<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1999
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
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)
<TABLE>
<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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2900 31st Street, Suite 150
Santa Monica, California 90405
(310) 450-1444
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------
John M. Payne
President, Chief Executive Officer and Director
STAMPS.COM INC.
2900 31st Street, Suite 150
Santa Monica, California 90405
(310) 450-1444
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
------------------
Copies to:
<TABLE>
<S> <C>
Bruce R. Hallett, Esq. Alan K. Austin, Esq.
Allen Z. Sussman, Esq. Mark L. Reinstra, Esq.
Michael A. Zuercher, Esq. James C. Creigh, Esq.
Sean M. Pence, Esq. Brian M. McDaniel, Esq.
Brobeck, Phleger & Harrison LLP Wilson Sonsini Goodrich & Rosati
38 Technology Drive 650 Page Mill Road
Irvine, California 92618 Palo Alto, California 94304
(949) 790-6300 (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.
------------------
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>
Amount of
Title of Each Class of Proposed Maximum Aggregate Registration
Securities to be Registered Offering Price(1) Fee
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<S> <C> <C>
Common Stock, $.001 par value.............................. $57,500,000 $15,985
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(o).
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 APRIL 26, 1999
[LOGO OF STAMPS.COM]
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 $ and $ 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 .
---------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<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 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 $ .
BancBoston Robertson Stephens Inc. expects to deliver the shares of common
stock against payment in San Francisco, California on , 1999.
---------------
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
The date of this Prospectus is , 1999
<PAGE>
[Inside front cover will fold out. Fold out page will contain screenshots
of our Website, including our initial page for accessing postage. Facing page
will have a diagram of an information based indicium]
[Inside back cover artwork will include a graphic about the evolution of
postage from the traditional stamp to the postage meter to information based
indicia. The artwork will also contain a table comparing the relative benefits
we believe Internet postage provides compared to other methods]
Stamps.com(TM) and Postage Server(TM) are our trademarks. This prospectus
also includes trademarks of entities other than Stamps.com.
<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
<TABLE>
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Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 6
Information Regarding Forward Looking Statements......................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 21
Business................................................................. 24
Management............................................................... 36
Certain Transactions..................................................... 49
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 53
Underwriting............................................................. 57
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 59
Index to Financial Statements............................................ F-1
</TABLE>
Except as otherwise noted, all information in this prospectus: (1) reflects
the automatic conversion of our outstanding preferred stock into common stock
immediately prior to the closing of this offering; (2) reflects a -for-
stock split of our common stock and preferred stock authorized by the Board of
Directors on , 1999; and (3) 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 will 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
proprietary technology works within the rigorous US Postal Service framework of
specification and performance requirements and leverages encryption,
authentication and transaction processing to provide secure access to postage.
Our Postage Server will be designed to interact with word processing, contact
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-mover advantages;
. Rapidly growing our installed base by enhancing our brand name, forming
strategic partnerships and establishing first-mover advantages;
. Leveraging our software-based solution and technology platform to
enhance our service offering and expand the benefits of secure online
transactions; and
. Pursuing our incremental revenue opportunities, including the sale of
postage related consumables, peripherals and insurance, the
international Internet postage market, and the document fulfillment
markets.
Corporate Information
In September 1996, our founders began to investigate the feasibility of
entering into the US Postal Service Information Based Indicia Program, or IBIP,
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 2900 31st Street, Suite
150, Santa Monica, California 90405, and our telephone number is (310) 450-
1444. Information contained on our Web site does not constitute part of this
prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered....................... shares
Common stock to be outstanding after this
offering................................. 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 is excluding:
(1) 4,235,000 shares of common stock reserved for issuance pursuant to our 1999
Stock Incentive Plan, of which shares were subject to outstanding options
as of the date of this prospectus; (2) shares reserved for issuance under
our Employee Stock Purchase Plan; and (3) 4,700 shares of common stock subject
to a warrant granted to a lender at an exercise price of $0.40 per share. See
"Capitalization."
Summary Financial Data
(in thousands, except share and per share data)
The following table sets forth certain of our summary financial data. This
information should be read in conjunction with the financial statements and
notes thereto 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 such
conversion occurred at inception, or the date of original issuance, if later.
Our as adjusted column reflects the sale of shares of common stock
offered hereby at the initial public offering price of $ per share
after deducting the underwriter discount 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.......... (4,013) (359) (3,278)
Net loss...................... (4,029) (359) (3,276)
---------- ---------- ----------
Basic and diluted net loss per
share....................... (1.22) (0.13) (0.71)
Pro forma basic and diluted
net loss per share.......... (0.52) (0.08) (0.20)
Shares outstanding used in
basic and diluted net loss
per share calculations...... 3,303,942 2,827,012 4,600,650
Shares outstanding used in pro
forma basic and diluted net
loss per share calculation.. 7,728,920 4,575,945 16,705,188
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
1999
-------------------
(unaudited)
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $28,524 $
Working capital............................................. 26,090
Total assets................................................ 29,872
Line of credit and capital lease obligations................ 1,425
Total stockholders' equity.................................. 27,051
</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
Our service may never be approved for commercial release.
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.
Our service will be subject to ongoing US Postal Service regulation.
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, or 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 certain US
Postal Service projects.
The US Postal Service could change 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. Any
other change in the current or future regulatory environment could have an
adverse impact on our business and could adversely affect our operating results
and profitability.
We face uncertainty in the Internet postage market.
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
users will transition to the Internet as a means of purchasing postage. To the
extent users choose the Internet to purchase postage, we cannot be certain that
these consumers will adopt our system.
We have a history of losses and expect to incur losses in the future.
As of March 31, 1999, we had not generated any revenues and had a deficit
accumulated during the development stage of $7.3 million. We have not achieved
profitability and expect to continue to incur net losses
6
<PAGE>
for at least the next several quarters. 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. We cannot be certain that we will achieve sufficient revenues
for profitability. If we do achieve profitability, we cannot be certain that we
can sustain or increase profitability on a quarterly or annual basis.
We must effectively manage the commercial release 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 for approximately 30 days 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
transaction-processing systems.
Our ability to obtain and retain customers depends on our customer service
capabilities. We plan to add customer service personnel and resources to meet
demand for our Internet postage service; however, 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.
We may be unable to effectively manage our rapid growth.
Our reputation and our ability to attract, retain and serve our customers
depend upon the reliable performance of our Web site, network infrastructure
and transaction-processing systems. We have a limited basis upon which to
evaluate the capability of our service 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 transaction-processing, operational and financial 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. In addition, we will be required to
relocate our administrative and operations personnel due to capacity
constraints at our current facility. We may not be able to effectively manage
this 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.
In September 1996, our founders began to investigate the feasibility of
entering into the US Postal Service 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;
7
<PAGE>
. 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 our competitors with greater capital resources and
brand awareness.
We depend on the maintenance and development of our strategic relationships and
distribution arrangements.
We have established strategic relationships with a very limited number of
third parties. We believe we must establish additional 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.
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. 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. As a result, even if
we are successful in establishing strategic relationships, these strategic
relationships may not be successful.
We face potential claims of infringement on other parties' intellectual
property rights.
We face substantial uncertainty regarding the impact that other parties'
intellectual property positions will have on the Internet postage market. For
example, on October 22, 1997, Pitney Bowes sent formal comment to the US Postal
Service asserting that fifteen US patents issued to Pitney Bowes and four US
patent applications filed by Pitney Bowes would be infringed by products
meeting the Information Based Indicia Program specifications. 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 its claims against Internet postage vendors and if we do
not enter into a license relationship with Pitney Bowes, our business could be
adversely affected. For example, Pitney Bowes could obtain monetary relief from
us or permanent or temporary injunctive relief against us.
As is customary with technology companies, from time to time, we may
receive or become aware of correspondence claiming potential infringement of
other parties' proprietary 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 proprietary rights
in our products, services, know-how and information. We have three issued US
patents and have filed two 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
8
<PAGE>
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 proprietary 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.
We will rely on a single service for revenues.
We expect that a substantial percentage, if not all, of our future revenues
will be generated from our Internet postage service. Assuming we receive US
Postal Service approval, we will be relying 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 incremental
revenue opportunities.
System and online security failures could harm our business.
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 encryption and authentication technology to provide the security necessary
for 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.
Despite our efforts to minimize interruption and security risks, 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 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
proprietary 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 encryption and authentication technology to provide the security and
authentication necessary for secure transmission of postage and other
confidential information. Advances in computer capabilities, new discoveries in
the field of cryptography, 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.
9
<PAGE>
We may face disruptions in our operations during our relocation to a new
facility in the near future.
The current lease for our facilities in Santa Monica, California will
terminate on May 31, 1999. In addition, our current facilities are inadequate
for our current growth plans. We are currently negotiating a lease for
approximately 40,000 square feet of office space in Santa Monica, California.
As a result, we will be relocating substantially all of our employees to new
facilities in the near future. We may experience temporary interruptions in our
normal operating activities during the moving process. If we experience more
permanent disruptions related to our move, or if we are unable to complete the
move in a timely manner, our development efforts and business could be harmed.
We will need to expand our product and service offerings.
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. 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. 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 the 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 little basis upon which to predict future
operating results. We expect that our revenues, margins and operating results
will fluctuate significantly due to a variety of factors, many of which are
outside of our control. These factors include:
. 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
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,
10
<PAGE>
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.
We may not achieve broad brand recognition necessary to succeed.
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.
We will face intense competition.
The market for Internet postage products and services is new and we expect
it to be intensely competitive. At present, three other Information Based
Indicia Program, or IBIP, vendors have hardware products available for beta
testing. One of the vendors also has a software-based product in beta testing.
We expect that our competitors will 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 (a unit of Neopost
Industrie);
. a number of indirect competitors that specialize in electronic commerce
or derive a substantial portion of their revenue from electronic
commerce; and
. other companies with substantial customer bases in the computer and
other technical fields.
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. To the extent 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 certain 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.
We also face competitive pressures from new technologies and the expansion
of existing technologies. 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."
11
<PAGE>
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 certain other key personnel. Any of
our officers or employees can terminate his or her employment relationship at
any time. The loss of these certain 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 such 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.
We may not be able to keep up with rapid technological and other changes.
The development of our service and other proprietary 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 could render our existing proprietary
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 proprietary technology and transaction-processing
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.
We may face risks associated with international sales and regulation of postage
by international agencies.
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
12
<PAGE>
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 certain 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.
Year 2000 risks may harm our business.
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, send invoices 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. We have not completed an assessment of this third-party
equipment and software. If Year 2000 issues prevent our users from accessing
the Internet or our service, processing 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, pursuant to IBIP regulations, 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, IBIP users 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 such
dedication of resources; and
. an increase in litigation costs relating to losses suffered by our
users due to such 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."
We may be 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;
13
<PAGE>
. 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.
We face risks related to the Internet industry
The success of our business will depend on the continued growth of the Internet
electronic commerce and the acceptance by consumers of an Internet postage
sales channel.
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 demand and continued market acceptance 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 e-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;
. 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.
Regulatory and legal uncertainties could harm our business.
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 governing issues such as property
ownership, export of encryption technology, sales tax, libel and
14
<PAGE>
personal privacy. Our business, financial condition and results of operations
could be seriously harmed by any such new legislation or regulation. The
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and other online services could also harm our
business.
We plan to offer our service over the Internet in multiple states and
foreign countries. Such 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 such laws and such laws may be modified and new laws may be enacted in
the future.
We are subject to risks related to the offering
No prior public market exists for our common stock.
Prior to this offering, there has been no public market for our common
stock and we cannot be sure that an active trading market for the common stock
will develop or continue as a result of this offering.
The concentrated control of our company could adversely affect stockholders.
After this offering, our executive officers, directors and 5% stockholders,
in the aggregate, will control % of our voting stock. As a result, 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.
Purchasers in this offering will experience immediate and substantial dilution.
If you purchase common stock in this offering, you will incur immediate and
substantial dilution in the net tangible book value of the shares purchased. We
estimate this dilution to be approximately $ per share, or approximately %
(based on an initial public offering price of $ ). Additional dilution may
occur upon the exercise of outstanding stock options.
Our stock price could fluctuate dramatically.
The trading price of our common stock is likely to be volatile and could
fluctuate dramatically in response to: factors such as the following, 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 such
high levels following this offering, it could eventually experience a
significant decline.
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<PAGE>
Our offering price does not necessarily relate to any established criteria of
value.
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.
Additional shares may be sold into the public market.
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 shares of common
stock outstanding. Of those shares, a total of shares (plus additional
shares if the underwriters exercise their over-allotment option in full) 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 pursuant to 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 such sales could occur, could adversely affect the
prevailing market price for the 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.
The net proceeds of this offering are estimated to be approximately $
million (approximately $ million if the underwriters' over-allotment is
exercised in full) at an assumed initial public offering price of $ 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."
Certain provisions in our charter documents could deter takeover efforts.
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, as amended from time to time. 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.
16
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock offered
hereby are estimated to be approximately $ ($ million of the
underwriters exercise their over-allotment option in full) based upon an
assumed offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.
We intend to use the net proceeds of the offering:
. for expansion of our marketing and distribution partnerships;
. to enhance our server and network infrastructure and the functionality
of our Web site; and
. for working capital and other general corporate purposes.
As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of the
offering. Pending such uses, the net proceeds of the offering will be invested
in short-term, interest-bearing, investment-grade instruments. We intend to
maintain flexibility in our use of the proceeds of this offering. The amounts
actually expended for each of the purposes listed above are at our discretion
and 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. Accordingly,
we reserve the right to reallocate the proceeds of this offering as we deem
appropriate.
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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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on
an actual basis and on a pro forma as adjusted basis (a) to reflect the
automatic conversion of all outstanding shares of preferred stock into shares
of common stock upon the closing of this offering and (b) to give effect to the
receipt of the receipt of the estimated net proceeds from the sale of
shares of common stock at an assumed initial public offering price of $ 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
------- -------
Stockholders' equity:
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 --
Common stock, par value $0.001; 40,000,000 shares
authorized, 4,600,650 issued and outstanding, actual;
authorized, issued and outstanding, pro forma
as adjusted............................................ 5
Additional paid-in capital................................ 190
Notes receivable for stock sales.......................... (117) (117)
Accumulated deficit during development stage.............. (7,305) (7,305)
------- -------
Total stockholders' equity............................... 27,051
Total capitalization.................................... $28,476
======= =======
</TABLE>
Our stockholders' equity excludes 3,099,606 shares of common stock issuable
upon exercise of outstanding options granted under our 1999 Stock Incentive
Plan plus an additional shares reserved for issuance under our 1999 Stock
Incentive Plan and Employee Stock Purchase Plan and warrants to purchase 4,700
shares of common stock at $0.40 per share.
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was
approximately $ million, or $ 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 shares of common stock
offered hereby and the receipt and application of the net proceeds therefrom,
the pro forma net tangible book value of as of March 31, 1999 would have been
$ million, or $ per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $ per share to 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............... $
Pro forma net tangible book value per share as of March 31,
1999....................................................... $
Increase per share attributable to new investors.............
------
Pro forma net tangible book value per share after this
offering....................................................
------
Dilution per share to new investors........................... $
======
</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
$ 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....... $ $
New investors............... $
--- --- ----------- -------
Total..................... 100% $ 100%
=== === =========== =======
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options. As of March 31, 1999, options
to purchase shares of common stock were outstanding at a weighted
average exercise price of $ per share. To the extent that these options
are exercised, new investors will experience further dilution. See
"Management--Stock Options," "Description of Capital Stock" and note 5 of the
notes to our financial statements.
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<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial data should be read in conjunction with
our financial statements and the notes to such 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 such 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....... 2,481 276 2,118
---------- ---------- -----------
Total costs and
expenses............ 4,013 359 3,278
Loss from operations.... (4,013) (359) (3,278)
Interest expense, net... (16) -- 2
---------- ---------- -----------
Net loss................ $ (4,029) $ (359) $ (3,276)
========== ========== ===========
Basic and diluted net
loss per share........ $ (1.22) $ (0.13) $ (0.71)
Pro forma basic and
diluted net loss per
share................. $ (0.52) $ (0.08) $ (0.20)
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation........... 3,303,942 2,827,012 4,600,650
Weighted average shares
outstanding used in
pro forma basic and
diluted net loss per
share calculation..... 7,728,920 4,575,945 16,705,188
</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
Total stockholders'
equity................ 2,027 27,051
</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 such conversion occurred on
January 9, 1998, or the date of original issuance, if later.
20
<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 such 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 Postage Server
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 Postage Server 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 in the 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 March 1999, we also completed a
private placement transaction that raised $30.0 million.
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.
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 Postage Server, which includes our Web site and transaction-
processing 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
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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 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 $2.5 million. Our general and administrative
expenses increased to $2.1 million for the quarter ended March 31, 1999 from
approximately $276,000 for the quarter ended March 31, 1998. The increase is
principally due to increase in personnel, facility costs and professional
service fees.
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 and 1998, we had $28.5 million and $1.0 million,
respectively, 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. 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.
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
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be system failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices 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 are in the process of reviewing the Year 2000 compliance of our
internally developed proprietary software. 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 transaction-processing and
distribution functions to our service, as well as monitoring and back-up
capabilities. Based upon our assessment to date, we believe that our internally
developed proprietary software is Year 2000 compliant. However, we cannot be
sure how our software will integrate with other vendor-provided software.
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. We are
currently assessing the Year 2000 readiness of other third-party supplied
software, computer technology and other services and of our vendors. Based upon
the results of this assessment, 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 this assessment 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, processing 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, pursuant to IBIP regulations, 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, IBIP users 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 have 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 portions of it or to
use their credit cards or other electronic payment methods would have an
adverse effect on demand for our services and would have a material adverse
effect on us.
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 such a 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. Such 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, or SOP, No. 98-1, "Software for Internal Use," which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP No. 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. We do not expect that the adoption of
SOP No. 98-1 will have a material impact on our financial statements.
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BUSINESS
This prospectus contains forward looking statements that involve risks and
uncertainties. Actual results and the timing of certain 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 will 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
proprietary technology works within the rigorous US Postal Service framework of
specification and performance requirements and leverages encryption,
authentication and transaction processing to provide secure access to postage.
Our Postage Server will be designed to interact with word processing, contact
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 installed base 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 which
increases the value to users of being connected to the Internet.
According to International Data Corporation, or IDC, the number of Web
users worldwide will grow from an estimated 100 million in 1998 to 319 million
by 2002. In addition, IDC estimates that the percentage of such users buying
goods and services on the Internet will grow from 26% in December 1997 to 40%
in December 2002. IDC 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 be a significant driver in the future growth of Internet
commerce. For example, IDC 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 $7.0 billion in 1997 to approximately $331.0 billion in
2002.
Rapid Growth in Internet Usage by Small Businesses
The small office/home office, or SOHO, and small business markets represent
a large and growing customer segment. According to IDC, there were a combined
44.7 million small businesses and home offices in the United States in 1998, a
number which IDC forecasts will grow to 57.6 million by 2002. For 1998, IDC
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reported that small businesses with less than 100 employees numbered 7.4
million of which 77% had fewer than 10 employees. In addition, home 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
Web, 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 IDC, 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 electronic commerce participants. IDC estimates
that small businesses accounted for $4.5 billion of electronic commerce in 1998
and will account for approximately $102.0 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 such as
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, or IBIP, 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 IBIP, the US Postal Service
is seeking to enhance user convenience with a new access channel for postage
that allows users to print postage from a personal computer 24 hours a day,
seven days a week. IBIP is intended to achieve US Postal Service 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 exhaustive US Postal Service testing and evaluation to ensure
operational reliability, financial integrity and security to become certified
for commercial distribution. Overall, IBIP 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 SOHO and other small business markets; and
. improve the US Postal Service's competitive position against overnight
delivery services.
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The emergence of Internet postage though the US Postal Service's IBIP
initiative has created an attractive channel for the sale of postage,
particularly to SOHO 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 proprietary consumables such as 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 proprietary consumables. 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 SOHO, other
small business, corporate and consumer user markets with an Internet service
that is accessible with 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 IBIP 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 peripherals required.
Using our free proprietary software client, 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 such as running out of
postage, using too much postage for a letter or parcel and enduring long lines
at the post office. With the Stamps.com service, users can 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
solutions such as integrating our software with a wide range of software
applications, including word processors and database managers, to increase the
efficiency of everyday tasks such as 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;
. ability to more effectively compete with overnight delivery services;
. use of advanced technology for more cost efficient mail processing and
tracking; and
. cost savings relating to printing and distribution of traditional
postage stamps.
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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 in accordance
with 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 such as mechanical and electro-mechanical
postage meters.
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 to extend the brand. We believe
that building the brand awareness of our Internet Postage Server is critical to
attracting and expanding our installed base.
Leverage Our Premier Strategic Partnerships. We intend to develop and
leverage premier 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 April 1999, we have
entered into strategic partnerships with AOL and Office Depot, among others. We
believe that we can further leverage our premier strategic partnerships to
enhance our brand name and grow our installed base.
Establish First-Mover Advantages. Our Internet postage solution was the
first software-based Internet postage solution approved for beta testing
required for US Postal Service certification. We believe that we will have
significant first-mover and time-to-market advantages as a software-based
solution in the Internet postage market. We intend to use this first-mover
advantage to rapidly establish our brand and grow our installed 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 an
approximate nine month beta testing phase;
. our anticipated lead in providing a proprietary 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 Installed Base. We intend to broaden our installed base
through enhancing our brand, forming strategic partnerships and establishing
first-mover 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 the software client for free. We are primarily
targeting the SOHO and small business markets as well as certain segments of
the corporate and consumer markets.
Leverage Our Software-Based Solution and Technology Platform. We intend to
leverage our scaleable, e-commerce platform to enhance our service offering 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, our service provides increased flexibility and
scalability over competing solutions because transactions are processed through
our secure Postage Server using the free software whereas 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, to expand services and to reduce costs.
Pursue Our Incremental Revenue Opportunities. We intend to leverage our
brand, electronic commerce capabilities, infrastructure and user base to
develop incremental revenue opportunities. We will consider the following
opportunities:
. Sale of Postage Related Consumables, Peripherals and Insurance. We
intend to leverage our Web site to offer mailing-related consumables,
such as labels and envelopes, and peripherals, such as 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 there are
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 utilization, and a large current postage
market with a need for highly secure transaction-oriented Internet
services once foreign postal authorities accept the use of Internet
postage.
. Document Fulfillment Market. We will consider investing in technology
that will allow us to extend our core Internet postage technology to
print authenticated documents, such as airline, movie and concert
tickets, from their 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 will 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.
[Insert Graphic--Description: Describe three steps to using our service. Step 1
is download and install free software and complete brief registration process.
Step 2 is users print postage using their existing PC and printer set-up. Step
3 is postage is printed onto envelopes, labels or business documents.]
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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 cryptography and proprietary technologies which meet strict US
government security standards and our service incorporates US Postal Service-
mandated address verification features which enhance the efficiency of mail
processing and delivery. Finally, our Postage Server is designed to interact
with word processing, contact 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 such items 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 which will 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 postal information including postal
publications; a Product Center that will serve as an online commerce module
featuring mailing supplies and general office supplies; and a Small Business
Resource Center module that will 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 to ensure 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 incremental 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 first eight stages; however,
each stage involves significant complexity and US Postal Service scrutiny and
approval. In addition, each Internet postage vendor must complete three phases
of beta testing during the ninth stage, with each phase requiring approximately
90 days of testing to complete. The substantial time commitment required of a
potential IBIP vendor to complete the US Postal Service certification process
is a significant barrier to entry for vendors seeking to compete in the
Internet postage market.
The ten stages for US Postal Service certification process which are set
forth at the US Postal Service Web site are as follows:
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 Distribution) 9. Three Phase Beta Test Approval
5. Provider Infrastructure Plan (Limited Distribution)
10. Vendor Product Approval (Full
Distribution)
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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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 SOHO, 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 beta test consists of
three phases of testing; each phase requires approximately 90 days to complete
and involves increasing standards. The following describes the planned three
phase beta test that we are currently conducting:
Phase I. We have completed Phase I testing. All Phase I participants are
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 has been largely positive and has 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
continue for Phases II and III.
Phase II. We commenced Phase II testing on December 4, 1998. Phase II of
our beta testing includes the expansion of the user base by an additional 475
users. These users are 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,
SOHO lists and leveraging business development relationships. During Phase II
beta testing, we have 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 have not yet commenced Phase III testing. 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 stress
test 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 for approximately 30 days 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 and
to ensure the integrity of our service, 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, such as AOL;
. independent software vendors;
. PC, printer and peripherals manufacturers; and
. office/postal supplies vendors, such as 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 leverage their relationships with us to derive
incremental revenue opportunities, including revenue-sharing arrangements with
us, and provide additional value-added services to their customers.
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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 certain
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 strategic 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, and contemplates a "point of purchase" advertisement
campaign.
Avery Dennison. In March 1999, we entered into to a strategic 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
off 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 strategic distribution
relationship with Dymo, a leading label-making brand available in 160 countries
worldwide. Dymo is part of Esselte, an international office and business
supplies 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 strategic 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 strategic 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 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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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 proprietary
software and access Internet postage services.
Affiliate Programs. We intend to leverage 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 leverage
relationships with vendors of hardware products, such as 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 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, such as 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, as
well as free peripherals and consumables, 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 IBIP vendors have
hardware products available for beta testing. One of 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 our competitors 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 IBIP 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 peripheral storage
device
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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 II beta testing in July 1998.
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 IBIP 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
peripheral 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 IBIP vendors for market share of Internet
postage sales, we will also compete with traditional postage methods such as
stamps and metered mail. While we believe our Internet postage service provides
benefits over traditional postage methods, we cannot be assured 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 IBIP vendors to displace traditional postage methods would seriously
impact our ability to compete with providers of traditional postage.
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;
. 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--We
face intense competition."
Our Technology
Our service is comprised of the following key components:
System Architecture. Our Internet postage servers are located in a high-
security, off-site data center. Our application servers, which handle user
requests, operate with proprietary server software and secure sockets
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layer (SSL) encryption software to communicate with users. These same
application servers create the indicia and process postage purchases using
Federal Information Processing Standard (FIPS) 140-1 validated cryptographic
processes that meet customer and US Postal Service security requirements.
Our service currently supports Windows 95, 98 and NT 4.0 with a Win32-based
client application. The Win32-based client application enables a simpler, more
intuitive interface for the user and provides the power and flexibility
necessary to support a variety of label and envelope options. In addition, the
client application employs a proprietary challenge-response authentication
mechanism for additional security. The client application also includes
specialized printing code to more accurately print indicia on envelopes with a
wide range of printers and to support a variety of mailing label options.
Transaction Processing. Our transaction processing servers are a
proprietary combination of secure, commercially available cryptography and
standards-based Internet technologies to provide secure and reliable
transaction throughput. Our system implements server-side, cryptographic
hardware to exceed the highest government standard for security and data
integrity currently in effect, FIPS 140-1 Level 4. 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 proprietary database servers are designed to
complement industry leading database technologies and can be built to scale
incrementally and seamlessly as needed.
Client Interoperability. Our system utilizes a lightweight, secure client
module for authentication, communication and output control. 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 face substantial uncertainty regarding the impact that other parties'
intellectual property positions will have on the Internet postage market. For
example, on October 22, 1997, Pitney Bowes sent formal comment to the US Postal
Service asserting that fifteen US patents issued to Pitney Bowes and four US
patent applications filed by Pitney Bowes would be infringed by products
meeting the Information Based Indicia Program specifications. 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 its claims against Internet postage vendors and if we do
not enter into a license relationship with Pitney Bowes, our business could be
adversely affected. For example, Pitney Bowes could obtain monetary relief from
us or permanent or temporary injunctive relief against us .
As is customary with technology companies, from time to time, we may
receive or become aware of correspondence claiming potential infringement of
other parties' proprietary 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 proprietary rights
in our products, services, know-how and information. We have three issued US
patents and have filed two patent applications in the United States. We have
also applied
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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
proprietary information. These contractual arrangements or other steps taken to
protect our intellectual property may not prove to be sufficient to prevent
misappropriation of technology or deter independent third party development of
similar technologies. Additionally, the laws of foreign countries may not
protect our services or intellectual property rights to the same extent as do
the laws of the United States.
Our Employees
As of March 31, 1999, we had 77 full time employees, of which 44 were
employed in research and development, 16 were employed in network operations, 9
were employed in sales and marketing, and 8 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 17,000 square foot facility in
Santa Monica, California under a lease expiring on May 31, 1999. We also have a
5,000 square foot satellite research and development site in Irvine, California
under a lease expiring in September 1999.
We are currently negotiating a lease for approximately 40,000 square feet
of office space in Santa Monica, California. As a result, we will be relocating
substantially all of our employees to new facilities in the near future. We may
experience temporary interruptions in our normal operating activities during
the moving process. If we experience more permanent disruptions related to our
move, or if we are unable to complete the move in a timely manner, our
development efforts and business could be harmed. See "Risk Factors--We may
face disruptions in our operations during our relocation to a new facility in
the near 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--We face potential claims of infringement
on other parties' intellectual property rights."
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding our executive
officers and directors as of March 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 Corporate 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 1999, 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 OEM 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, a semiconductor design consulting firm,
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, M.S. his 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. Currently, Mr.
Bohnett serves as Chairman of the Board and Secretary of GeoCities, Inc., 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 is a director of GeoCities, Inc. and several
private companies. Mr. Bohnett was elected to our Board of Directors as a
representative of the class of Series C investors pursuant to 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.
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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 pursuant to 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 the Stanford Graduate School of
Business.
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 pursuant to 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 pursuant to a voting
agreement which will terminate upon the closing of this offering. Mr. Jones
received his B.S. in Chemistry from Harvard University, his Masters 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 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. degree in Economics from
Albion College and his M.B.A. from the University of Michigan.
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Board Committees
The Board has established a 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 such
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 and February, 1999, Messrs. Bohnett,
Runyon and Smith were each granted an option to purchase 72,000 shares of
common stock. The options were granted at fair market value on the date of
grant and vest ratably over a three year periods. In April 1999, Messrs.
Clancy, Jones and Brown were each granted an option to purchase 24,000 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 whereby 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 90,000 shares of our common stock at
$0.50 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 pursuant to
our 1999 Stock Incentive Plan, subject to certain conditions. See "--1999 Stock
Incentive Plan."
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<PAGE>
Executive Compensation
The following summary compensation table sets forth information concerning
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
$100,000 during such year had such officers provided services to us for the
entire fiscal year (the "Named Executive Officers").
Summary Compensation Table for Fiscal Year 1998
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Positions Salary ($) 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 -- -- 263,868 --
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 -- 244,238 7,434(2)
</TABLE>
- --------
(1) Represents aggregate payments to Mr. Payne for consulting services
performed during the period from May 1998 to October 1998.
(2) Represents aggregate 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
The following table sets forth certain information regarding options to
purchase common stock granted to Named Executive Officers during the fiscal
year ended December 31, 1998. No stock appreciation rights were granted to such
individuals during such year.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Appreciation
For Option
Individual Grants Term(4)
------------------------------------------------------------- ---------------
Number of Percentage of
Securities Total Options Granted Exercise
Underlying Options to Employees Price Per Expiration
Name Granted(1) in 1998(2) Share(3) Date 5% 10%
---- ------------------ --------------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John W. LaValle......... 263,868 16.9% $0.10 9/24/08 $16,594 $42,054
Douglas J. Walner....... 244,238 15.6% $0.10 8/20/08 $15,360 $38,925
</TABLE>
- --------
(1) Each option listed in the table was granted under our 1998 Stock Plan. The
options shown in this table are immediately exercisable and become vested,
at a minimum, in five equal annual installments from the date of the option
grant. The Compensation Committee may, in its discretion, extend certain
features of the 1999 Stock Incentive Plan to options granted pursuant to
the 1998 Stock Plan. As a result, certain option shares granted pursuant to
the 1998 Stock Plan will fully vest upon our acquisition by merger or asset
sale, unless such option is assumed by the successor corporation, or
otherwise continued. Also, upon such merger or asset sale, any outstanding
rights of repurchase will automatically terminate with respect to unvested
shares unless such rights are assigned to the acquiring entity. See "--1999
Stock Incentive Plan."
(2) During the fiscal year ended December 31, 1998, we granted options to
purchase an aggregate of 1,564,981 shares of common stock.
(3) 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
off the purchased shares.
(4) 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 Commission and do not
represent our estimate or projection of our future common stock prices.
These amounts represent certain 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.
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<PAGE>
Aggregated Option Exercises in Fiscal Year Ended December 31, 1998 and Year-End
Option Values
The following table sets forth certain information concerning options to
purchase common stock exercised by the Named Executive Officers during 1998 and
the number and value of unexercised options held by each of the Named Executive
Officers at December 31, 1998.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Options at
December 31, December 31,
1998(1) 1998(2)
--------------- ---------------
Name Vested Unvested Vested Unvested
---- ------ -------- ------ --------
<S> <C> <C> <C> <C>
John W. LaValle (3)............................. 0 263,868 0 $105,547
Douglas J. Walner (3)........................... 0 244,238 0 $ 97,695
</TABLE>
- --------
(1) Each option listed in the table was granted under our 1998 Stock Plan. The
options shown in this table are immediately exercisable and become vested,
at a minimum, in five annual installments from the date of the option
grant. The Compensation Committee may, in its discretion, extend certain
features of the 1999 Stock Incentive Plan to options granted pursuant to
the 1998 Stock Plan. As a result, certain option shares granted pursuant
to the 1998 Stock Plan will fully vest upon our acquisition by merger or
asset sale, unless such option is assumed by the successor corporation, or
otherwise continued. Also, upon such merger or asset sale, any outstanding
rights of repurchase will automatically terminate with respect to unvested
shares unless such rights are assigned to the acquiring entity. See "--
1999 Stock Incentive Plan."
(2) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated by subtracting the
exercise price from the fair market value of the underlying securities as
determined by the Board of Directors.
(3) The options, granted pursuant to our 1998 Stock Plan, are immediately
exercisable. These options vest ratably over four years, with 1/4 of the
options becoming vested one year after the grant date and 1/48 each month
thereafter.
Employment Agreements and Change in Control Arrangements
John M. Payne has entered into a letter agreement, effective as of October
29, 1998, pursuant to which Mr. Payne serves 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 if certain performance
targets are satisfied. 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 1,000,000 shares of our common stock to him at
$0.10 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, such 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, pursuant to which Mr. LaValle serves as our Chief Financial Officer and
Senior Vice President. Pursuant to this agreement, Mr. LaValle receives a base
salary of $156,000 per year. We granted Mr. LaValle an option to purchase
263,868 shares of common stock at $0.10 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 anytime 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.
42
<PAGE>
Mohan P. Ananda entered into an employment agreement, effective as of
January 20, 1998, pursuant to 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 1,448,397 shares of our common stock
to Mr. Ananda at $0.02 per share. Mr. Ananda has ceased active involvement with
our operations, but he continues to be a director on our Board of Directors.
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 their
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 such 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
such 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) a change in his or her position
with us which materially reduces his or her responsibilities or (b) a reduction
in his or her level of compensation (including base salary, fringe benefits and
any non-discretionary and objective-standard incentive payment or bonus award)
by more than 15% or (c) a relocation of the optionee's place of employment by
more than 50 miles, and such change, reduction or relocation is effected by us
without the optionee's consent.
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.
Our 1999 Stock Incentive 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 in 1999 and approved by the stockholders in 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. 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 plus an
additional increase of shares. 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 percent
( %) 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 shares. In addition, no participant in the
1999 plan may be granted stock options or direct stock issuances for more than
1,000,000 shares of common stock in total in any calendar year.
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<PAGE>
Programs. Our 1999 plan has five separate programs:
. the discretionary option grant program, under which eligible
individuals in our employ 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. 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 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 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 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
44
<PAGE>
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. Such
accelerated vesting may occur either at the time of such transaction or
upon the subsequent termination of the individual's service.
. The options currently outstanding under our 1998 plan will immediately
vest in the event we are acquired and the acquiring company does not
assume those options. Any options which are so 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 such an 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 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 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 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 -share automatic
option grant will vest in a series of successive equal monthly
installments upon the optionee's completion of each month of board service
over the 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
45
<PAGE>
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 , 2009.
1999 Employee Stock Purchase Plan
Introduction. Our 1999 Employee Stock Purchase Plan was adopted by the
board in 1999 and approved by the stockholders in
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 our participating subsidiaries to
purchase shares of common stock, at semi-annual intervals, with their
accumulated payroll deductions.
Share Reserve. 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 percent ( %) 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 such annual increase exceed 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 2001. The next
offering period will start on the first business day in 2001, and
subsequent offering periods will 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 and
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.
46
<PAGE>
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
and each year. In no event, however, may any
participant purchase more than shares on any purchase date, and not
more than 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
2009.
. The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
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 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 Delaware law for breach of the
director's duty of loyalty, for 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, 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 Delaware law. This
provision also does not affect the director's responsibilities under any other
laws, such as 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:
(a) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) arising under Section
174 of the Delaware law, or (d) 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 shall, to the
47
<PAGE>
fullest extent permitted by the Delaware law, 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, 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 (including attorneys' fees), judgements,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding.
We plan to enter into indemnification agreements with our directors and
certain of our officers containing provisions that may require us, among other
things, to indemnify such directors and officers against certain 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 such indemnification.
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<PAGE>
CERTAIN TRANSACTIONS
Since our inception in January 1998, there has not been, nor is there
currently proposed, any transaction to which we are a party in which the
amount involved exceeded $60,000 and in which any director, executive officer,
holder of more than 5% of our common stock or any member of the immediate
family of any of the foregoing persons had or will have a direct or indirect
material interest other than (1) compensation agreements and other agreements
and (2) the transactions described below.
We have issued an aggregate of 4,600,650 shares of common stock for an
aggregate purchase price of $193,760.00. John M. Payne, our President and
Chief Executive Officer, purchased 1,000,000 shares of common stock in
November 1998 for an aggregate 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 325,650 shares of common stock
in October 1998 and December 1998 for an aggregate purchase price of
$28,460.00. Mohan Ananda, a member of our board of directors, purchased
1,448,397 shares of common stock in January 1998 for an aggregate purchase
price of $28,967.94. As payment of the purchase price, Mr. Ananda assigned
certain intellectual property rights to us and received an exclusive,
worldwide, fully paid license back from us to use certain patents in a
restricted field of use. In January 1998, we also sold 282,662 shares of
common stock to each of our co-founders, James McDermott, Ari Engelberg and
Jeffrey Green, for an aggregate 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:
. an aggregate of 3,762,500 shares of Series A preferred stock at $0.40
per share in February 1998;
. an aggregate of 6,020,000 shares of Series B preferred stock at $0.75
per share in August, October and November 1998; and
. an aggregate of 5,464,486 shares of Series C preferred stock at $5.49
per share in February and March 1999.
Each share of preferred stock will be converted into common stock upon
completion of this offering.
We paid $61,000 in March 1998 to Safeware Corporation for employee salary
and patent prosecution expenses incurred on our behalf. Mr. Ananda is the
majority shareholder in Safeware Corporation. We also reimbursed Mr. Ananda
for approximately $20,000 for expenses incurred on our behalf.
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 90,000 shares
of common stock at $0.50 per share. The term of this agreement extends from
February 1999 to February 2002.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the common stock as of March 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 (1) each stockholder
whom we know to beneficially own 5% or more of the outstanding shares of common
stock, (2) each of our directors and Named Executive Officers, and (3) 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., 2900
31st Street, Suite 150, 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 19,847,636 shares of common stock outstanding
as of March 31, 1999 on a proforma basis and 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 March 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)............ 3,614,299 18.2% %
Thomas N. Clancy(2)............ 3,614,299 18.2% %
G. Bradford Jones(3)........... 3,614,299 18.2% %
Mohan P. Ananda(4)............. 1,448,397 7.3% %
John M. Payne.................. 1,000,000 5.0% %
Thomas H. Bruggere(5).......... 325,650 1.6% %
John W. LaValle (6)............ 263,868 1.3% %
Douglas J. Walner(7)........... 244,238 1.2% %
Loren E. Smith(8).............. 162,000 * *
David C. Bohnett(9)............ 90,215 * *
Marvin Runyon(10).............. 76,554 * *
Other 5% Stockholders:
Brentwood Venture Capital
(3).......................... 3,614,299 18.2% %
11150 Santa Monica Blvd,
Suite 1200
Los Angeles, CA 90025
Enterprise Partners IV, L.P.
(2).......................... 3,614,299 18.2% %
5000 Birch Street, Suite
6200
Newport Beach, CA 92660
SBIC Partners, L.P. ........... 3,614,299 18.2% %
840 Newport Center Drive,
Suite 480
Newport Beach, CA 92660
Vulcan Ventures Inc............ 1,821,494 9.2% %
110-110th Ave., N.E., Suite
550
Bellevue, WA 98004
Chase Venture Capital
Partners, L.P................ 1,457,195 7.3% %
380 Madison Ave., 12th Floor
New York, NY 10017
All directors and executive
officers as a group
(15 people) (11)............... 14,861,391 71.5% %
</TABLE>
50
<PAGE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) Consists of 3,614,299 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
such shares except to the extent of his pecuniary interest therein.
(2) Includes 3,325,155 shares and 289,144 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 such shares except to the
extent of his pecuniary interest therein.
(3) Includes 3,469,727 shares and 144,572 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 such shares except to the extent
of his pecuniary interest therein.
(4) Includes 160,000 shares held in trust for the benefit of Mr. Ananda's
family.
(5) Includes 50,000 shares held in trust for the benefit of his children as
to which Mr. Bruggere disclaims beneficial ownership.
(6) Includes 263,868 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(7) Includes 244,238 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(8) Includes 162,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(9) Includes 72,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(10) Includes 72,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(11) Includes 939,106 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 certain provisions of our
certificate of incorporation and bylaws are summaries. Statements contained in
this prospectus relating to such provisions are not necessarily complete,
copies of which have been filed with the 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 certificates 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 shares of common stock, par value $0.001, and 5,000,000
shares of preferred stock, par value $0.001.
Common Stock
As of March 31, 1999, there were 19,847,636 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
shares of common stock offered by us hereby, there will be shares of
common stock outstanding (assuming no exercise of the underwriters' over-
allotment option) 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 such 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 Series A,
Series B and Series C 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 an aggregate 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 such series, including the dividend rights,
dividend rates, conversion rights, voting rights, term of redemption (including
sinking fund provisions), redemption price or prices, liquidation preferences
and the number of shares constituting any series or designations of such 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 common 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, as amended from time to time. Subject to certain 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 such 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 certain 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, certain provisions of the certificate of incorporation and
bylaws, which provisions are summarized in the following paragraphs, 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.
Stockholder Action; Special Meeting of Stockholders. The certificate
provides that stockholders may not take action by written consent, but only at
duly called annual or special meetings of stockholders. The certificate further
provides that special meetings of our stockholders may be called only by the
Chairman of the Board of Directors or a majority of the Board of Directors.
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 days nor more than days prior to the first anniversary of the date
of our notice of annual meeting provided with respect to the previous year's
annual meeting of stockholders; provided, that if no annual meeting of
stockholders was held in the previous year or the date of the annual meeting of
stockholders has been changed to be more than 30 calendar days earlier than or
60 calendar days after such anniversary, notice by the stockholder, to be
timely, must be so received not more than 90 days before nor later than the
later of (a) 60 days prior to the annual meeting of stockholders or (b) the
close of business on the 10th day following the date on which notice of the
date of the meeting is given to stockholders or made public, whichever first
occurs. The bylaws also specify certain 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.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws,
unless a corporation's certificate of incorporation or bylaws, as the case may
be, requires a greater percentage.
Registration Rights
After this offering, holders of the 16,695,383 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
53
<PAGE>
to their shares. Of such shares, 1,448,397 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, subject to certain
conditions. In addition, subject to certain limitations, 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, such 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 shares of common
stock outstanding ( shares if the underwriters' over-allotment option
is exercised in full), assuming no exercise of options after , 1999.
Of this amount, the shares offered by this prospectus will be
available for immediate sale in the public market as of the date of this
prospectus. An additional shares are not subject to an 180-day lock-
up and will be available for sale in the public market 90 days following the
date of this prospectus pursuant to Rule 701. Approximately
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 Freely tradable shares sold in offering
and shares salable under Rule 144(k)
that are not subject to 180-day lock-up
90 days Shares salable under Rules 144 or 701
that are not subject to 180-day lock-up
180 days Lock-up released; shares salable under
Rules 144 or 701
Over 180 days Restricted securities held for one year
or less
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) 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
shares immediately after the offering) or (b) the average weekly
trading volume during the four calendar weeks preceding such sale, subject to
the filing of a Form 144 with respect to such sale. A person (or persons whose
shares are aggregated) 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 such shares pursuant to Rule 144(k) without regard to the limitations
described above. Persons deemed to be affiliates must always sell pursuant to
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 hereby.
Our directors, executive officers, stockholders with registration rights
and certain other stockholder and optionholders have agreed pursuant to the
underwriting agreement and other agreements 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 such consent,
grant options and sell shares pursuant to our stock incentive and purchase
plans.
Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell 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 sell 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 , the holders of options to purchase
approximately shares of common stock will be eligible to sell their
shares upon the expiration of the lock-up period, subject in certain cases to
vesting of such options.
55
<PAGE>
We intend to file a registration statement on Form S-8 under the Securities
Act within days after the completion of the offering to register
shares of common stock subject to outstanding stock options reserved for
issuance under our 1999 Stock Incentive Plan, thus permitting the resale of
such shares by nonaffiliates in the public market without restriction under the
Securities Act.
In addition, certain shareholders have registration rights with respect to
16,695,383 shares of common stock and common stock equivalents. Registration of
the registrable securities under the Securities Act would result in such shares
becoming freely tradable without restriction under the Securities Act.
56
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Thomas Weisel Partners LLC and Volpe Brown
Whelan & Company, LLC 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 set forth opposite their names below. The underwriters
are committed to purchase and pay for all such 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................................
----------
Total..........................................................
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price set forth on the cover
page of this prospectus and to certain dealers at such 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
such reduction shall change the amount of proceeds to be received by us as set
forth 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 additional shares of common stock at the same price
per share as we will receive for the shares that the underwriters
have agreed to purchase. To the extent that the underwriters exercise such
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of such 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 shares offered hereby. If
purchased, such additional shares will be sold by the underwriters on the same
terms as those on which the shares are being sold. We will be
obligated, pursuant to the option, to sell shares to the extent the option is
exercised. The underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered hereby.
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 $ million 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 (the "Lock-Up Period"),
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 thereafter acquired directly by such
holders or with respect to which they have or hereafter 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 Lock-Up
Period. In addition, we have agreed that, during the Lock-Up Period, we will
not, subject to certain exceptions, 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 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. At our request, the underwriters have reserved up to
shares of common stock for sale, at the initial public offering price, to our
employees, business associates and other friends through a directed share
program. The number of shares of common stock available for sale to the general
public in the offering will be reduced to the extent participants in the
directed share program purchase the reserved shares.
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 hereby has been determined through negotiations
between us and the representatives. Among the factors considered in such
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.
New Underwriter. 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 filed public offerings of equity securities, of which
have been completed, and has acted as a syndicate member in an additional
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 pursuant to the underwriting agreement entered into in connection with this
offering.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Exchange Act, certain persons participating
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
58
<PAGE>
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 such underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such 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 hereby will be passed upon for us
by Brobeck, Phleger & Harrison LLP, Irvine, California. As of March 31, 1999,
certain entities and individuals affiliated with Brobeck, Phleger & Harrison
LLP beneficially owned an aggregate of 51,609 shares of our Series C preferred
stock that will convert to common stock in the offering. Certain 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.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (including the exhibits and
schedules thereto) under the Securities Act with respect to the shares to be
sold in the offering. This prospectus does not contain all the information set
forth in the registration statement. For further information with respect to us
and the shares to be sold in the offering, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference. In addition, we intend to file annual, quarterly and current
reports, proxy statements and other information with the Commission.
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 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 Commission. Please call the Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. Our
Commission filings, including the registration statement, are also available to
you on the Commission's 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 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 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 Pro Forma
31, 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
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
Stockholders' equity:
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
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 --
Common stock, $.001 par value:
Authorized shares 20,000,000 at
December 31, 1998 and 40,000,000 at
March 31, 1999
Issued and outstanding shares
4,600,650 at December 31, 1998 and
March 31, 1999 (pro forma:
19,847,636)........................ 4,601 4,601 19,848
Additional paid-in capital............ 190,159 190,159 34,452,850
Notes receivable from stock sales..... (117,000) (117,000) (117,000)
Deficit accumulated during the
development stage................... (4,028,880) (7,305,060) (7,305,060)
----------- ----------- -----------
Total stockholders' equity.............. 2,027,224 27,050,638 27,050,638
----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $ 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
January 9, 1998 Period from Period from
(date of inception) January 9, 1998 Three Months January 9, 1998
to (date of inception) Ended (date of inception)
December 31, 1998 to March 31, 1999 March 31, 1999 to 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...... 2,481,279 275,713 2,118,426 4,599,705
----------- --------- ----------- -----------
Total costs and
expense.......... 4,013,090 359,094 3,278,198 7,291,288
----------- --------- ----------- -----------
Loss from operations.... (4,013,090) (359,094) (3,278,198) (7,291,288)
Other income (expense):
Interest expense...... (27,624) -- (33,001) (60,625)
Interest income....... 11,834 -- 35,019 46,853
----------- --------- ----------- -----------
Net loss................ $(4,028,880) $(359,094) $(3,276,180) $(7,305,060)
=========== ========= =========== ===========
Historical basic and
diluted net loss per
share................. $ (1.22) $ (0.13) $ (0.71) $ (2.05)
Pro forma basic and
diluted net loss per
share................. $ (0.52) $ (0.08) $ (0.20) $ (0.77)
</TABLE>
See accompanying notes.
F-4
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Preferred Stock Notes Accumulated
(Series A, B & C) Common Stock Additional Receivable During the
---------------------- ---------------- Paid-in from Development
Shares Amount Shares Amount Capital Stock Sales Stage Total
---------- ----------- --------- ------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 9,
1998 (inception)....... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of Common
Stock................. -- -- 3,275,000 3,275 63,025 (18,000) -- 48,300
Issuance of Series A
Preferred Stock, net
of offering costs, at
$0.40 a share......... 3,762,500 1,463,344 -- -- -- -- -- 1,463,344
Issuance of Series B
Preferred Stock at
$0.75 a share......... 6,020,000 4,515,000 -- -- -- -- -- 4,515,000
Issuance of restricted
Common Stock.......... -- -- 1,325,650 1,326 127,134 (99,000) -- 29,460
Net loss............... -- -- -- -- -- -- (4,028,880) (4,028,880)
---------- ----------- --------- ------ -------- --------- ----------- -----------
Balance at December 31,
1998................... 9,782,500 5,978,344 4,600,650 4,601 190,159 (117,000) (4,028,880) 2,027,224
Issuance of Series C
Preferred Stock, net
of offering costs, at
$5.49 a share
(unaudited)........... 5,464,486 28,299,594 -- -- -- -- -- 28,299,594
Net loss (unaudited).... -- -- -- -- -- -- (3,276,180) (3,276,180)
---------- ----------- --------- ------ -------- --------- ----------- -----------
Balance at March 31,
1999 (unaudited)....... 15,246,986 $34,277,938 4,600,650 $4,601 $190,159 $(117,000) $(7,305,060) $27,050,638
========== =========== ========= ====== ======== ========= =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
January 9,
1998 (date Period from Period from
of January 9, Three January 9,
inception) 1998 (date of Months 1998 (date of
to December inception) to Ended inception) to
31, March 31, March 31, March 31,
----------- ------------- ----------- -------------
1998 1998 1999 1999
----------- ------------- ----------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net loss............... $(4,028,880) $ (359,094) $(3,276,180) $(7,305,060)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization...... 81,540 4,126 63,480 145,020
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
operations 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
investing 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
Preferred Stock,
net.................. 1,463,344 1,463,344 -- 1,463,344
Issuance of Series B
Preferred Stock...... 4,515,000 -- -- 4,515,000
Issuance of Series C
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 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 January Period from Period from
9, 1998 January 9, 1998 January 9, 1998
(date of inception) (date of inception) Three Months (date of inception)
to to Ended 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.................. 3,303,942 2,827,012 4,600,650 3,563,284
Effect of Dilutive
securities............. -- -- -- --
--------- --------- ---------- ---------
Weighted average common
shares used to compute
dilutive net loss per
share.................. 3,303,942 2,827,012 4,600,650 3,563,284
========= ========= ========== =========
Conversion of preferred
stock.................. 4,424,978 1,748,933 12,104,538 5,960,890
--------- --------- ---------- ---------
Weighted average common
shares used to compute
pro forma basic and
diluted net loss per
share.................. 7,728,920 4,575,945 16,705,188 9,524,174
========= ========= ========== =========
</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 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 (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.
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 3,235,000. 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; however, the Board of Directors has the
discretion with respect to vesting periods applicable to a particular grant.
F-10
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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................................................... 1,564,981 .09
Surrendered, forfeited or expired........................ (24,375) .05
Exercised................................................ -- --
--------- ----
Outstanding options at December 31, 1998................. 1,540,606 $.09
========= ====
</TABLE>
As of December 31, 1998, all options were exercisable. However no options
were vested and 1,694,394 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.
6. Equity
During 1998, the Company issued restricted stock to an employee and a
director totaling 1,325,650 shares. These shares vest one-fourth on May 30,
1999 and the remaining shares vest monthly over thirty-six months.
In February 1998, the Company issued 3,762,500 shares of its Series A
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 Preferred Stock at $0.75
per share. In August and October 1998, 6,020,000 shares of Series B Preferred
Stock were issued under these warrants.
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 Preferred Stock automatically converts to Common
Stock upon (i) the sale of Common Stock by the Company in an underwritten
public offering with a
F-11
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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 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
Preferred Stock.
The Series A and Series B Preferred Stock have a liquidation preference
over Common Stock of $0.40 and $0.75 per share, respectively.
The Preferred Stock may be redeemed at any time after February 26, 2003 at
the written consent of the majority holders of outstanding shares of Preferred
Stock. The redemption price for Series A and Series B Preferred Stock is $0.40
and $0.75 per share, respectively.
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)
Authorize Stock
On February 17, 1999, the Company increased the number of authorized shares
of common stock and preferred to 40,000,000 shares and 15,500,000 shares,
respectively. On February 10, 1999, the Board of Directors increased the number
of shares reserved for issuance under the 1998 Stock Option Plan by 1,000,000
shares.
Preferred Stock
On February 10, 1999, the Board of Directors approved the sale of Series C
Preferred Stock. In February and March 1999, the Company issued 5,464,486
shares of its Series C Preferred Stock at $5.49 per share. Series C 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 Preferred Stock, the board of directors
amended the certificate of incorporation and each share of Series A, Series B
and Series C Preferred Stock automatically converts to 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 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 Preferred Stock. The Series C 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 Preferred Stock at the redemption price of $5.49 per
share.
F-12
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock options
During the three month period ending March 31, 1999, the Company issued
1,595,000 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>
299,600.............................................. $4.50 $1.07
1,295,400.............................................. $0.50 $0.12
</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.
F-13
<PAGE>
[LOGO OF STAMPS.COM]
<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.................................................... 15,985
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....................................................... 62,765
Total............................................................. 650,000
</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 3,265,000 shares of Common
Stock at $.02 per share to certain employees, consultants and friends of the
company.
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 205,250 shares of Common Stock
at $.08 per share to Thomas Bruggere.
In November 1998, we issued an aggregate of 1,000,000 shares of Common
Stock at $.10 per share to John Payne.
In December 1998, we issued an aggregate of 120,400 shares of Common Stock
at $.10 per share to Thomas Bruggere.
In December 1998, we issued 10,000 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 Preferred Stock to certain accredited investors for an
aggregate offering price of $1,505,000 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 Preferred Stock upon the exercise of warrants to
certain accredited investors for an aggregate offering price of $4,515,000.50.
In February and March of 1999, we issued an aggregate of 5,464,486 shares
of Series C Preferred Stock to certain accredited investors for an aggregate
offering price of $30,000,028, less $1,645,000 in offering expenses.
II-2
<PAGE>
From January 1998 to April 1999, we have granted options to purchase an
aggregate of 3,342,906 shares of common stock to our directors, executive
officers, employees and consultants at a weighted exercise price of $ . As
of April 15, 1999, options to purchase 263,868 shares at an exercise price of
$0.10 per share had been exercised.
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.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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.
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.
** To be filed by amendment and Confidential treatment will be requested for
certain confidential portions of this exhibit pursuant to Rule 406 under the
Securities Act. In accordance with Rule 406, these confidential portions
will be 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
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this 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 22nd day of April 1999.
STAMPS.COM INC.
By: /s/ John M. Payne
-----------------------------------
John M. Payne
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint John M. Payne and John W. LaValle and each of them, his true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, or any related registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of said attorneys-
in-fact and agents, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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, April 22, 1999
____________________________________ President and Director
John M. Payne (Principal Executive
Officer)
/s/ John W. LaValle Chief Financial Officer, April 22, 1999
____________________________________ Senior Vice President of
John W. LaValle Operations and Secretary
(Principal Financial and
Accounting Officer)
/s/ Thomas H. Bruggere Chairman of the Board of April 22, 1999
____________________________________ Directors
Thomas H. Bruggere
/s/ Mohan P. Ananda Director April 22, 1999
____________________________________
Mohan P. Ananda
/s/ David C. Bohnett Director April 22, 1999
____________________________________
David C. Bohnett
/s/ Jeffrey J. Brown Director April 22, 1999
____________________________________
Jeffrey J. Brown
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas N. Clancy Director April 22, 1999
____________________________________
Thomas N. Clancy
/s/ G. Bradford Jones Director April 22, 1999
____________________________________
G. Bradford Jones
/s/ Marvin Runyon Director April 22, 1999
____________________________________
Marvin Runyon
/s/ Loren E. Smith Director April 22, 1999
____________________________________
</TABLE> Loren E. Smith
II-6
<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 and 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 certain investors.
10.3 Patent Assignment from Mohan Ananda to the Registrant dated January
20, 1998.
10.4 Assignment and License Agreement between the Registrant and Mohan
Ananda dated January 20, 1998.
10.5 Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John Payne.
10.6 Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan Ananda.
10.7* 1998 Stock Plan.
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.
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.
** To be filed by amendment and confidential treatment will be requested for
certain confidential portions of this exhibit pursuant to Rule 406 under
the Securities Act. In accordance with Rule 406, these confidential
portions will be omitted from this exhibit and filed separately with the
Commission.
<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STAMPS.COM INC.
The undersigned, John M. Payne and John W. LaValle, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Stamps.com Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on January 9, 1998. The
corporation was originally incorporated under the name StampMaster, Inc.
3. The Certificate of Incorporation of this 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 its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is Fifty
Five Million Five Hundred Thousand (55,500,000) shares, each with a par value of
$0.001 per share. Forty Million (40,000,000) shares shall be Common Stock and
Fifteen Million Five Hundred Thousand (15,500,000) shares shall be Preferred
Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by this Second Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The first
series of Preferred Stock shall be designated
<PAGE>
"Series A Preferred Stock" and shall consist of Three Million Eight Hundred
------------------------
Thousand (3,800,000) shares. The second series of Preferred Stock shall be
designated "Series B Preferred Stock" and shall consist of Six Million Two
------------------------
Hundred Thousand (6,200,000) shares. The third series of Preferred Stock shall
be designated "Series C Preferred Stock" and shall consist of Five Million Five
------------------------
Hundred Thousand (5,500,000) shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock, the Series
B Preferred Stock and Series C Preferred Stock are as set forth below in this
Article IV(B).
1. Dividend Provisions.
-------------------
(a) The holders of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock of
the Corporation) on the Common Stock of the Corporation, at the rate of $0.04
per share per annum on each outstanding share of Series A Preferred Stock,
$0.075 per share per annum on each outstanding share of Series B Preferred Stock
and $0.55 per share per annum on each outstanding share of Series C Preferred
Stock or, if greater (as determined on a per annum basis and an as converted
basis for the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock), an amount equal to that paid on any other outstanding shares
of this corporation, payable quarterly when, as and if declared by the Board of
Directors. Such dividends shall not be cumulative.
(b) Unless full cash dividends on the Series A Preferred Stock,
the Series B Preferred Stock and Series C Preferred Stock for all past dividend
periods and the then current dividend period shall have been paid or declared
and a sum sufficient for the payment thereof set apart: (A) no dividend
whatsoever shall be paid or declared, and no distribution shall be made, on any
Common Stock, and (B) no shares of Common Stock shall be purchased, redeemed, or
acquired by the corporation and no funds shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption, or acquisition
thereof; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock approved by the Board of Directors held by
employees, officers, directors, consultants or other persons performing services
for the corporation or any wholly owned subsidiary (including, but not by way of
limitation, distributors and sales representatives) that are subject to
restrictive securities purchase agreements under which the corporation has the
option to repurchase such shares upon the termination of such employees,
officers, directors, consultants or other persons performing services for the
corporation or any wholly owned subsidiary.
2. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of the Corporation to the holders of
<PAGE>
Common Stock by reason of their ownership thereof, an amount per share equal to
(i) $0.40 per share for each share of Series A Preferred Stock then held by
them, (ii) $0.75 per share for each share of Series B Preferred Stock held by
them and (iii) $5.49 per share for each share of Series C Preferred Stock held
by them, plus declared but unpaid dividends. If, upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A,
Series B and Series C Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then, the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A, Series B and
Series C Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive. If the aggregate amount of any
distribution to be received by holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock pursuant to this Section 2 would be
greater if such holders were to convert such shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock to Common Stock
immediately prior to such distribution, then such holders shall participate in
such distribution as if they had so converted such shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock.
(b) Remaining Assets. Upon the completion of the distribution
----------------
required by Section 2(a) above, if assets remain in the Corporation, the holders
of the Common Stock of the Corporation shall receive all of the remaining assets
of the Corporation.
(c) Certain Acquisitions.
--------------------
(i) Deemed Liquidation. For purposes of this Section 2, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to
occur if the Corporation shall sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Corporation is disposed of,
provided that this Section 2(c)(i) shall not apply to a merger effected solely
- --------
for the purpose of changing the domicile of the Corporation.
(ii) Valuation of Consideration. In the event of a deemed
--------------------------
liquidation as described in Section 2(c)(i) above, if the consideration received
by the Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or The Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
<PAGE>
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock.
(iii) Notice of Transaction. The Corporation shall give each
---------------------
holder of record of Series A, Series B and Series C Preferred Stock written
notice of such impending transaction not later than twenty (20) days prior to
the stockholders' meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 2, and the
Corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after the Corporation has given the first notice provided for herein or
sooner than twenty (20) days after the Corporation has given notice of any
material changes provided for herein; provided, however, that such periods may
be shortened upon the written consent of the holders of Preferred Stock that are
entitled to such notice rights or similar notice rights and that represent at
least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
(iv) Effect of Noncompliance. In the event the requirements
-----------------------
of this Section 2(c) are not complied with, the Corporation shall forthwith
either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A, Series B
and Series C Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of the first
notice referred to in Section 2(c)(iii) hereof.
3. Redemption.
----------
(a) Redemption Date and Price. At any time after February 27,
-------------------------
2003, but on a date (the "Redemption Date") within thirty (30) days after
---------------
receipt by the Corporation of a written request (a "Redemption Election") from
-------------------
the holders of not less than a majority of the then outstanding Series A, Series
B and Series C Preferred Stock that all or some of the shares of such series be
redeemed, the Corporation shall, to the extent it may lawfully do
<PAGE>
so, redeem in two consecutive equal annual installments the number of shares
specified in the Redemption Election in accordance with the procedures set forth
in this Section 3 by paying in cash therefor a sum per share equal to $0.40 per
share of Series A Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares), $0.75 per share of Series B
Preferred Stock (as adjusted for any stock dividends, combinations or splits
with respect to such shares) and $5.49 per share of Series C Preferred Stock (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus all declared or accumulated but unpaid dividends on such shares
(the "Redemption Price"). If the redemption of fewer than all of the outstanding
----------------
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock is requested pursuant to this Section 3(a), such redemption
shall be made on a pro rata basis among all of the holders of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock based on
the number of shares of such series held by such holders.
(b) Procedure. Within fifteen (15) days following its receipt of
---------
the Redemption Election, the Corporation shall mail a written notice, first
class postage prepaid, to each holder of record (at the close of business on the
business day next preceding the day on which notice is given) of Preferred Stock
at the address last shown on the records of the Corporation for such holder,
notifying such holder of the redemption to be effected, specifying the number of
shares to be redeemed from such holder, the Redemption Date, the applicable
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to the Corporation, in the manner and at the place
designated, such holder's certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in Section 3(c), on
-----------------
or after the Redemption Date each holder of Preferred Stock to be redeemed shall
surrender to the Corporation the certificate or certificates representing such
shares, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(c) Effect of Redemption; Insufficient Funds. From and after the
----------------------------------------
Redemption Date, unless there shall have been a default in payment of the
Redemption Price, all rights of the holders of shares of Preferred Stock
designated for redemption in the Redemption Notice (except the right to receive
the Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of shares of Preferred Stock on any the Redemption Date
are insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed based upon the total Redemption Price applicable
their holdings of Preferred Stock which are subject to redemption on such
Redemption Date. The shares of Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Preferred Stock, such funds will
immediately be
<PAGE>
used to redeem the balance of the shares which the Corporation has become
obliged to redeem on the any Redemption Date but which it has not redeemed.
(d) Restrictions on Redemption. Notwithstanding anything
--------------------------
contained in the Section 3 to the contrary, the redemption rights granted to the
holders of Preferred Stock pursuant to the provisions of Section 3(a) above
shall not be exercised by any holder of Preferred Stock (each a "Regulated
---------
Holder") if, in the sole discretion of such Regulated Holder, the exercise
- ------
thereof would result in a violation of any statute or regulation applicable to
such Regulated Holder (each an "Applicable Statute"); provided, that the Company
------------------
shall redeem any shares of Preferred Stock held by any such holder that the
Company would have otherwise been required to redeem but for this Section 3(d)
at the earlier to occur of (i) such time as the redemption of shares of such
Preferred Stock would not result in a violation of any Applicable Statute or
(ii) the fifth anniversary after the date upon which this Second Amended and
Restated Certificate of Incorporation was filed (the "Purchase Date").
-------------
4. Conversion. The holders of the Series A, Series B and Series C
----------
Preferred Stock shall have conversion rights as follows (the "Conversion
----------
Rights"):
- ------
(a) Right to Convert. Subject to Section 4(c), each share of
----------------
Series A, Series B and Series C Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share and on or prior to the fifth day prior to the Redemption Date, if any, as
may be fixed in any Redemption Notice with respect to such series of Preferred
Stock, at the office of the Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (i) $0.40 in the case of Series A Preferred Stock; (ii)
$0.75 in the case of Series B Preferred Stock; and (iii) $5.49 in the case of
Series C Preferred Stock by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share shall be
$0.40 for each share of Series A Preferred Stock, $0.75 for each share of Series
B Preferred Stock and $5.49 for each share of Series C Preferred Stock. Such
initial Conversion Price shall be subject to adjustment as set forth in Section
4(d).
(b) Automatic Conversion. Each share of Series A, Series B and
--------------------
Series C Preferred Stock shall automatically be converted into shares of Common
Stock at the Conversion Price at the time in effect for such share immediately
upon the earlier of (i) except as provided below in Section 4(c), the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), the public offering price of which is not
--------------
less than $10.98 per share (appropriately adjusted for any stock split,
dividend, combination or other recapitalization) and which results in aggregate
cash proceeds to the Corporation of $20,000,000 (net of underwriting discounts
and commissions) or (ii) the date specified by written consent or agreement of
the holders of a majority of the then outstanding shares of Series A, Series B
and Series C Preferred Stock voting together as a class.
<PAGE>
(c) Mechanics of Conversion. Before any holder of Series A, Series B
-----------------------
or Series C Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for such
series of Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of such series of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act the conversion shall be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Stock Splits and Dividends. The Conversion Price of the
- ----------------------------------------------
Series A, Series B and Series C Preferred Stock shall be subject to adjustment
from time to time as follows:
(i) (A) If the corporation shall issue, after the Purchase Date
(as defined in Section 3(d) above), any Additional Stock (as defined below)
without consideration or for a consideration per share less than the Conversion
Price for the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the conversion Price for such series in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
(as determined in accordance with subsection 4(d)(i)(E) below) that the
aggregate consideration received by the corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
made in an amount less than one cent per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent
<PAGE>
provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion
Price pursuant to this subsection 4(d)(i) shall have the effect of increasing
the Conversion Price above the Conversion Price in effect immediately prior to
such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after the
applicable Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (to the extent then exercisable) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
4(d)(i)(C) and (d)(i)(D)), if any, received by the Corporation upon the issuance
of such options or rights plus the minimum exercise price provided in such
options or rights for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (to the extent then convertible or
exchangeable) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in subsections 4(d)(i)(C)
and (d)(i)(D)).
(3) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to this Corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Series A Preferred Stock, the Series B Preferred Stock or Series C Preferred
Stock, to the extent in any way affected by or computed using such
<PAGE>
options, rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the Series A Preferred Stock, the Series B Preferred Stock
or Series C Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities.
(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(1) and
(2) shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this
Corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction described in
subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to employees,
consultants, directors or vendors (if in transactions with primarily non-
financing purposes) of this Corporation directly or pursuant to a stock option
plan or restricted stock plan approved by the Board of Directors of this
Corporation;
(C) shares of Common Stock issued or issuable (I) in a public
offering before or in connection with which all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock will be
converted to Common Stock or (II) upon exercise of warrants or rights granted to
underwriters in connection with such a public offering;
(D) shares of Common Stock issued upon conversion or exercise of
convertible or exercisable securities;
(E) capital stock or warrants or options to purchase capital
stock issued in connection with bona fide acquisitions, mergers or similar
transactions, the terms of which are approved by the Board of Directors of the
Corporation;
(F) capital stock or warrants or options to purchase capital
stock issued to financial institutions or lessors in connection with commercial
credit
<PAGE>
arrangements, equipment financings or similar transactions, the terms of which
are approved by the Board of Directors of the Corporation.
(iii) Stock Splits and Dividends. In the event the Corporation
--------------------------
should at any time or from time to time after the Purchase Date fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
------------------------
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of each of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be increased in proportion to such increase of the aggregate of
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents with the number of shares issuable with respect to
Common Stock Equivalents determined from time to time as provided in Section
4(d)(v) below.
(iv) Reverse Stock Splits. If the number of shares of Common Stock
--------------------
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for each of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(v) The following provisions shall apply for purposes of this
Section 4(d):
(A) The aggregate maximum number of shares of Common Stock
deliverable upon conversion or exercise of Common Stock Equivalents (assuming
the satisfaction of any conditions to convertibility or exercisability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) shall be deemed to have been issued
at the time such Common Stock Equivalents were issued.
(B) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Corporation upon
conversion or exercise of such Common Stock Equivalents including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, to the extent in any way affected by or
computed using such Common Stock Equivalents, shall be recomputed to
<PAGE>
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(C) Upon the termination or expiration of the convertibility
or exercisability of any such Common Stock Equivalents, the Conversion Price of
each of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, to the extent in any way affected by or computed using such
Common Stock Equivalents, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock (and Common Stock Equivalents which remain
convertible or exercisable) actually issued upon the conversion or exercise of
such Common Stock Equivalents.
(e) Other Distributions. In the event the Corporation shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 4(d)(iii), then, in each such case
for the purpose of this Section 4(e), the holders of Series A, Series B and
Series C Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A, Series B and Series C Preferred Stock shall thereafter be entitled to
receive upon conversion of such Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of such Preferred Stock after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of such
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.
<PAGE>
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series A, Series B or Series C Preferred Stock, and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. The number of shares issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A, Series B or
Series C Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series A, Series B or Series C Preferred Stock pursuant to
this Section 4, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A, Series B or Series C Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion Price for
such series of Preferred Stock at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of such series of
Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A, Series B and Series C Preferred Stock, at
least twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A, Series B and Series C Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of such series of Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of such series of Preferred Stock, in addition to such other remedies as shall
be available to the holder of such Preferred Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite stockholder approval of any
necessary amendment to these articles.
<PAGE>
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A, Series B or Series C
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of the Corporation.
5. Voting Rights; Directors.
------------------------
(a) Except as otherwise expressly provided herein or by law, the
holder of each share of Series A, Series B or Series C Preferred Stock shall
have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any stockholders' meeting in accordance with
the bylaws of the Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Series A, Series B or Series
C Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number (with one-half being rounded upward).
(b) Four members of the Board of Directors shall be elected by
(and may only be removed by) the holders of the Preferred Stock, voting together
as a separate class. Two members shall be elected by (and may only be removed
by) the holders of Common Stock, voting as a separate class. Any remaining
members shall be elected only by (and may only be removed by) the holders of the
Preferred Stock and Common Stock, voting together as a single class.
(c) If the office of any director becomes vacant, such director's
replacement shall be elected by the class (or classes, as applicable) of shares
of which such director is the representative.
6. Protective Provisions. So long as any shares of Preferred Stock
---------------------
are outstanding (as adjusted for stock splits, stock dividends or
recapitalizations), the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Preferred Stock, voting
together as a class:
(a) effect a transaction described in Section 2(c)(i) above;
(b) alter or change the rights, preferences or privileges of the
shares of Series A, Series B or Series C Preferred Stock so as to affect
adversely the shares of such series;
(c) increase or decrease (other than by redemption or conversion
provided for herein) the total number of authorized shares of Series A, Series B
or Series C Preferred Stock;
<PAGE>
(d) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Series A, Series B or Series C Preferred Stock with respect to voting,
dividends, conversion, redemption or upon liquidation;
(e) redeem (other than pursuant to Section 3 above), purchase or
otherwise acquire (or pay into or set funds aside for a sinking fund for such
purpose) any share or shares of Preferred Stock or Common Stock; provided,
--------
however, that this restriction shall not apply to the repurchase of shares of
- -------
Common Stock from employees, officers, directors, consultants or other persons
performing services for the Corporation or any subsidiary pursuant to agreements
under which the Corporation has the option to repurchase such shares and such
repurchase is approved by the Corporation's Board of Directors; or
(f) permit a subsidiary of the Corporation to sell securities to
a third party.
7. Status of Redeemed or Converted Stock. In the event any shares of
-------------------------------------
Preferred Stock redeemed pursuant to Section 3 or shall be converted pursuant to
Section 4 hereof, the shares so redeemed or converted shall be canceled and
shall not be issuable by the Corporation. The Certificate of Incorporation of
the Corporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote for each such share, and shall be entitled to notice
of any stockholders' meeting in accordance with the bylaws of the Corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
<PAGE>
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article VII, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision."
[Remainder of Page Intentionally Left Blank]
<PAGE>
The foregoing Second Amended and Restated Certificate of Incorporation has
been duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Santa Monica, California, on February 17, 1999.
/s/ John M. Payne
------------------------------------------
John M. Payne, President
/s/ John W. LaValle
------------------------------------------
John W. LaValle, Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
STAMPMASTER, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES...................................................... 1
1.1 Registered Office......................................................... 1
1.2 Other Offices............................................................. 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.............................................. 1
2.1 Place Of Meetings......................................................... 1
2.2 Annual Meeting............................................................ 1
2.3 Special Meeting........................................................... 1
2.4 Notice Of Stockholders' Meetings.......................................... 2
2.5 Manner Of Giving Notice; Affidavit Of Notice.............................. 2
2.6 Quorum.................................................................... 2
2.7 Adjourned Meeting; Notice................................................. 2
2.8 Conduct Of Business....................................................... 3
2.9 Voting.................................................................... 3
2.10 Waiver Of Notice......................................................... 3
2.11 Stockholder Action By Written Consent Without A Meeting.................. 3
2.12 Record Date For Stockholder Notice; Voting; Giving Consents.............. 4
2.13 Proxies.................................................................. 4
ARTICLE III - DIRECTORS............................................................ 5
3.1 Powers.................................................................... 5
3.2 Number Of Directors....................................................... 5
3.3 Election, Qualification And Term Of Office Of Directors................... 5
3.4 Resignation And Vacancies................................................. 5
3.5 Place Of Meetings; Meetings By Telephone.................................. 6
3.6 Regular Meetings.......................................................... 6
3.7 Special Meetings; Notice.................................................. 7
3.8 Quorum.................................................................... 7
3.9 Waiver Of Notice.......................................................... 7
3.10 Board Action By Written Consent Without A Meeting........................ 8
3.11 Fees And Compensation Of Directors....................................... 8
3.12 Approval Of Loans To Officers............................................ 8
3.13 Removal Of Directors..................................................... 8
3.14 Chairman Of The Board Of Directors....................................... 8
ARTICLE IV - COMMITTEES............................................................ 9
4.1 Committees Of Directors................................................... 9
4.2 Committee Minutes......................................................... 9
4.3 Meetings And Action Of Committees......................................... 9
ARTICLE V - OFFICERS............................................................... 10
5.1 Officers.................................................................. 10
5.2 Appointment Of Officers................................................... 10
5.3 Subordinate Officers...................................................... 10
5.4 Removal And Resignation Of Officers....................................... 10
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.5 Vacancies In Offices...................................................... 10
5.6 Chief Executive Officer................................................... 11
5.7 President................................................................. 11
5.8 Vice Presidents........................................................... 11
5.9 Secretary................................................................. 11
5.10 Chief Financial Officer.................................................. 12
5.11 Representation Of Shares Of Other Corporations........................... 12
5.12 Authority And Duties Of Officers......................................... 12
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS... 13
6.1 Indemnification Of Directors And Officers................................. 13
6.2 Indemnification Of Others................................................. 13
6.3 Payment Of Expenses In Advance............................................ 13
6.4 Indemnity Not Exclusive................................................... 13
6.5 Insurance................................................................. 14
6.6 Conflicts................................................................. 14
ARTICLE VII - RECORDS AND REPORTS.................................................. 14
7.1 Maintenance And Inspection Of Records..................................... 14
7.2 Inspection By Directors................................................... 15
7.3 Annual Statement To Stockholders.......................................... 15
ARTICLE VIII - GENERAL MATTERS..................................................... 15
8.1 Checks.................................................................... 15
8.2 Execution Of Corporate Contracts And Instruments.......................... 15
8.3 Stock Certificates; Partly Paid Shares.................................... 15
8.4 Special Designation On Certificates....................................... 16
8.5 Lost Certificates......................................................... 16
8.6 Construction; Definitions................................................. 17
8.7 Dividends................................................................. 17
8.8 Fiscal Year............................................................... 17
8.9 Seal...................................................................... 17
8.10 Transfer Of Stock........................................................ 17
8.11 Stock Transfer Agreements................................................ 18
8.12 Registered Stockholders.................................................. 18
ARTICLE IX - AMENDMENTS............................................................ 18
</TABLE>
<PAGE>
BYLAWS
OF
STAMPMASTER, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office.
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Prentice-Hall Corporation
System, Inc.
1.2 Other Offices.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Place Of Meetings.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 Annual Meeting.
--------------
The annual meeting of stockholders shall be held on such date, time
and place, either within or without the State of Delaware, as may be designated
by resolution of the Board of Directors each year. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 Special Meeting.
---------------
A special meeting of the stockholders may be called at any time by the
Board of Directors, the chairman of the board, the president or by one or more
stockholders holding shares in the aggregate entitled to cast not less than ten
percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the president or the chairman of the board, the request
shall be in writing, specifying the time of such meeting and the general nature
of the business proposed to be transacted, and
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<PAGE>
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of this Article II, that a meeting will be held at the time requested by
the person or persons calling the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
2.4 Notice Of Stockholders' Meetings.
--------------------------------
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 Manner Of Giving Notice; Affidavit Of Notice.
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 Quorum.
------
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 Adjourned Meeting; Notice.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the
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<PAGE>
corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.8 Conduct Of Business.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.9 Voting.
------
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 Waiver Of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11 Stockholder Action By Written Consent Without A Meeting.
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the corporation, or any action that may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice, and without a vote if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in
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<PAGE>
writing. If the action which is consented to is such as would have required the
filing of a certificate under any section of the General Corporation Law of
Delaware if such action had been voted on by stockholders at a meeting thereof,
then the certificate filed under such section shall state, in lieu of any
statement required by such section concerning any vote of stockholders, that
written notice and written consent have been given as provided in Section 228 of
the General Corporation Law of Delaware.
2.12 Record Date For Stockholder Notice; Voting; Giving Consents.
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is delivered to the corporation.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.13 Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's
-4-
<PAGE>
attorney-in-fact. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Section 212(e) of the General
Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 Number Of Directors.
-------------------
Upon the adoption of these bylaws, the number of directors
constituting the entire Board of Directors shall be six (6). Thereafter, this
number may be changed by a resolution of the Board of Directors or of the
stockholders, subject to Section 3.4 of these Bylaws. No reduction of the
authorized number of directors shall have the effect of removing any director
before such director's term of office expires.
3.3 Election, Qualification And Term Of Office Of Directors.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation And Vacancies.
-------------------------
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a
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<PAGE>
single class may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place Of Meetings; Meetings By Telephone.
----------------------------------------
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 Special Meetings; Notice.
------------------------
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<PAGE>
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 Quorum.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 Waiver Of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 Board Action By Written Consent Without A Meeting.
-------------------------------------------------
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<PAGE>
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. Written consents representing actions taken by the
board or committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same extent
as if it were an original.
3.11 Fees And Compensation Of Directors.
----------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
3.12 Approval Of Loans To Officers.
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.13 Removal Of Directors.
--------------------
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 Chairman Of The Board Of Directors.
----------------------------------
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
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<PAGE>
ARTICLE IV
COMMITTEES
----------
4.1 Committees Of Directors.
-----------------------
The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate 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 or disqualification of a member of a committee, the
member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, or in these Bylaws,
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 which may
require it; but no such committee shall have the power or authority in reference
to the following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by this chapter to be
submitted to stockholders for approval or (ii) adopting, amending or repealing
any Bylaw of the corporation.
4.2 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 Meetings And Action Of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
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<PAGE>
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 Appointment Of Officers.
-----------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 Subordinate Officers.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 Removal And Resignation Of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the Secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
5.5 Vacancies In Offices.
--------------------
Any vacancy occurring in any office of the corporation shall be filled
by the Board of Directors.
-10-
<PAGE>
5.6 Chief Executive Officer.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 Vice Presidents.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
-11-
<PAGE>
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.
5.11 Representation Of Shares Of Other Corporations.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 Authority And Duties Of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 Indemnification Of Directors And Officers.
-----------------------------------------
-12-
<PAGE>
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (a) who is or was
a director or officer of the corporation, (b) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 Indemnification Of Others.
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (a) who is or was an employee or
agent of the corporation, (b) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (c) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 Payment Of Expenses In Advance.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation.
6.5 Insurance.
---------
-13-
<PAGE>
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the certificate
of incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance And Inspection Of Records.
-------------------------------------
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection By Directors.
-----------------------
-14-
<PAGE>
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 Annual Statement To Stockholders.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 Checks.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 Execution Of Corporate Contracts And Instruments.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the president or vice-president, and by the chief
-15-
<PAGE>
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 Special Designation On Certificates.
-----------------------------------
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
-------------------------
-16-
<PAGE>
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 Dividends.
---------
The directors of the corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 Fiscal Year.
-----------
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 Seal.
----
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 Transfer Of Stock.
-----------------
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
-------------------------
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
-----------------------
-17-
<PAGE>
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
-18-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
STAMPMASTER, INC.
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the certificate of incorporation to act
as the Incorporator of StampMaster, Inc. hereby adopts the foregoing bylaws as
the Bylaws of the corporation.
Executed this 9th day of January, 1998.
/s/ John V. Bautista
--------------------------------------------
John V. Bautista, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
----------------------------------------------------
The undersigned hereby certifies that the undersigned is the duly elected,
qualified, and acting Secretary of StampMaster, Inc., and that the foregoing
Bylaws were adopted as the Bylaws of the corporation on January 9th, 1998, by
the person appointed in the certificate of incorporation to act as the
Incorporator of the corporation.
Executed this 9th day of January, 1998.
/s/ Ari Engelberg
--------------------------------------------
Ari Engelberg, Secretary
-19-
<PAGE>
EXHIBIT 10.1
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
QUICKSTART
WARRANT TO PURCHASE STOCK
Corporation: Stampmaster, Inc., a Delaware corporation
Number of Shares: 4,000
-----
Class of Stock: Common/Series A Preferred /Other
------------------
[strike descriptions that do not apply]
Initial Exercise Price: $0.40 per share
Issue Date: May 1, 1998
Expiration Date: April 1, 2005
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $ 1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1 Method of Exercise. Holder may exercise this Warrant by
------------------
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix I to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
----------------
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 Intentionally Omitted.
---------------------
1.4 Fair Market Value. If the Shares are traded in a public market
-----------------
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment.
1
<PAGE>
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
-----------------------------------------------------------
1.7.1. "Acquisition". For the purpose of this Warrant "Acquisition"
-----------
means any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any Acquisition
---------------------
the successor entity may, at its option, assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly. If the successor entity does not assume the obligations
of the Company under this Warrant, then this Warrant shall be deemed to have
been automatically converted pursuant to Section 1.2 and thereafter Holder shall
participate in the Acquisition as a holder of the Shares (or other securities
issuable upon exercise of this Warrant) on the same terms as other holders of
the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant. Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to
2
<PAGE>
Holder a new Warrant for such new securities or other property. The new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
----------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Shares shall be afforded
----------------------------------
the protections (if any) against diluting issuances of stock as are prescribed
for the class of stock of the Shares under the Company's Articles of
Incorporation, as amended from time to time.
2.5 No Impairment. The Company shall not, by amendment of its
-------------
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
-----------------------------
Warrant Price, the Company at its expense shall promptly compute such adjustment
and furnish Holder with a certificate of its Chief Financial Officer setting
forth such adjustment and the facts upon which such adjustment is based. The
Company shall, upon written request, furnish Holder a certificate setting forth
the Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than the fair market value of the Shares as of the
date of this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase riot represented by this Warrant and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens
3
<PAGE>
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time
------------------------
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock, (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 10 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 10 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the Holder promptly upon
Holder's reasonable request, copies of all notices or other written
communications to the shareholders of the Company, the annual audited financial
statements of the Company certified by independent public accountants of
recognized standing and the Company's quarterly, unaudited financial statements.
ARTICLE 4. MISCELLANEOUS.
-------------
4.1 Term; Notice of Expiration. This Warrant is exercisable, in
--------------------------
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
-------------------------------------------
the Shares issuable upon exercise this. Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question
4
<PAGE>
as to the availability of current information as referenced in Rule 144(c),
Holder represents that it has complied with Rule 144(d) and (e) in reasonable
detail, the selling broker represents that it has complied with Rule 144(f), and
the Company is provided with a copy of Holder s notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3
------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable);
provided, however that Holder may transfer all or part of this Warrant to
- -------- -------
Silicon Valley Bancshares and The Silicon Valley Bank Foundation, at any time
without notice to the Company. The terms and conditions of this Warrant shall
inure to the benefit of, and be binding upon, the Company and the holders hereof
and their respective permitted successors and assigns. Unless the Company is
filing financial information with the SEC pursuant to the Securities Exchange
Act of 1934, the Company shall have the right to refuse to transfer any portion
of this Warrant to any party who directly competes with the Company.
4.5 Notices. All notices and other communications from the Company to
-------
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be,, in writing by the Company or the Holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
---------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
-------------------------------------------
By: /s/ Mohan Ananda
------------------------------------
Name: Mohan Ananda
------------------------------------
(Print)
Title: Chairman of the Board, President or
Vice President
5
<PAGE>
By: /s/ James McDermott
-----------------------------------
Name: James McDermott
-----------------------------------
(Print)
Title: Chief Financial Officer, Secretary,
Assistant Treasurer or Assistant
Secretary
6
<PAGE>
APPENDIX I
NOTICE OF EXERCISE
- ------------------
1. The undersigned hereby elects to purchase ___ shares of the
Common/Series Preferred (strike one] Stock of pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in fall.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash (strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
--------------------------------
(Name)
--------------------------------
--------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
--------------------------------
(Signature)
- --------------
(Date)
1
<PAGE>
EXHIBIT 10.2
STAMPS.COM INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
February 17, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Registration Rights.................................................... 2
1.1 Definitions...................................................... 2
1.2 Request for Registration......................................... 3
1.3 Company Registration............................................. 5
1.4 Form S-3 Registration............................................ 5
1.5 Obligations of the Company....................................... 6
1.6 Furnish Information.............................................. 8
1.7 Expenses of Registration......................................... 8
1.8 Underwriting Requirements........................................ 9
1.9 Delay of Registration............................................ 9
1.10 Indemnification.................................................. 9
1.11 Reports Under Securities Exchange Act of 1934.................... 12
1.12 Assignment of Registration Rights................................ 12
1.13 Limitations on Subsequent Registration Rights.................... 13
1.14 "Market Stand-Off" Agreement..................................... 13
1.15 Termination of Registration Rights............................... 14
2. Covenants of the Company............................................... 14
2.1 Delivery of Financial Statements................................. 14
2.2 Inspection....................................................... 14
2.3 Right of First Refusal........................................... 15
2.4 Termination of Covenants......................................... 16
3. Miscellaneous.......................................................... 17
3.1 Successors and Assigns........................................... 17
3.2 Amendments and Waivers........................................... 17
3.3 Notices.......................................................... 17
3.4 Severability..................................................... 18
3.5 Governing Law.................................................... 18
3.6 Counterparts..................................................... 18
3.7 Titles and Subtitles............................................. 18
3.8 Aggregation of Stock............................................. 18
3.9 Expenses......................................................... 18
3.10 Entire Agreement................................................. 18
3.11 Amendment of Original Agreement; Consent to Series C Financing... 18
3.12 Waiver of First Refusal Right on Series C Financing.............. 18
3.13 Supersedence..................................................... 19
</TABLE>
-i-
<PAGE>
STAMPS.COM INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------
This Amended and Restated Investors' Rights Agreement (the "Agreement") is
---------
made as of the 17th day of February, 1999 by and among Stamps.com Inc., a
Delaware corporation (the "Company"), holders of the Company's Series A and
-------
Series B Preferred Stock listed on Exhibit A hereto (the "Existing Holders"),
--------- ----------------
purchasers of the Company's Series C Preferred Stock listed on Exhibit B hereto
---------
(the "Series C Investors" and together with the Existing Holders, the
------------------
"Investors" or each an "Investor"), and Mohan Ananda who is herein referred to
--------- --------
as the "Founder".
-------
RECITALS
--------
WHEREAS, the Company (under its previous name StampMaster, Inc.), the
Existing Holders and the Founder are parties to an Investors' Rights Agreement
dated February 26, 1998 (the "Original Agreement");
------------------
WHEREAS, the Company and 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 Founder and the Investors enter into
this Agreement in order to provide the Investors with (i) certain rights to
register shares of the Company's Common Stock issuable upon conversion of the
Series A, Series B and Series C Preferred Stock held by the Investors, and (ii)
certain rights to receive or inspect information pertaining to the Company;
WHEREAS, the Company, the Investors and the Founder 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 3.2 of the Original Agreement) and agreeing to the terms
and conditions set forth herein.
AGREEMENT
---------
The parties hereby agree as follows:
1. Registration Rights. The Company and the Investors covenant and agree
-------------------
as follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The terms "register," "registered," and "registration" refer
-------- ---------- ------------
to a registration effected by preparing and filing a registration statement or
similar document in
-2-
<PAGE>
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
--------------
and the declaration or ordering of effectiveness of such registration statement
or document;
(b) The term "Registrable Securities" means (i) the shares of
----------------------
Common Stock issuable or issued upon conversion of the Series A, Series B and
Series C Preferred Stock, (ii) the shares of Common Stock issued to the Founder
(the "Founder's Stock"), provided, however, that for the purposes of Section
--------------- -------- -------
1.2, 1.4 or 1.13 the Founder's Stock shall not be deemed Registrable Securities
and the Founder shall not be deemed a Holder, and (iii) any other shares of
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the shares listed in (i) and (ii); provided, however, that the foregoing
-------- -------
definition shall exclude in all cases any Registrable Securities sold by a
person in a transaction in which his or her rights under this Agreement are not
assigned. Notwithstanding the foregoing, Common Stock or other securities shall
only be treated as Registrable Securities if and so long as they have not been
(A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;
(c) The number of shares of "Registrable Securities then
---------------------------
outstanding" shall be determined by the number of shares of Common Stock
- -----------
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the
------
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the Securities Act
--------
as in effect on the date hereof or any successor form under the Securities Act;
(f) The term "SEC" means the Securities and Exchange Commission;
---
and
(g) The term "IPO" means 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.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier
of (i) February 26, 2003, or (ii) six (6) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or an SEC Rule 145 transaction), a written request from the Holders
of a
-3-
<PAGE>
majority of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least thirty percent (30%) of the Registrable Securities then outstanding (or a
lesser percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $7,500,000), then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of subsection 1.2(b), use
its best efforts to effect as soon as practicable, and in any event within sixty
(60) days of the receipt of such request, the registration under the Securities
Act of all Registrable Securities which the Holders request to be registered
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 3.3.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
- --------------------
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
-------- -------
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than one hundred twenty (120) days after receipt of the
request of the Initiating Holders; provided, however, that the Company may not
-------- -------
utilize this right more than once in any twelve-month period.
-4-
<PAGE>
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a corporate
reorganization or other transaction covered by Rule 145 under the Securities
Act, or any registration on any form which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty-five (25) days after mailing
of such notice by the Company in accordance with Section 3.3, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders of not less than thirty percent (30%) of the Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
- -------- -------
registration, qualification or compliance,
-5-
<PAGE>
pursuant to this Section 1.4: (i) if Form S-3 is not available for such offering
by the Holders; (ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of less
than $500,000; (iii) if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its stockholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than 90
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
-------- -------
once in any twelve month period; (iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 1.4; (v) in
any particular jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process in effecting
such registration, qualification or compliance; or (vi) during the period ending
one hundred eighty (180) days after the effective date of a registration
statement subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 Obligations of the Company. Whenever required under this Section
--------------------------
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days,
provided however, that such 120-day period shall be extended for a period of
- -------- -------
time equal to the period the Holder refrains from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for up to one hundred twenty
(120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act,
-6-
<PAGE>
and such other documents as they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
- --------
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
-7-
<PAGE>
1.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.4(b)(ii), whichever is applicable.
1.7 Expenses of Registration.
------------------------
(a) Demand Registration. All expenses other than underwriting
-------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders selected by them shall be
borne by the Company; provided, however, that the Company shall not be required
-------- -------
to pay for any expenses of any registration proceeding begun pursuant to Section
1.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses), unless the Holders of
a majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided further, however, that if
---------------- -------
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.
(b) Company Registration. All expenses other than underwriting
--------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications of Registrable Securities pursuant to Section 1.3 for each Holder
(which right may be assigned as provided in Section 1.12), including (without
limitation) all registration, filing, and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders selected by them shall be borne by the Company.
(c) Registration on Form S-3. All expenses incurred in
------------------------
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders selected by them, and counsel for the Company, and any
underwriters' discounts or commissions associated with Registrable
-8-
<PAGE>
Securities, shall be borne pro rata by the Holder or Holders participating in
the Form S-3 Registration.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters pursuant to Section 1.2), and
then only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders) but in no event shall (i) any shares
being sold by a stockholder exercising a demand registration right similar to
that granted in Section 1.2 be excluded from such offering, (ii) the amount of
securities of the selling Holders included in the offering be reduced below
twenty five percent (25%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case, except as provided in (i) the selling stockholders
may be excluded if the underwriters make the determination described above and
no other stockholder's securities are included or (iii) any securities held by
the Founder be included if any securities held by any selling Holder are
excluded. For purposes of the preceding parenthetical concerning apportionment,
for any selling stockholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
stockholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling stockholder," and any
-------------------
pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder," as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder
-9-
<PAGE>
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), against any losses, claims, damages, or liabilities (joint
------------
or several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
---------
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law; and the Company will pay to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable to any Holder, underwriter or controlling person for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
-------- -------
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
--------
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
-10-
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
-------- -------
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
--------
under this Subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
-11-
<PAGE>
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least 50,000 shares of such securities, provided the Company is,
--------
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
--------
further, that such assignment shall be effective only if immediately following
- -------
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act. For the purposes of
determining the number of shares of Registrable Securities held by a transferee
or assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall be
aggregated together and with the partnership; provided that all assignees and
transferees
-12-
<PAGE>
who would not qualify individually for assignment of registration rights shall
have a single attorney-in-fact for the purpose of exercising any rights,
receiving notices or taking any action under Section 1.
1.13 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.14 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
----------------------------
during the period of duration (up to, but not exceeding, 180 days) specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the date of the final prospectus distributed in connection
with a public offering, it shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration; provided, however, that:
-------- -------
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company, all one-percent
securityholders, and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
-13-
<PAGE>
1.15 Termination of Registration Rights. No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) five (5) years following the consummation an IPO, or (ii) such time as
Rule 144 or another similar exemption under the Securities Act is available for
the sale of all of such Holder's shares during a three (3)-month period without
registration.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Holder of at least 50,000 shares of Registrable Securities (other than a
Holder reasonably deemed by the Company to be a competitor of the Company):
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
----
and certified by an independent public accounting firm of nationally recognized
standing selected by the Company;
(b) within thirty (30) days of the end of each month, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail;
(c) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, and, as soon as prepared, any other
budgets or revised budgets prepared by the Company; and
(d) with respect to the financial statements called for in
subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
2.2 Inspection. The Company shall permit each Holder of at least
----------
50,000 shares of Registrable Securities except for a Holder reasonably deemed by
the Company to be a competitor of the Company, at such Holder's expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
- -------- -------
Section 2.2
-14-
<PAGE>
to provide access to any information which it reasonably considers to be a trade
secret or similar confidential information.
2.3 Right of First Refusal. Subject to the terms and conditions
----------------------
specified in this paragraph 2.3, the Company hereby grants to each Holder (other
than the Founder or any assignee of or successor in interest to the Founder) a
right of first refusal with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.3, a Holder shall mean
any Investor who holds at least 180,000 shares of the Company's Common Stock
(assuming conversion of convertible securities) at the time the Company proposes
to sell Shares. For purposes of this Section 2.3, Investor includes any general
partners and affiliates of an Investor. An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company offers any shares of, or securities convertible
into or exercisable for any shares of, any class of its capital stock
("Shares"), the Company shall make an offering of such Shares to each Holder
before offering such shares to any other person, entity or association, in
accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to each Holders standing (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms upon which such Shares shall be offered.
(b) By written notification received by the Company, within
fifteen (15) calendar days after giving of the Notice, each Holder may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Shares which equals the proportion that the number of
shares of common stock issued and held, or issuable upon conversion of any
capital stock or warrants of the Company then held, by such Holder bears to the
total number of shares of common stock of the Company issued and outstanding
(assuming conversion or exercise of all of the Company's outstanding convertible
securities, options or warrants).
(c) If all Shares which Holders are entitled to obtain pursuant
to subsection 2.3(b) are not elected to be obtained as provided in subsection
2.3(b) hereof, the Company may, during the 60-day period following the
expiration of the period provided in subsection 2.3(b) hereof, offer the reaming
unsubscribed portion of such Shares to any person or persons at a price not less
than, and upon terms no more favorable to the offeree than those specified in
the Notice. If the Company does not enter into an agreement for the sale of the
Shares within such period, or if such agreement is not consummated within 60
days of the execution thereof, the right provided hereunder shall be deemed to
be revived and such Shares shall not be offered unless first reoffered to the
Holders in accordance herewith.
(d) The right of first refusal in this paragraph 2.3 shall not
be applicable (i) to the issuance or sale of shares of common stock (or options
therefor) to employees, officers, directors or consultants of the Company or any
wholly-owned subsidiary, pursuant to plans or agreements approved by the Board
of Directors; (ii) to or after consummation of a bona fide, firmly underwritten
public offering of shares of common stock,
-15-
<PAGE>
registered under the Act pursuant to a registration statement on Form S-1; (iii)
to the issuance of securities pursuant to the conversion or exercise of
convertible or exercisable securities; (iv) to the issuance of securities in
connection with a bona fide business acquisition of or by the Company, whether
by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise; (v) to the issuance of securities to financial institutions or
lessors in connection with commercial credit arrangements, equipment financings
or similar transactions; (vi) to the issuance of stock, warrants or other
securities or rights to persons or entities with which the Company has business
relationships; provided such issuances are for other than primarily equity
financing purposes and provided that at the time of any such issuance, the
aggregate of such issuance and similar issuances in the preceding twelve month
period do not exceed 1% of the then outstanding Common Stock of the Company
(assuming full conversion and exercise of all convertible and exercisable
securities) or (vii) to the issuance or sale of the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock authorized as of
the date hereof.
(e) The right of first refusal set forth in this Section 2.3 may
not be assigned or transferred, except that (i) such right is assignable by each
Holder to any wholly owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Act, controlling, controlled by or
under common control with, any such Holder, or to any partner or retired partner
of the Holder and (ii) such right is assignable between and among any of the
Holders.
2.4 Termination of Covenants.
------------------------
The covenants set forth in Section 2.1, Section 2.2 and Section 2.3
shall terminate as to each Holder and be of no further force or effect on the
earlier of (a) immediately prior to the consummation of an IPO or (b) when the
Company first becomes subject to the periodic reporting requirements of Sections
13 or 15(d) of the Exchange Act.
2.5 Regulatory Matters.
------------------
(a) Cooperation of Other Stockholders. Each party hereto agrees
---------------------------------
to cooperate with the Company in all commercially reasonable respects in
complying with the terms and provisions of the letter agreement between the
Company and Chase Venture Capital Associates, L.P. ("CVCA"), a copy of which is
attached to this Agreement as Exhibit C, regarding small business matters (the
---------
"Small Business Sideletter"), including without limitation, voting to approve
-------------------------
amending the Company's Certificate of Incorporation, the Company's by-laws or
this Agreement in a manner reasonably acceptable to such party and CVCA or any
Regulated Holder (as defined in the Small Business Sideletter) entitled to make
such request pursuant to the Small Business Sideletter in order to remedy a
Regulatory Problem (as defined in the Small Business Sideletter). Anything
contained in this Section 2.5 to the contrary notwithstanding, no party to this
Agreement shall be required under this Section 2.5 to take any action that would
adversely affect in any material respect such Person's rights under this
Agreement or as a stockholder of the Company.
-16-
<PAGE>
(b) Covenant Not to Amend. The Company and each party hereto
---------------------
agree not to amend or waive the voting or other provisions of the Company's
Restated Certificate, the Company's bylaws or this Agreement if such amendment
or waiver would cause any Regulated Holder to have a Regulatory Problem (as
defined in the Small Business Sideletter) unless the failure to do such would
adversely affect in any material respect any parties' rights, privileges and
preferences under the Company's Restated Certificate, the Company's bylaws or
this Agreement. CVCA agrees to notify the Company as to whether or not it would
have a Regulatory Problem promptly after CVCA has notice of such amendment or
waiver.
2.6 Section 1202.
------------
The Company hereby covenants and agrees that it will not take, and
each of the parties hereto agrees to use reasonable efforts to cause the Company
not to take, any action reasonably expected to make the Company or its
shareholders ineligible for the qualified small business stock tax reduction
under Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code")
or fail to file any filing required under Section 1202 of the Code or any
regulation promulgated thereunder required to enable any Holder to take
advantage of such Code provision.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any Registrable Securities). 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.
3.2 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived in writing and only with the written consent of the Company
and the holders of a majority of the Registrable Securities then outstanding,
not including the Founder's Stock; provided that if such amendment has the
effect of affecting the Founder's Stock (i) in a manner different than
securities issued to the Investors and (ii) in a manner adverse to the interests
of the holders of the Founder's Stock, then such amendment shall require the
consent of the holder or holders of a majority of the Founder's Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company.
3.3 Notices. Unless otherwise provided, 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, and addressed to
the party to be notified at such party's address or fax number as set forth
below or on Exhibit A hereto or as subsequently modified by written notice.
---------
-17-
<PAGE>
3.4 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.
3.5 Governing Law. This Agreement and all acts and transactions
-------------
pursuant 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 laws.
3.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.7 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.
3.8 Aggregation of Stock. All shares of the Preferred Stock held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
3.9 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, cost and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.10 Entire Agreement. This Agreement (including the Exhibits
----------------
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
3.11 Amendment of Original Agreement; Consent to Series C Financing.
--------------------------------------------------------------
The undersigned Existing Holders, constituting the holders of a majority of
the Registrable Securities under the Original Agreement, hereby agree to amend
and restate the Original Agreement in accordance with Section 3.2 of the
Original Agreement and hereby consent to the issuance of the Series C Preferred
Stock pursuant to the Company's Second Amended and Restated Certificate of
Incorporation and the grant of registration rights to the Series C Investors
under this Agreement.
3.12 Waiver of First Refusal Right on Series C Financing. The
---------------------------------------------------
undersigned Existing Holders, constituting the holders of a majority of the
Registrable Securities under the Original Agreement, hereby agree that the right
of first refusal set forth at Section 2.3 of the Original Agreement shall not be
applicable to the sale of Series C Preferred Stock by the Company pursuant to
the Purchase Agreement.
-18-
<PAGE>
3.13 Supersedence. This Agreement supersedes in its entirety the
------------
Original Agreement and the Original Agreement shall be of no further force and
effect.
-19-
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
STAMPS.COM INC.
By: /s/ John M. Payne
--------------------------
John M. Payne, President
Address: 2900 31st Street,
Suite 150
Santa Monica, CA 90405
FOUNDER:
/s/ Mohan Ananda
- ---------------------------------
Mohan Ananda
Address: 549 Lakeview Canyon Road
Westlake Village, CA 91392
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
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: /s/ SMS Boswick
-------------------------
Name: SMS Boswick
Title: Managing Director
Address: 100 Park Avenue
7th Floor
New York, New York 10017
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first written above.
INVESTORS:
INTEL CORPORATION
By: /s/ Arvind Sodhani
---------------------------------
Name: Arvind Sodhani
Title: Treasurer
Address: 2200 Mission College Blvd.
Santa Clara, California 94088
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first written above.
INVESTORS:
MARVIN RUNYON
/s/ Marvin Runyon
_________________________________
Address:
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first written above.
INVESTORS:
CHASE VENTURE CAPITAL ASSOCIATES L.P.
By: Chase Capital Partners
Its General Partner
By: /s/ I. Robert Greene
___________________________
Name: I. Robert Greene
Title:
Address: 380 Madison Avenue
12th Floor
New York, New York 10017
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first written above.
INVESTORS:
VULCAN VENTURES INC.
By: /s/ William D. Savoy
_________________________________
Name: William D. Savoy
Title: Vice President
Address: 110 110th Avenue, Northeast
Suite 550
Bellevue, Washington 98004
BAYVIEW INVESTORS, LTD
By: /s/ Terry Otton
_________________________________
Name: Terry Otton
Title: Chief Financial Officer
Address: 555 California Street
Suite 2600
San Francisco, California
94104
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first written above.
INVESTORS:
BROBECK, PHLEGER & HARRISON LLP
By: /s/ Bruce R. Hallett
_________________________________
Name: Bruce R. Hallett
Title: Partner
Address: 38 Technology Drive
Irvine, California 92618
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
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
/s/ David C. Bohnett
_________________________________
David C. Bohnett, Trustee
Address: 9000 Clifton Way
Penthouse
Beverly Hills, California 90211
MAGELLEN TECHNOLOGIES, INC.
By: /s/ George M. Aschenbach
_________________________________
Name: George M. Aschenbach
Title: Vice President
Treasury, Strategy Support
and New Ventures
Address: Galileo International
9700 W. Higgins Road
Suite 400
Rosemont, IL 60018
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
INVESTORS AND EXISTING HOLDERS:
BRENTWOOD ASSOCIATES VIII L.P.
By: Brentwood VIII Ventures, LLC
Its General Partner
By: /s/ G. Bradford Jones
______________________________________
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: /s/ G. Bradford Jones
______________________________________
General Partner
Address: 11150 Santa Monica Blvd.,
Suite 1200
Los Angeles, CA 90025
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
INVESTORS AND EXISTING HOLDERS:
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV,
Its General Partner
By: /s/ Charles D. Martin
______________________________
Name: Charles D. Martin
Title: 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: /s/ Charles D. Martin
_______________________________
Name: Charles D. Martin
Title: 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 INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
INVESTORS AND EXISTING HOLDERS:
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: /s/ Jeffrey J. Brown
-------------------------
Jeffrey J. Brown
Office of the President
By: SL-SBIC Partners, L.P.,
General Partner
By: FW-SBIC, Inc.,
General Partner
By: /s/ Peter Sterling
-------------------------
Peter Sterling
Chairman
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
EXISTING HOLDERS:
VLG INVESTMENTS 1998
By: /s/ Elias J. Blawie, Partner
----------------------------
Elias J. Blawie, Partner
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
MARK A. MEDEARIS
By: /s/ Mark S. Medearis
----------------------------
Mark S. Medearis
Address: 2800 Sand Hill Road
Menlo Park, CA 94025
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
<PAGE>
EXHIBIT A
---------
EXISTING HOLDERS
----------------
Brentwood Associates VIII, L.P.
Brentwood Affiliates Fund L.P.
Enterprise Partners IV, L.P.
Enterprise Partners IV Associates, L.P.
SBIC Partners, L.P
VLG Investments 1998
Mark A. Medearis
<PAGE>
EXHIBIT B
---------
SERIES C 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
<PAGE>
EXHIBIT 10.3
PATENT ASSIGNMENT
-----------------
This PATENT ASSIGNMENT (the "Assignment") is made Mohan Ananda (the
----------
"Assignor"), to StampMaster, Inc., a Delaware corporation (the "Assignee").
- --------- --------
In consideration for entering into the Assignment and License Agreement,
effective as of January 20, 1998, by and between Assignor and Assignee, and for
other good and valuable consideration, receipt and sufficiency of which is
hereby acknowledged, Assignor has sold, assigned, and transferred and by these
presents does hereby sell, assign, and transfer to Assignee, its successors,
legal representatives and assigns, the entire right, title and interest in and
to United States Letters Patents 5,495,411, 5,638,513 and 5,548,645 (the
"Patents") and 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 (the "Patent Application"), the underlying inventions described
------------------
therein and any and all applications, including provisional applications,
therefor, in the United States of America and all foreign countries which may be
granted therefor and thereon, and in and to any and all patents, divisions,
continuations, and continuations-in-part of said application, and reissues and
extensions of said Patents and Patent Application, and all rights under the
International Convention for the Protection of Industrial Property, the same to
be held and enjoyed by said Assignee, for its own use and behalf and the use and
behalf of its successors, legal representatives and assigns, to the fall end of
the term or terms for which Patents may be granted, as fully and entirely as the
same would have been held and enjoyed by the Assignor, had this sale and
assignment not been made.
Assignor hereby requests the Commissioner of Patents to issue said Patents
and Patent Application to said Assignee as the Assignee of the Letters Patents
to be issued thereon for the sole use and behalf of said Assignee, its
successors, legal representatives and assigns.
Dated: January 20, 1998 MOHAN ANANDA
/s/ Mohan Ananda
----------------------------------
<PAGE>
EXHIBIT 10.4
ASSIGNMENT AND LICENSE AGREEMENT
--------------------------------
This ASSIGNMENT AND LICENSE AGREEMENT (the "Agreement'), effective as
---------
of January 20, 1998 ("Effective Date"), is made by and between StampMaster, Inc.
--------------
(the "Company"), a Delaware corporation, and MOHAN ANANDA, residing at 549
-------
Lakeview Canyon Road, Westlake Village, CA 91362 ("Ananda").
------
RECITALS
1. Ananda has invented certain new and useful improvements in the
field of secure software rental systems set forth in United States Letters
Patents 5,495,411, 5,638,513 (which is a continuation of Letters Patent
5,495,411) and United States Letters Patents 5,548,645 (United States Letters
Patents 5,495,411, 5,638,513 and 5,548,645 are collectively referred to herein
as the "Patents").
-------
2. Ananda has also invented certain new and useful improvements in
the field of secure software rental systems between a personal computer and a
central rental facility set forth in the 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 (the "Patent Application") .
------------------
3. The Company desires to obtain from Ananda, and Ananda is willing
to assign to the Company, all intellectual property rights owned by Ananda as of
the Effective Date in and to the Patents and the Patent Application, and the
Know-how related thereto, on the terms and conditions set forth in this
Agreement, and Ananda desires to obtain from the Company, and the Company is
willing to grant to Ananda a limited license to Ananda, as of the Effective Date
under the Patents (but not under the Patent Application) on the terms and
conditions set forth in this Agreement.
4. The Company and Ananda have entered into a Common Stock Purchase
Agreement of even date herewith, pursuant to which Ananda has purchased from the
Company and the Company has sold to Ananda 1,448,397 shares of the Company's
Common Stock, the consideration for which is the assignment and license between
the parties pursuant to this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the capitalized terms set forth
below shall have the meanings set forth in this Article I.
1.1 "Assigned Patents" shall mean the Patents as defined in
----------------
the first recital above and all foreign patents and patent applications,
substitutions, extensions, reissues, reexaminations, renewals, divisions,
utility models, continuations, and continuations-in-part anywhere in the world
relating to the Patents.
<PAGE>
1.2 "Assigned Patent Application" shall mean the Patent
---------------------------
Application as defined in the second recital above and all patents, foreign
patents and patent applications, substitutions, extensions, reissues,
reexaminations, renewals, divisions, utility models, continuations, and
continuations-in-part anywhere in the world relating to the Patent Application.
1.3 "Field" means all fields with the exception of (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
and (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.
1.4 "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
related to exceptions 1.3(i), 1.3(ii), 1.3(iii) and 1.3(iv) set forth above,
whether or not reduced to practice, whether or not reduced to writing and
whether or not patentable, owned or controlled by Ananda as of the Effective
Date, or to which Ananda has the rights to license or assign, as applicable,
hereunder.
1.5 "Products" shall mean any product, device or service for
--------
use by end-user customers.
ARTICLE II
PATENT ASSIGNMENT
2.1 Assignment. Ananda hereby sells, transfers, assigns, and
----------
irrevocably sets over to the Company, and the Company hereby purchases and
accepts assignment of, Ananda's entire right, title, and interest in and to: (i)
the Assigned Patents and the Assigned Patent Application; (ii) any and all Know-
how; and (iii) all rights, claims and privileges pertaining to the Assigned
Patents and Patent Application including, without limitation, standing to sue
for past, present, and future infringement of such Assigned Patents and Assigned
Patent Application and misappropriation of such Know-how.
2.2 Title. Ananda hereby covenants and agrees to and with
-----
the Company that, at the time of execution and delivery of these presents,
Ananda is the sole and lawful owner of the entire right, title and interest in
and to the Assigned Patents and the Assigned Patent Application, and that the
same are unencumbered and that Ananda has good and full right and lawful
authority to effectuate the sale, transfer, and assignment of the same in the
manner set forth in this Agreement.
2.3 Further Assurances. In furtherance of the sale,
------------------
transfer, and assignment, of the Assigned Patents and Assigned Patent
Application pursuant to Section 2.1 hereto, Ananda shall execute and deliver to
the Company on the Effective Date an executed Patent Assignment in the form
attached hereto as Exhibit A. Ananda further agrees to promptly review, execute,
---------
and deliver any and all additional documents as the Company may deem reasonably
necessary or
<PAGE>
desirable to effectuate the sale, transfer, and assignment of the Assigned
Patents and the Assigned Patent Application, and the Know-how related thereto.
Furthermore, Ananda hereby covenants and agrees to and with the Company that
Ananda will, whenever counsel of the Company shall advise that any proceeding in
connection with the Assigned Patents and the Assigned Patent Application in any
country, including interference proceedings, is lawful and desirable, or that
any division, continuation or continuation-in-part of any application for any
Assigned Patent or the Assigned Patent Application, or any reissue or extension
of any Assigned Patent or the Assigned Patent Application, to be obtained
thereon, is lawful and desirable, sign all papers and documents, take all lawful
oaths, and do all reasonable acts necessary or required to be done for the
procurement, maintenance, enforcement and defense of the Assigned Patents and
the Assigned Patent Application, without charge to the Company, but at the cost
and expense of the Company.
ARTICLE III
LICENSE GRANT
3.1 License Grant. Subject to the terms and conditions
-------------
hereof, the Company hereby grants to Ananda a worldwide, irrevocable,
transferable, perpetual, fully paid-up, exclusive right and license, including
the right to grant sublicenses, under the Assigned Patents (but not under the
Assigned Patent Application) to use, manufacture, have manufactured, sell, have
sold, offer for sale, distribute, have distributed, market and promote, have
marketed and promoted, import and export, and have imported and exported,
Products solely in the Field, provided that such Products are not used, combined
or incorporated with any other product, device or service for use outside of the
Field (the "License").
-------
ARTICLE IV
CONFIDENTIALITY
4.1 Disclosure. In connection with this assignment Ananda
----------
agrees to use his best efforts to disclose to the Company the Know-how relating
to the Assigned Patents and the Assigned Patent Application and to deliver to
the Company copies of Know-how in Ananda's possession, custody or control.
4.2 Confidential Information. Except as expressly provided
------------------------
herein, Ananda agrees that he shall keep confidential and shall not publish or
otherwise disclose and shall not use for any purpose except for the purposes
expressly contemplated by this Agreement, the Assigned Patent Application and
the Know-how related to the Assigned Patent and the Assigned Patent Application,
except to the extent that it can be established by Ananda by competent proof
that such information:
(1) was generally available to the public or otherwise part
of the public domain at the time of its disclosure or use by Ananda; or
(2) became generally available to the public or otherwise
part of the pubic domain after its disclosure or use and other than through any
act or omission of Ananda in breach of this Agreement.
<PAGE>
4.3 Permitted Use and Disclosures. The Company is hereby
-----------------------------
deemed the "owner" of the Assigned Patents and the Assigned Patent Application,
and the Know-how related thereto, effective as of the Effective Date and may use
or disclose the foregoing without restriction.
ARTICLE V
TERMINATION
5.1 Term. This Agreement will become effective on the
----
Effective Date and will continue indefinitely, and except as otherwise provided
in Section 5.2 below, the License shall continue in effect until such time as
all Assigned Patents have expired (the "Term").
----
5.2 Termination of Agreement. Either party shall have the
------------------------
right to terminate this Agreement following any material breach or default in
performance under this Agreement by the other party upon thirty (30) days prior
written notice to the breaching party specifying the nature of the breach or
default. Unless the breaching party has cured the breach or default prior to the
expiration of the thirty (30) day period, the non-breaching party, at its sole
option, may terminate this Agreement upon written notice to the breaching party.
Termination of this Agreement shall become effective upon receipt of such second
notice by the breaching party.
5.3 Survival of Certain Terms. The following provisions will
-------------------------
survive any termination of the Agreement: Articles 1, 2, 4, 5 and 7.
ARTICLE VI
NON-COMPETE
6.1 Non-Compete. During the term of Ananda's employment with
the Company and for a period of twenty-four (24) months after termination of
employment for any reason or no reason, with or without cause, Ananda. agrees
that he will not market, sell, or distribute, either directly or indirectly, any
Product for use outside the Field.
ARTICLE VII
MISCELLANEOUS
7. Miscellaneous.
--------------
7.1 Remedies. The Company and Ananda each expressly agree
--------
that due to the unique nature of the technology assigned, licensed and/or
disclosed under this Agreement, monetary damages would be inadequate to
compensate one party for any breach by the other party of its covenants and
agreements set forth in this Agreement. Accordingly, the Company and Ananda each
agree and acknowledge that any such breach or threatened breach shall cause
irreparable injury to the non-breaching other party and that, in addition to any
other remedies that may be available, in law, in equity or otherwise, the non-
breaching party shall be entitled to obtain injunctive relief against the
threatened breach of this Agreement or the continuation of any such breach by
the breaching party, without the necessity of proving actual damages.
<PAGE>
7.2 Attorney Fees. If any action at law or in equity
-------------
(including arbitration) is necessary to enforce or interpret the terms of this
Agreement, 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.
7.3 Governing Law. This agreement and any dispute arising
-------------
from the performance or breach hereof shall be governed by the laws of the
United States of America and the State of California, without regard to that
state's laws concerning conflicts or choice of laws.
7.4 Waiver. Neither party may waive or release any of its
------
rights or interests in this agreement except in writing. The failure of either
party to assert a right hereunder or to insist upon compliance with any term or
condition of this agreement shall not constitute a waiver of that right or
excuse a similar subsequent failure to perform any such term or condition.
7.5 Notices. All notices, requests and other communications
-------
hereunder shall be given in writing by certified or registered mail to the
addresses set forth below and shall be deemed received on the actual date of
receipt:
If to the Company: StampMaster, Inc.
4500 East Thousand Oaks Blvd., Suite 100
Westlake Village, CA 91362
If to Ananda: Mohan Ananda
549 Lakeview Canyon Road
Westlake Village, CA 91362
7.6 Complete Agreement. This Agreement constitutes the
------------------
entire agreement, both written and oral, between the parties with respect to the
subject matter hereof, and all prior agreements respecting the subject matter
hereof, either written or oral, expressed or implied, are merged and canceled,
and are null and void and of no effect. No amendment or change hereof or
addition hereto or addition hereto shall be effective or binding on either of
the parties hereto unless reduced to writing and executed by the respective duly
authorized representatives of the parties.
7.7 Successors and Assigns. The provisions hereof shall
----------------------
insure to the benefit of, and be binding upon, the successor, assigns, heirs,
executors, and administrators of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Assignment and License
Agreement to be executed by their duly authorized representatives.
STAMPMASTER, INC.
By: /s/ Ari Engelberg
-----------------------------
Name: Ari Engelberg
---------------------------
Title: Vice President
--------------------------
MOHAN ANANDA
/s/ Mohan Ananda
--------------------------------
<PAGE>
EXHIBIT A
---------
PATENT ASSIGNMENT DOCUMENT
[See attached document.]
<PAGE>
EXHIBIT 10.5
October 29, 1998
John Payne
660 Thalia Street
Laguna Beach, CA. 92651
Dear John,
It is with great pleasure that we extend this offer on behalf of the officers
and Board of Directors to join Stampmaster as President and Chief Executive
Officer. Your start date will be October 29, 1998 coincident with your
acceptance of our offer.
Responsibilities: As President and Chief Executive Officer, you will devote
your principal time and efforts assuming responsibility for
all aspects of the Company's operations, including such
duties as may be required by the Board of Directors. The
Company will use best efforts to cause you, as soon as
possible, to be elected a member of the Board of Directors.
Salary: Your base salary will be $13,333 per month, or $160,000 per
year.
Bonus: Your incentive compensation target will be $60,000 per annum,
paid in the earlier of the month subsequent to the Board of
Directors' review of the fiscal year's audited financial
results or March 15 each calendar year. Your incentive
compensation will be based on the achievement of milestones
set by you in conjunction with the Board of Directors at the
time of adoption of the annual operating plan. These
milestones will include customer acquisition goals, company
valuation and management objectives. Your 1998 incentive
target will be prorated according to your start date of
commencement with the Company. To be eligible for incentive
compensation, you will need to be employed through the end of
the Company's fiscal year, except in cases where constructive
or involuntary termination occur for reasons other than cause
(as defined under "Severance" below), in which case incentive
compensation will be pro-rated and paid based upon the
milestones achieved to date in the calendar year.
Stock: The Company will sell to you 1,000,000 shares of Common Stock
at the current fair market price at the time of purchase. The
Company will loan to you the funds necessary to purchase said
stock in a 4 year note with interest payable annually at the
minimum applicable federal rate and principal payable at
term, except that you shall pay the par value of the shares
($1,000) in cash.
<PAGE>
Change of Control: In the event that the Company sells all or substantially all
of its assets or is merged with another Company or otherwise
is acquired such that the shareholders of the Company
immediately prior to such transaction own less than fifty
percent (50%) of the Company following such transaction (a
"Change of Control"), and your employment is constructively
terminated or terminated by the Company or a successor entity
involuntarily within 12 months following such transaction for
any reason other than cause, cause in this instance to
include:
(i) Your commitment of fraud or an illegal act related to
the Company's business;
(ii) Your violation of an agreement between you and the
Company, such as the Company's proprietary information
agreement; or
(iii) Your failure to perform your job functions to the
performance levels set as mutually agreed in
conjunction with new management within 90 days
subsequent to closing of a Change of Control as
described above;
you will be paid cash severance payments and benefits
identical to those required to be paid under clause 1. under
"Severance" below, and the acquiring or surviving company
shall undertake the severance obligation as computed based
upon an initial service date of May 30, 1998.
Constructive termination in this instance shall include:
(i) Relocation more than 30 miles from your job location
without your consent;
(ii) Disability (as defined below) or death;
(iii) Assignment to a new job not commensurate with your
seniority and compensation, it being understood and
agreed that your assignment to the position of Chief
Executive Officer of a business unit, division or
subsidiary of the Company or a company into which the
Company is merged in a Change of Control or otherwise
acquiring assets or voting shares of the Company in
connection with a Change of Control, or a parent of
such a company, shall constitute an assignment to a new
job that is commensurate with your seniority; or
(iv) Any reduction in compensation, including any bonus
compensation formula.
2
<PAGE>
For purposes of this Agreement, "Disability" shall mean that
you have been unable to perform your Company duties as the
result of your incapacity due to physical or mental illness,
and such inability, at least 26 weeks after its commencement,
is determined to be total and permanent by a physician
selected by you or your legal representative and acceptable
to the Company (such Agreement as to acceptability not be
unreasonably withheld).
Severance: Should the Company terminate your employment for any reason
other than for cause or should you be constructively
terminated, other than during the 12-month period following
closing of a Change of Control as described above, cause in
this instance being defined as:
(i) Your commitment of fraud or an illegal act related to
the Company's business;
(ii) Your violation of an agreement between you and the
Company, such as the Company's proprietary information
agreement; or
(iii) Your failure to perform your job functions to written
performance levels set in conjunction with the Board of
Directors; provided that in the event of failure to
perform, the Board of Directors shall provide written
notice of such breach and a 30 day period during which
said breach can be cured;
the Company will:
1. Pay you severance for six months in monthly
installments beginning 30 days from the date of your
separation. The monthly severance payment will equal
1/12 of your annual base compensation. During any
months that the Company is paying you a monthly
severance in conjunction with this provision, it will
also continue to pay your medical, dental, and vision
benefits in accordance with the employee benefits you
were receiving at the time of severance. After two
years of service to the Company, the severance term
will increase to 9 months; after three years service
and thereafter, the severance term will increase to 12
months; and
Under no circumstances will the Company be obligated to pay
any severance other than that which you earned in your
calendar service to the Company in the case that you
voluntarily separate from the Company, except in cases of
constructive termination (as defined above) that results in
voluntary termination.
Benefits: The Company offers its employees an employer-paid medical
plan. As an additional benefit, the Company will pay for the
cost of insuring your
3
<PAGE>
dependent child. Sign-up forms and plan description will be
available on your first day of work.
Relocation: If you determine in the first 12 months of employment that
it is necessary for you to relocate to the Los Angeles area,
the Company will pay for up to $10,000 in moving expenses.
Prerequisites: The Company is extending this offer contingent upon the
understanding that:
1. Your joining the Company will not violate any agreement
such as a non-competition or similar agreement to which
you are or have been a party;
2. You will not use or disclose to the Company any
confidential or proprietary information obtained from a
third party prior to your employment; and
3. You will comply with all applicable Company policies
and standards and shall perform your services in a
manner consistent with the ethical and professional
standards of the Company.
The Company's three greatest assets are its intellectual
property, its people and its clients. We are committed to
hiring the best, and our investment in developing our
personnel is second to none. Given our commitment, we must
protect this investment so that we can provide our people
the opportunity for growth and success. Therefore, you will
be asked to sign standard Employee Non-Disclosure and Non-
Solicitation Agreements on your first day of work.
At-Will Employment: Please note that the Company is an equal opportunity
employer and maintains an at-will employment policy, which
means that you can terminate your employment at any time and
so can the Company, with or without cause; provided that the
Company will remain obligated to provide severance and other
benefits to the extent set forth above.
Limitation on
Payments: In the event that the severance and other benefits provided
for in this Agreement or otherwise payable to you (i)
constitute "parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and (ii) but for this Section, would
be subject to the excise tax imposed by Section 4999 of the
Code (or any corresponding provisions of state income tax
law), then your severance benefits shall be either
(a) delivered in full, or
4
<PAGE>
(b) delivered as to such lesser extent which would result
in no portion of such severance benefits being subject
to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and
the excise tax imposed by Section 4999, results in the
receipt by you on an after-tax-basis, of the greater
amount of severance benefits, notwithstanding that all
or some portion of such severance benefits may be
taxable under Section 4999 of the Code. Unless the
Company and you otherwise agree in writing, any
determination required under this Section shall be made
in writing by the Company's independent public
accountants (the "Accountants"), whose determination
shall be conclusive and binding upon you and the
Company for all purposes. For purposes of making the
calculations required by this Section, the Accountants
may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable,
good faith interpretations concerning the application
of Sections 280G and 4999 of the Code. The Company and
you shall furnish to the Accountants such information
and documents as the Accountants may reasonably request
in order to make a determination under this Section.
The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations
contemplated by this Section. In the event that
subsection (a) above applies, then you shall be
responsible for any excise taxes imposed with respect
to such severance and other benefits. In the event that
subsection (b) above applies then each benefit provided
hereunder shall be proportionately reduced to the
extent necessary to avoid imposition of such excise
taxes.
Entire Agreement: This Agreement and the stock documentation and the Non-
Disclosure and Non-Solicitation Agreements referenced above
contain the entire agreement of the parties, and there are
no other promises or conditions in any other agreement
whether oral or written with respect to the subject matter
hereof. This Agreement and the stock documentation and the
Non-Disclosure and Non-Solicitation Agreements supersede any
prior written or oral agreements between the parties with
respect to the subject matter hereof.
Arbitration: Any dispute under this Agreement shall be resolved by
arbitration in Los Angeles, California in accordance with
the commercial arbitration rules of the American Arbitration
Association ("AAA Rules") then in effect. Any judgment upon
the award rendered by the arbitrator may be entered in any
court having jurisdiction over the subject matter thereof.
The arbitrator shall have the authority to grant any
equitable and legal remedies that
5
<PAGE>
would be available in any judicial proceeding instituted to
resolve such dispute.
Amendment: This Agreement may be modified or amended only if the
amendment is made in writing and is signed by both parties.
Governing Law: The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State
of California as applied to agreements entered into and
performed within California solely by residents of that
state.
Severability: The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity
or enforceability of any other provision hereof, which shall
remain in full force and effect.
Tax Withholding: All payments made pursuant to this Agreement will be subject
to withholding of applicable income and employment taxes, if
applicable.
Counterparts: This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together
will constitute one and the same instrument.
Offer Period: This offer is valid through Midnight, (Offer deadline) PST.
Please sign and return the attached acknowledgment copy.
This will serve as your official acceptance of our offer.
John, we are very pleased to extend this offer to you and very excited about
having you join the team. If you have any questions, please do not hesitate to
call me.
Very truly yours,
STAMPMASTER, INC.
/s/ Thomas H. Bruggere
Thomas H. Bruggere
Chairman
ACKNOWLEDGED:
/s/ John M. Payne Date: October 29, 1999
- ---------------------------------- -------------------
6
<PAGE>
EXHIBIT 10.6
STAMPMASTER, INC.
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is dated as of January 20,
---------
1998, by and between Mohan Ananda ("Employee") and StampMaster, Inc., a Delaware
--------
corporation (the "Company").
-------
1. Term of Agreement. Subject to the provisions hereof, including Section 3,
-----------------
this Agreement shall commence on the date hereof and continue until January 20,
2002 unless properly terminated in accordance with Section 5.
2. Duties.
------
a. Position. Employee shall initially be employed as President and Chief
--------
Executive Officer and will report to the Company's Board of Directors. Employee
shall also serve as Chairman of the Company's Board of Directors. Employee
acknowledges and agrees that the Company intends to recruit a Chief Executive
Officer that would replace Employee as Chief Executive Officer and that upon the
successful hiring of a Chief Executive Officer, Employee shall resign as Chief
Executive Officer and shall serve as Chief Technology Officer.
b. Obligations to the Company. Employee agrees to the best of his ability
--------------------------
and experience that he will at all times loyally and conscientiously perform all
of the duties and obligations required of and from Employee pursuant to the
express and implicit terms hereof, and to the reasonable satisfaction of the
Company. During the term of Employee's employment relationship with the Company,
and except as otherwise specified herein, Employee further agrees that he will
devote all of his business time and attention to the business of the Company,
the Company will be entitled to all of the benefits and profits arising from or
incident to all such work services and advice, Employee will not render
commercial or professional services of any nature to any person or organization,
whether or not for compensation, without the prior written consent of the
Company's Board of Directors, and Employee will not directly or indirectly
engage or participate in any business that is competitive in any manner with the
business of the Company. Employee will comply with and be bound by the Company's
operating policies, procedures and practices from time to time in effect during
the term of Employee's employment.
3. At-Will Employment. The Company and Employee acknowledge that Employee's
------------------
employment is and shall continue to be at-will, as defined under applicable law,
and that Employee's employment with the Company may be terminated by either
party at any time for any or no reason, with or without Cause. If Employee's
employment terminates for any or no reason, Employee shall not be entitled to
any payments, benefits, damages, award or compensation other than as provided in
this Agreement.
1
<PAGE>
4. Compensation. For the duties and services to be performed by Employee
------------
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
a. Salary. Until the sale by the Company of shares of its Series B
------
Preferred Stock (a "Series B Financing"), Employee shall receive a monthly
------------------
salary of $5,000, which is equivalent to $60,000 on an annualized basis. After
the Series B Financing, if Employee remains employed as Chief Executive Officer
of the Company, Employee's salary shall be increased to the rate paid by
companies of similar size in the software industry for employees of comparable
position and experience (the "Market Rate"), as reasonably determined in good
-----------
faith by the Company's Board of Directors, for so long as Employee remains Chief
Executive Officer of the Company. If at any time after the Series B Financing,
Employee is not employed as Chief Executive Officer of the Company, but
continues to serve as an employee of the Company, Employee's salary shall be
adjusted to the Market Rate for the new position, as reasonably determined in
good faith by the Company's Board of Directors. Employee's monthly salary will
be payable in two (2) equal biweekly installments pursuant to the Company's
normal payroll practices.
b. Stock Grant, Stock Options and Other Incentive Programs. Employee
-------------------------------------------------------
shall be eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
In connection with the commencement of Employee's employment, the Board
of Directors has authorized the sale to Employee of 1,448,397 shares of the
Company's Common Stock (the "Shares") at the price of $.02 per share pursuant to
------
that certain Common Stock Purchase Agreement dated January 20, 1998 between the
Company and Employee. The Shares shall vest as follows: 50% of the shares will
initially be subject to the Company's right of repurchase on termination of
employment or consulting relationship and 1/48 of the shares shall be released
from the Company's right of repurchase at the end of each month after January
20, 1998. Vesting will, of course, depend on Employee's continued employment
with the Company. Subject to the discretion of the Board of Directors, Employee
may be eligible to receive additional grants of stock options or purchase rights
from time to time in the future, on such terms and subject to such conditions as
the Board of Directors shall determine as of the date of any such grant.
c. Vesting on Termination. Notwithstanding the provisions of Sections
----------------------
4(b) above, in the event that Employee's employment is terminated by the Company
or a successor to the Company without Cause under Section 5(a)(ii) below or as a
result of a Constructive Termination under Section 5(a)(iv) below, 100% of the
Shares that have not yet become vested shall become fully vested on the
effective date of such termination of employment.
d. Additional Benefits. Employee will have the ability to participate in
-------------------
the Company's employee benefit plans of general application, including, without
limitation, those plans covering medical and disability insurance in accordance
with the rules established for individual participation in any such plan and
under applicable law. Employee will be eligible for vacation and sick leave in
accordance with the policies in effect at the Company during the term
2
<PAGE>
of this Agreement and will receive such other benefits as the Company generally
provides to its other employees of comparable position and experience.
e. Reimbursement of Expenses. Employee shall be authorized to incur on
-------------------------
behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.
5. Termination of Employment and Severance Benefits.
------------------------------------------------
a. Termination of Employment. This Agreement may be terminated upon
-------------------------
notice of one or more of the following events:
(i) The Company's determination in good faith that it is terminating
Employee for Cause (as defined in Section 6 below) ("Termination for
---------------
Cause");
-----
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time
at the Company's sole discretion, for any or no reason (Termination Without
Cause);
(iii) The effective date of a written notice sent to the Company from
Employee stating that Employee is electing to terminate his employment with
the Company ("Voluntary Termination");
---------------------
(iv) In the event a Constructive Termination (as defined in Section
5(b)(iv) below) has occurred; or
(v) Following Employee's death or Disability (as defined in Section 7
below).
b. Severance Benefits. Employee shall be entitled to receive severance
------------------
benefits upon termination of employment only as set forth in this Section 5(b):
(i) Voluntary Termination. If Employee's employment terminates by
---------------------
Voluntary Termination, then Employee shall not be entitled to receive
payment of any severance benefits. Employee will receive payment(s) for all
salary and unpaid vacation accrued as of the date of Employee's termination
of employment and Employee's benefits will be continued under the Company's
then existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination and in accordance with
applicable law.
(ii) Involuntary Termination. If Employee's employment is terminated
-----------------------
under Section 5(a)(ii) or 5(a)(iv) above (such termination, an "Involuntary
-----------
Termination"), prior to the Series B Financing, Employee shall be entitled
-----------
to receive payment of severance benefits in the amount of $75,000, payable
at the rate of $8,333.33 per month in accordance with the Company's
standard payroll policies, for a period of nine (9) months after the
effective date of such termination (the "Severance Period"). If Employee's
----------------
employment is terminated after the Series B Financing as a result of an
Involuntary
3
<PAGE>
Termination, Employee shall be entitled to receive payment of severance
benefits equal to Employee's then regular monthly salary for the Severance
Period. Such payments shall be made ratably over the Severance Period
according to the Company's standard payroll policies. Health insurance
benefits with the same coverage provided to Employee prior to the
termination (e.g. medical, dental, optical, mental health) and in all other
respects significantly comparable to those in place immediately prior to
the termination will be provided at the Company's cost over the Severance
Period. Any unvested stock options, warrants, or shares of restricted stock
held by Employee as of the date of Employee's termination of employment as
a result of an Involuntary Termination shall immediately vest in full or
the Company's right of repurchase shall immediately lapse with respect to
all of such securities.
(iii) Termination for Cause. If Employee's employment is terminated
---------------------
for Cause, then Employee shall not be entitled to receive payment of any
severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of
employment and Employee's benefits will be continued under the Company's
then existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination and in accordance with
applicable law.
(iv) Constructive Termination. A "Constructive Termination" shall be
------------------------ ------------------------
deemed to occur if Employee is asked by the Company to relocate to a
facility or location more than 50 miles from the Company's current location
and within the 30-day period thereafter Employee elects to terminate his or
her employment voluntarily and such request is not revoked by the Company
during such 30-day period.
(v) Termination by Reason of Death or Disability. In the event that
--------------------------------------------
Employee's employment with the Company terminates as a result of Employee's
death or Disability (as defined in Section 7 below), Employee or Employee's
estate or representative will receive all salary and unpaid vacation
accrued as of the date of Employee's death or Disability and any other
benefits payable under the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date
of death or Disability and in accordance with applicable law.
6. Definition of Cause. For purposes of this Agreement, "Cause" for
-------------------
Employee's termination will exist at any time after the happening of one or more
of the following events: "Cause" shall mean (i) Employee's gross negligence or
willful misconduct in the performance of Employee's duties to the Company; (ii)
Employee's repeated unexplained or unjustified absence from the Company; (iii) a
material and willful violation of any federal or state law by Employee; (iv)
Employee's refusal or failure to act in accordance with any specific direction
or order of the Company; (v) Employee's commission of any act of fraud with
respect to the Company or Employee's deliberate attempt to injure the Company;
(vi) conviction of a felony or a crime involving moral turpitude causing
material harm to the standing and reputation of the Company, in each case as
determined by the Board of Directors of the Company; or (vii) Employee's
incurable material breach of any element of the Company's Confidential
Information and
4
<PAGE>
Invention Assignment Agreement, including without limitation, Employee's theft
or other misappropriation of the Company's proprietary information.
7. Definition of Disability. For purposed of this Agreement, "Disability"
------------------------
shall mean that the Employee has been unable to perform his or her Company
duties as the result of his or her incapacity due to physical or mental illness,
and such inability, at least 26 weeks after its commencement, is determined to
be total and permanent by a physician selected by the Employee or the Employee's
legal representative and acceptable to the Company or its insurers (such
agreement as to acceptability not to be unreasonably withheld). Termination
resulting from Disability may only be effected after at least 30 days' written
notice by the Company of its intention to terminate the Employee's employment.
In the event that the Employee resumes the performance of substantially all of
his or her duties hereunder before the termination of his or her employment
becomes effective, the notice of intent to terminate shall automatically be
deemed to have been revoked.
8. Confidentiality Agreement. Employee shall sign, or has signed, a
-------------------------
Confidential Information and Invention Assignment Agreement (the
"Confidentiality Agreement" substantially in the form attached hereto as Exhibit
- -------------------------- -------
A Employee hereby represents and warrants to the Company that he has complied
- -
with all obligations under the Confidentiality Agreement and agrees to continue
to abide by the terms of the Confidentiality Agreement and further agrees that
the provisions of the Confidentiality Agreement shall survive any termination of
this Agreement or of Employee's employment relationship with the Company.
9. Noncompetition Covenant. Employee hereby agrees that he shall not, during
-----------------------
the term of his employment pursuant to this Agreement and the Severance Period,
if any, and with respect to subsections (b) and (c) below, for a period of
twenty-four (24) months after termination of employment for any or no reason,
with or without Cause, do any of the following without the prior written consent
of the Board of Directors:
a. Compete. Carry on any business or activity (whether directly or
-------
indirectly, as a partner, stockholder, principal, agent, director, affiliate,
employee or consultant) which is competitive with the business conducted by the
Company (as conducted now or during the term of Employee's employment), nor
engage in any other activities that conflict with Employee's obligations to the
Company.
b. Solicit Business. Solicit or influence or attempt to influence any
----------------
client, customer or other person either directly or indirectly, to direct his or
its purchase of the Company's products and/or services to any person, firm,
corporation, institution or other entity in competition with the business of the
Company.
c. Solicit Personnel. Solicit or influence or attempt to influence any
-----------------
person employed by the Company to terminate or otherwise cease his employment
with the Company or become an employee of any competitor of the Company. These
subsections 9(b) and 9(c) are to be read in conjunction with Section 7 of the
Confidential Information and Invention Assignment Agreement executed by
Employee.
5
<PAGE>
10. Limitation On Payments. In the event that the severance and other benefits
----------------------
provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this
----
Section 10, would be subject to the excise tax imposed by Section 4999 of the
Code (or any corresponding provisions of state income tax law), then the
Employee's severance benefits under Section 5(b) shall be either
a. delivered in full; or
b. delivered as to such lesser extent which would result in no portion of
such severance benefits being subject to excise tax under Section 4999 of the
Code, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Employee on an after-taxbasis, of the
greater amount of severance benefits, notwithstanding that all or some portion
of such severance benefits may be taxable under Section 4999 of the Code. Unless
the Company and the Employed otherwise agree in writing, any determination
required under this Section 10 shall be made in writing by the Accountants,
whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations required by
this Section 10, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 10. In the event that subsection (a) above applies,
then Employee shall be responsible for any excise taxes imposed with respect to
such severance and other benefits. In the event that subsection (b) above
applies, then each benefit provided hereunder shall be proportionately reduced
to the extent necessary to avoid imposition of such excise taxes.
11. Conflicts. Employee represents that his performance of all the terms of
---------
this Agreement will not breach any other agreement to which Employee is a party.
Employee has not, and will not during the term of this Agreement, enter into any
oral or written agreement in conflict with any of the provisions of this
Agreement. Employee further represents that he is entering into or has entered
into an employment relationship with the Company of his own free will and that
he has not been solicited as an employee in any way by the Company.
12. Successors. Any successor to the Company (whether direct or indirect and
----------
whether by purchase, lease, merger, consolidation, liquidation or otherwise) to
all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
6
<PAGE>
13. Miscellaneous Provisions.
------------------------
a. No Duly to Mitigate. Employee shall not be required to mitigate the
-------------------
amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
b. Amendments and Waivers. Any term of this Agreement may be amended or
----------------------
waived only with the written consent of the parties.
c. Sole Agreement. This Agreement, including any Exhibits hereto,
--------------
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
d. Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS , or forty-eight (48) hours after being deposited in the U.S.
mail as certified or registered mail with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth below
or as subsequently modified by written notice.
e. Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
f. 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.
g. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together will constitute one
and the same instrument.
h. Arbitration. Any dispute or claim arising out of-or in connection with
-----------
this Agreement will be finally settled by binding arbitration in Los Angeles,
California in accordance with the rules of the American Arbitration Association
by one (1) arbitrator appointed in accordance with said rules. The arbitrator
shall apply California law, without reference to rules of conflicts of law or
rules of statutory arbitration, to the resolution of any dispute. Judgment on
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof Notwithstanding the foregoing, the parties may apply to any
court of competent jurisdiction for preliminary or interim equitable relief, or
to compel arbitration in accordance with this paragraph, without breach of this
arbitration provision. This Section 13(h) shall not apply to the
Confidentiality Agreement.
7
<PAGE>
i. Advice of Counsel. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES THAT, IN
-----------------
EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE
OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND
PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY
PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
[Signature Page Follows]
8
<PAGE>
The parties have executed this Agreement the date first written above.
STAMPMASTER, INC.
By: /s/ Thomas N. Clancy
-------------------------
Title:
----------------------
Address: 4500 East Thousand Oaks Blvd.
Suite 100
Westlake Village. CA 91362
MOHAN ANANDA
Signature: /s/ Mohan Ananda
-------------------
Address: 549 Lakeview Canyon Rd
---------------------
Westlake Village, CA 91362
9
<PAGE>
The parties have executed this Agreement the date first written above.
STAMPMASTER, INC.
By: /s/ Thomas N. Clancy
-------------------------
Title:
----------------------
Address: 4500 East Thousand Oaks Blvd.
Suite 100
Westlake Village. CA 91362
MOHAN ANANDA
Signature: /s/ Mohan Ananda
------------------
Address: 549 Lakeview Canyon Rd
--------------------
Westlake Village, CA 91362
10
<PAGE>
EXHIBIT 10.8
STAMPS.COM INC.
1999 STOCK INCENTIVE PLAN
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests of
Stamps.com Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year in
special option grants,
- the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible non-
employee Board members shall automatically receive option grants at designated
intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.
<PAGE>
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee shall be made by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
C. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
E. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
2.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in
the Director Fee Option Grant Program.
3.
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed _____________
shares. Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under that Predecessor Plan, (ii) plus
an additional increase of approximately _____________ shares to be approved by
the Corporation's stockholders prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000, by
an amount equal to ______ percent (%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
_____________ shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than _____________ shares of Common Stock in the aggregate per calendar
year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall not
be available for subsequent issuance under the Plan.
4.
<PAGE>
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which any one person may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances under the Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plan and (vi) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year pursuant
to the provisions of Section V.B of this Article One. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Seven
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
6.
<PAGE>
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death
and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution
or by the Optionee's designated beneficiary or beneficiaries of that
option.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested had the Optionee continued in Service.
7.
<PAGE>
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000).
8.
<PAGE>
To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
the total number of shares of Common Stock at the time subject to such option
and may be exercised for any or all of those shares as fully vested shares of
Common Stock. However, an outstanding option shall not become exercisable on
such an accelerated basis if and to the extent: (i) such option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on any shares for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
- --------
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and
9.
<PAGE>
(iii) the maximum number and/or class of securities for which any one person may
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of
such Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to those options and may be exercised
for any or all of those shares as fully vested shares of Common Stock, whether
or not those options are to be assumed in the Corporate Transaction. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall not be assignable
in connection with such Corporate Transaction and shall accordingly terminate
upon the consummation of such Corporate Transaction, and the shares subject to
those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become fully exercisable for the total
number of shares of Common Stock at the time subject to those options in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
-------
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may structure one or more of the Corporation's repurchase
rights so that those rights shall immediately terminate with respect to any
shares held by the Optionee at the time of his or her Involuntary Termination,
and the shares subject to those terminated repurchase rights shall accordingly
vest in full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of a
Change in Control, become fully exercisable for the total number of shares of
Common Stock at the time subject to those options and may be exercised for any
or all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the consummation
of such Change in Control, and the shares subject to those terminated rights
shall thereupon vest in full. Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a
10.
<PAGE>
designated period (not to exceed eighteen (18) months) following the effective
date of such Change in Control. Each option so accelerated shall remain
exercisable for fully vested shares until the earlier of (i) the expiration of
-------
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be made
in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
11.
<PAGE>
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion thereof)
on the option surrender date and may exercise such rights at any time prior
to the later of (a) five (5) business days after the receipt of the
-----
rejection notice or (b) the last day on which the option is otherwise
exercisable in accordance with the terms of the documents evidencing such
option, but in no event may such rights be exercised more than ten (10)
years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation. In return for the surrendered option, the
Optionee shall receive a cash distribution from the Corporation in an
amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock at the time subject to such option (whether or not the
Optionee is otherwise vested in those shares) over (B) the aggregate
exercise price payable for those shares. Such cash distribution shall be
paid within five (5) days following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent exercise
of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
12.
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
--------
that each such document shall comply with the terms specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this program,
and
13.
<PAGE>
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable
----------------------------
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
--------------------------------
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
-------
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution
or by the designated beneficiary or beneficiaries of such option. Such right of
exercise shall lapse, and the option shall terminate, upon the earlier of (i)
-------
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service. However,
the option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten (10)-
-------
year option term or (ii) the expiration of the three (3)-year period measured
from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock.
14.
<PAGE>
The option shall remain so exercisable until the earliest to occur of (i) the
--------
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Service,
(iii) the termination of the option in connection with a Corporate Transaction
or (iv) the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
15.
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
16.
<PAGE>
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
17.
<PAGE>
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
18.
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase _____________ shares of Common Stock, provided
that individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a Non-
Statutory Option to purchase __________ shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such _________ share option
grants any one Eligible Director may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) or who have otherwise received
one or more stock option grants from the Corporation prior to the Underwriting
Date shall be eligible to receive one or more such annual option grants over
their period of continued Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial _____________ share grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of six (6)
successive equal semi-annual installments upon the Optionee's completion of each
six (6)-month period of service as a Board member over the thirty-six (36)-month
period
19.
<PAGE>
measured from the option grant date. Each annual _____________ share automatic
option shall vest, and the Corporation's repurchase right shall lapse, in one
(1) installment upon the Optionee's completion of the twelve (12) month period
of Board service measured from the option grant date.
E. Limited Transferability of Options. Each option under this
----------------------------------
Article Five may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
F. Termination of Board Service. The following provisions shall
----------------------------
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution or by the designated
beneficiary or beneficiaries of such option) shall have a twelve (12)-month
period following the date of such cessation of Board service in which to
exercise each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
20.
<PAGE>
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve (12)-
month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Board service for any
reason other than death or Permanent Disability, terminate and cease to be
outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of the Plan shall constitute pre-approval of the grant of each such limited
cash-out right and the subsequent exercise of that right in accordance with the
terms of this Paragraph D. Accordingly, no approval or consent of the Board or
any Plan Administrator shall be required at the time of the actual option
surrender and cash distribution.
21.
<PAGE>
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
The grant of options under the Automatic Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
22.
<PAGE>
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
---------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board for that year to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non-
employee Board member's election, and
23.
<PAGE>
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable
----------------------------
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each month of Board service over the twelve (12)-month period
measured from the grant date. Each option shall have a maximum term of ten (10)
years measured from the option grant date.
D. Limited Transferability of Options. Each option under this Article
----------------------------------
Six may, in connection with the Optionee's estate plan, be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. Termination of Board Service. Should the Optionee cease Board
----------------------------
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
- -------
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. Death or Permanent Disability. Should the Optionee's service as a
-----------------------------
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
-------
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
24.
<PAGE>
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution or by the designated beneficiary or
beneficiaries of such option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten (10)-
-------
year option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten (10)-
-------
year option term or (ii) the expiration of the three (3)-year period measured
from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable for the total number of shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earliest to occur of (i) the expiration of the
--------
ten (10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv) the
surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five
25.
<PAGE>
(5) days following the surrender of the option to the Corporation. Stockholder
approval of the Plan shall constitute pre-approval of the grant of each such
limited cash-out right and the subsequent exercise of that right in accordance
with the terms of this Paragraph C. Accordingly, no approval or consent of the
Board or any Plan Administrator shall be required at the time of the actual
option surrender and cash distribution.
D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26.
<PAGE>
ARTICLE SEVEN
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
-----------------
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
--------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
27.
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date. However, no
options granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
Plan Effective Date, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) April
--------
15, 2009, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on April 15, 2009, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess
28.
<PAGE>
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
------------------------------
grant program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
30.
<PAGE>
G. Corporation shall mean Stamps.com Inc., a Delaware corporation,
-----------
and any corporate successor to all or substantially all of the assets or voting
stock of Stamps.com Inc.. which shall by appropriate action adopt the Plan.
H. Director Fee Option Grant Program shall mean the special stock
---------------------------------
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
J. Eligible Director shall mean a non-employee Board member eligible
-----------------
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Articles One and Five.
K. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is to be sold in the initial
public offering pursuant to the Underwriting Agreement.
31.
<PAGE>
N. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
P. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her duties and responsibilities or the level of management to which
he or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
Q. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
S. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
32.
<PAGE>
U. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. Plan shall mean the Corporation's 1999 Stock Incentive Plan, as
----
set forth in this document.
Y. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. Plan Effective Date shall mean the date the Plan shall become
-------------------
effective and shall be coincident with the Underwriting Date.
AA. Predecessor Plan shall mean the Corporation's 1998 Stock Plan in
----------------
effect immediately prior to the Plan Effective Date hereunder.
BB. Primary Committee shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
CC. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment option grant program in effect under the Plan.
DD. Secondary Committee shall mean a committee of one or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
33.
<PAGE>
EE. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Service shall mean the performance of services for the
-------
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
GG. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
HH. Stock Issuance Agreement shall mean the agreement entered into by
------------------------
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under the Plan.
JJ. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. Take-Over Price shall mean the greater of (i) the Fair Market
---------------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
LL. 10% Stockholder shall mean the owner of stock (as determined
---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
NN. Underwriting Date shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
OO. Withholding Taxes shall mean the Federal, state and local income
-----------------
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
34.
<PAGE>
EXHIBIT 10.9
STAMPS.COM INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Stamps.com Inc., a Delaware corporation, by providing eligible employees
with the opportunity to acquire a proprietary interest in the Corporation
through participation in a payroll-deduction based employee stock purchase plan
designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
[ ] shares.
-----------
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with calendar year
2000, by an amount equal to [ ] percent ( %) of the total number of shares of
Common Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
[ ] shares.
-----------
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable by all Participants in the aggregate on any one Purchase
Date, (iv) the maximum
<PAGE>
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in July
2001. The next offering period shall commence on the first business day in
August 2001, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in January 31, 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new
offering period shall have a duration of twenty (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business days
following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date
of any offering period under the Plan may enter that offering period on such
start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after
the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
2.
<PAGE>
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
[fifteen percent (15%)]. The deduction rate so authorized shall continue in
effect throughout the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than one
(1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of
any new Purchase Interval within the offering period, increase the rate of
his or her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the [fifteen percent
(15%)] maximum) shall become effective on the start date of the first
Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the
Participant's book account under the Plan, but no interest shall be paid on the
balance from time to time outstanding in such account. The amounts collected
from the Participant shall not be required to be held in any segregated account
or trust fund and may be commingled with the general assets of the Corporation
and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
3.
<PAGE>
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
-----------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. Purchase Price. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
-----
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common
----------------------------
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed [ ] shares, subject to periodic adjustments in the event of
-----------
certain changes in the Corporation's capitalization. In addition, the maximum
aggregate number of shares of Common Stock purchasable by all Participants on
any one Purchase Date shall not exceed [ ] shares, subject to periodic
-----------
adjustments in the event of certain changes in the Corporation's capitalization.
However, the Plan Administrator shall have the discretionary authority,
exercisable prior to the start of any offering period under the Plan, to
increase or decrease the limitations to be in effect for the number of shares
purchasable per Participant and in the aggregate by all Participants on each
Purchase Date during that offering period.
4.
<PAGE>
E. Excess Payroll Deductions. Any payroll deductions not applied
-------------------------
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in the
aggregate on the Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions shall
be collected from the Participant with respect to the terminated purchase
right. Any payroll deductions collected during the Purchase Interval in
which such termination occurs shall, at the Participant's election, be
immediately refunded or held for the purchase of shares on the next
Purchase Date. If no such election is made at the time such purchase right
is terminated, then the payroll deductions collected with respect to the
terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into that
offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up until
the last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to date on
his or her behalf for that Purchase Interval or (b) have such funds held
for the purchase of shares on his or her behalf on the next scheduled
Purchase Date. In no event, however, shall any further payroll deductions
be collected on the Participant's behalf during such leave. Upon the
Participant's return to active service (x) within ninety (90) days
following the commencement of such leave or (y) prior to the expiration of
any longer period for which such Participant's right to reemployment with
the Corporation is guaranteed by statute or contract, his or her payroll
deductions under the Plan shall automatically resume at the rate in
5.
<PAGE>
effect at the time the leave began, unless the Participant withdraws from
the Plan prior to his or her return. An individual who returns to active
employment following a leave of absence which exceeds in duration the
applicable (x) or (y) time period will be treated as a new Employee for
purposes of subsequent participation in the Plan and must accordingly re-
enroll in the Plan (by making a timely filing of the prescribed enrollment
forms) on or before his or her scheduled Entry Date into the offering
period.
G. Change in Control. Each outstanding purchase right shall
-----------------
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
-----
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. Proration of Purchase Rights. Should the total number of
----------------------------
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. Assignability. The purchase right shall be exercisable only by
-------------
the Participant and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans
6.
<PAGE>
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than Twenty-
Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or any
Corporate Affiliate (determined on the basis of the Fair Market Value per share
on the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such right
remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire Common Stock
under one or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000.00) worth of Common Stock (determined on the
basis of the Fair Market Value per share on the date or dates of grant) for
each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval with
respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on , 1999 and shall
--------
become effective at the Effective Time, provided no purchase rights granted
--------
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
7.
<PAGE>
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in July 2009, (ii) the
--------
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation; however, each Plan Participant shall bear
all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE>
Schedule A
----------
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
Stamps.com Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Cash Earnings shall mean the (i) regular base salary paid to a
-------------
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any and all contributions made by the Participant to any
Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall not include any contributions made on
the Participant's behalf by the Corporation or any Corporate Affiliate to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions).
C. Change in Control shall mean a change in ownership of the
-----------------
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
A-1.
<PAGE>
E. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. Corporation shall mean Stamps.com Inc., a Delaware corporation,
-----------
and any corporate successor to all or substantially all of the assets or voting
stock of Stamps.com Inc., which shall by appropriate action adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
--------------
Agreement is executed and the Common Stock priced for the initial public
offering. Any Corporate Affiliate which becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. Eligible Employee shall mean any person who is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. Entry Date shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
A-2.
<PAGE>
L. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
M. Participant shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
N. Participating Corporation shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. Plan shall mean the Corporation's 1999 Employee Stock Purchase
----
Plan, as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each Purchase
-------------
Interval. The initial Purchase Date shall be January 31, 2000.
R. Purchase Interval shall mean each successive six (6)-month period
-----------------
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
S. Semi-Annual Entry Date shall mean the first business day in
----------------------
February and August each year on which an Eligible Employee may first enter an
offering period.
T. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
U. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE>
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ___ day
of __________, 1999 between ________________, a ___________corporation (the
"Company") and ___________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company have adopted an Amended
and Restated Certificate of Incorporation (the "Certificate") permitting the
Board of Directors to indemnify certain officers and employees designated by the
Board of Directors or Chief Executive Officer (the "Officers") and directors
(the "Directors") of the Company; and
WHEREAS, the Certificate and Section 145 of the Delaware General
Corporation Law, as amended ("Law"), by their nonexclusive nature permit
contracts between the Company and the Officers and Directors of the Company with
respect to indemnification of such Officers and Directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of Directors' and
Officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its Officers and Directors in the performance of their
obligations as Officers and Directors of the Company; and
WHEREAS, as a result of recent developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded the Company's Officers and Directors by such D & O
Insurance and said uncertainty also exists under statutory and bylaw
indemnification provisions; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer and/or a director of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or a director after the date hereof, the parties hereto agree as
follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold
-----------------------
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
____ of the Certificate, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 1(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding
<PAGE>
by or in the right of the Company. Pursuant to this Section 1(a), Indemnitee
shall be indemnified against all Expenses (as hereinafter defined), judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with such Proceeding or any claim, issue
or matter therein, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 1(b),
Indemnitee shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity.
--------------------
(a) Subject only to the exclusions set forth in Section 2(b)
hereof, the Company hereby further agrees to hold harmless and indemnify
Indemnitee against any and all Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with any
Proceeding (including an action by or on behalf of the Company) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of his Corporate Status; provided, however, that with respect
to actions by or on behalf of the Company, indemnification of Indemnitee against
any judgments shall be made by the Company only as authorized in the specific
case upon a determination that Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; and
2
<PAGE>
(b) No indemnity pursuant to this Section 2 shall be paid by the
Company:
(i) In respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that
such remuneration was in violation of law;
(ii) On account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or
sale by Indemnitee of securities of the Company pursuant to the provisions
of Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any federal, state or local statutory law;
(iii) On account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct; or
(iv) If a final decision by a court having jurisdiction in
the matter shall determine that such indemnification is not lawful.
3. Contribution. If the indemnification provided in Sections 1 and 2
------------
is unavailable and may not be paid to Indemnitee for any reason other than those
set forth in paragraphs (i), (ii) and (iii) of Section 2(b), then in respect to
any Proceeding in which the Company is jointly liable with Indemnitee (or would
be if joined in such Proceeding), the Company shall contribute to the amount of
Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and by the Indemnitee on the other hand from the transaction from which
such Proceeding arose, and (ii) the relative fault of the Company on the one
hand and of the Indemnitee on the other hand in connection with the events which
resulted in such Expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such Expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 3 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
4. Indemnification for Expenses of a Witness. Notwithstanding any
-----------------------------------------
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of
-----------------------
this Agreement, the Company shall advance all reasonable Expenses incurred by or
on behalf of Indemnitee in connection with any Proceeding by reason of
Indemnitee's Corporate Status within
3
<PAGE>
ten days after the receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the Expenses incurred by Indemnitee and shall include
or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses advanced if it shall ultimately be determined that Indemnitee
is not entitled to be indemnified against such Expenses. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and interest
free. Notwithstanding the foregoing, the obligation of the Company to advance
Expenses pursuant to this Section 5 shall be subject to the condition that, if,
when and to the extent that the Company determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company shall be entitled
to be reimbursed, within thirty (30) days of such determination, by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Company that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any advance of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
6. Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Chief Executive Officer or Chief Financial
Officer a written request, including therein or therewith such documentation and
information as is reasonably available to Indemnitee and is reasonably necessary
to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary or any Assistant Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined) in
a written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee (unless Indemnitee shall request that such determination be made
by the Board of Directors or the stockholders, in which case the determination
shall be made in the manner provided in Clause (ii) below), or (ii) if a Change
in Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors (as hereinafter defined),
or (B) if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, said Disinterested Directors
so direct, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee, or (C) if so
directed by said Disinterested Directors, by the stockholders of the Company;
and, if it is determined that Indemnitee is entitled to indemnification, payment
to Indemnitee shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to
4
<PAGE>
Indemnitee's entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any Independent Counsel, member of the Board of Directors, or
stockholder of the Company shall act reasonably and in good faith in making a
determination under the Agreement of the Indemnitee's entitlement to
indemnification. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). If a Change in
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
in Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within 10 days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a written
objection is made and substantiated, the Independent Counsel selected may not
serve as Independent Counsel unless and until such objection is withdrawn or a
court has determined that such objection is without merit. If, within 20 days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 6(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the court or by such other person as
the court shall designate, and the person with respect to whom all objections
are so resolved or the person so appointed shall act as Independent Counsel
under Section 6(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 6(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
6(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 8(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
5
<PAGE>
(d) The Company shall not be required to obtain the consent of
the Indemnitee to the settlement of any Proceeding which the Company has
undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability.
7. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 6 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30 day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 7(b) shall
not apply (i) if the determination of entitlement to indemnification is to be
made by the stockholders pursuant to Section 6(b) of this Agreement and if (A)
within fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b) of
this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement (with or without court approval),
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
6
<PAGE>
(d) For purposes of any determination of good faith, Indemnitee
shall be deemed to have acted in good faith if Indemnitee's action is based on
the records or books of account of the Enterprise (as hereinafter defined),
including financial statements, or on information supplied to Indemnitee by the
Officers and Directors of the Enterprise in the course of their duties, or on
the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. The provisions of this Section 7(d) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which the Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.
8. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 3 or 4 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 6 or 7 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of
the American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 8(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 8 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 8, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
7
<PAGE>
(d) In the event that Indemnitee, pursuant to this Section 8,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 16 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated. The Company shall
indemnify Indemnitee against any and all expenses and, if requested by
Indemnitee, shall (within ten (10) days after receipt by the Company of a
written request therefor) advance such expenses to Indemnitee, which are
incurred by Indemnitee in connection with any action brought by Indemnitee to
recover under any Directors' and Officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advancement of expenses or
insurance recovery, as the case may be.
(e) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 8 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
9. Nonexclusivity; Survival of Rights; Insurance; Subrogation.
----------------------------------------------------------
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Certificate, any agreement, a vote of
stockholders or a resolution of Directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in the Law, whether
by statute or judicial decision, permits greater indemnification than would be
afforded currently under the Certificate and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right and
remedy shall be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for Directors, Officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum
8
<PAGE>
extent of the coverage available for any such director, officer, employee or
agent under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
10. Exception to Right of Indemnification. Notwithstanding any other
-------------------------------------
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors or (b) such Proceeding
is being brought by the Indemnitee to assert his rights under this Agreement.
11. Duration of Agreement. All agreements and obligations of the
---------------------
Company contained herein shall continue during the period Indemnitee is an
officer and/or a director of the Company (or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 8 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer and/or a director of the Company or
any other enterprise at the Company's request.
12. Security. To the extent requested by the Indemnitee and approved
--------
by the Board of Directors, the Company may at any time and from time to time
provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of the Indemnitee.
13. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer and/or a director of the Company, and
the Company
9
<PAGE>
acknowledges that Indemnitee is relying upon this Agreement in serving as an
officer and/or a director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
14. Definitions. For purposes of this Agreement:
-----------
(a) "Change in Control" means a change in control of the Company
-----------------
occurring after the date of this Agreement of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date of this Agreement (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Act, as amended) other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d3 under the Act),
directly or indirectly, of securities of the Company representing 15% or more of
the combined voting power of the Company's then outstanding securities (other
than any such person or any affiliate thereof that is such a 15% beneficial
owner as of the date hereof) without the prior approval of at least two-thirds
of the members of the Board of Directors in office immediately prior to such
person attaining such percentage interest; (ii) there occurs a proxy contest, or
the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter; or (iii)
during any period of two consecutive years, other than as a result of an event
described in clause (a)(ii) of this Section 16, individuals who at the beginning
of such period constituted the Board of Directors (including for this purpose
any new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of Directors. A Change
in Control shall not be deemed to have occurred under item (i) above if the
"person" described under item (i) is entitled to report its ownership on
Schedule 13G promulgated under the Act and such person is able to represent that
it acquired such securities in the ordinary course of its business and not with
the purpose nor with the effect of changing or influencing the control of the
Company, nor in connection with or as a participant in any transaction having
such purpose or effect. If the "person" referred to in the previous sentence
would at any time not be entitled to continue to report such ownership on
Schedule 13G pursuant to Rule 13d1(b)(3)(i)(B) of the Act, then a Change in
Control shall be deemed to have occurred at such time.
(b) "Corporate Status" describes the status of a person who is or
----------------
was a director, officer, employee or agent or fiduciary of the Company or of any
other corporation,
10
<PAGE>
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the express written request of the
Company.
(c) "Disinterested Director" means a director of the Company who
----------------------
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d) "Enterprise" shall mean the Company and any other
----------
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(e) "Expenses" shall include all reasonable attorneys' fees,
--------
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law
-------------------
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending or completed
----------
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was an officer and/or a director of the Company, by
reason of any action taken by him or of any inaction on his part while acting as
an officer and/or a director of the Company, or by reason of the fact that he is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; in each case whether or not he is acting or serving in any such
capacity at the time any liability or expense is incurred for which
indemnification can be provided under this Agreement; including one pending on
or before the date of this Agreement; and excluding one initiated by an
Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under
this Agreement.
11
<PAGE>
15. Severability. If any provision or provisions of this Agreement
------------
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
16. Modification and Waiver. No supplement, modification, termination
-----------------------
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise.
18. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
_______________________
_______________________
_______________________
_______________________
(b) If to the Company, to:
_______________________
_______________________
_______________________
Attention:
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
12
<PAGE>
19. Identical Counterparts. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
20. Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
21. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
22. Gender. Use of the masculine pronoun shall be deemed to include
------
usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
COMPANY NAME,
a _____________ corporation
By
--------------------------------
Name:
Title:
----------------------------------
__________________, Indemnitee
13
<PAGE>
EXHIBIT 10.11
BASIC LEASE INFORMATION
OFFICE GROSS
<TABLE>
<S> <C>
LEASE DATE: August 27, 1998
(same as date in first paragraph of Lease)
TENANT: StampMaster, Inc.
TENANT'S NOTICE ADDRESS: 2900 31st Street, Suite 150, Santa Monica, CA 90405
TENANT'S BILLING ADDRESS: 2900 31st Street, Suite 150, Santa Monica, CA 90405
TENANT CONTACT: Jim McDermott PHONE NUMBER: (805) 371-4755
FAX NUMBER: (805) 371-4760
LANDLORD: Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS: 3250 Ocean Park Blvd., Suite 150, Santa Monica, CA 90405
LANDLORD'S REMITTANCE ADDRESS: P.O. Box 60077, Dept. 12367, Los Angeles, CA 90060-0077
Project Description: A project commonly known as Santa Monica Business park consisting of
nineteen buildings as further shown on Exhibit B and attached hereto.
Building Description: A two story office building located at 2900 31st Street, Santa Monica,
California, as further shown on Exhibit B and attached hereto.
Premises: 8,248 rentable square feet.
Permitted Use: General office use and no other.
Occupancy Density: Three persons per 1,000 rentable square feet of the Premises.
Parking Density: Three parking spaces per 1,000 rentable square feet of the Premises.
Parking and Parking Charge: Four non-exclusive spaces at $60.00 per space / per month, plus
applicable governmental taxes.
Scheduled Term Commencement Date: September 1, 1998
Scheduled Length of Term: Nine months
Scheduled Term Expiration Date: May 31, 1999
Rent:
Base Rent: $12,372.00
Base Year for Operating Expenses: None
Security Deposit: $12,372.00
Tenant's Proportionate Share:
Of Building: .15
</TABLE>
<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 TENANT
Spieker Properties, L.P., StampMaster, Inc.
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation, By:
its general partner
Print: James AC McDermott
--------------------------
By: /s/ Jeffrey K. Nickell Its: CFO
------------------------- --------------------------
Jeffrey K. Nickell
Its: Vice President Date: 9/2/98
--------------------------
Date: 9/17/98
-----------------------
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
Basic Lease Information.................................................. 1
Table of Contents........................................................ 2
1. Premises................................................................. 4
2. Possession and Lease Commencement........................................ 4
3. Term..................................................................... 4
4. Use...................................................................... 4
5. Rules and Regulations.................................................... 5
6. Rent..................................................................... 5
7. Operating Expenses....................................................... 5
8. Insurance and Indemnification............................................ 7
9. Waiver of Subrogation.................................................... 8
10. Landlord's Repairs and Maintenance....................................... 8
11. Tenant's Repairs and Maintenance......................................... 9
12. Alterations.............................................................. 9
13. Signs.................................................................... 9
14. Inspection/Posting Notices............................................... 9
15. Services and Utilities................................................... 10
16. Subordination............................................................ 10
17. Financial Statements..................................................... 11
18. Estoppel Certificate..................................................... 11
19. Security Deposit......................................................... 11
20. Limitation of Tenant's Remedies.......................................... 11
21. Assignment and Subletting................................................ 11
22. Authority of Tenant...................................................... 12
23. Condemnation............................................................. 12
24. Casualty Damage.......................................................... 13
25. Holding Over............................................................. 13
26. Default.................................................................. 13
27. Liens.................................................................... 15
28. Substitution............................................................. 15
29. Transfers by Landlord.................................................... 15
30. Right of Landlord to Perform Tenant's Covenants.......................... 15
31. Waiver................................................................... 15
32. Notices.................................................................. 15
33. Attorney's Fees.......................................................... 16
34. Successors and Assigns................................................... 16
35. Force Majeure............................................................ 16
36. Surrender of Premises.................................................... 16
37. Parking.................................................................. 16
38. Miscellaneous............................................................ 16
39. Additional Provisions.................................................... 17
40. Jury Trial Waiver........................................................ 17
Signatures............................................................... 18
Exhibits:
Exhibit A............................................. Rules and Regulations
Exhibit B................................... Site Plan, Property Description
Exhibit C............................ Tenant Improvements and Specifications
Additional Exhibits as Required
</TABLE>
3
<PAGE>
LEASE
THIS LEASE is made as of the 27th day of August, 1998, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"Landlord"), and StampMaster, Inc. (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. 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.
2. POSSESSION AND LEASE COMMENCEMENT
A. Existing Improvements. If this Lease pertains to a Premises in which the
interior improvements have already been constructed ("Existing Improvements"),
the provisions of this Paragraph 2.A. shall apply and 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 Premises; or (2) Landlord notifies Tenant
that Tenant may occupy the Premises. 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 Landlord
is able to deliver the same, which date shall then be deemed the Term
Commencement Date. Tenant shall not be liable for any Rent (defined below) for
any period prior to the Term Commencement Date. Tenant acknowledges that Tenant
has inspected and accepts the Premises in their present condition, "as is," and
as suitable for, the Permitted Use (as defined below), and for Tenant's intended
operations in the Premises. Tenant agrees that the Premises and other
improvements are in good and satisfactory condition as of when possession was
taken. Tenant further acknowledges that no representations as to the condition
or repair of the Premises nor promises to alter, remodel or improve the Premises
have been made by Landlord or any agents of Landlord unless such are expressly
set forth in this Lease. Upon Landlord's request, Tenant shall promptly execute
and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among
other things, to acceptance of the Premises and to the determination of the Term
Commencement Date, in accordance with the terms of this Lease, 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.
B. Construction of Improvements. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the provisions
of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A.
above and 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
Premises; or (2) the improvements to be constructed or performed in the Premises
by Landlord (if any) shall have been substantially completed in accordance with
the plans and specifications, if any, described on Exhibit C and Tenant's taking
of possession of the Premises or any part thereof shall constitute Tenant's
confirmation of substantial completion for all purposes hereof, whether or not
substantial completion of the Building or Project shall have occurred. 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). In the event of any dispute as to substantial
completion of work performed or required to be performed by Landlord, the
certificate of Landlord's architect or general contractor shall be conclusive.
Substantial completion shall have occurred notwithstanding Tenant's submission
of a punchlist to Landlord, which Tenant shall submit, if at all, within three
(3) business days after the Term Commencement Date or otherwise in accordance
with any improvement agreement appended to this Lease. Upon Landlord's request,
Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in
which Tenant shall agree, among other things, to acceptance of the Premises and
to the determination of the Term Commencement Date, in accordance with the terms
of this Lease, 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.
3. TERM
The term of this Lease (the "Term") shall commence on the Term Commencement
Date and continue in full force and effect for the number of months specified as
the Length of Term in the Basic Lease Information 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 employees, agents, customers, visitors, invitees,
licensees, contractors, assignees and subtenants (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.
Tenant shall pay the Parking Charge specified in the Basic Lease Information as
Additional Rent (as hereinafter defined) hereunder. So long as Tenant is
occupying the Premises, Tenant and Tenant's Parties 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 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.
B. Limitations. Tenant shall not permit 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
4
<PAGE>
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.
C. Compliance with Regulations. By entering the Premises, Tenant accepts the
Premises in the condition existing as of the date of such entry. Tenant shall
at its sole cost and expense 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, 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 (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 or otherwise affect said insurance in any manner. 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.
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, whether or not caused by Tenant. Landlord shall have the right
at all reasonable times to inspect the Premises and to conduct tests and
investigations to determine whether Tenant is in compliance with the foregoing
provisions, the costs of all such inspections, tests and investigations to be
borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably
acceptable to Landlord), protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses (including attorneys' and consultants' fees and court
costs), demands, causes of action, or judgments directly or indirectly arising
out of or related to the use, generation, storage, release, or disposal of
Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about
the Premises, the Building or the Project or surrounding land or environment,
which indemnity shall include, without limitation, damages for personal or
bodily injury, property damage, damage to the environment or natural resources
occurring on or off the Premises, losses attributable to diminution in value or
adverse effects on marketability, the cost of any investigation, monitoring,
government oversight, repair, removal, remediation, restoration, abatement, and
disposal, and the preparation of any closure or other required plans, whether
such action is required or necessary prior to or following the expiration or
earlier termination of this Lease. Neither the consent by Landlord to the use,
generation, storage, release or disposal of Hazardous Materials nor the strict
compliance by Tenant with all laws pertaining to Hazardous Materials shall
excuse Tenant from Tenant's obligation of indemnification pursuant to this
Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity 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 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.
6. RENT
A. Base Rent. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand 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, 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.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
elsewhere in this Lease, as applicable. 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
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 Base Year specified in the Basic
Lease Information (the "Base Year"), Tenant shall pay as Additional Rent,
Tenant's Proportionate Share of the Building and/or Project (as applicable), as
defined in the Basic Lease Information, of increases in Operating Expenses
(defined below) over the Operating Expenses incurred by Landlord during the Base
Year (the "Base Year Operating Expenses"), in the manner set forth below.
Tenant shall pay the applicable Tenant's Proportionate Share of each such
Operating Expenses. 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 may at its discretion reasonably adjust Tenant's
Proportionate Share of the Building or Project to reflect the change.
Landlord's determination of Tenant's Proportionate Share of the Building and of
the
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Project shall be conclusive so long as it is reasonably and consistently
applied. "Operating Expenses" shall mean all expenses and costs of every kind
and nature which Landlord shall pay or become obligated to pay, because of or in
connection with the ownership, management, maintenance, repair, preservation,
replacement and operation of the Building or Project and its supporting
facilities and such additional facilities now and in subsequent years as may be
determined by Landlord to be necessary or desirable to the Building and/or
Project (as determined in a reasonable manner) 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 or
Project pursuant to this Lease. 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, 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 or Project,
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. Operating Expenses shall also include any taxes,
assessments, reassessments, or other fees or impositions with respect to
the development, leasing, management, maintenance, alteration, repair, use
or occupancy of the Premises, Building or Project or any portion thereof,
including, without limitation, by or for Tenant, and all increases therein
or reassessments thereof whether the increases or reassessments result from
increased rate and/or valuation (whether upon a transfer of the Building or
Project 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 Project,
or taxes computed upon the basis of the net income of any owners of any
interest in the Project. 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.
(2) Insurance. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of insurance
incurred by Landlord, 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 and Project and public and common areas and facilities of and
comprising the Building and Project, including, but not limited to,
the roof and roof membrane, windows, elevators, restrooms, conference
rooms, health club facilities, 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 or Project,
which determination shall be at Landlord's discretion, 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; and those items attributable solely or
jointly to specific tenants of the Building or Project.
(b) Repairs, replacements, and general maintenance shall include the
cost of any capital improvements made to or capital assets acquired
for the Project or Building that in Landlord's discretion may reduce
any other Operating Expenses, including present or future repair work,
are reasonably necessary for the health and safety of the occupants of
the Building or Project, or are required to comply with any
Regulation, such costs or allocable portions thereof to be amortized
over such reasonable period as Landlord shall determine, 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 four (4) percentage
points, but in no event more than the maximum rate permitted by law,
plus reasonable financing charges.
(c) Payment under or for any easement, license, permit, operating
agreement, declaration, restrictive covenant or instrument relating to
the Building or Project.
(d) All expenses and rental related to services and costs of supplies,
materials and equipment used in operating, managing and maintaining
the Premises, Building and Project, 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 exterior maintenance,
landscaping and expenses related to the administration, management and
operation of the Project, including without limitation salaries, wages
and benefits and management office rent.
(e) The cost of supplying any services and utilities which benefit all
or a portion of the Premises, Building or Project, including without
limitation services and utilities provided pursuant to Paragraph 15
hereof.
(f) Legal expenses and the cost of audits by certified public
accountants; 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) 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 and/or Project is not fully occupied during
any fiscal year of the Term as determined by Landlord, an adjustment may be made
in Landlord's discretion in computing the Operating Expenses 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 Operating Expenses, 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 Building or Project, the initial construction
cost of the Building, or debt service on any mortgage or deed of trust recorded
with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above.
Notwithstanding anything herein to the contrary, in any instance wherein
Landlord, in Landlord's sole discretion, deems Tenant to be responsible for any
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amounts greater than Tenant's Proportionate Share, Landlord shall have the right
to allocate costs in any manner Landlord deems appropriate.
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 if any 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. 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. Tenant shall pay Tenant's Proportionate Share of the difference between
Estimated Operating Expenses and Base Year Operating Expenses with installments
of 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 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 Proportionate Share of the revised difference between
Estimated Operating Expenses and Base Year Operating Expenses 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 Base Year Operating Expenses,
determined as hereinafter provided. Within one hundred twenty (120) days after
the end of each fiscal year, or as soon thereafter as practicable, Landlord
shall deliver to Tenant a statement 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 Proportionate Share of actual increases in
Operating Expenses over the Base Year Operating Expenses, then Tenant shall pay
to Landlord the difference within twenty (20) 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 Proportionate Share of actual increases in
Operating Expenses over the Base Year Operating Expenses, then (provided that
Tenant is not in default under this Lease) Landlord shall pay to Tenant the
difference within twenty (20) 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 twenty (20) days after the date of delivery of the
statement. Tenant's obligation to pay increases in Operating Expenses over the
Base Year Operating Expenses shall commence on January 1 of the year succeeding
the Base Year. Should this Lease terminate at any time other than the last day
of the fiscal year, Tenant's Proportionate 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 Operating Expenses in any year
are less than 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 Proportionate
Share of increases in Operating Expenses.
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 Proportionate Share of Base
Year Operating Expenses, except as otherwise specifically provided to the
contrary in this Lease. The provisions for payment of increases in 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, preservation, replacement and operation of the Building
and/or Project and its supporting facilities and such additional facilities, in
excess of the Base Year Operating Expenses, now and in subsequent years as may
be 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 twenty (20) days following receipt of such statement and
upon the condition that Tenant shall first deposit with Landlord the full amount
in dispute, to cause Landlord's books and records with respect to 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 ten
percent (10%) of Tenant's Proportionate Share of the 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
twenty (20) 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 property insurance
insuring the Building 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. At its election, Landlord may instead (but shall
have no obligation to) obtain "All Risk" coverage, and may also obtain
earthquake, pollution, and/or flood insurance in amounts selected by
Landlord.
(2) Optional Insurance. Landlord, at Landlord's option, may also (but
shall have no obligation to) 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. 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.
B. Tenant's Insurance.
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(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 an "All Risk" 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 (i) provide Landlord with thirty (30)
days' notice of cancellation or change in terms; and (ii) waive all rights
of subrogation by the insurance carrier against Landlord. 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 owners or 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
Five Thousand Dollars ($5,000.00) 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,
certified copies of Tenant's insurance policies, or a certificate evidencing
the same issued by the insurer thereunder; and, if Tenant shall fail to
procure such insurance, or to deliver such policies or certificates,
Landlord may, at Landlord's option and in addition to Landlord's other
remedies in the event of a default by Tenant hereunder, 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: (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, Building or Project by Tenant or Tenant's Parties, or
from activities or failures to act of Tenant or Tenant's Parties; (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; (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, Building or Project 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.
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 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. The term "exterior walls" as used herein shall
not include windows, glass or plate glass, doors, special store fronts or office
entries. Any damage caused by or repairs necessitated by any negligence or act
of Tenant or Tenant's
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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. 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. 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.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all
parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a first-class, good, clean and secure condition
and promptly make all necessary repairs and replacements, as determined by
Landlord, with materials and workmanship of the same character, kind and quality
as the original. Notwithstanding anything to the contrary contained herein,
Tenant shall, at its expense, promptly repair any damage to the Premises or the
Building or Project resulting from or caused by any negligence or act of Tenant
or Tenant's Parties.
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
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, compatible with 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, 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 rules and
regulations for contractors and subcontractors performing such work. 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
first-class, 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. 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 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 Landlord an administration fee of fifteen percent
(15%) of the cost of the Alterations as Additional Rent hereunder. 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, require
that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant
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 first-class and
good and workmanlike manner so as not to cause any damage to the Premises or
Project whatsoever. If Tenant fails to remove such Alterations or Tenant's
trade fixtures or furniture or other personal property, Landlord may keep and
use them or remove any of them and cause them to be stored or sold 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 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.
Notwithstanding the foregoing, at Landlord's option (but without obligation),
all or any portion of the Alterations shall be performed by Landlord for
Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof
(including a reasonable charge for Landlord's overhead and profit) prior to
commencement of the work. In addition, at Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of
removing any such Alterations and restoring the Premises to their original
condition such cost to include a reasonable charge for Landlord's overhead and
profit as provided above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord under this Lease.
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
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 shall be included in any Building-standard door and directory
signage, if any, in accordance with Landlord's Building signage program,
including without limitation, payment by Tenant of any fee charged by Landlord
for 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 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 reasonable notice, except in emergencies where no such notice shall be
required, Landlord and Landlord's agents and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or
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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, purchasers, encumbrancers or to
others, or for any other purpose as Landlord may deem necessary or desirable;
provided, however, that Landlord shall use reasonable efforts not to
unreasonably interfere with Tenant's business operations. Tenant shall not be
entitled to any abatement of Rent by reason of the exercise of any such right of
entry. 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 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 six (6)
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 Premises, Building and/or Project a suitable sign
indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and 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
of generally recognized business days, to be determined by Landlord (but
exclusive, in any event, of Saturdays, Sundays and legal holidays), water for
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 as of the date Tenant takes possession of the Premises as determined
by Landlord (but not including above-standard or continuous cooling for
excessive heat-generating machines, excess lighting or equipment), janitorial
services during the times and in the manner that such services are, in
Landlord's judgment, customarily furnished in comparable office buildings in the
immediate market area, and elevator service, which shall mean service either by
nonattended automatic elevators or elevators with attendants, or both, at the
option of Landlord. Tenant acknowledges that Tenant has inspected and accepts
the water, electricity, heat and air conditioning and other utilities and
services being supplied or furnished to the Premises as of the date Tenant takes
possession of the Premises, as being sufficient for use of the Premises for
reasonable and normal office use in their present condition, "as is," and
suitable for the Permitted Use, and for Tenant's intended operations in the
Premises. Landlord shall have no obligation to provide additional or after-
hours electricity, heating or air conditioning, but if Landlord elects to
provide such services at Tenant's request, Tenant shall pay to Landlord a
reasonable charge for such services as determined by Landlord. 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 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, 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 upon
demand by Landlord.
B. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines, using
excess lighting or using electric current, water, or any other resource in
excess of or which will in any way increase the amount of electricity, water, or
any other resource being furnished or supplied for the use of the Premises for
reasonable and normal office use, in each case as of the date Tenant takes
possession of the Premises as determined by Landlord, 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 as of the date
Tenant takes possession of the Premises as determined by Landlord, Tenant shall
first procure the written consent of Landlord which Landlord may refuse, to the
use thereof, 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. 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 as of the date Tenant takes possession 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;
or (d) the partial or total unavailability of any such utilities or services to
the Premises or the Building, whether by Regulation or otherwise; nor shall any
such occurrence constitute an actual or constructive eviction of Tenant.
Landlord shall further have no obligation to protect or preserve any apparatus,
equipment or device installed by Tenant in the Premises, including without
limitation by providing additional or after-hours heating or air conditioning.
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. The obligation to
make services available hereunder shall be subject to the limitations of any
such voluntary, reasonable program. In addition, Landlord reserves the right to
change the supplier or provider of any such utility or service from time to
time. Tenant shall have no right to contract with or otherwise obtain any
electrical or other such 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 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.
C. Tenant shall pay, upon demand, for all utilities furnished to the Premises,
or if not separately billed to or metered to Tenant, Tenant's Proportionate
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.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this 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
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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. 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 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 ten (10) 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 the
form requested by Landlord or by any ground landlord, mortgagee, or beneficiary
under a deed of trust, subject to such nondisturbance requirement. If requested
in writing by Tenant, Landlord shall use commercially reasonable efforts to
obtain a subordination, nondisturbance and attornment agreement for the benefit
of Tenant reflecting the foregoing from any ground landlord, mortgagee or
beneficiary, at Tenant's expense, subject to such other terms and conditions as
the ground landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to Landlord
Tenant's and any guarantor's current financial statements or other information
discussing financial worth of Tenant and any guarantor, 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, within ten (10) 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, 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
acceptance of the Premises and 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 ten (10) 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 this 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 or makes any material misstatement in any
such certificate.
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 and owned by Landlord, without obligation to pay interest, 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, 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. Although the Security Deposit shall be deemed the property of
Landlord, any remaining balance of such deposit shall be returned by Landlord to
Tenant at such time after termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled, 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 and to
clean the Premises. Landlord may use and commingle the Security Deposit with
other funds of Landlord.
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, 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 Paragraph 23.B.
below, which Rent and other payments shall be absolutely due and payable
hereunder in accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) General. This Lease has been negotiated to be and is granted as an
accommodation to Tenant. Accordingly, this Lease is personal to Tenant, and
Tenant's rights granted hereunder do not include the right to assign this
Lease or sublease the Premises, or to receive any excess, either in
installments or lump sum, over the Rent which is expressly reserved by
Landlord as hereinafter provided, except as otherwise expressly hereinafter
provided. 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 sixty (60) 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. Landlord shall then have a period of thirty
(30) days following receipt of the Transfer Notice to 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; or (ii) to consent
to the proposed assignment or sublease, subject, however, to Landlord's
prior written consent of the proposed assignee or subtenant and of any
related documents or agreements associated with the assignment or sublease.
If Landlord should fail to notify Tenant in writing of such election within
said period, Landlord shall be deemed to have waived option (i) above, but
written consent by Landlord of the proposed assignee or subtenant shall
still be required. If Landlord does not exercise option (i) above,
Landlord's consent to a proposed assignment or sublease shall not be
unreasonably withheld. Consent to any assignment or subletting shall not
constitute consent to any subsequent transaction to which this Paragraph 21
applies.
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(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 form and substance
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 increase the Occupancy Density or Parking Density of
the Building or Project, or would otherwise result in an undesirable tenant
mix for the Project as determined by Landlord; the proposed assignee or
subtenant is not of sound financial condition as determined by Landlord in
Landlord's sole discretion; the proposed assignee or subtenant is a
governmental agency; the proposed assignee or subtenant does not have a good
reputation as a tenant of property or a good business reputation; the
proposed assignee or subtenant is a person with whom Landlord is negotiating
to lease space in the Project or is a present tenant of the Project; the
assignment or subletting would entail any Alterations which would lessen the
value of the leasehold improvements in the Premises or 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, or Tenant has defaulted under this Lease on three (3) or more
occasions during any twelve (12) months preceding the date that Tenant shall
request consent. 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 each request for assignment or subletting, Tenant shall
pay to Landlord Landlord's standard fee 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.
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
amortization of a reasonable brokerage commission incurred by Tenant, shall be
divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to Landlord.
In any subletting or assignment undertaken by Tenant, Tenant shall diligently
seek to obtain the maximum rental amount available in the marketplace for
comparable space available for primary leasing.
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.
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.
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 the obligations of Tenant under
this Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
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 and
the person or persons, if any, signing on behalf of Tenant, jointly and
severally represent and warrant 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 this 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 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.
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 specifically and separately
awarded Tenant for Tenant's personal property and moving costs, shall be and
remain the property of Tenant.
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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"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's estimation material restoration of the Premises can reasonably be
made within one hundred eighty (180) days from the date of such notice and
receipt of required permits for such restoration. Landlord's determination
shall be binding on Tenant.
B. Within 180 Days. If the Premises or Building should be damaged by Casualty
to such extent that material restoration can in Landlord's estimation be
reasonably completed within one hundred eighty (180) days after the date of such
notice and receipt of required permits for such restoration, 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 in the manner determined by Landlord, 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 of rental abatement insurance proceeds
received by Landlord during the time and to the extent the Premises are unfit
for occupancy.
C. Greater than 180 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 one hundred eighty (180) days after
the date of such notice and receipt of required permits for such rebuilding or
repair, 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 in the manner
determined by Landlord. Landlord shall notify Tenant of its election within
thirty (30) days after Landlord's receipt of notice of the damage or
destruction. 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 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 of rental abatement insurance proceeds received by Landlord during
the time and to the extent the Premises are unfit for occupancy.
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 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 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 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, 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.
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 Tenant shall pay to Landlord for each day of such retention
triple the amount of daily rental 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 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 Landlord shall
have the right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any 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. 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 or vacation of the Premises for a continuous
period in excess of five (5) days. 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 upon the date when said payment is
due, as to which time is of the essence.
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(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 fifteen (15) days after written notice of such failure, as to which
time is of the essence.
(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 thirty (30)
days. If under applicable law, the trustee in bankruptcy or Tenant has the
right to affirm this Lease and continue to perform the obligations of Tenant
hereunder, such trustee or Tenant shall, in such time period as may be
permitted by the bankruptcy court having jurisdiction, cure all defaults of
Tenant hereunder outstanding as of the date of the affirmance of this Lease
and provide to Landlord such adequate assurances as may be necessary to
ensure Landlord of the continued performance of Tenant's obligations under
this Lease.
(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
fifteen (15) days after the order therefor.
(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 fifteen (15) days after the levy thereof.
(8) Insolvency. The admission 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.
(3) Increased Security Deposit. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for ten (10) days after
such occurrence or such default occurs more than three times in any twelve
(12) month period, Landlord may require that Tenant increase the Security
Deposit to the amount of three times the current month's Rent at the time of
the most recent default.
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 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%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. Late Charge. In addition to its other remedies, Landlord shall have the
right without notice or demand to add to the amount of any payment required to
be made by Tenant hereunder, and which is not paid and received by Landlord on
or before the first day of each calendar month, an amount equal to ten percent
(10%) 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 eighteen percent (18%) 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.
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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 ten (10) days following 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. Tenant shall not 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. SUBSTITUTION
A. At any time after execution of this Lease, Landlord may substitute for the
Premises other premises in the Project or owned by Landlord in the vicinity of
the Project (the "New Premises") upon not less than sixty (60) days prior
written notice, in which event the New Premises shall be deemed to be the
Premises for all purposes hereunder and this Lease shall be deemed modified
accordingly to reflect the new location and shall remain in full force and
effect as so modified, provided that:
(1) The New Premises shall be similar in area and in function for Tenant's
purposes; and
(2) If Tenant is occupying the Premises at the time of such substitution,
Landlord shall pay the expense of physically moving Tenant, Tenant's
property and equipment to the New Premises and shall, at Landlord's sole
cost, improve the New Premises with improvements substantially similar to
those the Landlord has committed to provide or has provided in the
Premises.
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, 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. Landlord's
successor(s)-in-interest shall not have liability to Tenant with respect to the
failure to perform any of the obligations of "Landlord," to the extent required
to be performed prior to the date such successor(s)-in-interest became the owner
of the Building.
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. 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 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. Failure by Landlord 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 to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
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:
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. Tenant appoints as its agent to receive the service
of all default notices and notice of commencement of unlawful detainer
proceedings the person in charge of or apparently in charge of occupying the
Premises at the time, and, if there is no such person, then such service may be
made by attaching the same on the main entrance of the Premises.
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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
If Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. 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
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 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, including, but not limited to, all interior
walls cleaned, all interior painted surfaces repainted in the original color,
all holes in walls repaired, all carpets shampooed and cleaned, and all floors
cleaned, waxed, and free of any Tenant-introduced marking or painting, all to
the reasonable satisfaction of Landlord. 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. 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 shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating, but nothing
contained herein shall be construed as an extension of the Term or as a consent
by Landlord to any holding over by Tenant. In the event of Tenant's failure to
give such notice or participate in such joint inspection, 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.
Any delay caused by Tenant's failure to carry out its obligations under this
Paragraph 36 beyond the term hereof, shall constitute unlawful and illegal
possession of Premises under Paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, 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, first come, first
served basis, for passenger-size automobiles, in the parking areas in the
Project designated from time to time by Landlord for use in common by tenants of
the Building.
Tenant may request additional parking spaces from time to time and if Landlord
in its sole 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, and shall otherwise be
subject to such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties and
visitors to comply with all Regulations and any 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, and
hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other items
located in the parking areas of the Project, nor for 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, 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. 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 method
as Landlord may approve, at the validation rate from time to time generally
applicable to visitor parking. Landlord also reserves the right to 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.
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 Basic Lease Information,
as applicable). Such parking charges shall be payable in advance with Tenant's
payment of Basic 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.
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.
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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.
E. Modification. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant accepts 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 acknowledges and agrees that no other
definition of the area (rentable, usable or otherwise) of the Premises shall
apply. Tenant shall in no event 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 reduce Tenant'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.
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.
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 month of 30
days. As used herein, the term "fiscal year" shall mean the calendar year or
such other fiscal year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
40. 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
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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 40. THE PROVISIONS OF THIS PARAGRAPH 40 SHALL SURVIVE
THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE.
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: /s/ Jeffrey K. Nickell
-----------------------------------
Jeffrey K. Nickell
Its: Vice President
Date: 9-17-98
TENANT
StampMaster, Inc.
---------------------------------------
By: /s/ James AC McDermott
---------------------------------------
Print:
Its: CFO
Date: 9-2-98
---------------------------------------
---------------------------------------
---------------------------------------
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EXHIBIT 10.13
MASTER LEASE AGREEMENT
NUMBER 912364
LESSEE NAME AND ADDRESS
STAMPMASTER, INC.
4500 E. THOUSAND OAKS BLVD., SUITE 100
WESTLAKE VILLAGE, CA 91362
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Terms and Conditions
1. LEASE. LESSOR and LESSEE agree that the terms of this Master Lease
Agreement shall apply to and be incorporated by reference in one or more Lease
Schedules in substantially the form of Exhibit A hereto which reference(s) the
Master Lease Agreement Number indicated above). The word "LEASE" shall mean any
one of the individual Lease Schedules executed hereunder, each of which shall
incorporate the terms and conditions of this Master Lease Agreement and shall be
evidenced by the original Lease Schedule and an attached copy of its Master
Lease Agreement. The word "EQUIPMENT" shall mean the equipment which is the
subject of any one of the LEASES. Each Lease Schedule will include an EQUIPMENT
description, the EQUIPMENT location, the minimum lease term and payment and
security deposit information. Each LEASE shall be enforceable upon execution by
LESSEE and subsequent counter-signature by LESSOR indicating acceptance.
2. RENTAL PAYMENTS. Unless otherwise agreed in writing, each regular periodic
payment of rent due during the term of each LEASE shall be due on the first day
of the month (the billing date). The first billing date under each LEASE shall
be the first day of the month following LESSEE's acceptance of the EQUIPMENT,
or, if LESSEE's acceptance occurs after the 20th day of a month, then the first
billing date shall be the first day of the second month following LESSEE's
acceptance. LESSEE shall pay pro rated rent, together with applicable taxes,
from the date of acceptance of the EQUIPMENT until the first billing date as
interim rent. In addition, LESSEE shall pay to LESSOR as additional interim
rent an amount equal to one thirtieth of the proportional money rental payment
per day for any amount funded by LESSOR prior to acceptance of the EQUIPMENT by
LESSEE. LESSEE agrees to pay rent for the minimum term specified above
following the interim rent period and until the EQUIPMENT is returned to LESSOR
on expiration or earlier termination of the LEASE. Each periodic rental
installment shall be the sum set forth above or on an attached schedule plus any
applicable sales and/or use taxes, and shall, at LESSOR's option, include a pro
rata portion of that year's property tax. Payments shall be made by LESSEE at
LESSOR's address set forth herein or as otherwise directed by LESSOR. LESSEE
shall not abate, set off, deduct any amount or reduce any payment for any reason
without the prior written consent of LESSOR. Payments are delinquent if not in
LESSOR's possession by the due date.
3. COMMENCEMENT AND TERMINATION. The LEASE term shall commence on acceptance
of the EQUIPMENT by LESSEE. The LEASE shall terminate on the expiration of its
minimum term in months as set forth in the Lease Schedule following the first
billing date and the fulfillment of all obligations of LESSEE thereunder or upon
notice by LESSOR in the case of LESSEE default. In the event LESSEE retains
part or all of the EQUIPMENT beyond the term of the LEASE, then the terms of the
LEASE shall stay in effect during such hold-over period, subject to LESSOR's
right on default to terminate the LEASE.
4. NO WARRANTIES BY LESSOR. LESSOR makes no warranty, express, implied or
statutory, as to any matter whatsoever, including the condition of the
EQUIPMENT, its merchantability or its fitness for any particular purpose, and as
to LESSOR, LESSEE lenses the EQUIPMENT "as is".
5. CHOICE OF LAW, VENUE AND JURISDICTION. The LEASE shall be deemed to have
been made and shall be construed in accordance with the laws of the State of
Oregon or breach of the LEASE must be instituted and maintained in Multnomah
County, State of Oregon, and LESSEE expressly agrees to submit to personal
jurisdiction in such venue.
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6. ASSIGNMENT. Without LESSOR's prior written consent, LESSEE shall not
assign, transfer, pledge, hypothecate or otherwise dispose of the LEASE, any
interest therein, or sublease or loan the EQUIPMENT or permit it to be used by
anyone other than LESSEE or LESSEE's qualified employees. LESSOR may assign the
LEASE and/or grant a security interest in the EQUIPMENT, in whole or in part, to
one or more assignees, without notice to LESSEE. LESSOR's assignee(s) and/or
the secured party(ies) may reassign the LEASE, and/or such security interest
without notice to LESSEE. Each such assignee and/or such secured party shall
have all rights of LESSORS under the LEASE, but no such assignee or secured
party shall be bound to perform any obligation of LESSOR, LESSEE shall recognize
each such assignment and shall not assert against any assignee and/or secured
party any defense, counterclaim or setoff it may have against LESSOR. LESSEE
acknowledges that any assignment or transfer by LESSOR shall not materially
change LESSEE's duties or obligations under the LEASE nor materially increase
the burdens or risks imposed on LESSEE.
7. SELECTION AND ACCEPTANCE OF EQUIPMENT. LESSEE has selected both the
EQUIPMENT and the supplier(s) from whom LESSOR is to purchase the EQUIPMENT.
LESSEE shall arrange for transportation, delivery, and installation of the
EQUIPMENT at LESSEE's expense. LESSEE acknowledges that it has examined the
EQUIPMENT as fully as it desires. If the EQUIPMENT is not properly installed,
its delivery is delayed, it does not operate as represented by the supplier(s)
or it is unsatisfactory for any reason. LESSEE shall make no claim on account
thereof against LESSOR. LESSEE authorizes LESSOR to insert in the LEASE or
other documents the serial numbers and other identification information for the
EQUIPMENT as determined by LESSOR.
8. SUPPLIER/BROKER NOT AGENT OF LESSOR. LESSEE understands and agrees that
neither the supplier(s), nor any salesperson or agent of the supplier(s), is an
agent of LESSOR. LESSEE further agrees that if any transaction hereunder is
presented to LESSOR by a lease broker, that such broker is acting as an agent of
LESSEE and is not an agent of LESSOR. No salesperson or agent of the
supplier(s) or broker(s) is authorized to waive or alter any term or condition
of the LEASE, and no representation as to the EQUIPMENT or any matter by the
supplier(s) or broker(s) shall in any way affect LESSEE's duty to pay rent and
perform its other obligations set forth in the LEASE.
9. SECURITY DEPOSIT. Security deposits received by LESSOR are to guarantee
prompt and full payment of rent and the faithful and timely performance of all
provisions of the LEASE by LESSEE. Security deposits secure all obligations of
LESSEE to LESSOR under the LEASE or otherwise. No interest shall accrue on the
security deposit to the account of LESSEE. If LESSEE is not in default under
any agreement with LESSOR, the security deposit shall be returned to LESSEE at
the end of the LEASE term. In the event LESSEE defaults on any of its
obligations to LESSOR, LESSOR shall have the right, but shall not be obligated,
to apply the security deposit to cure such default. LESSEE shall, within ten
(10) days, restore the security deposit to the full amount held by LESSOR prior
to its application to cure such default.
10. CANCELLATION FOR NON-DELIVERY. If within 30 days after the LEASE is signed
by LESSEE, the EQUIPMENT has not been delivered to and accepted by LESSEE and if
LESSOR has accepted the LEASE by signing. LESSOR, by written notice to LESSEE,
shall have the option at any time thereafter to terminate LESSOR's obligation,
if any, to lease the subject EQUIPMENT to LESSEE.
11. RETURN OF EQUIPMENT. On the expiration or earlier termination of the
LEASE, or on LESSEE default if LESSOR chooses, LESSEE, at its expense, freight
prepaid with full original value declared and insured, shall immediately return
the EQUIPMENT unencumbered to LESSOR in good repair, condition and working
order, ordinary wear and tear resulting from proper use thereof alone excepted,
by properly packing it for shipment and delivering it to any place designated by
LESSOR.
12. OWNERSHIP. The EQUIPMENT shall at all times remain the personal property
of LESSOR. LESSEE will at all times protect and defend, at its own cost and
expense, the ownership of LESSOR against all claims, liens and legal processes
of creditors of LESSEE and other persons, and keep the EQUIPMENT free and clear
from all such claims, liens and processes. If the LEASE is deemed at any time
to be one intended as security or should LESSOR agree at any time to sell the
EQUIPMENT to LESSEE, LESSEE agrees that the EQUIPMENT shall secure, in addition
to the indebtedness set forth in the LEASE, indebtedness at any time owing by
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LESSEE to LESSOR. Notwithstanding any other terms and conditions of the LEASE,
in the event that the EQUIPMENT includes computer software, LESSEE agrees that
LESSOR has not had, does not have, nor shall have any title to such computer
software. LESSEE may have executed or may execute a separate software license
agreement(s) and LESSEE agrees that LESSOR is not a party to nor responsible for
any performance with regard to such license agreement(s).
13. LOCATION AND RIGHT OF INSPECTION. The EQUIPMENT shall be kept at the
location specified on the Lease Schedule or, if none is specified, at LESSEE's
address as set forth therein, and shall not be removed therefrom without
LESSOR's prior written consent. LESSOR shall have the right at any time during
normal business hours and upon reasonable notice to inspect the EQUIPMENT and
for that purpose has access to the location of the EQUIPMENT.
14. USE AND OPERATION. LESSEE shall use the EQUIPMENT in a careful manner and
shall comply with all laws relating to its possession, use and maintenance.
LESSEE represents that the EQUIPMENT shall be used in its business or commercial
concern and that no item of EQUIPMENT will be used for personal, family or
household purposes.
15. REPAIRS AND ALTERATIONS. LESSEE shall at its own expense maintain the
EQUIPMENT in good repair, appearance and functional order. LESSEE agrees to
comply with all maintenance schedules and procedures recommended by the
manufacturer of the EQUIPMENT and, if available, purchase or otherwise enter
into and adhere to dealer maintenance contracts. LESSEE shall not make any
alterations, additions or improvements to the EQUIPMENT without LESSOR's prior
written consent. All alterations, additions or improvements made to the
EQUIPMENT shall belong to LESSOR.
16. LOSS AND DAMAGE. LESSEE shall bear the entire risk of loss, theft, damage
or destruction of the EQUIPMENT from any cause whatsoever and, as between LESSOR
and LESSEE, unless otherwise agreed between the parties. LESSEE shall bear that
risk of loss during transportation and delivery, and LESSEE shall arrange and
pay for transportation and delivery. No loss, theft, damage or destruction of
the EQUIPMENT shall relieve LESSEE of the obligation to pay rent or to comply
with any other obligation under the LEASE. In the event of damage to any item
of EQUIPMENT, LESSEE shall immediately place the same in good repair at LESSEE's
expense- If LESSOR determines that any item of EQUIPMENT is lost, stolen,
destroyed or damaged beyond repair. LESSEE shall, at LESSEE's option: (a)
replace the same with like equipment in good repair, acceptable to LESSOR; or
(b) pay LESSOR a sum equal to (i) all amounts due by LESSEE to LESSOR under the
LEASE up to the date of the loss, (ii) the unpaid balance of the total rent for
the remaining term under the LEASE which is attributable to said item of
EQUIPMENT, and (iii) an amount equal to eighteen percent (18%) of the original
cost of said item of EQUIPMENT, which the parties agree shall represent the fair
market value of LESSOR's residual interest in said item of EQUIPMENT. The
amounts in (ii) and (iii) shall be discounted to present value at a discount
rate of six percent (6%) per annum.
17. INSURANCE. LESSEE shall provide and maintain primary insurance against
loss, theft, damage or destruction of the EQUIPMENT in an amount not less than
the full replacement value of the EQUIPMENT, with loss payable to LESSOR. At
LESSOR's request, LESSEE also shall provide and maintain primary comprehensive
general all risk liability insurance. Such insurance shall include, but shall
not be limited to, product liability coverage, insuring LESSOR and LESSEE, with
a severability of interest endorsement or its equivalent, against any and all
loss or liability for all damages, either to persons, property or otherwise,
which might result from or happen in connection with the condition, use or
operation of the EQUIPMENT, with such limits and with an insurer satisfactory to
LESSOR. Each policy shall expressly provide that the insurance as to LESSOR
shall not be invalidated by any act, omission or neglect of LESSEE and cannot be
canceled without ten (10) days written notice to LESSOR. As to each policy,
LESSEE shall furnish to LESSOR a certificate of insurance from the insurer
evidencing the insurance coverage required by this Section. If LESSEE fails to
procure or maintain such insurance. LESSOR shall have the right, but shall not
be obligated, to obtain such insurance as to LESSOR's and/or LESSEE's interests.
In that event, LESSEE shall repay to LESSOR the cost thereof with the next
payment of rent, together with late charges as set forth in Section 23. LESSEE
irrevocably appoints LESSOR as LESSEE's attorney-in-fact to make claim for,
receive payment of, and execute and endorse all documents, checks or drafts
received in payment for loss or damage under such insurance policy(ies). All
obligations of this
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Section shall extend throughout the term of the LEASE and until the EQUIPMENT is
returned to LESSOR.
18. LIENS AND TAXES. LESSEE shall keep the EQUIPMENT free and clear of all
levies, liens and encumbrances. LESSEE shall pay LESSOR, on or before the due
date, all charges and taxes, local, state or federal, which may now or hereafter
be imposed upon the ownership, leasing, rental, sale, purchase, possession or
use of the EQUIPMENT, excluding, however, all taxes on LESSOR's income. If
LESSEE fails to pay said charges or taxes to LESSOR when due. LESSOR shall have
the right, but shall not be obligated, to pay said charges or taxes, and add the
same to the next payment of rent, together with late charges as set out in
Section 23. LESSEE agrees to pay a reasonable fee to LESSOR for the processing
of property tax payments.
19. INDEMNITY. LESSEE shall indemnify LESSOR against, and hold LESSOR harmless
from, any and all claims, actions, proceedings, expenses, damages and
liabilities, including attorney fees, arising in connection with the EQUIPMENT,
including, without limitation, its manufacture, selection, purchase, delivery,
possession, use, operation or return and the recovery of claims under insurance
policies thereon. This indemnity provision shall survive termination,
cancellation or breach of the LEASE.
20. MISCELLANEOUS REPRESENTA-TIONS OF LESSEE. LESSEE and any guarantor of the
LEASE shall provide LESSOR with such corporate resolutions, financial statements
not less than quarterly, and all other documents regarding the financial or
credit condition of LESSEE or any guarantor which LESSOR may request from time
to time. LESSEE represents and warrants that all credit and financial
information submitted to LESSOR in connection with the LEASE is true and correct
in all respects. LESSEE agrees that LESSOR and/or its assigns may at anytime
investigate the credit-worthiness of LESSEE using all available means.
21. UNIFORM PERSONAL PROPERTY LEASING ACT. To the extent permitted by
applicable law, and to the extent the LEASE is governed by the law of a
jurisdiction which has adopted a version of the Uniform Personal Property
Leasing Act (also known as "Uniform Commercial Code - Leases"), the parties
hereto agree that: (1) the provisions thereof conferring remedies upon a LESSEE
or imposing obligations upon a LESSOR shall not apply to the LEASE, its
interpretation, or its enforcement; and (2) the LEASE is a Finance Lease as
defined by Uniform Commercial Code - Section 2A-103(g). LESSEE acknowledges
that LESSEE has reviewed and approved any written Supply Contract(s) covering
the EQUIPMENT purchased from the Supplier(s) for lease to LESSEE. LESSEE
further acknowledges that LESSOR has informed or advised LESSEE, in writing,
either previously or in the LEASE, of the following: (a) the identity of the
Supplier(s); (b) that the LESSEE may have rights under the Supply Contract(s);
and (c) that the LESSEE may contact the Supplier(s) for a description of any
such rights LESSEE may have under the Supply Contract(s).
22. FINANCING STATEMENTS. At the request of LESSOR, LESSEE will join LESSOR in
executing financing statements pursuant to the Uniform Commercial Code. Lessee
hereby authorizes Lessor or its agents or assigns to execute financing
statements on LESSEE's behalf, and to file such financing statements in all
jurisdictions where such execution and filing is permitted. It is agreed that a
carbon or photocopy of any financing statement may be filed in place of the
original and that a copy hereof may be filed as a financing statement.
23. LATE CHARGES AND INTEREST. If LESSEE fails to pay LESSOR any amount when
due or, in the case of an amount due to one other than LESSOR, if LESSOR pays an
amount on LESSEE's behalf, then LESSEE shall pay LESSOR a late charge of $29,
plus five percent (5%) of such amount of $5, whichever is greater, for each
calendar month or part thereof for which rent or other sum shall be delinquent
or shall have been paid by LESSOR on LESSEE's behalf. If LESSEE fails to pay or
fails to perform other LEASE obligations, LESSEE agrees to pay LESSOR $19 for
each contact necessitated because of such failure. LESSEE also agrees to pay
LESSOR the sum of $29 for each check of LESSEE's returned uncollectable by
LESSEE's bank. The amount of any charges assessed hereunder shall be added to
and become part of the next rental payment or shall be separately invoiced, at
LESSOR's option. Interest shall accrue on any unpaid or unreimbursed amounts at
the maximum rate allowable by law or eighteen percent (18%), whichever is less,
from the due date until paid by LESSEE.
24. TIME OF THE ESSENCE. Time is of the essence of the LEASE. This provision
shall not be
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waived by the acceptance on occasion of late or defective performance.
25. DEFAULT. LESSEE shall be in default if (a) LESSEE shall fail to pay rent
or any other amount provided for under the LEASE within five (5) days after the
same becomes due and payable; or (b) LESSEE fails to observe, keep or perform
any other provision of the LEASE or of any other agreement with LESSOR, and such
failure shall continue for a period of ten (10) days; or (c) LESSEE shall
abandon the EQUIPMENT; or (d) except as inconsistent with Federal Bankruptcy
Law, any proceeding in bankruptcy, receivership or insolvency shall be commenced
against LESSEE or its property or any guarantor or such guarantor's property,
LESSEE or any guarantor files voluntarily for bankruptcy or reorganization, or
LESSEE or any guarantor makes an assignment for the benefit of its creditors; or
(e) LESSEE or any guarantor makes any misrepresentation or false statement as to
its credit or financial standing in connection with the execution or the further
performance of the LEASE; or (f) any attachment or execution be levied on any of
LESSEE's property; or (g) LESSEE permits any other entity or person to use the
EQUIPMENT without prior written consent of LESSOR; or (h) in the business and
affairs of LESSEE or any guarantor there occurs a material change which shall
impair the security of the EQUIPMENT or increase LESSOR's credit risk involved
in the LEASE.
26. REMEDIES. In the event of LESSEE default, LESSOR shall have the right and
option, but shall not be obligated, to exercise any one or more of the following
remedies, which remedies or any of them may be exercised by LESSOR without
notice to LESSEE and without any election of remedies by LESSOR and, if the
obligations of LESSEE are guaranteed by a guarantor or guarantors. LESSOR shall
not be obligated to proceed against any such guarantor or guarantors before
resorting to its remedies against LESSEE under the LEASE: (a) to the extent
permitted under applicable law, LESSOR and/or its agents may, without notice or
legal process, enter onto any premises of or under control of LESSEE or any
agent of LESSEE where the EQUIPMENT may be or is believed to be located and
repossess the EQUIPMENT, disconnecting and separating all thereof from any other
property, using all means necessary or permitted by law. LESSEE hereby
expressly waiving any right of action of any kind whatsoever against LESSOR
arising out of such access to or removal, repossession or retention of the
EQUIPMENT; (b) LESSOR may declare all sums due and to become due under the LEASE
immediately due and payable and institute litigation to collect the same; (c)
LESSOR may institute litigation to collect all rents and other amounts due as of
the date of such default together with any sums that may accrue up to the date
of trial; (d) LESSOR may institute litigation to specifically enforce the terms
of the LEASE; (e) LESSOR may terminate the LEASE; (f) LESSOR may require LESSEE
to return the EQUIPMENT pursuant to Section 11; and/or (g) LESSOR may pursue any
other remedy now, or hereafter, existing in law or equity. However, damages for
any future rentals and/or LESSOR's residual value in the EQUIPMENT shall be
discounted to present value at a discount rate equal to six percent (6%) per
annum. In the event of any default by LESSEE under the LEASE, LESSOR may at its
sole discretion, although it shall not be obligated to do so, sell the EQUIPMENT
at a private or public, cash or credit sale, or may re-let the equipment for a
term and a rental which may be equal to, greater than, or less than provided in
the LEASE. Any proceeds of sale or any rental payments received under the new
lease - less LESSOR's expenses of taking possession, reasonable attorney fees
and/or collection fees, storage and/or reconditioning costs, the costs of sale
or re-letting, and less LESSOR's fair market residual value in the EQUIPMENT -
shall be applied to LESSEE's obligations under the LEASE, and LESSEE shall
remain liable for the balance. LESSEE's liability shall not be reduced by
reason of any failure of LESSOR to sell or re-let.
27. EXPENSES OF ENFORCEMENT, ATTORNEY FEES. In the event of any default,
LESSEE shall pay LESSOR a sum equal to all expenses, including attorney fees, if
any, incurred by LESSOR in connection with the enforcement of any of LESSOR's
remedies and all expenses of repossessing, storing, repairing, and selling or
re-letting the EQUIPMENT together with interest on such amount at the maximum
rate allowable by law or eighteen percent (18%), whichever is less, from the
date such amount is paid by LESSOR. In the event litigation is instituted to
enforce any of the terms of the LEASE, the prevailing party shall be entitled to
recover from the other party such sum as the court may judge reasonable as
attorney fees at trial and upon appeal, in addition to all other sums provided
by law.
28. SUCCESSOR INTERESTS. Subject to any prohibition against assignment
contained herein, the LEASE shall be binding upon and inure to the
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benefit of the heirs, successors and assigns of the parties. As used in the
LEASE, the term "LESSOR" shall include any assignee or secured party of LESSOR
where appropriate.
29. MULTIPLE LESSEES. If more than one LESSEE is named herein, the reference
to LESSEE refers to each and the liability of each shall be joint and several.
30. NOTICES. Any written notice or demand under the LEASE may be given to a
party by mail at its address set forth on the Lease Schedule or at such address
as the party may provide in writing from time to time. Notice and demand so
made shall be effective when deposited in the United States mail duly addressed
with postage prepaid.
31. WAIVER. Failure of LESSOR at any time to require performance of any
provision of the LEASE shall not limit any right of LESSOR to enforce that
provision, nor shall any waiver by LESSOR of any breach or any provision be a
waiver of any succeeding breach of that provision or a waiver of that provision
itself or any other provision.
32. NUMBER AND CAPTIONS. As used herein, the singular shall include the
plural, and the plural the singular. All captions used herein arc intended
solely for convenience of reference and shall in no way limit or explain any of
the provisions of the LEASE.
33. DUPLICATE ENFORCEABLE AS ORIGINAL. LESSEE hereby consents to the use of
the original Lease Schedule, along with a photocopy of the fully executed Master
Lease Agreement, for all purposes including, but not limited to, evidence in
litigation or any other judicial proceeding.
34. SEVERABILITY. If any provision of the LEASE is held invalid, such
invalidity shall not affect other provisions which can be given effect without
the invalid provision.
35. ENTIRE AGREEMENT. This Master Lease Agreement and the Lease Schedule,
represent the entire, final and complete agreement of the parties pertaining to
the lease of the EQUIPMENT and supersede or replace all written and oral
agreements heretofore made or existing by and between the parties of their
representatives insofar as the lease of the EQUIPMENT is concerned, and no
modification or addition to the LEASE shall be binding unless agreed by a
corporate office, against whom enforcement is sought.
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- Please Request Any Changes Desired -
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS ALL OF THE TERMS AND
CONDITIONS CONTAINED IN THIS MASTER LEASE AGREEMENT AND THAT THESE TERMS AND
CONDITIONS SHALL GOVERN EACH LEASE ENTERED INTO BY THE PARTIES.
LESSOR Date 6/5/98 LESSEE Date 5/28/98
By: /s/ Leonard Ludwig, CEO
-----------------------
Leonard Ludwig
THIS MASTER LEASE AGREEMENT WILL NOT
BIND LESSOR OR BECOME EFFECTIVE UNTIL By: /s/ James A. C. McDermott, CFO
AND UNLESS LESSOR ACCEPTS IT BY SIGNING ------------------------------
ABOVE. James A. C. McDermott
By: /s/ Ari Engelberg, Secretary
-----------------------------
Ari Engelberg
6
<PAGE>
EXHIBIT 10.14
Silicon Valley Bank
QUICK START LOAN AND SECURITY AGREEMENT
Borrower: Stampmaster, Inc. Address: 4500 East Thousand Oaks Blvd.,
Suite 100
Date: May 1, 1998 Westlake Village, CA 91362
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and the borrower named above (jointly and severally, the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address").
1. Loans. Silicon will make loans to Borrower (the "Loans") in amounts
determined by Silicon in its reasonable business judgment up to the amount (the
"Credit Limit") shown on the Schedule to this Agreement (the "Schedule"),
provided no Event of Default and no event which, with notice or passage of time
or both, would constitute an Event of Default has occurred. All Loans and other
monetary Obligations will bear interest at the rate shown on the Schedule.
Interest will be payable monthly, on the date shown on the monthly billing from
Silicon. silicon may, in its discretion, charge interest to Borrower's deposit
accounts maintained with Silicon.
2. Security Interest. As security for all present and future indebtedness,
guarantees, liabilities, and other obligations, of Borrower to Silicon
(collectively, the "Obligations), Borrower hereby grants Silicon a continuing
security interest in all of Borrower's interest in the following types of
property, whether now owned or hereafter acquired, and wherever located
(collectively, the "Collateral"): All "accounts," "general intangibles,"
"contract rights," "chattel paper," "documents," "letters of credit,"
"instruments," "deposit accounts," "inventory," farm products," "investment
property," "fixtures" and equipment," as such terms are defined in Division 9 of
the California Uniform Commercial Code in effect on the date hereof, and all
products, proceeds and insurance proceeds of the foregoing.
3. Representations And Agreements Of Borrower. Borrower represents to Silicon
as follows, and Borrower agrees that the following representations will continue
to be true, and that Borrower will comply with all of the following agreements
throughout the term of this Agreement:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and
will continue to be, duly authorized validly existing and in good standing under
the laws of the jurisdiction of its incorporation. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby have been duly and validly authorized, and do not violate any law or any
provision of, and are not grounds for acceleration under, any agreement or
instrument which is binding upon Borrower.
3.2 Name; Places of Business. The name of Borrower set forth in this
Agreement is its correct name. Borrower shall give Silicon 15 days' prior
written notice before changing its name. The address set forth in the heading to
this Agreement is Borrower's chief executive office. In addition, Borrower has
places of business and Collateral is located only at the locations set forth on
the Schedule. Borrower will give Silicon at least 15 days prior written notice
before changing its chief executive office or locating the Collateral at any
other location.
3.3 Collateral. Silicon has and will at all times continue to have a first-
priority perfected security interest in all of the Collateral, other than
specific equipment. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.4 Financial Condition and Statements. All financial statements now or in
the future delivered to Silicon have been, and will be, prepared in conformity
with generally accepted accounting principles. Since the last date covered by
any such statement, there has been no material adverse change in the financial
condition or business of Borrower. Borrower will provide Silicon: (i) within 30
days after the end of each month, a monthly financial statement prepared by
Borrower, and such other information as Silicon shall reasonably request; (ii)
within 120 days following the end of Borrower's fiscal year, complete annual
financial statements, certified by independent certified public accountants
acceptable to Silicon and accompanied by the unqualified report thereon by said
independent
-1-
<PAGE>
Silicon Valley Bank Quick Start Loan and Security Agreement
- --------------------------------------------------------------------------------
certified public accountants; and (iii) other financial information reasonably
requested by Silicon from time to time.
3.5 Taxes; Compliance with Law. Borrower has filed and will file, when due,
all tax returns and reports required by applicable law, and Borrower has paid,
and will pay, when due, all taxes, assessments, deposits and contributions now
or in the future owed by Borrower. Borrower has complied, and will comply, in
all material respects, with all applicable laws, rules and regulations.
3.6 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance as is
customary in Borrower's industry.
3.7 Access to Collateral and Books and Records. At reasonable times, on one
business day notice, Silicon, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower's books and records.
3.8 Operating Accounts. Borrower shall maintain its primary operating
accounts with Silicon.
3.9 Additional Agreements. Borrower shall not, without Silicon's prior
written consent, do any of the following: (i) enter into any transaction outside
the ordinary course of business, except for the ordinary course of business,
except for the sale of capital stock to venture investors, strategic partners,
and equipment lessors; (ii) sell or transfer any Collateral, except for (A) sale
of finished inventory in the ordinary course of Borrower's business, and the
sale of obsolete or unneeded equipment in the ordinary course of business and
(B) the sale and leaseback of Borrower's equipment if any such transaction or
series of transactions are consummated within 90 days of the date hereof and the
aggregate value of the equipment that is the subject of such transactions does
not exceed $125,000; (iii) pay or declare any dividends on Borrower's stock
(except for dividends payable solely in stock of Borrower); or (iv) redeem,
retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's
stock other than the repurchase of up to the greater of (A) repurchases of
Borrower's stock from Borrower's employees or directors pursuant to written
agreement with the Borrower in an aggregate amount not to exceed $20,000 in any
fiscal year or (B) five percent (5%) of Borrower's then issued stock in any
fiscal year from Borrower's employees or directors pursuant to written agreement
with the Borrower.
4. Term. This Agreement shall continue in effect until the maturity date set
forth on the Schedule (the "Maturity Date"). This Agreement may be terminated,
without penalty, prior to the Maturity Date as follows: (i) by Borrower,
effective three business days after written notice of termination is given to
Silicon; or (ii) by Silicon at any time after the occurrence of an Event of
Default, without notice, effective immediately. On the Maturity Date or on any
earlier effective date of termination, Borrower shall pay all Obligations in
full, whether or not such Obligations are otherwise then due and payable. No
termination shall in any way affect or impair any security interest or other
right or remedy of Silicon, nor shall any such termination relieve Borrower of
any Obligation to Silicon, until all of the Obligations have been paid and
performed in full.
Upon payment and performance in full of all the Obligations and termination of
this Agreement, Silicon shall promptly deliver to Borrower termination
statements, requests for reconveyances and such other documents as may be
required to fully terminate Silicon's security interests.
5. Events of Default and Remedies. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement: (a) Any
representation, statement, report or certificate given to Silicon by Borrower or
any of its officers, employees or agents, now or in the future, is untrue or
misleading in a material respect; or (b) Borrower fails to pay when due any Loan
or any interest thereon or any other monetary Obligation; or (c) the total
Obligations outstanding at any time exceed the Credit Limit, or (d) Borrower
fails to perform any other non-monetary Obligation, which failure is not cured
within 5 business days after the date due; or (e) Dissolution, termination of
existence, insolvency or business failure of Borrower; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by or against Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (f) a material
change in the ownership of Borrower, without the prior written consent of
Silicon; or (g) a material adverse change in the business, operations, or
financial or other condition of Borrower. If an Event of Default occurs,
Silicon, shall have the right to accelerate and declare all of the Obligations
to be immediately due and payable, increase the interest rate by an additional
four percent
-2-
<PAGE>
Silicon Valley Bank Quick Start Loan and Security Agreement
- --------------------------------------------------------------------------------
per annum. and exercise all rights and remedies accorded it by applicable law.
6. General If any provision of this Agreement is held to be unenforceable, the
remainder of this Agreement shall still continue in full force and effect. This
Agreement and any other written agreements, documents and instruments executed
in connection herewith are the complete agreement between Borrower and Silicon
and supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which are merged and integrated in this
Agreement. There are no oral understandings, representations or agreements
between the parties which are not in this Agreement or in other written
agreements signed by the parties in connection this Agreement. The failure of
Silicon at any time to require Borrower to comply strictly with any of the
provisions of this Agreement shall not waive Silicon's right later to demand and
receive strict compliance. Any waiver of a default shall not waive any other
default. None of the provisions of this Agreement may be waived except by a
specific written waiver signed by an officer of Silicon and delivered to
Borrower. The provisions of this Agreement may not be amended, except in a
writing signed by Borrower and Silicon. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all other reasonable costs incurred by Silicon,
in connection with this Agreement (whether or not a lawsuit is filed). If
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party shall be entitled to recover its
reasonable costs and attorneys' fees from the non-prevailing party. Borrower may
not assign any rights under this Agreement without Silicon's prior written
consent. This Agreement shall be governed by the laws of the State of
California.
7. Mutual Waiver of Jury Trial BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF
SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR AFFILIATES.
Borrower:
STAMPMASTER, INC.
By: /s/ James AC McDermott, CFO
------------------------------
President or Vice President
By: /s/ Ari Engelberg, Secretary
------------------------------
Secretary or Ass't Secretary
Silicon:
SILICON VALLEY BANK
By: /s/ James C. Crumpton
------------------------------
Title: SVP
---------------------------
-3-
<PAGE>
Silicon Valley Bank
Schedule to
QuickStart Loan and Security Agreement (Master)
BORROWER: Stampmaster, Inc.
DATE: May 1, 1998
This Schedule is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
<TABLE>
<S> <C>
Credit Limit $300,000 (includes, without limitation, Equipmen
(Section 1): Advances and the Merchant Services and Business Visa
Reserve, if any), subject to increase as set forth below.
Interest Rate (Section 1): A rate equal to the "Prime Rate" in effect from time to
time, plus I% per annum. Interest shall be calculated on
the basis of a 360-day year for the actual number of
days elapsed. "Prime Rate" means the rate announced from
time to time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by Silicon are
based, and it is not necessarily the best rate available
at Silicon. The interest rate applicable to the
Obligations shall change on each date there is a change
in the Prime Rate.
Maturity Date (Section 4): October 8, 1999
Other Locations and Addresses
(Section 3.2): ---------------------------------------------------------
Other Agreements: Borrower also agrees as follows:
1. Loan Fee. Borrower shall concurrently pay Silicon a
non-refundable Loan Fee in the amount of $1,500.
2. Banking Relationship. Borrower shall at all times
maintain its primary banking relationship with Silicon.
3. Warrants. Concurrently herewith, Borrower shall
execute and deliver to Silicon a seven year warrant (the
"Warrant") to purchase stock for 4,000 Series A
Preferred Shares of the Borrower at an initial exercise
price of $.40 per share. Further, each increase in the
Credit Limit by $1,000 above the $300,000 level
irrevocably entitles
</TABLE>
-1-
<PAGE>
Silicon Valley Bank Quick Start Loan and Security Agreement
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Silicon to one additional Series A Preferred Share of the
Borrower as part of the Warrant; Silicon may from time
to time request that the Borrower modify the Warrant to
reflect such increase, and Borrower agrees to do so.
4. Potential Credit Limit Increases. For each $5,000
that the Borrower receives in net proceeds from equity
financing transactions consummated after the date hereof
and prior to December 31, 1998, the Credit Limit set
forth above shall be deemed to be increased by $ 1,000,
up to a maximum Credit Limit of $ 1,000,000.
</TABLE>
Borrower: Silicon:
STAMPMASTER, INC. SILICON VALLEY BANK
By /s/ James AC McDermott By /s/ James C. Crumpton, SVP
--------------------------- ---------------------------
President or Vice President Title
------------------------
-2-
<PAGE>
Silicon Valley Bank
Schedule to
QuickStart Loan and Security Agreement (Equipment Advances)
BORROWER: Stampmaster, Inc.
DATE: May 1, 1998
This Schedule is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
<TABLE>
<S> <C>
Credit Limit (Equipment) $300,000 (such amount to be funded under the aggregate
Credit Limit), subject to increase as more fully set forth
(Section 1): in the Schedule to QuickStart Loan and Security Agreement
(Master) of even date herewith. Equipment Advances will be
made only on or prior to January 9, 1999 (the "Last Advance
Date") and only for the purpose of purchasing equipment
reasonably acceptable to Silicon. Borrower must provide
invoices for the equipment to Silicon on or before the Last
Advance Date.
Interest Rate (Section 1): A rate equal to the "Prime Rate" in effect from time to
time, plus I% per annum. Interest shall be calculated on the
basis of a 360-day year for the actual number of days
elapsed. "Prime Rate" means the rate announced from time to
time by Silicon as its "prime rate;" it is a base rate upon
which other rates charged by Silicon are based, and it is
not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on
each date there is a change in the Prime Rate.
Maturity Date (Section 4): After the Last Advance Date, the unpaid principal balance of
the Loans shall be repaid in 24 equal monthly installments
of principal commencing on February 9, 1999 and continuing
on the same day of each month thereafter until the entire
unpaid principal balance of the Equipment Advances and all
accrued and unpaid interest have been paid (subject to
Silicon's right to accelerate the Loans on an Event of
Default).
</TABLE>
Borrower: Silicon:
STAMPMASTER, INC. SILICON VALLEY BANK
By /s/ James AC McDermott By /s/ James C Crumpton
--------------------------- --------------------------
President or Vice President Title SVP
-----------------------
-1-
<PAGE>
EXHIBIT 10.15
Aug 7, 1998
Mr. John La Valle
1171 Westbend Road
Westlake Village, CA 91362
Dear John:
On behalf of StampMaster, Inc. (the "Company"), I am pleased to offer you
-------
the position of the Chief Financial Officer of the Company. Speaking for
myself, as well as the other members of the Company's management team, we are
all very impressed with your credentials and we look forward to your future
success in this position.
The terms of your new position with the Company are as set forth below:
1. Position.
--------
a. You will become the Senior Vice President and Chief Financial
Officer (CFO) of the Company, working out of the Company's
headquarters office. As the CFO, you will have overall
responsibility for the financial affairs of the Company. You will
report to the Company's current President and Chief Operating
Officer, Mr. John Payne.
b. You agree to the best of your ability and experience that you will
at all times loyally and conscientiously perform all of the duties
and obligations required of and from you pursuant to the express
and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of your employment, you further agree
that you will devote all of your business time and attention to the
business of the Company, the Company will be entitled to all of the
benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional
services of any nature to any person or organization, whether or
not for compensation, without the prior written consent of the
Company's Board of Directors, and you will not directly or
indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing
in this letter agreement will prevent you from accepting speaking
or presentation engagements in exchange for honoraria or from
serving on boards of charitable organizations, or from owning no
more than one percent (1%) of the outstanding equity securities of
a corporation whose stock is listed on a national stock exchange.
<PAGE>
August 10, 1998
Page 2
2. Start Date. Subject to fulfillment of any conditions imposed by this
----------
letter agreement, you will commence this new position with the Company on
September 24, 1998 or soon thereafter on a mutually agreed date.
3. Proof of Right to Work. For purposes of federal immigration law, you
----------------------
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
4. Compensation.
------------
a. Base Salary. You will be paid a monthly salary of $13,000, which
-----------
is equivalent to $156,000 on an annualized basis. Your salary will be payable in
two equal payments per month pursuant to the Company's regular payroll policy.
b. Annual Review. Your base salary will be reviewed at the end of
-------------
each calendar year as part of the Company's normal salary review process.
5. Stock Options.
-------------
Grant. In connection with the commencement of your employment, the
-----
Company will recommend that the Board of Directors grant you an option to
purchase 205,000 shares of the Company's Common Stock ("Shares"), which is
------
equivalent to 2% of the currently fully diluted outstanding total number of
shares, with an exercise price equal to the fair market value on the date of the
grant. These option shares will vest at the rate of the Vesting Schedule.
Vesting will, of course, depend on your continued employment with the Company.
The option will be an incentive stock option to the maximum extent allowed by
the tax code and will be subject to the terms of the Company's 1998 Stock Plan
and the Stock Option Agreement between you and the Company.
6. Benefits.
--------
a. Insurance Benefits. The Company will provide you with standard
------------------
medical and dental insurance benefits available to all employees of the Company.
b. Vacation. You will be entitled to two weeks paid vacation per
--------
year.
7. Confidential Information and Invention Assignment Agreement. Your
-----------------------------------------------------------
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
---------------
Agreement"), prior to or on your Start Date.
- ---------
<PAGE>
August 10, 1998
Page 3
8. Confidentiality of Terms. You agree to follow the Company's strict
------------------------
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. At-Will Employment. Notwithstanding the Company's obligation described
------------------
in Section 8 above, your employment with the Company will be on an "at will"
basis, meaning that either you or the Company may terminate your employment at
any time for any reason or no reason, without further obligation or liability.
We are all delighted to be able to extend you this offer and look forward
to working with you. To indicate your acceptance of the Company's offer, please
sign and date this letter in the space provided below and return it to me, along
with a signed and dated copy of the Confidentiality Agreement. This letter,
together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
Very truly yours,
StampMaster, Inc.,
/s/ Mohan Ananda
By: Mohan Ananda
Title: Chief Executive Officer
ACCEPTED AND AGREED:
John La Valle,
/s/ John La Valle
- ----------------------------
Signature
16 August 1998
- ----------------------------
Date
Enclosure: Confidential Information and Invention Assignment Agreement
<PAGE>
John La Valle
1171 Westbend Road
Westlake Village, California 91362
Dear John:
The purpose of this correspondence is to set forth the terms of your employment
with StampMaster in the event of a Change In Control. This document is to be
appended to your offer letter dated August 7, 1998. In addition, it confirms
the understanding reached between you and Mohan Ananda concerning a Change In
Control when you accepted employment with StampMaster on August 16th.
Change of Control: In the event that the Company sells all or substantially
all of its assets or is merged with another Company or
otherwise is acquired such that the shareholders of the
Company immediately prior to such transaction own less
than fifty percent (50%) of the Company following such
transaction (a "Change of Control"), and your employment
is constructively terminated or terminated by the Company
or a successor entity involuntarily within 12 months
following such transaction for any reason other than
cause, cause in this instance to include:
(i) Your commitment of fraud or an illegal act related
to the Company's business;
(ii) Your violation of an agreement between you and the
Company, such as the Company's proprietary
information agreement; or
(iii) Your failure to perform your job functions to the
performance levels set as mutually agreed in
conjunction with new management within 90 days
subsequent to closing of a Change of Control as
described above;
all of your unvested stock in the Company (or if a
successor entity has granted you replacement options,
such replacement options) shall be immediately vested
upon such involuntary termination or constructive
termination of your employment.
Constructive termination in this instance shall include:
(i) Relocation more than 40 miles from your home
without your consent;
(ii) Disability (as defined below) or death;
<PAGE>
(iii) Assignment to a new job not commensurate with your
seniority and compensation, it being understood and
agreed that your assignment to the position of
Senior VP, Chief Financial Officer of a business
unit, division or subsidiary of the Company or a
company into which the Company is merged in a
Change of Control or otherwise acquiring assets or
voting shares of the Company in connection with a
Change of Control, or a parent of such a company,
shall constitute an assignment to a new job that is
commensurate with your seniority; or
(iv) Any reduction in compensation, including any bonus
compensation formula.
In the event your unvested option is not exchanged for an
option of the successor or related entity in connection
with such Change of Control transaction, you will receive
a cash payment equal to the financial benefit you would
have received if all of your option had vested
immediately prior to such transaction.
For purposes of this Agreement, "Disability" shall mean
that you have been unable to perform your Company duties
as the result of your incapacity due to physical or
mental illness, and such inability, at least 26 weeks
after its commencement, is determined to be total and
permanent by a physician selected by you or your legal
representative and acceptable to the Company (such
Agreement as to acceptability not be unreasonably
withheld).
In addition, your remaining unvested option will in any
event vest within one year after closing of the Change of
Control.
John, I hope the foregoing resolves any questions you have concerning the
disposition of your option grant(s) in the event of a Change In Control.
Very truly yours,
STAMPMASTER, INC.
/s/ Thomas H. Bruggere
Thomas H. Bruggere
Chairman
2
<PAGE>
ACKNOWLEDGED:
/s/ John W. La Valle Date: 24 November 1991
- ----------------------------- -------------------------
3
<PAGE>
EXHIBIT 10.16
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (this "Agreement") is entered into this ____
---------
day of February, 1999, by and between Stamps.com Inc., a Delaware corporation
(the "Company"), and Loren Smith, an individual ("Consultant").
------- ----------
RECITALS
--------
A. The Company is in the business of developing, designing,
programming and implementing an online postage system.
B. Consultant has expertise in U.S. Postal Service marketing
strategy.
C. The Company desires to engage Consultant, as an independent
contractor, to perform the services hereinafter set forth and Consultant desires
to perform such services for the Company and its clients, in accordance with the
terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. Consulting Services. Consultant agrees to render consulting
-------------------
services ("Consulting Services") to the Company, for the term of this Agreement,
-------------------
devoting his best efforts on a part time basis to the Company's business.
Consultant shall report to Company's Chief Executive Officer ("CEO") and Senior
Vice President of Marketing ("SVP Marketing"), performing the following services
and such other services as may be requested from time to time by the CEO or SVP
Marketing:
a. development of a strategic marketing plan related to the
Company's SOHO and corporate customer acquisition efforts in conjunction with
Company's marketing and strategic planning team;
b. providing temporary executive consulting services to Company
until Company has hired the SVP Marketing, performing work which would otherwise
be undertaken by the SVP Marketing;
c. providing marketing consulting related to U.S.Postal Service
offerings;
d. assisting in strategic planning regarding Company's
relationship with the U.S. Postal Service;
e. participating in Company's government affairs program with
respect to the U.S. Postal Service and legislative lobbying efforts;
<PAGE>
f. collaborating with Company's management team to propose and
facilitate the implementation of U.S. Postal Service-related Company
initiatives;
g. providing consumer and corporate marketing consulting
regarding Company's products and services;
h. assisting Company in development of its international
strategic plan, including development of business models for working with
international postal services;
i. developing relationships for Company at the most senior levels
of the U.S. Postal Service, to enhance Company's ability to achieve its
strategic goals and objectives; and
j. working with management and Ramsey Beirne to recruit and hire
a SVP Marketing and to recruit other senior executives.
2. Board Services. Consultant agrees to serve on Company's board of
--------------
directors ("Board Services"), when elected to that position, for the term for
which he is elected, and to perform the following services in his capacity as a
board member:
a. attendance at one board meeting in Southern California each
month;
b. service on one board committee, as appointed thereto from time
to time by the board;
c. providing such services as are rendered by Company's other
board members, including without limitation periodic availability to attend to
telephone conferences, correspondence, and e-mail.
3. Standard of Care. Consultant shall utilize the highest
----------------
professional standards of practice in performing the Consulting Services and
Board Services for the Company.
4. Part-time Services. In addition to such time as Consultant
------------------
devotes to the Board Services, he shall spend an average of 1.5 to 2 days per
week performing the Consulting Services, although Consultant recognizes and
agrees that he may be called upon to devote more time than this average to
Company's business during the initial interim period before Company hire its SVP
Marketing. Consultant shall work at least two full days each month at Company's
Southern California offices.
5. Term. This Agreement shall have a term of two years, beginning
----
March 1 and terminating on February 28, 2001, unless terminated earlier in
accordance with the provisions of Section 14 hereof.
2
<PAGE>
6. Compensation and Expenses.
-------------------------
a. Company shall pay Consultant annual compensation of
$120,000.00 ("the Compansation"), payable in equal increments once per
month over the term of this Agreement.
b. Company shall grant Consultant the following stock options
for his Board Services and Consulting Services, which will be separately
memorialized in Company's usual form of option grants:
(1) Board Services Options. Company shall grant Consultant
----------------------
options to purchase 72,000 shares of its common stock with a strike price
of fifty cents per share. No options will vest until Consultant has
completed one full year of Board Services. The options will vest ratably
each month for the thirty six months which follow the first year of
Consultant's Board Services.
(2) Consulting Services Options. Company shall grant
---------------------------
Consultant options to purchase an additional 90,000 shares of its common
stock with a strike price of fifty cents per share. Twenty thousand options
will vest each of the first three years after the option grant; those
options will vest ratably each month over that three year interval. Thirty
thousand shares will vest in the fourth year after the option grant; those
options will likewise vest ratably each month during that year. However, if
Company
(a) achieves a customer base of at least 250,000 customers
and
(b) completes an initial public offering of its stock
which yields the Company at least $20 million in revenue,
and if both those events occur before conclusion of the fourth anniversary
of Company's grant of the Consulting Services options, then vesting of the
final 30,000 options will be accelerated. If Company or Consultant elect
early termination of the Consulting Services (i.e., before the second
anniversary of this Agreement), then Consultant's options shall continue to
vest monthly for ninety days following the date on which the Consulting
Services terminate, and no all remaining options shall then lapse and shall
never vest.
c. The Company shall reimburse Consultant for reasonable costs
and expenses incurred by Consultant in providing the Consulting Services,
in accordance with the Company's expense reimbursement guidelines. Any
single expense which will exceed $7,500 must be approved in advance by the
Company's CEO, or the Company may elect at its sole discretion not to
reimburse Consultant for that expense.
7. Proprietary Information. Consultant understands that the Company
-----------------------
possesses and will possess Proprietary Information (as defined below) which is
important to its business. For purposes of this Agreement, "Proprietary
-----------
Information" is information that was or
- -----------
3
<PAGE>
will be developed, created, or discovered by or on behalf of the Company, or
which became or will become known by, or was or is conveyed to the Company,
which has commercial value in the Company's business. "Proprietary Information"
includes, but is not limited to, information about operations, services, trade
secrets, computer programs, algorithms, application programming interfaces,
design, technology, ideas, know-how, processes, formulas, compositions, data,
techniques, improvements, inventions (whether patentable or not), works of
authorship, business and product development plans, customers and other
information concerning the Company's actual or anticipated business, research or
development, or which is received in confidence by the Company or for the
Company from any other person or entity. Consultant hereby acknowledges and
agrees that all such Proprietary Information shall be the sole and exclusive
property of the Company. At all times, both during the term of this Agreement
and after its termination, Consultant will keep in confidence and trust and will
not use any Proprietary Information without the prior written consent of an
officer of the Company except as may be necessary and appropriate in the
ordinary course of performing the Consulting Services under this Agreement.
Consultant acknowledges that any disclosure or unauthorized use of Proprietary
Information will constitute a material breach of this Agreement and cause
substantial harm to the Company for which damages would not be a fully adequate
remedy, and, therefore, in the event of any such breach, in addition to other
available remedies, the Company shall have the right to obtain injunctive
relief.
8. Company Materials. Consultant hereby acknowledges and agrees that
-----------------
all Company Materials (as defined below) shall be the sole and exclusive
property of the Company. Consultant will not remove any Company Materials from
the business premises of the Company or deliver any Company Materials to any
person or entity outside the Company, except as required in connection with
performance of the Consulting Services under this Agreement. Consultant further
agrees that, immediately upon the Company's request and in any event upon
completion of the Consulting Services, Consultant shall deliver to the Company
all Company Materials, any document or media that contains Results (as defined
below), apparatus, equipment and other physical property or any reproduction of
such property, excepting only Consultant's copy of this Agreement. For purposes
of this Agreement, "Company Materials" are documents or other media or tangible
-----------------
items that contain or embody Proprietary Information or any other information
concerning the business, operations or plans of the Company, whether such
documents have been prepared by Consultant or by others. "Company Materials"
include, but are not limited to, blueprints, drawings, photographs, charts,
graphs, notebooks, customer lists, computer media or printouts, sound recordings
and other printed, typewritten or handwritten documents, as well as samples,
prototypes, models, products and the like. For the purposes of this Agreement,
"Results" means any and all deliverables or results of the Consulting Services
- --------
including, without limitation, all Inventions.
9. Exclusivity. During the term of this Agreement and for so long as
-----------
Consultant continues to perform Consulting Services or Board Services, whichever
is longer, Consultant shall not engage in any commercial activities or endeavors
on behalf of any person or entity other than Company which is active in IBI
mailing markets.
4
<PAGE>
10. Nonsolicitation. Consultant hereby agrees that during the term
---------------
of this Agreement and for a one (1) year period thereafter, Consultant will not
encourage or solicit any customer, employee or consultant of the Company to
leave the Company for any reason or to begin doing business with any competitor
of the Company.
11. Independent Contractor. Consultant shall act in the capacity of
----------------------
an independent contractor with respect to the Company. Consultant shall not be,
nor represent himself or herself as being, an agent of the Company, and shall
not be, nor represent himself or herself as being authorized to bind the
Company. As an independent contractor, Consultant shall not have the status of
an employee of the Company and shall not be eligible to participate in any
employee benefit plans or group insurance plans or programs. Company shall not
provide Social Security, unemployment compensation, disability insurance,
worker's compensation or similar coverage, nor any statutory benefits, to
Consultant. Consultant shall be solely responsible for all taxes, withholdings,
and other similar statutory obligations, including, but not limited to, Workers'
Compensation Insurance.
12. Consultant's Representations. Consultant represents and warrants
----------------------------
that:
a. Consultant's performance of the Consulting Services or of any
term of this Agreement will not breach any agreement or understanding that
Consultant has with any other person or entity and that there is no other
contract or duty now in existence inconsistent with the terms of this
Agreement;
b. During the term of this Agreement, Consultant shall not be
bound by any agreement, nor assume any obligation, which would in any way
be inconsistent with the Consulting Services to be performed by Consultant
under this Agreement;
c. In performing the Consulting Services, Consultant will not
use any confidential or proprietary information of any other person or
entity or infringe the intellectual property rights (including, without
limitation, patent, copyright, trademark or trade secret rights) of any
other person or entity nor will Consultant disclose to the Company, or
bring onto the Company's premises, or induce the Company to use any
confidential information of any person or entity other than the Company or
Consultant; and
d. Consultant will abide by all applicable laws and the
Company's safety rules in the course of performing the Consulting Services.
13. Indemnification. Consultant will defend, indemnify and hold the
---------------
Company harmless against any and all losses, liabilities, damages, claims,
demands, suits, costs and expenses (including, without limitation, reasonable
attorneys' fees and court costs) arising or resulting, directly or indirectly,
from (a) any act or omission of Consultant or Consultant's breach of any term or
condition of this Agreement, (b) infringement by any Result or Consultant's
performance of the Consulting Services of any third party intellectual property
rights or (c) any failure (alleged or actual) by Consultant to satisfy any of
his tax or withholding obligations (including, without limitation, those
obligations referred to in Section 8 hereunder).
5
<PAGE>
14. Termination. Consultant's Consulting Services may be terminated
-----------
by the Company at any time, for any reason, with or without cause, or by the
Consultant, upon thirty (30) days prior written notice to the other party. In
the event of such early termination, the Company shall continue to pay
Consultant the Compensation for a period of ninety days following the
termination date, but it shall have no obligation to pay him any remaining
balance of the Compensation referred to in Paragraph 6 above.
15. Miscellaneous Provisions.
------------------------
a. Consultant agrees that any dispute in the meaning, effect or
validity of this Agreement shall be resolved in accordance with the laws of the
State of California without regard to the conflict of laws provisions thereof.
b. Consultant agrees that if one or more provisions of this
Agreement are held to be illegal or unenforceable, such illegal or unenforceable
portion(s) shall be limited or excluded from this Agreement to the minimum
extent required and the balance of the Agreement shall be interpreted as if such
portion(s) were so limited or excluded and shall be enforceable in accordance
with its terms.
c. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective heirs, successors and
assigns; provided, however, that this Agreement and the rights and obligations
hereunder are not assignable by Consultant without the Company's prior written
consent.
d. Notices under this Agreement will be sufficient only if
personally delivered, delivered by a major commercial rapid delivery courier
service with tracking capabilities and costs prepaid or mailed by prepaid
certified or registered mail, return receipt requested, to a party at its
address first set below its signature to this Agreement or as amended by notice
pursuant to this Section 12(d). If not received sooner, notice by mail shall be
deemed received five (5) days after deposit in the U.S. mails.
e. This Agreement contains the entire understanding of the
parties regarding its subject matter and supersedes all prior understandings or
agreements between the parties with regard to its subject matter. This Agreement
can only be modified by a subsequent written agreement executed by both parties
hereto.
f. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements, in addition to
any other relief to which the party may be entitled.
g. This Agreement may be signed in counterparts, each of which
shall be deemed an original.
6
<PAGE>
h. Consultant shall not export, re-export or otherwise remove
from the United States any Proprietary Information or Company Materials, or any
portion or direct product of the foregoing. This obligation shall survive any
termination or expiration of this Agreement.
i. Notwithstanding anything to the contrary in this Agreement,
Sections ________ and __ hereof shall survive any termination of this Agreement.
IN WITNESS WHEREOF, this Consulting Agreement is entered into on the
date first set forth above.
Accepted and Agreed to:
"COMPANY" "CONSULTANT"
STAMPS.COM INC.
By: /s/ John M. Payne /s/ Loren E. Smith
------------------------------- --------------------------------------
Name: John M. Payne
-----------------------------
Title: CEO/Pres
----------------------------
7
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF ARTHUR ANDERSEN]
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
April 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-09-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 3,470,207 28,523,897
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,518,325 28,694,706
<PP&E> 749,995 1,061,161
<DEPRECIATION> (79,693) (140,906)
<TOTAL-ASSETS> 4,425,819 29,872,252
<CURRENT-LIABILITIES> 2,133,525 2,604,698
<BONDS> 0 0
0 0
5,978,344 34,277,938
<COMMON> 4,601 4,601
<OTHER-SE> 190,159 190,159
<TOTAL-LIABILITY-AND-EQUITY> 4,425,819 29,872,252
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 4,013,090 3,278,198
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27,624 33,001
<INCOME-PRETAX> (4,028,880) (3,276,180)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,028,880) (3,276,180)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,028,880) (3,276,180)
<EPS-PRIMARY> (1.22) (0.71)
<EPS-DILUTED> (1.22) (0.71)
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