<PAGE>
As filed with the Securities and Exchange Commission on November 1, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
STAMPS.COM INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 5961 77-0454966
<CAPTION>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
-------------
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
Chairman 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)
Copies to:
<TABLE>
<S> <C>
Bruce R. Hallett, Esq. Edwin D. Williamson, Esq.
Allen Z. Sussman, Esq. Sullivan & Cromwell
Michael W. Chou, Esq. 1701 Pennsylvania Avenue, N.W.
Lilly S. Kim, Esq. Washington, DC 20006-5805
Brobeck, Phleger & Harrison LLP (202) 956-7500
38 Technology Drive
Irvine, California 92618
(949) 790-6300
</TABLE>
-------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
-------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Maximum Proposed
Offering Maximum Amount of
Title of Securities to Amount to be Price Aggregate Registration
be Registered Registered Per Share(2) Offering Price Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value.................. 5,750,000 shares (1) $44.40 $255,300,000 $70,973.40
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes 750,000 shares of common stock that the underwriters have the
option to purchase solely to cover over-allotments.
(2) Estimated solely for the purpose of computing the amount of registration
fee pursuant to Rule 457(c) under the Securities Act of 1933 and based on
the average high and low sales prices on October 26, 1999, as reported on
the Nasdaq National Market.
-------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this preliminary prospectus is not complete and +
+may be changed. These securities may not be sold until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This preliminary prospectus is not an offer to sell nor does it seek an offer +
+to buy these securities in any jurisdictions where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated November 1, 1999.
5,000,000 Shares
[LOGO OF STAMPS.COM]
Common Stock
-----------
Stamps.com Inc. is offering 5,000,000 shares to be sold in the offering.
Stamps.com's common stock is traded on the Nasdaq National Market under the
symbol "STMP". The last reported sale price of the common stock on October 29,
1999 was $57.50 per share.
See "Risk Factors" beginning on page 5 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial price to public.................................. $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Stamps.com................. $ $
</TABLE>
To the extent that the underwriters sell more than 5,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional 750,000
shares from Stamps.com at the initial price to public less the underwriting
discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
-----------
Goldman, Sachs & Co. Salomon Smith Barney
Robertson Stephens
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
-----------
Prospectus dated , 1999.
<PAGE>
[Inside front cover will fold out. Fold out page will contain screenshots
of our Website.]
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,
sign-up 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 artwork.]
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>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Stamps.com including the financial statements and notes
appearing elsewhere in this prospectus. Unless otherwise indicated, this
prospectus assumes no exercise of the underwriters' over-allotment option and
does not include up to 8,000,000 shares of our common stock that will be issued
in the proposed acquisition of iShip.com. 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 approved
by the US Postal Service and enables users to print information-based indicia,
or electronic stamps, directly onto envelopes, labels or business documents
using ordinary laser or inkjet printers. Our service is currently the only
commercially available offering that requires no additional hardware to
purchase and print postage; the user's existing PC, printer and Internet setup
are sufficient. Accessing our service is simple. Our free software can be
downloaded from the Internet or installed from a free CD-ROM. After installing
the software and completing a brief registration process, customers can
purchase and print postage 24 hours a day, seven days a week from their PCs.
Customers are charged a monthly convenience fee based on their usage of our
service. Our technology meets strict US government security standards and our
service incorporates US Postal Service-mandated address verification features
to enhance the efficiency of mail processing and delivery. In addition, our
Internet Postage(TM) service is 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.
On October 22, 1999, we commercially launched our Internet Postage service.
As of October 29, 1999, our customer base consisted of over 15,000 users who
had downloaded our software and registered for our service.
Our Strategy
Our objective is to be the leading provider of Internet postage and
shipping services. To achieve this objective, our strategy includes the
following key elements:
. Enhancing our brand name through a variety of marketing and promotional
techniques;
. Leveraging strategic partnerships with companies in the Internet, software,
original equipment manufacturer, office supply and media industries;
. Exploiting our first-to-market advantage as the first approved, commercially
available software-based Internet postage solution;
. Rapidly growing our customer base by capitalizing on our brand name,
strategic partnerships and first-to-market advantage;
. 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 and shipping-
related products and insurance, the international Internet postage market,
and authenticated document delivery.
1
<PAGE>
Recent Developments
In October 1999, we entered into a three-year marketing and distribution
agreement with America Online, Inc., or AOL. This partnership is an expansion
of our agreement with AOL made in December 1998, and under the agreement we
will become the exclusive provider of postage software available across several
AOL brands including AOL, CompuServe, Netscape Netcenter and Digital City. Our
software will also be bundled on AOL, Netscape and CompuServe branded CD-ROMs.
Under the new agreement, we will make aggregate payments of $56 million over
three years to AOL. In addition, AOL has agreed to make an $11 million equity
investment in Stamps.com. For a further description of the AOL investment, see
"Description of Capital Stock--America Online Investment".
In October 1999, we signed a definitive agreement to acquire iShip.com, a
privately-held company located in Bellevue, Washington. iShip.com has developed
Web-based technology that will give online buyers and sellers a complete, one-
stop shipping and tracking solution. iShip.com's tools are designed to help
merchants, consumers and large corporations price, ship, track and manage
shipments over the Internet. iShip.com's service will enable a comparison of
rates and services among multiple carriers, including Airborne Express, Federal
Express, United Parcel Service, or UPS, the US Postal Service and Yellow
Freight. Under the terms of the agreement, we will issue up to 8,000,000 shares
of our common stock for all outstanding shares, options and warrants of
iShip.com. The acquisition will be accounted for under the purchase method of
accounting and has been approved by the boards of directors of both companies.
We anticipate that the iShip.com acquisition will close during the fourth
quarter of 1999. The iShip.com acquisition is subject to a number of closing
conditions, including governmental approval, stockholder approval by both
iShip.com and Stamps.com and other customary conditions. As a result, we cannot
be certain that the iShip.com acquisition will be completed.
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. References in this prospectus to "we", "us" or "our" refer to
Stamps.com and do not include iShip.com unless otherwise noted.
Stamps.com(TM), Internet Postage(TM), Postage from your printer(TM) and the
Stamps.com logo are our trademarks. This prospectus also includes trademarks of
entities other than Stamps.com.
2
<PAGE>
The Offering
The following information assumes that the underwriters do not exercise the
option granted by us to purchase additional shares in the offering. The number
of shares to be outstanding after the offering includes 178,638 shares of
common stock purchased by AOL in October 1999 and 148,860 shares of common
stock that AOL has agreed to purchase concurrently with the closing of this
offering, and excludes outstanding options and warrants to purchase a total of
7,082,414 shares of common stock with a weighted average exercise price of
$7.65 per share and the shares of our common stock to be issued in the proposed
iShip.com acquisition. See "Capitalization".
<TABLE>
<C> <S>
Common stock offered by Stamps.com................. 5,000,000 shares
Common stock to be outstanding after the offering.. 40,192,305 shares
Use of proceeds.................................... For general corporate
purposes, principally
expansion of our marketing
and distribution
partnerships, advertising
and brand promotion,
technology development,
and working capital.
Nasdaq National Market symbol...................... STMP
</TABLE>
3
<PAGE>
Summary Financial Data
The following summary financial information is derived from our financial
statements included elsewhere in this prospectus. You should read the following
summary financial information in conjunction with those financial statements
and the related notes.
The summary financial information below reflects that we were incorporated
on January 9, 1998. The statement of operations data displayed in the "Pro
Forma for iShip.com Acquisition 1999" column give effect to the proposed
iShip.com acquisition as if it were completed on January 1, 1999. The pro forma
general and administrative expenses include expenses related to the
amortization of intangibles, which was $85.3 million for the nine months ended
September 30, 1999.
The balance sheet data displayed in the "As Adjusted" column reflect the
application of the net proceeds from the sale of 5,000,000 shares of common
stock offered by us at an assumed initial price to public of $57.50 per share
after deducting the underwriting discount and commissions and estimated
offering expenses payable by us, and the sale of 327,498 shares of common stock
to AOL at an assumed offering price of $33.59 per share.
The balance sheet data displayed in the "As Adjusted and Pro Forma for
iShip.com Acquisition" column reflect the application of proceeds from the
offering as well as the effect of the proposed iShip.com acquisition as if it
were completed on September 30, 1999.
<TABLE>
<CAPTION>
Nine Months Ended
Period from September 30, 1999
January 9, 1998 Period from -------------------------
(inception) to January 9, 1998 Pro Forma for
December 31, (inception) to iShip.com
1998 September 30, 1998 Actual Acquisition
--------------- ------------------ ----------- -------------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations:
Revenues................ $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development........... 1,532 548 5,049 6,542
Sales and marketing.... 632 -- 10,856 11,090
General and
administrative........ 2,016 1,126 8,276 95,592
------- ------- -------- ---------
Loss from operations.... (4,180) (1,674) (24,181) (113,224)
------- ------- -------- ---------
Net loss................ $(4,196) $(1,676) $(23,103) $(112,010)
======= ======= ======== =========
Basic and diluted net
loss per share......... $ (0.85) $ (0.35) $ (1.59) $ (5.39)
======= ======= ======== =========
Pro forma (for
conversion of preferred
shares into common
shares) basic and
diluted net loss per
share.................. $ (0.36) $ (0.17) $ (0.74) $ (2.98)
======= ======= ======== =========
Weighted average shares
outstanding used in
basic and diluted per-
share calculation...... 4,956 4,738 14,496 20,800
Weighted average shares
outstanding used in pro
forma basic and diluted
per-share calculation.. 11,593 9,613 31,260 37,564
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------------------
As Adjusted and
Pro Forma for
iShip.com
Actual As Adjusted Acquisition
----------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............. $61,198 $345,182 $350,704
Working capital....................... 61,380 345,364 349,863
Total assets.......................... 74,185 358,169 781,678
Line of credit, capital lease
obligations and other long-term
liabilities.......................... 1,972 1,972 4,000
Total stockholders' equity............ 66,652 350,636 766,296
</TABLE>
4
<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 believe are 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 we do not effectively manage the commercial release of our Internet Postage
service, our business will be harmed.
On August 9, 1999, our Internet Postage service was approved by the US
Postal Service for commercial release. On October 22, 1999, we began to offer
our service commercially. We will face numerous risks coincident with the
introduction of our services. For example, our software and Internet Postage
service have not yet been subjected to the demands of widespread commercial
use. We cannot be sure that our service will successfully process large numbers
of user transactions. If we experience problems with the scalability or
functionality of our Internet Postage service, our full commercial deployment
could be delayed and our results of operations would be adversely impacted.
We currently are limited to a total of 100,000 customers until the US
Postal Service completes an evaluation of our service at those customer levels.
We are currently conducting a national customer registration campaign; 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 our limited experience in operating our service and the strains this demand
will place on our Web site, network infrastructure and systems.
Our ability to obtain and retain customers depends on the attractiveness of
our service to our customers and on our customer service capabilities. If we
are unable at any time during and after our national launch to address customer
service issues adequately or to provide a satisfactory customer experience for
current or potential customers, our business and reputation may be harmed.
Success by Pitney Bowes in its suit against us alleging patent infringement
could prevent us from offering our Internet Postage service and severely harm
our business or cause it to fail.
On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against
us. The suit alleges that we are infringing two patents held by Pitney Bowes
related to postage application systems and electronic indicia. The suit seeks
treble damages, a preliminary and permanent injunction from further alleged
infringement, attorneys' fees and other unspecified damages. We answered the
complaint on August 6, 1999, denying the allegations of patent infringement and
asserting a number of affirmative defenses. The suit is still pending. 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.
We believe that we have meritorious defenses to Pitney Bowes' claims;
however, the court and the jury could determine otherwise. Therefore, we can
give no assurance that Pitney Bowes will not prevail in its suit against us.
If Pitney Bowes prevails in its suit against us, we may be prevented from
selling postage on the Internet. Alternatively, the Pitney Bowes suit could
result in limitations on how we
5
<PAGE>
implement our service, delays and costs associated with redesigning our service
and payments of license fees and other payments. Thus, if Pitney Bowes prevails
in its suit against us, our business could be severely harmed or fail.
In addition, the litigation could result in significant expenses and
diversion of management time and other resources.
On August 17, 1998, Pitney Bowes issued a press release stating that it
holds dozens of US patents related to computer-based postage metering and that
it intended to engage in discussions with other marketers of computer-based
postal products to license Pitney Bowes technology. Prior to Pitney Bowes
filing a lawsuit against us, we were in license discussions with Pitney Bowes.
We intend to continue these discussions; however, we cannot predict whether
these discussions will continue, the outcome of these discussions or the impact
of Pitney Bowes' intellectual property claims on our business or the Internet
postage market. If Pitney Bowes is able to prevail in its claims against us and
if we do not enter into a license relationship with Pitney Bowes, our business
could be impacted severely or fail. In addition, as described above, Pitney
Bowes could obtain monetary and injunctive relief against us.
The Internet postage and shipping markets are new and uncertain and our
business may not develop.
The market for Internet postage has not developed, and its development is
subject to substantial uncertainty. We cannot assure you that the Internet
postage market will develop. We depend on the commercial acceptance of our
Internet Postage service. We cannot predict if our target customers will choose
the Internet as a means of purchasing postage, or if customers will be willing
to pay a fee to use our service, or if potential users will select our system
over our competitors. Our target customers often have alternatives to the US
Postal Service and shipping services, including online invoicing, bill payment
and financial transactions. The General Accounting Office, in a report issued
on October 21, 1999, stated that competition from these alternatives could lead
to substantial declines in the U.S. Postal Service's First Class Mail volume in
the next decade. Such trends could limit the market opportunity for our
Internet Postage service.
In addition, if the iShip.com acquisition is completed, we will enter the
market for online shipping services. There can be no assurance that iShip.com
will succeed as a business. The market for online shipping services is new and
uncertain and may not develop. iShip.com faces many risks frequently
experienced by early stage companies and companies in new, rapidly changing
markets. iShip.com has not released its services commercially. It currently has
no customers and no revenues, and its ability to obtain and retain customers
will depend on the attractiveness of its service to its customers and on its
customer service capabilities. If iShip.com experiences significant system,
customer service, security or other problems once it begins commercial
operation, customers may stop using or refuse to try iShip.com's services. In
addition, shippers may terminate or limit their relationships with iShip.com.
The occurrence of these problems could have a material adverse effect on
iShip.com's and our business, financial conditions or results of operations.
6
<PAGE>
The integration of our company and iShip.com will present significant
challenges. We may not be able to realize the benefits we anticipate from the
acquisition of iShip.com.
The iShip.com acquisition is subject to a number of contingencies,
including approval of the acquisition by the stockholders of both iShip.com and
Stamps.com and governmental authorities and other customary closing conditions.
As a result, there can be no assurance that the iShip.com acquisition will be
completed. If the acquisition is not completed, the trading price of our common
stock may fall.
If the iShip.com acquisition is completed, we will face significant
challenges in integrating organizations, operations, technology, product lines
and services in a timely and efficient manner and in retaining key personnel
and strategic partnerships of both companies. Cost synergies, revenue growth,
technological development and other synergistic benefits may not materialize.
Diversion of management attention, loss of management-level and other highly
qualified employees, and an inability to integrate management, systems and
operations of these two companies may all result from the acquisition. The
failure to integrate our company and iShip.com successfully and to manage the
challenges presented by the integration process may result in our company and
iShip.com not achieving the anticipated potential benefits of the acquisition.
Delays encountered in the transition process could have a material adverse
effect upon the combined company.
Further, the physical expansion in facilities that would occur as a result
of this acquisition may result in disruptions that seriously impair our
business. In particular, if the iShip.com acquisition is completed, we will
have operations in multiple facilities in geographically distant areas. We are
not experienced in managing facilities or operations in geographically distant
areas.
We have a history of losses and expect to incur losses in the future, and we
may never achieve profitability.
As of September 30, 1999, we had not generated any revenues and had a
deficit accumulated during the development stage of $27.3 million. Our lack of
revenues can be attributed primarily to the fact that our Internet Postage
service had not been released commercially until October 22, 1999. Due to the
need to establish our brand and service, we expect to incur increasing sales
and marketing, research and development, and administrative expenses and
therefore could continue to incur net losses for at least the next several
years or longer. As a result, we will need to generate significant revenues to
achieve and maintain profitability.
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 customers. We currently charge our customers a fee to use
our Internet Postage service. See "Business--Our Internet Postage Service".
However, given the lack of an established or proven commercial market for
Internet postage, we cannot be sure that customers will be receptive to our fee
structure. Even if we are able to establish a sizeable base of users, we still
may not generate sufficient gross margins to become profitable.
Since inception, iShip.com has not generated any significant revenues and
had an accumulated deficit of $5.9 million as of September 30, 1999. If the
iShip.com acquisition is completed, we expect that our losses will increase
even more significantly because of additional costs and expenses related to:
. an increase in the number of employees;
. an increase in sales and marketing activities;
. additional facilities and infrastructure; and
. assimilation of operations and personnel.
7
<PAGE>
If the iShip.com acquisition is completed, we will record a significant
amount of intangibles, the amortization of which will significantly and
adversely affect our operating results. We expect these intangibles to equal
approximately $455 million, which will be amortized over a four-year period. To
the extent we do not generate sufficient cash flow to recover the amount of the
investment recorded, the investment may be considered impaired and could be
subject to an immediate write-down of up to the full amount of the investment.
In such event, our net loss in any given period could be greater than
anticipated and the market price of our stock could decline.
If we cannot effectively manage our growth, our ability to provide services
will suffer.
Our reputation and ability to attract, serve and retain our customers
depend upon the reliable performance of our Web site, network infrastructure
and systems. We have a limited basis upon which to evaluate the capability of
our systems to handle controlled or full commercial availability of our
Internet Postage service. 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. If the iShip.com
acquisition is completed, we will need to assimilate substantially all of
iShip.com's operations into our operations.
We may not be able to manage our growth effectively. Our current expansion
has and will continue to place a significant strain on our managerial,
operational and financial resources. Our current and planned personnel,
systems, procedures and controls may be inadequate to support our future
operations. If we are unable to manage our growth effectively or experience
disruptions during our expansion, our business will suffer and our financial
condition and results of operations will be seriously affected.
If we are unable to maintain and develop our strategic relationships and
distribution arrangements, our Internet Postage service may not achieve
commercial acceptance.
We have established strategic relationships with a number of third parties.
Our strategic relationships generally involve the promotion and distribution of
our service through our partners' products, services and Web sites.
Additionally, some of our relationships provide for the inclusion of our logo
or promotional offers for our service in packaging and marketing materials
utilized by our partners. In return for promoting our service, our partners may
receive revenue-sharing opportunities. In order to achieve wide distribution of
our service, we believe we must establish additional strategic relationships to
market our service effectively. We have limited experience in establishing and
maintaining strategic relationships and we may fail in our efforts to establish
and maintain these relationships.
Our current strategic relationships have not yet resulted in significant
revenues, primarily because we have only recently commercially released our
Internet Postage service. As a result, our strategic partners may not view
their relationships with us as significant or vital to their businesses and
consequently, may not perform according to our expectations. We have little
ability to control the efforts of our strategic partners and, even if we are
successful in establishing strategic relationships, these relationships may not
be successful.
In addition, if the iShip.com acquisition is completed, iShip.com will be
dependent on strategic relationships with eBay, Mail Boxes Etc., UPS and the
other major U.S. shipping services. If one or more of these shippers terminates
or limits its relationship with iShip.com, its business could be severely
harmed or fail. iShip.com has limited experience in establishing strategic
relationships and it may not be able to develop and maintain them sufficiently
for its business to succeed.
8
<PAGE>
We face risks typical of early stage companies and of new and rapidly changing
markets.
You should consider our prospects in light of the risks and difficulties
frequently encountered by early stage companies and those in new and rapidly
evolving markets. These risks include, among other things, our:
. ability to meet and maintain government specifications for our service,
specifically US Postal Service requirements;
. complete dependence on a service that currently does not have broad market
acceptance;
. need to expand our sales and support organizations;
. ability to establish and promote 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
. ability to compete with companies with greater capital resources and brand
awareness.
If we do not achieve the brand recognition necessary to succeed in the Internet
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 or may fail.
System and online security failures could harm our business and operating
results.
Our services depend on the efficient and uninterrupted operation of our
computer and communications hardware systems. In addition, we must provide a
high level of security for the transactions we execute. We rely on internally-
developed and third-party technology to provide secure transmission of postage
and other confidential information. Any breach of these security measures would
severely impact our business and reputation and would likely result in the loss
of customers. Furthermore, if we are unable to provide adequate security, the
US Postal Service could prohibit us from selling postage over the Internet.
Our systems and operations are vulnerable to damage or interruption from a
number of sources, including fire, flood, power loss, telecommunications
failure, break-ins, earthquakes and similar events. We have entered into an
Internet hosting agreement with Exodus Communications, Inc. to maintain our
Internet postage servers at Exodus' data center in Southern California. Our
operations depend on Exodus' ability to protect its and our systems in its data
center against damage or interruption. Exodus does not guarantee that our
Internet access will be uninterrupted, error-free or secure. Our servers are
also vulnerable to computer viruses, physical, electrical or electronic break-
ins and similar disruptions. We have experienced minor system interruptions in
the past and may experience them again in the future. Any substantial
interruptions in the future could result in the loss
9
<PAGE>
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
have business interruption insurance; however, we cannot be certain that our
coverage will be sufficient to compensate us for losses that may occur as a
result of business interruptions.
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Anyone
who is able to circumvent our security measures could misappropriate
confidential information or cause interruptions in our operations. We may be
required to expend significant capital and other resources to protect against
potential security breaches or to alleviate problems caused by any breach. We
rely on specialized technology to provide the security necessary for secure
transmission of postage and other confidential information. Advances in
computer capabilities, new discoveries in security technology, or other events
or developments may result in a compromise or breach of the algorithms we use
to protect customer transaction data. Should someone circumvent our security
measures, our reputation, business, financial condition and results of
operations could be seriously harmed. Security breaches could also expose us to
a risk of loss or litigation and possible liability for failing to secure
confidential customer information. As a result, we may be required to expend a
significant amount of financial and other resources to protect against security
breaches or to alleviate any problems that they may cause.
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. With the exception of our agreement to acquire
iShip.com, 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 service. We may lose key
personnel from our operations or those of any acquired business. Furthermore,
any new business or service we launch that is not favorably received by users
could damage our reputation and brand name in the Internet postage or other
markets that we enter. We also cannot be certain that we will generate
satisfactory revenues from any expanded services or products to offset related
costs. Any expansion of our operations would also require significant
additional expenses, and these efforts may strain our management, financial and
operational resources. Additionally, future acquisitions may also result in
potentially dilutive issuances of equity securities, the incurrence of
additional debt, the assumption of known and unknown liabilities, and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition and operating results. New issuances of securities may also have
rights, preferences and privileges senior to those of our common stock.
Fluctuations in our operating results could cause our stock price to fall.
Prior to our commercial launch on October 22, 1999, we had not generated
any revenues from our operations. Accordingly, we have a limited basis upon
which to predict future operating results. We expect that our revenues, margins
and operating results will fluctuate significantly due to a variety of factors,
many of which are outside of our control. These factors include:
. the success of the commercial release of our Internet Postage service;
. the costs of defending ourselves in the Pitney Bowes litigation or against
other intellectual property claims;
. the costs of our marketing programs to establish and promote the Stamps.com
brand name;
10
<PAGE>
. the demand for our Internet Postage service;
. our ability to develop and maintain strategic 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;
. the increases 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.
Due to the foregoing factors and the other risks discussed in this
prospectus, you should not rely on period-to-period comparisons of our results
of operations as an indication of future performance. It is possible that in
some future periods our results of operations will be below the expectations of
public market analysts and investors. In this event, the market price of our
common stock is likely to fall.
We rely on a relatively new management team and need additional personnel to
grow our business.
Our management team is relatively new. We hired our Chairman and Chief
Executive Officer in October 1998, our President and Chief Operating Officer in
October 1999 and our Chief Financial Officer in September 1998. There can be no
assurance that we will successfully assimilate our recently hired managers or
that we can successfully locate, hire, assimilate and retain qualified key
management personnel. Our business is largely dependent on the personal efforts
and abilities of our senior management, including our Chairman and Chief
Executive Officer, our President and Chief Operating Officer, and our Chief
Financial Officer. Any of our officers or employees can terminate his or her
employment relationship at any time. The loss of these key employees or our
inability to attract or retain other qualified employees could have a material
adverse effect on our results of operations and financial condition.
Our future success depends on our ability to attract, retain and motivate
highly skilled technical, managerial, marketing and customer service personnel.
Also, if we complete the iShip.com acquisition, our success will also depend on
a successful integration of iShip.com's management with our senior management
team. We plan to hire additional personnel in all areas of our business.
Competition for qualified personnel is intense, 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.
11
<PAGE>
Third party assertions of violations of their intellectual property rights
could adversely affect our business.
In addition to the Pitney Bowes claim described above, as is customary with
technology companies, we may receive or become aware of correspondence claiming
potential infringement of other parties' intellectual property rights. We could
incur significant costs and diversion of management time and resources to
defend claims against us regardless of their validity. We may not have adequate
resources to defend against these claims and any associated costs and
distractions could have a material adverse effect on our business, financial
condition and results of operations. As an alternative to litigation, we may
seek licenses for other parties' intellectual property rights. We may not be
successful in obtaining all of the necessary licenses on commercially
reasonable terms, if at all.
A failure to protect our own intellectual property could harm our competitive
position.
We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and protect our rights in our
products, services, know-how and information. We have three issued US patents
and have filed 18 patent applications in the United States, and one
international patent application. We have also applied to register 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.
In addition, if the iShip.com acquisition is completed, we will face
additional risks that third parties will challenge iShip.com's intellectual
property rights. The costs of defending against any such litigation, including
the diversion of management time and resources, could adversely affect our
business, financial condition and results of operations. The loss of any
intellectual property litigation could severely limit iShip.com's operations,
cause it to pay license fees, or prevent it from doing business.
iShip.com also has applied for a number of patents for its intellectual
property. The failure to obtain one or more of these patents, or to obtain
patents on future proprietary technology or trademark protection for its brand
name, could have a material adverse effect on iShip.com's and our business,
financial condition and results of operations.
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 customers.
Many existing computer systems and software products are coded to accept
only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. If 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.
12
<PAGE>
We use and depend on third-party equipment and software that may not be
Year 2000 compliant. If Year 2000 issues prevent our users from accessing the
Internet or our service, purchasing postage or using their credit cards, our
business and operations will suffer. Any failure of our third-party equipment
or software to operate properly could result in system and online security
failures and require us to incur unanticipated expenses, resulting in serious
harm to our business, operating results and financial condition. For example,
we rely on the US Postal Service's secure postage accounting vault to purchase
postage credit for our customers. If the US Postal Service systems are not Year
2000 compliant, users of our service may not be able to purchase additional
postage.
Our failure to make our service Year 2000 compliant could result in:
. a decrease in sales of our service;
. an increase in the allocation of resources to address Year 2000 problems of
our users without additional revenue commensurate with the dedication of our
resources; and
. an increase in litigation costs relating to losses suffered by our users due
to Year 2000 problems.
Furthermore, the purchasing patterns of users or potential users may be
affected by Year 2000 issues as companies expend significant resources to
correct their current systems. These expenditures may result in reduced funds
available to purchase our service, which could seriously harm our business,
operating results and financial condition. We have conducted a preliminary
review of our internal computer systems to identify the systems that could be
affected by the Year 2000 issue. Based on this preliminary review, we believe
that our internal software systems are Year 2000 compliant. However, we
continually evaluate our systems and intend to develop a contingency plan to
address any Year 2000 issues.
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. While we do not believe a contingency plan is necessary, 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 service interruptions or other
difficulties in operating our service effectively or conducting other
fundamental parts of our business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000".
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 and the proceeds of this offering
will allow us to fund our operations, including the operation of iShip.com
following its anticipated acquisition, for at least the next 24 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:
. market acceptance of our postage and shipping services;
. the level of promotion and advertising of our postage and shipping services;
. the level of our development efforts;
. rate of customer acquisition and retention of our postage and shipping
services; and
. changes in technology.
13
<PAGE>
The various elements of our business and growth strategies, including our
plans to support fully the commercial release of our service, our introduction
of new products and services and our investments in infrastructure will require
additional capital. If we are unable to raise additional necessary capital in
the future, we may be required to curtail our operations significantly or
obtain funding through the relinquishment of significant technology or markets.
Also, raising additional equity capital would have a dilutive effect on
existing stockholders.
We could be required to register as an investment company and become subject to
substantial regulation that would interfere with our ability to conduct our
business.
We plan to invest the proceeds of this offering in short-term instruments
consistent with prudent cash management and not primarily for the purpose of
achieving investment returns. This could result in our being treated as an
investment company under the Investment Company Act of 1940 and therefore being
required to register as an investment company under the Investment Company Act.
The Investment Company Act requires the registration of companies which are
engaged primarily in the business of investing, reinvesting or trading in
securities or which are engaged in investing, reinvesting, owning, holding or
trading in securities and over 40% of whose assets on an unconsolidated basis
(other than government securities and cash) consist of investment securities.
While we do not believe that we are engaged primarily in the business of
investing, reinvesting or trading in securities, we may invest our cash and
cash equivalents in government securities to the extent necessary to avoid
having over 40% of our assets consist of investment securities. Government
securities are defined as securities issued by the U.S. government and certain
federal agencies. These securities generally yield lower rates of income than
other short-term instruments in which we have invested to date. Accordingly,
investing substantially all of our cash and cash equivalents in government
securities could result in lower levels of interest income, which could cause
our losses to increase.
If we were required to register as an investment company under the
Investment Company Act, we would become subject to substantial regulation with
respect to our capital structure, management, operations, transactions with
affiliated persons, if any, and other matters, incur substantial costs and
experience a disruption of our business. Application of the provisions of the
Investment Company Act to us would materially and adversely affect our
business, prospects, financial condition and results of operations.
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 will be approximately $273.0 million at
an assumed price to public of $57.50 per share, after deducting the
underwriting discount and commissions and estimated offering expenses payable
by us. Our management will retain broad discretion as to the allocation of the
proceeds of this offering. See "Use of Proceeds".
14
<PAGE>
We face risks associated with our market
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 be successful in using new technologies
effectively or adapting our technology and systems to user requirements or
emerging industry standards on a timely basis. Our ability to remain
technologically competitive may require substantial expenditures and lead time.
If we are unable to adapt in a timely manner to changing market conditions or
user requirements, our business, financial condition and results of operations
could be seriously harmed.
If we are unable to compete successfully, particularly against large,
traditional providers of postage products such as Pitney Bowes who enter the
online postage 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, E-Stamp has a hardware-based
product commercially available and Pitney Bowes and Neopost Industrie are
seeking certification through the Information Based Indicia Program and have
hardware products available for beta testing. All three of these vendors have
also announced that they intend to offer software-based solutions; one of
these, Pitney Bowes, has a software-based product in beta testing. If any of
our competitors, including Pitney Bowes, could provide the same or similar
service as us, our operations could be adversely impacted. See "--Success by
Pitney Bowes in its suit against us alleging patent infringement could prevent
us from offering our Internet Postage service and severely harm our business or
cause it to fail".
Internet postage may not be adopted by customers. These customers may
continue to use traditional means to purchase postage, including purchasing
postage from their local post office. If Internet postage becomes a viable
market, we may not be able to establish or maintain a competitive position
against current or future competitors as they enter the market. Many of our
competitors have longer operating histories, larger customer bases, greater
brand recognition, greater financial,
15
<PAGE>
marketing, service, support, technical, intellectual property and other
resources than us. As a result, our competitors may be able to devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
policies and devote substantially more resources to Web site and systems
development than us. This increased competition may result in reduced operating
margins, loss of market share and a diminished brand. We may from time to time
make pricing, service or marketing decisions or acquisitions as a strategic
response to changes in the competitive environment. These actions could result
in reduced margins and seriously harm our business.
If the market for Internet postage develops, we could face competitive
pressures from new technologies or the expansion of existing technologies
approved for use by the US Postal Service. We may also face competition from a
number of indirect competitors that specialize in electronic commerce and other
companies with substantial customer bases in the computer and other technical
fields. Additionally, companies that control access to transactions through a
network or Web browsers could also promote our competitors or charge us a
substantial fee for inclusion. Our competitors may also be acquired by, receive
investments from or enter into other commercial relationships with larger,
better-established and better-financed companies as use of the Internet and
other online services increases. In addition, changes in postal regulations
could adversely affect our service and significantly impact our competitive
position. We may be unable to compete successfully against current and future
competitors, and the competitive pressures we face could seriously harm our
business.
If the iShip.com acquisition is completed, we will also compete with
companies that provide shipping solutions to businesses. Customers may continue
using the direct services of the US Postal Service, UPS and other major
shippers, instead of adopting iShip.com's online service. Alternatively,
potential competitors with greater resources than iShip.com, such as Pitney
Bowes, may develop more successful Internet solutions. In addition, companies
including Aristo, GoShip.com, Package Net and SmartShip are competing in
shipping services. iShip.com also faces a significant risk that large shipping
companies will collaborate in the development and operation of an online
shipping system that could make iShip.com's service obsolete.
The success of our business will depend on the continued growth of the Internet
and the acceptance by customers of the Internet as a means for purchasing
postage.
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 customers will be willing to shift their purchasing
habits from traditional to online postage purchasing. To be successful, our
customers must accept and utilize electronic commerce to satisfy their product
needs. Our future revenues and profits, if any, substantially depend upon the
acceptance and use of the Internet and other online services as an effective
medium of commerce by our target users.
The Internet may not become a viable long-term commercial marketplace due
to potentially inadequate development of the necessary network infrastructure
or delayed development of enabling technologies and performance improvements.
The commercial acceptance and use of the Internet may not continue to develop
at historical rates. Our business, financial condition and results of
operations would be seriously harmed if:
. use of the Internet and other online services does not continue to increase
or increases more slowly than expected;
. the infrastructure for the Internet and other online services does not
effectively support future expansion of electronic commerce or 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.
16
<PAGE>
US Postal Service regulation may cause disruptions or the discontinuance of our
business.
We are subject to continued US Postal Service scrutiny and other government
regulations. The US Postal Service could change its certification requirements
or specifications for Internet postage or revoke the approval of our service at
any time. Any changes in requirements or specifications for Internet postage
could adversely affect our pricing, cost of revenues, operating results and
margins by increasing the cost of providing our Internet postage service. For
example, the US Postal Service could decide to charge Internet postage vendors
fees for the enrollment of each unique customer of the Internet postage
product, which would be a cost that we would either absorb or pass through to
customers. The US Postal Service 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, 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".
In addition, US Postal Service regulations may require that our personnel
with access to postal information or resources receive security clearance prior
to doing relevant work. We may experience delays or disruptions if our
personnel cannot receive necessary security clearances in a timely manner, if
at all. The regulations may limit our ability to hire qualified personnel. For
example, sensitive clearance may only be provided to US citizens or aliens who
are specifically approved to work on US Postal Service projects.
Our operating results could be impaired if we or the Internet become subject to
additional government regulation and legal uncertainties.
With the exception of US Postal Service and Department of Commerce
regulations, we are not currently subject to direct regulation by any domestic
or foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to electronic commerce.
However, due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, relating to:
. user privacy;
. pricing;
. content;
. copyrights;
. distribution;
. characteristics and quality of products and services; and
. export controls.
The adoption of any additional laws or regulations may hinder the expansion
of the Internet. A decline in the growth of the Internet could decrease demand
for our products and services and increase our cost of doing business.
Moreover, the applicability of existing laws to the Internet is uncertain with
regard to many issues, including property ownership, export of specialized
technology, sales tax, libel and personal privacy. Our business, financial
condition and results of operations could be seriously harmed by any new
legislation or regulation. The application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could also harm our business.
17
<PAGE>
We offer our Internet Postage service in multiple states and plan to expand
both domestically and internationally. These jurisdictions may claim that we
are required to qualify to do business as a foreign corporation in each state
or foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties. Other states and foreign countries may also attempt to regulate our
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.
If we market our Internet Postage service internationally, government
regulation could disrupt our operations.
One element of our strategy is to provide service in international markets.
Our ability to provide 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 accept postage generated by our service in the future, and if we
obtain the necessary foreign certification or approvals, we would be subject to
ongoing regulation by foreign governments and agencies. To date, efforts to
create a certification process in Europe and other foreign markets are in a
preliminary stage and these markets may not prove to be a viable opportunity
for us. As a result, we cannot predict when, or if, international markets will
become a viable source of revenues for a postage service similar to ours.
Our ability to provide service in international markets may also be
impacted by the export control laws of the United States. Our software
technology makes us subject to stronger export controls, and may prevent us
from being able to export our products and services.
If we achieve significant international acceptance of our Internet Postage
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.
We face risks associated with our stock in this offering
Our stock price could fluctuate significantly, which could result in
substantial losses to investors.
The market price of our common stock could fluctuate significantly in
response to various factors and events, including:
. operating results below market expectations;
. developments in, and the outcome of, our litigation with Pitney Bowes;
. announcements of technological innovations or new products by us or our
competitors;
. loss of any strategic relationship;
. changes in, or our failure to meet, financial estimates by securities
analysts;
. industry developments;
. economic and other external factors; and
. period-to-period fluctuations in our financial results.
18
<PAGE>
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock. Past
stock price performance is not an indication of future performance.
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 53.5% 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 you.
Our charter documents could deter a takeover effort, which could inhibit your
ability to receive an acquisition premium for your shares.
The provisions of our Amended and Restated Certificate of Incorporation,
Bylaws and Delaware law could make it difficult for a third party to acquire
us, even it would be beneficial to our stockholders. In addition, we are
subject to the provisions of Section 203 of the Delaware General Corporation
Law, which could prohibit or delay a merger or other takeover of our company,
and discourage attempts to acquire us.
Additional shares held by existing stockholders may be sold into the public
market 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. We estimate that prior to the sale of the 5,000,000 shares we are
offering by this prospectus, approximately 6.0 million of our 34.9 million
shares of outstanding common stock were freely tradeable. On December 24, 1999,
upon the expiration of a lock-up entered into in connection with our initial
public offering, an additional 2.1 million shares of our outstanding common
stock will become available for immediate sale. On the 90th day after the date
of this prospectus, the lock-up described below will expire, and all of the
shares subject to the lock-up will be available for immediate sale, subject to
the volume and other restrictions under Rule 144 of the Securities Act of 1933.
Of these shares, 21.0 million held by investment funds may be distributed by
them from time to time to their investors. Upon distribution, those shares will
be available for immediate sale.
As part of this offering, our executive officers and directors, other
significant stockholders and iShip.com's significant stockholders, who will
receive at least 95% of the shares of common stock we issue in the proposed
acquisition of iShip.com, will execute agreements with the underwriters that
they will not offer or sell any shares of common stock for a period of 90 days
after the date of this prospectus without the prior written consent of Goldman,
Sachs & Co. This agreement does not apply to shares reserved for issuance to
non-director, non-executive officer employees under existing employee benefit
plans. In addition, the merger agreement with iShip.com provides that we are
not obligated to file an S-8 registration statement for options assumed in the
acquisition until the expiration of the 90 day lock-up period. Goldman, Sachs &
Co. may, in its sole discretion, at any time and without notice, release all or
a 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.
19
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus, all of which
are subject to risks and uncertainties. Forward-looking statements include
information concerning our possible or assumed future business success or
financial results. Such forward-looking statements include, but are not limited
to, statements as to our expectations regarding:
. our commercial release and future revenue opportunities;
. the outcome of the Pitney Bowes litigation;
. the national customer registration campaign for our Internet Postage
service;
. the integration of iShip.com;
. the development of the Internet postage and shipping markets and the future
growth of our customer base;
. our future expense levels (including research and development, selling,
general and administrative expenses, legal expenses related to the Pitney
Bowes litigation and amortization of goodwill and other intangibles);
. our strategic relationships and distribution relationships;
. our future capital needs;
. the effect of the year 2000 situation;
. the emergence of new technologies;
. our expansion of our marketing and sales force;
. our investment in new product development and enhancements;
. our expansion into new markets, such as the international postage market;
. our acquisitions of complementary products, technologies and businesses;
. our use of net proceeds; and
. future financial pronouncements.
When we use words such as "believe", "expect", "anticipate" or similar words,
we are making forward-looking statements.
You should note that an investment in our common stock involves risks and
uncertainties that could affect our future business success or financial
results. Our actual results could differ materially from those anticipated
expressly or implicitly in these forward-looking statements as a result of
certain factors, including those set forth in "Risk Factors" and elsewhere in
this prospectus.
We believe that it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. Before you invest in our
common stock, you should be aware that the occurrence of the events described
in the risk factors and elsewhere in this prospectus could materially and
adversely affect our business, financial condition and operating results. We
undertake no obligation to publicly update any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
20
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 5,000,000 shares of common stock
offered by this prospectus will be approximately $273.0 million based upon an
assumed price to public of $57.50 per share and after deducting the
underwriting discount and commissions and estimated offering expenses payable
by us.
Our principal purposes for engaging in this offering are to:
. fund sales and marketing expenses, principally strategic marketing and
distribution partnerships and advertising;
. fund development of our technology;
. increase the size of the public float for our common stock; and
. fund working capital, legal expenses associated with the Pitney Bowes
litigation and other general expenses.
Pending these uses, the net proceeds of the offering will be invested in
short-term, income-producing, investment-grade instruments.
In addition, AOL purchased $6.0 million of our common stock in October 1999
and has agreed to purchase $5.0 million of our common stock concurrent with the
closing of this offering.
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. Except for the iShip.com acquisition,
we currently have no other arrangements, agreements or understandings, and are
not engaged in active negotiations for any other material acquisitions or
investments.
21
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "STMP" since June 25, 1999. Prior to that time, there was no public
market for the common stock. The following table sets forth, for the periods
indicated, the high and low closing prices per share of our common stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
1999 High Low
- ---- ------ ------
<S> <C> <C>
Second Quarter (since June 25, 1999)............................. $17.50 $13.25
Third Quarter.................................................... 48.00 22.25
Fourth Quarter (through October 29, 1999)........................ 57.50 30.69
</TABLE>
On October 29, 1999, the reported last sale price of the common stock on
the Nasdaq National Market was $57.50. As of September 30, 1999, there were
approximately 105 stockholders of record.
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.
22
<PAGE>
CAPITALIZATION
The following table indicates our capitalization as of September 30, 1999
on an actual basis, on an as adjusted basis to give effect to the receipt of
the net proceeds from the sale of 5,000,000 shares of common stock at an
assumed price to the public of $57.50 per share, after deducting the
underwriting discount and commissions and estimated expenses payable by us, and
the sale of 327,498 shares to AOL at $33.59 per share, and on an as adjusted
pro forma basis to give effect for the proposed iShip.com acquisition as if
completed September 30, 1999.
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------
(unaudited)
As Adjusted and
Pro Forma
iShip.com
Actual As Adjusted Acquisition
-------- ------------ ---------------
(in thousands, except share data)
<S> <C> <C> <C>
Line of credit and capital lease
obligations............................ $ 1,972 $ 1,972 $ 4,000
Stockholders' equity:
Preferred stock, par value $0.001;
5,000,000 shares authorized, none
issued and outstanding................ -- -- --
Common stock, par value $0.001;
95,000,000 shares authorized;
35,569,402 shares issued and
34,864,807 outstanding; 40,192,305
issued and outstanding, pro forma as
adjusted, 46,496,305 issued and
outstanding, as adjusted and pro forma
for iShip.com acquisition............. 35 40 46
Additional paid-in capital.............. 103,048 386,088 840,949
Notes receivable for stock sales........ (107) (107) (107)
Deferred compensation................... (8,086) (8,086) (47,293)
Accumulated deficit during development
stage.................................. (27,299) (27,299) (27,299)
Treasury stock at cost (704,595
shares)................................ (939) -- --
-------- -------- --------
Total stockholders' equity............. 66,652 350,636 766,296
-------- -------- --------
Total capitalization.................. $ 68,624 $352,608 $770,296
======== ======== ========
</TABLE>
The number of issued and outstanding shares set forth above excludes, as of
November 1, 1999:
. approximately 1.7 million shares of our common stock issuable upon
exercise of options and warrants to be issued in connection with the
proposed iShip.com acquisition;
. 2,707,586 shares of common stock that may, but have not yet been issued
under our stock option and stock purchase plans, assuming the
stockholders approve an increase to the 1999 Option Plan from 7,290,000
to 9,790,000; and
. 7,082,414 shares of common stock that may be issued upon exercise of
options and warrants at a weighted average exercise price of $7.65 per
share.
23
<PAGE>
DILUTION
Our actual net tangible book value as of September 30, 1999 was
approximately $66.7 million, or $1.91 per share of common stock. Actual net
tangible book value per share represents the amount of our actual total
tangible assets less actual total liabilities divided by the actual number of
shares of common stock outstanding as of September 30, 1999. Without taking
into account any other changes in actual net tangible book value, other than to
give effect to the receipt of the net proceeds from the sale of 5,000,000
shares of common stock in this offering at an assumed price to public of
$57.50, after deducting the underwriting discount and commissions and estimated
offering expenses payable by us, and the sale of 327,498 shares of common stock
to AOL at a purchase price of $33.59 per share, the net tangible book value as
of September 30, 1999 would have been approximately $350.5 million or $8.72 per
share of common stock. This represents an immediate increase in actual net
tangible book value of $6.81 per share to existing stockholders and an
immediate dilution in net tangible book value of $48.78 per share to investors
purchasing common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed price to public per share................................. $57.50
Actual net tangible book value per share as of September 30,
1999........................................................... $1.91
Increase per share attributable to new investors................ 6.81
-----
Net tangible book value per share after this offering............. 8.72
------
Dilution per share to new investors............................... $48.78
======
</TABLE>
If the above amounts were adjusted to give pro forma effect to the proposed
iShip.com acquisition as if it was completed on September 30, 1999, the pro
forma net tangible book value as of September 30, 1999 would have been $350.5
million and the pro forma net tangible book value per share after this offering
would have been $7.54 per share, representing a further decrease in the pro
forma net tangible book value of $1.18 per share and a dilution in net tangible
net book value of $49.96 per share to investors purchasing common stock in this
offering.
The following table summarizes, on an as adjusted basis as of September 30,
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. The information for new investors
is based on an assumed price to public in this offering of $57.50 per share for
5,000,000 shares after deducting the underwriting discount and commissions and
estimated offering expenses payable by us, and $33.59 per share for
327,498 shares sold to AOL.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 34,864,807 86.7% $ 93,122,884 24.7% $ 2.67
New investors................. 5,327,498 13.3 283,984,375 75.3 $53.31
---------- ----- ------------ -----
Total....................... 40,192,305 100.0% $377,107,259 100.0%
========== ===== ============ =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options and warrants. As of September
30, 1999, options and warrants to purchase 6,427,716 shares of common stock
were outstanding at a weighted average exercise price of $4.83 per share. To
the extent that these options are exercised, new investors will experience
further dilution.
The preceding tables also exclude up to 8,000,000 shares of common stock to
be issued in connection with the proposed iShip.com acquisition.
24
<PAGE>
SELECTED FINANCIAL 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 September 30, 1998 and the nine month
period ended September 30, 1999, and the balance sheet data at September 30,
1999, are derived from our unaudited interim financial statements included
elsewhere in this prospectus. The statement of operations data displayed in the
"Pro Forma for iShip.com Acquisition" column give effect to the proposed
iShip.com acquisition as if it were completed on January 1, 1999. The pro forma
general and administrative expenses include expense related to the amortization
of intangibles, which was $85.3 million for the nine months ended September 30,
1999. The balance sheet data displayed in the "As Adjusted and Pro Forma for
iShip.com Acquisition" column reflect the application of proceeds from the
offering as well as the proposed iShip.com acquisition as if it were completed
on September 30, 1999. Our unaudited financial statements have been prepared on
substantially the same basis as the audited 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>
Nine Months Ended
September 30, 1999
Period from -------------------------
January 9, 1998 Period from
(inception) to January 9, 1998 Pro Forma for
December 31, (inception) to iShip.com
1998 September 30, 1998 Actual Acquisition
--------------- ------------------ ----------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development........... 1,532 548 5,049 6,542
Sales and marketing.... 632 -- 10,856 11,090
General and
administrative........ 2,016 1,126 8,276 95,592
------- ------- -------- ---------
Total costs and
expenses............. 4,180 1,674 24,181 113,224
------- ------- -------- ---------
Loss from operations.... (4,180) (1,674) (24,181) (113,224)
Interest expense, net... (16) (2) 1,078 1,214
------- ------- -------- ---------
Net loss................ $(4,196) $(1,676) $(23,103) $(112,010)
======= ======= ======== =========
Basic and diluted net
loss per share......... $ (0.85) $ (0.35) $ (1.59) $ (5.39)
======= ======= ======== =========
Pro forma basic and
diluted net loss per
share.................. $ (0.36) $ (0.17) $ (0.74) $ (2.98)
======= ======= ======== =========
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation............ 4,956 4,738 14,496 20,800
Weighted average shares
outstanding used in pro
forma basic and diluted
net loss per share
calculation............ 11,593 9,613 31,260 37,564
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------------------
As Adjusted and
As of Pro Forma for
December 31, iShip.com
1998 Actual As Adjusted Acquisition
------------ ----------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............. $ 3,470 $61,198 $345,182 $350,704
Working capital.......... 1,385 61,380 345,364 349,863
Total assets............. 4,426 74,185 358,169 781,678
Line of credit and
capital lease
obligations............. 1,473 1,972 1,972 4,000
Redeemable preferred
stock................... 5,978 -- -- --
Total stockholders'
equity (deficit)........ (3,951) 66,652 350,636 766,296
</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.
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 our initial public offering.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the "Selected
Financial Data" and the Company's financial statements and the related notes
thereto. This discussion contains forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
historical results or anticipated results including those set forth in "Risk
Factors" and elsewhere in this prospectus.
Overview
Stamps.com offers a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. We were incorporated in
January 1998. On October 22, 1999, we commercially launched our Internet
Postage service. To date, our operating activities have consisted primarily of
our efforts to promote our brand, build market awareness, attract new
customers, recruit personnel, build operating infrastructure and develop our
Web site and associated systems that we use to process customers' orders and
payments. As of October 29, 1999, our customer base consisted of over 15,000
users who had downloaded our software and registered for our service.
We are currently 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 postage, 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
postage, 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 in 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 per month. 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, we may need to change them given the lack of an
established or proven commercial market for Internet postage.
Certain options and shares granted to our employees from January 9, 1998
(inception) through September 30, 1999 have been considered to be compensatory.
Deferred compensation associated with such options and shares amounted to $1.25
million for the fiscal year ended December 31, 1998 and $9.51 million for the
nine months ended September 30, 1999. Of these amounts, $167,000 was charged to
operations for the fiscal year ended December 31, 1998, $2.51 million was
charged to operations for the nine months ended September 30, 1999 and the
balance of $8.1 million will be amortized over the vesting periods of the
applicable options through the fiscal year ending December 31, 2003.
In October 1999, we signed a definitive agreement to acquire iShip.com, a
privately-held company located in Bellevue, Washington. iShip.com has developed
Web-based technology that will give online buyers and sellers a complete, one-
stop shipping and tracking solution. iShip.com's tools are designed to help
merchants, consumers and large corporations price, ship, track and manage
shipments over the Internet. iShip.com's service will enable comparison of
rates and services among multiple carriers, including Airborne Express, Federal
Express, UPS, the US Postal Service and Yellow Freight.
27
<PAGE>
Upon completion of this acquisition, up to 8,000,000 shares of our common
stock will be issued in exchange for all outstanding iShip.com capital stock,
options and warrants. In addition, if the iShip.com acquisition is completed,
we will record a significant amount of intangibles, the amortization of which
will significantly and adversely affect our operating results. We expect these
intangibles to equal approximately $455 million, which will be amortized over a
four-year period. To the extent we do not generate sufficient cash flow to
recover the amount of the investment recorded, the investment may be considered
impaired and could be subject to an immediate write-down of up to the full
amount of the investment. In this event, our net loss in any given period could
be greater than anticipated. We anticipate that the iShip.com acquisition will
close during the fourth quarter of 1999. The iShip.com acquisition is subject
to a number of closing conditions, including governmental approval, stockholder
approval by both iShip.com and Stamps.com and other customary conditions. As a
result, we cannot be certain that the iShip.com acquisition will be completed.
Results of Operations
Costs and Expenses
Sales and Marketing. Sales and marketing expenses principally consist of
costs associated with our strategic relationships, advertising and promotional
expenditures, compensation and related expenses for personnel engaged in
marketing and business development activities. Sales and marketing expenses for
the nine months ended September 30, 1999 were $10.9 million. We began our first
phase of beta testing in August 1998 and therefore we incurred no sales and
marketing expenses during the nine months ended September 30, 1998. The
increase in sales and marketing expenses is principally due to our marketing
campaign and advertising of the launch of our Internet Postage solution in
October 1999, as well as to an increase in marketing personnel. We expect sales
and marketing expenses to increase significantly as we fully roll out our
Internet Postage service and continue to promote our brand through new
strategic relationships and marketing campaigns.
Research and Development. Research and development expenses principally
consist of compensation for personnel involved in the development of our
Internet Postage service and expenditures for consulting services and third-
party software. Research and development expenses for the nine months ended
September 30, 1999 were $5.0 million compared to $0.5 million for the period
from January 9, 1998 (inception) to September 30, 1998. The increase is due to
higher personnel and consulting costs and costs associated with the ongoing
development of our Internet Postage service. We believe that significant
investments in research and development are required to remain competitive and
expect to incur increasing research and development expenses.
General and Administrative. General and administrative expenses principally
consist of compensation and related costs for executive and administrative
personnel, facilities fees, fees for legal and other professional services, and
amortization of deferred compensation. General and administrative expenses for
the nine months ended September 30, 1999 were $8.3 million compared to $1.1
million for the period from January 9, 1998 (inception) to September 30, 1998.
Of the $7.2 million increase, $2.5 million is due to amortization of deferred
compensation. The remaining increase is principally due to increased headcount
and the expansion of our facilities related to the growth of our business, as
well as to legal fees related to the Pitney Bowes patent infringement claim. We
expect general and administrative expenses to increase as we grow our business
and incur additional costs related to the Pitney Bowes patent infringement
claim.
Interest Income (Expense), Net. Interest income (expense), net consists of
income from our cash and cash equivalents net of interest expense related to
financing our obligations. Interest income (expense), net for the nine months
ended September 30, 1999 was $1.1 million compared to $(2,000) for the period
from January 9, 1998 (inception) to September 30, 1998. This increase is due to
earnings on a higher average cash equivalent balance as a result of our initial
public offering in June 1999.
28
<PAGE>
Results of Operations--iShip.com
Since inception, iShip.com has incurred significant operating losses and
has generated no sales to date. During the nine months ended September 30,
1999, iShip.com recorded a net loss of approximately $3.6 million. During the
nine months ended September 30, 1999, iShip.com incurred total operating
expenses of approximately $3.8 million, which consisted primarily of general
and administrative and research and development expenses. At September 30,
1999, iShip.com had working capital of approximately $4.5 million and a total
accumulated deficit of approximately $5.9 million.
Liquidity and Capital Resources
As of September 30, 1999, we had approximately $61.2 million in cash and
cash equivalents. In June 1999, we completed an initial public offering in
which the underwriters sold to the public 5,750,000 shares of common stock at
$11.00 per share. Our net proceeds from the offering were $10.23 per share, or
$58.8 million in the aggregate. We regularly invest excess funds in short-term
money market funds and commercial paper and we do not engage in hedging or
speculative activities.
In October 1999, we entered into a distribution and marketing agreement
with AOL that will require aggregate payments by us of $56.0 million through
April 2002. In addition, under this agreement, AOL purchased $6.0 million of
our common stock in October 1999 and has agreed to purchase $5.0 million of our
common stock concurrent with the closing of this offering. AOL also holds a
three-year warrant to purchase up to 50% of the total number of shares it
purchased in October 1999 and will purchase concurrently with the closing of
this offering at a price of $33.59. See "Description of Capital Stock--America
Online Investment".
In May 1999, we entered into a facility lease agreement for our corporate
headquarters with aggregate minimum lease payments of approximately $4.8
million through May 2004. We also entered into an agreement with
Intuit/Quicken.com in May 1999, which requires aggregate payments by us of
$3.3 million through 2000.
Net cash used in operating activities was $22.6 million for the nine months
ended September 30, 1999 compared to $1.4 million for the period from January
9, 1998 (inception) to September 30, 1998. The increase in net cash used in
operating activities resulted primarily from increases in net loss, principally
due to sales and marketing expenses as well as research and development and
general expenditures.
Net cash used in investing activities was $4.8 million for the nine months
ended September 30, 1999 compared to $0.2 million for the period from January
9, 1998 (inception) to September 30, 1998. The increase in net cash used in
investing activities resulted primarily from increased capital expenditures for
computer equipment, purchased software and office equipment.
Net cash provided by financing activities was $85.1 million for the nine
months ended September 30, 1999 compared to $2.3 million for the period from
January 9, 1998 (inception) to September 30, 1998. The increase in net cash
provided by financing activities resulted principally from the initial public
offering in June 1999.
29
<PAGE>
We anticipate that our current cash balances together with the proceeds of
this offering will be sufficient to fund our operations and the operations of
iShip.com after its acquisition for at least the next 24 months. However, we
may require substantial working capital to fund our business and may need to
raise additional capital. We cannot be certain that additional funds will be
available on satisfactory terms when needed, if at all. See "--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 the 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 assessments to date, we believe that our systems are
Year 2000 compliant and, accordingly, we 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, which 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 costs related to a potential remediation
plan cannot be determined at this time. If Year 2000 issues prevent our users
from accessing the Internet or our service, purchasing postage or using their
credit cards, our business and operations will suffer. Any failure of 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
30
<PAGE>
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 resources, 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. Despite this fact, 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. While we do not believe that it will be necessary to develop a
contingency plan, 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 service
interruptions or other 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 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.
31
<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 approved
by the US Postal Service and enables users to print information-based indicia,
or electronic stamps, directly onto envelopes, labels or business documents
using ordinary laser or inkjet printers. Our service is currently the only
commercially available offering that requires no additional hardware to
purchase and print postage; the user's existing PC, printer and Internet setup
are sufficient. Accessing our service is simple. Our free software can be
downloaded from the Internet or installed from a free CD-ROM. After installing
the software and completing a brief registration process, customers can
purchase and print postage 24 hours a day, seven days a week from their PCs.
Customers are charged a monthly convenience fee based on usage of our service.
Our technology meets strict US government security standards and our service
incorporates US Postal Service-mandated address verification features to
enhance the efficiency of mail processing and delivery. In addition, our
Internet Postage service is 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.
On October 22, 1999, we commercially launched our Internet Postage service.
As of October 29, 1999, our customer base consisted of over 15,000 users who
had downloaded our software and registered for our service.
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 142.2 million in 1998 to 502 million by
2003. In addition, International Data Corporation estimates that the percentage
of Web users buying goods and services on the Internet will grow from 22% in
December 1998 to 36% in December 2003. International Data Corporation further
estimates that the total value of goods and services purchased over the Web
will increase from approximately $50.4 billion in 1998 to approximately $1.3
trillion in 2003. Business-to-business commerce on the Internet 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 $14.9 billion in 1998 to
approximately $177.7 billion in 2003 while business-to-business commerce on the
Internet will grow from approximately $35.5 billion in 1998 to approximately
$1.1 trillion in 2003.
32
<PAGE>
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 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 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. The US Postal Service processed over 197
billion pieces of mail in 1998. Despite the growth in the use of e-mail, the
total US postage market increased by 3.1% in 1998 from 1997.
Despite this consistent growth in the postage market, the US Postal
Service has experienced:
. continued public demand for more convenient access to US Postal Service
products and services;
. loss of revenue due to postal fraud; and
. strong competition from overnight delivery services and online transaction
services.
Recently, the General Accounting Office, in a report issued on October 21,
1999, stated that competition from alternatives such as online invoicing, bill
payment and financial transactions could lead to substantial declines in the
U.S. Postal Service's First Class Mail volume in the next decade.
Specifically, the report projects that First Class Mail will grow at an
average annual rate of 1.8% in fiscal years 1999 to 2002 and then decline at
an average annual rate of 2.5% in fiscal years 2003 to 2008. In addition, the
Postal Service also forecasts Standard A mail, which is primarily advertising
mail and includes letters, flats and parcels that are not sent by first-class
mail or priority mail, to increase by an average annual rate of 5.3% in fiscal
years 1999 through 2002 and to increase by an average annual rate of 3.3% in
fiscal years 2003 through 2008.
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
33
<PAGE>
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 a 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
PCs 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 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.
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 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 is the first commercially available software-based
service approved 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 a PC 24 hours a day, seven days
a week;
34
<PAGE>
. 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 or address matching CD-ROM is required.
Once users determine the amount of postage required, they can purchase
postage with their PC from our secure servers where and when it is most
convenient. We charge a monthly convenience fee based on usage of our service.
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 customer;
. increased security to protect postal revenues;
. the ability to compete more effectively 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.
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 provides 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 Internet postage and
shipping 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 service 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 October 1999, we have entered into strategic
partnerships with AOL, IBM, Microsoft, Office Depot, Quicken.com and
35
<PAGE>
3M, among others. We believe that we can further utilize our strategic
partnerships to enhance our brand name and grow our customer base.
Exploit Our First-to-Market Advantages. On October 22, 1999, we
commercially launched our Internet Postage service. It is currently the only
software-based Internet Postage service approved for commercial release by the
US Postal Service. We have a significant first-to-market advantage as a
software-based solution in the Internet postage market. 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;
. a software-based Internet Postage service that does not require additional
hardware;
. significant up-front time and investment by potential competitors in
technology and technical infrastructure;
. strong brand awareness for our software-based Internet Postage service; and
. inconvenience of switching from one metered postage provider to another.
Rapidly Grow Our Customer Base. We intend to broaden our customer base by
capitalizing on our brand, strategic partnerships and 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
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 hardware solutions because transactions are processed through
our secure 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.
36
<PAGE>
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, lables or business documents.]
Accessing our service is simple. A user obtains 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 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 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 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.
We assess our customers a convenience fee to access our Internet postage
service. Customers may sign up for two different service plans: a Business Plan
and a Personal Plan. Under each plan, a customer 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
postage, 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 postage,
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 per month. 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.
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.
37
<PAGE>
The ten stages of the US Postal Service certification process are defined
at the US Postal Service Web site and are as follows:
<TABLE>
<S> <C>
1. Letter of Intent 6. US Postal Service Address Matching System
2. Non-Disclosure Agreements 7. Product Submission/Testing
3. Concept of Operations 8. Product Infrastructure Testing
4. Software and Documentation 9. Three Phase Beta Test Approval (Limited
Requirements Distribution)
5. Provider Infrastructure Plan 10. Vendor Product Approval (Full Distribution)
</TABLE>
Our Certification Progress and Commercial Release
In March 1997, we submitted our letter of intent to join the Information
Based Indicia Program. From March 1997 through August 1998, we progressed
through the first eight stages of the US Postal Service certification process.
On August 24, 1998, the US Postal Service announced that we were approved for
beta testing and our Internet Postage service became the first software-based
postage solution approved by the US Postal Service for market testing. Between
August 24, 1998 and August 9, 1999, we successfully completed the three-phase
beta testing required by the US Postal Service's certification process. On
August 9, 1999, we became the first software-based Internet postage solution
approved for commercial release by the US Postal Service. On October 22, 1999,
we initiated the US Postal Service's mandated limited launch of 10,000
customers and will be subject to a limit of 100,000 customers until we receive
further approval from the US Postal Service to continue our roll-out. As of
October 29, 1999, our customer base consisted of over 15,000 users who had
downloaded our software and registered for our service.
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 Quicken.com and Microsoft;
. PC, printer and other original equipment manufacturers, including IBM; and
. office/postal supplies vendors, including 3M and Office Depot.
38
<PAGE>
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. Our current
strategic partners include:
<TABLE>
<S> <C> <C> <C>
3M Deluxe Financial Services Interland Office Depot.com
Allbizdepot.com Dymo/CoStar Lotus Quicken.com
AllBusiness.com Galileo International Microsoft Seiko Instruments
America Online HotOffice Mindspring USOPNet.com
Avery Dennison iGo.com MySoftware Westvaco
Concentrix Networks Inc.com Office.com ZDNet
</TABLE>
Our Marketing and Sales
We intend to establish a strong brand name by allocating significant
resources to our marketing and distribution efforts. We distribute our postage
printing software through our Web site and distribution partners. In addition,
we will rely on traditional media, direct marketing 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 highly visible 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. We can leverage our affiliates' abilities 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. We can leverage our resellers' 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.
39
<PAGE>
Our Competition
The market for Internet postage products and services is new and we expect
it to be intensely competitive. The US Postal Service approved our software-
based Internet Postage service and E-Stamp Corporation's hardware-based
Internet postage service for commercial release on August 9, 1999. At present,
two other Internet postage vendors have hardware products available for beta
testing. One of the vendors, Pitney Bowes, also has a software-based product in
beta testing and was approved for the second stage of beta testing on
September 20, 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:
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. The US Postal Service approved E-
Stamp's PC Postal Security Device product for commercial release on August 9,
1999.
Neopost Industrie. 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. See
"Risk Factors--Success by Pitney Bowes in its suit against us alleging patent
infringement could prevent us from offering our Internet Postage service and
severely harm our business or cause it to fail".
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 switch to a software-based solution, we could
face continuing competition from this market.
40
<PAGE>
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;
. successful commercial release;
. 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--
Success by Pitney Bowes in its suit against us alleging patent infringement
could prevent us from offering our Internet Postage service and severely harm
our business or cause it to fail" 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.
41
<PAGE>
Client Module. 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 our
Internet Postage capabilities that are accessible from popular software
applications. Our client module will be used by our Internet 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 to protect our intellectual
property rights in products, services, know-how and information. We have three
issued US patents and have filed 18 patent applications in the United States,
and one international patent application. We have also applied to register
several trademarks and service marks. We plan to apply for other patents in the
future.
Despite efforts to protect our intellectual property rights, we face
substantial uncertainty regarding the impact that other parties' intellectual
property positions will have on the Internet postage market. In particular,
Pitney Bowes has sent formal comments to the US Postal Service asserting that
intellectual property of Pitney Bowes related to postage metering and systems
would be infringed by products meeting the requirements of the Information
Based Indicia Program's specifications. 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--Success
by Pitney Bowes in its suit against us alleging patent infringement could
prevent us from offering our Internet Postage service and severely harm our
business or cause it to fail" and "Business--Legal Proceedings".
Our Employees
As of September 30, 1999, we had 158 full-time employees, of which 48 were
employed in research and development, 54 were employed in network operations,
32 were employed in sales and marketing, and 24 were employed in administrative
positions. None of our employees are represented by a labor union, and we
consider our employee relations to be good. If the iShip.com acquisition is
completed, we expect to gain an additional 60 employees. 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 February 2001. If the iShip.com acquisition is
completed, we will assume a lease for approximately 21,000 square feet in
Bellevue, Washington expiring in August 2004. 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
42
<PAGE>
and other unspecified damages. We answered the complaint on August 6, 1999,
denying the allegations of patent infringement and asserting a number of
affirmative defenses. The suit is still pending. 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.
We believe that we have meritorious defenses to Pitney Bowes' claims;
however, the court and the jury could determine otherwise. Therefore, we can
give no assurance that Pitney Bowes will not prevail in its suit against us.
See "Risk Factors--Success by Pitney Bowes in its suit against us alleging
patent infringement could prevent us from offering our Internet Postage service
and severely harm our business or cause it to fail".
We are not currently involved in any other material legal proceedings, nor
have we been involved in any such proceeding that has had or may have a
significant effect on our company. We are not aware of any other material legal
proceedings pending against us.
43
<PAGE>
RECENT DEVELOPMENT
The iShip.com Acquisition
In October 1999, we signed a definitive agreement to acquire iShip.com, a
privately-held company located in Bellevue, Washington. iShip.com has developed
Web-based technology that will give online buyers and sellers a complete, one-
stop shipping and tracking solution. iShip.com's tools are designed to help
merchants, consumers and large corporations price, ship, track and manage
shipments over the Internet. iShip.com's service will enable comparison of
rates and services among multiple carriers, including Airborne Express, Federal
Express, UPS, the US Postal Service and Yellow Freight. Under the terms of the
agreement, we will issue up to 8,000,000 shares of our common stock for all
outstanding shares, options and warrants of iShip.com. The acquisition will be
effected by the merger of our new wholly-owned subsidiary into iShip.com
resulting in iShip.com becoming our wholly-owned subsidiary. The acquisition,
which will be accounted for under the purchase method of accounting, has been
approved by the boards of directors of both companies and is subject to
regulatory approval and approval of both the stockholders of iShip.com and
Stamps.com. We anticipate that the iShip.com acquisition will close during the
fourth quarter of 1999.
If the iShip.com acquisition is completed, we will record a significant
amount of intangibles, the amortization of which will significantly and
adversely affect our operating results. We expect these intangibles to equal
approximately $455 million, which will be amortized over a four-year period. To
the extent we do not generate sufficient cash flow to recover the amount of the
investment recorded, the investment may be considered impaired and could be
subject to an immediate write-down of up to the full amount of the investment.
The acquisition is intended to qualify as a tax-free reorganization under
Section 368 of the Internal Revenue Code. As a result of the acquisition, we
will issue up to 8,000,000 shares of our common stock in exchange for all of
the outstanding shares of iShip.com capital stock, options and warrants. The
exchange ratio will be determined on the third business day prior to closing.
The aggregate estimated purchase price is approximately $460 million. The
purchase price is based on the closing price of our common stock on October 29,
1999 of $57.50 per share. Upon completion of the offering, we estimate that the
shares of our common stock to be issued in connection with the acquisition will
constitute no more than 17% of our common stock.
Under the acquisition agreement, iShip.com made customary representations
and warranties regarding such matters as its corporate good standing, authority
to enter into the acquisition, capital structure, intellectual property
ownership, pending litigation, assets and liabilities, employee relations,
material contracts, good tax standing, compliance with laws and regulations and
customers. We also made customary representations and warranties to iShip.com
regarding such matters as our corporate good standing, our authority to enter
into the acquisition, the disclosures set forth in the registration statement
of which this prospectus forms a part, and our compliance with laws and
regulations.
iShip.com has agreed to indemnify us and each of our officers, directors
and affiliates with respect to breaches of any representations, warranties,
covenants or other agreements made by iShip.com in the merger agreement. These
indemnification obligations are subject to minimum threshold limitations
specified in the merger agreement. To secure these indemnification obligations,
800,000 of the shares of our common stock to be issued to iShip.com
stockholders will be held in escrow for a period of up to one year after the
closing of the acquisition.
Upon consummation of the acquisition, two persons nominated by iShip.com
will be elected to our board of directors.
The iShip.com acquisition is subject to a number of closing conditions
specified in the merger agreement, including governmental approval, stockholder
approval by both iShip.com and Stamps.com and other customary closing
conditions. As a result, we cannot be certain that the iShip.com acquisition
will be completed.
44
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding our executive
officers and directors as of November 1, 1999:
<TABLE>
<CAPTION>
Name Age Position
------------------------ --- -----------------------------------------------
<C> <C> <S>
John M. Payne........... 43 Chairman, Chief Executive Officer and Director
Loren E. Smith.......... 61 President, Chief Operating Officer and Director
John W. LaValle......... 42 Chief Financial Officer and Senior Vice
President of Operations
Christopher S. Hylen.... 38 Senior Vice President, Marketing
Timothy A. Von Kaenel... 33 Senior Vice President, Product Development
Douglas J. Walner....... 30 Senior Vice President, Business Development
Michael D. Walther...... 45 Senior Vice President, Network Operations
Candelario J. Andalon... 30 Corporate Controller
Michael A. Zuercher..... 32 Senior Director, Legal Afffairs and Secretary
Mohan P. Ananda......... 53 Director
David C. Bohnett (1).... 43 Director
Jeffrey J. Brown (1).... 38 Director
Thomas H. Bruggere (2).. 53 Director
Thomas N. Clancy (2).... 41 Director
G. Bradford Jones (2)... 44 Director
Marvin Runyon (1)....... 75 Director
Carolyn Ticknor......... 52 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
John M. Payne has been our Chairman and Chief Executive Officer since
October 1999 and served as our Chief Executive Officer, President and a
Director from October 1998 until October 1999. Mr. Payne 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 as 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.
Loren E. Smith has been our President and Chief Operating Officer since
October 1999 and 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.
45
<PAGE>
John W. LaValle has been our Chief Financial Officer and Senior Vice
President of Operations since September 1998. From September 1998 until
November 1999, Mr. LaValle also served as our Secretary. 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.
Christopher S. Hylen has been our Senior Vice President of Marketing since
June 1999. From September 1995 through June 1999, Mr. Hylen served as Vice
President of Interactive Services and Vice President of Business Development
and Small Business Services of American Express Corp., a financial services
company. From 1990 to September 1995, Mr. Hylen served as Vice President of
Business Development and Vice President of Product Development of Comdata
Corporation, a transaction processing company. Mr. Hylen received his B.S. in
Chemical Engineering from Widener University and his M.B.A. from Harvard
University.
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 Senior Vice President of Business
Development since October 1999 and was our Vice President of Business
Development from September 1998 to October 1999. From March 1998 to August
1998, Mr. Walner served as a business development and strategic relationship
consultant to us. 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.
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.
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.
46
<PAGE>
Mr. Andalon received his B.S. degree in Accounting from Loyola Marymount
University and is a Certified Public Accountant.
Michael A. Zuercher has been a Senior Director of Legal Affairs since May
1999 and our Secretary since November 1999. From September 1996 to May 1999,
Mr. Zuercher was an associate at Brobeck, Phleger & Harrison LLP. From
September 1989 to June 1993, Mr. Zuercher was a Contracts Negotiator at Hughes
Aircraft Company, an electronics company. Mr. Zuercher received his B.A. in
Economics and Political Science at Stanford University and his J.D. from the
University of San Francisco.
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
company that hosts communities of interest, 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 the company was acquired by Yahoo! in May 1999. Mr.
Bohnett serves on the Boards of Directors of NetZero, Inc., an Internet service
provider, NCR Corporation, a provider of information technology hardware and
software, and several private companies. 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., and 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 received his B.S. in Mathematics from Willamette
University and his M.B.A. from Stanford University.
Thomas H. Bruggere has been a Director since April 1998 and was our
Chairman of the Board of Directors from April 1998 until October 1999. 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.
47
<PAGE>
Thomas N. Clancy has been a Director since February 1998. Mr. Clancy has
been a General Partner at Enterprise Partners Venture Capital since October
1999 and was a Venture Partner at Enterprise Partners from February 1997 to
October 1999. 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
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, and a Managing Director of Redpoint Ventures, a firm he co-founded in
October 1999. 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, an Internet messaging and
directory software developer, Sandpiper Networks, an Internet content
management and distribution company, Trading Edge, an Internet-based fixed
income securities broker and several privately-held companies. 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.
Carolyn Ticknor has served as a Director since July 1999. Ms. Ticknor is
currently a Vice President and a member of the Executive Committee of Hewlett-
Packard Company and the President and CEO of Hewlett-Packard's LaserJet Imaging
Systems. Since joining Hewlett-Packard in 1977, Ms. Ticknor has served in
various management roles in the Information Networks Division, the Roseville
Networks Division and the LaserJet Solutions Group. Prior to joining Hewlett-
Packard, Ms. Ticknor worked for Bank of America in computer services from 1971
to 1975. Ms. Ticknor received her B.A. in Psychology from the University of
Redlands (Calif.), her M.S. in Industrial Psychology from San Francisco State
University and her M.B.A. from Stanford University.
Under the terms of our merger agreement with iShip.com, iShip.com will be
entitled to appoint two board members to our board of directors upon the
closing of the transaction.
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, Smith and Ms. Ticknor will serve as Class III directors
whose terms expire at the 2002 annual meeting of stockholders.
48
<PAGE>
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.
The Board has also established a Special Stock Option Committee for the
purpose of granting options to non-Section 16 employees and consultants. The
Special Stock Option Committee is currently comprised of Messrs. Bruggere,
Clancy, Jones and Payne, each of whom are individually authorized to make
option grants under our 1999 Stock Incentive Plan.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Bruggere, Clancy and Jones.
These individuals have never been employed by us. 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 February 1999, Messrs. Runyon, and Smith
and in March 1999 Mr. Bohnett, 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 compensated Mr. Smith $120,000 per year, and in consideration of
his consulting services, granted him an option to purchase 135,000 shares of
our common stock at $0.33 per share. This agreement terminated in October 1999
upon Mr. Smith's appointment as our President and Chief Operating Officer. In
connection with Mr. Smith's appointment as President and Chief Operating
Officer, we granted Mr. Smith an option to purchase 300,000 shares of common
stock at an exercise price of $35.625 per share. The options were granted at
fair market value and vest over a period of two years.
On June 21, 1999, we entered into a consulting services agreement with
Carolyn Ticknor to provide strategic planning and business development advice,
and other consulting services that we may request. In exchange for these
services, we granted Ms. Ticknor an option to purchase 10,000 shares of our
common stock at an exercise price of $11.00 per share. This consulting
agreement expired on October 1, 1999.
49
<PAGE>
In October 1999, we entered into a three-year consulting agreement with
Marvin Runyon under which he will provide strategic planning services. In
exchange for these services, we granted Mr. Runyon an option to purchase 36,000
shares of common stock at an exercise price of $35.625 per share. These options
were granted at fair market value and vest ratably over a three-year period.
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".
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 $100,000 during 1998
had those officers provided services to us for the entire fiscal year.
Summary Compensation Table for Fiscal Year 1998
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
------------------ Securities
Name and Principal Other Annual Underlying All Other
Positions Salary($) Bonus($) Compensation($) Options(#) Compensation($)
------------------ --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John M. Payne
Chairman 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
Senior 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.
50
<PAGE>
Stock Options Granted During Fiscal Year 1998
During the fiscal year ended December 31, 1998, we granted options to
purchase 2,347,471 shares of common stock. All options were granted at an
exercise price equal to the fair market value of our common stock as determined
by our Board of Directors on the date of grant. The exercise price may be paid
in cash, check, promissory note, shares of our common stock valued at fair
market value on the exercise date or a cashless exercise procedure involving a
same-day sale of the purchased shares. The following table indicates
information regarding options to purchase common stock granted to our officers
listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
Potential
Realizable
Value at
Percentage Assumed Annual
Number of of Total Rates of Stock
Securities Options Appreciation
Underlying Granted to for Option Term
Options Employees Exercise Price Expiration ---------------
Name Granted in 1998 Per 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 was succeeded by our 1999 Stock Incentive Plan. 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 Value of
Securities Unexercised In-
Underlying the-Money
Unexercised 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>
51
<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. In October
1999, Mr. Payne was appointed to the offices of Chairman of the Board 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 February 1999, Mr. LaValle's base salary was
increased to $185,000 per year. In October 1999, Mr. LaValle was granted an
option to purchase 104,198 shares of common stock with an exercise price of
$35.625, 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 18 months following a change in control
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
52
<PAGE>
involuntary termination. A "change in control" 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
or dissolution 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
. 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 is a successor plan to our 1998 Stock Plan,
and includes 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 serves 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 became effective on June 24, 1999.
At that time, all outstanding options under our existing 1998 plan were
transferred to the 1999 plan, and no further option grants can 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 are 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. In October 1999, our board approved an
increase of 2,500,000 shares to the authorized number of shares issuable under
the 1999 plan. Upon stockholder approval of the proposed increase, the total
shares authorized for issuance under the 1999 plan will be 9,790,000. This
share reserve consists of the number of shares that were 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;
53
<PAGE>
. 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
are administered by our compensation committee. This committee determines which
eligible individuals will receive option grants or stock issuances under those
programs, the time or times when the grants or issuances are to be made, the
number of shares subject to each grant or issuance, the status of any granted
option as either an incentive stock option or a nonstatutory stock option under
the federal tax laws, the vesting schedule to be in effect for the option grant
or stock issuance and the maximum term for which any granted option is to
remain outstanding. The compensation committee also has 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 includes 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 has 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 includes 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. In the event an optionee has less than one
year of service at the time of the merger or sale of assets and the
successor entity does not assume the option, the optionee will receive
the equivalent of two years of vesting. Any options which are assumed
will immediately vest upon a constructive termination of the optionee
within 18 months after the acquisition.
54
<PAGE>
. The compensation committee has 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 50% 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 that were outstanding under our 1998 Stock Plan will
immediately vest in the event we are acquired and the acquiring company
does not assume those options unless an employee has less than one year
of service with us in which case the employee will receive the
equivalent of two years of vesting. Any options which are assumed will
immediately vest upon a constructive 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 an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date. As a result, the option will be structured so
that the fair market value of the option shares on the grant date less the
exercise price payable for those shares will be equal to the amount of the
salary reduction. The option will become exercisable in a series of twelve
equal monthly installments over the calendar year for which the salary
reduction is to be in effect.
Automatic Option Grant Program. Each individual who first becomes a non-
employee board member at any time after the effective date of this offering
will receive an option grant for 10,000 shares of common stock on the date such
individual joins the board. In addition, on the date of each annual
stockholders meeting, 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 has 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.
55
<PAGE>
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 12 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 also has 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 are automatically 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.
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 became effective
on June 24, 1999. 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 have initially been
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 has a series of successive offering periods,
each with a maximum duration of 24 months. The initial offering period
commenced on June 24, 1999 and ends 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.
56
<PAGE>
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than five 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 50% 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 are also 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.
Limitation on Liability and Indemnification Matters
Our certificate of incorporation 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.
57
<PAGE>
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 entity or enterprise, against expenses, incurred by the person in the
defense of any action, suit or proceeding prior to its final determination to
the fullest extent authorized under Delaware law.
We have entered 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.
58
<PAGE>
RELATED PARTY TRANSACTIONS
Sales of Securities
We have issued shares of common stock to several of our directors,
executive officers and founders. John M. Payne, our Chairman and Chief
Executive Officer, purchased 1,500,000 shares of common stock in November 1998
for a purchase price of $100,000, which amount includes a note payable to
Stamps.com for $99,000. Thomas Bruggere, a member of our board of directors,
purchased 488,475 shares of common stock in October 1998 and December 1998 for
a total purchase price of $28,460. 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 $28,968. 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 $16,960, which amount includes
$9,000 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, 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 compensated Mr. Smith $120,000 per year, and in consideration of
his consulting services, granted him an option to purchase 135,000 shares of
our common stock at $0.33 per share. This agreement terminated in October 1999
upon Mr. Smith's appointment as our President and Chief Operating Officer. In
connection with Mr. Smith's appointment as President and Chief Operating
Officer, we granted Mr. Smith an option to purchase 300,000 shares of common
stock. The options were granted at fair market value and vest over a period of
two years.
59
<PAGE>
On June 21, 1999, we entered into a consulting services agreement with
Carolyn Ticknor, a director, to provide us with strategic planning and business
development advice, and other consulting services that we may request. In
exchange for these services, we granted Mrs. Ticknor an option to purchase
10,000 shares of our common stock at an exercise price of $11.00 per share.
This consulting agreement expired on October 1, 1999.
In October 1999, we entered into a three-year consulting agreement with
Marvin Runyon under which he will provide strategic planning services. In
exchange for these services, we granted Mr. Runyon an option to purchase 36,000
shares of common stock. These options were granted at fair market value and
vest ratably over a three-year period.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates beneficial ownership of our common stock as
of September 30, 1999 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 34,864,807 shares of common
stock outstanding as of September 30, 1999 and 40,192,305 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 September 30, 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
Number of Owned
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- -------------------------- ------------ -------- --------
<S> <C> <C> <C>
Named executive officers and Directors:
Thomas N. Clancy(1).......................... 5,457,448 15.6% 13.6%
Jeffrey J. Brown(2).......................... 5,467,448 15.7 13.6
G. Bradford Jones(3)......................... 5,457,448 15.6 13.6
Mohan P. Ananda(4)........................... 2,174,095 6.2 5.4
John M. Payne(5)............................. 1,500,100 4.3 3.7
Thomas H. Bruggere(6)........................ 488,475 1.4 1.2
John W. LaValle (7).......................... 395,802 1.1 *
Douglas J. Walner(8)......................... 366,357 1.0 *
Loren E. Smith(9)............................ 244,500 * *
David C. Bohnett(10)......................... 198,468 * *
Marvin Runyon(11)............................ 141,831 * *
Carolyn Ticknor(12).......................... 20,000 * *
Other 5% Stockholders:(13)
Brentwood Venture Capital (14)............... 5,421,448 15.5 13.5
11150 Santa Monica Blvd, Suite 1200
Los Angeles, CA 90025
Enterprise Partners IV, L.P. (15)............ 5,421,448 15.5 13.5
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
SBIC Partners, L.P........................... 5,421,448 15.5 13.5
201 Main Street, Suite 2302
Fort Worth, TX 76102
Vulcan Ventures Inc.......................... 2,732,241 7.8 6.8
110-110th Ave., N.E., Suite 550
Bellevue, WA 98004
Chase Venture Capital Partners, L.P.......... 2,185,792 6.3 5.4
380 Madison Ave., 12th Floor
New York, NY 10017
All directors and executive officers as a group
(17 people) (16).............................. 22,565,447 61.2% 53.5%
</TABLE>
61
<PAGE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.
(1) Includes 4,987,732 shares and 433,716 shares held by Enterprise Partners
IV, L.P. and Enterprise Partners IV Associates, L.P., respectively.
Thomas N. Clancy is a General 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 10,000
shares of common stock and 36,000 shares subject to options, all of which
are presently exercisable within 60 days from September 30, 1999.
(2) Includes 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 September 30, 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
September 30, 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 Mr. Payne's
family.
(6) Includes 75,000 shares held in trust for the benefit of his children as
to which Mr. Bruggere disclaims beneficial ownership.
(7) Includes 395,802 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999. Does not include 104,198 shares subject to options granted to Mr.
LaValle in October 1999, none which are presently exercisable or will be
exercisable within 60 days of September 30, 1999.
(8) Includes 366,357 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999.
(9) Includes 243,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999. Does not include 300,000 shares subject to options, none of which
are presently exercisable or will be exercisable within 60 days of
September 30, 1999.
(10) Includes 108,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999.
(11) Includes 110,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999. Does not include 34,000 shares subject to options granted to Mr.
Runyon in October 1999, none of which are presently exercisable or will
be exercisable within 60 days of September 30, 1999.
(12) Includes 120,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999.
(13) Based on the current holdings of the stockholders of iShip.com, we do not
anticipate that any stockholder of iShip.com will be a 5% stockholder of
Stamps.com if the iShip.com acquisition is completed.
(14) 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.
(15) 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.
(16) Includes 1,990,934 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days of September 30,
1999.
62
<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. Our authorized capital stock
consists 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 October 29, 1999, there were 35,043,445 shares of common stock
outstanding and held of record by 147 stockholders. 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 and 148,860 shares to AOL,
there will be 40,192,305 shares of common stock outstanding upon the closing of
the offering. In addition, as of November 1, 1999, there were 7,082,414 shares
of common stock issuable upon the exercise of outstanding options.
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. Currently, there are
no shares of preferred stock outstanding.
Preferred Stock
The Board of Directors is 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.
Warrants
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.
63
<PAGE>
America Online Investment
In October 1999, we entered into a common stock and warrant purchase
agreement with AOL for the purchase of up to $11 million of common stock by AOL
and a warrant which allows AOL to purchase up to 50% of the number of shares of
common stock issued to it. The warrant also allows for the purchase of
additional shares of common stock (50% of the unexercised portion of the
warrant) in the event we are unable to cure a material breach of the payment
provisions of our marketing agreement with AOL.
On October 29, 1999, we issued 178,635 shares of common stock under the
purchase agreement for $6.0 million in the aggregate, or $33.59 per share. We
also issued the warrant, which is exercisable for 89,318 shares of common stock
as of October 31, 1999, at an exercise price of $33.59 per share. The warrant
may be exercised at any time on or before October 29, 2002, unless the term of
exercisability is extended to compensate for any required regulatory filings.
In addition, AOL has agreed to invest an additional $5.0 million in our
common stock concurrent with the closing of this offering. The number of shares
issuable will be equal to the quotient of $5 million divided by the lesser of
(a) $33.588 or (b) the price per share of the offering net of any underwriter
discounts or commissions. The number of shares issuable upon exercise of the
warrant will be increased by an amount equal to 50% of the shares issued at the
closing of the $5 million investment. The closing of the $5 million investment
by AOL is contingent on the closing of this offering.
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
64
<PAGE>
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. Our directors are divided into
three classes. The classification of the Board of Directors has 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 authorizes only the Board of Directors to fill vacancies,
including newly created directorships. The certificate of incorporation also
provides 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 each provides that our bylaws may only be amended by
a two-thirds vote of the outstanding shares. In addition, our certificate of
incorporation provides that its provisions related to bylaw amendments,
staggered board and indemnification may only be amended by a two-thirds vote
of the outstanding shares.
Registration Rights
After this offering, holders of approximately 25,400,000 shares of common
stock will be entitled to registration rights with respect to their shares. Of
these shares, approximately 2,200,000 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 December 25, 1999.
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 is U.S. Stock
Transfer Corporation.
Listing
Our common stock is quoted on the Nasdaq National Market under the trading
symbol "STMP".
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We estimate that prior to the sale of the 5,000,000 shares we are offering
by this prospectus, approximately 6.0 million of our 34.9 million shares of
outstanding common stock were freely tradable. On December 24, 1999, upon the
expiration of a lock-up entered into in connection with our initial public
offering, an additional 2.1 million shares of our outstanding common stock will
become available for immediate sale. On the 90th day after the date of this
prospectus, the lock-up described below will expire, and all of the shares
subject to the lock-up will be available for immediate sale, subject to the
volume and other restrictions under Rule 144 of the Securities Act of 1933. Of
these shares, 21.0 million held by investment funds may be distributed by them
from time to time to their investors. Upon distribution, those shares will be
available for immediate sale.
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. 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.
As part of this offering, our executive officers and directors, other
significant stockholders and iShip.com's significant stockholders, who will
receive at least 95% of the shares of common stock we issue in the proposed
acquisition of iShip.com, will execute agreements with the underwriters that
they will not offer or sell any shares of common stock for a period of 90 days
after the date of this prospectus without the prior written consent of Goldman,
Sachs & Co. This agreement does not apply to shares reserved for issuance to
non-director, non-execute officer employees under existing employee benefit
plans. In addition, the merger agreement with iShip.com provides that we are
not obligated to file an S-8 registration statement for options assumed in the
acquisition until the expiration of the 90 day lock-up period. Goldman, Sachs &
Co. may, in its sole discretion, at any time and without notice, release all or
a 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.
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
November 1, 1999, affiliates of Brobeck, Phleger & Harrison LLP beneficially
owned a total of approximately 84,000 shares of common stock. The validity of
the common stock in this offering will be passed upon for the underwriters by
Sullivan & Cromwell, Washington, D.C.
EXPERTS
The financial statements of Stamps.com, Inc. as of December 31, 1998 and
for the period from January 9, 1998 (date of inception) to December 31, 1998
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 giving said reports.
The iShip.com financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Moss Adams 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.
66
<PAGE>
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).
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Stamps.com Inc.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Balance Sheets at December 31, 1998 and September 30, 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 September 30, 1998 (unaudited), the nine months ended
September 30, 1999 (unaudited) and the period from January 9, 1998 (date
of inception) to September 30, 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 nine
months ended September 30, 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 September 30, 1998 (unaudited), the nine months ended
September 30, 1999 (unaudited) and the period from January 9, 1998 (date
of inception) to September 30, 1999 (unaudited)......................... F-6
Notes to Financial Statements............................................ F-7
<CAPTION>
iShip.com, Inc.
---------------
<S> <C>
Independent Auditor's Report............................................. F-17
Balance Sheets at December 31, 1997 and 1998, and September 30, 1999
(unaudited)............................................................. F-18
Statements of Operations for the period from May 27, 1997 (date of
inception) to December 31, 1997, year ended December 31, 1998, the nine
months ended September 30, 1998 and 1999 (unaudited) and the period from
May 27, 1997 (date of inception) to September 30, 1999 (unaudited)...... F-19
Statements of Stockholders' Equity (Deficit) for the period from May 27,
1997 (date of inception) through December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1999
(unaudited)............................................................. F-20
Statements of Cash Flows for the period from May 27, 1997 (date of
inception) to December 31, 1997, the year ended December 31, 1998, the
nine months ended September 30, 1998 and 1999 (unaudited) and the period
from January 9, 1998 (date of inception) to September 30, 1999
(unaudited)............................................................. F-21
Notes to Financial Statements............................................ F-22
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
------------------------------------------------------------
<S> <C>
Unaudited Pro Forma Condensed Combined Financial Information ............ F-29
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30,
1999 ................................................................... F-30
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1998 ........................................... F-31
Unaudited Pro Forma Condensed Combined Statement of Operations for the
nine months ended September 30, 1999.................................... F-32
Notes to Unaudited Pro Forma Condensed Combined Financial Information.... F-33
</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.
/s/ Arthur Andersen LLP
Los Angeles, California
January 13, 1999
F-2
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,470,207 $ 61,198,260
Prepaid advertising............................... -- 6,531,018
Prepaid expenses.................................. 48,118 684,495
----------- ------------
Total current assets.......................... 3,518,325 68,413,773
Property and equipment, net......................... 670,301 5,339,565
Other assets........................................ 237,193 432,138
----------- ------------
Total assets.................................. $ 4,425,819 $ 74,185,476
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit.................................... $ 1,000,000 $ 1,000,000
Accounts payable.................................. 392,372 2,331,566
Accrued expenses.................................. 192,528 1,850,055
Accrued payroll and related....................... 140,942 1,079,823
Accrued professional.............................. 200,000 300,000
Current portion of capital lease obligations...... 207,683 472,000
----------- ------------
Total current liabilities..................... 2,133,525 7,033,444
Capital lease obligations, less current portion..... 265,070 500,214
Commitments
Redeemable preferred stock, $.001 par value
(Series A, B & C):
Authorized shares 10,000,000 at December 31, 1998
and none at September 30, 1999..................
Issued and outstanding shares 9,782,500 at
December 31, 1998 and none at September 30,
1999............................................ 5,978,344 --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value:
Authorized shares none at December 31, 1999 and
5,000,000 at September 30, 1999.................
Issued and outstanding none at December 31, 1999
and September 31, 1999.......................... -- --
Common stock, $.001 par value: 6,901 35,569
Authorized shares 20,000,000 at December 31, 1998
and 95,000,000 at September 30, 1999............
Issued and outstanding shares 6,900,975 at
December 31, 1998; Issued shares 35,569,402 and
outstanding shares 34,864,807 at September 30,
1999............................................
Additional paid-in capital........................ 1,437,859 103,047,686
Notes receivable from stock sales................. (117,000) (107,000)
Deferred compensation............................. (1,083,000) (8,086,000)
Deficit accumulated during the development stage.. (4,195,880) (27,298,977)
Treasury stock at cost (704,595 outstanding)...... -- (939,460)
----------- ------------
Total stockholders' equity (deficit).......... (3,951,120) 66,651,818
----------- ------------
Total liabilities and stockholders' equity
(deficit).................................... $ 4,425,819 $ 74,185,476
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 Nine Months January 9, 1998
(inception) to (inception) to Ended (inception) to
December 31, September 30, September September 30,
1998 1998 30, 1999 1999
--------------- --------------- ------------ ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development.......... 1,531,811 548,200 5,049,459 6,581,270
Sales and marketing... 632,349 -- 10,856,087 11,488,436
General and
administrative....... 2,015,930 1,125,584 8,275,706 10,291,636
----------- ----------- ------------ ------------
Total costs and
expenses........... 4,180,090 1,673,784 24,181,252 28,361,342
----------- ----------- ------------ ------------
Loss from operations.... (4,180,090) (1,673,784) (24,181,252) (28,361,342)
Other income (expense):
Interest expense...... (27,624) (4,814) (121,968) (149,592)
Interest income....... 11,834 2,682 1,200,123 1,211,957
----------- ----------- ------------ ------------
Net loss................ $(4,195,880) $(1,675,916) $(23,103,097) $(27,298,977)
=========== =========== ============ ============
Basic and diluted net
loss per share......... $ (0.85) $ (0.35) $ (1.59) $ (2.44)
=========== =========== ============ ============
Pro forma basic and
diluted net loss per
share.................. $ (0.36) $ (0.17) $ (0.74) $ (1.10)
=========== =========== ============ ============
Weighted average shares
outstanding used in
basic and diluted per-
share calculation...... 4,955,913 4,738,400 14,495,600 11,186,100
Weighted average shares
outstanding used in pro
forma basic and diluted
per-share calculation.. 11,593,380 9,612,800 31,259,500 24,794,800
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Notes Accumulated Cost of
Shares of Common Stock Common Additional Receivable During the Common
---------------------- Stock Paid-In from Stock Deferred Development Stock in
Issued In Treasury Issued Capital Sales Compensation Stage Treasury Total
---------- ----------- ------- ------------ ---------- ------------ ------------ --------- -----------
<S> <C> <C> <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)
Exercise of
stock options
(unaudited)..... 47,948 -- 48 5,728 -- -- -- -- 5,776
Repurchase of
common stock
(unaudited)..... -- (704,595) -- -- 7,000 -- -- (939,460) (932,460)
Conversion of
redeemable
preferred
(unaudited)..... 22,870,479 -- 22,870 34,255,069 -- -- -- -- 34,277,939
Issuance of
common stock
(unaudited)..... 5,750,000 -- 5,750 57,836,030 -- -- -- -- 57,841,780
Repayment on
note receivable
(unaudited)..... -- -- -- -- 3,000 -- -- -- 3,000
Deferred
compensation
(unaudited)..... -- -- -- 9,513,000 -- (9,513,000) -- -- --
Amortization of
deferred
compensation
(unaudited)..... -- -- -- -- -- 2,510,000 -- -- 2,510,000
Net loss
(unaudited)..... -- -- -- -- -- -- (23,103,097) -- (23,103,097)
---------- -------- ------- ------------ --------- ----------- ------------ --------- -----------
Balance at
September 30,
1999
(unaudited)..... 35,569,402 (704,595) $35,569 $103,047,686 $(107,000) $(8,086,000) $(27,298,977) $(939,460) $66,651,818
========== ======== ======= ============ ========= =========== ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
January 9, Period from Period from
1998 January 9, January 9,
(inception) 1998 Nine Months 1998
to (inception) to Ended (inception) to
December 31, September 30, September 30, September 30,
1998 1998 1999 1999
------------ -------------- ------------- --------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net loss.................................... $(4,195,880) $(1,675,916) $(23,103,097) $(27,298,977)
Adjustments to reconcile net loss to net
cash
used in operating activities:
Depreciation and amortization.......... 81,540 27,032 555,166 636,706
Amortization of deferred compensation.. 167,000 34,000 2,510,000 2,677,000
Changes in operating assets and
liabilities:
Prepaid expenses...................... (48,118) (14,202) (7,167,395) (7,215,513)
Accounts payable...................... 392,372 78,573 1,939,194 2,331,566
Accrued expenses...................... 533,470 131,658 2,696,408 3,229,878
----------- ----------- ------------ ------------
Net cash used in operating activities....... (3,069,616) (1,418,855) (22,569,724) (25,639,340)
Investing activities:
Capital expenditures....................... (195,297) (113,781) (4,562,263) (4,757,560)
Other...................................... (209,071) (95,978) (197,591) (406,662)
----------- ----------- ------------ ------------
Net cash used in investing activities....... (404,368) (209,759) (4,759,854) (5,164,222)
Financing activities:
Net proceeds from line of credit........... 1,000,000 300,000 -- 1,000,000
Repayment of capital lease obligations..... (81,945) (53,397) (150,059) (232,004)
Issuance of redeemable preferred stock,
net....................................... 5,978,344 2,063,344 28,299,594 34,277,938
Issuance of common stock................... 47,792 18,332 57,841,780 57,889,572
Repurchase of common stock................. -- -- (939,460) (939,460)
Proceeds from exercise of stock options.... -- -- 5,776 5,776
----------- ----------- ------------ ------------
Net cash provided by financing activities... 6,944,191 2,328,279 85,057,631 92,001,822
----------- ----------- ------------ ------------
Net increase in cash and cash equivalents 3,470,207 699,665 57,728,053 61,198,260
Cash and cash equivalents at beginning of
period..................................... -- -- 3,470,207 --
----------- ----------- ------------ ------------
Cash and cash equivalents at end of period.. $ 3,470,207 $ 699,665 $ 61,198,260 $ 61,198,260
=========== =========== ============ ============
Cash paid for:
Interest................................... $ 27,624 $ 4,814 $ 121,968 $ 149,592
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 $ 29,968 $ -- $ 29,968
Equipment acquired under capital lease...... $ 554,698 $ 470,938 $ 649,520 $ 1,204,218
Issuance of notes receivable from stock
sales...................................... $ 117,000 $ 117,000 $ -- $ 117,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
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) 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 postage
service 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, commercial roll-out of its
Internet postage service, US Postal Service regulation, acceptance of the
product by end users and the ability to raise additional capital to sustain
operations.
On August 9, 1999, the Company's Internet Postage service was approved by
the US Postal Service for commercial release.
Unaudited Interim Financial Information
The interim financial statements of the Company for the period from January
9, 1998 (date of inception) to September 30, 1998 and the nine months ended
September 30, 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 September 30, 1999, the
results of operations and its cash flows for the period from January 9, 1998
(date of inception) to September 30, 1998 and the nine months ended September
30, 1999.
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.
Reclassifications
Certain reclassifications have been made to prior periods to conform to
current period presentations.
F-7
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Computation of Historical Net Loss per Share and Pro Forma Net Loss Per Share
In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Computation of Earnings Per Share," basic earnings per share is computed
by dividing the net earnings available to common stockholders for the period by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing the net earnings for the
period by the weighted average number of common and common equivalent shares
outstanding during the period.
Common equivalent shares, consisting of unvested restricted Common Stock
and incremental common shares issuable upon the exercise of stock options and
warrants and upon conversion of convertible preferred stock, are excluded from
the diluted earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute earnings per share is as follows:
<TABLE>
<CAPTION>
Period from Period from Period from
January 9, 1998 January 9, 1998 January 9, 1998
(inception) to (inception) to Nine Months Ended (inception) to
December 31, 1998 September 30, 1998 September 30, 1999 September 30, 1999
----------------- ------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighted average common
shares used to compute
basic net loss per
share.................. 4,955,913 4,738,400 14,495,600 11,186,100
Effect of dilutive
securities............. -- -- -- --
---------- --------- ---------- ----------
Weighted average common
shares used to compute
dilutive net loss per
share.................. 4,955,913 4,738,400 14,495,600 11,186,100
---------- --------- ---------- ----------
Conversion of preferred
stock.................. 6,637,467 4,874,400 16,763,900 13,608,700
---------- --------- ---------- ----------
Weighted average common
shares used to compute
pro forma basic and
diluted net loss per
share.................. 11,593,380 9,612,800 31,259,500 24,794,800
========== ========= ========== ==========
</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.
Advertising Costs
The Company generally expenses the costs of producing advertisements at the
time the advertising first runs, and expenses the costs of communicating
advertising in the period in which the advertising space or airtime is used.
F-8
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Internet advertising expenses are recognized based on specifics of the
individual agreements. Under impression based agreements, advertising expense
is recognized using the ratio of the number of impressions delivered over the
total number of contracted impressions while agreements based on a period of
time recognize advertising expense on the straight-line basis over the term of
the contract.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are 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.
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Furniture and equipment........................... $ 32,315 $1,311,986
Computers and software............................ 717,679 4,649,790
-------- ----------
749,994 5,961,776
Accumulated depreciation.......................... (79,693) (622,211)
-------- ----------
$670,301 $5,339,565
======== ==========
</TABLE>
Other Assets
Patents, trademarks and other intangibles are included in other assets in
the accompanying balance sheets and are carried at cost less accumulated
amortization. Amortization is calculated on a straight-line basis over the
estimated useful lives of the assets, ranging from 5 to 15 years.
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."
F-9
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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.
F-10
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Computer equipment............................... $ 554,698 $1,204,218
Accumulated depreciation......................... (58,129) (201,059)
--------- ----------
$ 496,569 $1,003,159
========= ==========
</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 (see note 8).
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 2,347,471 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.
F-11
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following tabulation summarizes certain information related to options
for common stock:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding options at January 9, 1998................... -- $ --
Grants................................................... 2,347,471 .07
Surrendered, forfeited or expired........................ (36,562) .03
Exercised................................................ -- --
--------- ----
Outstanding options at December 31, 1998................. 2,310,909 $.06
========= ====
</TABLE>
As of December 31, 1998, all options were exercisable. However, no options
were vested and 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.
6. Related Party Transactions
The Company paid $61,000 in March 1998 to Safeware Corporation for
employee salary and patent prosecution expenses incurred to obtain a patent.
These patent prosecution expenses consisted primarily of fees paid to patent
counsel and fees paid to the US Patent and Trademark Office. A director of the
Company is the majority shareholder in Safeware Corporation. The Company also
reimbursed the director for approximately $20,000 for expenses incurred on its
behalf.
7. 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
F-12
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 8).
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.
8. 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 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
F-13
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
consent of the majority of holders of outstanding shares of Redeemable
Preferred Stock. In connection with the Company's Initial Public Offering in
June 1999, all shares of Series A, B, and C Preferred Stock converted into
22,870,479 shares of Common Stock.
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.
In June 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
became effective on the date that the Company's public offering of Common Stock
closed. Accordingly, the accompanying financial statements and footnotes have
been restated to reflect the stock dividend. In addition the board changed the
number of authorized shares of Common Stock and Preferred Stock to 95,000,000
and 5,000,000 shares, respectively.
Stock options
The following tabulation summarizes certain information related to options
for common stock for the period from January 1, 1999 through September 30,
1999:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
----------------
<S> <C> <C>
Outstanding options at December 31, 1998........... 2,310,909 $ .06
Grants (unaudited)................................. 4,097,356 3.98
Surrendered, forfeited or expired (unaudited)...... 103,400 .35
Exercised (unaudited).............................. 47,948 .12
--------- -----
Outstanding options at September 30, 1999
(unaudited)....................................... 6,256,917 $4.09
========= =====
</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 September 30, 1999, the Company issued options to
purchase approximately 4,097,000 shares of common stock at prices which
included a compensation element of approximately $9,513,000. This compensation
element is being recognized as an expense over the vesting periods of the
related options and the unrecognized portion has been presented as a reduction
of stockholders' equity (deficit) in the accompanying balance sheets.
Commitments
In May 1999, the Company entered into a facility lease agreement for its
corporate headquarters with minimum lease payments totaling $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.
F-14
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In October 1999, the Company entered into a three-year marketing and
distribution agreement with America Online, Inc. ("AOL"). This partnership is
an expansion of our agreement with AOL made in December 1998. Under the new
agreement, the Company will be provided with a specific number of advertising
impressions across several AOL brands featuring it as the exclusive provider of
Internet postage services. Stamps.com software will also be included in AOL
branded CD-ROMs for distribution.
In consideration, the Company has committed to pay $56.0 million over the
three-year term of the agreement. Of the $56.0 million total commitment, $20.5
million will be paid during the twelve months ended September 30, 2000. The
Company is recognizing these fees as sales and marketing expense over the term
of the contract based primarily on the ratio of the number of impressions
delivered over the total number contracted.
In connection with the new AOL agreement, the Company issued 178,638 shares
of common stock, under the purchase agreement, for $6 million in the aggregate
or $33.588 per share. AOL also agreed to invest an additional $5 million in
Company stock. The purchase price will be the lesser of (a) $33.588 or (b) the
price per share of the offering net of underwriter discounts or commissions.
The Company also issued AOL a warrant, which is exercisable at $33.588 per
share for 50 percent of the total Common shares purchased by AOL.
Related Party Transactions
In February 1999, a director entered into a three-year consulting agreement
with the Company to provide marketing and strategic planning services. In
exchange for his consulting services, the director 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.
On June 21, 1999, the Company entered into a consulting services agreement
with a director to provide us with strategic planning and business development
advice, and other consulting services that the Company may request. In exchange
for these services, the Company granted the director an option to purchase
10,000 shares of common stock at an exercise price of $11.00 per share. This
agreement expired on October 1, 1999.
Legal Proceedings
On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against
the Company. 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 answered the complaint on August 6, 1999, denying the allegations
of patent infringement and asserting a number of affirmative defenses. The suit
is still pending. Pitney Bowes filed a similar complaint in early June 1999
against one of the Company's competitors, E-Stamp Corporation, alleging
infringement of seven Pitney Bowes patents.
The Company believes that it has meritorious defenses to Pitney Bowes'
claims; however, the court and the jury could determine otherwise. Therefore,
the Company can give no assurance that Pitney Bowes will not prevail in its
suit against the Company.
F-15
<PAGE>
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
If Pitney Bowes prevails in its claims against the Company, it may be
prevented from selling postage on the Internet. Alternatively, the Pitney Bowes
suit could result in limitations on how the Company implements its service,
delays and costs associated with redesigning its service and payments of
license fees and other payments. In addition, the litigation could result in
significant expenses and diversion of management time and other resources.
Thus, if Pitney Bowes prevails in its suit against the Company, its business
could be severely harmed or fail.
Initial Public Offering
In June and July 1999, the Company completed an initial public offering in
which the underwriters sold to the public 5,750,000 shares of Common Stock,
including 750,000 shares in connection with the exercise of the underwriters'
over-allotment option, at $11.00 per share. The Company's proceeds from the
offering, after deducting underwriting discounts and commissions, were $10.23
per share, or $58,822,500 in the aggregate. Upon the closing of that offering,
the Company repurchased 704,595 shares of Common Stock for $939,460 and
converted all the Company's Redeemable Preferred Stock to Common Stock. After
the offering, the Company's authorized capital consists of 95,000,000 shares of
Common Stock of which 34,864,807 shares were outstanding at September 30, 1999.
Acquisition
In October 1999, the Company entered into a merger agreement with
iShip.com, a development stage enterprise developing Internet-based shipping
technology. In connection with the proposed merger, an aggregate of up to
8,000,000 of the Company's common stock will be issued and reserved for
issuance. The agreement is subject to governmental approval, shareholder
approval by both companies, and other customary conditions.
The acquisition will be accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase price will be allocated to
the tangible and intangible assets acquired and liabilities assumed based on
their respective fair values on the acquisition date. The company is currently
in process of preparing the final purchase price allocation and determining the
useful lives of the assets acquired. It is anticipated that the purchase would
result in intangible assets of approximately $455 million.
F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
iShip.com, Inc.
We have audited the accompanying balance sheets of iShip.com, Inc. (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (May 27, 1997) to December 31, 1997 and for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits 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 audits provide 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 iShip.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from inception (May 27, 1997) to December 31, 1997 and for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Moss Adams LLP
Seattle, Washington
March 12, 1999
F-17
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
--------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents.............. $ 218,876 $ 386,384 $ 5,521,919
Investments............................ -- 990,676 --
Stock subscriptions receivable......... 96,098 -- --
Prepaid expenses and other............. 37,850 12,516 102,270
--------- ----------- -----------
Total current assets................. 352,824 1,389,576 5,624,189
--------- ----------- -----------
Equipment, net........................... 175,936 237,094 2,224,403
--------- ----------- -----------
$ 528,760 $ 1,626,670 $ 7,848,592
========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts Payable....................... $ 2,377 $ 42,320 $ 605,131
Accrued liabilities.................... 201 19,514 82,771
Advances from shareholders............. 4,525 -- --
Current portion of long-term debt...... -- 7,200 389,920
Current portion of capital lease
obligations........................... 46,140 48,900 46,900
--------- ----------- -----------
Total current liabilities............ 53,243 117,934 1,124,722
--------- ----------- -----------
Long-term debt, net of current portion... -- 79,218 1,281,164
Deferred compensation.................... 150,000 168,750 168,750
Deferred rent payable.................... -- 50,845 96,606
Capital lease obligations, net of current
portion................................. 128,386 79,486 45,050
--------- ----------- -----------
Total long-term liabilities.......... 278,386 378,299 1,591,570
--------- ----------- -----------
Stockholders' equity
Series A Preferred stock, $.0005 par
value, 8,986,668 shares authorized,
shares issued and outstanding;
1,600,000 at December 31, 1997,
8,986,668 at December 31, 1998 and
September 30, 1999, liquidation
preference of $600,000 at December 31,
1997, and $3,369,801 at December 31,
1998 and September 30, 1999........... 800 4,493 4,493
Series B Preferred stock, $.0005 par
value, 12,800,000 shares authorized,
shares issued and outstanding; none at
December 31, 1997 and 1998, 10,133,334
at September 30, 1999, liquidation
preference of $7,600,000 at
September 30, 1999.................... -- -- 5,067
Common stock, $0.0005 par value,
60,000,000 shares authorized, shares
issued and outstanding; 6,132,448 at
December 31, 1997, 6,543,448 at
December 31, 1998, and 7,238,014 at
September 30, 1999.................... 3,066 3,272 3,619
Additional paid-in capital............. 599,570 3,383,120 10,998,903
Deficit accumulated during the
development stage..................... (406,305) (2,260,448) (5,879,782)
--------- ----------- -----------
197,131 1,130,437 5,132,300
--------- ----------- -----------
$ 528,760 $ 1,626,670 $ 7,848,592
========= =========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(May 27, Nine Months Ended (May 27,
1997) to Year Ended September 30, 1997) to
December 31, December 31, ------------------------ September 30,
1997 1998 1998 1999 1999
------------ ------------ ----------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ --
--------- ----------- ----------- ----------- -----------
Operating Expenses:
General and
administrative........ 254,746 1,038,911 715,569 2,028,446 3,322,103
Research and
development........... 203,966 778,814 504,542 1,418,641 2,401,421
Selling and marketing.. 500 79,224 5,978 233,731 313,455
Product
implementation........ 19,297 53,574 72,881 74,158 147,029
--------- ----------- ----------- ----------- -----------
478,509 1,950,523 1,298,970 3,754,976 6,184,008
--------- ----------- ----------- ----------- -----------
Operating loss.......... (478,509) (1,950,523) (1,298,970) (3,754,976) (6,184,008)
--------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income........ -- 73,030 49,657 152,609 225,639
Interest expense....... -- (8,879) (6,252) (17,872) (26,751)
Other income........... 72,204 32,229 31,795 905 105,338
--------- ----------- ----------- ----------- -----------
72,204 96,380 75,200 135,642 304,226
--------- ----------- ----------- ----------- -----------
Net loss................ $(406,305) $(1,854,143) $(1,223,770) $(3,619,334) $(5,879,782)
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Deficit
---------------- ----------------- Accumulated
Common Stock Series A Series B Additional During the
---------------- ---------------- ----------------- Paid-in Development
Shares Amount Shares Amount Shares Amount Capital Stage
--------- ------ --------- ------ ---------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 27, 1997
(inception)............ -- $ -- -- $ -- -- $ -- $ -- $ --
Common stock issued..... 6,132,448 3,066 -- -- -- -- 370 --
Preferred stock issued.. -- -- 1,600,000 800 -- -- 599,200 --
Net loss................ -- -- -- -- -- -- -- (406,305)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Balance, December 31,
1997................... 6,132,448 3,066 1,600,000 800 -- -- 599,570 (406,305)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Common stock issued..... 411,000 206 -- -- -- -- 15,207 --
Preferred stock issued.. -- -- 7,386,668 3,693 -- -- 2,766,308 --
Stock and stock options
granted to
consultants............ -- -- -- -- -- -- 2,035 --
Net loss................ -- -- -- -- -- -- -- (1,854,143)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Balance, December 31,
1998................... 6,543,448 3,272 8,986,668 4,493 -- -- 3,383,120 (2,260,448)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Common stock issued
(unaudited)............ 694,566 347 -- -- -- -- 18,028 --
Preferred stock issued
(unaudited)............ -- -- -- -- 10,133,334 5,067 7,594,933 --
Stock and stock options
granted to consultants
(unaudited)............ -- -- -- -- -- -- 2,822 --
Net loss for nine months
ended September 30,
1999 (unaudited)....... -- -- -- -- -- -- -- (3,619,334)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Balance, September 30,
1999 (unaudited)....... 7,238,014 $3,619 8,986,668 $4,493 10,133,334 $5,067 $10,998,903 $(5,879,782)
========= ====== ========= ====== ========== ====== =========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
iSHIP.COM, INC.
(A Development State Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From Period from
Inception Nine Months Ended Inception
(May 27, 1997) Year Ended September 30, (May 27, 1997)
to December 31, December 31, ------------------------- to September 30,
1997 1998 1998 1999 1999
--------------- ------------ ----------- ------------ ----------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss............... $(406,305) $(1,854,143) $(1,223,770) $ (3,619,334) $ (5,879,782)
Adjustments to
reconcile net loss to
net cash from
operating activites...
Depreciation........... 15,511 80,872 54,986 343,953 440,336
Amortization of
discount of
investments........... -- (48,445) (25,171) (146,561) (195,006)
Stock and stock options
issued for services... 375 2,448 2,210 2,100 4,923
Changes in assets and
liabilites:
Prepaid expenses and
other................ (37,850) 25,334 37,400 (89,754) (102,270)
Accounts payable...... 2,377 39,943 45,841 562,811 605,131
Accrued liabilities... 201 19,313 19,299 63,257 82,771
Deferred
compensation......... 150,000 18,750 18,750 -- 168,750
Deferred rent
payable.............. -- 50,845 35,592 45,761 96,606
--------- ----------- ----------- ------------ ------------
Net cash used in
operating activities... (275,691) (1,665,083) (1,034,863) (2,837,767) (4,778,541)
--------- ----------- ----------- ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property
and equipment......... (5,321) (142,030) (107,347) (2,331,262) (2,478,613)
Proceeds from sale of
investments........... -- 1,050,000 197,206 21,098,602 22,148,602
Purchase of
investments........... -- (1,992,231) (1,992,231) (19,961,365) (21,953,596)
--------- ----------- ----------- ------------ ------------
Net cash used in
investing activities... (5,321) (1,084,261) (1,902,372) (1,194,025) (2,283,607)
--------- ----------- ----------- ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from long-term
debt.................. -- 86,418 38,686 1,591,866 1,678,284
Proceeds from issuance
of common stock....... 3,061 15,000 15,000 19,097 37,158
Proceeds from issuance
of preferred stock.... 600,000 2,770,001 2,770,001 7,600,000 10,970,001
Net change in stock
subscription
receivable............ (96,098) 96,098 96,098 -- --
Net change in
stockholder advance... 4,525 (4,525) (4,525) -- --
Payments on capital
lease obligations..... (11,600) (46,140) (34,305) (36,436) (94,176)
Payments on long-term
debt.................. -- -- -- (7,200) (7,200)
--------- ----------- ----------- ------------ ------------
Net cash provided by
financing activities... 499,888 2,916,852 2,880,955 9,167,327 12,584,067
--------- ----------- ----------- ------------ ------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ 218,876 167,508 (56,280) 5,135,535 5,521,919
CASH AND CASH
EQUIVALENTS
Beginning of period.... -- 218,876 218,876 386,384 --
--------- ----------- ----------- ------------ ------------
End of period.......... $ 218,876 $ 386,384 $ 162,596 $ 5,521,919 $ 5,521,919
========= =========== =========== ============ ============
NONCASH TRANSACTIONS
Equipment purchased
through capital
lease................. $ 186,126 $ -- $ -- $ -- $ 186,126
========= =========== =========== ============ ============
CASH PAID FOR INTEREST.. $ -- $ 8,879 $ 6,336 $ 17,872 $ 26,751
========= =========== =========== ============ ============
</TABLE>
See accompanying notes.
F-21
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Development Stage Operations--iShip.com, Inc. (the Company), a Washington
corporation, was incorporated on May 27, 1997 under the name MoveIt! Software,
Inc. On May 18, 1998, the Company changed its name to iShip.com, Inc. The
Company's office is located in Bellevue, Washington.
Since inception, the Company has been developing and marketing software
applications that enable customers to price, ship and track packages using its
website. The Company has devoted significant time to raising capital, obtaining
financing and administrative functions. These activities are expected to
continue until such time the software is released commercially. During 1998, a
"beta" version of the software was released. Limited revenues have been
recognized since inception related to miscellaneous service fees.
Unaudited Interim Financial Information--The interim financial statements
of the Company for the nine months ended September 30, 1998 and 1999 and the
period from May 27, 1997 (date of inception) to September 30, 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 September 30, 1998 and 1999, the results of operations and its
cash flows for the nine months ended September 30, 1998 and 1999 and the period
from May 27, 1997 (date of inception) to September 30, 1999.
Use of Estimates--The preparation of the 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 accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents--For the purposes of the statement of cash flows,
cash and cash equivalents are defined as short-term, highly liquid investments
that are readily convertible to cash and are so near maturity that fluctuations
in interest rates lead to insignificant risk of changes in investment value.
Equipment--Equipment is stated at cost. The Company provides depreciation
on the cost of its equipment using straight-line methods over estimated useful
lives of three years. Expenditures for repairs and maintenance are charged to
expense as incurred.
Research and Development Costs--Research and development costs are charged
to expense 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.
Stock-Based Compensation--The Company accounts for stock-based compensation
to employees using the intrinsic value method, whereby, compensation cost is
recognized when the exercise price at the date of grant is less than the fair
market value of the Company's common stock.
F-22
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company discloses the proforma effect of compensation cost based on the
fair value method for determining compensation cost. Stock-based compensation
awarded to non-employees is determined using the fair value method.
Compensation cost is recognized over the service or vesting period.
Income Taxes--Income taxes are accounted for using an asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
financial statement and tax basis of assets and liabilities at the applicable
enacted tax rates. Generally accepted accounting principles require a valuation
allowance against deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of its deferred tax
assets will not be realized.
Risk Concentrations--At times, cash balances exceed federally-insured
limits. However, cash is held on deposit in major financial institutions and is
considered subject to minimum credit risk.
Note 2--Investment Securities
Investment securities are classified as "available-for-sale" under
generally accepted accounting principles. Available-for-sale securities are
recorded at estimated fair value, with the net unrealized gain or loss included
as a separate component of stockholders' equity, net of the related tax effect.
Realized gains or losses on dispositions are based on the net proceeds and the
adjusted carrying amount of securities sold, using the specific identification
method.
At December 31, 1998, the Company had commercial paper with an amortized
cost of $990,676, which approximates fair value. The expected maturities of the
securities range from 25 to 106 days.
Note 3--Equipment
Equipment is recorded at cost and consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Computer hardware....................................... $141,787 $245,865
Computer software....................................... 49,660 87,612
-------- --------
191,447 333,477
Accumulated depreciation................................ (15,511) (96,383)
-------- --------
$175,936 $237,094
======== ========
</TABLE>
Note 4--Long-Term Debt
The Company has an equipment line of credit with a bank providing for
equipment purchase advances up to $500,000 through September 4, 1999. Advances
are collateralized by substantially all assets of the Company. Interest on the
borrowings are at the bank's prime rate plus 0.5%. Monthly interest payments
are required through September 4, 1999. Commencing on October 4, 1999, the
unpaid principal balance of the advances shall be paid in 36 equal monthly
installments of principal plus interest.
F-23
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Maturities of long-term debt for years ending December 31 are as follows:
<TABLE>
<S> <C>
1999................................................................. $ 7,200
2000................................................................. 28,800
2001................................................................. 28,800
2002................................................................. 21,618
-------
$86,418
=======
</TABLE>
Note 5--Deferred Compensation
Three key officers of the Company deferred their salaries during the first
nine months of development stage operations. The deferred compensation amounts
to $150,000 and $168,750 as of December 31, 1997 and 1998, respectively. The
deferred salaries will be paid when the Company generates positive cash flows
from operations.
Note 6--Preferred Stock
Transactions--The Company issued 1,600,000 shares in 1997 and 7,386,668
shares in 1998 of Series A Preferred Stock at $0.375 per share. No direct costs
were incurred in relation to the shares issued.
Preference in Liquidation--In the event of voluntary or involuntary
liquidation, distribution of assets, dissolution or winding-up of the Company
before any distribution or payment to holders of the Company's common stock,
the holders of Series A Preferred Stock are entitled to receive payment of
$0.375 per outstanding share held by them.
Dividends--Dividends payable to holders of Series A Preferred Stock are at
the discretion of the Company's Board of Directors. As of December 31, 1997 and
1998, no dividends had been declared.
Conversion Rights--A holder of Series A Preferred Stock, at the holder's
option, has the right to convert shares of Series A Preferred Stock into common
stock on a one-for-one basis, subject to adjustment for stock splits and
dilutive issuances. In addition, Series A Preferred Stock would automatically
convert to common stock in the event of the closing of an underwritten public
offering which establishes a valuation of the Company of at least $50 million
and results in gross proceeds of at least $10 million or upon the conversion of
two-thirds of the shares of Series A Preferred Stock originally issued.
Voting Rights--The holders of Series A Preferred Stock are entitled to one
vote for each share and are entitled to vote on all matters on which the
holders of common stock have the right to vote.
Note 7--Stock Option Plan
The Company has a stock option plan under which employees and consultants
may be awarded incentive or nonstatutory stock options. The plan authorizes the
grant of options for the purchase of up to 5,660,000 shares of common stock.
Under the plan, the option exercise price is generally no less than fair market
value at the date of grant. Options expire no later than ten years from the
grant date, and vesting is established at the time of grant provided that
options shall become exercisable at the rate of at least 20% per year over five
years.
F-24
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
As the Company uses the intrinsic value method in accounting for its stock
option plan, no compensation costs have been recognized for stock options
issued to employees. Had the compensation cost for stock options been
determined using the fair value method, the proforma net loss would have
increased by $11,000 to $417,305 for the period from inception to December 31,
1997, by $9,000 to $1,863,143 for the year ended December 31, 1998.
The weighted average fair value of the options granted during 1998 and the
period from inception is estimated to be $0.015 using the Black-Scholes option-
pricing model with the following assumptions on the date of grant: 0% dividend
yield and volatility, 5% forfeitures per year, risk-free interest rate of 4.47%
to 5.80%, expected lives of nine years.
Stock option activity is as follows:
<TABLE>
<CAPTION>
Common Shares Weighted
----------------------- Average
Available Options Exercise
for Grant Outstanding Price
---------- ----------- --------
<S> <C> <C> <C>
Inception, May 27, 1997........................ -- -- --
Authorized................................... 5,660,000 -- --
Granted...................................... (1,785,000) 1,785,000 $0.0375
Exercised.................................... -- (10,000) $0.0375
---------- ---------
Balance, December 31, 1997..................... 3,875,000 1,775,000 $0.0375
Granted...................................... (759,000) 759,000 $0.0430
Exercised.................................... -- (411,000) $0.0365
---------- ---------
Balance, December 31, 1998..................... 3,116,000 2,123,000 $0.0390
========== =========
</TABLE>
The following summarizes options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise Number
Price Outstanding Life Price Exercisable
-------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$0.0375-0.050 2,123,000 9.1 years $0.039 420,312
</TABLE>
Included in common stock issued are 10,500 shares granted to certain
consultants for services provided. These shares were granted from shares
authorized for issue under the option plan. The fair value of the shares
granted to the consultants was $375 for the period from inception to
December 31, 1997 and $413 for the year ended December 31, 1998.
In December 1998, the Board of Directors approved additional grants of up
to 24,000 shares of common stock to consultants for services to be provided in
1999.
Note 8--Income Taxes
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $1.9 million and research credit
carryforwards of $109,000 available to offset future federal taxable income, if
any. The net operating loss and research credit carryforwards generally expire
in 2018. The Internal Revenue Code may limit the net operating loss
carryforwards to be used in any given year upon the occurrence of certain
events, including significant change in ownership interest.
F-25
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred taxes are comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets (liabilities)
Net operating loss carryforwards..................... $ 70,500 $ 643,000
Research credits..................................... 16,500 109,000
Deferred compensation................................ 51,000 57,000
Other................................................ (1,200) 17,300
--------- ---------
Total deferred tax asset............................... 136,800 826,300
Valuation allowance.................................... (136,800) (826,300)
--------- ---------
$ -- $ --
========= =========
</TABLE>
A valuation allowance for the full amount of the net deferred tax asset has
been recorded as realization in the near term is not reasonably assured. The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate of 34% to earnings before taxes due to the
valuation allowance established for the current year's net operating loss and
nondeductible items.
Note 9--Capital Lease Obligation
At December 31, 1997 and 1998, the Company was obligated under the terms of
a capital lease for certain computer hardware and software from a related
party. The implicit interest rate for the leases ranges from 4.4% to 7.5% and
requires monthly payments of $4,534. Required minimum lease payments for the
years ending December 31 are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 54,413
2000............................................................... 54,413
2001............................................................... 28,435
--------
137,261
Less amount representing interest.................................. 8,875
--------
$128,386
========
</TABLE>
Included in equipment at December 31, 1997 and 1998 is $186,125 held under
capital lease with accumulated amortization of $15,511 and $77,552,
respectively.
Note 10--Commitments and Contingency
Lease Commitments--The Company leases its office space and certain
leasehold improvements and office furniture under operating leases through June
30, 2001 from a related party. Rent expense under all leases was $23,452 for
the period from inception to December 31, 1997 and $269,885 for the year ended
December 31, 1998. Future minimum lease payments required under non cancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1999............................................................. $295,287
2000............................................................. 295,287
2001............................................................. 147,643
--------
$738,217
========
</TABLE>
F-26
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Given the Company's development stage operations, only a portion of the
standard lease payments are required in early months. The difference between
the actual lease payments and the standard monthly payments are recorded as
deferred rent payable. Total deferred rent was $50,845 as of December 31, 1998.
The Company subleases a portion of the office space to an unrelated party.
The sublease commenced on June 15, 1998 and provides for monthly rent of
$7,708. The original lease term is twelve months. The subtenant has the right
to extend the sublease for two additional periods of three months each. Rental
income from the sublease totaled $58,069 in 1998 and for the period from
inception to December 31, 1998.
The Company also leases certain furniture and leasehold improvements to the
third party. Rental income from these leases amounted to $24,044 in 1998 and
for the period from inception to December 31, 1998.
Note 11--Events Subsequent to the Date of the Auditors' Report (Unaudited)
Series B Preferred Stock--In April 1999 the Board of Directors, approved
the sale of Series B Preferred Stock. In April, May and August, 1999 the
Company issued 10,133,334 shares of its Series B Preferred Stock at $0.75 per
share. No direct costs were incurred in relation to the shares issued. The
proceeds of $7.6 million have been used to fund the operations of the Company
with excess funds at September 30, 1999 invested in short-term, highly-liquid
investments classified as cash equivalents. In the event of voluntary or
involuntary liquidation, distribution of assets, dissolution or winding-up of
the Company before any distribution or payment to holders of the Company's
common stock, the holders of Series B Preferred Stock are entitled to receive
payment of $0.75 per outstanding share held by them. Dividends payable to
holders of Series B Preferred Stock are at the discretion of the Company's
Board of Directors. A holder of Series B Preferred Stock, at the holder's
option, has the right to convert shares of Series B Preferred Stock into common
stock on a one-for-one basis, subject to adjustment for stock splits and
dilutive issuances. In addition, the Series B Preferred Stock would
automatically convert to common stock in the event of the closing of an
underwritten public offering which establishes a valuation of the Company of at
least $75 million and results in gross proceeds of at least $15 million or upon
the conversion of two-thirds of the shares of Series B Preferred Stock
originally issued. The holders of Series B Preferred Stock are entitled to one
vote for each share and are entitled to vote on all matters on which the
holders of common stock have the right to vote.
Stock Warrant--On April 27, 1999 the Company issued a warrant to a
strategic partner for a maximum of 2,666,666 shares of the Company's Series B
Preferred Stock at a purchase price of $1.50 per share. The actual number of
shares purchasable under the warrant is determined by a performance measure
based on qualifying revenues generated during a one year period beginning March
1, 2000.
Lease Commitment--In July, 1999 the Company entered into a facility lease
agreement for its corporate headquarters with minimum lease payments
approximating $2.4 million over five years.
Stock Split--On August 6, 1999 the Board of Directors approved a 2 for 1
split of the Company's Common and Preferred Stock and an increase in the number
of authorized Common Stock shares to 60,000,000 and authorized Preferred Stock
shares to 21,786,688. Accordingly, the share information in the accompanying
financial statements and footnotes have been restated to reflect the stock
split.
F-27
<PAGE>
iSHIP.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Finance Agreement--On August 20, 1999, the Company entered into a Loan and
Security Agreement with a bank for $2,950,000 of which $2.5 million is
available for equipment purchases through August 29, 2000 and $450,000 is
available through a revolving line maturing on February 29, 2003. Advances are
collateralized by substantially all assets of the Company. Interest on
borrowings are at the bank's prime rate plus 0.5%. Borrowings for equipment
purchases are payable in 30 equal monthly installments beginning March 19,
2000.
In connection with the agreement, the Company issued a Common Stock
purchase warrant which permits the holder to purchase up to 10,000 shares of
the Company's Common Stock at a purchase price of the less of $2.50 per share
and the price per share received by the Company in the next round of financing.
The warrant is exercisable only (i) after the Company's initial public
offering, (ii) immediately prior to a change in control and (iii) with the
written consent of the Company.
Proposed Merger Agreement--In October 1999, the Company entered into a
merger agreement with Stamps.com, Inc. a development stage enterprise
developing an Internet-based postage service for end-users. In connection with
the proposed merger, the Company will receive an aggregate 8 million shares of
Stamps.com Common Stock in exchange for all the outstanding Common and
Preferred Stock, and outstanding options and warrants of the Company. The
agreement is subject to shareholder approval by both companies and regulatory
approval.
Stock Options--The following tabulation summarizes certain information
related to options for common stock for the period from January 1, 1999 through
September 30, 1999:
<TABLE>
<CAPTION>
Weighted
Available Average
for Options Exercise
Grant Outstanding price
---------- ----------- --------
<S> <C> <C> <C>
Balance, December 31, 1998.................. 3,116,000 2,123,000 $0.039
Granted (unaudited)......................... (1,641,606) 1,641,606 $0.159
Exercised (unaudited)....................... -- (694,566) $0.046
Balance, September 30, 1999................. 1,474,394 3,070,040 $0.102
</TABLE>
F-28
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 22,1999, Stamps.com entered into a merger agreement to acquire
iShip.com in exchange for 8,000,000 shares of Stamp.com's common stock.
Stamps.com's management has prepared the following unaudited pro forma
condensed combined financial information to give effect to this acquisition.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended December 31, 1998 and for the nine months ended September 30, 1999
give effect to the iShip.com acquisition as if it had taken place at the
beginning of each period. The Unaudited Pro Forma Condensed Combined Balance
Sheet as of September 30, 1999 gives effect to the iShip.com acquisition as if
it had taken place on such date.
The pro forma adjustments, which are based upon available information and
certain assumptions that Stamps.com believes are reasonable in the
circumstances, are applied to the historical financial statements of Stamps.com
and iShip.com. The iShip.com acquisition will be accounted for using the
purchase method of accounting. Stamps.com allocation of purchase price is based
upon management's current estimates of the fair value of assets acquired and
liabilities assumed in accordance with Accounting Principles Board No. 16. The
purchase price allocations reflected in the accompanying unaudited pro forma
condensed combined financial statements may be different from the final
allocation of the purchase price and such differences may be material. The
Company expects to complete a valuation and other procedures during the fourth
quarter of 1999.
The accompanying unaudited pro forma condensed combined financial
information should be read in conjunction with the historical financial
statements and the notes thereto for both Stamps.com and iShip.com, which are
included elsewhere in this prospectus. The unaudited pro forma condensed
combined financial information is provided for informational purposes only and
does not purport to represent what Stamps.com's financial position or results
of operations would actually have been had the iShip.com acquisition occurred
on such dates or to project Stamps.com's results of operations or financial
position for any future period.
F-29
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
PRO FORMA
STAMPS.COM ISHIP.COM ADJUSTMENTS TOTAL
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......... $61,198 $5,522 $ -- $ 66,720
Prepaid expenses................... 7,216 102 -- 7,318
------- ------ -------- --------
Total current assets............... 68,414 5,624 -- 74,038
Property and equipment, net........ 5,339 2,225 -- 7,564
Intangibles, net................... -- -- 415,660 (2) 415,660
Other assets....................... 432 -- -- 432
------- ------ -------- --------
Total assets................... $74,185 $7,849 $415,660 $497,694
======= ====== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
-----------------------------
Current liabilities:
Line of credit..................... $ 1,000 $ -- $ -- $ 1,000
Accounts payable................... 2,331 605 -- 2,936
Accrued expenses................... 3,230 83 -- 3,313
Current portion of capital lease
obligations....................... 472 437 -- 909
------- ------ -------- --------
Total current liabilities.......... 7,033 1,125 -- 8,158
Long-term liabilities.............. 500 1,591 -- 2,091
Stockholders' equity (deficit)..... 66,652 5,133 (39,207)(3) 487,445
454,867 (4)
------- ------ -------- --------
Total liabilities and
stockholders' equity
(deficit)..................... $74,185 $7,849 $415,660 $497,694
======= ====== ======== ========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
F-30
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
STAMPS.COM ISHIP.COM ADJUSTMENTS TOTAL
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues......................... $ -- $ -- $ -- $ --
Cost of sales.................... -- -- -- --
-------- ------- ------- ---------
Gross profit..................... -- -- -- --
Operating expenses:
Research and development......... 1,532 1,092 -- 2,624
Sales and marketing.............. 632 79 -- 711
General and administrative....... 2,016 779 113.7 (5) 116,512
-------- ------- ------- ---------
4,180 1,950 113.7 119,847
Loss from operations............. (4,180) (1,950) (113.7) (119,847)
Other income (expense):
Interest expense................. (28) (9) -- (37)
Interest income.................. 12 73 -- 85
Other, net....................... -- 32 -- 32
-------- ------- ------- ---------
Net loss......................... $ (4,196) $(1,854) $(113.7) $(119,767)
======== ======= ======= =========
Basic and diluted net loss per
share........................... $ (0.85) $ (10.64)
======== =========
Pro forma basic and diluted net
loss
per share ...................... $ (0.36) $ (6.69)
======== =========
Weighted average shares
outstanding used in basic and
diluted per share calculation... 4,956 6,304 11,260
======== ======= =========
Weighted average shares
outstanding used in pro forma
basic and diluted per share
calculation..................... 11,593 6,304 17,897
======== ======= =========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
F-31
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Stamps.com iShip.com Adjustments Total
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues......................... $ -- $ -- $ -- $ --
Cost of sales.................... -- -- -- --
-------- ------- -------- ---------
Gross profit..................... -- -- -- --
Operating expenses:
Research and development......... 5,049 1,493 -- 6,542
Sales and marketing.............. 10,856 234 -- 11,090
General and administrative....... 8,276 2,028 85,288 (6) 95,592
-------- ------- -------- ---------
24,181 3,755 85,288 113,224
Loss from operations............. (24,181) (3,755) (85,288) (113,224)
Other income (expense):
Interest expense................. (122) (18) -- (140)
Interest income.................. 1,200 153 -- 1,353
Other, net....................... -- 1 -- 1
-------- ------- -------- ---------
Net loss......................... $(23,103) $(3,619) $(85,288) $(112,010)
======== ======= ======== =========
Basic and diluted net loss per
share........................... $ (1.59) $ (5.39)
======== =========
Pro forma basic and diluted net
loss per share.................. $ (0.74) $ (2.98)
======== =========
Weighted average shares
outstanding used in basic and
diluted per share calculation... 14,496 6,304 20,800
======== ======== =========
Weighted average shares
outstanding used in pro forma
basic and diluted per share
calculation..................... 31,260 6,304 37,564
======== ======== =========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
F-32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The pro forma financial information gives effect to the following pro forma
adjustments:
The iShip.com merger will be accounted for using the purchase method of
accounting. In connection with the acquisition, Stamps.com will issue up to 8
million shares of Common Stock in exchange for all of the outstanding shares of
iShip.com capital stock, options and warrants. The aggregated estimated
purchase price is approximately $460 million based on $57.50 per share for
purposes of these pro forma financial statements, which was the last reported
sale price of our Common Stock on the Nasdaq National Market on October 29,
1999.
The iShip.com shares were first converted to Stamps.com equivalent shares
by taking the number of iShip.com shares over the total number of iShip.com
shares multiplied by 8,000,000 to arrive at Stamps.com shares for each
iShip.com share. This calculation has been made for purposes of these financial
statements only and does not represent the final exchange ratio, which will be
determined on the third trading day prior to the closing of the transaction.
The purchase price was determined as follows (in thousands):
<TABLE>
<CAPTION>
Stamps.com
iShip shares shares Fair Value
------------ ---------- ----------
<S> <C> <C> <C>
Shares................................... 25,240 6,304 $362,485
Warrants................................. 2,690 672 38,633
Vested stock options..................... 1,370 342 19,675
Unvested stock options................... 2,730 682 39,207
------ ----- --------
32,030 8,000 $460,000
====== ===== ========
</TABLE>
The fair value of "shares" was calculated by taking the fair value of the
Stamps.com shares ($57.50 per share) times the number of Stamps.com shares to
be exchanged.
With respect to stock options exchanged as part of the iShip.com merger,
all vested and unvested iShip.com options exchanged for Stamps.com options are
included as part of the purchase price based on their fair value. The fair
value of the shares underlying options and warrants was calculated by taking
the vested and unvested options and warrants to purchase Stamps.com shares
(1,696,000 options) times the fair value of the stock ($57.50 per share).
Proceeds to be received from the option and warrant holders upon exercise were
excluded as the amounts are immaterial.
The pro forma financial information has been prepared on the basis of
assumptions described in these notes and include assumptions relating to the
allocation of the consideration paid for the assets and liabilities of
iShip.com based on preliminary estimates of their fair value. The actual
allocation of such consideration may differ from that reflected in the pro
forma financial information after valuations and other procedures to be
performed after the closing of the iShip.com acquisition.
F-33
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION--(Continued)
Below is a table of the estimated acquisition cost, purchase price allocation
and annual amortization of the intangible assets acquired (in thousands):
<TABLE>
<CAPTION>
Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost:
Estimated purchase price............ $460,000
========
Purchase Price Allocation:
Estimated fair value of net tangible
assets of iShip.com at September
30, 1999........................... 5,133
Deferred compensation on unvested
stock options assumed.............. 39,207 4 9,802
Intangible assets acquired:
Goodwill............................ 415,660 4 103,915
--------
$460,000
========
</TABLE>
Tangible assets of iShip.com acquired in the iShip.com merger principally
include cash and fixed assets. Liabilities of iShip.com assumed in the
iShip.com merger principally include accounts payable, accrued payroll and
long-term debt.
2. The pro forma adjustment is for goodwill allocation of $415.66 million.
3. The pro forma adjustment is for deferred stock compensation associated
with the unvested iShip.com stock options to acquire approximately 2.73 million
shares of iShip.com common stock to be assumed by Stamps.com.
4. The pro forma adjustment to "stockholders' equity" reflects the
elimination of iShip.com's stockholders' equity ($5.1 million) and the impact
of the issuance of Stamps.com's common stock ($454.9 million) in connection
with the iShip.com merger.
5. The pro forma adjustment is for amortization of deferred stock
compensation associated with the unvested iShip.com stock options assumed by
Stamps.com over the remaining vesting period of $9.8 million and amortization
of goodwill of $103.9 million for the year ended December 31, 1998.
6. The pro forma adjustment is for amortization of deferred stock
compensation of $7.4 million and amortization of goodwill of $77.9 million for
the nine months ended September 30, 1999.
F-34
<PAGE>
UNDERWRITING
Stamps.com and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co.,
Salomon Smith Barney Inc., BancBoston Robertson Stephens Inc., Thomas Weisel
Partners LLC and Volpe Brown Whelan & Company, LLC are the representatives of
the underwriters.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co. ..............................................
Salomon Smith Barney Inc. .........................................
BancBoston Robertson Stephens Inc. ................................
Thomas Weisel Partners LLC.........................................
Volpe Brown Whelan & Company, LLC..................................
----
Total............................................................
====
</TABLE>
----------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 750,000
shares from Stamps.com to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Stamps.com. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase 750,000 additional shares.
Paid by Stamps.com
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total............................................ $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial
price to public. If all the shares are not sold at the initial price to public,
the representatives may change the offering price and the other selling terms.
Stamps.com has agreed with the underwriters not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this prospectus continuing
through the date 90 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This agreement does not apply to
any shares reserved for issuance under existing employee benefit plans to
employees who are neither executive officers nor directors. See "Shares
Available for Future Sale" for a discussion of certain transfer restrictions.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
U-1
<PAGE>
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the The Nasdaq
National Market, in the over-the-counter market or otherwise.
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
79 filed public offerings of equity securities, of which 58 have been
completed, and has acted as a syndicate member in an additional 41 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
Stamps.com estimates that its share of the total expenses of the offerings,
excluding underwriting discounts and commissions, will be approximately
$ .
Stamps.com has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Information Regarding Forward-Looking Statements......................... 20
Use Of Proceeds.......................................................... 21
Price Range of Common Stock.............................................. 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Financial Data.................................................. 25
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations........................................................... 27
Business................................................................. 32
Recent Development....................................................... 44
Management............................................................... 45
Related Party Transactions............................................... 59
Principal Stockholders................................................... 61
Description Of Capital Stock............................................. 63
Shares Eligible For Future Sale.......................................... 66
Legal Matters............................................................ 66
Experts.................................................................. 66
Where You Can Find Additional Information................................ 67
Index To Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 Shares
Stamps.com Inc.
Common Stock
----------------
[LOGO OF STAMPS.COM]
----------------
Goldman, Sachs & Co.
Salomon Smith Barney
Robertson Stephens
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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...................................................... $ 70,984
NASD filing fee....................................................... 26,030
Nasdaq National Market listing fee.................................... 17,500
Blue sky fees and expenses............................................ 10,000
Printing and engraving expenses....................................... 250,000
Legal fees and expenses............................................... 250,000
Accounting fees and expenses.......................................... 50,000
Transfer Agent and Registrar fees..................................... 5,000
Miscellaneous......................................................... 20,486
--------
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
II-1
<PAGE>
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.
The Company, with the approval of the Board of Directors, has obtained
directors' and officers' liability insurance. In addition, the Company has
entered into indemnification agreements with each of its directors and
executive officers, a form of which is filed as Exhibit 10.10 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.
II-2
<PAGE>
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.
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.
In October 1999, we entered into a common stock and warrant purchase
agreement with America Online for the purchase of up to $11 million of common
stock by America Online and a warrant which allows America Online to purchase
50% of the number of shares of common stock issued in exchange for the $11
million in consideration delivered by America Online under the purchase
agreement. The warrant also allows for the purchase of additional shares of
common stock (50% of the unexercised portion of the warrant) in the event we
are unable to cure a material breach of the payment provisions of our
marketing agreement with America Online.
On October 29, 1999, we issued 178,635 shares of common stock under the
purchase agreement for $6 million in the aggregate, or $33.588 per share. We
also issued the warrant, which is exercisable for 89,318 shares of common
stock as of October 31, 1999, at an exercise price of $33.588 per share. The
warrant may be exercised at any time on or before October 29, 2002, unless the
term of exercisability is extended to compensate for any required regulatory
filings.
In addition, AOL has agreed to invest an additional $5 million in our
common stock concurrent with the closing of this offering. The number of
shares issuable in this private placement will be equal to the quotient of $5
million divided by the lesser of (a) $33.588 or (b) the price per share of the
offering net of any underwriter discounts or commissions. The number of shares
issuable upon exercise of the warrant will be increased by an amount equal to
50% of the shares issued at the closing of the $5 million investment. The
closing of the $5 million investment by America Online is contingent on the
closing of this offering.
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 Amended and Restated Certificate of Incorporation of the
Registrant.(1)
3.2 Bylaws of the Registrant.(1)
4.1 See Exhibit 3.1 and 3.2 for provisions of the Registrant's Certificate
of Incorporation and Bylaws defining the rights of holders of the
Registrant's common stock. See Exhibit 10.2 for the rights of certain
holders of registration rights.(1)
4.2 Specimen common stock certificate.(1)
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.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.2 Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.(1)
10.3 Patent Assignment from Mohan P. Ananda to the Registrant dated January
20, 1998.(1)
10.4 Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.(1)
10.5 Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.(1)
10.6 Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.(1)
10.7 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.(1)
10.8 1999 Stock Incentive Plan.(1)
10.9 1999 Employee Stock Purchase Plan.(1)
10.10 Form of Indemnification Agreement between the Registrant and its
directors and officers.(1)
10.11 Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8,
1999.(1)
10.12 Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.(2)
10.13 Master Lease Agreement between the Registrant and FirstCorp dated June
5, 1998.(1)
10.14 Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.(1)
10.15 Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.(1)
10.16 Consulting Agreement dated February 1, 1999 between the Registrant and
Loren Smith.(1)
10.17 Lease dated April 12, 1999 between the Registrant and Spieker
Properties, L.P.(1)
10.18 Sponsorship Agreement dated May 14, 1999 between Registrant and
Intuit, Inc.(2)
10.19 Distributor Agreement dated December 10, 1998 between Registrant and
Westvaco.(2)
10.20 Distributor Agreement dated January 15, 1999 between Registrant and
Office Depot, Inc.(2)
10.21 Distributor Agreement dated March 31, 1999 between Registrant and
Seiko Instruments USA, Inc.(2)
10.22 Distributor Agreement dated March 30, 1999 between Registrant and
Avery Dennison Office Products Company.(2)
10.23 Distributor Agreement dated March 11, 1999 between Registrant and
Dymo-Costar Corporation.(2)
10.24 Series A Preferred Stock and Warrant Purchase Agreement dated February
26, 1998 between Registrant and certain investors.(1)
10.25 Amended and Restated Voting Agreement dated February 17, 1999 between
Registrant and certain investors.(1)
10.26 Separation Agreement and Release dated May 13, 1999 between Registrant
and Mohan Ananda.(1)
10.27 License Agreement dated May 13, 1999 between Registrant and Mohan
Ananda.(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.28 Series C Preferred Stock Purchase Agreement dated February 17, 1999
between Registrant and certain investors.(1)
10.29 Amendment Letter to AOL dated June 4, 1999.(1)
10.30 Nondisclosure Agreement and Agreement to Release University from
damages caused by testing, dated December 6, 1998.(1)
10.31 Nondisclosure Agreement and Agreement to Release Carnegie Mellon, Inc.
from damages caused by testing, dated April 22, 1997.(1)
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.(1)
10.33 Consulting Agreement dated June 21, 1999 between Registrant and
Carolyn Ticknor. (Filed as Exhibit 10.33 to the Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period Ended June 30, 1999 and
incorporated herein by this reference.)
10.34+ Interactive Marketing and Distribution Agreement dated October 15,
1999 between America Online, Inc. and the Registrant.
10.35 Common Stock and Warrant Purchase Agreement dated October 20, 1999
between America Online, Inc. and the Registrant.
10.36 Common Stock Purchase Warrant dated October 29, 1999 between America
Online, Inc. and the Registrant.
10.37 Consulting Agreement dated October 20, 1999 between Registrant and
Marvin Runyon.
21.1 Subsidiaries of the Registrant
23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Moss Adams LLP
24.1 Power of Attorney (Included on signature pages hereto).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(1) Incorporated by reference herein to the Registration Statement on Form S-1
and all amendments thereto filed with the Securities and Exchange
Commission on April 26, 1999 and declared effective on June 24, 1999.
(File No. 333-77025).
(2) Confidential treatment requested and received as to certain portions.
These exhibits are incorporated by reference herein to the Registration
Statement on Form S-1 and all amendments thereto filed with the Securities
and Exchange Commission on April 26, 1999 and declared effective June 24,
1999. (File No. 333-77025).
+ Confidential treatment is requested for certain confidential portions of
this exhibit pursuant to Rule 406 under the Securities Act. In accordance
with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.
(b) Financial Statement Schedules
All such Schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
II-5
<PAGE>
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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Monica, State of
California, on the 1st day of November, 1999.
STAMPS.COM INC.
/s/ John M. Payne
By: _________________________________
John M. Payne
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint John W. LaValle and John M. Payne, and each of them, his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, or any related registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of said attorneys-
in-fact and agents, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John M. Payne Chairman and Chief Executive November 1, 1999
____________________________________ Officer (Principal Executive
John M. Payne Officer)
/s/ John W. LaValle Chief Financial Officer, November 1, 1999
____________________________________ Senior Vice President of
John W. LaValle Operations and Secretary
(Principal Financial and
Accounting Officer)
/s/ Loren E. Smith President, Chief Operating November 1, 1999
____________________________________ Officer and Director
Loren E. Smith
/s/ Thomas H. Bruggere Director November 1, 1999
____________________________________
Thomas H. Bruggere
/s/ Mohan P. Ananda Director November 1, 1999
____________________________________
Mohan P. Ananda
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David C. Bohnett Director November 1, 1999
____________________________________
David C. Bohnett
/s/ Jeffrey J. Brown Director November 1, 1999
____________________________________
Jeffrey J. Brown
/s/ Thomas N. Clancy Director November 1, 1999
____________________________________
Thomas N. Clancy
/s/ G. Bradford Jones Director November 1, 1999
____________________________________
G. Bradford Jones
/s/ Marvin Runyon Director November 1, 1999
____________________________________
Marvin Runyon
/s/ Carolyn Ticknor Director November 1, 1999
____________________________________
Carolyn Ticknor
</TABLE>
II-8
<PAGE>
EXHIBIT 10.34
Note: The Company is seeking confidential treatment on certain portions of this
agreement. Confidential terms have been redacted and replaced with a
[***]. The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
Confidential
INTERACTIVE MARKETING AND DISTRIBUTION AGREEMENT
------------------------------------------------
This Interactive Marketing and Distribution Agreement (the "Agreement"),
dated as of October 15, 1999 (the "Effective Date"), is between America Online,
Inc. ("AOL"), a Delaware corporation, with offices at 22000 AOL Way, Dulles,
Virginia 20166, and Stamps.com Inc. ("Marketing Partner" or "MP"), a Delaware
corporation, with offices at 3420 Ocean Park Boulevard, Suite 1040, Santa
Monica, CA 90405. AOL and MP may be referred to individually as a "Party" and
collectively as the "Parties."
INTRODUCTION
------------
AOL and MP each desires to enter into an interactive marketing and
distribution relationship whereby AOL will promote an interactive site referred
to (and further defined) herein as the Affiliated MP Sites and distribute MP's
software referred to (and further defined) herein as the MP Software. This
relationship is further described below and is subject to the terms and
conditions set forth in this Agreement. Defined terms used but not defined in
the body of the Agreement will be as defined on Exhibit B attached hereto.
TERMS
-----
1. PROMOTION, DISTRIBUTION AND MARKETING.
-------------------------------------
1.1 AOL Promotion of the Affiliated MP Sites.
----------------------------------------
1.1.1. Promotions to be Provided. AOL will provide MP with the
-------------------------
Promotions for the Affiliated MP Sites described on Exhibit A
attached hereto. Subject to MP's reasonable approval, AOL will
have the right to fulfill its promotional commitments with
respect to any of the foregoing by providing MP comparable
promotional placements in appropriate alternative areas of the
AOL Network. In addition, if AOL is unable to deliver any
particular Promotion, AOL will work with MP to provide MP, as
its sole remedy, a comparable promotional placement that is
reasonably satisfactory to MP. AOL reserves the right to
redesign or modify the organization, structure, "look and
feel," navigation and other elements of the AOL Network at any
time. In the event such modifications materially and adversely
affect any specific Promotion, AOL will work with MP to
provide MP, as its sole remedy, a comparable promotional
placement that is reasonably satisfactory to MP. A "comparable
promotional placement" shall be from the same class of
inventory (i.e., Targeted or Broad Reach) as the placement
which it replaces. Throughout the Term, subject to AOL's
inventory availability and ability to resell inventory at a
comparable CPM rate, MP may reallocate the Promotions,
including without limitation, canceling and/or changing
certain sites, and adding new or different sites. AOL agrees
that in the event MP requests a reallocation of Promotions,
AOL will attempt in good faith to resell the effected
inventory. Provided that MP shall give AOL at least sixty (60)
days advance notice of its desire for any significant increase
or decrease in the run rate of the Promotions to be delivered
hereunder, AOL will use commercially reasonable efforts to
accommodate MP's request.
1.1.2. Technology Integration. During the Term, subject to the terms
----------------------
and conditions of this Agreement, AOL will offer the MP
Software on the AOL Network as set forth in this Agreement on
Exhibit I and, provided that MP has complied in all material
respects with the requirements set forth on Exhibit I, will
make such MP Software available within the timelines as set
forth therein.
EXECUTION COPY
CONFIDENTIAL
<PAGE>
1.2. Impressions Commitment. During the Term, AOL shall deliver the
----------------------
Impressions to the Affiliated MP Sites through the Promotions in
accordance with the timelines set forth in Exhibit A (the
"Impressions Commitment"). AOL will use commercially reasonable
efforts to deliver the Impressions in the calendar quarters
designated by MP and agreed to by AOL. Except as otherwise required
under this Agreement, AOL will not be obligated to provide in excess
of any Impressions target amount in any year. With respect to the
Impressions targets specified on Exhibit A, in the event AOL provides
an excess of any annual Impressions target amounts in any contract
year, the Impressions target for the subsequent year will be reduced
by the amount of such windfall. Any shortfall in Impressions at the
end of a contract year will not be deemed a breach of the Agreement
by AOL; instead such shortfall will be added to the Impressions
target for the subsequent year. In the event there is (or will be in
AOL's reasonable judgment) a shortfall in Impressions as of the end
of the Initial Term (a "Final Shortfall"), AOL will provide MP, as
its sole remedy, with comparable promotional placements that are
reasonably satisfactory to MP in appropriate areas of the AOL
Network.
1.3. Content of Promotions. The Promotions will link only to the
---------------------
Affiliated MP Sites and will promote only MP and the MP Products
described on Exhibit D, and, subject to AOL's reasonable approval,
such other Products as MP may designate from time to time. The
specific MP Content to be contained within the Promotions described
in Exhibit A (the "Promo Content") will be determined by MP, subject
to AOL's technical limitations, the terms of this Agreement and AOL's
then-applicable policies relating to advertising and promotions
(copies of which are available from AOL at any time upon request).
The Parties will meet in person or by telephone at least monthly to
review operations and performance hereunder, including a review of
the Promo Content to ensure that it is designed to maximize
performance. MP will consistently update the Promo Content, and,
provided that such Promo Content complies with AOL's generally
applicable editorial standards, AOL shall use commercially reasonable
efforts to post such updated Promo Content within three (3) days of
receipt thereof.
1.4. MP Promotion of Affiliated MP Site and AOL. As set forth in fuller
------------------------------------------
detail in Exhibit C, provided that AOL is not in material breach of
this Agreement after the expiration of any applicable cure period, MP
will promote AOL as its preferred Internet service provider, will
promote the availability of the Affiliated MP Sites through the AOL
Network and will not promote any AOL Competitor specifically listed
on Exhibit B-1 on the Customer Perks page of the principal Additional
MP Channel to a greater degree than it promotes AOL on such channel.
2. AFFILIATED MP SITE.
------------------
2.1. Content. MP will make available through the Affiliated MP Sites the
-------
comprehensive offering of Products and related Content described on
Exhibit D. Except as mutually agreed in writing by the Parties, the
Affiliated MP Sites and the MP Client will contain only Content that
is directly related to the MP Products listed on Exhibit D and will
not contain any third-party products, services, programming or other
Content. All sales of Products through the Affiliated MP Sites or the
MP Client will be conducted through a direct sales format; MP will
not promote, sell, offer or otherwise distribute any products through
any format other than a direct sales format (e.g., through auctions
or clubs) without the prior written consent of AOL; provided,
however, that MP may use a third-party for back-end fulfillment. MP
will review, delete, edit, create, update and otherwise manage all
Content provided by MP and made available on or through the
Affiliated MP Sites or the MP Client in accordance with the terms of
this Agreement. MP will ensure that none of the Affiliated MP Sites
nor the MP Client in any respect promote, advertise, market or
distribute the products, services or content of any AOL Competitor,
provided, however, that this
EXECUTION COPY
CONFIDENTIAL
2
<PAGE>
restriction (i) shall not apply to MP's customer service instant
messaging technology if such technology is used solely in connection
with customer service, (ii) shall be subject to the cure period set
forth in Section 5.4 of this Agreement, and (iii) shall not apply to
information relating to the compatibility of the MP Software with any
AOL Competitor's tool or application, provided MP shall not provide
any links to any AOL Competitor. The Affiliated MP Sites shall be
designed and maintained in accordance with the terms of Exhibit J
attached hereto.
2.2. Production Work. Except as agreed to in writing by the Parties
---------------
pursuant to the "Production Work" section of the Standard Online
Commerce Terms & Conditions attached hereto as Exhibit F, MP will be
responsible for all production work associated with the Affiliated MP
Sites, including all related costs and expenses.
2.3. Technology. MP will use commercially reasonable efforts to conform
----------
its promotion and sale of Products through the Affiliated MP Sites to
the then-existing technologies identified by AOL which are optimized
for the AOL Service including, without limitation, any "quick
checkout" tool which AOL may implement to facilitate purchase of
products by AOL Users through the Affiliated MP Sites; provided such
efforts do not require MP to incur substantial incremental costs or
materially alter its existing methods for promoting and/or selling
Products. AOL reserves the right to review and test the Affiliated MP
Sites from time to time to determine whether the site is compatible
with AOL's then-available client and host software and the AOL
Network.
2.4. Product Offering. MP will use its commercially reasonable efforts to
----------------
ensure that the Affiliated MP Sites include all of the Products and
other Content (including, without limitation, any features, offers,
contests, functionality or technology) that are then made generally
available by MP through any Additional MP Channel; provided, however,
that (i) such inclusion will not be required where it is commercially
or technically impractical to either Party (i.e., inclusion would
cause either Party to incur substantial incremental costs); and (ii)
the specific changes in scope, nature and/or offerings required by
such inclusion will be subject to the terms of this Agreement.
2.5. Pricing and Terms. MP will ensure that: (i) the prices (and any
-----------------
other required consideration) for Products in the Affiliated MP Sites
are generally competitive in the aggregate with the prices for the
Products or substantially similar Products offered by or on behalf of
MP through any Additional MP Channel; (ii) the terms and conditions
related to Products in the Affiliated MP Sites are generally
competitive with the terms and conditions for the Products or
substantially similar products offered by or on behalf of MP through
any Additional MP Channel; and (iii) the terms and conditions related
to Products in the Affiliated MP Sites are reasonably competitive in
all material respects with the terms and conditions for the Products
or substantially similar products offered by any MP Competitor
through any Interactive Site.
2.6. Exclusive Offers/Member Benefits. MP will generally promote through
--------------------------------
the Affiliated MP Sites any special or promotional offers made
available by or on behalf of MP on any Additional MP Channel. MP
shall not be required to comply with the foregoing provision if
compliance therewith would result in a breach by MP of any
contractual arrangements with third parties, and it is understood by
the Parties that the foregoing shall not prevent MP from providing
one time special offers which may not be appropriate for AOL Users.
In addition, MP shall promote through the Affiliated MP Sites on a
regular and consistent basis special offers available to AOL Users
(the "AOL Offers"). The AOL Offer made available by MP shall provide
a substantial member benefit to AOL Users, as reasonably determined
by MP, either by virtue of a meaningful price discount, product
enhancement, unique service benefit or other special feature. MP will
provide AOL with reasonable prior
EXECUTION COPY
CONFIDENTIAL
3
<PAGE>
notice of AOL Offers so that AOL can market the availability of such
AOL Offers in the manner AOL deems appropriate in its editorial
discretion. MP will use commercially reasonable efforts to ensure
that special or promotional offers are made available to AOL Users
(through AOL Offers or otherwise) with the same frequency and level
of benefit as made available through any Additional MP Channel.
2.7. Operating Standards. MP will ensure that the Affiliated MP Sites
-------------------
comply in all material respects at all times with the standards set
forth in Exhibit E. To the extent site standards are not established
in Exhibit E with respect to any aspect or portion of the Affiliated
MP Sites (or the Products or other Content contained therein), MP
will provide such aspect or portion at a level of accuracy, quality,
completeness, and timeliness which meets or exceeds prevailing
standards in the online postage industry. In the event MP fails to
comply with any material terms of this Agreement and such non-
compliance continues for more than ten (10) days beyond AOL's written
notice to MP of such non-compliance, AOL will have the right (in
addition to any other remedies available to AOL hereunder) to
decrease the Impressions it provides to MP hereunder on a
proportional basis until such time as MP corrects its non-compliance
(and in such event, AOL will be relieved of the proportionate amount
of any Impressions Commitment made to MP by AOL hereunder
corresponding to such decrease in promotion) and any revenue
threshold(s) set forth in Section 4 will each be adjusted
proportionately to correspond to such decrease in the Impressions
Commitment.
2.8. Advertising Sales. Neither Party will be entitled to sell any links,
-----------------
pointers, sponsorships, promotions or similar advertisements or
rights within the Affiliated MP Sites or the MP Client
("Advertisements") unless mutually agreed in writing by the Parties.
2.9. Traffic Flow. MP will take reasonable efforts to ensure that AOL
------------
traffic is either kept within the Affiliated MP Sites or channeled
back into the AOL Network. The Parties will work together on
implementing mutually acceptable links from the Affiliated MP Sites
back to the AOL Service. In the event that AOL points to the
Affiliated MP Sites or otherwise delivers traffic to such site
hereunder, MP will ensure that navigation back to the AOL Network
from such site, whether through a particular pointer or link, the
"back" button on an Internet browser, the closing of an active
window, or any other return mechanism, shall not be interrupted by MP
through the use of any intermediate screen or other device not
specifically requested by the user, including without limitation
through the use of any html popup window or any other similar device.
3. AOL EXCLUSIVITY OBLIGATIONS.
---------------------------
3.1. Software Integration Exclusivities. During the Initial Term, provided
----------------------------------
that MP is not in material breach of this Agreement after the
expiration of any applicable cure period, AOL will not include any
Competitor Software, or otherwise promote any MP Competitor's
Internet postage products or services or any Initial MP Competitor
Additional Products (other than through general Run of Service
Inventory):
[***]
EXECUTION COPY
CONFIDENTIAL
4
<PAGE>
[***]
3.2. Other Exclusivities. Provided that MP is not in material breach of
-------------------
this Agreement after the expiration of any applicable cure period,
with respect to the MP Competitors, MP will be:
[***]
3.3. Limitations on Exclusivities. Except as expressly otherwise provided
----------------------------
in this Agreement, no provision of this Agreement will limit AOL's
ability (on or off the AOL Network) to (i) undertake activities or
perform duties pursuant to existing arrangements with third parties
(or pursuant to any agreements to which AOL becomes a party
subsequent to the Effective Date as a result of Change of Control,
assignment, merger, acquisition or other similar transaction) or (ii)
create contextual links within editorial commentary (other than for
consideration) relating to any third party marketer of the Exclusive
Product.
3.4. Banner Impression Restrictions. During the Initial Term, AOL shall
------------------------------
permit no MP Competitor to purchase more than [***] of available Run
of Service inventory on any Postage Center or on any screen on which
MP has a sponsorship, as set forth in the carriage plan attached
hereto as Exhibit A.
---------
EXECUTION COPY
CONFIDENTIAL
5
<PAGE>
4. PAYMENTS.
--------
4.1. Guaranteed Payments.
-------------------
4.1.1. Subject to the terms and conditions set forth herein,
including without limitation Section 4.1.2 below, MP will pay
AOL a guaranteed payment ("Guaranteed Payment") of Fifty Six
Million Dollars ($56,000,000) as follows:
[***]
4.1.2. Notwithstanding the foregoing, upon the closing of the Second
Closing (as defined in the Stock Purchase Agreement), MP
shall pay AOL [***] as partial payment of the Guaranteed
Payment and, upon such payment, the amount of the Final
Payment shall be reduced from [***] to [***]. The payment due
pursuant to this Section 4.1.2 shall be paid on the date of
the Second Closing, provided that MP shall be entitled to the
applicable cure period set forth in Section 5.4 hereof.
4.2. Sharing of Transaction Revenues. Subject to Section 5.7, if during
-------------------------------
the first contract year the number of AOL Purchasers exceeds [***] on
a cumulative basis (the "First User Threshold"), then MP will pay AOL
[***] of the Transaction Revenues generated after the First User
Threshold is met. If during the second contract year the number of
AOL Purchasers exceeds [***], on a cumulative basis (the "Second User
Threshold"), then MP will pay AOL [***] of the Transaction Revenues
generated after the Second User Threshold is met. If during the third
contract year the number of AOL Purchasers exceeds [***] on a
cumulative basis (the "Third User Threshold"), then MP will pay AOL
[***] of the Transaction Revenues generated after the Third User
Threshold is met. During any Renewal Term, MP shall pay AOL [***] of
the Transaction Revenues. MP will pay all of the foregoing amounts on
a quarterly basis within thirty (30) days following the end of the
quarter in which the applicable Transaction Revenues were generated.
Notwithstanding the foregoing, MP's obligation to pay AOL a
percentage of Transaction Revenues shall cease [***] from the date MP
acquires the applicable AOL Purchaser.
4.3. Wired Payments. All payments required hereunder will be paid in
--------------
immediately available U.S. funds wired to the "America Online"
account, [***].
4.4. Auditing Rights.
---------------
MP will maintain complete, clear and accurate records of all
expenses, revenues and fees in connection with the performance of
this Agreement. For the sole purpose of ensuring compliance with
Section 4.2 of this Agreement, AOL will have the right, exercisable
not more than once every twelve (12) months, to appoint an
independent certified public accountant to conduct a reasonable and
necessary inspection of portions of the books and records of MP which
are relevant to the payment of Transaction Revenues to AOL pursuant
to this Agreement. Any such audit may be conducted after twenty (20)
business days prior written notice to MP. AOL shall bear the expense
of any audit conducted pursuant to this Section 4.4 unless such audit
shows an error in AOL's favor amounting to a deficiency to AOL in
excess of five percent (5%) of the actual amounts paid and/or payable
to AOL hereunder, in which event MP shall bear the reasonable
expenses of the audit. MP shall pay AOL the amount of any deficiency
discovered by AOL within thirty (30) days after receipt of written
notice thereof from AOL.
EXECUTION COPY
CONFIDENTIAL
6
<PAGE>
4.5. Taxes. MP will collect and pay and indemnify and hold AOL harmless
-----
from any sales, use, excise or similar tax including any penalties
and interest, as well as any costs associated with the collection or
withholding thereof, including attorney's fees which arises out of
(1) the sale by MP of tangible personal property or any taxable
service (including but not limited to advertising) to AOL, or (2) any
transaction between MP and customers other than AOL. AOL will collect
any pay and indemnify and hold MP harmless from any sales, use,
excise, internet access, telecommunication or any other similar tax
or fee including any penalties and interest, as well as any costs
associated with the collection or withholding thereof, including
attorney's fees which arises in connection with actions taken, or
transactions engaged in, by AOL other than those taxes that directly
relate to (1) the sale by MP of tangible personal property or any
taxable service to AOL, or (2) any transaction between MP and its
customers other than AOL.
4.6. Reports.
-------
4.6.1. Sales Reports. MP will provide AOL in an automated manner
-------------
with a monthly report detailing the following activity: the
Transaction Revenues due for such period, as well as the
total number of AOL Purchasers during such period ("Sales
Report"). AOL shall be entitled to use the Sales Reports in
its business operations, subject to the terms of this
Agreement. The Sales Reports shall be deemed the Confidential
Information of both Parties.
4.6.2. Usage Reports. On a weekly basis, AOL shall provide MP with
-------------
a report, accessible electronically via a password protected
site, detailing the following activity in such period (and
any other information mutually agreed upon by the Parties or
reasonably required for measuring Impression and MP Software
delivery): (i) standard usage information detailing the
Promotions (e.g. a schedule of the Impressions delivered by
AOL at such time, separated by property); (ii) summary
distribution information of the MP Software pursuant to
Exhibit H by date, location and method; and (iii) summary
download information of the MP Software pursuant to Exhibit I
by date and property (the information in clauses (i), (ii)
and (iii), "Promotions Reports"). MP shall be entitled to use
the Promotions Reports in its business operations, subject to
the terms of this Agreement. The Promotions Reports shall be
deemed the Confidential Information of both Parties. The
information in such Promotions Reports shall be subject to
third-party audit in accordance with AOL's routine business
practice and AOL shall provide MP with a summary of all
results of such audits promptly upon receipt of the same.
4.6.3. Fraudulent Transactions. To the extent permitted by
-----------------------
applicable laws, rules and regulations, MP will provide AOL
with a prompt report of any fraudulent order, including the
date, screenname or email address and amount associated with
such order, promptly following MP obtaining knowledge that
the order is, in fact, fraudulent.
5. TERM; RENEWAL; TERMINATION.
--------------------------
5.1. Term. Unless earlier terminated as set forth herein, the initial
-----
term of this Agreement will be three (3) years from the Effective
Date (the "Initial Term").
5.2. Renewal. Upon conclusion of the Initial Term, AOL will have the
-------
right to renew the Agreement for two (2) successive one-year renewal
terms (each a "Renewal Term" and together with the Initial Term, the
"Term"). During any such Renewal Term: (i) MP will not
EXECUTION COPY
CONFIDENTIAL
7
<PAGE>
be required to pay any guaranteed, fixed payment or perform the
cross-promotional obligations specified in Section 1; and (ii) AOL
will not be required to undertake any fixed exclusivity or
promotional/placement obligations; provided that (iii) for so long as
AOL may elect to maintain the exclusivity commitments contained
herein during a Renewal Term, MP will continue to perform its cross-
promotional obligations. A Renewal Term shall automatically commence
following the expiration of the Initial Term (or prior Renewal Term,
as the case may be), provided that AOL shall be entitled to terminate
any such Renewal Term with ninety (90) days prior written notice to
MP. Notwithstanding any provision of this Agreement to the contrary,
during any Renewal Term, MP shall pay AOL the revenue sharing
required pursuant to Section 4.2 without regard to any hurdles set
forth therein.
5.3. Continued Links. Upon expiration of the Term, AOL may, at its
----------------
discretion, continue to promote one or more "pointers" or links from
the AOL Network to an MP Interactive Site.
5.4. Termination for Breach. Except as expressly provided elsewhere in
----------------------
this Agreement, and subject at all times to the provisions set forth
in Section 6 regarding dispute resolution, either Party may terminate
this Agreement at any time in the event of a material breach of the
Agreement by the other Party which remains uncured after thirty (30)
days written notice thereof to the other Party (or such shorter
period as may be specified elsewhere in this Agreement); provided,
however, that (a) AOL will not be required to provide notice to MP in
connection with MP's failure to make any payment to AOL required
hereunder, and the cure period with respect to any payment required
under Section 4.1 of this Agreement will be fifteen (15) days from
the date for such payment provided for herein, and (b) in the event
such material breach (i) is solely the result of the revocation by
the USPS of any approval necessary for MP to conduct its business,
and (ii) is not a breach of MP's payment obligations hereunder, then
the cure period applicable to such material breach shall be ninety
(90) days; provided that this provision shall not affect AOL's right
to decrease the Impressions Commitment pursuant to Section 2.7 of
this Agreement.
5.5. Termination for Bankruptcy/Insolvency; USPS Program Termination.
------------------------------------- ------------------------
5.5.1. Either Party may terminate this Agreement immediately
following written notice to the other Party if the other
Party (i) ceases to do business in the normal course, (ii)
becomes or is declared insolvent or bankrupt, (iii) is the
subject of any proceeding related to its liquidation or
insolvency (whether voluntary or involuntary) which is not
dismissed within ninety (90) calendar days or (iv) makes an
assignment for the benefit of creditors.
5.5.2. MP may terminate this Agreement immediately following written
notice to AOL if the USPS terminates its Information-Based
Indicia Program (the "IBIP Program").
5.6. Termination on Change of Control. In the event of (i) a Change of
--------------------------------
Control of MP resulting in control of MP by an AOL Competitor
specifically listed on Exhibit B-1 or (ii) a Change of Control of
AOL, the other Party, respectively, may terminate this Agreement by
providing forty five (45) days prior written notice to the other
Party of such intent to terminate.
5.7. Effect of Termination. Upon the termination (x) in accordance with
---------------------
Section 5.4 of this Agreement by MP as a result of AOL's breach, (y)
pursuant to Section 5.6 of this Agreement or (z) pursuant to Section
5.5.2, the Guaranteed Payment obligations of MP shall cease, and AOL
shall refund to MP a pro rata amount of the Guaranteed Payment paid
to AOL hereunder; and any payment obligations accrued pursuant to
Section 4.2 prior to termination or expiration will survive, but no
additional amounts shall be payable after such termination or
expiration.
EXECUTION COPY
CONFIDENTIAL
8
<PAGE>
5.8. Press Releases. Each Party will submit to the other Party, for its
---------------
prior written approval, which will not be unreasonably withheld or
delayed, any press release or any other public statement ("Press
Release") regarding this Agreement or the transactions contemplated
hereunder. The Parties agree to issue a mutually acceptable initial
Press Release announcing the business relationship between them
within thirty (30) days of the Effective Date ("Initial Release").
Notwithstanding the foregoing, subsequent to the Initial Release,
either Party may issue disclosures as required by law without the
consent of the other Party and in such event, the disclosing Party
will provide at least five (5) business days prior written notice of
such disclosure.
6. MANAGEMENT COMMITTEE/ARBITRATION.
--------------------------------
6.1. Management Committee. The Parties will act in good faith and use
---------------------
commercially reasonable efforts to promptly resolve any claim,
dispute, controversy or disagreement (including without limitation,
those rising to the level of a material breach pursuant to Section
5.4) (each a "Dispute") between the Parties or any of their
respective subsidiaries, Affiliates, successors and assigns under or
related to this Agreement or any document executed pursuant to this
Agreement or any of the transactions contemplated hereby. If the
Parties cannot resolve the Dispute within a reasonable time frame,
the Dispute will be submitted to the Management Committee for
resolution. For ten (10) days following submission of the Dispute to
the Management Committee, the Management Committee will have the
exclusive right to resolve such Dispute; provided further that the
Management Committee will have the final and exclusive right to
resolve Disputes arising from any provision of the Agreement which
expressly or implicitly provides for the Parties to reach mutual
agreement as to certain terms. If the Management Committee is unable
to amicably resolve the Dispute during the ten-day period, then the
Management Committee will consider in good faith the possibility of
retaining a third party mediator to facilitate resolution of the
Dispute. In the event the Management Committee elects not to retain a
mediator, the dispute will be subject to the resolution mechanisms
described below. "Management Committee" will mean a committee made up
of a senior executive from each of the Parties for the purpose of
resolving Disputes under this Section 6 and generally overseeing the
relationship between the Parties contemplated by this Agreement.
Neither Party will seek, nor will be entitled to seek, binding
outside resolution of the Dispute unless and until the Parties have
been unable amicably to resolve the Dispute as set forth in this
Section 6 and then, only in compliance with the procedures set forth
in this Section 6.
6.2. Arbitration. Except for Disputes relating to issues of (i)
------------
proprietary rights, including but not limited to intellectual
property and confidentiality, and (ii) any provision of the Agreement
which expressly or implicitly provides for the Parties to reach
mutual agreement as to certain terms (which will be resolved by the
Parties solely and exclusively through amicable resolution as set
forth in Section 6.1), any Dispute not resolved by amicable
resolution as set forth in Section 6.1 will be governed exclusively
and finally by arbitration. Such arbitration will be conducted by the
American Arbitration Association ("AAA") in Washington, D.C. if
brought by MP, and in Los Angeles, California if brought by AOL, and
will be initiated and conducted in accordance with the Commercial
Arbitration Rules ("Commercial Rules") of the AAA, including the AAA
Supplementary Procedures for Large Complex Commercial Disputes
("Complex Procedures"), as such rules will be in effect on the date
of delivery of a demand for arbitration ("Demand"), except to the
extent that such rules are inconsistent with the provisions set forth
herein. Notwithstanding the foregoing, the Parties may agree in good
faith that the Complex Procedures will not apply in order to promote
the efficient arbitration of Disputes where the nature of the
Dispute, including without limitation the amount in controversy, does
not justify the application of such procedures.
EXECUTION COPY
CONFIDENTIAL
9
<PAGE>
6.3. Selection of Arbitrators. The arbitration panel will consist of
-------------------------
three arbitrators. Each Party will name an arbitrator within ten (10)
days after the delivery of the Demand. The two arbitrators named by
the Parties may have prior relationships with the naming Party, which
in a judicial setting would be considered a conflict of interest. The
third arbitrator, selected by the first two, should be a neutral
participant, with no prior working relationship with either Party. If
the two arbitrators are unable to select a third arbitrator within
ten (10) days, a third neutral arbitrator will be appointed by the
AAA from the panel of commercial arbitrators of any of the AAA Large
and Complex Resolution Programs. If a vacancy in the arbitration
panel occurs after the hearings have commenced, the remaining
arbitrator or arbitrators may not continue with the hearing and
determination of the controversy, unless the Parties agree otherwise.
6.4. Governing Law. The Federal Arbitration Act, 9 U.S.C. Secs. 1-16,
--------------
and not state law, will govern the arbitrability of all Disputes. The
arbitrators will allow such discovery as is appropriate to the
purposes of arbitration in accomplishing a fair, speedy and cost-
effective resolution of the Disputes. The arbitrators will reference
the Federal Rules of Civil Procedure then in effect in setting the
scope and timing of discovery. The Federal Rules of Evidence will
apply in toto. The arbitrators may enter a default decision against
any Party who fails to participate in the arbitration proceedings.
6.5. Arbitration Awards. The arbitrators will have the authority to award
-------------------
compensatory damages only. Any award by the arbitrators will be
accompanied by a written opinion setting forth the findings of fact
and conclusions of law relied upon in reaching the decision. The
award rendered by the arbitrators will be final, binding and non-
appealable, and judgment upon such award may be entered by any court
of competent jurisdiction. The Parties agree that the existence,
conduct and content of any arbitration will be kept confidential and
no Party will disclose to any person any information about such
arbitration, except as necessary to conduct such arbitration, and as
may be required by law or by any governmental authority or for
financial reporting purposes in each Party's financial statements.
6.6. Fees. Each Party will pay the fees of its own attorneys, expenses of
-----
witnesses and all other expenses and costs in connection with the
presentation of such Party's case (collectively, "Attorneys' Fees").
The remaining costs of the arbitration, including without limitation,
fees of the arbitrators, costs of records or transcripts and
administrative fees (collectively, "Arbitration Costs") will be borne
equally by the Parties. Notwithstanding the foregoing, the
arbitrators may modify the allocation of Arbitration Costs and award
Attorneys' Fees in those cases where fairness dictates a different
allocation of Arbitration Costs between the Parties and an award of
Attorneys' Fees to the prevailing Party as determined by the
arbitrators.
6.7. Non Arbitratable Disputes. Any Dispute that is not subject to final
--------------------------
resolution by the Management Committee or to arbitration under this
Section 6 or by law (collectively, "Non-Arbitration Claims") will be
brought in a court of competent jurisdiction in the Commonwealth of
Virginia. Each Party irrevocably consents to the exclusive
jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts situated in the Commonwealth of Virginia, over any and
all Non-Arbitration Claims and any and all actions to enforce such
claims or to recover damages or other relief in connection with such
claims.
7. DISTRIBUTION OF MP SOFTWARE WITH AOL CD-ROMS. Subject to the terms and
--------------------------------------------
conditions of this Agreement, AOL will distribute the MP Software in
accordance with the provisions of Exhibit H attached hereto within the
timelines as set forth therein, provided that MP has complied in all
material respects with all requirements set forth on Exhibit H.
EXECUTION COPY
CONFIDENTIAL
10
<PAGE>
8. EMPLOYEE ACCOUNTS. During the Term, AOL agrees to provide at least [***]
-------------------
Overhead Accounts for use by MP's employees in accordance with Section 11
of Exhibit F.
9. CONTINUATION OF RAINMAN AREAS. During the Term, subject to the terms of
-----------------------------
this Section 9, MP shall be entitled to maintain the Rainman Areas (as
defined in that certain AOL Advertising Insertion Order entered into by and
between the parties dated as of December 14, 1998 (the "Prior Agreement")).
Notwithstanding the foregoing, in the event that the expenses associated
with maintaining the Rainman Areas shall increase beyond a nominal amount,
AOL shall provide MP with written notice of such increase and MP shall, at
its option, either discontinue the Rainman Areas or reimburse AOL for its
expenses incurred directly in connection with AOL's performance under this
Section 9.
10. NEWLY CREATED CONTENT AREAS. During the Term, AOL and MP will explore the
---------------------------
creation of additional content areas on the AOL Network related to Internet
mailing, postage and shipping.
11. DISCOUNTED MAILING LIST. AOL agrees to make its mailing lists available to
-----------------------
MP on the terms set forth on Exhibit K.
12. AOL INTEGRATION OF POSTAGE CLIENT. In the event that AOL desires, during
---------------------------------
the Initial Term, to integrate an Internet USPS postage product into any
part of the AOL Network or any branded client, the Parties shall discuss in
good faith the possibility of AOL's using MP's products for such
integration.
13. DEVELOPMENT OF CO-BRANDED CLIENT. At AOL's option, the Parties shall
--------------------------------
discuss in good faith the possibility of developing a co-branded MP Client
to be distributed through the AOL Network.
14. AOL LOGO. During the Term, MP shall set the AOL logo as the default
--------
graphic to be printed on Internet postage printed through the MP Client by
AOL Purchasers.
15. MERGER OF POSTAGE AND SHIPPING CENTERS. In the event that AOL decides to
--------------------------------------
merge any postage and shipping centers which are subject to this Agreement,
the Parties agree that MP shall have in such combined center all rights
which have been granted to MP for postage centers under this Agreement.
16. DESIGNATED ACCOUNT EXECUTIVES. MP shall have [***] designated account
-----------------------------
executives who shall commit at least [***] of their work time to be
available to assist with MP's account; provided, however, that at any time
after the first anniversary of this Agreement, at AOL's request, the
Parties shall conduct good faith discussions about the appropriate staffing
levels for MP's account and shall make such changes to such staffing levels
as the Parties shall mutually agree.
17. POSTAGE AND SHIPPING CENTER TOOL INTEGRATION. MP shall be permitted to
--------------------------------------------
integrate a tool or functionality relating to USPS postage in any Shipping
Center or Postage Center of the AOL Service, Netcenter and CompuServe;
provided that AOL shall have the right to approve such tool or
functionality, which approval shall not be unreasonably withheld or
delayed.
18. WARRANT. As additional consideration for AOL's commitments hereunder, and
-------
subject to the provisions hereof, MP shall deliver as of the Effective
Date, a Common Stock Purchase Warrant Agreement in a form mutually
acceptable to the Parties ("Warrant Agreement"), which Warrant Agreement
shall include a provision that the warrants represented by the Warrant
Agreement shall be increased by fifty percent (50%) of the warrants then
issued upon MP's material breach of its obligations under Section 4.1
hereof after the expiration of the applicable cure period.
EXECUTION COPY
CONFIDENTIAL
11
<PAGE>
19. PIP PROGRAM. Provided that MP elects to continue its participation in the
-----------
PIP Program after April 30, 2000, MP commits to use not less than [***]
(the "Minimum Amount") of its [***] allowance hereunder per month. In the
event that MP does not use such minimum amount in any month, MP
acknowledges and agrees that AOL will debit its allowance of the Minimum
Amount, notwithstanding MP's failure to use the PIP Program during such
month.
20. NETSCAPE INSTALLER. AOL is currently exploring the practicability of
------------------
including the MP Software as a download option with Netscape Navigator 5.0.
In the event that AOL is unable to include the MP Software as a download
option with Netscape Navigator 5.0 upon its launch in 2000, AOL shall
provide MP with integration of equivalent value, which integration shall be
reasonably satisfactory to MP. Notwithstanding the foregoing, AOL shall
include the MP Software in the event that AOL includes commerce partner
software (as opposed to software designed to enhance the Netscape browser)
of similar size to the MP Software as a download option.
21. KEYWORD: STAMPS. AOL will create a "referee" screen in the appropriate
----------------
areas of the AOL Service to which Keyword Stamp or Stamps will link. Such
"referee" screen will contain programming created by AOL in its sole
discretion, provided that, AOL shall provide MP with a button or link on
such screen which will link to the Affiliated MP Sites or any other area
agreed upon by the parties. MP shall be the only provider of online postal
services (except for specialty or collectible non-electronically issued
postage stamp providers) to be provided with a button or link on such
"referee" screen. For the avoidance of doubt, the "referee" screen shall
not promote products or display banners, sponsorships or other forms of
advertising or content related to mailing or shipping services.
22. INTERNATIONAL. The Parties shall discuss in good faith the possibility of
-------------
providing MP with distribution of the MP Software through AOL international
properties.
23. CORPORATE SOLUTION. In the event that AOL desires to develop a corporate
------------------
Internet USPS postage solution, the Parties shall discuss in good faith the
possibility of MP's developing such corporate solution.
24. NETSCAPE NEWSLETTER. During the Initial Term, MP shall receive premier
--------------------
placement on the Netscape Newsletter.
25. EFFECT ON PRIOR AGREEMENT. The Parties agree that MP's payment obligations
--------------------------
under the Prior Agreement which accrue after the date hereof shall no
longer be payable and shall be deemed satisfied by MP's execution of this
Agreement.
26. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set forth
--------------
on Exhibit F attached hereto and Standard Legal Terms & Conditions set
forth on Exhibit G attached hereto are each hereby made a part of this
Agreement.
[Signature Page Follows]
EXECUTION COPY
CONFIDENTIAL
12
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. STAMPS.COM INC.
By: /s/ Eric L. Keller By: /s/ John M. Payne
------------------------------ -----------------------------
Name Eric L. Keller Name: John M. Payne
Title: Vice President Title: President & CEO
EXECUTION COPY
CONFIDENTIAL
13
<PAGE>
EXHIBIT A
Placement/Promotion
-------------------
I. CARRIAGE PLAN - See attached.
II. During the Term, subject to the terms and conditions hereof, MP shall have
the right to use the following Keyword Search Terms: Stamps.com, plus two
other terms to be designated in the future (subject to AOL's generally
applicable Keyword guidelines). Subject to AOL's approval, which may be
withheld in its sole discretion, MP shall have the right to include
additional Keyword Search Terms from time to time during the Term.
EXECUTION COPY
CONFIDENTIAL
14
<PAGE>
CARRIAGE PLAN
-------------
<TABLE>
<CAPTION>
FLIGHTS Year 1 Year 2 Year 3 TOTALS
- --------------------------------------------------------------------------------------------------------------------------------
COPY
SERVICE SIZE START END Imps/Y1 Imps/Y2 Imps/Y3 IMPS
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
T AOL Postage Center- Premier AOL Service 10/14/99 10/13/02 [***] [***] [***] [***]
Dominant Position*
- --------------------------------------------------------------------------------------------------------------------------------
T AOL Postage Center Widget - AOL Service 10/14/99 10/13/02 [***] [***] [***] [***]
Branded
- --------------------------------------------------------------------------------------------------------------------------------
T Mail Center Sponsorship AOL Service 120X60 10/14/99 10/13/02 [***] [***] [***] [***]
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Business Service Sponsorship AOL Service 120X60 10/14/99 10/13/02 [***] [***] [***] [***]
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Workplace ROS Banners AOL Service 234X60 2/15/00 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Workplace Research a Company AOL Service 88x31 10/14/99 10/13/02 [***] [***] [***] [***]
Sponsor
- --------------------------------------------------------------------------------------------------------------------------------
T Salary and Benefits Sponsor AOL Service 88x31 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Mail for Work Sponsorship AOL Service 120x60 10/14/99 10/13/02 [***] [***] [***] [***]
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Address Book Sponsorship AOL Service 120x60 10/14/99 10/13/02 [***] [***] [***] [***]
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Workplace - BKH ROS Banners AOL Service 234X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Business Classified Banners AOL Service 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Welcome Screen Graphic AOL Service 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T AOL.com Business Services AOL.com 141X60 10/14/99 10/13/02 [***] [***] [***] [***]
Sponsor
- --------------------------------------------------------------------------------------------------------------------------------
T Yellow Pages - Run of Business AOL.com 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
Services
- --------------------------------------------------------------------------------------------------------------------------------
T Hometown - Run of Home-Based AOL.com 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
Businesses
- --------------------------------------------------------------------------------------------------------------------------------
T Hometown - Run of Home-Based AOL.com 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
Businesses (Member Pages)
- --------------------------------------------------------------------------------------------------------------------------------
T Small Business Banners DCI 234X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T DCI Postage Center - Premier DCI 234X60 10/14/99 10/13/02 [***] [***] [***] [***]
Dominant Position*
- --------------------------------------------------------------------------------------------------------------------------------
T DCI Postage Center Widget - DCI 10/14/99 10/13/02 [***] [***] [***] [***]
Branded
- --------------------------------------------------------------------------------------------------------------------------------
T Business Classifieds Banner DCI 234X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Netcenter Postage Center: Netscape 10/14/99 10/13/02 [***] [***] [***] [***]
Premier Dominant Positioning*
and content Position
- --------------------------------------------------------------------------------------------------------------------------------
T Netcenter Postage Center Widget Netscape 10/14/99 10/13/02 [***] [***] [***] [***]
- Branded
- --------------------------------------------------------------------------------------------------------------------------------
T What's New/Cool 1 - month Netscape 141X60 10/1/99 10/31/99 [***] - - [***]
Sponsorship
- --------------------------------------------------------------------------------------------------------------------------------
T Business Channel Sponsor Netscape 141X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Business Banner Rotation Netscape 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Business Text Link Netscape Text 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Small Business Sponsor Rotation Netscape 141X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Small Business Banner Rotation Netscape 468X60 10/14/99 10/13/02 [***] - - [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Small Business Text Link Rotation Netscape Text 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Business Journal Sponsor Netscape 141X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Business Classifieds Banner Netscape 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Delivery Center Sponsor Netscape 141X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Yellow Pages Sponsorship Netscape 141X60 10/14/99 10/13/02 [***] [***] [***] [***]
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Open Directory SOHO Category Netscape 141X60 10/14/99 10/13/02 [***] [***] [***] [***]
Sponsorships
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXECUTION COPY
CONFIDENTIAL
15
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
T C&I ROS Banners Netscape 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T C&I ROS Text Links Netscape Text 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Travel ROS Banners Netscape 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Personal Finance ROS Banners Netscape 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T American Greetings Business to AOL Partner 120X60 10/14/99 10/13/02 [***] [***] [***] [***]
Business
- --------------------------------------------------------------------------------------------------------------------------------
T American Greetings Office Humor AOL Partner 120X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T EBAY@AOL ROS AOL Partner 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Realtor.com ROS Banners AOL Partner 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Premier Positioning in the Compuserve 10/14/99 10/13/02 [***] [***] [***] [***]
Digital Business & Small Business
Resource Centers on
CompuServe and the Business
Web Center on CompuServe.com.
- --------------------------------------------------------------------------------------------------------------------------------
T Flash Message (Pop Up) w/ Compuserve 10/14/99 10/13/02 [***] [***] [***] [***]
Annual Impression Guarantee
- --------------------------------------------------------------------------------------------------------------------------------
T Premier Dominant Positioning* in Compuserve 10/14/99 10/13/02 [***] [***] [***] [***]
the forthcoming CompuServe
Postal Center
- --------------------------------------------------------------------------------------------------------------------------------
T Branded Widget in the Compuserve 10/14/99 10/13/02 [***] [***] [***] [***]
forthcoming CompuServe Postal
Center
- --------------------------------------------------------------------------------------------------------------------------------
T CompuServe Main Menu Compuserve 10/14/99 10/13/02 [***] [***] [***] [***]
Placements
- --------------------------------------------------------------------------------------------------------------------------------
T Branded Integration in the Family Compuserve 10/14/99 10/13/02 [***] [***] [***] [***]
Finance Center on CompuServe
- --------------------------------------------------------------------------------------------------------------------------------
T What's New! Articles Compuserve 10/14/99 10/13/02 [***] [***] [***] [***]
Sponsorship
- --------------------------------------------------------------------------------------------------------------------------------
T Spinner ROS EXCLUSIVE Spinner 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Envelope** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Envelopes** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Letter** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Letters** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Mail** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Mailing** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Post Office** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Postage** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Postal** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Shipping** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Stamp** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Stamps** Search 2000 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
T Search Postage Stamp Search 2000 468X60 10/14/99 10/13/02 - - - -
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Search e postage EXCLUSIVE Search 2000 468X60 10/14/99 10/13/02 - - - -
- --------------------------------------------------------------------------------------------------------------------------------
T Search epostage EXCLUSIVE Search 2000 468X60 10/14/99 10/13/02 - - - -
- --------------------------------------------------------------------------------------------------------------------------------
T Search indicia EXCLUSIVE Search 2000 468X60 10/14/99 10/13/02 - - - -
- --------------------------------------------------------------------------------------------------------------------------------
T Search internet postage Search 2000 468X60 10/14/99 10/13/02 - - - -
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Search overnight mail Search 2000 468X60 10/14/99 10/13/02 - - - -
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Search pc postage EXCLUSIVE Search 2000 468X60 10/14/99 10/13/02 - - - -
- --------------------------------------------------------------------------------------------------------------------------------
T Search postage rates Search 2000 468X60 10/14/99 10/13/02 - - - -
EXCLUSIVE
- --------------------------------------------------------------------------------------------------------------------------------
T Search priority mail EXCLUSIVE Search 2000 468X60 10/14/99 10/13/02 - - - -
- --------------------------------------------------------------------------------------------------------------------------------
[***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXECUTION COPY
CONFIDENTIAL
16
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
B Member Directory Banners AOL Service 120X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B Download a File Banners AOL Service 234X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B Investment Snapshot and Stock AOL Service 234X60 10/14/99 10/13/02 [***] [***] [***] [***]
Quotes Banner
- --------------------------------------------------------------------------------------------------------------------------------
B AOL.com HomePage AOL.com 100X70 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B AIM AOL.com/ 120X60 10/14/99 10/13/02 [***] [***] [***] [***]
Web
- --------------------------------------------------------------------------------------------------------------------------------
B DCI Home Page DCI 234X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B NSCP Home Page Banners Netscape 233X30 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B NSCP ROS Banners Netscape 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B NSCP ROS Text Links Netscape Text 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B Weather Banners Netscape 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B Other Selected Mindset Compuserve 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
Packages: Banner Rotation
- --------------------------------------------------------------------------------------------------------------------------------
B CompuServe ROS Compuserve 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
B CompuServe.com Broadreach Compuserve 468X60 10/14/99 10/13/02 [***] [***] [***] [***]
Inventory
- --------------------------------------------------------------------------------------------------------------------------------
[***] [***] [***] [***]
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
[***] [***] [***] [***]
TOTALS
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXECUTION COPY
CONFIDENTIAL
17
<PAGE>
A. LEGEND
------
* "Premier Dominant" positioning shall be not less than 100% greater than
the tenancy of any MP Competitor on the same screen.
** with respect to each search term AOL shall not (i) during the first year
of the Agreement, provide any MP Competitor with a number of Impressions for
such search term equal to more than [***] of Impressions deliverable to MP
during such year, (ii) during the second year of the Agreement, provided
that MP is entitled for such search term a number of Impressions at least
[***] greater than the number deliverable in year one, provide any MP
Competitor with a number of Impressions for such search term equal to more
than [***] of Impressions deliverable to MP during such year, and (iii)
during the third year of the Agreement, provided that MP is entitled for
such search term a number of Impressions at least [***] greater than the
number deliverable in year one, provide any MP Competitor with a number of
Impressions for such search term equal to more than [***] of Impressions
deliverable to MP during such year.
Classes of Inventory:
T = Targeted
B = Broad reach
B. POSTAGE AND SHIPPING CENTERS. The Parties acknowledge that as of the
-------------------------------
Effective Date, no Postage Centers (except AOL.com) or Shipping Centers
(except on Netcenter) have been constructed and that no timetable currently
exists for such construction. Although the Parties shall discuss in good
faith the construction of these areas, there can be no assurance that these
centers will be constructed within any particular time period.
EXECUTION COPY
CONFIDENTIAL
18
<PAGE>
EXHIBIT B
Definitions
-----------
The following definitions will apply to this Agreement:
Additional MP Channel. An MP Interactive Site, other than a co-branded version
- ---------------------
or the Affiliated MP Sites, through which MP makes available products and
services substantially similar to those offered on the Affiliated MP Sites.
Affiliate. With respect to any specified party, any other corporation,
- ---------
partnership or similar entity that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with such
specified party. Control of any corporation, partnership or similar entity means
the possession, directly or indirectly, of fifty percent (50%) or more of the
voting securities or other voting interests of such corporation, partnership or
entity.
Affiliated MP Sites. The MP/AOL Service Site, the MP/AOL.com Site, the MP/CIS
- -------------------
Site, the MP/DCI Site and the MP/Netcenter Site, collectively.
Affiliated Realtor.com Interactive Site. The version of the Realtor.com
- ---------------------------------------
Interactive Site existing as of the date hereof available through the AOL
Service and AOL.com and containing specially designed content for AOL Users.
AOL Competitor. Any of the following, or their Affiliates: (i) any entity
- --------------
offering online or Internet connectivity services (e.g., an Internet service
provider); (ii) any entity offering communications software capable of serving
as the principal means through which a user creates, sends and receives
electronic mail or real time online messages; or (iii) any entity listed on
Exhibit B-1 attached hereto.
AOL Interactive Site. Any Interactive Site which is managed, maintained, owned
- --------------------
or controlled by AOL or its agents.
AOL Look and Feel. The elements of graphics, design, organization,
- ------------------
presentation, layout, user interface, navigation and stylistic convention
(including the digital implementations thereof) which are generally associated
with Interactive Sites within the AOL Service or AOL.com.
AOL Member. Any authorized user of the AOL Service, including any sub-accounts
- ----------
using the AOL Service under an authorized master account.
AOL Network. (i) The AOL Service, (ii) AOL.com, (iii) CompuServe, (iv) Digital
- -----------
City, (v) Netcenter, and (vi) any other product or service owned, operated,
distributed or authorized to be distributed by or through AOL or its Affiliates
worldwide (and including those properties excluded from the definitions of the
AOL Service or AOL.com). It is understood and agreed that, except as expressly
set forth herein, the rights of MP relate only to the AOL Service and AOL.com
and not generally to the AOL Network.
AOL Plus. The standard broadband U.S. version of the AOL Plus(TM) brand service,
- --------
specifically excluding (a) AOL.com, Netcenter or any other AOL Interactive Site,
(b) the international versions of an America Online or AOL Plus/TM/ service
(e.g., AOL Japan), (c) the CompuServe(R) brand service and any other CompuServe
products or services (d) "Driveway," "ICQ/TM/," "AOL NetFind/TM/," "AOL Instant
Messenger/TM/," "Digital City," "NetMail/TM/," "Electra", "Thrive", "Real Fans",
"Love@AOL", "Entertainment Asylum," "AOL Hometown," "My News" or any similar
independent product, service or property which may be offered by,
EXECUTION COPY
CONFIDENTIAL
19
<PAGE>
through or with the U.S. version of the America Online(R) brand service, (e) any
programming or Content area offered by or through the U.S. version of the AOL
Plus/TM/ brand service over which AOL does not exercise complete operational
control (including, without limitation, Content areas controlled by other
parties and member-created Content areas), (f) any yellow pages, white pages,
classifieds or other search, directory or review services or Content offered by
or through the U.S. version of the AOL Plus/TM/ brand service, (g) any property,
feature, product or service which AOL or its Affiliates may acquire subsequent
to the Effective Date (unless such new property, feature, product or service is
(i) a mere enhancement of the broadband U.S. version of the AOL Plus/TM/ brand
service, is integrated into such service and is not a stand-alone property,
feature, product or service, or (ii) a successor to the broadband U.S. version
of the AOL Plus/TM/ brand service) and (h) any other version of an AOL Plus/TM/
service which is materially different from the standard broadband U.S. version
of the AOL Plus/TM/ brand service, by virtue of its branding, distribution,
functionality, Content or services, including, without limitation, any co-
branded version of the service or any version distributed through any narrow-
band distribution platform or through any platform or device other than a
desktop personal computer.
AOL Purchaser. Any person or entity who (i) enters the Affiliated MP Sites from
- -------------
the AOL Network including, without limitation, from any third party area therein
(to the extent entry from such third party area is traceable through both
Parties' commercially reasonable efforts), and (ii) selects a pricing plan and
registers with MP using a unique credit card number or automated clearing house
number, electronic mail address and name not previously received by MP.
AOL Service. The standard narrow-band U.S. version of the America Online(R)
- -----------
brand service, specifically excluding (a) AOL.com, Netcenter or any other AOL
Interactive Site, (b) the international versions of an America Online service
(e.g., AOL Japan), (c) the CompuServe(R) brand service and any other CompuServe
products or services (d) "Driveway," "ICQ/TM/," "AOL NetFind/TM/," "AOL Instant
Messenger/TM/," "Digital City," "NetMail(TM)," "Electra", "Thrive", "Real Fans",
"Love@AOL", "Entertainment Asylum," "AOL Hometown," "My News" or any similar
independent product, service or property which may be offered by, through or
with the U.S. version of the America Online(R) brand service, (e) any
programming or Content area offered by or through the U.S. version of the
America Online(R) brand service over which AOL does not exercise complete
operational control (including, without limitation, Content areas controlled by
other parties and member-created Content areas), (f) any yellow pages, white
pages, classifieds or other search, directory or review services or Content
offered by or through the U.S. version of the America Online(R) brand service,
(g) any property, feature, product or service which AOL or its Affiliates may
acquire subsequent to the Effective Date (unless such new property, feature,
product or service is (i) a mere enhancement of the narrow-band U.S. version of
the America Online brand service, is integrated into such service and is not a
stand-alone property, feature, product or service, or (ii) a successor to the
narrow-band U.S. version of the America Online brand service) and (h) any other
version of an America Online service which is materially different from the
standard narrow-band U.S. version of the America Online brand service, by virtue
of its branding, distribution, functionality, Content or services, including,
without limitation, any co-branded version of the service or any version
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer.
AOL User. Any user of the AOL Service, AOL.com, CompuServe, Digital City,
- --------
Netcenter, or the AOL Network.
AOL.com. AOL's primary Internet-based Interactive Site marketed under the
- -------
"AOL.COM/TM/" brand, specifically excluding (a) the AOL Service, (b) Netcenter,
(c) any international versions of such site, (d) "ICQ," "AOL NetFind/TM/,"
"AOL Instant Messenger/TM/," "NetMail/TM/," "AOL Hometown," "My News" or any
similar independent product or service offered by or through such site or any
other AOL Interactive Site, (e) any programming or Content area offered by or
through such site over which AOL does not exercise complete operational control
(including, without limitation, Content areas controlled by other parties and
member-created Content areas), (f) any programming or Content area offered by or
through such site
EXECUTION COPY
CONFIDENTIAL
20
<PAGE>
which was operated, maintained or controlled by the former AOL Studios division
(e.g., Electra), (g) any yellow pages, white pages, classifieds or other search,
directory or review services or Content offered by or through such site or any
other AOL Interactive Site, (h) any property, feature, product or service which
AOL or its Affiliates may acquire subsequent to the Effective Date (unless such
new property, feature, product or service is (i) a mere enhancement of the
primary Internet-based Interactive Site marketed under the "AOL.COM/TM/" brand,
is integrated into such Interactive Site and is not a stand-alone property,
feature, product or service, or (ii) a successor to the primary Internet-based
Interactive Site marketed under the "AOL.COM/TM/" brand) and (i) any other
version of an America Online Interactive Site which is materially different from
AOL's primary Internet-based Interactive Site marketed under the "AOL.COM/TM/"
brand, by virtue of its branding, distribution, functionality, Content or
services, including, without limitation, any co-branded versions or any version
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer.
Change of Control. (a) The consummation of a reorganization, merger or
- -----------------
consolidation or sale or other disposition of substantially all of the assets of
a party or (b) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1933,
as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than 50% of either (i) the then outstanding
shares of common stock of such party; or (ii) the combined voting power of the
then outstanding voting securities of such party entitled to vote generally in
the election of directors.
Competitor Software. The software or product of any MP Competitor necessary for
- -------------------
the operation of the electronic postage product of such MP Competitor, if such
software or product enables end-users to purchase USPS services or products over
the Internet through such MP Competitor's network.
CompuServe. The standard, narrow-band U.S. version of the CompuServe brand
- -----------
service, specifically excluding (a) any international versions of such service,
(b) any web-based service including "compuserve.com", "cserve.com" and "cs.com",
or any similar product or service offered by or through the U.S. version of the
CompuServe brand service, (c) Content areas owned, maintained or controlled by
CompuServe Affiliates or any similar "sub-service," (d) any programming or
Content area offered by or through the U.S. version of the CompuServe brand
service over which CompuServe does not exercise complete or substantially
complete operational control (e.g., third-party Content areas), (e) any yellow
pages, white pages, classifieds or other search, directory or review services or
Content and (f) any co-branded or private label branded version of the U.S.
version of the CompuServe brand service, (g) any version of the U.S. version of
the CompuServe brand service which offers Content, distribution, services and/or
functionality materially different from the Content, distribution, services
and/or functionality associated with the standard, narrow-band U.S. version of
the CompuServe brand service, including, without limitation, any version of such
service distributed through any platform or device other than a desktop personal
computer and (h) any property, feature, product or service which CompuServe or
its Affiliates may acquire subsequent to the Effective Date (unless such new
property, feature, product or service is (i) a mere enhancement of the narrow-
band U.S. version of the CompuServe brand service, is integrated into such
service and is not a stand-alone property, feature, product or service, or (ii)
a successor to the narrow-band U.S. version of the CompuServe brand service).
Confidential Information. Any information relating to or disclosed in the
- ------------------------
course of the Agreement, which is or should be reasonably understood to be
confidential or proprietary to the disclosing Party, including, but not limited
to, the material terms of this Agreement, information about AOL Members, AOL
Users, AOL Purchasers and MP customers, technical processes and formulas, source
codes, product designs, sales, cost and other unpublished financial information,
product and business plans, projections, and marketing data. "Confidential
Information" will not include information (a) already lawfully known to the
receiving Party or independently developed by the receiving Party, (b) disclosed
in published materials except as disclosed by the receiving Party in breach of
this Agreement, (c) generally known to the public except as disclosed by the
receiving Party in breach of this Agreement, or (d) lawfully obtained from any
third party without restriction.
EXECUTION COPY
CONFIDENTIAL
21
<PAGE>
Content. Text, images, video, audio (including, without limitation, music used
- -------
in synchronism or timed relation with visual displays) and other data,
advertisements, promotions, URLs, links and pointers.
Digital City. The standard, narrow-band U.S. version of Digital City's local
- -------------
content offerings marketed under the Digital City(R) brand name, specifically
excluding (a) the AOL Service, AOL.com, Netcenter, or any other AOL Interactive
Site, (b) any international versions of such local content offerings, (c) the
CompuServe(R) brand service and any other CompuServe products or services (d)
"Driveway," "ICQ/TM/," "AOL NetFind/TM/," "AOL Instant Messenger/TM/," "Digital
City," "NetMail/TM/," "Electra", "Thrive", "Real Fans", "Love@AOL",
"Entertainment Asylum," "AOL Hometown," "My News" or any similar independent
product, service or property which may be offered by, through or with the
standard narrow band version of Digital City's local content offerings, (e) any
programming or Content area offered by or through such local content offerings
over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any yellow pages, white pages, classifieds or other search,
directory or review services or Content offered by or through such local content
offerings, (g) any property, feature, product or service which AOL or its
Affiliates may acquire subsequent to the Effective Date (unless such new
property, feature, product or service is (i) a mere enhancement of the standard,
narrow-band U.S. version of Digital City's local content offerings marketed
under the Digital City(R) brand name, is integrated into such content offerings
and is not a stand-alone property, feature, product or service, or (ii) a
successor to the standard, narrow-band U.S. version of Digital City's local
content offerings marketed under the Digital City(R) brand name), (h) any other
version of a Digital City local content offering which is materially different
from the narrow-band U.S. version of Digital City's local content offerings
marketed under the Digital City(R) brand name, by virtue of its branding,
distribution, functionality, Content or services, including, without limitation,
any co-branded version of the offerings or any version distributed through any
broadband distribution platform or through any platform or device other than a
desktop personal computer, and (i) Digital City- branded offerings in any local
area where such offerings are not owned or operationally controlled by America
Online, Inc. or DCI (e.g., Chicago, Orlando, South Florida, and Hampton Roads).
Impression. An Impression is generated when a user's browser requests and
- ----------
receives a file via the WWW or the AOL Network, where such file contains a
Promotion. Impressions shall be measured by AOL in accordance with its standard
methodologies and protocols that are applied equally to all entities.
Initial MP Competitor. Any of Pitney-Bowes, E-Stamp Corporation or Neopost, and
- ---------------------
their Affiliates.
Initial MP Competitor Additional Product. A product or service of an Initial MP
- ----------------------------------------
Competitor other than Competitor Software.
Interactive Service. An entity offering one or more of the following: (i)
- -------------------
online or Internet connectivity services (e.g., an Internet service provider);
(ii) an interactive site or service featuring a broad selection of aggregated
third party interactive content (or navigation thereto) (e.g., an online service
or search and directory service) and/or marketing a broad selection of products
and/or services across numerous interactive commerce categories (e.g., an online
mall or other leading online commerce site); and (iii) communications software
capable of serving as the principal means through which a user creates, sends
and receives electronic mail or real time online messages.
Interactive Site. Any interactive site or area, including, by way of example and
- ----------------
without limitation, (i) an MP site on the World Wide Web portion of the Internet
or (ii) a channel or area delivered through a "push" product such as the
Pointcast Network or interactive environment such as Microsoft's Active Desktop.
Keyword Search Terms. (a) The Keyword(TM) online search terms made available on
- ---------------------
the AOL Service, combining AOL's Keyword(TM) online search modifier with a term
or phrase specifically related to MP (and determined in accordance with the
terms of this Agreement), and (b) the Go Word online search terms
EXECUTION COPY
CONFIDENTIAL
22
<PAGE>
made available on CompuServe, combining CompuServe's Go Word online search
modifier with a term or phrase specifically related to MP and determined in
accordance with the terms of this Agreement).
Licensed Content. All Content offered through the Affiliated MP Sites pursuant
- ----------------
to this Agreement or otherwise provided by MP or its agents in connection
herewith (e.g., offline or online promotional Content, Promotions, AOL
"slideshows," etc.), including in each case, any modifications, upgrades,
updates, enhancements, and related documentation.
MP Client. The version of MP's proprietary user interface which an AOL User
- ---------
receives upon downloading the MP Software from the AOL Network or which is
included on any CD-ROM distributed pursuant to this Agreement.
MP Competitor. The entities listed on Exhibit B-2, and their Affiliates.
- -------------
MP Interactive Site. Any Interactive Site (other than the Affiliated MP Sites)
- -------------------
which is managed, maintained, owned or controlled by MP or its agents.
MP Software. The version of MP's proprietary client executable Internet postage
- -----------
software, in object code only, which enables end-users to print U.S. postage
electronically made available for download through the AOL Network or on CD-ROM
pursuant to this Agreement..
Netcenter. Netscape Communications Corporation's primary Internet-based
- -----------
Interactive Site marketed under the "Netscape Netcenter/TM/" brand, specifically
excluding (a) the AOL Service, (b) AOL.com, (c) any international versions of
such site, (d) "ICQ," "AOL Netfind/TM/," "AOL Instant Messenger/TM/,"
"NetMail/TM/," "AOL Hometown," "My News," "Digital City(TM)," or any similar
independent product or service offered by or through such site or any other AOL
Interactive Site, (e) any programming or Content area offered by or through such
site over which AOL does not exercise complete operational control (including,
without limitation, Content areas controlled by other parties and member-created
Content areas), (f) any programming or Content area offered by or through the
U.S. version of the America Online(R) brand service which was operated,
maintained or controlled by the former AOL Studios division (e.g., Electra), (g)
any yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through such site or any other AOL Interactive
Site, (h) any property, feature, product or service which AOL or its Affiliates
may acquire subsequent to the Effective Date (unless such new property, feature,
product or service is (i) a mere enhancement of the primary Internet-based
Interactive Site marketed under the "Netscape Netcenter/TM/" brand, is
integrated into such Interactive Site and is not a stand-alone property,
feature, product or service, or (ii) a successor to the primary Internet-based
Interactive Site marketed under the "Netscape Netcenter/TM/" brand), and (i) any
other version of an AOL or Netscape Communications Corporation Interactive Site
which is materially different from Netscape Communications Corporation's primary
Internet-based Interactive Site marketed under the "Netscape Netcenter/TM/"
brand, by virtue of its branding, distribution, functionality, Content or
services, including, without limitation, any co-branded versions and any version
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer (e.g. Custom NetCenters built
specifically for third parties).
Package Insert Program. AOL's program of including third party material or
- ----------------------
products in third party package fullfillment.
Product. The products, goods and/or services set forth on Exhibit D.
- -------
Promotions. The promotions described on Exhibit A, any comparable promotions
- -----------
delivered by AOL in accordance with Section1.1, and any additional promotions of
the Affiliated MP Sites provided by AOL (including, without limitation,
additional Keyword Search Terms and other navigational tools).
EXECUTION COPY
CONFIDENTIAL
23
<PAGE>
Run of Service Inventory. A collection of inventory made up of all areas of the
- -------------------------
relevant AOL property or service. If MP has purchased Run of Service Inventory,
AOL will place MP's creative in different locations throughout the relevant
property or service in accordance with AOL internal policies. Run of Service
Impressions will be delivered reasonably evenly over a given time period. MP
may not control placement within a Run of Service Inventory purchase and AOL
does not guarantee placement on any particular screen or group of screens
(except that Run of Channel Inventory will be run only in the specified
Channel).
Transaction Revenues. The aggregate amount of transaction fees received by MP
- --------------------
from an AOL Purchaser for the printing of U.S. postage using the MP Software,
excluding (a) the cost of such postage, and (b) amounts attributable to
shipping, refunds on unused postage, bad debt, credit card charges, sales or use
taxes or duties, and credits and chargebacks for returned or canceled goods or
services.
USPS. United States Postal Service.
- ----
EXECUTION COPY
CONFIDENTIAL
24
<PAGE>
Exhibit B-1
AOL Competitors
[***]
From time to time AOL shall have the right to add to such list as reasonably
determined by AOL, provided that other than with the approval of MP, which
approval shall not be unreasonably withheld, AOL may add to such list no more
than one new entity once every three months. Notwithstanding the foregoing, to
the extent that MP can demonstrate to AOL's reasonable satisfaction that MP is
engaged in negotiations with any third party that is not listed on this Exhibit,
which negotiations would result in a Change of Control of MP as provided herein,
AOL shall not have the right to add such third party to the list after MP has so
reasonably demonstrated to AOL that MP is in negotiations with such third party.
EXECUTION COPY
CONFIDENTIAL
25
<PAGE>
Exhibit B-2
MP Competitors
Pitney-Bowes
E-Stamp Corporation
Neopost
From time to time MP shall have the right to add to such list as reasonably
determined by MP, provided that other than with the approval of AOL, which
approval shall not be unreasonably withheld, MP (i) may not add Federal Express,
United Parcel Service or their Affiliates, (ii) may only add entities who are
approved to sell Internet USPS postage pursuant to the IBIP Program, and (iii)
may add to such list no more than one new entity (and its Affiliates) once every
three months.
EXECUTION COPY
CONFIDENTIAL
26
<PAGE>
EXHIBIT C
MP Cross-Promotion
------------------
Subject to MP's existing contractual arrangements, within the "Customer Perks"
or other customer benefits area of each Additional MP Channel (each an "MP Web
Site"), at AOL's option, MP shall include one of the following (each an "AOL
Promo"): (i) a prominent promotional banner or button having a size, prominence
and placement location as mutually agreed upon by the parties (but in no event
shall such button have a size, prominence or placement location that is less
favorable, in any respect, than the size, prominence or placement location
provided to any AOL Competitor listed on Exhibit B-1) to promote such AOL
products or services as AOL may designate (for example, the America Online(R)
brand service, the CompuServe(R) brand service, the AOL.com(R) site, Netscape
Netcenter/TM/, any of the Digital City services or the AOL Instant Messenger/TM/
service); or (ii) a prominent "Try AOL" feature having a size, prominence and
placement location as mutually agreed upon by the parties (but in no event shall
such button have a size, prominence or placement location that is less
favorable, in any respect, than the size, prominence or placement location
provided to any AOL Competitor listed on Exhibit B-1) through which users can
obtain promotional information about AOL products or services designated by AOL
and, at AOL's option, download or order the then-current version of client
software for such AOL products or services. AOL will provide the creative
content to be used in the AOL Promo (including designation of links from such
content to other content pages). To the extent MP notifies AOL of reasonable
complaints or concerns regarding the AOL Promo or any other content or materials
linked thereto or associated therewith ("Objectionable AOL Content"), AOL will,
to the extent such Objectionable AOL Content is within AOL's control, use
commercially reasonable efforts to respond in good faith to such complaints or
concerns. MP shall use reasonable efforts to post (or update, as the case may
be) the creative content supplied by AOL within the spaces for the AOL Promos
within five days of its receipt of such content from AOL. In the event that AOL
elects to serve the AOL Promos to the MP Web Site from an ad server controlled
by AOL or its agent, MP shall take all reasonable operational steps necessary to
facilitate such ad serving arrangement including, without limitation, inserting
HTML code designated by AOL on the pages of the MP Web Site on which the AOL
Promos will appear. MP shall not be required to comply with the foregoing if AOL
does not maintain, throughout the Term, a special offer for MP's end users
providing a substantial benefit, as reasonably determined by AOL, either by
virtue of a meaningful price discount, product enhancement, unique service
benefit or other special feature. For the avoidance of doubt, it is understood
and agreed that the AOL Promos shall not promote any MP Competitor, Federal
Express or United Parcel Service, or their Affiliates, or such entity's products
or services. In connection with the foregoing, AOL will pay MP AOL's then
current standard bounty fee for any new subscribers to the AOL Service who
subscribe to the AOL Service through the AOL Promo.
In addition, in a portion of MP's television, radio, print and "out of home"
(e.g., buses and billboards) advertisements and in any publications, programs,
features or other forms of media over which MP exercises at least partial
editorial control, MP will use commercially reasonable efforts to include
specific references or mentions (verbally where possible) of the availability of
the Affiliated MP Site through the AOL Service, which are at least as prominent
as any references that MP makes to its principal Additional MP Channel (by way
of site name, related company name, URL or otherwise).
EXECUTION COPY
CONFIDENTIAL
27
<PAGE>
EXHIBIT D
Description of Products and Other Content
-----------------------------------------
Online mailing and shipping products and services, including
1. services associated with USPS mail and parcel delivery, including any class
of service approved by the USPS
2. printers
3. scales
4. envelopes
5. labels
6. forms
7. shipping supplies
8. insurance for packages
9. such other products and services as the Parties shall mutually agree.
EXECUTION COPY
CONFIDENTIAL
28
<PAGE>
EXHIBIT E
Operations
----------
1. General. The Affiliated MP Sites (including the Products and other
-------
Licensed Content contained therein and provided by MP) will be in the top four
(4) in the online postage industry based on a mutually approved (not to be
unreasonably withheld) cross-section of third-party reviewers who are recognized
authorities in such industry.
2. Affiliated MP Site Infrastructure. MP will be responsible for all
---------------------------------
communications, hosting and connectivity costs and expenses associated with the
Affiliated MP Sites. MP will provide all hardware, software, telecommunications
lines and other infrastructure reasonably necessary to meet traffic demands on
the Affiliated MP Sites from the AOL Network, as determined by MP. MP will
design and implement the network between the AOL Service and Affiliated MP Site
such that (i) no single component failure will have a materially adverse impact
on AOL Members seeking to reach the Affiliated MP Sites from the AOL Network and
(ii) no single line under material control by MP will run at more than 70%
average utilization for a 5-minute peak in a daily period. In this regard, MP
will provide AOL, upon request, with a detailed network diagram regarding the
architecture and network infrastructure supporting the Affiliated MP Sites. In
the event that MP elects to create a custom version of the Affiliated MP Sites
in order to comply with the terms of this Agreement, MP will bear responsibility
for all aspects of the implementation, management and cost of such customized
site.
3. Optimization; Speed. MP will use commercially reasonable efforts to ensure
-------------------
that: (a) the functionality and features within the Affiliated MP Sites are
optimized for the client software then in use by AOL Members; and (b) the
Affiliated MP Sites are designed and populated in a manner that minimizes delays
when AOL Members attempt to access such site. At a minimum, MP will use
commercially reasonable efforts to ensure that the Affiliated MP Sites's data
transfers initiate within fewer than fifteen (15) seconds on average. Prior to
delivery of any Impressions hereunder, MP will permit AOL to conduct performance
and load testing of the Affiliated MP Sites (in person or through remote
communications), with such commercial launch not to commence until such time as
AOL is reasonably satisfied with the results of any such testing. AOL shall
conduct such testing, if any, in a reasonably prompt manner.
4. User Interface. MP will maintain a graphical user interface within the
--------------
Affiliated MP Sites that is competitive in all material respects with interfaces
of other substantially similar sites based on substantially similar form
technology.
5. Technical Problems. MP agrees to use commercially reasonable efforts to
------------------
address material technical problems (over which MP exercises control) affecting
use by AOL Members of the Affiliated MP Sites (a "MP Technical Problem")
promptly following notice thereof. In the event that MP is unable to promptly
resolve a MP Technical Problem following notice thereof from AOL (including,
without limitation, infrastructure deficiencies producing user delays), AOL will
have the right to regulate the promotions it provides to MP hereunder until such
time as MP corrects the MP Technical Problem at issue.
6. Monitoring. MP will use commercially reasonable efforts to ensure that the
----------
performance and availability of the Affiliated MP Sites is monitored on a
continuous basis. MP will provide AOL with contact information (including e-
mail, phone, pager and fax information, as applicable, for both during and after
business hours) for MP's principal business and technical representatives, for
use in cases when issues or problems arise with respect to the Affiliated MP
Sites.
7. Telecommunications. Where applicable MP will utilize encryption
------------------
methodology to secure data communications between the Parties' data centers.
8. Security. MP will utilize Internet standard encryption technologies (e.g.,
--------
Secure Socket Layer - SSL) to provide a secure environment for conducting
transactions and/or transferring private member information (e.g. credit card
numbers, banking/financial information, and member address information) to and
from the Affiliated MP Sites. MP will facilitate periodic reviews of the
Affiliated MP Sites by AOL in order to evaluate the security risks of such site.
MP will promptly remedy any security risks or breaches of security as may be
identified by AOL's Operations Security team.
9. Technical Performance.
---------------------
i. MP will design the Affiliated MP Sites to support the AOL-client
embedded versions of the Microsoft Internet Explorer 3.XX and 4.XX browsers
(Windows and Macintosh)and the Netscape Browser 4.XX and make commercially
reasonable efforts to support all other AOL browsers listed at:
"http://webmaster.info.aol.com."
ii. To the extent MP creates customized pages on the Affiliated MP Sites
for AOL Members, MP will develop and employ a methodology to detect AOL
Members (e.g. examine the HTTP User-Agent field in order to identify the
"AOL Member-Agents" listed at: "http://webmaster. info.aol.com)."
iii. MP will periodically review the technical information made available
by AOL at http://webmaster.info.aol.com.
iv. MP will design its site to support HTTP 1.0 or later protocol as
defined in RFC 1945 and to adhere to AOL's parameters for refreshing or
preventing the caching of information in AOL's proxy system as outlined in
the document provided at the following URL: http://webmaster.info.aol.com.
MP is responsible for the manipulation of these parameters in web-based
objects so as to allow them to be cached or not cached as outlined in RFC
1945.
v. Prior to releasing material, new functionality or features through the
Affiliated MP Sites ("New Functionality"), MP will use
EXECUTION COPY
CONFIDENTIAL
29
<PAGE>
commercially reasonable efforts to (i) test the New Functionality to
confirm its compatibility with AOL Service client software and (ii) provide
AOL with written notice of the New Functionality so that AOL can perform
tests of the New Functionality to confirm its compatibility with the AOL
Service client software. Should any New Functionality through the
Affiliated MP Sites be released without notification to AOL, AOL will not
be responsible for any adverse member experience until such time that
compatibility tests can be performed and the New Functionality qualified
for the AOL Service
10. AOL Internet Services MP Support. AOL will provide MP with access to the
--------------------------------
standard online resources, standards and guidelines documentation, technical
phone support, monitoring and after-hours assistance that AOL makes generally
available to similarly situated web-based partners. AOL support will not, in any
case, be involved with content creation on behalf of MP or support for any
technologies, databases, software or other applications which are not supported
by AOL or are related to any MP area other than the Affiliated MP Sites. Support
to be provided by AOL is contingent on MP providing to AOL demo account
information (where applicable), a detailed description of the Affiliated MP
Sites's software, hardware and network architecture and access to the Affiliated
MP Sites for purposes of such performance and load testing as AOL elects to
conduct.
EXECUTION COPY
CONFIDENTIAL
30
<PAGE>
EXHIBIT F
Standard Online Commerce Terms & Conditions
-------------------------------------------
1. AOL Network Distribution. MP will not authorize any third party to
------------------------
distribute or promote the Products through the AOL Network absent AOL's prior
written approval. The Promotions and any other promotions or advertisements
purchased from or provided by AOL will link only to the Affiliated MP Sites,
will be used by MP solely for its own benefit and will not be resold, traded,
exchanged, bartered, brokered or otherwise offered to any third party.
2. Provision of Other Content. In the event that AOL notifies MP that (i) as
--------------------------
reasonably determined by AOL, any Content within the Affiliated MP Sites
violates AOL's then-standard Terms of Service (as set forth on the America
Online(R) brand service at Keyword term "TOS"), for the AOL Service or any other
AOL property through which the Affiliated MP Site is promoted, the terms of this
Agreement or any other standard, written AOL policy or (ii) AOL reasonably
objects to the inclusion of any Content within the Affiliated MP Sites (other
than any specific items of Content which may be expressly identified or provided
for in this Agreement), then MP will, to the extent such Content is within its
control, take commercially reasonable steps to modify such Content or block
access by AOL Users to such Content using MP's then-available technology. In the
event that MP cannot, through its commercially reasonable efforts, block access
by AOL Users to the Content in question, then MP will provide AOL prompt written
notice of such fact. AOL may then, at its option, restrict access from the AOL
Network to the Content in question using technology available to AOL. MP will
cooperate with AOL's reasonable requests to the extent AOL elects to implement
any such access restrictions.
3. Contests. MP will take all steps necessary to ensure that any contest,
--------
sweepstakes or similar promotion conducted or promoted by MP through the
Affiliated MP Sites (a "Contest") complies with all applicable federal, state
and local laws and regulations.
4. Navigation. Subject to the prior consent of MP, which consent will not be
----------
unreasonably withheld, AOL will be entitled to establish navigational icons,
links and pointers connecting the Affiliated MP Sites (or portions thereof) with
other content areas on or outside of the AOL Network.
5. Disclaimers. Upon AOL's request, MP agrees to include within the Affiliated
-----------
MP Sites a product disclaimer (the specific form and substance to be mutually
agreed upon by the Parties) indicating that transactions are solely between MP
and AOL Users purchasing Products from MP.
6. AOL Look and Feel. MP acknowledges and agrees that AOL will own all right,
-----------------
title and interest in and to the elements of graphics, design, organization,
presentation, layout, user interface, navigation and stylistic convention
(including the digital implementations thereof) which are generally associated
with online areas contained within the AOL Network (other than the Affiliated MP
Sites), subject to MP's ownership rights in any MP trademarks, copyrighted
material, or other intellectual property within the Affiliated MP Sites. With
respect to the Affiliated MP Sites, AOL acknowledges and agrees that MP will own
all right, title and interest in and to the elements of graphics, design,
organization, presentation, layout, user interface, navigation and stylistic
convention (including the digital implementations thereof) which are contained
therein, subject to AOL's ownership rights in any AOL trademarks, copyrighted
material, or other intellectual property contained therein.
7. Management of the Affiliated MP Sites. MP will use reasonable commercial
-------------------------------------
efforts to ensure that the Affiliated MP Sites are current, accurate and well-
organized at all times. MP warrants that (A) the Licensed Content provided by
MP: (i) will not infringe on or violate any copyright, trademark, U.S. patent or
any other third party right, including without limitation, any music performance
or other music-related rights; and (ii) will not violate any applicable law or
regulation, including those relating to contests, sweepstakes or similar
promotions; (B) it owns or has all necessary rights to the Licensed Content to
fulfill its obligations hereunder; and (C) a reasonable basis exists for all
Product performance or comparison claims provided by MP which appear through the
Affiliated MP Sites. In the event that the Licensed Content is found to contain,
or MP reasonably believes that the Licensed Content contains material in
violation of the foregoing, MP may modify of replace such content, at its
discretion. MP shall not in any manner, including, without limitation in any
Promotion, the Licensed Content or any publication state or imply that AOL
recommends or endorses MP or MP's Products (e.g., no statements that MP is an
"official" or "preferred" provider of products or services for AOL). AOL will
have no obligations with respect to the Products available on or through the
Affiliated MP Sites, including, but not limited to, any duty to review or
monitor any such Products.
8. Duty to Inform. MP will promptly inform AOL of any information related to
--------------
the Affiliated MP Sites which could reasonably lead to a claim, demand, or
liability of or against AOL and/or its Affiliates by any third party. AOL will
promptly inform MP of any information related to the Affiliated MP Sites which
could reasonably lead to a claim, demand, or liability of or against MP and/or
its Affiliates by any third party.
9. Customer Service. It is the sole responsibility of MP to provide customer
----------------
service to persons or entities purchasing Products through the AOL Network
("Customers"). MP will bear full responsibility for all customer service,
including without limitation, order processing, billing, fulfillment, shipment,
collection and other customer service associated with any Products offered, sold
or licensed through the Affiliated MP Sites, and AOL will have no obligations
whatsoever with respect thereto. MP will receive all emails from Customers via a
computer available to MP's customer service staff and generally respond to such
emails within two (2) business days of receipt. MP will receive all orders
electronically and generally process all orders within one business day of
receipt, provided Products ordered are not advance
EXECUTION COPY
CONFIDENTIAL
31
<PAGE>
order items. MP will use reasonable commercial efforts to ensure that all orders
of Products are received, processed, fulfilled and delivered on a timely and
professional basis. MP will offer AOL Users who purchase Products (excluding
postage which such user has already printed) through such Affiliated MP Site a
money back satisfaction guarantee. MP will bear all responsibility for
compliance with federal, state and local laws in the event that Products are out
of stock or are no longer available at the time an order is received. Payment
for Products will be collected by MP directly from customers. MP's order
fulfillment operation will be subject to AOL's reasonable review.
10. Production Work. In the event that MP requests AOL's production assistance
---------------
in connection with (i) ongoing programming and maintenance related to the
Affiliated MP Sites, (ii) a redesign of or addition to the Affiliated MP Sites
(e.g., a change to an existing screen format or construction of a new custom
form), (iii) production to modify work performed by a third party provider or
(iv) any other type of production work, MP will work with AOL to develop a
detailed production plan for the requested production assistance (the
"Production Plan"). Following receipt of the final Production Plan, AOL will
notify MP of (i) AOL's availability to perform the requested production work,
(ii) the proposed fee or fee structure for the requested production and
maintenance work and (iii) the estimated development schedule for such work. To
the extent the Parties reach agreement regarding implementation of the agreed-
upon Production Plan, such agreement will be reflected in a separate work order
signed by the Parties. The specific production resources which AOL allocates to
any production work to be performed on behalf of MP will be as determined by AOL
in its sole discretion.
11. Overhead Accounts. To the extent AOL has granted MP any overhead accounts
-----------------
on the AOL Service, MP will be responsible for the actions taken under or
through its overhead accounts, which actions are subject to AOL's applicable
Terms of Service and for any surcharges, including, without limitation, all
premium charges, transaction charges, and any applicable communication
surcharges incurred by any overhead account issued to MP, but MP will not be
liable for charges incurred by any overhead account relating to AOL's standard
monthly usage fees and standard hourly charges, which charges AOL will bear.
Upon the termination of this Agreement, all overhead accounts, related screen
names and any associated usage credits or similar rights, will automatically
terminate. AOL will have no liability for loss of any data or content related to
the proper termination of any overhead account.
12. Navigation Tools. Any Keyword Search Terms to be directed to the
----------------
Affiliated MP Sites shall be (i) subject to availability for use by MP and (ii)
limited to the combination of the Keyword(TM) search modifier combined with a
registered trademark of MP (e.g. "AOL keyword: XYZ Company Name"). AOL reserves
the right to revoke at any time MP's use of any Keyword Search Terms which do
not incorporate registered trademarks of MP. MP acknowledges that its
utilization of a Keyword Search Term will not create in it, nor will it
represent it has, any right, title or interest in or to such Keyword Search
Term, other than the right, title and interest MP holds in MP's registered
trademark independent of the Keyword Search Term. Without limiting the
generality of the foregoing, MP will not: (a) attempt to register or otherwise
obtain trademark or copyright protection in the Keyword Search Term; or (b) use
the Keyword Search Term, except for the purposes expressly required or permitted
under this Agreement. To the extent AOL allows AOL Users to "bookmark" the URL
or other locator for the Affiliated MP Sites, such bookmarks will be subject to
AOL's control at all times. Upon the termination of this Agreement, MP's rights
to any Keyword Search Terms and bookmarking will terminate.
13. Merchant Certification Program. MP will participate in any generally
------------------------------
applicable "Certified Merchant" program operated by AOL or its authorized agents
or contractors. Such program may require merchant participants on an ongoing
basis to meet certain reasonable, generally applicable standards relating to
provision of electronic commerce through the AOL Network (including, as a
minimum, use of 40-bit SSL encryption and if requested by AOL, 128-bit
encryption) and may also require the payment of certain reasonable certification
fees to the applicable entity operating the program. Each Certified Merchant in
good standing will be entitled to place on its affiliated Interactive Site an
AOL designed and approved button promoting the merchant's status as an AOL
Certified Merchant.
14. Search Terms. To the extent this Agreement sets forth any mechanism by
------------
which the Affiliated MP Sites will be promoted in connection with specified
search terms within any AOL product or service, MP hereby represents and
warrants that MP has all consents, authorizations, approvals, licenses, permits
or other rights necessary for MP to use such specified search terms.
Notwithstanding the foregoing, AOL shall have the right to suspend the use of
any search term if AOL has reason to believe continued use may subject AOL to
liability or other adverse consequences.
EXECUTION COPY
CONFIDENTIAL
32
<PAGE>
EXHIBIT G
Standard Legal Terms & Conditions
---------------------------------
1. Promotional Materials. Each Party will submit to the other Party, for its
---------------------
prior written approval, which will not be unreasonably withheld or delayed, any
marketing, advertising, or other promotional materials, excluding Press
Releases, related to the Affiliated MP Sites and/or referencing the other Party
and/or its trade names, trademarks, and service marks (the "Promotional
Materials");provided, however, that, following the Initial Release, either
Party's subsequent factual reference to the existence of a business relationship
between the Parties in Promotional Materials, will not require the approval of
the other Party. Each Party will solicit and reasonably consider the views of
the other Party in designing and implementing such Promotional Materials. Once
approved, the Promotional Materials may be used by a Party and its Affiliates
for the purpose of promoting the Affiliated MP Sites and the content contained
therein and reused for such purpose until such approval is withdrawn with
reasonable prior notice. In the event such approval is withdrawn, existing
inventories of Promotional Materials may be depleted.
2. License. MP hereby grants AOL a non-exclusive, non-transferable, limited
-------
license to market, distribute, reproduce, display, perform, transmit and promote
the Licensed Content (or any portion thereof) through such areas or features of
the AOL Network as AOL deems appropriate, solely for the purpose of promoting MP
and the Affiliated MP Sites. MP acknowledges and agrees that the foregoing
license permits AOL to distribute portions of the Licensed Content in
synchronism or timed relation with visual displays prepared by MP or AOL (e.g.,
as part of an AOL "slideshow"). In addition, AOL Users will have the right to
access and use the Affiliated MP Sites.
3. Trademark License. In designing and implementing the Promotional Materials
-----------------
and subject to the other provisions contained herein, MP and its Affiliates will
be entitled to use the following trade names, trademarks, and service marks of
AOL: the "America Online(R)" brand service, "AOL(TM)" service/software and AOL's
triangle logo, for which AOL holds all rights necessary for use in connection
with this Agreement; and AOL and its Affiliates will be entitled to use the
Stamps.com trademark for use in connection with this Agreement (collectively,
together with the AOL marks listed above, the "Marks"); provided that each
Party: (i) does not create a unitary composite mark involving a Mark of the
other Party without the prior written approval of such other Party; (ii)
displays symbols and notices clearly and sufficiently indicating the trademark
status and ownership of the other Party's Marks in accordance with applicable
trademark law and practice; and (iii) complies with the then-current usage
guidelines of the other Party.
4. Ownership of Trademarks. Each Party acknowledges the ownership right of the
-----------------------
other Party in the Marks of the other Party and agrees that all use of the other
Party's Marks will inure to the benefit, and be on behalf, of the other Party.
Each Party acknowledges that its utilization of the other Party's Marks will not
create in it, nor will it represent it has, any right, title, or interest in or
to such Marks other than the licenses expressly granted herein. Each Party
agrees not to do anything contesting or impairing the trademark rights of the
other Party in such Marks.
5. Quality Standards. Each Party agrees that the nature and quality of its
-----------------
products and services supplied in connection with the other Party's Marks will
conform to reasonable quality standards set by the other Party. Each Party
agrees to supply the other Party, upon request, with a reasonable number of
samples of any Materials publicly disseminated by such Party which utilize the
other Party's Marks. Each Party will comply with all applicable laws,
regulations, and customs and obtain any required government approvals pertaining
to use of the other Party's Marks.
6. Infringement Proceedings. Each Party agrees to promptlynotify the other
------------------------
Party of any unauthorized use of the other Party's Marks of which it has actual
knowledge. Each Party will have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide the other Party
with its reasonable cooperation and assistance with respect to any such
infringement proceedings.
7. Representations and Warranties. (A) Each Party represents and warrants to
------------------------------
the other Party that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of it
hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, this Agreement
will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in this Agreement. (B) MP hereby represents and warrants that it possesses
all authorizations, approvals, consents, licenses, permits, certificates or
other rights and permissions necessary to sell the Products. (C) AOL hereby
represents and warrants (I) that any Content provided by AOL, including without
limitation the AOL Promos: (a) will not infringe on or violate any copyright,
trademark, U.S. patent or any other third party right, including without
limitation, any music performance or other music-related rights; and (b) will
not violate any applicable law or regulation, including those relating to
contests, sweepstakes or similar promotions; and (II) it owns or has all
necessary rights to the Content to fulfill its obligations hereunder. In the
event that such content is found to contain, or AOL reasonably
EXECUTION COPY
CONFIDENTIAL
33
<PAGE>
believes that the Content contains material in violation of the foregoing, AOL
may modify of replace such content, at its discretion.
8. Confidentiality. Each Party acknowledges that Confidential Information may
---------------
be disclosed to the other Party during the course of this Agreement. Each Party
agrees that it will take reasonable steps, at least substantially equivalent to
the steps it takes to protect its own proprietary information, during the Term,
and for a period of three years following expiration or termination of this
Agreement for any reason, to prevent the duplication or disclosure of
Confidential Information of the other Party, other than by or to its employees
or agents who must have access to such Confidential Information to perform such
Party's obligations hereunder, who will each agree to comply with this Section.
Notwithstanding the foregoing, either Party may issue a press release or other
disclosure containing Confidential Information without the consent of the other
Party, to the extent such press release or disclosure is required by law, rule,
regulation or government or court order. In such event, the disclosing Party
will provide at least five (5) business days prior written notice of such
proposed disclosure to the other Party. Further, in the event such disclosure is
required of either Party under the laws, rules or regulations of the Securities
and Exchange Commission or any other applicable governing body, such Party will
(i) redact mutually agreed-upon portions of this Agreement to the fullest extent
permitted under applicable laws, rules and regulations and (ii) submit a request
to such governing body that such portions and other provisions of this Agreement
receive confidential treatment under the laws, rules and regulations of the
Securities and Exchange Commission or otherwise be held in the strictest
confidence to the fullest extent permitted under the laws, rules or regulations
of any other applicable governing body.
9. Limitation of Liability; Disclaimer; Indemnification.
----------------------------------------------------
9.1 Liability. UNDER NO CIRCUMSTANCES WILL EITHER
- --------------
PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL,
SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH OF THE AGREEMENT (EXCEPT FOR
EACH PARTY'S CONFIDENTIALITY OBLIGATIONS), THE SALE OF PRODUCTS, THE USE OR
INABILITY TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED MP
SITES, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS
(COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN
LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A
THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION 9.3. EXCEPT
FOR EACH PARTY'S CONFIDENTIALITY OBLIGATIONS AND AS PROVIDED IN SECTION 9.3, (I)
LIABILITY ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO DIRECT, OBJECTIVELY
MEASURABLE DAMAGES, (II) DURING THE INITIAL TERM THE MAXIMUM LIABILITY OF ONE
PARTY TO THE OTHER PARTY FOR ANY CLAIMS ARISING IN CONNECTION WITH THIS
AGREEMENT WILL NOT EXCEED THE AGGREGATE AMOUNT OF FIXED GUARANTEED PAYMENT
OBLIGATIONS OWED BY MP HEREUNDER IN THE YEAR IN WHICH THE EVENT GIVING RISE TO
LIABILITY OCCURS, AND (III) DURING ANY RENEWAL TERM, THE MAXIMUM LIABILITY OF
ONE PARTY TO THE OTHER PARTY FOR ANY CLAIMS ARISING IN CONNECTION WITH THIS
AGREEMENT WILL NOT EXCEED [***]; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR
THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT
TO THE AGREEMENT.
9.2 No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
- -----------------------------
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE SUBJECT
MATTER HEREOF, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
PARTIES SPECIFICALLY DISCLAIM ANY WARRANTY REGARDING THE PROFITABILITY OF THE
AFFILIATED MP SITES.
9.3 Indemnity. Subject to Section 9.4 below, either Party will defend,
- --------------
indemnify and hold harmless the other Party and the officers, directors, agents,
Affiliates, distributors, franchisees and employees of the other Party from any
and all third party claims, demands, liabilities, costs or expenses, including
reasonable attorneys' fees, resulting from the indemnifying Party's material
breach of any duty, representation, or warranty of this Agreement.
MP Software. Subject to Section 9.4 below, if an action is brought against
-----------
AOL claiming that the use of the MP Software as contemplated hereunder infringes
any United States patent, or any copyright or trade secret rights of a third
party, MP shall defend AOL and shall pay the damages and costs finally awarded
against AOL, or settlements entered into by MP on AOL's behalf (including
reasonable attorneys' fees), in the action. The indemnity set forth herein will
not apply if and to the extent that the infringement claim results from (a) a
correction, modification or unauthorized merged portion of the MP Software not
provided or authorized by MP, (b) the failure to use commercially reasonable
efforts to promptly install an update provided by MP, that does not materially
impair or diminish the functionality of the MP Software, or (c) the combination
of the MP Software with items not provided by MP, if such infringement would
have been avoided by use of the MP Software alone.
If the MP Software, or any part thereof, is, or in the opinion ofMP may
become, the subject of any claim for infringement, then MP may, at its option
and expense, either (i) substitute a substantially equivalent non-infringing
item, (ii) modify the infringing item so that it no longer infringes but remains
functionally equivalent,
EXECUTION COPY
CONFIDENTIAL
34
<PAGE>
(iii) obtain for AOL the right to continue using such item, or (iv) if it is not
commercially reasonable to take the actions specified in items (i)-(iii) above,
terminate this Agreement and AOL's licenses hereunder solely with respect to the
distribution and integration of the MP Software.
Entire Liability. THE FOREGOING PROVISIONS OF THIS SECTION 9.3 STATE THE
----------------
ENTIRE LIABILITY AND OBLIGATIONS OF MP, AND THE EXCLUSIVE REMEDY OF AOL, WITH
RESPECT TO THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER
INTELLECTUAL PROPERTY RIGHT BY THE MP SOFTWARE.
9.4 Claims. Each Party (the "Indemnitee") will promptly notify the other Party
- -----------
(the "Indemnitor") of any claim, action or demand (an "Action") for which
indemnity is claimed, permit the Indemnitor to have sole authority to defend
and/or negotiate a settlement of such Action, with counsel of the Indemnitor's
choice and reasonably acceptable to the Indemnitee, and provide reasonable
assistance and cooperation to the Indemnitor in the investigation, defense and
settlement of such Action at the Indemnitor's expense. The Indemnitee shall be
entitled to participate fully in the defense of any Action at its own expense
with counsel of its choice. The Indemnitor shall have no obligation for any
settlement that the Indemnitor does not approve in writing; provided that the
Indemnitor shall not, without the Indemnitee's prior written consent, enter into
any settlement or compromise that would impose any obligation upon the
Indemnitee, impair the rights of the Indemnitee or require the Indemnitee to pay
any amount.
10. Acknowledgment. AOL and MP each acknowledges that the provisions of this
- ------------------
Agreement were negotiated to reflect an informed, voluntary allocation between
them of all risks (both known and unknown) associated with the transactions
contemplated hereunder. The limitations and disclaimers related to warranties
and liability contained in this Agreement are intended to limit the
circumstances and extent of liability. The provisions of this Section 10 will be
enforceable independent of and severable from any other enforceable or
unenforceable provision of this Agreement.
11. Solicitation of AOL Users. During the term of the Agreement and for a two
-------------------------
year period thereafter, subject to the cure provisions set forth in this
Agreement, MP will not use the AOL Network (including, without limitation, the
e-mail network contained therein) to solicit AOL Users on behalf of an AOL
Competitor specifically listed on Exhibit B-1. More generally, MP will not send
unsolicited, commercial e-mail (i.e., "spam") or other online communications
through or into AOL's products or services, absent a Prior Business
Relationship. For purposes of this Agreement, a "Prior Business Relationship"
will mean that the AOL User to whom commercial e-mail or other online
communication is being sent has voluntarily either (i) engaged in a transaction
with MP or (ii) provided information to MP through a contest, registration, or
other communication, which included clear notice to the AOL User that the
information provided could result in commercial e-mail or other online
communication being sent to that AOL User by MP or its agents. Any commercial e-
mail or other online communications to AOL Users which are otherwise permitted
hereunder, will (a) include a prominent and easy means to "opt-out" of receiving
any future commercial communications from MP, and (b) shall also be subject to
AOL's then-standard restrictions on distribution of bulk e-mail (e.g., related
to the time and manner in which such e-mail can be distributed through or into
the AOL product or service in question).
12. AOL User Communications. To the extent that MP is permitted to communicate
-----------------------
with AOL Users under Section 11 of this Exhibit G, in any such communications to
AOL Users on or off the Affiliated MP Sites (including, without limitation, e-
mail solicitations), MP will not encourage AOL Users to take any action
inconsistentwith the scope and purpose of this Agreement, including without
limitation, the following actions: (i) using an Interactive Site other than the
Affiliated MP Sites for the purchase of Products, or (ii) changing the default
home page on the AOL browser. Additionally, with respect to such AOL User
communications, in the event that MP encourages an AOL User to purchase products
through such communications, MP shall ensure that (a) the AOL Network is
promoted as the primary means through which the AOL User can access the
Affiliated MP Sites and (b) any link to the Affiliated MP Sites will link to a
page which indicates to the AOL User that such user is in a site which is
affiliated with the AOL Network.
13. Collection and Use of User Information. MP shall ensure that its
--------------------------------------
collection, use and disclosure of information obtained from AOL Users under this
Agreement ("User Information") complies with (i) all applicable laws and
regulations and (ii) AOL's standard privacy policies, available on the AOL
Service at the keyword term "Privacy" (or, in the case of the Affiliated MP
Sites, MP's standard privacy policies so long as such policies are prominently
published on the site and provide adequate notice, disclosure and choice to
users regarding MP's collection, use and disclosure of user information). MP
will not disclose User Information collected hereunder to any third party in a
manner that identifies AOL Users as end users of an AOL product or service or
use User Information collected under this Agreement to market an AOL Competitor.
14. Excuse. Neither Party will be liable for, or be considered in breach of or
------
default under this Agreement on account of, any delay or failure to perform as
required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
15. Independent Contractors. The Parties to this Agreement are independent
-----------------------
contractors. Neither Party is an agent, representative or employee of the other
Party. Neither Party will have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other Party. This Agreement will not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
EXECUTION COPY
CONFIDENTIAL
35
<PAGE>
16. Notice. Any notice, approval, request, authorization, direction or other
------
communication under this Agreement will be given in writing and will be deemed
to have been delivered and given for all purposes (i) on the delivery date if
delivered by confirmed facsimile; (ii) on the delivery date if delivered
personally to the Party to whom the same is directed; (iii) one business day
after deposit with a commercial overnight carrier, with written verification of
receipt; or (iv) five business days after the mailing date, whether or not
actually received, if sent by U.S. mail, return receipt requested, postage and
charges prepaid, or any other means of rapid mail delivery for which a receipt
is available. In the case of AOL, such notice will be provided to both the
Senior Vice President for Business Affairs (fax no. 703-265-1206) and the Deputy
General Counsel (fax no. 703-265-1105), each at the address of AOL set forth in
the first paragraph of this Agreement. In the case of MP, such notice will be
provided to both Doug Walner and Stamps.com Legal Department (each at fax no.
310-314-8535), each at the address for MP set forth in the first paragraph of
this Agreement.
17. Launch Dates. In the event that any terms contained herein relate to or
------------
depend on the commercial launch date of the Affiliated MP Sites contemplated by
this Agreement (the "Launch Date"), then it is the intention of the Parties to
record such Launch Date in a written instrument signed by both Parties promptly
following such Launch Date; provided that, in the absence of such a written
instrument, the Launch Date will be as mutually agreed upon by the Parties.
18. No Waiver. The failure of either Party to insist upon or enforce strict
---------
performance by the other Party of any provision of this Agreement or to exercise
any right under this Agreement will not beconstrued as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect.
19. Return of Information. Upon the expiration or termination of this
---------------------
Agreement for any reason, each Party will, upon the written request of the other
Party, return or destroy (at the option of the Party receiving the request) all
Confidential Information, documents, manuals and other materials specified by
the other Party.
20. Survival. Sections 1.2, 5.7 and 6 of the body of the Agreement; Sections 8
--------
through 10, the first sentence of Section 11, 14 through 16, 18 through 20, and
27 of this Exhibit; and Section 6 of Exhibit H, will survive the completion,
expiration, termination or cancellation of this Agreement for any reason.
21. Entire Agreement. This Agreement sets forth the entire agreement and
----------------
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein. Neither Party will be bound by, and each Party
specifically objects to, any term, condition or other provision which is
different from or in addition to the provisions of this Agreement (whether or
not it would materially alter this Agreement) and which is proffered by the
other Party in any correspondence or other document, unless the Party to be
bound thereby specifically agrees to such provision in writing.
22. Amendment. No change, amendment or modification of any provision of this
---------
Agreement will be valid unless set forth in a written instrument signed by the
Party subject to enforcement of such amendment, and in the case of AOL, by an
executive of at least the same standing to the executive who signed the
Agreement.
23. Further Assurances. Each Party will take such action (including, but not
------------------
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or continuing
performance of this Agreement.
24. Assignment. Except as otherwise provided in this Section 24, MP will not
----------
assign this Agreement or any right, interest or benefit under this Agreement
without the prior written consent of AOL. Notwithstanding the foregoing, MP may
assign this Agreement, upon thirty (30) days prior written notice to AOL, to a
corporation or limited liability company or other entity which meets the
following criteria: (a) such entity is not an AOL Competitor listed on Exhibit
B-1, (b) such entity intends to conduct after the assignment the business
conducted by MP prior to the assignment, and (c) such entity is of equal or
superior creditworthiness to MP, as determined by AOL in its reasonable
discretion. Subject to the foregoing, this Agreement will be fully binding upon,
inure to the benefit of and be enforceable by the Parties hereto and their
respective successors and assigns.
25. Construction; Severability. In the event that any provision of this
--------------------------
Agreement conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction over the
Parties to this Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law, and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect.
26. Remedies. Except where otherwise specified, the rights and remedies
--------
granted to a Party under this Agreement are cumulative and in addition to, and
not in lieu of, any other rights or remedies which the Party may possess at law
or in equity; provided that, in connection with any dispute hereunder, MP will
not be entitled to offset any amounts that it claims to be due and payable from
AOL against amounts otherwise payable by MP to AOL hereunder.
27. Applicable Law. Except as otherwise expressly provided herein, this
--------------
Agreement will be interpreted, construed and enforced in all respects in
accordance with the laws of the Commonwealth of Virginia except for its
conflicts of laws principles.
28. Export Controls. Both Parties will adhere to all applicable laws,
---------------
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the other
Party or the direct product of such technical data to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized.
29. Headings. The captions and headings used in this Agreement are inserted
--------
for convenience only and will not affect themeaning or interpretation of this
Agreement.
EXECUTION COPY
CONFIDENTIAL
36
<PAGE>
30. Counterparts. This Agreement may be executed in counterparts, each of
------------
which will be deemed an original and all of which together will constitute one
and the same document
EXECUTION COPY
CONFIDENTIAL
37
<PAGE>
EXHIBIT H
SOFTWARE DISTRIBUTION TERMS AND CONDITIONS
------------------------------------------
1. Terms and Conditions. The following terms and conditions shall govern the
--------------------
distribution by AOL of the MP Software.
2. Definitions. As used in this Exhibit H, the following terms shall have the
-----------
following meanings:
"Affiliate" shall mean an entity in which AOL holds at least a nineteen
---------
percent (19%) equity interest.
"Authorized Testing Service" shall mean any third-party person or entity
--------------------------
designated in writing by AOL, in its sole discretion, to offer support and
quality assurance services relating to interoperability of third party
products with AOL Software (as defined below).
"Customer" shall mean end-user customers of the MP Software.
--------
"Documentation" shall mean the documentation provided to AOL by MP for use
-------------
with the MP Software.
"Software License Agreement" shall mean MP's standard software license
--------------------------
agreement between MP and Customers, as provided by MP to AOL for inclusion
with the MP Software.
3. License Grant; Ownership. Subject to all the terms and conditions of this
------------------------
Agreement, MP hereby grants to AOL and its Affiliates a non-exclusive, non-
transferable, royalty-free license to use, reproduce, market, promote and
distribute to end users through its usual and customary channels of
distribution, solely to the limited extent and for the express purposes
stated herein, the MP Software in object code form, through CD-ROMs or any
other physical media containing software ("AOL Software") used to access all
or any part of the AOL Network. Subject only to the limited rights and
licenses expressly granted herein, MP shall retain all right, title and
interest in and to the MP Software and each copy thereof, and all
intellectual property rights with respect thereto.
4. Copying/Reverse Engineering. AOL agrees not to (i) disassemble, decompile
---------------------------
or otherwise reverse engineer the MP Software or otherwise attempt to learn
the source code, structure, algorithms or ideas underlying the MP Software,
(ii) take any action contrary to MP's Software License Agreement, except as
expressly and unambiguously agreed upon by MP in writing, (iii) alter or
modify the MP Software except as agreed upon by MP in writing, (iv) attempt
to disable any security devices or codes incorporated in the MP Software, or
(v) allow or assist others to do any of the foregoing.
5. MP's Obligations.
----------------
i) Certification Requirements. AOL shall provide to MP a written
--------------------------
copy of, and MP shall comply with, all quality assurance and
testing requirements for the MP Software to be distributed by AOL
hereunder, as may be reasonably amended by AOL from time to time,
and together with any other reasonable quality assurance and
testing requirements delivered by AOL in writing (including
amendments) to MP, the ("Certification Requirements").
ii) Support and Quality Assurance by the Authorized Testing Service.
---------------------------------------------------------------
The Authorized Testing Service shall provide support and quality
assurance testing with respect to the MP Software and
interoperability of such products with the AOL Software and
applicable AOL service. Support and quality assurance testing
shall be provided on terms and conditions to be worked out between
MP and the Authorized Testing Service and at MP's expense. In
connection with the foregoing, MP shall deliver a master copy of
the MP Software in object code form, along with any required
Documentation to the Authorized Testing Service and AOL. The
Authorized Testing Service shall perform quality assurance testing
on the MP Software in accordance with the Certification
Requirements. If and when the Authorized Testing Service
determines that any such product meets the relevant Certification
Requirements, the Authorized Testing Service shall then certify in
writing that such product is a "Complying Product". AOL shall use
commercially reasonable efforts, if and to the extent within its
control and consistent with the purposes hereof, to help expedite
such testing processes by the Authorized Testing Service.
38
EXECUTION COPY
CONFIDENTIAL
<PAGE>
iii) AOL Release Approval. AOL shall have the right to inspect the
--------------------
Complying Product prior to commercial production or public release
by AOL under this Agreement. AOL shall, in its discretion (but
based upon commercially reasonable factors, including without
limitation a change of control of MP, or technical or operational
problems or incompatibilities), provide notice of approval or
rejection within fifteen (15) business days of receiving
certification from the Authorized Testing Service that such
product is a Complying Product together with a copy of the
Complying Product. AOL shall have no obligation to distribute any
copy of the MP Software that has not first obtained release
approval from AOL. The parties may negotiate in good faith to cure
any circumstance or issue causing AOL to so reject, provided that
if AOL does not approve release pursuant to this Section 5(iii),
then AOL shall refund to MP a pro rata portion of the portion of
the Guaranteed Payment allocated to the distribution of MP
Software pursuant to this Exhibit H.
iv) Re-certification Requirements. Revisions of copies of the MP
-----------------------------
Software that have previously been certified by the Authorized
Testing Service must be re-certified. For purposes of this
provision, a "revision" is defined as any version of a Complying
Product that contains programming code that differs materially
from the Complying Product. Without limiting the foregoing,
revisions include maintenance updates, patches, fixes, and new
releases of a Complying Product. Revisions to a Complying Product
shall be re-certified according to the Certification Requirements,
unless AOL or the Authorized Testing Service first provides to MP
in writing a list of "Re-Certification Requirements," if any, in
which case such Re-Certification Requirements shall apply.
6. AOL's Distribution Obligations. Subject to the provisions of Section 5 of
------------------------------
this Exhibit H, and provided that MP is not in material breach of this
Agreement after the expiration of any applicable cure period, AOL shall use
commercially reasonable efforts to distribute the MP Software with a minimum
number of [***] CD-ROMs containing the AOL Software which is sent by AOL in
direct marketing programs targeted to prospective customers located in North
America, during the Initial Term; provided however, that AOL's failure to
distribute the minimum number of CD-ROMs required hereunder during the
Initial Term shall not constitute a breach of this Agreement by AOL; instead
AOL shall be required after the Initial Term to distribute a number of CD-
ROMs sufficient to reach such minimum number. In the event that AOL
discontinues the distribution of AOL Software via CD-ROMs, AOL will work
with MP to provide MP with distribution opportunities that are reasonably
satisfactory to MP (e.g. continuation of integration on the AOL Network),
and reasonably calculated to provide downloads of the MP Software equal in
number to the downloads which would have been reasonably anticipated had the
minimum number of CD-ROMs been distributed ("Substitute Distribution").
Notwithstanding the foregoing, AOL agrees to distribute a minimum of [***]
of the above-referenced CD-ROMs during the first contract year. For the
avoidance of doubt, it is understood and expressly agreed that the CD-ROMs
to be distributed by AOL pursuant to this Agreement shall be in addition to,
and not in lieu of, those which AOL is required to distribute pursuant to
the Prior Agreement. When the end-user installs the AOL Software on the end-
user's system, the MP Software installation program will be automatically
copied onto the end-user's hard drive, and the end-user will be presented
with the opportunity to install the MP Software. AOL will distribute the MP
Software together with, and subject to, the terms of the Software License
Agreement furnished by MP. Notwithstanding the foregoing, (i) once AOL
begins distribution of the MP Software, AOL shall not be obligated to
distribute any updates or upgrades to the MP Software, and (ii) AOL reserves
the right, in the event of technical problems or incompatibilities (e.g.,
new "bugs")(collectively, an "Adverse User Situation"), not to include any
MP Software on such CD-ROMs (a "Pull"); provided however that, in the event
of a Pull, AOL shall deliver written notice thereof to MP within five (5)
business days of such Pull. A Pull will remain in effect as long as any
Adverse User Situation remains, in AOL's reasonable discretion.
Notwithstanding any provision of this Agreement to the contrary, AOL (i)
shall not be required to include the MP Software on all CD-ROMs distributed
during the Term and (ii) may discontinue the distribution of CD-ROMs at any
time during the Term; provided, however, that AOL shall provide MP with
Substitute Distribution.
7. Distribution Requirements. End-users who install the MP Software
-------------------------
distributed pursuant to this will be prompted to send an electronic
registration to MP the first time they attempt to use the MP Software via
the end-user system on which the MP Software is installed. During such
electronic registration, MP shall create a process by which such end-user
will be identified as a user obtained through the CD-ROMs distributed by AOL
hereunder. AOL agrees not to interfere with, obfuscate, remove or alter any
of the automatic installation mechanisms, electronic registration
mechanisms, or patent, copyright or other proprietary rights notices
included in the MP Software provided by MP to AOL. AOL's obligations
EXECUTION COPY
CONFIDENTIAL
39
<PAGE>
under this Section 7 shall be contingent upon MP's delivery of MP Software
that has been quality assurance tested in accordance with Section 5 hereof.
8. Installation and Support. MP shall be solely responsible for providing
------------------------
Customers with installation, maintenance and technical integration support
with respect to the MP Software. AOL shall notify MP as soon as possible of
AOL's receipt of any customer requests for support or assistance with
respect to the MP Software.
9. Size of MP Software. MP agrees that the file size of the MP Software shall
-------------------
be at all times during the Term less than 7.5 megabytes.
10. "Above the Fold" Placement. The MP Software shall be listed "above the
--------------------------
fold" among software available for download as part of the CD Extras section
of any CD-ROM distributed in fulfillment of this Exhibit H.
EXECUTION COPY
CONFIDENTIAL
40
<PAGE>
Exhibit I
Technology Integration
----------------------
Download Areas
- --------------
In accordance with the Launch Dates below, AOL shall make the MP Software
available for download on the AOL Network as follows:
[***]
EXECUTION COPY
CONFIDENTIAL
41
<PAGE>
[***]
EXECUTION COPY
CONFIDENTIAL
42
<PAGE>
EXHIBIT J
---------
CO-BRANDING REQUIREMENTS
------------------------
I. AOL Service. Commencing on a mutually agreed upon date(s) after the
-----------
Effective Date. MP shall create a version of the principal Additional MP
Channel customized for distribution through the AOL Service (the "MP/AOL
Service Site") by (w) developing the MP/AOL Service Site as a "cul de sac"
site containing no links outside of the MP/AOL Service Site other than to
an agreed upon point on the AOL Service or other AOL or third party Content
determined mutually by the Parties, but in no event to an area promoting an
MP Competitor (x) displaying on each page of the MP/AOL Service Site
headers and footers of size and type determined by MP, after good faith
consideration of AOL's requirements, and which contain both AOL Service and
MP branding and (y) using commercially reasonable efforts to program each
page of the MP/AOL Service Site with a co-branded domain name (e.g.,
stamps.aol.com). Subject to the terms of this Agreement, the MP/AOL Service
Site shall contain Content of substantially the same quality, scope,
functionality, terms and conditions as the Content on any Additional MP
Channel. MP will, subject to the terms of this Agreement, program and
manage the Content on the MP/AOL Service Site for distribution through AOL
Service.
II. AOL.com. Commencing on a mutually agreed upon date(s) after the Effective
-------
Date. MP shall create a version of the principal Additional MP Channel
customized for distribution through AOL.com (the "MP/AOL.com Site") by (w)
developing the MP/AOL.com Site as a "cul de sac" site containing no links
outside of the MP/AOL.com Site other than to an agreed upon point on
AOL.com or other AOL or third party Content determined mutually by the
Parties, but in no event to an area promoting an MP Competitor (x)
displaying on each page of the MP/AOL.com Site headers and footers of size
and type determined by MP, after good faith consideration of AOL's
requirements, and which contain both AOL.com and MP branding and (y) using
commercially reasonable efforts to program each page of the MP/AOL.com Site
with a co-branded domain name (e.g., stamps.aol.com). Subject to the terms
of this Agreement, the MP/AOL.com Site shall contain Content of
substantially the same quality, scope, functionality, terms and conditions
as the Content on any Additional MP Channel. MP will, subject to the terms
of this Agreement, program and manage the Content on the MP/AOL.com Site
for distribution through AOL.com.
III. CompuServe Service. Commencing on a mutually agreed upon date(s) after the
------------------
Effective Date. MP shall create a version of the principal Additional MP
Channel customized for distribution through CompuServe (the "MP/CIS Site")
by (w) developing the MP/CIS Site as a "cul de sac" site containing no
links outside of the MP/CIS Site other than to an agreed upon point on the
CompuServe or other AOL or third party Content determined mutually by the
Parties, but in no event to an area promoting an MP Competitor (x)
displaying on each page of the MP/CIS Site headers and footers of size and
type determined by MP, after good faith consideration of AOL's
requirements, and which contain both CIS and MP branding and (y) using
commercially reasonable efforts to program each page of the MP/CIS Site
with a co-branded domain name (e.g., stamps.compuserve.com). Subject to the
terms of this Agreement, the MP/CIS Site shall contain Content of
substantially the same quality, scope, functionality, terms and conditions
as the Content on any Additional MP Channel. MP will, subject to the terms
of this Agreement, program and manage the Content on the MP/CIS Site for
distribution through CIS.
IV. Netscape Netcenter. Commencing on a mutually agreed upon date(s) after the
------------------
Effective Date. MP shall create a version of the principal Additional MP
Channel customized for distribution through Netcenter (the "MP/Netcenter
Site") by (w) developing the MP/Netcenter Site as a "cul de sac" site
containing no links outside of the MP/Netcenter Site other than to an
agreed upon point on Netcenter or other AOL or third party Content
determined mutually by the Parties, but in no event to an area promoting an
MP Competitor (x) displaying on each page of the MP/Netcenter Site headers
and footers of size and type determined by MP, after good faith
consideration of AOL's requirements, and which contain both Netcenter and
MP branding and (y) using commercially reasonable efforts to program each
page of the MP/Netcenter Site with a co-branded domain name (e.g.,
stamps.netcenter.com). Subject to the terms of this Agreement, the
MP/Netcenter Site shall contain Content of substantially the same quality,
scope, functionality, terms and conditions as the Content on any Additional
MP Channel. MP will, subject to the terms of this Agreement, program and
manage the Content on the MP/Netcenter Site for distribution through
Netcenter.
EXECUTION COPY
CONFIDENTIAL
43
<PAGE>
V. Digital City. Commencing on a mutually agreed upon date(s) after the
------------
Effective Date. MP shall create a version of the principal Additional MP
Channel customized for distribution through Digital City (the "MP/DCI
Site") by (w) developing the MP/DCI Site as a "cul de sac" site containing
no links outside of the MP/DCI Site other than to an agreed upon point on
Digital City or other AOL or third party Content determined mutually by the
Parties, but in no event to an area promoting an MP Competitor (x)
displaying on each page of the MP/DCI Site headers and footers of size and
type determined by MP, after good faith consideration of AOL's
requirements, and which contain both Digital City and MP branding and (y)
using commercially reasonable efforts to program each page of the MP/DCI
Site with a co-branded domain name (e.g., stamps.digitalcity.com). Subject
to the terms of this Agreement, the MP/DCI Site shall contain Content of
substantially the same quality, scope, functionality, terms and conditions
as the Content on any Additional MP Channel. MP will, subject to the terms
of this Agreement, program and manage the Content on the MP/DCI Site for
distribution through AOL Service.
EXECUTION COPY
CONFIDENTIAL
44
<PAGE>
EXHIBIT K
MAILING LISTS
-------------
1. AOL will extend a [***] discount to Stamps.com off the standard base rental
rate for any AOL mailing list available for rental. This discount will only
apply to approved Stamps.com list orders that are placed by Stamps.com
directly, and not through a 3rd-party list broker.
2. All additional data selects will be billed at 100% of published data card
rates.
3. AOL's list management company, List Services, Inc, must receive a final mail
sample along with every list order submitted for approval. Rental of mailing
lists will be subject to AOL's standard terms and conditions.
4. As with any mailer, Stamps.com will be required to sign and return the
standard AOL List Rental Agreement to List Services, before AOL can fulfill
the first list rental order.
EXECUTION COPY
CONFIDENTIAL
45
<PAGE>
EXHIBIT 10.35
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
made on the 20th day of October, 1999, by and between Stamps.com Inc., a
Delaware corporation (the "Company") and America Online, Inc., a Delaware
corporation (the "Investor").
WHEREAS, the Company and the Investor desire to enter into certain
strategic relationships;
WHEREAS, as an incentive to enter into these strategic relationships,
the Company desires to issue and sell, and the Investor desires to purchase,
shares of the Company's Common Stock (the "Common Stock") and a warrant in the
form attached hereto as Exhibit A (the "Warrant") in accordance with the terms
---------
and conditions set forth herein; and
NOW, THEREFORE, the parties hereby agree as follows:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Common Stock at First Closing. On the terms
--------------------------------------------------
and subject to the conditions of this Agreement, the Investor agrees to purchase
and the Company agrees to sell and issue to Investor, at the First Closing (as
provided in Section 1.3):
(a) One Hundred Seventy Eight Thousand Six Hundred Thirty Five
(178,635) shares of Common Stock at the First Closing (as defined in Section
1.2) for a per share purchase price equal to $33.588 (the "First Closing
Purchase Price"); and
(b) A Warrant to purchase shares of Common Stock, at the
exercise price and otherwise on the terms set forth therein.
1.2 Subsequent Purchase. In the event that the Company consummates a
-------------------
Qualified Equity Financing (as hereinafter defined) within six (6) months of the
date of this Agreement, then, on the terms and subject to the conditions of this
Agreement, the Investor agrees to purchase and the Company agrees to sell and
issue to the Investor, concurrently with the closing of the Qualified Equity
Financing, shares of Common Stock equal to the quotient of (A) $5,000,000
divided by (B) the Second Closing Purchase Price (as hereinafter defined). As
used herein, the "Second Closing Purchase Price" shall mean the lesser of (A)
the First Closing Purchase Price and (B) the gross price per share of the
Company's Common Stock offered in the Qualified Equity Financing, unless the
Qualified Equity Financing is an underwritten public offering, in which case the
price per share hereunder shall be the price per share of Common Stock to the
public (net of underwriting discounts and commissions).
1.3 Closings.
--------
(a) The purchase and sale of the Common Stock and the Warrant at
the First Closing shall take place at the offices of the Company on the date of
this Agreement, or
1
<PAGE>
at such other time and place as the Company and the Investor mutually agree
(which time and place are designated as the "First Closing").
(b) The purchase and sale of the Common Stock at the Second
Closing, if any, shall take place at the offices of the Company on the date and
at the time of closing of the Qualified Equity Financing, or at such other time
and place as the Company and the Investor mutually agree (which time and place
are designated as the "Second Closing"; each of the First Closing and Second
Closing shall be referred to as a "Closing"). As used herein, a "Qualified
Equity Financing" shall mean any equity financing in which the Company receives
aggregate net cash proceeds (net of any discounts, commissions and transaction
expenses) in an amount equal to $75,000,000 (exclusive of any amounts invested
by the Investor under this Agreement).
(c) At each of the First and Second Closing, the Company shall
deliver to the Investor a certificate representing the Common Stock that the
Investor is purchasing and, at the First Closing, the Warrant, in each case
against payment of the purchase price therefor by check, wire transfer, or any
combination thereof.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investor that:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own or lease and to operate its properties, to carry on its business as now
conducted and as proposed to be conducted, to enter into this Agreement and the
Warrant and carry out the provisions hereof and thereof. The Company is duly
qualified to transact business and is in good standing in the State of
California and in each other jurisdiction in which the failure to so qualify
would have a material adverse effect on its business or properties.
2.2 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Warrant, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance, sale and delivery of the Common Stock and the Warrant being sold
hereunder and the authorization, reservation, sale and delivery of the shares of
Common Stock issuable upon the Second Closing (if any) and upon the exercise or
exchange of the Warrant has been taken. This Agreement and the Warrant have been
duly executed and delivered by the Company and each constitutes a valid and
legally binding obligation of the Company, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
2.3 Valid Issuance of Common Stock.
------------------------------
(a) The Common Stock that is being or may be purchased by the
Investor hereunder, when issued, sold and delivered in accordance with the terms
of this
2
<PAGE>
Agreement for the consideration set forth herein, will be duly authorized and
duly and validly issued, fully paid and nonassessable and will be free and clear
of all claims, liens and charges of the Company and free of restrictions on
transfer, other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
(b) The Common Stock issuable upon exercise of the Warrant, when
issued, sold and delivered in accordance with the terms of the Warrant for the
consideration set forth therein, will be duly authorized and duly and validly
issued, fully paid and nonassessable and will be free and clear of all claims,
liens and charges of the Company and free of restrictions on transfer, other
than restrictions on transfer under the Warrant and under applicable state and
federal securities laws.
(c) The issuance of Common Stock under this Agreement or upon
exercise or exchange of the Warrant will not give rise to any preemptive rights,
rights of first refusal or offer or similar rights in favor of any person
(whether conferred by statute, under contract or otherwise).
2.4 Consents and Approvals. The Company has made, filed, given or
----------------------
obtained (a) all consents, approvals or authorizations of, expiration or
termination of any waiting period requirements of, or filings, registrations,
qualifications, declarations or designations with or by any governmental or
political subdivision or department thereof, any governmental regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether domestic or
foreign, federal, state or local ("Governmental Authority") that are required to
be made, filed, given or obtained by the Company or controlling persons with, to
or from any Governmental Authority in connection with this Agreement and the
Warrant and (b) all consents, approvals and waivers required to be given by, or
obtained from, any person or entity to or by the Company in connection with the
consummation of the Agreement and the Warrant.
2.5 Capitalization. As of September 30, 1999, the authorized capital
--------------
stock of the Company consisted of shares of capital stock divided into two
classes or series as follows: (i) 95,000,000 shares of Common Stock, of which
34,816,859 shares were outstanding on such date and (ii) 5,000,000 shares of
Preferred Stock, of which none were outstanding on such date. The Common Stock
has been designated and listed on the Nasdaq National Market. All shares of the
Company's capital stock outstanding on the date hereof have been duly authorized
and are duly and validly issued, fully paid and nonassessable, free from any
liens created by the Company with respect to the issuance and delivery thereof,
and not subject to preemptive rights, rights of first refusal or offer or any
similar rights (whether conferred by statute, under contract or otherwise). As
of September 30, 1999, there are outstanding options to purchase 6,378,864
shares of Common Stock and warrants to purchase 7,050 shares of Common Stock.
2.6 SEC Documents; the Company Financial Statements.
-----------------------------------------------
(a) The Company has timely filed with the Securities and
Exchange Commission (the "SEC") all SEC Documents (as hereinafter defined)
during the period from June 30, 1999 to the date hereof required to be filed by
it pursuant to the Federal securities laws and the SEC rules and regulations
promulgated thereunder. The SEC Documents filed by the
3
<PAGE>
Company since June 30, 1999 were prepared in accordance with, and as of their
respective filing dates complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
SEC thereunder, as the case may be, and none of the SEC Documents 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 made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent such SEC Documents are corrected, updated or superseded by a document
subsequently filed with the SEC. "SEC Documents" means each report, schedule,
form, statement or other document filed with the SEC by the Company pursuant to
Section 12 or 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
or pursuant to the Act (as defined below).
(b) The financial statements of the Company, including the notes
thereto, included in the SEC Documents (the "Company Financial Statements")
comply in all material respects as to form with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q under the Exchange Act) and
present fairly the financial position of the Company at the dates thereof and
the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited financial statements, to normal year-end
adjustments). There has been no change in the Company's accounting policies
except as described in the notes to the Company Financial Statements.
(c) Except as reflected or reserved against in the Company
Financial Statements, the Company has no material liabilities or other
obligations, except for liabilities and obligations (i) incurred in the ordinary
course of business since the date of the most recent Company Financial
Statements or (ii) that would not be required to be reflected or reserved
against in the balance sheet of the Company prepared in accordance with GAAP.
(d) As of the date hereof, the Company has not received notice
of any pending investigation of the Company by the SEC.
2.7 No Conflicts.
------------
(a) The execution and delivery by the Company of this Agreement
and the Warrant does not, and the performance by the Company of its obligations
under this Agreement and the consummation of the transactions contemplated
hereby do not and will not:
(i) conflict with or result in a violation or breach of
any of the terms, conditions or provisions of the certificate of incorporation
or bylaws of the Company;
(ii) conflict with or result in a material violation or
material breach of any law, statute, rule, regulation, order, injunction or
decree applicable to the Company or its assets or properties;
(iii) except as would not (A) have a material adverse effect
on the business or condition of the Company, (B) prevent or impair the ability
of the Company to perform any of its obligations under this Agreement or under
the Warrant and (C) delay, impair
4
<PAGE>
or prevent the consummation of any of the transactions contemplated by this
Agreement or by the Warrant (1) conflict with or result in a violation or breach
of, (2) constitute a default (or an event that, with or without notice or lapse
of time or both, would constitute a default) under, (3) require the Company to
obtain any consent, approval or action of, make any filing with or give any
notice to any person as a result of the terms of, (4) result in or give to any
person any right of termination, cancellation, acceleration or modification in
or with respect to, (5) result in or give to any person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments or
performance under, (6) result in the creation or imposition of (or the
obligation to create or impose) any lien upon the Company or any of its assets
or properties or (7) result in the loss of a material benefit under, any of the
terms, conditions or provisions of any contract or license to which the Company
is a party or by which any of its assets and properties are bound, except for
consents, approvals or actions of third parties that have been obtained.
(b) The Company is not in violation of any term of its
certificate of incorporation or bylaws.
2.8 Absence of Certain Changes or Events. Since June 30, 1999
------------------------------------
("Company Balance Sheet Date"), the Company has conducted its business in the
ordinary course in a manner consistent with past practice and there has not
occurred: (i) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
shares of capital stock; (ii) any material amendment or change to the Company's
certificate of incorporation or bylaws; (iii) any split, combination or
reclassification of the Common Stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Common Stock; (iv) any damage, destruction or loss of property,
whether or not covered by insurance, that has or is reasonably likely to have a
material adverse effect on the Company; (v) any material change in accounting
methods, principles or practices by the Company, except insofar as may have been
required by a change in generally accepted accounting principles; or (vi) any
negotiation or agreement by the Company to do any of the things described in the
preceding clauses (i) through (iii) and (v).
2.9 Compliance with Laws. The Company has complied with, is not in
--------------------
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply which would neither reasonably be
expected to have a material adverse effect on the Company nor prevent or impair
the ability of the Company to perform any of its obligations under this
Agreement or under the Warrant and delay, impair or prevent the consummation of
any transactions contemplated by this Agreement or by the Warrant.
2.10 Actions, Suits or Proceedings. Except as otherwise described in
-----------------------------
the Company's SEC Documents, no action, suit or proceeding by or before any
court or governmental agency, authority or body or any arbitrator involving the
Company or its property is pending, or to the best knowledge of the Company,
threatened that could (i) have a material adverse effect on the Company, (ii)
prevent or impair the ability of the Company to perform any of its obligations
under this Agreement or under the Warrant, or (iii) delay, prevent or impair the
consummation of any of the transactions contemplated by this Agreement or by the
Warrant.
5
<PAGE>
2.11 Intellectual Property Rights. Except as otherwise described in
----------------------------
the Company's SEC Documents: (a) 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 currently
conducted; (b) the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not reasonably be
expected to result in a material adverse effect on the Company; (c) 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 (d) 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, would reasonably be expected to have a material adverse
effect on the Company. Except as otherwise disclosed in the Company's SEC
Documents, there is no claim being made or, to the knowledge of the Company,
threatened to be made, against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. Except as otherwise
disclosed in the Company's SEC Documents, the Company, to its knowledge, does
not in the current conduct of its business 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 effect on the Company.
2.12 Year 2000 Preparedness. There are no issues related to the
----------------------
Company's preparedness for the Year 2000 that (a) are of a character required to
be described or referred to in the Company's SEC Documents which have not been
accurately described in the Company's SEC Documents or (b) would reasonably be
expected to result in any material adverse effect on the Company, or that would
reasonably be expected to materially affect its assets or properties. To the
Company's knowledge, all internal computer systems and each Constituent
Component of those systems and all computer-related products and each
Constituent Component of those products of the Company fully comply with Year
2000 Qualification Requirements. "Year 2000 Qualification Requirements" means
that the internal computer systems and each Constituent Component of those
systems and all computer-related products and each Constituent Component 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 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
6
<PAGE>
the Company's SEC Documents any issues that would reasonably be expected to
result in a material adverse effect on the Company.
2.13 Offering. Subject in part to the truth and accuracy of each of
--------
Investor's representations and warranties set forth in Section 3 of this
Agreement, the offer, sale and issuance of the Common Stock and the Warrant as
contemplated by this Agreement and the shares of Common Stock issuable upon
exercise or exchange of the Warrant are and will be exempt from the registration
requirements of the Securities Act and any applicable state securities laws, and
neither the Company nor any authorized agent acting on its behalf has taken or
will take any action hereafter that would cause the loss of such exemption.
2.14 Disclosure. No representation or warranty contained in this
----------
Agreement and the exhibits attached hereto, in the Warrant or any certificate
furnished or to be furnished to the Investor at a Closing contains any untrue
statement or a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances under which they were made.
3. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants that:
3.1 Authorization. The Investor has full power and authority to
-------------
enter into this Agreement and such agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally and, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Common Stock and the Warrant to be received by the Investor
will be acquired for investment for the Investor's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof,
and that the Investor has no present intention of selling, granting any
participation in or otherwise distributing the same. By executing this
Agreement, the Investor further represents that the Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to the person or to any third person, with
respect to any of the Common Stock.
3.3 Accredited Investor. The Investor is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.4 Restricted Securities. The Investor understands that the Common
---------------------
Stock and the Warrant it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such Common Stock or Warrant may
be resold without registration under the Securities Act of 1933, as
7
<PAGE>
amended (the "Act") only in certain limited circumstances. In the absence of an
effective registration statement covering the Common Stock or Warrant or an
available exemption from registration under the Act, the Common Stock and the
Warrant must be held indefinitely. In this regard, the Investor represents that
it is familiar with SEC Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Act.
3.5 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Common Stock or of the Warrant unless
(i) such transferee is an affiliate of Investor (an "Affiliate") or (ii) the
transferee has agreed in writing for the benefit of the Company to be bound by
this Agreement and/or the Warrant (as the case may be), and:
(a) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) The Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if requested by the
Company, the Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require registration of such shares under the Act. It is agreed that the Company
will not require opinions of counsel for transactions made (i) pursuant to Rule
144 or (ii) to Affiliates.
3.6 Hedging Activities. Anything contained herein to the contrary
------------------
notwithstanding, nothing in this Section 3 or any Exhibit attached to this
Agreement or to the Warrant will be deemed to prohibit Investor from engaging in
hedging activities relating to its ownership or prospective ownership of any
Common Stock.
3.7 Legends. It is understood that the certificates evidencing the
-------
shares of Common Stock or the Warrant may bear the following legends:
(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, (THE "ACT"), OR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNLESS SOLD
PURSUANT TO RULE 144 UNDER THE ACT.
(b) Any legend required under applicable state securities laws.
3.8 Consents and Approvals. Investor has made, filed, given or
----------------------
obtained all consents, approvals or authorizations of, expiration or termination
of any waiting period requirements of, or filings, registrations,
qualifications, declarations or designations with or by any Governmental
Authority that are required to be made, filed, given or obtained by Investor or
8
<PAGE>
controlling persons with, to or from any Governmental Authority in connection
with this Agreement and the Warrant.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
5. Registration Rights; Market Stand-Off.
-------------------------------------
(a) If at any time after March 31, 2000 (but without any obligation
to do so), (1) the Company proposes to register any of its stock under the
Securities Act in connection with the public offering of such securities solely
for cash or (2) the Company is requested to register any of its stock under the
Act in accordance with the terms of Section 1.2 (a "Demand Registration") of
that certain Amended and Restated Investors' Rights Agreement dated February 17,
1999 (the "Rights Agreement"), the Company shall promptly (in the case of a
Demand Registration, within 10 days of receipt by the Company of a request for
registration), give the Investor written notice of such registration, and upon
the written request of the Investor the Company shall use its reasonable best
efforts to cause the Registrable Securities (as defined in Section 1 of Exhibit
B hereto) as to which registration shall have been requested by the Investor to
be included in the securities to be covered by the registration statement
proposed to be filed by the Company; provided, however, that the Investor or its
assignees may include securities in Demand Registration only to the extent that
the inclusion the Investors' (or its assignees') securities will not reduce the
amount of securities requested to be included in a registration under Section
1.2 of the Rights Agreement. Such registration rights shall be governed by the
terms set forth at Exhibit B hereto, which are hereby incorporated herein by
---------
reference and made a part hereof as if set forth herein in their entirety.
Notwithstanding the foregoing, the obligations described in this section shall
not apply to a registration relating solely to employee benefit plans on Form S-
1 or Form S-8 or similar forms which may be promulgated in the future, or a
registration relating solely to an SEC Rule 145 transaction on Form S-4 or
similar forms which may be promulgated in the future.
(b) At any time following the first anniversary of this Agreement,
the Investor may request that the Company register all Registrable Securities
(as defined in Exhibit B hereto) then held by Investor on Form S-1 or Form S-3
(if available) or similar forms which may be promulgated in the future;
provided, however, that the Company shall not be obligated to effect any such
- -------- -------
registration, qualification or compliance, pursuant to this Section 5(b): (i)
if the Company shall furnish to the Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be
9
<PAGE>
seriously detrimental to the Company and its stockholders for such registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the registration statement for a period of not more than 90
days after receipt of the request of the Investor under this Section 5(a);
provided, however, that the Company shall not utilize this right more than once
- -------- -------
in any twelve month period; (ii) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected an aggregate
of two (2) demand registrations under this Agreement and the Rights Agreement
combined; provided that, the Investor shall have been afforded the opportunity
--------
to participate as a seller on a "piggyback" or demand basis, as the case may be,
in such registration to the full extent of its requests to so participate,
without "cut-back" or other reduction in the number of shares so requested for
inclusion in such registrations; (iii) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance; or (iv) during the period ending one hundred twenty (120) days after
the effective date of a registration statement subject to Section 1.2 of the
Rights Agreement. The foregoing registration rights shall be governed by the
terms set forth at Exhibit B hereto, which are hereby incorporated herein by
---------
reference and made a part hereof as if set forth herein in their entirety.
(c) Investor agrees to be bound by the market stand-off provisions
set forth in Section 2 of Exhibit B hereto, on the terms and subject to the
---------
conditions set forth therein; provided, however, that if the Company is in
-------- -------
default under or material breach of the Interactive Marketing and Distribution
Agreement dated as of October 15, 1999 (the "Marketing Agreement"), between the
Investor and the Company, then the market stand-off provisions shall cease and
terminate and be of no further force and effect concurrently with the occurrence
of such breach or default.
6. Conditions of Investor's Obligations at Closing. The obligations of
-----------------------------------------------
the Investor under subsection 1.1 of this Agreement are subject to the
fulfillment on or before a Closing of each of the following conditions:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct on
and as of a Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
6.2 Performance. The Company shall have performed and complied
-----------
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
6.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Common Stock and the Warrant pursuant to this Agreement shall be duly
obtained and effective as of a Closing.
6.4 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at a Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor and they shall have
10
<PAGE>
received all such counterpart original and certified or other copies of such
documents as they may reasonably request.
6.5 Qualified Equity Financing. With respect to the Second Closing
--------------------------
only, he Qualified Equity Financing shall have been consummated.
6.6 Marketing Agreement. The Marketing Agreement shall be in full
-------------------
force and effect and the Company shall not be in material breach thereof or
default thereunder.
6.7 Officer's Certificates. The Company shall have delivered to the
----------------------
the Investor a certificate (the "Officer's Certificate"), dated as of the First
Closing or the Second Closing, as the case may be, and executed by (a) its
President and Chief Executive Officer or Chief Financial Officer confirming the
satisfaction of the conditions specified in Sections 6.1 and 6.2 and (b) its
Secretary or Assistant Secretary certifying as to (i) the incumbency of any
officer(s) signing this Agreement and the Warrant and any other agreements,
instruments or documents executed and delivered by the Company at the Closing,
(ii) the Company's charter documents and bylaws, (iii) all corporate resolutions
or actions authorizing the execution, delivery or performance of the Agreement
and the Warrant and any other agreements, instruments or documents executed and
delivered by the Company at the Closing and (iv) the information provided in
Section 2.5 but updated to the date of the Company's most recently completed
fiscal month.
6.8 Certificates and Warrants. A certificate duly executed and in
-------------------------
proper form and registered in the name of the Investor evidencing the shares of
Common Stock being acquired at the First Closing or the Second Closing (as the
case may be), and the Warrant (in the case of the First Closing) shall have been
delivered to the Investor.
6.9 No Injunction. There shall exist no pending or threatened
-------------
injunction or order of any Governmental Authority prohibiting, enjoining or
otherwise restraining the consummation of the transactions contemplated hereby
or the performance of any party's obligations hereunder or under any other
agreement to be entered into by the parties in connection with the execution,
delivery and performance of this Agreement and the Warrant and the consummation
of the transactions contemplated hereby and thereby.
6.10 Opinion of Counsel. Investor shall have received an opinion,
------------------
dated as of the First Closing or Second Closing, as the case may be, of counsel
to the Company, in form and substance reasonably satisfactory to the Investor,
as to the matters identified in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.7 and 2.13.
11
<PAGE>
7. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before a Closing of each of the following conditions by the
Investor:
7.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 3 shall be true and correct on
and as of a Closing with the same effect as though such representations and
warranties had been made on and as of a Closing.
7.2 Payment of Purchase Price. The Investor shall have delivered the
-------------------------
purchase price specified in Section 1.1, and the Investor shall have acquired
and paid for at the shares of Common Stock to be purchased hereunder.
7.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Common Stock pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
7.4 No Injunction. There shall exist no pending or threatened
-------------
injunction or order of any Governmental Authority prohibiting, enjoining or
otherwise restraining the consummation of the transactions contemplated hereby
or the performance of any party's obligations hereunder or under any other
agreement to be entered into by the parties in connection with the execution,
delivery and performance of this Agreement and the Warrant and the consummation
of the transactions contemplated hereby and thereby.
8. Miscellaneous.
-------------
8.1 Survival. The warranties, representations and covenants of the
--------
the Company and the Investor contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closings and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investor or the Company.
8.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any of the Common Stock). Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto or
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
8.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.5 Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not,
12
<PAGE>
then on the next business day; (iii) five days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or (iv)
one day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the address as set forth on the signature page hereof or at
such other address as such party may designate by written notice to the other
party.
8.6 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees or representatives is responsible. The Company agrees to indemnify and
hold harmless the Investor from any liability for any commission or compensation
in the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
8.7 Expenses. Irrespective of whether a Closing is effected, each
--------
party to this Agreement shall bear and pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
8.8 Publicity. The terms of Section 5.8 of the Marketing Agreement,
---------
which are incorporated herein by reference, shall apply to any publicity or
disclosure regarding this Agreement and the transactions contemplated hereby.
8.9 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
8.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8.11 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
8.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Execution and delivery of
this Agreement by exchange of facsimile copies bearing the facsimile signature
of a party hereto shall constitute a valid and binding execution and delivery of
this Agreement by such party.
13
<PAGE>
8.13. Hart-Scott-Rodino. The Company hereby agrees to take all
-----------------
reasonable actions and execute and deliver all documents and otherwise
reasonably assist Investor in connection with any filings required pursuant to
the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and shall
pay to Investor one-half (1/2) of any required filing fee in connection
therewith.
[SIGNATURE PAGE FOLLOWS]
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Common Stock and
Warrant Purchase Agreement as of the date first above written.
STAMPS.COM INC.
By: /s/ John M. Payne
----------------------------------
Name: John M. Payne
Title: President & CEO
Address: 3240 Ocean Park Blvd., Suite 1040
Santa Monica, CA 90405
Attention: Chief Financial Officer
Facsimile No.: (310) 581-7500
AMERICA ONLINE, INC.
By: /s/ Eric L. Keller
----------------------------------
Name: Eric L. Keller
Title: Vice President
Address: 22000 AOL Way
Dulles, VA 20166
Attention: ____________
Facsimile No.: ___________
With Copies to: AMERICA ONLINE, INC.
22000 AOL Way
Dulles, VA 20166
Attention: General Counsel
-and-
ORRICK, HERRINGTON & SUTCLIFFE
666 Fifth Avenue
New York, NY 10103
Attention: Martin H. Levenglick, Esq.
i
<PAGE>
EXHIBIT A
WARRANT
ii
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AND MARKET STAND-OFF
1. Registration Rights. The Company and the Investor covenant and agree
-------------------
as follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The terms "register," "registered," and "registration" refer
-------- ---------- ------------
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
--------------
registration statement or document;
(b) The term "Registrable Securities" means (i) the shares of
----------------------
Common Stock issuable or issued under the terms of this Agreement or upon
exercise of the Warrant, and (ii) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the shares listed in
(i); provided, however, that the foregoing definition shall exclude in all cases
-------- -------
any Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned. Notwithstanding the foregoing,
Common Stock or other securities shall only be treated as Registrable Securities
if and so long as they have not been (A) sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, or
(B) sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions, and restrictive legends with respect thereto, if any, are
removed upon the consummation of such sale.
(c) The term "Holder" means any person owning or having the
------
right to acquire Registrable Securities or any assignee thereof.
1.2 Obligations of the Company. Whenever required under this Section
--------------------------
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities (which majority shall include all
holders of Company Common Stock or securities convertible into Common Stock with
registration rights) registered thereunder, keep such registration statement
effective for up to one hundred twenty (120) days, provided however, that such
-------- -------
120-day period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration
iii
<PAGE>
statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement for up to one hundred twenty (120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
- --------
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.3 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities that Investor shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of such Holder's Registrable Securities.
1.4 Expenses of Registration.
------------------------
(a) All expenses other than underwriting discounts and commissions
incurred in connection with registrations, filings or qualifications of
Registrable Securities pursuant to Section 5(a) of this Agreement for Investor,
including (without limitation) all registration, filing,
iv
<PAGE>
and qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one counsel
for all selling stockholders in such registration selected by them shall be
borne by the Company.
(b) All expenses incurred solely and directly in connection with a
registration requested pursuant to Section 5(b) of this Agreement (other than
salaries, overhead and other such ordinary course expenses of the Company)
including (without limitation) all reasonable registration, filing,
qualification, printers' and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holder or Holders selected by them,
and counsel for the Company (in an amount not to exceed $10,000), and any
underwriters' discounts or commissions associated with Registrable Securities,
shall be borne pro rata by the Holder or Holders participating in the Form S-3
Registration.
1.5 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders). For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder which is a holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and stockholders of such holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling
-------
stockholder," and any pro-rata reduction with respect to such "selling
- -----------
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
1.6 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against any losses, claims,
------------
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any
---------
v
<PAGE>
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
-------- -------
subsection 1.6(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable to any Holder, underwriter or controlling person
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.6(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
-------- -------
in this subsection 1.6(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
--------
1.6(b) exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
-------- -------
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
vi
<PAGE>
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.6.
(d) If the indemnification provided for in this Section 1.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
--------
under this Subsection 1.6(d) exceed the net proceeds from the offering received
by such Holder. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.7 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
vii
<PAGE>
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective; and
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act.
1.8 Termination of Registration Rights The Investor shall not be
----------------------------------
entitled to exercise any right provided for in this Section 1 after such time as
Rule 144 or another similar exemption under the Securities Act is available for
the sale of all of Investor's shares during a three (3)-month period without
registration.
1.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1; provided, however, that this
Section 1.9 shall not prejudice any other rights or remedies that a Holder may
have under this Agreement or under law in connection with the matters contained
herein.
2. "Market Stand-Off" Agreement. Each Holder hereby agrees that, during
----------------------------
the period of duration (up to, but not exceeding, 90 days) specified by the
Company and the managing underwriter of Common Stock or other securities of the
Company in an underwritten public offering in which the Holder has included
Registrable Securities for sale, following the date of the final prospectus
distributed in connection with a public offering, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly publicly
sell, offer to sell, contract to publicly sell (including, without limitation,
any short sale), grant any option to purchase or otherwise publicly transfer or
dispose of (other than to donees who agree to be similarly bound) any securities
of the Company held by it at any time during such period except Common Stock
included in such registration; provided, however, that:
-------- -------
(a) such agreement shall be applicable only if a Holder has
included Registrable Securities for sale under a registration statement of the
Company which covers Common Stock (or other securities) to be sold on its behalf
to the public in an underwritten offering and shall apply only with respect to
the Registrable Securities then owned by the Investor that were requested to be
included in such offering by the Investor and which were excluded from such
registration by virtue of any reduction or so-called "cut-back" of shares
required by the managing underwriter of such offering in accordance with Section
1.5 hereof; and
(b) all officers and directors of the Company, all two-percent
securityholders, and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or
viii
<PAGE>
securities of every other person subject to the foregoing restriction) until the
end of such period, and each Holder agrees that, if so requested, such Holder
will execute an agreement in the form provided by the underwriter containing
terms which are essentially consistent with the provisions of this Section 2.
ix
<PAGE>
EXHIBIT 10.36
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED UNLESS SOLD PURSUANT TO RULE 144 UNDER THE ACT.
Date of Issuance: October 29, 1999
STAMPS.COM INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, America Online, Inc. (the "Holder") or
its permitted assigns is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time or from time to time, prior to 5:00 p.m.
Pacific Time on October 29, 2002 (subject to be extended as necessary in
connection with the filing of any Notification and Report form under the Hart
Scott Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), to
subscribe for and purchase from Stamps.com Inc., a Delaware corporation (the
"Company"), that number of fully paid and non-assessable shares of the Company's
Common Stock equal to 50% of the total number of shares of Common Stock
purchased by the Holder pursuant to that certain Common Stock Purchase and
Warrant Agreement dated even date herewith (the "Purchase Agreement"); provided,
however, that Holder shall be entitled to purchase an additional number of fully
paid and non-assessable shares of the Company's Common Stock equal to 50% of the
number of Warrant Shares purchasable hereunder as of the expiration date of any
applicable cure period for a material breach of the Company's obligations under
Section 4.1 of that certain Interactive Marketing and Distribution Agreement
dated as of October 15, 1999 (the "Marketing Agreement") (i.e., if the Warrant
were initially exercisable for 100 shares and Holder has already purchased 50
shares under the Warrant, Holder would be entitled to purchase an additional 25
shares (50% of the unexercised amount of the Warrant) at any time following the
expiration date of any cure period for a material breach of Section 4.1 of the
Marketing Agreement). Hereinafter, the Common Stock of the Company, together
with any other equity securities which may be issued by the Company in
substitution or exchange therefor, is referred to as the "Common Stock," (i) the
shares of the Common Stock purchasable hereunder are referred to as the "Warrant
Shares," (ii) the aggregate exercise price payable for all of the Warrant Shares
is referred to as the "Aggregate Exercise Price," and (iii) the price payable
hereunder for each of the Warrant Shares is referred to as the "Per Share
Exercise Price," as set forth in Section 1.1
<PAGE>
hereof. The Per Share Exercise Price and the number of Warrant Shares are
subject to adjustment as provided herein.
1. Exercisability.
--------------
1.1 Exercise Price. This Warrant may be exercised at a Per Share
--------------
Exercise Price equal to the First Closing Purchase Price (as defined in Section
1.1(a) of the Purchase Agreement).
1.2 Exercise of Warrant.
-------------------
a. Subscription and Payment of Exercise Price. This Warrant may
------------------------------------------
be exercised in whole at any time or in part from time to time immediately after
the issuance hereof and prior to 5:00 p.m. Pacific Time on October 29, 2002
(subject to earlier termination as hereinafter provided and subject to being
extended as necessary in connection with the HSR Act). To exercise this Warrant,
the Holder must surrender this Warrant (with the subscription form at the end
hereof duly executed) at the principal office of the Company, which is currently
located at 3240 Ocean Park Boulevard, Suite 1040, Santa Monica, California 90405
or at such other office of the Company as it may designate by notice in writing
to the Holder at the address of the Holder appearing on the books of the
Company, together with proper payment of the Per Share Exercise Price for each
of the Warrant Shares as to which the Warrant is being exercised. Payment for
Warrant Shares shall be made by wire transfer of immediately available funds or
by certified or bank cashier's check, payable to the order of the Company.
If this Warrant is exercised in part, this Warrant must be exercised
for a number of whole shares of the Common Stock and the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares with
respect to which this Warrant has not been exercised. This Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided above, together with payment of
the Per Share Exercise Price for the number of Warrant Shares being purchased,
and the Holder shall be treated for all purposes as the holder of record of such
shares as of the close of business on such date. Upon the surrender of this
Warrant, together with the subscription form at the end hereof duly executed and
proper payment of the Per Share Exercise Price for each of the Warrant Shares as
to which the Warrant is being exercised, the Company will, as promptly as
practicable on or after such date and in any event within ten (10) business days
thereafter, at its expense, (i) issue, or cause the Company's transfer agent to
issue, a certificate or certificates in the name of the Holder for the largest
number of whole shares of the Common Stock to which the Holder shall be entitled
and, if this Warrant is exercised in whole, in lieu of any fractional share of
the Common Stock to which the Holder shall be entitled, cash equal to the fair
market value of such fractional share (as calculated in accordance with Section
1.2(b) below), and (ii) deliver the other securities and properties receivable
upon the exercise of this Warrant, if any, or the proportionate part thereof if
this Warrant is exercised in part, pursuant to the provisions of this Warrant.
b. Net Issue Election. The Holder may elect to receive, without
------------------
the payment by the Holder of any additional consideration, shares equal to the
value (as determined below) of this Warrant or any portion hereof by the
surrender of this Warrant or such portion to the Company, with the net issue
election notice annexed hereto duly executed, at the office of the
2
<PAGE>
Company. Thereupon, the Company shall issue to the Holder such number of fully
paid and nonassessable shares of Common Stock as is computed using the following
formula:
X = Y (A-B)
-------
A
- ------
where:
X = the number of shares of Common Stock to be issued to the Holder
pursuant to this Section 1.2(b).
Y = the number of shares of Common Stock purchasable by this Warrant in
respect of which the net issue election is made pursuant to this Section 1.2(b).
A = the fair market value of one share of Common Stock, as determined in
accordance with the provisions of this Section 1.2(b).
B = the Per Share Exercise Price in effect under this Warrant at the time
the net issue election is made pursuant to this Section 1.2(b).
For purposes of this Section 1.2(b), the "fair market value" per share of the
Company's Common Stock shall be deemed to be the average of the last reported
sale or closing prices of the securities on the Nasdaq National Market or other
securities exchange over the five trading days immediately prior to the
effective date of exercise of the net issuance election.
2. Reservation of Warrant Shares. The Company agrees that, during the
-----------------------------
term this Warrant is exercisable, the Company will at all times have authorized
in reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock and other securities
and properties as from time to time shall be receivable upon the exercise of
this Warrant.
3. Adjustments.
-----------
3.1 Distribution With Respect to Common Stock. If, at any time or
-----------------------------------------
from time to time after the date of this Warrant, the Company shall distribute
to the holders of the Common Stock, without payment therefor, (i) securities,
other than shares of the Common Stock, or (ii) property, other than cash, with
respect to the Common Stock, then, and in each such case, subject to Section 3.4
below, the Holder, upon the exercise of this Warrant, shall be entitled to
receive the securities and properties which the Holder would hold on the date of
such exercise if, on the date of such distribution, the Holder had been the
holder of record of the number of shares of the Common Stock subscribed for upon
such exercise and, during the period from the date of such distribution to and
including the date of such exercise, had retained such shares and the securities
and properties receivable by the Holder during such period.
3.2 Stock Splits, Etc. If, at any time or from time to time after
-----------------
the date of this Warrant, the Company shall issue to the holders of the Common
Stock shares of the Common Stock by way of a stock dividend or stock split,
then, and in each such case, the Per Share
3
<PAGE>
Exercise Price shall be adjusted, or further adjusted, to a price (to the
nearest whole cent) determined by dividing (i) an amount equal to the number of
shares of the Common Stock outstanding immediately prior to such issuance
multiplied by the Per Share Exercise Price as it existed immediately prior to
such issuance by (ii) the total number of shares of the Common Stock outstanding
immediately after such issuance. Upon each such adjustment in the Per Share
Exercise Price, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Exercise Price by the Per Share Exercise Price in effect immediately
after such adjustment.
3.3 Reverse Splits, Etc. If, at any time or from time to time after
-------------------
the date of this Warrant, the number of shares of Common Stock outstanding is
decreased by way of combination of shares or reserve split, then, and in each
such case, the Per Share Exercise Price shall be adjusted, or further adjusted,
to a price (to the nearest whole cent) determined by dividing (i) an amount
equal to the number of shares of the Common Stock outstanding immediately prior
to such event multiplied by the Per Share Exercise Price as it existed
immediately prior to such event by (ii) the total number of shares of the Common
Stock outstanding immediately after such event. Upon each such adjustment in the
Per Share Exercise Price, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Exercise Price by the Per Share Exercise Price in effect
immediately after such adjustment.
3.4 Adjustment for Reorganization, Consolidation, Merger, etc.
----------------------------------------------------------
a. Reorganization, Consolidation, Merger, etc. In case at any
------------------------------------------
time or from time to time, the Company shall (i) effect a reorganization (other
than a combination, reclassification, exchange or subdivision of shares, as
otherwise provided for herein), (ii) consolidate with or merge into any other
entity or person, or (iii) transfer all or substantially all of its properties
or assets to any other entity or person including under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, as a part
of such reorganization, merger, consolidation, sale or transfer, lawful
provision shall be made so that the Holder, on the exercise hereof as provided
in Section 1 at any time after the consummation of such reorganization,
consolidation, merger, sale or transfer or the effective date of such
reorganization, consolidation, merger, sale or transfer, as the case may be,
shall be entitled to receive, in lieu of the Common Stock (or other securities)
issuable on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which the Holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if the Holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as
provided in this Section 3.
b. Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or other such transaction referred to in this Section 3.4 (collectively,
a "Corporate Transaction"), this Warrant shall, immediately after such Corporate
Transaction, be appropriately adjusted to apply and pertain to the number and
class of securities which would have been issued to the Holder in the
consummation of such Corporate Transaction had the option been exercised
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the Exercise Price payable per share, provided the Aggregate
--------
Exercise Price payable hereunder shall remain the same.
4
<PAGE>
c. Notice. The Company shall provide advance notice to the
------
Holder of any Corporate Transaction as soon as practicable, but in no event less
than 20 days prior to the consummation of any such transaction.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of the
-----------------------
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non-assessable. The Company
further covenants and agrees that it will pay, when due and payable, any and all
federal and state stamp, original issue or similar taxes which may be payable in
respect of the issue of any Warrant Share or certificate therefor; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance of any certificate
for Warrant Shares in a name other than that of the Holder upon any exercise of
this Warrant.
5. Restrictions on Transferability of Securities; Compliance with
--------------------------------------------------------------
Securities Act.
--------------
5.1 Restrictions on Transferability. The transferability of this
-------------------------------
Warrant and the Warrant Shares (as well as any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event) shall be subject to
the conditions specified in this Section 5.3. The Holder, and any transferee of
this Warrant or the Warrant Shares, by its acceptance hereof or thereof, agrees
that this Warrant and the Warrant Shares will be taken and held subject to the
provisions and upon the conditions specified in said Section 5.3.
5.2 Restrictive Legend. This Warrant and each certificate
------------------
representing (i) the Warrant Shares or (ii) any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted or unless the securities evidenced by such certificate shall
have been registered under the Securities Act of 1933 (the "Act")) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws), and
shall be subject to the provisions thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, (THE "ACT"), OR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNLESS SOLD
PURSUANT TO RULE 144 UNDER THE ACT.
5.3 Assignability. This Warrant may not be transferred or
-------------
assigned, in whole or in part, by Holder except (i) to an affiliate of Holder or
(ii) where Holder has provided the Company with written notice of its intent to
assign or transfer the Warrant and the Company has consented to such assignment
or transfer in writing; provided however, that clause (ii) shall cease and
----------------
terminate and be of no force or effect, and no such consent shall be required,
from and after
5
<PAGE>
the occurrence of a material breach by the Company of, or a default by the
Company under, the Marketing Agreement.
6. Warrant Register. This Warrant is transferable only upon the books of
----------------
the Company which it shall cause to be maintained for such purpose. The Company
may treat the registered holder of this Warrant as he, she or it appears on the
Company's books at any time as the Holder for all purposes; provided, however,
that upon receipt of notice of an assignment pursuant to Section 5.4, the
Company shall revise its books to reflect such new holder(s).
7. Loss, Etc., of Warrant. Upon receipt of evidence satisfactory to the
----------------------
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
8. Warrant Holder Has No Stockholder Rights. This Warrant does not
----------------------------------------
confer upon the Holder any right to vote or to consent or to receive notice as a
stockholder of the Company, as such, with respect to any matters whatsoever, or
any other rights or liabilities as a stockholder, prior to the exercise thereof.
9. Registration Rights; Market Stand-Off. Upon exercise of this Warrant,
-------------------------------------
the Holder shall have and be entitled to exercise the rights of registration
granted under the Purchase Agreement for the Warrant Shares. In addition, the
Holder agrees to be bound by the market stand-off provisions set forth in the
Purchase Agreement. By its receipt of this Warrant, the Holder agrees to be
bound by Section 5 of the Purchase Agreement.
10. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the address
as set forth on the signature page of the Purchase Agreement or at such other
address as such party may designate by written notice to the other party.
11. Headings. The headings of this Warrant have been inserted as a
--------
matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and construed in
--------------
accordance with the internal laws of the State of California.
[Signature page follows]
6
<PAGE>
IN WITNESS WHEREOF, Stamps.com Inc. has caused this Warrant to be
executed by its officer thereunto authorized.
Dated: October 29, 1999 STAMPS.COM INC.
By: /s/ John W. Lavalle
----------------------------
Name: John W. Lavalle
Title: Senior Vice President and
Chief Financial Officer
ACCEPTED AND AGREED:
AMERICA ONLINE, INC.
By: /s/ Eric L. Keller
---------------------------------
Name: Eric L. Keller
Title: Vice President
7
<PAGE>
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
For value received, the undersigned hereby sells, assigns and transfers unto
__________________ the right to purchase __________ shares of Common Stock
evidenced by the within Warrant, and hereby appoints _______________________ to
transfer the same on the books of Stamps.com Inc. with full power of
substitution in the premises.
Date: ________________ ____, _________
(Signature)
Note: Signature must conform in all respects to the name of the Warrant
Holder as specified on the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXERCISE FORM
(To Be Executed By The Warrant Holder If The Holder Desires
To Exercise The Warrant In Whole Or In Part)
TO: Stamps.com Inc.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and for purchase thereunder,
___________________ shares of Common Stock provided for therein and tenders
payment herewith to the order of Stamps.com, Inc. in the amount of
$_____________.____. The undersigned requested that certificates for such
shares of Common Stock be issued as follows:
Name:
Address:
Deliver to:
Address:
Date: _____________, _______
(Signature)
Note: Signature must conform in all respects to the name of the Warrant
Holder as specified on the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
NET ISSUE ELECTION NOTICE
To: Stamps.com Inc.
The undersigned hereby elects, pursuant to Section 1.2 of the attached
Warrant, to surrender the right to purchase ___________ shares of Common Stock.
The Certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.
Date: ______________________________ ___________________________
Signature
___________________________
Name for Registration
___________________________
Mailing Address
<PAGE>
EXHIBIT 10.37
CONSULTING SERVICES AGREEMENT
The following confirms the agreement between MARVIN RUNYON (the
"Consultant") and STAMPS.COM INC., (the "Company"), with respect to consulting
services to the Company:
1. Definitions.
-----------
a. "Company Materials" means documents or other media or tangible items
that contain or embody Proprietary Information or any other information
concerning the business, operations or plans of the Company, whether such
documents have been prepared by me or by others including, without limitation,
financial models. financial forecasts. financial projections, drawings,
photographs, charts, graphs, notebooks, customer lists, computer software
(whether in executable, data or other form and in any format or structure
whatsoever), computer media or printouts, sound recordings and other printed,
typewritten or handwritten documents, as well as samples, prototypes, models,
products and the like.
b. "Inventions" means any and all improvements, inventions (whether or not
patentable), works of authorship, derivative works, trade secrets, technology,
computer software, application programming interfaces, ideas, designs,
processes, techniques, know-how and data made or conceived or reduced to
practice or developed by me (in whole or in part, either alone or jointly with
others).
c. "Proprietary Information" means any and all information (whether
conveyed orally or in writing) about algorithms, trade secrets, computer
software, designs, technology, ideas, know-how, products, services, customer
lists, finances, financial models, financial forecasts, financial projections,
processes, data, techniques, improvements, inventions (whether patentable or
not), works of authorship, business and product development plans, the salaries
and terms of compensation of employees, regulatory approval, the terms and
existence of third party agreements, negotiations with third parties and other
information concerning the Company's actual or anticipated business, research or
development, or which is received in confidence by or for the Company from any
third party.
d. "Rights" means any and all patent rights, copyright rights, mask work
rights, trade secret rights, moral rights and other intellectual property and
proprietary rights anywhere in the world.
e. "Results" means any and all deliverables or results of the Services
including, without limitation, all financial models, financial forecasts,
financial projections and Inventions.
f. "Services" means the consulting services provided by the Consultant to
the Company during the term of this Agreement. The Services include, without
limitation, strategic planning and business development advice.
2. Proprietary Information. All Proprietary Information and all Rights in
-----------------------
connection therewith are the sole property of the Company. Consultant hereby
assigns to the Company any
<PAGE>
Rights Consultant may have or acquire in such Proprietary Information. At all
times, both during the term of this Agreement and after its termination,
Consultant will keep in confidence and trust and will not use or disclose any
Proprietary Information without the prior written consent of the Company. Any
assignment of copyright hereunder includes all rights of paternity, integrity,
disclosure and withdrawal and any other rights that may be known as or referred
to as "moral rights" (collectively "Moral Rights"). To the extent such Moral
Rights cannot be assigned under applicable law and to the extent the following
is allowed by the laws in the various countries where Moral Rights exist,
Consultant hereby waives such Moral Rights and consents to any action of the
Company that would violate such Moral Rights in the absence of such consent.
Consultant will confirm any such waivers and consents from time to time as
requested by the Company.
3. Company Materials. All Company Materials are the sole property of the
-----------------
Company. Consultant agrees that during the term of this Agreement, Consultant
will not remove any Company Materials from the business premises of the Company
or deliver any Company Materials to any third party except as may be necessary
and appropriate in the ordinary course of performing the Services. Consultant
further agrees that upon the Company's request and in any event upon completion
of the Services, Consultant shall deliver to the Company all Company Materials
and Results. At all times before or after completion of the Services, the
Company shall immediately have the right to examine the Results and any
materials relating there to ensure Consultant's compliance with the provisions
of this Agreement.
4. Consulting Services.
-------------------
a. This Agreement will terminate on October 31, 2002, unless terminated
earlier pursuant to Section 10 of this Agreement.
b. Consultant agrees to render the Services to the Company for the term of
this Agreement. Consultant acknowledges and agrees that the Company may from
time to time prescribe (in writing) additional duties which shall be deemed
"Services" under this Agreement. Consultant also agrees to promptly submit all
Results to the Company, in written form or other tangible form. Consultant
shall report directly to the Secretary of the Company and shall provide the
Services in accordance with the instructions of the Secretary, and with such
reasonable instructions given to him by any other officer of the Company.
c. As compensation for the Services, Consultant shall receive a grant of
non-qualified options to purchase 36,000 shares of the Company's Common Stock
with an exercise price equal to $35.625 (the closing price of the Company's
Common Stock on Nasdaq on October 20, 1999). The options shall vest in 36 equal
monthly installments beginning on the date of grant. In addition, the Company
shall reimburse Consultant for reasonable long distance travel (transportation,
lodging and meals) and telephone expenses Consultant is required to incur in
providing the Services and approved in advance by the Company.
d. Consultant shall provide the Company with bi-monthly invoices detailing
the consulting hours, fees and expense reimbursements which Consultant believes
are due under this
2
<PAGE>
Agreement, and shall itemize and provide receipts for expenses upon request. The
Company agrees to pay approved invoices within thirty (30) days of receipt.
5. Intellectual Property.
---------------------
a. During the term of this Agreement and for one (1) year thereafter,
Consultant will promptly disclose (in writing) any and all Inventions to the
Company; provided that Consultant shall not be required to disclose items
conceived and developed in the course of employment for a third party where
Consultant is contractually precluded from disclosure. Such disclosures shall
be received by the Company in confidence to the extent they are not assigned in
Section 5.c below and do not extend such assignment. Consultant will not
disclose Inventions covered by this Section 5.a. to any person outside the
Company unless requested to do so by management personnel of the Company.
b. Consultant agrees that any and all Inventions are the sole property of
the Company. Consultant agrees to assign and hereby assigns to the Company all
Rights to all such Inventions. The Company shall be the sole owner of all
Rights in connection therewith. Furthermore, all works of authorship will be
"works made for hire" to the extent allowed by law.
c. Consultant agrees to perform, during and after the term of this
Agreement, all acts deemed necessary or desirable by the Company to permit and
assist it, at Consultant's hourly rate as stated in Section 4.c, in evidencing,
perfecting, obtaining, maintaining, defending and enforcing Rights and/or
Consultant's assignment of Inventions in any and all countries. Such acts may
include, but are not limited to, execution of documents and assistance or
cooperation in legal proceedings. Consultant hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents, as
Consultant's agents and attorneys-in-fact, with full power of substitution, to
act for and in its behalf and instead of Consultant, to execute and file any
documents and to do all other lawfully permitted acts to further the above
purposes with the same legal force and effect as if executed by Consultant.
d. If any Rights or Inventions assigned hereunder or any Results are based
on, or incorporate, or are improvements or derivatives of, or cannot be
reasonably made, used, reproduced and distributed without using or violating
technology or Rights owned or licensed by Consultant and not assigned hereunder,
Consultant hereby grants the Company a perpetual, irrevocable, worldwide, fully
paid-up royalty-free, non-exclusive, sublicensable right and license to exploit
and exercise all such technology and Rights in support of the Company's exercise
or exploitation of any Results or assigned Rights or Inventions (including any
modifications, improvements and derivatives thereof).
6. Prior Inventions. Consultant has attached hereto as Attachment A a complete
----------------
list of all existing Inventions to which Consultant claims ownership as of the
date of this Agreement and that Consultant desires to specifically clarify are
not subject to this Agreement, and Consultant acknowledges and agrees that such
list is complete. If no such list is attached to this Agreement, Consultant
represents that Consultant has no such Inventions at the time of signing this
Agreement.
3
<PAGE>
7. Non-Solicitation. During the term of this Agreement and for one (1) year
----------------
thereafter, Consultant will not encourage or solicit any employee or consultant
of the Company to leave the Company for any reason.
8. Intentionally Omitted.
---------------------
9. No Conflict with Obligation to Third Parties. Consultant represents that
--------------------------------------------
performance of all the terms of this Agreement will not breach any agreement to
keep in confidence proprietary information acquired by Consultant in confidence
prior to the execution of this Agreement. Consultant has not entered into, and
Consultant agrees not to enter into, any agreement (either written or oral) that
conflicts or might conflict with Consultant's obligations under this Agreement.
10. Terminable At-Will. Consultant agrees that this Agreement may be
------------------
terminated by either the Company or the Consultant at any time, for any reason,
with or without cause, by giving written notice to the other party; termination
to be effective upon the other party's receipt of notice.
11. Independent Contractor; Taxes. Consultant is an independent contractor and
-----------------------------
is solely responsible for all taxes, withholdings, and other similar statutory
obligations, including, but not limited to, Workers' Compensation Insurance; and
Consultant agrees to defend, indemnify and hold Company harmless from any and
all claims made by any entity on account of an alleged failure by Consultant to
satisfy any such tax or withholding obligations.
12. No Agency. Consultant has no authority to act on behalf of or to enter
---------
into any contract, incur any liability or make any representation on behalf of
the Company.
13. Compliance with Law. Consultant's performance under this Agreement shall
-------------------
be conducted with due diligence and in full compliance with the highest
professional standards of practice in the industry. Consultant shall comply
with all applicable laws and Company safety rules in the course of performing
the Services. If Consultant's work requires a license, Consultant has obtained
that license and the license is in full force and effect.
14. Indemnification. Consultant will indemnify and hold Company harmless, and
---------------
will defend Company against any and all loss, liability, damage, claims, demands
or suits and related costs and expenses to persons or property that arise,
directly or indirectly, from acts or omissions of Consultant, or breach of any
term or condition of this Agreement.
15. Survival. Consultant agrees that Sections 1 through 3 and Sections 5
--------
through 20 of this Agreement shall survive any termination of this Agreement,
and that the Company is entitled to communicate Consultant's obligations under
this Agreement to any future client or potential client of Consultant.
16. Choice of Law; Severability. This Agreement shall be construed in
---------------------------
accordance with the laws of the State of California without regard to the
conflict of laws provisions thereof. If any provision of this Agreement is held
to be illegal or unenforceable, such provision shall be limited
4
<PAGE>
or excluded from this Agreement to the minimum extent required so that this
Agreement shall otherwise remain in full force and effect and enforceable in
accordance with its terms.
17. Successors and Assigns; Assignment. This Agreement shall be binding upon
----------------------------------
Consultant, and inure to the benefit of, the parties hereto and their respective
heirs, successors, assigns, and personal representatives; provided, however,
that it shall not be assignable by Consultant.
18. Entire Agreement. This Agreement, together with all Attachments, contains
----------------
the entire understanding of the parties regarding its subject matter and can
only be modified by a subsequent written agreement executed by the parties.
19. Notices. All notices required under this Agreement shall be addressed to
-------
the address set forth below (or at such other address as may be provided by
written notice given in accordance with this Section 19) and provided by (i)
registered mail, return receipt requested; or (ii) facsimile, with a
confirmation copy as provided in clause (i), (iii) or (iv) of this Section 19;
or (iii) Federal Express, DHL, or an equivalent courier service with tracking
capabilities; or (iv) hand delivery.
20. Attorney Fees. If any action at law or in equity is necessary to enforce
-------------
or interpret the terms of this Agreement, the prevailing party shall be entitled
to all attorneys' fees, courts costs and necessary disbursements, in addition to
any other relief to which the party may be entitled.
Dated: October 20, 1999
Accepted and Agreed to:
STAMPS.COM INC. CONSULTANT
By: /s/ John W. LaValle /s/ Marvin Runyon
----------------------------------- ---------------------------------
Consultant Signature
Name: John W. LaValle
---------------------------------
Title: Sr VP and CFO
---------------------------------
5
<PAGE>
ATTACHMENT A
------------
STAMPS.COM INC.
2900 31st Street, Suite 150
Santa Monica, California 90405
Gentlemen:
1. The following is a complete list of Inventions relevant to the
performance of consulting services for Stamps.com Inc. (the "Company") that have
been made, conceived, developed or first reduced to practice by me (in whole or
in part, either alone or jointly with others) prior to the execution of the
Company's Consulting Services Agreement (the "Agreement") that I desire to
clarify are not subject to the Agreement.
_______ No Inventions
_______ See below
_______ Additional sheets attached
Consultant Signature
Name
6
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Subsidiary State of Incorporation or Jurisdiction
- ---------- --------------------------------------
<S> <C>
Rocket Acquisition Corp. ................ Washington
Stamps.com U.K. Limited.................. United Kingdom
</TABLE>
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF ARTHUR ANDERSEN]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Los Angeles, California
October 29, 1999
<PAGE>
EXHIBIT 23.3
[Letterhead of Moss Adams]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement, on Form S-1 registering 5,750,000 shares of Common
Stock of Stamps.com Inc., of our report dated March 12, 1999 on the audit of
the financial statements of iShip.com. We also consent to the reference to our
Firm under the heading "Experts" in the Prospectus.
/s/ Moss Adams L.L.P.
Seattle, Washington
November 1, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 61,198,260
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,413,773
<PP&E> 5,961,777
<DEPRECIATION> (622,212)
<TOTAL-ASSETS> 74,185,476
<CURRENT-LIABILITIES> 7,033,444
<BONDS> 0
0
0
<COMMON> 35,569
<OTHER-SE> 66,616,249
<TOTAL-LIABILITY-AND-EQUITY> 74,185,476
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 24,181,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (121,968)
<INCOME-PRETAX> (23,103,097)
<INCOME-TAX> (23,103,097)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,103,097)
<EPS-BASIC> (1.59)
<EPS-DILUTED> (1.59)
</TABLE>
