions hereof, but is not used or applied in accordance with the terms
of this Lease, shall be deemed a part of the Security Deposit). The use,
application or retention of the Letter(s) of Credit, or any portion
thereof, shall not prevent Landlord from exercising any other rights or
remedies provided under this Lease, it being intended that Landlord shall
not be required to proceed against the Security Deposit and/or the
Letter(s) of Credit, and shall not operate as a limitation on any recovery
to which Landlord may otherwise be entitled.
D. Signage.
Subject to (a) the approval of all necessary governmental or regulatory
agencies with jurisdiction over the Project, and (b) the terms of
Paragraph 39D(ii) below, and provided Original Tenant or its Affiliate is
not in default under this Lease beyond applicable notice and cure
provisions, Original Tenant or Affiliate (and not any assignee, sublessee
or other transferee of the Original Tenant's or Affiliate's interest in
this Lease) shall have the right to install an exclusive monument sign
facing Ocean Park Boulevard and at Original Tenant's sole cost and
expense; providing, however, that such identification signage shall be
consistent with the design, type and general appearance of other monument
signs in the Project and otherwise subject to Landlord's approval, which
shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, Landlord and
45
<PAGE>
Tenant agree that said monument sign shall be no less than 23" in height
and 117" in length. Tenant acknowledges that Landlord retains the right to
install additional monument signs for the Building, provided that no other
tenant of the Building shall have the right to an individual monument sign
which is larger in size than the monument sign provided to Tenant
hereunder. Original Tenant agrees, at its expense, to be responsible for
the maintenance of said sign, including any repair or restoration work
required thereto. Such monument signage shall be subject to the rules and
regulations attached hereto as Exhibit "G." Notwithstanding the foregoing,
(I) the monument sign granted to Tenant hereunder shall be comparable in
size to the other monument signs currently located in the Project, and
(II) in no event shall Original Tenant or any Affiliate have the right to
install a monument sign which contains any word or name which relates to
an entity which is of a character or reputation, or is associated with a
political orientation or faction, which is inconsistent with the quality
of the Project, or which would otherwise reasonably offend a landlord of a
building or project comparable to the Project in the vicinity of the
Project. Furthermore, (x) Tenant acknowledges that Landlord is in the
process of developing a master plan for signage at the Project (the
"Master Signage Plan") and that upon completion of the same Landlord
intends to submit said Master Signage Plan to the City of Santa Monica for
approval, (y) Landlord agrees, at its sole expense, to be responsible for
any additional costs incurred by Tenant as a result of required changes to
its monument sign to the extent said required changes result from the need
to comply with the Master Signage Plan or requirements of the City of
Santa Monica specifically resulting from the implementation of the Master
Signage Plan, .
E. Option to Renew. Tenant shall, provided this Lease is in full
force and effect and Tenant is not and has not been in default under any
of the terms and conditions of this Lease, beyond all applicable notice
and cure periods, have one (1) option to renew this Lease for a term of
five (5) years (the "Option Term") for the entire Premises or the entire
Space on the same terms and conditions set forth in this Lease, except as
modified by the terms, covenants and conditions set forth below:
(1) If Tenant elects to exercise such option, then Tenant shall
provide Landlord with written notice no earlier than the
date which is twelve (12) month prior to the expiration of
the then current term of this Lease, but no later than 5:00
p.m. (Pacific Standard Time) on the date which is six (6)
months prior to the expiration of the then current term of
this Lease. If Tenant fails to timely provide such notice,
Tenant shall have no further or additional right to extend
or renew the term of this Lease.
(2) The rent payable by Tenant during the Option Term (the
"Option Rent") shall be equal to (i) ninety-five percent
(95%) of the "face" or "stated" rental rate (including any
escalation thereof if escalations are contained in such
"Comparable Deals," as that term is defined below), at which
tenants, as of the commencement of the Option Term, are
leasing non-sublease, non-encumbered, non-equity, non-
expansion and non-renewal space comparable in size, location
and quality to the Premises for a term of five (5) years,
which comparable space is located in comparable office
buildings in Santa Monica, California (the "Comparable
Projects"), comparable in age, location, services and
amenities (the "Comparable Deals"); and shall take into
account (ii) one hundred percent (100%) of the following
concessions, which shall be granted by Landlord to Tenant to
the extent granted in Comparable Deals (collectively, the
"Option Concessions"): (a) any operating expense and tax
protection granted in such Comparable Deals (e.g., "base
year" or "expense stop" protection), (b) rental abatement
concessions, if any, being given such tenants in connection
with such Comparable Deals, (c) tenant improvements or
allowances provided or to be provided for such Comparable
Deals, and (d) all other monetary concessions,
46
<PAGE>
if any, being granted such tenants in connection with such
comparable space; provided, however, that (A) in determining
any tenant improvements or allowances provided in Comparable
Deals, Landlord and Tenant shall also take into account and
credit Landlord for the value to a general office user of
the existing improvements in the Premises, and (B)
notwithstanding anything to the contrary contained herein,
no consideration shall be given to the fact that Landlord is
or is not required to pay a real estate brokerage commission
in connection with Tenant's exercise of its right to lease
the Premises during the Option Term.
(3) Landlord shall advise Tenant of the new Base Rent for the
Premises for the renewal term based on Landlord's
determination of fair market rental value, as well as the
terms and conditions for the renewal term, no later than
fifteen (15) days after receipt of notice of Tenant's
exercise of its option to renew.
(4) Landlord and Tenant shall negotiate in good faith to agree
on the fair market rental value of the Premises and terms
and conditions for the renewal term. If Tenant and Landlord
are unable to agree on a mutually acceptable rental rate for
the renewal term within thirty (30) days after notification
by Landlord to Tenant of Landlord's determination of the new
Base Rent for the renewal term, but in any event no later
than the date which is ninety (90) days prior to the
expiration of the then current term, then on or before such
date Landlord and Tenant shall each appoint a licensed real
estate broker with at least ten (10) year's experience in
leasing office space in the area in which the Building is
located to act as arbitrators. The two (2) arbitrators so
appointed shall determine the fair market rental value for
the Premises for the applicable renewal term based on the
above criteria and each shall submit his or her
determination of such fair market rental value to Landlord
and Tenant in writing, within sixty (60) days after their
appointment.
If the two (2) arbitrators so appointed cannot agree on the
fair market rental value for the renewal term within such
60-day period, the two (2) arbitrators shall within five (5)
days thereafter appoint a third arbitrator who shall be a
licensed real estate broker with at least ten (10) year's
experience in leasing office space in the area in which the
Building is located. The third arbitrator so appointed
shall independently determine the fair market rental value
for the Premises for the renewal term within thirty (30)
days after appointment, by selecting from the proposals
submitted by each of the first two arbitrators the one that
most closely approximates the third arbitrator's
determination of such fair market rental value. The third
arbitrator shall have no right to adopt a compromise or
middle ground or any modification of either of the proposals
submitted by the first two arbitrators. The proposal chosen
by the third arbitrator as most closely approximating the
third arbitrator's determination of the fair market rental
value shall constitute the decision and award of the
arbitrators and shall be final and binding on the parties.
Each party shall pay the fees and expenses of the arbitrator
appointed by such party and one-half (1/2) of the fees and
expenses of the third arbitrator.
If either party fails to appoint an arbitrator, or if either
of the first two arbitrators fails to submit his or her
proposal of fair market
47
<PAGE>
rental value to the other party, in each case within the
time periods set forth above, then the decision of the other
party's arbitrator shall be considered final and binding.
In the event the third arbitrator fails to present a fair
market rental value within such 30-day period, then by
mutual consent of the Landlord and Tenant :
(a) the time period will be extended, or
(b) If either Landlord or Tenant do not wish to extend the
time period, a fourth arbitrator shall be selected by
the first two arbitrators and a new thirty (30) day
period shall begin.
(5) Tenant's right to exercise the option to renew under this Paragraph
39E shall be conditioned upon Tenant directly occupying no less than 80%
of the entire Premises at the time of exercise of the option and
commencement of the renewal term.
(6) Any exercise by Tenant of the option to renew under this Paragraph 39E
shall be irrevocable. If requested by Landlord, Tenant agrees to execute a
lease amendment reflecting the foregoing terms and conditions, prior to
the commencement of the renewal term. The option to renew granted under
this Paragraph 39E is not transferable; the parties hereto acknowledge and
agree that they intend that the option to renew this Lease under this
Paragraph shall be "personal" to the specific Tenant named in this Lease
(the "Original Tenant") and any Affiliate and that in no event will any
other assignee or sublessee have any rights to exercise such option to
renew.
All references in this Paragraph 39E to the "Premises" shall mean and
refer to the entire Premises or if Tenant elects to renew this Lease
as to less than the entire Premises, as applicable.
F. Arbitration.
(1) Any claim, controversy or dispute, whether sounding in
contract, statute, tort, fraud, misrepresentation, or other legal theory,
related directly or indirectly to this Lease, whenever brought and whether
between the parties to this Lease or between one of the parties to this
Lease and the employees, agents, or affiliated businesses of the other
party, shall be resolved by arbitration as prescribed in this section.
The Federal Arbitration Act, 9 U.S.C. (S)(S) 1-15, not state law, shall
govern the arbitrability of all claims.
(2) Notwithstanding the foregoing, the following claims,
controversies or disputes shall not be resolved by arbitration: (1) any
action by Landlord that seeks repossession of the Premises as part of
Landlord's remedy, (2) any action seeking an injunction or temporary
restraining order, (3) any action seeking any prejudgment remedy, (4) any
action founded upon fraud, willful misconduct, bad faith or other tortious
action, and (5) any matter not related to this Lease or the Premises.
(3) The arbitration shall be conducted under the then current
rules of the American Arbitration Association (the "AAA"). Where no
disclosed claim or counterclaim exceeds $300,000, exclusive of interest
and attorneys' fees, there shall be one arbitrator, who shall be an
attorney with at least ten years' experience in the commercial real estate
field. In all other cases, there shall be three arbitrators, at least one
of whom shall be an attorney with at least ten years' experience in the
commercial real estate field. Subject to the foregoing, the arbitrator or
arbitrators shall be selected in accordance with AAA procedures from a
list of qualified people maintained by the AAA. The arbitration shall be
conducted in the regional AAA office closest to where the claim arose, and
all expedited procedures prescribed by the AAA rules shall apply.
48
<PAGE>
(4) There shall be no discovery other than the exchange of
information which is provided to the arbitrator or arbitrators by the
parties. The arbitrator or arbitrators shall have authority only to award
compensatory damages and shall not have authority to award punitive
damages or other noncompensatory damages; the parties hereby waive all
rights to and claims for monetary awards other than compensatory damages.
The decision and award of the arbitrator or arbitrators shall be final and
binding, and judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The non-prevailing party
shall pay the fees and expenses of the arbitrator or arbitrators, as well
as the costs and attorneys' fees of the prevailing party.
(5) All parties shall proceed in good faith to conclude the
arbitration proceedings within 180 days after either party delivers to the
other a demand for arbitration, and the arbitrator or arbitrators shall be
empowered to impose sanctions for any party's failure to do so.
(6) If any party files a judicial or administrative action
asserting claims subject to arbitration as prescribed herein, and another
party successfully stays such action or compels arbitration of said
claims, the party filing said action shall pay the other party's costs and
expenses incurred in seeking such stay or compelling arbitration,
including reasonable attorneys' fees.
G. Termination of Existing Lease. Effective on the day immediately
preceding the Term Commencement Date (the "Termination Date"), Landlord
and Tenant agree that the Existing Lease (defined below) shall terminate
and be of no further force or effect, except that all liabilities, duties
and obligations which have arisen or accrued under the Existing Lease by
either party prior to the Termination Date shall survive the Termination
Date and remain continuing liabilities, duties and/or obligations of such
party fully enforceable in accordance with the terms of this Lease. The
term "Existing Lease" shall mean that certain Lease dated as of August 27,
1998, by and between Landlord and Tenant with respect to 2900 31st Street,
Suites 150. The same Termination of Lease terms shall apply as applicable
for Suite 160, as amended by that certain First Amendment to Lease and as
further amended by that certain Second Amendment to Lease by and between
Landlord and Tenant.
H. Must Take Space
(1) So long as Tenant is not in default, Tenant shall be required
-------------------------------------------------------------
to lease from Landlord and Landlord shall be required to lease to
-----------------------------------------------------------------
Tenant those certain premises located on the first and second floors
--------------------------------------------------------------------
of the Building (collectively, the "Must Take Space") as follows:
-----------------------------------------------------------------
(a) The rentable area on the first floor, Suite 1000 and the
----------------------------------------------------------------
rentable area on the second floor, Suite 2000 (collectively the "Must
---------------------------------------------------------------------
Take Space") on or before but in no event later than December 1, 1999;
----------------------------------------------------------------------
and
---
(b) Landlord shall deliver possession of the Must Take Space
----------------------------------------------------------------
to Tenant and Tenant shall accept such space no later than December 1,
----------------------------------------------------------------------
1999 or upon the substantial completion of the Tenant Improvements,
-------------------------------------------------------------------
whichever occurs earlier (hereinafter called "Must Take Commencement
--------------------------------------------------------------------
Date") and Tenant shall be obligated to pay rent on the Must Take
-----------------------------------------------------------------
Space beginning on the Must Take Commencement Date. Prior to but no
-------------------------------------------------------------------
later than July 1, 1999, Tenant shall provide to Landlord for
-------------------------------------------------------------
Landlord's approval and execution, signed drawings of the proposed
------------------------------------------------------------------
tenant improvements of Must Take Space acceptable to Landlord. Such
-------------------------------------------------------------------
drawings shall conform to building standard materials. Landlord and
-------------------------------------------------------------------
Tenant agree that construction of tenant improvements in the Must Take
---------------------------------------------------------------------
Space shall be at the sole cost and expense of the Landlord.
------------------------------------------------------------
49
<PAGE>
(c) Commencement date of the Term with respect to the Must
---------------------------------------------------------------
Take Space shall be referred to as the "Must Take Commencement Date".
---------------------------------------------------------------------
The Term Commencement Date shall mean the date upon which the space is
----------------------------------------------------------------------
substantially completed and Tenant may take occupancy. The Term with
--------------------------------------------------------------------
respect to the Must Take Space shall end concurrently with the
--------------------------------------------------------------
expiration of the term of this Lease as to the original Premises, as
--------------------------------------------------------------------
the Term may be renewed pursuant to Paragraph 39E, unless sooner
----------------------------------------------------------------
terminated pursuant hereto.
---------------------------
(2) The Basic Rent payable for the Must Take Space shall be per
---------------------------------------------------------------
the rent schedule listed on the Basic Lease Information.
--------------------------------------------------------
(3) The Must Take Space shall be leased to Tenant and Landlord
--------------------------------------------------------------
shall construct the improvements pursuant to Exhibit "C" utilizing
------------------------------------------------------------------
building standard materials, with the exception of modifications
----------------------------------------------------------------
pursuant to approved drawings that have been signed by Tenant and
-----------------------------------------------------------------
Landlord.
---------
(4) Landlord shall have no liability to Tenant for any damages
--------------------------------------------------------------
resulting from any delay in delivering possession of the Must Take
------------------------------------------------------------------
Space to Tenant, if said delay is caused by the holding over of a
-----------------------------------------------------------------
previous tenant of the Must Take Space; provided, however, Landlord,
--------------------------------------------------------------------
at its expense, shall take all action reasonably necessary, including
---------------------------------------------------------------------
required legal proceedings, to secure possession of the Must Take
-----------------------------------------------------------------
Space prior to the Must Take Commencement Date therefor.
--------------------------------------------------------
I. Expansion Rights
---------------------
(1) On June 1, 1999 and each succeeding June 1st during the initial
--------------------------------------------------------------------
term of the lease, Tenant may advise Landlord in writing of its
---------------------------------------------------------------
intent to expand into adjoining space in the 3420 Ocean Park
------------------------------------------------------------
Boulevard Building then currently occupied by "Other Tenant(s)".
----------------------------------------------------------------
If Landlord has the right under the "Other Tenants" Lease
---------------------------------------------------------
Agreement to relocate such "Other Tenants" Landlord will
--------------------------------------------------------
notify such "Other Tenants" as called for under their lease of
--------------------------------------------------------------
its intent to relocate them and advise Tenant of the date they
--------------------------------------------------------------
can expect occupancy of such space.
-------------------------------------
The above clause is subject to the Landlord actually having
-----------------------------------------------------------
comparable vacant space available in which to relocate such
-----------------------------------------------------------
"Other Tenant(s).
-----------------
Landlord will then relocate tenant(s) to other premises ("Other
---------------------------------------------------------------
Premises") within the Project, provided that:
---------------------------------------------
(a) Other Premises shall be similar in area and available
----------------------------------------------------------
for tenant(s) relocation; and
-----------------------------
(b) Tenant shall pay the expense of physically moving
------------------------------------------------------
tenant(s), tenant(s)' property and equipment to the
---------------------------------------------------
premises, installation of phone and data lines,
-----------------------------------------------
reprinting of stationery, and other incidental costs
----------------------------------------------------
associated with relocation, and shall, at Tenant's sole
-------------------------------------------------------
cost, pay for the buildout of Other Premises with
-------------------------------------------------
improvements substantially similar to those in
----------------------------------------------
tenant(s)' existing premises(s).
--------------------------------
J. Expansion Space Rents
--------------------------
The rents for the "Expansion Space" shall be at the then current
----------------------------------------------------------------
rates per the rent schedule of the Basic Lease Information of this Lease,
-------------------------------------------------------------------------
but in no event less than $1.95 per rentable square foot. The expansion
-----------------------------------------------------------------------
space shall be constructed per the Lease Improvement Agreement, Exhibit
-----------------------------------------------------------------------
"C" of this Lease.
------------------
50
<PAGE>
40. STANDARD FOR CONDUCT AND CONSENT
Notwithstanding anything to the contrary contained in the Lease,
except to the extent this Lease provides that Landlord's or Tenant's
approval or consent may be given or withheld in such party's "sole" or
"absolute" discretion, any time the consent of Landlord or Tenant is
required, such consent shall not be unreasonably withheld, conditioned or
delayed. Except as otherwise provided in this Lease, whenever this Lease
grants Landlord or Tenant the right to take action, exercise discretion,
establish rules and regulations or make allocations or other
determinations, Landlord and Tenant shall act reasonably and in good
faith.
41. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR
PERSONAL REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY
WAIVES TRIAL BY JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN
THE COUNTY IN WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO
PERSONAL JURISDICTION OF THE COURTS OF THE STATE IN WHICH THE PROPERTY IS
LOCATED, IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
HERETO AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT,
TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR
DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR
OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT
LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT
WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 41. THE
PROVISIONS OF THIS PARAGRAPH 41 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
The terms of that certain Addendum attached to this Lease are
incorporated herein and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By:_____________________________
John Davenport
Regional Senior Vice President
Date:____________________
TENANT
Stamps.com, Inc.,
a Delaware corporation
51
<PAGE>
By:_____________________________
Its:__________________________
By:_____________________________
Its:__________________________
Date:____________________
52
<PAGE>
EXHIBIT 10.24
STAMPMASTER, INC.
SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
February 26, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Purchase and Sale of Preferred Stock and Warrants......................1
1.1 Sale and Issuance of Series A Preferred Stock and Warrants.......1
1.2 Closing; Delivery................................................1
2. Representations and Warranties of the Company..........................2
2.1 Organization, Good Standing and Qualification....................2
2.2 Capitalization...................................................2
2.3 Subsidiaries.....................................................2
2.4 Authorization....................................................3
2.5 Valid Issuance of Securities.....................................3
2.6 Governmental Consents............................................3
2.7 Litigation.......................................................4
2.8 Intellectual Property............................................4
2.9 Compliance with Other Instruments................................4
2.10 Agreements; Action..............................................5
2.11 Disclosure......................................................5
2.12 No Conflict of Interest.........................................6
2.14 Title to Property and Assets....................................6
2.15 Financial Statements............................................6
2.16 Changes.........................................................7
2.17 Employee Benefit Plans..........................................8
2.18 Tax Returns and Payments........................................8
2.19 Insurance.......................................................8
2.20 Labor Agreements and Actions....................................8
2.21 Confidential Information and Invention Assignment Agreements....8
2.22 Permits.........................................................8
2.23 Corporate Documents.............................................9
2.24 Environmental and Safety Laws...................................9
2.25 Qualified Small Business Stock..................................9
2.26 Offering........................................................9
3. Representations and Warranties of the Purchasers.......................9
3.1 Authorization....................................................9
3.2 Purchase Entirely for Own Account................................9
3.3 Disclosure of Information.......................................10
3.4 Restricted Securities...........................................10
3.5 No Public Market................................................10
3.6 Legends.........................................................10
3.7 Accredited Investor.............................................11
4. Conditions of the Purchasers' Obligations at Closing..................11
4.1 Representations and Warranties..................................11
4.2 Performance.....................................................11
4.3 Compliance Certificate..........................................11
4.4 Qualifications..................................................11
-i-
<PAGE>
4.5 Opinion of Company Counsel......................................11
4.6 Board of Directors..............................................11
4.7 Investors' Rights Agreement.....................................11
4.8 Warrant.........................................................12
4.9 Voting Agreement................................................12
4.10 Restated Certificate...........................................12
4.11 Confidential Information and Invention Assignment Agreement....12
4.12 Minimum Investment.............................................12
4.13 Due Diligence..................................................12
4.14 Participation of all Purchasers................................12
4.15 Patent Assignments and License Back............................12
5. Conditions of the Company's Obligations at Closing....................12
5.1 Representations and Warranties..................................12
5.2 Performance.....................................................12
5.3 Qualifications..................................................13
6. Covenants.............................................................13
6.1 Stock Option Vesting............................................13
6.2 Chief Executive Officer Search..................................13
7. Miscellaneous.........................................................13
7.1 Survival of Warranties..........................................13
7.2 Transfer; Successors and Assigns................................13
7.3 Governing Law...................................................13
7.4 Counterparts....................................................13
7.5 Titles and Subtitles............................................14
7.6 Notices.........................................................14
7.7 Finder's Fee....................................................14
7.8 Fees and Expenses...............................................14
7.9 Attorney's Fees.................................................14
7.10 Amendments and Waivers.........................................14
7.11 Severability...................................................14
7.12 Delays or Omissions............................................15
7.13 Entire Agreement...............................................15
7.14 Corporate Securities Law.......................................15
7.15 Confidentiality................................................15
7.16 Exculpation Among Purchasers...................................15
-ii-
<PAGE>
STAMPMASTER, INC.
SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
-------------------------------------------------------
This Series A Preferred Stock and Warrant Purchase Agreement (the
"Agreement") is made as of the 26th day of February, 1998 by and between
- ----------
StampMaster, Inc., a Delaware corporation (the "Company") and the investors
-------
listed on Exhibit A attached hereto (each a "Purchaser" and together the
--------- ---------
"Purchasers").
- -----------
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock and Warrants.
-------------------------------------------------
1.1 Sale and Issuance of Series A Preferred Stock and Warrants.
----------------------------------------------------------
(a) The Company shall adopt and file with the Secretary of
State of the State of Delaware on or before the Closing (as defined below) the
First Amended and Restated Certificate of Incorporation in the form attached
hereto as Exhibit B (the "Restated Certificate").
--------- --------------------
(b) Subject to the terms and conditions of this Agreement,
each Purchaser agrees to purchase at the Closing and the Company agrees to sell
and issue to each Purchaser at the Closing that number of shares of Series A
Preferred Stock set forth opposite each such Purchaser's name on Exhibit A
---------
attached hereto at a purchase price of $0.40 per share and a warrant in the form
attached hereto as Exhibit C to purchase that number of shares of Series B
---------
Preferred Stock indicated with respect to such Purchaser on Exhibit A at a
---------
purchase price of $0.75 per share of Series B Preferred Stock issuable upon
exercise of the warrant. The shares of Series A Preferred Stock and the warrants
issued to the Purchaser pursuant to this Agreement shall be hereinafter referred
to as the "Stock" and the "Warrants," respectively, and the shares of Series B
----- --------
Preferred Stock issuable upon exercise of the Warrants shall be hereinafter
referred to as the "Warrant Stock." The Stock, the Warrants, the Warrant Stock,
-------------
and the Common Stock issuable upon conversion of the Stock and the Warrant Stock
shall be hereinafter referred to as the "Securities."
----------
1.2 Closing; Delivery.
-----------------
(a) The purchase and sale of the Stock and the Warrants
shall take place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo
Park, California, at 9:00 a.m., on February 26, 1998, or at such other time and
place as the Company and the Purchasers mutually agree upon, orally or in
writing (which time and place are designated as the "Closing").
-------
(b) At the Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased thereby against
payment of the purchase price therefor by check payable to the Company or by
wire transfer to the Company's bank account.
<PAGE>
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit D, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and proposed to be conducted. The Company
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist, immediately prior to the Closing, of:
(a) 10,000,000 shares of Preferred Stock, of which 3,800,000
shares have been designated Series A Preferred Stock, none of which are issued
and outstanding immediately prior to the Closing and 6,200,000 shares have been
designated Series B Preferred Stock, none of which are issued and outstanding.
The Company has reserved 6,020,000 shares of Series B Preferred Stock for
issuance upon exercise of the Warrants.
(b) 20,000,000 shares of Common Stock, 3,265,000 shares of
which are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly and validly authorized, fully
paid and are nonassessable and issued in compliance with all applicable federal
and state securities laws.
(c) The Company has reserved 3,235,000 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to the 1998 Stock Plan adopted by the Board of Directors (the "Stock
-----
Plan").
- ----
(d) The outstanding shares of Common Stock are owned by the
stockholders and in the amounts specified on Exhibit H.
---------
(e) Except for (i) the Warrants, (ii) conversion privileges
of the Preferred Stock, (iii) outstanding options issued pursuant to the Stock
Plan, and (iv) rights of first offer set forth in the Investors' Rights
Agreement (as defined below), there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock. Except for the
Voting Agreement, substantially in the form attached hereto as Exhibit F (the
---------
"Voting Agreement") the Company is not a party or subject to any agreement or
----------------
understanding, and there is no agreement or understanding between any person
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
-2-
<PAGE>
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Investors' Rights Agreement, in
the form attached hereto as Exhibit E (the "Investors' Rights Agreement"), the
--------- ---------------------------
Voting Agreement and collectively with this Agreement, the "Agreements"), the
----------
performance of all obligations of the Company hereunder and thereunder and the
authorization, issuance, sale and delivery of the Stock and the Common Stock
issuable upon conversion of the Stock (together, the "Securities") has been
----------
taken or will be taken prior to the Closing, and the Agreements, when executed
and delivered by the Company, shall constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors' rights generally, as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (ii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock and the Warrants that
----------------------------
are being issued to the Purchasers hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement, the
Investors' Rights Agreement and applicable state and federal securities laws.
Based in part upon the representations of the Purchasers in this Agreement, the
Stock and Warrants will be issued in compliance with all applicable federal and
state securities laws. The Warrant Stock has been duly and validly reserved for
issuance, and upon issuance in accordance with the terms of the Warrants and the
Restated Certificate, shall be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Investors' Rights Agreement and applicable
federal and state securities laws and will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock and the Warrant Stock has been duly and validly reserved
for issuance, and upon issuance in accordance with the terms of the Restated
Articles, shall be duly and validly issued, fully paid and nonassessable and
free of restrictions on transfer other than restrictions on transfer under this
Agreement, the Investors' Rights Agreement and applicable federal and state
securities laws and will be issued in compliance with all applicable federal and
state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, other applicable state securities laws and Regulation D of the
Securities Act of 1933, as amended (the "Securities Act"), which filing will be
--------------
effected within fifteen (15) days after the sale of the Stock.
-3-
<PAGE>
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
the Agreements or the right of the Company to enter into them, or to consummate
the transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition or affairs of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing. Neither the Company nor any of its subsidiaries
is a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company or any of its
subsidiaries currently pending or which the Company or any of its subsidiaries
intends to initiate.
2.8 Intellectual Property. The Company owns or possesses sufficient
---------------------
legal rights to all patents, trademarks, service marks, tradenames, copyrights,
trade secrets, licenses, information and proprietary rights and processes
necessary for its business without any conflict with, or infringement of, the
rights of others. The Company has not received any communications alleging that
the Company has violated or, by conducting its business, would violate any of
the patents, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interest of the Company or that would conflict with the Company's
business. Neither the execution or delivery of this Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business as proposed, will conflict with or result in a breach of
the terms, conditions, or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such employee is now obligated.
The Company does not believe it is or will be necessary to use any inventions of
any of its employees (or persons it currently intends to hire) made prior to
their employment by the Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any
provisions of its Restated Certificate, Bylaws or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound
or, to its knowledge, of any provision of federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
the Agreements and the consummation of the transactions contemplated hereby or
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company.
-4-
<PAGE>
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution agreement or other agreement.
2.10 Agreements; Action.
------------------
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of,
$25,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right to or from the Company or any of its subsidiaries, or (iii)
the grant of rights to manufacture, produce, assemble, license, market, or sell
its products to any other person or affect the Company's exclusive right to
develop, manufacture, assemble, distribute, market or sell its products.
(c) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $25,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
(d) The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the merger of the Company with or into any such corporation or
corporations, (ii) with any representative of any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company would be disposed of, or
(iii) regarding any other form of liquidation, dissolution or winding up of the
Company.
2.11 Disclosure. The Company has fully provided the Purchasers with
----------
all the information that the Purchasers have requested for deciding whether to
acquire the Stock and all information that the Company believes is reasonably
necessary to enable the Purchasers to make such a decision, including certain of
the Company's projections describing its proposed business (collectively, the
"Business Plan"). To the Company's knowledge, no representation or warranty of
-------------
the Company contained in this Agreement and the exhibits attached hereto, any
certificate furnished or to be furnished to Purchasers at the Closing, or the
Business Plan (when read together) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. To the extent the Business Plan was prepared by
-5-
<PAGE>
management of the Company, the Business Plan and the financial and other
projections contained in the Business Plan were prepared in good faith (with the
exception of information prepared by third party sources and identified as such
in the Business Plan and to which the Company makes no representation except
that it has no basis to believe such sections are inaccurate); however, the
Company does not warrant that it will achieve such projections.
2.12 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees which amount does not in the aggregate exceed
$35,000. None of the Company's officers or directors, or any members of their
immediate families, are, directly or indirectly, indebted to the Company (other
than in connection with purchases of the Company's stock) or to the Company's
knowledge have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company except that officers, directors and/or shareholders of the Company may
own stock in (but not exceeding two percent of the outstanding capital stock of)
any publicly traded company that may compete with the Company. To the Company's
knowledge, none of the Company's officers or directors or any members of their
immediate families are, directly or indirectly, interested in any material
contract with the Company. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.13 Rights of Registration and Voting Rights. Except as
----------------------------------------
contemplated in the Investors' Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. To the Company's knowledge, except as contemplated in the
Voting Agreement, no stockholder of the Company has entered into any agreements
with respect to the voting of capital shares of the Company.
2.14 Title to Property and Assets. The Company owns its property
----------------------------
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.15 Financial Statements. The Company has made available to each
--------------------
Purchaser its unaudited financial statements (including balance sheet and income
statement) as of January 31, 1998 and for the period then ended (collectively,
the "Financial Statements"). The Financial Statements have been prepared in
--------------------
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except that the unaudited Financial
Statements may not contain all footnotes required by generally accepted
accounting principles. The Financial Statements fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject to normal year-end audit adjustments.
Except as set forth in the Financial Statements, the Company
-6-
<PAGE>
has no material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to January 31, 1998 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate are not material to the financial condition or operating
results of the Company.
2.16 Changes. Since January 31, 1998 there has not been:
-------
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement
by which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any
officer or key employee of the Company; and the Company, is not aware of any
impending resignation or termination of employment of any such officer or key
employee;
(i) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
-7-
<PAGE>
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or condition
of any character that might materially and adversely affect the business,
properties, prospects or financial condition of the Company; or
(m) any arrangement or commitment by the Company to do any of
the things described in this Section 2.16.
2.17 Employee Benefit Plans. The Company does not have any
----------------------
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.18 Tax Returns and Payments. The Company has filed all tax
------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due.
2.19 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.20 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To its knowledge, the Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment.
2.21 Confidential Information and Invention Assignment Agreements.
------------------------------------------------------------
Each employee, consultant and officer of the Company has executed an agreement
with the Company regarding confidentiality and proprietary information
substantially in the form or forms delivered to the counsel for the Purchasers.
The Company is not aware that any of its employees or consultants is in
violation thereof, and the Company will use its best efforts to prevent any such
violation.
2.22 Permits. The Company and each of its subsidiaries has all
-------
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could materially and adversely affect
the business, properties, prospects, or financial
-8-
<PAGE>
condition of the Company. The Company is not in default in any material respect
under any of such franchises, permits, licenses or other similar authority.
2.23 Corporate Documents. The Restated Certificate and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and shareholders and all actions by written consent
without a meeting by the directors and shareholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and shareholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.24 Environmental and Safety Laws. The Company is not in violation
-----------------------------
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
2.25 Qualified Small Business Stock. The Company, together with its
------------------------------
affiliates, (a) is, and at the Closing will be, a "Small Business," as such term
is defined in 13 C.F.R. (S) 107.700, and (b) is in compliance with all
applicable size standards set forth in 13 C.F.R. (S) 121.30(c). The Company is
not presently engaged in, and shall not be engaged in any activities for which a
small business investment company (an "SBIC") is prohibited from providing funds
under 13 C.F.R. (S) 107.720, nor shall the Company use the proceeds from the
sale of Series A Preferred Stock or the Warrants (or the proceeds from the
exercise of such Warrants) for any purpose for which an SBIC is prohibited from
providing funds under 13 C.F.R. (S) 107.720.
2.26 Offering. The offer, sale and issuance of the Securities as
--------
contemplated by this Agreement are exempt from the registration requirements of
the Securities Act, and neither the Company nor any authorized agent acting on
its behalf will take any action hereafter that would cause the loss of such
exemption.
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants to the Company that:
3.1 Authorization. Such Purchaser has full power and authority to
-------------
enter into this Agreement. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the
-9-
<PAGE>
Purchaser's execution of this Agreement the Purchaser hereby confirms, that the
Securities to be acquired by the Purchaser will be acquired for investment for
the Purchaser'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 Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, the Purchaser further
represents that the Purchaser does not presently have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
3.3 Disclosure of Information. The Purchaser has had an opportunity
-------------------------
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the Business Plan and any other
written information delivered by the Company to the Purchaser, were intended to
describe the aspects of the Company's business which it believes to be material.
3.4 Restricted Securities. The Purchaser 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 Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser 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 Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser 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 Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 No Public Market. The Purchaser understands that no public
----------------
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 Legends. The Purchaser 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:
(a) "THE SHARES 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
-10-
<PAGE>
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."
(b) Any legend set forth in the other Agreements.
(c) 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.
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act as
presently in effect.
4. Conditions of the Purchasers' Obligations at Closing. The obligations
----------------------------------------------------
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.5 Opinion of Company Counsel. The Purchasers shall have received
--------------------------
from Venture Law Group, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit G.
---------
4.6 Board of Directors. As of the Closing, the Board shall be
------------------
comprised of Mohan Ananda, Tom Bruggere, Tom Clancy, David Fogelsong, Jeff Brown
and one vacancy.
4.7 Investors' Rights Agreement. The Company, each Purchaser and
---------------------------
Founder shall have executed and delivered the Investors' Rights Agreement in
substantially the form attached as Exhibit E.
---------
-11-
<PAGE>
4.8 Warrant. The Company shall have executed and delivered a Series
-------
B Preferred Stock Purchase Warrant to each of the Purchasers substantially in
the form attached as Exhibit F.
---------
4.9 Voting Agreement. The Company, each Purchaser and Founder shall
----------------
have executed and delivered the Voting Agreement in substantially the form
attached as Exhibit G.
---------
4.10 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the Closing
Date, which shall continue to be in full force and effect as of the Closing
Date.
4.11 Confidential Information and Invention Asignment Agreement. The
----------------------------------------------------------
Company and each of its employees shall have entered into the Company's standard
form Confidential Information and Invention Assignment Agreement, in
substantially the form provided to the Purchasers.
4.12 Minimum Investment. The Company shall have agreed to issue and
------------------
sell to the Purchasers and the Purchasers shall have agreed to purchase at least
3,750,000 shares of Series A Preferred Stock.
4.13 Due Diligence. The Purchasers shall, in their sole discretion
-------------
have completed their legal, intellectual property and financial due diligence
and the results of such due diligence shall, in the sole discretion of the
Purchasers, be acceptable to the Purchasers and their legal counsel. The
Schedule of Exceptions delivered to the Purchasers by the Company shall contain
no exception deemed unacceptable by the Purchasers in their sole discretion.
4.14 Participation of all Purchasers. Each Purchaser identified on
-------------------------------
Exhibit A shall have invested to the extent specified in such exhibit.
4.15 Patent Assignments and License Back. The patent assignments and
-----------------------------------
license back identified on Exhibit I shall have been performed to the
satisfaction of the Purchasers and their legal counsel and shall be binding on
the parties thereto.
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions
-----------
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.
-12-
<PAGE>
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. Covenants
---------
6.1 Stock Option Vesting. Unless otherwise agreed to by the
--------------------
Company's Board of Directors, any and all stock options granted by the Company
to any employee or consultant shall vest in equal monthly installments over a
four year period, provided, however, that the first year of such vesting may be
consolidated into a single annual installment.
6.2 Chief Executive Officer Search. The Company will initiate a
------------------------------
search for a new Chief Executive Officer once the Purchasers have invested an
aggregate of $600,000 for Series B Preferred Stock of the Company.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties and representations of the Company and the Purchasers
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing for a period of one (1) year
following the Closing, except for the the warranties and representations in
Section 2.8 which shall survive the execution and delivery of this Agreement and
the Closing for a period of three (3) years following the Closing. Except for
the covenants set forth in Section 2.25 which shall survive indefinitely, the
covenants set forth in this Agreement shall survive until the consummation of an
initial public offering of the Company's common stock or the merger, acquisition
or sale of substantially all of the assets of the Company in which the
stockholders of the Company immediately prior to such event do not own a
majority of the outstanding shares of the surviving corporation.
7.2 Transfer; Successors and Assigns. The terms and conditions of
--------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto 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.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
-13-
<PAGE>
7.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page or Exhibit A hereto, or as
---------
subsequently modified by written notice.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Fees and Expenses. Each party shall be responsible for any fees
-----------------
or expenses, incurred by it with respect to this Agreement, the documents
referred to herein and the transactions contemplated hereby and thereby except
that the Company shall pay the fees and costs of patent counsel to the
Purchasers and Brobeck, Phleger & Harrison incurred in connection with the
transactions contemplated by this Agreement which together shall not exceed
$20,000.
7.9 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.10 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Common Stock issued or issuable upon conversion of
the Stock. Any amendment or waiver effected in accordance with this Section
7.10 shall be binding upon the Purchasers and each transferee of the Stock (or
the Common Stock issuable upon conversion thereof), each future holder of all
such securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
-14-
<PAGE>
7.12 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
7.13 Entire Agreement. This Agreement, and the documents referred to
----------------
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
7.14 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.15 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other parties hereto, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder. The provisions of this Section 7.15
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
7.16 Exculpation Among Purchasers. Each Purchaser acknowledges that
----------------------------
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Securities.
-15-
<PAGE>
[Signature Pages Follow]
-16-
<PAGE>
The parties have executed this Series A Preferred Stock and Warrant
Purchase Agreement as of the date first written above.
COMPANY:
STAMPMASTER, INC.
By:______________________________________
Mohan Ananda, President
Address: 4500 East Thousand Oaks Blvd.,
Suite 100
Westlake Village, CA 91362
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series A Preferred Stock and Warrant
Purchase Agreement as of the date first written above.
PURCHASERS:
BRENTWOOD ASSOCIATES VIII L.P.
By: Brentwood VIII Ventures, LLC
Its General Partner
By:___________________________________
Managing Member
Address: 11150 Santa Monica Blvd.,
Suite 1200
Los Angeles, CA 90025
BRENTWOOD AFFILIATES FUND
L.P.
By: Brentwood VII Ventures, L.P.
Its General Partner
By:___________________________________
General Partner
Address: 11150 Santa Monica Blvd.,
Suite 1200
Los Angeles, CA 90025
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series A Preferred Stock and Warrant
Purchase Agreement as of the date first written above.
PURCHASERS:
SBIC PARTNERS, L.P.
201 Main Street, Suite 2302
Fort Worth, Texas 76102
By: Forrest Binkley & Brown, L.P.,
General Partner
By: Forrest Binkley & Brown Venture Co.,
General Partner
By:___________________________________
Jeffrey J. Brown
Office of the President
By: SL-SBIC Partners, L.P.,
General Partner
By: FW-SBIC, Inc.,
General Partner
By:__________________________________
Peter Sterling
Chairman
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series A Preferred Stock and Warrant
Purchase Agreement as of the date first written above.
PURCHASERS:
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV,
Its General Partner
By:______________________________
Charles D. Martin, General Partner
Address: 5000 Birch Street
Suite 6200
Newport Beach, CA 92660
Facsimile Number: (714) 833-3652
Attention: Thomas N. Clancy, Venture
Partner
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners, IV,
Its General Partner
By:____________________________________
Charles D. Martin, General Partner
Address: 5000 Birch Street
Suite 6200
Newport Beach, CA 92660
Facsimile Number: (714) 833-3652
Attention: Thomas N. Clancy, Venture
Partner
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series A Preferred Stock and Warrant
Purchase Agreement as of the date first written above.
PURCHASERS:
VLG INVESTMENTS 1998
By:_________________________________
Mark L. Silverman, Director
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
MARK A. MEDEARIS
____________________________________
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
EXHIBITS
--------
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Amended and Restated Certificate of Incorporation
Exhibit C - Form of Warrant
Exhibit D - Schedule of Exceptions to Representations and Warranties
Exhibit E - Form of Investors' Rights Agreement
Exhibit F - Form of Voting Agreement
Exhibit G - Form of Legal Opinion of Venture Law Group
Exhibit H Schedule of Stockholders
Exhibit I Patent Assignment and License
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
SERIES A SERIES A WARRANTS
PREFERRED INVESTMENT FOR SERIES B
PURCHASERS STOCK PREFERRED
STOCK
- -------------------------- --------------------- ----------------- --------------------
<S> <C> <C> <C>
Brentwood Associates 1,200,000 $ 480,000* 1,920,000
VIII, L.P.
Brentwood Affiliates 50,000 $ 20,000 80,000
Fund, L.P.
SBIC Partners, L.P. 1,250,000 $ 500,000* 2,000,000
Enterprise Partners IV, 1,150,000 $ 460,000* 1,840,000
L.P.
Enterprise Partners IV 100,000 $ 40,000 160,000
and Associates, L.P.
VLG Investments 1998 10,000 $ 4,000 16,000
Mark A. Medearis 2,500 $ 1,000 4,000
----------------------- -------------------------------------------------
3,762,500 $1,505,000 6,020,000
</TABLE>
*Seventy thousand dollars ($70,000) shall be in the form of cancellation of
principal indebtedness under a Promissory Note to the Company dated January 20,
1998.
<PAGE>
EXHIBIT B
---------
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
EXHIBIT C
---------
FORM OF WARRANT
<PAGE>
EXHIBIT D
---------
SCHEDULE OF EXCEPTIONS TO
REPRESENTATIONS AND WARRANTIES
<PAGE>
EXHIBIT E
---------
FORM OF INVESTORS' RIGHTS AGREEMENT
<PAGE>
EXHIBIT F
---------
FORM OF VOTING AGREEMENT
<PAGE>
EXHIBIT G
---------
FORM OF LEGAL OPINION
OF
VENTURE LAW GROUP
<PAGE>
EXHIBIT H
---------
SCHEDULE OF STOCKHOLDERS
<PAGE>
SCHEDULE OF STOCKHOLDERS
<TABLE>
<CAPTION>
Name Number of Shares Class of Stock
---------------------------------------------------------------------------
<S> <C> <C>
Mohan Ananda 1,448,397 Common
Steve Krause 626,307 Common
James A.C. McDermott 282,662 Common
Jeffrey L. Green 282,662 Common
Ari R. Engelberg 282,662 Common
Suresh Kolachalam 202,776 Common
Gerald W. Simmons 32,500 Common
Dave Baltes 28,877 Common
Phalkun Tan 28,877 Common
Sukumar Chakravarthy 10,140 Common
Jairam Agaram 10,140 Common
Nagendra Ramaswami 7,000 Common
Girish Venkat 7,000 Common
Mark Medearis 3,000 Common
VLG Investments 1998 12,000 Common
TOTAL 3,265,000 Common
---------
</TABLE>
<PAGE>
EXHIBIT I
---------
PATENT ASSIGNMENT AND LICENSE
<PAGE>
STAMPS.COM INC.
AMENDED AND RESTATED VOTING AGREEMENT
-------------------------------------
This Amended and Restated Voting Agreement (the "Agreement") is made as of
---------
the 17th day of February 1999, by and among Stamps.com Inc., a Delaware
corporation (the "Company"), Mohan Ananda, Steve Krause, Ari R. Engelberg,
-------
Jeffrey L. Green, James A.C. McDermott and Suresh Kolachalam (the "Founders"),
--------
and the holders of shares of Series A, Series B and Series C Preferred Stock
listed on Exhibit A (collectively, the "Investors" and individually, the
--------- ---------
"Investor").
--------
RECITALS
--------
WHEREAS, the Company (under its previous name StampMaster, Inc.), the
Founder and the holders of Series A and Series B Preferred Stock (the "Original
--------
Investors") are parties to a Voting Agreement dated February 26, 1998 (the
- ---------
"Original Agreement");
- -------------------
WHEREAS, the Company and certain investors in the Company's Series C
Preferred Stock (the "Series C Investors") have entered into a Series C
------------------
Preferred Stock Purchase Agreement (the "Purchase Agreement") of even date
------------------
herewith pursuant to which the Company desires to sell to the Series C Investors
and the Series C Investors desire to purchase from the Company shares of the
Company's Series C Preferred Stock;
WHEREAS, a condition to the Series C Investors' obligations under the
Purchase Agreement is that the Company, the Founders and the Investors enter
into this Agreement for the purpose of setting forth the terms and conditions
pursuant to which the Investors and the Founders shall vote their shares of the
Company's voting stock in favor of certain designees to the Company's Board of
Directors;
WHEREAS, the Company, the Original Investors and the Founders each desire
to induce the Series C Investors to purchase shares of Series C Preferred Stock
pursuant to the Purchase Agreement by amending and restating the Original
Agreement (pursuant to Section 11(b) of the Original Agreement) and agreeing to
the terms and conditions set forth herein.
AGREEMENT
---------
The parties agree as follows:
1. Election of Directors and Board Representation. At each annual meeting
----------------------------------------------
of the stockholders of the Company, or at any meeting of the stockholders of the
Company at which members of the Board of Directors of the Company are to be
elected, or whenever members of the Board of Directors are to be elected by
written consent, the Founders and the Investors agree to vote and act with
respect to all of their shares of voting securities of the Company ("Shares") so
as to elect:
<PAGE>
(a) one (1) member as shall be designated, from time to time, by
Brentwood Associates ("Brentwood") and subsequent assignees and transferees of
Brentwood;
(b) one (1) member as shall be designated, from time to time, by
Enterprise Partners ("Enterprise") and subsequent assignees and transferees of
Enterprise;
(c) one (1) member as shall be designated, from time to time, by
Forest, Binkley & Brown ("FBB") and subsequent assignees and transferees of FBB;
(d) two (2) members as may be designated, from time to time, by the
holders of a majority of the Common Stock of the Company, one of which shall be
the Chief Executive Officer of the Company;
(e) one (1) member as may be designated, from time to time, by the
holders of a majority of the Series C Preferred Stock of the Company; and
(f) three(3) members as may be designated, from time to time, by all
of the other directors of the Company.
2. Certain Resignations or Removals. Any party or parties having the
--------------------------------
right to nominate a director pursuant to Section 1 also shall have the right to
request the resignation or removal of the director so nominated and elected. In
such event, such director shall immediately resign or be subject to removal by a
vote of the Founders and the Investors and each of the Founders and each
Investor shall vote all of their Shares entitled to vote in favor of such
removal. Likewise, in the event that any director does not continue to be
entitled to be nominated to be a director pursuant to Section 1, such director
shall immediately resign or be subject to removal by a vote of the Founder and
each of the Investors and the Founders and each of the Investors and Founders
shall vote all of their Shares entitled to vote in favor of such removal. In
either case, if such director shall fail to resign, any Founder or Investor
shall have the right to call a special meeting of stockholders for the purpose
of removing such director and each Founder and each Investor shall vote all
their Shares entitled to vote at such meeting in favor of removal.
3. Filling Vacancies. In the event of the death, removal or resignation
-----------------
of any director, any Founder or Investor shall have the right to call a special
meeting for the purpose of electing a director (provided that such director
shall be nominated in accordance with Section 1), to fill the vacancy created by
such death, removal or resignation. Any party that is entitled to designate a
director to fill such vacancy in accordance with Section 1 but that has failed
to do so prior to the election of a replacement by the Founder and Investors
hereunder, may, within thirty (30) days of the election provided for in the
preceding sentence, call a special meeting of stockholders for the purpose of
removing the director so elected and electing its nominee to the Board, or such
party may nominate a director for election at the next annual meeting of
stockholders to succeed the director nominated and elected by the Founders and
Investors pursuant to this Section 3. In any such event, each Founder and each
Investor shall vote all of their Shares entitled to vote in favor of any such
removal or election.
4. Notice of Certain Board Meetings. At least fourteen (14) days' notice
--------------------------------
shall be given to each member of the Board prior to any meeting of the Board at
which it is proposed that a vacancy
2
<PAGE>
on the Board be filled unless such notice shall have been waived in accordance
with the Delaware General Corporation Law.
5. Covenant to Vote. Each of the Investors and the Founder shall appear
----------------
in person or by proxy at any annual or special meeting of stockholders for the
purpose of obtaining a quorum and shall vote the Shares owned by such Investor
or Founder, either in person or by proxy, at any annual or special meeting of
stockholders of the Company called for the purpose of voting on the election of
directors or by consensual action of stockholders with respect to the election
of directors, in favor of the election of the directors nominated in accordance
with Sections 1 and 3 hereof. In addition, each Investor and the Founder shall
appear in person or proxy at any annual or special meeting stockholders for the
purpose of obtaining a quorum and shall vote the Shares owned by such Investor
or Founder and entitled to vote upon any other matter submitted to a vote of the
Stockholders of the Company in a manner so as to be consistent and not in
conflict with, and to implement, the terms of this Agreement.
6. No Voting or Conflicting Agreements. No Investor or Founder shall
-----------------------------------
grant any proxy or enter into or agree to be bound by any voting trust with
respect to the Shares held by such Investor or Founder nor shall any Investor or
Founder enter into any stockholder agreements or arrangements of any kind with
any person with respect to the Shares inconsistent with the provision of this
Agreement (whether or not such agreements and arrangements are with other
stockholders of the Company that are not parties to this Agreement). The
foregoing prohibition includes, but is not limited to, agreements or
arrangements with respect to the acquisition, disposition or voting of Shares
held by such Founder or Investors. No Founder or Investor shall act, for any
reason, as a member of a group or in concert with any other persons in
connection with the acquisition, disposition or voting of shares of the
Company's capital stock in any manner which is inconsistent with the provisions
of this Agreement.
7. Change in Number of Directors. The Founders and the Investors will not
-----------------------------
vote (other than by unanimous vote) for any amendment or change to the
Certificate of Incorporation or Bylaws providing for the election of more or
less than nine (9) directors, or any other amendment or change to the
Certificate of Incorporation or Bylaws inconsistent with the terms of this
Agreement.
8. Ownership. Each Founder represents and warrants to the Investors that
---------
(a) he now owns his Shares, free and clear of liens or encumbrances, and, except
for the Original Agreement, has not, prior to or on the date of this Agreement,
executed or delivered any proxy or entered into any other voting agreement or
similar arrangement other than one which has expired or terminated prior to the
date hereof, and (b) such Founder has full power and capacity to execute and
deliver and perform this Agreement, which has been duly executed and delivered
by, and evidences the valid and binding obligation of such Founder enforceable
in accordance with its terms.
9. Injunctive Relief. It is acknowledged that it will be impossible to
-----------------
measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in the event
of any such failure, an aggrieved person will be irreparably damaged and will
not have an adequate remedy at law. Any such person shall, therefore, be
entitled to injunctive relief, including specific performance, to enforce such
obligations, and if any action shall be
3
<PAGE>
brought in equity to enforce any of the provisions of this Agreement, none of
the parties hereto shall raise the defense that there is an adequate remedy at
law.
10. Legends. Each certificate representing shares of the Company's
-------
capital stock held by Founders or Investors or any assignee of the Founders or
Investors shall bear the following legend (the "Legend"):
------
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND AMONG
THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY (A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES
THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL
BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT."
The Company agrees that, during the term of this Agreement, it will not
permit to be removed (upon registration of transfer, reissuance or otherwise),
the Legend from any such certificate and will place or cause to be placed the
Legend on any new certificate issued to represent Common Stock or Shares
theretofore represented by a certificate carrying the Legend.
11. Termination. This Agreement shall terminate upon the earlier of (a) a
-----------
firm commitment underwritten public offering by the Company of shares of its
Common Stock pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended, or (b) 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 if the Company effects 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, provided that this
--------
Section 4 shall not apply to a merger effected exclusively for the purpose of
changing the domicile of the Company.
12. Miscellaneous.
-------------
(a) Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) Amendments and Waivers. Any term hereof may be amended or waived
----------------------
only with the written consent of the Company, a majority in interest of the
voting stock of the Company held by Founders, and each of the Investors. Any
amendment or waiver effected in accordance with this Section 12(b) shall be
binding upon the Company, the Founders and the Investors, and each of their
respective successors and assigns.
(c) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by
4
<PAGE>
overnight courier or sent by telegram or fax, or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address or
fax number as set forth on the signature page or on Exhibit A hereto, or as
---------
subsequently modified by written notice.
(d) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(e) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto 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.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(h) Amendment; Supersedence. The undersigned Founders and Original
-----------------------
Investors hereby agree to amend and restate the Original Agreement in accordance
with Section 11(b) of the Original Agreement. This Agreement supersedes in its
entirety the Original Agreement and the Original Agreement shall be of no
further force and effect.
[Signature Page Follows]
5
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
COMPANY:
STAMPS.COM INC.
By:
---------------------------------------
John M. Payne, Chief Executive Officer
Address: 2900 31st Street,
Suite 150
Santa Monica, CA 90405
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
SELIGMAN COMMUNICATIONS AND INFORMATION
FUND, INC.
By: J. & W. Seligman & Co. Incorporated,
its Investment Advisor
By:___________________________
Name:
Title:
Address: 100 Park Avenue, 7th Floor
New York, NY 10017
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
INTEL CORPORATION
By:_________________________________
Name: Arvind Sodhani
Title: Treasurer
Address:
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties have executed this Voting Agreement as of the date first
written above.
INVESTORS:
BROBECK, PHLEGER & HARRISON LLP
By:_________________________________
Name: Bruce R. Hallett
Title: Partner
Address: 38 Technology Drive
Irvine, California 92618
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
MEDIAONE INTERACTIVE
SERVICES, INC.
By:_________________________________
Name: Thomas Cullen
Title:
Address:
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
CHASE VENTURE CAPITAL
ASSOCIATES L.P.
By: Chase Capital Partners
Its General Partner
By:___________________________
Name:
Title:
Address: 380 Madison Avenue
12th Floor
New York, NY 10017
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
VULCAN VENTURES INC.
By:_________________________________
Name: William D. Savoy
Title: Vice President
Address: 110 110th Street
NE Suite 550
Bellevue, WA 98004
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
BAYVIEW INVESTORS, LTD
By:_________________________________
Name: Terry Otton
Title: Chief Financial Officer
Address:
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
DAVID C. BOHNETT AS TRUSTEE OF
THE DAVID C. BOHNETT LIVING
TRUST UNDER DECLARATION OF
TRUST DATED NOVEMBER 22, 1996
__________________________________________
David C. Bohnett, Trustee
Address: 9000 Clifton Way
Penthouse
Beverly Hills, California 90211
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS
MARVIN RUNYON
_________________________________
Address:
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
MAGELLEN TECHNOLOGIES, INC.
By:_________________________________
Name: George M. Aschenbach
Title:
Address:
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
BRENTWOOD ASSOCIATES VIII L.P.
By: Brentwood VIII Ventures, LLC
Its General Partner
By:
________________________________
Managing Member
Address: 11150 Santa Monica Blvd.,
Suite 1200
Los Angeles, CA 90025
BRENTWOOD AFFILIATES FUND
L.P.
By: Brentwood VII Ventures, L.P.
Its General Partner
By:
--------------------------------
General Partner
Address: 11150 Santa Monica Blvd.,
Suite 1200
Los Angeles, CA 90025
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
SBIC PARTNERS, L.P.
201 Main Street, Suite 2302
Fort Worth, Texas 76102
By: Forrest Binkley & Brown, L.P.,
General Partner
By: Forrest Binkley & Brown Venture Co.,
General Partner
By:
------------------------------
Jeffrey J. Brown
Office of the President
By: SL-SBIC Partners, L.P.,
General Partner
By: FW-SBIC, Inc.,
General Partner
By:
-----------------------------
Peter Sterling
Chairman
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV,
Its General Partner
By:
--------------------------------------
Charles D. Martin, General Partner
Address: 5000 Birch Street
Suite 6200
Newport Beach, CA 92660
Facsimile Number: (714) 833-3652
Attention: Thomas N. Clancy, Venture
Partner
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners, IV,
Its General Partner
By:
---------------------------------------
Charles D. Martin, General Partner
Address: 5000 Birch Street
Suite 6200
Newport Beach, CA 92660
Facsimile Number: (714) 833-3652
Attention: Thomas N. Clancy, Venture
Partner
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
INVESTORS:
VLG INVESTMENTS 1998
By:
--------------------------------------------
Mark L. Silverman, Director
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
MARK A. MEDEARIS
-----------------------------------------------
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
FOUNDERS:
--------------------------------------------------
Mohan Ananda
Address: 549 Lakeview Canyon Road
Westlake Village, CA 91362
--------------------------------------------------
Steve Krause
Address: 1695 Mesa Ridge Avenue
Westlake Village, CA 91362
--------------------------------------------------
Ari R. Engelberg
Address: 9615 Wendover Drive
Beverly Hills, CA 90210
--------------------------------------------------
Jeffrey L. Green
Address: 518 Raymond Avenue, Apt. 19
Santa Monica, CA 90405
--------------------------------------------------
James A.C. McDermott
Address: 1117 No. Laurel Street, Apt. 1
Los Angeles, CA 90046
--------------------------------------------------
Suresh Kolachalam
Address: 543 Lantana Street, Apt. 141
Camarillo, CA 93010
SIGNATURE PAGE TO VOTING AGREEMENT
<PAGE>
EXHIBIT A
---------
INVESTORS
---------
Vulcan Ventures Inc.
Chase Venture Capital Associates L.P.
Intel Corporation
Brentwood Associates VIII, L.P.
Brentwood Affiliates Fund, L.P.
SBIC Partners, L.P.
Enterprise Partners IV, L.P.
Enterprise Partners IV and Associates, L.P.
Seligman Communications and Information Fund, Inc.
Magellen Technologies, Inc.
Marvin Runyon
David C. Bohnett Living Trust
Bayview Investors, Ltd.
Brobeck, Phleger & Harrison LLP
Irell & Manella LLP Trustee
VLG Investments 1998
Mark A. Medearis
<PAGE>
EXHIBIT 10.26
SEPARATION AGREEMENT AND RELEASE
--------------------------------
THIS SEPARATION AGREEMENT AND RELEASE ("Agreement"), entered into between
Stamps.com, Inc. ("Company") and Mohan Ananda, an individual ("Executive"),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive has been an officer and director of Company;
WHEREAS, the parties now agree that Executive shall resign as an officer of
Company and that his employment with Company shall terminate;
WHEREAS, the parties wish to sever their relationship in a way which will
preserve the good will which exists between them and to settle all disputes and
avoid litigation; and
WHEREAS, the parties wish to enter into an agreement (the "New License
Agreement") concurrently with this Agreement under which the parties will
terminate that certain Assignment and License Agreement dated January 20, 1998
and the Company will grant certain license rights to Executive as specified in
the New License Agreement.
NOW, THEREFORE, for and in consideration of the foregoing premises, which
are incorporated by reference into this Agreement, and of the mutual promises
set forth below, the parties agree as follows:
1. Resignation From Employment. Upon execution of this Agreement,
---------------------------
Executive will provide to Company's Chairman of the Board his written notice of
resignation as an officer of Company, to be effective January 1, 1999, and his
written notice of resignation as a Company employee, to be effective nine months
later, on October 1, 1999.
2. Extended Employment. Executive shall be placed on extended employment
-------------------
status from January 1, 1999 through on October 1, 1999 (hereinafter "the
Extended
-1-
<PAGE>
Employment Interval"). Executive shall be compensated during the
Extended Employment Interval as follows:
a. Company shall continue to pay Executive his current compensation
on Company's regular paydays, with his usual deductions for taxes and employee
health care benefits, until the end of the Extended Employment Interval.
3. Duties During Extended Employment Interval. Executive shall not report
------------------------------------------
for work at Company during the Extended Employment Interval, except as may be
reasonably requested from time to time by the Chief Executive Officer of
Company.
4. Health Care Benefits. The benefits deductions from Executive's
--------------------
employment payments during the Extended Employment Interval shall afford him
continuing participation in Company's employee health care throughout the
Extended Employment Interval.
5. Vacation Accrual and Payout. Company shall cause Executive to be paid
---------------------------
for all accrued but unused vacation time which he accrued through the date of
the commencement of the Extended Employment Interval.
6. Termination of Certain Employee Benefits. Because Executive's active
----------------------------------------
employment with Company shall terminate on the date of the commencement of the
Extended Employment Interval, he shall be ineligible from and after that date to
receive any Company pension and profit sharing plan contributions or any other
Company-sponsored employee benefit except for the health benefits referred to in
Paragraph 4 above (including without limitation AD&D, long term disability
insurance, and life insurance). Executive expressly acknowledges and agrees that
he shall not be eligible to receive any bonus for 1998 or any future year, that
he will not be credited for any vacation pay accruals from and after the date of
the commencement of the Extended Employment Interval, and that the
-2-
<PAGE>
vacation payout provided for in Paragraph 5 of this Agreement will fully
compensate him for all vacation pay due to him.
7. Extended Employment Consulting Services. Throughout the duration of the
---------------------------------------
Extended Employment Interval, Executive shall provide consulting services to
Company, when it so requests and upon reasonable notice, for up to twenty (20)
hours per month, at no cost to Company other than as set forth in Paragraphs 2
and 12 of this Agreement.
8. Vesting of Stock Options. All of Executive's unvested stock options
------------------------
shall vest on his delivery of the written resignation notices referred to in
Paragraph 1 above, and Company shall have no right to repurchase any of
Executive's shares.
9. Satisfaction of Company Obligations Imposed by Employment Agreement.
-------------------------------------------------------------------
Executive acknowledges and agrees that Company's promises to perform the
obligations, described in Paragraphs 2, 4, 5 and 8 above will fully satisfy all
of its obligations to him which are imposed by Sections 4(c) and 5 of the
January 1998 Employment Agreement between Executive and Company.
10. Confidentiality. Executive agrees that he will not, without compulsion
---------------
of legal process, disclose to others the fact or terms of this settlement, the
amounts referred to in this Agreement, or the fact of the payment of said
amounts, except that he may disclose them to his immediate family (whom he will
inform of this confidentiality provision and secure their agreement to honor it)
and his attorneys, accountants or other professional advisors to whom the
disclosure is necessary to effect the purposes for which he has consulted such
professional advisors.
11. Non-Solicitation of Employees. In addition to and in further
-----------------------------
consideration of the foregoing, Executive hereby agrees that, for a period of
twenty-four (24) months after termination of his employment, he will not
directly or indirectly solicit the services of any
-3-
<PAGE>
Company employee, or otherwise induce or attempt to induce current Company
employees to sever their employment relationship with Company.
12. Trade Secrets and Proprietary Information. Executive further
-----------------------------------------
acknowledges that while employed by Company he had acces to, acquired or
assisted in the development of confidential and proprietary information relating
to the present and anticipated business operations of Company. Executive agrees
he will not, without the prior written consent of the Company, disclose or
communicate to anyone outside Company or use at any time hereafter in any way
any of the above-described confidential, and/or proprietary information which
Executive learned as a result of his employment with Company. Executive also
hereby reaffirms that he will continue to perform his obligations imposed by the
January 1998 Confidential Information and Invention Assignment Agreement.
Company acknowledges that Executive has disclosed to Company the inventions
that are described in the two Abstracts attached hereto as Exhibits A and B
("Secure Real Time Data Storage and Retrieval System" and "Secure Electronic
Commerce Transactions with Multiple Vendors Through a Primary Vendor Web Site").
Company agrees that it will prepare and submit patent applications for the
inventions described in Exhibit A and Exhibit B at its own expense. Company
agrees to provide reasonable technical assistance in connection with the
prosecution of these patents. Executive agrees that he will provide assistance
to the Company in such preparation and submission as described in Section 5 of
the New License Agreement. Company will promptly provide to Executive copies of
all correspondence and other documents exchanged with the U.S. Patent and
Trademark Office ("PTO") in connection with such patent applications. Upon
issuance of one United States patent based upon an invention described in
Exhibit A, Company's obligations under this Section 12 with respect to any
inventions disclosed in such exhibit shall cease. Upon
-4-
<PAGE>
issuance of one United States patent based upon an invention described in
Exhibit B, Company's obligations under this Section 12 with respect to any
inventions disclosed in such exhibit shall cease.
Company shall provide Executive with 60 days' notice, as provided in
Section 18 of this Agreement, prior to any abandonment of its effort to prepare,
submit or prosecute such patent applications. Failure to submit required
responses or submissions prior to any final deadlines specified by the PTO rules
or the patent statute shall constitute abandonment under this section. For the
avoidance of doubt, deadlines which may be extended as a matter of right are not
final deadlines. Upon receipt of any such notice from the Company, or upon any
such abandonment, Executive shall have the right, by notice to the Company as
provided in Section 18 of this Agreement, to assume and continue, at Executive's
own expense, the preparation and submission of such patent applications. Upon
receipt of any such notice from Executive, Company shall immediately execute
such documents as are necessary to reassign to Executive all rights in the
pending application and any patents issuing therefrom, and shall thereafter be
relieved of all further financial and other responsibility with respect to
preparation and submission of such patent applications. Upon Executive's
further request, Company will permit the attorneys that had been prosecuting the
patents for Company to continue such prosecution on behalf of Executive, and
will waive any conflicts solely in connection therewith, provided, and for so
long as, there is no litigation pending between Company and Executive regarding
the patent applications.
13. Disclaimer of Liability. In addition, and in further consideration of
-----------------------
the foregoing, Executive hereby agrees that nothing contained in this Agreement
shall constitute or be treated as an admission of liability or wrongdoing by
Company, which liability and wrongdoing Company expressly disputes and denies.
-5-
<PAGE>
14. Non-Disparagement. Executive agrees that he will refrain from making
-----------------
any representation, statement, comment or any other form of communication
(hereinafter collectively referred to as "representation"), whether written or
oral, to any person or entity, including but not limited to the principals,
customers, suppliers and competitors of Company, which representation reflects
any opinion, judgment, observation or representation of fact, which has the
effect or tendency or could have the effect or tendency to disparage, denigrate,
criticize or otherwise reflect negatively on Company and/or its products,
services, officers, directors, shareholders, employees or investors.
15. Disputes. Any controversy or claim arising out of or relating to this
--------
Agreement, or any breach thereof, shall be settled by arbitration in Orange
County, California before JAMS/Endispute, in accordance with its rules for
arbitration of employment disputes (or, if JAMS/Endispute has no such rules, in
accordance with the rules of the American Arbitration Association for
arbitration of employment disputes), and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
prevailing party in any arbitration, any court action to enforce arbitration or
to enter judgment upon an award, or any court proceeding arising under this
Agreement shall be entitled to recover all its costs and expenses, including
costs of investigation and a reasonable sum for attorneys fees, including fees
for legal advice prior to commencement of any litigation or arbitration. The
provisions of this section shall not affect or limit the rights and remedies
available to the parties under the laws of the State of California relating to
injunctive or other equitable relief to enforce the covenants contained herein.
-6-
<PAGE>
16. Governing Law. This Agreement shall be deemed to have been entered
-------------
into in the State of California and shall be construed and interpreted in
accordance with the laws of that state.
17. Integrated Agreement. This Agreement constitutes the entire Agreement
--------------------
between the parties and supersedes any prior agreement or understanding of the
parties in connection with its subject matter. No supplement, modification, or
waiver of this Agreement shall be binding, unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed effective, unless in writing. No waiver of any of the provisions
of this Agreement shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver,
unless otherwise expressly provided in writing.
18. Notices. All notices or other communications required or permitted to
-------
be given hereunder shall be in writing and shall be sent by personal delivery,
courier, facsimile transmission, or first-class mail, postage prepaid, deposited
in the United States mail in California, addressed as follows:
Company: Chief Executive Officer
Stamps.com, Inc.
2900 31st Street, Suite 150
Santa Monica, CA 99405
Fax (310) 450-7337
Executive: Mohan Ananda
549 Lakeview Canyon Road
Westlake Village, CA 91362
-7-
<PAGE>
Fax: (805) 371-4760
19. Severability. If any provision of this Agreement is hereafter held to
------------
be invalid or unenforceable by an arbitrator or court, the determination shall
not affect the remaining provisions of this Agreement, which shall remain valid
and enforceable
20. Review with Counsel. Executive hereby acknowledges that he has read
-------------------
and understands the foregoing Agreement, that it represents the product of arms'
length bargaining between the parties, and that he signs it voluntarily and
without coercion. Executive further acknowledges that he was given the
opportunity by Company to consult with an attorney of his own choosing
concerning the waivers contained in this Agreement, that he has done so and that
the waivers he has made herein are knowing, conscious and with full appreciation
that he is forever foreclosed from pursuing any of the rights so waived.
Executed this ____ day of May, 1999.
MOHAN ANANDA
______________________________________
Mohan Ananda
STAMPS.COM INC.
By____________________________________
Its:__________________________________
-8-
<PAGE>
EXHIBIT 10.27
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is entered into and shall be effective
as of May __, 1999, (the "Effective Date"), and is made by and between Mohan
Ananda ("Ananda"), an individual residing at 549 Lakeview Canyon Road, Westlake
Village, CA 91362, and Stamps.com, Inc. (the "Company"), a Delaware corporation
with its primary place of business located at 2900 31st Street, Suite 150, Santa
Monica, CA 90405, formerly known as StampMaster, Inc. (collectively, the
"Parties").
WHEREAS, Ananda owns a significant interest in the Company;
WHEREAS, the Parties believe that certain provisions of the Assignment and
License Agreement, as defined below, including but not limited to the exclusive
license granted in Article III, may jeopardize the Company's ability to raise
funds, may also diminish the Company's value to present and future investors and
may also jeopardize the Company's competitiveness;
WHEREAS, the Parties wish to benefit from resolving the issues related to these
provisions;
WHEREAS, the Parties wish to terminate and replace the Assignment and License
Agreement with this Agreement;
WHEREAS, the Parties wish for the Company to own all right, title and interest
to the Licensed Patents, Assigned Patent Applications, Disclosed Inventions,
Licensed Continuations, and Know-how, as such terms are defined below;
WHEREAS, the Company shall receive a non-exclusive license to Improvements, as
defined below, and related know-how developed by Ananda after the Effective
Date; and
WHEREAS, Ananda shall receive a limited exclusive license and a limited
nonexclusive license, as described below;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties hereto agree as follows:
1. Definitions
As used in this Agreement, the following terms with initial capitalization
shall have the meanings as set forth below:
1.1 "Assigned Patent Applications" shall mean all pending patent
applications as of the Effective Date invented by Ananda, including
but not limited to United States Application for Letters Patent for
Secure On-Line PC Postage Metering System filed on June 10, 1997, and
assigned Serial No. 08/872,792, and United States Application for
Letters Patent for On-Line Postage System filed on September 15, 1998,
and assigned Serial No. 09/163,993, and all patents, foreign patents
and patent applications, substitutions, extensions, reissues,
reexaminations, renewals, divisions, continuations, and
-1-
<PAGE>
continuations-in-part related to, including but not limited to
claiming the benefit and/or priority of, said pending patent
applications.
1.2 "Assignment and License Agreement" shall mean the self-styled
ASSIGNMENT AND LICENSE AGREEMENT of January 20, 1998, between Ananda
and the Company, attached to this Agreement as Exhibit A.
1.3 "Attached Assignments" shall mean (i) the PATENT ASSIGNMENT to United
States Patents 5,495,411, 5,548,645 and 5,638,513 and United States
Application for Letters Patent for Secure On-Line PC Postage Metering
System filed on June 10, 1997, and having Serial No. 08/872,792,
executed by Ananda, on January 20, 1998, attached to this Agreement as
Exhibit B and (ii) the ASSIGNMENT to United States Application for
Letters Patent for On-Line Postage System filed on September 30, 1998,
and having Serial No. 09/163,993, executed by Ananda on September 15,
1998, and attached to this Agreement as Exhibit C.
1.4 "Confidentiality Agreement" shall mean the self-styled CONFIDENTIAL
INFORMATION AND INVENTION ASSIGNMENT AGREEMENT of January 20, 1998,
between Ananda and the Company, attached to this Agreement as Exhibit
D.
1.5 "Disclosed Inventions" shall mean the inventions described in Exhibits
A and B of the Separation Agreement, and all patents, foreign patent
applications, substitutions, extensions, reissues, reexaminations,
renewals, divisions, continuations, and continuations-in-part related
to or arising from such patents or inventions, and any Know-how (as
such term is defined below) related to any such patents or inventions.
1.6 "Employment Agreement" shall mean the self-styled EMPLOYMENT AGREEMENT
of January 20, 1998, between Ananda and the Company, attached to this
Agreement as Exhibit E.
1.7 "Improvement" shall mean any new or modified system that is patentable
and that either: (i) performs substantially the same function as a
Licensed Product in a more efficient and/or more economical way; or
(ii) performs substantially the same function as a Licensed Product,
and costs less to distribute or manufacture than the Licensed Product.
1.8 "Improvement Know-how" shall mean any and all secret, proprietary or
confidential information, experience, trade secrets, inventions,
discoveries, formulas, designs, techniques, applications, processes,
ideas, or concepts, necessary to practice any Improvement.
1.9 "Know-how" shall mean any and all secret, proprietary or confidential
information, experience, trade secrets, inventions, discoveries,
formulas, designs, techniques, applications, processes, ideas, or
concepts, created or developed by Ananda from the creation of the
Company until the Effective
-2-
<PAGE>
Date that are related to the business of the Company, including but
not limited to: (i) postal stamp and postage metering, printing, data,
verification, and security, (ii) electronic scrip printing for any use
including without limitation ticketing, vouchering and couponing,
(iii) electronic scrip printing by utilizing internet-related
metering, printing, data, verification, and security, or (iv) any use,
application, product, process, or technique relating to any use
described in subsection (i), (ii) or (iii) above, including, without
limitation, software, hardware, firmware, data and files, whether or
not reduced to practice, whether or not reduced to writing and whether
or not patentable.
1.10 "Licensed Continuations" shall mean all substitutions, extensions,
reissues, reexaminations, renewals, divisions, continuations, and
continuations-in-part related to, including but not limited to
claiming the benefit and/or priority of, the Licensed Patents (as such
term is defined below).
1.11 "Licensed Field A" shall mean, and is limited to, systems for encoding
and decoding digital data in the form of audio and video recording
(including music) and games, in connection with the sale, rental or
other distribution of said digital data, such that use of said digital
data on the user's computer system while encoded requires the
maintenance of a connection to a remote computer system.
1.12 "Licensed Field B" shall mean, and is limited to, either: (a) systems
for encoding and decoding digital data in the form of third party
commercial software products, in connection with the sale, rental or
other distribution of third party commercial software products, such
that use of the third party commercial software products on the user's
computer system while encoded requires the maintenance of a connection
to a remote computer system; or (b) authentication software to enable
a system for secure data file storage at the client location, such
software involving both the maintenance of client profiles and secured
transactions over the internet or a computer network. Licensed Field B
is expressly limited by Section 7 (Noncompetition) of this Agreement.
For the avoidance of doubt, and without limitation, Licensed Field B
expressly does not include: (i) postal stamp and postage metering,
printing, data, verification, and security, (ii) electronic scrip
printing for any use, including without limitation ticketing,
vouchering and couponing, (iii) electronic scrip printing by utilizing
internet-related metering, printing, data, verification, and security,
or (iv) any use, application, product, process, or technique relating
to any use described in subsection (i), (ii) or (iii) above,
including, without limitation, software, hardware, firmware, data and
files.
1.13 "Licensed Field C" shall mean, and is limited to, use, as an
intermediary, of systems for secure electronic commerce transactions
over the internet or an intranet communications network, such
transactions involving both the participation of third-party vendors
and the products of third-party vendors. Licensed Field B is expressly
limited by Section 7 (Noncompetition) of this Agreement. For the
avoidance of doubt, and without limitation, Licensed
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Field C expressly does not include: (i) postal stamp and postage
metering, printing, data, verification, and security, (ii) electronic
scrip printing for any use, including without limitation ticketing,
vouchering and couponing, (iii) electronic scrip printing by utilizing
internet-related metering, printing, data, verification, and security,
or (iv) any use, application, product, process, or technique relating
to any use described in subsection (i), (ii) or (iii) above,
including, without limitation, software, hardware, firmware, data and
files.
1.14 "Licensed Field(s)" shall mean Licensed Field A, Licensed Field B,
and/or Licensed Field C, as applicable.
1.15 "Licensed Patents" shall mean only United States Patents 5,495,411,
5,548,645 and 5,638,513 and any related foreign patents or foreign
patent applications but only to the extent that such foreign patents
and foreign patent applications describe the same inventions as are
described in said three United States patents. For avoidance of doubt,
Licensed Patents shall not include any continuations-in-part related
to, including but not limited to claiming the benefit and/or priority
of, said three United States patents.
1.16 "Licensed Products" shall mean any and all products the manufacture,
use, sale, offer for sale, or import of which, but for the licenses
granted in this Agreement, would infringe or contribute to the
infringement of a claim of one or more Licensed Patents or of one or
more patents issuing from the Assigned Patent Applications, the
Licensed Continuations, or the Disclosed Inventions.
1.17 "Past Agreements" shall mean the Assignment and License Agreement, the
Confidentiality Agreement, the Employment Agreement, and the Attached
Assignments.
1.18 "Separation Agreement" shall mean the self-styled Separation Agreement
and Release between Company and Ananda, executed contemporaneously
with this Agreement, attached to this Agreement as Exhibit F.
1.19 "Third Parties" shall mean any legal person other than Ananda or the
Company, including but not limited to:
1.19.1 Ananda & Krause, A Professional Law Corporation located at
4500 East Thousand Oaks Boulevard, Suite 100, Westlake
Village, California 91362.
1.19.2 Any friends, relatives, acquaintances or business associates
of Ananda.
1.19.3 Any officer, director, or employee of the Company, past or
present.
1.19.4 Ari Engelberg, Vice President of Product Management of the
Company.
1.19.5 James A.C. McDermott, Vice President of the Company.
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1.19.6 Jeffrey Green, Vice President of Marketing of the Company.
1.19.7 Safeware Corporation, a company in which Ananda purportedly
has an interest.
1.19.8 SoftRent, a company in which Ananda purportedly has an
interest.
1.19.9 Steven J. Krause, c/o Ananda & Krause, A Professional Law
Corporation located at 4500 East Thousand Oaks Boulevard,
Suite 100, Westlake Village, California 91362.
2. Termination of the Assignment and License Agreement
The Parties do and hereby forever terminate the Assignment and License
Agreement, as of the Effective Date. Pursuant to Section 5.3 of the Assignment
and License Agreement, Articles I, II, IV, V and VII of the Assignment and
License Agreement will continue in full force and effect. This Agreement
replaces the Assignment and License Agreement. To the extent that there is a
conflict or ambiguity between the Assignment and License Agreement and this
Agreement, this Agreement shall control.
The Parties agree that the Company owns all right, title and interest in
and to the Licensed Patents, the Assigned Patent Applications, the Disclosed
Inventions, the Licensed Continuations and the Know-how, except as provided in
Section 12 of the Separation Agreement. The Attached Assignments remain in full
force and effect and have been or will be recorded in the Patent and Trademark
Office by the Company.
3. License Grant
3.1 The Company hereby grants to Ananda a worldwide, transferable, fully
paid up, exclusive license, only to the extent of Licensed Field A,
under the Licensed Patents, and for the terms of such patents, to
make, have made, use, import, sell, offer to sell, and otherwise
distribute products embodying the inventions thereof and to offer and
perform services within Licensed Field A that practice the processes
and methods of the Licensed Patents.
3.2 The Company hereby grants to Ananda a worldwide, transferable, fully
paid up, non-exclusive license, only to the extent of Licensed Field A
and Licensed Field B, under any patents issuing from the Disclosed
Inventions, the Assigned Patent Applications or the Licensed
Continuations, to make, have made, use, import, sell, offer to sell,
and otherwise distribute products embodying the Disclosed Inventions,
the Assigned Patent Applications or the Licensed Continuations and to
offer and perform services within Licensed Field A and Licensed Field
B that practice the processes and methods of patents issuing from the
Disclosed Inventions, the Assigned Patent Applications or the Licensed
Continuations.
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3.3 The Company hereby grants to Ananda a worldwide, transferable, fully
paid up, non-exclusive license, only to the extent of Licensed Field
C, under any patents issuing from the Disclosed Inventions to make,
have made, use, import, sell, offer to sell, and otherwise distribute
products embodying the Disclosed Inventions and to offer and perform
services within Licensed Field C that practice the processes and
methods of patents issuing from the Disclosed Inventions.
3.4 The Company hereby grants to Ananda a worldwide, transferable, fully
paid up, non-exclusive license, only to the extent of Licensed Field
B, under the Licensed Patents, and for the terms of such patents, to
make, have made, use, import, sell, offer to sell, and otherwise
distribute products embodying the inventions thereof and to offer and
perform services within Licensed Field B that practice the processes
and methods of the Licensed Patents.
3.5 The Company hereby grants to Ananda a worldwide, transferable, fully
paid up, non-exclusive license to the Know-how necessary to exercise
the rights granted in Sections 3.1, 3.2, 3.3, and 3.4.
4. Sublicenses
The Company hereby grants to Ananda the right to grant exclusive or
nonexclusive sublicenses in accordance with the following terms and conditions.
Each sublicense shall be limited to the scope of the license granted to Ananda
in this Agreement, including but not limited to the restriction to the
applicable Licensed Field(s) in Section 3 (License Grant), the lack of any
implied license as described in Section 6 (No Implied License), the requirement
to maintain the confidentiality of this Agreement in Section 10 (Confidentiality
of this Agreement), the representations and the warranties in Section 11.1
(Representations and Warranties) and the assignment provisions in Section 16
(Assignment of the Agreement). Each sublicense will terminate upon termination
of this Agreement, and Ananda shall include a statement to that effect in each
sublicense. Ananda shall provide The Company with a true copy of each
sublicense within thirty (30) days after its execution.
5. Intellectual Property Assistance by Ananda
5.1 Ananda hereby agrees to provide reasonable assistance to the Company,
or its designees, at the Company's expense and request, to secure the
Company's rights in the Licensed Patents, the Assigned Patent
Applications, the Licensed Continuations, and the Disclosed Inventions
in any and all countries, including the disclosure to the Company of
all pertinent information and data with respect thereto, the execution
of all applications, specifications, oaths, assignments, recordations,
and all other instruments which the Company, in its sole discretion,
shall deem necessary in order to apply for, obtain, maintain, and
transfer such rights and in order to assign and convey to the Company,
its successors, assigns and nominees the sole and exclusive rights,
title and interest in and to the Licensed Patents, the Assigned Patent
Applications, the Licensed Continuations and the Disclosed Inventions.
If the Company is unable, because of Ananda's mental or physical
incapacity,
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unavailability, unwillingness or for any other reason, to secure his
signature for any such execution, then Ananda hereby irrevocably
designates and appoints the Company and its duly authorized officers
and agents as his agent and attorney in fact, to act for and in his
behalf and stead to execute and file any such application,
specification, oath, assignment, recordation, or other instrument.
5.2 Ananda hereby agrees to provide reasonable assistance to the Company,
or its designees, at the Company's expense and request, in any and all
countries, in the maintenance, enforcement and defense of the Licensed
Patents, the Assigned Patent Applications, the Licensed Continuations,
and the Disclosed Inventions.
5.3 Ananda hereby agrees to provide reasonable assistance to the Company,
or its designees, at the Company's expense and request, in the defense
of any threatened claims or causes of action brought by third parties
asserting their intellectual property rights against the Company, both
during and after Ananda's employment.
5.4 Ananda further agrees that his obligations under this Section 5 of the
Agreement shall continue after the termination of this Agreement until
the expiration of the last patent in any country of the world among
the Licensed Patents and any patents issuing from the Assigned Patent
Applications, the Licensed Continuations, and the Disclosed
Inventions.
6. No Implied License
6.1 Notwithstanding all other provisions of this Agreement and the
negotiations that led to this Agreement, the Parties acknowledge and
agree that no right, title, assignment or license of any intellectual
property rights, is or should be implied, expressed or imputed except
as expressly set forth in this Agreement.
6.2 For avoidance of doubt and without limitation, the Parties agree that,
except as expressly provided in this Agreement:
6.2.1 No right, title or license to any intellectual property or to
make, use, sell, offer to sell or import any product is
implied, expressed or imputed.
6.2.2 Should Ananda or any sublicensee sell products practicing the
Licensed Patents, the Assigned Patent Applications, the
Licensed Continuations, or the Disclosed Inventions outside of
the applicable Licensed Field(s) during the term of this
Agreement, the Company is free to assert infringement claims
and to obtain equitable and/or monetary relief, based on the
Licensed Patents, the Assigned Patent Applications, the
Disclosed Inventions, the Licensed Continuations,
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and/or other patents, including presently existing and future
patents, against Ananda or the sublicensee.
6.3 Ananda agrees not to enter into licenses, including sublicenses
pursuant to Section 4 (Sublicenses) and end user licenses, unless such
licenses provide only a limited license to use and resell Licensed
Products, which license is commensurate in subject matter and scope
with the license grant in Section 3.
7. Noncompetition
Ananda agrees that he shall continue to be bound by the terms of the
Noncompetition Covenant in Section 9 of the Employment Agreement. Without
limiting the foregoing, Ananda agrees that for a period of two (2) years from
the Effective Date, Ananda will not become a shareholder (other than of a
publicly-traded company), officer, or employee of any business that competes
with Company by making or selling any product which includes: (i) postal stamp
and postage metering, printing, data, verification, and security, (ii)
electronic scrip printing for any use, including without limitation ticketing,
vouchering and couponing, (iii) electronic scrip printing by utilizing internet-
related metering, printing, data, verification, and security, or (iv) any use,
application, product, process, or technique relating to any use described in
subsection (i), (ii) or (iii) above, including, without limitation, software,
hardware, firmware, data and files. For the avoidance of doubt, and without
limitation, no Licensed Products shall be used to compete with the Company, as
defined in Section 9 of the Employment Agreement. The Company hereby
acknowledges that the exercise of the rights granted in this Agreement within
Licensed Field A shall not constitute a violation of this Section 7
(Noncompetition).
8. Petition Process
Ananda may, from time to time, approach the Company to request new fields
of use for any of the licenses described in Section 3, with terms and conditions
to be negotiated at arm's length, outside of the applicable Licensed Field(s).
The Company agrees that it will consider any such request. After considering
such request, the Company may, at its sole discretion, accept or reject the
request, for any or no reason.
9. Grantback on Improvements
Ananda hereby agrees to grant to the Company a nonexclusive, irrevocable,
royalty-free license for any purpose outside of Licensed Field A under any
Improvement, any patent or patent application disclosing such Improvement, and
any Improvement Know-how. Ananda shall disclose any such Improvement to the
Company in writing within thirty (30) days after its actual or constructive
reduction to practice. This license shall only apply to Improvements which are
first conceived of within five (5) years of the Effective Date, and shall not
apply if prohibited by an employment agreement or consulting agreement between
Ananda and a Third Party.
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10. Confidentiality of this Agreement
The Parties agree and acknowledge that this Agreement is Confidential
Information, pursuant to Section 3(a) of the Confidentiality Agreement.
11. Representations and Warranties of Ananda
11.1 Ananda represents and warrants that he has no present intention to and
will not make, use, sell, offer to sell, and/or import Licensed
Products except within the scope of the applicable Licensed Field(s).
11.2 Ananda represents and warrants that he has not transferred, licensed,
assigned, pledged or secured any right, title or interest in or to any
of the Licensed Patents, the Assigned Patent Applications, the
Licensed Continuations, the Disclosed Inventions, the Know-how or the
Assignment and License Agreement to any Third Parties, including but
not limited to those enumerated in Section 1.19.
11.3 Ananda represents and warrants that, to the best of his knowledge, no
Third Parties, including but not limited to those enumerated in
Section 1.19, currently have or ever had any direct or indirect
interest in any of the Licensed Patents, the Assigned Patent
Applications, the Disclosed Inventions, the Licensed Continuations or
the Know-how.
11.4 Ananda represents and warrants that, to the best of his knowledge,
Ananda has not and never created any encumbrance, license, lien or
security interest, economic or otherwise, on or to any of the Licensed
Patents, the Assigned Patent Applications, the Disclosed Inventions,
the Licensed Continuations, the Know-how or the Assignment and License
Agreement.
11.5 Ananda represents and warrants in respect to each of the Licensed
Patents, the Assigned Patent Applications, the Disclosed Inventions,
the Licensed Continuations, and the Know-how that he has and had legal
power and authority, without having to obtain any approval from anyone
or any entity, to extend the rights granted to the Company in this
Agreement and in the Past Agreements and that he has not made and will
not make any commitments to others inconsistent with or in derogation
of such rights.
11.6 Ananda represents and warrants that he has not taken any action to
prevent a United States Application for Letters Patent for On-Line
Postage System from being filed or to withdraw any such application
from consideration by the Patent and Trademark Office.
11.7 Ananda represents and warrants that he has not taken any action to
prevent the Attached Assignments from being recorded with the Patent
and Trademark Office, accompanied by cover sheets as required by 37
C.F.R. (S) 3.11, as assignment documents for the Licensed Patents and
the Assigned Patent Applications.
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11.8 Ananda represents and warrants that, to the best of his knowledge, no
assignments, licenses, security interests or other documents, other
than the Attached Assignments, have been recorded in any government
agency, including but not limited to the United States Patent and
Trademark Office, for any of the Licensed Patents or the Assigned
Patent Applications.
12. Representations and Warranties of Company
12.1 Company represents and warrants that it has not transferred, licensed,
assigned, pledged or secured any right, title or interest in or to any
of the Licensed Patents or Disclosed Inventions to any Third Parties,
inconsistent with the license granted to Ananda under this Agreement.
12.2 Company represents and warrants in respect to the Licensed Patents and
Disclosed Inventions that it has and had legal power and authority,
without having to obtain any approval from anyone or any entity, to
extend the rights granted to Ananda in this Agreement and in the Past
Agreements and that it has not made and will not make any commitments
to others inconsistent with or in derogation of such rights.
12.3 Ananda agrees that no part of the Collateral Assignment, Patent
Mortgage and Security Agreement (or any related documents) between
Stamps.com and Silicon Valley Bank, attached hereto as Exhibit G,
shall constitute a violation of either Section 12.1 or Section 12.2 of
this Agreement.
13. Disclaimer of Other Warranties
13.1 Except as expressly set forth in Sections 10 and 11 of this Agreement,
each Party grants or licenses the rights under this Agreement and the
Past Agreements "AS IS" and disclaims all other warranties express,
implied or statutory, including but not limited to:
13.1.1 any warranty or representation as to the validity or scope of
any patent or other intellectual property right.
13.1.2 a requirement that either Party shall file any patent
application, secure any patent, or maintain any patent in
force, except as otherwise provided in Section 5 of this
Agreement, Section 4(d) of the Confidentiality Agreement and
Article II of the Assignment and License Agreement.
13.1.3 an obligation by the Company to bring or prosecute actions or
suits against third parties for infringement.
13.1.4 an obligation by the Company to furnish any manufacturing or
technical information.
13.1.5 conferring a right to use in advertising, publicity,
fundraising or otherwise any trademark or trade name.
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13.1.6 granting by implication, estoppel, or otherwise, any licenses,
rights or title to patents not expressly granted herein or in
the Past Agreements, regardless of whether such other patents
are dominant of or subordinate to any patents licensed or
assigned in this Agreement or the Past Agreements.
13.1.7 any warranty or representation that anything made, used, sold,
or otherwise disposed of under any intellectual property
licensed or assigned in this Agreement or the Past Agreements
is or will be free from infringement of patents of Third
Parties or any future patents of the Company or Ananda.
14. Limitation of Liability
Neither Party assumes any responsibility whatsoever with respect to the
use, sale, or other disposition by the other Party or its licensees or other
transferees of products incorporating or made by use of inventions licensed or
assigned under this Agreement or the Past Agreements.
Neither Party will be liable to the other or any third party, under any
circumstances, for any consequential, indirect, special, incidental or exemplary
damages, (including without limitation lost profits, loss of anticipated
business, loss of data, or business losses) arising out of or related to this
Agreement even if such damages are foreseeable, and even if the Party has been
apprised of the likelihood of such damages occurring.
15. Indemnification
15.1 Ananda will hold the Company harmless against all liabilities,
demands, expenses, or losses arising (1) out of use by Ananda or his
licensees or transferees of inventions licensed under this Agreement
or the Past Agreements, (2) out of any use, sale, or other disposition
by Ananda or his licensees or transferees of products made by use of
such inventions, or (3) out of any alleged infringement by Ananda or
his licensees or transferees of third parties' intellectual property
rights.
15.2 The Company will hold Ananda harmless against all liabilities,
demands, expenses, or losses arising (1) out of use by the Company or
its licensees or transferees of inventions assigned under this
Agreement or the Past Agreements, (2) out of any use, sale, or other
disposition by the Company or its licensees or transferees of products
made by use of such inventions, or (3) out of any alleged infringement
by the Company or its licensees or transferees of third parties'
intellectual property rights.
16. Assignment of the Agreement
16.1 Except as otherwise provided in Section 3 (License Grant) and Section
4 (Sublicenses), Ananda's obligations under this Agreement are
personal to Ananda and may not be assigned or otherwise transferred
without the prior
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written consent of the Company. Any attempted assignment or transfer
without such consent shall be void.
16.2 This Agreement shall be binding on any successor of the Company in
ownership or control of the Licensed Patents and the obligations of
Ananda shall run in favor of any such successor and of any assignee of
the Company's benefits under this Agreement. The Company shall be free
to assign or transfer this Agreement, at its sole discretion.
17. Termination/Arbitration
17.1 In the event of any dispute regarding either (i) the exercise of the
licenses granted in Section 3 (License Grant) outside of the
applicable Licensed Field(s) or (ii) breach of the terms of Section 7
(Noncompetition), either of the Parties may request, by written notice
(the "Dispute Notice") to the other Party and to the American
Arbitration Association ("AAA"), and shall be entitled to, an
expedited arbitration proceeding. The purpose of any such arbitration
proceeding shall be solely to determine whether any such breach,
default, or other defect of performance has occurred, and to govern
the right to terminate this Agreement accordingly, pending a final
judicial determination on the merits.
17.2 Any arbitration proceeding under this Agreement shall be governed by
the Expedited Procedures of the Commercial Arbitration Rules of the
AAA in force as of the Effective Date (regardless of the amount in
controversy) and shall be administered by a single arbitrator. If the
Parties cannot agree upon an arbitrator within three (3) business days
after delivery of the Dispute Notice, an arbitrator shall be chosen
from a list of six (6) arbitrators drawn by the AAA which includes
only arbitrators that have conducted at least ten (10) prior
arbitration proceedings, and which is mailed to the Parties no later
than seven (7) business days after receipt of the Dispute Notice. Each
Party shall strike two names from the list and return it to the AAA
within seven (7) days from the date of the AAA's mailing to the
Parties. The AAA shall choose the arbitrator from the names remaining
on the list. If all of the persons remaining on the list are unable to
serve for any reason, the Parties shall repeat this process until an
arbitrator is selected. Both Parties shall share the fees of the AAA
and the arbitrator equally. The Parties may seek reasonable discovery
at the discretion of the arbitrator, or the arbitrator may
alternatively order disclosure of nonprivileged materials. Unless
mutually agreed by the Parties otherwise, any arbitration shall take
place in the City of Los Angeles, California. Unless mutually agreed
by the Parties otherwise, the period from mailing of the Dispute
Notice until the final decision of the arbitrator shall not exceed 75
days. In the event of a conflict between the applicable rules of the
AAA and these procedures, the provisions of these procedures shall
govern. If the arbitrator finds that Ananda has either (i) exercised
the rights granted to him outside of the applicable Licensed Field(s),
or (ii) violated the terms of Section 7 (Noncompetition) of this
Agreement, the Company may terminate this Agreement upon thirty (30)
days' prior written notice. Such
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notice shall become effective at the end of such thirty (30) day
period unless Ananda shall have cured such breach, default or other
defect of performance. The arbitrator shall render a summary written
opinion that shall not exceed three pages, and the arbitrator's
decision shall be binding upon the Parties until a court of law rules
on the issue(s) decided by the arbitrator.
17.3 Arbitration shall not be the exclusive remedy for disputes regarding
breach, default, or other defect of performance under the licenses
herein granted. Either Party may also obtain any equitable and/or
monetary relief to which a court may deem it is entitled. The court
may, on a de novo basis, review any ruling of fact or law reached by
the arbitrator. For the avoidance of doubt and without limitation, a
court shall not be bound by an arbitrator's decision under this
Section 17. If a court finds that Ananda has either (i) exercised the
rights granted to him outside of the applicable Licensed Field(s), or
(ii) violated the terms of Section 7 (Noncompetition) of this
Agreement, the Company may terminate this Agreement upon thirty (30)
days' prior written notice. Such notice shall become effective at the
end of such thirty (30) day period unless Ananda shall have cured such
breach, default or other defect of performance.
17.4 Except for Section 3 (Grant), and Section 8 (Petition Process), all
provisions of this Agreement shall survive any termination of this
Agreement.
18. Notices
18.1 Notices or requests under this Agreement, including correspondence
items concerning the Agreement, shall be served on the Party to whom
directed by facsimile and also by depositing them, postage prepaid, in
the U.S. mails, registered or certified, and addressed to the served
Party as follows (or to other addresses established as provided in
Section 18.2):
To the Company:
Chief Executive Officer
Stamps.com, Inc.
2900 31st Street, Suite 150
Santa Monica, CA 90405
Fax: (310) 450-7337
To Ananda:
Mohan Ananda
549 Lakeview Canyon Road
Westlake Village, CA 91362
Fax: (805) 371-4760
18.2 Notice served as provided in Section 18.1, above, shall be deemed
given one (1) day following the date of deposit in the U.S. mails. If
notice is given other than as provided in Section 18.1, then the
burden of proving service and receipt by the addressee shall be on the
Party alleging service of notice.
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Either Party may change its effective address by giving thirty (30)
days notice of the new address in the manner provided in Section 18.1,
above.
19. Miscellaneous Provisions
19.1 Ananda and the Company agree to mark all products sold under the
granted license with the word "Patent" or "Patents" and the number or
numbers of the applicable licensed patent or licensed patents, chosen
from the Licensed Patents, and/or any patents issuing from the
Assigned Patent Applications, the Disclosed Inventions, and the
Licensed Continuations.
19.2 If one or more of the provisions in this Agreement are deemed void by
law, then the remaining provisions will continue in full force and
effect.
19.3 No modification, renewal, extension, or waiver, and, except as
provided in Section 17 (Termination/Arbitration) hereof, no
termination of this Agreement or any of its provisions, shall be
binding on the Party against whom enforcement of such modification,
renewal, extension, waiver, or termination is sought, unless made in
writing and signed on behalf of such Party by one of its executive
officers in the case of the Company or by Ananda in the case of
Ananda. As used herein, the word "termination" includes any and all
means of bringing to an end prior to its expiration by its own terms
this Agreement, or any provision thereof, whether by release,
discharge, abandonment, or otherwise.
19.4 This Agreement shall be construed, interpreted, and applied in
accordance with the laws of the State of California. Except for
arbitrations governed under Section 17 of this Agreement, the Parties
agree that the exclusive jurisdiction and venue for any action brought
between the Parties under this Agreement shall be the state and
federal courts sitting in Los Angeles County, and each of the Parties
hereby agrees and submits itself to the exclusive jurisdiction and
venue of such courts for such purpose.
19.5 Each Party to this Agreement acknowledges that it has read and
understands this Agreement, that the Agreement represents the product
of arms' length bargaining between the Parties, and that it signs the
Agreement voluntarily and without coercion. Each Party further
acknowledges that it was given the opportunity to consult with an
attorney of its own choosing concerning the provisions of this
Agreement. This Agreement shall not be construed against any Party by
reason of the drafting or preparation thereof.
Executed this ____ day of May, 1999.
MOHAN ANANDA
______________________________________
Mohan Ananda
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STAMPS.COM, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
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EXHIBIT 10.28
STAMPS.COM INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
February 17, 1999
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<C> <S> <C>
1. Purchase and Sale of Preferred Stock....................................... 1
1.1 Sale and Issuance of Series C Preferred Stock....................... 1
1.2 Closing; Delivery................................................... 1
2. Representations and Warranties of the Company.............................. 2
2.1 Organization, Good Standing and Qualification....................... 2
2.2 Capitalization...................................................... 2
2.3 Subsidiaries........................................................ 3
2.4 Authorization....................................................... 3
2.5 Valid Issuance of Securities........................................ 3
2.6 Governmental Consents............................................... 3
2.7 Litigation.......................................................... 3
2.8 Intellectual Property............................................... 4
2.9 Compliance with Other Instruments................................... 4
2.10 Agreements; Action.................................................. 5
2.11 Disclosure.......................................................... 5
2.12 No Conflict of Interest............................................. 6
2.13 Rights of Registration and Voting Rights............................ 6
2.14 Title to Property and Assets........................................ 6
2.15 Financial Statements................................................ 6
2.16 Changes............................................................. 7
2.17 Employee Benefit Plans.............................................. 8
2.18 Tax Returns and Payments............................................ 8
2.19 Insurance........................................................... 8
2.20 Labor Agreements and Actions........................................ 8
2.21 Confidential Information and Invention Assignment Agreements........ 8
2.22 Permits............................................................. 9
2.23 Corporate Documents................................................. 9
2.24 Environmental and Safety Laws....................................... 9
2.25 Qualified Small Business Stock...................................... 9
2.26 Offering............................................................ 9
3. Representations and Warranties of the Purchasers........................... 9
3.1 Authorization....................................................... 9
3.2 Purchase Entirely for Own Account................................... 10
3.3 Disclosure of Information........................................... 10
3.4 Restricted Securities............................................... 10
3.5 No Public Market.................................................... 10
3.6 Legends............................................................. 11
3.7 Accredited Investor................................................. 11
4. Conditions of the Purchasers' Obligations at Closing....................... 11
4.1 Representations and Warranties...................................... 11
4.2 Performance......................................................... 11
4.3 Compliance Certificate.............................................. 11
</TABLE>
i
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TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
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<C> <S> <C>
4.4 Qualifications...................................................... 11
4.5 Opinion of Company Counsel.......................................... 12
4.6 Reservation of Common Stock Issuable Upon Conversion of the Stock... 12
4.7 Investors' Rights Agreement......................................... 12
4.8 Voting Agreement.................................................... 12
4.9 Restated Certificate................................................ 12
4.10 Confidential Information and Invention Assignment Agreement......... 12
4.11 Due Diligence....................................................... 12
4.12 Letter Agreement from John Payne.................................... 12
5. Conditions of the Company's Obligations at Closing......................... 12
5.1 Representations and Warranties...................................... 12
5.2 Performance......................................................... 13
5.3 Qualifications...................................................... 13
6. Covenants.................................................................. 13
6.1 Stock Option Vesting................................................ 13
7. Miscellaneous.............................................................. 13
7.1 Survival of Warranties.............................................. 13
7.2 Transfer; Successors and Assigns.................................... 13
7.3 Governing Law....................................................... 13
7.4 Counterparts........................................................ 13
7.5 Titles and Subtitles................................................ 14
7.6 Notices............................................................. 14
7.7 Finder's Fee........................................................ 14
7.8 Fees and Expenses................................................... 14
7.9 Attorney's Fees..................................................... 14
7.10 Amendments and Waivers.............................................. 14
7.11 Severability........................................................ 14
7.12 Delays or Omissions................................................. 15
7.13 Entire Agreement.................................................... 15
7.14 Corporate Securities Law............................................ 15
7.15 Confidentiality..................................................... 15
7.16 Exculpation Among Purchasers........................................ 15
</TABLE>
ii
<PAGE>
STAMPS.COM INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series C Preferred Stock Purchase Agreement (the "Agreement") is made
---------
as of the 17th day of February, 1999 by and between Stamps.com Inc., a Delaware
corporation (the "Company") and the investors listed on Exhibit A attached
------- ---------
hereto (each a "Purchaser" and together the "Purchasers").
--------- ----------
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
------------------------------------
1.1 Sale and Issuance of Series C Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Second
Amended and Restated Certificate of Incorporation in the form attached hereto as
Exhibit B (the "Restated Certificate").
- --------- --------------------
(b) Subject to the terms and conditions of this Agreement, each
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to each Purchaser at the Closing that number of shares of Series C
Preferred Stock set forth opposite each such Purchaser's name on Exhibit A
---------
attached hereto at a purchase price of $5.49 per share. The shares of Series C
Preferred Stock issued to the Purchaser pursuant to this Agreement shall be
hereinafter referred to as the "Stock". The Stock and the Common Stock issuable
-----
upon conversion of the Stock shall be hereinafter referred to as the
"Securities."
----------
1.2 Closing; Delivery.
-----------------
(a) The purchase and sale of the Stock shall take place at the
offices of Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine,
California, at 9:00 a.m., on February 17, 1999, or at such other time and place
as the Company and the Purchasers mutually agree upon, orally or in writing
(which time and place are designated as the "Closing").
-------
(b) At the Closing, the Company shall deliver to each Purchaser
a certificate representing the Stock being purchased thereby against payment of
the purchase price therefor by check payable to the Company or by wire transfer
to the Company's bank account.
(c) The Company may sell up to the balance of authorized number
of shares of Series C Preferred Stock not sold at the Closing to such purchasers
as it shall select, at a price not less than $5.49 per share, provided the
agreement for sale is executed not later than February 26, 1999. Any such
purchaser shall become a party to this Agreement, that certain Investors' Rights
Agreement (as defined in Section 2.1 below) and that certain Voting Agreement
(as defined below), and shall have the rights and obligations hereunder and
thereunder, unless such purchaser enters into an acquisition agreement that
provides otherwise.
1
<PAGE>
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be
---------
deemed to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to:
(i) carry on its business as now conducted and proposed to be conducted; (ii)
execute and deliver this Agreement, the Amended and Restated Investors' Rights
Agreement in the form attached hereto as Exhibit D (the "Investors' Rights
--------- -----------------
Agreement") and the Amended and Restated Voting Agreement in the form attached
- ---------
hereto as Exhibit E (the "Voting Agreement" and together with this Agreement and
--------- ----------------
the Investors' Rights Agreement, the "Agreements") and (iii) issue and sell the
----------
Stock and the Common Stock issuable upon conversion of the Stock (together, the
"Securities") and to carry out the provisions of the Agreements. The Company is
----------
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure so to qualify would have a material adverse effect on its
business or properties.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist, immediately prior to the Closing, of:
(a) 15,500,000 shares of Preferred Stock, of which (i) 3,800,000
shares have been designated Series A Preferred Stock, 3,762,500 of which are
issued and outstanding; (ii) 6,200,000 shares have been designated Series B
Preferred Stock, 6,020,000 of which are issued and outstanding; and (iii)
5,500,000 shares have been designated Series C Preferred Stock, none of which
are issued and outstanding immediately prior to the Closing.
(b) 40,000,000 shares of Common Stock, 4,600,650 shares of which
are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly and validly authorized, fully
paid and are nonassessable and issued in compliance with all applicable federal
and state securities laws.
(c) The Company has reserved 4,235,000 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to the 1998 Stock Plan adopted by the Board of Directors (the "Stock
-----
Plan").
- ----
(d) Except for (i) conversion privileges of the Preferred Stock,
(ii) outstanding options issued pursuant to the Stock Plan, (iii) a warrant to
purchase 4,700 shares of Series A Preferred Stock, and (iv) rights of first
offer set forth in the Investors' Rights Agreement, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal or similar rights) or agreements, orally or in writing, for the
purchase or acquisition from the Company of any shares of its capital stock.
Except for the Voting Agreement, the Company is not a party or subject to any
agreement or understanding, and there is no agreement or understanding between
any person and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2
<PAGE>
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of the Agreements, the performance of all obligations of
the Company under the Agreements and the authorization, issuance, sale and
delivery of the Securities has been taken or will be taken prior to the Closing,
and the Agreements, when executed and delivered by the Company, shall constitute
valid and legally binding obligations of the Company, enforceable against the
Company in accordance with their terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws of general application affecting enforcement of creditors' rights
generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, or (ii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock that is being issued to
----------------------------
the Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Investors' Rights
Agreement and applicable state and federal securities laws. Based in part upon
the representations of the Purchasers in this Agreement, the Stock will be
issued in compliance with all applicable federal and state securities laws. The
Common Stock issuable upon conversion of the Stock has been duly and validly
reserved for issuance, and upon issuance in accordance with the terms of the
Restated Articles, shall be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Investors' Rights Agreement and applicable
federal and state securities laws and will be issued in compliance with all
applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, other applicable state securities laws and Regulation D of the
Securities Act of 1933, as amended (the "Securities Act"), which filing will be
--------------
effected within fifteen (15) days after the sale of the Stock.
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
the Agreements or the right of the Company to enter into them, or to consummate
the transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition or affairs of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing.
3
<PAGE>
The foregoing includes, without limitation, actions pending or to the Company's
knowledge threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary to
any of their former employers. Neither the Company nor any of its subsidiaries
is a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company or any of its
subsidiaries currently pending or which the Company or any of its subsidiaries
intends to initiate.
2.8 Intellectual Property. The Company owns or possesses sufficient
---------------------
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and proprietary rights and processes
necessary for its business without any conflict with, or infringement of, the
rights of others. There are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of "off
the shelf" or standard commercial products. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business, would violate any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets or other proprietary rights or processes of any
other person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interest of the Company or that would
conflict with the Company's business. To the Company's knowledge, neither the
execution or delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument under which any such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any
provisions of its Restated Certificate, Bylaws or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound
or, to its knowledge, of any provision of federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
the Agreements and the consummation of the transactions contemplated hereby or
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company.
4
<PAGE>
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution agreement or other agreement.
2.10 Agreements; Action.
------------------
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of,
$25,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right to or from the Company or any of its subsidiaries, (iii) the
grant of rights to manufacture, produce, assemble, license, market, or sell its
products to any other person or affect the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products; or (iv)
indemnification by the Company with respect to infringement of proprietary
rights (other than indemnification obligations arising from purchase or sale
agreements entered into in the ordinary course of business).
(c) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $25,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
(d) The Company has not engaged in the past three (3) months in
any discussion (i) with any representative of any corporation or corporations
regarding the merger of the Company with or into any such corporation or
corporations, (ii) with any representative of any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company would be disposed of, or
(iii) regarding any other form of liquidation, dissolution or winding up of the
Company.
2.11 Disclosure. The Company has fully provided the Purchasers with
----------
all the information that the Purchasers have requested for deciding whether to
acquire the Stock and all information that the Company believes is reasonably
necessary to enable the Purchasers to make such a decision, including certain of
the Company's projections describing its proposed business contained in that
certain Private Placement Memorandum dated January 4, 1999 (the "Private
-------
Placement Memorandum"). No representation or warranty of the Company contained
- --------------------
in this Agreement and the exhibits attached hereto, any certificate furnished or
to be furnished to Purchasers at the Closing, or the Private Placement
Memorandum (when read together) contains
5
<PAGE>
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. To the
extent the Private Placement Memorandum was prepared by management of the
Company, the Private Placement Memorandum and the financial and other
projections contained in the Private Placement Memorandum and other written
information provided to the Purchaser were prepared in good faith (with the
exception of information prepared by third party sources and identified as such
in the Private Placement Memorandum or other written information and to which
the Company makes no representation except that it has no basis to believe such
sections are inaccurate); however, the Company does not warrant that it will
achieve such projections.
2.12 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees which amount does not in the aggregate exceed
$35,000. None of the Company's officers or directors, or any members of their
immediate families, are, directly or indirectly, indebted to the Company (other
than in connection with purchases of the Company's stock) or to the Company's
knowledge have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company except that officers, directors and/or stockholders of the Company may
own stock in (but not exceeding two percent of the outstanding capital stock of)
any publicly traded company that may compete with the Company. None of the
Company's officers or directors or any members of their immediate families are,
directly or indirectly, interested in any material contract with the Company.
The Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
2.13 Rights of Registration and Voting Rights. Except as
----------------------------------------
contemplated in the Investors' Rights Agreement, the Company has no granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. To the Company's knowledge, except as contemplated in the
Voting Agreement, no stockholder of the Company has entered into any agreements
with respect to the voting of capital shares of the Company.
2.14 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances. The Company is in compliance
with all material terms of each material lease to which it is a party or
otherwise bound.
2.15 Financial Statements. The Company has made available to each
--------------------
Purchaser its unaudited financial statements (including balance sheet and
statement of operations) as of September 30, 1998 and for the period then ended
(collectively, the "Financial Statements"). The Financial Statements have been
--------------------
prepared in accordance with generally
6
<PAGE>
accepted accounting principles applied on a consistent basis throughout the
periods indicated, except that the unaudited Financial Statements may not
contain all footnotes required by generally accepted accounting principles. The
Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1998 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate are not
material to the financial condition or operating results of the Company.
2.16 Changes. Since September 30, 1998 there has not been:
-------
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
7
<PAGE>
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) any declaration or payment of any dividend or other
distribution of the assets of the Company;
(m) to the Company's knowledge, any other event or condition of
any character that might materially and adversely affect the business,
properties, prospects or financial condition of the Company; or
(n) any arrangement or commitment by the Company to do any of
the things described in this Section 2.16.
2.17 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.18 Tax Returns and Payments. The Company has filed all tax
------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due.
2.19 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.20 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To its knowledge, the Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment.
2.21 Confidential Information and Invention Assignment Agreements.
------------------------------------------------------------
Each former and current employee, consultant and officer of the Company has
executed an agreement with the Company regarding confidentiality and proprietary
information substantially in the form or forms delivered to the counsel for the
Purchasers. The Company is not aware that
8
<PAGE>
any of its employees or consultants is in violation thereof, and the Company
will use its best efforts to prevent any such violation.
2.22 Permits. The Company and each of its subsidiaries has all
-------
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack o which could materially and adversely affect
the business, properties, prospects, or financial condition of the Company. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
2.23 Corporate Documents. The Restated Certificate and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.24 Environmental and Safety Laws. The Company is not in violation
-----------------------------
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
2.25 Qualified Small Business Stock. The Company, together with its
------------------------------
affiliates, (a) is, and at the Closing will be, a "Small Business," as such term
is defined in 13 C.F.R. (S) 107.700, and (b) is in compliance with all
applicable size standards set forth in 13 C.F.R. (S) 121.30(c). The Company is
not presently engaged in, and shall not be engaged in any activities for which a
small business investment company (an "SBIC") is prohibited from providing funds
under 13 C.F.R. (S) 107.720, nor shall the Company use the proceeds from the
sale of Series C Preferred for any purpose for which an SBIC is prohibited from
providing funds under 13 C.F.R. (S) 107.720.
2.26 Offering. Subject in part to the truth and accuracy of each
--------
Purchaser's representations and warranties set forth in Section 3 of this
Agreement, the offer, sale and issuance of the Securities as contemplated by
this Agreement are exempt from the registration requirements of the Securities
Act and any applicable state securities laws, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants to the Company that:
3.1 Authorization. Such Purchaser has full power and authority to
-------------
enter into this Agreement. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
9
<PAGE>
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser'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
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
3.3 Disclosure of Information. The Purchaser has had an opportunity
-------------------------
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the Private Placement Memorandum
and any other written information delivered by the Company to the Purchaser,
were intended to describe the aspects of the Company's business which it
believes to be material.
3.4 Restricted Securities. The Purchaser 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 Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser 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 Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser 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 Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 No Public Market. The Purchaser understands that no public
----------------
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
10
<PAGE>
3.6 Legends. The Purchaser 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:
(a) "THE SHARES 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."
(b) Any legend set forth in the other Agreements.
(c) 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.
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act as
presently in effect.
4. Conditions of the Purchasers' Obligations at Closing. The obligations
----------------------------------------------------
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to the Purchasers at the Closing a Compliance Certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Consents; Qualifications. The Company shall have obtained any
------------------------
and all consents, permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Agreements (except for such as may be
properly obtained subsequent to the Closing Date). All authorizations, approvals
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Stock pursuant to this Agreement shall be obtained and
effective as of the Closing.
11
<PAGE>
4.5 Opinion of Company Counsel. The Purchasers shall have received
--------------------------
from Brobeck, Phleger & Harrison LLP, counsel for the Company, an opinion, dated
as of the Closing, in substantially the form of Exhibit F.
---------
4.6 Reservation of Common Stock Issuable Upon Conversion of the
-----------------------------------------------------------
Stock. The Common Stock issuable upon conversion of the Stock shall have been
- -----
duly authorized and reserved for issuance upon such conversion.
4.7 Investors' Rights Agreement. The Company, each Purchaser and
---------------------------
Founder shall have executed and delivered the Investors' Rights Agreement in
substantially the form attached as Exhibit E.
---------
4.8 Voting Agreement. The Company, each Purchaser and Founder shall
----------------
have executed and delivered the Voting Agreement in substantially the form
attached as Exhibit F.
---------
4.9 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the Closing
Date, which shall continue to be in full force and effect as of the Closing
Date.
4.10 Confidential Information and Invention Assignment Agreement.
-----------------------------------------------------------
The Company and each of its employees shall have entered into the Company's
standard form Confidential Information and Invention Assignment Agreement, in
substantially the form provided to the Purchasers.
4.11 Due Diligence. The Purchasers shall, in their sole discretion
-------------
have completed their legal, intellectual property and financial due diligence
and the results of such due diligence shall, in the sole discretion of the
Purchasers, be acceptable to the Purchasers and their legal counsel. The
Schedule of Exceptions delivered to the Purchasers by the Company shall contain
no exception deemed unacceptable by the Purchasers in their sole discretion.
4.12 Letter Agreement from John Payne The Company shall have
--------------------------------
received from John Payne, its Chief Executive Officer, an executed Letter
Agreement providing a right of repurchase in favor of the Company with respect
to 1,000,000 shares of Common Stock beneficially owned by Mr. Payne.
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
12
<PAGE>
5.2 Performance. All covenants, agreements and conditions
-----------
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. Covenants
---------
6.1 Stock Option Vesting. Unless otherwise agreed to by the
--------------------
Company's Board of Directors, any and all stock options granted by the Company
to any employee or consultant shall vest in equal monthly installments over a
four year period, provided, however, that the first year of such vesting may be
consolidated into a single annual installment.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties and representations of the Company and the Purchasers
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing for a period of one (1) year
following the Closing, except for the warranties and representations in Section
2.8 which shall survive the execution and delivery of this Agreement and the
Closing for a period of three (3) years following the Closing. Except for the
covenants set forth in Section 2.25 which shall survive indefinitely, the
covenants set forth in this Agreement shall survive until the consummation of an
initial public offering of the Company's common stock or the merger, acquisition
or sale of substantially all of the assets of the Company in which the
stockholders of the Company immediately prior to such event do not own a
majority of the outstanding shares of the surviving corporation.
7.2 Transfer; Successors and Assigns. The terms and conditions of
--------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto 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.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
13
<PAGE>
7.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page or Exhibit A hereto, or as
---------
subsequently modified by written notice.
7.7 Finder's Fee. Except for a placement agent fees payable by
------------
the Company to BancBoston Robertson Stephens Inc. in connection with the sale of
Series C Preferred Stock hereunder, each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Fees and Expenses. Each party shall be responsible for any
-----------------
fees or expenses, incurred by it with respect to this Agreement, the documents
referred to herein and the transactions contemplated hereby and thereby.
7.9 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.10 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Common Stock issued or issuable upon conversion of
the Stock. Any amendment or waiver effected in accordance with this Section
7.10 shall be binding upon the Purchasers and each transferee of the Stock (or
the Common Stock issuable upon conversion thereof), each future holder of all
such securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
14
<PAGE>
7.12 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
7.13 Entire Agreement. This Agreement, and the documents referred
----------------
to herein constitute the entire agreement between the parties hereto pertaining
to the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
7.14 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.15 Confidentiality. Each party hereto agrees that, except with
---------------
the prior written permission of the other parties hereto, it shall at all times
keep confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder. The provisions of this Section 7.15
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
7.16 Exculpation Among Purchasers. Each Purchaser acknowledges
----------------------------
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Securities.
15
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
STAMPS.COM INC.
By:
----------------------------------------
John Payne, Chief Executive Officer
Address: 2900 31st Street
Suite 150
Santa Monica, California 90405
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first above written.
PURCHASERS:
BRENTWOOD ASSOCIATES VIII L.P.
By: Brentwood VIII Ventures, LLC
Its General Partner
By:
--------------------------------------
Managing Member
Address: 11150 Santa Monica Blvd.,
Suite 1200
Los Angeles, CA 90025
BRENTWOOD AFFILIATES FUND
L.P.
By: Brentwood VII Ventures, L.P.
Its General Partner
By:
----------------------------------------
General Partner
Address: 11150 Santa Monica Blvd.,
Suite 1200
Los Angeles, CA 90025
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first above written.
PURCHASERS:
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV,
Its General Partner
By:
---------------------------------------
Name:
Address: 5000 Birch Street
Suite 6200
Newport Beach, CA 92660
Facsimile Number: (714) 833-3652
Attention: Thomas N. Clancy, Venture
Partner
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners, IV,
Its General Partner
By:
----------------------------------------
Name:
Address: 5000 Birch Street
Suite 6200
Newport Beach, CA 92660
Facsimile Number: (714) 833-3652
Attention: Thomas N. Clancy, Venture
Partner
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first above written.
PURCHASER:
SBIC PARTNERS, L.P.
201 Main Street, Suite 2302
Fort Worth, Texas 76102
By: Forrest Binkley & Brown, L.P.,
General Partner
By: Forrest Binkley & Brown Venture Co.,
General Partner
By:
-------------------------------------
Jeffrey J. Brown
Office of the President
By: SL-SBIC Partners, L.P.,
General Partner
By: FW-SBIC, Inc.,
General Partner
By:
------------------------------------
Peter Sterling
Chairman
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
SELIGMAN COMMUNICATIONS AND INFORMATION
FUND, INC.
By: J. & W. Seligman & Co. Incorporated,
its Investment Advisor
By:
-----------------------------------
Name:
Title:
Address: 100 Park Avenue, 7th Floor
New York, NY 10017
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
INTEL CORPORATION
By:
------------------------------------
Name: Arvind Sodhani
Title: Treasurer
Address: 2200 Mission College Blvd.
Santa Clara, CA 94088
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
MEDIAONE INTERACTIVE SERVICES, INC.
By:
---------------------------------------
Name: Thomas Cullen
Title:
Address:
-----------------------------
-----------------------------
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
BROBECK, PHLEGER & HARRISON LLP
By:
--------------------------------------
Name: Bruce R. Hallett
Title: Partner
Address: 38 Technology Drive
Irvine, California 92618
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
CHASE VENTURE CAPITAL ASSOCIATES L.P.
By: Chase Capital Partners
Its General Partner
By:
-----------------------------------
Name:
Title:
Address: 380 Madison Avenue
12th Floor
New York, NY 10017
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
VULCAN VENTURES INC.
By:
--------------------------------------
Name: William D. Savoy
Title: Vice President
Address: 110 110th Avenue
NE Suite 550
Bellevue, WA 98004
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
BAYVIEW INVESTORS, LTD
By:
--------------------------------------
Name: Terry Otton
Title: Chief Financial Officer
Address:
-----------------------------
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
DAVID C. BOHNETT AS TRUSTEE OF THE DAVID C.
BOHNETT LIVING TRUST UNDER DECLARATION OF
TRUST DATED NOVEMBER 22, 1996
-----------------------------------------
David C. Bohnett, Trustee
Address: 9000 Clifton Way
Penthouse
Beverly Hills, California 90211
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
PURCHASER:
MARVIN RUNYON
_________________________________
Address:
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement as of
the date first written above.
PURCHASERS:
MAGELLEN TECHNOLOGIES, INC.
By:
-------------------------------------
Name: George M. Aschenbach
Title:
Address:
--------------------------
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
EXHIBITS
--------
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Second Amended and Restated Certificate of
Incorporation
Exhibit C - Schedule of Exceptions to Representations and Warranties
Exhibit D - Form of Amended and Restated Investors' Rights Agreement
Exhibit E - Form of Amended and Restated Voting Agreement
Exhibit F - Form of Legal Opinion of Brobeck, Phleger & Harrison LLP
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
SHARES OF SERIES
PURCHASERS C PREFERRED STOCK SERIES C INVESTMENT
- ------------------------------------ ---------------------------------- -------------------------------------
<S> <C> <C>
Vulcan Ventures Inc. 1,821,494 $10,000,002.06
Chase Venture Capital 1,457,195 8,000,000.55
Associates L.P.
Intel Corporation 546,449 3,000,005.01
Brentwood Associates VIII, L.P. 349,727 1,920,001.23
Brentwood Affiliates Fund, L.P. 14,572 80,000.28
SBIC Partners, L.P. 364,299 2,000,001.51
Enterprise Partners IV, L.P. 335,155 1,840,000.95
Enterprise Partners IV and 29,144 160,000.56
Associates, L.P.
Seligman Communications and 182,150 1,000,003.50
Information Fund, Inc.
Magellen Technologies, Inc. 182,150 1,000,003.50
Marvin Runyon 4,554 25,001.46
David C. Bohnett Living Trust 18,215 100,000.35
Bayview Investors, Ltd. 60,717 333,336.33
Brobeck, Phleger & Harrison LLP 51,609 283,333.41
Irell & Manella LLP Trustee 47,056 258,337.44
---------------------------------- -------------------------------------
TOTAL 5,464,486 $30,000,028.14
</TABLE>
<PAGE>
EXHIBIT B
---------
FORM OF SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
EXHIBIT C
---------
SCHEDULE OF EXCEPTIONS TO
REPRESENTATIONS AND WARRANTIES
<PAGE>
EXHIBIT D
---------
FORM OF AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
EXHIBIT E
---------
FORM OF VOTING AGREEMENT
<PAGE>
EXHIBIT F
---------
FORM OF LEGAL OPINION
OF
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
[LETTERHEAD OF AMERICA ONLINE]
EXHIBIT 10.29
Eric Keller
Vice President, Business Affairs
Ph: 703/265-2024 (direct)
Fax: 703/265-1206
E-mail: [email protected]
June 4, 1999
VIA FACSIMILE
Mr. Doug Walner
Stamps.com
29000 31/st/ Street, Suite 150
Santa Monica, CA 90405
Re: Insertion Order Agreement by and between America Online, Inc. ("AOL") and
Stamps.com, Inc. ("Stamps.com") executed December 16, 1998 (the
---------------------------------------------------------------
"Agreement")
-----------
Dear Mr. Walner:
Pursuant to your request, AOL is willing to extend the date by which Stamps.com
is required to receive approval from the United States Postal Service to engage
in full scale marketing of online postage from June 30, 1999 to August 15, 1999.
Accordingly AOL agrees to delete the date "June 30, 1999" from Section
2(a)(ii)(3) of Exhibit A to the Agreement and insert in place thereof the date
"August 15, 1999."
Please acknowledge your agreement with the foregoing modification of the
Agreement by signing below in the space indicated and returning one copy of this
letter to me.
Sincerely,
/s/ Eric Keller
Eric Keller
Vice President, Business Affairs
ACCEPTED AND AGREED AS OF THIS 4/th/ DAY OF JUNE, 1999:
Stamps.com, Inc.
By: /s/ John Payne
------------------------------
Name: John Payne
Title: CEO & President
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
________________________________________
ARTHUR ANDERSEN LLP
Los Angeles, California
June 3, 1999
