<PAGE>
As filed with the Securities and Exchange Commission on May 13, 1999
Registration No. 333-77025
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STAMPS.COM INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
Delaware 5961 77-0454966
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
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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)
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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)
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Copies to:
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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.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Amount of
Title of Each Class of Proposed Maximum Aggregate Registration
Securities to be Registered Offering Price(1) Fee(2)
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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).
(2) Previously paid by the registrant in connection with the filing of the
Registration Statement on April 26, 1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 13, 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 6.
---------------
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<CAPTION>
Per Share Total
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Stamps.com...................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 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.
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TABLE OF CONTENTS
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Page
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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
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<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
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<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
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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.
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<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 31, Pro Forma
1998 Historical (Note 1)
------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 3,470,207 $28,523,897 $28,523,897
Prepaid expenses..................... 48,118 170,809 170,809
----------- ----------- -----------
Total current assets................... 3,518,325 28,694,706 28,694,706
Property and equipment, net............ 670,301 920,255 920,255
Patents, trademarks and other
intangibles, net..................... 78,122 75,854 75,854
Other.................................. 159,071 181,437 181,437
----------- ----------- -----------
Total assets........................... $ 4,425,819 $29,872,252 $29,872,252
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
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 Period from Period from
January 9, January 9, Three January 9,
1998 (date of 1998 (date of Months 1998 (date of
inception) to inception) to Ended inception) to
December 31, March 31, March 31, March 31,
------------- ------------- ----------- -------------
1998 1998 1999 1999
------------- ------------- ----------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net loss.............. $(4,028,880) $ (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 Period from Period from
January 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 $ .
The foregoing transactions were effected under Section 4(2) of the
Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following Exhibits are attached hereto and incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Proposed Amended and Restated Certificate of Incorporation of the
Registrant.
3.3** Bylaws of the Registrant.
3.4* Proposed Bylaws of the Registrant.
4.1** See Exhibit 3.1, 3.2 and 3.3 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights of holders
of the Registrant's common stock. See Exhibit 10.3 for the rights of
certain holders of registration rights.
4.2* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.2** Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.
10.3** Patent Assignment from Mohan P. Ananda to the Registrant dated January
20, 1998.
10.4** Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.
10.5** Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.
10.6** Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.
10.7 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.
10.8** 1999 Stock Incentive Plan.
10.9** 1999 Employee Stock Purchase Plan
10.10** Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.11** Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8, 1999.
</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.
** Previously filed by the registrant with the Commission.
+ Confidential treatment is requested for certain confidential portions of
this exhibit pursuant to Rule 406 under the Securities Act. In accordance
with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.
(b) Financial Statement Schedules
All such Schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
Item 17. Undertakings.
The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
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 Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Monica, State of California, on the 13th day of May 1999.
STAMPS.COM INC.
By: /s/ John M. Payne
-----------------------------------
John M. Payne
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John M. Payne Chief Executive Officer, May 13, 1999
____________________________________ President and Director
John M. Payne (Principal Executive
Officer)
/s/ John W. LaValle Chief Financial Officer, May 13, 1999
____________________________________ Senior Vice President of
John W. LaValle Operations and Secretary
(Principal Financial and
Accounting Officer)
Thomas H. Bruggere* Chairman of the Board of May 13, 1999
____________________________________ Directors
Thomas H. Bruggere
Mohan P. Ananda* Director May 13, 1999
____________________________________
Mohan P. Ananda
David C. Bohnett* Director May 13, 1999
____________________________________
David C. Bohnett
Jeffrey J. Brown* Director May 13, 1999
____________________________________
Jeffrey J. Brown
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Thomas N. Clancy* Director May 13, 1999
____________________________________
Thomas N. Clancy
G. Bradford Jones* Director May 13, 1999
____________________________________
G. Bradford Jones
Marvin Runyon* Director May 13, 1999
____________________________________
Marvin Runyon
Loren E. Smith* Director May 13, 1999
____________________________________
Loren E. Smith
</TABLE>
* Power of Attorney
By:
/s/ John W. LaValle
----------------------------
John W. LaValle
Attorney-in-fact
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 & Harrison LLP.
10.1** Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.2** Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.
10.3** Patent Assignment from Mohan P. Ananda to the Registrant dated January
20, 1998.
10.4** Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.
10.5** Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.
10.6** Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.
10.7 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.
10.8** 1999 Stock Incentive Plan.
10.9** 1999 Employee Stock Purchase Plan
10.10** Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.11** Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8, 1999.
10.12+ Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.
10.13** Master Lease Agreement between the Registrant and FirstCorp dated June
5, 1998.
10.14** Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.15** Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.
10.16** Consulting Agreement dated February 1, 1999 between the Registrant and
Loren Smith.
23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
24.1** Power of Attorney (Included on signature pages hereto).
27.1** Financial Data Schedule.
</TABLE>
- -------
* To be filed by amendment.
** Previously filed by the registrant with the Commission.
+ Confidential treatment is requested for certain confidential portions of
this exhibit pursuant to Rule 406 under the Securities Act. In accordance
with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.
<PAGE>
EXHIBIT 10.7
STAMPS.COM INC.
1998 STOCK PLAN
(AS AMENDED AND RESTATED ON FEBRUARY 10, 1999 AND APRIL 22, 1999)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) and (b) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Stamps.com Inc., a Delaware corporation.
-------
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or their respective successors. For purposes of this
Plan, a change in status from an Employee to a Consultant or from a Consultant
to an Employee will not constitute an interruption of Continuous Status as an
Employee or Consultant.
<PAGE>
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment by the Company of a
director's fee to a director shall not be sufficient to constitute "employment"
of such director by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but
not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
for the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written Option Agreement.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
Option Agreement.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Option Agreement" means a written agreement between an Optionee
----------------
and the Company reflecting the terms of an Option granted under the Plan and
includes any documents attached to such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.
(p) "Optioned Stock" means the Common Stock subject to an Option or
--------------
a Stock Purchase Right.
2
<PAGE>
(q) "Optionee" means an Employee or Consultant who receives an
--------
Option or a Stock Purchase Right.
(r) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(s) "Plan" means this 1998 Stock Plan, as amended and restated on
----
February 10, 1999.
(t) "Reporting Person" means an officer, director, or greater than
----------------
10% stockholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(u) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of a Stock Purchase Right under Section 10 below.
(v) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between a holder of a Stock Purchase Right and the Company reflecting the terms
of a Stock Purchase Right granted under the Plan and includes any documents
attached to such agreement.
(w) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
----------
Act, as the same may be amended from time to time, or any successor provision.
(x) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(y) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(z) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 10 below.
(aa) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is limited to 4,235,000 shares of Common Stock. Such share
reserve consists of (i) the 3,235,000 Shares initially reserved for issuance,
plus (ii) an additional 1,000,000 Shares authorized for issuance by the Board on
February 10, 1999, subject to stockholder approval. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares that were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan.
In addition, any Shares of Common Stock which are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with
3
<PAGE>
respect to such exercise shall be treated as not issued and shall continue to be
available under the Plan. Shares repurchased by the Company pursuant to any
repurchase right which the Company may have shall not be available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which
----------------------
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a Committee appointed by the Board.
(b) Plan Procedure After the Date, if any, Upon Which the Company
-------------------------------------------------------------
Becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-
------------------------------
3, grants under the Plan may be made by different bodies with respect to
directors, non-director officers and Employees or Consultants who are not
Reporting Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees who are
Reporting Persons, such grants shall be made by (A) the Board if the Board may
make grants to Reporting Persons under the Plan in compliance with Rule 16b-3,
or (B) a Committee designated by the Board to make grants to Reporting Persons
under the Plan, which Committee shall be constituted in such a manner as to
permit grants under the Plan to comply with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
make grants to Reporting Persons under the Plan, all to the extent permitted by
Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or Stock Purchase Rights to
- ---------
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of Incentive Stock Option plans, if
any, of applicable corporate and securities laws, of the Code and of any
applicable Stock Exchange (the "Applicable Laws"). Once appointed, such
---------------
Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
4
<PAGE>
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5
<PAGE>
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees. An Employee or Consultant who has
been granted an Option or Stock Purchase Right may, if he or she is otherwise
eligible, be granted additional Options or Stock Purchase Rights.
(b) Type of Option. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) The Plan shall not confer upon the holder of any Option or Stock
Purchase Right any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
such holder's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement and provided further that, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five years from the date of grant thereof or such shorter term
as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board and set forth in the applicable agreement, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option that is:
6
<PAGE>
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than 10% of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the
grant of such Option, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note (subject to the provisions of Section 153 of the
Delaware General Corporation Law), (4) other Shares that (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (5) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (6) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price and
any applicable income or employment taxes, (7) delivery of an irrevocable
subscription agreement for the Shares that irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under the Applicable Laws. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator and reflected in the Option Agreement, which
may include vesting requirements
7
<PAGE>
and/or performance criteria with respect to the Company and/or the Optionee;
provided, however, that such Option shall become exercisable at the rate of at
least 20% per year over five years from the date the Option is granted. In the
event that any of the Shares issued upon exercise of an Option should be subject
to a right of repurchase in the Company's favor, such repurchase right shall
lapse at the rate of at least 20% per year over five years from the date the
Option is granted. Notwithstanding the above, in the case of an Option granted
to an officer, director or Consultant of the Company or any Parent or Subsidiary
of the Company, the Option may become fully exercisable, and a repurchase right,
if any, in favor of the Company shall lapse, at any time or during any period
established by the Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c) below, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant with the Company, such Optionee may, but
only within three months (or such other period of time not less than 30 days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee, or (ii) the Optionee
is an Employee who becomes a Consultant.
8
<PAGE>
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), such Optionee may, but only within twelve months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), such Optionee may, but only within six months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option (within the meaning of Section 422 of
the Code) within three months of the date of such termination, the Option will
not qualify for Incentive Stock Option treatment under the Code. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within six months from the date of termination, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within 30 days following termination of the
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six months following the date of death (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), by such Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of the Optionee's Continuous Status as an Employee or
Consultant. To the extent that the Optionee was not entitled to exercise the
Option at the date of death or termination, as the case may be, or if the
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
9
<PAGE>
10. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer, or, in the case of
a person owning stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
price shall not be less than 100% of the Fair Market Value of the Shares as of
the date of the offer), and the time within which such person must accept such
offer, which shall in no event exceed 30 days from the date upon which the
Administrator made the determination to grant the Stock Purchase Right. The
offer shall be accepted by execution of a Restricted Stock Purchase Agreement in
the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided, however, that with respect to an Optionee
who is not an officer, director or Consultant of the Company or of any Parent or
Subsidiary of the Company, it shall lapse at a minimum rate of 20% per year.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
10
<PAGE>
combination of the following methods: (a) by cash or check payment, (b) out of
the Optionee's current compensation, (c) if permitted by the Administrator, in
its discretion, by surrendering to the Company Shares that (i) in the case of
Shares previously acquired from the Company, have been owned by the Optionee for
more than six months on the date of surrender, and (ii) have a fair market value
on the date of surrender equal to or less than the Optionee's marginal tax rate
times the ordinary income recognized, or (d) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option, or the Shares
to be issued in connection with the Stock Purchase Right, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
--------
Any surrender by a Reporting Person of previously owned Shares to satisfy
tax withholding obligations arising upon exercise of this Option must comply
with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the election
is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or
11
<PAGE>
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least 15 days prior to such proposed action. To the extent it has not been
previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's stockholders, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the Option or Stock
Purchase Right or to substitute an equivalent option or right, in which case
such Option or Stock Purchase Right shall terminate upon the consummation of the
merger or sale of assets. For purposes of this Section 12(c), an Option or a
Stock Purchase Right shall be considered assumed, without limitation, if, at the
time of issuance of the stock or other consideration upon such merger or sale of
assets, each holder of an Option or a Stock Purchase Right would be entitled to
receive upon exercise of the Option or Stock Purchase Right the same number and
kind of shares of stock or the same amount of property, cash or securities as
such holder would have been entitled to receive upon the occurrence of such
transaction if the holder had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option or the
Stock Purchase Right at such time (after giving effect to any adjustments in the
number of Shares covered by the Option or Stock Purchase Right as provided for
in this Section 12).
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime of
the Optionee or the holder of Stock Purchase Rights only by the Optionee or the
holder of Stock Purchase Rights.
12
<PAGE>
14. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board; provided,
however, that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time
-------------------------------
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made that would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 or
with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of any Stock Exchange), the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
(c) On February 10, 1999, the Board amended the Plan to increase the
number of Shares reserved for issuance under the Plan by 1,000,000 Shares. No
Options shall be granted, and no Stock Purchase Rights shall be issued, on the
basis of the 1,000,000-Share increase approved by the Board on February 10,
1999, unless and until such Share increase is approved by the stockholders prior
to February 10, 2000. Should stockholder approval not be obtained by such date,
then such Share increase shall not be implemented. Subject to the foregoing
limitations, the Administrator may make option grants under the Plan at any time
before the date fixed herein for the termination of the Plan.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange.
13
<PAGE>
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written Option Agreements and Restricted Stock Purchase Agreements,
respectively, in such form(s) as the Administrator shall approve from time to
time.
19. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve months before or after
the date the Plan is adopted. Such stockholder approval shall be obtained in
the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
and Stock Purchase Rights issued under the Plan shall become void in the event
such approval is not obtained.
20. Information and Documents to Optionees and Purchasers. The Company
-----------------------------------------------------
shall provide financial statements at least annually to each Optionee and to
each individual who acquired Shares pursuant to the Plan, during the period such
Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and in the case of an individual who acquired Shares pursuant to
the Plan, during the period such individual owns such Shares. The Company shall
not be required to provide such information if the issuance of Options or Stock
Purchase Rights under the Plan is limited to key employees whose duties in
connection with the Company assure their access to equivalent information. In
addition, at the time of issuance of any securities under the Plan, the Company
shall provide to the Optionee or the purchaser a copy of the Plan and any
agreement(s) pursuant to which securities granted under the Plan are issued.
14
<PAGE>
STAMPS.COM INC.
1998 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee
_________________________
_________________________
You have been granted an option to purchase Common Stock ("Common Stock")
------------
of Stamps.com Inc. (the "Company") as follows:
-------
<TABLE>
<S> <C>
Date of Grant: GrantDate
Vesting Commencement Date: VestingCommenceDate
Exercise Price Per Share: $ExercisePrice
Total Number of Shares Granted: NoofShares
Total Exercise Price: $TotalExercisePrice
Type of Option: NoSharesISO Incentive Stock Option ("ISO")
----------- ---
NoSharesNSO Nonstatutory Stock Option ("NSO")
----------- ---
Term/Expiration Date: ExpirDate
Vesting Schedule: This Option may be exercised, in whole or in part,
in accordance with the following schedule:
25% of the Shares subject to the Option shall vest
twelve months after the Vesting Commencment
Date, and 1/48th of the Shares subject to the Option
shall vest each month thereafter.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Termination Period: This Option may be exercised for 60 days after
termination of employment or consulting
relationship except as set out in Sections 6 and 7 of
the Stock Option Agreement (but in no event later
than the Expiration Date).
</TABLE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1998 Stock Plan and the Stock Option Agreement, both
of which are attached and made a part of this document.
<TABLE>
<S> <C>
Optionee Stamps.com Inc.
By:
- -------------------------------- ----------------------------------
Signature
- -------------------------------- ----------------------------------
Print Name Print Name and Title
</TABLE>
-2-
<PAGE>
STAMPS.COM INC.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. Stamps.com Inc., a Delaware corporation (the
---------------
"Company"), hereby grants to Optionee ("Optionee") an option (the "Option") to
------- -------- ------
purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the Stamps.com Inc. 1998 Stock Plan (the "Plan")
----
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a
share.
(ii) In the event of Optionee's death, disability or other
termination of employment or consulting relationship, the exercisability of the
Option is governed by Sections 5, 6 and 7 below, subject to the limitation
contained in Section 2(a)(iv) below.
(iv) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Exercise Notice and Restricted Stock Purchase Agreement
attached hereto as Exhibit A (the "Exercise Agreement"), or of any other written
--------- ------------------
notice approved for such purpose by the Company which shall state the election
to exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of
applicable law, including the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than 6 months on the date of surrender, and
(ii) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised;
(d) if there is a public market for the Shares and they are
registered under the Exchange Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the Exercise
Price; or
(e) subject to Section 153 of the Delaware General Corporation Law, a
promissory note in the form attached to this Agreement as Exhibit B, or in any
---------
other form approved by the Company.
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
----------------
exercise this Option during the Termination Period set forth in the Notice of
Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at such Termination Date, or if Optionee does not exercise this
Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
----------------------
-2-
<PAGE>
(a) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant and in Section 9 below), exercise this Option
to the extent he or she was entitled to exercise it at such Termination Date. To
the extent that Optionee was not entitled to exercise the Option on the
Termination Date, or if Optionee does not exercise such Option to the extent so
entitled within the time specified in this Section 6(a), the Option shall
terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of a disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant and in Section 9
below), exercise the Option to the extent Optionee was entitled to exercise it
as of such Termination Date; provided, however, that if this is an Incentive
Stock Option and Optionee fails to exercise this Incentive Stock Option within
three months from the Termination Date, this Option will cease to qualify as an
Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will
be treated for federal income tax purposes as having received ordinary income at
the time of such exercise in an amount generally measured by the difference
between the Exercise Price for the Shares and the Fair Market Value of the
Shares on the date of exercise. To the extent that Optionee was not entitled to
exercise the Option at the Termination Date, or if Optionee does not exercise
such Option to the extent so entitled within the time specified in this Section
6(b), the Option shall terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within 30 days after Optionee's Termination Date,
the Option may be exercised at any time within six months following the date of
death (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant and in Section 9 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the Termination
Date.
8. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of certain of the federal and California tax consequences of
exercise of this Option and
-3-
<PAGE>
disposition of the Shares under the laws in effect as of the Date of Grant. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option,
if Shares transferred pursuant to the Option are held for at least one year
after exercise and are disposed of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. In either case,
the long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes at a maximum rate of 28% if the Shares are held more than
one year but less than 18 months after exercise and at 20% if the Shares are
held more than 18 months after exercise. If Shares purchased under an Incentive
Stock Option are disposed of within one year after exercise or within two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
-4-
<PAGE>
11. Withholding Tax Obligations. Optionee understands that, upon
---------------------------
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then Fair Market Value of the
Shares over the Exercise Price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Exchange Act. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation, or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income. Additionally, Optionee may at some point be required to
satisfy tax withholding obligations with respect to the disqualifying
disposition of an Incentive Stock Option. Optionee shall satisfy his or her tax
withholding obligation arising upon the exercise of this Option by one or some
combination of the following methods: (a) by cash payment, (b) out of Optionee's
current compensation, (c) if permitted by the Administrator, in its discretion,
by surrendering to the Company Shares which (i) in the case of Shares previously
acquired from the Company, have been owned by Optionee for more than six months
on the date of surrender, and (ii) have a Fair Market Value on the date of
surrender equal to or greater than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a Fair Market Value equal to the amount required to be withheld. For this
purpose, the Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
---
Date").
- ----
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
-------
any surrender of previously owned Shares to satisfy tax withholding obligations
arising upon exercise of this Option must comply with the applicable provisions
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
----------
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing
-5-
<PAGE>
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the Company's initial public
offering.
[Signature Page Follows]
-6-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
STAMPS.COM INC.
2900 31st Street, Suite 150
Santa Monica, California 90405
By:
--------------------------------------
Name:
------------------------------------
(print)
Title:
-----------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated:
-------------------- ------------------------------
Optionee
-7-
<PAGE>
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement (the "Option Agreement")
dated _________________, 199___ by and between Stamps.com Inc. (the
"Corporation") and ________________________ ("Optionee") evidencing the stock
option (the "Option") granted on that date to Optionee under the Corporation's
1998 Stock Plan, and such provisions shall be effective as of the Effective Date
specified below. All capitalized terms in this Addendum, to the extent not
otherwise defined herein, shall have the meanings assigned to them in the Option
Agreement.
SPECIAL CHANGE IN CONTROL PROVISIONS
1. Subject to the limitations of Paragraph 2 below, the following
provisions shall become applicable upon the occurrence of a Change in Control
prior to the Optionee's cessation of Service:
(a) If the Optionee has completed at least one year of Service
prior to the effective date of the Change in Control, then the Option, to
the extent outstanding at the time of that Change in Control but not
otherwise fully exercisable, shall automatically accelerate so that the
Option shall, immediately prior to the specified effective date of such
Change in Control, become exercisable for all of the shares at the time
subject to the Option and may be exercised for any or all of those shares
as fully-vested shares.
(b) If the Optionee has not completed at least one year of
Service prior to the effective date of the Change in Control, then the
Option, to the extent outstanding at the time of that Change in Control but
not otherwise fully exercisable, shall automatically accelerate as to only
a portion of the shares so that the Option shall, immediately prior to the
specified effective date of such Change in Control, become exercisable on
an accelerated basis for that number of shares for which the Option would
have otherwise become exercisable, in accordance with the normal vesting
schedule in effect for the option shares, during the period of Service to
be rendered between the effective date of the Change in Control and the
second anniversary of the grant date of the Option.
2. The Option shall not become exercisable in whole or in part on such an
accelerated basis if and to the extent: (i) the Option is, in connection with
the Change in Control, to be assumed by the successor corporation (or parent
thereof) or otherwise continued in effect pursuant to the express terms of the
Change in Control transaction or (ii) the Option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing at the time of the Change in Control on any shares for which the Option
is not otherwiseat that time exercisable (the fair market value of those shares
at the time of the Change
-8-
<PAGE>
of Control less the option exercise price payable for the shares) and provides
for subsequent payout in accordance with the same exercise/vesting schedule
applicable to those option shares.
3. Immediately following the Change in Control, the Option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise continued in effect
pursuant to the express terms of the Change in Control transaction.
4. To the extent the Option is assumed in connection with a Change in
Control (or otherwise continued in effect), such Option shall be appropriately
adjusted, immediately after such Change in Control, to apply to the number and
class of securities which would have been issuable to the Optionee in
consummation of such Change in Control, had the Option been exercised
immediately prior to such Change in Control. 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.
5. The Option, as assumed by the successor corporation (or its
parent company) in the Change in Control or otherwise continued in effect, shall
continue to become exercisable for the option shares in one or more installments
over the Optionee's period of Service in accordance with the vesting schedule in
effect for the Option at the time of the Change in Control. However, upon an
Involuntary Termination of Optionee's Service within eighteen (18) months
following a Change in Control in which the Option is assumed or otherwise
continued in effect, the Option, to the extent outstanding at such time but not
otherwise fully exercisable, shall automatically accelerate so that such Option
shall immediately become exercisable for all of the shares at the time subject
to the Option and may be exercised for any or all of those shares as fully-
vested shares. The Option shall remain so exercisable until the Expiration Date
or sooner termination of the option term. Any cash escrow maintained on
Optionee's behalf pursuant to Paragraph 2 shall also vest immediately upon such
an Involuntary Termination and shall be paid to Optionee as soon as practicable
thereafter.
6. For purposes of this Addendum, the following definitions
shall be in effect:
A Change in Control shall mean a change in ownership or control
of the Corporation effected through any of the following transactions:
(a) 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 merger or consolidation, or
(b) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in liquidation or dissolution of
the Corporation, or
-9-
<PAGE>
(c) the acquisition 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
Securities Exchange Act of 1934)) 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.
An Involuntary Termination shall mean the termination of Optionee's
service as an employee or consultant by reason of:
(a) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than for Misconduct, or
(b) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or any parent or subsidiary
employing Optionee) which materially reduces Optionee's duties and
responsibilities or the level of management to which he or she
reports, (B) a reduction in Optionee's level of compensation
(including base salary, fringe benefits and target bonuses under any
corporate-performance based incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Optionee'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
Optionee's consent.
Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any parent or
subsidiary), or any other intentional misconduct by Optionee 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 Optionee or any other
person in the employ or service of the Corporation (or any parent or
subsidiary).
Service shall mean the Optionee's performance of services for the
Corporation (or any parent or majority-owned subsidiary) person in the capacity
of an employee, 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, a
non-employee member of the board of directors or a consultant or other
independent advisor.
-10-
<PAGE>
7. The provisions of this Addendum shall also supersede any
provisions to the contrary in the Option Agreement.
IN WITNESS WHEREOF, Stamps.com Inc. has caused this Addendum to be
executed by its duly-authorized officer as of the Effective Date specified
below.
STAMPS.COM INC.
By: ____________________________
Title: ____________________________
EFFECTIVE DATE: ____________________, 1999
-11-
<PAGE>
EXHIBIT A
---------
STAMPS.COM INC.
1998 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Stamps.com Inc., a Delaware corporation (the "Company"), and Optionee
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the 1998 Stock
Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1998 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $ExercisePrice per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
purchase price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, (d) subject to Section 153 of the Delaware General Corporation
Law, delivery of a promissory note in the form attached as Exhibit B to the
---------
Option Agreement (or in any form acceptable to the Company), or (e) a
combination of the foregoing. If Purchaser delivers a promissory note as partial
or full payment of the purchase price, Purchaser will also deliver a Pledge and
Security Agreement in the form attached as Exhibit C to the Option Agreement (or
---------
in any form acceptable to the Company).
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its
<PAGE>
assignee(s) shall have a right of first refusal to purchase the Shares on the
terms and conditions set forth in this Section 3(a) (the "Right of First
--------------
Refusal").
- -------
(i) Notice of Proposed Transfer. The Holder of the Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
-------------------
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares at the same price (the "Offered Price") and upon the same
-------------
terms (or terms as similar as reasonably possible) to the Company or its
assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(a)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate
-2-
<PAGE>
Family (as defined below) or a trust for the benefit of Purchaser's Immediate
Family shall be exempt from the provisions of this Section 3(a). "Immediate
---------
Family" as used herein shall mean spouse, lineal descendant or antecedent,
- ------
father, mother, brother or sister. In such case, the transferee or other
recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In the
-----------------------------------------------------
event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock to be
------------------------------
transferred pursuant to Section 3(b)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company.
The Company shall notify Purchaser or his or her executor of the price so
determined within 30 days after receipt by it of written notice of the transfer
or proposed transfer of Shares. However, if the Purchaser does not agree with
the valuation as determined by the Board of Directors of the Company, the
Purchaser shall be entitled to have the valuation determined by an independent
appraiser to be mutually agreed upon by the Company and the Purchaser and whose
fees shall be borne equally by the Company and the Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the Parent or a 100% owned Subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and Fair Market Value, if
the original purchase price is less than the Fair Market Value of the Shares
subject to the assignment.
(e) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(f) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b)
-3-
<PAGE>
above shall terminate upon the first sale of Common Stock of the Company to the
general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act or
1933, as amended (the "Securities Act"). Upon termination of the Right of First
--------------
Refusal, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 5(a)(ii) below and delivered to Purchaser.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
-4-
<PAGE>
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Market Stand-off Agreement. In connection with the initial public
--------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the Company's
initial public offering.
-5-
<PAGE>
8. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or 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 as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this
----------------------
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL,
-6-
<PAGE>
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-7-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
COMPANY:
STAMPS.COM INC.
By:
---------------------------------
Name:
-------------------------------
(print)
Title:
------------------------------
PURCHASER:
Optionee
------------------------------------
(Signature)
------------------------------------
(Print Name)
Address:
I, , spouse of Optionee, have read and hereby approve the
----------------------
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
------------------------------
Spouse of Optionee
-8-
<PAGE>
EXHIBIT B
---------
PROMISSORY NOTE
---------------
<TABLE>
<S> <C>
$ __________, California
----------
_______________, 19__
</TABLE>
For value received, the undersigned promises to pay Stamps.com Inc., a
Delaware corporation (the "Company"), at its principal office the principal sum
-------
of $ with interest from the date hereof at a rate of % per annum,
---------- -----
compounded semiannually, on the unpaid balance of such principal sum. Such
principal and interest shall be due and payable on .
----------
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest
notice of protest and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
----------------------------
Optionee
<PAGE>
EXHIBIT C
---------
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
day of by and between Stamps.com Inc., a Delaware corporation
- ----- ------------
(the "Company") and Optionee ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "Shares") pursuant to an Option
------
Agreement dated between Purchaser and the Company, Purchaser is
----------
delivering a promissory note of even date herewith (the "Note") in full or
----
partial payment of the exercise price for the Shares. The company requires that
the Note be secured by a pledge of the Shares or the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or
her designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding period set forth in Rule 144(d) promulgated under the Securities Act of
1933, as amended (the "Securities Act").
--------------
<PAGE>
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of the Company, the securities
laws affecting sale of the Shares make a public sale of the Shares commercially
unreasonable. The parties further agree that the repurchasing of such Shares by
the Company, or by any person to whom the Company may have assigned its rights
under this Agreement, is commercially reasonable if made at a price determined
by the Board of Directors in its discretion, fairly exercised, representing what
would be the fair market value of the Shares reduced by any limitation on
transferability, whether due to the size of the block of shares or the
restrictions of applicable securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect then, or at any time thereafter, to exercise all
rights available to a secured party under the California Commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any
remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
STAMPS.COM INC.
By:
------------------------------------
Name:
----------------------------------
(print)
Title:
---------------------------------
Address:
PURCHASER:
Optionee
---------------------------------------
(Signature)
---------------------------------------
(Print Name)
Address:
-3-
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Stamps.com Inc. (the
---------
"Company") dated _______________, ____ (the "Agreement"), Purchaser hereby
- -------- ---------
sells, assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company, standing in Purchaser's
name on the books of the Company and represented by Certificate No. ____, and
does hereby irrevocably constitute and appoint
________________________________________________ to transfer said stock on the
books of the Company with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
-----------------------------------------
Optionee
-----------------------------------------
Spouse of Optionee (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
<PAGE>
RECEIPT
-------
The undersigned hereby acknowledges receipt of Certificate No. _____ for
__________ shares of Common Stock of Stamps.com Inc..
Dated: _______________
-----------------------------------------
Optionee
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy Certificate No.
_____ purchaser for __________ shares of Common Stock of Stamps.com Inc. (the
"Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as Pledge Holder pursuant to the Pledge and
Security Agreement Purchaser has previously entered into with the Company. As
Pledge Holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: _______________
-----------------------------------------
Optionee
<PAGE>
RECEIPT
-------
Stamps.com Inc. (the "Company") hereby acknowledges receipt of (check as
-------
applicable):
_____ A check in the amount of $__________
_____ The cancellation of indebtedness in the amount of $__________
_____ Certificate No. ____ representing ______ shares of the Company's
Common Stock with a fair market value of $__________
_____ A promissory note in the amount of $__________.
given by Optionee as consideration for Certificate No. ______ for ___________
shares of Common Stock of the Company.
Dated: ______________
STAMPS.COM INC.
By:
--------------------------------------
Name:
------------------------------------
(print)
Title:
-----------------------------------
<PAGE>
EXHIBIT 10.12
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS
ENCLOSED BY BRACKETS AND UNDERLINED. THE CONFIDENTIAL PORTION HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
- --------------------------------------------------------------------------------
AOL ADVERTISING INSERTION ORDER
-------------------------------
by and between
AMERICA ONLINE, INC.
and
STAMPS.COM INC.
Dated
December 16, 1998
- --------------------------------------------------------------------------------
<PAGE>
===============================
AOL ADVERTISING INSERTION ORDER [LOGO OF AMERICA ONLINE]
===============================
Contract #:
-------------------------------
AOL Salesperson:
--------------------------
Sales Coordinator: Credit Approval Received
------------------------
Date:
-------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Advertiser Advertising Agency
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Contact Person Doug Walner
- -----------------------------------------------------------------------------------------------
Company Name Stamps.com, Inc.
- -----------------------------------------------------------------------------------------------
Address - Line 1 2900 31st St., Suite 150
- -----------------------------------------------------------------------------------------------
Address - Line 2 Santa Monica, CA 90405
- -----------------------------------------------------------------------------------------------
Phone # 310-450-1444
- -----------------------------------------------------------------------------------------------
Fax #
- -----------------------------------------------------------------------------------------------
Email [email protected]
- -----------------------------------------------------------------------------------------------
SIC Code
- -----------------------------------------------------------------------------------------------
Advertiser IAB Category
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Billing Information
- -----------------------------------------------------------------------------------------------
Send Invoices to (choose one): Advertiser [_] Agency
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Advertiser or Agency Billing Same as above
Contact Person
- -----------------------------------------------------------------------------------------------
Company Name
- -----------------------------------------------------------------------------------------------
Billing Address - Line 1
- -----------------------------------------------------------------------------------------------
Billing Address - Line 2
- -----------------------------------------------------------------------------------------------
Billing Phone #
- -----------------------------------------------------------------------------------------------
Billing Fax #
- -----------------------------------------------------------------------------------------------
Billing Email Address
- -----------------------------------------------------------------------------------------------
P.O. #, if applicable
- -----------------------------------------------------------------------------------------------
</TABLE>
1. Guaranteed Payments. Advertiser shall make the following payments to AOL:
a. [***];
---
b. [***];
---
c. [***]; and
---
d. [***]
---
2. Additional Payments. See Sections 3 and 8 of Exhibit A, and Section 9 of
Exhibit E attached hereto.
3. Late Payments; Wired Payments. All amounts owed hereunder not paid when due
-----------------------------
and payable will bear interest from the date such amounts are due and
payable at the prime rate in effect at such time. All payments required
hereunder will be paid in immediately available, non-refundable U.S. funds
wired to the "America Online" account, Account Number 323070752 at The Chase
Manhattan Bank, 1 Chase Manhattan Plaza, New York, NY 10081 (ABA:
021000021). In the event of nonpayment on any of the dates specified above,
Advertiser shall have an additional five (5) business days within which to
make such payment and if Advertiser does not make the required payment in
such additional five (5) business days, AOL reserves the right to
immediately terminate this Insertion Order Agreement with written notice to
Advertiser.
- --------------------------------------------------------------------------------
- --------------------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
Inventory Type (choose one): [_] AOL Service only
[_] AOL Affiliate only (e.g.AOL.com) [_] AOL Service & AOL Affiliate
- --------------------------------------------------------------------------------
1
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AOL Service
- ---------------------------------------------------------------------------------------------------------------------------------
Inventory
- ---------------------------------------------------------------------------------------------------------------------------------
Display
AOL Inventory/Demographic* Display Stop # of Ad Slots Total Gross Total
Purchased Start Date Date Ad Type Purchased Price Impressions
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PHASE I PROMOTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Run of E-mail: Zip Code Area 1 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
Run of E-mail: Zip Code Area 2 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
Run of E-mail: Zip Code Area 3 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
Run of Service: Zip Code Area 1 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
Run of Service: Zip Code Area 2 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
Run of Service: Zip Code Area 3 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
Computing Download Software: Zip [***] [***] Banner Rotation [***] [***]
Code Targeted --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PHASE II PROMOTIONS [***] [***]
See Exhibit B attached hereto --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
* Attach completed AOL Demographic Phase I [***] [***]
Profile Worksheet Promotions Total: --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Art
- ---------------------------------------------------------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
<S> <C> <S>
[_] 234x60 IAB Standard /10k Max [_] 145x30 Old Standard /10k Max [_] 120x60 Shopping/10k Max
[_] 175x45 Chat/Mail in-box/10k Max [_] 197x40 PF Area/10k Max [_] Special
------------------
* Static banners only, no animation*
</TABLE>
Linking URL: The HTTP/URL address to be connected to the Advertisement shall be:
http://www.stamps.com, or any other HTTP/URL agreed upon by Advertiser and AOL
(the "Affiliated Advertiser Site"). Advertiser shall be responsible for any
hosting or communication costs associated with the Affiliated Advertiser Site.
Please send artwork and URL to (choose one):
[_] [email protected] [_] [email protected]
------------------ ------------------
AOL reserves the right to immediately cancel any advertising flight in the event
of a material change to the nature or content of the site linked to the
Advertisement.
- --------------------------------------------------------------------------------
- ----------------------------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AOL Affiliate (e.g., AOL.com)
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory
- ------------------------------------------------------------------------------------------------------------------------------------
AOL Affiliate
Inventory/Demographic* Display Start Display Stop # of Ad Slots Total
Purchased Date Date Ad Type Purchased Total Gross Price Impressions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PHASE I PROMOTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Digital City -
Market Selection [***] [***] Banner Rotation [***] [***]
--- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
PHASE II PROMOTIONS [***] [***]
See Exhibit B attached hereto --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
* See attached package description for ------------------------------------------------------
any AOL.com package purchases PHASE I [***] [***]
PROMOTIONS --- ---
TOTAL :
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Art
- ------------------------------------------------------------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by
advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
<S> <C>
[_] 468x60 NF Reviews, Search Terms, My News & Hometown/10k Max/animation OK
[_] 100x70 AOL.com Home Page/3k Max/No animation [_] 234x60 NF Kids Only & Hometown/5k Max/animation OK
[_] 120x60 NF Home Page/2k Max/No animation [_] 120x60 Instant Messenger/7.5k Max/animation OK
[_] 120x60 Shopping/4k Max/No animation
</TABLE>
Linking URL: The HTTP/URL address to be connected to the Advertisement shall be
the same address as that of the Advertiser Site.
Please send artwork and URL to (choose one):
[_] [email protected] [_] [email protected]
------------------ ------------------
AOL reserves the right to immediately cancel any advertising flight in the
event of a material change to the nature or content of the site
linked to the Advertisement.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Advertising Purchase Summary
- --------------------------------------------------------------------------------
Total Price Total Impessions CPM
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AOL Networks [***] [***]
--- ---
- --------------------------------------------------------------------------------
AOL Affiliate [***] [***]
--- ---
- --------------------------------------------------------------------------------
Total Purchase Price [***] [***] [***]
--- --- ---
- --------------------------------------------------------------------------------
(Less Agency Discount) N/A N/A
- --------------------------------------------------------------------------------
-----------------------------------------------------
Net Purchase Price Total Impressions
-----------------------------------------------------
[***] [***]
--- ---
-----------------------------------------------------
</TABLE>
The products and/or services to be offered or promoted by Advertiser in the
Advertisements are as follows: online postal services (i.e., services associated
with the online sale of postage stamps and ancillary products and services
related thereto) (the "Advertiser Products").
- -------------------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
3
<PAGE>
4. Impressions Commitment. Any guarantees are to impressions (as measured by
----------------------
AOL in accordance with its standard methodologies and protocols), not
"click-throughs." In the event there is (or will be in AOL's reasonable
judgment) a shortfall in impressions as of the end of a display period (a
"Shortfall"), such Shortfall shall not be considered a breach of the
Agreement by AOL; instead, AOL will provide Advertiser, as its sole remedy,
with "makegood" impressions through advertisement placements on the AOL
Service. In connection with the foregoing, AOL shall use reasonable efforts
to ensure that any makegood impressions shall be provided to Advertiser
through promotions that are comparable in nature to the appropriate type of
promotions through which the impressions should have been delivered (e.g.,
if there is a Shortfall that should have been delivered through Level A
Promotions, AOL shall use reasonable efforts to make up such impressions
with other Level A Promotions). In the event that AOL is unable to provide
makegood impressions through the appropriate comparable promotions, AOL
shall provide such impressions through other types of promotions as follows:
[***] AOL reserves the right to alter Advertiser flight dates to accommodate
---
trafficking needs or other operational needs. In such cases, AOL will make
available to Advertiser reasonably equivalent flight(s).
5. Navigation. Advertiser shall provide continuous navigational ability for
-----------
AOL users to return to an agreed-upon point on the AOL Service (for which
AOL shall supply the proper address) from the Affiliated Advertiser Site
(e.g., the point on the AOL Service from which the Affiliated Advertiser
Site is linked).
6. Term. Unless otherwise terminated as provided herein, the term hereof shall
----
begin on the first Display Start Date and shall expire on the last Display
Stop Date.
AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order Agreement, their duly
authorized representatives have signed their names below on the dates indicated.
This Agreement (including Exhibits A, B, C, D and E attached hereto and
incorporated by reference) shall be binding on both parties when signed on
behalf of each party and delivered to the other party (which delivery may be
accomplished by facsimile transmission of the signature pages hereto).
AOL ADVERTISER
By: /S/ David M. Colburn By: /S/ John M. Payne
----------------------------- ------------------------------
(signature) (signature)
Print Name: David M. Colburn Print Name: John M. Payne
--------------------- ----------------------
Title: SVP Business Affairs Title: Pres/CEO
-------------------------- ---------------------------
(Print or Type) (Print or Type)
Date: 12/16/98 Date: 12/15/98
- -------------------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
4
<PAGE>
EXHIBIT A
---------
1. Authorization to Conduct Business. Advertiser hereby represents and
---------------------------------
warrants that it has obtained all necessary permits, licenses or other
authorizations from the United States Postal Service (the "USPS") which
permits Advertiser to conduct a beta test of the Advertiser Products by
advertising and offering for sale the Advertiser Products on the AOL
Service during the Phase I Promotions.
2. Phased Roll-Out of Promotions. The Advertisements provided hereunder shall
-----------------------------
be provided by AOL in accordance with the Insertion Order provided above,
subject to the following:
a. At least three (3) days prior to the Phase I Promotions Display Stop
Date, Advertiser shall provide AOL with a written notice which shall
contain the following:
i. a representation by Advertiser that Advertiser has obtained all
[***] and
---
ii. an election by Advertiser to receive the Phase II Promotions.
Provided, however, that if prior to the end of the Phase I
Promotions Advertiser [***], Advertiser shall provide AOL with a
---
written notice (provided at least two (2) days prior to the date
on which Advertiser wishes to begin receiving the Phase II
Promotions) (the "Acceleration Notice"), containing (A) the
representation required pursuant to Section 2(a)(i) of this
Exhibit A, and (B) an election by Advertiser to receive the Phase
II Promotions. In such event, the parties hereto shall create a
new insertion order which will indicate the new Display Start
Date of the Phase II Promotions, which insertion order shall be
attached hereto as an Exhibit. Notwithstanding the foregoing, (1)
upon receipt of an Acceleration Notice, AOL shall only be
obligated to place Advertisements for which Advertiser has
already provided the necessary creative art work and related
materials to AOL, and which requires less than two (2) days of
advance notice to place on the AOL Service; to the extent that
any Advertisement required to be placed during the Phase II
Promotions shall require more than two (2) days of advance notice
to be placed on the AOL Service, AOL shall provide such
Advertisements within thirty (30) days after receipt of the
Acceleration Notice; (2) AOL shall not be obligated to provide
the Phase II Promotions unless and until Advertiser makes the
representation required pursuant to Section 2(a)(i) of this
Exhibit A; and (3) if Advertiser does not [***], either party
---
shall have the right to immediately terminate this Insertion
Order Agreement without any further obligation or liability of
any kind (other than any liability incurred by either party prior
to such date) to the other party on account of such termination.
In the event of such termination, Advertiser shall have no
further payment obligations under this Insertion Order Agreement
other than payment obligations due and payable at the time of
termination.
3. Additional Promotions.
---------------------
a. Phase I. During the Phase I Promotions, from time to time, Advertiser
--------
shall have the right to purchase up to [***] from AOL subject to the
---
following restrictions:
i. Advertiser shall purchase such additional impressions [***]
---
pursuant to an AOL Insertion Order Agreement entered into by
Advertiser and AOL (an "Insertion Order") which will be attached
hereto as an exhibit,
ii. Advertiser shall submit the relevant Insertion Order to AOL at
least five (5) days prior to the date on which Advertiser wishes
to begin receiving impressions; and
iii. AOL's obligation to deliver any additional impressions pursuant
to this Section 3 shall be subject to the availability of
advertising inventory on the AOL Service from which AOL can
deliver such additional impressions.
b. Phase II. During the Phase II Promotions, from time to time,
---------
Advertiser shall have the right to purchase up to [***] from AOL
---
subject to the restrictions contained in Section 3(a)(i), (ii) and
(iii). Notwithstanding the foregoing, in the event that the
transaction between AOL and Advertiser which is contemplated under
Section 9 hereof is not consummated, or if Advertiser expends less
than the amounts earmarked for such transactions, Advertiser will use
the funds earmarked for such transaction (or any remaining portion
thereof) to purchase up to [***] from AOL subject to the provisions of
---
Section 3(a)(i), (ii) and (iii).
4. Product Parity. Advertiser will ensure that the prices, terms and
--------------
conditions for the Advertiser Products in the Affiliated Advertiser Site
are no less favorable than the prices, terms and conditions on which the
Advertiser Products or substantially similar products are offered by or on
behalf of Advertiser through any other distribution channels.
- ---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
5
<PAGE>
5. Special Offers/Member Benefits. Advertiser will generally promote through
------------------------------
the Affiliated Advertiser Site any special or promotional offers made
available by or on behalf of Advertiser through any other distribution
channels directed primarily at a consumer audience (i.e., non-corporate
customers). Advertiser shall not be required to comply with the foregoing
provision if compliance therewith would result in a breach by Advertiser of
any contractual arrangements with third parties, and it is understood by
the parties that the foregoing shall not prevent Advertiser from providing
one time special offers which may not be appropriate for AOL users. In
addition, Advertiser shall promote (a) at least [***] to AOL users (the
---
"AOL Special Offers") and (b) at least [***] in connection with the Stamp
---
Days Promotions described in Section 10 hereof (the "Stamp Days Promotion
Special Offer"). AOL Special Offers made available by Advertiser shall
provide a substantial benefit to AOL users as reasonably determined by
Advertiser, either by [***] Advertiser shall have the right to promote
---
special or promotional offers to AOL users which in addition to the
promotion of Advertiser, may promote other third parties; provided that,
(i) [***] (ii) [***] and (iii) such special or promotional offers shall
--- ---
[***] Advertiser will provide AOL with reasonable prior notice of the AOL
---
Special Offers and the Stamp Days Promotion Special Offer so that AOL can
market the availability of such special offers in the manner AOL deems
appropriate in its editorial discretion.
6. Advertiser Promotion of AOL. [***] within Advertiser's web sites on the
--------------------------- ---
World Wide Web portion of the Internet that are not co-branded with a third
party (each an "Advertiser Web Site"), at AOL's option, Advertiser shall
include one of the following (each an "AOL Promo"): (i) [***] to promote
---
such AOL products or services as AOL may designate (for example, the
America Online brand service, the CompuServe brand service, the AOL.com
site, any of the Digital City services or the AOL Instant Messenger
service); or (ii) [***] through which users can obtain promotional
---
information about AOL products or services designated by AOL and, at AOL's
option, download or order the then-current version of client software for
such AOL products or services. AOL will provide the creative content to be
used in the AOL Promo (including designation of links from such content to
other content pages). To the extent Advertiser notifies AOL of reasonable
complaints or concerns regarding the AOL Promo or any other content or
materials linked thereto or associated therewith ("Objectionable AOL
Content"), AOL will, to the extent such Objectionable AOL Content is within
AOL's control, use commercially reasonable efforts to respond in good faith
to such complaints or concerns. Advertiser shall use reasonable efforts to
post (or update, as the case may be) the creative content supplied by AOL
within the spaces for the AOL Promos within five days of its receipt of
such content from AOL. In the event that AOL elects to serve the AOL Promos
to the Advertiser Web Site from an ad server controlled by AOL or its
agent, Advertiser shall take all reasonable operational steps necessary to
facilitate such ad serving arrangement including, without limitation,
inserting HTML code designated by AOL on the pages of the Advertiser Web
Site on which the AOL Promos will appear. In addition, in Advertiser's
television, radio, print and "out of home" (e.g., buses and billboards)
advertisements and in any publications, programs, features or other forms
of media over which Advertiser exercises at least partial editorial
control, Advertiser will include specific references or mentions (verbally
where possible) of the availability of the Affiliated Advertiser Site
through the AOL Service, [***] (by way of site name, related company name,
---
URL or otherwise). Without limiting the generality of the foregoing, (i)
Advertiser's listing of the "URL" for any Advertiser Web Site will be
accompanied by an equally prominent listing of the "keyword" term on AOL
for the Affiliated Advertiser Site (if any) and (ii), Advertiser shall use
commercially reasonable efforts to promote any special offers offered on
the AOL Service through its offline promotional efforts (e.g., cable and or
television advertising buys). In connection with the foregoing, AOL will
[***] for any new subscribers to the AOL Service who subscribe to the AOL
---
Service through the AOL Promo.
7. Functionality of Advertiser Product. In the event that any Advertiser
------------------------------------
Products (or any software associated therewith) that are promoted and sold
through the Advertisements result in a poor user experience for a
significant number of AOL users (e.g., poor user interface, incompatible
software, unusable software, software which contain bugs or viruses which
substantially reduces the usability of the Advertiser Product, or software
which does not perform the functions for which it is advertised), and
provided that Advertiser does not remedy such poor user experience within
[***] after written notice from AOL [***] In the event of such [***].
--- --- ---
8. Distribution of Advertiser Software with AOL Store Fulfillment Packages.
-----------------------------------------------------------------------
AOL will facilitate the distribution of the software developed by
Advertiser which is necessary for the operation of Advertiser's electronic
stamp product and enables end-users to purchase postal services
electronically through Advertiser's network (the "Advertiser Software")
through a third party package fulfillment distributor (the "Distributor")
in accordance with the terms and conditions of the agreement attached
hereto as Exhibit D. Advertiser will pay the Distributor up to [***] (the
---
"Set-Aside Payment") in consideration for the distribution of the
Advertiser Software. [***]
9. Distribution of Advertiser Software with AOL 4.0 CD-ROMS. AOL will
--------------------------------------------------------
distribute the Advertiser Software of Advertiser in accordance with the
provisions of Exhibit E attached hereto.
- ---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
6
<PAGE>
10. Stamp Days Promotion/Rainman Production. With respect to the Special
---------------------------------------
Campaign Promotion: Stamp/Postage Days listed on Exhibit B (each a "Stamp
Day Promotion" and collectively "Stamp Day Promotions"), AOL will work with
Advertiser to create various editorial and programming content related to
the Advertiser Products. AOL shall be responsible for the creation of a
rainman area (the " Stamp Rainman Area") on the AOL Service to promote
Stamp Days. Advertiser shall be responsible for providing AOL with content
and promotions to be promoted by AOL during Stamp Days. At Advertiser's
option, the Stamp Days promotion may occur over a period of three (3)
contiguous days or three (3) separate and unrelated days and Advertiser
shall provide AOL with no less than forty five (45) days notice prior to
the time that Advertiser wishes to receive the Stamp Days promotion or a
Stamp Day promotion. In addition to the Stamp Rainman Area, AOL will
program and create at least one other rainman area for Advertiser which
will contain such content and promotions as mutually agreed upon by the
parties hereto (the "Additional Rainman Area" and together with the Stamp
Rainman Area the "Rainman Areas"). AOL will incur the expense of creating
the Rainman Areas up to [***]. If the costs associated with the Rainman
---
Areas exceed [***].
---
11. Keyword: Stamps. AOL will create a [***] in the appropriate areas of the
----------------- ---
AOL Service to which Keyword Stamp or Stamps will link. Such [***] will
---
contain programming created by AOL in its sole discretion, provided that,
AOL shall provide Advertiser with a button or link on such screen which
will link to the Advertiser Site or any other area agreed upon by the
parties and Advertiser shall be the [***]. In addition to the foregoing,
---
subject to the provisions hereof, Advertiser shall have the right to use
the AOL Keyword Term Stamps.com and [***] additional AOL Keyword Term as
---
mutually agreed upon by the parties.
- ---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
7
<PAGE>
EXHIBIT B
---------
PHASE II PROMOTIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Impressions Percent of Average CPM Total Cost
Carriage
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Level A -- Highly Targeted [***] [***] [***] [***]
--- --- --- ---
- -------------------------------------------------------------------------------------------------------------------
Level B - Targeted [***] [***] [***] [***]
--- --- --- ---
- -------------------------------------------------------------------------------------------------------------------
Level C -- Relevant Broad Reach [***] [***] [***] [***]
--- --- --- ---
- -------------------------------------------------------------------------------------------------------------------
Campaign Promotion: Stamp Days [***] [***] [***] [***]
--- --- --- ---
- -------------------------------------------------------------------------------------------------------------------
Total Campaign [***] [***] [***] [***]
--- --- --- ---
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Level A Promotions Type of Promotion
------------------ -----------------
AOL Network
[***] [***]
--- ---
AOL.com
[***]
---
CompuServe
----------
[***] [***]
--- ---
Level B Areas
-------------
AOL.com
[***] [***]
--- ---
Digital City
[***] [***]
--- ---
Level C Areas
-------------
AOL Network
[***] [***]
--- ---
AOL.com
[***] [***]
--- ---
- ---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
8
<PAGE>
Special Campaign Promotion:
---------------------------
Stamp/Postage Days (3-day
--------------------------
promotion)
----------
Email
News
AOL Network
Remnant and Promotional Support
Vehicles
- ------------------------------------------------------------------------------
*Subject to Advertiser's compliance with all technical and programming
requirements (including quality assurance testing) of AOL.
**Advertiser will only be provided with these Promotions if the Phase II
Promotions [***]
---
*** List to include: mail, mailing, post, postal, postage, stamp, stamps
- ------------------------------------------------------------------------------
- ---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
9
<PAGE>
EXHIBIT C
---------
AOL Advertising Standard Terms and Conditions
---------------------------------------------
1. Advertising Material/Display. Advertiser acknowledges that the sole
----------------------------
obligation of America Online, Inc. ("AOL") is to display an advertisement or
icon (the "Advertisement") from Advertiser which conforms to the
specifications set forth in the applicable Insertion Order Agreement which
has been executed by AOL and Advertiser (the "Insertion Order," and,
collectively with these Standard Terms and Conditions, the "Insertion Order
Agreement") through the standard narrowband U.S.-based America Online brand
service (excluding any sub-products, sub-services or third party areas which
may be offered therein) or such other U.S.-based AOL property as may be
expressly described as the site for placement in the Insertion Order (the
"AOL Service"). Subject to Advertiser's reasonable approval, AOL will have
the right to fulfill its promotional commitments with respect to the
Advertisements by providing Advertiser with comparable placements of the
Advertisements in alternative areas of the AOL Service. AOL reserves the
right to redesign or modify the organization, structure, "look and feel" and
other elements of the AOL Service (including any redesign of the Workplace
Business Services: Postage Category) at its sole discretion at any time
without prior notice (a "Redesign"). In the event such modifications will
materially and adversely affect the placement of the Advertisement, AOL will
work with Advertiser to display the Advertisement in a comparable location
and manner that is reasonably satisfactory to Advertiser. Except as
expressly provided in the Insertion Order, the specific nature and
positioning of the Advertisement will be as determined by AOL in its
editorial discretion. Advertiser agrees that AOL has the right to market,
display, perform, transmit and promote the Advertisement through the AOL
Service and in connection therewith, subject to the terms and conditions
hereof, Advertiser hereby grants to AOL a non-exclusive, non-sublicensable
(except to an Affiliate of AOL) and non-transferable license to use the
names specified by Advertiser from time to time which Advertiser shall have
a legal right to use (the "Advertiser Marks") in the Advertisements and in
connection with the advertising, marketing and promotion of the Advertiser
Products on the AOL Service. Additionally, AOL shall have the right to use
the Advertiser Marks in connection with the distribution of the Advertiser
Software in accordance with Exhibit E. AOL hereby acknowledges and agrees
that (i) except as set forth herein, AOL has no rights, title or interest in
or to the Advertiser Marks, (ii) AOL shall not challenge Advertiser's
exclusive rights in and to the Advertiser Marks, (iii) AOL shall not apply
for registration of the Advertiser Marks anywhere in the world, (iv) AOL
shall not alter any of the Advertiser Marks in any way and shall use the
Advertiser Marks exactly as provided by Advertiser, (v) the use by AOL of
the Advertiser Marks shall inure to the benefit of Advertiser with respect
to Advertiser's rights and ownership in and to the Advertiser Marks, and
(vi) Advertiser reserves all rights not expressly granted to AOL hereunder
in connection with the Advertiser Marks. AOL shall use reasonable efforts to
notify Advertiser promptly of any infringement of any copyrights,
trademarks, or other intellectual property or proprietary rights relating to
the Advertiser Software of which AOL is aware. Advertiser may, in its sole
discretion, take or not take whatever action it believes is appropriate in
connection with any such infringement. In the event that AOL intends to use
an Advertiser Mark in a manner which was not previously approved by
Advertiser, AOL shall provide notice to Advertiser of its intended use of
such Advertiser Mark, Advertiser shall then have three (3) business days to
respond to AOL's proposed use of such Advertiser Mark, and if Advertiser
does not respond in such three (3) day period, AOL's use of such Advertiser
Mark shall be deemed approved. Additionally, Advertiser agrees that users of
the AOL Service have the right to access and use the Advertisement together
with any content or materials linked to the Advertisement (the "Advertiser
Content"). The Advertiser Content (a) shall not offer or promote any other
products and/or services other than those expressly provided for in the
relevant Insertion Order, (b) will link only to the site specified on the
Insertion Order and (c) shall not (1) disparage AOL; (2) promote any product
or service which is reasonably competitive with one or more of the principal
products or services offered through AOL's products and services (other than
the Advertiser Products) ("Competitive Products") on any page of the
Affiliated Advertiser Site which is directly linked to the AOL Service; (3)
be in contravention of AOL's generally applicable advertising standards and
practices, as such may be modified by AOL from time to time; or (d) violate
any applicable law, regulation or third party right (including, without
limitation, any copyright, trademark, patent or other proprietary right).
Additionally, Advertiser shall consistently update the Advertiser Content
and will review, delete, edit, create, update and otherwise manage such
content in accordance with the terms of this Insertion Order Agreement. In
no event shall the Advertisement or the linked area state or imply that (i)
the Advertisement was placed by AOL or (ii) that AOL endorses Advertiser's
products or services. To the extent AOL notifies Advertiser of reasonable
complaints or concerns (e.g., from an AOL member) regarding the Advertiser
Content or any other content or materials linked thereto or associated
therewith ("Objectionable Content"), Advertiser will, to the extent such
Objectionable Content is within Advertiser's control, use commercially
reasonable efforts to respond in good faith to such complaints or concerns.
AOL may alter or shorten the flight dates set forth in the Insertion Order
if advertising materials required per the Insertion Order are not provided
in a timely manner, and Advertiser shall not be entitled to any refund or
proration for delays caused by Advertiser's failure to deliver such
materials.
2. Operations. Unless expressly provided for elsewhere in this Insertion Order
----------
Agreement, AOL will have no obligation to provide any creative, design,
technical or production services to Advertiser ("Services"). Delivery by AOL
of any such Services shall be subject to (i) AOL's availability to perform
the requested work, (ii) execution by both parties of a separate work order
specifically outlining the Services to be provided and the fees to be paid
by Advertiser for such Services and (iii) payment in advance by Advertiser
of such fees. Advertiser will ensure that the Advertiser Content and the
site linked to the Advertiser Content are in compliance with AOL's then-
current, generally applicable technical standards and will take all
reasonable steps necessary to conform the Advertiser Content to the then-
existing technologies identified by AOL which are optimized for the AOL
Service (including, without limitation, any "quick checkout" tool which AOL
may implement to facilitate purchase of products by AOL users). In the event
that the Advertiser Content or the site linked to the Advertiser Content
fails to comply with AOL's generally applicable technical standards, AOL
shall have the right to cease or decrease the placement of the
Advertisements, and if Advertiser is unable to cure such non-compliance
within five business days after notice from AOL, AOL shall have the right to
terminate this Insertion Order Agreement. Additionally, AOL will be entitled
to discontinue links to Advertiser Content to the extent such Advertiser
Content will, in AOL's good faith judgment, adversely affect the operations
of the AOL Service. Advertiser will bear full responsibility for all
customer service, including without limitation, order processing, billing,
fulfillment, shipment, collection and other customer support associated with
any products or services offered, sold or licensed through Advertiser's
site, and AOL will have no obligations whatsoever with respect thereto.
Advertiser will take all steps necessary to ensure that any contest,
sweepstakes or similar promotion conducted or promoted through the
Advertiser Content complies with all applicable federal, state and local
laws and regulations.
3. Search Terms/Keywords. To the extent Advertiser is purchasing an
----------------------
Advertisement related to an Internet-based "search" term, Advertiser
represents and warrants that Advertiser has the legal rights necessary to
utilize such search term in connection with the Advertisement. Any "keyword"
terms for navigation from within the proprietary America Online brand
service ("AOL Keyword Terms") (as contrasted to Internet-based search terms)
which may be made available to Advertiser shall be (i) subject to
availability and (ii) limited to the combination of the keyword modifier
combined with a
10
<PAGE>
registered trademark of Advertiser. AOL reserves the right to revoke at any
time Advertiser's use of any AOL Keyword Terms which do not incorporate
registered trademarks of Advertiser. Advertiser acknowledges that its
utilization of any AOL Keyword Term will not create in it, nor will it
represent it has, any right, title or interest in or to such AOL Keyword
Term, other than the right, title and interest Advertiser holds in
Advertiser's registered trademark independent of the AOL Keyword Term.
4. Payment; Cancellation. Advertiser agrees to pay AOL for all advertising
---------------------
displayed in accordance with the agreed upon amounts and billing schedule
shown on the relevant Insertion Order. Advertising packages are
nonrefundable or proratable except to the extent otherwise expressly
contemplated hereunder. Should AOL fail to display the Advertisements in
accordance with the Insertion Order due to Advertiser's failure to comply
with any requirement of the Insertion Order or this Insertion Order
Agreement, Advertiser will remain liable for the full amount indicated on
the Insertion Order. In the event of a Redesign, if AOL and Advertiser
cannot reach agreement on a substitute placement, Advertiser shall have the
right to cancel the Advertisement upon thirty (30) days advance written
notice to AOL. In such case, Advertiser will only be responsible for the
pro-rata portion of payments attributable to the period from the
commencement of the Insertion Order Agreement through the effectiveness of
such cancellation (the "Pro Rata Payments"). AOL reserves the right to
cancel and remove at any time any Advertisement in the event that AOL
reasonably and in good faith believes that further display of the
Advertisement will expose AOL to liability or other adverse consequences. In
the event of such a cancellation, Advertiser will only be responsible for
the Pro-Rata Payments. Advertiser may not resell, trade, exchange, barter or
broker to any third-party any advertising space which is the subject of this
Insertion Order Agreement.
5. Usage Data. AOL will provide Advertiser with usage information related to
----------
the Advertisement in substance and form determined by AOL, consistent with
its then-standard reporting practices. Advertiser may not distribute or
disclose usage information to any third party without AOL's prior written
consent. Additionally, AOL will not disclose usage information to a third
party in a manner which connects Advertiser to such usage information.
6. Each party acknowledges that Confidential Information may be disclosed to
the other party during the course of this Insertion Order Agreement. Each
party agrees that it will take reasonable steps, at least substantially
equivalent to the steps it takes to protect its own proprietary information,
during the term of this Insertion Order Agreement, and for a period of three
years following expiration or termination of this Insertion Order Agreement,
to prevent the duplication or disclosure of Confidential Information of the
other party, other than by or to its employees or agents who must have
access to such Confidential Information to perform such party's obligations
hereunder, who will each agree to comply with this Section 6.
Notwithstanding the foregoing, either party may issue a press release or
other disclosure containing Confidential Information without the consent of
the other party, to the extent such press release or disclosure is required
by law, rule, regulation or government or court order. In such event, the
disclosing party will provide at least five (5) business days prior written
notice of such proposed disclosure to the other party. Further, in the event
such disclosure is required of either party under the laws, rules or
regulations of the Securities and Exchange Commission or any other
applicable governing body, such party will (i) redact mutually agreed-upon
portions of this Insertion Order Agreement to the fullest extent permitted
under applicable laws, rules and regulations and (ii) submit a request to
such governing body that such portions and other provisions of this
Insertion Order Agreement receive confidential treatment under the laws,
rules and regulations of the Securities and Exchange Commission or otherwise
be held in the strictest confidence to the fullest extent permitted under
the laws, rules or regulations of any other applicable governing body. For
the purposes hereof, "Confidential Information" shall mean any information
relating to or disclosed in the course of the Insertion Order Agreement,
which is or should be reasonably understood to be confidential or
proprietary to the disclosing party, including, but not limited to, the
material terms of this Insertion Order Agreement, information about AOL
users, technical processes and formulas, source codes, product designs,
sales, cost and other unpublished financial information, product and
business plans, projections, and marketing data. "Confidential Information"
will not include information (a) already lawfully known to the receiving
party and which the receiving party has a reasonable basis to believe it may
use or disclose without restriction, (b) independently developed by the
receiving party, (c) disclosed in published materials except as disclosed by
the receiving party in breach of this Section 6, (d) generally known to the
public except as disclosed by the receiving party in breach of this Section
6, or (e) lawfully obtained from any third party without restriction.
7. Limitation of Liability; Disclaimer; Indemnification.
----------------------------------------------------
(A) EXCEPT AS PROVIDED IN SECTION 7(C)(I)(A) AND SECTION 7(C)(II)(A) BELOW,
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING
FROM ANY ASPECT OF THE ADVERTISING RELATIONSHIP PROVIDED FOR HEREIN. EXCEPT
AS PROVIDED IN SECTION 7(C) LIABILITY ARISING UNDER THIS INSERTION ORDER
AGREEMENT WILL BE LIMITED TO DIRECT, OBJECTIVELY MEASURABLE DAMAGES, AND THE
MAXIMUM LIABILITY OF ONE PARTY TO THE OTHER PARTY FOR ANY CLAIMS ARISING IN
CONNECTION WITH THIS INSERTION ORDER AGREEMENT WILL NOT EXCEED THE AGGREGATE
AMOUNT TO BE PAID BY ADVERTISER DURING THE YEAR IN WHICH THE LIABILITY
ACCRUES.
(B)(I)(A) AOL MAKES NO AND HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL SERVICE OR ANY PORTION
THEREOF, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE; WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL
SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING (1) THE NUMBER OF PERSONS WHO
WILL ACCESS THE ADVERTISER CONTENT OR "CLICK-THROUGH" THE ADVERTISEMENTS,
(2) ANY BENEFIT ADVERTISER MIGHT OBTAIN FROM INCLUDING THE ADVERTISEMENT
WITHIN THE AOL SERVICE AND (3) THE FUNCTIONALITY, PERFORMANCE OR OPERATION
OF THE AOL SERVICE WITH RESPECT TO THE ADVERTISEMENTS, AND (B) EXCEPT AS
SPECIFICALLY PROVIDED IN CLAUSE II BELOW, ADVERTISER MAKES NO AND HEREBY
SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES EXPRESS OR IMPLIED INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE.
(II) Advertiser warrants to AOL that the Advertiser Software will, under
normal use, conform to the limited warranty contained in the Software
License Agreement (as defined in Exhibit E) applicable to the Advertiser
Software during the warranty period set forth in such Software License
Agreement (the "Warranty Period"). The foregoing warranty will apply only to
the version of the Advertiser Software distributed by AOL in accordance with
Exhibit E. If a Customer (as defined in Exhibit E) contacts Advertiser
during the Warranty Period claiming a breach of the warranty set forth in
the Software License Agreement provided with the Advertiser Software
distributed by AOL in accordance with Exhibit E, Advertiser will use
reasonable efforts to resolve the claim directly with such Customer by
correcting or replacing such Advertiser Software. If a Customer contacts AOL
during the Warranty Period claiming any such breach of warranty, AOL will
use reasonable efforts to promptly refer the matter to Advertiser.
(C) (i) Advertiser hereby agrees to indemnify, defend and hold harmless AOL
and the officers, directors, agents, affiliates,
11
<PAGE>
distributors, franchises and employees of AOL from and against all claims,
actions, liabilities, losses, expenses, damages and costs (including,
without limitation, reasonable attorneys' fees) that may at any time be
incurred by any of them by reason of any claims, suits or proceedings to the
extent such claims, suits or proceedings arise out of or are related to: (a)
third party claims (1) for libel, defamation, violation of right of privacy
or publicity, copyright infringement, trademark infringement or other
infringement of any third party right, fraud, false advertising,
misrepresentation, product liability or violation of any law, statute,
ordinance, rule or regulation throughout the world in connection with the
Advertisements or Advertiser Content provided by Advertiser to AOL hereunder
or in connection with the Advertiser Software distributed by AOL hereunder
(collectively referred to as the "Advertiser Rights Violations"); provided,
however, that Advertiser shall have no such indemnification obligation to
the extent that any alleged Advertiser Rights Violation arises from or in
connection with any (x) modification or other alteration of any
Advertisement or Advertiser Content provided to AOL by Advertiser hereunder,
without Advertiser's prior approval, (y) (i) use of any Advertisement or
Advertising Content other than in a manner specified hereunder or authorized
by Advertiser (ii) claim based upon the combination of the Advertisement,
the Advertising Content, or the Advertiser Software with other content,
software technology or materials which Advertiser has not approved, or (z)
(i) any Advertiser Software that has been modified by AOL without the prior
consent of Advertiser, (ii) use of the Advertiser Software by AOL in a
manner which is beyond the scope of the license granted to it by Advertiser
pursuant to Exhibit E, (iii) AOL's use of the Advertiser Software after
notice from Advertiser of infringement or misappropriation ((i) (ii) and
(iii) collectively the "Advertiser Software Exceptions"); (2) any material
breach by Advertiser of any duty, representation or warranty under this
Insertion Order Agreement; or (3) any contaminated file, virus, worm or
Trojan horse originating solely from the Advertisements or Advertiser
Content, or (4) solely arising out of or in connection with the ability of
the Advertiser Software distributed by AOL hereunder to process calendar
date values, including but not limited to, calendar date values from January
1, 1999 through or beyond January 1, 2000, and in processing such calendar
values, to operate in accordance with the procured system documentation or
whether any or all data fields for calendar date values and data are four
digit fields capable of indicating century and millennium or addressing leap
years correctly, and (b) any contaminated file, virus, worm or Trojan horse
originating solely from the Advertisements or Advertiser Content.
(ii) [***]
---
(iii) [***]
---
8. Solicitation.
------------
(a) Advertiser will not send unsolicited, commercial e-mail (i.e., "spam")
through or into AOL's products or services, absent a prior business
relationship, and will comply with any other standard AOL policies and
limitations relating to distribution of bulk e-mail solicitations or
communications through or into AOL's products or services (including,
without limitation, the requirement that Advertiser provide a prominent and
easy means for the recipient to "opt-out" of receiving any future commercial
e-mail communications from Advertiser. Advertiser will not use the
Advertisement or any other aspect of AOL's products or services to promote
or solicit on behalf of a Competitive Product.
(b) Advertiser shall ensure that its collection, use and disclosure of
information obtained from AOL members under this Insertion Order Agreement
("Member Information") complies with (i) all applicable laws and regulations
and (ii) AOL's standard privacy policies, available on the AOL Service at
the keyword term "Privacy" (or, in the case of Advertiser's site,
Advertiser's standard privacy policies so long as such policies are
prominently published on the site and provide adequate notice, disclosure
and choice to users regarding Advertiser's collection, use and disclosure of
user information).
(c) Advertiser shall ensure that each request of Member Information shall
clearly and conspicuously specify to the AOL members at issue the purpose
for which the Member Information collected by Advertiser shall be used (the
"Specified Purpose"). Advertiser shall limit use of the Member Information
to the Specified Purpose. In the case of AOL members who purchase products
or services from Advertiser, Advertiser will be entitled to incorporate such
members into Advertiser's aggregate lists of customers; provided that
Advertiser shall in no way: (i) disclose Member Information in a manner that
identifies AOL members as end-users of an AOL product or service (or in any
other manner that could reasonably be expected to facilitate use of such
information by or on behalf of a Competitive Product); or (ii) otherwise use
such Member Information in connection with marketing of a Competitive
Product. This section shall survive the completion, expiration, termination
or cancellation of this Insertion Order Agreement.
9. Miscellaneous. The parties to this Insertion Order Agreement are independent
-------------
contractors. Neither party is an agent, representative or partner of the
other party. Neither party shall have any right, power or authority to enter
into any agreement for or on behalf of, or incur any obligation or liability
of, or to otherwise bind, the other party. The failure of either party to
insist upon or enforce strict performance by the other party of any
provision of this Insertion Order Agreement or to exercise any right under
this Insertion Order Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon
any such provision or right in that or any other instance. Except where
otherwise specified herein or in the Insertion Order, the rights and
remedies granted to a party under this Insertion Order Agreement are
cumulative and in addition to, and not in lieu of, any other rights or
remedies which the party may possess at law or in equity. Advertiser shall
not (i) issue any press releases or public statements concerning the
existence or terms of this Insertion Order Agreement or (ii) use, display or
modify AOL's trademarks in any manner absent AOL's express prior written
approval. Either party may terminate this Insertion Order Agreement (a) at
any time with written notice to the other party in the event of a material
breach of this Insertion Order Agreement by the other party, which remains
uncured after thirty days written notice thereof; (b) immediately following
written notice to the other party if the other party (1) ceases to do
business in the normal course, (2) becomes or is declared insolvent or
bankrupt, (3) is the subject of any proceeding related to its liquidation or
insolvency (whether voluntary or involuntary) which is not dismissed within
ninety (90) calendar days, or (4) makes an assignment for the benefit of
creditors. Additionally, in the event of a change of control of Advertiser
which results in control of more than 50% of the equity securities of
Advertiser or the power to vote for the election of directors or other
governing authority of Advertiser by an AOL Competitor , AOL may terminate
this Insertion Order Agreement by providing forty five (45) days prior
written notice of such intent to terminate. For the purposes hereof, an "AOL
Competitor" shall be any entity listed on Exhibit F attached hereto;
provided, however, that from time to time AOL shall have the right to add to
such list as reasonably determined by AOL, provided that AOL may add to such
list no more than once every three months. Notwithstanding the foregoing, to
the extent that Advertiser can demonstrate to AOL's reasonable satisfaction
that Advertiser is engaged in negotiations with any third party that is not
listed on Exhibit F, which negotiations would result in a change of control
of Advertiser as provided herein, AOL shall not have the right to add such
third party to the list after Advertiser has so reasonably demonstrated to
AOL that Advertiser is in negotiations with such third party. This Insertion
Order Agreement sets forth the entire agreement between Advertiser and AOL,
and supersedes any and all prior agreements of AOL or Advertiser with
respect to the transactions set forth herein. No change, amendment or
modification of any provision of this Insertion Order Agreement shall be
valid unless set forth in a written instrument signed by the party subject
to enforcement of such amendment. Advertiser shall not assign this Insertion
Order Agreement or any right, interest or benefit under this Insertion Order
Agreement without the prior written consent of AOL. Assumption of the
Insertion Order Agreement by any successor to Advertiser (including, without
- --------------------------------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
12
<PAGE>
limitation, by way of merger or consolidation) shall be subject to AOL's
prior written approval. Subject to the foregoing, this Insertion Order
Agreement shall be fully binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and
assigns. In the event that any provision of this Insertion Order Agreement
is held invalid by a court with jurisdiction over the Parties to this
Insertion Order Agreement, (i) such provision shall be deemed to be restated
to reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law and (ii) the remaining terms, provisions,
covenants and restrictions of this Insertion Order Agreement shall remain in
full force and effect. Both parties shall adhere to all applicable laws,
regulations and rules relating to the export of technical data and shall not
export or re-export any technical data, any products received from the other
party or the direct product of such technical data to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized. This Insertion Order Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same document. Except with respect to any claims
brought by Advertiser in connection with Exhibit E or with respect to the
AOL Promos, this Insertion Order Agreement shall be interpreted, construed
and enforced in all respects in accordance with the laws of the Commonwealth
of Virginia, except for its conflicts of laws principles. Except as
otherwise provided herein, Advertiser hereby irrevocably consents to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts situated in the Commonwealth of Virginia in connection with
any action arising under this Insertion Order Agreement. With respect to any
claims brought by Advertiser in connection with Exhibit E or with respect to
the AOL Promos, such claims will be interpreted and enforced in accordance
with the laws of the State of California and AOL hereby consents to the
exclusive jurisdiction of the courts of the State of California and the
federal courts situated in the State of California in connection with any
claim brought by Advertiser in connection with Exhibit E or with respect to
the AOL Promos.
13
<PAGE>
EXHIBIT D
---------
AOL TO PROVIDE
--------------
14
<PAGE>
EXHIBIT E
---------
ADVERTISER SOFTWARE DISTRIBUTION TERMS AND CONDITIONS
-----------------------------------------------------
1. Terms and Conditions. The following terms and conditions shall govern the
--------------------
distribution by AOL of the advertiser software.
2. Definitions. As used in this Exhibit E, the following terms shall have the
-----------
following meanings:
"Affiliate" shall mean an entity in which AOL holds at least a nineteen
---------
percent (19%) equity interest.
"AOL Client" shall mean the object code form of the client software for
----------
Win16, Win32 and Mac developed and distributed by AOL that enables end-users
to subscribe to, access and use the AOL Service, and upgrades thereto.
"Authorized Testing Service" shall mean any third-party person or entity
--------------------------
designated in writing by AOL, in its sole discretion, to offer support and
quality assurance services relating to interoperability of third party
products with the AOL Client and the AOL Service.
"Commerce Customer" shall mean any Customer of Advertiser acquired through
-----------------
distribution of the Advertiser Software by AOL as provided hereunder and who
purchases the Advertiser Product at least two times.
"Customer" shall mean end-user customers of the Advertiser Software.
--------
"Documentation" shall mean the documentation provided to AOL by Advertiser
-------------
for use with the Advertiser Software. "Software
--------
"License Agreement" shall mean Advertiser's standard software license
-----------------
agreement between Advertiser and Customers, as provided by Advertiser to AOL
for inclusion with the Advertiser Software.
3. License Grant. Subject to all the terms and conditions of this Insertion
-------------
Order Agreement, Advertiser hereby grants to AOL and its Affiliates a
worldwide, non-exclusive, non-transferable, royalty-free license to use,
reproduce, market, promote and distribute to end users through its usual and
customary channels of distribution, solely to the limited extent and for the
express purposes stated herein, the Advertiser Software in object code form,
through CD-ROMs any other physical media containing the AOL client.
4. Copying/Reverse Engineering. AOL agrees not to (i) disassemble, decompile
---------------------------
or otherwise reverse engineer the Advertiser Software or otherwise attempt
to learn the source code, structure, algorithms or ideas underlying the
Advertiser Software, (ii) take any action contrary to Advertiser's Software
License Agreement, except as expressly and unambiguously agreed upon by
Advertiser, (iii) alter or modify the Advertiser Software except as agreed
upon by Advertiser, (iv) attempt to disable any security devices or codes
incorporated in the Advertiser Software, or (v) allow or assist others to do
any of the foregoing.
5. Advertiser's Obligations.
------------------------
(i) Certification Requirements. AOL shall provide to Advertiser a written
--------------------------
copy of, and Advertiser shall comply with, all quality assurance and
testing requirements for the Advertiser Software to be distributed by
AOL hereunder, as may be reasonably amended by AOL from time to time,
and together with any other reasonable quality assurance and testing
requirements delivered by AOL in writing (including amendments) to
Advertiser, the ("Certification Requirements").
(ii) Support and Quality Assurance by the Authorized Testing Service. The
---------------------------------------------------------------
Authorized Testing Service shall provide support and quality
assurance testing with respect to the Advertiser Software and
interoperability of such products with the AOL Client and the AOL
Service. Support and quality assurance testing shall be provided on
terms and conditions to be worked out between Advertiser and the
Authorized Testing Service and at Advertiser's expense. In connection
with the foregoing, Advertiser shall deliver a master copy of the
Advertiser Software in object code form, along with any required
Documentation to the Authorized Testing Service and AOL no later than
[***]. The Authorized Testing Service shall perform quality assurance
---
testing on the Advertiser Products in accordance with the
Certification Requirements. If and when the Authorized Testing
Service determines that any such product meets the relevant
Certification Requirements, the Authorized Testing Service shall then
certify in writing that such product is a "Complying Product". AOL
shall use commercially reasonable efforts, if and to the extent
within its control and consistent with the purposes hereof, to help
expedite such testing processes by the Authorized Testing Service.
(iii) AOL Release Approval. AOL shall have the right to inspect the
--------------------
Complying Product prior to commercial production or public release by
AOL under this Agreement. AOL shall, in its discretion (but based
upon commercially reasonable factors (including without limitation a
change of control of Advertiser, or technical or operational problems
or incompatibilities), provide notice of approval or rejection within
fifteen (15) business days of receiving certification from the
Authorized Testing Service that such product is a Complying Product
together with a copy of the Complying Product.
- -----------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
15
<PAGE>
AOL shall have no obligation to distribute any copy of the Advertiser
Software that has not first obtained release approval from AOL. The
parties may negotiate in good faith to cure any circumstance or issue
causing AOL to so reject, provided that if AOL does not approve
release pursuant to this Section 5(iii), then AOL shall refund to
Advertiser any payments made by Advertiser to AOL pursuant to Section
9(i) of this Exhibit E.
(iv) Re-certification Requirements. Revisions of copies of the Advertiser
-----------------------------
Software that have previously been certified by the Authorized
Testing Service must be re-certified. For purposes of this provision,
a "revision" is defined as any version of a Complying Product that
contains programming code that differs materially from the Complying
Product. Without limiting the foregoing, revisions include
maintenance updates, patches, fixes, and new releases of a Complying
Product. Revisions to a Complying Product shall be re-certified
according to the Certification Requirements, unless AOL or the
Authorized Testing Service first provides to Advertiser in writing a
list of "Re-Certification Requirements," if any, in which case such
Re-Certification Requirements shall apply.
6. AOL's Distribution Obligations. Subject to the provisions of Section 5
------------------------------
of this Exhibit E, and provided that Advertiser is otherwise in compliance
with the provisions of this Insertion Order Agreement, AOL shall distribute
the Advertiser Software with a [***] AOL 4.0 CD-ROMs containing the AOL
---
Client which is sent by AOL in direct marketing programs to prospective AOL
customers during the period commencing on [***] (the "Distribution Period");
---
provided however, that (i) AOL shall have the right to continue distribution
of the Advertiser Software after the Distribution Period has ended subject
to the terms and conditions hereof and (ii) if Advertiser shall not have
delivered a master copy of the Advertiser Software to the authorized testing
service and AOL by [***], then AOL shall no longer be obligated to
---
distribute the Advertiser Software with [***] AOL 4.0 CD-ROMs, and in such
---
event, AOL `s sole obligation will be to distribute the Advertiser Software
during the period commencing on the date on which the Advertiser Software
becomes a complying product and ending at the end of the Distribution
Period. When the end-user installs the AOL Client on the end-user's system,
the Advertiser Software installation program will be automatically copied
onto the end-user's hard drive, and the end-user will be presented with the
opportunity to install the Advertiser Software. AOL will distribute the
Advertiser Software together with, and subject to, the terms of the Software
License Agreement furnished by Advertiser. Notwithstanding the foregoing,
(i) once AOL begins distribution of the advertiser software, AOL shall not
be obligated to distribute any updates or upgrades to the Advertiser
Software, and (ii) AOL reserves the right, in the event of technical
problems or incompatibilities (e.g., new "bugs"), excessive usage, or other
situations which may adversely affect the user experience or AOL's costs
(collectively, an "Adverse User Situation"), not to include any Advertiser
Software on such CD-ROMs (a "Pull"); provided however that, in the event of
a Pull, AOL shall deliver written notice thereof to Advertiser within five
(5) business days of such Pull. A Pull will remain in effect as long as any
Adverse User Situation remains, in AOL's reasonable discretion. If such
Adverse User Situation is not cured to AOL's reasonable satisfaction within
thirty (30) days from such notice, then AOL's obligations hereunder shall
terminate, and Advertiser shall not be obligated to make any further
payments under section 9(i) hereof.
7. Distribution Requirements. End-users who install the Advertiser Software
-------------------------
distributed pursuant to this will be prompted to send an electronic
registration to Advertiser the first time they attempt to use the Advertiser
Software via the end-user system on which the Advertiser Software is
installed. During such electronic registration, Advertiser shall create a
process by which such end-user will be identified as a user obtained through
the 4.0 CD-ROMs distributed by AOL hereunder. AOL agrees not to interfere
with, obfuscate, remove or alter any of the automatic installation
mechanisms, electronic registration mechanisms, or patent, copyright or
other proprietary rights notices included in the Advertiser Software
provided by Advertiser to AOL. AOL's obligations under this Section 7 shall
be contingent upon Advertiser's delivery of Advertiser Software that has
been quality assurance tested in accordance with Section 5 hereof.
8. Installation and Support. Advertiser shall be solely responsible for
------------------------
providing Customers with installation, maintenance and technical integration
support with respect to the Advertiser Software. AOL shall notify Advertiser
as soon as possible of AOL's receipt of any customer requests for support or
assistance with respect to the Advertiser Software.
9. Payments. In connection with AOL's obligations hereunder, Advertiser shall
--------
pay to AOL the following:
(i) [***]
---
(ii) [***]
---
- ----------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
16
<PAGE>
10. Auditing Rights. Advertiser will maintain complete, clear and accurate
records of all expenses, revenues and fees in connection with the
performance of this Insertion Order Agreement, including reports which
indicate the number of customers acquired as a result of the distribution of
the Advertiser Software by AOL, and the number of such customers which
become Commerce Customers . For the sole purpose of ensuring compliance
with Section 9(ii) of this Insertion Order Agreement, AOL (or its
representative) will have the right to conduct a reasonable and necessary
inspection of portions of the books and records of Advertiser which are
relevant to Advertiser's performance pursuant to this Insertion Order
Agreement. Any such audit may be conducted after twenty (20) business days
prior written notice to Advertiser. AOL shall bear the expense of any audit
conducted pursuant to this Section 9 unless such audit shows an error in
AOL's favor amounting to a deficiency to AOL in excess of five percent (5%)
of the actual amounts paid and/or payable to AOL hereunder, in which event
Advertiser shall bear the reasonable expenses of the audit. Advertiser
shall pay AOL the amount of any deficiency discovered by AOL within thirty
(30) days after receipt of notice thereof from AOL. This provision shall
survive the termination or expiration of this Insertion Order Agreement for
an additional three year period.
17
<PAGE>
EXHIBIT F
---------
[***]
- ----------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
18
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
________________________________________
ARTHUR ANDERSEN LLP
Los Angeles, California
May 12, 1999
