<PAGE>
As filed with the Securities and Exchange Commission on June 22, 1999
Registration No. 333-77025
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4 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)
<TABLE>
<S> <C> <C>
Delaware 5961 77-0454966
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
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3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
(310) 581-7200
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------
John M. Payne
President and Chief Executive Officer
STAMPS.COM INC.
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
(310) 581-7200
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
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Copies to:
<TABLE>
<S> <C>
Bruce R. Hallett, Esq. Alan K. Austin, Esq.
Allen Z. Sussman, Esq. Mark L. Reinstra, Esq.
Sean M. Pence, Esq. James C. Creigh, Esq.
Brobeck, Phleger & Harrison LLP Brian M. McDaniel, Esq.
38 Technology Drive Wilson Sonsini Goodrich & Rosati
Irvine, California 92618 650 Page Mill Road
(949) 790-6300 Palo Alto, California 94304
(650) 493-9300
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
------------------
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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<CAPTION>
Proposed
Proposed Maximum Maximum Amount of
Title of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share (1) Offering Price Fee(2)
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 5,750,000 $11.00 $63,250,000 $17,583.50
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of registration
fee pursuant to Rule 457(c) under the Securities Act of 1933.
(2) $15,985 of the registration fee was previously paid by the registrant in
connection with the filing of the Registration Statement on April 26,
1999. $1,598.50 was previously paid by the registrant in connection with
the filing of Amendment No. 2 on June 7, 1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 22, 1999
[LOGO OF STAMPS.COM]
5,000,000 Shares
Common Stock
This is our initial public offering and no public market currently exists
for our shares. We anticipate that the initial public offering price will be
between $9.00 and $11.00 per share. Our common stock has been approved for
quotation on the Nasdaq National Market under the symbol "STMP."
---------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
---------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Stamps.com...................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover any over-allotments. If the
underwriters exercise the right in full, the public offering price will total
$ , the underwriting discounts and commissions will total $ , and our
proceeds will total $ .
We have requested that the underwriters reserve up to ten percent of the
shares of common stock for sale at the initial public offering price to
directors, officers, employees and other individuals designated by Stamps.com.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common
stock on , 1999.
---------------
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
Wit Capital Corporation
The date of this Prospectus is , 1999.
<PAGE>
[DESCRIPTION OF ARTWORK]
Images of the different screens from Stamps.com.
INSIDE FRONT COVER
The inside front cover of the prospectus has the three steps a consumer
will use to obtain postage with Stamps.com. The following are the steps to be
taken:
1. Download Software and Sign-up: Start printing postage in a matter of
minutes. Simply download the free software from our web site, www.stamps.com,
register and you're ready to go.
2. Select your Address: Type in a new address or select from an existing
address book and Stamps.com corrects and formats your addresses online.
Stamps.com also integrates with the most popular contact managers and word
processors.
3. Print Postage: Just click print. Your postage, bar code and address is
printed from your inkjet or laser printer right onto envelopes, labels or
business forms. It's that easy.
INSIDE GATEFOLD (two pages)
The first page is a picture of a printer with an envelope with postage
coming out. Across the top of the page are the words INTERNET POSTAGE. The
picture is green and blue striped.
The second page is a picture of a keyboard with centered text which reads
POSTAGE FROM YOUR PRINTER.(TM) Across the bottom of the page are the following
words:
WE RUN SECURE POSTAGE SERVERS(TM) ON THE INTERNET CONNECTING THE U.S.
POSTAL SERVICE WITH CONSUMERS, SMALL BUSINESSES AND CORPORATE CUSTOMERS
ALLOWING THEIR ORDINARY LASER AND INKJET PRINTERS TO APPLY A NEW FORM OF
DIGITAL POSTAGE CALLED "INDICIUM".
Stamps.com offers a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. Our core service is
designed to enable users to print information based indicia, or electronic
stamps, directly onto envelopes, labels, or business documents using
ordinary laser or inkjet printers. No additional hardware is necessary for
a user to purchase and print our Internet Postage; the user's existing PC,
printer and Internet set-up are sufficient.
In the bottom right corner is the Stamps.com logo.
INSIDE BACK COVER
The inside back cover of the prospectus has an envelope with an enlarged
indicia. Each item of the indicia is explained in detail directly in the center
of the page. The explanation is as follows:
There is a vertical barcode called the FIM, or Facing Identification Mark.
The Post Office uses this to sort the mail. There is a postage amount in number
format with human readable information, including the postage value, mail
class, and date. There is a two-dimensional barcode. It contains information to
make this mailpiece unique, such as delivery and routing information, postage
value, and your digital signature. Under the barcode on the left side is the
licensing post office and on the right side is the unique meter number for the
mailpiece.
Across the bottom section of this page is an iconic list of Stamps.com
Current Partnerships which includes Office Depot.com; Quicken.com; America
Online; and Avery.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotment or subscriptions.
---------------------
TABLE OF CONTENTS
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Page
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Summary.................................................................. 4
Risk Factors............................................................. 6
Information Regarding Forward Looking Statements......................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 23
Business................................................................. 27
Management............................................................... 39
Related Party Transactions............................................... 51
Principal Stockholders................................................... 52
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 58
Legal Matters............................................................ 60
Experts.................................................................. 60
Where You Can Find Additional Information................................ 60
Index to Financial Statements............................................ F-1
</TABLE>
Except as otherwise noted, all information in this prospectus:
. reflects the automatic conversion of our outstanding preferred stock
into common stock immediately prior to the closing of this offering;
. reflects a three-for-two common stock dividend to our common
stockholders authorized by the Board of Directors on June 3, 1999; and
. assumes that the underwriters' over-allotment option will not be
exercised.
3
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information and financial statements and the notes to those statements
appearing elsewhere in this prospectus. This prospectus contains forward
looking statements that involve risks and uncertainties. Our actual results
could differ materially from the results anticipated in these forward looking
statements as a result of the factors set forth under "Risk Factors" and
elsewhere in this prospectus.
Stamps.com Inc.
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Our core service is designed
to enable users to print information based indicia, or electronic stamps,
directly onto envelopes, labels or business documents using ordinary laser or
inkjet printers. No additional hardware is necessary for a user to purchase and
print our Internet postage; the user's existing PC, printer and Internet set-up
are sufficient. Accessing our service is simple. A user will obtain our free
software either via a download from the Internet or through an install from a
CD-ROM. After installing the software and completing a brief registration
process, the user will connect via the Internet to our secure Postage Server
and purchase postage electronically 24 hours a day, seven days a week. We will
act as an ongoing intermediary between the US Postal Service and users by
offering the ability to purchase postage through our secure Postage Server. Our
technology works within rigorous US Postal Service requirements to provide
secure access to postage. Our Postage Server will be designed to interact with
word processing, contact and address management, accounting and corporate
applications to stamp letters, invoices, statements, checks and other business
documents automatically.
Our Strategy
Our objective is to be the leading provider of convenient, cost effective
and easy to use software-based Internet postage services. To achieve this
objective, our strategy includes the following key elements:
. Enhancing our brand name through a variety of marketing and promotional
techniques;
. Forming strategic partnerships with companies in the Internet,
software, original equipment manufacturer, office supply and media
industries;
. Establishing first-to-market advantages by becoming the first software-
based Internet postage solution approved for commercial release;
. Rapidly growing our customer base by enhancing our brand name, forming
strategic partnerships and establishing first-to-market advantages;
. Utilizing our software-based solution and technology to enhance our
service offering and expand the benefits of secure online transactions;
and
. Pursuing additional revenue opportunities, including postage related
products and insurance, the international Internet postage market, and
authenticated document delivery.
Corporate Information
In September 1996, our founders began to investigate the feasibility of
entering into the US Postal Service's Information Based Indicia Program and
initiated the certification process. In January 1998, we were incorporated in
Delaware as StampMaster, Inc. and changed our name to Stamps.com Inc. in
December 1998. Our executive offices are located at 3420 Ocean Park Boulevard,
Suite 1040, Santa Monica, California 90405, and our telephone number is (310)
581-7200. Information contained on our Web site does not constitute part of
this prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered....................... 5,000,000 shares
Common stock to be outstanding after this
offering................................. 34,771,454 shares
Use of proceeds............................ To expand marketing and
distribution partnerships, for
further development our
technology and for working
capital and other general
corporate purposes.
Nasdaq National Market symbol.............. STMP
</TABLE>
The number of shares outstanding after this offering excludes, as of the
date of this prospectus:
. 1,915,041 shares of common stock that may, but have not yet been issued
under our stock option and stock purchase plans; and
. options and warrants to purchase a total of 5,382,009 shares of common
stock at a weighted average exercise price of $0.84 per share. See
"Capitalization."
Summary Financial Data
(in thousands, except share and per share data)
The following table should be read with the financial statements and notes
to those statements appearing elsewhere in this prospectus. The pro forma
calculations give effect to the conversion of all outstanding shares of our
preferred stock into common stock upon the closing of this offering as if the
conversion occurred at inception, or the date of original issuance, if later.
Our as adjusted column reflects the sale of 5,000,000 shares of common stock
offered by this prospectus at an assumed initial public offering price of
$10.00 per share after deducting underwriter discounts and commissions and
estimated expenses payable by us.
<TABLE>
<CAPTION>
January 9, 1998 January 9, 1998
(inception) (inception) Three Months
through through Ended
December 31, 1998 March 31, 1998 March 31, 1999
----------------- --------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Net revenues................. $ -- $ -- $ --
Loss from operations......... (4,180) (363) (3,688)
Net loss..................... (4,195) (363) (3,686)
----------- ---------- -----------
Basic and diluted net loss
per share.................. $ (0.85) $ (0.09) $ (0.53)
Pro forma basic and diluted
net loss per share......... $ (0.36) $ (0.05) $ (0.15)
Weighted shares outstanding
used in basic and diluted
net loss per share
calculations............... 4,955,913 4,240,518 6,900,975
Weighted shares outstanding
used in pro forma basic and
diluted net loss per share
calculation................ 11,593,380 6,863,917 25,057,782
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
Actual As Adjusted
---------- ------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 28,524 $74,374
Working capital....................................... 26,090 71,940
Total assets.......................................... 29,872 75,722
Line of credit and capital lease obligations.......... 1,425 1,425
Redeemable preferred stock............................ 34,278 --
Total stockholders' equity (deficit).................. (7,227) 72,901
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected, the value of our stock could decline, and you may lose all or part of
your investment.
We face risks associated with our operations
If our service is not approved for commercial release, our business will fail.
Our service for purchasing postage over the Internet has not been approved
by the US Postal Service. We depend entirely on US Postal Service approval of
our Internet postage service. We are currently in the pre-approval testing
stage of the US Postal Service's Information Based Indicia Program. We cannot
be certain that our service will successfully emerge from this testing phase or
that the US Postal Service will ever approve our service for commercial
release.
We believe that US Postal Service approval of our software-based service,
prior to approval of our competitors' software-based products, is critical to
our success. If we don't receive the required regulatory approval in a timely
manner, our business and ability to compete in the Internet postage market will
suffer dramatically.
Intellectual property infringement claims, including a June 1999 claim against
us by Pitney Bowes, could delay our development and harm our results of
operations.
We face substantial uncertainty regarding the impact that other parties'
intellectual property positions will have on the Internet postage market. For
example, on at least three occasions, Pitney Bowes sent formal comments to the
US Postal Service asserting that intellectual property of Pitney Bowes related
to postage metering products and systems would be infringed by products meeting
the Information Based Indicia Program requirements. Specifically, in a number
of letters, Pitney Bowes identified a total of 19 US patents and four US patent
applications that it contends would be infringed by postage metering systems
that meet the requirements of the Information Based Indicia Program. Our
Internet postage service is designed to meet these requirements, which has led
Pitney Bowes to sue us for alleged patent infringement.
Specifically, on June 16, 1999, Pitney Bowes filed a patent infringement
lawsuit against us. The suit alleges that we are infringing two patents held by
Pitney Bowes related to postage application systems and electronic indicia. The
suit seeks treble damages, a preliminary and permanent injunction from further
alleged infringement, attorneys' fees and other unspecified damages. Pitney
Bowes filed a similar complaint in early June 1999 against one of our
competitors, E-Stamp Corporation, alleging infringement of seven Pitney Bowes
patents. If Pitney Bowes successfully asserts its claims against us and E-
Stamp, then we and E-Stamp may be prevented or hindered in competing in the
Internet postage market. We are currently investigating the claims against us
and have not responded to the suit. In addition, the litigation could result in
significant expenses and diversion of management time and other resources.
Further, if Pitney Bowes successfully asserts an infringement claim against us,
our operations would be impacted severely. The Pitney Bowes suit could result
in limitations on how we implement our service, delays and costs associated
with redesigning our service and payments of license fees and other payments.
Any injunction could eliminate our ability to market critical products or
services.
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
6
<PAGE>
computer-based postal products to license Pitney Bowes technology. Prior to
Pitney Bowes filing a lawsuit against us, we were in license discussions with
Pitney Bowes. We intend to continue these discussions; however, we cannot
predict whether these discussions will continue, the outcome of these
discussions or the impact of Pitney Bowes' intellectual property claims on our
business or the Internet postage market. If Pitney Bowes is able to
successfully assert claims against us and if we do not enter into a license
relationship with Pitney Bowes, our business could be impacted severely. As
described above, Pitney Bowes could obtain monetary and injunctive relief
against us.
As is customary with technology companies, we may receive or become aware
of correspondence claiming potential infringement of other parties'
intellectual property rights. We could incur significant costs and diversion of
management time and resources to defend claims regardless of the validity of
these claims. We may not have adequate resources to defend these claims, and
any associated costs and distractions could have a material adverse effect on
our business, financial condition and results of operations. As an alternative
to litigation, we may seek licenses for other parties' intellectual property
rights. We may not be successful in obtaining all of the necessary licenses on
commercially reasonable terms, if at all.
We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and protect our rights in our
products, services, know-how and information. We have three issued US patents
and have filed four 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 to us, claims issued in these patents
may not protect our technology. In addition, any of our patents might be held
invalid or unenforceable by a court. If our patents fail to protect our
technology, our competitive position could be harmed. Even if our patents are
upheld or are not challenged, third parties may develop alternative
technologies or products without infringing our patents. We generally enter
into confidentiality agreements with our employees, consultants and other third
parties to control and limit access and disclosure of our confidential
information. These contractual arrangements or other steps taken to protect our
intellectual property may not prove to be sufficient to prevent
misappropriation of technology or deter independent third party development of
similar technologies. Additionally, the laws of foreign countries may not
protect our services or intellectual property rights to the same extent as do
the laws of the United States.
Ongoing US Postal Service regulation may cause disruptions or the
discontinuance of our business.
If we achieve US Postal Service approval of our Internet postage service,
we will remain subject to continued US Postal Service scrutiny and other
government regulations. For example, US Postal Service regulations may require
that our personnel with access to postal information or resources receive a
security clearance prior to doing relevant work. We may experience delays or
disruptions if our personnel cannot receive necessary security clearances in a
timely manner, if at all. The regulations may limit our ability to hire
qualified personnel. For example, sensitive clearance may only be provided to
US citizens or aliens who are specifically approved to work on US Postal
Service projects.
The US Postal Service could change its certification requirements or
specifications for Internet postage or revoke the approval of our service. The
US Postal Service could also decide that Internet postage should no longer be
an approved postage service due to security concerns or other issues. Our
business would suffer dramatically if we are unable to adapt our Internet
postage service to any new requirements or specifications or if the US Postal
Service were to discontinue Internet postage as an approved postage method.
Alternatively, the US Postal Service could amend its requirements to make
certification easier to obtain, which could lead to more competition from third
parties. See "--If we are unable to compete successfully, our revenues and
operating results will suffer."
The Internet postage market is new and uncertain and our business may not
develop.
The market for Internet postage has not developed, and its development is
subject to substantial uncertainty. We cannot assure you that the Internet
postage market will develop. We depend on the commercial
7
<PAGE>
acceptance of our service for purchasing postage over the Internet. We do not
know if our target customers will transition to the Internet as a means of
purchasing postage. If potential users choose the Internet to purchase postage,
we cannot be certain that these users will adopt our system. Additionally,
uncertainty surrounding intellectual property claims, such as those asserted by
Pitney Bowes against us and E-Stamp, could severely impact the development of
the Internet postage market and our business.
We have a history of losses and expect to incur losses in the future, and we
may never achieve profitability.
As of March 31, 1999, we had not generated any revenues and had a deficit
accumulated during the development stage of $7.9 million. Our lack of revenues
can be attributed primarily to the fact that Internet postage has not been
approved for commercial release. In the course of our pre-commercial
development activities, we have not achieved profitability and expect to
continue to incur net losses for at least the next several quarters. Due to the
need to establish our brand and service, we expect to incur increasing sales
and marketing, product development and administrative expenses. As a result, we
will need to generate significant revenues to achieve and maintain
profitability. In this regard, you should disregard our gross margin
projections of 85% contained in an online article published by a third party in
December 1998 and linked to our Web site. Our gross margins are very uncertain
given that our Internet postage service may never receive US Postal Service
approval, attain commercial acceptance or develop into a significant source of
revenues for us. We have additional uncertainty related to the lack of a proven
pricing model in the untested Internet postage market. It is likely that our
gross margins and pricing strategies will vary in the short and long term. In
addition, projections published by market analysts regarding our margins may
differ from our actual results.
Our ability to generate gross margins generally assumes that if a market
for Internet postage develops, we must generate significant revenues from a
large base of active consumers. Even if we are able to establish any sizable
base of users, we may still not generate significant gross margins. For
instance, you should not rely on published statements that indicate our
intention to generate revenues from a 10% convenience fee. One of our initial
service plans does contemplate a 10% service fee. See "Management Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
However, given the current limited beta use of our service and the lack of a
commercial market for Internet postage, we cannot be sure that a percentage fee
will be our ultimate pricing approach or that a percentage fee would generate
significant customer use of our service. We continue to evaluate many different
pricing and fee structures, none of which have been tested on a commercial
basis. As a result, we cannot predict whether any contemplated pricing or fee
structure, including a percentage convenience fee, will ever generate revenues
or profits for us. Overall, you should not base your decision as to whether to
invest in shares of our common stock on any other published article or any
calculation of our gross margins, if any, or pricing strategies. Any projection
or other forward looking statements are subject to a great deal of uncertainty
and change. You should be aware that our future revenue and operating results
will be affected by a number of factors, including those discussed in this
section.
We must effectively manage our commercial release to achieve acceptance of our
service.
If we receive US Postal Service approval of our Internet postage service,
we will face numerous risks coincident with the introduction of our services.
We will be initially subject to a limited launch of 10,000 customers after our
commercial release. We intend to conduct a controlled national launch of our
service; however, we have very limited experience conducting marketing
campaigns, and we may fail to generate significant interest. On the other hand,
if we experience extensive interest in our services, we may fail to meet the
expectations of customers due to the strains this demand will place on our Web
site, network infrastructure and our systems.
Our ability to obtain and retain customers depends on our customer service
capabilities. We cannot predict whether the quantity or quality of our customer
service will be sufficient to address our customers' needs. If we are unable at
any time during and after our controlled national launch to appropriately
address customer service issues or provide a satisfactory customer experience
for current or potential customers, our business and reputation may be damaged.
8
<PAGE>
If we cannot effectively manage our growth, our ability to provide services
will suffer.
Our reputation and our ability to attract, retain and serve our customers
depend upon the reliable performance of our Web site, network infrastructure
and systems. We have a limited basis upon which to evaluate the capability of
our systems to handle controlled or full commercial availability of our
Internet postage service. We have recently expanded our operations
significantly, and further expansion will be required to address the
anticipated growth in our user base and market opportunities. To manage the
expected growth of operations and personnel, we will need to improve existing
and implement new systems, procedures and controls. In addition, we will need
to expand, train and manage an increasing employee base. We will also need to
expand our finance, administrative and operations staff. We may not be able to
effectively manage this growth. Our current expansion has placed and we expect
our future expansion to continue to place a significant strain on our
managerial, operational and financial resources. Our current and planned
personnel, systems, procedures and controls may be inadequate to support our
future operations. If we are unable to manage growth effectively or experience
disruptions during our expansion, our business will suffer and our financial
condition and results of operations will be seriously affected.
We have a limited operating history and cannot predict our ability to
successfully launch and maintain our Internet postage service.
In September 1996, our founders began to investigate the feasibility of
entering into the US Postal Service's Information Based Indicia Program and
initiated the certification process. In January 1998, we were incorporated in
Delaware and accordingly, we have a very limited operating history. As of March
31, 1999, we had generated no revenues and do not expect to generate any
significant revenues until the US Postal Service approves our Internet postage
service for commercial release. You should consider our prospects in light of
the risks and difficulties frequently encountered by early stage companies in
new and rapidly evolving markets. These risks include, among other things, our:
. ability to meet and maintain government specifications for our service,
specifically US Postal Service requirements;
. complete dependence on a service that currently has no market
acceptance;
. need to expand our sales and support organizations;
. ability to establish and expand our brand name;
. ability to expand our operations to meet the commercial demand for our
service;
. development of and reliance on strategic and distribution
relationships;
. ability to prevent and respond quickly to service interruptions;
. ability to minimize fraud and other security risks; and
. competition from competitors with greater capital resources and brand
awareness.
If we are unable to maintain and develop our strategic relationships and
distribution arrangements, our Internet postage service may not achieve
commercial acceptance.
We have established strategic relationships with a very limited number of
third parties. If we receive US Postal Service approval, our strategic
relationships will generally involve the promotion and distribution of our
service through our partners' Web sites. Additionally, some of our
relationships provide for the inclusion of our logo or promotional offers for
our service in packaging and marketing materials utilized by our partners. In
return for promoting our service, our partners may receive revenue sharing
opportunities. In order to achieve wide distribution of our service, we believe
we must establish additional similar relationships to effectively market our
service. We have limited experience in establishing and maintaining these
strategic relationships and we may fail in our efforts to establish and
maintain our strategic relationships. In addition to establishing
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and maintaining these relationships, our distribution agreements are dependent
upon US Postal Service approval of our Internet postage service. For example,
we regard our marketing and distribution agreement with America Online as one
of our most significant strategic relationships and it is subject to
termination at the option America Online if we do not receive US Postal Service
approval for our service by August 15, 1999.
None of our current strategic relationships have resulted in revenues,
primarily because the US Postal Service has not approved our Internet postage
service for commercial release. As a result, our strategic partners may not
view their relationships with us as significant or vital to their businesses
and consequently, may not perform according to our expectations. We have little
ability to control the efforts of our strategic partners and even if we are
successful in establishing strategic relationships, these strategic
relationships may not be successful.
If our Internet postage service does not achieve commercial acceptance, our
operating results will suffer.
Assuming we receive US Postal Service approval, we will rely on a single
service for our revenues for the foreseeable future. As a result, our ability
to gain commercial acceptance of our Internet postage service is critical to
our success. Any failure to successfully gain commercial acceptance of our
Internet postage service would not only have a material adverse effect on our
business and results of operations but also on our ability to seek any
additional revenue opportunities.
System and online security failures could harm our business and operating
results.
Our Internet postage service depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. In addition, we
must provide a high level of security for the transactions we execute. We rely
on internally-developed and third party technology to provide secure
transmission of postage and other confidential information. Any breach of these
security measures would severely impact our business and reputation and would
likely result in the loss of customers. Furthermore, if we are unable to
provide adequate security, the US Postal Service could prohibit us from selling
postage over the Internet.
Our systems and operations are vulnerable to damage or interruption from a
number of sources, including fire, flood, power loss, telecommunications
failure, break-ins, earthquakes and similar events. For example, all of our
Internet postage processing hardware is located in our facility in Southern
California, a seismically active region. Our servers are also vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions. We
have experienced minor system interruptions in the past and may experience them
again in the future. Any substantial interruptions in the future could result
in the loss of data and could completely impair our ability to generate
revenues from our service. We do not presently have a formal disaster recovery
plan in effect. We are currently evaluating our business interruption insurance
to determine whether we have sufficient coverage to compensate us for losses
that may occur after our commercial launch.
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Anyone
who is able to circumvent our security measures could misappropriate
confidential information or cause interruptions in our operations. We may be
required to expend significant capital and other resources to protect against
potential security breaches or to alleviate problems caused by any breach. We
rely on specialized technology to provide the security necessary for secure
transmission of postage and other confidential information. Advances in
computer capabilities, new discoveries in security technology, or other events
or developments may result in a compromise or breach of the algorithms we use
to protect customer transaction data. Should someone circumvent our security
measures, it could seriously harm our reputation, business, financial condition
and results of operations. Security breaches could also expose us to a risk of
loss or litigation and possible liability for failing to secure confidential
customer information. As a result, we may be required to expend a significant
amount of financial and other resources to protect against security breaches or
to alleviate any problems that they may cause.
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If we do not expand our product and service offerings, our business may not
grow.
We may pursue the acquisition of new or complementary businesses, products
or technologies in an effort to enter into new business areas, diversify our
sources of revenue and expand our product and service offerings outside the
Internet postage market. At present, we have no commitments or agreements and
are not currently engaged in discussions for any material acquisitions or
investments. To the extent we pursue new or complementary businesses, we may
not be able to expand our service offerings and related operations in a cost-
effective or timely manner. We may experience increased costs, delays and
diversions of management's attention when integrating any new businesses or
services. We may lose key personnel from our operations or those of any
acquired business. Furthermore, any new business or service we launch that is
not favorably received by users could damage our reputation and brand name in
the Internet postage or other markets that we enter. We also cannot be certain
that we will generate satisfactory revenues from any expanded services or
products to offset related costs. Any expansion of our operations would also
require significant additional expenses, and these efforts may strain our
management, financial and operational resources. Additionally, future
acquisitions may also result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the assumption of known and
unknown liabilities, and the amortization of expenses related to goodwill and
other intangible assets, all of which could have a material adverse effect on
our business, financial condition and operating results. New issuances of
securities may also have rights, preferences and privileges senior to those of
our common stock.
We expect that fluctuations in our operating results could cause our stock
price to fall.
As of March 31, 1999, we had not generated any revenues from our
operations. Accordingly, we have a limited basis upon which to predict future
operating results. We expect that our revenues, margins and 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 to defend ourselves against intellectual property claims;
. the costs of our marketing programs to establish the Stamps.com brand
name;
. demand for our Internet postage service;
. our ability to develop and maintain strategic and distribution
relationships;
. the number, timing and significance of new products or services
introduced by both us and our competitors;
. our ability to develop, market and introduce new and enhanced services
on a timely basis;
. the level of service and price competition;
. changes in our operating expenses as we expand operations; and
. general economic factors.
Our cost of revenues includes costs for systems operations, customer
service, Internet connection and security services; all of these costs will
fluctuate depending upon the demand for our service. In addition, a substantial
portion of our operating expenses is related to personnel costs, marketing
programs and overhead, which cannot be adjusted quickly and are therefore
relatively fixed in the short term. Our operating expense levels are based, in
significant part, on our expectations of future revenues. If our expenses
precede increased revenues, both gross margins and results of operations would
be materially and adversely affected because a relatively small amount of our
costs and expenses varies with our revenues in the short term.
Due to the foregoing factors and the other risks discussed in this
prospectus, you should not rely on period-to-period comparisons of our results
of operations as an indication of future performance. It is possible that in
some future periods our results of operations will be below the expectations of
public market analysts and investors. In this event, the market price of our
common stock is likely to fall.
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If we do not achieve brand recognition necessary to succeed in the Internet
postage market, our business will suffer.
We must quickly build our Stamps.com brand to gain market acceptance for
our service. We believe it is imperative to our long term success that we
obtain significant market share for our services before other competitors enter
the Internet postage market. We must make substantial expenditures on product
development, strategic relationships and marketing initiatives in an effort to
establish our brand awareness. In addition, we must devote significant
resources to ensure that our users are provided with a high quality online
experience supported by a high level of customer service. We cannot be certain
that we will have sufficient resources to build our brand and realize
commercial acceptance of our service. If we fail to gain market acceptance for
our service, our business will suffer dramatically.
If we are unable to compete successfully, particularly against large,
traditional providers of postage products such as Pitney Bowes who enter the
online postage market, our revenues and operating results will suffer.
The market for Internet postage products and services is new and we expect
it to be intensely competitive. At present, three other vendors seeking
certification through the Information Based Indicia Program have hardware
products available for beta testing. One of the hardware vendors also has a
software-based product in beta testing. Another of these hardware vendors,
Pitney Bowes, has made formal comments to the US Postal Service asserting that
it holds several patents and has patent applications pending which are
infringed by the product specifications that Information Based Indicia Program
participants are required to follow. To that end, Pitney Bowes filed two
separate lawsuits in June 1999 against us and E-Stamp alleging infringement of
Pitney Bowes patents. See "--Intellectual property infringement claims,
including a June 1999 claim against us by Pitney Bowes, could delay our
development and harm our results of operations." Given Pitney Bowes'
assertions, they may have the technology available to duplicate the products
and services offered by other Internet postage providers, including Stamps.com.
In a May 1999 press release, Pitney Bowes announced its intention to
demonstrate both a hardware and software-based Internet postage solution. If
any of our competitors, including Pitney Bowes, could provide the same or
similar service as us, our operations could be adversely impacted. Based on
current participants in the Information Based Indicia Program, we expect that
our competitors will initially include:
. traditional providers of postage products and services, including
Pitney Bowes and Neopost Industrie;
. potential providers of Internet postage products and services,
including Pitney Bowes, E-Stamp and Neopost;
Internet postage may not be adopted by postage consumers. These consumers
may continue to use traditional means to purchase postage, including purchasing
postage from their local post office. If Internet postage becomes a viable
market, we may not be able to establish or maintain a competitive position
against current or future competitors as they enter the market. Many of our
competitors have longer operating histories, larger customer bases, greater
brand recognition, greater financial, marketing, service, support, technical,
intellectual property and other resources than us. As a result, our competitors
may be able to devote greater resources to marketing and promotional campaigns,
adopt more aggressive pricing policies and devote substantially more resources
to Web site and systems development than us. This increased competition may
result in reduced operating margins, loss of market share and a diminished
brand. We may from time to time make pricing, service or marketing decisions or
acquisitions as a strategic response to changes in the competitive environment.
These actions could result in reduced margins and seriously harm our business.
If the market for Internet postage develops, we could face competitive
pressures from new technologies or the expansion of existing technologies
approved for use by the US Postal Service. We may also face competition from a
number of indirect competitors that specialize in electronic commerce and other
companies with substantial customer bases in the computer and other technical
fields. Additionally, companies that control access to transactions through a
network or Web browsers could also promote our competitors or charge us a
substantial fee for inclusion. Our competitors may also be acquired by, receive
investments from or enter into
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other commercial relationships with larger, better-established and better-
financed companies as use of the Internet and other online services increases.
In addition, changes in postal regulations could adversely affect our service
and significantly impact our competitive position. We may be unable to compete
successfully against current and future competitors, and the competitive
pressures we face could seriously harm our business. See "Business--Our
Competition."
We rely on a relatively new management team and need additional personnel to
grow our business.
Our management team is relatively new and we intend to continue to hire key
management personnel, including a Chief Operating Officer. For example, our
Chief Executive Officer was hired in October 1998 and our Chief Financial
Officer was hired in September 1998. There can be no assurance that we will
successfully assimilate our recently hired managers or that we can successfully
locate, hire, assimilate and retain qualified key management personnel. Our
business is largely dependent on the personal efforts and abilities of our
senior management, including Mr. Payne, our Chief Executive Officer, Mr.
LaValle, our Chief Financial Officer, and other key personnel. Any of our
officers or employees can terminate his or her employment relationship at any
time. The loss of these key employees or our inability to attract or retain
other qualified employees could have a material adverse effect on our results
of operations and financial condition.
Our future success depends on our ability to attract, retain and motivate
highly skilled technical, managerial, editorial, merchandising, marketing and
customer service personnel. We plan to hire additional personnel in all areas
of our business. Competition for qualified personnel is intense, particularly
in the Internet and high technology industries. As a result, we may be unable
to successfully attract, assimilate or retain qualified personnel. Further, we
may be unable to retain the employees we currently employ or attract additional
technical personnel. The failure to retain and attract the necessary personnel
could seriously harm our business, financial condition and results of
operations.
If we do not respond effectively to technological change, our service could
become obsolete and our business will suffer.
The development of our service and other technology entails significant
technical and business risks. To remain competitive, we must continue to
enhance and improve the responsiveness, functionality and features of our
online operations. The Internet and the electronic commerce industry are
characterized by:
. rapid technological change;
. changes in user and customer requirements and preferences;
. frequent new product and service introductions embodying new
technologies; and
. the emergence of new industry standards and practices.
The evolving nature of the Internet or the Internet postage market could
render our existing technology and systems obsolete. Our success will depend,
in part, on our ability to:
. license or acquire leading technologies useful in our business;
. enhance our existing service;
. develop new services and technology that address the increasingly
sophisticated and varied needs of our current and prospective users;
and
. respond to technological advances and emerging industry and regulatory
standards and practices in a cost-effective and timely manner.
Future advances in technology may not be beneficial to, or compatible with,
our business. Furthermore, we may not successfully use new technologies
effectively or adapt our technology and systems to user requirements or
emerging industry standards on a timely basis. Our ability to remain
technologically competitive may require substantial expenditures and lead time.
If we are unable to adapt in a timely manner to changing market conditions or
user requirements, our business, financial condition and results of operations
could be seriously harmed.
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If we market our Internet postage service internationally, foreign governments'
regulation could disrupt our operations.
One element of our strategy is to provide our service in international
markets. Our ability to provide our service in international markets would
likely be subject to rigorous governmental approval and certification
requirements similar to those imposed by the US Postal Service. For example,
our service cannot currently be used for international mail because foreign
postal authorities do not currently recognize information based indicia
postage. If foreign postal authorities in the future accept postage generated
by our service and if we obtain the necessary foreign certification or
approvals, we would likely be subject to ongoing regulation by international
governments and agencies. To date, efforts to create a certification process in
Europe and other foreign markets are in a very preliminary stage and these
markets may not prove to be a viable opportunity for us. As a result, we cannot
predict when, or if, international markets will become a viable source of
revenues for a postage service similar to ours.
If we achieve significant international acceptance of our service, our
business activities will be subject to a variety of potential risks, including
the adoption of laws and regulatory requirements, political and economic
conditions, difficulties protecting our intellectual property rights and
actions by third parties that would restrict or eliminate our ability to do
business in these jurisdictions. If we begin to transact business in foreign
currencies, we will become subject to the risks attendant to transacting in
foreign currencies, including the potential adverse effects of exchange rate
fluctuations.
If the internal and third-party equipment and software that we use are not Year
2000 compliant, our operating results, brand and reputation could be impaired
and we could lose users.
Many existing computer systems and software products are coded to accept
only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. If not corrected, there could be system
failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced to comply with these "Year 2000"
requirements.
We use and depend on third-party equipment and software that may not be
Year 2000 compliant. If Year 2000 issues prevent our users from accessing the
Internet or our service, purchasing postage or using their credit cards, our
business and operations will suffer. Any failure of our third-party equipment
or software to operate properly could result in system and online security
failures and require us to incur unanticipated expenses, resulting in serious
harm to our business, operating results and financial condition. For example,
we rely on the US Postal Service's secure postage accounting vault to purchase
postage credit for our customers. If the US Postal Service systems are not Year
2000 compliant, users of our service may not be able to purchase additional
postage.
Our failure to make our service Year 2000 compliant could result in:
. a decrease in sales of our service;
. an increase in the allocation of resources to address Year 2000
problems of our users without additional revenue commensurate with the
dedication of our resources; and
. an increase in litigation costs relating to losses suffered by our
users due to Year 2000 problems.
Furthermore, the purchasing patterns of users or potential users may be
affected by Year 2000 issues as companies expend significant resources to
correct their current systems. These expenditures may result in reduced funds
available to purchase our service, which could seriously harm our business,
operating results and financial condition. We have conducted a preliminary
review of our internal computer systems to identify the systems that could be
affected by the Year 2000 issue. Based on this preliminary review, we believe
that our internal software systems are Year 2000 compliant. However, we
continually evaluate our systems and intend
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to develop a contingency plan to address any Year 2000 issues we discover. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our growth and operating results could be impaired if we are unable to meet our
future capital requirements.
We believe that our current cash balances together with the net proceeds of
this offering will allow us to fund our operations for at least the next 12
months. However, we may require substantial working capital to fund our
business and we may need to raise additional capital. We cannot be certain that
additional funds will be available on satisfactory terms when needed, if at
all. Our future capital needs depend on many factors, including:
. the timing of our development efforts and US Postal Service approval of
our service;
. market acceptance of Internet postage;
. the level of promotion and advertising required to launch our service;
and
. changes in technology.
The various elements of our business and growth strategies, including our
plans to support fully the commercial release of our service, our introduction
of new products and services and our investments in infrastructure will require
additional capital. If we are unable to raise additional necessary capital in
the future, we may be required to curtail our operations significantly or
obtain funding through the relinquishment of significant technology or markets.
Also, raising additional equity capital would have a dilutive effect on
existing stockholders.
We face risks related to the Internet industry
The success of our business will depend on the continued growth of the Internet
and the acceptance by consumers of the Internet as a means for purchasing
postage.
Our success depends in part on widespread acceptance and use of the
Internet as a way to purchase postage. This practice is at an early stage of
development, and market acceptance of Internet postage is uncertain. We cannot
predict the extent to which users will be willing to shift their purchasing
habits from traditional to online postage purchasing. To be successful, our
users must accept and utilize electronic commerce to satisfy their product
needs. Our future revenues and profits, if any, substantially depend upon the
acceptance and use of the Internet and other online services as an effective
medium of commerce by our target users.
The Internet may not become a viable long-term commercial marketplace due
to potentially inadequate development of the necessary network infrastructure
or delayed development of enabling technologies and performance improvements.
The commercial acceptance and use of the Internet may not continue to develop
at historical rates. Our business, financial condition and results of
operations would be seriously harmed if:
. use of the Internet and other online services does not continue to
increase or increases more slowly than expected;
. the infrastructure for the Internet and other online services does not
effectively support future expansion of electronic commerce or Internet
postage;
. concerns over security and privacy inhibit the growth of the Internet;
or
. the Internet and other online services do not become a viable
commercial marketplace.
Our operating results could be impaired if we become subject to burdensome
government regulation and legal uncertainties.
With the exception of US Postal Service regulations, we are not currently
subject to direct regulation by any domestic or foreign governmental agency,
other than regulations applicable to businesses generally, and laws or
regulations directly applicable to electronic commerce. However, due to the
increasing popularity and
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use of the Internet, it is possible that a number of laws and regulations may
be adopted with respect to the Internet, relating to:
. user privacy;
. pricing;
. content;
. copyrights;
. distribution; and
. characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the
expansion of the Internet. A decline in the growth of the Internet could
decrease demand for our products and services and increase our cost of doing
business. Moreover, the applicability of existing laws to the Internet is
uncertain with regard to many issues, including property ownership, export of
specialized technology, sales tax, libel and personal privacy. Our business,
financial condition and results of operations could be seriously harmed by any
new legislation or regulation. The application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could also harm our business.
We plan to offer our service over the Internet in multiple states and
foreign countries. These jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each state or foreign
country. Our failure to qualify as a foreign corporation in a jurisdiction
where we are required to do so could subject us to taxes and penalties. Other
states and foreign countries may also attempt to regulate our Internet postage
service or prosecute us for violations of their laws. Further, we might
unintentionally violate the laws of foreign jurisdictions and those laws may be
modified and new laws may be enacted in the future.
We are subject to risks related to the offering
We cannot be certain that an active trading market will develop for our common
stock.
Prior to this offering, there has been no public market for our common
stock and we cannot assure you that an active trading market for the common
stock will develop or continue as a result of this offering. If no active
trading market develops for our common stock, you may have difficulty
purchasing or selling our common stock, which could adversely affect the price
you are able to obtain for our common stock.
The rights of our stockholders could be adversely affected because of the
concentrated control of our stock.
After this offering, our executive officers, directors and 5% stockholders
will control approximately 80% of our voting stock. These stockholders will
have significant influence and ability to control most matters requiring board
and stockholder approval, including a significant corporate transaction like
the sale of our company, a change in control, or the terms of future equity
financings. These stockholders could use their control in ways that may not be
beneficial to our stockholders.
Our stock price could fluctuate dramatically which could result in substantial
losses to investors.
The trading price of our common stock is likely to be volatile and could
fluctuate dramatically in response to the following factors, some of which are
beyond our control:
. changes in expectations of our future financial performance, including
financial estimates by securities analysts and investors;
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. changes in operating and stock price performance of other Internet and
online companies similar to us;
. future sales of our common stock; or
. general economic factors.
Domestic and international stock markets often experience significant price
and volume fluctuations. These fluctuations, as well as general economic and
political conditions unrelated to our performance, may adversely affect the
price of our common stock. In particular, following initial public offerings,
the market prices for stocks of Internet and technology-related companies often
reach levels that bear no relationship to the operating performance of these
companies. These market prices are generally not sustainable and could vary
widely. The market prices of the securities of Internet-related and online
companies have been especially volatile. If our common stock trades to high
levels following this offering, it could eventually experience a significant
decline.
Our offering price does not necessarily relate to any established criteria of
value and our stock price may trade at prices below our offering price.
Through negotiations with the underwriters, we will determine the public
offering price of the shares of our common stock. This price will not
necessarily relate to our book value, assets, past operating results, financial
condition or any other established criteria of value. As a result, the shares
being offered may trade at market prices below the initial public offering
price.
Additional shares held by existing stockholders may be sold into the public
market in the near future, which could cause our stock price to decline.
Sales of substantial amounts of our common stock in the public market after
this offering could adversely affect the prevailing market price of our common
stock. Upon completion of this offering, we will have 34,771,454 shares of
common stock outstanding assuming no exercise of the underwriters over-
allotment option and no exercise of outstanding options after March 31, 1999.
Of those shares, a total of 5,000,000 shares will be freely tradable under the
Securities Act unless purchased or held by our "affiliates," as that term is
defined in Rule 144 under the Securities Act. As part of this offering, our
executive officers, directors and stockholders have agreed with the
underwriters that they will not offer or sell any shares of common stock for a
period of 180 days after the date of this prospectus without the prior written
consent of BancBoston Robertson Stephens Inc., except for options granted under
our stock incentive plan. BancBoston Robertson Stephens Inc. may, in its sole
discretion, at any time and without notice, release all of our portion of the
shares of common stock subject to these agreements. Sales of substantial
amounts of common stock in the public market, or the perception that these
sales could occur, could adversely affect the prevailing market price for our
common stock and could impair our ability to raise capital through a public
offering of equity securities.
Our management has broad discretion over use of the proceeds from this offering
and may not use the proceeds effectively.
The net proceeds of this offering are estimated to be approximately
$45,850,000 million at an assumed initial public offering price of $10.00 per
share and after deducting the estimated underwriting discount and estimated
offering expenses. Our management will retain broad discretion as to the
allocation of the proceeds of this offering. See "Use of Proceeds."
Our charter documents could deter a takeover effort, which could inhibit your
ability to receive an acquisition premium for your shares.
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. In addition, we are
subject to the provisions of Section 203 of the Delaware General Corporation
Law. This
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statute could prohibit or delay the accomplishment of mergers or other takeover
or change in control attempts with respect to us and, accordingly, may
discourage attempts to acquire us. See "Description of Capital Stock."
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates," "intends," "believes" and similar expressions are intended to
identify forward looking statements. These statements include, but are not
limited to, statements under the captions "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus. These forward looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. The cautionary statements
made in this prospectus should be read as being applicable to all related
forward looking statements wherever they appear in this prospectus.
---------------------
Stamps.com(TM) and Postage Server(TM) are our trademarks. This prospectus
also includes trademarks of entities other than Stamps.com.
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USE OF PROCEEDS
Our net proceeds from the sale of the 5,000,000 shares of common stock
offered by this prospectus are estimated to be approximately $45,850,000 based
upon an assumed offering price of $10.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by us.
We currently estimate that the net proceeds of the offering will be used as
follows:
. 60% for expansion of our marketing and distribution partnerships;
. 5% to enhance our server and network infrastructure and the
functionality of our Web site; and
. 35% for working capital and other general corporate purposes.
Pending these uses, the net proceeds of the offering will be invested in
short-term, interest-bearing, investment-grade instruments. As of the date of
this prospectus, we can only estimate the particular uses for the net proceeds
to be received upon completion of the offering. As a result, the above
estimates and our use of proceeds are subject to change at our management's
discretion. The amounts actually expended for each of the purposes listed above
may vary significantly depending upon a number of factors, including the
progress of our marketing programs, capital spending requirements, and
developments in the Internet postage market and Internet commerce.
From time to time, in the ordinary course of business, we may pursue the
acquisition of new or complementary businesses, products or technologies in an
effort to enter into new business areas, diversify our sources of revenue and
expand our product and service offerings. A portion of the net proceeds may be
used to fund acquisitions or investments. We currently have no arrangements,
agreements or understandings, and are not engaged in active negotiations for
any material acquisitions or investments.
DIVIDEND POLICY
We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain all available funds for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Any future determination to pay dividends will be at
the discretion of our Board of Directors and will depend on our results of
operations, financial conditions, contractual and legal restrictions and other
factors it deems relevant.
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CAPITALIZATION
The following table indicates our capitalization as of March 31, 1999 on an
actual basis and on a pro forma as adjusted basis:
. to reflect the automatic conversion of all outstanding shares of
preferred stock into shares of common stock upon the closing of this
offering; and
. to give effect to the receipt of the estimated net proceeds from the
sale of 5,000,000 shares of common stock at an assumed initial public
offering price of $10.00 per share.
<TABLE>
<CAPTION>
March 31, 1999
--------------------
(Unaudited)
Pro Forma
Actual As Adjusted
------- -----------
(in thousands,
except share data)
<S> <C> <C>
Line of credit and capital lease obligations ............. $ 1,425 $ 1,425
------- -------
Redeemable preferred stock, par value $0.001, (Series A, B
and C); 15,500,000 shares authorized; 15,246,986 shares
issued and outstanding, actual; 5,000,000 shares
authorized; no shares issued and outstanding, pro forma
as adjusted............................................. 34,278 --
Stockholders' equity (deficit):
Common stock, par value $0.001; 40,000,000 shares
authorized, 6,900,975 issued and outstanding, actual;
95,000,000 shares authorized, 34,771,454 issued and
outstanding, pro forma as adjusted..................... 7 35
Additional paid-in capital................................ 4,785 84,885
Notes receivable for stock sales.......................... (117) (117)
Deferred compensation..................................... (4,020) (4,020)
Accumulated deficit during development stage.............. (7,882) (7,882)
------- -------
Total stockholders' equity (deficit)..................... (7,227) 72,901
------- -------
Total capitalization.................................... $28,476 $74,326
======= =======
</TABLE>
The number of shares outstanding after this offering is 34,771,454
excluding, as of the date of this prospectus:
. 1,915,041 shares of common stock that may, but have not yet been issued
under our stock option and stock purchase plans; and
. options and warrants to purchase a total of 5,382,009 shares of common
stock at a weighted average exercise price of $0.84 per share.
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was
approximately $26,974,784, or $0.91 per share of common stock. Pro forma net
tangible book value per share represents the amount of our pro forma total
tangible assets less pro forma total liabilities divided by the pro forma
number of shares of common stock outstanding as of March 31, 1999. Without
taking into account any other changes in pro forma net tangible book value,
other than to give effect to our sale of the 5,000,000 shares of common stock
in this offering and the receipt and application of the net proceeds from this
offering, the pro forma net tangible book value of as of March 31, 1999 would
have been approximately $72,824,784, or $2.09 per share of common stock. This
represents an immediate increase in pro forma net tangible book value of $1.18
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $7.91 per share to investors purchasing common stock in
this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of March 31,
1999....................................................... $ 0.91
Increase per share attributable to new investors............. 1.18
------
Pro forma net tangible book value per share after this
offering.................................................... 2.09
------
Dilution per share to new investors........................... $ 7.91
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the difference between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by new investors, assuming an initial public offering price of
$10.00 per share and before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 29,771,454 85.6% $36,214,788 42.0% $ 1.22
New investors.............. 5,000,000 14.4 50,000,000 58.0 $10.00
---------- ----- ----------- -----
Total.................... 34,771,454 100.0% $86,214,788 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options and warrants. As of May 31,
1999, options and warrants to purchase 5,382,009 shares of common stock were
outstanding at a weighted average exercise price of $0.84 per share. To the
extent that these options are exercised, new investors will experience further
dilution.
21
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial data should be read with our financial
statements and the notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The statement of operations data for the period from
inception through December 31, 1998 and the balance sheet data at December 31,
1998, are derived from our financial statements which have been audited by
Arthur Andersen LLP, our independent public accountants, and are included
elsewhere in this prospectus. The statements of operations data for the period
January 9, 1998 (inception) through March 31, 1998 and the three month period
ended March 31, 1999, and the balance sheet data at March 31, 1999, are derived
from our unaudited interim financial statements included elsewhere in this
prospectus. Our unaudited financial statements have been prepared on
substantially the same basis as the audited consolidated financial statements
and, in the opinion of our management, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for these periods. Please be advised that historical results are
not necessarily indicative of the results to be expected in the future, and
results of interim periods are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
January 9, 1998 January 9, 1998
(inception) through (inception) through Three Months Ended
December 31, 1998 March 31, 1998 March 31, 1999
------------------- ------------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ --
Costs and expenses:
Research and
development.......... 1,532 83 1,160
General and
administrative....... 2,648 280 2,528
----------- ---------- -----------
Total costs and
expenses............ 4,180 363 3,688
----------- ---------- -----------
Loss from operations.... (4,180) (363) (3,688)
Interest expense, net... (16) -- 2
----------- ---------- -----------
Net loss................ $ (4,196) $ (363) $ (3,686)
=========== ========== ===========
Basic and diluted net
loss per share........ $ (0.85) $ (0.09) $ (0.53)
=========== ========== ===========
Pro forma basic and
diluted net loss per
share................. $ (0.36) $ (0.05) $ (0.15)
=========== ========== ===========
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation........... 4,955,913 4,240,518 6,900,975
Weighted average shares
outstanding used in
pro forma basic and
diluted net loss per
share calculation..... 11,593,380 6,863,917 25,057,782
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of As of
December 31, 1998 March 31, 1999
----------------- --------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................. $3,470 $28,524
Working capital........................... 1,385 26,090
Total assets.............................. 4,426 29,872
Line of credit and capital lease
obligations............................. 1,473 1,425
Redeemable preferred stock................ 5,978 34,278
Total stockholders' equity (deficit)...... (3,951) (7,227)
</TABLE>
Our statement of operations data for the period from inception through
December 31, 1998 includes approximately $35,000 of expenses incurred prior to
incorporation. Prior to incorporation, the founders primarily investigated the
feasibility of entering into the US Postal Service's Information Based Indicia
Program and initiated the certification process.
All expenses other than those related to research and development are
classified as general and administrative until we recognize revenue from our
principal business activities. In addition, the provision for income taxes
which consist solely of minimum state taxes is classified as general and
administrative.
Please refer to note 1 of the notes to our financial statements for a
description of the method used to compute basic and diluted loss per share and
pro forma basic and diluted loss per share. Our pro forma calculations give
effect to the conversion of all outstanding shares of our preferred stock into
common stock upon closing of this offering as if the conversion occurred on
January 9, 1998, or the date of original issuance, if later.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward looking statements that involve risks and
uncertainties. Actual events or results may differ materially from those
projected in these forward looking statements. See "Information Regarding
Forward Looking Statements." The following discussion of our financial
condition and results of operations also should be read in conjunction with the
financial statements and notes to those statements included elsewhere in this
prospectus.
Overview
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Beginning in September 1996,
our founders investigated the feasability of entering into the US Postal
Service Information Based Indicia Program and initiated the certification
process. We had no revenues and immaterial expenses prior to our incorporation
in Delaware on January 9, 1998. In February 1998, we raised $1.5 million in a
private placement transaction and commenced development of our Internet postage
service within the US Postal Service framework of specification and performance
requirements.
In August 1998, we received US Postal Service approval for Phase I beta
testing. Also in August 1998, we raised an additional $0.6 million in private
placements and commenced hiring key executives. In September 1998, we hired a
core technology team to continue development of our Internet postage service
and in October and November 1998, we closed another private placement
transaction for $3.9 million.
In December 1998, we changed our name from StampMaster, Inc. to Stamps.com
Inc. and received US Postal Service approval for Phase II beta testing, which
resulted in an increase to our user base for our service from 25 to 500 users.
From the end of December 1998 to the end of March 1999, we grew from 34
employees to 77 employees, including key executive hires. In February and March
1999, we also completed a private placement transaction that raised $30.0
million. We had deferred compensation of $6.7 million and we will amortize that
amount over four years.
To date, we have not recognized any revenue and do not expect to recognize
any revenues until after we receive US Postal Service approval for our Internet
postage service.
In late June 1999, we launched our new Web site which contains proposed
pricing plans upon our commercial release. We are currently contemplating
offering two different service plans to our users: a Business Plan and a
Personal Plan. Under each plan, a user purchases postage at cost and is charged
a monthly convenience fee based on how much postage he or she uses during the
month. The Business Plan, which is targeted at high volume users of mail such
as home offices and small offices and businesses, assesses a convenience fee
equal to 10% of the postage used during the month. This plan has a monthly
minimum fee of $3.99 and a monthly maximum fee of $19.99. The Personal Plan,
which is targeted at light volume personal users of mail, charges a flat rate
monthly convenience fee of $1.99 that allows a customer to use up to $25 of
postage per month. If a Personal Plan customer uses more than $25 postage in
any given month, a 15% convenience fee on the amount of additional postage used
over $25 will be added to the $1.99 flat rate. The maximum charge under the
Personal Plan is $19.99. The Personal Plan offers customers the ability to pre-
pay one year's worth of $1.99 fees at a discounted rate of $19.99 with all
other terms of the Personal Plan the same as described. Under both plans,
convenience fees are calculated and charged at the end of a monthly billing
cycle. Although we have established these initial pricing programs, the current
limited beta use of our service and the lack of a commercial market for
Internet postage may cause us to reconsider these plans. We cannot be sure that
these proposed fees will be our ultimate pricing approach or that these fees
will generate significant customer use of our service. As a result, we cannot
predict whether any contemplated pricing or fee structure will ever generate
revenues or profits for us. See "Risk Factors--We have a history of losses and
expect to incur losses in the future, and we may never achieve profitability."
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
23
<PAGE>
Service approves our Internet postage service for commercial release, we will
offer service plans that provide access to our Internet Postage Server and, as
described above, 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 Internet postage service, which includes our Web site and
systems, and expenditures for consulting services, third-party software and
other costs related to development. Our research and development expenses for
the year ended December 31, 1998 were $1.5 million. Our research and
development expenses increased to $1.2 million for the quarter ended March 31,
1999 from approximately $83,000 for the quarter ended March 31, 1998. The
increase is due to our expanded development efforts in the latest quarter,
including increased personnel and consulting costs. We believe that significant
investments in research and development are required to remain competitive. We
expect that we will continue to incur significant research and development
expenses.
General and Administrative Expenses. Our general and administrative
expenses consist primarily of salaries and related costs for general corporate
functions, including finance, accounting, facilities and fees for legal and
other professional services. Our general and administrative expenses for the
year ended December 31, 1998 were $2.6 million. Our general and administrative
expenses increased to $2.5 million for the quarter ended March 31, 1999 from
approximately $280,000 for the quarter ended March 31, 1998. The increase is
principally due to increase in personnel, facility costs, professional service
fees and the amortization of deferred compensation.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the
private placement of equity securities, raising $36.0 million through March 31,
1999. At March 31, 1999, we had $28.5 million, in cash and cash equivalents,
and at March 31, 1998, we had $1.0 million in cash and cash equivalents. We
have had significant negative cash flows from operating activities in each
fiscal and quarterly period to date.
In December 1998, we entered into a distribution and marketing agreement
with America Online that will require payments by us of $2.3 million through
February 2000. In May 1999, we entered into a facility lease agreement for our
corporate headquarters with minimum lease payments of approximately $4.8
million through May 2004. Also in May 1999, we entered into an agreement with
Intuit which requires payments by us of $3.3 million through 2000.
On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against
us. The suit seeks treble damages, a preliminary and permanent injunction from
further alleged infringement, attorneys' fees and other unspecified damages. If
Pitney Bowes successfully asserts an infringement claim against us or if we are
unable to obtain a license from Pitney Bowes, our business and operations would
be severely impacted. See "Risk Factors--Intellectual property infringement
claims, including a June 1999 claim against us by Pitney Bowes, could delay our
development and harm our results of operations" and "Business--Legal
Proceedings."
24
<PAGE>
Net cash used in our operating activities was $2.9 million for the quarter
ended March 31, 1999, $0.3 million for the quarter ended March 31, 1998 and
$3.1 million for the year ended December 31, 1998. Cash used in operating
activities consisted primarily of net operating losses and increases in prepaid
expenses, which were partially offset by increases in accrued expenses and
accounts payable.
Net cash used in our investing activities was $0.3 million for the quarter
ended March 31, 1999, $0.1 million for the quarter ended March 31, 1998 and
$0.4 million for the year ended December 31, 1998. Net cash used in investing
activities in these periods consisted primarily of capital expenditures for
computer equipment, purchased software and office equipment.
Net cash provided by our financing activities was $28.3 million for the
quarter ended March 31, 1999, $1.5 million for the quarter ended March 31, 1998
and $6.9 million for the year ended December 31, 1998. Net cash provided by
financing activities was principally attributable to the private sale of
preferred stock and, to a lesser extent, to the proceeds from a line of credit.
We believe that our current cash balances together with the net proceeds of
this offering will allow us to fund our operations for at least the next 12
months. However, we may require substantial working capital to fund our
business and we may need to raise additional capital. We cannot be certain that
additional funds will be available on satisfactory terms when needed, if at
all. See "Risk Factors--Our growth and operating results could be impaired if
we are unable to meet our future capital requirements."
Year 2000
Many existing computer systems and software products are coded to accept
only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. If not corrected, there could be system
failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced to comply with these "Year 2000"
requirements.
The US Postal Service requires participants in the Information Based
Indicia Program to maintain Year 2000 compliant systems and software. As a
result, we have reviewed the Year 2000 compliance of our systems. This review
has included testing to determine how our systems will function at and beyond
the Year 2000. Since inception, we have internally developed substantially all
of the systems for the operation of our Internet postage service. These systems
include the software used to provide customer interaction and transactional and
distribution functions to our service, as well as monitoring and back-up
capabilities. Based upon our assessment to date, we believe that our systems
are Year 2000 compliant and have submitted Year 2000 readiness disclosure
statements to the US Postal Service to indicate our Year 2000 compliance.
However, we cannot be sure how our software will integrate with other vendor-
provided software.
We use and depend on third-party equipment and software, including systems
operated by the US Postal Service, that may not be Year 2000 compliant.
Consequently, our ability to address Year 2000 issues is, to a large extent,
dependent upon the Year 2000 readiness of these third parties' hardware and
software products. We are currently assessing the Year 2000 readiness of other
third-party supplied software, computer technology and other services and of
our vendors. We have initiated communications or obtained information from our
vendors and suppliers of third-party equipment and software to validate that
their products and systems are Year 2000 compliant. Based on the
representations that we have received and obtained from our third party vendors
and suppliers, we believe that their systems are Year 2000 compliant. We will
develop and implement, if necessary, a remediation plan with respect to third-
party software, third-party vendors and computer technology and service that
may fail to be Year 2000 compliant.
To date, the expenses associated with the assessment of our Year 2000
compliance have not been material and our potential remediation costs and
potential remediation plan cannot be determined at this time. If Year 2000
issues prevent our users from accessing the Internet or our service, purchasing
postage or using their
25
<PAGE>
credit cards, our business and operations will suffer. Any failure of our
third-party equipment or software to operate properly could require us to incur
unanticipated expenses, which could seriously harm our business, operating
results and financial condition. For example, we rely on the US Postal
Service's secure postage accounting vault to purchase postage credit for our
customers. If the US Postal Service systems are not Year 2000 compliant, users
of our service may not be able to purchase additional postage.
The Year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
Year 2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support our operations
consists of a network of computers and telecommunications systems located
throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
Year 2000 issues that may impact the entire infrastructure. Our ability to
assess the reliability of this infrastructure is limited and relies solely on
generally available news reports, surveys and comparable industry data. Based
on these sources, we believe most entities and individuals that rely
significantly on the Internet are carefully reviewing and attempting to
remediate issues relating to Year 2000 compliance, but it is not possible to
predict whether these efforts will be successful in reducing or eliminating the
potential negative impact of Year 2000 issues. A significant disruption in the
ability of consumers to reliably access the Internet or to use their credit
cards or other electronic payment methods would have an adverse effect on
demand for our services and would harm our results of operations.
At this time, we have not yet developed a contingency plan to address
situations that may result if we or our vendors are unable to achieve Year 2000
compliance. The cost of developing and implementing this plan, if necessary,
could be material. Any failure of our material systems, our vendors' material
systems or the Internet to be Year 2000 compliant could have material adverse
consequences for us. These consequences could include difficulties in operating
our service effectively or conducting other fundamental parts of our business.
Recently Issued Accounting Pronouncements
The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1, "Software for Internal Use," which provides guidance on
accounting for the costs of computer software developed or obtained for
internal use. Currently, we capitalize costs of computer software obtained for
internal use in our Web design and network operations. These capitalized costs
are amortized based on their estimated useful life. Payroll and related costs
are not capitalized, as the amounts are immaterial and principally relate to
maintenance. Purchased or leased computer software used in research and
development activities are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 2., "Accounting for Research
and Development Costs." Statement of Financial Accounting Standards No. 2
generally requires all research and development costs to be charged to expense
when incurred if no alternative future uses exist. Statement of Position No.
98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. We do not expect that the adoption of Statement of Position
No. 98-1 will have a material impact on our financial statements.
26
<PAGE>
BUSINESS
This prospectus contains forward looking statements that involve risks and
uncertainties. Actual results and the timing of events could differ materially
from those projected in the forward looking statements due to a number of
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Our Company
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Our core service is designed
to enable users to print information based indicia, or electronic stamps,
directly onto envelopes, labels or business documents using ordinary laser or
inkjet printers. No additional hardware is necessary for a user to purchase and
print our Internet postage; the user's existing PC, printer and Internet set-up
are sufficient. Accessing our service is simple. A user will obtain our free
software either via a download from the Internet or through an install from a
CD-ROM. After installing the software and completing a brief registration
process, the user will connect via the Internet to our secure Postage Server
and purchase postage electronically 24 hours a day, seven days a week. We will
act as an ongoing intermediary between the US Postal Service and users by
offering the ability to purchase postage through our secure Postage Server. Our
technology works within rigorous US Postal Service requirements to provide
secure access to postage. Our Postage Server will be designed to interact with
word processing, contact and address management, accounting and corporate
applications to stamp letters, invoices, statements, checks and other business
documents automatically.
Overview of Our Industry
Growth of Internet Commerce
The Internet has emerged as a significant global communications medium,
enabling millions of people to share information and conduct business
electronically. A number of factors have contributed to the growth of the
Internet and its commercial use, including:
. the large and growing usage of personal computers in homes and
businesses;
. improvements in network infrastructure and bandwidth;
. easier and cheaper access to the Internet;
. increased awareness of the Internet among consumer and business users;
and
. the rapidly expanding availability of online content and commerce.
According to International Data Corporation, the number of Web users
worldwide will grow from an estimated 100 million in 1998 to 319 million by
2002. In addition, International Data Corporation estimates that the percentage
of Web users buying goods and services on the Internet will grow from 26% in
December 1997 to 40% in December 2002. International Data Corporation further
estimates that the total value of goods and services purchased over the Web
will increase from approximately $12.4 billion in 1997 to approximately $425.0
billion in 2002. Business-to-business commerce is expected to contribute
significantly to the future growth of Internet commerce. For example,
International Data Corporation estimates that business-to-consumer commerce on
the Internet will grow from approximately $5.0 billion in 1997 to approximately
$95.0 billion in 2002 while business-to-business commerce on the Internet will
grow from approximately $7.3 billion in 1997 to approximately $330.5 billion in
2002.
Rapid Growth in Internet Usage by Small Businesses
The small office/home office and small business markets represent a large
and growing customer segment. According to International Data Corporation,
there were a combined 44.7 million small businesses and home offices in the
United States in 1998, a number which International Data Corporation forecasts
will grow to 57.6 million by 2002. For 1998, International Data Corporation
reported that small businesses with less than 100 employees numbered 7.4
million of which 77% had fewer than 10 employees. In addition, home
27
<PAGE>
offices numbered 37.3 million, of which 22.2 million were income producing home
offices, and the remainder were home offices used for corporate after hours
work or telecommuting.
We believe that small businesses increasingly will rely on the
functionality and pervasiveness of the Internet to reach and serve a large and
global group of end users. The reduced cost of selling and marketing on the
Internet, the ability to build and serve a large base of customers
electronically and the potential for personalized low-cost customer interaction
provide significant economic advantages. These overall benefits, combined with
accessibility, have led to adoption of the Internet by small businesses and
home offices. According to International Data Corporation, there will be 30.2
million US home offices accessing the Internet by 2002. According to Cyber
Dialogue/FindSVP's 1999 US Small Business Internet Survey, 43% of businesses
with fewer than 100 employees are estimated to be online in 1999. Of those
small businesses that are currently online, 63% are already ordering products
online and are spending an average of $171 monthly on postage. The Cyber
Dialogue/FindSVP survey also found that 64% of online small businesses have
employees who are online multiple times a day. This increased use of the
Internet has resulted in small businesses becoming significant participants in
the electronic commerce market. International Data Corporation estimates that
small businesses accounted for $4.4 billion of electronic commerce in 1998 and
will account for approximately $100.4 billion of electronic commerce activity
in 2002.
Traditional Postage Industry and the Emergence of the Internet Postage
The traditional postage industry is large and growing. According to the US
Postal Service Annual Report, the total postage market was $58.0 billion in
1998, of which $38.9 billion was represented by first class, priority and
express mail with the remainder consisting of other classes of mail including
periodicals, bulk and international. In addition, the US Postal Service
processed over 197 billion pieces of mail in 1998 and, despite the growth in
the use of e-mail, the total US postage market increased by 3.1% in 1998 from
1997. Keenan Vision, an independent research firm, estimates that revenues from
first class, priority and express mail will grow to $46.2 billion by 2002.
Despite this consistent growth in the postage market, the US Postal Service has
experienced:
. strong competition from overnight delivery services;
. loss of revenue due to postal fraud; and
. continued public demand for more convenient access to US Postal Service
products and services.
In response to these challenges, in 1995 the US Postal Service announced a
program for its first new postage method since the approval of the postage
meter in 1920. The Information Based Indicia Program is a ten-stage
certification process for commercial release of Information Based Indicia
products, or electronic postage, that can be purchased over the Internet and
printed from a computer using ordinary laser or inkjet printers. Indicia are a
new type of US Postal Service approved postage marks similar to stamps or
metered postage. Information Based Indicia, which are essentially digital
stamps, consist of a two dimensional bar code containing an encrypted digital
signature that make each indicium unique. Through the Information Based Indicia
Program, the US Postal Service is seeking to enhance user convenience with a
new access channel for postage that allows users to print postage from their
personal computer 24 hours a day, seven days a week. The Information Based
Indicia Program is intended to achieve the US Postal Service's security and
revenue objectives by incorporating technological security features in each
unique digitally-signed indicium and a secure postage accounting vault to
provide greater revenue security. All Internet postage products, including any
subsequent enhancements or additional implementation of a product, must
complete US Postal Service testing and evaluation to ensure operational
reliability, financial integrity and security to become certified for
commercial distribution. Overall, the Information Based Indicia Program aims to
provide improved, accurate mail processing and increased productivity, a result
which is intended to:
. reduce US Postal Service costs and postal fraud;
. increase US Postal Service service to underserved markets, including
the rapidly growing small office/home office and other small business
markets; and
. improve the US Postal Service's competitive position against overnight
delivery services.
28
<PAGE>
The emergence of Internet postage though the US Postal Service's
Information Based Indicia Program has created an attractive channel for the
sale of postage, particularly to small office/home office and other small
businesses. According to a 1997 US Postal Service survey of over 1,600 home
offices, 98% of the respondents would likely use commercial software products
to print postage directly from their computers, 88% of the respondents did not
use a postage meter and 43% of the respondents purchased over $50 of postage
per month. We believe that small businesses consider cost-effective mail
generation, elimination of trips to the post office and the production of
professional-looking mail as key components of an effective mailing system.
Internet postage satisfies these requirements by providing 24 hours a day,
seven day a week access to metered mail from the desktop. Furthermore, when
considering the total cost of a traditional postage meter, including lease fees
for both the meter and scale, meter resetting fees and special ink cartridges,
small businesses pay a significant premium in addition to their normal postage
expenditures for leasing a postage meter. Leasing a postage meter also requires
space for additional hardware and the purchase of specialized materials and
supplies. Meanwhile, small businesses that find leasing a postage meter
uneconomical are still faced with the inconvenience of travelling to the post
office, ATM or other locations to purchase stamps.
Our Solution
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. We target the small
office/home office, other small business, corporate and consumer user markets
and provide an Internet service that is accessible via a free software
downloaded from the Internet or installed from a free CD-ROM; the user's
existing PC, printer and Internet set up are sufficient to purchase and print
postage. Using our service requires no purchase or installation of a hardware
device for a user's PC and users can access and print postage without the US
Postal Service address matching CD-ROM needed by hardware-based Internet
postage products. Our Internet postage solution was the first software-based
service approved for beta testing by the US Postal Service and provides the
following benefits to the user and the US Postal Service:
Benefits to the User. Our Internet postage service is designed to be
convenient, cost effective and easy to use and provides the following benefits
to the user:
. unlimited, convenient access to postage from the desktop 24 hours a
day, 7 days a week;
. prints address and postage in one easy step;
. secure and accurate tracking of postage expenditures;
. cost effective relative to traditional postage meter solutions; and
. no additional hardware is required.
Using our free software, which can be downloaded from the Internet or
installed from a CD-ROM, users can purchase postage with their PC from our
secure Postage Server where and when it is most convenient. Our solution allows
users to avoid common inconveniences, including running out of postage, using
too much postage for a letter or parcel and enduring long lines at the post
office. The Stamps.com service is designed to enable users to print postage in
any denomination and rely on secure, accurate management of their postal
dollars. Finally, we will seek to enhance our convenient, easy to use service
with other benefits, including integrating our software with a wide range of
software applications to increase the efficiency of the everyday tasks of
writing letters, paying bills or generating invoices.
Benefits to the US Postal Service. Our Internet postage service provides
several benefits to the US Postal Service including:
. increased convenience to the postal consumer;
. increased security to protect postal revenues;
. the ability to more effectively compete with overnight delivery
services;
. the use of advanced technology for more cost efficient mail processing
and tracking; and
. cost savings relating to printing and distribution of traditional
postage stamps.
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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 as required
by US Postal Service specifications, our solution will provide for the printing
of unique, secure Information Based Indicia, or electronic postage, on ordinary
laser or inkjet printers. Our service is designed to promote postal
efficiencies and cost savings for the US Postal Service with address
verification and correction and extended zip code printing capabilities.
Finally, our solution is designed to allow the US Postal Service to capitalize
on advances in technology, especially as the US Postal Service seeks to phase
out traditional postage methods.
Our Strategy
Our objective is to be the leading provider of convenient, cost effective
and easy to use software-based Internet postage services. To achieve this
objective, our strategy includes the following key elements:
Enhance Our Brand Name. We intend to increase our brand recognition through
a variety of marketing and promotional techniques, including the prominent
display of our logo on all pieces of mail generated through our service and co-
marketing and co-branding agreements with strategic partners. We also intend to
promote our brand by conducting an ongoing public relations campaign and
developing affiliations and affinity programs. We believe that building the
brand awareness of our Internet Postage Server is critical to attracting and
expanding our customer base.
Leverage Our Strategic Partnerships. We intend to develop and utilize
strategic partnerships to gain access to large numbers of potential users,
cooperatively market products and services, cross-sell additional services and
gain entry into new markets. As of May 1999, we have entered into strategic
partnerships with AOL, Intuit and Office Depot, among others. We believe that
we can further utilize our premier strategic partnerships to enhance our brand
name and grow our customer base.
Establish First-to-Market Advantages. Our Internet postage solution was the
first software-based Internet postage solution approved for the beta testing
that is required for US Postal Service certification. We believe that we will
have significant first-to-market advantages as a software-based solution in the
Internet postage market. We intend to use this first-to-market advantage to
rapidly establish our brand and grow our customer base. We believe our
potential market position will be enhanced by significant barriers to entry,
including:
. a ten-step US Postal Service certification process, including a three
phase beta testing requirement;
. our anticipated lead in providing a software-based Internet postage
solution that does not require additional hardware or a CD-ROM to be
employed with a user's PC;
. significant up-front time and investment by potential competitors in
technology and technical infrastructure;
. strong brand awareness for our software-based Internet postage
solution; and
. inconvenience of switching from one metered postage provider to
another.
Rapidly Grow Our Customer Base. We intend to broaden our customer base by
enhancing our brand, forming strategic partnerships and establishing first-to-
market advantages. We believe that our service can achieve rapid distribution
because there is no investment in hardware beyond a PC and printer, and users
can obtain our software for free. We are primarily targeting the small
office/home office and small business markets as well as various segments of
the corporate and consumer markets.
Leverage Our Software-Based Solution and Technology. We intend to utilize
our scaleable, e-commerce platform to enhance our service offerings and expand
the benefits of secure online transactions. We believe that we have an inherent
advantage relative to our competitors in the Internet postage industry because
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our solution does not require the use of additional hardware. We believe we can
achieve rapid distribution of our services as users download or install our
free software. Additionally, we provide increased flexibility and scalability
over competing solutions because transactions are processed through our secure
Postage Server while competing hardware solutions require each user to utilize
a CD-ROM and peripheral hardware device for each PC that is engaged in a
postage transaction. We will continue to invest in and enhance our technology
in order to increase efficiency, reliability and bandwidth, and to expand our
services and reduce our costs.
Pursue Additional Revenue Opportunities. We intend to utilize our brand,
electronic commerce capabilities, infrastructure and user base to develop
additional revenue opportunities. We will consider the following opportunities:
. Sale of Postage Related Products. We intend to use our Web site to
offer mailing-related products, including labels and envelopes,
mechanical scales, PC-enabled digital scales and label printers. We
also intend to offer package insurance to our customers through third-
party insurance companies.
. International Internet Postage Market. We believe that if foreign
postal authorities accept the use of Internet postage there will be
significant opportunities in international markets for our Internet
postage service. We intend to focus on those regions where there is a
critical mass of Internet use and a large current postage market with a
need for highly secure, transaction-oriented Internet services.
. Document Fulfillment Market. We will consider investing in technology
that will allow us to extend our core Internet postage technology to
print authenticated documents, including airline, movie and concert
tickets, from laser or inkjet printers.
Our Internet Postage Service
We offer a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Our core service is designed
to enable users to print information based indicia, or electronic stamps,
directly onto envelopes, labels or business documents using ordinary laser or
inkjet printers. No additional hardware is necessary for a user to purchase and
print our Internet postage; the user's existing PC, printer and Internet set-up
are sufficient.
[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 on 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 technologies which meet strict US government security standards
and our service incorporates the US Postal Service mandated address
verification features to enhance the efficiency of mail processing and
delivery. Finally, our Postage Server is designed to interact with word
processing, contact and address management, accounting and corporate
applications to provide postage for letters, invoices, statements, checks and
other business documents automatically. Our customers will sign up for a
service plan that provides access to our Internet Postage Server and we plan to
assess a "convenience" fee based on the customer's postage use. The service
plan will also offer benefits that could include various items, such as free
postage, free labels and envelopes and discounts on scales or printers.
As part of our Internet postage service, we intend to roll out functional
modules of our Web site to address our strategic initiatives, including:
. a Virtual Post Office through which we plan to provide a variety of
mailing services and resources including bulk mail fulfillment, free e-
mail, Express and Priority Mail tracking, ZIP Code look-up, and other
postal information;
. a Product Center through which we plan to feature mailing supplies and
general office supplies; and
. a Small Business Resource Center through which we plan to feature
products, services, and editorial content targeted to the small business
market.
The US Postal Service Certification Process
All Internet postage products must complete extensive US Postal Service
testing and evaluation in the areas of operational reliability, financial
integrity and security to become certified for commercial distribution. Each
additional implementation of a particular product or function requires
additional evaluation and approval by the US Postal Service prior to commercial
delivery.
The US Postal Service certification process for Internet postage is a
standardized, ten-stage process concluding with commercial release. Each stage
requires US Postal Service review and authorization to proceed to the next
stage of the certification process. The US Postal Service has no published
timeline or estimated time to complete each of the ten stages of the program.
The ten stages of the US Postal Service certification process are defined
at the US Postal Service Web site and are as follows:
1. Letter of Intent 6. US Postal Service Address
2. Non-Disclosure Agreements Matching System CD-ROM
3. Concept of Operations Integration
4. Software and Documentation 7. Product Submission/Testing
Requirements 8. Product Infrastructure Testing
5. Provider Infrastructure Plan 9. Three Phase Beta Test Approval
(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 small
office/home office, other small business and home consumer users with an
average mail volume of 30 to 500 pieces per month. Most of the beta users we
selected do not have postage meters, but all have some form of Internet access.
The following describes the planned three phase beta test that we are currently
conducting:
Phase I. We completed Phase I testing in December 1998. All Phase I
participants were located in the Washington, D.C. area. In this phase, we
performed on-site software installations for all beta testers, including five
US Postal Service users. User feedback was largely positive and focused on
feature enhancements and US Postal Service regulations. We provided user
support through an 800-number, online help, and printed or viewable manuals. We
generated weekly usage reports and log files that were forwarded to the US
Postal Service Beta Program Manager. Phase I users and data requirements
continued for Phases II and III.
Phase II. We completed Phase II testing in May 1999. Phase II of our beta
testing included the expansion of the user base by an additional 475 users.
These users were in the Washington, D.C. and San Francisco Bay Areas per US
Postal Service specification. Installations in Phase II were executed via a
software download over the Internet or with a CD-ROM provided to users. Our
recruiting process for testers included use of our Web site, local advertising,
small office/home office lists and business development relationships. During
Phase II beta testing, we developed electronic file submission requirements,
continued to strengthen our US Postal Service relationship, maintained heavy
user focus and dialogue and continued to develop support strategy and
infrastructure.
Phase III. We commenced Phase III testing on May 6, 1999. Phase III of beta
testing includes expansion of the user base from 500 to 1,500 users in the
Washington, D.C. and California regions. Phase III will provide us and the US
Postal Service the opportunity to perform statistically significant market
analyses to determine marketing and pricing strategies and to further evaluate
our systems in preparation for a national launch.
US Postal Service Approval. Upon satisfactory completion of Phase III, the
US Postal Service will publish and announce in the federal register the
approval of the Stamps.com service for commercial release.
Commercial Release. Following US Postal Service approval, we will conduct a
readiness review and then be subject to a US Postal Service mandated limited
launch of 10,000 customers following the initial commercial release of our
service. After completion of the limited launch, we will conduct a controlled
national launch of our service through our strategic distribution partners.
Our Strategic Distribution Partners
Our objective is to achieve significant market penetration through
relationships with strategic partners in each of the four following categories:
. Web portals, content sites and Internet service providers, including
AOL;
. independent software vendors, including Intuit/Quicken.com;
. PC, printer and other equipment manufacturers; and
. office/postal supplies vendors, including Office Depot and Avery
Dennison.
We believe we will benefit from these relationships by achieving positive
brand association and a cost effective means of customer acquisition. We
believe our partners can utilize their relationships with us to derive
additional revenue opportunities, including revenue-sharing arrangements with
us, and provide more value-added services to their customers.
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America Online. In December 1998, we entered into a two phase co-marketing
and distribution agreement with AOL and are currently in the first phase, or
Pre-Launch Phase, of the program. During the Pre-Launch Phase, we are
collaboratively conducting development, testing, advertising and educational
activities over the AOL network. The second phase of the Stamps.com/AOL
program, or Launch Phase, becomes active when the US Postal Service approves
the commercial release of our Internet postage service. Subject to conditions,
the Launch Phase provides the following benefits to us:
. our software will be bundled exclusively on CD-ROMs that are
distributed to AOL prospects and customers;
. our software CD-ROMs will exclusively be inserted in boxes with select
products purchased through AOL Store;
. we will be featured prominently when AOL Keyword "stamps" is used;
. we will receive top positioning on the AOL Network postage category
page; and
. we will collaboratively develop and present an exclusive three day
Internet postage educational program for the AOL customer base.
The Launch Phase will also include a significant advertising impression
commitment throughout select AOL properties, including the AOL Service,
aol.com, Digital Cities and CompuServe.
Office Depot. In February 1999, we entered into a partnership with Office
Depot, Inc., a leading seller of office products. Our agreement with Office
Depot provides us with a download link to sign up for our service available
from the Office Depot Online Superstore, including "above the fold" positioning
of the link, which means our link will appear on the portion of the Office
Depot Web site that doesn't require a user to scroll down the page to access
our link. The agreement also contemplates a "point of purchase" advertisement
campaign.
Avery Dennison. In March 1999, we entered into to a distribution
relationship with Avery Dennison Corporation, a leading supplier of adhesive
materials, office products and label systems. Our agreement with Avery Dennison
provides that through 1999 our service will be exclusively offered for download
from the Avery Web Site and exclusively distributed on Avery Label Pro Software
CD-ROMs through retail channels. During this time period, we will exclusively
promote Avery Label products.
Dymo/CoStar. In March 1999, we entered into a distribution relationship
with Dymo, a leading label-making brand available in 160 countries worldwide.
Dymo is part of Esselte, an international office and business supply company,
which recently acquired CoStar Corporation. CoStar is a leading manufacturer of
specialty printers, software and supplies for printing labels, bar codes,
receipts and identification badges. Our agreement with Dymo/CoStar provides
that our software will be bundled on all software installation CD-ROMs included
in all CoStar LabelWriter printer boxes. In addition, our software will be
downloadable from the CoStar Web site.
Seiko Instruments. In March 1999, we entered into a distribution agreement
with Seiko Instruments USA Inc., a leading supplier and marketer of electronic
components, consumer electronics, printer mechanisms, PC peripheral color
printers, and specialty black and white printers. Our agreement with Seiko
provides that our software will be bundled on software installation CD-ROMs
included in all Seiko Smart Label Printer boxes. In addition, our software will
be downloadable from the Seiko Web site.
Westvaco. In April 1999, we entered into a distribution and co-development
agreement with Westvaco Corporation, a leading manufacturer and supplier of
paper materials, envelopes and other packaging products. Our agreement with
Westvaco provides that our service will be promoted on boxes of Westvaco's
Columbian brand laser and inkjet envelopes sold through several channels,
including office superstores. In addition, our service will be promoted on the
Columbian brand Web site.
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Intuit. In May 1999, we entered into a promotional agreement with Intuit,
Inc., a leading supplier of small business software. Our agreement provides us
with an electronic link to our Web site available from various channels within
the Intuit network of Web sites, including the "small business channel" of the
Quicken.com, Excite Money & Investing and WebCrawler Money & Investing Web
sites. Our agreement also provides us with promotional advertisements on the
"QuickBooks.com" Web site and on the home page of the "Quicken.com" Web site.
In addition, we have promotional advertisements and electronic links to our Web
site available from Quicken '99 software products.
Our Marketing and Sales
We intend to establish a strong brand name by allocating significant
resources to our marketing and distribution efforts. We intend to distribute
our postage printing software through our Web site. In addition, we will rely
on traditional media and several other channels to achieve rapid distribution
of our services, including:
Web Sites. We intend to work with high traffic Web sites including portals,
commerce and content sites, and other high visibility Internet sites. This
channel will provide the opportunity for users to download our software and
access our Internet postage service.
Affiliate Programs. We intend to utilize the traffic and customers of other
online sites by offering revenue-sharing opportunities to affiliates that
provide a link on their Web site to download our Internet postage software and
access other related services. Affiliates can capitalize on the ability to
offer new, value-added services and increase repeat visits to their site.
Preloaded/Bundled Hardware and Services. We intend to take advantage of
relationships with vendors of hardware products, including computers, printers
and label makers, and with Internet service providers to offer our software to
buyers of their products. Resellers can capitalize on the ability to promote
new features on commodity, non-differentiated products and services.
Embedded Software. We intend to seek further partnerships with software
publishing companies. Software packages that would benefit from our current
services would include word processing, contact and address management,
accounting, billing and retail software.
Postal Supplies. We will target companies in the postal supplies industry,
including manufacturers of envelopes, labels, checks, forms, digital scales and
postage meters.
Financial Services. We will seek distribution and co-branding opportunities
with banks and brokerages by incorporating our Internet postage service into
online banking and investing offered by financial service providers.
Direct Sales. We will target specific large industries or vertical markets
where distributed use of the mail is prevalent, including insurance, travel and
hospitality, financial services, law firms or other businesses where branch
offices or agent organizational structures are common. We believe that
significant benefits in the form of usability, convenience and cost savings to
large corporate users may result from integrating our Internet postage service
into the everyday work flow.
Customer Retention Programs. We believe we can increase customer retention
by offering co-branded affinity marketing programs, including frequent flyer
miles based on postage and other related expenditures. Further, we intend to
create strong customer loyalty by offering discounts to our online store that
are tied to customer postage volume.
Our Competition
The market for Internet postage products and services is new and we expect
it to be intensely competitive. At present, three other Internet postage
vendors have hardware products available for beta testing, one of which was
approved for Phase III beta testing at the same time as our software-based
service. One of 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,
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1998 and the other software-based product vendor announced their approval for
the first stage of beta testing on March 29, 1999. As a result, we believe we
have a significant development lead over software-based solutions given the
length of time associated with security evaluation and beta testing to which
the US Postal Service subjects all new product offerings.
The following is a summary of our competitors in the Information Based
Indicia Program program:
E-Stamp Corporation. E-Stamp is a developer and marketer of a hardware-
based solution enabling users to generate postage transactions from their
existing personal computers and printers. E-Stamp was the first company to gain
US Postal Service approval for market testing of a hardware storage device
identified as the Postal Security Device. E-Stamp is currently in beta testing
for its PC Postal Security Device product and announced their approval for
Phase III beta testing in May 1999. E-Stamp currently has partnerships with
America Online, Compaq, Microsoft and Yahoo!
Neopost. Neopost is a large French postage company with a small percentage
of US market share in the traditional postage meter industry. Similar to E-
Stamp, Neopost has developed an online postage product that requires a special
purpose hardware device, and announced their approval for Phase I beta testing
in September 1998. Neopost has also announced a software-based postage product
for which it is seeking US Postal Service certification. On March 29, 1999,
Neopost announced approval for their software based postage product for Phase I
beta testing. Finally, Neopost has commercially available a specialty metering
device that can be attached to a user's PC and allows a user to download
postage to the specialty device from the Internet. This specialty metering
device is not regulated by the Information Based Indicia Program because it
does not allow for the printing of postage from standard inkjet or laser
printers.
Pitney Bowes, Inc. Pitney Bowes is the current market leader in the
traditional postage meter business and according to its most recent annual
report had approximately $4.2 billion in revenues in 1998. Pitney Bowes has
developed a product similar to E-Stamp which requires the use of a specialized
hardware device for postage transactions. Pitney Bowes announced the approval
of their hardware-based product for Phase II beta testing on March 9, 1999. In
addition, Pitney Bowes has made formal comments to the US Postal Service
asserting that it holds several patents and has patent applications pending
which are infringed by the product specifications that Information Based
Indicia Program participants are required to follow. To that end, Pitney Bowes
filed two separate lawsuits in June 1999 against us and E-Stamp alleging
infringement of Pitney Bowes patents. See "Risk Factors--Intellectual property
claims, including a June 1999 claim against us by Pitney Bowes, could delay our
development and harm our results of operations."
In addition to competing with Internet postage vendors for market share of
Internet postage sales, we will also compete with traditional postage methods
including stamps and metered mail. While we believe our Internet postage
service provides benefits over traditional postage methods, we cannot be
certain that Internet postage will be adopted by postage consumers on a
commercial scale, if at all. These customers may continue to use traditional
means to purchase postage, including purchasing postage from their local post
office. Any failure by us or other Internet postage vendors to displace
traditional postage methods would seriously impact our ability to compete with
providers of traditional postage.
We may also face competition from hardware-based products. Although, we
believe our software-based solution is easier to use than hardware-based
products, hardware-based products have some advantages. For example, our
service requires a user to connect to the Internet each time the user prints
postage, while the hardware-based solution allows users to download postage
onto a storage device that is connected to the user's computer. If users of
hardware-based products do not transition to software-based solution we could
face continuing competition from this market.
Overall, we may not be able to maintain a competitive position against
current or future competitors as they enter the markets in which we compete.
This is particularly true with respect to competitors with greater financial,
marketing, service, support, technical, intellectual property and other
resources than us. Our failure to maintain a competitive position within the
market could seriously harm our business, financial condition and results of
operations. We believe that the principal competitive factors in our market
include:
. US Postal Service product certification;
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. 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--
Intellectual property infringement claims, including a June 1999 claim against
us by Pitney Bowes, could delay our development and harm our results of
operations" and "--If we are unable to compete successfully, particularly
against large, traditional providers of postage products such as Pitney Bowes
who enter the online postage market, our revenues and operating results will
suffer."
Our Technology
Our service is comprised of the following key components:
System Architecture. Our servers are located in a high-security, off-site
data center and operate with internally developed security software. These
servers create the information based indicia. These servers also process
postage purchases using secure technology that meets US Postal Service security
requirements.
Our service currently supports Windows-based client applications, which we
believe is easier for customers to use and provides the power and flexibility
necessary to support a variety of label and envelope options and a wide range
of printers. In addition, our application employs an internally developed user
authentication mechanism for additional security.
Transaction Processing. Our transaction processing servers are a
combination of secure, commercially available technologies that are designed to
provide secure and reliable transactions. Our system implements hardware to
exceed the highest government standard for security and data integrity
currently in effect. The performance and scalability of our Internet postage
system allows a wide range of users to process postage transactions through our
Web site.
Database Processing. Our database servers are designed to complement
industry leading database technologies and can be built to scale incrementally
as needed.
Client Interoperability. Our system utilizes a secure client module for
authentication, which has been designed to minimize transmission time over the
Internet. The client module is designed to be the building block for Internet
postage capabilities that are accessible from popular software applications.
Our client module will be used by our postage application as well as add-ins
for popular word processing applications and third party mailing and business
systems.
Our Intellectual Property
We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and protect intellectual
property rights in products, services, know-how and information. We have three
issued US patents and have filed four 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.
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Despite efforts to protect our intellectual property rights, we face
substantial uncertainty regarding the impact that other parties' intellectual
property positions will have on the Internet postage market. In particular,
Pitney Bowes has sent formal comments to the US Postal Service asserting that
intellectual property of Pitney Bowes related to postage metering and systems
would be infringed by products meeting the requirements of the Information
Based Indicia Program's specifications. Furthermore, in June 1999, Pitney Bowes
filed two separate lawsuits in the United States District Court for the
District of Delaware against both us and E-Stamp alleging infringement of
Pitney Bowes patents. For a discussion of claims by Pitney Bowes and risks
associated with intellectual property, please refer to "Risk Factors--
Intellectual property infringement claims, including a June 1999 claim against
us by Pitney Bowes, could delay our development and harm our results of
operations and "--Legal Proceedings."
Our Employees
As of May 31, 1999, we had 99 full time employees, of which 40 were
employed in research and development, 32 were employed in network operations,
11 were employed in sales and marketing, and 16 were employed in administrative
positions. None of our employees are represented by a labor union, and we
consider our employee relations to be good. We intend to expand significantly
our employee base in 1999. See "Risk Factors--We rely on a relatively new
management team and need additional personnel to grow our business."
Our Properties
Our corporate headquarters is located in a 41,000 square foot facility in
Santa Monica, California under a lease expiring on May 31, 2004. We also have a
5,000 square foot satellite research and development site in Irvine, California
under a lease expiring in September 1999. We believe that our current
facilities and other facilities that will be available to us will be adequate
to accommodate our needs for the foreseeable future.
Legal Proceedings
On June 16, 1999, Pitney Bowes sued us for alleged patent infringement in
the United States District Court for the District of Delaware. The suit alleges
that we are infringing two patents held by Pitney Bowes related to postage
application systems and electronic indicia. The suit seeks treble damages, a
preliminary and permanent injunction from further alleged infringement,
attorneys' fees and other unspecified damages. Pitney Bowes filed a similar
complaint in Delaware in early June 1999 against one of our competitors, E-
Stamp Corporation, alleging infringement of seven Pitney Bowes patents. If
Pitney Bowes successfully asserts its claims against us and E-Stamp, the
Internet postage market could be severely impacted and may not develop. We are
currently investigating the claims against us and have not responded to the
suit. To date, we believe we have meritorious defenses and intend to defend
ourselves vigorously. However, the litigation could result in significant
expenses and diversion of management time and other resources. Further, if
Pitney Bowes successfully asserts an infringement claim against us, our
operations would be impacted severely. The Pitney Bowes suit could result in
limitations on how we implement our service, delays and costs associated with
redesigning our service, payments of license fees and other payments. See "Risk
Factors--Intellectual property infringement claims, including a June 1999 claim
against us by Pitney Bowes, could delay our development and harm our results of
operations."
We are not currently involved in any other material 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 other
material legal proceedings pending against us.
38
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding our executive
officers and directors as of May 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
John M. Payne........... 43 Chief Executive Officer, President and Director
John W. LaValle......... 42 Chief Financial Officer, Senior Vice President of Operations, and Secretary
Michael D. Walther...... 45 Senior Vice President, Network Operations
Timothy A. Von Kaenel... 33 Senior Vice President, Product Development
Douglas J. Walner....... 29 Vice President, Business Development
Jeffrey L. Green........ 28 Vice President, Marketing
Candelario J. Andalon... 30 Corporate Controller
Thomas H. Bruggere (2).. 53 Chairman of the Board of Directors
Mohan P. Ananda......... 52 Director
David C. Bohnett (1).... 43 Director
Jeffrey J. Brown (1).... 38 Director
Thomas N. Clancy (2).... 41 Director
G. Bradford Jones (2)... 44 Director
Marvin Runyon (1)....... 74 Director
Loren E. Smith.......... 61 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
John M. Payne has been our Chief Executive Officer and President and a
Director since October 1998, and was a consultant to us from May 1998 to
October 1998. From June 1994 to January 1998, Mr. Payne served as the President
and Chief Operating Officer and later the President and Chief Executive Officer
of Airmedia, Inc., a wireless communications software and service provider. On
April 15, 1999, Airmedia filed for Chapter 11 bankruptcy protection. From
October 1992 to June 1994, Mr. Payne was the founding Chief Executive Officer
of Fingertip Technologies, Inc., a software company. Previously, Mr. Payne co-
founded and served as President of two specialty software firms, Financial
Microsystems from June 1986 to October 1992, and LoanStar Computer from
September 1979 to November 1986. Mr. Payne received his B.A. in Economics from
the University of California, Irvine.
John W. LaValle has been our Chief Financial Officer, Senior Vice President
of Operations, and Secretary since September 1998. From July 1997 to September
1998, Mr. LaValle served as Chief Financial Officer of Comcore Semiconductor,
Inc., a semiconductor manufacturer. From November 1994 to July 1997, he was the
Chief Financial Officer of Trikon Technologies; a semiconductor equipment
manufacturer. Previously, Mr. LaValle served as the Chief Financial Officer at
Superconductor Technologies, a manufacturer of high temperature thin film
superconductors used in cellular base station applications from September 1989
to November 1994. From April 1987 to September 1989, he was the Chief Financial
Officer of PS Medical, a manufacturer of implantable neurosurgery products.
From August 1984 to February 1987, Mr. LaValle served as a senior financial
analyst for Chevron Corporation, and from December 1980 to September 1982, he
served as a senior analyst for Andersen Consulting. Mr. LaValle received his
B.A. in Government from Boston College and his M.B.A. from Harvard University.
Michael D. Walther has been our Senior Vice President of Network Operations
since April 1999 after having served as a consultant since January 1999. From
December 1997 to December 1998, Mr. Walther provided interim CEO/COO support to
early stage venture companies. In June 1994, he co-founded Artios Corporation,
an enterprise solutions company, and served as its President until December
1997. From October 1989 to June 1994, Mr. Walther served as President of AEI, a
computer aided design software firm. Mr. Walther received his B.S. in Computer
Science from the Texas A&M University--School of Commerce.
39
<PAGE>
Timothy A. Von Kaenel has been our Senior Vice President of Product
Development since January 1999. From July 1998 to January 1999, Mr. Von Kaenel
was Director, Product Management at IMA, a customer service software company.
From July 1995 to July 1998, Mr. Von Kaenel was Senior Vice President of
Product Development at AirMedia, Inc., a wireless communications software and
service provider. On April 15, 1999, Airmedia filed for Chapter 11 bankruptcy
protection. Before AirMedia, Mr. Von Kaenel was Vice President, Interactive
Technologies at Advanced Media, a multimedia software and interactive services
company. In 1990, he founded and was President of Vision Imaging, an
international developer and publisher of multimedia software products, which
was later acquired by Advanced Media. Mr. Von Kaenel received his B.A. in
Economics and M.B.A. from the University of California, Irvine.
Douglas J. Walner has been our Vice President of Business Development since
September 1998, and from March 1998 to August 1998, Mr. Walner served as a
business development and strategic relationship consultant. From January 1996
to March 1998, Mr. Walner was the Director of Business Development at
CyberMedia, a software company. Mr. Walner served as the Original Equipment
Manufacturer Sales Manager at Airmedia, Inc., from April 1994 to January 1996.
Prior to 1994, Mr. Walner served as a Program Manager at Mortgage Capital
Group/City National Bank. Mr. Walner received his B.A. in History from Tulane
University.
Jeffrey L. Green has been our Vice President of Marketing since co-founding
Stamps.com in September 1996. From August 1992 to May 1995, Mr. Green served as
an account executive at Ziff Davis, Inc., a publishing company. Mr. Green also
worked at Hewlett Packard in Product Marketing in 1996 while attending the
Anderson School at UCLA. Mr. Green received his B.A. in Political Science from
Dartmouth and his M.B.A. from UCLA.
Candelario J. Andalon has been our Corporate Controller since October 1998.
From September 1991 to September 1998, Mr. Andalon served in various capacities
at Ernst & Young LLP, most recently as Manager in the firm's Technology,
Communications and Entertainment group. Mr. Andalon received his B.S. degree in
Accounting from Loyola Marymount University and is a Certified Public
Accountant.
Thomas H. Bruggere has been our Chairman of the Board of Directors since
April 1998. Since 1994, Mr. Bruggere has been a private investor. In 1995 and
1996, Mr. Bruggere was the Democratic Nominee for the US Senate from Oregon.
Mr. Bruggere founded Mentor Graphics, an electronic design automation software
company, in 1981 and served as its Chief Executive Officer until 1994. Mr.
Bruggere also serves on the Board of Directors of Open Market, Inc., a software
development company, and several privately-held companies. Mr. Bruggere
received his B.S. in Mathematics from UC Santa Barbara, his M.S. in Computer
Science from the University of Wisconsin and his M.B.A. from Pepperdine
University.
Mohan P. Ananda has been a Director since January 1998. Mr. Ananda is a
founder and currently serves as the Chief Executive Officer and Chairman of the
Board of AmazingHitz.com, Inc., an Internet-based entertainment company. From
January 1997 to October 1998, Mr. Ananda served as our Chief Executive Officer.
From June 1986 to December 1996, Mr. Ananda was a partner of Ananda & Krause, a
law firm. Mr. Ananda also serves on the Board of Directors of other privately-
held companies. Mr. Ananda received his B.S. in Engineering from Coimbature
Institute of Technology in India, his M.S. in Aeronautics from the California
Institute of Technology, his Ph.D. in Astrodynamics and Control from UCLA, and
his J.D. from the University of West Los Angeles.
David C. Bohnett has been a Director since March 1999. Until May 1999, Mr.
Bohnett served as Chairman of the Board and Secretary of GeoCities, an Internet
hosting company, which he founded in November 1994. From November 1994 to April
1998, Mr. Bohnett also served as GeoCities' Chief Executive Officer and
President. From November 1994 to November 1997, Mr. Bohnett also served as
GeoCities' Chief Financial Officer. Prior to founding GeoCities, from February
1990 to May 1994, Mr. Bohnett served as Director of Product Marketing at Goal
Systems, which merged with LEGENT, a software company. From 1988 to 1990, Mr.
Bohnett was Chief Financial Officer of Essential Software, which merged with
Goal Systems. Mr. Bohnett also was a director of GeoCities until May 1999, and
he continues to serve on the Board of Directors
40
<PAGE>
of several private companies. Mr. Bohnett was elected to our Board of Directors
as a representative of the class of Series C investors under a voting agreement
which will terminate upon the closing of this offering. Mr. Bohnett received
his B.S. degree in Business Administration from the University of Southern
California and his M.B.A. degree in Finance from the University of Michigan.
Jeffrey J. Brown has been a Director since February 1998. In June 1993, Mr.
Brown founded and, since that time, he has been a director, executive officer
and shareholder of Forrest Binkley & Brown Venture Co., the general partner of
Forrest Binkley & Brown L.P., the Managing Partner of SBIC Partners. Mr. Brown
is also a founder, director, executive officer and shareholder of Forrest
Binkley & Brown Venture Advisor Co., an affiliate of SBIC Partners. From 1987
to 1992, Mr. Brown served in various executive capacities at Security Pacific
Venture Capital Group. From April 1992 until June 1993, Mr. Brown acted as
Senior Vice President of BankAmerica Venture Capital Group. Mr. Brown is a
director of Golden State Vintners, Inc., a supplier of premium bulk wines and
wine processing services, and serves on the boards of a number of private
companies. Mr. Brown was elected to our Board of Directors as a representative
of SBIC Partners under a voting agreement which will terminate upon the closing
of this offering. Mr. Brown received his B.S. in Mathematics from Willamette
University and his M.B.A. from Stanford University.
Thomas N. Clancy has been a Director since February 1998. Mr. Clancy has
been a Venture Partner at Enterprise Partners Venture Capital since February
1997. Prior to joining Enterprise Partners in September 1996, Mr. Clancy was a
Partner at Technical Resource Connection, now Perot Systems, a provider of
information technology services, from March 1996 to July 1996. Previously, Mr.
Clancy served as the Chief Executive Officer at Expersoft from May 1994 to
January 1996 and as Vice President of Product Marketing at Expersoft from
October 1993 to May 1994. From March 1983 to November 1991, Mr. Clancy worked
at Citibank in engineering management and product development. Mr. Clancy
serves on the board of a number of private companies. Mr. Clancy was elected to
our Board of Directors as a representative of Enterprise Partners under a
voting agreement which will terminate upon the closing of this offering. Mr.
Clancy received his Computer and Systems Engineering degree from Rensselaer
Polytechnic Institute in New York.
G. Bradford Jones has been a Director since October 1998. Mr. Jones is
currently a General Partner at Brentwood Venture Capital, which he joined in
1981. Mr. Jones also currently serves on the board of directors of Onyx
Acceptance Corporation, a specialized consumer finance company, Interpore
International, a medical device company, and ISOCOR, a software developer, and
several privately-held companies. Mr. Jones was elected to our Board of
Directors as a representative of Brentwood Associates under a voting agreement
which will terminate upon the closing of this offering. Mr. Jones received his
B.S. in Chemistry from Harvard University, his Master degree in Physics from
Harvard University and his J.D./M.B.A. from Stanford University.
Marvin Runyon has been a Director since February 1999. From 1992 to 1999,
Mr. Runyon served as Postmaster General of the United States. Prior to joining
the US Postal Service, he served as Chairman of the Tennessee Valley Authority
from 1988 to 1992. From 1980 to 1988, Mr. Runyon was the founding President and
CEO of Nissan Motor Manufacturing Corporation U.S.A. Previously, Mr. Runyon
spent 37 years at Ford Motor Co., leaving in 1980 with the position of Vice
President, Body and Assembly Operations. Mr. Runyon serves as a board member of
Genesis Direct, Inc., a specialty retailer. Mr. Runyon received his B.S. from
Texas A&M University.
Loren E. Smith has served as a Director since February 1999. Since November
1996, Mr. Smith has been a Principal at Threshold Management, a consulting firm
that specializes in strategic growth management for leading businesses in a
diverse range of industries. He was also employed as a Principal at Threshold
Management from July 1993 to October 1994. From October 1994 to October 1996,
he served as the Senior Vice President and Chief Marketing Officer of the US
Postal Service. In 1985, Mr. Smith joined Citibank and was responsible for
establishing the national marketing organization of its Consumer Services
Group. From 1975 to 1995, he founded Threshold Management. Previously, Mr.
Smith held various management positions at General Foods Corporation and
Colgate Palmolive Co. Mr. Smith received his A.B. in Economics from Albion
College and his M.B.A. from the University of Michigan.
41
<PAGE>
Classified Board of Directors
Our Board of Directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board
of directors will be elected each year. These provisions, together with the
provision of our amended and restated certificate of incorporation, allow the
board of directors to fill vacancies of or increase the size of the board of
directors, and may deter a stockholder from removing incumbent directors and
filling such vacancies with its own nominees in order to gain control of the
board.
Our board has resolved that Messrs. Bohnett, Bruggere and Jones will serve
as Class I Directors whose terms expire at the 2000 annual meeting of
stockholders. Messrs. Ananda, Clancy and Runyon will serve as Class II
directors whose terms expire at the 2001 annual meeting of stockholders.
Messrs. Brown, Payne and Smith will serve as Class III directors whose terms
expire at the 2002 annual meeting of stockholders.
Board Committees
The Board has established an Audit Committee to meet with and consider
suggestions from members of management and our internal accounting personnel,
as well as our independent accountants, concerning our financial operations.
The Audit Committee also has the responsibility to review our audited financial
statements and consider and recommend the employment of, and approve the fee
arrangements with, independent accountants for both audit functions and for
advisory and other consulting services. The Audit Committee is currently
comprised of Messrs. Runyon, Bohnett and Brown. The Board has also established
a Compensation Committee to review and approve the compensation and benefits
for our key executive officers, administer our stock purchase, equity incentive
and stock option plans and make recommendations to the Board regarding these
matters. The Compensation Committee is currently comprised of Messrs. Bruggere,
Clancy and Jones.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Bruggere, Clancy and Jones.
Neither of these individuals was an employee of ours at any time since our
formation. None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of our Board of Directors or
Compensation Committee.
Director Compensation and Other Arrangements
Our directors receive no cash remuneration for serving on the Board of
Directors or any board committee. In March 1999, Messrs. Bohnett, Runyon and
Smith were each granted an option to purchase 108,000 shares of common stock.
The options were granted at fair market value on the date of grant and vest
ratably over three year periods. In April 1999, Messrs. Clancy, Jones and Brown
were each granted an option to purchase 36,000 shares of common stock. These
options were granted at fair market value on the date of grant and vest in full
on the first anniversary of the grant. In addition, directors are reimbursed
for all reasonable expenses incurred by them in attending Board and Committee
meetings.
In February 1999, we entered into a three-year consulting agreement with
Loren Smith under which he will provide marketing and strategic planning
services. Mr. Smith also agreed to serve as a director on our Board of
Directors and to serve as a member on a board committee. In exchange for these
services, we will compensate Mr. Smith $120,000 per year, and in consideration
of his consulting services, grant him an option to purchase 135,000 shares of
our common stock at $0.33 per share.
Directors who are also our employees are eligible to receive options and be
issued shares of common stock directly under our 1999 Stock Incentive Plan.
Non-employee directors will also receive automatic option grants under our 1999
Stock Incentive Plan. See "--1999 Stock Incentive Plan."
42
<PAGE>
Executive Compensation
The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 1998 by our Chief
Executive Officer and each of our other four highest paid executive officers
whose total compensation exceeded or would have exceeded $100,000 during 1998
had those officers provided services to us for the entire fiscal year.
Summary Compensation Table for Fiscal Year 1998
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Securities
Name and Principal -------------------- Other Annual Underlying All Other
Positions Salary ($) Bonus ($) Compensation ($) Options (#) Compensation ($)
------------------ ---------- --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
John M. Payne
President and Chief
Executive Officer
(October 1998 to
present)............. 27,897 -- -- -- 112,800(1)
John W. LaValle
Chief Financial Officer
and Senior Vice
President of
Operations........... 42,000 -- -- 395,802 --
Mohan P. Ananda
Chief Executive Officer
and President
(January 1998 to
October 1998)........ 85,500 -- -- -- --
Douglas J. Walner
Vice President of
Business Development. 35,000 25,000 -- 366,357 7,434(2)
</TABLE>
- --------
(1) Represents total payments to Mr. Payne for consulting services performed
during the period from May 1998 to October 1998.
(2) Represents total payments to Mr. Walner for consulting services performed
during the period from August 1998 to September 1998.
43
<PAGE>
Stock Options Granted During Fiscal Year 1998
During the fiscal year ended December 31, 1998, we granted options to
purchase 2,310,909 shares of common stock. All options were granted at an
exercise price equal to the fair market value of our common stock as determined
by our Board of Directors on the date of grant. The exercise price may be paid
in cash, check, promissory note, shares of our common stock valued at fair
market value on the exercise date or a cashless exercise procedure involving a
same-day sale of the purchased shares. The following table indicates
information regarding options to purchase common stock granted to our officers
listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Appreciation
Individual Grants For Option Term
------------------------------------------------------------- ---------------
Number of
Securities Percentage of Exercise
Underlying Options Total Options Granted Price Per Expiration
Name Granted to Employees in 1998 Share Date 5% 10%
---- ------------------ --------------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John W. LaValle......... 395,802 17.1% $0.07 9/24/08 $16,594 $42,054
Douglas J. Walner....... 366,357 15.6% $0.07 8/20/08 $15,360 $38,925
</TABLE>
Each option listed in the table was granted under our 1998 Stock Plan,
which will be succeeded by our 1999 Stock Incentive Plan upon the closing of
this offering. The options shown in the table are immediately exercisable. The
shares underlying the options are subject to a repurchase option which expires
over a four year period. The purchase price per share upon exercise of the
repurchase option by us is equal to the exercise price paid by the optionee to
originally purchase the shares. One year after the option grant date, 1/4 of
the shares are no longer subject to the repurchase option and the repurchase
option expires for 1/48 of the shares each month thereafter. The shares
underlying the options may also vest fully upon a change in control. See "--
1999 Stock Incentive Plan."
Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical gains
that could be achieved for the respective options if exercised at the end of
the option term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission
and do not represent our estimate or projection of our future common stock
prices. These amounts represent assumed rates of appreciation in the value of
the common stock from the fair market value on the date of grant. Actual gains,
if any, on stock option exercises are dependent on the future performance of
the common stock and overall stock market conditions. The amounts reflected in
the table may not necessarily be achieved.
Aggregated Option Exercises and Year-End Option Values
The following table indicates the number and value of unexercised options
held by our officers listed on the Summary Compensation Table. There was no
public trading market for the common stock as of December 31, 1998.
Accordingly, these values of unexercised options have been calculated by
subtracting the exercise price from the fair market value of the underlying
securities as determined by the Board of Directors. No options were exercised
by our executive officers in 1998.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Options at
December 31, December 31,
1998 1998
--------------- ---------------
Name Vested Unvested Vested Unvested
---- ------ -------- ------ --------
<S> <C> <C> <C> <C>
John W. LaValle................................. 0 395,802 0 $105,547
Douglas J. Walner............................... 0 366,357 0 $ 97,695
</TABLE>
44
<PAGE>
Employment Agreements and Change in Control Arrangements
John M. Payne has entered into a letter agreement, effective as of October
29, 1998, to serve as our President and Chief Executive Officer. Mr. Payne's
1999 compensation includes a base salary of $210,000 per year and a potential
bonus of $90,000. In addition, we gave Mr. Payne benefits that we make
available to our employees in comparable positions, and upon his execution of
the letter agreement, we sold 1,500,000 shares of our common stock to him at
$0.07 per share, the fair market value on the purchase date. Mr. Payne is an
at-will employee and his employment may be terminated at any time by him or by
us. If Mr. Payne's employment is constructively terminated or terminated by us
or a successor entity involuntarily within 12 months following a change in
control, or if we terminate or constructively terminate Mr. Payne's employment
for any reason other than for cause, he will be entitled to receive monthly
installments of his base salary for six months and all of his unvested stock
will become immediately vested. After two years of employment, Mr. Payne's
severance period will increase to nine months, and after three years of
service, the severance period will increase to one year.
John W. LaValle entered into a letter agreement, effective as of August
16, 1998, to serve as our Chief Financial Officer and Senior Vice President.
Mr. LaValle receives a base salary of $156,000 per year and was granted an
option to purchase 395,802 shares of common stock at $0.07 per share, the fair
market value on the grant date. In addition, Mr. LaValle receives standard
medical and dental benefits available to our other employees. Mr. LaValle is
an at-will employee and his employment can be terminated at any time by him or
by us. If Mr. LaValle's employment is constructively terminated or terminated
by us or a successor entity within 12 months following a change in control,
all of his unvested stock will become immediately vested.
For purposes of Messrs. Payne and LaValle, "constructive termination"
shall occur upon the following:
. a relocation without consent;
. disability or death;
. an assignment to a new position that is not commensurate with the
individual's seniority and compensation level; or
. any reduction in the individual's compensation.
Mohan P. Ananda entered into an employment agreement, effective as of
January 20, 1998, under which Mr. Ananda served as our President, Chief
Executive Officer and the Chairman of the Board of Directors. Mr. Ananda
received an initial base salary of $60,000, which was increased to $120,000
per year in October 1998. In addition, we sold 2,172,595 shares of our common
stock to Mr. Ananda at $0.01 per share, the fair market value on the purchase
date. Mr. Ananda has ceased active involvement with our operations, but he
continues as a director.
Douglas J. Walner is subject to an agreement which partially accelerates
the vesting of his options upon a change in control and his subsequent
termination.
In April 1999, we amended our 1998 Stock Plan to adopt a change in control
provision. As a result of this provision, should any optionee have his or her
service involuntarily terminated within eighteen (18) months following a
Corporate Transaction in which his or her options are assumed by the successor
corporation and do not otherwise accelerate at that time, then those options
will accelerate and become fully exercisable for all of the option shares as
fully-vested shares of common stock upon an involuntary termination. A
"Corporate Transaction" under the 1998 Stock Plan is defined as a merger or
consolidation in which securities possessing more than 50% of the total
combined voting power of our outstanding securities are transferred to a
person or persons different from those who held those securities immediately
prior to the transaction, or the sale, transfer or other disposition of all or
substantially all of our assets in complete liquidation of us. "Involuntary
Termination" is defined under the 1998 Stock Plan as the optionee's
involuntary dismissal or discharge by us for reasons other than misconduct, or
the optionee's voluntary resignation following:
. a change in his or her position with us which materially reduces his or
her responsibilities;
. a reduction in his or her level of compensation by more than 15%; or
45
<PAGE>
. a relocation of the optionee's place of employment by more than 50
miles, and this change, reduction or relocation is effected by us
without the optionee's consent.
Our 1999 Stock Incentive Plan, which will serve as a successor plan to our
1998 Stock Plan, will include change in control provisions which may result in
the accelerated vesting of outstanding option grants and stock issuances. See
"--1999 Stock Incentive Plan--Change in Control."
1999 Stock Incentive Plan
Introduction. The 1999 Stock Incentive Plan is intended to serve as the
successor program to our 1998 Stock Plan. The 1999 plan was adopted by the
board and approved by the stockholders in June 1999. The 1999 plan will become
effective when the underwriting agreement for this offering is signed. At that
time, all outstanding options under our existing 1998 plan will then be
transferred to the 1999 plan, and no further option grants will be made under
the 1998 plan. The transferred options will continue to be governed by their
existing terms, unless our compensation committee decides to extend one or more
features of the 1999 plan to those options. Except as otherwise noted below,
the transferred options have substantially the same terms as will be in effect
for grants made under the discretionary option grant program of our 1999 stock
plan.
Share Reserve. 7,290,000 shares of our common stock have been authorized
for issuance under the 1999 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1998 plan. The share reserve
under our 1999 plan will automatically increase on the first trading day in
January each year, beginning with calendar year 2000, by an amount equal to
three percent (3%) of the total number of shares of our common stock
outstanding on the last trading day of December in the prior year, but in no
event will this annual increase exceed 1,564,715 shares. In addition, no
participant in the 1999 plan may be granted stock options or direct stock
issuances for more than 1,125,000 shares of common stock in total in any
calendar year.
Programs. Our 1999 plan has five separate programs:
. the discretionary option grant program, under which eligible employees
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on
the grant date;
. the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or upon the completion of a period of service or
as a bonus for past services;
. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition
of special below market stock option grants;
. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
. the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash for the year to the
acquisition of special below-market option grants.
Eligibility. The individuals eligible to participate in our 1999 plan
include our officers and other employees, our board members and any consultants
we hire.
Administration. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to
be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding.
46
<PAGE>
The compensation committee will also have the authority to select the executive
officers and other highly compensated employees who may participate in the
salary investment option grant program in the event that program is put into
effect for one or more calendar years.
Plan Features. Our 1999 plan will include the following features:
. The exercise price for any options granted under the plan may be paid
in cash or in shares of our common stock valued at fair market value on
the exercise date. The option may also be exercised through a same-day
sale program without any cash outlay by the optionee.
. The compensation committee will have the authority to cancel
outstanding options under the discretionary option grant program,
including any transferred options from our 1998 Stock Plan, in return
for the grant of new options for the same or different number of option
shares with an exercise price per share based upon the fair market
value of our common stock on the new grant date.
. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from us equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the
payment in cash or in shares of our common stock. None of the options
under our 1998 Stock Plan have any stock appreciation rights.
Change in Control. The 1999 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
. In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which
is not to be assumed by the successor corporation will immediately
become exercisable for all the option shares, and all outstanding
unvested shares will immediately vest, except to the extent our
repurchase rights with respect to those shares are to be assigned to
the successor corporation.
. The compensation committee will have complete discretion to grant one
or more options which will become exercisable for all the option shares
in the event those options are assumed in the acquisition but the
optionee's service with us or the acquiring entity is subsequently
terminated. The vesting of any outstanding shares under our 1999 plan
may be accelerated upon similar terms and conditions.
. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than fifty percent of our outstanding voting stock or a change in
the majority of our board through one or more contested elections. This
accelerated vesting may occur either at the time of the transaction or
upon the subsequent termination of the individual's service.
. The options currently outstanding under our 1998 Stock Plan will
immediately vest in the event we are acquired and the acquiring company
does not assume those options. Any options which are assumed will
immediately vest upon an involuntary termination of the optionee's
employment within 18 months after the acquisition.
Salary Investment Option Grant Program. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees
may elect to reduce his or her base salary for the calendar year by an amount
not less than $10,000 nor more than $50,000. Each selected individual who makes
this election will automatically be granted, on the first trading day in
January of the calendar year for which his or her salary reduction is to be in
effect, an option to purchase that number of shares of common stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of our common stock on the grant date. The option will have exercise
price per share equal to one-third of the fair market value of the option
shares on the grant date. As a result, the option will be structured so that
the fair market value of the option shares on the
47
<PAGE>
grant date less the exercise price payable for those shares will be equal to
the amount of the salary reduction. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which
the salary reduction is to be in effect.
Automatic Option Grant Program. Each individual who first becomes a non-
employee board member at any time after the effective date of this offering
will receive an option grant for 10,000 shares of common stock on the date such
individual joins the board. In addition, on the date of each annual
stockholders meeting held after the effective date of this offering, each non-
employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 2,500 shares of common stock,
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid
per share, any shares purchased under the option which are not vested at the
time of the optionee's cessation of board service. The shares subject to each
annual automatic grant will be fully-vested when granted. The shares subject to
each initial 10,000-share automatic option grant will vest in a series of 36
successive equal monthly installments upon the optionee's completion of each
month of board service over the 36 month period measured from the grant date.
However, the shares will immediately vest in full upon certain changes in
control or ownership or upon the optionee's death or disability while a board
member.
Director Fee Option Grant Program. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a below-
market option grant. The option grant will automatically be made on the first
trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third
of the fair market value of the option shares on the grant date, and the number
of shares subject to the option will be determined by dividing the amount of
the retainer fee applied to the program by two-thirds of the fair market value
per share of our common stock on the grant date. As a result, the option will
be structured so that the fair market value of the option shares on the grant
date less the exercise price payable for those shares will be equal to the
portion of the retainer fee applied to that option. The option will become
exercisable in a series of twelve equal monthly installments over the calendar
year for which the election is in effect. However, the option will become
immediately exercisable for all the option shares upon the death or disability
of the optionee while serving as a board member.
Additional Program Features. Our 1999 plan will also have the following
features:
. Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50%
of our outstanding voting stock or a change in the majority of our
board through one or more contested elections.
. Limited stock appreciation rights will automatically be included as
part of each grant made under the salary investment option grant
program and the automatic and director fee option grant programs, and
these rights may also be granted to one or more officers as part of
their option grants under the discretionary option grant program.
Options with this feature may be surrendered to us upon the successful
completion of a hostile tender offer for more than 50% of our
outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount
per surrendered option share based upon the highest price per share of
our common stock paid in that tender offer.
. The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later
than the last business day of June 2009.
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<PAGE>
1999 Employee Stock Purchase Plan
Introduction. Our 1999 Employee Stock Purchase Plan was adopted by the
board and approved by the stockholders in June 1999. The plan will become
effective immediately upon the signing of the underwriting agreement for this
offering. The plan is designed to allow our eligible employees and the eligible
employees of our participating subsidiaries to purchase shares of common stock,
at semi-annual intervals, with their accumulated payroll deductions.
Share Reserve. 300,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each year, beginning in calendar year 2000, by an amount
equal to one percent (1%) of the total number of outstanding shares of our
common stock on the last trading day in December in the prior year. In no event
will any annual increase exceed 521,571 shares.
Offering Periods. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for the offering covered is
signed and will end on the last business day in July 2001. The next offering
period will start on the first business day in August 2001, and subsequent
offering periods will be set by our compensation committee.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period. Semi-annual
entry dates will occur on the first business day of February and August each
year. Individuals who become eligible employees after the start date of an
offering period may join the plan on any subsequent semi-annual entry date
within that offering period.
Payroll Deductions. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will
be applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per
share on the participant's entry date into the offering period or, if lower,
85% of the fair market value per share on the semi-annual purchase date.
Semi-annual purchase dates will occur on the last business day of January
and July each year. In no event, however, may any participant purchase more
than 1,200 shares on any purchase date, and not more than 75,000 shares may be
purchased in total by all participants on any purchase date.
Reset Feature. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start
date of the two-year offering period, then that offering period will
automatically terminate, and a new two-year offering period will begin on the
next business day. All participants in the terminated offering will be
transferred to the new offering period.
Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of the acquisition. The purchase price will be equal to
85% of the market value per share on the participant's entry date into the
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.
Plan Provisions. The following provisions will also be in effect under the
plan:
. The plan will terminate no later than the last business day of June
2009.
. The board may at any time amend, suspend or discontinue the plan.
However, some amendments may require stockholder approval.
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Limitation on Liability and Indemnification Matters
The certificate of incorporation that we will adopt immediately prior to
the closing of this offering provides that, except to the extent prohibited by
the Delaware General Corporation Law, our directors will not be personally
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty as directors. Under the Delaware General Corporation Law, the
directors have a fiduciary duty to Stamps.com which is not eliminated by this
provision of the certificate of incorporation and, in appropriate
circumstances, equitable remedies including injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the Delaware law for:
. breach of the director's duty of loyalty;
. acts or omissions which are found by a court of competent jurisdiction
to be not in good faith or which involve intentional misconduct, or
knowing violations of law;
. actions leading to improper personal benefit to the director; and
. payment of dividends or approval of stock repurchases or redemptions
that are prohibited by Delaware law.
This provision also does not affect the director's responsibilities under any
other laws, including the federal securities laws or state or federal
environmental laws. We have obtained liability insurance for our officers and
directors.
Section 145 of the Delaware law empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided
that this provision shall not eliminate or limit the liability of a director:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. arising under Section 174 of the Delaware law; or
. for any transaction from which the director derived an improper
personal benefit.
The Delaware law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors and officers may be entitled under the corporation's bylaws, any
agreement, a vote of stockholders or otherwise. The certificate of
incorporation provides that we indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that the person is or was a director
or officer, or is or was serving at our request as a director or officer of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against expenses, judgements, fines and amounts paid in
settlement actually and reasonably incurred by the person in the action, suit
or proceeding.
We plan to enter into indemnification agreements with our directors and our
executive officers containing provisions that may require us, among other
things, to indemnify our directors and officers against liabilities that may
arise by reason of their status or service as directors or officers other than
liabilities arising from willful misconduct of a culpable nature, to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' liability
insurance if maintained for other directors or officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.
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RELATED PARTY TRANSACTIONS
Sales of Securities
We have issued a total of 6,900,975 shares of common stock for a total
purchase price of $193,760.00. John M. Payne, our President and Chief Executive
Officer, purchased 1,500,000 shares of common stock in November 1998 for a
purchase price of $100,000.00, which amount includes a note payable to
Stamps.com for $99,000.00. Thomas Bruggere, our Chairman of the Board of
Directors, purchased 488,475 shares of common stock in October 1998 and
December 1998 for a total purchase price of $28,460.00. Mohan Ananda, a member
of our board of directors, purchased 2,172,595 shares of common stock in
January 1998 for a total purchase price of $28,967.94. As payment of the
purchase price, Mr. Ananda assigned to us intellectual property rights in his
inventions developed for us and received a license back from us to use those
intellectual property rights in a restricted field of use. A more detailed
description of transactions with Mr. Ananda appears below. In January 1998, we
also sold 423,993 shares of common stock to each of our co-founders, James
McDermott, Ari Engelberg and Jeffrey Green, for a total purchase price of
$16,959.72, which amount includes $9,000.00 in notes payable to Stamps.com.
We have issued, in private placement transactions, shares of preferred
stock as follows:
. 3,762,500 shares of Series A preferred stock at $0.40 per share in
February 1998;
. 6,020,000 shares of Series B preferred stock at $0.75 per share in
August, October and November 1998; and
. 5,464,486 shares of Series C preferred stock at $5.49 per share in
February and March 1999.
Transactions with Mr. Ananda
We paid $61,000 in March 1998 to Safeware Corporation for employee salary
and patent prosecution expenses incurred on our behalf to attain patents for
us. These patent prosecution expenses consisted primarily of fees paid to
patent counsel and fees paid to the US Patent and Trademark Office. Mr. Ananda
is the majority shareholder in Safeware Corporation. We also reimbursed Mr.
Ananda for approximately $20,000 for expenses incurred on our behalf.
Under our previous agreements with Mr. Ananda, we own all of the
intellectual property developed by Mr. Ananda during the course of his
employment and all of the intellectual property he developed for us before his
formal employment began. Mr. Ananda resigned as our Chief Executive Officer on
January 1, 1999. In May 1999, we entered into a separation agreement and a
license agreement with Mr. Ananda to formalize his resignation and to redefine
his intellectual property rights relative to us. The new license agreement
reaffirmed our ownership of the intellectual property invented by Mr. Ananda.
In addition, the license agreement clarified and narrowed Mr. Ananda's field of
use restrictions to limit his license to a few narrowly defined electronic
commerce applications that do not compete with our Internet postage service.
Consulting Services
We paid Mr. Payne $112,800 for consulting services he rendered to us
between May 1998 and October 1998.
In February 1999, Loren Smith, a director, entered into a three-year
consulting agreement with us to provide marketing and strategic planning
services. In exchange for his consulting services, Mr. Smith will receive
consulting fees of $120,000 per annum and an option to purchase 135,000 shares
of common stock at $0.33 per share. The term of this agreement expires in
February 2002.
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PRINCIPAL STOCKHOLDERS
The following table indicates beneficial ownership of our common stock as
of May 31, 1999, after giving effect to the conversion of convertible preferred
stock, and as adjusted to reflect the sale of the shares of common stock
offered in this offering, by:
. each stockholder whom we know to beneficially own 5% or more of the
outstanding shares of common stock;
. each of our directors and our executive officers named in the Summary
Compensation Table, and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed below
is c/o Stamps.com Inc., 3420 Ocean Park Boulevard, Suite 1040, Santa Monica,
California 90405.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by the footnotes below,
we believe, based on information furnished to us, that the persons and entities
named in the table below have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them. Percentage of
beneficial ownership is based on 29,771,454 shares of common stock outstanding
as of May 31, 1999 and 34,771,454 shares of common stock outstanding after the
completion of this offering. In computing the number of shares of common stock
subject to options held by that person that are exercisable within 60 days of
May 31, 1999, these shares are deemed outstanding for the purpose of
determining the percentage ownership of the optionee. These shares, however,
are not deemed outstanding for the purpose of computing the percentage
ownership of any other stockholder.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
------------------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned Offering Offering
------------------------ ------------------ ---------- ----------
<S> <C> <C> <C>
Named executive officers and
Directors:
Jeffrey J. Brown(1)........... 5,457,448 18.3% 15.7%
Thomas N. Clancy(2)........... 5,457,448 18.3% 15.7%
G. Bradford Jones(3).......... 5,457,448 18.3% 15.7%
Mohan P. Ananda(4)............ 2,172,595 7.3% 6.2%
John M. Payne................. 1,500,000 5.0% 4.3%
Thomas H. Bruggere(5)......... 488,475 1.6% 1.4%
John W. LaValle (6)........... 395,802 1.3% 1.1%
Douglas J. Walner(7).......... 366,357 1.2% 1.0%
Loren E. Smith(8)............. 243,000 * *
David C. Bohnett(9)........... 135,322 * *
Marvin Runyon(10)............. 114,831 * *
Other 5% Stockholders:
Brentwood Venture Capital
(11)........................ 5,421,448 18.2% 15.6%
11150 Santa Monica Blvd,
Suite 1200
Los Angeles, CA 90025
Enterprise Partners IV, L.P.
(12)........................ 5,421,448 18.2% 15.6%
5000 Birch Street, Suite
6200
Newport Beach, CA 92660
SBIC Partners, L.P. .......... 5,421,448 18.2% 15.6%
201 Main Street, Suite 2302
Fort Worth, TX 76102
Vulcan Ventures Inc........... 2,732,241 9.2% 7.9%
110-110th Ave., N.E., Suite
550
Bellevue, WA 98004
Chase Venture Capital
Partners, L.P............... 2,185,792 7.3% 6.3%
380 Madison Ave., 12th
Floor
New York, NY 10017
All directors and executive
officers as a group
(15 people) (13).............. 22,400,086 71.6% 64.2%
</TABLE>
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<PAGE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) Consists of 5,421,448 shares held by SBIC Partners, L.P. Jeffrey Brown is
a director and executive officer of Forrest Binkley & Brown Venture Co.,
the general partner of Forrest Binkley & Brown L.P., the Managing Partner
of SBIC Partners. Mr. Brown disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein. Also
includes 36,000 shares subject to options, all of which are presently
exercisable within 60 days from March 31, 1999.
(2) Includes 4,987,732 shares and 433,716 held by Enterprise Partners IV,
L.P. and Enterprise Partners IV Associates, L.P., respectively. Thomas N.
Clancy is a Venture Partner at Enterprise Partners Venture Capital. Mr.
Clancy disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein. Also includes 36,000 shares
subject to options, all of which are presently exercisable within 60 days
from March 31, 1999.
(3) Includes 5,204,590 shares and 216,858 shares held by Brentwood Associates
VIII, L.P. and Brentwood Affiliates Fund, L.P., respectively. G. Bradford
Jones is a General Partner at Brentwood Venture Capital. Mr. Jones
disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest therein. Also includes 36,000 shares subject to
options, all of which are presently exercisable within 60 days from March
31, 1999.
(4) Includes 240,000 shares held in trust for the benefit of Mr. Ananda's
family.
(5) Includes 75,000 shares held in trust for the benefit of his children as
to which Mr. Bruggere disclaims beneficial ownership.
(6) Includes 395,802 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(7) Includes 366,357 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(8) Includes 243,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(9) Includes 108,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(10) Includes 108,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from March 31,
1999.
(11) Includes 5,204,590 shares and 216,858 shares held by Brentwood Associates
VIII, L.P. and Brentwood Affiliates Fund, L.P., respectively. G. Bradford
Jones is a General Partner at Brentwood Venture Capital. Mr. Jones
disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest therein.
(12) Includes 4,987,732 shares and 433,716 held by Enterprise Partners IV,
L.P. and Enterprise Partners IV Associates, L.P., respectively. Thomas N.
Clancy is a Venture Partner at Enterprise Partners Venture Capital. Mr.
Clancy disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(13) Includes 1,516,659 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days of March 31, 1999.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and provisions of our
certificate of incorporation and bylaws is only a summary. You should also
refer to the copies of our certificate and bylaws which have been filed with
the Securities and Exchange Commission as exhibits to our registration
statement, of which this prospectus forms a part. The description of common
stock and preferred stock reflect changes to our capital structure that will
occur upon the closing of this offering in accordance with the terms of the
certificate of incorporation that will be adopted by us immediately prior to
the closing of this offering.
Upon the closing of this offering, our authorized capital stock will
consist of 95,000,000 shares of common stock, par value $0.001, and 5,000,000
shares of preferred stock, par value $0.001.
Common Stock
As of May 31, 1999, there were 29,771,454 shares of common stock
outstanding and held of record by 36 stockholders, assuming conversion of all
shares of preferred stock into common stock. Based on the number of shares
outstanding as of that date and giving effect to the issuance of the 5,000,000
shares of common stock in this offering, there will be 34,771,454 shares of
common stock outstanding upon the closing of the offering.
Holders of the common stock are entitled to one vote for each share held on
all matters submitted to a vote of the stockholders. Holders of common stock
are entitled to receive dividends ratably, if any, as may be declared by the
Board of Directors out of legally available funds, subject to any preferential
dividend rights of any outstanding preferred stock. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to receive
ratably our net assets available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
offered by us in this offering will be, upon receipt of payment for the shares,
fully paid and nonassessable. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of preferred stock which we may designate and
issue in the future without further stockholder approval. Upon the closing of
the offering, there will be no shares of preferred stock outstanding.
Preferred Stock
Upon the closing of this offering, all outstanding shares of our redeemable
preferred stock will convert into shares of common stock. Thereafter, the Board
of Directors will be authorized without further stockholder approval, to issue
from time to time up to a total of 5,000,000 shares of preferred stock in one
or more series and to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting
rights, term of redemption, redemption price or prices, liquidation preferences
and the number of shares constituting any series or designations of these
series without further vote or action by the stockholders. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of our management without further action by the stockholders
and may adversely affect the voting and other rights of the holders of common
stock. The issuance of preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of common stock, including the
loss of voting control to others. We have no present plans to issue any shares
of preferred stock.
Warrant
On May 1, 1998, we issued a warrant which is currently exercisable for
7,050 shares of common stock at $0.27 per share. The warrant may be exercised
at any time on or before May 1, 2005.
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<PAGE>
Anti-Takeover Effects of Provisions of Delaware Law and our Certificate of
Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years from the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained this status with the approval of the board of
directors or unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or
more of the corporation's voting stock. This statute could prohibit or delay
the accomplishment of mergers or other takeover or change in control in
attempts with respect to us and, accordingly, may discourage attempts to
acquire us.
In addition, provisions of our certificate of incorporation and bylaws, may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in his best
interest, including those attempts that might result in a premium over the
market price for the shares held by our stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices not less
than 120 days prior to the date of our annual meeting. The bylaws also specify
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
Classified Board of Directors; Removal. Upon the closing of this offering,
our directors will be divided into three classes. The number of directors will
be distributed among the three classes so that each class will consist of one-
third of the Board of Directors. The classification of the Board of Directors
will have the effect of requiring at least two annual stockholder meetings,
instead of one, to replace a majority of the directors which could have the
effect of delaying or preventing a change in control of Stamps.com. Subject to
the rights of the holders of any outstanding series of preferred stock, the
certificate of incorporation will authorize only the Board of Directors to fill
vacancies, including newly created directorships. The certificate of
incorporation will also provide that directors may be removed by stockholders
only for cause and only by the affirmative vote of holders of two-thirds of the
outstanding shares of voting stock.
Supermajority Vote to Amend Charter and Bylaws. Our certificate of
incorporation and bylaws will each provide that our bylaws may only be amended
by a two-thirds vote of the outstanding shares. In addition, our certificate of
incorporation will provide that its provisions related to bylaw amendments,
staggered board and indemnification may only be amended by a two-thirds vote of
the outstanding shares.
55
<PAGE>
Registration Rights
After this offering, holders of approximately 25,043,074 shares of common
stock issuable upon conversion of the outstanding preferred stock upon the
closing of this offering will be entitled to registration rights with respect
to their shares. Of these shares, 2,172,595 shares of common stock do not have
demand registration rights and are only entitled to "piggy-back" registration
rights. The holders of securities with registration rights can require us to
register all or part of their shares at any time following six months after
this offering. In addition these holders may also require us to include their
shares in future registration statements that we file and may require us to
register their shares on Form S-3. Upon registration, these shares are freely
tradable in the public market without restriction.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock will be U.S. Stock
Transfer Corporation.
Listing
Our common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "STMP."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 34,771,454 shares of common
stock outstanding assuming no exercise of the underwriters' over-allotment
option or outstanding options as of May 31, 1999. Of this amount, the 5,000,000
shares offered by this prospectus will be available for immediate sale in the
public market as of the date of this prospectus. Approximately 10,313,199
additional shares will be available for sale in the public market following the
expiration of 180-day lock-up agreements with the representatives of our
underwriters, subject in some cases to compliance with the volume and other
limitations of Rule 144.
<TABLE>
<CAPTION>
Days after the
Date of this Approximate Shares
Prospectus Eligible for Future Sale Comment
-------------- ------------------------ ---------------------------------
<C> <C> <S>
Upon Effectiveness 5,000,000 Freely tradable shares sold in
offering and shares salable under
Rule 144(k) that are not subject
to 180-day lock-up
90 days 209,301 Shares salable under Rules 144 or
701 that are not subject to 180-
day lock-up
180 days 10,313,199 Lock-up released; shares salable
under Rules 144 or 701
</TABLE>
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year is entitled to sell within any
three-month period commencing 90 days after the date of this prospectus a
number of shares that does not exceed the greater of (a) 1% of the then
outstanding shares of common stock (approximately 348,000 shares immediately
after the offering) or (b) the average weekly trading volume during the four
calendar weeks preceding the sale, subject to the filing of a Form 144 with
respect to the sale. A person who is not deemed to have been an affiliate of
Stamps.com at any time during the 90 days immediately preceding the sale and
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares under Rule 144(k) without regard to the limitations
described above. Persons deemed to be affiliates must always sell under Rule
144, even after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to the offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
Our directors, executive officers, and other significant stockholders have
agreed that they will not sell any common stock without the prior written
consent of BancBoston Robertson Stephens Inc. for a period of 180 days from the
date of this prospectus. We have also agreed not to issue any shares during the
lock-up period without the consent of BancBoston Robertson Stephens Inc.,
except that we may, without this consent, grant options and sell shares under
our stock incentive and purchase plans although the shares may not be resold
into the public market during the lock-up period.
Any of our employees or consultants who purchased his or her shares under a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to resell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
resell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of May 31, 1999, there were outstanding 3,208 shares of common
stock that would be entitled to rely on Rule 701 for resales.
As of May 31, 1999, there were outstanding options to purchase 5,374,959
shares of common stock under our stock plans. We intend to file a registration
statement on Form S-8 under the Securities Act shortly after the completion of
the offering to register the shares of common stock subject to outstanding
stock options that may be issued under these plans, which will permit the
resale of these shares in the public market without restriction after the lock-
up period expires.
In addition, some of our stockholders have registration rights with respect
to approximately 25,043,074 shares of common stock and common stock
equivalents. Registration of these securities under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act provided their shares were not purchased by any of our
affiliates.
57
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Thomas Weisel Partners LLC, Volpe Brown
Whelan & Company, LLC and Wit Capital Corporation have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock indicated opposite their
names below. The underwriters are committed to purchase and pay for all of the
shares if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ----------
<S> <C>
BancBoston Robertson Stephens Inc. ..............................
Thomas Weisel Partners LLC.......................................
Volpe Brown Whelan & Company, LLC................................
Wit Capital Corporation..........................................
----------
Total.......................................................... 5,000,000
==========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not
in excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional shares of common stock at the same price per
share as we will receive for the 5,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of additional shares that the number of shares of common
stock to be purchased by it shown in the above table represents as a percentage
of the 5,000,000 shares offered by this prospectus. If purchased, the
additional shares will be sold by the underwriters on the same terms as those
on which the 5,000,000 shares are being sold. We will be obligated, under this
option, to sell shares to the extent the option is exercised. The underwriters
may exercise the option only to cover over-allotments made in connection with
the sale of the 5,000,000 shares of common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public offering price................................... $ $ $
Underwriting discounts and commissions.................. $ $ $
Proceeds, before expenses, to us........................ $ $ $
</TABLE>
The expenses of the offering are estimated at $700,000 and are payable entirely
by us. BancBoston Robertson Stephens Inc. expects to deliver the shares of
common stock to purchasers on , 1999.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representation and warranties contained in the underwriting agreement.
Future Sales. Each of our executive officers, directors and other
significant stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock, any options or warrants to
purchase any shares of common stock, or
58
<PAGE>
any securities convertible into or exchangeable for shares of common stock
owned as of the date of this prospectus or acquired directly from us by these
holders or with respect to which they have or may acquire the power of
disposition, without the prior written consent of BancBoston Robertson Stephens
Inc. However, BancBoston Robertson Stephens Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. There are no agreements between the
representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the 180-day
lock-up period. In addition, we have generally agreed that, during the 180-day
lock-up period, we will not, without the prior written consent of BancBoston
Robertson Stephens Inc., (a) consent to the disposition of any shares held by
stockholders prior to the expiration of the 180-day lock-up period or (b)
issue, sell, contract to sell or otherwise dispose of, any shares of common
stock, any options or warrants to purchase any shares of common stock, or any
securities convertible into, exercisable for or exchangeable for shares of
common stock, other than our sale of shares in the offering, our issuance of
common stock upon the exercise of currently outstanding options and warrants,
and our issuance of incentive awards under our stock incentive plans. See
"Shares Eligible for Future Sale."
Directed Shares. We have requested that the underwriters reserve up to ten
percent of the shares of common stock for sale at the initial public offering
price to directors, officers, employees and other individuals designated by
Stamps.com. All of our directors, executive officers and five percent or
greater stockholders have received allocations in the directed share program.
The number of shares reserved for these persons ranges from 7,500 to 25,000
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 by this prospectus has been determined through
negotiations between us and the representatives. Among the factors considered
in these negotiations were prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Bayview Investors, Ltd., an investment partnership affiliated with
BancBoston Robertson Stephens Inc., purchased 60,717 shares of Series C
Preferred Stock from us on February 17, 1999 at a price of $5.49 per share and
on the same terms and conditions as all other purchasers in our Series C
Preferred Stock financing. BancBoston Robertson Stephens Inc. acted as
placement agent for our Series C Preferred Stock financing and received for its
services a fee of approximately $1.4 million from us.
Electronic Prospectus Delivery. A prospectus in electronic format is being
made available on an Internet Web site maintained by Wit Capital. In addition,
pursuant to an e-Dealer Agreement, all dealers purchasing shares from Wit
Capital in the offering similarly have agreed to make a prospectus in
electronic format available on Web sites maintained by each of the e-Dealers.
New Underwriters. Thomas Weisel Partners LLC, one of the representatives of
the underwriters, was organized and registered as a broker-dealer in December
1998. Since December 1998, Thomas Weisel Partners has been named as a lead or
co-manager on 37 filed public offerings of equity securities, of which 16 have
been completed, and has acted as a syndicate member in an additional 10 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
Wit Capital, a member of the National Association of Securities Dealers,
Inc. will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
co-manager or selected dealer in over 70 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with Stamps.com, Inc. or any of its founders or significant stockholders.
59
<PAGE>
Stabilization. The representatives have advised us that, under Regulation M
under the Securities Exchange Act, some participants in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by the underwriter or syndicate member. The
representatives have advised us that these transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Brobeck, Phleger & Harrison LLP, Irvine, California. As of May
31, 1999, affiliates of Brobeck, Phleger & Harrison LLP beneficially owned a
total of 77,413 shares of our common stock. Legal matters relating to the sale
of common stock in this offering will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Palo Alto, California.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares to be
sold in the offering. This prospectus does not contain all the information
contained in the registration statement. For further information with respect
to Stamps.com and the shares to be sold in the offering, reference is made to
the registration statement and the exhibits and schedules filed with the
registration statement. We have described all material information for each
contract, agreement or other document filed with the registration statement in
the prospectus. However, statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. As a result, you should refer to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement for a complete description of the matter involved.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information that we file at the Securities and
Exchange Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents, upon payment
of a duplicating fee, by writing to the Securities and Exchange Commission.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. The
Securities and Exchange Commission's filings, including the registration
statement are also available to you without charge on their Web site
(http://www.sec.gov).
60
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Balance Sheets at December 31, 1998 and March 31, 1999 (unaudited)....... F-3
Statements of Operations for the period from January 9, 1998 (date of
inception) to December 31, 1998, the period from January 9, 1998 (date
of inception) to March 31, 1998 (unaudited), the three months ended
March 31, 1999 (unaudited) and the period from January 9, 1998 (date of
inception) to March 31, 1999 (unaudited)............................... F-4
Statements of Stockholders' Equity (Deficit) for the period from January
9, 1998 (date of inception) through December 31, 1998 and the three
months ended March 31, 1999 (unaudited)................................ F-5
Statements of Cash Flows for the period from January 9, 1998 (date of
inception) to December 31, 1998, the period from January 9, 1998 (date
of inception) to March 31, 1998 (unaudited), the three months ended
March 31, 1999 (unaudited) and the period from January 9, 1998 (date of
inception) to March 31, 1999 (unaudited)............................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Stamps.com Inc.:
We have audited the accompanying balance sheet of Stamps.com Inc. (a
Delaware corporation in the development stage) as of December 31, 1998, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the period from January 9, 1998 (date of inception) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Stamps.com Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from January 9, 1998 (date of inception) through December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 13, 1999
F-2
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999
------------------------
December 31, Pro Forma
1998 Historical (Note 1)
------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 3,470,207 $28,523,897 $28,523,897
Prepaid expenses................... 48,118 170,809 170,809
----------- ----------- -----------
Total current assets................. 3,518,325 28,694,706 28,694,706
Property and equipment, net.......... 670,301 920,255 920,255
Patents, trademarks and other
intangibles, net................... 78,122 75,854 75,854
Other................................ 159,071 181,437 181,437
----------- ----------- -----------
Total assets......................... $ 4,425,819 $29,872,252 $29,872,252
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Line of credit..................... $ 1,000,000 $ 1,000,000 $ 1,000,000
Accounts payable................... 392,372 559,158 559,158
Accrued expenses................... 192,528 537,106 537,106
Accrued payroll and related........ 140,942 300,751 300,751
Accrued professional............... 200,000 -- --
Current portion of capital lease
obligations...................... 207,683 207,683 207,683
----------- ----------- -----------
Total current liabilities............ 2,133,525 2,604,698 2,604,698
Capital lease obligations, less
current portion.................... 265,070 216,916 216,916
Commitments
Redeemable preferred stock, $.001 par
value (Series A, B & C):
Authorized shares 10,000,000 at
December 31, 1998 and 15,500,000
at March 31, 1999 (pro forma:
5,000,000).......................
Issued and outstanding shares
9,782,500 at December 31, 1998
and 15,246,986 at March 31, 1999
(pro forma: none)................
Liquidation preference of
$6,020,000 at December 31, 1998
and $36,020,028 at March 31, 1999
(pro forma: none)................ 5,978,344 34,277,938 --
Stockholders' equity (deficit):
Common stock, $.001 par value:
Authorized shares 20,000,000 at
December 31, 1998 and 40,000,000
at March 31, 1999 (pro forma:
95,000,000).....................
Issued and outstanding shares
6,900,975 at December 31, 1998
and March 31, 1999 (pro forma:
29,771,454)..................... 6,901 6,901 29,771
Additional paid-in capital......... 1,437,859 4,784,859 39,039,927
Notes receivable from stock sales.. (117,000) (117,000) (117,000)
Deferred compensation.............. (1,083,000) (4,020,000) (4,020,000)
Deficit accumulated during the
development stage................ (4,195,880) (7,882,060) (7,882,060)
----------- ----------- -----------
Total stockholders' equity
(deficit).......................... (3,951,120) (7,227,300) 27,050,638
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)................... $ 4,425,819 $29,872,252 $29,872,252
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from Period from
January 9, 1998 January 9, 1998 Three Months January 9, 1998
(inception) to (inception) Ended (inception) to
December 31, 1998 to March 31, 1998 March 31, 1999 March 31, 1999
----------------- ----------------- -------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development......... 1,531,811 83,381 1,159,772 2,691,583
General and
administrative...... 2,648,279 279,713 2,528,426 5,176,705
----------- --------- ----------- -----------
Total costs and
expenses......... 4,180,090 363,094 3,688,198 7,868,288
----------- --------- ----------- -----------
Loss from operations.... (4,180,090) (363,094) (3,688,198) (7,868,288)
Other income (expense):
Interest expense...... (27,624) -- (33,001) (60,625)
Interest income....... 11,834 -- 35,019 46,853
----------- --------- ----------- -----------
Net loss................ $(4,195,880) $(363,094) $(3,686,180) $(7,882,060)
=========== ========= =========== ===========
Basic and diluted net
loss per share........ $ (0.85) $ (0.09) $ (0.53) $ (1.48)
=========== ========= =========== ===========
Pro forma basic and
diluted net loss per
share................. $ (0.36) $ (0.05) $ (0.15) $ (0.55)
=========== ========= =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Notes Accumulated
Common Stock Additional Receivable During the
----------------- Paid-in from Deferred Development
Shares Amount Capital Stock Sales Compensation Stage Total
---------- ------ ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 9,
1998 (inception)....... -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock................. 4,912,500 4,913 61,387 (18,000) -- -- 48,300
Issuance of restricted
common stock.......... 1,988,475 1,988 126,472 (99,000) -- -- 29,460
Deferred compensation.. -- -- 1,250,000 -- (1,250,000) -- --
Amortization of
deferred
compensation.......... -- -- -- -- 167,000 -- 167,000
Net loss............... -- -- -- -- -- (4,195,880) (4,195,880)
---------- ------ ---------- --------- ----------- ----------- -----------
Balance at December 31,
1998................... 6,900,975 6,901 1,437,859 (117,000) (1,083,000) (4,195,880) (3,951,120)
Deferred compensation
(unaudited)........... -- -- 3,347,000 -- (3,347,000) -- --
Amortization of
deferred compensation
(unaudited)........... -- -- -- -- 410,000 -- 410,000
Net loss (unaudited)... -- -- -- -- -- (3,686,180) (3,686,180)
---------- ------ ---------- --------- ----------- ----------- -----------
Balance at March 31,
1999 (unaudited)....... 6,900,975 $6,901 $4,784,859 $(117,000) $(4,020,000) $(7,882,060) $(7,227,300)
========== ====== ========== ========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
January 9 Period from
1998 January 9, Three Period from
(inception) 1998 Months January 9, 1998
to (inception) to Ended (inception) to
December 31, March 31, March 31, March 31,
------------ -------------- ----------- ---------------
1998 1998 1999 1999
------------ -------------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net loss.............. $(4,195,880) $ (363,094) $(3,686,180) $(7,882,060)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization..... 81,540 4,126 63,480 145,020
Amortization of
deferred
compensation..... 167,000 4,000 410,000 577,000
Changes in
operating assets
and liabilities:
Prepaid
expenses....... (48,118) (10,023) (122,691) (170,809)
Accounts
payable........ 392,372 20,928 166,786 559,158
Accrued
expenses....... 533,470 -- 304,387 837,857
----------- ---------- ----------- -----------
Net cash used in
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
redeemable
preferred stock,
net................. 1,463,344 1,463,344 -- 1,463,344
Issuance of series B
redeemable
preferred stock..... 4,515,000 -- -- 4,515,000
Issuance of series C
redeemable
preferred stock,
net................. -- -- 28,299,594 28,299,594
Issuance of common
stock............... 47,792 18,332 -- 47,792
----------- ---------- ----------- -----------
Net cash provided by
financing activities.. 6,944,191 1,481,676 28,251,440 35,195,631
----------- ---------- ----------- -----------
Net increase in cash and
cash equivalents...... 3,470,207 1,001,588 25,053,690 28,523,897
Cash and cash
equivalents at
beginning of period... -- -- 3,470,207 --
----------- ---------- ----------- -----------
Cash and cash
equivalents at end of
period................ $ 3,470,207 $1,001,588 $28,523,897 $28,523,897
=========== ========== =========== ===========
Supplemental cash flow
disclosure:...........
Cash paid for:
Interest.............. $ 27,624 $ -- $ 33,001 $ 60,625
Income taxes.......... $ 800 $ 800 $ 800 $ 1,600
Noncash investing and
financial activity:
Issuance of common
stock in exchange
for a patent and a
trademark name...... $ 29,968 $ 28,968 $ -- $ 29,968
Equipment acquired
under capital
lease............... $ 554,698 $ -- $ -- $ 554,698
Issuance of notes
receivable from
stock sales......... $ 117,000 $ 117,000 $ -- $ 117,000
</TABLE>
See accompanying notes.
F-6
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
Stamps.com Inc. (Stamps.com Inc. or the Company), formerly known as
StampMaster, Inc., was incorporated in Delaware on January 9, 1998, and is a
development stage company. Its primary activities since inception have been to
develop an internet-based postal service delivery system for end-users and
raise capital to finance operations.
The Company is subject to the normal risks associated with a development
stage enterprise in the technology industry. These risks include, among others,
the risks associated with product development, approval of product by the
United States Postal Service, acceptance of the product by end users and the
ability to raise additional capital to sustain operations.
The Company's Internet postage service for purchasing postage over the
Internet has not yet been approved by the US Postal Service. The Company is
currently in the pre-approval testing stage of the US Postal Service's
Information Based Indicia Program. There can be no assurance that the Company's
service will successfully emerge from this testing phase or that the US Postal
Service will approve the service for commercial use.
The statement of operations for the period from inception through December
31, 1998 includes approximately $35,000 of expenses incurred prior to
incorporation. In September 1996, the founders began to investigate the
feasibility of entering into the United States Postal Service's Information
Based Indicia Program and initiated the certification process.
Unaudited Interim Financial Information and Pro Forma Balance Sheet
The interim financial statements of the Company for the period from January
9, 1998 (date of inception) to March 31, 1998 and the three months ended March
31, 1999, included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at March 31, 1999, the
results of operations and its cash flows for the period from January 9, 1998
(date of inception) to March 31, 1998 and the three months ended March 31,
1999.
The unaudited pro forma balance sheet is presented to show the effects on
the unaudited March 31, 1999 balance sheet of the conversion of all outstanding
shares of redeemable preferred stock into 22,870,479 shares of common stock
which will occur upon the completion of the anticipated initial public offering
(see Note 6 and 7) as if the conversions took place at inception, or the date
of original issuance, if later.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates and
such differences may be material to the financial statements.
Cash Equivalents
Cash equivalents include demand deposits and short-term investments with a
maturity of three months or less when purchased.
Concentration of Risk
The financial instrument that potentially exposes the Company to
concentrations of credit risks consists primarily of cash equivalents. The
Company places its cash equivalents with high quality financial institutions.
At times, such balances may be in excess of the FDIC insurance limit.
F-7
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Computation of Historical Net Loss per Share and Pro Forma Net Loss Per Share
In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Computation of Earnings Per Share," basic earnings per share is computed
by dividing the net earnings available to common stockholders for the period by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing the net earnings for the
period by the weighted average number of common and common equivalent shares
outstanding during the period.
Common equivalent shares, consisting of unvested restricted Common Stock
and incremental common shares issuable upon the exercise of stock options and
warrants and upon conversion of convertible preferred stock, are excluded from
the diluted earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute earnings per share is as follows:
<TABLE>
<CAPTION>
Period from Period from Period from
January 9, 1998 January 9, 1998 Three Months January 9, 1998
(inception) to (inception) to Ended (inception) to
December 31, 1998 March 31, 1998 March 31, 1999 March 31, 1999
----------------- --------------- -------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighted average common
shares used to compute
basic net loss per
share.................. 4,955,913 4,240,518 6,900,975 5,344,926
Effect of dilutive
securities............. -- -- -- --
---------- --------- ---------- ----------
Weighted average common
shares used to compute
dilutive net loss per
share.................. 4,955,913 4,240,518 6,900,975 5,344,926
---------- --------- ---------- ----------
Conversion of preferred
stock.................. 6,637,467 2,623,399 18,156,807 8,941,335
---------- --------- ---------- ----------
Weighted average common
shares used to compute
pro forma basic and
diluted net loss per
share.................. 11,593,380 6,863,917 25,057,782 14,286,261
========== ========= ========== ==========
</TABLE>
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A, B and C Preferred Stock into shares of
the Company's Common Stock effective upon the closing of the Company's Initial
Public Offering as if such conversion occurred at inception or the date of
original issuance, if later. Pro forma diluted earnings per share is computed
using the pro forma weighted average number of common and common equivalents
shares outstanding during the period, to the extent such shares are dilutive.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
computed principally on a straight-line method over the estimated useful lives
of the assets ranging from three to five years. Assets acquired under
capitalized lease arrangements are recorded at the present value of the minimum
lease payments. Amortization of assets capitalized under capital leases is
computed using the straight-line method over the life of the asset or term of
the lease, whichever is shorter. Expenditures for repairs and maintenance are
charged to expense as incurred.
Patents, Trademarks and Other Intangibles
Patents, trademarks and other intangibles are carried at cost less
accumulated amortization that is calculated on a straight-line basis over the
estimated useful lives of the assets, not to exceed 40 years. Patents are
currently amortized over an estimated useful live of 17 years. Trademarks and
other intangibles have useful lives that range from 5 to 15 years. Accumulated
amortization as of December 31, 1998 is $1,846.
F-8
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Company accounts for income taxes in accordance with FASB 109,
"Accounting for Income Taxes." Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statements
and the tax basis of assets and liabilities using the enacted tax rate in
effect for the years in which the differences are expected to reverse.
Research and Development Costs
Research and development costs are expensed as incurred. These costs
primarily consist of salaries, development materials, supplies and applicable
overhead expenses of personnel directly involved in the research and
development of new technology and products.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123)
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen
to continue to account for stock-based compensation using the intrinsic-value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."
2. Line of Credit
On May 1, 1998, the Company entered into a credit line agreement with a
lender. The initial $300,000 borrowing base was increased to $1 million based
on the Company's net equity balance, as defined, through December 31, 1998.
Borrowings bear interest at the lender's prime rate plus 1% (8.75% at
December 31, 1998) and are collateralized by certain of the Company's assets.
The Company used the amount drawn for working capital purposes. The unpaid
balance due under the line of credit at February 9, 1999 may be converted to a
term loan payable in 24 equal monthly installments commencing on such date.
Otherwise, the credit line agreement matures on October 8, 1999.
In connection with this indebtedness agreement, the Company issued a
detachable warrant which permits the holder to purchase 7,050 shares of the
Company's Common Stock for $.27 per share. The term of this warrant is for a
period of seven years from the date of grant.
3. Income Taxes
The provision for income taxes consists solely of minimum state taxes. The
Company's effective tax rate differs from the statutory federal income tax rate
primarily as a result of the establishment of a valuation allowance for the
future benefits to be received from the net operating loss carryforwards and
research tax credit carryforwards. The tax effect of temporary differences that
give rise to a significant portion of the deferred tax assets and liabilities
at December 31, 1998 are presented below.
<TABLE>
<S> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards............................. $ 537,154
Research credits............................................. 150,000
Depreciation................................................. (28,006)
Capitalized start-up costs................................... 988,403
Accruals..................................................... 46,068
-----------
Total deferred tax assets...................................... 1,693,619
Valuation allowance............................................ (1,693,619)
-----------
Net deferred tax assets........................................ $ --
===========
</TABLE>
F-9
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Because the Company is uncertain when it may realize the benefits of its
favorable tax attributes in future returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets. In 1998, the
valuation allowance recorded was $1,693,619.
The Company has a net operating loss carryforward for federal and state
income tax purposes at December 31, 1998 of $1,348,467, and an available tax
credit carryforward at December 31, 1998 of $150,000, each of which can be
carried forward to offset future taxable income, if any. The Company's federal
net operating loss expires starting in 2018, state net operating loss expires
starting in 2006, and credits expire starting in 2018. The Federal Tax Reform
Act of 1986 and similar state tax laws contain provisions which may limit the
net operating losses carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership
interests.
4. Capital Leases, Commitments and Contingencies
The Company leases certain equipment under capital lease arrangements
expiring on various dates through 2001. Included in property and equipment are
the following assets held under capital lease at December 31, 1998:
<TABLE>
<S> <C>
Computer equipment................................................ $ 554,698
Accumulated depreciation.......................................... (58,129)
---------
$ 496,569
=========
</TABLE>
The following is a schedule of future minimum lease payments:
<TABLE>
<S> <C>
Year ending December 31, 1998:
1999............................................................. $254,148
2000............................................................. 254,520
2001............................................................. 31,007
--------
539,675
Less amount representing interest................................ (66,922)
--------
Present value of net minimum lease payments ($207,683 payable
currently)..................................................... $472,753
========
</TABLE>
The Company currently rents its facilities on a month-to-month basis or for
terms less than one year. Total rent expense for the period from January 9,
1998 through December 31, 1998 was $109,428 and includes $23,400 paid to a
stockholder/officer for rental of office space.
In December 1998, the Company entered into a Distribution and Marketing
Agreement with America Online, Inc. (AOL) that provides broad distribution and
marketing campaigns amongst AOL's diverse properties. In exchange for these
services, the Company is required to make minimum payments that approximate
$1,700,000 and $525,000 in 1999 and 2000, respectively. In exchange for these
services, the Company is required to pay $2.3 million in varied amounts through
February 2000 ($75,000 in 1998, $1,700,000 in 1999 and $525,000 in 2000). The
Company may purchase additional advertising under this Marketing and
Distribution Agreement but it is not required. The Company will recognize the
related expense upon performance of services.
F-10
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Stock Options
In January 1998, the Company adopted the 1998 Stock Option Plan (the Plan)
which authorizes the Board of Directors to grant incentive stock options,
nonqualified stock options and stock purchase rights (collectively options) to
employees, directors, consultants and advisors of the Company. The maximum
number of shares of common stock to be issued under the Plan is 7,290,000. 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, and the Board of Directors has
the discretion with respect to vesting periods applicable to a particular
grant. During 1998, the Company issued options to purchase approximately
2,310,909 shares of common stock at prices which included approximately
$600,000 of a compensation element. The $600,000 is being recognized as expense
over the vesting periods of the related options and has been presented as a
reduction of stockholders' equity (deficit) in the accompanying balance sheets.
The following tabulation summarizes certain information related to options
for common stock:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding options at January 9, 1998................... -- $ --
Grants................................................... 2,310,909 .07
Surrendered, forfeited or expired........................ (36,562) .03
Exercised................................................ -- --
--------- ----
Outstanding options at December 31, 1998................. 2,274,347 $.06
========= ====
</TABLE>
As of December 31, 1998, all options were exercisable. However, no options
were vested and 1,904,091 were available for future grant. The weighted average
remaining contractual life of the outstanding stock options at December 31,
1998, is 9.7 years.
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair-value method of that statement. The fair value for these options
was estimated at the date of grant using the minimum-value method, which
utilizes a near-zero volatility factor. The remaining assumptions, which are
weighted average, under this method are as follows:
<TABLE>
<S> <C>
Expected life (years)............................................. 5
Risk-free interest rate........................................... 5.50%
Dividend yield.................................................... --
</TABLE>
This option-valuation method requires input of highly subjective
assumptions. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because change in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing method does not necessarily provide a
reliable single measure of the fair value of its employee stock options. The
effects of applying SFAS 123 in this pro forma disclosure are not indicative of
future amounts and additional awards in future years are anticipated.
If the Company recognized employee stock related compensation expense in
accordance with SFAS 123 under the minimum value method, its net loss for 1998
would not be materially different.
F-11
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Stock Transactions
During 1998, the Company issued restricted stock to an employee and a
director totaling 1,988,475 shares. These shares vest one-fourth on May 30,
1999 and the remaining shares vest monthly over the subsequent thirty-six
months. The Company issued these shares at prices which included approximately
$650,000 of a compensation element. The $650,000 is being recognized as expense
over the vesting periods and has been presented as a reduction of stockholders'
equity (deficit) in the accompanying balance sheets.
In February 1998, the Company issued 3,762,500 shares of its Series A
Redeemable Preferred Stock at $0.40 per share and warrants to acquire 6,020,000
shares of the Company's its Series B Redeemable Preferred Stock at $0.75 per
share. In August and October 1998, 6,020,000 shares of Series B Redeemable
Preferred Stock were issued under these warrants.
Redeemable Preferred stock is convertible to common stock on a one-for-one
basis at the option of the holder at any time after issuance, subject to anti-
dilution protection. Each share of Redeemable Preferred Stock automatically
converts to Common Stock upon (i) the sale of Common Stock by the Company in an
underwritten public offering with a public offering price of $2.00 per share
and net proceeds of $15 million or (ii) written consent of the majority holders
of outstanding shares of Preferred Stock (see Note 7).
The holders of Redeemable Preferred Stock are entitled to receive non-
cumulative dividends in preference to the Common stock at a rate of $0.040 and
$0.075 per share per annum, respectively, or if greater (as determined on a per
annum basis and an as converted basis for Redeemable Preferred Stock), an
amount equal to that paid on any other outstanding share, payable quarterly
when, as and if declared. No dividends can be paid or declared on any Common
Stock unless full cash dividends, including past dividends declared, have been
paid on the Redeemable Preferred Stock.
The Series A and Series B Redeemable Preferred Stock have a liquidation
preference over Common Stock of $0.40 and $0.75 per share, respectively.
The Redeemable Preferred Stock may be redeemed at any time after February
26, 2003 at the written consent of the majority holders of outstanding shares
of Redeemable Preferred Stock. The redemption price for Series A and Series B
Redeemable Preferred Stock is $0.40 and $0.75 per share, respectively. Series A
and Series B Redeemable Preferred Stock has been reflected in the accompanying
balance sheets outside of stockholders' equity (deficit) due to its redemption
feature.
In connection with the issuance of Common Stock during the period, the
Company exchanged shares with a fair value of $117,000 for notes receivable of
the same amount. These notes receivable bear interest at 9% per annum and are
payable in February 2003.
7. Events Subsequent to the Date of the Auditors' Report (Unaudited)
Redeemable Preferred Stock
On February 10, 1999, the Board of Directors approved the sale of Series C
Redeemable Preferred Stock. In February and March 1999, the Company issued
5,464,486 shares of its Series C Redeemable Preferred Stock at $5.49 per share.
Series C Redeemable Preferred Stock is convertible to common stock on a one-
for-one basis at the option of the holder at any time after issuance, subject
to anti-dilution protection. In connection with the sale of Series C Redeemable
Preferred Stock, the board of directors amended the certificate of
incorporation and each share of Series A, Series B and Series C Redeemable
Preferred Stock automatically converts to
F-12
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Common Stock upon (i) the sale of Common Stock by the Company in an
underwritten public offer with a public offering price of at least $10.98 per
share and net proceeds of $20 million or (ii) written consent of the majority
of holders of outstanding shares of Redeemable Preferred Stock.
The holders of Series C Redeemable Preferred Stock are entitled to receive
noncumulative dividends in preference of the Common Stock at a rate of $0.55
per share per annum or if greater (as determined on a per annum basis and as a
converted bases for Preferred Stock), an amount equal to that paid on any other
outstanding share, payable quarterly when, as and if declared. No dividends can
be paid or declared on any Common Stock unless full cash dividends, including
past dividends declared, have been paid on the Redeemable Preferred Stock. The
Series C Redeemable Preferred Stock have a liquidation preference over Common
Stock or $5.49 per share and may be redeemed at any time after February 27,
2003, at the written consent of the majority holders of outstanding shares of
Redeemable Preferred Stock at the redemption price of $5.49 per share. Series C
Redeemable Preferred Stock has been reflected in the accompanying balance
sheets outside of stockholders' equity (deficit) due to its redemption feature.
Authorized Stock and Stock Dividend
On February 17, 1999, the Company increased the number of authorized shares
of common stock and preferred stock to 40,000,000 shares and 15,500,000 shares,
respectively. Subsequent to year end, the Board of Directors increased the
number of shares reserved for issuance under the 1998 Stock Option Plan to
7,290,000 shares.
On June 3, 1999, the Board of Directors declared a stock dividend of 3
shares of Common Stock for every 2 shares of Common Stock then outstanding, an
action which also resulted in an adjustment to the conversion ratio of the
Series A, B and C redeemable preferred stock to a three-for-two basis. The
stock dividend will become effective on the date that the Company's public
offering of Common Stock is closed. Accordingly, the accompanying financial
statements and footnotes have been restated to reflect the stock dividend. In
addition the board increased the number of authorized shares of Common Stock
and Preferred Stock to 95,000,000 and 5,000,000 shares, respectively. These
increases will also take effect upon closing of the Company's initial public
offering.
Stock options
During the period from January 1, 1999 through June 3, 1999, the Company
issued 3,072,000 additional stock options under the 1998 stock option plan. A
summary of the options granted is as follows:
<TABLE>
<CAPTION>
Exercise Estimated
Number of options Price Fair Value
----------------- -------- ----------
<S> <C> <C>
189,150.............................................. $5.60 $1.33
892,050.............................................. $3.00 $0.71
1,990,800.............................................. $0.33 $0.08
</TABLE>
The estimated fair value for these options was estimated at the date of
grant using the minimum-value method using the same assumptions as Note 5. From
January 1, 1999 through March 31, 1999, the Company issued options to purchase
approximately 2,180,250 shares of common stock at prices which included
approximately $3,347,000 of a compensation element. The $3,347,000 is being
recognized as expense over the vesting periods of the related options and has
been presented as a reduction of stockholders' equity (deficit) in the
accompanying balance sheets.
F-13
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Commitments
In May 1999, the Company entered into a facility lease agreement for its
corporate headquarters with minimum lease payments approximating $4.8 million
over 5 years.
Also, in May 1999, the Company entered into a Sponsorship Agreement with
Intuit Inc. (Intuit) that markets our Internet postage service on various
Intuit Internet sites and software. In exchange for this sponsorship, the
Company is required to pay $3.3 million ($2 million in 1999 and $1.3 million in
2000). Additional payments may be required if this Sponsorship Agreement
results in certain customer levels. The related expense will be recognized as
the services are provided.
Legal Proceedings
On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against
the Company in the United States District Court for the District of Delaware.
The suit alleges that the Company is infringing two patents held by Pitney
Bowes related to postage application systems and electronic indicia. The suit
seeks treble damages, a preliminary and permanent injunction from further
alleged infringement, attorneys' fees and other unspecified damages. The
Company is currently investigating the claims against it and has not responded
to the suit. To date, the Company believes it has meritorious defenses and
intends to defend the lawsuit vigorously. However, the litigation could result
in significant expenses and diversion of management time and other resources.
Further, if Pitney Bowes successfully asserts an infringement claim against the
Company, its operations would be impacted severely. The Pitney Bowes suit could
result in limitations on the Company's ability to market its service, delays
and costs associated with redesigning its service or payments of license fees
or other payments.
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD. All of the expenses
below will be paid by the Company.
<TABLE>
<CAPTION>
Item
----
<S> <C>
Registration fee................................................... $ 17,583
NASD filing fee.................................................... 6,250
Nasdaq National Market listing fee................................. 95,000
Blue sky fees and expenses......................................... 10,000
Printing and engraving expenses.................................... 100,000
Legal fees and expenses............................................ 250,000
Accounting fees and expenses....................................... 150,000
Transfer Agent and Registrar fees.................................. 5,000
Miscellaneous...................................................... 66,167
--------
Total............................................................ $700,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that, except to the extent prohibited by the Delaware
General Corporation Law (the "DGCL"), the Company's directors shall not be
personally liable to the Company or its stockholders for monetary damages for
any breach of fiduciary duty as directors of the Company. Under the DGCL, the
directors have a fiduciary duty to the Company which is not eliminated by this
provision of the Certificate and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available. In addition, each director will continue to be subject to liability
under the DGCL for breach of the director's duty of loyalty to the Company, for
acts or omissions which are found by a court of competent jurisdiction to be
not in good faith or involving intentional misconduct, for knowing violations
of law, for actions leading to improper personal benefit to the director, and
for payment of dividends or approval of stock repurchases or redemptions that
are prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws. The Company has obtained liability
insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the Company
shall fully indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that such person is or was a director or officer of the Company, or is or
was serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
II-1
<PAGE>
The Company, with the approval of the Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of this
offering. In addition, the Company intends to enter into indemnification
agreements with each of its directors and executive officers, a form of which
is filed as Exhibit 10.20 hereto.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. Moreover, the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
The Company believes that the foregoing indemnification provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
The Underwriting Agreement (the form of which is filed as Exhibit 1.1
hereto) provides for indemnification by the Underwriters of the Company and its
officers and directors, and by the Company of the Underwriters, for certain
liabilities arising under the Securities Act or otherwise.
Item 15. Recent Sales of Unregistered Securities.
The following is a summary of transactions by the Company since the
Company's inception in September 1996 involving sales of the Company's
securities that were not registered under the Securities Act. Prior to the
Company's incorporation in Delaware in January 1998, it had been operating as a
sole proprietorship.
On January 20, 1998, we issued an aggregate of 4,897,500 shares of Common
Stock at $.01 per share to certain employees and consultants to the Company.
The total number of individuals who received stock in this transaction was 15.
On May 1, 1998, we granted a warrant to a lender to purchase up to 4,700
shares of Series A Preferred Stock at $0.40 per share.
In October 1998, we issued an aggregate of 307,875 shares of Common Stock
at $.05 per share to Thomas Bruggere.
In November 1998, we issued an aggregate of 1,500,000 shares of Common
Stock at $.07 per share to John Payne.
In December 1998, we issued an aggregate of 186,000 shares of Common Stock
at $.07 per share to Thomas Bruggere.
In December 1998, we issued 15,000 shares of Common Stock to Gregory Deeter
in exchange for all rights and goodwill in connection with the Stamps.com
domain name.
In January and February of 1998, we issued an aggregate of 3,762,500 shares
of our Series A Redeemable Preferred Stock to certain accredited investors for
an aggregate offering price of $1,505,000, or $0.40 per share, less $42,000 in
offering expenses.
In August, October and November of 1998, we issued an aggregate of
6,020,000 shares of Series B Redeemable Preferred Stock upon the exercise of
warrants to certain accredited investors for an aggregate offering price of
$4,515,000.50, or $0.75 per share.
In February and March of 1999, we issued an aggregate of 5,464,486 shares
of Series C Redeemable Preferred Stock to certain accredited investors for an
aggregate offering price of $30,000,028, or $5.49 per share, less $1,645,000 in
offering expenses.
II-2
<PAGE>
From January 1998 to June 1999, we have granted options to purchase an
aggregate of 5,374,959 shares of common stock to our directors, executive
officers, employees and consultants at a weighted exercise price of $0.84.
The foregoing transactions were effected under Section 4(2) or Rule 701 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 (revised from previous filing).
10.9 1999 Employee Stock Purchase Plan (revised from previous filing).
10.10** Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.11** Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8, 1999.
10.12**+ Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.
10.13** Master Lease Agreement between the Registrant and FirstCorp dated
June 5, 1998.
10.14** Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.15** Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.
10.16** Consulting Agreement dated February 1, 1999 between the Registrant
and Loren Smith.
10.17** Lease dated April 12, 1999 between the Registrant and Spieker
Properties, L.P.
10.18**+ Sponsorship Agreement dated May 14, 1999 between Registrant and
Intuit, Inc.
10.19**+ Distributor Agreement dated March 30, 1999 between Registrant and
Westvaco.
10.20**+ Distributor Agreement dated January 15, 1999 between Registrant and
Office Depot, Inc.
10.21**+ Distributor Agreement dated March 31, 1999 between Registrant and
Seiko Instruments USA, Inc.
10.22**+ Distributor Agreement dated March 30, 1999 between Registrant and
Avery Dennison Office Products Company.
10.23**+ Distributor Agreement dated March 11, 1999 between Registrant and
Dymo-Costar Corporation.
10.24** Series A Preferred Stock and Warrant Purchase Agreement dated
February 26, 1998 between Registrant and certain investors.
10.25** Amended and Restated Voting Agreement dated February 17, 1999 between
Registrant and certain investors.
10.26** Separation Agreement and Release dated May 13, 1999 between
Registrant and Mohan Ananda.
10.27** License Agreement dated May 13, 1999 between Registrant and Mohan
Ananda.
10.28** Series C Preferred Stock Purchase Agreement dated February 17, 1999
between Registrant and certain investors.
10.29** Amendment Letter to AOL dated June 4, 1999.
10.30 Nondisclosure Agreement and Agreement to Release University from
damages caused by testing, dated December 6, 1998.
10.31 Nondisclosure Agreement and Agreement to Release Carnegie Mellon,
Inc. from damages caused by testing, dated April 22, 1997.
10.32 Letter of Intent from Stampmaster, Inc. and US Postal Service
response letter between Stampmaster, Inc. and the US Postal Service,
dated February 21, 1997 and April 23, 1997, respectively.
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.
II-4
<PAGE>
(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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 4 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 21st day of June, 1999.
STAMPS.COM INC.
By: /s/ John M. Payne
-----------------------------------
John M. Payne
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John M. Payne Chief Executive Officer, June 21, 1999
____________________________________ President and Director
John M. Payne (Principal Executive
Officer)
/s/ John W. LaValle Chief Financial Officer, June 21, 1999
____________________________________ Senior Vice President of
John W. LaValle Operations and Secretary
(Principal Financial and
Accounting Officer)
Thomas H. Bruggere* Chairman of the Board of June 21, 1999
____________________________________ Directors
Thomas H. Bruggere
Mohan P. Ananda* Director June 21, 1999
____________________________________
Mohan P. Ananda
David C. Bohnett* Director June 21, 1999
____________________________________
David C. Bohnett
Jeffrey J. Brown* Director June 21, 1999
____________________________________
Jeffrey J. Brown
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Thomas N. Clancy* Director June 21, 1999
____________________________________
Thomas N. Clancy
G. Bradford Jones* Director June 21, 1999
____________________________________
G. Bradford Jones
Marvin Runyon* Director June 21, 1999
____________________________________
Marvin Runyon
Loren E. Smith* Director June 21, 1999
____________________________________
Loren E. Smith
</TABLE>
* Power of Attorney
By: /s/ John W. LaValle
----------------------------
John W. LaValle
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.2** Proposed Amended and Restated Certificate of Incorporation of the
Registrant.
3.3** Bylaws of the Registrant.
3.4** Proposed Bylaws of the Registrant.
4.1** See Exhibit 3.1, 3.2 and 3.3 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights of
holders of the Registrant's common stock. See Exhibit 10.3 for the
rights of certain holders of registration rights.
4.2 Specimen common stock certificate.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1** Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.2** Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.
10.3** Patent Assignment from Mohan P. Ananda to the Registrant dated
January 20, 1998.
10.4** Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.
10.5** Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.
10.6** Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.
10.7** 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.
10.8 1999 Stock Incentive Plan (revised from previous filing).
10.9 1999 Employee Stock Purchase Plan (revised from previous filing).
10.10** Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.11** Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8, 1999.
10.12**+ Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.
10.13** Master Lease Agreement between the Registrant and FirstCorp dated
June 5, 1998.
10.14** Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.15** Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.
10.16** Consulting Agreement dated February 1, 1999 between the Registrant
and Loren Smith.
10.17** Lease dated April 12, 1999 between the Registrant and Spieker
Properties, L.P.
10.18**+ Sponsorship Agreement dated May 14, 1999 between Registrant and
Intuit, Inc.
10.19**+ Distributor Agreement dated March 30, 1999 between Registrant and
Westvaco.
10.20**+ Distributor Agreement dated January 15, 1999 between Registrant and
Office Depot, Inc.
10.21**+ Distributor Agreement dated March 31, 1999 between Registrant and
Seiko Instruments USA, Inc.
10.22**+ Distributor Agreement dated March 30, 1999 between Registrant and
Avery Dennison Office Products Company.
10.23**+ Distributor Agreement dated March 11, 1999 between Registrant and
Dymo-Costar Corporation.
10.24** Series A Preferred Stock and Warrant Purchase Agreement dated
February 26, 1998 between Registrant and certain investors.
10.25** Amended and Restated Voting Agreement dated February 17, 1999 between
Registrant and certain investors.
10.26** Separation Agreement and Release dated May 13, 1999 between
Registrant and Mohan Ananda.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.27** License Agreement dated May 13, 1999 between Registrant and Mohan
Ananda.
10.28** Series C Preferred Stock Purchase Agreement dated February 17, 1999
between Registrant and certain investors.
10.29** Amendment Letter from AOL dated June 4, 1999
10.30 Nondisclosure Agreement and Agreement to Release University from
damages caused by testing, dated December 6, 1998.
10.31 Nondisclosure Agreement and Agreement to Release Carnegie Mellon, Inc.
from damages caused by testing, dated April 22, 1997.
10.32 Letter of Intent from Stampmaster, Inc. and US Postal Service response
letter between Stampmaster, Inc. and the US Postal Service, dated
February 21, 1997 and April 23, 1997, respectively.
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 1.1
WSGR Draft
June 1, 1999
Underwriting Agreement
[Date]
BancBoston Robertson Stephens Inc.
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
Introductory. Stamps.Com Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several underwriters named in Schedule A (the
----------
"Underwriters") an aggregate of [___] shares (the "Firm Shares") of its Common
Stock, par value $[___] per share (the "Common Shares"). In addition, the
Company has granted to the Underwriters an option to purchase up to an
additional [___] Common Shares (the "Option Shares") as provided in Section 2.
The Firm Shares and, if and to the extent such option is exercised, the Option
Shares are collectively called the "Shares". BancBoston Robertson Stephens Inc.,
Thomas Weisel Partners LLC and Volpe Brown Whelan & Company have agreed to act
as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-77025), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from
<PAGE>
and after the date and time of filing of the Rule 462(b) Registration Statement
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of BancBoston Robertson Stephens Inc., elected
to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [___] (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to (i) the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
Section 1. Representations and Warranties of the Company.
Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the best knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or
<PAGE>
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus, or any
amendments or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
the Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement which have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives has
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares To Be Sold by the Company. The Shares to
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company (any such change
or effect, where the context so requires, is called a "Material Adverse Change"
or a "Material Adverse Effect"); (ii) the Company has not incurred any material
liability or obligation, indirect, direct or contingent, not in the ordinary
course of business nor entered into any material transaction or agreement
<PAGE>
not in the ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or repurchase or
redemption by the Company of any class of capital stock.
(h) Independent Accountants. Arthur Anderson LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) filed with the Commission as
a part of the Registration Statement and included in the Prospectus, are
independent public or certified public accountants as required by the Securities
Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the financial position of the Company as of and
at the dates indicated and the results of its operations and cash flows for the
periods specified. The supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. Such
financial statements and supporting schedules have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Prospectus Summary--Summary
Financial Data", "Selected Financial Data" and "Capitalization" fairly present
the information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement. The pro forma
financial statements of the Company and the related notes thereto included under
the caption "Prospectus Summary--Summary Financial Data", "Selected Financial
Data" and elsewhere in the Prospectus and in the Registration Statement present
fairly the information contained therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements and have been properly presented on the bases described therein, and
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. No other pro forma financial information is
required to be included in the Registration Statement pursuant to Regulation S-
X.
(j) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity.
<PAGE>
(l) Incorporation and Good Standing of the Company. The Company has been
duly organized and is validly existing as a corporation or limited liability
company, as the case may be, in good standing under the laws of the jurisdiction
in which it is organized with full corporate power and authority to own its
properties and conduct its business as described in the prospectus, and is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction which requires such qualification.
(m) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the Prospectus).
The Common Shares (including the Shares) conform in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding Common Shares have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance with federal and
state securities laws. None of the outstanding Common Shares were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company other
than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(n) Stock Exchange Listing. The Shares have been approved for inclusion
on the Nasdaq National Market, subject only to official notice of issuance.
(o) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(p) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant to, (i) the
charter or by-laws of the Company, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the Company is
a party or bound or to which its or their property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree applicable to the
Company of
<PAGE>
any court, regulatory body, administrative agency, governmental body, arbitrator
or other authority having jurisdiction over the Company or any of its or their
properties.
(q) No Defaults or Violations. The Company is not in violation or default
of (i) any provision of its charter or by-laws, (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan agreement or
other agreement, obligation, condition, covenant or instrument to which it is a
party or bound or to which its property is subject or (iii) any statute, law,
rule, regulation, judgment, order or decree of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its properties, as applicable, except
any such violation or default which would not, singly or in the aggregate,
result in a Material Adverse Change except as otherwise disclosed in the
Prospectus.
(r) No Actions, Suits or Proceedings. Except as otherwise disclosed in
the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or its or their property is pending or, to the best knowledge of the Company,
threatened that (i) could reasonably be expected to have a Material Adverse
Effect on the performance of this Agreement or the consummation of any of the
transactions contemplated hereby or (ii) could reasonably be expected to result
in a Material Adverse Effect.
(s) All Necessary Permits, Etc. Except as otherwise disclosed in the
Prospectus, the Company possesses such valid and current certificates,
authorizations or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct their respective businesses,
and the Company has not received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could result in a Material Adverse
Change.
(t) Title to Properties. The Company has good and marketable title to all
the properties and assets reflected as owned in the financial statements
referred to in Section 1(i) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company. The real
property, improvements, equipment and personal property held under lease by the
Company are held under valid and enforceable leases, with such exceptions as are
not material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by the
Company.
(u) Tax Law Compliance. The Company has filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes
required to be paid by any of them and, if due and payable, any related or
similar assessment, fine or penalty levied against any of them except as may be
being contested in good faith and by appropriate proceedings. The Company has
made adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1 (i) above in
<PAGE>
respect of all federal, state and foreign income and franchise taxes for all
periods as to which the tax liability of the Company has not been finally
determined. The Company is not aware of any tax deficiency that has been or
might be asserted or threatened against the Company that could result in a
Material Adverse Change.
(v) Intellectual Property Rights. The Company owns or possesses adequate
rights to use all patents, patent rights or licenses, inventions, collaborative
research agreements, trade secrets, know-how, trademarks, service marks, trade
names and copyrights which are necessary to conduct its businesses as described
in the Registration Statement and Prospectus; the expiration of any patents,
patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not result in a Material Adverse Change that is not otherwise
disclosed in the Prospectus; the Company has not received any notice of, and has
no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a Material
Adverse Change. There is no claim being made against the Company regarding
patents, patent rights or licenses, inventions, collaborative research, trade
secrets, know-how, trademarks, service marks, trade names or copyrights. The
Company does not in the conduct of its business as now or proposed to be
conducted as described in the Prospectus infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process which
is the subject of a patent application filed by any third party, known to the
Company, which such infringement or conflict is reasonably likely to result in a
Material Adverse Change.
(w) Year 2000 Preparedness. There are no issues related to the Company's
preparedness for the Year 2000 that (i) are of a character required to be
described or referred to in the Registration Statement or Prospectus by the
Securities Act which have not been accurately described in the Registration
Statement or Prospectus or (ii) might reasonably be expected to result in any
Material Adverse Change or that might materially affect their properties, assets
or rights. All internal computer systems and each Constituent Component (as
defined below) of those systems and all computer-related products and each
Constituent Component (as defined below) of those products of the Company fully
comply with Year 2000 Qualification Requirements. "Year 2000 Qualifications
Requirements" means that the internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related products
and each Constituent Component (as defined below) of those products of the
Company (i) have been reviewed to confirm that they store, process (including
sorting and performing mathematical operations, calculations and computations),
input and output data containing date and information correctly regardless of
whether the date contains dates and times before, on or after January 1, 2000,
(ii) have been designated to ensure date and time entry recognition and
calculations, and date data interface values that reflect the century, (iii)
accurately manage and manipulate data involving dates and times, including
single century formulas and multi-century formulas, and will not cause an
abnormal ending scenario within the application or generate incorrect
<PAGE>
values or invalid results involving such dates, (iv) accurately process any date
rollover, and (v) accept and respond to two-digit year date input in a manner
that resolves any ambiguities as to the century. "Constituent Component" means
all software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration. The Company has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Registration Statement
or Prospectus any issues that might reasonably be expected to result in any
Material Adverse Change.
(x) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(y) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares and use of the proceeds as described in the Prospectus will not
be, an "investment company" or an entity "controlled" by an "investment company"
within the meaning of the Investment Company Act and will conduct its business
in a manner so that it will not become subject to the Investment Company Act.
(z) Insurance. The Company is insured by recognized, financially sound
and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for their businesses including, but not limited to, policies covering
real and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and earthquakes, general liability and Directors
and Officers liability. The Company has no reason to believe that it will not be
able (i) to renew its existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted and at a cost
that would not result in a Material Adverse Change. The Company has not been
denied any insurance coverage which it has sought or for which it has applied.
(aa) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers that might be expected to result in
a Material Adverse Change.
(bb) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(cc) Lock-Up Agreements. Each officer and director of the company and each
beneficial owner of one or more percent of the outstanding issued share capital
of the Company has agreed to sign an agreement substantially in the form
attached hereto as Exhibit A (the "Lock-up Agreements"). The Company has
---------
provided to counsel for the
<PAGE>
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the Lock-up Agreements presently in effect or effected hereby. The
Company hereby represents and warrants that it will not release any of its
officers, directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of BancBoston
Robertson Stephens Inc.
(dd) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any other person required to
be described in the Prospectus which have not been described as required.
(ee) No Unlawful Contributions or Other Payments. Neither the Company nor,
to the best of the Company's knowledge, any employee or agent of the Company,
has made any contribution or other payment to any official of, or candidate for,
any federal, state or foreign office in violation of any law or of the character
required to be disclosed in the Prospectus.
(ff) Environmental Laws. (i) The Company is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus , (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et
--
seq.), or otherwise designated as a contaminated site under applicable state or
- ---
local law.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
Section 2. Purchase, Sale and Delivery of the Shares.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price per
----------
Firm Share to be paid by the several Underwriters to the Company shall be $[___]
per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
<PAGE>
Representatives at 6:00 a.m. San Francisco time, at the offices of Brobeck
Phelger & Harrison LLP located at 38 Technology Drive, Irvine, California (or at
such other place as may be agreed upon among the Representatives and the
Company), (i) on the third (3rd) full business day following the first day that
Shares are traded, (ii) if this Agreement is executed and delivered after 1:30
P.M., San Francisco time, the fourth (4th) full business day following the day
that this Agreement is executed and delivered or (iii) at such other time and
date not later that seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 8 hereof), such time and date of payment and delivery being
herein called the "Closing Date;" provided, however, that if the Company has not
made available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later that two (2) full business
days following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of [___] Option Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on Schedule A opposite the name of such Underwriter bears to the total number of
----------
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, has
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized, for
its own account and the accounts of the several Underwriters, to accept delivery
of and
<PAGE>
receipt for, and make payment of the purchase price for, the Firm Shares and any
Option Shares the Underwriters have agreed to purchase. BancBoston Robertson
Stephens Inc., individually and not as the Representative of the Underwriters,
may (but shall not be obligated to) make payment for any Shares to be purchased
by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
Section 3. Covenants of the Company.
The Company further covenants and agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
<PAGE>
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the Representatives
promptly (i) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Representatives or counsel for the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission, and furnish at its own expense to the
Underwriters and to dealers, an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the
<PAGE>
"Prospectus Delivery Period"), as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90) day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its expense,
a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) that satisfies the provisions of
Section 11(a) of the Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company will
not, without the prior written consent of BancBoston Robertson Stephens Inc.,
for a period of 180 days following the date of the Prospectus, offer, sell or
contract to sell, or otherwise dispose of or enter into any transaction which is
designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from
<PAGE>
the date that the Registration Statement is declared effective (the "Lock-Up
Period") and the Company shall enter stop transfer instructions with its
transfer agent and registrar against the transfer of any such Common Shares and
(ii) the Company may issue Common Shares issuable upon the conversion of
securities or the exercise of warrants outstanding at the date of the Prospectus
and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of five years
hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
Section 4. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, LLC The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel; and the National Association of
Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the
<PAGE>
case may be, there shall not have been any Material Adverse Change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Brobeck Phleger & Harrison LLP, counsel for the Company substantially in the
form of Exhibit B attached hereto, dated the First Closing Date, or the Second
---------
Closing Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the State of
California and Delaware upon opinions of local counsel, and as to questions of
fact upon representations or certificates of officers of the Company, the
Selling Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) Opinion of Patent Counsel for the Company. You shall have received on
the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Irell & Manella LLP, patent counsel for the Company substantially in
the form of Exhibit C attached hereto.
---------
(f) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Wilson Sonsini Goodrich & Rosati, substantially in the form of
Exhibit D hereto. The Company shall have furnished to such counsel such
- ---------
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(g) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
Arthur Anderson LLP addressed to the Underwriters, dated the First Closing Date
or the Second Closing Date, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations and based
upon the procedures described in such letter delivered to you concurrently with
the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than four (4) business days prior to the First
Closing Date or the Second Closing Date, as the case may be, (i) confirming, to
the extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of
<PAGE>
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from Arthur Anderson LLP shall be addressed
to or for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of December 31, 1998 and related consolidated
statements of operations, shareholders' equity, and cash flows for the twelve
(12) months ended December 31, 1998, (iii) state that Arthur Anderson LLP has
performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS
71") for a review of interim financial information and providing the report of
Arthur Anderson LLP as described in SAS 71 on the financial statements for each
of the quarters in the quarterly period ended March 31, 1999 (the "Quarterly
Financial Statements"), (iv) state that in the course of such review, nothing
came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, and address other matters
agreed upon by Arthur Anderson LLP and you. In addition, you shall have received
from Arthur Anderson LLP a letter addressed to the Company and made available to
you for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of December 31, 1998, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(h) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included therein by the
Securities Act and in all
<PAGE>
material respects conformed to the requirements of the Securities Act, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and,
since the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented Prospectus
which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b)
any transaction that is material to the Company, except transactions
entered into in the ordinary course of business, (c) any obligation, direct
or contingent, that is material to the Company, incurred by the Company,
except obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the Company, (e)
any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, or (f) any loss or damage (whether or not
insured) to the property of the Company which has been sustained or will
have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company.
(i) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
---------
Company, and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
(j) Nasdaq Listing. The Shares shall have been approved for inclusion on
the Nasdaq National Market, subject only to official notice of issuance.
(k) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(l) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses),
<PAGE>
Section 7 (Indemnification and Contribution) and Section 10 (Representations and
Indemnities to Survive Delivery) shall at all times be effective and shall
survive such termination.
Section 5. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
including the Common Shares on the Nasdaq National Market, (ix) all costs and
expenses incident to the preparation and undertaking of "road show" preparations
to be made to prospective investors, and (x) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 5, Section 6, and Section 7 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 8,
Section 9, or if the sale to the Underwriters of the Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Indemnification and Contribution.
<PAGE>
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees,
and each person, if any, who controls any Underwriter within the meaning of
the Securities Act and the Exchange Act against any loss, claim, damage,
liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company, which
consent shall not be unreasonably withheld), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be
a part thereof pursuant to Rule 430A or Rule 434 under the Securities Act,
or the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; or (iii) in whole or in part upon any inaccuracy
in the representations and warranties of the Company contained herein; or
(iv) in whole or in part upon any failure of the Company to perform its
obligations hereunder or under law; or (v) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon any matter covered by
clause (i), (ii), (iii) or (iv) above, provided that the Company shall not
be liable under this clause (v) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter
through its bad faith or willful misconduct; and to reimburse each
Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by BancBoston
Robertson Stephens Inc.) as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage, liability
or expense to the extent, but only to the extent, arising out of or based
upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for
use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the
person asserting any loss, claim, damage, liability or expense purchased
Shares, or any person controlling such Underwriter, if copies of the
Prospectus
<PAGE>
were timely delivered to the Underwriter pursuant to Section 2 and a copy
of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given
by or on behalf of such Underwriter to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The indemnity agreement set forth in this
Section 7(a) shall be in addition to any liabilities that the Company may
otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second
paragraph under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the
<PAGE>
commencement thereof, but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in this
Section 7 or to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified party and
such indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (BancBoston Robertson Stephens Inc. in the case of Section 7(b) and
Section 8), representing the indemnified parties who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
<PAGE>
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(f) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations
<PAGE>
in this Section 7(f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(g) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(h) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
Section 8. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
----------
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the
<PAGE>
provisions of Section 4, and Section 7 shall at all times be effective and shall
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 9. Termination of this Agreement. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms described
in the Prospectus or to enforce contracts for the sale of securities; (iv) in
the judgment of the Representatives there shall have occurred any Material
Adverse Change; or (v) the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 9 shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
Section 10. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
<PAGE>
Section 11. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
Stamps.Com Inc.
2900 31st Street, Suite 150
Santa Monica, CA 90405-3035
Facsimile: [___]
Attention: John M. Payne
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
Section 13. Partial Unenforceability. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California in each case located in the City and County of San
Francisco (collectively, the "Specified
<PAGE>
Courts"), and each party irrevocably submits to the exclusive jurisdiction
(except for proceedings instituted in regard to the enforcement of a judgment of
any such court (a "Related Judgment"), as to which such jurisdiction is non-
exclusive) of such courts in any such suit, action or proceeding. Service of any
process, summons, notice or document by mail to such party's address set forth
above shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or other proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such suit,
action or other proceeding brought in any such court has been brought in an
inconvenient forum. Each party not located in the United States irrevocably
appoints CT Corporation System, which currently maintains a San Francisco office
at 49 Stevenson Street, San Francisco, California 94105, United States of
America, as its agent to receive service of process or other legal summons for
purposes of any such suit, action or proceeding that may be instituted in any
state or federal court in the City and County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
Section 15. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
STAMPS.COM INC.
By:__________________________
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
Thomas Weisel Partners LLC
VOLPE BROWN WHELAN & COMPANY
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------
BY BANCBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
<PAGE>
SCHEDULE A
Number of
Firm Shares
To be Purchased
BANCBOSTON ROBERTSON STEPHENS INC............... [___]
THOMAS WEISEL PARTNERS LLC...................... [___]
VOLPE BROWN WHELAN & COMPANY.................... [___]
Total........................................ [___]
S-A
<PAGE>
Exhibit A
Lock-Up Agreement
BancBoston Robertson Stephens Inc.
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Stamps.Com (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to dispositions of Common
Shares acquired on the open market, (iv) with respect to sales or purchases of
Common Stock acquired on the open market or (v) with the prior written consent
of BancBoston Robertson Stephens Inc., for a period commencing on the date
hereof and continuing to a date 180 days after the Registration Statement is
declared effective by the Securities
A-1
<PAGE>
and Exchange Commission (the "Lock-up Period"). The foregoing restriction has
been expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period, even
if such Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that included, relates to or derives any significant
part of its value from Securities. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or Securities held by
the undersigned except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.
Dated: ______________________________________
_____________________________________________
Printed Name of Holder
By: _________________________________________
Signature
_____________________________________________
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
A-2
<PAGE>
Exhibit B
Matters to be Covered in the Opinion of Company Counsel
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction, if any, in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a Material Adverse Effect. To such counsel's
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity;
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein, the issued and outstanding shares of capital stock of
the Company have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, will not have been issued
in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right;
(v) The Firm Shares or the Option Shares, as the case may be, to be issued
by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right.
(vi) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to
be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered
by the Company and, assuming due authorization, execution and delivery by
you, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may
be limited by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors' rights generally or by general equitable
principles;
B-1
<PAGE>
(viii) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Securities Act;
(ix) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(x) The Registration Statement and the Prospectus, and each amendment
or supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which such
counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and Regulations;
(xi) The information in the Prospectus under the caption "Description
of Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with
Delaware's law;
(xii) The description in the Registration Statement and the Prospectus
of the charter and bylaws of the Company and of statutes are accurate and
fairly present the information required to be presented by the Securities
Act;
(xiii) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character required
to be described or referred to in the Registration Statement or Prospectus
or to be filed as an exhibit to the Registration Statement which are not
described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge,
B-2
<PAGE>
any order, writ or decree of any court, government or governmental agency or
body having jurisdiction over the Company, or over any of their properties
or operations;
(xv) No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body having
jurisdiction over the Company or over any of their properties or operations
is necessary in connection with the consummation by the Company of the
transactions herein contemplated, except (i) such as have been obtained
under the Securities Act, (ii) such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters, (iii) such as may be
required by the National Association of Securities Dealers, LLC and (iv)
such as may be required under the federal or provincial laws of Canada;
(xvi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company of a character
required to be disclosed in the Registration Statement or the Prospectus by
the Securities Act, other than those described therein;
(xvii) To such counsel's knowledge, neither the Company is presently (a)
in material violation of its respective charter or bylaws, or (b) in
material breach of any applicable statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any order, writ or decree of any
court or governmental agency or body having jurisdiction over the Company or
over any of their properties or operations; and
(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus , no holders of Company Shares or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Company
Shares or other securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights.
(xix) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(xx) To such counsel's knowledge, the Company owns or possesses
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
business as now conducted; and the
B-3
<PAGE>
expected expiration of any such Intellectual Property Rights would not
result in a Material Adverse Effect. The Company has not received any notice
of infringement or conflict with asserted Intellectual Property Rights of
others, which infringement or conflict, if the subject of an unfavorable
decision, would result in a Material Adverse Effect. To such counsel's
knowledge, the Company's discoveries, inventions, products, or processes
referred to in the Registration Statement or Prospectus do not infringe or
conflict with any right or patent which is the subject of a patent
application known to the Company.
(xxi) Each document filed pursuant to the Exchange Act (other than the
financial statements and supporting schedules included therein, as to which
no opinion need be rendered) and incorporated or deemed to be incorporated
by reference in the Prospectus complied when so filed as to form in all
material respects with the Exchange Act.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
B-4
<PAGE>
Exhibit C
Matters to be Covered in the Opinion of
Patent Counsel for the Company
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) The Company is listed in the records of the United States Patent and
Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the knowledge
of such counsel, there are no claims of third parties to any ownership
interest or lien with respect to any of the Patents or Applications. Such
counsel is not aware of any material defect in form in the preparation or
filing of the Applications on behalf of the Company. To the knowledge of
such counsel, the Applications are being pursued by the Company. To the
knowledge of such counsel, the Company owns as its sole property the
Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or Foreign
Applications. Such counsel is not aware of any material defect of form in
the preparation or filing of the Foreign Applications on behalf of the
Company. To the knowledge of such counsel, the Foreign Applications are
being pursued by the Company. To the knowledge of such counsel, the Company
owns as its sole property the Foreign Patents and pending Foreign
Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign Patents
are not valid as issued. Such counsel has no knowledge of any reason why
any patent to be issued as a result of any Application or Foreign
Application would not be valid or would not afford the Company useful
patent protection with respect thereto;
(iv) As to the statements under the captions "Risk Factors -- We face
potential claims of infringement on other parties' intellectual property
rights" and "Business -- Our Intellectual Property," nothing has come to
the attention of such counsel which caused them to believe that the above-
mentioned sections of the Registration Statement, at the time the
Registration Statement became effective and at all times subsequent thereto
up to and on the Closing Date and on any
C-1
<PAGE>
later date on which Option Stock are to be purchased the Registration
Statement and any amendment or supplement thereto made available and
reviewed by such counsel contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Stock are to be purchased, as
the case may be, the above-mentioned sections of the Registration
Statement, Prospectus and any amendment or supplement thereto made
available and reviewed by such counsel contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(v) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark
rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary
techniques, including processes and substances, owned by or affecting the
business or operations of the Company which are pending or threatened
against the Company or any of its officers or directors.
C-2
<PAGE>
Exhibit D
Matters to be Covered in the Opinion of Underwriters' Counsel
(i) The Firm Shares or Option Shares have been duly authorized and, upon
issuance and delivery and payment therefor in accordance with the terms of
the Underwriting Agreement, will be validly issued, fully paid and non-
assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop
order proceedings with respect thereto have been instituted or threatened or
are pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Brobeck Phleger & Harrison LLP and Irell &
Manella LLP, each dated the date hereof, and furnished to you in accordance with
the provisions of the Underwriting Agreement. Such opinions appear on their face
to be appropriately responsive to the requirements of the Underwriting
Agreement.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto
D-1
<PAGE>
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
D-2
<PAGE>
EXHIBIT 4.2 - SPECIMEN STOCK CERTIFICATE
- -----------
FACE
COMMON STOCK COMMON STOCK
LU
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 852857 10 1
THIS CERTIFIES THAT IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
STAMPS.COM INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ John W. LaValle /s/ John M. Payne
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
BACK
The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Such requests shall be made to the Corporation's Secretary at the principal
office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ......................... Custodian
.........................
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
.....................................................
(State)
UNIF TRF MIN ACT -- ................. Custodian (until age
................)
(Cust)
............................ under Uniform Transfers
(Minor)
to Minors Act
..............................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
X_________________________________________
X_________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BROBECK, PHLEGER & HARRISON LLP APPEARS HERE]
June 22, 1999
Stamps.com Inc.
3420 Ocean Park Blvd
Suite 1040
Santa Monica, CA 90405
Re: Stamps.com Inc. Registration Statement on Form S-1
for 5,750,000 Shares of Common Stock
--------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Stamps.com Inc., a Delaware corporation
(the "Company"), in connection with the proposed issuance and sale by the
Company of up to 5,750,000 shares of the Company's Common Stock (the "Shares")
pursuant to the Company's Registration Statement on Form S-1 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE>
Stamps.com Inc.
Page 2
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.8
STAMPS.COM INC.
1999 STOCK INCENTIVE PLAN
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests of
Stamps.com Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
employees may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year in
special option grants,
- the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible non-
employee Board members shall automatically receive option grants at designated
intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.
<PAGE>
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Compensation Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Compensation Committee, or the Board may retain the power to administer those
programs with respect to all such persons. However, any discretionary option
grants or stock issuances for members of the Compensation Committee shall be
made by a disinterested majority of the Board.
B. Members of the Compensation Committee shall serve for such period
of time as the Board may determine and may be removed by the Board at any time.
Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
C. The Compensation Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants under
the Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Compensation Committee shall not exercise
any discretionary functions with respect to the option grants made under that
program.
D. Service on the Compensation Committee shall constitute service as
a Board member, and members of each such committee shall accordingly be entitled
to full indemnification and reimbursement as Board members for their service on
such committee. No member of the Compensation Committee shall be liable for any
act or omission made in good faith with respect to the Plan or any option grants
or stock issuances under the Plan.
E. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
2.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in
the Director Fee Option Grant Program.
3.
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 7,290,000
shares. Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under that Predecessor Plan.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000, by
an amount equal to three percent (3%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
1,564,715 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,125,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall NOT
be available for subsequent issuance under the Plan.
4.
<PAGE>
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which any one person may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances under the Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plan and (vi) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year pursuant
to the provisions of Section V.B of this Article One. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Seven
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the Optionee
shall concurrently provide irrevocable instructions to (a) a Corporation-
designated brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
6.
<PAGE>
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently exercised
by the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will
or in accordance with the laws of descent and distribution or by the
Optionee's designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
7.
<PAGE>
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000).
8.
<PAGE>
To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
the total number of shares of Common Stock at the time subject to such option
and may be exercised for any or all of those shares as fully vested shares of
Common Stock. However, an outstanding option shall NOT become exercisable on
such an accelerated basis if and to the extent: (i) such option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on any shares for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
- --------
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and
9.
<PAGE>
(iii) the maximum number and/or class of securities for which any one person may
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of
such Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to those options and may be exercised
for any or all of those shares as fully vested shares of Common Stock, whether
or not those options are to be assumed in the Corporate Transaction. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall not be assignable
in connection with such Corporate Transaction and shall accordingly terminate
upon the consummation of such Corporate Transaction, and the shares subject to
those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become fully exercisable for the total
number of shares of Common Stock at the time subject to those options in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
-------
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may structure one or more of the Corporation's repurchase
rights so that those rights shall immediately terminate with respect to any
shares held by the Optionee at the time of his or her Involuntary Termination,
and the shares subject to those terminated repurchase rights shall accordingly
vest in full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of a
Change in Control, become fully exercisable for the total number of shares of
Common Stock at the time subject to those options and may be exercised for any
or all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the consummation
of such Change in Control, and the shares subject to those terminated rights
shall thereupon vest in full. Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a
10.
<PAGE>
designated period (not to exceed eighteen (18) months) following the effective
date of such Change in Control. Each option so accelerated shall remain
exercisable for fully vested shares until the earlier of (i) the expiration of
-------
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares
of Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
11.
<PAGE>
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
-----
(a) five (5) business days after the receipt of the rejection notice or (b) the
last day on which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation. In return for the surrendered option, the
Optionee shall receive a cash distribution from the Corporation in an
amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock at the time subject to such option (whether or not the
Optionee is otherwise vested in those shares) over (B) the aggregate
exercise price payable for those shares. Such cash distribution shall be
paid within five (5) days following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent exercise
of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
12.
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Compensation Committee shall have the sole and exclusive authority
to determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
--------
that each such document shall comply with the terms specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of the exercise
price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this program,
and
13.
<PAGE>
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable
----------------------------
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
--------------------------------
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
-------
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution
or by the designated beneficiary or beneficiaries of such option. Such right of
exercise shall lapse, and the option shall terminate, upon the earlier of (i)
-------
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service. However,
the option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten (10)-
-------
year option term or (ii) the expiration of the three (3)-year period measured
from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock.
14.
<PAGE>
The option shall remain so exercisable until the earliest to occur of (i) the
--------
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Service,
(iii) the termination of the option in connection with a Corporate Transaction
or (iv) the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Compensation Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Compensation Committee or the Board shall be required at the
time of the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
15.
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
16.
<PAGE>
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
17.
<PAGE>
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
18.
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a Non-
Statutory Option to purchase 2,500 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 2,500-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received one or
more stock option grants from the Corporation prior to the Underwriting Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 10,000 share grant shall vest,
and the Corporation's repurchase right shall lapse, in a series of thirty-six
(36) successive equal monthly installments upon the Optionee's completion of
each month of Board
19.
<PAGE>
service over the thirty-six (36)-month period measured from the option grant
date. Each annual 2,500 share automatic option shall be fully-vested when
granted.
E. Limited Transferability of Options. Each option under this Article
----------------------------------
Five may, in connection with the Optionee's estate plan, be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
F. Termination of Board Service. The following provisions shall
----------------------------
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution or by the designated
beneficiary or beneficiaries of such option) shall have a twelve (12)-month
period following the date of such cessation of Board service in which to
exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time of
the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
20.
<PAGE>
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve (12)-
month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Board service for any
reason other than death or Permanent Disability, terminate and cease to be
outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of the Plan shall constitute pre-approval of the grant of each such limited
cash-out right and the subsequent exercise of that right in accordance with the
terms of this Paragraph D. Accordingly, no approval or consent of the Board or
any Plan Administrator shall be required at the time of the actual option
surrender and cash distribution.
21.
<PAGE>
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same.
The grant of options under the Automatic Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
22.
<PAGE>
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
---------------------------------
I. OPTION GRANTS
The Compensation Committee shall have the sole and exclusive authority
to determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board for that year to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non-
employee Board member's election, and
23.
<PAGE>
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable
----------------------------
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each month of Board service over the twelve (12)-month period
measured from the grant date. Each option shall have a maximum term of ten (10)
years measured from the option grant date.
D. Limited Transferability of Options. Each option under this
----------------------------------
Article Six may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. Termination of Board Service. Should the Optionee cease Board
----------------------------
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
- -------
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. Death or Permanent Disability. Should the Optionee's service as a
-----------------------------
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
-------
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
24.
<PAGE>
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution or by the designated beneficiary or
beneficiaries of such option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten (10)-
-------
year option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten (10)-
-------
year option term or (ii) the expiration of the three (3)-year period measured
from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable for the total number of shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earliest to occur of (i) the expiration of the
--------
ten (10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv) the
surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five
25.
<PAGE>
(5) days following the surrender of the option to the Corporation. Stockholder
approval of the Plan shall constitute pre-approval of the grant of each such
limited cash-out right and the subsequent exercise of that right in accordance
with the terms of this Paragraph C. Accordingly, no approval or consent of the
Board or any Plan Administrator shall be required at the time of the actual
option surrender and cash distribution.
D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26.
<PAGE>
ARTICLE SEVEN
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
-----------------
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the
--------------
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
27.
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan
Effective Date. However, the Salary Investment Option Grant Program and the
Director Fee Option Grant Program shall not be implemented until such time as
the Compensation Committee may deem appropriate. Options may be granted under
the Discretionary Option Grant at any time on or after the Plan Effective Date.
However, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) the
--------
last business day of June 2009, (ii) the date on which all shares available for
issuance under the Plan shall have been issued as fully-vested shares or (iii)
the termination of all outstanding options in connection with a Corporate
Transaction. Should the Plan terminate on the last business day of June 2009,
then all option grants and unvested stock issuances outstanding at that time
shall continue to have force and effect in accordance with the provisions of the
documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in
28.
<PAGE>
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs shall be held in
escrow until there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
------------------------------
grant program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
<PAGE>
G. Corporation shall mean Stamps.com Inc., a Delaware corporation,
-----------
and any corporate successor to all or substantially all of the assets or voting
stock of Stamps.com Inc.. which shall by appropriate action adopt the Plan.
H. Director Fee Option Grant Program shall mean the special stock
---------------------------------
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
J. Eligible Director shall mean a non-employee Board member eligible
-----------------
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Articles One and Five.
K. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price per share
at which the Common Stock is to be sold in the initial public offering pursuant
to the Underwriting Agreement.
A-1
<PAGE>
N. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
P. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct,
or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the
Corporation which materially reduces his or her duties and
responsibilities or the level of management to which he or she
reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under
any corporate-performance based bonus or incentive programs) by
more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is
effected by the Corporation without the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
S. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
A-2
<PAGE>
U. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. Plan shall mean the Corporation's 1999 Stock Incentive Plan, as
----
set forth in this document.
Y. Plan Administrator shall mean the particular entity, whether the
------------------
Compensation Committee or the Board, which is authorized to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to one or
more classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons under
its jurisdiction.
Z. Plan Effective Date shall mean the date the Plan shall become
-------------------
effective and shall be coincident with the Underwriting Date.
AA. Predecessor Plan shall mean the Corporation's 1998 Stock Plan in
----------------
effect immediately prior to the Plan Effective Date hereunder.
BB. Compensation Committee shall mean the committee of two (2) or more
----------------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
CC. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment option grant program in effect under the Plan.
DD. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. Service shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member
A-3
<PAGE>
of the board of directors or a consultant or independent advisor, except to the
extent otherwise specifically provided in the documents evidencing the option
grant or stock issuance.
FF. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
GG. Stock Issuance Agreement shall mean the agreement entered into by
------------------------
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
HH. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under the Plan.
II. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
JJ. Take-Over Price shall mean the greater of (i) the Fair Market
--------------- -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. 10% Stockholder shall mean the owner of stock (as determined
---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
LL. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. Underwriting Date shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
NN. Withholding Taxes shall mean the Federal, state and local income
-----------------
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-4
<PAGE>
EXHIBIT 10.9
STAMPS.COM INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Stamps.com Inc., a Delaware corporation, by providing eligible employees with
the opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall be limited to 300,000
shares.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000, by
an amount equal to one percent (1%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
521,571 shares.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in total by all Participants on any one Purchase Date,
(iv) the maximum
<PAGE>
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in July
2001. The next offering period shall commence on the first business day in
August 2001, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in January 31, 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent Semi-Annual Entry Date within that offering period,
provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
2.
<PAGE>
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock during an offering period may be any
multiple of one percent (1%) of the Cash Earnings paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective as
soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one (1)
such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any
new Purchase Interval within the offering period, increase the rate of his
or her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent (15%)
maximum) shall become effective on the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account or trust
fund and may be commingled with the general assets of the Corporation and used
for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
3.
<PAGE>
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
-----------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. Purchase Price. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
-----
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common
----------------------------
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,200 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. In addition, the maximum number of
shares of Common Stock purchasable in total by all Participants on any one
Purchase Date shall not exceed 75,000 shares, subject to periodic adjustments in
the event of certain changes in the Corporation's capitalization. However, the
Plan Administrator shall have the discretionary authority, exercisable prior to
the start of any offering period under the Plan, to increase or decrease the
limitations to be in effect for the number of shares purchasable per Participant
and in total by all Participants on each Purchase Date during that offering
period.
4.
<PAGE>
E. Excess Payroll Deductions. Any payroll deductions not applied to
-------------------------
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitations on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions shall
be collected from the Participant with respect to the terminated purchase
right. Any payroll deductions collected during the Purchase Interval in
which such termination occurs shall, at the Participant's election, be
immediately refunded or held for the purchase of shares on the next
Purchase Date. If no such election is made at the time such purchase right
is terminated, then the payroll deductions collected with respect to the
terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into that
offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up until
the last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to date on
his or her behalf for that Purchase Interval or (b) have such funds held
for the purchase of shares on his or her behalf on the next scheduled
Purchase Date. In no event, however, shall any further payroll deductions
be collected on the Participant's behalf during such leave. Upon the
Participant's return to active service (x) within ninety (90) days
following the commencement of such leave or (y) prior to the expiration of
any longer period for which such Participant's right to reemployment with
the Corporation is guaranteed by statute or contract, his or her payroll
deductions under the Plan shall automatically resume at the rate in
5.
<PAGE>
effect at the time the leave began, unless the Participant withdraws from
the Plan prior to his or her return. An individual who returns to active
employment following a leave of absence which exceeds in duration the
applicable (x) or (y) time period will be treated as a new Employee for
purposes of subsequent participation in the Plan and must accordingly re-
enroll in the Plan (by making a timely filing of the prescribed enrollment
forms) on or before his or her scheduled Entry Date into the offering
period.
G. Change in Control. Each outstanding purchase right shall
-----------------
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
-----
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in total
by all Participants.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. Proration of Purchase Rights. Should the total number of shares
----------------------------
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. Assignability. The purchase right shall be exercisable only by
-------------
the Participant and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans
6.
<PAGE>
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than Twenty-
Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or any
Corporate Affiliate (determined on the basis of the Fair Market Value per share
on the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such right
remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one or more other purchase rights at a rate equal to Twenty-Five Thousand
Dollars ($25,000.00) worth of Common Stock (determined on the basis of the
Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on June 3, 1999 and shall become
effective at the Effective Time, provided no purchase rights granted under the
--------
Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
7.
<PAGE>
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in July 2009, (ii) the date on
--------
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the Corporation to recognize
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments
or revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE>
Schedule A
----------
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
Stamps.com Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Cash Earnings shall mean the (i) regular base salary paid to a
-------------
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any and all contributions made by the Participant to any
Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions made on
the Participant's behalf by the Corporation or any Corporate Affiliate to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).
C. Change in Control shall mean a change in ownership of the
-----------------
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
A-1.
<PAGE>
E. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. Corporation shall mean Stamps.com Inc., a Delaware corporation,
-----------
and any corporate successor to all or substantially all of the assets or voting
stock of Stamps.com Inc., which shall by appropriate action adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
--------------
Agreement is executed and the Common Stock priced for the initial public
offering of the Common Stock. Any Corporate Affiliate which becomes a
Participating Corporation after such Effective Time shall designate a subsequent
Effective Time with respect to its employee-Participants.
I. Eligible Employee shall mean any person who is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. Entry Date shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be deemed to be
equal to the price per share at which the Common Stock is sold in the
initial public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE>
L. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
M. Participant shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
N. Participating Corporation shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. Plan shall mean the Corporation's 1999 Employee Stock Purchase
----
Plan, as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each Purchase
-------------
Interval. The initial Purchase Date shall be January 31, 2000.
R. Purchase Interval shall mean each successive six (6)-month period
-----------------
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
S. Semi-Annual Entry Date shall mean the first business day in
----------------------
February and August each year on which an Eligible Employee may first enter an
offering period.
T. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
U. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE>
EXHIBIT 10.30
NONDISCLOSURE AGREEMENT AND AGREEMENT
TO RELEASE UNIVERSITY FROM DAMAGES CAUSED BY TESTING
This is an Agreement between StampMaster (Provider), a prospective provider of
Information Based Indicia Program (IBIP) products, with its principal place of
business at Santa Monica, CA, and University of California, Berkeley ("UC"),
with its principal place of business at Berkeley, CA.
WITNESSETH
WHEREAS, the Provider wishes to have the United States Postal Service ("The
Postal Service") evaluate the suitability of its IBIP Product for postal
applications;
WHEREAS, UC is under contract to provide professional services to the Postal
Service, including the evaluation of IBIP products; and
WHEREAS, the Provider desires that any proprietary information provided to UC to
enable performance of UC's services to the Postal Service remain confidential.
NOW, THEREFORE, the Provider and UC agree as follows:
1. As used in this Agreement, the term "the Product" shall refer to an IBIP
product of Provider's, described as follows: a microcomputer system which
consists of a PC unit, disk drives, CD ROM drive, monitor, printer, modem,
and a keyboard; a Postal Security Device (PSD); and other items specified
in the "Information Based Indicia Program Interim Product Submission
Procedures" published in 62 Federal Register 1001, January 7, 1997, e.g.,
design documentation, source code, etc.
2. The Postal Service will deliver the product, revisions to the product, and
Product-related documentation, to UC. The Product, revisions to the
Product, and Product-related documentation may be retained by UC until
January 1, 2000, or until such later date approved by Provider.
3. The Product, and any revisions of the Product which the Provider provided
to UC during the one-year period commencing for a period of one (1) year
from the date of this agreement, will be treated by UC as confidential
information. In addition, any related documentation or other related
written information provided to UC during the period when the Product is in
the possession of UC will be treated by UC as confidential information,
provided that it is clearly marked as confidential at the time of
disclosure. Oral information related `to the Product, which is
communicated' to UC by the Provider or by the Postal Service during the
period when the Product is in the possession of UC, will be treated by UC
as confidential information. The information to be treated as confidential
information pursuant to this paragraph is hereinafter referred to as "the
Confidential Information."
4. The confidential information shall be held in confidence by UC for a period
of five (5) years from the date of this Agreement, and shall not be
disclosed to any third party
<PAGE>
without the written consent of Provider. All employees of UC who are
required to come into contact with the confidential information shall be
notified of its confidential nature and shall use the same degree of care
as they use with UC's proprietary information, but in all events shall use
at least a reasonable degree of care. The confidential information may be
released to the Postal Service provided that: (i) UC properly requests that
the submitted materials be given confidential treatment pursuant to Part
265, Title 39, Code of Federal Regulations and Exemption 4 of the Freedom
of Information Act; and (ii) UC stamps the confidential information as
confidential and proprietary.
5. Upon written demand of the Provider, UC shall promptly return or destroy
the Confidential Information and copies thereof. UC agrees to only use the
Confidential Information for the Postal Service.
6. Notwithstanding other provision of this Agreement, UC shall be under no
obligation to hold in confidence any information received as Confidential
Information, which: (a) is or becomes available to the public through no
fault of UC; (b) was known by UC at the time of its receipt from the
Provider; (c) is received in good faith by UC from a third party and is not
subject to an obligation of confidentiality owed to the third party; (d) is
independently developed by UC without reference to Confidential Information
received hereunder.
7. UC may share the information with subcontractors of UC, provided that UC
includes the terms of this agreement in any such subcontract and provides
the Provider with a copy of any such subcontract.
8. Provider authorizes UC to disclose the confidential information to the
extent that UC is required by judicial, administrative, or Congressional
process to disclose it; provided, however, that UC shall promptly notify
the Provider and allow the Provider a reasonable time to oppose such
process.
9. Adequate examination may damage the Product. The Provider will hold UC
harmless from any and all liabilities, obligations, claims, penalties,
costs, and expenses (including, without limitation, attorney's fees and
expenses) in connection with damage caused to the Product by product
examination by either UC or the Postal Service.
10. Nothing contained in this agreement shall transfer any right, title, or
interest in the information disclosed.
11. Neither party has an obligation under this Agreement to purchase any
service or item from the other party.
12. The parties do not intend that any agency or partnership relationship be
created between them by this Agreement.
2
<PAGE>
13. All additions or modifications to this Agreement must be made in writing
and must be executed by both parties.
STAMPMASTER UNIVERSITY OF CALIFORNIA
BY:________________________________ BY:________________________________
NAME:______________________________ NAME:______________________________
TITLE:_____________________________ TITLE:_____________________________
DATE:______________________________ DATE:______________________________
3
<PAGE>
EXHIBIT 10.31
NON-DISCLOSURE AGREEMENT AND AGREEMENT TO RELEASE
CARNEGIE MELLON, INC. FROM DAMAGES CAUSED BY TESTING
This is an Agreement by and between Stampmaster, a vendor of electronic postage
metering device with its principal place of business at 4500 East Thousand Oaks
Boulevard, Westlake Village, CA 91362-3825 and Carnegie Mellon, Inc., with its
principal place of business at Pittsburgh, PA.
WITNESSETH
WHEREAS, Stampmaster desires to have its electronic metering product examined
and approved for postal applications by the United States Postal Service (the
Postal Service), and
WHEREAS, Carnegie Mellon, Inc. is under contract to provide professional
services to the Postal Service advising on, among other things, the efficacy of
various designs of electronic postage meters, and
WHEREAS, Stampmaster desires that any proprietary information provided to
Carnegie Mellon, Inc. to enable performance of its services to the Postal
Service remain confidential.
NOW, THEREFORE, Stampmaster and Carnegie Mellon, Inc. agree as follows:
1. Information which is clearly marked or otherwise clearly identified by
Stampmaster as proprietary or confidential when provided to Carnegie
Mellon, Inc. (the "Confidential Information") shall be treated by Carnegie
Mellon, Inc. as confidential and may not be released to any third party
unless authorized in writing by Stampmaster. The Confidential Information
may be released to the Postal Service.
2. Nothing contained in this Agreement shall transfer any right, title or
interest in the information disclosed except as may be provided herein.
3. The Confidential Information shall be held in confidence by Carnegie
Mellon, Inc. for a period of ten (10) years from the date of this
Agreement, and shall not be disclosed unless written consent is given by
Stampmaster. All employees within Carnegie Mellon, Inc. who are required to
come into contact with the Confidential Information shall be notified of
its confidential nature and shall use the same degree of care as they use
with Carnegie Mellon, Inc.'s proprietary information, but in all events
shall use at least a reasonable degree of care.
4. Upon demand of Stampmaster, Carnegie Mellon, Inc. shall promptly return or
destroy the Confidential Information and copies thereof.
5. Carnegie Mellon, Inc. shall be under no obligation to hold in confidence
any information received as Confidential Information which:
a. is or becomes public through no fault of Carnegie Mellon, Inc.;
<PAGE>
b. was known to them prior to the time it is received;
c. is properly received on a non-confidential basis from a third party
lawfully entitled to make such disclosure;
d. is required by a final court order to be disclosed under the Freedom
of Information Act because of an express determination that the
information is not a trade secret or privileged or confidential
commercial or financial information;
e. is independently developed by Carnegie Mellon, Inc.
6. Carnegie Mellon, Inc. shall include the terms of this agreement in any
subcontract whereunder there is any possibility of disclosure of the
Confidential Information.
7. Carnegie Mellon, Inc. shall be free of liability to Stampmaster in any form
whatsoever for damage to Stampmaster's product arising from Carnegie
Mellon, Inc.'s examination and study.
8. This Agreement expresses the entire agreement and understanding of the
parties with respect to the subject understanding of the parties with
respect to the subject matter hereof, and shall not be modified or changed
in any manner except in writing and signed by both parties.
In Witness Whereof Stampmaster and Carnegie Mellon, Inc. have executed this
Agreement effective as of the date executed by Stampmaster.
CARNEGIE MELLON STAMPMASTER
- --------------- -----------
By:__________________________________ By:__________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
2
<PAGE>
EXHIBIT 10.32
Metering Technology Management
UNITED STATES
- --------------------------------------------------------------------------------
POSTAL SERVICE
April 23, 1997
Dr. Mohan Ananda
President & CEO
STAMPMASTER
4500 East Thousand Oaks Boulevard
Suite 100
Westlake Village, CA 91362-3825
Dear Dr. Ananda:
I received your Letter of Intent to submit an Information Based Indicia Program
(IBIP) evaluation product in accordance with the Interim Product Submission
Procedures, as published in the Federal Register, Volume 62, Number 4, dated
January 7, 1997.
I want to thank you for your interest in the IBIP and your intended
participation. The IBIP technological advances the United States Postal Service
forward by introducing a new form of the meter indicia for postage. This
mutually beneficial program offers our customers convenient access to postage
while increasing security of our postage revenue. As you've already recognized,
this program also affords exciting new opportunities for product/service
providers. I am confident the Postal Service and IBIP participants, such as
yourself, will work successfully together to bring this new capability to our
mutual customers.
Thank you once again for your Letter of Intent. I am pleased you intend to
submit a product for evaluation. If you have any questions regarding product
submission you may call our IBIP Program Manager, Roy Gordon at 202-268-3581.
Sincerely,
Wayne A. Wilkerson
Manager, Metering Technology Management
cc: Roy Gordon, Metering Technology Management
George Davis, General Counsel
James Buie, Engineering
<PAGE>
S T A M P M A S T E R
45OO Thousand Oaks Boulevard, Suite 100
Westlake Village, California 91362
Phone (805) 371-4755
Fax (805) 371-4760
Mr. Roy Gordon
Manager, Retail Systems
United States Postal Service
475 L'Enfant Plaza SW, Room 8430
Washington, D.C., 20260-6807 February 21, 1997
Dear Mr. Gordon:
StampMaster, a California-based software development firm, is developing a
prototype of a ISIP-style PC postage product. This letter is designed to
introduce you briefly to StampMaster and to highlight its managerial and
software engineering strengths. In addition, it has been written to serve as
the official Letter of Intent required by the Information Based Indicia Program
Interim Product Submission Procedures, as published in the Federal Register on
January 7, 1997, that a company must submit in order to begin an official
dialogue with the United States Postal Service concerning the IBIP program.
Company Address and Contact Information
StampMaster is based in Westlake Village, California, a suburb of Los Angeles.
StampMaster's address and telephone number follow:
StampMaster
4500 Thousand Oaks Boulevard, Suite 100
Westlake Village, CA 91362
phone (805) 371-4755
fax (805) 371-4760
The company's principal contacts are Dr. Mohan Ananda and Mr. Ari Engelberg.
They can be reached at the telephone number provided above. In addition, the
company's principals maintain e-mail accounts that are checked regularly. E-
mail may be sent to:
[email protected]
Names and Qualifications of StampMaster Development Team
StampMaster is comprised of nine key members. The team members and their
business qualifications are outlined below:
1
<PAGE>
Dr. Mohan Ananda (President and Chief Executive Officer): Dr. Ananda is a
principal of SafeWare, Corp., a company that has developed and owns a series of
patents for secure rental of software applications over the Internet. Dr.
Ananda's formal training is extensive. He holds a BS in Mechanical Engineering,
an MS in Aeronautics, a JD, and a Ph.D. in Astrodynamics and Control.
Mr. Suresh Kolachalam (Lead Software Architect): Suresh is the lead software
architect for StampMaster's PC postage product. Suresh has extensive experience
developing software applications, and holds an MS in Electrical Engineering from
the prestigious India Institute of Technology in Madras, India.
Mr. James McDermott (Chief Financial Officer): Jim will receive his MBA from the
Anderson School at UCLA in June, 1997. Before returning to school, Jim worked
for two years for CS First Boston Corporation as a Financial Analyst and for
Piper Jaffray & Hopwood, Inc. as a Trading Assistant. At the Anderson School,
Jim concentrated in Finance.
Mr. Ari Engelberg (Director of Business Development): Ari will graduate from
UCLA in June, 1998 with his JD and MBA. He has concentrated in Entrepreneurial
Studies at the Anderson School and in high-technology law at the School of Law,
where he also serves as the Editor-in-Chief of UCLA's high-technology law
journal.
Mr. Jeffrey Green (Director of Marketing): Jeff will receive his MBA from the
Anderson School at UCLA in June, 1997. Before returning to school, Jeff served
as a Senior Account Executive for PC Magazine and worked in Product Management
at Hewlett-Packard. At the Anderson School, Jeff concentrated in strategy and
marketing.
Mr. Steven Krause (Counsel): Steven is a practicing attorney in Westlake
Village, CA. The focus of his practice is business reorganization and
transactional issues.
Mr. Girish Venkat (Software Engineer): Girish, a software engineer, holds a
Bachelor of Engineering from the University of Mysore, India. He has over 5
years experience programming and assembling applications using Visual C++ and C,
and has particular expertise in the areas of graphical user interfaces and
client-server applications.
Mr. Nagendra R (Software Engineer): Nagendra, a software engineer, holds a
Bachelor of Engineering from the University of Mysore, India. He has over 5
years experience programming and assembling applications using Visual C++ and C,
and has particular expertise in the areas of graphical user interfaces and
client-server applications.
Dr. Markus Jakobssen (Chief Technical Advisor): Dr. Jakobssen completed his
Ph.D. in Computer Science at the University of California, San Diego in
December, 1996. His emphasis was on encryption theory and its practical
applications. Prior to moving to San Diego, Dr. Jakobssen studied in his
homeland of Sweden, where he also started and ran a successful educational
software company.
2
<PAGE>
Product Concept Narrative
StampMaster's PC postage product, StampMaker, allows the postal customer to
create stamps at the home or office using a personal computer, modem, and
printer. StampMaster's technology is relatively simple. A software program
with an incomplete header code is installed on the consumer's hard drive. This
program allows the user to print stamps, but the program cannot be activated
until the header code is complete. The only way to complete the code is to
establish an online connection with a server that holds the missing portion.
When an authorized connection is established, the header code is completed,
allowing the user to activate the program and print stamps. The program can
only be activated and stamps printed when the user is online. Any disruption in
the integrity of the connection terminates it, rendering the user's stamp-making
software useless until an authorized connection is reestablished. The integrity
of the authorized connection is maintained by a patented process of dynamic
asynchronous password verification, which allows the vendor to closely monitor
and account for total postage values purchased and printed.
The `stamp' generated by StampMaker will take the form of a Bar Code that
represents client information, a unique stamp `number', and other information
specified in the June, 1996 USPS IBIP Indicium Specification. At the
distribution center, letters adorned with `stamps' generated by the StampMaker
system can be randomly scanned by Bar Code readers to confirm the authenticity
of the postage, though this secondary security measure is not a necessary
element of the system.
From the United States Postal Service's perspective, StampMaker will represent a
significant advance in the modernization of postage distribution, StampMaster's
products will allow the USPS to recognize substantial savings in the areas of
physical stamp printing and decreased incidence of postal fraud as a result of
consumer shift from traditional postal meters to tamper-proof PC-based postage
products.
From the consumer perspective, StampMaker will provide the unlimited stamping
advantages of traditional postal meters at a fraction of the cost. In addition,
the consumer will avoid the expense, in terms of time, of traveling to the post
office or supermarket to purchase postage. Finally, StampMaster expects to
develop robust versions of the program that will provide an entire range of
features from auditing and tracking of postage spending to integration with
popular word processors and databases to personalized postage marks.
Vendor Infrastructure Concept Narrative
The Vendor Infrastructure will look very much like a traditional Internet Host
site. It will have a T3 link to the Internet for maximum bandwidth and a high-
end UNIX server which will be able to serve a large number of concurrent users.
A relational database will be installed on the server. The custom developed
software running on the server will collect the following minimum information on
the database:
3
<PAGE>
. Profile of the users of the StampMaster System - Name, address, credit
card information, phone numbers and any other information deemed
necessary.
. Accounting information by user - Prepaid postage amount & postage amount
used.
. Details of the postage printed by user - Value of the postage, type of
postage, date sent, recipient, etc.
The application developed for the Server will facilitate the following client
functionality:
. The administrator operating from any remote PC to be able to define the
Postal Rates or the kind of billing system to use - Prepaid postage
system or monthly billing by credit card.
. Users of the system operating from any remote PC will be able to print a
postage stamp on to their local printers under the supervision of the
server.
The server application also ensures that only those users who are registered
with the Vendor are able to print the stamps using their PC. In order for the
user to print a stamp at a PC, the user will first have to register with the
Vendor providing among other things, their charge card information and a
password. The user will then be identified internally with a unique user Id.
Every time the user wants to print a stamp, the client software running on the
user system will verify with the server software running on the Vendor system,
that the user is an authorized user and also verify that there is enough prepaid
postage available for the user to print the stamps.
This hardware and software could be on a system that is built for the specific
purposes of hosting the StampMaster database and software. Alternately the
software and database can be residing on the hardware of any on-line service
provider. This way multiple vendors can be providing the capability for users
to print stamps through their PCs.
Target Postal Service Market Segment
The initial version of StampMaster's PC postage system will be targeted at
the Small Office/Home Office (SOHO) and home user market segments. The SOHO and
home user market segments am relatively unserved by the traditional metered
postage manufacturers. StampMaster's PC postage system will open these markets
to the convenience and efficiency of metered postage at a fraction of the cost.
StampMaster is excited about its PC postage product and anticipates
presenting its prototype, along with a detailed Concept of Operations, to the
USPS by May 1. Attached is StampMaster's production schedule that highlights
the nine-step USPS IBIP evaluation and approval process. Enclosed please also
find two copies of StampMaster's non-disclosure agreement, which is to be signed
by USPS representatives and StampMaster in compliance with
4
<PAGE>
Step 2 of the USPS IBIP Interim Product Submission Procedures. We look forward
to meeting you in the near future, and to working with you as the product
submission process evolves.
Thank you for your consideration,
Sincerely,
Dr. Mohan Ananda Ari Engelberg
President and CEO Director, Business Development
5
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
________________________________________
ARTHUR ANDERSEN LLP
Los Angeles, California
June 18, 1999
