<PAGE>
As filed with the Securities and Exchange Commission on September 27, 1999
Registration No. 333-85359
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
E-STAMP CORPORATION
(Exact name of Registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 5961 76-0518568
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
2855 Campus Drive, Suite 100
San Mateo, California 94403
(650) 554-8454
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
ROBERT H. EWALD
President and Chief Executive Officer
2855 Campus Drive, Suite 100
San Mateo, California 94403
(650) 554-8454
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
<TABLE>
<S> <C>
DAVID J. SEGRE MICHAEL J. HALLORAN
MICHELLE L. WHIPKEY JAMES P. CLOUGH
MARK D. BEARIAULT PATRICK J. DEVINE
Wilson Sonsini Goodrich & Rosati JAMES J. MASETTI
Professional Corporation Pillsbury Madison & Sutro LLP
650 Page Mill Road 2550 Hanover Street
Palo Alto, California 94304 Palo Alto, California 94304
(650) 493-9300 (650) 233-4500
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement. [_]
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, 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,
check the following box. [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall hereafter 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 such Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the Securities and Exchange Commission relating +
+to these securities has been declared effective by the Securities and +
+Exchange Commission. This prospectus is not an offer to sell these securities +
+or our solicitation of your offer to buy these securities in any jurisdiction +
+where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Filed Pursuant to Rule 424(a)
Registration No. 333-85359
SUBJECT TO COMPLETION--September 27, 1999
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- --------------------------------------------------------------------------------
Prospectus
, 1999
[LOGO OF E-STAMP]
6,500,000 Shares of Common Stock
- --------------------------------------------------------------------------------
The Company:
. We provide an Internet postage service that enables users to purchase,
download and print postage directly from their personal computers.
. E-Stamp Corporation 2855 Campus Drive, Suite 100 San Mateo, California
94403(650) 554-8454
Proposed Symbol & Market:
. ESTM/Nasdaq National Market
The Offering:
. We are offering 6,500,000 shares of our common stock.
. The underwriters have an option to purchase an additional 975,000 shares
from the Company to cover over-allotments.
. This is our initial public offering. We anticipate that the initial public
offering price will be between $12.00 and $14.00 per share.
. We plan to use the proceeds from this offering for sales and marketing
expenses and general corporate purposes.
. Closing: , 1999.
<TABLE>
-------------------------------------------------
<S> <C> <C>
Per Share Total
-------------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to Company:
-------------------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on Page 5.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. Nor
have they made, nor will they make, any determination as to whether anyone
should buy these securities. Any representation to the contrary is a criminal
offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
Banc of America Securities LLC
Deutsche Banc Alex. Brown
DLJdirect Inc.
<PAGE>
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate as of the date of this
document.
"E-Stamp" is a registered trademark, and "E-Stamp.com," "The Internet
Postage Company," and the E-Stamp logo are trademarks of E-Stamp. All other
trademarks or service marks appearing in this prospectus are trademarks or
service marks of others.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Corporate Information.................................................... 15
Forward-Looking Statements............................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business................................................................... 26
Management................................................................. 42
Related Party Transactions................................................. 52
Principal Stockholders..................................................... 55
Description of Capital Stock............................................... 57
Rescission Offer........................................................... 60
Shares Eligible for Future Sale............................................ 61
Underwriting............................................................... 63
Legal Matters.............................................................. 65
Experts.................................................................... 65
Additional Information..................................................... 66
Index to Financial Statements.............................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.
E-Stamp Corporation
Our Business
We provide an Internet postage service that enables users to purchase,
download and print postage directly from their personal computers. The postage
can be printed directly onto envelopes, labels or documents using standard
laser or inkjet printers, 24 hours a day, seven days a week, without the need
to remain connected to the Internet. Customers can buy the software and
hardware components needed to use our Internet postage service through our
online store at www.e-stamp.com, over the telephone or at leading office supply
stores. We also plan to sell our services through leading computer superstores
and catalogs. Our Internet postage service is based upon our E-Stamp software,
our secure postage hardware device that enables the storage on the user's
desktop of up to a maximum of $500 of postage as currently allowed under U.S.
Postal Service regulations, and a U.S. Postal Service address verification CD-
ROM. Our Internet postage software and hardware currently sells for a suggested
retail price of $49.99. As part of our marketing strategy, we have previously,
and may from time to time, offer our software and hardware free of charge
through promotional arrangements with third parties. We charge a 10%
convenience fee when Internet postage is purchased, with a minimum fee of $4.99
and a maximum fee of $24.99 per purchase. We also plan to offer for sale later
this year postage related consumables and peripherals including an Internet
postage scale, labels, window envelopes and a label printer manufactured by
third parties with whom we have established relationships.
We received approval from the U.S. Postal Service on August 9, 1999 for our
Internet postage service, and since that date have been providing our service
nationally. Our commercial roll-out is currently limited to 100,000 customers,
with expanding numbers of customers based on successful evaluations by the U.S.
Postal Service. Our Internet postage service is targeted at small business,
small office and home office users, collectively known as SOHO users, most of
whom usually connect to the Internet on modems at speeds of 28.8 or 33.6
kilobytes per second and share lines with telephones or fax machines. Our
Internet postage software is tightly integrated with popular business computer
programs including Microsoft Word and Outlook. This integration allows users to
print our Internet postage without leaving Microsoft Word and to access
addresses in Outlook without leaving the E-Stamp application. We believe our
Internet postage service will enhance customer satisfaction during the mail and
postage process by improving overall access, convenience and flexibility for
SOHO users, and will increase operating efficiencies and decrease postal fraud
for the U.S. Postal Service by including a unique digital signature on each
digital stamp.
We have focused on forming marketing and distribution relationships with
industry leaders in order to quickly build our brand awareness with SOHOs and
to accelerate the adoption of our Internet postage service. Our marketing and
distribution relationships include the following:
. Microsoft, which is also one of our equity investors, has selected us as
an online postage provider for its Microsoft Office Update Web site;
. Yahoo! has chosen us to be its Internet postage merchant within the
Yahoo! Postal Center;
. Excite@Home, which is also one of our equity investors, has entered into
a binding letter of intent to establish us as the Internet postage
provider on its @Work Web site;
. America Online has agreed to include us as a tenant in its new Postage
Services Center;
. Compaq, which is also one of our equity investors, has agreed to market
our Internet postage service as part of the online services available to
owners of its Prosignia line of personal computers for small businesses;
. Francotyp-Postalia, which is also one of our equity investors, has agreed
to distribute our Internet postage service; and
. Avery Dennison has agreed to promote exclusively our Internet postage
service in packages of Avery labels and other printable supplies.
1
<PAGE>
In addition, we have developed marketing or distribution relationships with
Sunbeam Corp.'s Pelouze Scale Co. division, Tension Envelope, EarthLink, Intuit
and Dymo-Costar. A number of these third parties are still in the process of
establishing the marketing, promotional and distribution activities for our
service called for under our agreements with them. Failure to achieve these
efforts in a timely and successful manner would limit their usefulness in
promoting adoption of our service. We expect to enter into additional marketing
and distribution relationships as our business grows and we expand our
portfolio of products and services.
We Are At An Early Stage of Commercialization, Have A Large Accumulated Deficit
And Expect To Incur Continuing Losses
We have a very limited operating history and only began offering our
Internet postage service on a commercial basis on August 9, 1999. Through June
30, 1999, we had generated no revenues and had an accumulated deficit of $39.0
million. We have generated only nominal revenues since the recent commercial
introduction of our service. We have incurred increasing losses and had an
operating loss for the six month period ended June 30, 1999 of $12.5 million.
We expect to continue to incur net losses for the foreseeable future and may
never achieve profitable operations. The market for Internet postage has not
yet developed and we cannot assure you that it will develop or that, if it
develops, customers will use our service.
Our Market Opportunity
In an effort to enhance customer satisfaction, provide convenient postal
services, leverage users' existing investments in computer hardware and
software and improve access to the SOHO market, the U.S. Postal Service
developed the Information Based Indicia Program. This program is designed to
authorize third party vendors to sell products or services that enable users to
print postage, also referred to as digital stamps, from a personal computer
using ordinary laser or inkjet printers. This new form of postage provides an
opportunity to access the U.S. postage market, which represented $60 billion in
1998. Of this amount, $38 billion was represented by postage stamps and postage
meters, which are primarily used for first class, priority and express mail,
which is the target market for Internet postage. Keenan Vision, an independent
research firm, estimates that the market for first class, priority and express
mail will grow to $46 billion by the year 2002.
The emergence of Internet postage has created an attractive channel for the
sale of postage to SOHO users currently underserved by existing products and
services. According to International Data Corporation, there were 44.6 million
SOHOs in the U.S. in 1998, which is expected to grow to 57.6 million by 2002.
In terms of postage usage, SOHOs generally conduct an essential part of their
communications with suppliers and customers through the postal system.
Nevertheless, few SOHOs use postage meters to automate the mailing process. In
addition, SOHOs are increasingly adopting the Internet to improve their
business processes.
Our Growth Strategy
Our objective is to be the leading provider of Internet postage services.
Key elements of our growth strategy include:
. Entering into marketing and distribution relationships with industry
leaders to quickly acquire customers, build brand recognition and
accelerate adoption of our Internet postage service.
. Initially focusing on the large and growing SOHO market.
. Building and promoting our brand through a variety of marketing and
promotional techniques and including our logo and Web site address on
each digital stamp.
. Leveraging our technology platform and expertise to develop a family of
Internet postage services including a server-based service and an
intranet based service to address other market segments.
. Pursuing multiple and recurring revenue streams by capitalizing on our
expertise in secure payment processing and the printing of authenticated
documents to offer other products and services that could be purchased
online and printed from the desktop, such as tickets and gift
certificates.
. Pursuing international Internet postage opportunities.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by E-Stamp.. 6,500,000 shares
Common stock to be outstanding
after this offering............. 37,365,978 shares
Use of proceeds.................. We plan to use the net proceeds from this
offering principally for sales and
marketing expenses, with the balance for
general corporate purposes, including
working capital and expansion of our
corporate infrastructure.
Proposed Nasdaq National Market
symbol.......................... ESTM
</TABLE>
Unless otherwise indicated, this prospectus assumes the conversion of our
outstanding preferred stock into common stock upon the closing of this
offering, reflects a stock dividend to be made prior to completion of this
offering of one share of common stock on each four shares of our outstanding
common stock, and assumes that the underwriters do not exercise the option
granted by us to purchase additional shares in the offering to cover over-
allotments.
----------------
The number of shares of common stock to be outstanding after this offering
is based on shares outstanding as of September 10, 1999. This number excludes:
. 3,053,747 shares of common stock reserved for future issuance under our
stock option, director stock option and employee stock purchase plans;
. 1,218,359 shares of common stock subject to outstanding options; and
. 75,040 shares of common stock issuable upon the exercise of outstanding
warrants.
3
<PAGE>
Summary Financial Information
(In thousands, except per share data)
The following table summarizes our financial data. The weighted average
shares used in calculating our pro forma net loss per share data excludes our
sale in August 1999 of shares of our convertible preferred stock for aggregate
proceeds of $30.2 million, our sale in September 1999 of shares of our common
stock for aggregate proceeds of $5.0 million, the exercise of warrants to
purchase 83,855 shares of common stock in September 1999 at $0.01 per share,
the grant of 187,500 shares of common stock to two of our executives in August
1999, and includes the automatic conversion of all other outstanding shares of
our convertible preferred stock into shares of our common stock which will
occur upon the closing of this offering.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.................. $ -- $ -- $ -- $ -- $ --
Operating loss ............... (6,575) (7,821) (11,080) (4,498) (12,543)
Net loss...................... (6,339) (7,678) (10,710) (4,455) (12,367)
Accretion on redeemable
convertible
preferred stock ............. -- (196) (1,383) (307) (1,176)
Net loss attributable to
common stockholders.......... $(6,339) $(7,874) $(12,093) $(4,762) $(13,543)
Net loss per common share:
Basic and diluted........... $ (0.51) $ (0.61) $ (0.92) $ (0.37) $ (1.00)
Weighted average shares..... 12,543 12,966 13,075 13,026 13,486
Pro forma net loss per
share:.......................
Basic and diluted
(unaudited)................ $ (0.57) $ (0.57)
Weighted average shares
(unaudited)................ 18,753 21,846
</TABLE>
The following table summarizes our balance sheet data. The pro forma data
reflects our sale in August 1999 of shares of our convertible preferred stock
for aggregate proceeds of $30.2 million, our sale of common stock in September
1999 for aggregate proceeds of $5.0 million, the exercise of warrants to
purchase 83,855 shares of common stock in September 1999 at $0.01 per share,
the grant of 187,500 shares of common stock to two of our executives in August
1999 and the automatic conversion of all outstanding shares of our redeemable
convertible preferred stock into shares of our common stock which will occur
upon the closing of this offering. The pro forma as adjusted data reflects the
sale of 6,500,000 shares of common stock in this offering at an assumed initial
public offering price of $13.00 per share, after deducting the underwriting
discount and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
As of June 30, 1999
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 1,916 $37,116 $114,701
Working capital (deficit)...................... (324) 35,899 113,484
Total assets................................... 3,096 39,319 116,904
Capital lease obligations, net of current
portion....................................... 6 6 6
Common stock subject to rescission............. 2,499 2,499 2,499
Redeemable convertible preferred stock......... 24,645 -- --
Total stockholders' equity (deficit)........... (26,792) 34,076 111,662
</TABLE>
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before buying shares
in this offering.
We have a limited operating history with a history of losses, expect to incur
losses in the future, and may never achieve profitability.
We have a very limited operating history. You should consider our prospects
in light of the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets. We cannot be certain that we
will achieve profitability or, if achieved, that we will be able to sustain or
increase profitability on a quarterly or annual basis. As of June 30, 1999, we
had not generated any revenues and had an accumulated deficit of $39.0 million.
Since August 1999, we have generated only nominal revenues. We have incurred
increasing losses and had an operating loss for the six month period ended June
30, 1999 of $12.5 million. We have not achieved profitability and expect to
continue to incur net losses for the foreseeable future. We expect to incur
increasing sales and marketing, research and development and administrative
expenses. As a result, we will need to generate significant revenues to achieve
and maintain profitability.
The success of our business will depend upon acceptance by customers of our
Internet postage service.
We expect that our Internet postage service will generate a substantial
portion, if not all, of our near-term future revenues. As a result, we depend
on the commercial acceptance of our Internet postage service. If we fail to
successfully gain commercial acceptance of our Internet postage service, we
will be unable to generate significant revenues. The market for Internet
postage has not developed, and we cannot assure you that it will develop. We
cannot predict the extent to which users will be willing to use the Internet to
purchase postage rather than using traditional methods. To the extent users
choose to purchase postage over the Internet, we cannot be certain that these
customers will use our service.
Intellectual property infringement claims, including claims asserted by Pitney
Bowes against us, could prevent or hinder our ability to sell Internet postage.
We face the risk that other parties' intellectual property positions will
impair successful development of the Internet postage market or our ability to
effectively participate in it. Pitney Bowes filed a patent infringement lawsuit
against us in U.S. District Court in June 1999. The suit alleges infringement
of seven patents owned by Pitney Bowes related to postage application systems
and seeks treble damages, a preliminary and permanent injunction, attorneys'
fees and other unspecified damages. On July 30, 1999, we filed our answer to
Pitney Bowes' complaint. Pendency of the litigation can be expected to result
in significant expenses to us and the diversion of management time and other
resources, the extent of which cannot be quantified with any reasonable
accuracy given the early stage of this litigation. If Pitney Bowes is
successful in its claims against us, then we may be hindered or even prevented
from competing in the Internet postage market and our operations would be
severely harmed. The Pitney Bowes suit could result in limitations on how we
implement our services, delays and costs associated with redesigning our
services and payments of license fees and other monies. An injunction obtained
by Pitney Bowes could eliminate our ability to market critical products or
services.
Pitney Bowes may be unwilling to discuss licensing or cross-licensing
arrangements with us, which could adversely impact our ability to compete in
the market for Internet postage products and services.
Although we and Pitney Bowes, prior to filing of the current litigation, had
been in discussions regarding cross-licensing a number of our patents and
Pitney Bowes' patents, some of which are identified in Pitney Bowes' complaint,
we cannot predict whether these discussions will recommence in the future or
the impact of Pitney Bowes' intellectual property claims on our business or the
Internet postage market. Since commencement of the litigation, we have not had
discussions with Pitney Bowes regarding licensing or cross-licensing
arrangements nor do we have information concerning Pitney Bowes' present
willingness to engage in discussions.
5
<PAGE>
If the U.S. Postal Service discontinues Internet postage as an approved postage
method because of counterfeiting or other issues or revokes approval of our
Internet postage service, our business will fail.
We continue to be subject to U.S. Postal Service scrutiny and other
government regulations. The U.S. Postal Service could discontinue Internet
postage as an approved postage method because of counterfeiting of Internet
postage, security or other issues, in which case our business would fail.
Further, if we are unable to successfully complete subsequent evaluations by
the U.S. Postal Service, to adapt our Internet postage service to any new
requirements or specifications or to provide adequate security, the U.S. Postal
Service could revoke its approval of our Internet postage service, in which
case our business would fail.
The commercial roll-out of our Internet postage service is currently limited to
100,000 customers and expanded numbers of customers will depend on successful
evaluations by the U.S. Postal Service.
Under the Information Based Indicia Program, the commercial roll-out of our
Internet postage service is currently limited to 100,000 customers, with
expanding number of customers based upon successful evaluations by the U.S.
Postal Service. If we do not successfully complete these evaluations, the U.S.
Postal Service could delay or even prevent use of our Internet postage service
by more than 100,000 customers. Any such delay in our ability to expand our
customer base would result in loss of revenue and could harm our ability to
build our brand and obtain market acceptance of our Internet postage service.
We cannot be certain that we will be able to continue to satisfy existing, new
or changed U.S. Postal Service regulations in the future, and if we are not
able to do so our ability to distribute our Internet postage service would be
adversely affected.
If we encounter difficulties with continuing compliance with U.S. Postal
Service regulations, our ability to distribute or extend the distribution of
our Internet postage service could be adversely affected. U.S. Postal Service
regulations may require that our personnel with access to postal information or
resources obtain security clearances. These regulations may cause delays or
disruptions in our business if our personnel cannot receive necessary security
clearances in a timely manner, or at all, and may limit our ability to hire
necessary personnel. Any other change in the current or future regulatory
environment could have an adverse impact on our business and could harm our
operating results and profitability.
Our Internet postage hardware device may interfere with the operation of some
printers, which may decrease adoption of our Internet postage service and which
has in the past resulted in, and may in the future result in, product returns.
Our secure Internet postage device in some cases interferes with the
operation of multifunction printers, which combine printing, faxing, copying
and scanning functions and bi-directional printers and is generally unable to
print postage on these types of printers. We believe a significant number of
our product returns to date may have been prompted by this incompatibility. If
we are unable to successfully modify our secure Internet postage device or
software to solve these issues, it will severely harm our ability to market our
Internet postage service to users of multifunctional and bi-directional
printers.
If we cannot successfully manage the commercial availability of our Internet
postage service, our ability to attract and retain customers will be harmed.
Our reputation and our ability to attract, retain and provide services to
our customers depend upon the reliable performance of our Web site, network
infrastructure and transaction-processing systems. If we are
6
<PAGE>
unable at any time to provide our customers with our Internet postage service
in a satisfactory manner, our customers may become dissatisfied and could cease
using our Internet postage service. We have very limited experience conducting
marketing campaigns, and we may fail to generate significant interest in our
Internet postage service. On the other hand, if we generate extensive interest
in our service, we cannot assure you that we will be able to effectively manage
commercial availability of our Internet postage service due to the strains this
demand will place on our Web site, network infrastructure and our transaction-
processing systems.
If we are unable to maintain and develop our marketing and distribution
relationships, our Internet postage service may not achieve commercial
acceptance.
We have established marketing and distribution relationships with a limited
number of third parties. We rely heavily upon these relationships to build our
E-Stamp brand and to accelerate the adoption of our Internet postage service.
We have limited experience in establishing and maintaining these relationships.
If we are unable to successfully maintain our existing relationships or to
establish new relationships, our Internet postage service may not achieve
commercial acceptance. In addition, a number of these third parties are still
in the process of establishing the marketing, promotional and distribution
activities for our service called for under our agreements with them. We cannot
assure you that these efforts will be achieved in a timely and successful
manner and this would limit their usefulness in promoting adoption of our
service.
If we do not achieve broad brand recognition, our ability to attract customers
will suffer dramatically.
We must quickly build our E-Stamp brand to gain market acceptance for our
service. If we fail to gain market acceptance for our Internet postage service,
our ability to attract customers will suffer dramatically. We believe it is
imperative to our long term success that we obtain significant acceptance of
our service. We cannot be certain that we will have sufficient resources to
build our brand and achieve commercial acceptance of our service. To establish
our brand awareness, we must invest substantial resources to develop our
products, pursue marketing and distribution relationships, implement marketing
initiatives, and provide a high quality experience to our users.
Subsequent Internet postage services, if successfully developed by us, will
require additional U.S. Postal Service approvals that may delay their
commercial introduction.
We have not begun the U.S. Postal Service approval process for future
services we have under development, including our server-based service. Our
current Internet postage service took approximately 18 months to complete the
beta test portion of the U.S. Postal Service's approval process. We cannot
assure you of the duration of the approval process for our server-based or any
subsequent service, or that these services will ever be approved by the U.S.
Postal Service. Further, we cannot assure you that we will be able to
successfully develop our future services in a timely manner or at all. Failure
to timely receive U.S. Postal Service approval for our server-based service or
subsequent services could limit our ability to successfully grow our business.
We have experienced significant growth in our expenses and operations in recent
periods, and any failure to manage this growth could damage our ability to
obtain market acceptance for our Internet postage service.
Our ability to successfully offer our Internet postage service and implement
our business plan requires an effective planning and management process. We
have increased, and plan to continue to increase, the scope of our operations
and have experienced, and expect to continue to experience, significant growth
in our expenses and operations. If we are unable to manage growth effectively
or experience disruptions during our expansion, our ability to market and
extend distribution of our Internet postage service and our ability to develop
future services will be seriously harmed. To manage the expected growth of
operations and personnel, we will need to improve existing and implement new
transaction-processing, operational and financial systems, procedures and
controls. In addition, we will need to expand, train and manage an increasing
employee base and to expand our finance, administrative and operations staff.
Our current expansion has placed, and we expect our future expansion to
continue to place, a significant strain on our managerial, operational and
financial resources. Our current and planned personnel, systems, procedures and
controls may be inadequate to support our future operations.
7
<PAGE>
If the sole supplier of our Internet postage hardware device is unable to
timely meet our commercial supply needs, our ability to expand our customer
base will be severely limited and we will lose revenue.
Dallas Semiconductor Corporation is the single source of supply for our
secure Internet postage device. We do not have a guaranteed supply arrangement
with Dallas Semiconductor, and we order such devices on a purchase order basis.
Any difficulties encountered by our sole supplier that result in product
defects, production delays, cost overruns, or the inability to fulfill orders
on a timely basis would hurt our reputation and result in loss of revenue. If
we cannot obtain an adequate supply of our Internet postage device, we will be
unable to timely deliver our Internet postage device to customers and, without
the device, customers would be unable to purchase postage using our Internet
postage service. Neither we nor our supplier maintain an extensive inventory of
our Internet postage device. We cannot assure you that our supplier will timely
meet our commercial supply needs or that alternative suppliers will be
available in the future. We have not qualified any alternative sources for the
supply of our secure Internet postage device.
System failures could harm our reputation, result in loss of revenue and
substantially and adversely affect our ability to attract or retain customers.
Our business and reputation with customers depend upon the efficient and
uninterrupted operation of our Web site, processing systems and network
infrastructure, including critical portions of this infrastructure that are
hosted by third parties, for registration of new customers and processing of
Internet postage transactions. In addition, our service depends upon continuous
operation of the U.S. Postal Service's secure postage accounting vault for our
customers to purchase postage. We have experienced system failure for short
periods of up to four hours during initial commercial launch of our service and
we may suffer additional interruptions in our service. Problems or system
failures at either our location or third party locations could result in
interruptions in our service. Unscheduled downtime of our service may result in
loss of revenue and if these system failures persist, our business, reputation
and brand could be severely harmed. We cannot assure you that we will be able
to timely expand our systems infrastructure to support growth in traffic from
our customers.
Our systems and those hosted by third parties are vulnerable to damage or
interruption which could harm our reputation and result in a loss of revenue.
Our systems and those hosted by third parties are vulnerable to damage or
interruption as a result of fire, flood, power loss, telecommunications
failure, software errors or bugs, hardware failures or computer viruses,
computer hacking and other acts of misconduct, earthquakes and similar events.
Our postage processing systems are located in Northern California, a
seismically active region. We do not have fully redundant systems, a formal
disaster recovery plan or alternative providers of hosting services, and we do
not carry sufficient business interruption insurance to compensate us for
losses that may occur. Despite any precautions we may take, problems or system
failures at our third party hosted facilities could result in interruptions in
our service which could injure our reputation and cause us to lose revenue.
The inability to expand our system's capacity may limit our growth.
Our inability to add additional software and hardware or to upgrade our
technology, transaction processing systems or network infrastructure to timely
accommodate increased Web site traffic or transaction volume could have adverse
consequences. These consequences include unanticipated system disruptions,
slower response times, degradation in levels of customer support and impaired
quality of the user's experience on our service and delays in reporting
accurate financial information. We may be unable to effectively upgrade and
expand our systems in a timely manner or to integrate smoothly any newly
developed or purchased technologies with our existing systems. These
difficulties could harm or limit our ability to expand our business.
If we are unable to provide new features or functionality to our technology,
transaction processing systems or network infrastructure, our growth may be
limited.
Our failure to provide new features or functionality to our technology,
transaction processing systems or network infrastructure could adversely affect
demand for our Internet postage service, which would harm or limit our ability
to expand our business.
8
<PAGE>
We rely heavily upon third parties to market and distribute our Internet
postage service to customers.
We rely upon third parties to market and distribute our Internet postage
service. We cannot assure you that we will be able to develop and maintain
satisfactory relationships with such parties on acceptable commercial terms, if
at all, or that we will be able to obtain adequate distribution channels for
our service. Our marketing and distribution relationships with third parties,
which include providing links to our website and distributing our product
through bundling arrangements, may not generate significant traffic on our
website or otherwise generate significant interest in our service. We cannot
assure you that office supply, computer or other retailers will carry our
product or devote sufficient marketing, shelf space or other resources to it.
If we are unable to provide an adequate distribution channel for our Internet
postage service, customers will have difficulty purchasing our product through
retail channels which would severely harm our ability to grow our business. We
depend upon the U.S. Postal Service and other delivery services for the
delivery of our secure postage device. Strikes or other service interruptions
affecting delivery services used by us would have a material adverse effect on
our ability to deliver our Internet postage service to our customers.
The Internet postage market is highly competitive and we may be unable to
compete successfully against new entrants and established industry competitors
with significantly greater financial resources.
The market for Internet postage products and services is new, rapidly
evolving and intensely competitive. We expect that our primary competitors will
include traditional providers of postage products and services, including
Pitney Bowes and Neopost, that have longer operating histories, larger customer
bases, greater brand recognition, greater financial, marketing, service,
support, technical, intellectual property and other resources than us. We will
also compete with providers of traditional postage products and delivery
services, such as the U.S. Postal Service, Federal Express and United Parcel
Service. In addition to providers of traditional postage products and services,
we compete with three other Information Based Indicia Program vendors, Neopost,
Pitney Bowes and Stamps.com, who have all initiated the certification process
with the U.S. Postal Service. Only one of these, Stamps.com, has been approved
for commercial release by the U.S. Postal Service to date. Many of 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 recognition.
A breach of our online security would harm our reputation and could interrupt
service to our customers.
A fundamental requirement to conduct electronic commerce is the secure
transmission of information over public networks. We rely on encryption and
authentication technology to provide the security necessary for transmission of
postage and other confidential information. Any breach of these security
measures would severely impact our reputation and would likely result in the
loss of customers. Advances in computer capabilities, new discoveries in the
field of cryptography, or other events or developments may result in a
compromise or breach of the algorithms we use to protect customer transaction
data. Security breaches could also expose us to a risk of loss or litigation
and possible liability for failing to secure confidential customer information.
Accordingly, 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.
If we are unable to successfully protect our intellectual property, our
competitive position will be harmed.
We rely on a combination of patent, trademark, service mark, copyright and
trade secret laws, contractual restrictions on disclosure and transferring
title and other methods in an effort to establish and protect proprietary
rights in our services, know-how and information. If our patents or other
intellectual property fail to protect our technology, our competitive position
could be harmed. In addition, third parties may develop alternative
technologies or products that do not infringe on any of our patents or other
intellectual property. Steps taken to protect our intellectual property may not
be sufficient to prevent misappropriation of technology or deter independent
third party development of similar technologies. Additionally, the laws of
foreign
9
<PAGE>
countries may not protect our services or intellectual property rights to the
same extent as do the laws of the United States.
Continued adoption of the Internet as a method of conducting business is
necessary for our future growth.
The failure of the Internet to continue to develop as a medium for the
purchase of goods and services would adversely affect the willingness or
ability of users to use the Internet to purchase postage. Concerns over the
security of transactions conducted on the Internet and the privacy of consumers
may also inhibit the growth of the Internet and other online services
generally, and online commerce in particular. A decline in the growth of the
Internet could decrease demand for our services and increase our cost of doing
business. We cannot assure you that the Internet will continue to be widely
accepted and adopted for purchasing goods and services.
Failure to expand Internet infrastructure could limit our future growth.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, the
Internet's infrastructure may not be able to support these demands and its
performance and reliability may decline. If outages or delays on the Internet
occur frequently or increase in frequency, overall Web usage, including usage
of our Web site to purchase Internet postage, could grow more slowly or
decline. Our ability to increase the speed and scope of our services to users
is ultimately limited by and dependent upon the speed and reliability of the
Internet.
Our quarterly results are subject to significant fluctuations, and our stock
price may decline if we do not meet expectations.
Since August 1999, we have generated only nominal revenues from our
operations. Accordingly, we have little basis upon which to predict future
operating results. We expect that our revenues, margins and operating results
will fluctuate significantly due to a variety of factors. Factors affecting our
quarterly results include:
. the costs of our marketing programs to establish the E-Stamp brand name
and generate market demand for our Internet postage service;
. timing of the commercial release of additional Internet postage services
developed by us, which depends in part on the timing of U.S. Postal
Service approval for any such services;
. the number, timing and significance of new products or services
introduced by our competitors, which are outside our control;
. the level of service and price competition;
. changes in our operating expenses as we expand operations; and
. general economic factors, which are outside our control.
Timing of commercial release of new products or services by us and our
competitors and general economic factors will also affect our long-term
financial results. Substantially all of our operating expenses are 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 could be harmed because of increased costs and expenses
in the short term. Due to the foregoing factors and the other risks discussed
in this prospectus, you should not rely on period-to-period comparisons of our
results of operations as an indication of future performance. It is possible
that in some future periods our results of operations will be below public
expectations. In this event, the market price of our common stock is likely to
fall.
10
<PAGE>
We depend on key personnel and attracting qualified employees for our future
success.
Our success depends to a significant degree upon the continued contributions
of our executive management team and other senior level financial, technical,
marketing and sales personnel. Our key employees consist of Robert H. Ewald,
our President and Chief Executive Officer, Nicole Eagan, our Senior Vice
President, Marketing and Sales, and Anthony H. Lewis, Jr., our Vice President
and Chief Financial Officer. The loss of the services of any of these key
employees or other members of our senior management team could have a material
adverse effect on our business and results of operations. We anticipate that
the number of our employees may increase significantly during the next 12
months as we increase our research and development activities and sales and
marketing efforts. Our success depends upon our ability to attract and retain
additional highly qualified senior management and technical, sales and
marketing personnel to support planned growth of our operations. Competition
for qualified employees is intense, particularly in the Internet and high
technology industries. The process of locating and hiring personnel with the
combination of skills and attributes required to carry out our strategy is
time-consuming and costly. The loss of key personnel or our inability to
attract additional qualified personnel to supplement or, if necessary, to
replace existing personnel, could have a material adverse effect on our
business and results of operations.
Rapid technological change may make our Internet postage service obsolete or
cause us to incur substantial costs to adapt to these changes.
The use of the Internet for the purchase and sale of goods and services is
characterized by rapidly changing technology, evolving industry standards and
frequent new product announcements. To be successful, we must adapt to these
rapid changes by continually improving the performance, features and
reliability of our products and services, and to develop new products and
services, or else our products and services may become noncompetitive or
obsolete. We also could incur substantial costs to modify our service or
infrastructure and to develop new products and services, in order to adapt to
these changes. Our business, operating results and financial condition could be
harmed if we incur significant costs without adequate results, or find
ourselves unable to adapt rapidly to these changes.
We may be unable to effectively manage any future acquisitions of new or
complementary businesses, products or technology.
We may pursue the acquisition of new or complementary businesses, including
individual products or technologies, in an effort to enter into new markets,
diversify our sources of revenue and expand our services. At present, we have
no commitments or agreements and are not currently engaged in discussions for
any material acquisitions or investments. To the extent we pursue new or
complementary businesses, we may not be able to expand our services 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. We may lose key personnel from our operations or those of any
acquired business. Furthermore, any new business or service we launch that is
not favorably received by users could damage our reputation and brand name. We
also cannot be certain that we will generate satisfactory revenues from any
expanded services 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 harm our business, financial
condition and operating results.
Internet postage cannot currently be used internationally which may limit our
future growth.
At present, Internet postage approved by the U.S. Postal Service can only be
used to send mail from one United States address to another. Unless and until
foreign postal authorities create a certification process and recognize
information-based indicia postage, our Internet postage service will not be
able to address foreign markets which may limit our future growth. Efforts in
Europe and other foreign markets related to adoption of
11
<PAGE>
Internet postage are at a very preliminary stage. We cannot assure you that
foreign postal authorities will adopt policies and processes for Internet
postage that are compatible with those approved by the U.S. Postal Service on a
timely basis or at all.
If we market our services internationally, regulation by international agencies
could disrupt our operations.
If foreign postal authorities in the future accept postage generated by our
services and if we obtain the necessary foreign certification or approvals, we
would be subject to ongoing regulation by international governments and
agencies. If we achieve significant international acceptance of our services,
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 some jurisdictions. If we begin to transact business in foreign
currencies, we will become subject to the risks attendant to transacting in
foreign currencies, including the potential adverse effects of exchange rate
fluctuations.
If we do not adequately address "Year 2000" issues, we may incur significant
costs and our reputation and ability to gain market acceptance for our Internet
postage service could suffer.
Failure of our internal computer systems or third-party equipment or
software, or systems maintained by our users and third parties with whom we
have marketing or distribution agreements, to operate properly with regard to
the Year 2000 issues could require us to incur significant unanticipated
expenses to remedy any problems and could cause system interruptions and loss
of data. Any of these events could harm our reputation and materially and
adversely affect our ability to gain market acceptance for our Internet postage
service. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
We may need additional capital and failure to obtain such capital could harm
our ability to market our Internet postage service and to develop future
services.
We require substantial working capital to fund our business. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all. Since our inception, we have experienced negative
cash flow from operations and expect to experience significant negative cash
flow from operations in the future. We currently anticipate that the net
proceeds of this offering, together with our available funds, will be
sufficient to meet our anticipated needs for working capital and capital
expenditures through at least the next 12 months. The estimate of the time
period during which these proceeds will be sufficient is a forward-looking
statement that is subject to risks and uncertainties. Our actual funding
requirements may differ materially from this as a result of the number of
factors, including our plans to fully support the commercial release and
support of our Internet postage service, our development and introduction of
new services and our investments in expanding our systems infrastructure and
staffing. We may need to raise additional funds prior to the end of the next 12
months or at a later date.
Regulatory and legal uncertainties could inhibit development of the Internet as
a marketplace for electronic commerce services.
A number of laws and regulations may be adopted with respect to the Internet
relating to user privacy, pricing, content, copyrights, distribution, and
characteristics and quality of products and services that could adversely
affect adoption of the Internet for electronic commerce services, which would
harm our ability to attract and retain customers. Moreover, the applicability
of existing laws to the Internet is uncertain with regard to many issues such
as property ownership, export of encryption technology, sales tax, libel and
personal privacy. 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
adversely affect demand for our Internet postage service and could increase our
cost of doing business.
12
<PAGE>
U.S. Postal Service regulations require a user of our Internet postage service
to print both the destination address and the digital stamp, which will
discourage use of our Internet postage service to print digital stamps for use
with pre-printed return envelopes.
U.S. Postal Service regulations require a user of our Internet postage
service to print both the destination address and the digital stamp. We have
found that many users will not take the time to type in destination addresses
to print a digital stamp for use with pre-printed payment envelopes. In
addition, the digital stamp is too large to fit on many return envelopes. As a
result, users will generally not use our service to print digital stamps for
return envelopes. In addition, our Internet postage service cannot be used to
print digital stamps for handwritten envelopes.
Our Internet postage will not print unless the U.S. Postal Service address
verification CD-ROM is loaded in the drive of the user's personal computer and
verifies the destination address.
The U.S. Postal Service requires that each digital stamp be encoded with the
destination address, which must be verified by the U.S. Postal Service's
address verification CD-ROM before the digital stamp is printed. Destination
addresses in the U.S. Postal Service database are subject to change as persons
or businesses establish a new address or for other reasons. As a result, we
will be required to periodically mail to users of our service updated address
verification CD-ROMs. Until an updated CD-ROM is received, a user will be
unable to print a digital stamp for a new address that was not included in the
U.S. Postal Service database at the time the existing CD-ROM was manufactured.
Shares eligible for future sale by our existing stockholders may adversely
affect our stock price.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. In
addition, such sales could create the perception to the public of difficulties
or problems with our products and services. As a result, these sales also might
make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding 37,365,978 shares
of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants after September 10,
1999. Of these shares, the shares sold in this offering are freely tradable.
The remaining 30,865,978 shares will become eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date of Availability for Sale
<C> <S>
2,143,508 At the date of this prospectus
114,201 90 days after the date of this prospectus
19,807,563 180 days after the date of this prospectus subject to
restrictions under the federal securities laws
8,800,706 More than 180 days after the date of this prospectus,
subject to restrictions under the federal securities
laws
</TABLE>
We have broad discretion to use the proceeds from this offering and may not use
the proceeds effectively.
The majority of the net proceeds of this offering are not allocated for
specific uses other than sales and marketing expenditures, working capital and
general corporate purposes. Thus, our management has broad discretion over how
these proceeds are used and could spend most of these proceeds in ways with
which our stockholders may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable return.
13
<PAGE>
Our securities have no prior market and our stock price may decline after the
offering.
Before this offering, there has not been a public market for our common
stock and an active public market for our common stock may not develop or be
sustained after this offering. The initial public offering price will be
determined by negotiations between E-Stamp and the representatives of the
underwriters, and we cannot assure you that the trading market price of our
common stock will not decline below the initial public offering price.
Internet related stock prices are especially volatile and this volatility could
cause our stock price to fluctuate dramatically which could result in
substantial losses to investors.
The stock market and specifically the stock of Internet related companies
have been very volatile. This broad market volatility and industry volatility
may reduce the price of our common stock, because our business is Internet-
based without regard to our operating performance. In particular, following
initial public offerings, the market prices for stock of Internet related
companies often reach levels that bear no relation to the operating performance
of these companies. The market prices are generally not sustainable and could
vary widely. If our common stock trades to high levels following this offering,
it could eventually experience a significant decline.
Shares issued, and option grants made, under our 1996 stock plans violated the
registration requirements of federal and state securities laws.
Shares issued and options granted under our 1996 Stock Option and Restricted
Stock Plan and our 1996 Non-Employee Director Stock Plan violated state and
federal securities laws because these stock issuances and option grants were
not exempt from registration or qualification under federal and state
securities laws and registration or qualification was not obtained. If the
rescission offer that we intend to make to the holders of these shares and
options beginning approximately 30 days after the effective date of this
offering is accepted, we could be required to make aggregate payments to the
holders of these shares and options of up to $4,500,000, plus statutory
interest. We currently expect to use a portion of the proceeds from this
offering to make such payments. Federal securities laws do not expressly
provide that a rescission offer will terminate a purchaser's right to rescind a
sale of stock which was not registered as required. If any or all of the
offerees reject the rescission offer, we may continue to be liable under
federal and state securities laws for up to an aggregate amount of
approximately $4,500,000 plus statutory interest. See "Rescission Offer."
14
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 6,500,000 shares of common stock
offered hereby are estimated to be $77.6 million, based on an assumed initial
public offering price of $13.00 per share and after deducting the underwriting
discount and estimated offering expenses. If the underwriters' over-allotment
option is exercised in full, our net proceeds will be approximately $89.4
million.
We expect to use approximately 65% of the net proceeds for sales and
marketing expenditures related to promoting our Internet postage service,
building E-Stamp brand recognition, and developing additional marketing and
distribution relationships, with the remaining 35% being used for general
corporate purposes, including working capital, satisfaction of our potential
obligations under the rescission offer and expansion of our corporate
infrastructure. In addition, we may use a portion of the net proceeds to
acquire complementary products, technologies or businesses; however, we
currently have no commitments or agreements and are not involved in any
negotiations to do so. Pending use of the net proceeds of this offering, we
intend to invest the funds in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future.
CORPORATE INFORMATION
We were incorporated in Delaware in August 1996. Prior to that time, we
conducted operations as Post N Mail, L.L.C., a Texas limited liability company
formed in April 1994. Post N Mail was merged into E-Stamp in September 1996.
Our principal executive offices are located at 2855 Campus Drive, Suite 100,
San Mateo, California 94403 and our telephone number is (650) 554-8454. Our Web
site is located at http://www.e-stamp.com. Information contained on our Web
site does not constitute part of this prospectus.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding
the growth of Internet usage, business-to-business, business-to-consumer
electronic commerce, postage usage, small office-home offices and related
service markets and spending. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements for many reasons,
including the risks faced by us described in "Risk Factors" and elsewhere in
this prospectus.
15
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of June 30, 1999, which reflects a stock
dividend to be made prior to the completion of this offering of one
share of common stock on each four shares of our outstanding common
stock;
. our pro forma capitalization after giving effect to our sale of 726,745
shares of common stock in September 1999 for an aggregate purchase price
of $5.0 million, our sale of 2,928,521 shares of convertible preferred
stock in August 1999, convertible into 3,660,651 shares of common stock,
for an aggregate purchase price of $30.2 million, the exercise of
warrants to purchase 83,855 shares of common stock at $0.01 per share in
September 1999, the grant of 187,500 shares of common stock to two of
our executives in August 1999, the automatic conversion of all
outstanding shares of redeemable convertible preferred stock into shares
of common stock on a 1.25-for-1 basis which will occur upon the closing
of this offering; and
. our pro forma as adjusted capitalization to give effect to the sale of
6,500,000 shares of common stock at an assumed initial public offering
price of $13.00 per share in this offering, after deducting the
underwriting discount and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
As of June 30, 1999
----------------------------
Pro
Pro Forma As
Actual Forma Adjusted
(In thousands, except par
value data)
<S> <C> <C> <C>
Capital lease, net of current portion............ $ 6 $ 6 $ 6
Common stock subject to rescission, $0.001 par
value per share, 2,844 issued and outstanding,
actual, pro forma and pro forma as adjusted..... 2,499 2,499 2,499
Preferred stock; $0.001 par value, issuable in
series, 12,000 authorized shares actual and pro
forma; 10,000 authorized pro forma as adjusted:
Series A redeemable convertible preferred
stock; 2,500 authorized shares, issued and
outstanding, actual; no shares issued or
outstanding, pro forma and pro forma as
adjusted...................................... 7,084 -- --
Series B redeemable convertible preferred
stock; 4,188 shares authorized, issued and
outstanding, actual; no shares authorized,
issued or outstanding, pro forma and pro forma
as adjusted................................... 17,561 -- --
Stockholders' equity (deficit):
Common stock, par value $0.001; 100,000 shares
authorized, 12,950 shares issued and
outstanding, actual; 200,000 shares
authorized, 26,019 shares issued and
outstanding, pro forma; 200,000 shares
authorized, 32,519 shares issued and
outstanding, pro forma as adjusted............ 13 26 33
Additional paid-in capital..................... 22,563 83,418 160,997
Notes receivable from employees and officers... (2,157) (2,157) (2,157)
Deferred stock compensation.................... (14,427) (16,227) (16,227)
Deficit accumulated during development stage... (32,784) (30,984) (30,984)
-------- -------- --------
Total stockholders' equity (deficit)......... (26,792) 34,076 111,662
-------- -------- --------
Total capitalization............................. $ 358 $ 36,581 $114,167
======== ======== ========
</TABLE>
This table excludes the following shares:
. 804,093 shares of common stock reserved for future issuance under our
stock option plans as of June 30, 1999; and
. 1,286,250 shares of common stock subject to outstanding options as of
June 30, 1999 with an average exercise price of $0.72 per share of which
options as to 1,053,476 shares had been exercised subsequent to June 30,
1999.
16
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on June 30, 1999,
after giving effect to the conversion of all outstanding shares of our
convertible preferred stock on a 1.25-for-1 basis, our sale of 726,745 shares
of common stock in September 1999 for an aggregate purchase price of $5.0
million, our sale of 2,928,521 shares of convertible preferred stock in August
1999, convertible into 3,660,651 shares of common stock, for an aggregate
purchase price of approximately $30.2 million, the exercise of warrants to
purchase 83,855 shares of common stock at $0.01 per share in September 1999,
and the grant of 187,500 shares of common stock to two of our executives in
August 1999, was $35.6 million, or approximately $1.19 per share. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to our sale of
6,500,000 shares of common stock offered by this prospectus at an assumed
initial public offering price of $13.00 per share and after deducting the
underwriting discount and estimated offering expenses payable by us, our net
tangible book value would have been approximately $113.1 million, or $3.12 per
share. This represents an immediate increase in net tangible book value of
$1.93 per share to existing stockholders and an immediate dilution in net
tangible book value of $9.88 per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $13.00
Pro forma net tangible book value per share as of June 30, 1999.. $1.19
Increase per share attributable to new investors................. 1.93
-----
As adjusted pro forma net tangible book value per share after the
offering........................................................ 3.12
------
Dilution in pro forma net tangible book value per share to new
investors....................................................... $ 9.88
======
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. As of June 30, 1999, there were options
outstanding to purchase a total of 1,286,250 shares of common stock with an
average exercise price of $0.72 per share. See Notes 4 and 10 of Notes to
Financial Statements. The exercise of outstanding options and warrants having
an exercise price less than the offering price would increase the dilutive
effect to new investors.
The following table sets forth, as of June 30, 1999, on the pro forma basis
described above, the differences between the number of shares of common stock
purchased from us, the total price paid and average price per share paid by
existing stockholders and by the new investors in this offering at an assumed
initial public offering price of $13.00 per share, before deducting the
underwriting discount and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 29,812,501 82.1% $ 76,740,000 47.6% $ 2.57
New investors............. 6,500,000 17.9% 84,500,000 52.4% 13.00
---------- ----- ------------ -----
Total................... 36,312,501 100.0% $161,240,000 100.0%
========== ===== ============ =====
</TABLE>
If the underwriters over-allotment option is exercised in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
represent approximately 79.8% of the total number of shares of our common
stock outstanding after this offering, and
. the number of shares held by new public investors will increase to
7,475,000 or approximately 20.2% of the total number of shares of our
common stock outstanding after this offering.
17
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The statement of operations data for the years ended December 31, 1996, 1997
and 1998, and the balance sheet data as of December 31, 1997 and 1998 are
derived from our financial statements, which have been audited by Ernst & Young
LLP, independent auditors and are included elsewhere in this prospectus. The
statement of operations data for the period since inception (April 26, 1994)
through December 31, 1994 and for the year ended December 31, 1995 and the
balance sheet data as of December 31, 1994, 1995 and 1996 are derived from
audited financial statements not included in this prospectus. The financial
data as of and for the six months ended June 30, 1998 and 1999 are derived from
unaudited financial statements included elsewhere in this prospectus. We have
prepared this unaudited information on the same basis as the audited financial
statements and have included all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
our financial position and operating results for such periods. When you read
this selected financial data, it is important that you also read the historical
financial statements and related notes included in this prospectus, as well as
the section of this prospectus related to "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Historical results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
Period from
Inception Six Months Ended
(April 26, 1994) Year Ended December 31, June 30,
through Dec. 31, ----------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and
development.......... 378 701 2,387 3,916 5,603 2,458 5,225
Sales and marketing... 34 96 1,761 1,743 2,722 1,137 2,494
General and
administrative....... 160 532 1,739 1,748 1,897 903 1,373
Amortization of
deferred stock
compensation......... -- -- 688 414 858 -- 3,451
------ ------- ------- ------- -------- ------- --------
Operating loss.......... (572) (1,329) (6,575) (7,821) (11,080) (4,498) (12,543)
Interest income
(expense), net......... -- (17) 236 143 370 43 176
------ ------- ------- ------- -------- ------- --------
Net loss................ (572) (1,346) (6,339) (7,678) (10,710) (4,455) (12,367)
Accretion on redeemable
convertible preferred
stock.................. -- -- -- (196) (1,383) (307) (1,176)
------ ------- ------- ------- -------- ------- --------
Net loss attributable to
common stockholders.... $(572) $(1,346) $(6,339) $(7,874) $(12,093) $(4,762) $(13,543)
====== ======= ======= ======= ======== ======= ========
Net loss per common
share (basic and
diluted)............... $(0.05) $ (0.11) $ (0.51) $ (0.61) $ (0.92) $ (0.37) $ (1.00)
====== ======= ======= ======= ======== ======= ========
Pro forma net loss per
share basic and
diluted(1)............. $ (0.57) $ (0.57)
======== ========
Weighted average shares
outstanding (basic and
diluted)............... 11,175 11,933 12,543 12,966 13,075 13,026 13,486
Shares used in
calculation of pro
forma net loss per
share basic and
diluted(1)............. 18,753 21,846
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------- As of
1994 1995 1996 1997 1998 June 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.. $ 19 $ 190 $3,910 $4,111 $10,217 $ 1,916
Working capital (deficit).. (426) 386 3,394 2,398 8,805 (324)
Total assets............... 93 1,428 4,873 4,763 10,811 3,096
Capital lease, net of
current portion........... -- -- 88 38 11 6
Common stock subject to
rescission................ -- -- 31 252 971 2,499
Redeemable convertible
preferred stock........... -- -- -- 6,126 23,469 24,645
Total stockholders' equity
(deficit)................. (352) 646 4,070 (3,390) (15,196) (26,792)
</TABLE>
- --------------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing pro forma
net loss per share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in forward-looking statements for many reasons, including the risks
described in "Risk Factors" and elsewhere in this prospectus. You should read
the following discussion with the "Selected Financial Data" and our financial
statements and related notes included elsewhere in this prospectus.
Overview
We provide an Internet postage service that enables users to purchase,
download and print Internet postage directly from their personal computers. We
pioneered the development of Internet postage, including being one of the first
companies to approach the U.S. Postal Service with the idea of printing postage
from a personal computer.
We have incurred net losses in each quarterly and annual period since our
inception, and as of June 30, 1999, we had generated no revenues and our
accumulated deficit was $39.0 million. From November 1994 to March 1998, we
incurred operating costs primarily related to the development of our Internet
postage service in accordance with U.S. Postal Service guidelines and specified
criteria. In March 1998, after extensive development and interaction with the
U.S. Postal Service, we began the three-phase beta test certification process
required by the U.S. Postal Service to qualify Internet postage vendors for
commercial distribution of Internet postage under the U.S. Postal Service's
Information Based Indicia Program. On August 9, 1999, we received final
approval from the U.S. Postal Service for our Internet postage service and
since that date have been providing our service nationally in accordance with
approved quantities and distribution channels. As of September 24, 1999, we had
delivered our Internet postage software and hardware to approximately 14,000
persons to enable them to purchase our Internet postage.
In addition to working with the U.S. Postal Service to obtain approval of
our Internet postage service, our primary activities since inception have
included:
. developing our business model;
. developing and testing our Internet postage service;
. hiring management and other key personnel;
. building our infrastructure; and
. entering into marketing and distribution relationships.
The revenue and income potential of our business and market is unproven, and
our limited operating history makes it difficult to evaluate our prospects. We
expect to continue to incur net losses for the foreseeable future and may never
achieve profitable operations. Subsequent to June 30, 1999, we have recognized
only nominal revenues from our desktop Internet postage service. We intend to
recognize revenue from an initial software license fee for our Internet postage
software and hardware, ongoing convenience fees for the purchase of postage on
the Internet, and the sale of ancillary postage supplies. Our costs of revenues
include the costs of manuals, packaging, the postage device, credit card and
electronic funds transfer fees, the address management system, support costs,
as well as fulfillment costs, and direct costs from the sale of postage
supplies.
During the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1999, in connection with the grant of stock options to
employees, we recorded deferred stock compensation totaling $19.8 million,
representing the difference between the deemed fair value of our common stock
on the date such options were granted and the exercise price. Such amount is
included as a reduction of stockholders' equity and is being amortized over the
vesting period of the individual options, generally four years, using the
graded vesting method. The graded vesting method provides for vesting of
portions of the overall award at different dates and results in higher vesting
in earlier years than straight-line vesting. We recorded amortization of
deferred stock compensation in the amount of $688,000, $414,000 and $858,000
for the years ended
19
<PAGE>
December 31, 1996, 1997 and 1998 and $3.6 million for the six months ended June
30, 1999. At June 30, 1999, we had a total of $14.4 million remaining to be
amortized over the corresponding vesting periods of the stock options. We
anticipate that additional deferred compensation will be recorded for options
granted in July, August and September 1999. See Notes 4 and 10 of Notes to
Financial Statements.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Research and Development. Research and development expenses include expenses
for research, design and development of our Internet postage service, expenses
related to obtaining patents from the U.S. Patent Office, and server and
network operations. Research and development expenses increased 113% to $5.2
million for the six months ended June 30, 1999 from $2.5 million for the
six months ended June 30, 1998. Of the $2.7 million increase in research and
development expenses in 1999, $1.7 million of this amount reflected increases
in research and development employee headcount, and consulting and contractor
expenses. The balance of the increase reflected costs of project materials for
further development of our Internet postage service, server-based service,
operations network investments and costs of product shipped to customers during
the beta test portion of the U.S. Postal Service approval process. We expect
the dollar amount of research and development expenses to increase in future
periods to support further development of our Internet postage service and our
server-based service and expenses related to the development of other products
and services.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related benefits for sales and marketing personnel, Web site
development, package design, advertising and promotional expenses, and trade
show expenses. Sales and marketing expenses increased 119% to $2.5 million for
the six months ended June 30, 1999 from $1.1 million for the six months ended
June 30, 1998. Of the $1.4 million increase in sales and marketing expenses in
1999, $900,000 of this amount reflected costs associated with continued
development of our marketing campaigns in anticipation of the launch of our
Internet postage service. In addition, this increase reflected costs of
$300,000 for promotional obligations and advertising placements under marketing
and distribution relationships that were not in place in the first six months
of 1998. The increase also reflected increases in our sales and marketing
personnel. We expect sales and marketing expenses to increase in dollar amount
as we promote and launch our Internet postage service and as we hire additional
personnel, continue to promote our brand and add new marketing and distribution
relationships.
General and Administrative. General and administrative expenses consist
primarily of compensation for administrative and executive staff, fees for
professional services, depreciation expense and general office expenses.
General and administrative expenses increased 52% to $1.4 million for the six
months ended June 30, 1999 from $903,000 for the six months ended June 30,
1998. $300,000 of the increase in general and administrative expenses in 1999
reflected increases in administrative staff and professional fees. We also
incurred a one-time charge of $175,000 for a severance accrual for a former
executive officer. We expect general and administrative expenses to increase in
dollar amount due to further additions in staffing and as we incur additional
costs necessary to prepare and manage the infrastructure for business
expansion, for legal services in connection with the Pitney Bowes litigation,
and associated costs with being a public reporting company.
Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $3.5 million for the six months ended June 30, 1999. There was
no amortization of deferred stock compensation for the six months ended June
30, 1998. We recorded aggregate deferred stock compensation of $18.7 million in
the period from July 1, 1998 through June 30, 1999 for options awarded to
employees with exercise prices below the deemed fair value for financial
reporting purposes of our common stock on their respective grant dates.
Interest Income, Net. Interest income, net, consists primarily of earnings
on our cash and cash equivalents, net of interest expenses attributable to
equipment leases and any taxes. Interest income, net, increased 309% to
$176,000 for the six months ended June 30, 1999 from $43,000 for the six months
ended
20
<PAGE>
June 30, 1998. The increase in interest income, net, was due to increasing
average cash and cash equivalent balances as we received funds from our
financing activities. We expect interest income, net, to increase following
this offering as a result of increased cash balances resulting from this
offering.
Year Ended December 31, 1998 Compared to Years Ended December 31, 1997 and
1996
Research and Development. Research and development expenses increased 43% to
$5.6 million in 1998 from $3.9 million in 1997 and increased 64% in 1997 from
$2.4 million in 1996. A majority of the increases in research and development
expenses in 1998 and 1997 were due to increases in contractor expenses and
personnel headcount costs of $900,000 in 1998 and $1.1 million in 1997. We also
incurred increases of $800,000 in 1998 and $400,000 for costs of project
materials and network operations investments.
Sales and Marketing. Sales and marketing expenses increased 56% to $2.7
million in 1998 from $1.7 million in 1997 and decreased 1% in 1997 from $1.8
million in 1996. $500,000 of the increase in sales and marketing expenses in
1998 was due to costs related to the continued development of our marketing and
branding campaigns, and expenses related to the anticipated launch of our
Internet postage service. In addition, this increase reflected increases in our
marketing personnel costs of $400,000 and, to a lesser extent, costs incurred
for promotional obligations under our first marketing and distribution
relationships entered in 1998. Sales and marketing expenses in 1997 decreased
modestly due primarily to a reduction in trade show activity.
General and Administrative. General and administrative expenses increased 9%
to $1.9 million in 1998 from $1.7 million in 1997 and increased 1% in 1997 from
$1.7 million in 1996. The increase in general and administrative expenses in
1998 was due primarily to increases in general and administrative staffing and
to a much lesser extent professional service costs and general office expenses.
General and administrative expenses in 1997 increased modestly due to a small
increase in administrative staff.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation increased 107% to $858,000 in 1998 from $414,000 in 1997 and
decreased 40% in 1997 from $688,000 in 1996. In 1996, we recorded deferred
stock compensation of approximately $1.1 million related to equity awards to
employees. We also recorded aggregate deferred stock compensation of
approximately $3.6 million in 1998 for options awarded to employees with
exercise prices below the deemed fair value for financial reporting purposes of
our common stock on their respective grant dates.
Interest Income, Net. Interest income, net, increased 159% to $370,000 in
1998 from $143,000 in 1997 and decreased 39% in 1997 from $236,000 in 1996. The
increase in interest income, net, in 1998 was due to increasing average cash
and cash equivalent balances as we received funds from our financing activities
in 1998. The decrease in interest income, net, in 1997 was due to declining
average cash and cash equivalent balances as we spent funds that had been
received.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of equity securities. We have received approximately $73.9 million in
private funding, including $35.2 million through our most recent financings in
August and September 1999. In addition, we have a $1.25 million line of credit
with a bank, all of which is available for use by us except for a $143,000
letter of credit to secure our lease and capital lease obligations totaling
$26,000 as of June 30, 1999. This line of credit bears interest at a rate of
prime plus 0.25%.
Net cash used in operating activities totaled $7.9 million for the six
months ended June 30, 1999, $9.6 million for the year ended December 31, 1998,
$5.7 million for the year ended December 31, 1997, and $4.9 million for the
year ended December 31, 1996. Cash used in operating activities for each period
resulted primarily from net operating losses in those periods.
Net cash provided by (used in) investing activities totaled $(387,000) for
the six months ended June 30, 1999, $(324,000) for the year ended December 31,
1998, $(21,000) for the year ended December 31, 1997, and
21
<PAGE>
$202,000 for the year ended December 31, 1996. Cash provided by (used in)
investing activities for each period resulted primarily from the acquisition of
capital assets, primarily computer and office equipment.
Net cash provided by financing activities totaled $12,000 for the six months
ended June 30, 1999, $16.0 million for the year ended December 31, 1998, $5.9
million for the year ended December 31, 1997, and $8.4 million for the year
ended December 31, 1996. Cash provided by financing activities for each period
resulted primarily from issuances of common stock and redeemable convertible
preferred stock, offset by the repayment of lease obligations and notes payable
to related parties.
We believe that the net proceeds from this offering, together with our
current cash balances and cash flows from operations, if any, will be
sufficient to meet our present growth strategies and related working capital
and capital expenditure requirements for at least the next 12 months. Without
the proceeds of this offering, our cash resources would be sufficient to fund
our operations under our current plan through the second quarter of 2000. Our
current plan contemplates significant increases in spending when compared to
our historical expenditures. Without the proceeds from this offering, we would
be required to reduce our planned expenditures under our current operating plan
to enable our current cash resources to fund our operations for the next 12
months. We currently anticipate the need to raise additional capital prior to
achieving positive cash flows from our operations through the issuance of
additional debt or equity securities. We currently intend to use a portion of
the proceeds from this offering to satisfy our payment obligations under our
rescission offer, if any are required. We do not expect our payment obligations
under our rescission offer to have a material effect on the period of time
through which our financial resources will be adequate to support operations.
Our forecast of the period of time through which our financial resources will
be adequate to support operations is a forward-looking statement that involves
risks and uncertainties. Our actual funding requirements may differ materially
from this as a result of a number of factors including our plans to fully
support the commercial release of our desktop Internet postage service, our
introduction of new services and our investments in systems infrastructure and
staffing. We may require substantial working capital to fund our business and
we may need to raise additional capital prior to this time or thereafter. We
cannot be certain that additional funds will be available on satisfactory terms
when needed, if at all. If we are unable to raise additional necessary capital
in the future, we may be required to curtail our operations significantly.
Raising additional equity capital would have a dilutive effect on existing
stockholders.
We believe that our exposure to market risk related to changes in interest
rates, equity prices and foreign currency exchange rates is not material. At
June 30, 1999, we did not hold any short or long-term investments.
Year 2000 Compliance
Background. Many currently installed computer systems, software products and
other control devices are unable to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many companies'
computer systems, software products and control devices may need to be upgraded
or replaced in order to operate properly in the year 2000 and beyond.
Assessment and Implementation. The U.S. Postal Service requires participants
in the Information Based Indicia Program to maintain Year 2000 compliant
systems and software. As a result, we are in the process of developing a
comprehensive plan to make our internal computer software and hardware systems
Year 2000 compliant. Our Year 2000 compliance plan is comprised of 3 phases: an
assessment phase; an implementation phase; and a testing phase. This plan,
initiated in the first quarter of fiscal 1999, will be implemented by the end
of the fourth quarter of fiscal 1999. While we believe that this plan for
addressing the Year 2000 problem will be completed in a timely manner, we
cannot be certain that these Year 2000 compliance efforts will be successful.
The financial impact of making the required systems changes cannot be known
precisely at this time, but we currently expect these expenses to be less than
approximately $500,000. The financial impact, could, however, exceed this
estimate. Nonetheless, these costs are not expected to be material to our
business, financial condition, or results of operation. To date, we have
incurred expenses of less than approximately $100,000.
22
<PAGE>
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 services, as well as monitoring and back-up
capabilities. Based upon our assessment to date, we believe that our systems
will be Year 2000 compliant and have submitted Year 2000 readiness statements
to the U.S. Postal Service to indicate our Year 2000 compliance. However, we
cannot be sure how our Internet postage service will integrate with other
vendor-provided software.
We use and depend on third-party equipment and software that may not be Year
2000 compliant. Consequently, our ability to address Year 2000 issues is, to a
large extent, dependent upon the Year 2000 readiness of these third parties'
hardware and software products. We are currently assessing the Year 2000
readiness of other third-party supplied software, computer technology and other
services and expect to complete this assessment by the beginning of the fourth
quarter of 1999. 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. All of our significant
vendors and suppliers of third party equipment and software have provided us
with written compliance statements or published information regarding their
Year 2000 readiness except for one vendor who has only responded orally.
Approximately 90% of our significant vendors and third party suppliers have
indicated that they are currently Year 2000 compliant, and the remaining 10%
have indicated that they are in the process of remediating Year 2000 issues and
expect to be Year 2000 compliant before year end. We will develop and
implement, if necessary, a remediation plan with respect to third-party
software, third-party vendors and computer technology and services that may
fail to be Year 2000 compliant.
If Year 2000 issues prevent our users from accessing the Internet or our
Internet postage service or from processing postage, we will lose revenue. Any
failure of our third-party equipment or software to operate properly could
require us to incur unanticipated expenses. For example, pursuant to
regulations of the Information Based Indicia Program, we rely on the
U.S. Postal Service's secure postage accounting vault to purchase postage
credit for our customers. If the U.S. Postal Service systems are not Year 2000
compliant, our users may not be able to purchase additional postage which would
cause us to lose revenue and could injure our reputation.
The Year 2000 readiness of the Internet infrastructure necessary to support
our operations is difficult to assess. For instance, we depend upon the
integrity and stability of the Internet to provide our services. We also depend
on the Year 2000 compliance of the computer systems and financial services used
by our customers. Thus, the infrastructure necessary to support our operations
consists of a network of computers and telecommunications systems located
throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
Year 2000 issues that may impact the entire infrastructure. Our ability to
assess the reliability of this infrastructure is limited and relies solely on
generally available news reports, surveys and comparable industry data. Based
on these sources, we believe most individuals that rely significantly on the
Internet are carefully reviewing and attempting to remediate issues relating to
Year 2000 compliance, but it is not possible to predict whether these efforts
will be successful in reducing or eliminating the potential negative impact of
Year 2000 issues. A significant disruption in the ability of customers to
reliably access the Internet would have an adverse effect on demand for our
services and would harm our results of operations.
Most Likely Worst Case Scenarios of Year 2000 Problems. We cannot accurately
predict how many failures related to the Year 2000 problem will occur or the
severity, duration or financial consequences of these failures. Any Year 2000
problems that affect us could result in an interruption in our service or the
inability of users to access our service. As a result, the following worst case
scenarios could occur:
. any interruption in our service would result in loss of revenue and could
require significant expenditures and efforts by us to restore service;
and
. widespread Year 2000 problems could result in a significant number of our
users being unable to access our service due to problems with their
personal computers or the Internet.
23
<PAGE>
contingency plans by the end of the third quarter of 1999. Depending on the
systems affected, these plans could include:
. accelerated replacement of effected equipment or software;
. increase work hours for our personnel or use of contract personnel to
correct on an accelerated schedule any Year 2000 problems which may
arise;
. the provision of manual workarounds for information systems; and
. other similar approaches.
If we are required to implement any of these contingency plans, such plans may
have a material adverse effect on our business, financial condition or results
of operations. Additionally, we may not complete these contingency plans in a
timely manner, and failure to do so could have a material adverse effect on our
business, financial condition or results and operations.
The discussion of our efforts and expectations relating to Year 2000
compliance are forward-looking statements that are subject to risks and
uncertainties and actual results may differ materially from those indicated in
these forward-looking statements. Our ability to achieve Year 2000 compliance
and the level of anticipated expenses related to Year 2000 compliance could be
adversely affected by, among other things, the availability and cost of testing
and programming resources, the ability of third parties to resolve Year 2000
issues associated with their systems and software and unanticipated problems
that may in the future be identified in our ongoing compliance review.
Recent Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting for Comprehensive Income." Statement
of Financial Accounting Standards No. 130 requires disclosures of components of
non-stockholder changes in equity in interim periods and additional disclosures
of components of non-stockholder changes in equity on an annual basis. Adoption
of Statement of Financial Accounting Standards No. 130 had no impact on the
Company's results of operations or financial position.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company adopted Statement of Financial Accounting No.
131 effective January 1, 1998. The adoption of this standard did not have a
material effect on the Company's financial statement disclosures as the Company
operates in a single segment.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Company is required to adopt Statement of
Financial Accounting Standards No. 133 for the year ending December 31, 2000.
Statement of Financial Accounting Standards No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because the Company
currently holds no derivative financial instruments and does not currently
engage in hedging activities, adoption of Statement of Financial Accounting
Standards No. 133 is expected to have no material impact on the Company's
financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." Statement of Position 98-1 is
effective for financial statements for years beginning after December 15, 1998.
Statement of Position 98-1 provides guidance over accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. We adopted the
provisions of Statement of Position 98-1 on January 1, 1999. The adoption of
Statement of Position 98-1 has not had a material impact on our financial
position or results of operations.
24
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
Our interest income and expense are sensitive to changes in the general
level of interest rates. In this regard, changes in interest rates affect the
interest on our cash equivalents earned as well as the interest incurred on our
indebtedness. Based on our cash equivalents balance and level of indebtedness
at June 30, 1999, our exposure to interest rate risk is not material.
25
<PAGE>
BUSINESS
Overview
We provide an Internet postage service that enables users to purchase,
download and print postage directly from their personal computers. The postage
can be printed directly onto envelopes, labels or documents using standard
laser or inkjet printers, 24 hours a day, seven days a week, without the need
to remain connected to the Internet. Customers can buy the software and
hardware components needed to use our Internet postage service through our
online store at www.e-stamp.com, over the telephone or at leading office supply
stores. We also plan to sell our services through leading computer superstores
and catalogs. Our Internet postage service is based upon our E-Stamp software,
our secure postage hardware device that enables the storage on the user's
desktop of up to a maximum of $500 of postage as currently allowed under U.S.
Postal Service regulations, and a U.S. Postal Service address verification CD-
ROM. Our Internet postage software and hardware currently sells for a suggested
retail price of $49.99. As part of our marketing strategy, we have previously,
and may from time to time, offer our software and hardware free of charge
through promotional arrangements with third parties. We charge a 10%
convenience fee when Internet postage is purchased, with a minimum fee of $4.99
and a maximum fee of $24.99 per purchase. We also plan to offer for sale later
this year postage related consumables and peripherals including an Internet
postage scale, labels, windows envelopes and a label printer manufactured by
third parties with whom we have established relationships.
We received approval from the U.S. Postal Service on August 9, 1999 for our
Internet postage service, and since that date have been providing our service
nationally. Our commercial roll-out is currently limited to 100,000 customers,
with expanding numbers of customers based on successful evaluations by the U.S.
Postal Service. We are targeting our Internet postage service at small
business, small office and home office users, collectively known as SOHO users.
To help build our brand awareness and accelerate the adoption of our Internet
postage service, we have formed marketing and distribution relationships with
industry leaders, such as Microsoft, Yahoo!, Excite@Home, America Online,
Intuit, Compaq, Earthlink, Francotyp-Postalia and Avery Dennison. We expect our
marketing and distribution relationships to generate revenue through:
. increased sales of our Internet postage product as a result of increased
traffic on our website;
. acquisition of customers through bundling arrangements and promotional
offers to promote the use and adoption of our service; and
. markups on our sales of postage related consumables and peripherals
manufactured by third parties.
We believe our Internet postage service will enhance customer satisfaction
during the mail and postage process by improving overall access, convenience
and flexibility for SOHO users, and will increase operating efficiencies and
decrease postal fraud for the U.S. Postal Service by including a unique digital
signature on each digital stamp.
Industry Background
The Internet and Electronic Commerce
The Internet has emerged as a global medium for communications, information
and commerce. With over 125 million users at the end of 1998, which is expected
to grow to approximately 500 million users by 2003, as estimated by
International Data Corporation, the Internet is dramatically changing how
businesses and other users communicate and share information. The Internet has
also created new opportunities to conduct commerce, including business-to-
business electronic commerce, which enables organizations to streamline
business processes, lower operating costs and improve productivity. According
to Forrester Research, business-to-business electronic commerce is expected to
grow from an estimated $43 billion in 1998 to approximately $1.3 trillion in
2003, accounting for more than 90% of the dollar value of electronic commerce
in the United States. Due to the Internet's convenience and accessability,
businesses are increasingly using the Internet for a wide variety of
operations, such as buying office supplies online, and may benefit from
emerging trends, such as buying postage over the Internet.
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The Postage Industry
According to the U.S. Postal Service's latest annual report, the total
postage market in the U.S. was approximately $60 billion in 1998. Further, the
U.S. Postal Service processed over 197 billion pieces of mail, or an estimated
41% of the total worldwide mail shipments. Of the $60 billion U.S. postage
market, approximately $38 billion was represented by postage stamps and postage
meters, which are primarily used for first class, priority and express mail,
with the remaining $22 billion consisting of permit and other mail services.
Keenan Vision, an independent research firm, estimates that first class,
priority and express mail usage will grow to approximately $46 billion by the
year 2002. In addition, the worldwide private market for mail and parcel
delivery which does not require postage from governmental entities includes
services such as Federal Express and United Parcel Service.
The U.S. Postal Service's longstanding mission is to meet the needs of its
customers with convenient options and improved postage security. To enhance
customer satisfaction, we believe the U.S. Postal Service searches for
innovations that:
. provide postal services that are convenient, cost-effective and easy-to-
use;
. leverage existing customer infrastructures, such as personal computers,
printers and software, to provide better and more efficient products and
services;
. integrate mailing information on the computer desktop, including postage
accounting;
. improve access to the large and growing small business, small office and
home office markets, collectively known as the SOHO market;
. reduce the occurrence of postal fraud, which costs in excess of $150
million per year in lost revenues according to the U.S. General
Accounting Office; and
. increase efficiencies in the handling and processing of mail, thereby
expediting the mailing process and enabling the U.S. Postal Service to
lower its operating costs.
The Emergence of Internet Postage
To address these objectives, the U.S. Postal Service announced in 1995 a
program for its first new postage method since the approval of the postage
meter in 1920. The Information Based Indicia Program is a certification program
that authorizes third party vendors to sell digital postage that users purchase
over the Internet and print from a personal computer using ordinary laser or
inkjet printers. Internet postage consists of a two dimensional bar code
containing an encrypted digital signature that makes each digital stamp unique
and is intended to lower the prevalence of postal fraud. Through its
Information Based Indicia Program, the U.S. Postal Service is seeking to
enhance user convenience with a new access channel for postage that enables
users to print postage from a personal computer, 24 hours a day, seven days a
week.
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The following illustration is an example of our Internet postage that
conforms to the Information Based Indicia Program requirements, along with an
explanation of what each part represents.
[Illustration of digital stamp including the several elements described in the
bullet references below]
<TABLE>
<S> <C>
. FIM Mark. Facing identification mark . Two Dimensional Barcode. Encodes the
that is used to properly orient the readable information, including
document in the U.S. Postal Service's address of mailer and addressee, as
automated sorting system. well as other information including a
unique digital signature and a
delivery print code.
. Town Circle or Postmark. Identifies . Device ID. Unique identification code
the town and zip code in which the that links the postage back to the
postal customer resides and from device that stored the postage before
which the postal item must be sent. printing.
. Postage Amount. Ascribes a value to . Rate Category. Describes the type of
the postage that has been printed and postal service being used, which can
removed from the user's account. be first-class, priority mail,
express mail or parcel post.
</TABLE>
The Growth of SOHOs and Their Postage and Internet Usage
The United States has a large and growing number of small businesses, small
offices and home offices, collectively known as SOHOs. According to
International Data Corporation, there were 44.6 million SOHOs in the U.S. in
1998, which is expected to grow to 57.6 million by 2002. Of the 44.6 million
SOHOs in 1998, International Data Corporation estimates that 37.3 million were
home offices, 5.7 million were small businesses with less than ten employees
and 1.6 million were small businesses with more than ten employees. Further,
International Data Corporation estimates that SOHOs accounted for $3.7 billion
of electronic commerce in 1998 and will account for $69.7 billion of electronic
commerce in 2002. In addition, SOHOs are typically identified with the
following characteristics:
. limited amount of time and resources, resulting in the desire for
services that simplify business processes; and
. self sufficient and "do-it-yourself" entrepreneurs who are willing to
adopt new technologies that save time and increase flexibility.
Postage Usage. SOHOs generally conduct an essential part of their
communications with suppliers and customers through the postal system,
including letters and packages that require expedited delivery. Despite the
relative importance of postage usage, SOHO use of postage meters is low, and it
appears that using a postage meter is not cost-effective for their needs. Based
on a 1999 survey from International Data Corporation, 80% of small
businesses/small offices with 10 employees or less did not use a postage meter.
When the total cost is computed, including lease fees for both the postage
meter and scale, which approximate $25 per month,
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postage meter resetting fees and proprietary consumables such as ink
cartridges, which approximate another $25 per month, SOHOs pay a significant
premium to traditional postage stamps. In addition, leasing a postage meter
typically has required a multi-year lease lock-in period.
Internet Usage. As the Internet helps simplify business processes, SOHOs
have become more willing to rely on its functionality to improve their
businesses. Accordingly, there has been increased adoption of the Internet by
SOHOs, as the following statistics indicate:
. International Data Corporation estimates that 56% of U.S. home offices
in 1998 had Internet access, and that this percentage will reach 72% by
2002; and
. for U.S. small businesses, International Data Corporation estimates that
approximately 50% had Internet access in 1998. This amount is expected
to increase to 67% by 2002.
Despite the increasing prevalence of Internet access, most SOHOs are
constrained by limited bandwidth Internet connections. International Data
Corporation estimates that:
. approximately 80% of SOHOs with Internet access use dial-up modems,
usually at 28.8 or 33.6 kilobytes per second, to connect to the
Internet;
. only 2.2% of SOHOs with Internet access use a broadband connection,
which provides faster access but the availability of which is limited;
and
. approximately 71% of SOHOs in 1998 shared their modem lines with another
device such as a telephone or fax machine, which necessitates being
connected to the Internet only when performing required business
functions.
Given the rapid adoption of the Internet and the high postage usage by
SOHOs, a substantial opportunity exists to provide an automated method for
purchasing, downloading and printing postage. We believe the attractiveness of
Internet postage services for the SOHO user will depend upon the service's
ability to:
. enhance accessibility to postage, at any time of day;
. eliminate the costly time spent travelling to and waiting at the post
office;
. automate business processes through integration with existing business
software programs;
. be easy to use and flexible to meet the SOHO user's preferences;
. enable the tracking and reporting of postage usage;
. provide cost savings and faster mail delivery versus traditional postage
solutions; and
. leverage a user's existing investment in personal computers, printers
and software.
The E-Stamp Service
We provide an Internet postage service that enables our customers to quickly
and efficiently purchase and download postage over the Internet directly into a
secure, silver-dollar size postage device, and then to print the purchased
postage from their personal computers at any time without the need to remain
connected to the Internet. We have leveraged our customer-centric focus and
over 20 issued patents to create a service that offers convenience and
flexibility to small business, small office and home office users, collectively
known as SOHO users. To help build our brand awareness and accelerate the
adoption of our Internet postage service, we have formed marketing and
distribution relationships with industry leaders. In addition, our Internet
postage service is tightly integrated with popular business computer programs,
such as Microsoft Word and Outlook.
We believe our desktop Internet postage service provides the following
benefits to SOHO users and the U.S. Postal Service:
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Benefits to SOHO Users
Enhanced Flexibility. With our Internet postage service, SOHO users receive
the benefits of buying and downloading postage online, with the flexibility of
printing postage while connected or disconnected from the Internet. Our
service is tailored to most SOHO users, who are unable to, or desire not to,
stay continuously connected to the Internet due to shared connections and
access via slow dial-up modems;
Convenient Access. Our Internet postage service provides unlimited,
convenient access to postage from the computer desktop, 24 hours a day, seven
days a week. SOHO users can purchase, download and print postage with their
personal computer, thereby avoiding common inconveniences such as running out
of postage and waiting in long lines at the post office;
Tight Integration. Our Internet postage service is tightly integrated with
popular software applications, such as Microsoft Word and Outlook, to enable
SOHO users to conveniently print postage while using their most commonly used
software programs;
Variety of Postage Options. Our Internet postage service enables SOHO users
to print professional looking addresses and postage on envelopes, labels or
directly on correspondence in one easy step, with the postage printed in any
denomination. Further, our service enables SOHO users to print a variety of
postage types, including first class, priority mail, express mail and parcel
post; and
Simple and Secure. The components needed to use our Internet postage
service can be installed in minutes and include instructions and an intuitive
user interface. Further, our service is designed to provide SOHOs the highest
level of security and data integrity as their databases of addresses are
stored locally, rather than uploaded to a remote server. In addition, we
enable the accurate tracking and reporting of postage purchases and usage,
thereby limiting employee misuse.
Benefits to the U.S. Postal Service
A New Low-Cost Distribution Channel. Our Internet postage service enables
the U.S. Postal Service to distribute postage to users through the Internet,
thereby enabling significant manufacturing and distribution cost savings;
Automation and Operating Efficiencies. Our Internet postage service enables
the U.S. Postal Service to further automate the handling and processing of
mail, through address verification and correction and extended zip code
printing capabilities;
Extended Level of Security. Our Internet postage service provides the
highest level of security and auditing capabilities, which may help the U.S.
Postal Service to reduce the over $150 million dollars annually of postal
fraud; and
Increased Postal Competitiveness. Our Internet postage service offers
additional capabilities for sending and tracking packages, such as priority
express or parcel post, enabling the U.S. Postal Service to more effectively
compete against the private parcel shipping industry, such as Federal Express
and United Parcel Service.
Growth Strategy
Our objective is to be the leading provider of Internet postage services.
Key elements of our growth strategy include the following:
Enter into Marketing and Distribution Relationships with Industry Leaders to
Quickly Acquire Customers
Our strategy includes entering into marketing and distribution
relationships with industry leaders to rapidly acquire customers, build brand
recognition and accelerate the adoption of our Internet postage service. We
have
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<PAGE>
entered into marketing or distribution relationships with Microsoft, Yahoo!,
Excite@Home, America Online, Compaq, EarthLink, Intuit, Francotyp-Postalia,
Dymo-CoStar, Tension Envelope, Avery Dennison and Sunbeam's Pelouze division.
Entering into these relationships with well-known and trusted names in the
Internet, computer hardware and software, and business supply industries enable
us to leverage these third parties' installed customer bases, distribution
channels and marketing expertise, and facilitate the adoption, usage and
accessibility of our Internet postage service. We expect to enter into
additional marketing and distribution relationships as our business grows and
we expand our portfolio of products and services.
Initially Focus on the Large and Growing SOHO Market
We are initially focusing on the small business, small office and home
office market, collectively known as the SOHO market, due to its attractive
characteristics, which include:
. a large and growing number of SOHOs;
. high personal computer penetration;
. predominant Internet usage via dial up modems over shared data lines; and
. heavy reliance on postage, yet underserved by traditional services.
We have conducted extensive qualitative and quantitative research on SOHO
users, and have tailored our Internet postage service to meet their needs.
Build and Promote Our Brand
We intend to aggressively build our customer base by increasing awareness of
the E-Stamp brand. We believe that associating our brand with businesses with
whom we have marketing and distribution relationships and high quality services
is important to the expansion of our customer base. As we grow in size, we
intend to invest in building brand awareness through a variety of marketing and
promotional techniques, both independently and in conjunction with third
parties. We intend to promote our brand through television, print and radio
advertising, and online banner advertising through marketing relationships with
high traffic Web sites. We also plan to generate brand recognition through
viral marketing, which involves the prominent display of our logo and Web site
address on our Internet postage.
Leverage Our Technology Platform and Expertise to Develop A Family of Internet
Postage Services
We intend to leverage our customer-centric focus, scalable electronic
commerce platform and our patent portfolio to develop a family of Internet
postage services for the high volume mailer and corporate enterprise and for
the low volume individual consumer. We intend to offer an intranet-based
service to the corporate market, through the integration of our technology into
enterprise applications and high speed mail processes, thus enabling corporate
users to print conveniently and efficiently large amounts of Internet postage
for bulk mailings and other corporate purposes. We also intend to target the
consumer market with a server-based service, that will enable a user to
purchase and store Internet postage directly on our secure electronic commerce
server and print from their local printer. We plan to continue to develop other
services that enable users to take advantage of their existing investments in
computing infrastructure and the Internet, and will continue to invest in and
focus our technology development efforts on increasing online transaction
efficiency, reliability and security.
Pursue Multiple and Recurring Revenue Streams
We intend to leverage our brand, electronic commerce capabilities and
infrastructure to develop incremental revenue opportunities from a broader
customer base, including the corporate enterprise and the individual consumer.
These opportunities include the following:
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Sale of Postage Related Consumables and Peripherals. Through our Web site,
we intend to offer mailing-related consumables, such as labels and envelopes,
and peripherals, such as mechanical scales, personal computer-enabled digital
scales and label printers. We have created a patented window envelope, and have
entered into marketing and distribution relationships with third party vendors
of integrated scales and other postage supplies.
Authenticated Document Market. We intend to capitalize on our expertise in
secure payment processing and the printing of authenticated documents to offer
other products and services that can be purchased online and printed from the
desktop, such as tickets and gift certificates.
Pursue International Internet Postage Opportunities
We believe that there are significant opportunities in international markets
for our Internet postage service. In particular, we believe our Internet
postage service is suited for many international markets because users pay for
connecting to the Internet based on usage time and thus are seeking services
that can reduce expensive connection time. Unless and until foreign postage
authorities create a certification process and recognize information-based
indicia postage, our Internet postage service will not be able to address
international markets.
Our Internet Postage Service
Our Internet postage service enables users to purchase postage over the
Internet, download the postage quickly and efficiently into a secure, silver-
dollar size postage device, and to print the postage at any time from the
desktop directly onto envelopes, labels or documents using standard laser or
inkjet printers. We target today's small business, small office and home office
users, collectively known as SOHOs, most of whom usually connect to the
Internet on modems at speeds of 28.8 or 33.6 kilobytes per second. Our service
enables users to store postage on their desktop, thereby allowing them to print
postage at their convenience rather than requiring a reconnection to the
Internet each and every time they want to print postage.
We received U.S. Postal Service approval to begin to sell our Internet
postage service nationally in August 1999. The software and hardware components
needed to use our Internet postage service are currently available through our
Web site and through a toll-free telephone number.
Installation
The installation process is simple and can be
completed in a matter of minutes through the use
of a CD-ROM. The E-Stamp Internet postage package
includes all the components needed to use our
Internet postage service and to connect to www.e-
stamp.com for the purchase of more postage,
receipt of software updates, or to access postal
information. In addition to our easy to install
software, our Internet postage package also
includes our silver-dollar size, secure postage
device that connects onto the back of a personal
computer as shown on the right. The secure
postage device stores the postage and connects
between the parallel port and any other printer
device attached there.
[Illustration of installation of postage device between printer cable and
parallel port of personal computer]
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Printing Postage
The following simple three steps are involved in using our Internet postage
service.
Step 1: Buy It. The user can purchase Internet postage without ever leaving
the home or office, 24 hours a day, seven days a week. The user simply connects
to our electronic commerce server using a standard Internet connection and then
chooses the amount of Internet postage, up to the $500 maximum storage value
allowed by the U.S. Postal Service, depending on their particular needs and
usage patterns. The Internet postage is then downloaded and stored onto the
Internet postage device.
Step 2: Print It. After choosing the medium on which to print the Internet
postage, whether directly onto a letter or using an envelope or label, the user
selects the destination address. The addresses are either read directly from
the user's current address database or can be entered with our software. In
either case, the addresses are verified with the Address Matching System from
the U.S. Postal Service contained on CD-ROM at the user's desktop, and the
amount of postage related to the item being sent is calculated. The user then
selects the printer device and prints the Internet postage.
Step 3: Mail It. The user then drops the professionally posted letters and
packages in the mail or schedules a priority mail pickup from the U.S. Postal
Service.
Additional Features
In addition to providing the means to purchase, download and print Internet
postage, we have created other features that enhance the usability of our
Internet postage service.
Business Application Integration. We have tightly integrated our Internet
postage software with the following leading software applications:
. Microsoft Word -- Upon installation, our Internet postage software
integrates tightly with Microsoft Word, with our E-Stamp icon appearing
in the Microsoft Word tool bar, so users can print postage without
leaving the application; and
. Microsoft Outlook -- Our software allows users to access addresses in
Outlook without leaving the E-Stamp application.
Address Software Functionality. Our Internet postage service enables users
to print Internet postage using their existing mailing databases, and is
compatible with eight types of contact managers and word processing, accounting
and e-mail software applications. Further, addresses are stored on the user's
personal computer with our Internet postage service, negating any need to
upload confidential information to a shared server.
Variety of Printing and Mailing Options. Users can choose from 16 different
types of envelopes, labels, air bills and postcards, as well as simply printing
postage directly onto letters and using our patented windowed envelopes.
Customers can use our Internet postage for a number of U.S. Postal Service
mailing options, including first class, priority mail and express mail for
guaranteed overnight delivery.
Tracking and Reporting. Our Internet postage software includes a function
that allows users to track postage usage, including recipient address, time and
amount.
Integrated Scale. We have teamed with Sunbeam's Pelouze division to offer an
integrated scale that automatically weighs the letter or package being sent to
correctly calculate the postage required, thus reducing over-posting.
Internet Postage Supplies. We also provide postage supplies, such as labels
and envelopes, which we have designed to be compatible with our Internet
postage service. The sale of these postage supplies requires U.S. Postal
Service approval and we are in the process of obtaining necessary approvals.
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Marketing and Distribution Relationships
We believe that market penetration, brand awareness and adoption of our
Internet postage service in the early stages is critical to our success. Thus,
we continually focus on enhancing the breadth and depth of market penetration
and offering our customers the most convenient and easy-to-use access to our
Internet postage service. To achieve these goals, we have established a
strategy of entering into marketing and distribution arrangements with the
industry leaders in business segments related to the Internet, computer
hardware and software, postage and business supplies. These relationships allow
us to leverage those third parties' installed customer bases, distribution
channels and marketing expertise to facilitate the adoption, usage and
accessibility of our Internet postage service.
Microsoft. In July 1999, we entered into an agreement with Microsoft for
promotion of our service on the Microsoft Office Update Web site. Our agreement
with Microsoft contains exclusive elements, although Microsoft is not
prohibited from entering into an agreement with other Internet postage
providers. Exclusive elements of our agreement with Microsoft during the term
of the agreement include permanent placement on the home page of the web site,
co-marketing and/or co-funding of marketing activities, Internet postage launch
support and inclusion in editorial content on the web site. The initial term of
our agreement with Microsoft is one year, although the agreement is terminable
on 60 days prior notice. We have also integrated our Internet postage software
with Microsoft Word and Microsoft Outlook. Microsoft is also one of our equity
investors.
Yahoo!. In May 1999, we entered into an advertising and promotion agreement
with Yahoo!. Yahoo! is the leading Internet guide in terms of traffic,
household and business user reach, and is one of the most recognized brands
associated with the Internet. Under this agreement, Yahoo! users will have
direct access to the E-Stamp services from within the Yahoo! Postal Center.
Yahoo! has agreed to display E-Stamp banners when any of 20 key words are
entered into the Yahoo! search engine including the key words "postage" and
"stamps." During the term of the agreement, Yahoo! has agreed to not display
banners, sponsorships or other forms of advertising of Internet postage
competitors on the Yahoo! Postal Center or within Yahoo Small Business property
and to not display or co-brand content from competitors in the Yahoo! Postal
Center. The initial term of the Yahoo! agreement expires December 31, 2000.
Excite@Home. In August 1999, we entered into a binding letter of intent with
Excite@Home to provide direct access to our service across Excite@Home's @Work
division. This nonexclusive relationship is designed to provide early broadband
adopters with access to our service through the @Work site. As part of this
relationship, our service offering will be integrated into @Work's portfolio of
products and services. During the term of the agreement, other Internet postage
companies are not to be included in sponsorship areas or in the @Work small
business post office area. This service is currently expected to be available
later in 1999. Excite@Home also is one of our equity investors.
America Online. In November 1998, we agreed to become a tenant in America
Online's new Postage Services Center, which features direct links to our Web
site where America Online members can purchase our Internet postage service. As
part of the agreement, America Online has agreed to promote our service until
May 2000 with banner advertisements across several of America Online's branded
properties, including CompuServe, AOL.com and Digital City.
Intuit. In September 1999, we entered into an agreement with Intuit Inc., a
leading provider of financial software. Under this agreement, users of Intuit's
QuickBooks software will have access to our service directly from within the
QuickBooks software program. In addition, Intuit has agreed to market and
promote our service through Intuit's existing small business channels,
including the QuickBooks.com newsletter and the QuickBooks.com website. During
the term of this agreement so long as we meet its performance criteria, Intuit
has agreed not to market, promote or distribute Internet postage products of
our competitors in connection with the marketing, promoting and selling of the
QuickBooks software products. The initial term of the Intuit agreement expires
December 31, 2001.
Compaq. In June 1998, we entered into an agreement with Compaq to help
accelerate the adoption of Internet postage. Under this agreement, Compaq will
market our Internet postage service as part of the online services available to
owners of their Prosignia line of personal computers, targeted at the small
business market
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and sold through their broad sales channels, and will offer our Internet
postage service through Compaq's Web site in exchange for which we have agreed
to pay Compaq royalties. The Compaq agreement has an initial term that expires
in June 2001. Compaq also is one of our equity investors.
Francotyp-Postalia. In August 1999, we entered into a non-exclusive
marketing and distribution agreement with Francotyp-Postalia, Inc., the U.S.
division of Francotyp-Postalia AG & Co., an international market leader in
modern office equipment and services for mail processing. Under this agreement,
Francotyp-Postalia has agreed to offer our Internet postage service through its
Web site. Additionally, we intend to leverage Francotyp-Postalia's established
distribution channels and existing customer base to distribute our service.
Francotyp-Postalia also is one of our equity investors.
Avery Dennison. In July 1999, we entered into a non-exclusive relationship
with Avery Dennison that includes sales, marketing and distribution agreements.
Under this agreement, our Internet postage service is to be the only online
postage service promoted in packages of Avery labels and other printable
supplies. Additionally, we have agreed to offer a free sample pack of Avery PC
Postage Labels to our new customers. We plan to sell these labels in our online
supplies store.
Sunbeam Corp.'s Pelouze Scale Co. Division. In February 1999, we entered
into a marketing and sales agreement with Signature Brands, Inc., a subsidiary
of Sunbeam Corporation, the leading manufacturer and distributor of postal
scales. We intend to leverage Sunbeam's already established distribution
channels and promote our service with a special Pelouze Internet Postage Scale
for sale in retail, mail order and contract stationery channels. Additionally,
the scale, which is designed to work exclusively with our Internet postage
service, is currently expected to be available to our customers through our
online store later in 1999. During the term of the agreement, Sunbeam has
agreed not to bundle a scale with a competitor's Internet postage product in
the U.S. and we have agreed not to bundle our service with another
manufacturer's integrated scale.
Tension Envelope Corporation. In March 1999, Tension Envelope agreed to
become our exclusive supplier for our patented window envelopes. These patented
window envelopes, which we plan to sell through our online supplies store,
feature a special "window" for Internet postage and will save our customers
time by eliminating several steps from the mail preparation process. This
envelope has been submitted for required approvals to the U.S. Postal Service.
EarthLink. In June 1999, we entered into a non-exclusive agreement with
EarthLink, a leading Internet service provider. Under this agreement, we and
EarthLink have agreed to develop a co-branded postal center accessible to
EarthLink's more than 1.3 million users from their personal start pages and
elsewhere in the EarthLink network. Additionally, EarthLink has agreed to make
our Internet postage service available for purchase through EarthLink's mall
and to place banner advertisements for our Internet postage service in their
service. In addition, EarthLink has agreed to place an advertisement for our
service in each issue of its user magazine. The initial term of our agreement
with EarthLink expires in August 2000.
Dymo-CoStar. In July 1999, we entered into a marketing and distribution
agreement with Dymo-CoStar, a leading manufacturer of specialty label printers,
related software and supplies. Our agreement with Dymo-CoStar provides for
bundling of a promotional demonstration of our software with many Dymo-CoStar
printers. Additionally, Dymo-CoStar has agreed to jointly promote our service
in retail channels, promote us to its existing customer base, and to integrate
support for our service directly into its printer software. Under the
agreement, Dymo-CoStar has agreed not to bundle promotional materials of our
competitors with Dymo-CoStar printers. Bundling and promotion of our service
under this agreement is expected to begin later this year. Dymo-CoStar's
specialty label printer has been approved for sale by the U.S. Postal Service
and the related labels have been submitted for required approvals to the U.S.
Postal Service.
Under our agreements with Yahoo!, Microsoft, Earthlink Excite@Home and
Intuit, we are required to make aggregate payments to those parties totalling
approximately $5.5 million during the second half of 1999, $10.5 million during
the year 2000, and $2.4 million during the year 2001. We have also agreed to
pay approximately $1.3 million to an Internet service provider, and have agreed
to pay Compaq royalties. We could be required to make additional payments under
these agreements if advertising exceeds established levels of page views or
generates and exceeds established levels of new customers.
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<PAGE>
In addition to the sales and marketing agreements described above, in
September 1999, we signed a nonbinding letter of intent with Deutsche Post AG,
Europe's largest letter services and logistics company, and a nonbinding letter
of intent with an affiliate of Deutsche Telekom AG, Europe's largest
telecommunications company. In each of these letters of intent, we agreed to
negotiate proposed business relationships involving joint marketing,
distribution and technology development. Any party can terminate negotiations
under these letters of intent at any time, and there is no assurance that any
binding agreement or business relationship with Deutsche Post AG or Deutsche
Telekom AG or any affiliate will ever develop.
Acquisition of Customers
The initial focus of our Internet postage service is on the large and
growing SOHO market, which consists of small businesses, small offices and home
offices. We have established relationships with leading Internet, computer and
business supply companies to distribute our Internet postage service through
channels most frequented by SOHOs. In addition, we are leveraging those third
parties' established customer bases, marketing efforts and distribution
channels to build brand recognition, accelerate adoption and increase product
accessibility. Our plan is to also promote and extend our brand by conducting
ongoing public relations campaigns and developing affiliation and affinity
programs.
Product Distribution. We intend to make our Internet postage product
available through all standard distribution channels in order to increase
product availability and accelerate the adoption of Internet postage.
Specifically, we will target the following:
. Retail -- We have identified top retail accounts to target for our
Internet postage product since SOHOs typically purchase a substantial
portion of their office supply needs from these sources. These targets,
such as Best Buy, CompUSA, CDW and Staples, have been targeted based on
the demographics of their customer base, their experience selling
computer products to small business customers, and their experience
selling office supplies and mailing-related products. We plan to access
traditional retailers through Ingram Micro, one of the nation's largest
computer and computer-related product distributors. We plan to access
online retailers through our relationship with Digital River, an online
distributor, and our relationship with LinkShare, a provider of
affiliate marketing services.
. Direct Marketing and Mail Order -- We will also offer our products
directly from our online store at www.e-stamp.com and through our toll-
free telephone number, as well as through major Internet and mail order
software resellers, both online and catalog-based.
Promotional Bundling Arrangements. We have entered into distribution
agreements with industry leading PC hardware, printer, scale and consumables
companies to bundle promotions for our Internet postage service in selected
products, which enables us to leverage these third parties' installed customer
base, distribution channels and marketing experience.
Affiliate and Affinity Programs. We intend to establish an extensive
affiliate program with sites who target small offices and home offices and we
will offer other revenue-sharing opportunities for affiliates who promote or
provide links to our products from their Web site. The first of our affiliate
program relationships is with LinkShare which has a network of Web sites that
access the online merchants marketed by LinkShare. In addition, we plan to
extend promotional offers to trade associations with substantial SOHO
membership.
Online and Offline Advertising. We currently have marketing relationships in
place with some of the top Internet sites, and we intend to enter into
marketing relationships with additional high traffic sites in the future. We
will also target specific customer segments through the use of varied online
banner advertisements. Further, we intend to utilize various offline forms of
advertising, such as television, print, radio and other targeted publications
that focus on specific attractive markets for our service.
Viral Marketing Programs. The U.S. Postal Service has granted us permission
to include our Web site address and our logo on each Internet postage that is
printed. We have developed our Internet postage digital stamp to prominently
display our logo and Web site address to further develop our brand recognition
and accelerate the acquisition of new customers through referrals.
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U.S. Postal Service Information Based Indicia Program Certification Process
The U.S. Postal Service recently approved our Internet postage service under
its Information Based Indicia Program. The Information Based Indicia Program is
a U.S. Postal Service initiative committed to creating new, convenient,
electronic access to postage for mailing customers. Through the Information
Based Indicia Program, the U.S. Postal Service delivers a higher level of
convenience and security to customers with established performance and
evaluation criteria for personal computer postage products.
For vendors of Internet postage, approval under the Information Based
Indicia Program includes a standardized, ten-stage certification process prior
to commercial release. Information Based Indicia Program participants must
receive U.S. Postal Service authorization at each stage of the certification
process to proceed to the next stage. The second to last stage is a three phase
beta test, which includes customers sending mail through the mail system. The
final stage before commercial release is vendor product approval, which
represents formal approval to begin selling Internet postage nationally. The
significant steps in the certification process and the time commitment required
of a potential Information Based Indicia Program vendor creates a significant
barrier to entry for competitors in the U.S. Internet postage market.
The Information Based Indicia Program certification process includes the
following stages:
<TABLE>
<S> <C>
6. U.S. Postal Service address matching
1. Letter of intent system
2. Non-disclosure agreement 7. Product submission/testing
3. Operational concept 8. Product infrastructure tests
4. Software documentation 9. Beta test approval (three phases)
5. Provider infrastructure plan 10. Vendor product approval (national
distribution)
</TABLE>
Upon receipt of U.S. Postal Service certification, Information Based Indicia
Program vendors begin national distribution in accordance with approved
quantities and distribution channels. Each approved vendor's commercial roll-
out is initially limited to 10,000 customers, with expanding numbers of
customers based upon successful evaluations by the U.S. Postal Service. We
recently received authorization from the U.S. Postal Service to expand our
commercial roll-out to 100,000 customers.
Competition
We received U.S. Postal Service approval to commercially release our
Internet postage service on August 9, 1999 and began providing our service on
that date. We believe that our Internet postage service is well positioned to
compete in the SOHO market, which consists of small businesses, small offices
and home offices, because of our tight integration with software applications
and our advantages in bandwidth-constrained environments. We will also compete
with providers of traditional postage products such as stamps sold by the U.S.
Postal Service, and services such as Federal Express and United Parcel Service.
In addition to providers of traditional postage products and services, we
compete with three other Information Based Indicia Program vendors, Neopost,
Pitney Bowes and Stamps.com, who have all initiated the certification process
with the U.S. Postal Service. Only one of these, Stamps.com, was approved for
commercial release by the U.S. Postal Service on August 9, 1999. However,
Stamps.com failed to make their service commercially available at that time.
While the market for Internet postage is new, we expect that competition will
further increase once Internet postage products become widely available and
generally accepted.
While we believe our Internet postage service provides significant benefits
over traditional postage methods, especially for the SOHO market, we expect to
continue to also compete with traditional postage methods such as stamps and
metered mail. Postage meters are typically paid for on a monthly lease, require
significant investments in additional supplies such as ink cartridges, charge a
premium for postage and are subject to tampering and theft. There can be no
assurance that customers will change their current postage purchasing habits
and switch to Internet postage products. The failure of a commercially viable
number of users to switch to Internet postage would significantly harm our
business, financial condition and results of operations.
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We may not be able to maintain a competitive position against current or
future competitors as they enter the Internet postage market 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
our market could seriously harm our business, financial condition and results
of operations. We believe that the principal competitive factors in the
Internet postage market include:
. U.S. Postal Service product certification;
. brand recognition;
. integration with other software applications;
. convenience;
. service availability and reliability;
. price;
. security; and
. marketing and distribution relationships.
Technology
We have leveraged our technologies, including our desktop software, postage
application programming interface, Internet postage device, patented window
envelope, and systems infrastructure, in order to create a comprehensive
service that meets our customers' needs and fulfills the U.S. Postal Service's
certification requirements.
Desktop Software. Our desktop software enables users to print Internet
postage offline without maintaining a persistent Internet connection. The
software is designed to interface with our proprietary postage device to print
the recipient's address and Internet postage in one step onto envelopes,
labels, and documents. The recipient's address can be selected using the built-
in support for many popular applications, including Microsoft Word and Outlook,
without the user having to upload data over the Internet or separately type the
address. This is a significant advantage over other Internet postage products
which require the user to type in or import addresses from other software
packages and force them to keep multiple copies of the same address
synchronized across multiple address books. In addition, the software has a
built-in electronic software update feature which automatically updates postage
rates and the software itself ensuring that each customer always has the most
current version of our software. The software includes a postage application
programming interface which enables other software vendors to integrate their
software with our software.
Postage Application Programming Interface. We built our software from the
ground up so that it can be integrated as a component of other software
applications. This means virtually any software application can be "postage-
enabled" to print Internet postage onto envelopes, labels, or documents.
Through this technology, our software can be tightly integrated with popular
business applications.
Internet Postage Device. We have developed a proprietary silver-dollar size
Internet postage device that securely stores the postage value our customers
buy. The postage device connects to a personal computer's parallel port between
the personal computer and the printer. The postage device enables our users to
print postage without the need to remain connected to the Internet because
account balances are stored on the device, not on a remote server. The postage
device is also secure and tamper-resistant, disabling itself if anyone attempts
to open or tamper with it. Our Internet postage device has been tested by the
National Institute of Standards and Technology and certified as Federal
Information Processing Standard 140-1 compliant at security levels 3 and
partially 4. Overall security was reviewed by a Cryptographic Equipment
Assessment Laboratory and Internet Security was reviewed by ISS Group, a
leading Internet security company.
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<PAGE>
Patented Window Envelope. We have developed and patented a special window
envelope that has an additional window in the upper right corner for postage.
This enables postage to be printed directly on documents, folded in thirds and
inserted into one of our envelopes. They are a significant time-saver because
they eliminate the need to separately prepare an envelope or label. Tension
Envelope will be manufacturing this envelope for us and we plan to offer it to
our customers on our Web site.
Systems Infrastructure. Our systems have been designed to be scalable as our
business grows and to allow for rapid deployment of our Internet postage
service. As the quantity of purchases or number of users accessing our systems
increases, we have developed our systems to incrementally grow through the
necessary additions. Our systems are based on the Microsoft Windows NT,
Transaction Server and SQL Server environment. For our Web site, we utilize
Javascript and Active Server Pages.
Future Product Development
We are currently developing a server-based service that is targeted at
broadband-enabled users. As estimated by Forrester Research, broadband access
was only utilized by 2% of online users in 1998, but will increase to 26% in
2002. Once broadband connections become more prevalent and customers have
dedicated Internet access, our server-based service will be positioned to meet
the needs of this base of users. The server-based service will enable a user to
purchase and store Internet postage directly on our secure electronic commerce
server and print from their local printer.
Plan of Operation
Our plan of operation for the remainder of 1999 and the first six months of
2000 calls for significantly increasing our operating expenses and capital
expenditures when compared with our historical levels. We believe this
increased spending will be necessary to fully support the commercial release
and support of our Internet postage service, our development of our server-
based service and our investments in expanding our systems infrastructure and
staffing. We believe that the net proceeds from this offering, together with
our current cash balances and cash flows from operations, if any, will be
sufficient to meet our growth strategies and related working capital and
capital expenditure requirements under our current operating plan for at least
the next 12 months. We do not expect to have to raise additional funds to meet
expenditures required for operating our business under our current operating
plan during the next 12 months. Our forecast of the period of time through
which our financial resources will be adequate to support our operations under
our current plan of operation is a forward looking statement that is subject to
risks and uncertainties, and we may be required to raise additional capital
prior to that time and afterwards.
During the remainder of 1999, we anticipate significantly increasing our
operating expenses and capital expenditures as compared to the first two
quarters of 1999. We expect the majority of our increased spending to relate to
increased sales and marketing expenses as we continue to expand our marketing
campaign for our Internet postage service. We also expect to spend a higher
amount on research and development expenses primarily related to the
development of our server-based service and additional features for our
Internet postage service. Our general and administrative expenses are also
expected to increase. A portion of our forecasted increase in spending for
sales and marketing, research and development and general and administrative
expenses is attributable to our plans to increase our total employee headcount
by 50% during the remainder of 1999.
We expect our operating expenses and capital expenditures to continue to
increase during the first two quarters of 2000, with the majority of this
increase relating to continued growth in our sales and marketing expenses. In
addition, we expect our total employee headcount to increase approximately 33%
during the first half of 2000 as compared to our expected employee headcount at
the end of 1999 which would also contribute to this increased spending.
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<PAGE>
In addition to the net proceeds of this offering and our current cash
resources, we expect that our cash resources for the remainder of 1999 and the
first six months of 2000 will also include any revenue generated from the sale
of our Internet postage service, although to date the amount of such revenue
has been nominal and our plan of operation for that period does not contemplate
such revenue constituting a material source of cash.
Company History
Prior to September 1996, we conducted operations as Post N Mail, L.L.C., a
Texas limited liability company formed in April 1994. From April 1994 until the
September 1996 merger with E-Stamp, Post N Mail engaged in discussions with the
U.S. Postal Service regarding non-traditional postal services and, as use of
the Internet became more prevalent, focused upon the development of our
Internet postage service. In September 1996, Post N Mail was merged into E-
Stamp, a Delaware corporation. Following the merger, we continued to develop
our Internet postage service which entered the U.S. Postal Service's three-
phase beta test certification process in March 1998 and received final U.S.
Postal Service approval on August 9, 1999.
Employees
As of June 30, 1999, we employed 75 full-time people, including 29 in
engineering, 13 in operations, eight in customer service and support, 13 in
sales, marketing and business development, and 12 in general and administrative
functions. Based on our growth plans, we anticipate hiring a significant number
of employees over the next 12 months. From time to time, we employ independent
contractors to support our research and development, marketing, sales and
support and administrative organizations. Our employees are not represented by
any collective bargaining unit, and we have never experienced a work stoppage.
We believe our relations with our employees are good.
Intellectual Property
We regard our technology as proprietary and attempt to protect it by relying
on patent, trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. We have
been issued over 20 U.S. patents and have 12 patent applications pending. Our
issued patents expire between 2010 and 2016. We consider patents to be a
significant part of our intellectual property, and will remain so for the
foreseeable future. We also generally enter into confidentiality or license
agreements with our employees and consultants, and generally control access to
and distribution of our documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our proprietary information without authorization or
to develop similar technology independently. We are in the process of pursuing
the registration in the U.S. for a number of our trademarks and service marks,
including "E-Stamp," and we cannot assure you that any of these trademark
registrations will be issued or that if they are issued that we will be able to
successfully enforce them. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which our
services are distributed or made available over the Internet, and policing
unauthorized use of our proprietary information is difficult. 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 U.S. Postal
Service asserting that intellectual property of Pitney Bowes would be infringed
by products meeting the requirements of the Information Based Indicia Program's
specifications. Furthermore, in June 1999, Pitney Bowes filed a lawsuit in the
U.S. District Court against us alleging infringement of Pitney Bowes patents.
For a discussion of claims by Pitney Bowes and risks associated with
intellectual property, please refer to "Risk Factors--Intellectual property
infringement claims, including claims asserted by Pitney Bowes against us,
could prevent or hinder our ability to sell Internet postage" and "--Legal
Proceedings."
40
<PAGE>
Facilities
Our headquarters are currently located in a leased facility in San Mateo,
California, consisting of approximately 25,000 square feet of office space. The
office space is under a 15-month lease which will expire in June 2000. We will
need to obtain additional office space prior to the end of 1999 and are
currently in discussions with respect to additional space.
Legal Proceedings
On June 10, 1999, Pitney Bowes filed suit against us in the U.S. District
Court for the District of Delaware alleging infringement of Pitney Bowes
patents. The suit alleges that we are infringing seven patents held by Pitney
Bowes related to postage application systems and seeks treble damages, a
preliminary and permanent injunction from further alleged infringement,
attorneys' fees and other unspecified damages. One week later, Pitney Bowes
filed a similar complaint against one of our competitors, Stamps.com, alleging
infringement of two of the seven Pitney Bowes patents alleged in the E-Stamp
complaint. On July 30, 1999, we filed our answer to Pitney Bowes' complaint in
which we deny all allegations of patent infringement and assert affirmative and
other defenses based on statutory and common law grounds, including inequitable
conduct on the part of Pitney Bowes in its procurement of patents in
proceedings before the U.S. Patent and Trademark Office. As part of the answer,
we also brought various counterclaims against Pitney Bowes claiming Pitney
Bowes' violation of Section 2 of the Sherman Act and intentional and tortious
interference with E-Stamp's business relations based, in part, upon our
allegations that Pitney Bowes has unlawfully maintained its monopoly power in
the postage metering market through a scheme to defraud the U.S. Patent and
Trademark Office and its efforts to discourage potential investors and
businesses from investing and entering into agreements with E-Stamp. Our suit
seeks compensatory and treble damages, injunctive relief and recovery of
attorney's fees. On September 21, 1999, Pitney Bowes filed a motion to strike
or dismiss certain of E-Stamp's affirmative defenses and counterclaims or, in
the alternative, to bifurcate discovery and trial of those counterclaims; E-
Stamp's response to the motion is due in October 1999. We are continuing to
investigate the claims against us as well as infringement by Pitney Bowes of
our patents, and may assert additional defenses or pursue additional
counterclaims or independent claims against Pitney Bowes in the future.
Pendency of the litigation can be expected to result in significant expenses
to us and the diversion of management time and other resources. If Pitney Bowes
is successful in its claims against us, then we may be hindered or even
prevented from competing in the Internet postage market and our operations
would be severely harmed. For example, the Pitney Bowes suit could result in
limitations on how we implement our services, delays and costs associated with
redesigning our services and payments of license fees and other payments. An
injunction obtained by Pitney Bowes could eliminate our ability to market
critical products or services.
On May 10, 1999, in U.S. District Court, E-Stamp obtained a temporary
restraining order against Dave Lahoti ordering Mr. Lahoti to refrain from using
his Web site, which he had registered as "estamps.com." On June 14, 1999, the
U.S. District Court granted a preliminary injunction requiring Mr. Lahoti to
refrain from using his Web site in connection with Internet postage and to
place a disclaimer identifying that his Web site is not associated with E-Stamp
Corporation. We are seeking damages and a permanent injunction in connection
with this matter. Mr. Lahoti has denied the material allegations and has set
forth his affirmative defenses.
41
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth our executive officers' and directors' ages
and positions as of September 10, 1999.
<TABLE>
<CAPTION>
Name Age Position
<C> <C> <S>
Robert H. Ewald........... 51 President, Chief Executive Officer and
Director
Anthony H. Lewis, Jr. ... 45 Vice President and Chief Financial Officer
Nicole Eagan.............. 34 Senior Vice President, Marketing and Sales
Martin Pagel.............. 37 Chief Technology Officer
Roderick Witmond.......... 35 Vice President, Strategic Development and
Operations
Thomas J. Reinemer........ 39 Vice President, International
Edward F. Malysz.......... 39 Vice President, General Counsel and
Secretary
Marcelo A. Gumucio........ 61 Chairman of the Board
John V. Balen(1)(2)....... 38 Director
Thomas L. Rosch(2)........ 37 Director
Gregory S. Stanger(2)..... 35 Director
Adam Wagner(1)............ 41 Director
Rebecca Saeger............ 44 Director Nominee
</TABLE>
- ---------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Robert H. Ewald has been our President and Chief Executive Officer since
February 1999 and has been a Director since January 1999. From July 1996 to
July 1998, Mr. Ewald held various executive positions at Silicon Graphics,
Inc., a manufacturer of computer workstations, servers and supercomputers, most
recently as Executive Vice President and Chief Operating Officer. From August
1984 to June 1996, Mr. Ewald held various management and executive positions
with Cray Research, Inc., a manufacturer of high performance computers,
including President and Chief Operating Officer. Before joining Cray Research,
Inc., Mr. Ewald led the Computing and Communications Division of the Los Alamos
National Laboratory and was responsible for providing computing and
communications services to government customers nationwide between 1980 and
1984. Mr. Ewald is currently a director of Ceridian, Inc., an information
technology services company, and a member of the President's Information
Technology Advisory Committee chartered by the White House. Mr. Ewald received
his B.S. in civil engineering from the University of Nevada and his M.S. in
civil engineering from the University of Colorado.
Anthony H. Lewis, Jr. has been our Vice President and Chief Financial
Officer since July 1999. From October 1995 to July 1999, Mr. Lewis held various
management positions at Quantum Corporation, a manufacturer of computer storage
devices, most recently as Vice President of Finance, Treasurer. From 1986 to
October 1995, Mr. Lewis held various management positions at Tandem Computers,
Inc., a manufacturer of computers, including Vice President, Corporate
Financial Controller. Mr. Lewis received his A.B. in economics from Harvard
College and his M.B.A. from Harvard Business School.
Nicole Eagan has been our Senior Vice President, Marketing and Sales since
July 1999 and previously served as our Vice President, Marketing and Business
Development from May 1996. From 1993 to May 1996, Ms. Eagan held various
positions with Oracle Corporation, a manufacturer of systems software and
business applications software, including Director, Strategic Marketing,
Director, Channel Marketing for Global Business Alliances Group and Director,
Server Product Marketing for Oracle 7. Ms. Eagan received her B.S. in marketing
from Montclair University in New Jersey.
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<PAGE>
Martin Pagel has been our Chief Technology Officer since October 1998 and
previously served as our Vice President, Engineering and Chief Architect from
July 1996. From January 1988 to June 1996, Mr. Pagel held various management
and engineering positions at Microsoft Corporation, a manufacturer of software
products, including Technical Manager, Operations for its Internet and
electronic commerce strategies and Program Manager for the design of
distributed computing enhancements, also known as the Cairo Project. Mr. Pagel
was also involved in the formation of Microsoft Consulting Services in Europe.
Mr. Pagel received his degrees in business and computer science from the
Technical University in Braunschweig, Germany.
Roderick Witmond has been our Vice President, Strategic Development and
Operations (Acting), since August 1999. From July 1995 to August 1999, Mr.
Witmond was a Principal Consultant with the Government Consulting Practice of
PricewaterhouseCoopers, an accounting and consulting firm, focusing primarily
on assignments with the U.S. Postal Service and, most recently, E-Stamp. Mr.
Witmond obtained his B.S. from London University in London, England in 1986 and
his M.B.A. from the Darden Graduate School of Business Administration,
University of Virginia in 1995.
Thomas J. Reinemer has been our Vice President, International since March
1999 and previously served as our Vice President, Operations from August 1996.
From May 1995 to July 1996, Mr. Reinemer was Senior Director of Strategic
Marketing and Development at Oracle Corporation, a manufacturer of systems
software and business applications software, where he was responsible for
developing and implementing Oracle's partner strategies. From January 1994 to
May 1995, Mr. Reinemer was International Business Development Manager at
Microsoft, a manufacturer of software products, where he played a leading role
in the launch and expansion of Microsoft's International BackOffice business.
Mr. Reinemer also held various management positions at Novell Germany, a
provider of network software between 1989 and 1995. Mr. Reinemer received his
degrees in electronic processing and in industrial electronic processing
equipment from the Freidrich Ebert Technical College in Weisbaden, Germany.
Edward F. Malysz has been our Vice President, General Counsel and Secretary
since June 1999. From July 1993 to June 1999, Mr. Malysz held various legal
positions with Silicon Graphics, Inc., a manufacturer of computer workstations,
servers and supercomputers, most recently serving as Senior Corporate Counsel.
From August 1988 to July 1993, Mr. Malysz was a transactional lawyer with the
law firm of Berliner Cohen. From August 1982 to December 1984, Mr. Malysz was a
certified public accountant with Arthur Young & Company, an accounting firm.
Mr. Malysz received his B.A. in economics from the University of California,
Santa Barbara and J.D. from Santa Clara University.
Marcelo A. Gumucio has served as Chairman of the Board since November 1998.
Mr. Gumucio is Managing Partner of Gumucio, Burke and Associates, a private
investment firm which he co-founded in 1992. From April 1996 to July 1997, Mr.
Gumucio was Chief Executive Officer of Micro Focus PLC, an enterprise software
provider. He also served as a member of the Micro Focus' board of directors
from January 1996. Before joining Micro Focus, Mr. Gumucio was President and
Chief Executive Officer of Memorex Telex NV between 1992 and 1996. Mr. Gumucio
currently serves on the board of directors of BidCom, Inc., Digital Island and
Burr Brown Corporation. Mr. Gumucio received his B.S. in mathematics from the
University of San Francisco and M.S. in applied mathematics and operations
research from the University of Idaho. Mr. Gumucio is also a graduate of the
Harvard Business School Advanced Management Program.
John V. Balen has served on the Board of Directors since July 1998. Mr.
Balen has been a principal of Canaan Partners, a national venture capital
investment firm, since September 1995. From June 1985 to June 1995, Mr. Balen
served as Managing Director of Horsley Bridge Partners, a private equity
investment management firm. Mr. Balen currently serves on the board of
directors of Intraware and Commerce One. Mr. Balen received his B.S. in
electrical engineering and M.B.A. from Cornell University.
Thomas L. Rosch has served on the Board of Directors since September 1997.
Mr. Rosch joined AT&T Ventures in December 1996 where he is currently a
partner. AT&T Ventures is an independent venture capital fund that invests in
information technology companies. Previously, Mr. Rosch served as a senior
member of The Boston Consulting Group from November 1989 to November 1996. Mr.
Rosch currently serves
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<PAGE>
on the board of directors of Veridicom, Inc. and PaymentNet, Inc. Mr. Rosch
received his A.B. in government and philosophy from Harvard University and
J.D./M.B.A. from Stanford University.
Gregory S. Stanger has served on the Board of Directors since September
1997. Mr. Stanger is a Senior Director, Corporate Development at Microsoft
Corporation and has held various positions in Corporate Development at
Microsoft since July 1993 and within the Microsoft Finance Organization since
joining Microsoft Corporation in September 1991. Previously, Mr. Stanger worked
in investment banking at PaineWebber from March 1987 to June 1989. Mr. Stanger
received his B.A. in economics from Williams College and M.B.A. from the
University of California, Berkeley.
Adam Wagner has served on the Board of Directors since November 1996. Mr.
Wagner has been Vice President, Investments at Wagner & Brown, Ltd., a closely-
held oil and gas investment company, since June 1992. Mr. Wagner currently
serves on the board of directors of PFS Thermoplastics, Inc., SeaSound, LLC,
nStream LLC and iSong.com, inc. Mr. Wagner received his B.S. in geology from
the University of Oklahoma and M.B.A. from the University of Southern
California.
Rebecca Saeger has been nominated to serve on the Board of Directors,
subject to stockholder approval. Since June 1997, Ms. Saeger has served as
Executive Vice President of Brand Marketing for VISA U.S.A., a provider of
payment products and services. From June 1991 to May 1997, Ms. Saeger served in
various positions at Foote, Cone & Belding San Francisco, an advertising
agency, including Senior Vice President, Group Management Supervisor and
Director of Account Management. From June 1980 to April 1991, Ms. Saeger worked
at Ogilvy and Mather New York, an advertising agency, where she held a variety
of positions, including most recently, Senior Vice President, Group Director.
Ms. Saeger received her B.A. from Muhlenberg College and M.B.A. from the
Wharton School of Business, University of Pennsylvania.
Each of our current directors was selected pursuant to a stockholders'
agreement among us, the holders of our Series A and B preferred stock and
several holders of our common stock. The stockholders' agreement will terminate
upon the closing of this offering.
Classified Board
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. Robert H. Ewald and Thomas L. Rosch have been designated
Class I directors whose terms expire at the 2000 annual meeting of
stockholders. Marcelo A. Gumucio and Adam Wagner have been designated Class II
directors whose terms expire at the 2001 annual meeting of stockholders.
Gregory S. Stanger and John V. Balen have been designated as Class III
directors whose terms expire at the 2002 annual meeting of stockholders. This
classification of the board of directors may delay or prevent a change in
control of our company or in our management.
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.
Board Committees
We established an audit committee and a compensation committee in July 1998.
Our audit committee currently consists of Messrs. Balen and Wagner. The
audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants.
Our compensation committee currently consists of Messrs. Balen, Rosch and
Stanger. The compensation committee reviews and recommends to the board of
directors the compensation and benefits of our employees.
44
<PAGE>
Compensation Committee Interlocks and Insider Participation
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee 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
We do not currently compensate our directors in cash for their service as
members of the board of directors, although they are reimbursed for expenses in
connection with attendance at board of director and compensation committee
meetings. Under our stock option plan, directors are eligible to receive stock
option grants at the discretion of the board of directors or other
administrator of the plan. During 1998, the board granted options to purchase
an aggregate of 373,088 shares to Marcelo A. Gumucio at an exercise price per
share of $0.64.
Executive Compensation
Summary Compensation Table
The table below summarizes the compensation earned for services rendered to
us in all capacities for the fiscal year ended December 31, 1998 by our former
chief executive officer and our next four most highly compensated executive
officers who earned more than $100,000 during the fiscal year ended December
31, 1998. These executives are referred to as the Named Executive Officers
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation
------------------ Securities
Name and Principal Underlying
Position Salary($) Bonus($) Options(#)
<S> <C> <C> <C>
Sunir Kapoor............ 153,042 63,500 370,263
Former Chief Executive
Officer and
President(1)
Martin Pagel............ 128,750 25,000 18,994
Chief Technical Officer
Nicole Eagan............ 128,750 28,000 32,500
Senior Vice President,
Marketing and Sales
Thomas J. Reinemer...... 128,750 28,000 35,000
Vice President,
International(2)
Rick D. Prime........... 128,750 -- 12,500
Former Vice President,
Finance(3)
</TABLE>
- ---------------------
(1) Mr. Kapoor served as Chief Executive Officer and President of E-Stamp from
February 1996 until February 1999. Robert H. Ewald joined E-Stamp as our
Chief Executive Officer and President in February 1999. Mr. Ewald currently
is compensated with an annual salary of $250,000 and a guaranteed bonus of
$25,000.
(2) Mr. Reinemer served as Vice President, Operations from August 1996 until
March 1999.
(3) Mr. Prime served as Vice President, Finance from October 1997 until July
1999.
45
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information with respect to stock options
granted to each of the Named Executive Officers in the fiscal year ended
December 31, 1998, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and
10%, compounded annually, and based upon the fair market value at the date of
grant as determined by the board of directors which was equal to the exercise
price. These assumed rates of appreciation comply with the rules of the
Securities and Exchange Commission and do not represent our estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock.
In the fiscal year ended December 31, 1998, we granted options to purchase
up to an aggregate of 1,359,600 shares to employees, directors and consultants.
All options were granted under our 1996 Stock Option and Restricted Stock Plan
at exercise prices at or above the fair market value of our common stock on the
date of grant, as determined in good faith by the board of directors. All
options have a term of ten years. Optionees may pay the exercise price by cash,
certified check, or delivery of already-owned shares of our common stock. All
options to the Named Executive Officers are immediately exercisable upon grant;
however, any unvested shares may be repurchased by us at their cost in the
event of the optionee's termination of employment. All option shares vest over
four years, with 25% of the option shares vesting one year after the option
grant date, and the remaining option shares vesting ratably each quarter
thereafter.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------
Potential
Realizable Value
at Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price
Underlying Granted to Appreciation for
Options Employees Exercise Option Term
Granted In Last Price Expiration -----------------
Name (#) Fiscal Year ($/share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Sunir Kapoor............ 74,013 5.4% $0.64 11/01/08 $ 29,789 $ 75,492
296,250 21.8 0.64 12/15/08 119,238 302,174
Martin Pagel............ 18,994 1.4 0.64 11/01/08 7,645 19,374
Nicole Eagan............ 32,500 2.4 0.64 11/01/08 13,081 33,150
Thomas J. Reinemer...... 35,000 2.6 0.64 11/01/08 14,087 35,700
Rick D. Prime........... 12,500 0.9 0.64 11/01/08 5,031 12,750
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table describes for the Named Executive Officers their option
exercises for the fiscal year ended December 31, 1998, and exercisable and
unexercisable options held by them as of December 31, 1998.
The "Value of Unexercised In-the-Money Options at December 31, 1998" is
based on a value of $0.80 per share, the fair market value of our common stock
as of December 31, 1998, as determined by the board of directors, less the per
share exercise price, multiplied by the number of shares issued upon exercise
of the option. All options were granted under our 1996 Stock Option and
Restricted Stock Plan. The shares vest over four years, with 25% of the shares
vesting one year after the grant date and the remaining shares vesting ratably
each quarter thereafter.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options At December 31, the-Money Options at
Value 1998 (#) December 31, 1998 ($)
Shares Acquired Realized ------------------------- -------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Sunir Kapoor(1)......... 749,000 $23,063 370,263 -- $ -- $ --
Martin Pagel............ 225,325 6,406 18,994 -- -- --
Nicole Eagan............ 332,693 6,406 32,500 -- -- --
Thomas J. Reinemer...... 306,920 6,406 35,000 -- -- --
Rick D. Prime........... 125,000 -- -- -- -- --
</TABLE>
- --------
(1) E-Stamp repurchased 409,878 unvested shares held by Mr. Kapoor in June
1999.
46
<PAGE>
1999 Stock Plan
The board of directors adopted our 1999 Stock Plan, referred to as the 1999
Plan, in August 1999, subject to approval of our stockholders. This stock
option plan provides for the grant to employees of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and for the grant to employees, directors and consultants of
nonstatutory stock options and stock purchase rights.
As adjusted for our stock dividend prior to the completion of this offering,
a total of 2,500,000 shares of common stock were reserved for issuance, plus
annual increases, beginning in fiscal year 2000, equal to the lesser of:
. 1,250,000 shares;
. 3% of the outstanding shares on such date; or
. a lesser amount determined by the board.
As of September 10, 1999, options to purchase 62,500 shares of our common
stock were outstanding under the 1999 Plan, and a total of 187,500 shares that
have been issued pursuant to the 1999 Plan were outstanding.
The stock plan administrator, which is the board of directors or a committee
of the board, administers the 1999 Plan. In the case of options intended to
qualify as "performance based compensation" within the meaning of the Internal
Revenue Code of 1986, as amended, the committee will consist of two or more
"outside directors" within the meaning of the Internal Revenue Code of 1986, as
amended.
The administrator determines the exercise price of nonstatutory stock
options granted under the 1999 Plan, but with respect to nonstatutory stock
options intended to qualify as "performance based compensation" within the
meaning of the Internal Revenue Code of 1986, as amended, the exercise price
must be at least equal to the fair market value of the common stock on the date
of grant. The exercise price of incentive stock options granted under the 1999
Plan must be at least equal to the fair market value of the common stock on the
date of grant. For any participant who owns stock possessing more than 10% of
the voting power of all classes of our capital stock, the exercise price of any
incentive stock option must equal at least 110% of the fair value on the date
of grant and the term of such incentive stock option must not exceed five
years. The term of all other options granted under the stock option plan may
not exceed 10 years.
An optionee must exercise an option granted under the 1999 Plan generally
within three months after the end of the optionee's status as an employee,
director or consultant of E-Stamp, or within 12 months after the optionee's
termination by death or disability, but in no event later than the expiration
of the option's term. Unless determined otherwise by the administrator, an
optionee generally may not transfer options and stock purchase rights granted
under the 1999 Plan.
The administrator determines the exercise price of stock purchase rights
granted under the 1999 Plan. In the case of stock purchase rights, unless the
administrator determines otherwise, the restricted stock purchase agreement
entered into in connection with the exercise of the stock purchase rights
contains a repurchase option that we may exercise upon the voluntary or
involuntary termination of the purchaser's service with us for any reason,
including death or disability. The purchase price for shares we repurchase
under the restricted stock purchase agreements will be the original price paid
by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to us. The repurchase option lapses at a rate that the administrator
determines.
The 1999 Plan provides that in the event of our merger with or into another
corporation or the sale of substantially all of our assets, the successor
corporation will assume or substitute each option or stock purchase right. If
the outstanding options or stock purchase rights are not assumed or
substituted, the administrator will provide notice to the optionee that he or
she has the right to exercise each outstanding option or stock purchase right
as to all of the shares subject to the option or stock purchase right,
including shares that would not otherwise be exercisable, for a period of 30
days from the date of the notice. The options and stock purchase rights will
terminate upon the expiration of the 30-day period.
47
<PAGE>
Unless terminated sooner, the 1999 Plan will terminate automatically in
2009. In addition, the administrator has the authority to amend, suspend or
terminate the 1999 Plan, provided that no such action may affect any share of
common stock previously issued and sold or any option previously granted.
1996 Stock Option and Restricted Stock Plan
Our 1996 Stock Option and Restricted Stock Plan, referred to as the 1996
Plan, was adopted by the board of directors and subsequently approved by our
stockholders. The 1996 Plan provides for the grant to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and for the grant to employees and consultants of
nonstatutory stock options and restricted stock rights.
The board of directors has determined that no future options or restricted
stock rights will be granted under our 1996 Plan after the effective date of
this offering. However, the board or a committee of our board of directors will
administer the options and stock purchase rights granted under the 1996 Plan
that are outstanding on the effective date of this offering. A total of
6,018,750 shares of common stock were authorized for issuance under the 1996
Plan. As of September 10, 1999, options to purchase an aggregate of 1,218,359
shares of our common stock were outstanding under this stock option plan, and a
total of 4,888,976 shares that have been issued pursuant to the exercise of
options granted under the 1996 Plan were outstanding.
The options outstanding at the time of this offering will remain subject to
the terms of the agreements evidencing such options and the terms of the 1996
Plan. The 1996 Plan provides that in the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the Company's
assets, each outstanding option will terminate immediately prior to such
transaction, unless determined otherwise by the plan administrator.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
in August 1999, subject to approval of our stockholders. A total of 500,000
shares of common stock has been reserved for issuance under the purchase plan,
plus annual increases equal to the lesser of:
. 350,000 shares;
. 1% of the outstanding shares on such date; or
. a lesser amount determined by the board.
The board of directors or a committee appointed by the board administers the
stock purchase plan. The board or its committee has full and exclusive
authority to interpret the terms of the stock purchase plan and determine
eligibility.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the following employees may not be
granted options to purchase stock under the purchase plan:
. any employee who immediately after grant owns stock possessing 5% or more
of the total combined voting power or value of all classes of our capital
stock; or
. any employee whose rights to purchase stock under all of our employee
stock purchase plans accrues at a rate which exceeds $25,000 worth of
stock for each calendar year.
The stock purchase plan, which is intended to qualify under Section 423 of
the United States tax code, contains consecutive, overlapping 24 month offering
periods. Each offering period includes four six-month purchase periods. The
offering periods generally start on the first trading day on or after May 15
and November 15 of each year, except for the first such offering period which
will commence on the first trading day on or after the effective date of this
offering and will end on the last trading day on or before November 14, 2001.
48
<PAGE>
Participants may purchase common stock through payroll deductions of up to
15% of the participant's eligible compensation. The maximum number of shares a
participant may purchase during a single offering period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and the end of each
offering period. In the event the fair market value at the end of a purchase
period is less than the fair market value at the beginning of the offering
period, participants will withdraw from the current offering period following
the exercise and will automatically re-enroll in a new offering period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with E-Stamp.
The purchase plan provides that, if we merge with or into another
corporation or sell substantially all of our assets, each outstanding option
may be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened and a new
exercise date will be set, which will occur before the proposed sale or merger.
The purchase plan will become effective on the effective date of this
offering and will terminate in 2009. The board of directors has the authority
to amend or terminate the purchase plan, except that no such action may
adversely affect any outstanding rights to purchase stock.
1999 Director Option Plan
Non-employee directors are entitled to participate in our 1999 Director
Option Plan. The board of directors adopted the director plan in August 1999,
subject to approval of our stockholders, but it will not become effective until
the effective date of this offering. The director plan has a term of ten years,
unless terminated sooner by the board. A total of 300,000 shares of common
stock have been reserved for issuance under the director plan.
The director plan provides for the automatic grant of 40,000 shares of
common stock to each non-employee director who first becomes a non-employee
director after adoption of this plan, and who does not beneficially hold more
than one percent (1%) of the total voting power of our voting securities on the
date of grant. The shares purchasable under this option shall vest over four
years at the rate of 1/48th per month. In addition, after this offering, each
non-employee director who has served on the board for at least the six previous
months, and who does not beneficially hold more than one percent (1%) of the
total voting power of our voting securities on the date of grant, will be
granted an option to purchase 2,500 shares of common stock on the date of each
annual meeting of our stockholders. The shares purchasable under this option
shall vest over one year at the rate of 1/12th per month. Each option granted
to a non-employee director under this director plan will have a term of ten
years. The exercise price of all options shall be 100% of the fair market value
per share of the common stock, generally determined with reference to the
closing price of the common stock as reported on the Nasdaq National Market on
the date of grant.
Options granted under the director plan must be exercised within three
months of the end of the optionee's tenure as a director, or within twelve
months after such director's termination by death or disability to the extent
the option was exercisable on the date of termination, but not later than the
expiration of the option's ten year term.
1996 Non-Employee Director Stock Option Plan
Our 1996 Non-Employee Director Stock Option Plan, referred to as the 1996
Director Plan, was adopted by the Board and approved by the stockholders. Our
board of directors terminated this 1996 Director Plan with
49
<PAGE>
respect to future grants. However, outstanding options granted under this plan
will remain outstanding and subject to the terms and conditions of the
agreements evidencing such options and the terms of the 1996 Director Plan.
A total of 125,000 shares of our common stock are authorized for issuance
under the 1996 Director Plan. As of September 10, 1999, a total of 19,063
shares were subject to outstanding options granted under this plan. Although
105,937 shares remain available for further grant of options under the 1996
Director Plan, no more options will be granted under this plan.
401(k) Plan
We sponsor a 401(k) plan which provides eligible employees located in the
United States an opportunity to save money for their retirement on a tax
deferred basis. The 401(k) plan is intended to qualify under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1986, as amended. Eligible employees
may elect to reduce their current eligible compensation by up to 15%, subject
to the statutory annual limit in 1999 of $10,000, and to have the amount of
such reduction contributed on their behalf to the 401(k) plan. We currently
provide a matching contribution to those eligible employees who have elected to
participate in the 401(k) plan equal to 50% of the first 4% of their eligible
contributions to the 401(k) plan. In addition, the 401(k) plan permits, but
does not require, an additional discretionary profit sharing contribution to be
made by us on behalf of eligible employees. To date, we have not made any such
discretionary profit sharing contribution to the 401(k) plan. Contributions
that are made to the 401(k) plan, whether if made by the eligible employees, or
by us, and the investment earnings thereon, are not taxable to employees until
such amounts are withdrawn from the 401(k) plan. However, any contributions
made by us will be deductible in the taxable year they are made. The 401(k)
plan may be amended or terminated by us at anytime, and in our sole discretion.
Employment Agreements
We have issued offer letters to each of Robert H. Ewald, Anthony H. Lewis,
Jr., Roderick Witmond, Edward Malysz and Marcelo A. Gumucio pursuant to which
each is entitled to a base salary, bonuses and an option to purchase shares of
our common stock. In addition, we granted Mr. Ewald 125,000 shares of common
stock for our commencing an initial public offering within twelve months of his
employment start date. We agreed to provide Mr. Lewis with a promissory note in
the amount of $38,100 which will be forgiven in the event he is terminated
without cause prior to one year of service or upon completion of one year of
service from his start date. We agreed that if Mr. Gumucio is involuntarily
terminated within one year of his start date, 25% of his option shall become
immediately exercisable, and if we experience a change of control, Mr.
Gumucio's option shall become immediately exercisable.
We have entered into employment agreements with each of Nicole Eagan, Martin
Pagel and Thomas J. Reinemer pursuant to which each is entitled to a base
salary, bonuses, an option to purchase shares of common stock and an option to
purchase shares of restricted common stock. All of these options have been
exercised in full and the shares issued thereunder are included in the share
amounts throughout this prospectus. Under these agreements, if any of Nicole
Eagan, Martin Pagel or Thomas J. Reinemer are terminated without cause, he or
she will be entitled to the payment of six months of his or her base salary.
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
50
<PAGE>
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether our bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative litigation, if successful, might otherwise benefit us and
our stockholders. A stockholder's investment in us may be adversely affected to
the extent we pay the costs of settlement or damage awards against our
directors or officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
51
<PAGE>
RELATED PARTY TRANSACTIONS
During the last two years, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our common stock had
or will have a director or indirect interest other than compensation
arrangements, which are described where required under "Management," and the
transactions described below.
Equity Investment Transactions for Cash
In September 1997, we sold 2,500,000 shares of Series A preferred stock for
$2.40 per share. In July 1998, we sold 4,188,000 shares of Series B preferred
stock for $3.82 per share. In August 1999, we sold 2,928,521 shares of Series C
preferred stock for $10.31 per share. Listed below are the directors, executive
officers and stockholders who beneficially own more than 5% of our securities
who participated in these financings. We have also indicated in the table below
the value of shares held by these individuals based on an assumed initial
public offering price of $13.00 per share. The assumed initial public offering
price of $13.00 per share does not represent our estimate of future stock
prices. Actual gains, if any, on sale of our shares will be dependent on the
future performance of our common stock.
<TABLE>
<CAPTION>
Value of
Shares at
Assumed
Initial
Aggregate Public
Series A Series B Series C Cash Offering
Name Preferred Preferred Preferred Consideration Price
<S> <C> <C> <C> <C> <C>
Microsoft Corporation... 1,250,000 261,750 109,231 $5,126,174 $26,340,938
Entities affiliated with
AT&T Ventures(1)....... 1,250,000 261,750 218,462 6,252,343 28,115,945
Canaan Equity, L.P...... -- 1,047,000 113,476 5,169,478 18,857,735
Unified Holdings,
L.L.C.................. -- 1,047,000 -- 4,000,000 17,013,750
John V. Balen(2)........ -- 1,047,000 113,476 5,169,478 18,857,735
Thomas L. Rosch(3)...... 1,250,000 261,750 218,462 6,252,343 28,115,945
Gregory S. Stanger(4)... 1,250,000 261,750 109,231 5,126,174 26,340,938
Adam Wagner(5).......... -- 1,047,000 5,416 4,055,379 17,101,760
</TABLE>
- ---------------------
(1) Includes 1,125,000 shares of Series A preferred stock, 235,575 shares of
Series B preferred stock and 196,616 shares of Series C preferred stock
held by AT&T Venture Fund II, L.P. and 125,000 shares of Series A preferred
stock, 26,175 shares of Series B preferred stock and 21,846 shares of
Series C preferred stock held by Venture Fund I, L.P.
(2) Includes 1,047,000 shares of Series B preferred stock and 113,476 shares of
Series C preferred stock held by Canaan Equity, L.P. Mr. Balen disclaims
beneficial ownership of these shares.
(3) Includes 1,125,000 shares of Series A preferred stock, 235,575 shares of
Series B preferred stock and 196,616 shares of Series C preferred stock
held by AT&T Venture Fund II, L.P. and 125,000 shares of Series A preferred
stock, 26,175 shares of Series B preferred stock and 21,846 shares of
Series C preferred stock held by Venture Fund I, L.P. Mr. Rosch disclaims
beneficial ownership of these shares.
(4) Includes 1,250,000 shares of Series A preferred stock, 261,750 shares of
Series B preferred stock and 109,231 shares of Series C preferred stock
held by Microsoft Corporation. Mr. Stanger disclaims beneficial ownership
of these shares.
(5) Includes 1,047,000 shares of Series B preferred stock held by Unified
Holdings, L.L.C. Mr. Wagner is a managing member of Unified Holdings,
L.L.C. Wagner & Brown, Ltd., Mr. Wagner's employer, claims beneficial
ownership of 130,875 shares and Wagner Family Partnership VI of which Mr.
Wagner is a partner claims beneficial ownership of 45,021 shares. Includes
2,708 shares of Series C preferred stock held by Wagner & Brown, Ltd. and
2,708 shares of Series C preferred stock held by Wagner Family Partnership
VI.
52
<PAGE>
Sales of Equity Securities to Executive Officers
On May 30, 1999, we sold 1,531,250 shares of common stock at a price of
$0.72 per share to Robert H. Ewald. We have the right to repurchase such shares
in the event Mr. Ewald's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Ewald paid for such
shares with a full-recourse, five-year $1,102,500 promissory note, secured by
the purchased shares. The note bears interest at a rate of 6% per annum.
On June 12, 1998, we sold an aggregate of 332,693 shares of common stock at
a price of $0.20 per share for 32,031 shares and $0.40 per share for 300,661
shares to Nicole Eagan. We have the right to repurchase such shares in the
event Ms. Eagan's services to us terminate, which right lapses progressively
over four years after the date of grant. Ms. Eagan paid for such shares with a
full-recourse, five-year $126,671 promissory note, secured by the purchased
shares. The note bears interest at a rate of 6% per annum.
On June 12, 1998, we sold an aggregate of 225,325 shares of common stock at
a price of $0.20 per share for 32,031 shares and $0.40 per share for 193,294
shares to Martin Pagel. We have the right to repurchase such shares in the
event Mr. Pagel's services to us terminate, which right lapses progressively
over four years after the date of grant. Mr. Pagel paid for such shares with a
full-recourse, five-year $83,724 promissory note, secured by the purchased
shares. The note bears interest at a rate of 6% per annum.
On June 12, 1998, we sold an aggregate of 318,170 shares of common stock at
a price of $0.20 per share for 32,031 shares and $0.40 per share for 274,889
shares to Thomas J. Reinemer. We have the right to repurchase such shares in
the event Mr. Reinemer's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Reinemer paid for
such shares with a full-recourse, five-year $116,362 promissory note, secured
by the purchased shares. The note bears interest at a rate of 6% per annum.
On June 28, 1999, we sold 187,500 shares of common stock at a price of $1.20
per share to Edward F. Malysz. We have the right to repurchase such shares in
the event Mr. Malysz's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Malysz paid for such
shares with a full-recourse, five-year $225,000 promissory note, secured by the
purchased shares. The note bears interest at a rate of 6% per annum.
On July 31, 1999, we sold 375,000 shares of common stock at a price of $1.20
per share to Anthony H. Lewis, Jr. We have the right to repurchase such shares
in the event Mr. Lewis' services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Lewis paid for such
shares with a full-recourse, five-year $450,000 promissory note, secured by the
purchased shares. The note bears interest at a rate of 6% per annum.
On August 1, 1999, we sold 187,500 shares of common stock at a price of
$1.20 per share to Roderick Witmond. We have the right to repurchase such
shares in the event Mr. Witmond's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Witmond paid for
such shares with a full-recourse, five-year $225,000 promissory note, secured
by the purchased shares. The note bears interest at a rate of 6% per annum.
On August 18, 1999, we granted Mr. Ewald a stock bonus of 125,000 shares of
common stock. We have also agreed to loan Mr. Ewald up to $430,000 for the
purpose of satisfying his income tax liability associated with this stock
bonus. This loan will bear interest at a rate of 6% per annum and will be
forgivable over 2 years based on Mr. Ewald remaining our employee throughout
such period.
On August 18, 1999, we granted Marcelo Gumucio a stock bonus of 62,500
shares of common stock. We have also agreed to loan Mr. Gumucio up to $215,000
for the purpose of satisfying his income tax liability associated with this
stock bonus. This loan will bear interest at a rate of 6% per annum and will be
forgivable over 2 years based on Mr. Gumucio's continuing service as a director
throughout such period.
53
<PAGE>
Benefits to Executive Officers
The following table sets forth:
. the aggregate number of shares purchased by each of our executive
officers during the last three years on an as converted to common stock
basis after giving effect to our planned stock dividend;
. the aggregate purchase price paid for those shares by each of our
executive offices; and
. the value of those shares based on an assumed initial public offering
price of $13.00 per share.
The assumed initial public offering price of $13.00 per share does not
represent our estimate of future stock prices. Actual gains, if any, on sale of
our shares will be dependent on the future performance of our common stock.
<TABLE>
<CAPTION>
Shares Value of Shares at
Purchased Aggregate Assumed Initial Public
Name (#) Consideration Offering Price
<S> <C> <C> <C>
Robert H. Ewald 1,656,250 $1,102,500 $21,531,250
Anthony H. Lewis, Jr. 375,000 450,000 4,875,000
Nicole Eagan 332,693 126,671 4,325,009
Martin Pagel 225,325 83,724 2,929,225
Roderick Witmond 187,500 225,000 2,437,500
Thomas J. Reinemer 318,170 116,362 4,136,210
Edward F. Malysz 187,500 225,000 2,437,500
Marcelo A. Gumucio 373,087 238,776 4,850,131
</TABLE>
Other Transactions
We have entered into indemnification agreements with each of our executive
officers and directors.
We have granted options to our executive officers and some of our directors.
Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of the preferred stock.
We believe that all related party transactions described above were on terms
no less favorable than could have been obtained from unrelated third parties.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 10, 1999, by the following
individuals or groups:
. each person or entity who we know beneficially owns more than 5% of our
outstanding stock;
. each of the Named Executive Officers;
. each of our directors; and
. all directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder listed in the
following table is c/o E-Stamp Corporation, 2855 Campus Drive, Suite 100, San
Mateo, California 94403. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60 days
after September 10, 1999, are deemed outstanding, while the shares are not
deemed outstanding for purposes of computing percentage ownership of any other
person. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on
30,865,978 shares of common stock outstanding as of September 10, 1999, as
adjusted to reflect the conversion of all outstanding shares of preferred stock
upon the closing of this offering. The numbers shown in the table below assume
no exercise by the underwriters of their over-allotment option.
Principal Stockholders Table
<TABLE>
<CAPTION>
Percentage of
Shares
Number of Outstanding
Shares -----------------
Beneficially Before After
Name Owned(1) Offering Offering
<S> <C> <C> <C>
5% Stockholders:
Entities affiliated with AT&T Ventures(2)... 2,162,765 7.0% 5.8%
Microsoft Corporation(3).................... 2,026,226 6.6 5.4
John Trotter(4)............................. 2,043,893 6.6 5.5
Directors and Executive Officers:
Robert H. Ewald(5).......................... 1,656,250 5.4 4.4
Anthony H. Lewis, Jr.(6).................... 375,000 1.2 1.0
Martin Pagel(7)............................. 247,026 * *
Nicole Eagan(8)............................. 427,692 1.4 1.1
Thomas J. Reinemer(9)....................... 341,920 1.1 *
Rick D. Prime(10)........................... 126,353 * *
Sunir Kapoor................................ 342,506 1.1 *
Marcelo A. Gumucio(11)...................... 498,087 1.6 1.3
John V. Balen(12)........................... 1,450,595 4.7 3.9
Thomas L. Rosch(13)......................... 2,162,765 7.0 5.8
Gregory S. Stanger(14)...................... 2,026,226 6.6 5.4
Adam Wagner(15)............................. 1,828,020 5.9 4.9
All directors and executive officers as a
group (14 persons)(16)..................... 11,857,442 38.4 31.7
</TABLE>
- ---------------------
* Less than 1% of the outstanding shares of common stock.
(1) All share numbers in this table are on an as-converted to common basis
giving effect to our planned stock dividend.
55
<PAGE>
(2) The aggregated shares listed for entities affiliated with AT&T Ventures are
owned as follows: 1,700,719 shares are beneficially owned by AT&T Venture
Fund II, L.P. and 188,969 shares are beneficially owned by Venture Fund I,
L.P. The address for AT&T Ventures is 3000 Sand Hill Road, Building 1,
Suite 285, Menlo Park, CA 94025.
(3) The address for Microsoft Corporation is One Microsoft Way, Redmond, WA
98502.
(4) Includes 306,993 shares of common stock held by Trotter 1993
Grandchildren's Trust and 119,087 shares of common stock held by Trotter
1993 Children's Trust. The address for Mr. Trotter is 1000 Louisiana #3600,
Houston, Texas 77002.
(5) At September 10, 1999, 1,531,250 shares held by Mr. Ewald were unvested and
subject to a right of repurchase in favor of us, which right lapses over
time.
(6) At September 10, 1999, 375,000 shares held by Mr. Lewis were unvested and
subject to a right of repurchase in favor of us, which right lapses over
time.
(7) At September 10, 1999, 147,069 shares held by Mr. Pagel were vested, and
77,800 shares were unvested and subject to a right of repurchase in favor
of us, which right lapses over time.
(8) At September 10, 1999, 210,869 shares held by Ms. Eagan were vested, and
173,459 shares were unvested and subject to a right of repurchase in favor
of us, which right lapses over time.
(9) At September 10, 1999, 196,521 shares held by Mr. Reinemer were vested, and
116,399 shares were unvested and subject to a right of repurchase in favor
of us, which right lapses over time.
(10) At September 10, 1999, 50,781 shares held by Mr. Prime were vested, and
59,375 shares were unvested and subject to a right of repurchase in favor
of us, which right lapses over time.
(11) Includes 62,500 shares issuable upon exercise of options held by Mr.
Gumucio within 60 days of September 10, 1999, all of which would be
subject to a right of repurchase in favor of us, which right lapses over
time.
(12) The shares are beneficially owned by Canaan Equity, L.P. Mr. Balen is a
principal of Canaan Partners. Mr. Balen disclaims beneficial ownership of
these shares.
(13) 1,946,489 shares are beneficially owned by AT&T Venture Fund II, L.P. and
216,276 shares are beneficially owned by Venture Fund I, L.P. Mr. Rosch is
a partner at AT&T Ventures. Mr. Rosch disclaims beneficial ownership of
these shares.
(14) The shares are beneficially owned by Microsoft Corporation. Mr. Stanger is
Senior Director, Corporate Development at Microsoft Corporation. Mr.
Stanger disclaims beneficial ownership of these shares.
(15) Includes 250,000 shares of common stock held by Wagner & Brown, Ltd, Mr.
Wagner's employer. Mr. Wagner has disclaimed beneficial ownership of these
shares. Includes 62,500 shares of common stock held by Wagner Family
Partnership VI, of which Mr. Wagner is a partner. Mr. Wagner has a 12.5%
beneficial ownership of these shares. Includes 200,000 shares of common
stock held in escrow and for which Mr. Wagner is an escrow agent. Wagner &
Brown, Ltd. claims beneficial ownership of 38,280 shares and Wagner Family
Partnership VI claims beneficial ownership of 9,560 shares. Includes
1,047,000 shares of Series B preferred stock, convertible into 1,308,750
shares of common stock, held by Unified Holdings, L.L.C. Mr. Wagner is a
managing member of Unified Holdings, L.L.C. Wagner & Brown, Ltd. claims
beneficial ownership of 163,594 shares and Wagner Family Partnership VI
claims beneficial ownership of 56,276 shares. Includes 2,708 shares of
Series C preferred stock, convertible into 3,385 shares of common stock,
held by Wagner & Brown, Ltd. and 2,708 shares of Series C preferred stock,
convertible into 3,385 shares of common stock, held by Wagner Family
Partnership VI.
(16) Includes 947,646 shares issued under the 1996 Stock Option and Restricted
Stock Plan which were vested and 2,438,129 shares which were unvested at
September 10, 1999 and subject to a right of repurchase in favor of us,
which right lapses over time. Includes 373,088 shares issuable upon
exercise of options within 60 days of September 10, 1999, all of which
would be subject to a right of repurchase in favor of us, which right
lapses over time.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of
our capital stock does not purport to be complete and is subject to and
qualified in its entirety by our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
Common Stock
As of September 10, 1999, there were 30,857,727 shares of common stock
outstanding which were held of record by approximately 473 stockholders, as
adjusted for the conversion of all outstanding shares of convertible preferred
stock into common stock, which will occur upon the closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Our stockholders do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding preferred stock, the holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available for that purpose. In the
event of our liquidation, dissolution or winding up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The holders of common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable. The shares of common stock to be issued
upon the closing of this offering will be fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may
be greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; or
. delaying or preventing a change in control of us without further action
by the stockholders.
Upon the closing no shares of preferred stock will be outstanding, and we
have no present plans to issue any shares of preferred stock.
Warrants
At September 10, 1999, there were warrants outstanding to purchase 21,235
shares of Series C preferred stock, which will be exercisable to purchase as
aggregate of 26,544 shares of common stock upon closing of this offering. At
September 10, 1999, there were warrants outstanding to purchase 48,496 shares
of common stock.
57
<PAGE>
Registration Rights
The holders of preferred stock convertible into 12,020,651 shares of common
stock, referred to as the registrable securities, are entitled to rights with
respect to registration of such shares under the Securities Act. These rights
are provided under the terms of an agreement between the holders of registrable
securities and us. Beginning 180 days following the date of this prospectus,
holders of at least 25% of the then outstanding registrable securities obtained
from conversion of our Series A preferred stock, or such lesser percentage if
the anticipated aggregate offering price would exceed $15,000,000, may require
on one occasion that we register their shares for public resale. Beginning 180
days following the date of this prospectus, holders of at least 25% of the then
outstanding registrable securities obtained from conversion of our Series B
preferred stock, or such lesser percentage if the anticipated aggregate
offering price would exceed $15,000,000 may require on one occasion that we
register their shares for public resale. Beginning 180 days following the date
of this prospectus, holders of at least 25% of the then outstanding registrable
securities obtained from conversion of our Series C preferred stock, or such
lesser percentage of the anticipated aggregate offering price would exceed
$15,000,000, may require on one occasion that we register their shares for
public resale. However, we may defer such registration for 90 days in view of
market conditions. Also, holders of registrable securities may require on two
separate occasions within any twelve month period that we register their shares
for public resale on Form S-3 or similar short-form registration if the value
of the securities to be registered is at least $500,000, however we may defer
such registration for 90 days in view of market conditions. Furthermore, in the
event we elect to register any of our shares of common stock for purposes of
effecting any public offering, the holders of registrable securities are
entitled to include their shares of common stock in the registration, but we
may reduce the number of shares proposed to be registered in view of market
conditions. These registration rights have been waived with respect to this
offering. All expenses in connection with any registration, other than
underwriting discounts and commissions, will be borne by us. All registration
rights will terminate five years following the consummation of this offering,
or, with respect to each holder of registrable securities, at such time as the
holder is entitled to sell all of its shares in any 90 day period under Rule
144 of the Securities Act.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
. the acquisition of us by means of a tender offer;
. acquisition of us by means of a proxy contest or otherwise; or
. the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
one class being elected each year by our stockholders. This system of electing
and removing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us because it
generally makes it more difficult for stockholders to replace a majority of the
directors.
Stockholder Meetings. Under our certificate of incorporation, only the board
of directors, the chairman of the board and the chief executive officer may
call special meetings of stockholders.
58
<PAGE>
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Delaware AntiTakeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an anti-
takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting at any time when we have 500 or more record stockholders.
Elimination of Cumulative Voting. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of
any attempt to change control of us. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of us.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Continental Stock
Transfer and Trust Company.
Nasdaq National Market Listing
We have applied for the listing of our shares on The Nasdaq National Market
under the symbol "ESTM."
59
<PAGE>
RESCISSION OFFER
Shares issued, and option grants made under, our 1996 Stock Option and
Restricted Stock Plan and our 1996 Non-Employee Director Stock Option Plan were
not exempt from registration or qualification under federal and state
securities laws, and these stock issuance and option grants violated the
registration requirements of federal and state securities laws because
registration or qualification was not obtained. We intend to make a rescission
offer to the holders of these shares and options approximately 30 days after
the effective date of this offering pursuant to a registration statement filed
under the Securities Act of 1933, as amended. Offerees will be able to accept
our rescission offer prior to its expiration date by returning to us shares to
be repurchased and an election notice that we will deliver to the offerees
together with the prospectus for our rescission offer. If accepted, our
rescission offer could require us to make aggregate payments to the holders of
these shares and options of up to approximately $4,500,000 plus statutory
interest. We currently expect to use a portion of the proceeds from this
offering to make such payments, if any are required.
This rescission offer will cover an aggregate of 4,888,976 shares of common
stock issued under the 1996 Stock Option and Restricted Stock Plan, which
shares were sold in violation of the registration requirements of the federal
and state securities laws. We were unable to rely upon Rule 701 under the
Securities Act because the amount of securities sold exceeded the limits set
forth in Rule 701. Because of the frequency and number of sales, including the
number of persons who received offers and purchased shares, the private
placement exemption under federal securities laws was also not available for
these stock issuances. We were also unable to rely on the exemption provided by
Section 25102(f) of the California Corporation Code because these shares were
issued to more than 35 persons during a 12 month period, or on the exemption
provided by Section 25102(o) of the California Corporation Code because the
required filing under that section was not made. We will offer to rescind such
prior sales at the price per share paid therefor, an average price of $0.85 per
share, plus interest thereon at a statutory rate as the case may be from the
date of purchase by the purchaser to the expiration of the rescission offer.
The rescission offer will expire approximately 30 days after the effectiveness
of the registration statement relating to the rescission stock. Under the
rescission offer, we would be required to make an aggregate payment of
approximately $4,160,000 plus the aggregate amount of interest thereon, if all
offerees accept the offer. Offerees who do not accept the rescission offer
will, for purposes of applicable federal and state securities laws, be deemed
to hold registered shares under the Securities Act which will be freely
tradeable in the public market as of the effective date of the registration
statement with respect to the rescission stock. The Securities Act does not
expressly provide that a rescission offer will terminate a purchaser's right to
rescind a sale of stock which was not registered under the Securities Act as
required. Accordingly, should the rescission offer be rejected by any or all
offerees, we may continue to be contingently liable under the Act for the
purchase price of these shares up to an aggregate amount of approximately
$4,160,000 plus statutory interest.
In addition, we were unable to rely on the exemption provided by Section
25102(f) of the California Corporation Code for our options to purchase shares
of common stock granted under our 1996 Stock Option and Restricted Stock Plan
and our 1996 Non-Employee Director Stock Option Plan because options were
granted to more than 35 persons during a 12 month period, or on the exemption
provided by Section 25102(o) of the California Corporation Code because the
required filing under that section was not made. As of September 10, 1999
options to purchase 1,218,359 shares of common stock at a weighted average
exercise price of $0.90 per share were outstanding under out 1996 Stock Option
and Restricted Stock Plan, and options to purchase 19,062 shares of common
stock at a weighted average exercise price of $0.40 per share were outstanding
under our 1996 Non-Employee Director Option Plan, all of which options are
potentially subject to rescission, and we plan to include them in our planned
rescission offer discussed above. Under such rescission offer, we could be
required to make an aggregate payment of up to approximately $260,000 for such
grants.
As of the date hereof, we are not aware of any claims for rescission against
us.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
there can be no assurance that a significant public market for our common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of its equity securities. Sales of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market price and our ability to raise equity capital in
the future. As described below, only 2,141,506 shares currently outstanding
will be available for sale immediately after this offering because of
contractual restrictions on resale and resale restrictions under the federal
securities laws.
Upon completion of this offering, we will have outstanding 37,365,978 shares
of common stock based upon shares outstanding as of September 10, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants prior to completion of this offering. Of
these shares, the 6,500,000 shares sold in this offering will be freely
tradable without restriction under the Securities Act except for any shares
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act and for any shares purchased in our directed shares program
which will be subject to 180 day lock-up agreements. The remaining 30,865,978
shares of common stock held by existing stockholders are restricted shares as
that term is defined in Rule 144. These restricted shares may be sold in the
public market only if registered under the Securities Act or pursuant to an
exemption from registration under the Securities Act. As a result of the lock-
up agreements described below and the provisions of Rule 144 and 144(k), the
restricted shares will become eligible for sale in the public market as
follows:
. 2,143,508 shares will become eligible for sale on the date of this
prospectus,
. 114,201 shares will become eligible for sale 90 days after the date of
this prospectus,
. 19,807,563 shares will become eligible for sale 180 days after the date
of this prospectus, and
. the remaining 8,800,706 shares will become eligible for sale from time to
time more than 180 days after the date of this prospectus.
In addition, as of September 10, 1999, there were outstanding options to
purchase 1,218,359 shares of common stock, warrants to purchase 48,496 shares
of common stock and warrants to purchase preferred stock convertible into
26,544 shares of common stock, some of which may be exercised prior to this
offering. Officers, directors, and stockholders holding 27,996,461 shares have
entered into lock-up agreements providing that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell or otherwise
dispose of any common stock or any securities that are convertible into common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
61
<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to
the availability of current public information about us. Under Rule 144(k), a
person who is not deemed to have been an affiliate of us at any time during the
three months preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years including the holding period of any
prior owner except an affiliate, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Within 90 days following the effectiveness of this offering, we will file a
Registration Statement on Form S-8 registering 4,261,336 shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of September 10, 1999, options to purchase a total 1,218,359 shares
were outstanding and 3,053,747 shares were reserved for future issuance under
our stock plans. Common stock issued upon exercise of outstanding vested
options or issued under our purchase plan, other than common stock issued to
our affiliates, is available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
12,024,036 restricted shares will be entitled to registration rights for sale
in the public market. Registration of such shares under the Securities Act
would result in such shares becoming freely tradable without restriction under
the Securities Act, except for shares purchased by affiliates, immediately upon
the effectiveness of such registration.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Banc of America Securities
LLC, Deutsche Bank Securities Inc. and DLJdirect Inc., have severally agreed to
purchase from us the respective number of shares of common stock set forth
opposite their names below:
<TABLE>
<CAPTION>
Number
of
Underwriters: Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Banc of America Securities LLC........................................
Deutsche Bank Securities Inc..........................................
DLJdirect Inc. .......................................................
---
Total...............................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock in the offering
are subject to approval by their counsel of legal matters concerning the
offering and to condition precedents that must be satisfied by us. The
underwriters are obligated to purchase and accept delivery of all the shares of
common stock in the offering, other than those shares covered by the over-
allotment option described below, if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the Representatives at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority. An electronic prospectus will be available on the Web site
maintained by DLJdirect Inc., one of the underwriters and an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation. DLJdirect account holders
with at least $100,000 in their accounts will be able to express an interest in
purchasing shares in the offering. DLJdirect will allocate shares among those
account holders who have expressed interest based on its subjective judgement
of what is E-Stamp's best interest. In making this judgement, DLJdirect will
consider the account holder's asset level, investment objectives, trading
history, tenure with DLJdirect and post-offering activity in previous
offerings.
We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase, from time to time, in whole or in
part, up to an aggregate of additional shares of common stock at the initial
public offering price less underwriting discounts and commission. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.
The following table sets forth the compensation payable to the underwriters
by us in connection with the offering:
<TABLE>
<CAPTION>
Total
Discounts and -----------------------------
Commissions Additional Without With
per Share Compensation Over-Allotment Over-Allotment
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions
paid by us............ $ $ $ $
</TABLE>
63
<PAGE>
We will pay the offering expenses, estimated to be $1.0 million.
Donaldson, Lufkin & Jenrette Securities Corporation acted as the placement
agent for a private placement of E-Stamp's Series C Preferred Stock in August
1999. As compensation for its services as placement agent, Donaldson, Lufkin &
Jenrette Securities Corporation received a cash fee of approximately $1.1
million and warrants to purchase an aggregate of 21,235 shares of Series C
preferred stock at an exercise price of $10.31 per share, the same price per
share paid by all investors who participated in the private placement. Several
entities affiliated with Donaldson, Lufkin & Jenrette Securities Corporation
also invested in the private placement, purchasing an aggregate of 87,294
shares of Series C preferred stock on the same terms and conditions as the
other investors in the private placement, including price per share.
We have agreed to indemnify the underwriters against liabilities which may
arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.
Our executive officers, directors and other stockholders and option holders
have agreed not to:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock, other than shares
acquired in the initial public offering or on the Nasdaq National
Market, or any securities convertible into or exercisable or
exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any such transaction described above is to be
settled by delivery of common stock or other securities, in cash, or
otherwise.
Donaldson, Lufkin & Jenrette Securities Corporation may choose to release
some of these shares from such restrictions prior to the expiration of the 180-
day lock-up period with or without notice, although it has no current intention
of doing so.
In addition, during such 180-day period, we have also agreed not to file any
registration statement with respect to, and each of our executive officers,
directors and stockholders have agreed not to make any demand for, or exercise
any right with respect to, the registration of any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered will be determined by negotiation among E-Stamp and the underwriters.
The factors to be considered in determining the initial public offering price
include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future operational results;
. the recent market prices of securities of generally comparable companies;
and
. the general condition of the securities markets at the time of the
offering.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose
64
<PAGE>
possession this prospectus comes are advised to inform themselves about and
observe any restrictions relating to the offering and the distribution of this
prospectus. This prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any shares of common stock offered in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a
syndicate short position. The underwriters may bid for and stabilize the price
of the common stock. In addition, the underwriting syndicate may reclaim
selling concessions from syndicate members and selected dealers if they
repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to five percent of the shares offered hereby to be
sold to people associated with us, such as employees, vendors, suppliers, and
other persons that have relationships with or are interested in developing
relationships with us. No shares have been reserved for sale to our directors
or officers. Indications of interest will be sought by means of a written
notice, which conforms to Rule 134, accompanied by a copy of this prospectus.
The number of shares of our common stock available for sale to the general
public will be reduced to the extent that those persons purchase the reserved
shares. All reserved shares purchased by those persons will be subject to a
180-day lock-up agreement. Any reserved shares which are not confirmed for
purchase will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Selected legal matters in connection with this offering will be
passed upon for the underwriters by Pillsbury Madison & Sutro LLP, Palo Alto,
California. As of the date of this prospectus, an investment partnership
composed of members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, as well as some individual attorneys of this
firm, beneficially own an aggregate of 18,728 shares of our Series C preferred
stock.
EXPERTS
Ernst & Young, LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998, and for each of the three years in
the period ended December 31, 1998, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon
the authority of such firm as experts in accounting and auditing.
Statements in this prospectus and registration statement under the caption
"Risk Factors--Intellectual property infringement claims, including a claim
asserted by Pitney Bowes against us, could prevent or hinder our ability to
sell Internet postage" and in the first two paragraphs under the caption
"Business--Legal Proceedings" have been reviewed and approved by Howrey &
Simon, patent litigation counsel to E-Stamp, as experts in such matters, and
are included herein in reliance upon its review and approval.
65
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules which is part of the
registration statement. For further information with respect to us and our
common stock, see the registration statement and the exhibits and schedules
thereto. Any document we file may be read and copied at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information about the
public reference rooms. Our filings with the Commission are also available to
the public from the Commission's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the Web site of the Commission referred to above.
66
<PAGE>
E-STAMP CORPORATION
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Common Stock Subject to Rescission, Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit)........................ F-5
Statements of Cash Flows................................................... F-8
Notes to Financial Statements.............................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
E-Stamp Corporation
We have audited the accompanying balance sheets of E-Stamp Corporation (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, common stock subject to rescission, redeemable
convertible preferred stock and stockholders' equity (deficit), and cash flows
for each of the three years in the period 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 audits.
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 E-Stamp Corporation at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Palo Alto, California
February 19, 1999,
except for Note 10 as to which the date is September 24, 1999.
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the Board of
Directors' approval of the stock dividend described in Note 10 to the financial
statements.
/s/ ERNST & YOUNG LLP
Palo Alto, California
September 24, 1999
F-2
<PAGE>
E-STAMP CORPORATION
(a development stage company)
BALANCE SHEETS
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
Pro forma
December 31, Stockholders'
----------------- June 30, Equity at
1997 1998 1999 June 30, 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......... $ 4,111 $ 10,217 $ 1,916
Other current assets............... 24 144 498
------- -------- --------
Total current assets................. 4,135 10,361 2,414
Property and equipment:
Computers.......................... 964 1,039 1,350
Furniture and fixtures............. 198 165 192
Leasehold improvements............. 30 -- 49
------- -------- --------
1,192 1,204 1,591
Accumulated depreciation and
amortization...................... (596) (754) (909)
------- -------- --------
Net property and equipment........... 596 450 682
Other assets......................... 32 -- --
------- -------- --------
Total assets..................... $ 4,763 $ 10,811 $ 3,096
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities....................... $ 1,701 $ 1,529 $ 2,718
Current portion of obligations
under capital lease............... 36 27 20
------- -------- --------
Total current liabilities............ 1,737 1,556 2,738
Capital lease obligations............ 38 11 6
Commitments and contingencies........
Common stock subject to rescission,
$0.001 par value per share: 68,
1,974 and 3,844 shares issued and
outstanding at December 31, 1997 and
1998 and June 30, 1999 (3,844 pro
forma).............................. 252 971 2,499 $2,499
Redeemable convertible preferred
stock, $0.001 par value per share,
12,000 authorized, issuable in
series (aggregate liquidation
preference of $21,998 at December
31, 1998):
Series A redeemable convertible
preferred stock: 2,500 shares
authorized, 2,500 shares issued
and outstanding at December 31,
1997 and 1998 and June 30, 1999
(none pro forma).................. 6,126 6,746 7,084 --
Series B redeemable convertible
preferred stock: 4,188 shares
authorized, 4,188 shares issued
and outstanding at December 31,
1997 and 1998 and June 30, 1999
(none pro forma).................. -- 16,723 17,561 --
Stockholders' equity (deficit):
Common stock, $0.001 par value per
share: 100,000 shares authorized,
12,940, 12,950, and 12,950 shares
issued and outstanding at
December 31, 1997 and 1998 and
June 30, 1999, respectively
(200,000 shares authorized and
21,310 shares outstanding pro
forma)............................ 13 13 13 25
Additional paid-in capital......... 6,304 8,627 22,563 47,196
Notes receivable from employees and
officers.......................... -- (653) (2,157) (2,157)
Deferred stock compensation........ -- (2,766) (14,427) (14,427)
Deficit accumulated during
development stage................. (9,707) (20,417) (32,784) (32,784)
------- -------- -------- --------
Total stockholders' equity
(deficit)........................... (3,390) (15,196) (26,792) $ (2,147)
------- -------- -------- ========
Total liabilities and stockholders'
equity (deficit).................... $ 4,763 $ 10,811 $ 3,096
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
E-STAMP CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
Six months ended inception
Year ended December 31, June 30, (April 26, 1994)
-------------------------- ----------------- through June 30,
1996 1997 1998 1998 1999 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and
development.......... 2,387 3,916 5,603 2,458 5,225 18,210
Sales and marketing... 1,761 1,743 2,722 1,137 2,494 8,850
General and
administrative....... 1,739 1,748 1,897 903 1,373 7,449
Amortization of
deferred stock
compensation......... 688 414 858 -- 3,451 5,411
------- ------- -------- ------- -------- --------
Operating loss.......... (6,575) (7,821) (11,080) (4,498) (12,543) (39,920)
Interest income......... 239 157 380 46 177 1,017
Interest expense........ (3) (14) (10) (3) (1) (109)
------- ------- -------- ------- -------- --------
Net loss................ (6,339) (7,678) (10,710) (4,455) (12,367) (39,012)
Accretion on redeemable
convertible preferred
stock.................. -- (196) (1,383) (307) (1,176) (2,755)
------- ------- -------- ------- -------- --------
Net loss attributable to
common stock........... $(6,339) $(7,874) $(12,093) $(4,762) $(13,543) $(41,767)
======= ======= ======== ======= ======== ========
Net loss per common
share (basic and
diluted)............... $ (0.51) $ (0.61) $ (0.92) $ (0.37) $ (1.00)
======= ======= ======== ======= ========
Weighted-average shares
outstanding (basic and
diluted)............... 12,543 12,966 13,075 13,026 13,486
Unaudited pro forma net
loss per share (basic
and diluted)........... $ (0.57) $ (0.57)
======== ========
Unaudited pro forma
weighted-average shares
outstanding (basic and
diluted)............... 18,753 21,846
</TABLE>
See accompanying notes.
F-4
<PAGE>
E-STAMP CORPORATION
(a development stage company)
STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION, REDEEMABLE CONVERTIBLE
PREFERRED STOCKAND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except per share amounts)
Period from inception (April 26, 1994) through June 30, 1999
<TABLE>
<CAPTION>
Redeemable
Common Stock Convertible Deficit
Subject to Preferred Notes Accumulated
Rescission Stock LLC Units Common Stock Additional Receivable During the
------------- ------------- ---------------- ------------- Paid-In From Development Deferred
Shares Amount Shares Amount Units Amount Shares Amount Capital Employees Stage Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capital
contribution.... -- $-- -- $ -- 11,063 $ 210 -- $-- $ -- $ -- $ -- $ --
Issuance of
units at $0.05
per share for
services........ -- -- -- -- 225 10 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- (572) --
--- --- --- ---- ------- ------- ------ --- ------ ---- ------- --------
Balance at
December 31,
1994............ -- -- -- -- 11,288 220 -- -- -- -- (572) --
Redemption of
units........... -- -- -- -- (1,131) (5,400) -- -- -- -- -- --
Issuance of
units to
investors at
$4.76 per unit
for cash, net of
issuance costs
of $56, and
conversion of
notes........... -- -- -- -- 1,613 7,624 -- -- -- -- -- --
Issuance of
units for
services at
$4.80 per unit.. -- -- -- -- 19 90 -- -- -- -- -- --
Deferred
compensation
related to
restricted unit
grants.......... -- -- -- -- -- 60 -- -- -- -- -- (60)
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- -- -- 30
Net loss........ -- -- -- -- -- -- -- -- -- -- (1,346) --
--- --- --- ---- ------- ------- ------ --- ------ ---- ------- --------
Balance at
December 31,
1995............ -- -- -- -- 11,789 2,594 -- -- -- -- (1,918) (30)
Issuance of
units at $8.00
per unit for
cash to
investors in May
1996, net of
issuance costs
of $25.......... -- -- -- -- 1,125 8,975 -- -- -- -- -- --
Issuance of
units for
services to
consultants at
$8.00 per unit
during 1996..... -- -- -- -- 13 100 -- -- -- -- -- --
Conversion of
Post N Mail
units into E-
Stamp common
stock and merger
of Post N Mail
into E-Stamp.... -- -- -- -- (12,927) (11,669) 12,927 13 5,428 -- 6,228 --
Exercise of
stock options
for cash by
employees during
1996............ 19 31 -- -- -- -- -- -- -- -- -- --
Deferred
compensation
related to
restricted
common stock
grants and stock
options......... -- -- -- -- -- -- -- -- 1,072 -- -- (1,072)
Stock issuance
and amortization
of deferred
compensation.... -- -- -- -- -- -- 13 -- -- -- -- 688
Net loss........ -- -- -- -- -- -- -- -- -- -- (6,339) --
--- --- --- ---- ------- ------- ------ --- ------ ---- ------- --------
Balance at
December 31,
1996............ 19 $31 -- $ -- -- $ -- 12,940 $13 $6,500 $ -- $(2,029) $ (414)
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
<S> <C>
Initial capital
contribution.... $ 210
Issuance of
units at $0.05
per share for
services........ 10
Net loss........ (572)
-------------
Balance at
December 31,
1994............ (352)
Redemption of
units........... (5,400)
Issuance of
units to
investors at
$4.76 per unit
for cash, net of
issuance costs
of $56, and
conversion of
notes........... 7,624
Issuance of
units for
services at
$4.80 per unit.. 90
Deferred
compensation
related to
restricted unit
grants.......... --
Amortization of
deferred
compensation.... 30
Net loss........ (1,346)
-------------
Balance at
December 31,
1995............ 646
Issuance of
units at $8.00
per unit for
cash to
investors in May
1996, net of
issuance costs
of $25.......... 8,975
Issuance of
units for
services to
consultants at
$8.00 per unit
during 1996..... 100
Conversion of
Post N Mail
units into E-
Stamp common
stock and merger
of Post N Mail
into E-Stamp.... --
Exercise of
stock options
for cash by
employees during
1996............ --
Deferred
compensation
related to
restricted
common stock
grants and stock
options......... --
Stock issuance
and amortization
of deferred
compensation.... 688
Net loss........ (6,339)
-------------
Balance at
December 31,
1996............ $ 4,070
</TABLE>
See accompanying notes.
F-5
<PAGE>
E-STAMP CORPORATION
(a development stage company)
STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION, REDEEMABLE CONVERTIBLE
PREFERRED STOCKAND STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(In thousands, except per share amounts)
Period from inception (April 26, 1994) through December 31, 1998
<TABLE>
<CAPTION>
Reedemable
Common Stock Convertible Deficit
Subject to Preferred Notes Accumulated
Rescission Stock LLC Units Common Stock Additional Receivable During the
-------------- -------------- ------------ ------------- Paid-In From Development Deferred
Shares Amount Shares Amount Units Amount Shares Amount Capital Employees Stage Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
Series A
redeemable
convertible
preferred stock
for cash to
investors at
$2.40 per share
in September
1997, net of
issuance costs
of $70.......... -- $ -- 2,500 $ 5,930 -- $-- -- $-- $ -- $ -- $ -- $ --
Issuance of
common stock for
services to
consultants at
$8.00 per share
between
September and
December 1997... 22 175 -- -- -- -- -- -- -- -- -- --
Exercise of
stock options
for cash by
employees during
1997............ 27 46 -- -- -- -- -- -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- -- -- 414
Accretion on
redeemable
convertible
preferred
stock........... -- -- -- 196 -- -- -- -- (196) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- (7,678) --
----- ---- ----- ------- --- --- ------ --- ------ ----- -------- -------
Balance at
December 31,
1997............ 68 252 2,500 6,126 -- -- 12,940 13 6,304 -- (9,707) --
Issuance of
Series B
redeemable
convertible
preferred stock
to investors at
$3.82 per share
for cash in July
1998, net of
issuance costs
of $40.......... -- -- 4,188 15,960 -- -- -- -- -- -- -- --
Issuance of
notes receivable
from employees
for exercise of
stock options... 1,738 653 -- -- -- -- -- -- -- (653) -- --
Issuance of
common stock for
services to
consultants at
$8.00 per share
between January
and June 1998... -- -- -- -- -- -- 10 -- 82 -- -- --
Exercise of
stock options
for cash by
employees during
1998............ 178 70 -- -- -- -- -- -- -- -- -- --
Shares
repurchased from
employees upon
termination at a
price of $0.40
per share in
September 1998.. (10) (4) -- -- -- -- -- -- -- -- -- --
Deferred stock
compensation.... -- -- -- -- -- -- -- -- 3,624 -- -- (3,624)
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- -- -- 858
Accretion on
redeemable
convertible
preferred
stock........... -- -- -- 1,383 -- -- -- -- (1,383) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- (10,710) --
----- ---- ----- ------- --- --- ------ --- ------ ----- -------- -------
Balance at
December 31,
1998 ........... 1,974 $971 6,688 $23,469 -- $-- 12,950 $13 $8,627 $(653) $(20,417) $(2,766)
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
<S> <C>
Issuance of
Series A
redeemable
convertible
preferred stock
for cash to
investors at
$2.40 per share
in September
1997, net of
issuance costs
of $70.......... $ --
Issuance of
common stock for
services to
consultants at
$8.00 per share
between
September and
December 1997... --
Exercise of
stock options
for cash by
employees during
1997............ --
Amortization of
deferred
compensation.... 414
Accretion on
redeemable
convertible
preferred
stock........... (196)
Net loss........ (7,678)
-------------
Balance at
December 31,
1997............ (3,390)
Issuance of
Series B
redeemable
convertible
preferred stock
to investors at
$3.82 per share
for cash in July
1998, net of
issuance costs
of $40.......... --
Issuance of
notes receivable
from employees
for exercise of
stock options... (653)
Issuance of
common stock for
services to
consultants at
$8.00 per share
between January
and June 1998... 82
Exercise of
stock options
for cash by
employees during
1998............ --
Shares
repurchased from
employees upon
termination at a
price of $0.40
per share in
September 1998.. --
Deferred stock
compensation.... --
Amortization of
deferred
compensation.... 858
Accretion on
redeemable
convertible
preferred
stock........... (1,383)
Net loss........ (10,710)
-------------
Balance at
December 31,
1998 ........... $(15,196)
</TABLE>
See accompanying notes.
F-6
<PAGE>
E-STAMP CORPORATION
(a development stage company)
STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(In thousands, except per share amounts)
Period from inception (April 26, 1994) through December 31, 1998
<TABLE>
<CAPTION>
Redeemable
Common Stock Convertible Deficit
Subject to Preferred Notes Accumulated
Rescission Stock LLC Units Common Stock Additional Receivable During the
-------------- -------------- ------------ ------------- Paid-In From Development Deferred
Shares Amount Shares Amount Units Amount Shares Amount Capital Employees Stage Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise of
stock options
for cash by
employees during
1999
(unaudited)..... 63 $ 24 -- $ -- -- $-- -- $-- $ -- $ -- $ -- $ --
Issuance of
notes receivable
from employees
for exercise of
stock options
(unaudited)..... 2,217 1,668 -- -- -- -- -- -- -- (1,668) -- --
Shares
repurchased from
employee upon
termination at
$0.40 per share
in March 1999
(unaudited)..... (410) (164) -- -- -- -- -- -- -- 164 -- --
Deferred stock
compensation
(unaudited)..... -- -- -- -- -- -- -- -- 15,112 -- -- (15,112)
Amortization of
deferred
compensation
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- 3,451
Accretion on
redeemable
convertible
preferred stock
(unaudited)..... -- -- -- 1,176 -- -- -- -- (1,176) -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- -- (12,367) --
----- ------ ----- ------- --- ---- ------ ---- ------- ------- -------- --------
Balance at June
30, 1999
(unaudited)..... 3,844 $2,499 6,688 $24,645 -- $ -- 12,950 $13 $22,563 $(2,157) $(32,784) $(14,427)
===== ====== ===== ======= === ==== ====== ==== ======= ======= ======== ========
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
<S> <C>
Exercise of
stock options
for cash by
employees during
1999
(unaudited)..... $ --
Issuance of
notes receivable
from employees
for exercise of
stock options
(unaudited)..... (1,668)
Shares
repurchased from
employee upon
termination at
$0.40 per share
in March 1999
(unaudited)..... 164
Deferred stock
compensation
(unaudited)..... --
Amortization of
deferred
compensation
(unaudited)..... 3,451
Accretion on
redeemable
convertible
preferred stock
(unaudited)..... (1,176)
Net loss
(unaudited)..... (12,367)
-------------
Balance at June
30, 1999
(unaudited)..... $(26,792)
=============
</TABLE>
See accompanying notes.
F-7
<PAGE>
E-STAMP CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30, Period from inception
-------------------------- ----------------- (April 26, 1994)
1996 1997 1998 1998 1999 through June 30, 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating activities
Net loss................ $(6,339) $(7,678) $(10,710) $(4,455) $(12,367) $(39,012)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization.......... 163 366 405 222 155 1,156
Loss on disposal of
assets................ -- -- 65 -- -- 180
Amortization of
deferred compensation
expense............... 688 414 858 -- 3,451 5,411
Issuance of common
stock for services.... 100 175 82 -- -- 457
Changes in assets and
liabilities:
Note receivable....... (60) 60 -- -- -- --
Other assets.......... 27 (14) (88) (10) (354) (498)
Accounts payable and
accrued liabilities.. 501 957 (172) (65) 1,189 2,718
------- ------- -------- ------- -------- --------
Net cash used in
operating activities... (4,920) (5,720) (9,560) (4,308) (7,926) (29,588)
Investing activities
Purchase of property and
equipment.............. (669) (119) (324) (144) (387) (1,881)
Purchase of short-term
investments............ -- -- -- -- -- (969)
Sale of short-term
investments............ 871 98 -- -- -- 969
------- ------- -------- ------- -------- --------
Net cash provided by
(used in) investing
activities............. 202 (21) (324) (144) (387) (1,881)
Financing activities
Repayments of lease
obligations............ (28) (34) (36) (20) (12) (82)
Proceeds from issuance
of notes payable....... -- -- 700 700 -- 700
Repayments of notes
payable................ -- -- (700) -- -- (700)
Repayments of notes
payable to related
parties................ (540) -- -- -- -- (5,740)
Proceeds from issuance
of notes payable to
related parties........ -- -- -- -- -- 521
Net proceeds from
exercise of stock
options................ 31 46 66 38 24 167
Net proceeds from
issuance of redeemable
convertible preferred
stock.................. -- 5,930 15,960 -- -- 21,890
Net proceeds from
issuance of common
stock.................. 8,975 -- -- -- -- 16,629
------- ------- -------- ------- -------- --------
Net cash provided by
financing activities... 8,438 5,942 15,990 718 12 33,385
------- ------- -------- ------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 3,720 201 6,106 (3,734) (8,301) 1,916
Cash and cash
equivalents at
beginning of period.... 190 3,910 4,111 4,111 10,217 --
------- ------- -------- ------- -------- --------
Cash and cash
equivalents at end of
period................. $ 3,910 $ 4,111 $ 10,217 $ 377 $ 1,916 $ 1,916
======= ======= ======== ======= ======== ========
Supplemental cash flow
information
Cash paid for interest.. $ 3 $ 14 $ 10 $ 3 $ 3 $ 88
======= ======= ======== ======= ======== ========
Schedule of non-cash
financing and investing
transactions
Issuance of notes
receivable from
employees for exercise
of stock options....... $ -- $ -- $ (653) $ (653) $ (1,668) $ (2,321)
======= ======= ======== ======= ======== ========
Common stock repurchased
from employee upon
termination by
forgiveness of notes
receivable............. $ -- $ -- $ -- $ -- $ 164 $ 164
======= ======= ======== ======= ======== ========
Conversion of related
party notes payable to
shares................. $ -- $ -- $ -- $ -- $ -- $ 180
======= ======= ======== ======= ======== ========
Redemption of 905 shares
for related party notes
payable (Note 3)....... $ -- $ -- $ -- $ -- $ -- $ 5,400
======= ======= ======== ======= ======== ========
Assets acquired under
capital lease
obligations............ $ -- $ 80 $ -- $ -- $ -- $ 113
======= ======= ======== ======= ======== ========
</TABLE>
See accompanying notes.
F-8
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
1. Background and Summary of Significant Policies
E-Stamp Corporation, a Delaware corporation, was formed on August 23, 1996.
Effective September 1, 1996, Post N Mail, L.L.C., formed on April 26, 1994, was
merged (the "Merger") into E-Stamp Corporation (collectively, the "Company" or
"E-Stamp"). Upon completion of the Merger, all of the assets of Post N Mail,
L.L.C. were acquired by E-Stamp Corporation. The Merger was accounted for as a
combination of entities under common control. Each unit of Post N Mail, L.L.C.
ownership received 5,000 shares of E-Stamp common stock. The financial
statements have been presented to reflect the Merger for all periods presented.
The Company is a development stage company which has devoted substantially all
of its efforts to recruiting personnel to conduct research and product
development and sales and marketing and has not yet generated revenues from the
sale of products.
The Company has incurred significant losses since inception. Its activities
to date have been financed primarily through private placements of equity
securities. The Company may seek to raise additional capital through the
issuance of debt or equity securities. However, there can be no assurance that
the Company will be able to obtain additional financing on acceptable terms, if
at all.
Nature of Operations
The Company has developed technology that allows users to apply digital
postage to envelopes, mailing labels, and documents from their personal
computers. This technology, termed the E-Stamp Internet postage solution,
allows authorized users to purchase postage via the Internet and subsequently
print postage from personal computers onto envelopes, mailing labels, and
documents using standard laser and inkjet printers. The Internet postage
solution is designed to print a postmark indicia that can be used as a
replacement for other current forms of postage, including stamps and today's
postmarks generated by postage metering devices. The information generated by
the Internet postage solution will be read by the U.S. Postal Service during
mail processing and allow for routing to intended recipients.
Revenue Recognition
Through June 30, 1999, the Company had not generated any revenues. The
Company anticipates that it will generate revenue from software license fees,
postage convenience fees and sale of postage supplies.
Software license fees are amounts paid by end-users and resellers for a
perpetual license to the Company's software. The Company's software package
allows the end-user to apply for a USPS license. When the Company is notified
that the USPS has approved the license, the Company ships a secure internet
postage device, necessary for the use of the Company's software, to the end-
user. Revenues from software license fees are recognized in accordance with
AICPA Statement of Position 97-2, "Software Revenue Recognition," and Statement
of Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition." Revenues from software license fees are
recognized when delivery of the secure internet postage device and the software
are complete, when persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed and determinable and no significant obligations
remain.
Postage convenience fees are amounts paid by end-users for the delivery of
postage by the Company to the end-user. The convenience fees are based on the
amount of postage ordered by the end-user. Revenues from postage convenience
fees are recognized when the postage is downloaded into the secure postage
hardware device.
The Company anticipates that it will operate an Internet-based postal store
where end-users may purchase various postal supplies. The Company will
recognize revenues related to the postage supplies when the supplies are
delivered.
F-9
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
1. Background and Summary of Significant Policies (continued)
Revenue Recognition (continued)
The Company will provide an allowance for estimated returns upon the
recognition of the related revenue.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of three months or less when purchased to be cash equivalents. The
Company's cash equivalents were composed of government securities as of
December 31, 1998 and of money market mutual funds and government securities
as of December 31, 1997. The Company's cash and cash equivalents are carried
at cost which approximates market.
Property and Equipment
Property and equipment are recorded at cost. Additions, improvements, and
renewals that significantly add to the asset value or extend the life of the
asset are capitalized. Expenditures for maintenance and repairs are expensed
as costs are incurred.
Depreciation and amortization, for financial reporting purposes, are
provided on the straight-line method based upon the estimated useful lives as
follows:
<TABLE>
<S> <C>
Computer and other equipment............................. 3 years
Furniture and fixtures................................... 3 years
Leasehold improvements................................... Life of the lease
</TABLE>
In accordance with Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of" ("SFAS
No. 121"), the Company records impairment losses on long-lived assets used in
operations when events or circumstances indicate that the assets may be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the net book value of those assets. If there is
impairment in the future, the Company will measure the amount of the loss
based on undiscounted expected future cash flows from the impaired assets. The
cash flow calculations would be based on management's best estimates, using
appropriate assumptions and projections at the time. Through June 30, 1999 the
Company has not recorded any such impairment losses.
Research and Development
Research and development costs are expensed as they are incurred. Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software To Be Sold, Leased, or Otherwise Marketed" (FAS 86),
requires capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion
of all phases of the detailed product design necessary to establish that the
product can be manufactured to meet all design specifications. Through June
30, 1999, technological feasibility for the Company's primary product was not
established and, therefore, all software research and development costs were
expensed as incurred.
Advertising Costs
The Company expenses the costs of advertising as incurred. Advertising
expense consists principally of advertising contracts in which the Company is
guaranteed a minimum number of impressions (a view of an advertisement by a
consumer) for a fixed fee. The fees are recorded as advertising expense
ratably over the
F-10
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
1. Background and Summary of Significant Policies (continued)
Advertising Costs (continued)
term of the agreements. To the extent that impression deliveries are falling
short of the guarantees, the Company defers recognition of the corresponding
advertising expense until the impressions are delivered. The Company also pays
royalties (see Note 4) for the promotion of its product. Such royalties are
recorded as advertising expense as the royalties are earned. Advertising
expense was $117,000 for the year ended December 31, 1998. No advertising
expense was recorded for the years ended December 31, 1996 and 1997.
Income Taxes
The Company computes and records income tax in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). Under FAS 109, the liability method is used to calculate deferred taxes.
Stock-Based Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which
the Company adopted in 1996, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB Opinion No. 25"), and related interpretations in accounting for stock
options. Under APB Opinion No. 25, if the exercise price of the Company's
employee and director stock options equals or exceeds the fair value of the
underlying stock on the date of grant, no compensation expense is recognized.
Options granted to consultants are accounted for using the Black-Scholes method
prescribed by FAS 123 in accordance with Emerging Issues Task Force consensus
No. 96-18 and the assumptions used for stock-based awards to employees (see
Note 4) except that a volatility of 1.0 was used. (See Note 3 for pro forma
disclosures of stock-based compensation pursuant to FAS 123.) Any deferred
stock compensation is amortized over the vesting period of the individual
options, generally four years, using the graded vesting method. The graded
vesting method provides for vesting of portions of the overall award at
different dates and results in higher vesting in earlier years than straight-
line vesting.
Use of Estimates
The Company's management makes estimates and assumptions in the preparation
of its financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions may affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the financial statements, and the reported amounts of expenses
during the respective reporting periods. Actual results could differ from those
estimates.
Concentrations
The Company relies on one manufacturer for the supply and production of its
Internet postage device. The inability of this manufacturer to fulfill the
Company's supply requirements could negatively impact future results.
Effect of New Accounting Standards
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting for Comprehensive Income," ("SFAS
130"). SFAS 130 requires disclosures of components of
F-11
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
1. Background and Summary of Significant Policies (continued)
Effect of New Accounting Standards (continued)
non-stockholder changes in equity in interim periods and additional disclosures
of components of non-stockholder changes in equity on an annual basis. Adoption
of SFAS 130 had no impact on the Company's results of operations or financial
position.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
("SFAS 131"). The Company adopted SFAS 131 effective January 1, 1998. The
adoption of this standard did not have a material effect on the Company's
financial statement disclosures as the Company operates in a single segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 130"). The Company is required to
adopt SFAS 133 for the year ending December 31, 2000. SFAS 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Because the Company currently holds no derivative financial instruments and
does not currently engage in hedging activities, adoption of SFAS 133 is
expected to have no material impact on the Company's financial condition or
results of operations.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires that entities capitalize certain costs related to
internal use software once certain criteria have been met. The Company adopted
the provisions of SOP 98-1 on January 1, 1999. Through June 30, 1999, the
Company has not capitalized any costs related to internal use software.
The Company will adopt AICPA Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), and Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP
98-4") upon its first product revenue transactions. SOP 97-2 and SOP 98-4
provide guidance for recognizing revenue on software transactions and supersede
SOP 91-1, "Software Revenue Recognition." As no revenues have been recognized,
the adoption of SOP 97-2 and SOP 98-4 did not have any impact on the Company's
financial results through December 31, 1998. However, full implementation
guidelines for this standard have not yet been issued. Once available, the
planned revenue accounting practices may need to change and such changes could
affect the Company's future revenues and results of operations. In December
1998, the AICPA issued Statement of Position 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions" ("SOP 98-
9"). SOP 98-9 amends SOP 98-4 to extend the deferral of the application of
certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. E-Stamp has not yet determined the effect of the final adoption of
SOP 98-9 on its future revenues and results of operations.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the
current year's presentation.
Unaudited Financial Statements
According to management, the accompanying unaudited financial statements for
the six months ended June 30, 1998 and 1999 and for the period from inception
(April 26, 1994) to June 30, 1999 have been
F-12
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
1. Background and Summary of Significant Policies (continued)
Unaudited Financial Statements (continued)
prepared on substantially the same basis as the audited financial statements
and include all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the financial information set
forth therein.
Unaudited Pro Forma Information
If the offering contemplated by this prospectus is consummated, the Series A
and B redeemable convertible preferred stock outstanding as of the closing date
will be converted into shares of the Company's common stock. The pro forma
stockholders' equity as of June 30, 1999 reflects conversion of the outstanding
preferred stock into 8,360,000 shares of common stock. Pro forma net loss per
share is computed as if the outstanding preferred stock had been converted into
common stock on the date of issuance.
2. Line of Credit
On October 11, 1997, the Company entered into a Loan and Security Agreement
with a bank which allows for a $1,000,000 line of credit to be used for general
business purposes. An amendment dated September 21, 1998 increased the line of
credit to $1,250,000. The Loan and Security Agreement, which expires
September 30, 1999, grants the bank a security interest in all the assets of
the Company except the intellectual property. As of December 31, 1998 and June
30, 1999, no amounts were outstanding under this arrangement; however, a
$35,000 letter of credit required for the Company's California office lease was
secured by this credit facility, leaving the balance of the line of credit of
$1,215,000 available for other purposes. At June 30, 1999, $143,000 was
outstanding on the letter of credit and $1,107,000 was available.
3. Redeemable Convertible Preferred Stock
As of December 31, 1998, the Company is authorized to issue 12,000,000
shares of preferred stock in series. Rights and preferences of each series of
preferred stock are to be determined by the Board of Directors. As of December
31, 1998, 2,500,000 and 4,188,000 shares have been designated as Series A and B
redeemable convertible preferred stock, respectively.
The Series A and B redeemable convertible preferred stock carries an 8%,
noncumulative dividend, payable at the discretion of the Board of Directors.
Additionally, the shares of Series A and B redeemable convertible preferred
stock are convertible into an equal number of shares of common stock (i) at the
option of the holder, (ii) upon the closing of a public offering, as defined,
or (iii) upon the consent of a majority of holders of the Series A and B
redeemable convertible preferred stock. The Company has reserved 2,500,000 and
4,188,000 shares of common stock for the conversion of the Series A and B
redeemable convertible preferred stock, respectively.
The holders of Series A and B redeemable convertible preferred stock are
entitled to receive noncumulative dividends at the rate of $0.192 and $0.3056
per share, respectively, if declared by the Board of Directors. These dividends
are in preference to any declaration or payment of and dividend on common stock
of the Company. No dividends have been declared from inception (April 26, 1994)
through December 31, 1998.
F-13
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
3. Redeemable Convertible Preferred Stock (continued)
Upon liquidation of the Company, the Series A and B redeemable convertible
preferred stockholders are entitled to a liquidation preference equal to the
original issuance price, plus any declared unpaid dividends, which is superior
to the claim of common stockholders.
The holders of Series A and B redeemable convertible preferred stock are
entitled to one vote for each share of common stock into which such convertible
preferred stock could be converted.
At any time after September 3, 2001 but not later than September 3, 2003, a
majority of the holders of Series A redeemable convertible preferred stock can
require the Company to redeem the outstanding Series A redeemable convertible
preferred stock at the redemption price. The redemption price is equal to the
original issuance price of the Series A redeemable convertible preferred stock
plus a 10% compound annual rate of return. The carrying amount of Series A
redeemable convertible preferred stock is being increased by periodic
accretions so that its carrying amount will equal the redemption amount at the
redemption date.
At any time after July 7, 2002 but not later than July 7, 2004, a majority
of the holders of Series B redeemable convertible preferred stock can require
the Company to redeem the outstanding Series B convertible preferred stock at
the redemption price. The redemption price is equal to the original issuance
price of the Series B redeemable convertible preferred stock plus a 10%
compound annual rate of return. The carrying amount of Series B redeemable
convertible preferred stock is being increased by periodic accretions so that
its carrying amount will equal the redemption amount at the redemption date.
4. Stockholders' Equity
Stock Option Plans
Stock Option and Restricted Stock Plan
Effective September 1996, the Company established the 1996 Stock Option and
Restricted Stock Plan (the "Employee Plan"). The Employee Plan expires in
August 2006 and provides for the grant of incentive stock options, nonstatutory
stock options, and restricted stock to employees and consultants of the
Company. An amendment increasing the number of shares thereunder from 2,500,000
to 3,437,500 was approved by the Board of Directors on June 26, 1998. The
Employee Plan is administered by a committee of the Board of Directors. This
committee has the authority to determine the employees and consultants to whom
awards will be made, the amount of the awards, and the other terms and
conditions of the awards. Stock options are limited to ten-year terms, and
options granted through December 31, 1998 generally vest at the rate of 25%
upon the first anniversary of the grant and 6.25% each quarter thereafter. The
exercise price for stock options may not be less than the fair value of the
shares on the date of grant for incentive stock options and is subject to the
discretion of the committee for nonstatutory stock options. Restricted stock
may be granted at no additional cost to recipients. Compensation expense, if
any, equal to the fair value of the restricted stock or stock options granted
in excess of the purchase or exercise price, is recognized over the related
vesting period. A total of 3,437,500 shares of common stock are currently
reserved for issuance pursuant to the Employee Plan. As of December 31, 1998,
options to purchase 1,259,241 shares of common stock at a weighted-average
exercise price of $0.60 per share were outstanding of which 1,037,163 were
vested, and 203,906 shares of common stock remained available for future grants
under the Employee Plan.
F-14
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
4. Stockholders' Equity (continued)
Stock Option Plans (continued)
Nonemployee Directors' Plan
Also in September 1996, the Company established the 1996 Nonemployee
Director Stock Option Plan (the "Director Plan") which authorizes the issuance
of up to 125,000 shares of common stock. The Director Plan expires in August
2006. The Director Plan is a nondiscretionary stock option plan for nonemployee
directors of the Company, which generally provides for the grant of stock
options for 10,000 shares upon election as a nonemployee director and an
additional grant of stock options for 3,000 shares as of April 1 of each year.
The options are limited to a ten-year term, vest at the rate of 50% per year,
and have an exercise price equal to the fair value of the shares on the date of
grant. A total of 125,000 shares of common stock are currently reserved for
issuance pursuant to the Director Plan. As of December 31, 1998, options to
purchase 19,063 shares of common stock at a weighted-average exercise price of
$0.40 per share were outstanding of which 13,906 were vested, and 105,937
shares of common stock remained available for future grants under the Director
Plan.
The following is a summary of the combined option transactions under the
Employee Plan and Director Plan for the years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
Weighted-
Number of Average
Options Exercise Price
(In thousands, except
per share amounts)
<S> <C> <C>
Options outstanding at December 31, 1996........... 824 $4.66
Granted.......................................... 1,518 0.57
Exercised........................................ (29) 1.60
Canceled......................................... (224) 5.79
------
Options outstanding at December 31, 1997........... 2,089 0.50
Granted.......................................... 1,360 0.55
Exercised........................................ (1,916) 0.42
Canceled......................................... (255) 0.41
------
Options outstanding at December 31, 1998........... 1,278 0.60
Granted (unaudited).............................. 2,870 0.78
Exercised (unaudited)............................ (2,280) 0.74
Canceled (unaudited)............................. (583) 0.72
------
Options outstanding at June 30, 1999 (unaudited)... 1,285 0.72
======
Exercisable at December 31, 1998................... 1,053
======
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------
Options
Outstanding at Weighted-Average Weighted-
December 31, Remaining Average
Range of Exercise Prices 1998 Contractual Life Exercise Price
(In thousands) (In years)
<S> <C> <C> <C>
$0.04-$0.20............... 31 5.23 $0.14
$0.40-$0.40............... 379 7.65 0.40
$0.64-$0.64............... 855 9.82 0.64
$4.80-$5.28............... 13 1.00 4.80
----- ----
1,278 8.98
===== ====
</TABLE>
F-15
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
3. Stockholders' Equity (continued)
Stock Option Plans (continued)
Stock-Based Compensation
During 1995, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which became effective for the Company's 1996 fiscal
year. FAS 123 requires the Company to disclose the pro forma effect of the
method of accounting prescribed in FAS 123, which would generally require the
Company to record compensation expense equal to the valuation of a stock option
on the grant date.
The fair value of the Company's stock-based awards to employees was
estimated using the minimum value method and assuming no expected dividends and
the following weighted average assumptions:
<TABLE>
<CAPTION>
Years ended
December 31,
----------------
1996 1997 1998
<S> <C> <C> <C>
Expected volatility........................................ N/A N/A N/A
Expected life of options in years.......................... 5.5 5.5 4.0
Risk-free interest rate.................................... 6.0% 6.0% 5.0%
Expected dividend yield.................................... 0.00% 0.00% 0.00%
</TABLE>
For pro forma purposes, the estimated minimum value of the Company's stock-
based awards to employees is amortized over the options' vesting period. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed by FAS 123, net loss and net
loss per share would have increased to the pro forma amounts indicated in the
table below (in thousands except per share amounts):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1996 1997 1998
<S> <C> <C> <C>
Net loss attributable to common stockholders:
As reported.................................. $(6,339) $(7,874) $(12,093)
======= ======= ========
Pro forma.................................... $(7,146) $(8,831) $(12,643)
======= ======= ========
Net loss per share (basic and diluted):
As reported.................................. $ (0.51) $ (0.61) $ (0.92)
======= ======= ========
Pro forma.................................... $ (0.57) $ (0.68) $ (0.97)
======= ======= ========
</TABLE>
The weighted-average fair value of options granted in fiscal 1997 and 1998
was $0.19 and $0.14, respectively.
In 1996, the Company granted equity awards of common stock to certain
employees. Restrictions, as determined by management, lapse from one year to
four years after the grant date. Upon grant, deferred compensation of
approximately $1.1 million was charged to stockholders' equity and is being
amortized to expense over the periods until the restrictions lapse. In
connection with these restricted shares, amortization charged to expense in
1996 and 1997 was $688,000 and $414,000, respectively, and $1,132,000 for the
period from inception to December 31, 1998.
F-16
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
4. Stockholders' Equity (continued)
The Company has recorded additional deferred stock compensation of
approximately $3,624,000 during the year ended December 31, 1998 and
$15,112,000 during the six months ended June 30, 1999 representing the
difference between the exercise price and the deemed fair value, for financial
reporting purposes, of the Company's common stock on the grant date for certain
of the Company's stock options granted to officers and employees. In the
absence of a public market for the Company's common stock, the deemed fair
value was determined by the Company's Board of Directors and was based on the
price per share of sales of equity securities to third parties. These amounts
are being amortized by charges to operations over the vesting periods of the
individual stock options using a graded vesting method. Such amortization
expense amounted to approximately $858,000 for the year ended December 31, 1998
and approximately $3,451,000 for the six months ended June 30, 1999.
Stock Subject to Repurchase
As of December 31, 1997 and 1998 the Company had none and 1,751,063 shares
of common stock outstanding which were subject to repurchase, respectively. At
June 30, 1999 the Company had 3,968,538 shares of common stock outstanding
which were subject to repurchase. These shares are the result of the exercise
of unvested stock options by employees in exchange for notes (see Note 8).
These shares will vest over the four-year vesting period of the underlying
exercised stock options. The right to repurchase these shares is at the sole
discretion of the Company.
5. Marketing and Distribution Agreements
Compaq Software Alliance Agreement
In July 1998, the Company entered into a three year Software Alliance
Agreement ("Alliance Agreement") with Compaq Computer Corporation ("Compaq").
Under this agreement, Compaq will market our Internet postage solution as part
of their online services and, in exchange, the Company agreed to pay Compaq
royalties.
Strategic Marketing Agreement
In November, 1998, the Company entered into a strategic marketing agreement
with an Internet service provider (the "Provider") for the promotion of the
Company's internet postage service. The Provider has agreed to deliver a
minimum number of impressions over the approximate 15 month term of the
agreement, commencing on the date the Company receives approval for Phase III
beta testing from the USPS. In exchange for these promotional services, the
Company has agreed to pay the Provider approximately $1.3 million.
6. Income Taxes
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $7,100,000 and $5,700,000 respectively. The
net operating loss carryforwards will expire at various dates beginning in 2004
through 2018, if not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code and similar state provisions. The annual limitation may
result in the expiration of the net operating loss carryforwards before
utilization.
F-17
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
6. Income Taxes (continued)
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 900 $ 2,800
Capitalized research and development...................... 2,400 4,300
Capitalized start-up costs................................ 2,100 1,700
Deferred compensation..................................... 400 600
Other..................................................... 600 800
------- --------
Total deferred tax assets................................. 6,400 10,200
Valuation allowance....................................... (6,400) (10,200)
------- --------
Net deferred tax assets................................... $ -- $ --
======= ========
</TABLE>
FAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes the Company's historical operating performance and the
reported cumulative net losses in prior years, the Company has provided a full
valuation allowance against its net deferred tax assets.
The valuation allowance increased by $3,100,000 and $3,800,000 during the
years ended December 31, 1997 and 1998, respectively.
7. Commitments
401(k) Plan
Effective April 1, 1996, the Company established the E-Stamp Corporation
Benefit Plan (the "Plan"). The Plan provides for a Company match of employee
contributions equal to 50% of employee contributions up to 4% of their
compensation. Employees are eligible to participate in the Plan at the
beginning of the month following the first day of employment. The terms of the
Plan are subject to change as determined by management. The Company made
contributions in 1997 and 1998 of approximately $18,000 and $59,000,
respectively.
Leases
The Company has various operating leases, the terms of which range from 12
to 60 months. The operating leases are primarily for facilities in Houston,
Texas and Palo Alto, California. Rental expenses related to these leases for
the periods ended December 31, 1996, 1997 and 1998 were $188,000, $411,000 and
$554,000, respectively. During 1997, the Company entered into computer lease
agreements classified as capital leases in the accompanying financial
statements.
In February 1999, the Company entered into a new sublease pertaining to a
new facility at a monthly rent payment of $71,683 effective April 1, 1999. The
sublease term will end on June 30, 2000. The table below includes the rental
payments from this sublease.
F-18
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
7. Commitments (continued)
Leases (continued)
The following represents future minimum rental payments under noncancelable
operating leases and capital leases:
<TABLE>
<CAPTION>
Operating Capital
(In thousands)
<S> <C> <C>
For the years ending December 31:
1999..................................................... $ 943 $31
2000..................................................... 459 8
2001..................................................... -- 4
2002..................................................... -- 1
------ ---
Total minimum lease payments............................... $1,402 44
======
Less amount representing interest.......................... (6)
---
Present value of future minimum lease payments............. 38
Less current portion of capital leases..................... (27)
---
Long-term portion of capital leases........................ $11
===
</TABLE>
Assets capitalized under capital leases totaled approximately $80,000 at
December 31, 1997 and 1998 and are included in computers and furniture and
fixtures. Accumulated amortization related to assets under capital leases
totaled $22,000 and $49,000 at December 31, 1997 and 1998, respectively.
8. Notes Receivable
On June 12, 1998, the Company received $653,294 of full recourse notes
receivable from employees which bear interest at 6% per annum in consideration
for the exercise of stock options. The interest portion is payable annually or
on or before the 12th day of June, commencing June 12, 1999 and continuing
through June 12, 2003, at which time the entire amount of principal and all
accrued interest then outstanding and remaining unpaid shall become due and
payable in full. The principal is payable in full on the earlier to occur of
June 12, 2003 or 90 days following the termination of employment for any
reason.
Interest receivable recorded for these notes receivable totaled $21,800 at
December 31, 1998.
9. Net Loss Per Share
Net loss per share has been computed in accordance with the Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which
requires disclosure of basic and diluted earnings per share. Basic earnings per
share excludes any dilutive effects of options, shares subject to repurchase,
warrants, and convertible securities. Diluted earnings per share includes the
impact of potentially dilutive securities. The Company's potentially dilutive
securities were antidilutive and therefore were not included in the computation
of weighted-average shares used in computing diluted loss per share. Following
the guidance given by the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock that has been
issued or granted for nominal consideration prior to the anticipated effective
date of the initial public offering date must be included in the calculation of
basic and diluted net loss per common share as if these shares had been
outstanding for all periods presented. To date, the Company has not issued or
granted shares for nominal consideration.
F-19
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
9. Net Loss Per Share (continued)
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Basic and diluted:
Net loss.................. $(6,339) $(7,678) $(10,710) $(4,455) $(12,367)
Accretion on redeemable
convertible preferred
stock.................... -- (196) (1,383) (307) (1,176)
------- ------- -------- ------- --------
Net loss attributable to
common stock............. $(6,339) $(7,874) $(12,093) $(4,762) $(13,543)
======= ======= ======== ======= ========
Weighted-average shares of
common stock
outstanding.............. 12,543 12,966 14,044 13,200 15,404
Less: weighted-average
shares subject to
repurchase............... -- -- (969) (174) (1,918)
------- ------- -------- ------- --------
Weighted-average shares
used in computing basic
and diluted net loss per
share.................... 12,543 12,966 13,075 13,026 13,486
======= ======= ======== ======= ========
Basic and diluted net loss
per share................ $ (0.51) $ (0.61) $ (0.92) $ (0.37) $ (1.00)
======= ======= ======== ======= ========
Pro forma basic and
diluted:
Net loss.................. $(10,710) $(12,367)
======== ========
Shares used above......... 13,075 13,486
Pro forma adjustment to
reflect weighted effect
of assumed conversion of
convertible preferred
stock (unaudited)........ 5,678 8,360
-------- --------
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)........ 18,753 21,846
======== ========
Pro forma basic and
diluted net loss per
share (unaudited)........ $ (0.57) $ (0.57)
======== ========
</TABLE>
The Company has excluded all convertible preferred stock and outstanding
stock options from the calculation of diluted net loss per share because all
such securities are antidilutive for all periods presented. The total number of
shares excluded from the calculations of diluted net loss per share was
659,000, 4,172,000, and 7,711,000 for the years ended December 31, 1996, 1997,
and 1998, respectively, and 2,998,000 and 7,717,000 for the six months ended
June 30, 1998 and 1999, respectively. Such securities, had they been dilutive,
would have been included in the computations of diluted net loss per share
using the treasury stock method.
10. Subsequent Events
Strategic Distribution Agreements (unaudited)
From January 1, 1999 through September 24, 1999, the Company entered into
agreements for online advertising with Yahoo!, Inc., Microsoft Corporation,
Earthlink Operations, Inc., Excite@Home and Intuit. Aggregate noncancelable
advertising commitments related to these agreements total approximately $5.5
million, $10.5 million and $2.4 million for the second half of 1999 and for the
years ending December 31, 2000 and 2001, respectively. The Company has paid
$500,000 under these agreements in the six months ended June 30, 1999. The
Company could be subject to additional payments under these agreements if
advertising exceeds established levels of page views or generates and exceeds
established levels of new customers.
F-20
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
10. Subsequent Events (continued)
Pitney Bowes Litigation (unaudited)
On June 10, 1999, Pitney Bowes filed suit against us in U.S. District Court
alleging infringement of Pitney Bowes patents. The suit alleges that we are
infringing seven patents held by Pitney Bowes related to postage application
systems and seeks treble damages, a preliminary and permanent injunction from
further alleged infringement, attorneys' fees and other unspecified damages. On
July 30, 1999, we filed our answer to Pitney Bowes' complaint in which we deny
all allegations of patent infringement and assert certain affirmative and other
defenses based on statutory and common law grounds, including inequitable
conduct on the part of Pitney Bowes in its procurement of patents in
proceedings before the U.S. Patent and Trademark Office. As part of the answer,
we also brought various counterclaims against Pitney Bowes claiming Pitney
Bowes' violation of Section 2 of the Sherman Act and intentional and tortious
interference with E-Stamp's business relations based, in part, upon our
allegations that Pitney Bowes has unlawfully maintained its monopoly power in
the postage metering market through a scheme to defraud the U.S. Patent and
Trademark Office and its efforts to discourage potential investors and
strategic partners from investing and entering into partnerships with E-Stamp.
Our suit seeks compensatory and treble damages, injunctive relief and recovery
of attorney's fees. On September 21, 1999, Pitney Bowes filed a motion to
strike or dismiss certain of the Company's affirmative defenses and
counterclaims or, in the alternative, to bifurcate discovery and trial of those
counterclaims; the Company's response to the Motion is due in October 1999. We
are continuing to investigate the claims against us as well as infringement by
Pitney Bowes of our patents, and may assert additional defenses or pursue
additional counterclaims or independent claims against Pitney Bowes in the
future.
Pendency of the litigation can be expected to result in significant expenses
to us and the diversion of management time and other resources. If Pitney Bowes
is successful in its claims against us, then we may be hindered or even
prevented from competing in the Internet postage market and our operations
would be severely harmed. For example, the Pitney Bowes suit could result in
limitations on how we implement our solutions, delays and costs associated with
redesigning our solutions and payments of license fees and other payments. An
injunction obtained by Pitney Bowes could eliminate our ability to market
critical products or services.
Bridge Loan Financing (unaudited)
On July 12, 1999, the Company entered into bridge loan financing arrangement
with a financial institution under which the Company borrowed $5.0 million.
Amounts borrowed under the arrangement bear interest at a rate of 13% per
annum. In connection with this financing, the Company granted the lender
warrants to purchase 48,496 shares of common stock with an exercise price of
$8.25 per share. These warrants expire in July, 2004. The Company anticipates
recording the fair value of these warrants of approximately $85,000 as interest
expense over the period the loan is outstanding. The Company borrowed $5.0
million in July, 1999 under the facility and fully repaid the outstanding
balance in August, 1999.
Employee Option Grants (unaudited)
From July 1, 1999 to September 24, 1999, options to purchase 1,490,643
shares were granted to employees pursuant to the 1996 Stock Option Plan with
exercise prices of between $1.20 and 6.88 per share. The Company estimates that
additional deferred compensation of $7.4 million will be recorded as a result
of these option grants and amortized to compensation expense in accordance with
the Company's policy.
F-21
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
10. Subsequent Events (continued)
1996 Stock Plan (unaudited)
In February 1999, the board of directors approved an amendment increasing
the number of shares reserved for issuance under the 1996 Stock Plan from
3,437,500 to 5,937,500 subject to shareholder approval. The shareholders
approved the increase in April 1999.
1999 Stock Plan (unaudited)
In August 1999, the board of directors approved the 1999 Stock Plan subject
to shareholder approval. A total of 2,500,000 shares of common stock are
reserved for issuance under the plan.
1999 Employee Stock Purchase Plan (unaudited)
In August 1999, the board of directors approved the 1999 Employee Stock
Purchase Plan subject to shareholder approval. A total of 500,000 shares of
common stock has been reserved for issuance under the 1999 Purchase Plan. The
1999 Purchase Plan permits eligible employees to acquire shares of the
Company's common stock through periodic payroll deductions of up to 15% of
total compensation. No more than 5,000 shares may be purchased on any purchase
date per employee. Each offering period will have a maximum duration of 24
months. The price at which the common stock may be purchased is 85% of the
lesser of the fair market value of the Company's common stock on the first day
of the applicable offering period or on the last day of the respective purchase
period. The initial offering period will commence on the effectiveness of the
initial public offering and will end on the last trading day on or before
November 14, 2001.
1999 Director Option Plan (unaudited)
In August 1999, the board of directors approved the 1999 Option Plan subject
to shareholder approval. A total of 300,000 shares of common stock are reserved
for issuance under the Plan.
Initial Public Offering
In August 1999, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed Initial Public
Offering ("IPO"). If the offering is consummated under the terms presently
anticipated, all of the outstanding convertible preferred stock as of June 30,
1999 will convert to 8,360,000 shares of common stock upon the closing of the
IPO. The effect of this conversion has been reflected as unaudited pro forma
stockholders' equity in the accompanying consolidated balance sheet at June 30,
1999. Additionally, the shares of Series C preferred stock issued in August
1999 discussed below will convert into 3,660,651 shares of common stock upon
completion of this offering.
In July 1999, the board of directors authorized an increase in the
authorized number of shares of common stock to 200,000,000 shares subject to
stockholder approval.
Sales of Preferred Stock
In August 1999, the Company issued 2,928,521 shares of Series C redeemable
convertible preferred stock at $10.31 per share for cash. Series C redeemable
convertible preferred stock carries an 8%, noncumulative dividend, is
convertible into one share of common stock and has other rights and preferences
similar to those described for Series A and B convertible stock in Note 3. In
connection with the sale of Series C redeemable convertible preferred stock,
the Company committed to issue warrants to purchase 21,235 shares of Series C
redeemable convertible preferred stock at $10.31 per share to Donaldson, Lufkin
& Jenrette Securities Corporation as placement agent.
F-22
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
10. Subsequent Events (continued)
Stock Grant
In August 1999, the Company granted 187,500 shares of common stock to two
Company executives. On the date of grant, the Company recorded approximately
$1.8 million of compensation expense.
Sales of Common Stock (unaudited)
On September 10, 1999, the Company issued 726,745 shares of its common stock
and warrants to purchase an additional 83,855 shares of common stock at an
exercise price of $0.01 per share to investors for cash proceeds of $5.0
million. The fair value of the common stock and warrants was deemed by
management to be $5.4 million and $0.6 million, respectively. The fair value of
the warrants was computed using the Black Scholes method under the following
assumptions: expected volatility of 1.0, expected life of 3 years, risk free
interest rate of 6.0% and expected dividend yield of 0.0%.
In connection with the issuance of common stock and warrants, the Company
and the investors signed non-binding letters of intent to enter into joint
venture, joint marketing, cooperation, or technology development agreements. In
anticipation of the signing of definitive agreements, the Company will record
the $1.0 million excess of the fair value of the common stock and warrants over
the consideration received as a prepaid service asset. Upon signing of the
definitive agreements, the Company will determine the appropriate
classification and amortization period, if any, for the prepaid service asset.
If no definitive agreements are reached, the Company may need to record an
impairment write-down for this asset.
Stock Dividend
In September 1999, the Company declared a stock dividend of one share of
common stock on each four shares of outstanding common stock pending approval
by the Board of Directors. This dividend resulted in a change in the conversion
ratio of the Series A, B and C redeemable convertible preferred stock from one-
for-one to 1.25-for-one. All common stock, option and warrant information,
weighted average shares and loss per share information has been retroactively
restated to reflect the common stock dividend.
Planned Rescission Offer (unaudited)
Shares issued, and option grants made under the Company's 1996 Employee Plan
and the 1996 Director Plan may not have qualified for exemption from
registration or qualification under federal and state securities laws.
Therefore, the Company intends to make a rescission offer for these shares and
options after the effective date of the proposed initial public offering which,
if accepted, could require the Company to make aggregate payments to the
holders of these shares and options of up to $4,500,000 plus statutory
interest.
The Company plans to commence, approximately 30 days after the effectiveness
of this offering, a rescission offer pursuant to a registration statement filed
under the Securities Act of 1933, as amended, and pursuant to the state
securities laws of California covering shares of common stock issued, and
options to purchase shares of common stock granted, under our 1996 Employee
Plan. The Company will offer to rescind any prior sales at the price per share
paid therefor (average $0.85 per share) plus interest thereon at a statutory
rate as the case may be from the date of purchase by the purchaser to the
expiration of the rescission offer. The rescission offer will expire
approximately 30 days after the effectiveness of the registration statement
relating to
F-23
<PAGE>
E-STAMP CORPORATION
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended June 30, 1998 and 1999 is unaudited)
10. Subsequent Events (continued)
the rescission stock. Under the rescission offer, the Company would be required
to make an aggregate payment of approximately $4,160,000 plus the aggregate
amount of interest thereon, if all offerees accept the offer. Offerees who do
not accept the rescission offer will, for purposes of applicable federal and
state securities laws, be deemed to hold registered shares under the Act which
will be freely tradeable in the public market as of the effective date of the
registration statement with respect to the rescission stock. The Act does not
expressly provide that a rescission offer will terminate a purchaser's right to
rescind a sale of stock which was not registered under the Act as required.
Accordingly, should the rescission offer be rejected by any or all offerees,
the Company may continue to be contingently liable under the Act for the
purchase price of the rescission stock up to an aggregate amount of
approximately $4,160,000 plus statutory interest.
In addition, the Company is unable to rely on the exemption provided by
Section 25102(f) of the California Corporation Code for its options to purchase
shares of common stock granted under its 1996 Stock Option and Restricted Stock
Plan and our 1996 Non-Employee Director Stock Option Plan. As of September 10,
1999 options to purchase 1,136,678 shares of common stock at a weighted average
exercise price of $0.90 per share were outstanding under the Company's 1996
Stock Option and Restricted Stock Plan and options to purchase 19,062 shares of
common stock at a weighted average exercise price of $0.40 per share were
outstanding under the Company's 1996 Non-Employee Director Option Plan, all of
which options are potentially subject to the rescission, and the Company plans
to include them in its planned rescission offer discussed above. Under such
rescission offer, the Company could be required to make an aggregate payment of
up to approximately $260,000 for such grants.
As of the date hereof, the Company is not aware of any claims for rescission
against us. While the Company will offer to rescind the securities sales and
grants, there are no assurances that the Company will not otherwise be subject
to possible penalties or fines relating to these issuances.
F-24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
, 1999
[LOGO OF E-STAMP]
6,500,000 Shares of Common Stock
---------------------
PROSPECTUS
--------------------
Donaldson, Lufkin & Jenrette
Banc of America Securities LLC
Deutsche Banc Alex. Brown
DLJdirect Inc.
- -------------------------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of E-Stamp
Corporation have not changed since the date hereof.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
<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 by E-Stamp Corporation in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 29,190
NASD filing fee.................................................. $ 11,000
Nasdaq National Market listing fee............................... $ 95,000
Printing and engraving costs..................................... $ 200,000
Legal fees and expenses.......................................... $ 350,000
Accounting fees and expenses..................................... $ 200,000
Blue Sky fees and expenses....................................... $ 15,000
Transfer Agent and Registrar fees................................ $ 50,000
Miscellaneous expenses........................................... $ 49,810
Total............................................................ $1,000,000
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the Registrant, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.
Item 15. Recent Sales of Unregistered Securities
(a) During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(1) On September 3, 1997, we issued an aggregate of 2,500,000 shares of our
Series A Preferred Stock to accredited investors for an aggregate offering
price of $6,000,000.
(2) On July 7, 1998, we issued an aggregate of 4,188,000 shares of our
Series B Preferred Stock to accredited investors for an aggregate offering
price of $16,000,000.
(3) On July 26, 1999, we granted a warrant to a lender to purchase up to
48,496 shares of Common Stock at $8.25 per share, as adjusted for our stock
dividend.
II-1
<PAGE>
(4) On August 3, 1999 and August 10, 1999, we issued an aggregate of
2,928,521 shares of our Series C Preferred Stock to accredited investors,
including a number of our existing preferred and common stockholders, for an
aggregate offering price of $30,193,051.
(5) On August 10, 1999, we granted a warrant to our placement agent for our
Series C Preferred Stock financing to purchase up to 21,235 shares of Series C
Preferred Stock at $10.31 per share.
(6) From September 1996 to September 1999, we have granted options to
purchase an aggregate of 7,487,718 shares of common stock to our directors,
executive officers, employees and consultants at a weighted exercise price of
$0.86, as adjusted for our stock dividend. Under the Registrant's 1996 Stock
Option and Restricted Stock Plan and the Registrant's 1996 Non-Employee
Director Stock Option Plan, of which options to purchase 1,028,000 shares, as
adjusted for our September 1999 stock dividend, were cancelled without
exercise.
(7) In August 1999, we granted stock bonuses of an aggregate of 187,500
shares of common stock to one of our executive officers and one of our
directors, and we granted an option to purchase 62,500 shares of common stock
at an exercise price of $6.88 per share to one of our directors, in each case
as adjusted for our stock dividend.
(8) As of September 10, 1999, an aggregate of 5,317,755 shares of common
stock had been issued upon exercise of options under the Registrant's 1996
Stock Option and Restricted Stock Plan at a weighted purchase price of $0.87
per share, of which 428,779 shares have been repurchased by the Registrant.
(9) On September 10, 1999, we issued an aggregate of 726,745 shares of our
common stock to two accredited investors at a purchase price of $6.88 per
share, as adjusted for our stock dividend. On September 10, 1999, these two
accredited investors also paid an aggregate of $168 for warrants to purchase
83,855 shares of common stock at an exercise price of $0.01 per share, as
adjusted for our stock dividend. These warrants were exercised on September 10,
1999.
(b) Except as indicated above, none of the foregoing transactions involved
any underwriters, underwriting discounts or commissions, or any public
offering, and the Registrant believes that each transaction described in
paragraphs (1) through (5) and in paragraph (7) above, was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof or Regulation D promulgated thereunder and that the transactions
described in paragraph (9) were exempt from the registration requirements of
the Securities Act by virtue of Regulation S promulgated thereunder. The
recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the
share certificates and instruments issued in such transactions. All recipients
had adequate access, through their relationships with the Registrant, to
information about the Registrant.
The stock issuances described in paragraph (8) above were not made pursuant
to a registration statement under the Securities Act, nor were the offer and
sale registered or qualified under any state securities laws. Although the
Registrant believed at the time that such offers and sales were exempt from
such registration or qualification, they may not have been exempt. As a result,
purchasers of such shares may have the right under the Securities Act or state
securities laws to rescind their purchases and thereby be entitled to return
such shares to the Registrant and receive back from the Registrant the full
consideration paid by such purchasers which aggregates approximately $4,160,000
plus interest. The Registrant expects to commence a rescission offer to holders
of such shares approximately 30 days after the effectiveness of its initial
public offering.
In addition, the Registrant may not have had an exemption from qualification
under state securities laws for the options issued under the Registrant's 1996
Non-Employee Director Stock Option Plan. These options are subject to
rescission, and the Registrant intends to include them in its planned
rescission offer discussed above. Under such rescission offer, the Registrant
could be required to make an aggregate payment of up to approximately $260,000
relating to these options. There are no assurances that the Registrant will not
otherwise be subject to possible penalties or fines relating to these
issuances. The Registrant believes the rescission offers could provide it with
additional meritorious defenses to any such future claims.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Certificate of Incorporation of the Registrant.
3.2** Bylaws of the Registrant.
3.3** Form of Amended and Restated Certificate of Incorporation of
Registrant.
3.4** Form of Amended and Restated Bylaws of Registrant.
3.5** Certificates of Designation of Registrant relating to Series A
Preferred Stock.
3.6** Certificates of Designation of Registrant relating to Series B
Preferred Stock.
3.7** Certificate of Designation of Registrant relating to Series C
Preferred Stock.
3.8** Amendment to Certificate of Incorporation of the Registrant.
4.1** Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2** 1999 Stock Plan and form of agreements thereunder.
10.3** 1999 Employee Stock Purchase Plan and form of agreements thereunder.
10.4** 1999 Director Option Plan and form of agreements thereunder.
10.5** 1996 Stock Option and Restricted Stock Plan.
10.6** 1996 Non-Employee Director Stock Option Plan.
10.7** Second Amended and Restated Investors Rights Agreement.
10.8** Employment Agreement, dated March 29, 1996, between Registrant and
Nicole Ward (Eagan).
10.9** Employment Agreement, dated May 13, 1996, between Registrant and
Martin Pagel.
10.10** Employment Agreement, dated July 27, 1996, between Registrant and
Thomas Reinemer.
10.11** Promissory Note, dated May 30, 1999, between Registrant and Robert H.
Ewald.
10.12** Crypto iButton Service Provider Agreement dated August 21, 1998,
between Registrant and Dallas Semiconductor Corporation.
10.13+** Premium Partner Website Marketing Agreement dated July 1, 1999,
between Registrant and Microsoft Corporation.
10.14+** America Online Strategic Marketing Agreement dated November 13, 1998,
between Registrant and America Online.
10.15+** Turnkey/Inventory Agreement dated June 1, 1999, between Registrant
and Modus Media International.
10.16+ Agreement for Services dated June 27, 1997 between Registrant and
Pilot Network Services, Inc.
10.17** Sublease Agreement dated February 2, 1999 between the Registrant and
Electronics for Imaging, Inc.
10.18+ Advertising and Promotion Agreement dated May 14, 1999 between
Registrant and Yahoo!, Inc.
10.19+ Letter Agreement dated August 2, 1999 between Registrant and At Home
Corporation.
10.20+ Platinum Premier Partner Package Agreement dated June 25, 1999
between Registrant, EarthLink Network, Inc. and EarthLink Operations,
Inc.
10.21+ Services Agreement dated September 24, 1999 between Registrant and
Intuit Inc.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation. (see Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Howrey & Simon.
23.4 Consent of Rebecca Saeger
24.1** Power of Attorney.
27.1** Financial Data Schedules.
</TABLE>
- ---------------------
** Previously filed.
+ The registrant is seeking confidential treatment of certain portions of this
exhibit from the Commission. The omitted portions have been filed separately
with the Commission.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedules not listed above 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Mateo, State of California, on the 27th day of September, 1999.
E-STAMP CORPORATION
/s/ Robert H. Ewald
By: _________________________________
Robert H. Ewald
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert H. Ewald President, Chief Executive September 27, 1999
____________________________________ Officer and Director
Robert H. Ewald (Principal Executive
Officer)
/s/ Anthony H. Lewis, Jr. Vice President and Chief September 27, 1999
____________________________________ Financial Officer
Anthony H. Lewis, Jr. (Principal Financial and
Accounting Officer)
* Chairman of the Board September 27, 1999
____________________________________
Marcelo A. Gumucio
* Director September 27, 1999
____________________________________
John V. Balen
* Director September 27, 1999
____________________________________
Thomas L. Rosch
* Director September 27, 1999
____________________________________
Gregory S. Stanger
* Director September 27, 1999
____________________________________
</TABLE> Adam Wagner
/s/ Robert H. Ewald
*By: __________________________
Robert H. Ewald Attorney-in-
Fact
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Certificate of Incorporation of the Registrant.
3.2** Bylaws of the Registrant.
3.3** Form of Amended and Restated Certificate of Incorporation of
Registrant.
3.4** Form of Amended and Restated Bylaws of Registrant.
3.5** Certificates of Designation of Registrant relating to Series A
Preferred Stock.
3.6** Certificates of Designation of Registrant relating to Series B
Preferred Stock.
3.7** Certificate of Designation of Registrant relating to Series C
Preferred Stock.
3.8** Amendment to Certificate of Incorporation of the Registrant.
4.1** Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2** 1999 Stock Plan and form of agreements thereunder.
10.3** 1999 Employee Stock Purchase Plan and form of agreements thereunder.
10.4** 1999 Director Option Plan and form of agreements thereunder.
10.5** 1996 Stock Option and Restricted Stock Plan.
10.6** 1996 Non-Employee Director Stock Option Plan.
10.7** Second Amended and Restated Investors Rights Agreement.
10.8** Employment Agreement, dated March 29, 1996, between Registrant and
Nicole Ward (Eagan).
10.9** Employment Agreement, dated May 13, 1996, between Registrant and
Martin Pagel.
10.10** Employment Agreement, dated July 27, 1996, between Registrant and
Thomas Reinemer.
10.11** Promissory Note, dated May 30, 1999, between Registrant and Robert H.
Ewald.
10.12** Crypto iButton Service Provider Agreement dated August 21, 1998,
between Registrant and Dallas Semiconductor Corporation.
10.13+** Premium Partner Website Marketing Agreement dated July 1, 1999,
between Registrant and Microsoft Corporation.
10.14+** America Online Strategic Marketing Agreement dated November 13, 1998,
between Registrant and America Online.
10.15+** Turnkey/Inventory Agreement dated June 1, 1999, between Registrant
and Modus Media International.
10.16+ Agreement for Services dated June 27, 1997 between Registrant and
Pilot Network Services, Inc.
10.17** Sublease Agreement dated February 2, 1999 between the Registrant and
Electronics for Imaging, Inc.
10.18+ Advertising and Promotion Agreement dated May 14, 1999 between
Registrant and Yahoo!, Inc.
10.19+ Letter Agreement dated August 2, 1999 between Registrant and At Home
Corporation.
10.20+ Platinum Premier Partner Package Agreement dated June 25, 1999
between Registrant, EarthLink Network, Inc. and EarthLink Operations,
Inc.
10.21+ Services Agreement dated September 24, 1999 between Registrant and
Intuit Inc.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation. (see Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Howrey & Simon.
23.4 Consent of Rebecca Saeger
24.1** Power of Attorney.
27.1** Financial Data Schedules.
</TABLE>
- ---------------------
** Previously filed.
+ The registrant is seeking confidential treatment of certain portions of this
exhibit from the Commission. The omitted portions have been filed separately
with the Commission.
<PAGE>
EXHIBIT 1.1
__________ Shares
E-STAMP CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC OF AMERICA SECURITIES LLC
DEUTSCHE BANC ALEX. BROWN
DLJdirect Inc.
As representatives of the
several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
E-Stamp Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell ____________ shares of its common stock, $0.001 par value (the
"Firm Shares"), to the several underwriters named in Schedule I hereto (the
"Underwriters"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional _______ shares of its common stock,
$0.001 par value (the "Additional Shares"), if requested by the Underwriters as
provided in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter referred to collectively as the "Shares". The shares of common stock
of the Company to be outstanding after giving effect to the sales contemplated
hereby are hereinafter referred to as the "Common Stock".
1
<PAGE>
Section 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"Rule 462(b) Registration Statement"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
Section 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
at a price per Share of $______ (the "Purchase Price") the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Company within 30 days after the date of this Agreement. You
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof, which date shall be
a business day (i) no earlier than two business days after such notice has been
given (and, in any event, no earlier than the Closing Date (as hereinafter
defined)) and (ii) no later than ten business days after such notice has been
given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Company as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I bears to the total
number of Firm Shares.
2
<PAGE>
The Company hereby agrees not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan and (ii) the Company may
issue shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof. The Company also
agrees not to file any registration statement with respect to any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period of 180 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. The Company shall, prior to or concurrently with the execution of
this Agreement, deliver an agreement executed by (i) each of the directors and
officers of the Company and (ii) each stockholder listed on Annex I hereto to
the effect that such person will not, during the period commencing on the date
such person signs such agreement and ending 180 days after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
Section 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Company shall deliver the Shares, with any transfer taxes thereon duly paid by
the respective Sellers, to Donaldson, Lufkin & Jenrette Securities Corporation
through the facilities of The Depository Trust Company ("DTC"), for the
respective accounts of the several Underwriters, against payment to the Company
of the Purchase Price therefore by wire transfer of Federal or other funds
3
<PAGE>
immediately available in New York City. The certificates representing the Shares
shall be made available for inspection not later than 9:30 A.M., New York City
time, on the business day prior to the Closing Date or the applicable Option
Closing Date, as the case may be, at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of delivery and payment
for the Firm Shares shall be 9:00 A.M., New York City time, on ________, 1999 or
such other time on the same or such other date as Donaldson, Lufkin & Jenrette
Securities Corporation and the Company shall agree in writing. The time and date
of delivery for the Firm Shares are hereinafter referred to as the "Closing
Date". The time and date of delivery and payment for any Additional Shares to be
purchased by the Underwriters shall be 9:00 A.M., New York City time, on the
date specified in the applicable exercise notice given by you pursuant to
Section 2 or such other time on the same or such other date as Donaldson, Lufkin
& Jenrette Securities Corporation and the Company shall agree in writing. The
time and date of delivery for any Additional Shares are hereinafter referred to
as an "Option Closing Date".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 8 of this Agreement
shall be delivered at the offices of Pillsbury Madison & Sutro, 2550 Hanover
Street, Palo Alto, CA 94304and the Shares shall be delivered at the Designated
Office, all on the Closing Date or such Option Closing Date, as the case may be.
Section 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the Company
will use its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
(b) To furnish to you _______ signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
4
<PAGE>
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and file with
the Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or
5
<PAGE>
qualification; provided, however, that the Company shall not be required in
connection therewith to qualify as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action that would subject it to
general consent to service of process or taxation other than as to matters and
transactions relating to the Prospectus, the Registration Statement, any
preliminary prospectus or the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending March
31, 2001 that shall satisfy the provisions of Section 11(a) of the Act, and to
advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel
and the Company's accountants in connection with the registration and delivery
of the Shares under the Act and all other fees and expenses in connection with
the preparation, printing, filing and distribution of the Registration Statement
(including financial statements and exhibits), any preliminary prospectus, the
Prospectus and all amendments and supplements to any of the foregoing, including
the mailing and delivering of copies thereof to the Underwriters and dealers in
the quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) all costs of printing or producing this
Agreement and any other agreements or documents in connection with the offering,
purchase, sale or delivery of the Shares, (iv) all expenses in connection with
the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel for
the Underwriters in connection with such registration or qualification and
memoranda relating thereto), (v) the filing fees and disbursements of counsel
for the Underwriters in connection with the review and clearance of the offering
of the Shares by the National Association of Securities Dealers, Inc., (vi) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to the listing of the Shares on the Nasdaq National Market
and other national securities
6
<PAGE>
exchanges and foreign stock exchanges, (vii) the cost of printing certificates
representing the Shares, (viii) the costs and charges of any transfer agent,
registrar and/or depositary, and (ix) all other costs and expenses incident to
the performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section.
(j) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a
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material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (B) will comply in
all material respects with the Act and (iv) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
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non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is or could be a party or to
which any of their respective property is or could be subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or
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to be filed as exhibits to the Registration Statement that are not so described
or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
material
10
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adverse effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized, executed and delivered by
the Company.
(p) Ernst & Young LLP are independent public accountants with respect to
the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(r) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii)
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neither the Company nor any of its subsidiaries has incurred any material
liability or obligation, direct or contingent.
(u) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(v) Each certificate signed by any officer of the Company and delivered to
the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
Section 7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus, as then
amended or supplemented, (so long as the Prospectus and any amendments or
supplements thereto was provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages,
liabilities or judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in such preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in the Prospectus, as so amended or supplemented, and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
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<PAGE>
of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent
as the foregoing indemnity from the Company to such Underwriter but only with
reference to information relating to such Underwriter furnished in writing to
the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in
the case of parties indemnified pursuant to Section 7(a), and by the Company, in
the case of parties indemnified pursuant to Section 7(b). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel (in
any
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<PAGE>
case where such fees and expenses are at the expense of the indemnifying party)
and, prior to the date of such settlement, the indemnifying party shall have
failed to comply with such reimbursement request. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount
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<PAGE>
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
Section 8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Robert H. Ewald and Anthony H. Lewis, Jr., in their
capacities as the President and Chief Executive Officer and Vice President and
Chief Financial Officer of the Company, confirming the matters set forth in
Sections 6(t), 8(a) and 8(b) and that the Company has complied with all of the
agreements and satisfied all of the conditions herein contained and required
to be complied with or satisfied by the Company on or prior to the Closing
Date.
(d) Since the respective dates as of which information is given in the
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Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 8(d)(i),
8(d)(ii) or 8(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Wilson
Sonsini Goodrich & Rosati, counsel for the Company, to the effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where
the failure to be so qualified would not have a material adverse effect on
the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights;
(iv) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights;
(v) all of the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued and
are fully paid and non-assessable, and are owned by the Company, directly
or indirectly through one or more subsidiaries, free and clear of any
16
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security interest, claim, lien, encumbrance or adverse interest of any
nature;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's knowledge
after due inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "Business--Legal
Proceedings", "Management--Incentive Stock Plans", "Certain Transactions",
"Capitalization", "Certain Transactions", "Description of Capital Stock"
and "Underwriting" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal matters,
documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of such
counsel's knowledge after due inquiry, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound;
(xi) the execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby will
not (A) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (B) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
any of its subsidiaries or any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound, (C) violate or conflict with any
17
<PAGE>
applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (D) result
in the suspension, termination or revocation of any Authorization of the
Company or any of its subsidiaries or any other impairment of the rights of
the holder of any such Authorization;
(xii) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is or could be a party or to which any
of their respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described, or of any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required;
(xiii) neither the Company nor any of its subsidiaries has
violated any Environmental Law, any provisions of the Employee Retirement
Income Security Act of 1974, as amended, or any provisions of the Foreign
Corrupt Practices Act, or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not
have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries,
taken as a whole;
(xiv) each of the Company and its subsidiaries has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including, without limitation, under
any applicable Environmental Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its business, except
where the failure to have any such Authorization or to make any such filing
or notice would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole; each
such Authorization is valid and in full force and effect and each of the
Company and its subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto; and no event
has occurred (including, without limitation, the receipt of any notice from
any authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both,
would result in any other impairment of the rights of the holder of any
such Authorization; and such Authorizations contain no restrictions that
18
<PAGE>
are burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance,
the occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a material adverse effect on
the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended;
(xvi) to the best of such counsel's knowledge after due
inquiry, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement; and
(xvii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and
other financial data included therein as to which no opinion need be
expressed) comply as to form with the Act, (B) such counsel has no reason
to believe that at the time the Registration Statement became effective or
on the date of this Agreement, the Registration Statement and the
prospectus included therein (except for the financial statements and other
financial data as to which such counsel need not express any belief)
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (C) such counsel has no reason to
believe that the Prospectus, as amended or supplemented, if applicable
(except for the financial statements and other financial data, as
aforesaid) contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
The opinion of Wilson Sonsini Goodrich & Rosati described in Section 8(e)
above shall be rendered to you at the request of the Company and shall so state
therein.
(ee) You shall have received on the Closing Date an opinion relating to the
intellectual property of the Company (satisfactory in form and substance to you
and counsel for the Underwriters), dated the Closing Date, of Fulbright &
Jaworski and/or such other firms as you shall designate.
(eee) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Howrey &
Simon, special intellectual property counsel for the Company to the effect that:
(i) The statements in the Prospectus under the caption "Risk Factors-
- -Intellectual property infringement claims, including a claim asserted by Pitney
Bowes against us, could prevent or hinder our ability to sell Internet postage"
and in the first two parpgraphs under the caption "Business--Legal Proceedings"
(collectively the "Howrey IP Sections") contain accurate descriptions of the
Company's Intellectual Property and, insofar as such statements constitute
summaries of documents or matters of law or legal conclusions, are accurate and
fairly present such summaries, matters of law and legal conclusions;
(ii) (A) the Howrey IP Sections of the Registration Statement and the
Prospectus and any supplement or amendment thereto comply as to form with the
Act, (B) such counsel has no reason to believe that at the time the Registration
Statement became effective or on the date of this Agreement, the Howrey IP
Sections of the Registration Statement and the prospectus included therein
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 in the
Howrey IP Sections not misleading and (C) such counsel has no reason to believe
that the Howrey IP Sections of the Prospectus, as amended or supplemented, if
applicable contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make such statements, in the light of the
circumstances under which they were made, not misleading.
19
<PAGE>
(f) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Pillsbury Madison & Sutro LLP, counsel for the Underwriters, as
to the matters referred to in Sections 8(e)(iv), 8(e)(vi), 8(e)(ix) (but only
with respect to the statements under the caption "Description of Capital Stock"
and "Underwriting") and 8(e)(xvii).
In giving such opinions with respect to the matters covered by Sections
8(e)(xvii) and 8(e)(ix) Wilson Sonsini Goodrich & Rosati, Howrey & Simon and
Pillsbury Madison & Sutro LLP may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified.
(g) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(h) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(i) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
20
<PAGE>
(j) The Company shall not have failed on or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Company on or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
Section 9. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall
21
<PAGE>
be obligated severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I bears to the total number of Firm Shares
which all the non-defaulting Underwriters have agreed to purchase, or in such
other proportion as you may specify, to purchase the Firm Shares or Additional
Shares, as the case may be, which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date; provided that in no event
shall the number of Firm Shares or Additional Shares, as the case may be, which
any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased
pursuant to this Section 9 by an amount in excess of one-ninth of such number of
Firm Shares or Additional Shares, as the case may be, without the written
consent of such Underwriter. If on the Closing Date any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased by all
Underwriters and arrangements satisfactory to you and the Company for purchase
of such Firm Shares are not made within 48 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
Underwriter and the Company. In any such case which does not result in
termination of this Agreement, either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. If, on an
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
Section 10. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to E-Stamp
Corporation, 2855 Campus Drive, Suite 100, San Mateo, California 94403,
Attention: Robert H. Ewald, Chief Executive Officer and (ii) if to any
Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
22
<PAGE>
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company or any person controlling the Company, (ii)
acceptance of the Shares and payment for them hereunder and (iii) termination of
this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 9), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse
the several Underwriters, their directors and officers and any persons
controlling any of the Underwriters for any and all fees and expenses
(including, without limitation, the fees disbursements of counsel) incurred by
them in connection with enforcing their rights hereunder (including, without
limitation, pursuant to Section 7 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Underwriters, the
Underwriters' directors and officers, any controlling persons referred to
herein, the Company's directors and the Company's officers who sign the
Registration Statement and their respective successors and assigns, all as and
to the extent provided in this Agreement, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
23
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
E-STAMP CORPORATION
By:____________________________
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC OF AMERICA SECURITIES LLC
DEUTSCHE BANC ALEX. BROWN
DLJdirect Inc.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By ______________________________
24
<PAGE>
SCHEDULE I
----------
Underwriters Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities Corporation
Banc Of America Securities LLC
Deutsche Banc Alex. Brown
DLJdirect Inc.
Total
1
<PAGE>
Annex I
[Insert names]
2
<PAGE>
Exhibit 5.1
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI APPEARS HERE]
September 13, 1999
[LOGO OF WSGR APPEARS HERE]
E-Stamp Corporation
2855 Campus Drive, Suite 100
San Mateo, California 94403
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in
connection with the filing by E-Stamp Corporation (the "Company") of a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission"), covering an underwritten
public offering of up to 6,500,000 shares of Common Stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation and Bylaws, and the originals or copies
certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below, (ii) assumed that the
Amended and Restated Certificate of Incorporation as set forth in Exhibit 3.3 to
the Registration Statement, will have been duly approved and filed with the
office of the Delaware Secretary of State and (iii) assumed that the shares of
Common Stock will be sold by the Underwriters at a price established by the
Pricing Committee of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Common Stock, when sold and issued in accordance with the
Registration Statement and related Prospectus, will be duly and validly issued,
fully paid and nonassessable and that the issuance of the Common Stock will be
duly authorized by all necessary corporate action.
We consent to the reference to our firm under the caption "Legal Matters"
in the Prospectus included in the Registration Statement and any amendment
thereto and to the filing of this opinion as an exhibit to the Registration
Statement and any amendment thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/oac
<PAGE>
EXHIBIT 10.16
AGREEMENT FOR SERVICES
This Agreement is made and entered into as of June 27, 1997 ("Effective Date")
by and between E-Stamp ("Customer") and Pilot Network Services, Inc. ("Pilot").
1. Term of Agreement. Unless earlier terminated as provided in this
Agreement, the term of this Agreement will commence on the Effective Date and
will continue for a period of 12 months, and shall be automatically renewed for
successive one-year terms thereafter.
2. Services to be provided by Pilot.
(a) Pilot agrees to provide the services set forth on the attached
Schedule(s).
(b) The services set forth in this Section 2 will be provided to
Customer at rates and charges as indicated on the attached Schedule(s); provided
Pilot shall have the right to change the rates and charges to be charged for
such services by notifying Customer 90 days in advance of the effective date of
the change.
(c) Customer represents and warrants that Pilot's services will only
be used for lawful purposes. Customer understands that transmission of any
material in violation of any U.S., state, local or foreign laws or regulations
is prohibited. This includes, but is not limited to; copyrighted material,
threatening or obscene material, or material protected by trade secret. Customer
agrees to indemnify Pilot from any costs, damages, fees and expenses incurred by
Pilot which are attributable to the use of Pilot's services by Customer.
Customer will indemnify Pilot for costs and expenses related to third party
claims, provided that Pilot: (1) notifies Customer promptly in writing of the
claim and (2) permits Customer to defend, compromise or settle the claim in a
manner not adverse to Pilot and provides on a reasonable basis information,
assistance and authority to enable Customer to do so. Customer agrees to
reimburse Pilot's reasonable expenses and attorney's fees on an as-incurred
basis for such activity. Pilot shall have no authority to settle any claim on
behalf of Customer. THIS SECTION AND SECTION 4 STATE THE ENTIRE LIABILITY OF
CUSTOMER AND PILOT WITH RESPECT TO THE SERVICES PROVIDED BY PILOT TO CUSTOMER
UNDER THIS AGREEMENT, AND NEITHER CUSTOMER NOR PILOT SHALL HAVE ANY ADDITIONAL
LIABILITY WITH RESPECT TO ANY ALLEGED OR PROVEN INFRINGEMENT OR UNLAWFUL
ACTIVITY.
3. Term of Payment. The Implementation Charge set forth on the attached
Schedule(s) shall be payable in two equal monthly installments commencing on the
Effective Date. The Monthly Service Charges will be payable by the Customer
commencing sixty days after the Effective Date. Pilot will submit to Customer an
invoice for services provided at the beginning of each monthly period payable
upon receipt of invoice. A monthly service charge of 1.5% of the unpaid balance
will be payable on past due balances.
4. Limitation of Liability. The parties agree that: (i) Pilot exercises
no control and has no responsibility whatsoever over the content of information
transmitted by use of Pilot's services, (ii) Pilot is not responsible for the
accuracy or quality of such information, (iii) use of such information is at
Customer's own risk, and (iv) this is not a contract for the sale of goods and,
therefore, is not subject to the Uniform Commercial Code. Pilot warrants that it
has the right and power to enter into this Agreement and that it will provide
the services specified in this Agreement in a workmanlike and professional
manner. IN ALL OTHER RESPECTS, NO REPRESENTATIONS AND WARRANTIES (WRITTEN OR
ORAL) HAVE BEEN MADE BY THE PARTIES. THE SERVICES ARE PROVIDED "AS IS" AND PILOT
DISCLAIMS ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, FOR THE
SERVICES IT IS PROVIDING, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Pilot makes no guarantees
with respect to the services rendered under this Agreement and Pilot shall have
no liability as a result of Pilot's performance of this Agreement, including,
without limitation, interrupted service, unauthorized access by a third party,
errors or delays in transmission, loss of data or failure to meet Customer's
requirements. Without limiting the foregoing, Pilot's entire liability under,
for breach of, arising under, or related to this Agreement or the services to be
provided hereunder (whether in tort, contract or any other theory), shall not
exceed the aggregate charges for services rendered for
<PAGE>
the prior twelve months under this Agreement that gave rise to such liability.
In no event shall either party be liable for indirect, exemplary, special,
incidental or consequential damages, or costs, including but not limited to, any
lost profits or revenues, loss of use or goodwill, or any third party claims,
even if such party has been advised of the possibility of such damages.
5. Termination. Either party may terminate this Agreement without penalty
upon ninety (90) days advance written notice to the other party prior to the end
of the initial, or any successive, twelve (12) month periods. In addition,
Customer agrees that Pilot, at its option, may either terminate this Agreement
upon thirty (30) days written notice to Customer, or suspend all services to
Customer, if any amount due for services rendered under this Agreement is
outstanding according to terms specified in Section 3 unless Customer remedies
the problem within such thirty (30) day period. Either party may terminate this
Agreement if the other party is in material breach of this Agreement and has not
cured the breach within thirty (30) days of written notice specifying the
breach. Termination of this Agreement shall result in any and all balances past
due becoming immediately due and payable.
6. General Provisions.
(a) The term "Agreement" as used herein will include any future
written amendments, modifications, or supplements made hereto,
provided, however, that no amendments, modifications or
supplements to this Agreement shall be deemed valid unless signed
by authorized representatives of both parties and expressly
referencing this Agreement. No representation or statement not
expressly contained in this Agreement or, except as set forth in
Section 2(b) hereof, in any written, signed amendment hereto
shall be binding upon Pilot or Customer.
(b) This Agreement may not be assigned by Customer without the prior
written consent of Pilot.
(c) If any of the provisions are invalid under any applicable statute
or rule of law, such provisions are to that extent to be deemed
omitted and the remaining provisions of this Agreement will
remain in full force and effect.
(d) In the event suit is commenced to collect any amounts owing
hereunder, the prevailing party shall be entitled to recover
reasonable attorney's fees and costs of suit.
(e) The Agreement constitutes the complete Agreement between the
parties and supersedes all previous representations,
understandings or agreements and shall prevail notwithstanding
any variance with terms and conditions of any proposal submitted.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of California, regardless of its
choice of law provisions.
(g) Any legal action or proceeding relating to this Agreement shall
be instituted in any state or federal court in San Francisco or
Alameda County, California. Pilot and Customer agree to submit to
the jurisdiction of, and agree that venue is proper in, the
aforesaid courts in any such legal action or proceeding.
(h) All notices, including notices of address change, required to be
sent hereunder shall be in writing and deemed given when
delivered by personal delivery, telegram, facsimile, telecopier,
courier service or registered mail to the addresses listed on the
signature page, or such other address that a party may specify.
(i) Pilot shall not be in default or otherwise liable for any delay
in or failure of its performance under this Agreement where such
delay or failure arises by reason of any Act of God, or any
government
-2-
<PAGE>
or any governmental body, acts of war, the elements, strikes or
labor disputes, or other cause beyond the control of Pilot.
(j) Customer agrees to comply with all applicable United States
export control laws and regulations, including without
limitation, the laws and regulations administered by the United
States Department of Commerce and the United States Department of
State.
EACH PARTY ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT, UNDERSTANDS IT, AND
AGREES TO BE BOUND BY ITS TERMS.
CUSTOMER: E-Stamp PILOT NETWORK SERVICES, INC.
-----------------
By: /s/ T. Reinemer By: /s/ Marketta Silvera
----------------------- ------------------------------
Name: T. Reinemer Name: Marketta Silvera
--------------------- ----------------------------
Title: VP Operations Title: CEO
-------------------- ---------------------------
Address: 4009 Miranda Ave. Address: 1080 Marina Village Parkway
------------------ Alameda, California 94501
Palo Alto, CA 94304
- ---------------------------
Agreement only valid in
conjunction with attached
Amendment.
-3-
<PAGE>
Amendment To Agreement For Services Between
Pilot Network Services and
E-Stamp Corporation
1. Section 3. Term of Payment, change the 3rd sentence to read:
Pilot will submit to Customer an invoice for services provided at the beginning
of each monthly period payable within thirty (30) days of receipt of invoice.
2. Add the following to Section 5, Termination:
In the future, should Pilot elect not to provide Secure Web Hosting Services on
[***] platform, Customer has the right to terminate this Agreement upon thirty
(30) days written notice to Pilot, providing that [***] hosting at a Pilot
Service Center is a Customer requirement.
EACH PARTY ACKNOWLEDGES THAT IT HAS READ THIS ADDENDUM, UNDERSTANDS IT, AND
AGREES TO BE BOUND BY ITS TERMS.
E-Stamp Corporation Pilot Network Services, Inc.
By: /s/ T. Reinemer By: /s/ Marketta Silvera
------------------------- ---------------------------
Name & Title: Reinemer VP-Ops. Name & Title: CEO
---------------- -----------------
Date: June 27, 1997 Date:
------------------------ -------------------------
*** Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
1. Charges
1.1. [***] Secure Internet Service via [***]
One-Time Setup Charge: [***]
Monthly Charge: [***]
Included Services:
. Procure, provision and install:
- T-1 line connecting Customer to Pilot
- Routers and CSU/DSUs
. Manage all Domain Name registrations with InterNIC:
- Host and Name Server registration or re-registration (InterNIC
registration fees passed through to the Customer)
. Establish Internet connectivity and access to all generic
Internet services
. Configure and deploy [***]
- Customize [***] to implement Customer security policies
- Sanitize all [***] for security and auditing purposes
- Establish a secure, fortified email gateway
- Set up external fortified [***] service at Pilot Service
Center
- Install and integrate security monitoring tools into the
firewall
- Install and integrate logging mechanisms into the firewall
- Install and integrate Pilot Traffic Profile(TM) Reporting
System into firewall
- Setup and test tape backup systems
- Provide hot spares for immediate swap-out in event of server
failure
. Administration and management of [***]
- Apply security patches, fix bugs and/or provide workarounds
- Maintain all equipment and software, including upgrades
- Maintain fortified email gateway and external [***] service
- Execute daily incremental and full weekly backups with offsite
tape storage
- Provide online access to Pilot Traffic Profile(TM) Reports
for authorized viewing
- Log, document and submit intrusion attempt reports
. Provide Internet access to Customer-maintained or Pilot-Hosted
server(s)
. Provide NNTP Newsfeed to Customer-maintained (or Pilot-Hosted)
News:
Charges are based on initial twelve-month commitment. Customer will be
invoiced for setup charges in two equal monthly installments
commencing on the effective date. Monthly service charges will become
due and payable sixty days after the effective date. This quotation
is valid for thirty (30) days beginning May 23, 1997.
Charges for this service shall not commence until such time that the customer
notifies to begin the installation process. Customer agrees to provide
notification 45 day before E-Stamp beta test starts.
Approved: /s/ T.J. Reinemer
---------------------------
(signature)
Name: T.J. Reinemer
---------------------------
(please print)
Title: VP- Operations
--------------------------
(please print)
Date: 27-June-97
---------------------------
(please print)
Standard prices for Secure Internet Services are [***] One-Time Setup Charge
and [***] Monthly Charge. Special prices quoted apply only if ordered in
conjunction with E-fill application and database hosting R&D -- and marketing
site web hosting services. Standard service charges will apply if ordered
separately.
NOTIFICATION TO BEGIN THE INSTALLATION PROCESS WILL BE FORTHCOMING NOT LATER
THAN 9/30/97, UNLESS THE U.S. POSTAL SERVICE DENIES THE APPROVAL FOR THIS
PROJECT WITH E-STAMP OR CAUSES OTHER UNFORESEEN DELAYS.
/s/ [T.J.R.] 30-June-97 /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] 6/30/97
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
1.2. Marketing World-Wide Web (WWW) Server Hosting*
Additional One-Time Setup Charge: [***]
Additional Monthly Charge: [***]
Included Services:
. Create Marketing Web server:
- Procure dedicated Web server and tape backup system
- Configure server with the OS and Web Server & Sequel
software
- Sanitize the [***] for security and auditing purposes
- Register under Customer domain (e.g., www.estamp.com)
- Integrate Web server into [***]
- Install and integrate security monitoring tools into the
server
- Install and integrate logging mechanisms into the server
- Install and integrate Pilot Traffic Profile Reporting
System(TM) into server
- Setup and test tape backup system
- Configure and deploy Pilot's proprietary system for
securely and automatically updating Web content
- Supply [***] of storage for Customer content (upgradable)
- Provide hot spares for immediate swap-out in event of
server failure
. Administration and management of Web server:
- Apply security patches, fix bugs and/or provide
workarounds
- Support of authenticated mechanism for content updates
- Execute daily incremental and full weekly backups with
offsite tape storage
- Maintain all equipment and software, including upgrades
- Provide online access to Pilot Traffic Profile
Reports(TM)
Charges are based on initial twelve-month commitment. Customer
will be invoiced for setup charges in two equal monthly
installments commencing on the effective date. Monthly service
charges will become due and payable sixty days after the
effective date. This quotation is valid for thirty (30) days
beginning May 23, 1997.
Approved: T.J. Reinemer
---------------------
(signature)
Name: T.J. Reinemer
---------------------
(please print)
Title: VP - Operation
---------------------
(please print)
Date: 27-June-97
---------------------
(please print)
Customer will provide all the software necessary to host the Web server. If
additional third-party software is to be installed and supported, the software
must be mutually agreed upon in advance between Pilot and the Customer such an
addition could affect pricing for services.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
Secure Commerce Web Server Hosting and [***] R&D Project*
One-Time Setup Charge: [***]
Monthly Charge: [***]
Included Services:
. Install and deploy Customer-provided dedicated E-fill application
and database servers and tape backup systems
- Install customer-provided servers (primary and backup) and
RAID 5 with the OS, application and database server software
- Sanitize the [***]for security and auditing purposes
- Integrate servers into [***]
- Install and integrate security monitoring tools into the
servers
- Install and integrate logging mechanisms into the servers
- Position E-fill servers on dedicated [***] Ethernet network
segment within Pilot Service Center
- Setup and test tape backup system
. Administration and management of E-fill and database servers:
- Apply security patches, fix bugs and/or provide workarounds
- Support authenticated process for content updates &
synchronization
- Perform regular backups of servers, including offsite storage
of tapes
- Provide access to authorized agents for equipment maintenance
- Maintain software, including performing upgrades
- Provide uptime monitoring of the servers
- Perform database index maintenance
. Research security requirements of services hosted on the [***]
platform:
- Protection techniques to guard against denial-of-service
attacks
- Protection techniques to guard against unauthorized server
access
- Deployability of O/S configuration to multiple machines
- Integration into the [***]
- Porting, monitoring and other utilities
- Provide written report of conclusions at 3 and 6 month
milestones
. Log, document, and submit intrusion-attempt reports to Customer
The monthly charge is based on an initial six-month commitment to the
service and is due at the beginning of each month. One-time setup fees
are due and payable in advance. This quotation is valid for thirty
(30) days beginning May 23, 1997 and anticipates that services will be
installed within 90 days of order.
Charges for this service shall not commence until such time that the customer
notifies Pilot to begin installation process. Customer agrees to provide
notification 45 days before E-Stamp beta tests starts.
Approved: /s/ T.J. Reinemer
-----------------------
(signature)
Name: T.J. Reinemer
-----------------------
(please print)
Title: VP-Operations
-----------------------
(please print)
Date: 27-June-97
-----------------------
(please print)
If additional third-party software is required to be installed and supported,
the software must be mutually agreed upon in advance between Pilot and the
Customer and pricing for services and support could potentially be affected.
NOTIFICATION TO BEGIN THE INSTALLATION PROCESS WILL BE FORTHCOMING NOT LATER
THAN 9/30/97, UNLESS THE U.S. POSTAL SERVICE DENIES THE APPROVAL FOR THIS
PROJECT WITH E-STAMP OR CAUSES UNFORESEEN DELAYS.
/s/ [T.J.R.] 30-June-97 /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] 6/30/97
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
Exhibit 10.18
ADVERTISING AND PROMOTION AGREEMENT
THIS ADVERTISING AND PROMOTION AGREEMENT (the "Agreement") is made this 14
---------
day of May, 1999 (the "Effective Date") between YAHOO!, INC., a California
--------------
corporation, with offices at 3420 Central Expressway, Santa Clara, CA 95051,
("YAHOO") and E-Stamp Corporation, ("Advertiser"), a Delaware corporation, with
----------
offices at 2855 Campus Drive, San Mateo, California, 94403.
In consideration of the mutual promises contained herein, the parties agree
as follows:
SECTION 1: DEFINITIONS
- -------------------------
The following terms are used in this Agreement with the respective meanings set
forth below:
"Advertiser Brand Features" shall mean Advertiser's trademarks, service
-------------------------
marks, logos and other distinctive brand features of Advertiser.
"Advertiser Competitor" shall mean a company or a division of a company
---------------------
primarily in the business of selling U.S. electronic postage or U.S. electronic
postage software. The agreed upon list of such companies at the Effective Date
is as follows: Stamps.com, Pitney Bowes and Neopost. In the event Advertiser
Competitor is acquired by another company which is not an Advertiser Competitor,
the acquiring company, or the division of such company that assumes the business
of Advertiser Competitor, shall be considered Advertiser Competitor, provided
such company or division is primarily in the business of selling U.S. electronic
postage or U.S. electronic postage software. From time to time, but no more than
one time per calendar quarter, Advertiser may request additions to this list of
Advertiser Competitors of certain companies that receive PC postage
certification from the USPS. Such companies shall be included as Advertiser
Competitors upon Yahoo approval, which shall not be unreasonably withheld,
provided that Yahoo may honor any agreements with such newly designated
Advertiser Competitors entered into prior to such designation.
"Advertiser Links" shall mean the hyperlinks placed by Yahoo in connection
----------------
with this Agreement including but not limited to those links described on
Exhibit A. For the avoidance of doubt, Advertiser Links includes hyperlinks to
- ---------
Advertiser Site embedded in Yahoo Delivers email and the EZ Venture Program,
placed in connection with this Agreement.
"Advertiser Site" shall mean the web site owned and operated by, or on
---------------
behalf of, Advertiser dedicated to the sale of electronic postage services or
software and currently located at http://www.estamp.com.
--------------
"Affiliate" shall mean any entity controlled by, controlling, or under
---------
common control with a party hereto but only for so long as such control exists,
where "control" means ownership of more than fifty percent of the equity
-------
entitled to vote in the election of directors or if not a corporation, the
corresponding managing authority.
1
<PAGE>
"Click-through" shall mean the initiation of a user presence at the
-------------
Advertiser Site that originated from an Advertiser Link as recorded by Yahoo's
advertiser reporting system.
"EZ Venture Promotion" shall mean that Yahoo promotional program, the
--------------------
specifications of which are attached as Exhibit E hereof.
"Included Pages" shall mean those pages on the Yahoo Properties containing
--------------
Advertiser Links. Included Pages includes EZ Venture Promotion pages containing
Advertiser Links but excludes Yahoo Direct email messages delivered by Yahoo in
connection with this Agreement.
"Jump Page" shall mean the page of the Advertiser Site dedicated to the
---------
promotion of electronic postage services or software which is the first page a
user sees when clicking on an Advertiser Link (other than a Promotion Link) and
which includes an application for a user to sign up for such services or a
direct hyperlink to such application.
"Launch Date" shall mean the date on which the program described herein is
-----------
launched and by which Advertiser Site is Fully Operational (as defined in
Section 5.3 hereof), which date is originally scheduled as July 15, 1999.
"Promotion Link" shall mean a front page graphic link which: (a) contains
--------------
Advertiser brand features, (b) has dimensions no larger than 230 pixels wide by
33 pixels high, (c) may contain animation of up to 6 seconds with no looping,
(d) has a maximum file size of three (3) kilobytes, (e) conforms to Yahoo's
promotional specifications and guidelines, which may be amended by Yahoo from
time-to-time, and (f) links to a promotional Jump Page.
"Yahoo Brand Features" shall mean Yahoo's trademarks, service marks, logos
--------------------
and other distinctive brand features of Yahoo.
"Yahoo Post Office" shall mean a Yahoo Property, under the editorial
-----------------
control of Yahoo, dedicated to postal content and services.
"Yahoo Main Site" shall mean Yahoo's principal U.S. based directory to the
---------------
World Wide Web currently located at http://www.yahoo.com.
"Yahoo Properties" shall mean any Yahoo branded or co-branded media
----------------
properties, including, without limitation, global Internet guides that are
developed in whole or in part by Yahoo or its Affiliates. A description of
certain applicable Yahoo Properties can be found on Exhibit A.
---------
SECTION 2: THE PROGRAM
- -------------------------
2.1 Program Elements. Yahoo shall make available a program comprised of
the elements set forth in this Section 2.1 (the "Program")
(a) Advertiser Links. During the Term of the Agreement Yahoo shall
----------------
place the Advertiser Links as specified on Exhibit A.
Notwithstanding the foregoing, Yahoo reserves the right, at its
sole discretion, to remove keywords and category pages set forth
in Exhibit A, which it reasonably believes are trademarks,
tradenames, product names or brand names belonging to an entity
not party to this Agreement, and substitute such words with
similar
2
<PAGE>
inventory. The Yahoo Post Office shall be launched by Yahoo by
the Launch Date or July 15, 1999, whichever is later. Yahoo may
launch the Yahoo Post Office prior to such date provided the
exclusivity provisions of Section 6.3 shall still apply.
(b) Front Page Promotions. During the Term, Yahoo shall include
----------------------
Advertiser in one multi-sponsor promotion on the Front Page of
the Yahoo Main Site. Such front page promotion shall (i) be
subject to available inventory, it being understood and agreed
that the promotion will be scheduled as close to the Launch Date
as possible, (ii) continue for at least one week, and (iii) be
conducted in accordance with Yahoo's then current standard
policies and procedures for promotions (including but not limited
to those policies pertaining to user information) and applicable
law. Yahoo shall place a Promotion Link on the Front Page in
connection with such promotion.
(c) EZ Venture Promotion. Commencing after the Launch Date and
---------------------
continuing to the extent possible through Period 1 (as defined in
Section 2.3 below), Yahoo shall include Advertiser in an EZ
Venture Promotion.
(d) Yahoo Delivers. During Period 1 (as defined in Section 2.3
---------------
below), Yahoo will send a total of [***] emails to Yahoo users
that have opted to participate in the receipt of emails as part
of the registration process for Yahoo. Such emails will be
targeted and contain content as mutually agreed to by the
parties. The email will comply with the guidelines and
specifications provided in Exhibit A.
2.2 Advertiser Link Requirements. As requested by Yahoo from time to time,
----------------------------
Advertiser shall execute the standard Yahoo insertion order set forth in
Exhibit C in connection with all Advertiser Links for administrative
purposes only. The standard terms and conditions generally attached to such
insertion order shall not apply. Advertiser shall provide all materials for
the Advertiser Links in accordance with Yahoo's policies in effect from
time to time regarding (i) the manner of transmission to Yahoo, (ii) the
lead-time prior to publication, (iii) content/creative and (iv) promotions.
Such policies may be found at www.yahoo.com/docs/advertising and the
------------------------------
current version of the most relevant such policies are attached as Exhibit
F. Yahoo shall not be required to publish any Advertiser Link that is not
received in accordance with such policies. All contents of Advertiser Links
are subject to Yahoo's approval. Yahoo reserves the right to reject or
cancel any Advertiser Link, at any time, for any reason whatsoever
(including belief by Yahoo that placement of Advertiser Link may subject
Yahoo to criminal or civil liability). In the event of such cancellation,
and provided Advertiser is not otherwise in breach of this Agreement, Yahoo
shall work with Advertiser to promptly replace such Advertiser Link with an
acceptable Advertiser Link. All Advertiser Links provided by Advertiser
must be in compliance with and contain all disclosures required by all
applicable U.S. federal, state and local laws, rules and regulations,
including, without limitation, consumer protection laws and rules and
regulations governing product claims, truth in labeling, and false
advertising.
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
3
<PAGE>
2.3 Performance Guarantees. During the Term and subject to Section 5.3
----------------------
hereof: (a) Yahoo shall deliver a minimum of [***] page views of the
Included Pages, ("Total Page Views") and shall use reasonable efforts to
deliver such Total Page Views in accordance with the following schedule:
(5/14/99 - 12/31/99, "Period 1")(1/1/00-6/30/00) ("Period 2")
- -------------------------------------------------------------
[***]% ([***] page views) [***]% ([***] page views)
(7/1/00-12/31/00) ("Period 3")
- ------------------------------
[***]% ([***] page views)
(includes all EZ Venture clicks)
In the event Yahoo fails to deliver the percentage of the Total Page Views
required during Period 1 or 2, Yahoo will "make good" the shortfall during
the following period, and in the event the failure occurs with respect to
Period 3, Yahoo will "make good" the shortfall during the six month period
following the expiration of Period 3.
(b) Yahoo shall deliver page views of the various Advertiser Links in the
quantities provided in Exhibit A.
(c) Yahoo shall deliver [***] page views of the Promotion Link in
connection with the Promotion provided in accordance with Section 2.1(b)
(d) Yahoo shall deliver [***] clicks to an offer page in connection with
the EZ Venture Promotion provided in accordance with Section 2.1(c).
(e) Yahoo shall deliver [***] emails in accordance with Section 2.1(d)
during Period 1.
(f) In the event, by the end of the Term, Yahoo fails to deliver (i) the
Total Page Views under Section 2.3(a), (ii) the page views provided in
Sections 2.3(b) and 2.3(c), (iii) the clicks provided in Section 2.3(d), or
(iv) the Yahoo Delivers email messages provided in Section 2.3(e), Yahoo
will "make good" the shortfall by extending its obligations in similar
areas and placement as those described in Section 2.3, as mutually agreed
upon, beyond the end of the Term until such obligations are satisfied. This
section 2.3 sets forth the entire liability of Yahoo, and Advertiser's sole
remedy for Yahoo's breach of its obligations under Section 2.1 or Yahoo's
failure to deliver the number of page views described in this Sections 2.3.
2.4 Delivery Statistics. Delivery statistics provided by Yahoo are the
-------------------
official, definitive measurements of Yahoo's performance of its delivery
obligations hereunder (or under any related insertion order). No other such
statistics (including any provided by Advertiser or a third party ad
server) shall be accepted by Yahoo. Yahoo represents that the process and
technology used to generate such statistics have been certified and audited
by an independent agency.
SECTION 3: COMPENSATION
------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
4
<PAGE>
3.1 Slotting Fee and Holding Fee. Advertiser shall pay Yahoo a non-
----------------------------
refundable slotting fee of [***] ($[***]) and a non-refundable, non-
creditable holding fee of [***] ($[***]) as set forth below. Except for
the first two payments which shall be made on the dates set forth below,
such amounts shall be paid to Yahoo within thirty (30) days after receipt
of invoice submitted in accordance with Section 3.2 below but no earlier
than the dates set forth below.
<TABLE>
<CAPTION>
<S> <C>
Upon signing of the Agreement: $[***]
May 14, 1999 $[***]
July 1, 1999 $[***]
September 15, 1999 $[***]
December 15, 1999 $[***]
March 15, 2000 $[***]
June 15, 2000 $[***]
September 15, 2000 $[***]
</TABLE>
The first [***] ($[***]) to be paid are designated as a holding fee for
the Program ("Holding Fee"). The Holding Fee shall be earned by Yahoo as
follows:
<TABLE>
<CAPTION>
<S> <C>
May 14, 1999 -- May 31, 1999 $[***]
June 1, 1999 -- June 30, 1999 $[***]
July 1, 1999 - July 31, 1999 $[***]
August 1, 1999 -- August 31, 1999 $[***]
September 1, 1999 -- September 30, 1999 $[***]
</TABLE>
If the Launch Date occurs prior to September 30, 1999, the number of days
between the Launch Date and September 30, 1999 shall be calculated. The
portion of the Holding Fee corresponding to this number of days (according
to the schedule above) shall be applied as an additional slotting fee. The
remaining $[***] of the slotting fee shall be creditable only in
connection with Section 5.3(d).
3.2 Payment Information. Except for the first two payments, Yahoo shall
-------------------
submit invoices to Advertiser thirty (30) days prior to the date of payment
set forth above. All scheduled payments pursuant to Sections 3.1 above
shall be made by Advertiser via wire transfer into Yahoo's main account
pursuant to the wire transfer instructions set forth on Exhibit D. All
payments to Yahoo shall be exclusive of sales, use or value-added taxes
(other than taxes based on Yahoo's net income), which taxes shall be the
sole responsibility of Advertiser.
3.3 Late Payments. Any portion of the above payments which has not been
-------------
paid to Yahoo on the dates set forth above shall bear interest at the
lesser of (i) one and one-half percent (1.5%) per month or (ii) the maximum
amount allowed by law.
SECTION 4: INDEMNIFICATION
- --------------------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
5
<PAGE>
4.1 Advertiser Indemnification. Advertiser, at its own expense, will
--------------------------
indemnify, defend and hold harmless Yahoo and its employees,
representatives, agents and Affiliates, against any claim, suit, action, or
other proceeding brought against Yahoo based on or arising from a claim
that any Advertiser Brand Feature, content, material, product, information,
software data or service produced, distributed, offered or provided by
Advertiser, including, without limitation, the distribution of postage, or
any material presented on any site on the Internet produced, maintained, or
published by Advertiser, infringes in any manner any copyright, patent,
trademark, trade secret or any other intellectual property right of any
third party, is or contains any material or information that is obscene,
defamatory, libelous, slanderous, or that violates any law or regulation,
is negligently performed, or otherwise violates or breaches any duty
toward, or rights of any person or entity, including, without limitation,
rights of publicity, privacy or personality, or has otherwise resulted in
any consumer fraud, product liability, tort, breach of contract, injury,
damage or harm of any kind to any person or entity; provided, however, that
in any such case: (x) Yahoo provides Advertiser with prompt notice of any
such claim, (y)Yahoo permits Advertiser to assume and control the defense
of such action upon Advertiser's written acknowledgment of the obligation
to indemnify and (z) upon Advertiser's written request, and at no expense
to Yahoo, Yahoo will provide to Advertiser all available information and
assistance necessary for Advertiser to defend such claim. Advertiser will
not enter into any settlement or compromise of any such claim without
Yahoo's prior written consent, which shall not be unreasonably withheld.
Advertiser will pay any and all costs, damages, and expenses, including,
but not limited to, reasonable attorneys' fees and costs awarded against or
otherwise incurred by Yahoo in connection with or arising from any such
claim, suit, action or proceeding. The aforementioned indemnification shall
not apply to the extent such claims (i) are not somehow related to this
Agreement, (ii) have occurred as a result of Yahoo breaching its
obligations under this Agreement or (iii) have occurred as a result of
Yahoo modifying, without Advertiser authorization, Advertiser materials
provided by Advertiser pursuant to this Agreement.
4.2 Limitation of Liability.
-----------------------
EXCEPT AS PROVIDED IN THIS SECTION 4, UNDER NO CIRCUMSTANCES SHALL
ADVERTISER, YAHOO, OR ANY AFFILIATE BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING
FROM THIS AGREEMENT, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS.
SECTION 5: TERM AND TERMINATION
- -------------------------------
5.1 Term and Renewals. The Term of this Agreement shall commence on May 14,
-----------------
1999 and expire on December 31, 2000, unless earlier terminated as provided
in this Agreement.
6
<PAGE>
5.2 Termination for Cause. This Agreement may be terminated at any time by
----------------------
either party: (i) immediately upon written notice if the other party: (a)
is declared insolvent by an administrative party; (b) files a petition in
bankruptcy; or (c) makes an assignment for the benefit of its creditors; or
(ii) upon the expiration of thirty (30) days after written notice to the
other party of such other party's breach of any of its obligations under
this Agreement in any material respect (ten (10) days in the case of a
failure to pay), which breach is not remedied within such thirty (30) or
ten (10) day period as applicable. Failure to make payments as set forth
herein shall be deemed a material breach of this Agreement giving rise to
the notice and cure provisions set forth above and the right by Yahoo to
suspend performance hereunder until such breach is cured. Any termination
pursuant to Section 5.2 shall be without any liability or obligation of the
terminating party, other than with respect to any breach of this Agreement
prior to termination. For the avoidance of doubt, if this Agreement is
terminated by Advertiser for Yahoo's breach, Advertiser shall have no
obligation to make any payments payable after the date of termination.
However, Slotting Fee payments made prior to the date of termination
representing page views not delivered or foregone (as calculated on a daily
basis per the schedule provided in 2.3(a)) shall not be refunded, but shall
be creditable against Advertiser's future placements of advertising,
promotions, email deliveries, hyperlinks and any other related services
made available by Yahoo to third parties or Advertiser from time to time
based on availability and then current rates ). The first $[***] of any
such credits must be applied by June 30, 2000 and any remaining credits
must be applied prior to December 31, 2000.
5.3 Pro-ration Periods.
------------------
(a) First Pro-ration Period. This Agreement is being executed with
-----------------------
the understanding that by July 15, 1999, Advertiser shall have
secured the appropriate clearances and licenses in the United
States to legally sell electronic postage and electronic postage
software ("USPS PC Postage Certification"), and shall be
technically and operationally able to conduct commerce on
Advertiser Site on a nationwide scale (along with this
certification, "Fully Operational"). In the event Advertiser is
not Fully Operational by September 30, 1999, both parties shall
mutually agree to a new Launch Date which shall in no event be
later than December 31, 1999. The period between September 30,
1999 and such new Launch Date shall be called the "First Pro-
ration Period".
(b) Second Pro-ration Period. In the event Advertiser fails to become
------------------------
Fully Operational by January 1, 2000, one of the following shall
occur: a) if at least one third party has received USPS PC
Postage Certification, Yahoo may, at its sole discretion,
terminate this Agreement, or b) if no third party has received
USPS PC Postage Certification, the Launch Date shall be extended
to April 1, 2000 or an earlier date mutually agreed to by the
parties. The period between the final day of the First Pro-ration
Period and the new Launch Date shall be called the "Second Pro-
ration Period". If at any time during the Second Pro-ration
Period a third party receives USPS PC Postage Certification,
Yahoo may, at its sole discretion, terminate this Agreement.
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
7
<PAGE>
(c) Pro-ration. During the Pro-ration Periods, Yahoo's obligations
-----------
under Section 2.1 shall be suspended and its delivery guarantees
under Section 2.3 shall be prorated on a daily basis from
September 30, 1999. Subject to Section 5.2 above, Advertiser's
payment obligations under Section 3.1 shall not be pro-rated
during the Pro-ration Period and shall remain in full force and
effect. For the avoidance of doubt, Advertiser acknowledges and
agrees that it will forgo all pro-rated page views during the
Pro-ration Period.
(d) Termination. In the event this Agreement is terminated by Yahoo
pursuant to Section 5, Advertiser must fully pay all remaining
fees pursuant to Section 3 accruing to the end of the Term. Such
fees are nonrefundable and noncreditable except that in the event
such termination is pursuant to this Section 5.3, Slotting Fees
representing page views not delivered or foregone (as calculated
on a daily basis per the schedule provided in 2.3(a)) shall be
creditable against Advertiser's future placements of advertising,
promotions, email deliveries, hyperlinks and any other related
services made available by Yahoo to third parties or Advertiser
from time to time based on availability and then current rates.
The first $[***] of any such credits must be applied by June 30,
2000 and any remaining credits must be applied prior to December
31, 2000.
5.4 Exclusive Remedy. The provisions of Sections 5.3(a), (b), (c) and (d)
----------------
shall constitute Yahoo's exclusive remedy and Advertiser's sole liability
for failure to obtain USPS PC Postage Certification or become Fully
Operational.
5.5 Survival. The provisions of Section 3 shall survive termination and
--------
expiration of this Agreement except as limited in Section 5.2. The
provisions of Sections 2.3, 4, 5.3 (d), 7, 8, and 9 shall survive any
termination or expiration of this Agreement.
SECTION 6: RIGHT OF FIRST PRESENTATION: LIMITED EXCLUSIVITY
- -----------------------------------------------------------
6.1 Right of First Presentation for Renewal
---------------------------------------
In the event that Yahoo, at its sole discretion, decides to extend
the program described in Section 2 hereof beyond the Term, Yahoo will
deliver to Advertiser, at least 30 days prior to the end of the Term, a
written notice describing the terms and requirements for the extension of
such program. Yahoo and Advertiser will negotiate [***] to this Agreement
[***]. If Advertiser declines to commence negotiations regarding such
opportunity within [***] after receiving such written notice from Yahoo
or if the parties fail to reach agreement within [***] following the
commencement of [***] negotiations (or such later date as agreed by the
parties), Yahoo may [***]. During the [***] periods set forth above,
Yahoo [***].
6.2 First Right of Presentation for New Inventory
---------------------------------------------
In the event that Yahoo, in its sole discretion, decides to create,
acquire, develop or otherwise make available a new online postage related
promotional opportunity within
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
8
<PAGE>
its community properties (e.g., chat, message boards, clubs), Yahoo
Address Book, new Yahoo Properties (or new portions of existing Yahoo
Properties) that Yahoo may develop dedicated to software downloads, or
explicitly targeting the small business or small office/home office
markets (e.g. "Yahoo! Small Business Travel"), or new portions of the
Yahoo Post Office, Yahoo shall not make such new promotional opportunity
available to Advertiser Competitors before first presenting the
opportunity to Advertiser and, at [***] option, negotiate [***].
Advertiser acknowledges that the foregoing applies only to new
promotional opportunities providing merchant prominence similar to that
described herein and does not apply to routine promotions and
advertisements offered in the ordinary course of Yahoo's business. Yahoo
shall describe the opportunity and Yahoo's reasonable business
requirements for the opportunity in its written notice to Advertiser. If
Advertiser [***] regarding the opportunity described in the notice within
[***] after receiving such written notice from Yahoo, or if the parties
[***] following the commencement of [***] (or such later date as is
agreed to by the parties), Yahoo may [***] to any Advertiser Competitors.
Nothing in this Section shall limit Yahoo's right to sell inventory to
parties who are not Advertiser Competitors. During the [***] period set
forth above, Yahoo may not [***].
6.3 Limited Exclusivity
-------------------
During the Term:
(a) Yahoo shall not display banners, sponsorships, or other forms
of advertising of Advertiser Competitors on the Yahoo Post
Office, or [***], the content of which [***] of Advertiser
Competitors.
(b) Yahoo shall not display the following forms of advertising,
promoting electronic postage services or software from such
Advertiser Competitors within Yahoo Small Business property:
[***]. (with specifications substantially similar to
specifications of corresponding Advertiser Links described on
Exhibit A)
(c) Yahoo shall not display [***] of Advertiser Competitors on the
[***] specifically promoting electronic postage services or
software (with text link and button specifications
substantially similar to specifications of corresponding text
link described on Exhibit A).
(d) Yahoo shall not display a [***] of an Advertiser Competitor
specifically promoting electronic postage services or software
during the period Advertiser is included in a [***] in
accordance with [***].
(e) Yahoo will not display or co-brand content from Advertiser
Competitors in the Yahoo Post Office.
--
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
9
<PAGE>
6.4 Limitations. Except as explicitly provided in Section 6.3 above, Yahoo
-----------
shall not be precluded from placing advertising, sponsorships or any other
form of promotional media of any entity, including an Advertiser
Competitor, on any page in any Yahoo Property. Nothing in this Agreement
shall preclude Yahoo from honoring its current contracts with Advertiser
Competitors, the terms of which contracts would otherwise constitute a
breach of the obligations of Yahoo; provided that Yahoo will not renew such
contracts upon the expiration of the applicable term. Yahoo shall not be
precluded from including links to any person or entity in any directory or
merchant listing (including links to Advertiser Competitors) on any page in
the Yahoo Properties nor shall Yahoo be precluded from integrating any
editorial content or web site listings anywhere in the Yahoo Properties
included but not limited to the Yahoo Post Office. Except as expressly set
forth in this Agreement, Yahoo shall not be restricted from conducting its
normal course of business with Advertiser Competitors. Yahoo shall not be
precluded from promoting or advertising any Yahoo Property anywhere in the
Yahoo Properties.
SECTION 7: CONFIDENTIAL INFORMATION AND PUBLICITY.
- --------------------------------------------------
7.1 Confidentiality. The terms and conditions of this Agreement shall be
---------------
considered confidential and shall not be disclosed to any third parties
except to such party's accountants or attorneys, or except as otherwise
required by law. Neither party shall make any public announcement regarding
the existence of this Agreement without the other party's prior written
approval and consent.
7.2 Publicity. Any and all publicity relating to this Agreement and
---------
subsequent transactions between Yahoo and Advertiser and the method of its
release shall be approved in advance of the release by both Yahoo and
Advertiser. Yahoo and Advertiser agree to discuss comarketing efforts for
the launch of Advertiser nationwide service and the Yahoo! Post Office. The
parties agree to issue a mutually agreed upon press release announcing the
parties' relationship hereunder.
7.3 Privacy of User Information. Advertiser shall ensure that all
---------------------------
information provided by users of the Advertiser Site is maintained,
accessed and transmitted in a secure environment and in compliance with
security specifications to be mutually agreed upon by the parties. On the
Jump Page, Advertiser shall provide a link to its policy (or to Yahoo's
policy) regarding the protection of user data.
SECTION 8: ADDITIONAL TERMS
- ---------------------------
8.1 Exclusion of Yahoo Competitors from the Advertiser Site. In no event
-------------------------------------------------------
shall any Jump Page, nor any page of Advertiser's electronic postage
software provided by Advertiser to users who accessed Advertiser Site
through an Advertiser Link contain graphic or textual hyperlinks,
promotion, logos or advertising banners of any principal competitor of
Yahoo. The agreed upon competitors at the Effective Date are [***] [and
their successors and affiliated sites
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
10
<PAGE>
with respect to Jump Pages only]. From time to time, but no more than one
time per calendar quarter, Yahoo may request additions to this list of
Yahoo's competitors. Such companies shall be included as Yahoo's
Competitors upon Advertiser approval, which shall not be unreasonably
withheld, provided that Advertiser may honor any agreements with such newly
designated Yahoo Competitors entered into prior to such designation.
8.2 Link-back to Yahoo. Advertiser shall place a Yahoo graphic link on all
------------------
pages to which users Click-through (including Jump Pages). Such Yahoo
graphic link shall (a) be placed on such page in a manner mutually agreed
(b) contain the Yahoo name and logo as provided by Yahoo and (c) directly
link the user back to a page designated by Yahoo.
8.3 Speed and Performance of Advertiser Site. The Advertiser Site shall
----------------------------------------
comply with the speed, scale, and performance requirements mutually agreed
upon by the parties and in no event less than that provided by the average
of the top three Advertiser Competitors. Advertiser shall make reasonable
efforts to ensure that all information provided by users to Advertiser Site
is maintained, accessed and transmitted in a secure environment.
8.4 Quality of Service This Agreement may be terminated by Yahoo upon forty
------------------
five (45) days written notice to Advertiser if Advertiser Site is no longer
within the top [***] electronic postage merchants as determined, to the
extent possible over a reasonable amount of time, by independent third-
parties and in light of the number and quality of customers and product
offerings and Advertiser fails to cure within 45 days after receipt of such
notice. At all times following the Launch Date, Advertiser must be able to
effectively provide online postage services to all qualified (by Advertiser
and USPS standards) users that sign up.
8.5 User Data: All information and data provided to Yahoo by users of the
---------
Yahoo Properties or otherwise collected by Yahoo relating to user activity
on the Yahoo Properties shall be retained by and owned solely by Yahoo. All
information and data provided by Advertiser users on the Advertiser Site or
otherwise collected by Advertiser relating to user activity on the
Advertiser Site shall be retained by and owned solely by Advertiser. Each
party agrees to use such information only as authorized by the user and
shall not disclose, sell, license, or otherwise transfer any such
information to any third party (except as required by the U.S. Post Office
or other governmental authorities or by law) or use the user information
for the transmission of "junk mail", "spam", or any other unsolicited mass
distribution of information.
8.6 License by Advertiser. Advertiser hereby grants to Yahoo a limited,
---------------------
non-transferable, non-exclusive, worldwide, fully paid license to use,
reproduce and display the Advertiser Brand Features (i) to indicate the
location of the Advertiser Links as set forth herein and (ii) in connection
with the marketing and promotion of Advertiser in the Yahoo Properties as
set forth herein or agreed by the parties.
8.7 License by Yahoo. Yahoo hereby grants to Advertiser a limited, non-
----------------
transferable, non-exclusive, worldwide, fully paid license to use,
reproduce and display the Yahoo Brand Features solely for the purpose and
on the pages of the Advertiser Site as described in Section 8.2 above.
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
11
<PAGE>
8.8 Proprietary Rights. As between the parties, each party or its licensors
------------------
and third party information and content providers retains all rights, title
and interest in and to all of the information, content, data, designs,
materials and all copyrights, patent rights, trademark rights and other
proprietary rights thereto provided by it pursuant to this Agreement.
Except as expressly provided herein, no other right or license with respect
to any copyrights, patent rights, trademark rights or other proprietary
rights is granted under this Agreement. All rights not expressly granted
hereunder by a party are expressly reserved to such party and its licensor
and information and content providers.
8.9 Advertiser Content. Yahoo! may, in its sole discretion, include content
------------------
on Yahoo Post Office such as zip codes, post office hours of operation, and
mailing tips. Yahoo agrees that in determining which, if any, content to
include, Yahoo will review and consider content provided by Advertiser
("Advertiser Content"). In the event Yahoo chooses to display Advertiser
content, Yahoo and Advertiser shall discuss and execute a content license
relating to such content.
Integration. Yahoo and Advertiser agree to discuss in good faith the
-----------
integration of Yahoo! Address Book into the Advertiser online postage
software. Yahoo and Advertiser also agree to discuss in good faith
integration of the Advertiser online postage service (HTML version) into
the Yahoo! Post Office once such version is available. The terms and
conditions relating to either instance of such integration shall be subject
to a separate written agreement.
SECTION 9: NOTICE; MISCELLANEOUS PROVISIONS
- -------------------------------------------
9.1 Notices. All notices, requests and other communications called for by
-------
this Agreement shall be deemed to have been given immediately if made by
telecopy (confirmed by concurrent written notice sent first class U.S.
mail, postage prepaid), if to Yahoo at 3420 Central Expressway, Santa
Clara, CA 95051, Fax: (408) 731-3301 Attention: Vice President (e-mail:
[***]), with a copy to its General Counsel (e-mail:[***]), and if to
Advertiser at the physical and electronic mail addresses set forth on the
signature page of this Agreement, or to such other addresses as either
party shall specify to the other. Notice by any other means shall be
deemed made when actually received by the party to which notice is
provided.
9.2 Independent Contractors. It is the intention of Yahoo and Advertiser
-----------------------
that Yahoo and Advertiser are, and shall be deemed to be, independent
contractors with respect to the subject matter of this Agreement, and
nothing contained in this Agreement shall be deemed or construed in any
manner whatsoever as creating any partnership, joint venture, employment,
agency, fiduciary or other similar relationship between Yahoo and
Advertiser.
9.3 Entire Agreement. This Agreement, together with all Exhibits,
----------------
represents the entire agreement between Yahoo and Advertiser with respect
to the subject matter hereof and thereof and shall supersede all prior
agreements and communications of the parties, oral or written, including
without limitation the Letter of Agreement between Yahoo and Advertiser.
12
*** Confidential treatment has been requested for the bracketed portions. The
Confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
9.4 Amendment and Waiver. No amendment to, or waiver of, any provision of
--------------------
this Agreement shall be effective unless in writing and signed by both
parties. The waiver by any party of any breach or default shall not
constitute a waiver of any different or subsequent breach or default.
9.5 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of California without regard to the
conflicts of laws principles thereof.
9.6 Successors and Assigns. Neither party shall assign its rights or
----------------------
obligations under this Agreement without the prior written consent of the
other party, which shall not unreasonably be withheld or delayed.
Notwithstanding the foregoing, either party may assign this Agreement to an
entity who acquires substantially all of the stock or assets of a party to
this Agreement; provided that consent will be required in the event that
the non-assigning party reasonably determines that the assignee will not
have sufficient capital or assets to perform its obligations hereunder, or
that the assignee is a direct competitor of the non-assigning party. All
terms and provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective permitted
transferees, successors and assigns.
9.7 Force Majeure. Neither party shall be liable for failure to perform or
-------------
delay in performing any obligation (other than the payment of money) under
this Agreement if such failure or delay is due to fire, flood, earthquake,
strike, war (declared or undeclared), embargo, blockade, legal prohibition,
governmental action, riot, insurrection, damage, destruction or any other
similar cause beyond the control of such party.
9.8 Severability. If any provision of this Agreement is held to be invalid,
------------
illegal or unenforceable for any reason, such invalidity, illegality or
unenforceability shall not effect any other provisions of this Agreement,
and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
9.9 Sole Responsibility. Advertiser will remain solely responsible for the
-------------------
operation of the Advertiser Site, and Yahoo and/or its Affiliates will
remain solely responsible for the operation of the Yahoo Properties. Each
party: (a) acknowledges that the Advertiser Site and the Yahoo Properties
may be subject to temporary shutdowns due to causes beyond the operating
party's reasonable control; and (b) subject to the terms of this Agreement,
retains sole right and control over the programming, content and conduct of
transactions over its respective Internet-based service.
9.10 Counterparts. This Agreement may be executed in two counterparts, both
------------
of which taken together shall constitute a single instrument. Execution and
delivery of this Agreement may be evidenced by facsimile transmission.
9.11 Authority. Each of Yahoo and Advertiser represents and warrants that
---------
the negotiation and entry of this Agreement will not violate, conflict
with, interfere with, result in a breach of, or constitute a default under
any other agreement to which they are a party.
13
<PAGE>
9.12 Attorneys Fees. The prevailing party in any action to enforce this
--------------
Agreement shall be entitled to reimbursement of its expenses, including
reasonable attorneys' fees.
14
<PAGE>
9.13 Reincorporation. Following the execution of this Agreement, Yahoo
---------------
intends to reincorporate into Delaware by virtue of a merger of Yahoo into
a wholly-owned Delaware subsidiary of Yahoo, and such Delaware subsidiary
will assume the obligations and acquire all rights of Yahoo under this
Agreement. Accordingly, all references in this Agreement to "Yahoo" shall,
to the extent applicable, be deemed to include Yahoo's successor in
interest as a result of the reincorporation.
(Signature page follows)
- ------------------------
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
YAHOO! INC. E-STAMP CORPORATION
By: /s/ Signature Illegible By: /s/ Robert H. Ewald
___________________________ ____________________________
Title: SVP Title: PRESIDENT & CEO
Address: ______________________ Address: ______________________
Telecopy: _____________________ Telecopy: _____________________
E-mail: _______________________ E-mail: _______________________
<PAGE>
EXHIBIT A
---------
ADVERTISER LINKS
<TABLE>
<CAPTION>
Advertising Elements
<S> <C> <C> <C>
Type and Location of
U.S. Based Yahoo Property URL Link on Property Number of Page Views
[***] [***] Text Link - Front Page [***]
Merchant Button - Run
of Property
Merchant Spotlight Module-
Gov't, Human Resources Pages
Banners - Run of Property
[***] See Exhibit B Banners - Run of specific [***]
[***] category pages
[***] See Exhibit B Banners - Run of Business and [***]
Economy, Run of Computers and
Internet
[***] See Exhibit B Banners - Run of Property [***]
[***]
[***] [***] Banners - Run of Property [***]
[***] [***] Banners - Run of Property [***]
[***] Banners [***]
[***] TBD Module - front page [***]
Merchant Button--all pages
besides front page
[***] [***] Banners [***]
[***] [***] Banners [***]
[***] [***] Banners [***]
[***] [***] Banners [***]
[***] [***] Banners East Module -Run of [***]
Small Business Category
[***] [***] Banners [***]
</TABLE>
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[***] [***] Banners [***]
[***] [***] Banners [***]
Promotional Elements
[***] [***] One promotion [***]
[***] [***] HTML Page, Guaranteed Clicks [***]
[***] HTML Page, Email [***]
</TABLE>
2) Specifications:
--------------
A The text link on the front page of the [***] referenced above shall:
(a) be no longer than 25 characters, (b) permit users to navigate
directly to the Jump Page, and (c) shall first appear as close as
practicable to the Launch Date.
B The merchant button on the [***] referenced above shall: (a) contain a
logo with dimensions no larger than 88 pixels wide by 31 pixels high
(b) have a maximum file size of one and one half (1.5) KB, (c) not
contain animation and (d) permit users to navigate directly to a Jump
Page.
C The merchant spotlight module on the [***] page of the [***]
referenced above shall: (a) contain a logo with dimensions of either
120 pixels wide by 90 pixels high or 140 pixels wide by 30 pixels high
(b) have a maximum file size of 2 K, (c) not contain animation, (d)
(i) if 120 pixels wide by 90 pixels high have 1 text link with a
maximum of 25 characters per link to appear directly below the image
or (ii) if 140 pixels wide by 30 pixels high have 3 text links with
each text link having a maximum of 25 characters per link, and (e)
permit users to navigate directly to a Jump Page.
D All banner advertisements referenced above shall: (a) promote E-Stamp
products and services, (b) have dimensions no larger than 468 pixels
wide by 60 pixels high, (c) not have more than six seconds of
animation, no 'looping', (d) have a file size of no greater than 12K,
and (e) will permit users to navigate directly to a Jump Page.
E The module on the front page of the [***] referenced above shall a)
include links to relevant content and/or services, b) include links to
a Jump Page. E-Stamp shall work with Yahoo to facilitate the login and
navigation of the E-Stamp site and software for E-Stamp users.
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
F The merchant button on other pages of the [***] shall: (a) contain a
logo with dimensions no larger than 88 pixels wide by 31 pixels high
(b) have a maximum file size of one and one half (1.5) KB, (c) not
contain animation and (d) permit users to the Jump Page.
G The message board module on [***] referenced above shall: (a) contain
a logo with dimensions no larger than 120 pixels wide by 120 pixels
high (b) have a maximum file size of 12 K, (c) may contain animation,
(d) have 3 text links with a maximum of 20 characters per link, and
(e) permit users to navigate directly to a Jump Page.
H The text link on the [***] property referenced above shall: a) consist
of 3 lines of not more than 10 characters each, including spaces, (b)
no words in all capital letters, c) permit users to navigate directly
to the Jump Page, and c) are subject to Yahoo's approval.
Yahoo Delivers
I The guidelines and specifications for the [***] messages to be
delivered in accordance with 2.1(d) are as follows:
1. a) Advertiser may select up to three targeted qualifiers,
b) Advertiser may select from Yahoo registration demographics and geo-
demographic information, c) promotional offer must be valid for a
minimum of 30 days with expiration date, 30 days from e-mailing date,
(shorter dates only if approved by Yahoo), d) Yahoo will only track
mailings for 30 days, e) Advertiser must submit advertising creative
no less than 5 business days (10 days with 2 or more creative) prior
to mail date to guarantee timely delivery, f) E-mail all creative to
[email protected], g) Advertiser must provide Customer
-----------------------------
Support contact information so Yahoo can forward support calls, h)
[***] e-mails per day maximum
2. Email message specifications: (a) a single HTML message which is free of
errors and must pass a validation checker, (b) Width of message must not exceed
425 pixels, (c) total page weight must be 30K or less (HTML code plus 6 graphics
or less), (d) animation limited to 6 seconds, no looping, (e) no Java,
JavaScript, frames, ActiveX, or dynamic HTML, (f) no body background image or
color. May use colored tables to simulate a background color, (g) messages
address users as Yahoo! Delivers or as otherwise determined by mutual consent
(e.g. "An exclusive offer for Yahoo! Delivers), h) subject line must be 35
characters or less including YAHOO DELIVERS!, i) subject line cannot mislead
viewer, t) all specifications are subject to Yahoo's! approval.
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
EXHIBIT B
CATEGORIES, KEYWORDS AND CATEGORY PAGES
FIXED CATEGORY PAGES
[***]
YAHOO! CATEGORIES (RUN OF):
[***]
KEYWORDS
[***]
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
EXHIBIT C
INSERTION ORDER
YAHOO! MAIN SITE
ADVERTISING INSERTION ORDER
http://www.yahoo.com
--------------------
YAHOO!
ORDER # SALES CONTACT
REVISION PHONE
TYPE FAX
DATE EMAIL
ADVERTISER AGENCY
ADDRESS ADDRESS
CONTACT CONTACT
PHONE PHONE
FAX FAX
EMAIL EMAIL
**RENEWAL - USE SAME ART __
START DATE: END DATE:
CONTRACT LENGTH:
POSITION:
- --------
TOTAL PAGE VIEWS TOTAL NET COST
- ---------------- --------------
OTHER INSTRUCTIONS
- ------------------
TOTAL NET COST/MONTH___________________
TOTAL NET COST__________________ Terms: See Billing Instructions.
BILLING INSTRUCTIONS:
--------------------
Bill to Advertiser.
First month due in advance; net 30
after first month.
-----------------
MATERIALS: Banners: Banner requirements are posted at
http://www.yahoo.com/docs/advertising.
DELIVERY: All materials and any changes must be delivered at least 4 business
days in advance to the email address specified for your region at :
http://www.yahoo.com/docs/advertising/submit.html. A Yahoo! insertion order
- -------------------------------------------------
number and flight dates must be referenced in all correspondence. Yahoo! will
not issue any credit or makegood due to incorrectly submitted banners and/or
incomplete information.
<PAGE>
TERMS AND CONDITIONS: This insertion order is subject to the terms and
- --------------------
conditions ("Standard Terms") attached hereto as Exhibit A of this Insertion
Order, and such Standard Terms are made a part of this insertion order by
reference. The signatory of this Insertion Order represents that he has read and
agrees to such Standard Terms.
This insertion order is valid for three (3) business days from the date of this
order. This agreement is non-cancelable.
AUTHORIZED BY:________________________ PHONE:_____________
DATE:_______________
PRODUCTION CONTACT:_______________________ PHONE:_____________
DATE:_____________
PLEASE RETURN TO YAHOO! SALES OPERATIONS DEPT. FAX # (408) 731-3492
Yahoo! Inc.
3400 Central Expressway, Suite 201
Santa Clara, CA 95051
<PAGE>
EXHIBIT D
WIRE INSTRUCTIONS
Yahoo's Bank Information:
Institution Name: [***]
Institution Address: [***]
ABA: [***]
Beneficiary Name: [***]
Beneficiary Account Number: [***]
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
<PAGE>
EXHIBIT E
EZ VENTURE
EZVENTURE: MATERIALS SPECS AND DUE DATES
NOTE: This is a general overview of the promotion's ad specs. When your
insertion order is completed, you will receive a customized version with the
game icon (gif) attached.
Welcome to Yahoo!'s EZVenture! Please take a few minutes to review this
information, which details all the program basics.
WHAT IS IT? (http://play.ezventure.com/ezv/restart.htm)
-------------------------------------------
EZVenture is a Yahoo! owned and operated promotion targeted at small businesses.
In association with Fast Company, relevant business articles are intertwined
with offers from advertisers.
CLIENT DELIVERABLES
Note: All deliverables are due every Friday, 12:00 PM EST. New campaigns "go
live" every Wednesday.
UP TO 3 AD BANNERS AND REDIRECT URLS:
EZVenture contains a banner rotation at the top of each content page. Clients
may submit up to 3 each 468 X 60 banners and redirect URLs. Maximum file size
for each banner is 12K, animation permitted up to 6 seconds. No looping. No html
banners.
UP TO 3 OFFER PAGE URLS:
Yahoo! has final approval on all client creative submitted. If file size and
creative does not meet Yahoo! specifications, we reserve the right to reject
any/all deliverables.
Offer pages are hosted by the advertiser (your opportunity to dazzle users with
special offers, online discounts, or additional sweepstakes). These pages are
linked with EZVenture articles and will include a "Win It" sweepstakes button
which users click on to continue through EZVenture. Offer pages must not exceed
30K to optimize Yahoo!'s fast page loading standards.
Note: every offer page must include the attached button. If the button does not
appear on the offer page, Yahoo! will remove the page until the button is re-
positioned.
Your redirect URL for the button will be assigned to you when your completed
insertion order is received.
<PAGE>
EMAIL INSERTS (RESTRICTED TO CERTAIN PACKAGES)
Promotion focused e-mail messaging is sent once per week on Wednesday and
includes article content updates, scoring information, and 1-3 sponsor messages.
Multi Sponsor e-mail messages are 30 words long and placed in the center of the
message. Note that your e-mail messaging may be used to promote your poll
question and poll results.
[Note: Yahoo! does not report open or click-through statistics from emails.]
POLL QUESTIONS (RESTRICTED TO CERTAIN PACKAGES)
Poll questions are rotated each week and consist of one question and three
multiple choice answers. The results of your poll will be posted for players to
view for one week once the poll has completed its run.
Please deliver:
* 1 Question (20 words)
* 3 Answers (5 words per answer)
REPORTING:
Once per week, Yahoo! will send you a report that includes:
* # of clicks delivered per offer page (broken down by day)
* Impressions and click-throughs from your banner
* The number of email inserts sent (if applicable)
TERMS AND CONDITIONS
BACK BUTTON
The back button on sponsors' offer pages must be enabled. However, there is no
back button requirement for any pages deeper in sponsors' sites.
BANNER ADS
* Banners in EZVenture can link to the offer page or anywhere else on
the sponsor's site.
* Up to three banner ads can be rotated. Impressions and click-throughs
from the banners are included in the weekly report.
* Third party ad banner serving is not allowed.
* Clients may submit new offer page/banner creative each week with the
same deliverable timeline as stated above.
* There is no opt-in feature under the banner ads in EZVenture
OFFER PAGE TESTING
EZVenture is not capable of testing multiple offer pages simultaneously.
<PAGE>
TARGETING
Sponsors cannot target by age, gender, zip code, job function, or company size.
All click-throughs and email inserts are directed to the entire EZVenture
database.
BROWSER SPAWNING
The offer page is not permitted to spawn a new browser window when users click
back into the promotion.
INTERSTITIAL
Sponsor interstitial between offer pages and game pages are not permitted.
COMPETITIVE ADVERTISING
Offer pages may not feature banner ads from Yahoo's online portal competitors.
CONTACTS FOR QUESTIONS AND COMMENTS:
Questions about ad specifications go directly to:
Katherine Ho, Yahoo! Promotion Supervisor.
[***]
(408) 616-3775
*** Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT F
ADVERTISING POLICIES
Manner of transmission to Yahoo!: Estamp shall submit all artwork (banners, HTML
emails, modules, buttons etc.) via email to: [***] please "cc" [***] point
-----
Lead time prior to publication: New banner submission should be at least (4)
four business days prior to the agreed upon "live" date. A change of any
creative should be submitted at least (4) four business days prior to the
agreed upon change date. All other creative, including creative for front page
promotions and HTML pages for email require submission (7) seven business days
prior to the agreed upon "live" date.
Content/creative: content and creative must be reviewed and approved by Yahoo!
prior to being put on our site. Please refer to our advertising resource center
for specifications on the different types of creative allowed on Yahoo!
https://sales.yahoo.com/mediakit/Sales/ops/front page.html
- ----------------------------------------------------------
Promotions: please refer to
http://www.yahoo.com/docs/advertising/body.html#banner specs for details
- ------------------------------------------------------------
regarding building and having Yahoo! host your Front Page Promotion.
*** Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission
<PAGE>
Exhibit 10.19
August 2, 1999
Mr. Don Hutchinson
SVP & GM @ Work Division
Excite@Home
- -----------
450 Broadway Street
Redwood City, CA 94063
Re: Letter Agreement
Dear Mr. Hutchinson:
This letter confirms the preliminary terms and conditions of an agreement
between E-Stamp Corporation ("E-Stamp") and AtHome Corporation, acting through
its @Work division ("@Work"), effective as of the date first written above
("Effective Date") regarding a business relationship between the parties
("Letter Agreement"). Upon execution of this letter, the parties will pursue the
negotiation and execution of a written agreement setting forth the definitive
terms and conditions governing such a business arrangement (the "Definitive
Agreement").
The parties agree as follows:
1. This Letter Agreement shall be binding with respect to those matters
set forth herein; which will be addressed in greater detail and may be
supplemented in the Definitive Agreement, which the parties will negotiate in
good faith with the objective of entering into and signing the Definitive
Agreement on or before August 31, 1999.
2. The following constitutes the parties' present understanding regarding
E-Stamp's provision of Internet postage on @Work's business portal to be called
"Work.com" and the creation of a co-branded business-oriented post office and
services channel for Work.com, which the Definitive Agreement will address in
greater detail:
(a) E-Stamp will become the "preferred provider" of Internet postage
on Work.com.
<PAGE>
____________________
August 2, 1999
Page 2
(b) E-Stamp will build, host and operate a co-branded business post
office and services channel (the "Co-branded Site") for Work.com.
(c) The Co-branded Site with include Work.com and E-Stamp branding.
@Work's business portal brand (Work.com) will be the predominant brand
represented on the co-branded site, and @Work and E-Stamp will mutually agree on
those requirements. @Work will provide E-Stamp with the specifications and
E-Stamp will be responsible for integrating the co-brand elements into the
Co-branded Site. The "look and feel" of the Co-Branded Site will be consistent
with the "look and feel" of Work.com, and @Work will have final right of
approval over the branding and the overall "look and feel" of the Co-branded
Site. E-Stamp will provide all support necessary to create the Co-branded Site
in time for the [***] launch of Work.com subject to conditions and delays not
within E-Stamp's control. The URL of the co-branded post office site will be
specified by @Work (e.g. postage.work.com).
(d) At @Work's request, E-Stamp will at [***] expense perform the
development required to integrate with the Excite@Home Universal Registration
System (URS). Such integration will allow Excite@Home to capture user profile
information (e.g., name, e-mail address, basic demographics, etc.) which E-Stamp
captures from users coming to the Co-branded Site. Until such time that the URS
integration is complete and thereafter to the extent that data is collected
from users outside the URS, E-Stamp will (i) provide to Excite@Home all User
Data, as defined below, in connection with this Agreement within thirty (30)
days after the end of each calendar month in a format to be mutually agreed upon
by the parties, and (ii) work with @Work to ensure User Data capture such that
the data can be integrated into @Work's user databases. User Data collected in
the Co-branded Site will be jointly owned by E-Stamp and @Work. During the term
-----
of the agreement and for twelve (12) months thereafter, E-Stamp agrees that (i)
it will not use User Data to market products or services that are in any way
competitive to the products or services of Excite@Home or any of its affiliates;
-----------
(ii) it will always give Users an "opt out" choice to not receive marketing
materials from E-Stamp in the future; (iii) Excite@Home will have the right to
-----------
pre-approve in writing all communications targeted specifically at Excite@Home
-----------
or Work.com users; and (iv) it will not sell
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
____________________
August 2, 1999
Page 3
User Data to any third party. Both parties agree that none of the above terms
will obligate either party to violate any existing data privacy commitments or
obligations, and E-Stamp agrees to abide by @Work's privacy policies as amended
from time to time. "User Data" means all information submitted on the Co-branded
Site to E-Stamp or @Work, and all information submitted by @Work's (or its
affiliates') registered users, whether or not submitted on the Co-branded Site.
(e) E-Stamp will make available the core postal supplies products
that it offers on E-Stamp's direct web site for inclusion (at @Work's
discretion) in any Master Product database, which Excite@Home or any of its
controlled or foreign affiliates develops and maintains. E-Stamp will help to
develop the tools required to update this product information in a timely
fashion.
(f) E-Stamp will pay @Work [***] over the 30-month period beginning
from the date of this letter, with the initial nonrefundable [***] payment due
on September 1, 1999. E-Stamp will pay the balance in equal monthly
nonrefundable installments starting with the launch of Work.com. E-Stamp will
not be obligated to make any subsequent payments (beyond the initial [***]
payment) until the launch of Work.com.
(g) The [***] payment is consideration for the right to be the
preferred provider of Internet Postage (i.e., E-Stamp's core postal offering) on
Work.com and for an aggregate of [***] impressions over the term of the
agreement. The impressions will be allocated across Work.com as follows:
[***]
(h) The text link and tool box impressions represent the predominant
display of links to the Co-branded Site throughout Work.com. In addition, @Work
will not sell text link, tool box and sponsorship box impressions on Work.com to
other companies for whom Internet postage represents [***] source of revenue.
These considerations reflect E-Stamp's preferred provider status.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
_______________________
August 2, 1999
Page 4
(i) If, after [***], E-Stamp (after discussions with @Work) desires
exposure on Excite.com, up to [***] of the Work.com banner and/or sponsorship
box impressions noted above may be used for similarly priced banner and/or
sponsorship box impressions on Excite.com. These impressions will be spread over
the remainder of the term of the contract.
(j) Within [***] of Work.com's launch, @Work and E-Stamp will meet
to review results of the E-Stamp promotional efforts outlined in this Section 2.
If @Work fails to deliver [***] E-Stamp impressions on Work.com (in
approximately the following ratio: [***] during the first [***] following
Work.com's launch, @Work will have [***] additional months to make up any
"Shortfall" with impressions on Work.com that are of the same quantity and of
equal or greater value to E-Stamp as the undelivered impressions that comprise
the Shortfall. During this [***] month make-up period, @Work will deliver the
required impression commitment under the Agreement plus the Shortfall
impressions. If after the additional [***] month period (i.e., [***] months from
the Work.com launch date), @Work is unable to generate the necessary E-Stamp
impressions on Work.com, then E-Stamp will have the right to terminate the
Agreement upon written notice to @Work. Upon termination, E-Stamp will no longer
be obligated to make any additional payments as outlined in Section 2.(f).
"Shortfall" shall mean the difference between [***] impressions and the actual
number of impressions delivered by Excite@Home at the [***] of the Agreement.
(k) @Work will sell and serve the ad banners on the Co-branded Site
and will retain [***] of such ad revenues (after an allowance for the direct
sales costs which @Work incurs for serving the ads; but such costs will not
exceed [***] of gross ad revenues). @Work will pay to E-Stamp its portion of
such ad revenues within thirty (30) days following the end of any calendar
month. Such payments shall include a report in a reasonable amount of detail
setting forth the amount of gross ad revenues for such month and the amount and
nature of deductions from such revenues.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
_________________
August 2, 1999
Page 5
(l) Unless the parties otherwise agree in writing, and except for
termination as a result of a material breach by one party which is not cured
within a reasonable period of time as set forth in the Definitive Agreement,
this agreement will expire after an initial term of thirty (30) months from the
Effective Date. The Definitive Agreement will contain a right of first offer for
E-Stamp to renew the Definitive Agreement under similar economic terms.
(m) All support related to products or services sold on the
Co-branded Site will be the responsibility of E-Stamp. To the extent reasonably
practicable and commercially feasible, this support will be co-branded in a
manner consistent with the overall co-branding. In cases where E-Stamp is
working with a third party vendor to deliver the product or service, it will be
responsible for coordinating all the above support issues. Such support will be
of the same quality as that provided the customers accessing E-Stamp's retail
site (e.g., www.estamp.com). The Co-branded Site will be generally accessible
from the web twenty-four hours a day, seven days a week, other than for downtime
for reasonable periods for support and maintenance of the Co-branded Site or
downtime resulting from causes beyond E-Stamp's control.
(n) @Work will support publicly the @Work/E-Stamp relationship. This
public relations support will include mention of E-Stamp as @Work's preferred
provider of Internet postage for Work.com. E-Stamp and @Work will have joint
approval over all publicity related to the @Work/E-Stamp relationship.
(o) Throughout the term of the contract, E-Stamp will (i) continue
to make available to @Work the latest version of E-Stamp's product and service
portfolio for inclusion (at @Work's discretion) on Work.com; and (ii) maintain
the Co-branded Site at the level of performance and functionality (including
without limitation breadth and depth of product and service offerings)
maintained by E-Stamp on its web site available at www.estamp.com as of the
Effective Date; and (iii) continue to integrate the latest features and
functionality as used on competitive and comparable web sites, including
(without limitation) back-end security, transaction mechanisms, customer
service, user interface enhancements.
<PAGE>
________________
August 2, 1999
Page 6
(p) E-Stamp agrees that @Work will be considered a preferred
business portal and commercial ISP partner. As such, E-Stamp agrees to work with
@Work to promote @Work's business portal, hosting and Internet access services
in select E-Stamp marketing efforts.
(q) Both parties acknowledge that any individual use of the Internet
could be a customer of E-Stamp or @Work through activities unrelated to this
Letter Agreement. Except as provided in this Letter Agreement, both parties
further acknowledge that any User Data gathered independent of this Letter
Agreement, even for customers who independently use both parties' services,
shall not be covered by this Agreement. The parties will jointly own User Data
captured as a part of this relationship. Both parties agreed that this joint
ownership will not obligate either party to violate any existing data privacy
commitments or obligations. "@Work Data" means information collected by @Work
outside of the Co-branded Site and provided to E-Stamp by @Work. @Work shall
retain ownership of all @Work Data. "E-Stamp Data" means information collected
by E-Stamp outside of the Co-branded Site. E-Stamp shall retain ownership of all
E-Stamp data.
(r) The business relationship contemplated by this letter is not
exclusive for either party.
(s) The parties agree to keep the terms of this letter confidential.
3. The Definitive Agreement will at a minimum contain provisions in
paragraph 2 and may also contain additional provisions.
4. The parties expressly acknowledge and agree that any rights or
obligations set forth in this letter are expressly conditioned upon E-Stamp
receiving approvals from the United States Postal Service to offer its Internet
postage service on a nationwide basis. As between the parties, E-Stamp will be
solely responsible for acquiring all necessary consents and approvals related to
its offering an Internet postage service on a nationwide basis.
5. Each party will bear its own costs and expenses in connection with its
performance of this letter and negotiation and preparation of the Definitive
Agreement.
<PAGE>
________________
August 2, 1999
Page 7
6. The Definitive Agreement will include customary representation,
warranty and indemnity provisions from each party regarding the Co-branded Site
and the products and services offered by E-Stamp, including a warranty by E-
Stamp that the Co-branded Site will be fully Year 2000 compliant and a warranty
from @Work that the @Home service will be fully Year 2000 compliant.
7. The Definitive Agreement will include customary limitations of
liability provisions which will include a mutual waiver of consequential and
similar damages as well as a mutual overall cap on the liability of either
party. Excluded from such waiver and cap will be the indemnity obligations of
E-Stamp and @Work.
8. This letter shall not be assignable or transferable by either party
without the prior written consent of the other party, except that either party
may assign this letter by operation of law or to any entity acquiring
substantially all of the assignor's assets. A public offering of either party's
stock shall not constitute an assignment for purposes of this letter. This
letter shall be governed by the laws of the state of California, excluding that
body of law known as conflicts of laws.
9. This letter represents the parties' entire understanding with respect
to the arrangement between them, and supersedes all prior writings,
understandings and agreements, if any, between them relating to the proposed
business arrangement and other matters addressed herein. The parties hereby
acknowledge their intention to proceed to execution of the Definitive Agreement
as indicated in this letter. Upon execution, the Definitive Agreement shall
supersede the terms contained in this letter.
Please acknowledge @Work's acceptance of the foregoing by signing in the
space provided below and returning a signed copy to us as soon as possible. If
@Work does not accept any of the foregoing, please call me so that we can
discuss your concerns.
Thank you for your cooperation and attention to this matter. We look
forward to the successful negotiation of the Definitive Agreement.
Sincerely,
<PAGE>
________________
August 2, 1999
Page 8
E-Stamp Corporation
/s/ Robert H. Ewald
-----------------------------
Title: Pres. & CEO
----------------------
ACKNOWLEDGED AND AGREED:
AtHome Corporation
By: /s/ DH (by Eric von Miltenburg for Dan Hutchison)
-------------------------
Title: SVP & GM @Work
----------------------
Date: 8/2/99
----------------------
<PAGE>
Exhibit 10.20
PLATINUM PREMIERE PARTNER PACKAGE AGREEMENT
This Platinum Premiere Partner Package Agreement (the "Agreement"),
effective as of June 25, 1999 (the "Effective Date"), is made and entered into
by and between EarthLink Network, Inc. and its wholly owned subsidiary EarthLink
Operations, Inc. (collectively referred to herein as "EarthLink"), a Delaware
corporation, having an office at 3100 New York Drive, Pasadena, California
91107, and E-Stamp Corporation ("E-Stamp"), a Delaware corporation having an
office at 2855 Campus Drive, Suite 100, San Mateo, California 94403.
RECITALS
WHEREAS, EarthLink is an Internet service provider which owns, licenses,
operates or distributes online information, communication, and transaction
services through its Internet access service.
WHEREAS, E-Stamp is a provider of online postage purchasing services that
owns, operates and maintains the E-Stamp Site, through which E-Stamp provides,
among other things, the Services;
WHEREAS, EarthLink desires (i) that E-Stamp provide the Services through
the Co-Branded Site to EarthLink Members as the default online provider of the
Services on the EarthLink Personal Start Page, and (ii) to provide links from
the EarthLink Site to the Co-Branded Site so that EarthLink Members may access
such Services: and
WHEREAS, E-Stamp desires to provide the Services through the Co-Branded
Site to EarthLink Members as the default online provider of the Services on the
EarthLink Personal Start Page and through links from the EarthLink Site to the
Co-Branded Site.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
EarthLink and E-Stamp agree as follows:
TERMS
1. DEFINITIONS. The following definitions shall apply to the Agreement:
-----------
1.1 "Affiliate" means, with respect to either party, any person or entity
at any time Controlling, Controlled by or under common Control with that party.
1.2 "Banner Advertisement" means a rotating or permanent banner
advertisement located on the EarthLink Site no smaller than 468 pixels by 60
pixels (or such other dimensions as the parties may agree upon), which permits
users to navigate directly to a page on the Co-Branded Site selected by E-Stamp
(and subject to EarthLink's reasonable approval).
1.3 "Change in Control" shall have the meaning set forth in Section
6.2(d).
1.4 "Co-Brand" means that a party will cause its Web page to display the
other party's Marks in a manner that is substantially equal to its own Marks
appearing thereon.
1.5 "Co-Branded Site" means a version of the E-Stamp Site created,
provided and maintained by E-Stamp, which may include a Jump Page, which is Co-
Branded with the EarthLink/Sprint Marks. EarthLink acknowledges and agrees that,
due to United States Postal Service regulations, some areas of the
<PAGE>
Co-Branded Site may not contain the EarthLink/Sprint Marks. Additionally,
EarthLink acknowledges and agrees that the Co-Branded Site will include the
E-Stamp Home Page which will not be Co-Branded with the EarthLink/Sprint Marks,
but which will include the EarthLink/Sprint Marks in the partner area of the
Home Page, as well as Competitive Services brands.
1.6 "Company Information" means collectively the Confidential Information
and Trade Secrets. Company Information also includes information which has been
disclosed to the disclosing party by a third party that the disclosing party is
obligated to treat as confidential or secret. EarthLink's Company Information
includes, without limitation, the names, contact and financial information
(including, but not limited to credit card information and e-mail addresses) of
EarthLink Members.
1.7 "Competing Third Party" shall have the meaning set forth in Section
6.2(d).
1.8 "Control," "Controlling" and "Controlled" means possessing, directly
or indirectly, the power to direct or cause the direction of the management and
policies of an entity or other person, whether through ownership of voting
securities, by contract or otherwise.
1.9 "Confidential Information" means any and all information related to
the services and/or business of a party that does not constitute a Trade Secret
and that is treated as confidential or secret by the party (that is, it is the
subject of efforts by the disclosing party that are reasonable under the
circumstances to maintain its secrecy) including, but not limited to, the terms
and conditions of this Agreement. "Confidential Information" shall not include
information (a) already lawfully known to or independently developed by the
receiving party, (b) disclosed in published materials, (c) generally known to
the public, or (d) lawfully obtained from any third party without any obligation
of confidentiality.
1.10 "Customers" means any person or entity who clicks through via an
E-Stamp Icon to the Co-Branded Site from the EarthLink Site, including, without
limitation, from any third party area therein and who thereafter purchases
E-Stamp Internet Postage from the Co-Branded Site, and who subsequently applies
for a US Postal Service postage license. Customers specifically excludes any
person or entity who previously purchased E-Stamp Internet Postage from E-Stamp.
Customer also specifically excludes any person or entity who clicks through
directly to the E-Stamp Site.
1.11 "Customer Payment" shall have the meaning set forth in Section 2.1(e)
herein.
1.12 "Distribution Partner" means any entity which has entered into a
distribution agreement with EarthLink and is licensed to distribute or market
the Setup Software.
1.13 "EarthLink Competitive Services" means any Internet access services,
telephone services (whether long distance, wireless or local), Internet
telephony services, telecommunications services (including without limitation,
ISDN, frame relay, ADSL, etc.), Web hosting services, free e-mail services, or
start page services, except EarthLink and Sprint and those services and products
offered by EarthLink and Sprint. EarthLink's current list of Competitive
Services is located on Exhibit E. EarthLink may update the Competitive Services
list at its reasonable discretion and at any time during the Term, provided
EarthLink provides E-Stamp with the revised list.
1.14 "EarthLink Member" means any authorized user of the EarthLink/Sprint
Service.
1.15 "EarthLink Personal Start Page" refers generically to EarthLink's
Personal Start Page, and generally as same may be modified by EarthLink Members
from time to time and in their discretion.
-2-
<PAGE>
1.16 "EarthLink Premiere Partners" means a third party entering into or
which has entered into an extensive co-promotional partnership with EarthLink
which EarthLink designates its "Premiere Partnership Program" or such other name
as EarthLink may devise from time to time. EarthLink will identify its Premiere
Partners in writing to E-Stamp as needed to implement the terms of this
Agreement.
1.17 "EarthLink/Sprint Service" means the EarthLink Internet access
service.
1.18 "EarthLink Site" means, collectively, EarthLink's proprietary Web
site located at www.earthlink.net, the EarthLink Personal Start Page and any
other proprietary pages owned by EarthLink available through www.earthlink.net
(specifically excluding any pages owned or hosted by third parties, regardless
of whether or not they display the EarthLink/Sprint Marks).
1.19 "E-Stamp Competitive Services" means any Internet postage services or
products.
1.20 "E-Stamp Home Page" means the page of the E-Stamp site which is known
as E-Stamp's Home Page and which shall be included as the only page of the Co-
Branded Site that contains Competitive Services brands.
1.21 "E-Stamp Icon" means any graphical or textual icon which is capable
of hyperlinking to the Co-Branded Site, including, but not limited to, any
Banner Advertisements and Promotional Placements.
1.22 "E-Stamp Internet Postage" means E-Stamp's hardware and software
product allowing an end user to download and print postage on the Internet, as
the same may from time to time be periodically updated, modified, reconfigured,
or put on-line by E-Stamp.
1.23 "E-Stamp Site" means, collectively, all points of presence and/or
services maintained from time to time by or on behalf of E-Stamp or its
Affiliates on the Internet at (i) the URL www.E-Stamp.com, (and any replacement
or successor thereto) and (ii) such other URLs as E-Stamp may notify EarthLink
from time to time. EarthLink Members who enter the Co-Branded Site will not be
able to link to the E-Stamp Site through promotions located on the Co-Branded
Site.
1.24 "E-Stamp Software" means the object code version of the E-Stamp
software provided by E-Stamp to EarthLink pursuant to this Agreement, as the
same may be periodically revised by E-Stamp during the Term.
1.25 "Guaranteed Customers" shall have the meaning set forth in Section
2.2(b).
1.26 "Initial Term" shall have the meaning set forth in Section 6.1
herein.
1.27 "Jump Page" means a web page on the Co-Branded Site containing the
EarthLink/Sprint Marks that a user first sees before accessing the front page of
the Co-Branded Site.
1.28 "Launch Date" shall mean the earlier of (i) the date E-Stamp receives
approval from the US Postal Service to launch the E-Stamp Internet Postage
service nationally, or (ii) ninety (90) days after the Effective Date.
1.29 "Mall" means that portion of the EarthLink Site currently identified
on the EarthLink Home Page as "the Mall" (or any successor thereto), through
which EarthLink Members may purchase goods and services from third party
vendors.
-3-
<PAGE>
1.30 "Marks" means any trademark, trade name, service mark, logo, slogan
and copyright and proprietary notices associated with a party's products or
services.
1.31 "Promotion Fee" has the meaning assigned in Section 2.1(d).
1.32 "Promotional Placement" means a graphical or text link located on the
EarthLink Site through which users may directly link to a location on the Co-
Branded Site to be determined by E-Stamp (subject to EarthLink's reasonable
approval).
1.33 "Renewal Term(s)" shall have the meaning set forth in Section 6.1
herein.
1.34 "Services" shall be limited to (i) presenting through a World Wide
Web site online postage purchasing services to any Internet users which may
visit such site, (ii) providing for the ordering and purchase by such Internet
users of such online postage purchasing services, (iii) providing for the
processing of such ordering and purchasing, and (iv) providing customer support
to such Internet users regarding such online postage purchasing services and
their respective purchasing and ordering thereof.
1.35 "Setup Software" means EarthLink's "TotalAccess" CD-ROM which is
provided to new EarthLink subscribers to assist in the installation and setup of
software which permits such persons or entities to access the Internet
(including the EarthLink Site), and any successor to such CD-ROM, including
updates, upgrades or new versions thereof.
1.36 "Sprint" means, collectively, Sprint Corporation and Sprint
Communications Company L.P.
1.37 "Term" means the Initial Term and any Renewal Term(s) of this
Agreement as defined in Section 6.1 herein.
1.38 "Territory" means the United States and, as mutually agreed upon by
the parties, other areas.
1.39 "Trade Secrets" means all non-public information whether tangible or
intangible related to the services or business of the disclosing party that (a)
derives economic value, actual or potential, from not being generally known to
or readily ascertainable by other persons who can obtain economic value from its
disclosure or use, and (b) is the subject of efforts by the disclosing party
that are reasonable under the circumstances to maintain its secrecy, including,
without limitation, (i) marking any information reduced to tangible form clearly
and conspicuously with a legend identifying its confidential or trade secret
nature, (ii) identifying any oral communication as confidential or secret
immediately before, during, or after such oral communication; or (iii) otherwise
treating such information as confidential or secret. Assuming the criteria in
clauses (a) and (b) above are met, Trade Secrets includes information, without
regard to form, including, but not limited to, technical and non-technical data,
formulas, patterns, designs, compilations, computer programs and software,
devices, inventions, methods, techniques, drawings, processes, financial data,
financial plans, product plans, lists of actual or potential customers and
suppliers which are not commonly known by or available to the public, research,
development, and existing and future products.
1.40 "Year 2000 Compliant" has the meaning assigned in Section 3.2(d)
herein.
-4-
<PAGE>
2. OBLIGATIONS OF THE PARTIES.
--------------------------
2.1 Duties and Obligations of E-Stamp. In connection with this Agreement,
---------------------------------
E-Stamp shall have the following duties and obligations:
(a) License. During the Term, and subject to the provisions of
-------
Section 2.3 herein, E-Stamp grants to EarthLink and each of its Affiliates a
nonexclusive, royalty-free license throughout the Territory to use, reproduce,
display, distribute, and publicly and digitally perform E-Stamp's Marks (as
defined in Exhibit B) in connection with links to or from, or in conjunction
with, the EarthLink Site, or in or on any other media including, but not limited
to any promotional material or any of EarthLink's partners' Web sites, but in
each case only as reasonably necessary for EarthLink to perform as contemplated
by this Agreement.
(b) The Services. E-Stamp shall provide the Services in full
------------
compliance with the Service Specifications set forth in Exhibit D hereto through
---------
the Co-Branded Site, according to the terms of this Agreement and as the parties
may mutually agree, for offering by EarthLink as the default online provider of
the Services on the EarthLink Personal Start Page. E-Stamp shall launch the Co-
Branded Site within ten (10) days following the Launch Date. The Services
located on the EarthLink Personal Start Page shall only link to the Co-Branded
Site. Subject to Exhibit D, E-Stamp shall design, create, edit, manage, update
and maintain the Co-Branded Site for the purpose of providing EarthLink Members
with access to the Services on a twenty-four (24) hours per day, seven (7) days
per week basis. Subject to regulatory obligations, E-Stamp shall use
commercially reasonable efforts to ensure that the Services provided on the
EarthLink Personal Start Page and the Co-Branded Site will retain parity with
the Services provided by E-Stamp through the E-Stamp Site in terms of freshness
of content, services and features. During the Term, E-Stamp agrees to (i) use
commercially reasonable efforts to work with EarthLink to integrate the Services
into the EarthLink Site, subject to such restrictions and/or regulations as may
be required by the United States Postal Service or other regulatory agencies and
(ii) assist EarthLink in a commercially reasonable manner to foster usage and
enjoyment of the Services by EarthLink Members on an on-going basis.
(c) Billing, Processing and Collection. E-Stamp shall be solely
----------------------------------
responsible for all processing that arises out of any and all transactions that
are conducted through the Co-Branded Site including, without limitation, any and
all billing, collection, refunding, exchanging of goods and/or services,
crediting,/and maintenance of records corresponding to such transactions.
Further, E-Stamp hereby agrees and acknowledges that E-Stamp shall conduct all
such processing in a professional and workmanlike manner, on a timely and
efficient basis.
(d) Promotion Fee. During the Initial Term and provided that
-------------
EarthLink is not otherwise in material breach or default of this Agreement, E-
Stamp shall pay to EarthLink an annual fee of [***] (the "Promotion Fee")
payable only in cash as follows: (i) [***] on the Effective Date and on the
first day of any Renewal Term, such that, specifically on the Effective Date and
on the first day of any Renewal Term, E-Stamp shall pay to EarthLink [***] as
part of the Promotion Fee; (ii) [***] within thirty (30) days following the end
of three (3) months after the Launch Date and after the first day of any Renewal
Term; (iii) [***] within thirty (30) days following the end of six (6) months
after the Launch Date and after the first day of any Renewal Term; and (iv)
[***] within thirty (30) days following the end of nine (9) months after the
Launch Date and after the first day of any Renewal Term.
(e) Customer Payment. During the Term, E-Stamp shall pay EarthLink in
----------------
cash the one-time sum of [***] for each Customer generated under this Agreement
in excess of the
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
-5-
<PAGE>
Guaranteed Customers (the "Customer Payment"). The Customer Payment shall be
paid to EarthLink within thirty (30) days following the end of the applicable
calendar month that such Customers were provided, accompanied by a report from
E-Stamp supporting each Customer Payment and indicating the number of Customers
generated. Such reports shall be prepared by E-Stamp in a manner which makes
them exportable onto an Excel spreadsheet.
(f) Customer Support. E-Stamp shall provide customer and technical
----------------
support to EarthLink Members in the same manner as is provided to customers of
E-Stamp acquired through other channels. As of the Effective Date, E-Stamp's
support policy is as follows: unlimited free support via web or toll-free phone
number for installation or product defect-related problems; [***] per incident
for usability-related support issues. Support will be available Monday through
Friday, 6 am - 6 pm Pacific Time. Subject to market and/or customer demand, E-
Stamp reserves the right to modify or change its support policy. Such changes
will be posted at http://www.e-stamp.com/help center/help.html.
-------------------------------------------
(g) Advertising. E-Stamp may display advertising and other
-----------
sponsorships and promotional materials on the Co-Branded Site, and E-Stamp and
will be entitled to collect and retain in full payments resulting therefrom
without liability to EarthLink; provided, however that E-Stamp shall not display
advertising of any kind (cooperative or otherwise) for, or otherwise promote in
any way, any EarthLink Competitive Services on any page of the Co-Branded Site.
(h) E-Stamp Pages. During the Term E-Stamp will include the
-------------
EarthLink/Sprint Marks in the partner area of the Home Page in a manner at least
as prominent as any other E-Stamp partner's brands appearing thereon.
(i) Late Payments. All amounts owed by E-Stamp to EarthLink hereunder
-------------
not paid when due and payable will bear interest from the date such amounts are
due and payable at the rate of 1% per month (or the maximum rate allowed by law)
to cover EarthLink's costs of collection as well as interest.
(j) Premiere Partners. E-Stamp shall dedicate space near the top of
-----------------
every page of the Co-Branded Site which space shall be suitably sizable to
incorporate branding for EarthLink Premiere Partners. E-Stamp shall, upon
mutual agreement and provided that such EarthLink Premier Partner does not
provide online postage, incorporate such EarthLink Premiere Partners branding
into the space referenced above in any or all pages of the Co-Branded Site. E-
Stamp agrees and acknowledges that EarthLink may from time to time add or remove
such EarthLink Premiere Partners branding from the Co-Branded Site and that E-
Stamp will work together with EarthLink to incorporate any modifications to such
EarthLink Premiere Partners branding. This presence must include at least one
logo, GIF or HTML link, or branding, and an amount of text which shall be
mutually agreed. Unless otherwise agreed to by the parties, E-Stamp shall not
be obliged to accept or incorporate any branding other than branding it receives
directly from EarthLink. E-Stamp will provide EarthLink with design
specifications and file formats within thirty (30) days after the Effective Date
in order to allow EarthLink to generate new EarthLink Premiere Partners
branding. As between the parties, EarthLink shall bear all responsibility for
designing and producing specific branding, and E-Stamp shall not be required to
place any branding requiring modification or not complying with design
specifications or file formats. Notwithstanding any other provision in this
Agreement. E-Stamp will not be required to incorporate into the Co-Branded Site
or otherwise promulgate any branding or other material that would contravene
U.S. Postal Service regulations or other legal requirements, that contains any
material that violates any proprietary or other right of any third party or that
promotes any materials E-Stamp reasonably believes inappropriate for the Co-
Branded Site (including, without limitation, any promotion of tobacco products,
alcoholic beverages, weapons, gambling, or violent or sexually explicit
material).
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
-6-
<PAGE>
(k) User Information. Under this Agreement, E-Stamp will not send
----------------
unsolicited e-mails to any EarthLink Member. E-Stamp may send promotional email
messages to EarthLink Members who elect to receive such e-mails through a
registration process with E-Stamp through which E-Stamp offers to the EarthLink
Member an opportunity not to receive E-Stamp's promotional e-mail messages, and
each E-Stamp promotional e-mail message will offer to the recipient a means by
which the recipient may unsubscribe to such e-mailing list. Under no
circumstances will E-Stamp send or allow others to send e-mail messages to
EarthLink Members which promote EarthLink Competitive Services. E-Stamp will
maintain User Information in accordance with its privacy policy which offers
"opt out" rights, and which can be found at [http://www.e-stamp.com/index.html].
In no event shall E-Stamp offer to any third party a list which would permit
such third party to identify the E-Stamp registrant as an EarthLink Member.
Nothing in this paragraph prohibits E-Stamp from, or restricts E-Stamp
regarding, (i) sending promotional material to persons and entities where names
and contact information are not provided to or acquired by E-Stamp under this
Agreement and (ii) providing such information regarding such persons and
entities to third parties.
(l) Audit. During the Term of the Agreement, and during the one (1)
-----
year period immediately following the Term, EarthLink shall have the right, upon
ten (10) days notice, during normal business hours and without interfering with
E-Stamp's normal business activities, at EarthLink's own expense, through an
independent auditor chosen by EarthLink, to audit E-Stamp's records that relate
to Customers or payments owed to EarthLink hereunder provided that audits may
not occur more frequently than once every twelve (12) months. If an audit of
the appropriate records, books of account or logs reveals that E-Stamp has
understated the amounts owed to EarthLink under this Agreement for the period
under audit, then E-Stamp shall promptly pay any amounts owed to EarthLink. If
the amount of underpayment for the period under audit equals or exceeds five
percent (5%) of the total amount owed during such period, then E-Stamp shall
reimburse EarthLink for all reasonable costs and expenses incurred in connection
with conducting the audit. EarthLink will treat all information and materials
disclosed to, provided to, observed by or otherwise acquired by EarthLink in
connection with any such audit, as Confidential Information of E-Stamp for
purposes of this Agreement. EarthLink will not disclose the same to any third
party, or use the same for any purpose other than verification of E-Stamp's
reports delivered to EarthLink under this Agreement.
2.2 Duties and Obligations of EarthLink. In connection with this
-----------------------------------
Agreement, EarthLink shall have the following duties and obligations:
(a) License. During the Term, and subject to the provisions of
-------
Section 2.3, EarthLink grants to E-Stamp a nonexclusive, nonsublicenseable,
nontransferable, fully paid-up license to use, reproduce and display throughout
the Territory the EarthLink/Sprint Marks (as defined in Exhibit A), and any and
all intellectual property rights contained therein on the Co-Branded Site or in
or on promotional material, provided such use is reasonably necessary for E-
Stamp to perform as contemplated by this Agreement.
(b) Guaranteed Customers. During each of the Initial term and any
--------------------
Renewal Term(s), if any, of this Agreement, EarthLink will provide [***]
guaranteed Customers (the "Guaranteed Customers"). If upon the expiration of
any Initial Term or Renewal Term(s), as applicable, EarthLink fails to provide
the Guaranteed Customers during such Initial Term or Renewal Term(s), then such
Initial Term or Renewal Terms(s) shall be extended until E-Stamp has received,
in the aggregate, the Guaranteed Customers and such failure shall not constitute
a breach of this Agreement; provided, however, that the Initial Term or Renewal
Term(s) shall not be so extended if this Agreement is terminated by EarthLink
early in accordance with Sections 2.3, 3.2(c), 6.2, or Exhibit D of this
---------
Agreement. E-Stamp will owe no additional promotional fees of any kind
(including without limitation any fees pursuant to section 2.1(d)) for any
extension of the Initial Term or Renewal Term(s) for the purposes of making up a
shortfall in the number of Guaranteed Customers.
(c) Managing the Services. Throughout the Term, EarthLink will
---------------------
provide and maintain the Promotional Placements and Banner Advertisements and
perform the other obligations specified in Exhibit C hereto, in accordance with
---------
the provisions contained in that Exhibit C and the terms and conditions of this
---------
Agreement. E-Stamp acknowledges and agrees that EarthLink has other promotional
programs through which certain partners promote the EarthLink/Sprint Service and
provide new EarthLink Members to EarthLink. E-Stamp further acknowledges and
agrees that certain promotional partners require the ability to restrict the
advertising that appears on the Personal Start Pages of EarthLink Members
brought to EarthLink through such promotional partner. Therefore, E-Stamp
agrees that EarthLink retains the right to remove the
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
-7-
<PAGE>
Services, the Promotional Placements and/or the Banner Advertisements from the
EarthLink Personal Start Page, or move them to a customizable position (at
EarthLink's sole discretion), in the event that a promotional partner of
EarthLink requires that such a deletion or move be made, and then such deletion
or move will only be effective as regards the Personal Start Pages of EarthLink
Members brought to EarthLink through the requesting promotional partner. Such
removal shall not decrease the number of Guaranteed Customers that EarthLink is
obligated to provide pursuant to this Agreement.
(d) Audit by E-Stamp. During the Term of the Agreement, and during
----------------
the one (1) year period immediately following the Term, E-Stamp shall have the
right, upon 10 days' notice, during normal business hours and without
interfering with normal business activities, at E-Stamp's own expense, through
an independent auditor chosen by E-Stamp, to audit EarthLink's records that
relate to EarthLink's obligations hereunder, provided that audits may not occur
more frequently than once every twelve (12) months. If an audit of the
appropriate records, books of account or logs reveals that EarthLink has
overstated the promotional placements delivered to E-Stamp under this Agreement
for the period under audit, then EarthLink shall promptly remedy any such
shortfall. If the amount of overstatement of promotional placements for the
period under audit equals or exceeds five percent (5%) of the total amount owed
during such period, then EarthLink shall reimburse E-Stamp for all reasonable
costs and expenses incurred in connection with conducting the audit. E-Stamp
will treat all information and materials disclosed to, provided to, observed by
or otherwise acquired by E-Stamp in connection with any such audit, as
Confidential Information of EarthLink for purposes of this Agreement. E-Stamp
will not disclose the same to any third party, or use the same for any purpose
other than verification of EarthLink's reports delivered to E-Stamp under this
Agreement.
(e) Reports. Within fifteen (15) days after the last day of each
-------
calendar month, EarthLink will provide E-Stamp with a monthly report of user
traffic, Promotional Placements, Banner Advertising or other promotions provided
by EarthLink to E-Stamp hereunder.
2.3 Promotional Material/Press Releases. Each party requires that each use
-----------------------------------
of its Marks or the Marks of its licensors be in accordance with Exhibit A, in
---------
the case of EarthLink, and Exhibit B, in the case of E-Stamp. Prior to the
---------
initial launch of any Web pages or other Internet locations branded with the
other party's Marks including, but not limited to, the Co-Branded Site or the
release of any marketing, advertising, press releases, or other promotional
materials that reference the other party and/or the other party's Marks, the
releasing party shall submit a written request for approval to the other party
together with a copy of the materials to be released, which request shall be
made no less than ten (10) business days prior to the requested release date
(the other party shall not unreasonably withhold or delay the granting of its
approval thereof). Title to and ownership of the respective owner's Marks shall
remain with the owner. The licensee shall not take any action inconsistent with
the owner's ownership of the Marks and any benefits accruing from use of such
Marks shall automatically vest in the owner. If a licensee's use of the Marks
does not conform to the owner's quality standards in the owner's reasonable
opinion, then the owner will notify the licensee in writing to the licensee of
such nonconformance, and the licensee shall have thirty (30) days to cure such
nonconformance. If the nonconformance is not cured within such period, the owner
may immediately terminate this Agreement upon written notice to the licensee.
The parties will cooperate to Jointly issue a prompt public announcement
regarding this Agreement and the parties' relationship established hereby.
3. REPRESENTATIONS AND WARRANTIES.
------------------------------
3.1 EarthLink. EarthLink represents and warrants to E-Stamp that:
---------
(a) EarthLink has the power and authority to enter into and perform
its obligations under this Agreement.
-8-
<PAGE>
(b) EarthLink shall at all times comply with all local, state and
federal laws, rules and regulations applicable to the Co-Branded Site
(including, without limitation, any export control laws of the United States
with respect to the E-Stamp Software);
(c) EarthLink has the full and exclusive right to grant or otherwise
permit E-Stamp to access the EarthLink Personal Start Page and to use
EarthLink's Marks, and is aware of no claims by any third parties adverse to any
of such intellectual property rights except for Sprint's ownership of its Marks
contained in the co-branded EarthLink/Sprint Marks. If E-Stamp's use or
promotion, as provided herein, of any of EarthLink's Marks or products or
services including, without limitation, EarthLink's goods and services
associated therewith ("EarthLink Property") are alleged or held to infringe the
intellectual property rights of a third party, EarthLink shall, at its own
expense, and in its sole discretion, (i) procure for E-Stamp the right to
continue to use the allegedly infringing EarthLink Property or (ii) replace or
modify the EarthLink Property to make it non-infringing; or (iii) if neither
option is possible or economically feasible, request E-Stamp to cease use and
promotion of such EarthLink Property and to thereafter sever the alleged or
infringing EarthLink Property from any obligations with respect to either party
under the Agreement, provided that if the inability to use such intellectual
property would cause a material breach of this Agreement (as determined by E-
Stamp), E-Stamp may immediately terminate this Agreement upon notice to
EarthLink
(d) EarthLink warrants and represents that the proprietary components
of EarthLink/Sprint Service contemplated by this Agreement are year 2000
compatible and compliant (i.e., will correctly calculate, compare, sort,
extract, sequence, store and otherwise process, in accordance with the Services'
intended use and applicable specifications, date related information and
associated date calculations for dates before, during and after the year 2000,
and will display date information in ways that are unambiguous as to the
determination of the century). E-Stamp acknowledges and agrees that the
operation of the EarthLink/Sprint Service is dependent on the operation of third
party network infrastructure and other technology and that EarthLink makes no
representation or warranty with respect thereto. EarthLink's entire liability,
and E-Stamp's exclusive remedy, for breach of any representation or warranty in
this subparagraph 3.1(d) is limited to repair or replacement of the EarthLink
proprietary, network infrastructure, hardware, software, data, firmware or
systems used in the performance and delivery of the EarthLink/Sprint Service,
that is not Year 2000 Compliant.
3.2 E-Stamp. E-Stamp represents and warrants to EarthLink that:
-------
(a) E-Stamp has the power and authority to enter into and perform its
obligations under this Agreement:
(b) E-Stamp and the Services shall at all times comply with all
local, state and federal laws, rules and regulations applicable to the Co-
Branded Site, the Services and E-Stamp's performance under this Agreement.
(c) E-Stamp has the full and exclusive right to grant or otherwise
permit EarthLink to access the Co-Branded Site, to use the Services and to use
E-Stamp's Marks, and is aware of no claims by any third parties adverse to any
of such intellectual property rights other than as set forth in Exhibit F. If
EarthLink's use or promotion, as provided herein, of any of E-Stamp's Marks or
products or services including, without limitation, E-Stamp's goods and services
associated therewith ("E-Stamp Property") are alleged or held to infringe the
intellectual property rights of a third party, E-Stamp shall, at its own
expense, and in its sole discretion, (i) procure for EarthLink the right to
continue to use the allegedly infringing E-Stamp Property or (ii replace or
modify the E-Stamp Property to make it non-infringing; or (iii) if neither
option is possible or economically feasible, request EarthLink to cease use and
promotion of such E-Stamp Property and to thereafter sever the alleged or
infringing E-Stamp Property from any obligations with respect to either party
under the Agreement, provided that if the inability to use such intellectual
property would
-9-
<PAGE>
cause a material breach of this Agreement (as determined by EarthLink),
EarthLink my immediately terminate this Agreement upon notice to E-Stamp; and
(d) E-Stamp warrants and represents that the proprietary components
of the Services contemplated by this Agreement are Year 2000 Compliant.
EarthLink acknowledges and agrees that the operation of the Services is
dependent on the operation of third party network infrastructure, hardware,
software, data, firmware, systems and other technology and that E-Stamp makes no
representation or warranty with respect thereto. E-Stamp's entire liability, and
EarthLink's exclusive remedy, for breach of any representation or warranty in
this subparagraph 3.2(d) is limited to repair or replacement of the Services or
any and all E-Stamp network infrastructure, hardware, software, data, firmware
or systems used in the performance and delivery of the Services, that is not
Year 2000 Compliant. "Year 2000 Compliant" means able before, during and after
January 1, 2000, to accurately process, report, and handle date and time data
(including, without limitation, calculating, comparing, storing, sorting,
defining, managing and sequencing) from, into, and between the twentieth and
twenty-first centuries, and the years 1999 and 2000, including leap year
calculations.
4. CONFIDENTIALITY. Each party acknowledges that Company Information may be
---------------
disclosed to the other party during the course of this Agreement Each party
agrees that it shall take reasonable steps, which shall include, at a minimum,
the steps it takes to protect its own Company Information, to prevent the
duplication or disclosure of Company Information, other than by or to its
employees or agents who must have access to the Company Information to perform
such party's obligations hereunder, who shall each agree to comply with the
terms of this Section 4. Each party agrees that if it is required by law to
disclose the other party's Company Information, such disclosing party must first
give written notice of such required disclosure to the other party and make a
reasonable effort to obtain a protective order requiring that the Company
Information so disclosed be used only for the purposes for which disclosure is
required. Each party shall protect the other party's Company Information during
the Term and for three (3) years after the termination or expiration of this
Agreement.
5. LIMITATION OF LIABILITY: DISCLAIMER: INDEMNIFICATION.
5.1 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
-----------------------
THE OTHER PARTY FOR ANY LOSS OF PROFITS, LOSS OF BUSINESS, LOSS OF USE OR DATA,
INTERRUPTION OF BUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY,
MULTIPLE PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND, WHETHER BASED ON
CONTRACT, TORT (INCLUDING WITHOUT LIMITATION, NEGLIGENCE), WARRANTY, GUARANTEE
OR Amy OTHER LEGAL OR EQUITABLE GROUNDS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. NEITHER PARTY SHALL MAKE REPRESENTATIONS OR
WARRANTIES TO ANY END USER OR THIRD PARTY ON BEHALF OF THE OTHER PARTY AND IN NO
EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY REPRESENTATION OR
WARRANTY MADE TO ANY END USER OR THIRD PARTY BY THE OTHER PARTY. THESE
LIMITATIONS SHALL SURVIVE AND APPLY NOTWITHSTANDING THE VALIDITY OF THE LIMITED
REMEDIES PROVIDED FOR IN THE AGREEMENT. THE LIMITATIONS SET FORTH IN THIS
SECTION 5.1 SHALL NOT APPLY TO THE PARTIES' INDEMNIFICATION OBLIGATIONS SET
FORTH IN SECTION 5.3 BELOW OR TO THE PARTIES, INJUNCTIVE RELIEF REMEDIES SET
FORTH IN SECTION 5.4 BELOW.
5.2 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT, NEITHER
----------
PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE EARTHLINK/SPRINT SERVICE THE
EARTHLINK/SPRINT SITE OR THE E-STAMP SOFTWARE,
-10-
<PAGE>
THE E-STAMP INTERNET POSTAGE, THE CO-BRANDED SITE OR THE SERVICES OR OTHERWISE
RELATING TO THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE.
5.3 Indemnity. Each party agrees to indemnify, and hold harmless the
---------
other party and its officers, directors, employees, agents, successors and
assigns from and against any and all losses, liabilities, damages, penalties and
claims and all related costs and expenses (including reasonable attorneys'
fees) related to claims made by third parties against the indemnified party
alleging that the indemnifying party's Marks or other intellectual property
infringe the patents, copyrights, trademarks or service marks or other
intellectual property rights of such third parties. E-Stamp agrees to further
indemnify and hold harmless EarthLink from and against all third party claims,
causes of action, liabilities and all other reasonable costs and expenses
relating to any transactions or the quality of products or services, appearing
on or provided through the Services or the Co-Branded Site. EarthLink agrees to
further indemnify and hold harmless E-Stamp from and against all third party
claims, causes of action, liabilities and all reasonable attorneys' fees and
expenses relating to any branding from any EarthLink Premiere Partner provided
to E-Stamp pursuant to this Agreement. Each party agrees to promptly notify the
indemnifying party in writing of any indemnifiable claim. The indemnified party
shall cooperate in all reasonable respects with the indemnifying party and its
attorneys in the investigation, trial, defense and settlement of such claim and
any appeal arising therefrom. The indemnified party may participate in such
investigation, trial, defense and settlement of such claim and any appeal
arising therefrom, through its attorneys or otherwise, at its own cost and
expense. No settlement of a claim that involves a remedy other than the payment
of money by the indemnifying party shall be entered into without the consent of
the indemnified party, which consent will not be unreasonably withheld.
5.4 Injunctive Relief, The parties hereby agree and acknowledge that
-----------------
violation by one party of the provisions of Sections 2.(j) or 4 may cause
irreparable harm to the other party not adequately compensable by monetary
damages. In addition to other relief, it is agreed that temporary and permanent
injunctive relief shall be available to the parties to prevent any actual or
threatened violation of such provisions as provided by law.
6. TERM, RENEWAL AND TERMINATION.
-----------------------------
6.1 Term. The initial term of this Agreement shall be the time between the
----
Effective Date and the Launch Date plus one (1) year from the Launch Date (the
"Initial Term"). After the Initial Term, this Agreement shall automatically
terminate unless both parties, before the expiration of the Initial Term,
execute written consent to renewing the term for an additional one (1) year
("Renewal Term").
6.2 Termination. This Agreement may be terminated by the parties as
-----------
follows:
(a) Either party may terminate this Agreement at any time in the
event of a material breach by the other party of this Agreement that remains
uncured thirty (30) days after the breaching party's receipt of written notice
of the breach;
(b) Either party may terminate this Agreement immediately if the
other party is unable to pay its debts as due, or enters into or files (or has
filed or commenced against it) a petition, arrangement, action or other
proceeding seeking relief or protection under the bankruptcy laws of the United
States or similar laws of the United States or any state of the United States;
and
(c) Either party may terminate this Agreement, at its option, upon
sixty (60) days written notice in the event that either party discontinues its
web site. In the event of termination pursuant to this
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<PAGE>
section, the parties will have no further obligation to each other following the
effective date of the termination, and all fees payable in advance, if any,
shall be prorated as of the effective date of the termination, with appropriate
refunds made.
(d) Change in Control. Either party may, at its option, terminate
-----------------
this Agreement upon thirty (30) days' written notice to the other party in the
following situations (each, a "Change in Control"):
(1) a controlling interest in a party is acquired directly or
indirectly by a Competing Third Party that is not an Affiliate of such party
prior to the Effective Date;
(2) a party merges into, consolidates with, or otherwise is
acquired, directly or indirectly, by any Competing Third Party that is not its
Affiliate prior to the Effective Date; or
(3) a party is sold or substantially all of its assets are sold
directly or indirectly to a Competing Third Party.
A party subject to a Change in Control will promptly, but in no event
later than sixty (60) days prior to the effective date of the Change in Control,
provide the other party in writing the details of such Change in Control.
Failure of the receiving party to terminate this Agreement within thirty (30)
days of receiving such notice shall constitute a waiver of that party's option
to terminate. EarthLink and E-Stamp agree that, for the purposes of this
Agreement, to the extent that none of the situations described in Section
6.2(d)(1) through 6.2(d)(3) arise, a public offering of a party's common stock
(e.g., an Initial Public Offering) does not constitute a Change in Control.
As used in this section, a "Competing Third Party" is an unaffiliated
party that the party not having a Change in Control considers, in it reasonable
judgment, to be a competitor.
(e) EarthLink may terminate this Agreement, without refund of any
kind to E-Stamp, immediately upon written notice to E-Stamp, in the event that
E-Stamp is unable to complete the launch the Services within ninety (90) days
following the Effective Date; provided such failure to launch is not caused by
EarthLink.
6.3 Effects of Termination. Within three (3) business days after
----------------------
termination of this Agreement for any reason, each party shall: (i) purge all
Marks as used in connection with this Agreement from any and all computer
systems, files, or storage media within their possession or control; (ii) return
to the other party any and all documents or other media embodying any use of the
other party's Marks; (iii) certify to the other party in writing that it has
complied with the foregoing obligations. Upon any termination or other
expiration of this Agreement, each of the respective licenses granted in
Sections 2.1(a) and 2.2(a) and all other rights of the parties under this
Agreement shall terminate, except that, notwithstanding any of the foregoing,
the rights of the parties to seek any and all remedies in accordance with the
provisions of this Agreement, and the rights and obligations under Sections
2.1(h), 2.(j), 2.1(k), 4, 5, 6.3, 6.4 and 7 herein shall continue in full force
and effect. If E-Stamp terminates this Agreement for material breach by
EarthLink in accordance with 6.2(a) herein, all fees payable in advance, if any,
shall be prorated based on Guaranteed Customers as of the Effective Date of
termination, and appropriate refunds shall be made.
6.4 No Damages or Indemnification for Termination. Neither party shall be
---------------------------------------------
liable to the other party for any costs or damages of any kind, including
incidental or consequential damages, or for indemnification, solely on account
of the lawful termination of this Agreement, even if informed of the possibility
of such damages.
-12-
<PAGE>
7. GENERAL PROVISIONS.
------------------
7.1 Intellectual Property Ownership.
-------------------------------
(a) EarthLink. As between the parties and except with respect to any
---------
materials provided to EarthLink by E-Stamp, EarthLink retains all right, title
and interest in and to the EarthLink Site (including, without limitation, any
and all content, data, URLs, domain names, technology, software, code, user
interfaces, "look and feel," Marks, and other items posted thereon or used in
connection or associated therewith, but excluding any items supplied by E-Stamp)
and EarthLink's Marks, along with all intellectual property rights associated
with any of the foregoing. All goodwill arising out of E-Stamp's use of any of
EarthLink's Marks will inure solely to the benefit of EarthLink.
(b) E-Stamp. As between the parties and except with respect to any
-------
materials provided to E-Stamp by EarthLink. E-Stamp retains all right, title
and interest in and to the E-Stamp Software, the E-Stamp Internet Postage, the
E-Stamp Site, the Jump Page and the Co-Branded Site (including, without
limitation, any and all content, data, URLs, domain names, technology, software,
code, user interfaces, "look and feel," Marks, and other items posted thereon or
used in connection or associated therewith, but excluding any items supplied by
EarthLink) and E-Stamp's Marks, along with all intellectual property rights
associated with any of the foregoing. All goodwill arising out of EarthLink's
use of any of E-Stamp's Marks will inure solely to the benefit of E-Stamp.
(c) Other Marks. E-Stamp will not register or attempt to register any
-----------
of EarthLink's Marks or any Marks that EarthLink reasonably deems to be
confusingly similar to any of EarthLink's Marks. EarthLink will not register or
attempt to register any of E-Stamp's Marks or any Marks that E-Stamp reasonably
deems to be confusingly similar to any of E-Stamp's Marks.
(d) Further Assurances. Each party will take, at the other party's
------------------
expense, such action (including, without limitation, execution of affidavits or
other documents) as the other party may reasonably request to effect- perfect or
confirm such other party's ownership interests and other rights as set forth
above in this Section 7.1.
7.2 Independent Contractors. The parties to this Agreement are independent
-----------------------
parties and nothing herein shall be construed as creating an employment
relationship between the parties. Neither party is an agent, representative, or
partner of the other party and neither party shall have any right, power or
authority to enter into any agreement for or on behalf of, or incur any
obligation or liability, or to otherwise bind, the other party. The Agreement
shall 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.
7.3 Entire Agreement. The Agreement, including any exhibits attached
----------------
hereto, constitutes the entire understanding and agreement with respect to its
subject matter, and supersedes any and all prior or contemporaneous
representations, understandings and agreements whether oral or written between
the parties relating to the subject matter of this Agreement, all of which are
merged in this Agreement.
7.4 Severabilitv of Provisions. In the event that any provision of this
--------------------------
Agreement is found to be invalid or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.
7.5 Assignment. The Agreement and the rights and obligations hereunder may
----------
not, whether voluntarily or involuntarily, directly or indirectly, whether by a
Change of Control or otherwise, be assigned, sublicensed, sold or otherwise
transferred by E-Stamp, including, without limitation, to any successor-in-
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<PAGE>
interest to any of E-Stamp's assets, without the prior written consent of
EarthLink, which consent shall be given or not in EarthLink's sole discretion,
unless any successor entity or assignee (other than an entity which provides or
purports to provide any EarthLink Competitive Services) assumes and agrees in
writing to continue to perform all of the executory obligations of E-Stamp and
E-Stamp guarantees such continued performance of the Agreement in which case the
-----------
consent shall not be unreasonably withheld or delayed. EarthLink and E-Stamp
agree that, for the purposes of this Agreement, to the extent that none of the
situations described in Section 6.2(d)(1) through 6-2(d)(3) arise, a public
offering of a party's common stock (e.g., an Initial Public Offering) does not
constitute an assignment of this Agreement for purposes of this Section 7.5. The
Agreement and the rights and obligations hereunder may not, whether voluntarily
or involuntarily, directly or indirectly, whether by a Change of Control or
otherwise, be assigned, sublicensed, sold or otherwise transferred, including,
without limitation, to any successor-in-interest to any of EarthLink's assets,
by EarthLink to any entity which provides or purports to provide any E-Stamp
Competitive Services without the prior written consent of E-Stamp, which consent
shall be given or not in E-Stamp's sole discretion. In the event of any
purported assignment or other transfer of this Agreement by EarthLink, as a
condition to such assignment or transfer any such successor entity or assignee
will assume and agree in writing to continue to perform all of the executory
obligations of EarthLink hereunder and EarthLink will guarantee such continued
performance of the Agreement. Any assignment in violation of the terms hereof
shall be void and of no force or effect.
7.6 Governing Law; Jurisdiction; Attorneys' Fees. The Agreement shall be
--------------------------------------------
governed by the laws of California without giving effect to applicable conflict
of laws provisions. All actions with respect of this Agreement shall be brought
in the federal and state courts having jurisdiction within Pasadena, California
and the parties expressly consent to the personal jurisdiction of such courts.
In the event any litigation or other proceeding is brought by either party in
connection with this Agreement, the prevailing party in such litigation or other
proceeding shall be entitled to recover from the other party all costs,
attorneys' fees and other expenses incurred by such prevailing party in such
litigation.
7.7 Notices. Except as specifically provided in this Agreement, all
-------
notices required hereunder shall be in writing and shall be given by personal
delivery, overnight courier service, or first class mail postage prepaid, to the
parties at their respective addresses set forth below in this Section 7.7, or at
such other address(es) as shall be specified in writing by such party to the
other party in accordance with the terms and conditions of this Section 7.7. All
notices shall be deemed effective upon personal delivery, or three (3) business
days following deposit with any overnight courier service or with the U.S.
Postal System, first class postage attached, in accordance with this Section
7.7. Notices shall be sent as follows:
If to E-Stamp: E-Stamp, Corp.
2855 Campus Drive, Suite 100
San Mateo, CA 94403
Tel: (650) 554-8454
Attn: ________________________
with a copy to: ______________________________
______________________________
______________________________
______________________________
If to EarthLink: EarthLink Network, Inc.
3100 New York Drive
Pasadena, CA 91107
Attn: Director of Legal Affairs
-14-
<PAGE>
with copies to: Howard Lefkowitz, V.P. Business Development
Leland Thoburn, V.P. Business Affairs
EarthLink Network, Inc.
3100 New York Drive
Pasadena CA 91107
7.8 Non-Solicitation. During the Term of this Agreement and for a period
----------------
of twelve (12) months following the termination or expiration of this Agreement,
neither party may directly or indirectly, solicit, divert or hire away, or
attempt to solicit, divert or hire away any person employed by the other party
with whom such party had regular contact with during the course of its
performance under this Agreement, unless such person's employment has been
terminated for at least six (6) months or unless the other party gives its prior
consent to such hiring, such consent not to be unreasonably withheld.
Notwithstanding the foregoing, nothing herein shall prevent either party from
considering for employment or hiring any individual, whether or not an employee
of the other party, who has responded to a general solicitation for employment
from either party in a newspaper announcement or other public solicitation.
7.9 Waiver. No waiver of any provision of this Agreement, or any rights
------
or obligations of either party under this Agreement, -shall be effective, except
pursuant to a written instrument signed by the party or parties waiving
compliance, and any such waiver shall be effective only in the specific instance
and for the specific purpose stated in such writing.
7.10 Headings. The section and paragraph headings used in this Agreement
--------
are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
7.11 Amendment. The terms and conditions of this Agreement may not be
---------
modified or amended other than by a writing signed by both parties.
7.12 Non-exclusive Engagement. Each party hereby acknowledges and agrees
------------------------
that, during the Term, each party has the right within its sole discretion, to
retain third parties which provide services and functions similar to the
services and functions being provided by the other party under this Agreement.
The parties further acknowledge and agree that EarthLink may provide, in its
sole discretion, promotions through third parties that are the same as or
similar to the EarthLink promotions provided herein.
7.13 Sprint Intellectual Property Right. EarthLink markets its Internet
----------------------------------
access services under the EarthLink/Sprint brand. Therefore, both EarthLink and
Sprint Marks are likely to appear on any Web page that includes an
EarthLink/Sprint brand. To the extent that such Sprint brands or Marks are
used. E-Stamp acknowledges and agrees that Sprint is a third party beneficiary
hereunder and has the right to enforce any provision of this Agreement that
relates to any intellectual property or Marks of EarthLink or Sprint. Both
parties acknowledge and agree that except as provided herein there are no other
third party beneficiaries to this Agreement.
7.14 Force Majeure. Either party shall be excused from any delay or
-------------
failure in performance hem-under caused by reason of any occurrence or
contingency beyond its reasonable control, including but not limited to, acts of
God, earthquake, labor disputes and strikes, riots, war, and governmental
requirements. Notwithstanding the foregoing, a change in economic conditions or
technology shall not be deemed a Force Majeure event. The obligations and
rights of the party so excused shall be extended on a day-to-day basis for the
period of time equal to that of the underlying cause of the delay. In the event
of a force majeure event materially affecting the parties' performance under
this Agreement that lasts for more than thirty (30) days, either party may
terminate this Agreement.
-15-
<PAGE>
7.15 Export Laws. EarthLink acknowledges and understands that certain
-----------
portions of the E-Stamp Software and the E-Stamp Internet Postage may contain
cryptographic technology subject to export control laws under the U.S. Export
Administration Act and regulations and other applicable laws and regulations.
Accordingly in the event that EarthLink includes the E-Stamp Software in the
Setup Software, EarthLink and its Affiliates will not knowingly, without the
prior written approval of the U.S. Department of Commerce or any successor as
required, disclose, export, reexport the E-Stamp Software or the E-Stamp
Internet Postage or any portion thereof or any data related thereto to any
restricted country set forth in the U.S. Export Administration Act without the
requisite licenses or consent of the U.S. Bureau of Export Administration and/or
any governmental entity as may have jurisdiction over such disclosure, export or
reexport.
7.16 Execution in Counterparts and by Facsimile. The Agreement may be
------------------------------------------
executed in counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute but one and the same instrument. The
Agreement may be executed and delivered by facsimile and the parties agree that
such facsimile execution and delivery shall have the same force and effect as
delivery of an original document with original signatures, and that each party
may use such facsimile signatures as evidence of the execution and delivery of
this Agreement by all parties to the same extent that an original signature
could be used.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the Effective Date set forth above.
EARTHLINK NETWORK, INC. E-Stamp Corporation
By:/s/ Howard Lefkowitz By:/s/ Robert H. Ewald
------------------------------ ------------------------------
Howard Lefkowitz Robert H. Ewald
V.P. Business Development President & CEO
EarthLink Network, Inc. E-Stamp Corp.
3100 New York Drive 2855 Campus Drive, Suite 100
Pasadena, CA 91107 San Mateo, CA 94403
Phone: (626) 296-5011 Phone: (650) 554-8454
Fax: (626) 296-8983 Fax: (650) 554-8455
EARTHLINK OPERATIONS, INC.
By:/s/ Howard Lefkowitz
------------------------------
Howard Lefkowitz
V.P. Business Development
EarthLink Network, Inc.
3100 New York Drive
Pasadena, CA 91107
Phone: (626) 296-5011
Fax: (626) 296-8983
-16-
<PAGE>
EXHIBIT A
EarthLink Marks
- --------------------------------------------------------------------------------
NOTE: THIS EXHIBIT A MAY BE AMENDED FROM TIME TO TIME AS REQUIRED
BY EARTHLINK AND ALL SUCH AMENDMENTS SHALL BE INCORPORATED HEREIN.
Trademarks, trade names, logos and other product and proprietary
----------------------------------------------------------------
identifiers
-----------
EarthLink Network(R)
EarthLink Network TotalAccess(TM)
EarthLink Network(R) is a registered trademark of EarthLink Network,
Inc.
EarthLink Network TotalAccess(TM) is a trademark of EarthLink Network,
Inc.
EarthLink Sprint(SM) and the EarthLink Sprint logo are registered
trademarks of EarthLink Network, Inc. and Sprint Corporation
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
E-Stamp Marks
- --------------------------------------------------------------------------------
NOTE: THIS EXHIBIT B MAY BE AMENDED FROM TIME TO TIME AS REQUIRED BY
E-STAMP AND ALL SUCH AMENDMENTS SHALL BE INCORPORATED HEREIN.
The E-Stamp trademarks include without limitation the following:
E-Stamp(R)
E AND DESIGN(TM)
E-Stamp Internet Postage(TM)
e-stamp.com(TM)
The Internet Postage Company(TM)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
EarthLink's Promotional Obligations
1. Promotions
EarthLink shall place and maintain the following items on the EarthLink
Site, in EarthLink's sole discretion:
A. EarthLink Personal Start Page. EarthLink shall include the Services
provided by E-Stamp on the EarthLink Personal Start Page as follows:
1. a Promotional Placement in the default [***] position of the
[***] Section;
2. a Promotional Placement in the [***] of the [***] which is a
[***] that highlights and provides links to interesting and useful products and
services for EarthLink Members;
3. on the [***] of each EarthLink Member, automatic selection of E-
Stamp as the default provider of postage, which automatic selection cannot be
changed except as provided in the Agreement and by any EarthLink Member; and
4. inclusion of other E-Stamp related content as agreed between the
parties in writing.
B. EarthLink Site. EarthLink shall include the Services provided by
E-Stamp on the EarthLink Home Page and other areas of the EarthLink Site as
follows.
1. a E-Stamp Promotional Placement included in the [***] section
rotation: and
2. a rotation of a E-Stamp Promotional Placement in the [***]
section of the EarthLink Home Page.
C. Banner Advertisements. Banner Advertisements on such locations of the
EarthLink Site as determined by EarthLink in its sole discretion. EarthLink
shall deliver at least [***] run of service Banner Advertisements per month, for
a total of [***] run of service Banners Advertisements during the Initial Term
or during each Renewal Term, as applicable.
D. The Mall. EarthLink shall provide E-Stamp with a location in the Mall
to be designated the EarthLink Postal Center, or such other similar designation
as may be chosen by EarthLink in its sole discretion; provided, however, that
E-Stamp must first enter into with EarthLink, and agree to, EarthLink's Mall
Lease Agreement. The location within the Mall will be selected by EarthLink at
EarthLink's sole discretion.
E. Other Promotional Placements. In addition to the Promotional
Placements described in paragraphs A through D above, such other Promotional
Placements on the EarthLink Site as may be agreed upon by the parties from time
to time.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
2. bLink
EarthLink shall place throughout the Term a total of one (1) advertisement,
subject to EarthLink's sole editorial discretion, to be developed by E-Stamp, in
consultation with EarthLink, in mutually agreed locations in each issue of
EarthLink's "bLink" hard-copy periodical published during the Term. E-Stamp
agrees that any E-Stamp advertisement that appears in bLink must be specifically
targeted at EarthLink Members and must promote the availability of the Services
on the EarthLink Personal Start Page or the Mall.
3. eLink
Subject to EarthLink's discretion, E-Stamp will be profiled as a new
EarthLink Personal Start Page service, as well as being given text "advertising"
space for any special "for EarthLink Members only" promotions that EarthLink and
E-Stamp might jointly create to promote the Services.
4. Setup Software (EarthLink Total Access CD-ROMs)
EarthLink may at its own expense incorporate the E-Stamp Software into the
Setup Software. E-Stamp hereby grants EarthLink a non-exclusive, royalty-free,
non-transferable license during the Term to reproduce and distribute to end-
users the E-Stamp Software solely in combination with the Setup Software and
solely in connection with the promotional activities conducted by EarthLink
pursuant to this Agreement. EarthLink will reproduce on each copy of the Setup
Software containing any E-Stamp Software and not otherwise obscure or delete any
copyright notices and other proprietary legends of E-Stamp that are included on
the E-Stamp Software. EarthLink will not modify, revise, alter or create any
derivative works based upon any of the E-Stamp Software without E-Stamp's prior
written consent. EarthLink will not directly or indirectly reverse engineer,
disassemble or decompile the E-Stamp Software or any portion thereof or attempt
to discover or disclose the source code of any of the E-Stamp Software.
EarthLink will not sublicense, sell, lend, rent, lease, or otherwise transfer
all or any portion of the E-Stamp Software to any third party, or authorize any
person to do any of the foregoing, except as specifically provided for in this
Agreement.
-2-
<PAGE>
EXHIBIT D
Service Specifications
1. Service Interruptions. For the purposes of this Agreement, the following
---------------------
issues are defines as "Service Interruptions":
a) "Complete Outage" means the Co-Branded Site is not reachable by
EarthLink Members for sixty (60) minutes or more, due to E-Stamp systems or
services within E-Stamp's control; provided however, that E-Stamp may perform
major system upgrades and/or service maintenance on a scheduled and pre-
announced basis which may put the Co-Branded Site down for up to eight (8)
hours.
b) "URL Errors" means any errors in URLs, missing pages or typos in URLs
caused by E-Stamp error, including any E-Stamp error that causes EarthLink to
present an incorrect URL on the EarthLink Site, or which causes EarthLink to
attempt to harvest information from an incorrect URL.
2. Response Team. E-Stamp will at all times during the Term and at E-Stamp's
-------------
sole cost and expense, maintain a 24 hour a day, 7 day a week a contact person
responsible for monitoring the Co-Branded Site. The contact person will be
available to EarthLink on a 24 hour a day, 7 day a week basis by phone and
e-mail for consultation on Service Interruption issues and to assist in the
restoration of service following a Service Interruption. E-Stamp will provide
EarthLink with the names and phone numbers and e-mail addresses of its contact
person, and ensure that any changes to the contact information is provided to
EarthLink.
3. Escalation Procedures.
---------------------
a) In the event of a Complete Outage, the E-Stamp contact person will
contact EarthLink as soon as possible following E-Stamp's identification of a
Service Interruption and will notify EarthLink of the nature of the Service
Interruption and the estimated time of resumption of service. E-Stamp's contact
person will keep EarthLink notified of progress in resolving the Service
Interruption. If the Service Interruption is estimated to last longer than
sixty (60) minutes, EarthLink will have the option, at EarthLink's sole
discretion, of:
(i) removing any links or references to the Co-Branded Site from the
EarthLink Site until such time as the Service Interruption is cured in
EarthLink's reasonable discretion; or
(ii) to redirect any links to any web address or Services experiencing
a Service Interruption, to an explanatory page of EarthLink's choosing.
EarthLink may publish such explanatory page, and may choose in its sole
discretion the wording of any explanatory messages on such page.
Following the first six (6) months after the Launch Date, in the event
E-Stamp experiences more than twelve (12) Complete Outages in any two (2) month
period, in addition to any and all other remedies available to EarthLink
hereunder, EarthLink may terminate the Agreement immediately upon written notice
to E-Stamp.
b) URL Errors. EarthLink will contact E-Stamp with regards to any URL
Error, and E-Stamp will work in a commercially reasonable manner to repair such
Service Interruption. EarthLink may remove any links or references on the
EarthLink Site to the Co-Branded Site until such time as the Service
Interruption is repaired to EarthLink's satisfaction. If the URL Error is not
corrected within five (5) business days of first notification, in addition to
any and all other remedies available to EarthLink hereunder, EarthLink may
terminate the Agreement immediately upon written notice to E-Stamp.
4. E-Stamp Notice. E-Stamp will give the EarthLink no less than fifteen (15)
--------------
days prior notice of any changes to its URLs, harvest specifications, Or any of
its processes and procedures that will affect the manner in which EarthLink
harvests information off of the Co-Branded Site.
<PAGE>
EXHIBIT E
EarthLink Competitive Services
NOTE: THIS EXHIBIT E MAY BE AMENDED FROM TIME TO TIME AS REQUIRED BY
EARTHLINK AND ALL SUCH AMENDMENTS SHALL BE INCORPORATED HEREIN.
ISPs
----
[***]
TELCOS
------
[***]
Web Hosting
-----------
[***]
Free Email Services
-------------------
[***]
<PAGE>
Personal Start Paces
--------------------
[***]
Domain Name Registration
------------------------
[***]
Other
-----
[***]
-2-
<PAGE>
EXHIBIT F
Pitney Bowes has asserted that open metering systems conforming to the
United States Post Office IBIP Performance Criteria infringe various Pitney
Bowes patents and Civil Action No. 99363 asserts claims of infringement of six
Pitney Bowes patents by E-Stamp.
<PAGE>
Exhibit 10.21
SERVICES AGREEMENT
This Services Agreement ("Agreement") is entered into as of September 24, 1999
("Effective Date"), by and between Intuit Inc. a Delaware corporation, located
at 2550 Garcia Ave., Mountain View, California 94043 ("Intuit"), and E-Stamp
Corporation, a Delaware corporation, located at 2855 Campus Drive, Suite 100,
San Mateo, California 94403 ("E-Stamp").
The parties agree as follows:
1. DEFINITIONS
1.1 "Customer" means a customer who: (a) has signed up with the E-Stamp
Service using the QuickBooks Product or through specified Intuit Sites or by way
of Intuit advertising; provided that, with respect to such Intuit advertising,
only if the parties mutually agree upon appropriate means of tracking or
confirming that such customer is an Intuit referral; and (b) is approved to use
the E-Stamp Service and has purchased U.S. Electronic Postage at least once by
accessing the E-Stamp Service.
1.2 "E-Stamp Competitor" means a legal entity, or a division of a legal
entity, primarily engaged in the business of selling U.S. Electronic Postage or
U.S. Electronic Postage software. As of the Effective Date, to the best of the
parties' knowledge the E-Stamp Competitors are Stamps.com, Pitney Bowes and
Neopost.
1.3 "E-Stamp Postage Buying Experience" means the process by which a
Customer accesses the E-Stamp Service via the QuickBooks Product or via a
specified Intuit Site and purchases U.S. Electronic Postage through the E-Stamp
Service.
1.4 "E-Stamp Service" means the E-Stamp service(s) of distributing postage
electronically in accordance with IBIP under this Agreement, which will include
the related functionality generally made available by E-Stamp at
http://www.estamp.com.
1.5 "E-Stamp Sign Up Experience" means the process by which a Customer
accesses the E-Stamp Service via the QuickBooks Product or via a specified
Intuit Site and registers with E-Stamp to use the E-Stamp Service.
1.6 "E-Stamp Site" means the site designed and hosted by E-Stamp for the
purposes of this Agreement, to be located at http://www.estamp.com/intuit or
----------------------------
other such location as E-Stamp may designate.
1.7 "Exclusivity Criteria" means the following criteria:
<PAGE>
CONFIDENTIAL
------------
(a) the pricing of the E-Stamp Service under this Agreement is
competitive with the pricing of the E-Stamp Service generally;
(b) E-Stamp is among the top [***] U.S. Electronic Postage merchants
as determined, to the extent possible over a reasonable amount of
time, by independent third parties and in light of the number and
average yearly postage purchases of customers through E-Stamp,
customer service and satisfaction, site performance, and product
offerings; and
(c) E-Stamp has not failed to cure any material breach of this
Agreement by E-Stamp within fifteen (15) days after its receipt
of Intuit's written notice of such breach.
1.8 "Gross Revenues" means transaction revenues earned by E-Stamp through
the sale to Customers of U.S. Electronic Postage through the E-Stamp Service,
under the terms of this Agreement, provided that Gross Revenues shall not
include the value of the postage sold.
1.9 "IBIP" means the United States Postal Service's Information-Based
Indicia Program.
1.10 "Intuit's Supplies Business" means Intuit's Financial Supplies Group
(FSG) or its successor group.
1.11 "Intuit Sites" means http://www.quickbooks.com or such other Intuit
web sites as may be designated by Intuit in writing.
1.12 "Net Revenues" means Gross Revenues, less E-Stamp transaction costs
not to exceed [***] of Gross Revenues, provided that such transaction costs will
not include costs of E-Stamp Starter Kits (as defined in Section 7.5(a)).
1.13 "QuickBooks Product" means the U.S. version of Intuit's QuickBooks
2000 or QuickBooks 2001 software product.
1.14 "QuickBooks 2000 Launch" means the date on which Intuit's QuickBooks
2000 product, with access to the E-Stamp Service, E-Stamp Sign Up Experience and
E-Stamp Postage Buying Experience as specified in Schedule A, is first made
----------
commercially available to the public.
1.15 "U.S. Electronic Postage" means a type of U.S. postage approved by
the U.S. Postal Service for sale and distribution over the Internet, and which
meets the specifications defined by IBIP.
1.16 "Territory" means the United States.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
2
<PAGE>
CONFIDENTIAL
------------
1.17 "QuickBooks Customer" means a QuickBooks Product customer who: (a)
has signed up with the E-Stamp Service using the QuickBooks Product or through
specified Intuit Sites; and (b) can be confirmed and validated as the licensee
of a QuickBooks Product in a mutually agreed upon manner.
2. PRODUCT INTEGRATION, MARKETING, AND PROMOTIONAL ACTIVITIES
2.1 The parties will use commercially reasonable efforts to provide the
marketing and promotional activities in accordance with the obligations
described in Schedule A ("Program Description"). Without limiting the
---------- -------------------
generality of the foregoing, the parties will cooperate and work together to
define and implement all programs necessary to achieve the overall objectives of
the parties under this Agreement to the extent that the parties mutually agree
in writing on such definition and implementations during the term of this
Agreement. The parties will provide product integration as described in
Schedule A. The parties recognize that the dates specified in Schedule A for
- ---------- ----------
each party's activities can be met by such party only if the other party
performs its related obligations described in Schedule A within a reasonable
----------
timeframe prior to the time such activity is to be implemented.
2.2 E-Stamp shall have the opportunity to review and provide input prior
to finalization of the details of implementation of the Program Description,
provided that the details of implementation of the Program Description shall be
subject to Intuit's reasonable discretion.
2.3 In no event shall any part of the E-Stamp Sign-up Experience or the E-
Stamp Postage Buying Experience provided by E-Stamp to Customers who accessed
the E-Stamp Sign-Up Experience or E-Stamp's software through a link in the
QuickBooks Product or through a specified Intuit Site contain any graphic or
textual hyperlinks, promotions, logos or advertising banners of any principal
competitor of Intuit specified in Schedule B as amended in accordance with the
-----------
provisions of Schedule B; provided, however, that the terms of this paragraph
-----------
will not apply to references to the E-Stamp Service's integration with Microsoft
Word, Microsoft Outlook, or Microsoft Internet Explorer.
2.4 In the event that any part of the E-Stamp Sign-up Experience or the E-
Stamp Postage Buying Experience provided by E-Stamp to Customers who accessed E-
Stamp Sign-Up Experience of E-Stamp's software through a link in the QuickBooks
Product or through a specified Intuit Site contains any content or other items
that violate the restrictions set forth in Section 2.3 or that are obscene,
indecent, in poor taste, defamatory, criminal, or otherwise violate any
applicable law, subject to applicable regulations of the U.S. Postal Service E-
Stamp shall promptly remove such content as soon as possible following Intuit's
authorized request.
2.5 E-Stamp will be responsible for the security of the E-Stamp Service
and for all U.S. Electronic Postage purchased by Customers through the E-Stamp
Service.
3. SUPPLIES
3
<PAGE>
CONFIDENTIAL
------------
During the six (6) months following the Effective Date, the parties shall
cooperate in negotiating to build a mutually-beneficial supplies business and to
implement a [***] for such supplies business; provided that such business is
incremental and supplemental to Intuit's Supplies Business current customer base
and product line and does not detract from Intuit's Supplies Business' then-
current sales and revenues.
4. CUSTOMERS
4.1 Customer Service. E-Stamp shall cooperate and assist Intuit by
----------------
answering Customer questions and complaints regarding the E-Stamp Services
provided and E-Stamp shall be solely responsible for providing all customer
service and support with respect to such services. Such service and support
will meet the response requirements specified in Schedule C in all material
----------
respects. E-Stamp shall provide Intuit with a priority, toll-free phone number
and a website url where Intuit can direct Customers who need such service and
support.
4.2 Site Performance. During the term of this Agreement, the performance
----------------
of the E-Stamp Site will meet the requirements specified in Schedule D in all
----------
material respects.
4.3 Customer Information. During the E-Stamp Sign Up Experience and the
--------------------
E-Stamp Postage Buying Experience, the information that E-Stamp obtains from
Customers will be limited to information reasonably related to the purchase of
U.S. Electronic Postage pursuant to this Agreement or otherwise required to
provide the E-Stamp Service or comply with applicable laws and regulations
(including, without limitation, IBIP requirements).
5. REPORTING
E-Stamp will provide Intuit with the following kinds of reports on a
monthly basis during the term of this Agreement, subject to E-Stamp's
commercially reasonable privacy policies (which shall be no more restrictive
than TRUSTe's requirements) and applicable laws and government rules and
regulations (including, but not limited to, applicable rules and regulations
issued by the U.S. Postal Service):
(a) aggregated Customer profile information, including but not limited to
business location, and industry;
(b) usage data that shows acquisition rates, conversion rates, postage
products used, purchase frequency, average order size, and paths
through the process;
(c) Customer service data that shows contact rates, response times,
delivery times, major customer service issues based on the reasons for
customer service contacts;
(d) data to support quarterly revenue share and bounty fees;
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
4
<PAGE>
CONFIDENTIAL
------------
(e) aggregated Customer transaction information showing average
transaction, monthly and yearly purchases;
(f) [***] rolling non-binding forecast of estimated users, gross revenues,
net revenues, and payments to Intuit, which forecast will be jointly
formulated by the parties; and
(g) Customer-specific information.
6. EXCLUSIVITY
6.1 Provided that E-Stamp meets the Exclusivity Criteria: (a) E-Stamp
will be the only U.S. Electronic Postage provider for Intuit's QuickBooks
Products Business; and (b) Intuit will not engage in any marketing, promotion or
distribution of U.S Electronic Postage via the QuickBooks Product Business with
an E-Stamp Competitor during the term of this Agreement; and (c) Intuit will
make no further promotional, advertising or sponsorship opportunities on
QuickBooks.com or QuickBooks.com newsletters available to an E-Stamp Competitor.
6.2 "QuickBooks Product Business" means the business of marketing,
promoting and selling the QuickBooks Products and directly related products and
shall not include: (i) advertising on Quicken.com; (ii) advertising on
QuickBooks.com; (iii) advertising sold by third parties on framed third party
sites; (iv) advertising in Intuit's small business newsletters; or (v)
advertising on the Web sites at http://www.quicken.excite.com,
http://www.quicken.webcrawler.com, or http://www.quicken.aol.com
6.3 Intuit also agrees, provided that E-Stamp meets the Exclusivity
Criteria, to provide E-Stamp a Right of First Consideration for:
(a) future in-product integration of U.S. Electronic Postage services
into the [***] software products;
(b) joint marketing, distribution and promotion of U.S. Electronic
Postage services associated with the [***] software products and
customer bases, subject to Intuit's existing obligations with
third parties;
(c) future integration of U.S. Electronic Postage services into [***]
to supplement the product lines of [***]; and
(d) becoming the exclusive online postage partner for [***] and
[***]subject to Intuit's existing obligations with third parties.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
5
<PAGE>
CONFIDENTIAL
------------
"Right of First Consideration" shall mean that Intuit shall consider E-Stamp
first for an opportunity under Section 6.3 and give E-Stamp advance written
notice thereof; provided, however, that Intuit shall in no way be obligated to
provide E-Stamp with Intuit's decision regarding such opportunity before
soliciting or considering any third parties for such opportunity. In no way
shall this section preclude Intuit from soliciting, considering, and/or
selecting an E-Stamp Competitor for such opportunity. Intuit shall have sole
discretion in defining the terms of opportunities under this Section 6.3. To
the extent that Intuit and E-Stamp agree in writing upon the terms and
conditions of such an opportunity, such terms and conditions will automatically
be added to the provisions of Section 6.1.
6.4 In the event that E-Stamp fails to meet the Exclusivity Criteria,
Intuit shall have the right at any time, upon written notice to E-Stamp, to
terminate the provisions of this Section 6; and/or (ii) limit the applicability
of this Agreement solely to the QuickBooks 2000 product.
7. FEES AND COSTS
7.1 Customer Acquisition Fee. Subject to Section 7.2, E-Stamp will pay
------------------------
Intuit an initial fee of [***], in such amounts and on such dates as follows:
(a) [***] due and payable upon execution of this Agreement; and
(b) [***] due and payable on the date of the QuickBooks 2000 Launch
or on January 1, 2000, whichever is later.
7.2 Survival of Payment Obligations. The payment obligations specified
-------------------------------
in Section 7.1 shall survive any termination of this Agreement, except with
respect to payment obligations which are due and payable after: (i) E-Stamp has
given Intuit notice of termination of this Agreement in accordance with Section
9.2 (Termination for Breach) due to Intuit's material breach of this Agreement,
if termination of this Agreement subsequently occurs in accordance with Section
9.2 based on such notice; (ii) E-Stamp has given Intuit notice of termination of
this Agreement in accordance with Section 15.5 (Force Majeure); or (iii) E-Stamp
has given Intuit notice of termination of this Agreement in accordance with
Section 15.1 (Assignment).
7.3 Customer Bounty Fee. In addition, E-Stamp will pay Intuit, within
-------------------
thirty (30) days after the end of each calendar quarter during the term of this
Agreement, a quarterly fee for each New Customer acquired during such calendar
quarter in excess of the number indicated in the second column for the
applicable calendar year, in the amounts as follows:
<TABLE>
<CAPTION>
Calendar Year For each New Customer over the following number Bounty Fee
of New Customers in such year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1999 [***] [***]/New Customer
- -----------------------------------------------------------------------------------------------------------
2000 [***] [***]/New Customer
- -----------------------------------------------------------------------------------------------------------
2001 [***] [***]/New Customer
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
6
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CONFIDENTIAL
------------
For clarification, such fees shall be due and payable: (a) for each New
Customer in excess of [***] New Customers in 1999; (b) for each New Customer in
excess of [***] New Customers in 2000; and (c) for [***] in 2001. For purposes
of the foregoing, a "New Customer" means, for any quarter or year, a Customer
who first qualifies as a "Customer" under Section 1.1 during such quarter or
year, as the case may be.
7.4 Revenue Sharing Fees. In addition, E-Stamp will pay Intuit, within
--------------------
thirty (30) days after the end of each calendar quarter during the term of this
Agreement, quarterly fees based on a percentage of the Net Revenues earned by E-
Stamp during such quarter as follows:
Calendar Year Payment to Intuit
------------- -----------------
1999 [***] of Net Revenues
2000 [***] of Net Revenues
2001 [***] of Net Revenues
7.5 Costs.
-----
(a) Starter Kit Costs. E-Stamp agrees that, during the term of this
-----------------
Agreement, QuickBooks Customers who request the then-current E-Stamp Starter Kit
in order to access and purchase U.S. Electronic Postage on the E-Stamp Service,
which kit E-Stamp will provide to such customers following such requests, [***]
of any kind for such kits. Intuit will contribute toward E-Stamp's costs of such
kit for each such QuickBooks Customer to whom E-Stamp supplies an E-Stamp
Starter Kit in accordance with this paragraph as follows: Intuit will be
obligated to E-Stamp in the amount of [***] for each such QuickBooks Customer,
payable within thirty (30) days after receipt of a quarterly report with respect
to the calculation of the amounts due. "E-Stamp Starter Kit" means the E-Stamp
electronic vault, E-Stamp Internet postage software, E-Stamp address matching
CD, and associated documentation.
(b) Other Costs. Unless otherwise provided in this Agreement, each
-----------
party shall bear its own costs and expenses in connection with its activities
performed under this Agreement.
7.6 Records/Audit. E-Stamp will maintain accurate records, and will
-------------
provide Intuit with timely reports based upon such records, with respect to the
calculation of all amounts due under this Agreement. Intuit may, upon no less
than thirty (30) days prior written notice to E-Stamp, but no more frequently
than once each calendar quarter, cause an independent Certified Public
Accountant to inspect all relevant records of E-Stamp upon which the calculation
of such payments are based during E-Stamp's normal business hours. The fees
charged by such Certified Public Accountant in connection with the inspection
will be paid by Intuit unless the payments made to Intuit are determined to have
been less than ninety-five percent (95%) of the payments actually owed to
Intuit, in which case E-Stamp will be responsible for the payment of the
reasonable fees for such inspection. In addition, E-Stamp shall immediately
remit payment to
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
7
<PAGE>
CONFIDENTIAL
------------
Intuit for the full amount of any disclosed shortfalls. The
audit rights set forth herein shall continue for one (1) year following the
termination of this Agreement for any reason.
8. PUBLICITY
Unless required by law, neither party will make any public statement, press
release or other announcement relating to the terms of or existence of this
Agreement without the prior written approval of the other.
9. TERM AND TERMINATION
9.1 Term. Unless otherwise terminated as specified in this Section 12,
----
the term of this Agreement shall begin on the Effective Date and will end on
December 31, 2001. Renewal of this Agreement will require the mutual written
agreement of the parties.
9.2 Termination for Breach. Either party may terminate this Agreement if
----------------------
the other party materially breaches a material obligation hereunder and such
breach remains uncured for thirty (30) days following the notice to the
breaching party of the breach and the notifying party's intention to terminate.
All undisputed payments that have accrued prior to the termination or expiration
of this Agreement for any reason will be payable in full within thirty (30) days
thereof.
9.3 Post-Termination Transition Period. During the 90-day period
----------------------------------
immediately following the effective date of any termination of this Agreement,
the parties will cooperate in good faith (including, to the extent required by
such good faith cooperation, by continuing the performance of their obligations
and the exercise of their rights) under this Agreement in order to minimize any
disruption to Customers resulting from the termination of this Agreement.
9.4 Survival. The provisions of Sections 7.1 (Customer Acquisition Fee),
--------
except to the extent specified in Section 7.2; Section 7.6 (Records/Audit); 8
(Publicity); 9.0 (Termination); 11 (Content Ownership); 12 (Confidentiality and
User Data); 13 (Warranty/Indemnity/Disclaimer); 14 (Limitation of Liability);
and 15 (General) will survive any termination or expiration of this Agreement.
10. TRADEMARK OWNERSHIP AND LICENSE
10.1 Ownership. E-Stamp will retain all right, title and interest in and
---------
to its trademarks, service marks and trade names worldwide, subject to the
limited license granted to Intuit hereunder. Intuit will retain all right,
title and interest in and to its trademarks, service marks and trade names
worldwide, subject to the limited license granted to E-Stamp hereunder.
10.2 License. Each party hereby grants to the other a non-exclusive,
-------
limited license to use its trademarks, service marks or trade names only as
specifically described in this Agreement. All such use shall be in accordance
with each party's reasonable policies regarding advertising and trademark usage
as shall be established or changed from time to time in each party's sole
8
<PAGE>
CONFIDENTIAL
------------
discretion, and shall be subject to the approval of the party whose trademarks,
service marks or trade names are being used. Upon the expiration or termination
of this Agreement, each party will cease using the trademarks, service marks
and/or trade names of the other except as the parties may agree in writing or to
the extent permitted by applicable law.
11. CONTENT OWNERSHIP
E-Stamp will retain all right, title and interest in and to the E-Stamp
Site worldwide including, but not limited to, ownership of all copyrights, look
and feel and other intellectual property rights therein. Intuit will retain all
right, title, and interest in and to the Intuit Sites worldwide including, but
not limited to, ownership of all copyrights, look and feel and other
intellectual property rights therein.
12. CONFIDENTIALITY AND USER DATA
12.1 Definition. For the purposes of this Agreement, "Confidential
----------
Information" means this Agreement, and all information about the disclosing
party's (or its suppliers') business or activities that is proprietary and
confidential, which shall include all business, financial, technical and other
information of a party marked or designated by such party as "confidential or
"proprietary" at the time of disclosure.
12.2 Exclusions. Confidential Information will not include information
----------
that (i) is in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure obligation,
(iii) the receiving party rightfully knew prior to receiving such information
from the disclosing party or (iv) the receiving party develops independent of
any information originating from the disclosing party.
12.3 Restrictions. Each party agrees (i) that it will not disclose to any
------------
third party or use any Confidential Information disclosed to it by the other
except as expressly permitted in this Agreement and (ii) that it will take all
reasonable measures to maintain the confidentiality of all Confidential
Information of the other party in its possession or control, which will in no
event be less than the measures it uses to maintain the confidentiality of its
own information of similar importance.
9
<PAGE>
CONFIDENTIAL
------------
12.4 Limitations. Notwithstanding the foregoing, each party may disclose
-----------
Confidential Information (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required by law or
(ii) on a "need-to-know" basis under an obligation of confidentiality to its
legal counsel, accountants, banks and other financing sources and their
advisors.
12.5 Customer Information.
--------------------
(a) All information and data provided to Intuit by users of the
QuickBooks Product or otherwise collected by Intuit relating to user activity on
the QuickBooks Product shall be retained by and owned solely by Intuit. All
information and data provided by E-Stamp users during the E-Stamp Sign Up
Experience, the E-Stamp Postage Buying Experience or otherwise collected by E-
Stamp relating to user activity related to the use of E-Stamp's electronic
postage software, service or website shall be retained by and owned solely by E-
Stamp. Each party agrees to use such information only as authorized by the user
and subject to each party's reasonable privacy policies.
(b) E-Stamp will provide Intuit with information reasonably requested
and necessary to support the calculation of Net Revenues and payments due to
Intuit.
(c) E-Stamp will use its best commercial efforts to give Intuit
reasonable "blind" access to its database of customers who signed up for the E-
Stamp Service using the QuickBooks Product or through specified Intuit Sites or
by way of Intuit advertising which E-Stamp can track or otherwise confirm as an
Intuit referral; provided that Intuit acknowledges that the information
contained in such database will be subject to the confidentiality obligations
set forth in this Agreement. To the extent that E-Stamp collects the following
customer information, such "blind" access will include, without limitation,
access to the following customer information: which customers that have
purchased and are using U.S. Electronic Postage, customers that have evaluated
the E-Stamp Service but decided not to purchase any U.S. Electronic Postage, and
customers that have ceased using the E-Stamp Service
13. WARRANTY/INDEMNITY/DISCLAIMER
13.1 E-Stamp Warranties. E-Stamp represents and warrants that (i) it has
------------------
full power and authority to enter into this Agreement; (ii) entering into and
performance of this Agreement by E-Stamp does not violate, conflict with, or
result in a material default under any other contract or agreement to which E-
Stamp is a party, or by which it is bound; and (iii) E-Stamp's performance under
this Agreement will not result in an infringement of any third party's patent,
copyright, trademark, or other proprietary rights.
13.2 Year 2000 Warranty. E-Stamp represents and warrants to Intuit that
------------------
E-Stamp's software products and services covered by this Agreement will not
incur a material loss of performance as a result of the century date change in
the year 2000 or as a result of the year 2000 being a leap year.
10
<PAGE>
CONFIDENTIAL
------------
13.3 Intuit Warranties. Intuit represents and warrants that (i) it has
-----------------
full power and authority to enter into this Agreement; and (ii) entering into
and performance of this Agreement by Intuit does not violate, conflict with, or
result in a material default under any other contract or agreement to which
Intuit is a party, or by which it is bound; and (iii) Intuit's performance under
this Agreement will not result in an infringement of any third party's patent,
copyright, trademark, or other proprietary rights.
13.4 Indemnity.
---------
(a) E-Stamp will defend and/or settle any third party claim brought
against Intuit, its affiliates, officers, directors, employees, consultants and
agents (each, an "Indemnified Party") arising from any claim by a third party of
infringement of a patent, copyright or trademark or misappropriation of a trade
secret anywhere in the world to the extent the same is based upon any such
infringement or misappropriation relating to the E-Stamp Service as delivered by
E-Stamp without modification or combination with any other product or service,
unless such infringement or misappropriation would have existed even in the
absence of such modification or combination. E-Stamp will indemnify and hold
harmless each such Indemnified Party against any resulting loss, liability, cost
or expense arising out of third party claims, including but not limited to any
amounts awarded in a settlement or by a court against such party (and reasonable
attorneys' fees and out-of-pocket expenses in connection therewith) ("Damages"),
provided that E-Stamp shall have: (i) received from such Indemnified Party
prompt notice of said claim; (ii) received from such Indemnified Party the
exclusive right to control and direct the investigation, defense, or settlement
of such claims; and (iii) received at E-Stamp's expense the reasonable
cooperation and assistance of Indemnified Party. Subject to E-Stamp's exclusive
right to control, Intuit will have the right to participate in any legal
proceeding related to such a claim at is own expense with counsel of its own
choice.
(b) In the event that either party's rights or obligations in
connection with the E-Stamp Service is enjoined or otherwise limited either
pursuant to a court determination or a settlement as a direct result of a claim
for which indemnification is proper under Section 13.4(a):
(i) E-Stamp shall: (A) substitute for the E-Stamp Service a
service that meets the specifications for the E-Stamp Service in all material
respects; (B) procure for Intuit and Customers the right to continue using the
E-Stamp Service; or, in the event that (A) and (B) are not commercially
practicable within a commercially reasonable period of time, (C) terminate this
Agreement (a "Special Termination"), provided that upon a Special Termination
-------------------
the terms set forth in subsection (c) below shall apply.
(ii) Damages shall also include, without limitation, any amounts
Intuit is required to pay to any third party for a claim which would have been
subject to indemnification hereunder if such third party were an Indemnified
Party.
11
<PAGE>
CONFIDENTIAL
------------
(c) In the event of a Special Termination, E-Stamp shall procure for
Intuit at no cost the right of Customers to continue to use the E-Stamp Service
then in use in connection with this Agreement for a period not to exceed ninety
(90) days from notice of Special Termination ("Special Termination Rights"). In
the event E-Stamp is unable to procure the Special Termination Rights, E-Stamp
shall indemnify Intuit for all Damages arising out of third party claims,
including but not limited to Customers' lost profits awarded in a settlement or
by a court, resulting from such inability to procure the Special Termination
Rights for such period. Nothing in this paragraph shall in any way limit or
otherwise affect Intuit's indemnification rights under subsection (a) with
respect to any Damages associated with the period prior to Special Termination.
(d) E-Stamp shall be solely responsible for any legal liability
whether in tort, contract, or otherwise arising out of or relating to (i) the E-
Stamp Service and/or E-Stamp's related software and/or (ii) any content or other
material to which users can link through the E-Stamp Service, except to the
extent that such liability was caused by the acts or omissions of any
Indemnified Party. E-Stamp shall indemnify and hold harmless each Indemnified
Party against any Damages resulting from a claim by a third party to the extent
that such claim is based upon the foregoing ("E-Stamp Portion of the Claim"),
provided that E-Stamp shall have: (i) received from such Indemnified Party
prompt notice of the E-Stamp Portion of the Claim; (ii) received from such
Indemnified Party the exclusive right to control and direct the investigation,
defense, or settlement of the E-Stamp Portion of the Claim; and (iii) received
at E-Stamp's expense the reasonable cooperation and assistance of Indemnified
Party in connection with the E-Stamp Portion of the Claim. Subject to E-Stamp's
exclusive right to control, Intuit will have the right to participate in any
legal proceeding related to such a claim at is own expense with counsel of its
own choice.
13.5 DISCLAIMER. EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY
----------
MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND
HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES AND CONDITIONS, INCLUDING
WITHOUT LIMITATION ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER.
14. LIMITATION OF LIABILITY
EXCEPT FOR LIABILITY ARISING UNDER SECTIONS 12, 13.4(a), 13.4(b), OR
13.4(c):
14.1 IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF
CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT IT HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
12
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------------
14.2 THE LIABILITY OF A PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER,
WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT
EXCEED, THE AMOUNTS PAID BY E-STAMP TO INTUIT UNDER THIS AGREEMENT.
15. GENERAL
15.1 Assignment.
----------
(a) Neither party may assign this Agreement, in whole or in part,
without the other party's written consent (which will not be unreasonably
withheld or delayed); provided however, that either party may assign its rights
and obligations hereunder in the event of:
(i) a sale of all, or substantially all of such party's assets
related to this Agreement, whether by merger,
reorganization, operation of law or otherwise; or
(ii) such party's assignment and/or delegation of its rights and
responsibilities hereunder to a wholly-owned subsidiary or
joint venture in which the assigning party holds an
interest.
Notwithstanding the foregoing, if either party assigns this Agreement to a
direct competitor of the other party by operation of law or otherwise, such
other party will have the right to terminate this Agreement for its convenience.
Any attempt to assign this Agreement other than as permitted above will be null
and void. Subject to the foregoing, this Agreement shall be binding upon and
shall inure to the benefit of both parties, their successors and permitted
assigns.
(b) Notwithstanding the terms and conditions of subsection (a) above,
if either party assigns this Agreement to a direct competitor of the other party
("Non-Assigning Party") by operation of law or otherwise:
(i) the Non-Assigning Party will have the right to terminate
this Agreement for its convenience; and
(ii) if Intuit is the Non-Assigning Party and Intuit elects to
terminate this Agreement pursuant to this subsection (b)
prior to E-Stamps payment of the [***] specified in Section
--------
7.1(b), E-Stamp will no longer be obligated to make such
[***] payment to Intuit but will instead pay Intuit [***]
within thirty (30) days of such election by Intuit.
The parties acknowledge that, if Intuit or E-Stamp elects to terminate this
Agreement pursuant to this subsection (b) at any time following E-Stamp's
---------
payment of the [***] specified in Section 7.1(b), Intuit will have the right to
retain the entirety of such payment.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
13
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------------
15.2 Applicable Law and Jurisdiction. This Agreement and the performance
-------------------------------
of the parties under this Agreement shall be governed by and construed in
accordance with the laws of the State of California, U.S.A., except that body of
law concerning conflicts of laws. In any action relating to the parties, the
parties consent to jurisdiction in a state or federal court in Santa Clara
County, California.
15.3 Notice. Unless otherwise stated, all notices required under this
------
Agreement shall be in writing and shall be considered given (i) when delivered
personally, (ii) within five (5) days of mailing, certified mail, return receipt
requested and postage prepaid (iii) one (1) day after deposit with a commercial
overnight carrier, or (iv) when delivered by facsimile transmission. All
communications will be addressed as follows (unless changed by notice):
To E-Stamp: E-Stamp Corporation
2855 Campus Drive
San Mateo, California 94403
Attn: Robert Ewald, President and CEO
Attn: Edward Malysz, Vice President and General Counsel
Fax: 650.554.8455
To Intuit: If hand delivered or faxed:
--------------------------
Intuit Inc.
2535 Garcia Avenue MS 2550
Mountain View, California 94043
Attn: General Counsel
Fax: 650.944.5656
If mailed:
---------
Intuit Inc.
P.O. Box 7850 MS 2550
Mountain View, CA 94039-7850
Attn: General Counsel
15.4 No Agency. The parties are independent contractors and will have no
---------
power or authority to assume or create any obligation or responsibility on
behalf of each other. This Agreement will not be construed to create or imply
any partnership, agency or joint venture.
15.5 Force Majeure. Any delay in or failure of performance by either
-------------
party under this Agreement will not be considered a breach of this Agreement and
will be excused to the extent caused by any occurrence beyond the reasonable
control of such party including, but not limited to, acts of God, power outages,
failures of the Internet, and E-Stamp's failure to obtain any necessary
governmental approval required in connection with the performance of its
obligations hereunder. In the event that the duration of such delay or failure
of performance by either party exceeds thirty (30) days, the other party will
have the right to terminate this Agreement at its
14
<PAGE>
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------------
convenience. If E-Stamp so terminates this Agreement following Intuit's delay in
or failure of performance, Intuit will pay E-Stamp the unamortized portion of
the fees paid by E-Stamp to Intuit under Section 7.1, based on a straight-line
pro rata amortization of such fees beginning on the Effective Date and ending on
December 31, 2000.
15.6 Severability. In the event that any of the provisions of this
------------
Agreement are held to be unenforceable by a court or arbitrator, the remaining
portions of the Agreement will remain in full force and effect.
15.7 Entire Agreement. This Agreement is the complete and exclusive
----------------
agreement between the parties with respect to the subject matter hereof,
superseding any prior agreements and communications (both written and oral)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties.
15.8 Counterparts. This Agreement may be executed in counterparts, each
------------
of which will serve to evidence the parties' binding agreement.
E-Stamp Corporation Intuit Inc.
By: /s/ Edward F. Malysz By: /s/ James J. Heeger
--------------------- ---------------------
Name: Edward F. Malysz Name: James J. Heeger
--------------------- ---------------------
Title: V.P., General Counsel Title: SVP, Small Bus. Div.
--------------------- ---------------------
Date: 9/24/99 Date: 9/24/99
--------------------- ---------------------
15
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------------
SCHEDULE A
Program Description
1) Marketing and Promotional Programs, to be implemented from Effective Date
through December 31, 2001.
a) Intuit Obligations
i) Intuit shall promote the E-Stamp Service in four (4) editions of
the QB.com newsletter in an area at Intuit's sole discretion.
Intuit shall consider in good faith any applicable requests
received from E-Stamp in a timely manner. 1st promotion by
[***], 2nd promotion by [***], 3rd promotion by [***], 4th
promotion by [***].
ii) Intuit shall provide E-Stamp with a presence on the
QuickBooks.com Site within an area at Intuit's sole discretion.
Intuit shall consider in good faith any applicable requests
received from E-Stamp in a timely manner. Placement by [***].
iii) Intuit shall include a description of E-Stamp Service and
QuickBooks Product Integration in press tour and press materials
related to all version releases of the QuickBooks Products
during the term of the Agreement. Inclusion by [***].
iv) Intuit shall describe E-Stamp Service and QuickBooks Product
Integration on QuickBooks retail box. Description by [***].
v) Intuit shall describe E-Stamp Service and QuickBooks Product
Integration in upgrade mailings sent to installed base.
Description by [***].
vi) Intuit shall provide E-Stamp with the opportunity to rent lists
of QuickBooks Products, non-upgrade, non-Intuit Supplies
business customers under Intuit's then-current standard terms.
List available by [***], or earlier to the extent mutually
agreed by the parties.
vii) Intuit shall include a description of E-Stamp Service and
QuickBooks Product Integration in CD-ROMvelope for QuickBooks CD
product skus. Description by [***].
viii) Intuit has the option to use E-Stamp Service as a part of a
QuickBooks product promotion in direct mailings on mutually
agreed terms.
b) E-Stamp Obligations
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
16
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------------
Subject to Intuit's approval and to Section 10:
i) E-Stamp has the option to include QuickBooks Service Logo in
marketing materials, packaging, and on other marketing
collateral, subject to Section 10 (Trademark Ownership and
License).
ii) E-Stamp has the option to include QuickBooks insert into E-Stamp
retail box.
iii) E-Stamp has the option to include recommendation/reference to
QuickBooks on their website.
2) Product Integration Programs
a) Intuit Obligations
i) Include access to E-Stamp service in areas of QuickBooks product
designated by Intuit for the purpose of driving awareness of the
E-Stamp Service in QuickBooks Products.
ii) Include access to the E-Stamp Sign Up Experience and the E-Stamp
Postage Buying Experience functionality in the QuickBooks
Product navigational areas, as designated by Intuit in its sole
discretion. Intuit shall consider in good faith any applicable
requests received from E-Stamp in a timely manner.
iii) Allow QuickBooks 2001 product customers to [***] from within
QuickBooks 2001 product.
b) E-Stamp Obligations
i) Provide access to the E-Stamp Postage Buying Experience to
Customers and prospective Customers. Access by [***].
ii) Provide access to the E-Stamp Sign Up Experience to Customers
and prospective Customers through a Web page on the E-Stamp Site
that will be co-branded by Intuit and E-Stamp ("Co-Branded
Page"). The Co-Branded Page will be designed by Intuit and will
be hosted by E-Stamp. The contents of the Co-Branded Page will
be mutually agreed by the parties, but will in no event contain
any graphic or textual hyperlinks, promotions, logos or
advertising banners of any principal competitor of Intuit
specified in Schedule B as amended in accordance with the
----------
provisions of Schedule B. Access by [***].
----------
iii) To the extent that screens displayed to Customers during their
experience on the E-Stamp Site are framed by Intuit, such
experience will be limited to the E-Stamp Sign
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
17
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------------
Up Experience and the E-Stamp Postage Buying Experience except
as may be mutually agreed by the parties in writing. Provided by
[***].
iv) At E-Stamp's expense, provide mutually agreed upon customized
development work and developer support for integration efforts,
including documentation or access to E-Stamp technical
resources. Beginning [***].
v) Provide compiled versions of key functionality that will be
integrated with QuickBooks to allow customers to print postage
directly onto forms and labels and to receive reporting and
summary information from within QuickBooks 2001 product.
Beginning [***].
vi) Provide maintenance releases to Intuit as necessary and
available.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
18
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SCHEDULE B
Intuit Competitors
[***]
The parties agree that from time to time Intuit may, upon adequate written
notice to E-Stamp, add to this list additional entities that market products
and/or services in competition with Intuit, subject to E-Stamp's then-existing
contractual obligations to such additional entities.
*** Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
19
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CONFIDENTIAL
------------
SCHEDULE C
Support Response Requirements
1. Email Response Turn Around Time (TAT): 24 hours or less.
2. Inbound Telephone Calls Service Level: 80% of calls answered in 30 seconds
or less.
20
<PAGE>
CONFIDENTIAL
------------
SCHEDULE D
E-Stamp Site Performance
1. The E-Stamp Site, including all site functionality, will be up no less than
98% of the following times: 7 days/week, 24 hours/day.
21
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated February 19, 1999,
except for Note 10 as to which the date is September 24, 1999, in Amendment No.
3 to the Registration Statement (Form S-1 No. 333-85359) and related Prospectus
of E-Stamp Corporation.
/s/ Ernst & Young LLP
Palo Alto, California
September 24, 1999
<PAGE>
Exhibit 23.3
CONSENT OF SPECIAL PATENT COUNSEL
We hereby consent to the reference to our firm under the caption "Experts"
in the Registration Statement on Form S-1 and related Prospectus of E-Stamp
Corporation for the registration of shares of its Common Stock.
Howrey & Simon
/s/ Stephen J. Rosenman
By:__________________________________
Stephen J. Rosenman
Partner
September 27, 1999
<PAGE>
Exhibit 23.4
CONSENT OF REBECCA SAEGER
The undersigned hereby consents to be named as a director nominee in the
Registration Statement on Form S-1 and related prospectus of E-Stamp
Corporation for the registration of shares of its Common Stock and to the
filing of this consent as an exhibit to E-Stamp's Registration Statement on
Form S-1.
/s/ Rebecca Saeger
Rebecca Saeger
September 27, 1999
