<PAGE>
As filed with the Securities and Exchange Commission on August 17, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
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 94104 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. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price(1) Registration Fee
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<S> <C> <C>
Common Stock $0.001 par value.............. $85,000,000 $23,630
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</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
----------------
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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--AUGUST 17, 1999
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Prospectus
, 1999
[LOGO]
E-Stamp Corporation
Shares of Common Stock
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The Company:
. We provide an easy-to-use Internet postage solution 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 shares of our common stock.
. The underwriters have an option to purchase an additional shares from
the Company to cover over-allotments.
. This is our initial public offering, and no public market currently exists
for our shares. We anticipate that the initial public offering price will
be between $ and $ per share.
. We 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 7.
- --------------------------------------------------------------------------------
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>
[INSIDE FRONT COVER OF PROSPECTUS]
[Graphics to come]
<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....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 16
Corporate Information.................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business................................................................... 26
Management................................................................. 40
Certain Transactions....................................................... 50
Principal Stockholders..................................................... 52
Description of Capital Stock............................................... 55
Shares Eligible for Future Sale............................................ 58
Underwriting............................................................... 60
Legal Matters.............................................................. 62
Experts.................................................................... 62
Additional Information..................................................... 62
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 easy-to-use Internet postage solution 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. We received approval from the
U.S. Postal Service in August 1999 for our Internet postage solution, and since
then have been selling our solution nationally. Our Internet postage solution
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. In addition, our Internet postage solution is tightly integrated
with popular business computer programs including Microsoft Word and Outlook,
and Intuit's Quickbooks. We believe our cost-effective Internet postage
solution 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.
We have focused on forming strategic relationships with industry leaders in
order to quickly build our brand awareness with SOHOs and to accelerate the
adoption of our Internet postage solution. Our strategic relationships include
the following:
. Microsoft, which is also one of our equity investors, has selected us as
its premium online postage partner for its Microsoft Office Update Web
site;
. Yahoo! has chosen us to be the premier 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 preferred Internet
postage provider on its @Work Web site;
. America Online has agreed to include us as a tenant in its new Postage
Services Center, currently scheduled for launch in August 1999;
. Compaq, which is also one of our equity investors, has agreed to market
our Internet postage solution 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 solution; and
. Avery Dennison has agreed to promote exclusively our Internet postage
solution in packages of Avery labels and other printable supplies.
In addition, we have developed strategic relationships with Sunbeam Corp.'s
Pelouze Scale Co. division, Tension Envelope, EarthLink and Dymo-Costar.
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
3
<PAGE>
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 solutions.
According to International Data Corporation, there were 44.7 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 Strategy
Our objective is to be the leading provider of Internet postage solutions.
Key elements of our growth strategy include:
. Partner with industry leaders to quickly acquire customers. We have
formed strategic relationships with industry leaders to rapidly acquire
customers, build brand recognition and accelerate adoption of our
Internet postage solution. We anticipate continuing to add additional
strategic partners 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 SOHO market due to its attractive characteristics, such
as a large and growing number of SOHOs, high personal computer
penetration, and heavy reliance on the postal system for business
communications.
. Build and promote our brand. We intend to invest in building brand
awareness through a variety of marketing and promotional techniques, both
independently and in conjunction with our strategic partners. Our brand
will be promoted through television, print and radio advertising, online
banner advertising, and through viral marketing, such as including our
logo and Web site address on each digital stamp.
. Leverage our technology platform and expertise to extend our family of
Internet postage solutions. We intend to leverage our customer-centric
focus, scalable platform, and patent portfolio, currently consisting of
over 20 issued patents, to develop a family of Internet postage
solutions, including a server-based solution for the low-volume consumer
and early adopters of broadband access and an intranet-based solution
that will simplify routine processes for the high volume mailer and
corporate enterprise.
. Pursue multiple and recurring revenue streams. In addition to developing
and marketing Internet postage solutions domestically, we are
concentrating on the sale of postage related consumables and peripherals,
and we intend to pursue international Internet postage opportunities and
the purchase and printing of authenticated documents, such as tickets and
gift certificates.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by E-Stamp.. shares
Common stock to be outstanding
after this offering............. 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, and 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 August 10, 1999. This number excludes:
. 2,821,498 shares of common stock reserved for future issuance under our
stock option, director stock option and employee stock purchase plans;
. 1,172,790 shares of common stock subject to outstanding options; and
. 60,032 shares of common stock issuable upon the exercise of outstanding
warrants.
5
<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 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) (10,627) (4,498) (11,019)
Net loss...................... (6,339) (7,678) (10,257) (4,455) (10,843)
Accretion on redeemable
convertible
preferred stock ............. -- (196) (1,383) (307) (1,176)
Net loss attributable to
common stockholders.......... $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
Net loss per common share:
Basic and diluted........... $ (0.63) $ (0.76) $ (1.11) $ (0.46) $ (1.11)
Weighted average shares..... 10,034 10,373 10,460 10,421 10,789
Pro forma net loss per
share:.......................
Basic and diluted
(unaudited)................ $ (0.68) $ (0.62)
Weighted average shares
(unaudited)................ 15,002 17,477
</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, the use of a portion of those proceeds
to pay off an existing bank loan entered into and drawn upon in July 1999 and
the automatic conversion of all outstanding shares of our 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
shares of common stock in this offering at an assumed initial public offering
price of $ 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
Working capital (deficit)......................... (324)
Total assets...................................... 3,096
Long-term obligations, net of current portion..... 6
Total stockholders' equity (deficit).............. (24,293)
</TABLE>
6
<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 $37.0 million.
Since U.S. Postal Service approval of our Internet postage solution in August
1999, we have generated only nominal revenues. 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 solution.
The U.S. Postal Service approved our Internet postage solution for
commercial sale in August 1999. We expect that our Internet postage solution
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 solution. Any failure to successfully gain commercial acceptance of our
Internet postage solution would seriously harm our business and results of
operations. 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 solution.
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 in which we deny all allegations of patent
infringement, assert certain affirmative defenses based on statutory and common
law grounds, and bring antitrust counterclaims against Pitney Bowes. 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. The Pitney Bowes suit could result in limitations on how we
implement our solutions, delays and costs associated with redesigning our
solution and payments of license fees and other monies. An injunction obtained
by Pitney Bowes could eliminate our ability to market critical products or
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 the 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.
7
<PAGE>
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 business would suffer dramatically.
Although the U.S. Postal Service has approved us to market and sell our
Internet postage solution nationally in accordance with approved quantities and
distribution channels, we will continue to be subject to U.S. Postal Service
scrutiny and other government regulations. 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 solution could be
adversely affected. Further, the U.S. Postal Service could change certification
requirements or specifications for Internet postage or revoke the approval of
our Internet postage solution. If we are unable to adapt our Internet postage
solution to any new requirements or specifications or if the U.S. Postal
Service discontinues Internet postage as an approved postage method, our
business will suffer dramatically. U.S. Postal Service regulations may require
that our personnel with access to postal information or resources obtain
security clearances, which 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.
If we cannot successfully manage the commercial availability of our Internet
postage solution, our business and reputation will be harmed.
Our reputation and our ability to attract, retain and provide solutions to
our customers depend upon the reliable performance of our Web site, network
infrastructure and transaction-processing systems. If we are unable at any time
to provide our customers with our Internet postage solution in a satisfactory
manner, our business and reputation may be damaged. We will face numerous risks
concurrent with the introduction of our Internet postage solution. Under the
Information Based Indicia Program, the commercial roll-out of our Internet
postage solution is initially limited to 10,000 customers, with expanding
numbers of customers based upon successful evaluations by the U.S. Postal
Service. We have very limited experience conducting marketing campaigns, and we
may fail to generate significant interest in our Internet postage solution. On
the other hand, if we generate extensive interest in our solution, we cannot
assure you that we will be able to effectively manage commercial availability
of our Internet postage solution 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 strategic relationships, our
Internet postage solution may not achieve commercial acceptance.
We have established strategic relationships with a limited number of third
parties. These strategic relationships include sales, marketing and
distribution agreements. We rely heavily upon these relationships to build our
E-Stamp brand and to accelerate the adoption of our Internet postage solution.
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 business will suffer and our financial
condition and results of operation will be seriously harmed. In addition, given
the recent commercial launch of our Internet postage solution, a number of our
strategic partners are still in the process of establishing the marketing,
promotional and distribution activities for our solution 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 solution.
If we do not achieve broad brand recognition, our business will suffer.
We must quickly build our E-Stamp brand to gain market acceptance for our
solution. If we fail to gain market acceptance for our Internet postage
solution, our business will suffer dramatically. We believe it is imperative to
our long term success that we obtain significant acceptance of our solution. We
cannot be certain that we will have sufficient resources to build our brand and
achieve commercial acceptance of our solution. To
8
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establish our brand awareness, we must invest substantial resources to develop
our products, pursue strategic relationships, implement marketing initiatives,
and provide a high quality experience to our users.
Subsequent Internet postage solutions, if successfully developed by us, will
require additional U.S. Postal Service approvals that may delay their
commercial introduction.
Although we recently received approval from the U.S. Postal Service for our
Internet postage solution, we have not begun the approval process for future
solutions under development, including our server-based solution. Our Internet
postage solution took approximately 18 months to complete the beta test portion
of the U.S. Postal Service's approval process. While we believe subsequent
approvals should take less time because we may be able to leverage portions of
our prior approval experience, we cannot assure you of the duration of the
approval process for our server-based or any subsequent solution, or that these
solutions 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 solutions in
a timely manner or at all. Failure to timely receive U.S. Postal Service
approval for our server-based solution or subsequent solutions could limit our
ability to successfully grow our business.
We have experienced significant growth in our business in recent periods, and
any failure to manage this growth could damage our business.
Our ability to successfully offer our Internet postage solution 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. If we are unable to manage growth effectively or experience
disruptions during our expansion, our business will suffer and our financial
condition and results of operations will be seriously 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.
If the sole supplier of our Internet postage device is unable to timely meet
our commercial supply needs, our revenues and operating results would be
materially harmed.
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 harm our business. If we cannot
obtain an adequate supply of our Internet postage device, our operating results
and business would be materially and adversely harmed. 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 business and reputation and substantially and
adversely affect our operating results.
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 during initial commercial launch of our service and we may suffer
additional interruptions in our service. Our customer acquisition and
processing systems and those of our third party hosted facilities contain
redundancy features but
9
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are not fully redundant, and 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 plan to expand our systems infrastructure on an ongoing basis but we
cannot assure you that we will be able to timely expand these capabilities to
support growth in traffic from our customers. In addition, 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.
The inability to expand our systems 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. Our failure to provide new features or
functionality also could result in these consequences. 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.
We rely heavily upon third parties to deliver our Internet postage solution to
customers.
We rely upon third parties to distribute and sell our Internet postage
solution. 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 solution. We are in discussions with a number of office supply and computer
retailers to carry our Internet postage solution and we cannot assure you that
these retailers will carry our solution or devote sufficient marketing, shelf
space or other resources to them. If we are unable to provide an adequate
distribution channel for our Internet postage solution, our business will be
seriously harmed. 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 solution
to our customers.
The 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.
10
<PAGE>
A breach of our online security would harm our business and 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 business and reputation and would likely
result in the loss of customers. Furthermore, if we are unable to provide
adequate security, the U.S. Postal Service could prohibit us from selling
postage over the Internet. 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 solutions, 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. We generally enter into confidentiality agreements with
our employees, consultants and other third parties to control and limit access
and disclosure of our proprietary information. These contractual arrangements
or other steps taken to protect our intellectual property may not be sufficient
to prevent misappropriation of technology or deter independent third party
development of similar technologies. Additionally, the laws of foreign
countries may not protect our solutions 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 our business. 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. 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 of investors and analysts.
Since the U.S. Postal Service's approval of our Internet postage solution in
August 1999, we have generated only nominal revenues from our operations.
Accordingly, we have little basis upon which to predict
11
<PAGE>
future operating results. We expect that our revenues, margins and operating
results will fluctuate significantly due to a variety of factors, a number of
which are outside of our control. These factors include:
. the costs of our marketing programs to establish the E-Stamp brand name
and generate market demand for our Internet postage solution;
. our ability to develop and maintain strategic and distribution
relationships;
. timing of the commercial release of additional Internet postage
solutions developed by us;
. the number, timing and significance of new solutions introduced by our
competitors;
. the level of service and price competition;
. changes in our operating expenses as we expand operations; and
. general economic factors.
A substantial portion of our operating expenses is related to personnel
costs, marketing programs and overhead, which cannot be adjusted quickly and
are therefore relatively fixed in the short term. Our operating expense levels
are based, in significant part, on our expectations of future revenues. If our
expenses precede increased revenues, both gross margins and results of
operations 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 the expectations of
public market analysts and investors. In this event, the market price of our
common stock is likely to fall.
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. The loss of the services of these 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 solution 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 solutions, or else
our products and services may become noncompetitive or obsolete. We also could
incur substantial costs to modify our solutions or infrastructure and to
develop new solutions, 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.
12
<PAGE>
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 solutions. 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 solutions 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 solution 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 solutions 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. While we believe
that Internet postage solutions such as ours could be of benefit to customers
in foreign countries or to send mail from the United States to foreign
countries, unless and until foreign postal authorities create a certification
process and recognize information-based indicia postage, our Internet postage
solution will not be able to address these markets which may limit our future
growth. Efforts in Europe and other foreign markets related to adoption of
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 solutions internationally, regulation by international
agencies could disrupt our operations.
If foreign postal authorities in the future accept postage generated by our
solutions 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 solutions,
our business activities will be subject to a variety of potential risks,
including the adoption of laws and regulatory requirements, political and
economic conditions, difficulties protecting our intellectual property rights
and actions by third parties that would restrict or eliminate our ability to do
business in certain jurisdictions. If we begin to transact business in foreign
currencies, we will become subject to the risks attendant to transacting in
foreign currencies, including the potential adverse effects of exchange rate
fluctuations.
If we do not adequately address "Year 2000" issues, we may incur significant
costs and our business could suffer.
Failure of our internal computer systems or third-party equipment or
software, or systems maintained by our users and strategic sales and marketing
partners, 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 business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
13
<PAGE>
We may need additional capital and failure to obtain such capital could harm
our business.
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 solution, our development and introduction of
new solutions 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 harm our business.
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 solutions. A decline in
the growth of the Internet could decrease demand for our solutions and increase
our cost of doing business. 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 also harm our
business.
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 shares
of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options after June 30, 1999. Of these
shares, the shares sold in this offering are freely tradable. The remaining
shares will become eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
Number
of
Shares Date of Availability for Sale
<C> <S>
At the date of this prospectus
90 days after the date of this prospectus
180 days after the date of this prospectus subject to certain
restrictions under the federal securities laws
More than 180 days after the date of this prospectus, subject to
certain restrictions under the federal securities laws
</TABLE>
The above table gives effect to lock-up arrangements with the underwriters
under which our directors, officers and certain stockholders have agreed not to
sell or otherwise dispose of their shares of common stock for a period of 180
days after the date of this prospectus. The underwriters may remove these lock-
up restrictions prior to 180 days after the offering without prior notice.
14
<PAGE>
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 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.
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 has been
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, 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.
You should not rely on forward-looking statements because they are inherently
uncertain.
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 certain 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 above and elsewhere in this
prospectus.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock
offered hereby are estimated to be $ , based on an assumed initial
public offering price of $ 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 $ .
We expect to use the net proceeds for sales and marketing expenditures
related to promoting our Internet postage solution, building E-Stamp brand
recognition, and developing additional strategic relationships, with the
balance for general corporate purposes, including working capital 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.
15
<PAGE>
DIVIDEND POLICY
We have never declared or paid any 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.
16
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of June 30, 1999;
. our pro forma capitalization after giving effect to our sale of
2,931,229 shares of convertible preferred stock in August 1999, for an
aggregate purchase price of $30.2 million, and the use of $5.0 million
of those proceeds to pay off an existing bank loan entered into and
drawn upon in July 1999, the automatic conversion of all outstanding
shares of redeemable convertible preferred stock into shares of common
stock, including shares sold in August 1999, which will occur upon the
closing of this offering; and
. our pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at an assumed initial public offering
price of $ 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>
Long-term obligations, net of current portion....... $ 6 $ $
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, 13,435 shares issued and outstanding,
actual; 200,000 shares authorized, 20,123 shares
issued and outstanding, pro forma; 200,000 shares
authorized, shares issued and
outstanding, pro forma as adjusted............... 14
Additional paid-in capital........................ 24,194
Notes receivable from employees and officers...... (2,157)
Deferred stock compensation....................... (9,309)
Deficit accumulated during development stage...... (37,035)
-------- ------- -------
Total stockholders' equity (deficit)............ (24,293)
-------- ------- -------
Total capitalization................................ $ 358 $ $
======== ======= =======
</TABLE>
This table excludes the following shares:
. 2,821,498 shares of common stock reserved for future issuance under our
stock option, director stock option and employee stock purchase plans;
. 1,029,000 shares of common stock subject to outstanding options as of
June 30, 1999 with an average exercise price of $0.90 per share; and
. 60,032 shares of common stock issuable upon exercise of outstanding
warrants.
17
<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, our sale of 2,931,229 shares of convertible
preferred stock in August 1999 for an aggregate purchase price of approximately
$30.2 million) was $ , or approximately $ 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
shares of common stock offered by this prospectus at an assumed
initial public offering price of $ per share and after deducting the
underwriting discount and estimated offering expenses payable by us, our net
tangible book value would have been approximately $ , or $ per
share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ 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................. $
Pro forma net tangible book value per share as of June 30,
1999........................................................... $
Increase per share attributable to new investors................
------
As adjusted pro forma net tangible book value per share after
the offering...................................................
------
Dilution in pro forma net tangible book value per share to new
investors...................................................... $
======
</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 1,029,000 shares of common stock with an
average exercise price of $0.90 per share. See Notes 3 and 9 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 $ per share (before deducting the
underwriting discount and estimated offering expenses payable by us).
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
--------------- --------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders............. .0% $ .0% $
New investors..................... .0% .0%
------- ----- ------- -----
Total........................... 100.0% $ 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
decrease to or approximately % 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
or approximately % of the total number of shares of our
common stock outstanding after this offering.
18
<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....... 160 534 1,739 1,748 1,897 903 1,373
Amortization of
deferred stock
compensation......... -- -- 688 414 405 -- 1,927
------ ------- ------- ------- -------- ------- --------
Operating loss.......... (572) (1,331) (6,575) (7,821) (10,627) (4,498) (11,019)
Interest income
(expense), net......... -- (17) 236 143 370 43 176
------ ------- ------- ------- -------- ------- --------
Net loss................ (572) (1,348) (6,339) (7,678) (10,257) (4,455) (10,843)
Accretion on redeemable
convertible preferred
stock.................. -- -- -- (196) (1,383) (307) (1,176)
------ ------- ------- ------- -------- ------- --------
Net loss attributable to
common stockholders.... $(572) $(1,348) $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
====== ======= ======= ======= ======== ======= ========
Net loss per common
share (basic and
diluted)............... $(0.06) $ (0.14) $ (0.63) $ (0.76) $ (1.11) $ (0.46) $ (1.11)
====== ======= ======= ======= ======== ======= ========
Pro forma net loss per
share basic and
diluted(1)............. $ (0.68) $ (0.62)
======== ========
Weighted average shares
outstanding (basic and
diluted)............... 8,940 9,546 10,034 10,373 10,460 10,421 10,789
Shares used in
calculation of pro
forma net loss per
share basic and
diluted(1)............. 15,002 17,477
</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
Long-term obligations, net
of current portion........ -- -- 88 38 11 6
Total stockholders' equity
(deficit)................. (352) 644 4,101 (3,138) (14,225) (24,293)
</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.
19
<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 easy-to-use Internet postage solution 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. From November 1994 to March 1998, we
incurred operating costs primarily related to the development of our Internet
postage solution 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. In August 1999, we received final approval
from the U.S. Postal Service for our Internet postage solution and since then
have been selling our solution nationally in accordance with approved
quantities and distribution channels.
In addition to working with the U.S. Postal Service to obtain approval of
our Internet postage solution, our primary activities since inception have
included:
. developing our business model;
. developing and testing our Internet postage solution;
. hiring management and other key personnel;
. building our infrastructure; and
. entering into strategic alliances.
Subsequent to June 30, 1999, we have recognized only nominal revenues from
our desktop Internet postage solution. We intend to recognize revenue from an
initial license fee for our Internet postage solution, 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.
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
have incurred net losses in each quarterly and annual period since our
inception, and as of June 30, 1999, our accumulated deficit was $37.0 million.
During the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1999, in connection with the grant of certain stock options to
employees, we recorded deferred stock compensation totaling $12.8 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. We recorded amortization of deferred stock compensation
in the amount of $688,000, $414,000 and $405,000 for the years ended December
31, 1996, 1997 and 1998 and $1.9 million for the six months ended June 30,
1999. At June 30, 1999, we had a total of $9.3 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 and August 1999. See Notes 3 and 9 of Notes to Financial
Statements.
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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 solution, 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. The increase in research and development
expenses was due primarily to increases in employee headcount, consulting
costs, contractor expenses and project materials due to further development of
our Internet postage solution, server-based solution, 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 solution and our server-
based solution 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. The increase in sales and marketing expenses was due primarily
to expenses related to growth in the number of strategic relationships,
expenses related to the anticipated launch of our Internet postage solution,
costs related to the continued development of our marketing campaigns, and an
increase in sales and marketing personnel. We expect sales and marketing
expenses to increase in dollar amount as we promote and launch our Internet
postage solution and as we hire additional personnel, continue to promote our
brand and add new strategic 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. The increase in general and administrative expenses was due primarily to
a one-time charge for severance accrual for a former executive officer and, to
a lesser extent, an increase in administrative staff and professional fees. 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 with
being a public reporting company.
Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $1.9 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 $11.6 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 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. The increases in research and development expenses in
1998 and 1997 were due primarily to increases in employee headcount, contractor
expenses, project materials and network operations investments.
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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. The increase in sales and marketing expenses in 1998 was due
primarily to an increase in sales and marketing personnel, costs related to the
continued development of our marketing and branding campaigns, expenses related
to the anticipated launch of our Internet postage solution, and expenses
related to growth in the number of strategic relationships. Sales and marketing
expenses in 1997 decreased modestly due 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 administrative staff, rent, professional
services 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 decreased 2% to $405,000 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 $2.7 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 $68.9 million in
private funding, including $30.2 million through our most recent financing in
August 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.
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 $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. Our
forecast of the period of time through
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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 solution, our introduction of new solutions 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. Also, 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.
Since inception, we have internally developed substantially all of the
systems for the operation of our Internet postage solution. These systems
include the software used to provide customer interaction and transactional and
distribution functions to our solutions, 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 solution 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. We have initiated communications or obtained information from our
vendors and suppliers of third-party equipment and software to validate that
their products and systems are Year 2000 compliant. Based on the
representations that we have received and obtained from our third party vendors
and suppliers, we believe that their systems are Year 2000 compliant. We will
develop and implement, if necessary, a remediation plan with respect to third-
party software, third-party vendors and computer technology and services that
may fail to be Year 2000 compliant.
If Year 2000 issues prevent our users from accessing the Internet or our
Internet postage solution or from processing postage, our business and
operations will suffer. Any failure of our third-party equipment or software to
operate properly could require us to incur unanticipated expenses, which could
seriously harm our business, operating results and financial condition. For
example, pursuant to regulations of the Information
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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.
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
solutions and would harm our results of operations.
Contingency Planning. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 problems
affecting our internal systems. We expect to complete these contingency plans
by the end of the third quarter of 1999. Depending on the systems affected,
these plans could include (1) accelerated replacement of effected equipment or
software, (2) increase work hours for our personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 problems which
may arise, (3) the provision of manual workarounds for information systems and
(4) 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
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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.
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.
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BUSINESS
Overview
We provide an easy-to-use Internet postage solution 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. We received approval from the
U.S. Postal Service in August 1999 for our Internet postage solution, and since
then have been selling our solution nationally. We are targeting our Internet
postage solution 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 solution, we have formed
strategic relationships with industry leaders, such as Microsoft, Yahoo!,
Excite@Home, America Online, Compaq, Earthlink, Francotyp-Postalia and Avery
Dennison. We believe our cost-effective Internet postage solution will enhance
customer satisfaction during the mail and postage process by improving overall
access, convenience and flexibility for SOHO users, in addition to increasing
operating efficiencies and decreasing postal fraud for the U.S. Postal Service.
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.
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;
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. 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.
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>
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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 44.7 million SOHOs in the U.S. in
1998, which is expected to grow to 57.6 million by 2002. Of the 44.7 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 1.7 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
solutions 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
business/small office 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, 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. Currently, 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 share 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 solutions for the SOHO user will depend upon the solution'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;
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. 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 Solution
We provide an easy-to-use Internet postage solution 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 solution 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 solution, we have formed
strategic relationships with industry leaders. In addition, our Internet
postage solution is tightly integrated with popular business computer programs,
including Microsoft Word and Outlook, and Intuit's Quickbooks.
We believe our desktop Internet postage solution provides the following
benefits to SOHO users and the U.S. Postal Service:
Benefits to SOHO Users
Enhanced Flexibility. With our Internet postage solution, 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
solution 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 solution 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 solution is tightly integrated with
popular software applications, including 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 solution 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 solution enables SOHO users to print a variety of
postage types, including first class, priority mail, express mail and parcel
post;
Simple and Secure. Our Internet postage solution can be installed in minutes
and includes easy-to-use instructions and an intuitive user interface. Further,
our solution 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; and
Cost-Effective. Our Internet postage solution is cost-effective for SOHO
users relative to traditional postage stamps, by eliminating overposting and
foregone wages from time spent travelling to and from the post office, and
relative to postage meters, by eliminating lease fees. In addition, our
solution enables SOHOs to leverage their existing investments in personal
computers, printers and software.
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Benefits to the U.S. Postal Service
A New Low-Cost Distribution Channel. Our Internet postage solution 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 solution 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 solution 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 solution 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 solutions.
Key elements of our growth strategy include the following:
Partner with Industry Leaders to Quickly Acquire Customers
Our strategy includes partnering with industry leaders to rapidly acquire
customers, build brand recognition and accelerate the adoption of our Internet
postage solution. We have entered into strategic relationships with Microsoft,
Yahoo!, Excite@Home, America Online, Compaq, EarthLink, Francotyp-Postalia,
Dymo-CoStar, Tension Envelope, Avery Dennison and Sunbeam's Pelouze division.
Partnering with well-known and trusted names in the Internet, computer hardware
and software, and business supply industries enables us to leverage our
partners' installed customer bases, distribution channels and marketing
expertise, and facilitate the adoption, usage and accessibility of our Internet
postage solution. We anticipate continuing to add additional strategic partners
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 solutions.
We have conducted extensive qualitative and quantitative research on SOHO
users, and have tailored our Internet postage solution 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 premier strategic
partners and high quality solutions 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 our strategic partners. We intend to
promote our brand through television, print and radio advertising, and online
banner advertising through partnerships 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.
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Leverage Our Technology Platform and Expertise to Extend Our Family of
Internet Postage Solutions
We intend to leverage our customer-centric focus, scalable electronic
commerce platform and our patent portfolio to develop a family of Internet
postage solutions for the high volume mailer and corporate enterprise and for
the low volume individual consumer. We intend to offer an intranet-based
solution 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 solution, 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 solutions 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:
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
partnered with third party vendors of integrated scales and other postage
supplies.
International Internet Postage Market. We believe that there are significant
opportunities in international markets for our Internet postage solution. In
particular, we believe our Internet postage solution is ideally suited for many
international markets because users pay for connecting to the Internet based on
usage time and thus are seeking solutions that can reduce expensive connection
time.
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.
Our Internet Postage Solution
Our Internet postage solution 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 solution
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 solution nationally in August 1999. Our Internet postage solution is
currently available through our Web site and through a toll-free telephone
number, with software and our secure postage device each being delivered via
overnight delivery services, and we expect our Internet postage solution to
also be available at many retail outlets beginning in fall 1999. The estimate
of when our Internet postage solution will be available in retail outlets is a
forward-looking statement that is subject to risks and uncertainties. The
actual timing may differ materially from this estimate as a result of a number
of factors, including the availability of shelf space and product fulfillment.
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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 solution 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 solution also
includes our silver-dollar size, secure postage
device that easily 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]
Printing Postage
The following simple three steps are involved in using our Internet postage
solution.
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 solution.
Business Application Integration. We have tightly integrated our solution
with the following leading software applications:
. Microsoft Word -- Our Internet postage solution 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;
. Microsoft Outlook -- Our software allows users to access addresses in
Outlook without leaving the E-Stamp application; and
. Intuit QuickBooks -- Our software's integration with QuickBooks enables
users to send invoices faster and more easily to their customers.
Address Software Functionality. Our Internet postage solution enables users
to print Internet postage using their existing mailing databases, and is
compatible with over 17 types of address storage software. Further, addresses
are stored on the user's personal computer with our Internet postage solution,
negating any need to upload confidential information to a shared server.
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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 solution. The sale of these postage supplies requires U.S. Postal
Service approval and we are in the process of obtaining necessary approvals.
Strategic Relationships
We believe that market penetration, brand awareness and adoption of our
Internet postage solution 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 solution. To achieve these goals, we have established a
strategy of partnering with the industry leaders in business segments related
to the Internet, computer hardware and software, postage and business supplies.
Our strategic relationships allow us to leverage our partners' installed
customer bases, distribution channels and marketing expertise to facilitate the
adoption, usage and accessibility of our Internet postage solution.
Microsoft. In July 1999, Microsoft, an investor in E-Stamp since 1997,
selected us as its premium online postage partner for its Microsoft Office
Update Web site. As a featured service on the Microsoft Office Update Web site,
we significantly increase our reach into the small business, small office and
home office market by making our Internet postage solution available to the
large base of Microsoft Office users who frequent the 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 worked with Microsoft's product
development teams to integrate our Internet postage solution with Microsoft
applications, including Microsoft Word and Microsoft Outlook.
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, with over 80 million users worldwide, and is
one of the most recognized brands associated with the Internet. Under this
agreement, we are Yahoo!'s premier Internet postage provider, and Yahoo! users
will have direct access to the E-Stamp service from within the Yahoo! Postal
Center. Additionally, Yahoo! users will have access to our Internet postage
service from other small-business targeted properties throughout the Yahoo!
network through banner advertisements placed by us on these sites.
Excite@Home. In August 1999, we entered into a binding letter of intent with
Excite@Home to be the preferred Internet postage provider across Excite@Home's
@Work division. This relationship is designed to provide early broadband
adapters with access to our solution through the @Work site. As part of this
relationship, our service offering will be integrated into @Work's portfolio of
products and services. 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, currently scheduled to launch in August
1999. America Online's Postage Services Center will feature direct links to our
Web site where America Online members can purchase our Internet postage
solution. As part of the agreement, America Online has agreed to promote our
solution until May 2000 with banner advertisements across several of America
Online's branded properties, including CompuServe, AOL.com and Digital City.
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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 solution as part of the online services available
to owners of their Prosignia line of personal computers, targeted at the small
business market
and sold through their broad sales channels, and will offer our Internet
postage solution 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 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 solution through its Web
site. Additionally, we intend to leverage Francotyp-Postalia's established
distribution channels and existing customer base to distribute our solution.
Francotyp-Postalia also is one of our equity investors.
Avery Dennison. In July 1999, we entered into a strategic relationship with
Avery Dennison that includes sales, marketing and distribution agreements.
Under this agreement, our Internet postage solution is to be the only online
postage solution 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 strategic 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 solution 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
solution, is currently expected to be available to our customers through our
online store later in 1999.
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 an 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 solution available for purchase through EarthLink's mall and to place
banner advertisements for our solution in their service. In addition, EarthLink
has agreed to place an advertisement for our solution 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 strategic 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 solution in retail channels, promote us to its existing customer base, and
to integrate support for our service directly into its printer software. 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.
Acquisition of Customers
The initial focus of our Internet postage solution is on the large and
growing SOHO market, which consists of small businesses, small offices and home
offices. We have established relationships with leading
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Internet, computer and business supply companies to distribute our Internet
postage solution through channels most frequented by SOHOs. In addition, we are
leveraging our strategic partners' 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 solution
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 solution 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 selected 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; and
. 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 partnered with Compaq, Avery
Dennison, Dymo-CoStar and Sunbeam's Pelouze division to bundle promotions for
our Internet postage solution in selected products, which enables us to
leverage our partners' installed customer base, distribution channels and
marketing experience.
Affiliate and Affinity Programs. We intend to establish an extensive
affiliate program with premier sites and we will offer other revenue-sharing
opportunities for affiliates who promote or provide links to our products from
their Web site. In addition, we plan to extend promotional offers to trade
associations with substantial SOHO membership.
Online and Offline Advertising. We currently have strategic relationships in
place with some of the top Internet sites, including Yahoo!, Microsoft, America
Online, Excite@Home and EarthLink, and we intend to partner 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 solution.
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 to prominently display our logo
and Web site address, in order to further develop our brand recognition and
accelerate the acquisition of new customers through referrals.
U.S. Postal Service Information Based Indicia Program Certification Process
The U.S. Postal Service recently approved our Internet postage solution
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
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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.
Competition
We believe that our Internet postage solution 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, has been approved
for commercial release by the U.S. Postal Service to date. 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 solution 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.
We may not be able to maintain a competitive position against current or
future competitors as they enter the 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 our market
include: (1) U.S. Postal Service product certification; (2) brand recognition;
(3) integration with other software applications; (4) convenience; (5) service
availability and reliability; (6) price; (7) security; and (8) 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
solution that meets our customers' needs and fulfills the U.S. Postal Service's
certification requirements.
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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, Microsoft
Outlook and Intuit's QuickBooks, 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 ours.
Postage Application Programming Interface. We built our software from the
ground up so that it can be integrated as a component of another software
application. This means we can virtually any software application can be
"postage-enabled" to print Internet postage onto envelopes, labels, or
documents. Through this technology, we believe that we can create the tight
integration 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 for being 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.
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
solution. 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 solution 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 solution will be positioned to meet
the needs of this base of users. The server-based solution will enable a user
to purchase and store Internet postage directly on our secure electronic
commerce server and print from their local printer.
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
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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. 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." Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our solutions 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 by Pitney Bowes against us, could prevent or delay our
ability to provide our Internet postage solutions" and "--Legal Proceedings."
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 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
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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. 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. See "Risk Factors--Intellectual property
infringement claims, including claims by Pitney Bowes against us, could prevent
or hinder our ability to sell Internet postage."
On May 10, 1999, in U.S. District Court, E-Stamp obtained a temporary
restraining order against Dave Lahoti ordering Mr. Lahoti (a cybersquatter) 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.
39
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to our
executive officers and directors as of August 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
</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, 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.
40
<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, 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, 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, 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, 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 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., 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. 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 and where he is currently a
Principal. 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
41
<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.
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. See "Description of Capital
Stock--Antitakeover Effects of Provisions of Certain Charter Provisions, Bylaws
and Delaware Law."
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 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.
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.
42
<PAGE>
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 certain
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 298,470 shares to Marcelo A. Gumucio at an exercise
price per share of $0.80. Please see also "--Incentive Stock Plans--Director
Option Plan" for a description of options to be granted to our non-employee
directors after this offering.
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 70,000 296,210
Former Chief Executive
Officer and
President(1)
Martin Pagel............ 153,750 -- 15,195
Chief Technical Officer
Nicole Eagan............ 128,750 35,000 26,000
Senior Vice President,
Marketing and Sales
Thomas J. Reinemer...... 128,750 30,000 28,000
Vice President,
International(2)
Rick D. Prime........... 128,750 -- 10,000
Former Vice President,
Finance(3)
</TABLE>
- ---------------------
(1) Mr. Kapoor served as Chief Executive Officer and President of E-Stamp from
December 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.
43
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain 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. 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 1,361,055 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............ 59,210 4.4% $0.80 11/01/08 $ 29,789 $ 75,492
237,000 17.4 0.80 12/15/08 119,238 302,174
Martin Pagel............ 15,195 1.1 0.80 11/01/08 7,645 19,374
Nicole Eagan............ 26,000 1.9 0.80 11/01/08 13,081 33,150
Thomas J. Reinemer...... 28,000 2.1 0.80 11/01/08 14,087 35,700
Rick D. Prime........... 10,000 0.7 0.80 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............ 599,200 $23,063 296,210 -- $ -- $ --
Martin Pagel............ 180,260 6,406 15,195 -- -- --
Nicole Eagan............ 266,154 6,406 26,000 -- -- --
Thomas J. Reinemer...... 245,536 6,406 28,000 -- -- --
Rick D. Prime........... 100,000 -- -- -- -- --
</TABLE>
44
<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.
A total of 2,000,000 shares of common stock is reserved for issuance, plus
annual increases, beginning in fiscal year 2000, equal to the lesser of:
. 1,000,000 shares;
. 3% of the outstanding shares on such date; or
. a lesser amount determined by the board.
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 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.
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.
45
<PAGE>
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
4,750,000 shares of common stock were authorized for issuance under the 1996
Plan. As of August 10, 1999, options to purchase an aggregate of 1,172,790
shares of our common stock were outstanding under this stock option plan, and a
total of 3,555,712 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.
46
<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 day following the closing 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
47
<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 100,000 shares of our common stock are authorized for issuance
under the 1996 Director Plan. As of August 10, 1999, a total of 15,250 shares
were subject to outstanding options granted under this plan. Although 84,750
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 certain 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 agreed to give Mr. Ewald a grant of 100,000
shares of common stock if we successfully complete an initial public offering
within twelve months of his commencement of employment. We agreed to provide
Mr. Lewis with a promissory note in the amount of $30,000 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. 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.
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<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.
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CERTAIN 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 2,931,229 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.
<TABLE>
<CAPTION>
Aggregate
Series A Series B Series C Cash
Name Preferred Preferred Preferred Consideration
<S> <C> <C> <C> <C>
Microsoft Corporation............. 1,250,000 261,750 109,231 $5,126,174
Entities affiliated with AT&T
Ventures(1)...................... 1,250,000 261,750 218,462 6,252,343
Canaan Equity, L.P................ -- 1,047,000 113,476 5,169,478
Unified Holdings, L.L.C........... -- 1,047,000 -- 4,000,000
John V. Balen(2).................. -- 1,047,000 113,476 5,169,478
Thomas L. Rosch(3)................ 1,250,000 261,750 218,462 6,252,343
Gregory S. Stanger(4)............. 1,250,000 261,750 109,231 5,126,174
Adam Wagner(5).................... -- 1,047,000 5,416 4,055,379
</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.
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<PAGE>
Certain Sales to Executive Officers
On May 30, 1999, we sold 1,225,000 shares of common stock at a price of
$0.90 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 266,154 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 240,529
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 180,260 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 154,635
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 245,536 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 219,911
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 150,000 shares of common stock at a price of $1.50
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 August 4, 1999, we sold 300,000 shares of common stock at a price of
$1.50 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 4, 1999, we sold 150,000 shares of common stock at a price of
$1.50 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.
Other Transactions
We have entered into indemnification agreements with each of our executive
officers and directors.
We have granted options to certain of our executive officers and directors.
See "Management--Option Grants in Last Fiscal Year."
Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of the preferred stock.
See "Description of Capital Stock--Registration Rights."
We believe that all related party transactions described above were on terms
no less favorable than could have been obtained from unrelated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of August 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 August 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
23,541,541 shares of common stock outstanding as of August 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.
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<PAGE>
Principal Stockholders Table
<TABLE>
<CAPTION>
Percentage of
Shares
Number of Outstanding
Shares -----------------
Beneficially Before After
Name Owned Offering Offering
<S> <C> <C> <C>
5% Stockholders:
Entities affiliated with AT&T Ventures(1)... 1,730,212 7.3%
Microsoft Corporation(2).................... 1,620,981 6.9
John Trotter(3)............................. 1,586,250 7.6
Directors and Executive Officers:
Robert H. Ewald(4).......................... 1,225,000 5.2
Anthony H. Lewis, Jr.(5).................... 300,000 1.3
Martin Pagel(6)............................. 197,621 *
Nicole Eagan(7)............................. 342,154 1.5
Thomas J. Reinemer(8)....................... 273,536 1.2
Rick D. Prime(9)............................ 101,083 *
Sunir Kapoor................................ 274,005 1.2
Marcelo A. Gumucio(10)...................... 298,470 1.3
John V. Balen(11)........................... 1,160,476 4.9
Thomas L. Rosch(12)......................... 1,730,212 7.3
Gregory S. Stanger(13)...................... 1,620,981 6.9
Adam Wagner(14)............................. 1,462,416 6.2
All directors and executive officers as a
group (14 persons)(15)..................... 9,285,954 39.4
</TABLE>
- ---------------------
* Less than 1% of the outstanding shares of common stock.
(1) The aggregated shares listed for entities affiliated with AT&T Ventures are
owned as follows: 1,360,575 shares are beneficially owned by AT&T Venture
Fund II, L.P. and 151,175 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.
(2) The address for Microsoft Corporation is One Microsoft Way, Redmond, WA
98502.
(3) The address for Mr. Trotter is 1000 Louisiana #3600, Houston, Texas 77002.
(4) At August 10, 1999, 1,225,000 shares held by Mr. Ewald were unvested and
subject to a right of repurchase in favor of us, which right lapses over
time.
(5) At August 10, 1999, 300,000 shares held by Mr. Lewis were unvested and
subject to a right of repurchase in favor of us, which right lapses over
time.
(6) At August 10, 1999, 117,655 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.
(7) At August 10, 1999, 168,695 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.
(8) At August 10, 1999, 157,137 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.
(9) At August 10, 1999, 40,625 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.
(10) Includes 298,470 shares issuable upon exercise of options held by Mr.
Gumucio within 60 days of August 10, 1999, all of which would be subject
to a right of repurchase in favor of us, which right lapses over time.
(11) 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.
(12) 1,557,191 shares are beneficially owned by AT&T Venture Fund II, L.P. and
173,021 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.
(13) 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.
53
<PAGE>
(14) Includes 200,000 shares of common stock held by Wagner & Brown, Ltd, Mr.
Wagner's employer. Mr. Wagner has disclaimed beneficial ownership of these
shares. Includes 50,000 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 160,000 shares of common
stock held in escrow and for which Mr. Wagner is an escrow agent. Wagner &
Brown, Ltd. claims beneficial ownership of 30,624 shares and Wagner Family
Partnership VI claims beneficial ownership of 7,648 shares. 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. claims beneficial ownership of 130,875 shares and Wagner
Family Partnership VI 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.
(15) Includes 758,117 shares issued under the 1996 Stock Option and Restricted
Stock Plan which were vested and 1,950,503 shares which were unvested at
August 10, 1999 and subject to a right of repurchase in favor of us, which
right lapses over time. Includes 298,470 shares issuable upon exercise of
options within 60 days of August 10, 1999, all of which would be subject
to a right of repurchase in favor of us, which right lapses over time.
54
<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 August 10, 1999, there were 23,541,541 shares of common stock
outstanding which were held of record by approximately 465 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. 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. See "Dividend Policy." 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 August 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 21,235 shares of common stock upon closing of this offering. At
August 10, 1999, there were warrants outstanding to purchase 38,797 shares of
common stock.
55
<PAGE>
Registration Rights
The holders of preferred stock convertible into 9,619,229 shares of common
stock (the "registrable securities") are entitled to certain 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 Certain Charter and Bylaw Provisions
Certain 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 certain types
of 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. See "Management--Board
of directors and Executive Officers." 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.
56
<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."
57
<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. As
described below, no shares currently outstanding will be available for sale
immediately after this offering because of certain contractual restrictions on
resale. Sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock based upon shares outstanding as of August 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 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.
The remaining shares of common stock held by existing stockholders are
restricted shares as that term is defined in Rule 144. All such restricted
shares are subject to 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.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of
these shares will be resellable until 181 days after the date of this
prospectus. Beginning 181 days after the date of this prospectus, approximately
restricted shares will be eligible for sale in the public market,
all of which are subject to volume limitations under Rule 144, except
shares eligible for sale under Rule 144(k) and shares
eligible for sale under Rule 701. In addition, as of August 10, 1999, there
were outstanding options to purchase 1,172,790 shares of common stock, warrants
to purchase 38,797 shares of common stock and warrants to purchase preferred
stock convertible into 21,235 shares of common stock, some of which may be
exercised prior to this offering. All such options and warrants are subject to
lock-up agreements. 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, however any release shall
apply pro-rata to all stockholders subject to the 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.
Sales under Rule 144 are also subject to certain 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.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee,
58
<PAGE>
officer or director of or consultant to us who purchased shares under a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, all Rule 701 shares are subject
to lock-up agreements and will only become eligible for sale at the earlier of
the expiration of the 180-day lock-up agreements.
Within 90 days following the effectiveness of this offering, we will file a
Registration Statement on Form S-8 registering 3,994,288 shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of August 10, 1999, options to purchase a total 1,172,790 shares were
outstanding and 2,821,498 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
9,619,229 restricted shares will be entitled to certain registration rights for
sale in the public market. See "Description of Capital Stock--Registration
Rights." 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.
59
<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.
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............. $ $ $ $
Expenses payable by us..
</TABLE>
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 $10.31 per share, the same price per share
paid by all investors who participated in the private placement. Certain
entities affiliated with Donaldson, Lufkin & Jenrette Securities Corporation
also invested in the private placement,
60
<PAGE>
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 certain 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 period 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 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.
61
<PAGE>
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.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock to be sold in the offering for certain
individuals and entities designated by us who have expressed an interest in
purchasing shares in the offering. The number of shares available for sale to
the general public will be reduced to the extent these individuals and entities
purchase these reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same basis as other
shares offered hereby.
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 certain members of and persons associated with Wilson Sonsini
Goodrich & Rosati, Professional Corporation, as well as certain 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 in the first
paragraph 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.
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.
62
<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 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, 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.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 19, 1999
Except for Note 9 as to which the date is August 13, 1999.
F-2
<PAGE>
E-STAMP CORPORATION
(a development stage company)
BALANCE SHEETS
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
Pro forma
Stockholders'
December 31, Equity
---------------- June 30, (Deficit) 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..........
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,
10,406, 11,939, and 13,435 shares
issued and outstanding at December
31, 1997 and 1998 and June 30, 1999,
respectively (200,000 shares
authorized and 20,123 shares
outstanding pro forma).............. 10 12 14 20
Additional paid-in capital........... 12,787 14,897 24,194 48,833
Notes receivable from employees and
officers............................ -- (653) (2,157) (2,157)
Deferred stock compensation.......... -- (2,289) (9,309) (9,309)
Deficit accumulated during
development stage................... (15,935) (26,192) (37,035) (37,035)
------- ------- ------- --------
Total stockholders' equity (deficit)... (3,138) (14,225) (24,293) $ 352
------- ------- ------- ========
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 18,154
Sales and marketing... 1,761 1,743 2,722 1,137 2,494 8,853
General and
administrative....... 1,739 1,748 1,897 903 1,373 7,472
Amortization of
deferred stock
compensation......... 688 414 405 -- 1,927 3,464
------- ------- -------- ------- -------- --------
Operating loss.......... (6,575) (7,821) (10,627) (4,498) (11,019) (37,943)
Interest income......... 239 157 380 46 177 1,017
Interest expense........ (3) (14) (10) (3) (1) (109)
------- ------- -------- ------- -------- --------
Net loss................ (6,339) (7,678) (10,257) (4,455) (10,843) (37,035)
Accretion on redeemable
convertible preferred
stock.................. -- (196) (1,383) (307) (1,176) (2,755)
------- ------- -------- ------- -------- --------
Net loss attributable to
common stock........... $(6,339) $(7,874) $(11,640) $(4,762) $(12,019) $(39,790)
======= ======= ======== ======= ======== ========
Net loss per common
share (basic and
diluted)............... $ (0.63) $ (0.76) $ (1.11) $ (0.46) $ (1.11)
======= ======= ======== ======= ========
Weighted-average shares
outstanding (basic and
diluted)............... 10,034 10,373 10,460 10,421 10,789
Unaudited pro forma net
loss per share (basic
and diluted)........... $ (0.68) $ (0.62)
======== ========
Unaudited pro forma
weighted-average shares
outstanding (basic and
diluted)............... 15,002 17,477
</TABLE>
See accompanying notes.
F-4
<PAGE>
E-STAMP CORPORATION
(a development stage company)
STATEMENTS OF 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
Convertible Deficit
Preferred Notes Accumulated Total
Stock Common Stock Additional Receivable During the Stockholders'
------------- -------------- Paid-In From Development Deferred Equity
Shares Amount Shares Amount Capital Employees Stage Compensation (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capital
contribution............ -- $ -- 8,850 $ 9 $ 201 $ -- $ -- $ -- $ 210
Issuance of units at
$272.73 per unit for
services................ -- -- 180 -- 10 -- -- -- 10
Net loss................ -- -- -- -- -- -- (572) -- (572)
--- ---- ------ --- ------- ---- ------- -------- -------
Balance at December 31,
1994.................... -- -- 9,030 9 211 -- (572) -- (352)
Redemption of common
stock................... -- -- (905) (1) (5,399) -- -- -- (5,400)
Issuance of common stock
to investors at $5.95
per share for cash, net
of issuance costs of
$56, and conversion of
notes................... -- -- 1,290 1 7,623 -- -- -- 7,624
Issuance of common stock
for services at $6.00
per share............... -- -- 15 -- 90 -- -- -- 90
Deferred compensation
related to restricted
common stock grants..... -- -- -- -- 60 -- -- (60) --
Amortization of deferred
compensation............ -- -- -- -- -- -- -- 30 30
Net loss................ -- -- -- -- -- -- (1,346) -- (1,346)
--- ---- ------ --- ------- ---- ------- -------- -------
Balance at December 31,
1995.................... -- -- 9,430 9 2,585 -- (1,918) (30) 646
Issuance of common stock
at $10.00 per share for
cash to investors in May
1996, net of issuance
costs of $25............ -- -- 900 1 8,974 -- -- -- 8,975
Issuance of common stock
for services to
consultants at $10.00
per share during 1996... -- -- 10 -- 100 -- -- -- 100
Exercise of stock
options for cash by
employees during 1996... -- -- 15 -- 31 -- -- -- 31
Deferred compensation
related to restricted
common stock grants and
stock options........... -- -- -- -- 1,072 -- -- (1,072) --
Stock issuance and
amortization of deferred
compensation............ -- -- 10 -- -- -- -- 688 688
Net loss................ -- -- -- -- -- -- (6,339) -- (6,339)
--- ---- ------ --- ------- ---- ------- -------- -------
Balance at December 31,
1996.................... -- $ -- 10,365 $10 $12,762 $ -- $(8,257) $ (414) $ 4,101
</TABLE>
See accompanying notes.
F-5
<PAGE>
E-STAMP CORPORATION
(a development stage company)
STATEMENTS OF 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
Convertible Deficit
Preferred Notes Accumulated Total
Stock Common Stock Additional Receivable During the Stockholders'
-------------- -------------- Paid-In From Development Deferred Equity
Shares Amount Shares Amount Capital Employees Stage Compensation (Deficit)
<S> <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 $10.00
per share between
September and December
1997.................... -- -- 18 -- 175 -- -- -- 175
Exercise of stock
options for cash by
employees during 1997... -- -- 23 -- 46 -- -- -- 46
Amortization of deferred
compensation............ -- -- -- -- -- -- -- 414 414
Accretion on redeemable
convertible preferred
stock................... -- 196 -- -- (196) -- -- -- (196)
Net loss................ -- -- -- -- -- -- (7,678) -- (7,678)
----- ------- ------ --- ------- ----- -------- ------- --------
Balance at December 31,
1997.................... 2,500 6,126 10,406 10 12,787 -- (15,935) -- (3,138)
Issuance of Series B
redeemable convertible
preferred stock to
investors at $3.82 per
share in July 1998, net
of issuance costs of
$40..................... 4,188 15,960 -- -- -- -- -- -- --
Issuance of notes
receivable from
employees for exercise
of stock options........ -- -- 1,391 1 652 (653) -- -- --
Issuance of common stock
for services to
consultants at $10.00
per share between
January and June 1998... -- -- 8 -- 82 -- -- -- 82
Exercise of stock
options for cash by
employees during 1998... -- -- 142 1 69 -- -- -- 70
Shares repurchased from
employees upon
termination at a price
of $0.50 per share in
September 1998.......... -- -- (8) -- (4) -- -- -- (4)
Deferred stock
compensation............ -- -- -- -- 2,694 -- -- (2,694) --
Amortization of deferred
compensation............ -- -- -- -- -- -- -- 405 405
Accretion on redeemable
convertible preferred
stock................... -- 1,383 -- -- (1,383) -- -- -- (1,383)
Net loss................ -- -- -- -- -- -- (10,257) -- (10,257)
----- ------- ------ --- ------- ----- -------- ------- --------
Balance at December 31,
1998 ................... 6,688 $23,469 11,939 $12 $14,897 $(653) $(26,192) $(2,289) $(14,225)
</TABLE>
See accompanying notes.
F-6
<PAGE>
E-STAMP CORPORATION
(a development stage company)
STATEMENTS OF 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
Convertible Deficit
Preferred Notes Accumulated Total
Stock Common Stock Additional Receivable During the Stockholders'
-------------- -------------- Paid-In From Development Deferred Equity
Shares Amount Shares Amount Capital Employees Stage Compensation (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise of stock
options for cash by
employees during 1999
(unaudited)............. -- $ -- 50 $ 1 $ 23 $ -- $ -- $ -- $ 24
Issuance of notes
receivable from
employees for exercise
of stock options
(unaudited)............. -- -- 1,774 1 1,667 (1,668) -- -- --
Shares repurchased from
employee upon
termination at $0.50 per
share in March 1999
(unaudited)............. -- -- (328) -- (164) 164 -- -- --
Deferred stock
compensation
(unaudited)............. -- -- -- -- 8,947 -- -- (8,947) --
Amortization of deferred
compensation
(unaudited)............. -- -- -- -- -- -- -- 1,927 1,927
Accretion on redeemable
convertible preferred
stock (unaudited)....... -- 1,176 -- -- (1,176) -- -- -- (1,176)
Net loss (unaudited).... -- -- -- -- -- -- (10,843) -- (10,843)
----- ------- ------ --- ------- ------- -------- ------- --------
Balance at June 30, 1999
(unaudited)............. 6,688 $24,645 13,435 $14 $24,194 $(2,157) $(37,035) $(9,309) $(24,293)
===== ======= ====== === ======= ======= ======== ======= ========
</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) $(10,257) $(4,455) $(10,843) $(37,035)
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 -- -- 150
Amortization of
deferred compensation
expense............... 688 414 405 -- 1,927 3,464
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.
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>
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)
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 December
31, 1998, 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 except for direct-
response advertising costs meeting certain specific criteria. 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. To date,
no direct-response advertising costs have been capitalized.
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 minimum value method
prescribed by FAS 123. (See Note 3 for pro forma disclosures of stock-based
compensation pursuant to FAS 123.)
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.
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)
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 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. The adoption of SOP 98-1 has not
had a material impact on our financial position or results of operations.
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.
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)
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 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 6,688,000 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. Stockholders' Equity
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
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)
3. Stockholders' Equity (continued)
of the Company. No dividends have been declared from inception (April 26, 1994)
through December 31, 1998.
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.
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 2,000,000
to 2,750,000 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 2,750,000 shares of common stock are currently
reserved for issuance pursuant to the Employee Plan. As of December 31, 1998,
options to purchase 1,007,393 shares of common stock at a weighted-average
exercise price of $0.75 per share were outstanding of which 829,730 were
vested, and 163,125 shares of common stock remained available for future grants
under the Employee Plan.
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. Stockholders' Equity (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 100,000 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 100,000 shares of common stock are currently reserved for
issuance pursuant to the Director Plan. As of December 31, 1998, options to
purchase 15,250 shares of common stock at a weighted-average exercise price of
$0.50 per share were outstanding of which 11,125 were vested, and 84,750 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........... 659 $5.83
Granted.......................................... 1,215 0.71
Exercised........................................ (23) 2.00
Canceled......................................... (179) 7.24
------
Options outstanding at December 31, 1997........... 1,672 0.63
Granted.......................................... 1,088 0.69
Exercised........................................ (1,533) 0.52
Canceled......................................... (204) 0.51
------
Options outstanding at December 31, 1998........... 1,023 0.75
Granted (unaudited).............................. 2,296 0.98
Exercised (unaudited)............................ (1,824) 0.93
Canceled (unaudited)............................. (466) 0.90
------
Options outstanding at June 30, 1999 (unaudited)... 1,029 0.90
======
Exercisable at December 31, 1998................... 1,023
======
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------
Options
Outstanding at Weighted-Average Weighted-
December 31, Remaining Average
1998 Contractual Life Exercise Price
Range of Exercise Prices -------------- ---------------- --------------
(In thousands) (In years)
<S> <C> <C> <C>
$0.05-$0.25............... 25 5.23 $0.17
$0.50-$0.50............... 303 7.65 0.50
$0.80-$0.80............... 685 9.82 0.80
$6.00-$6.60............... 10 1.00 6.00
----- ----
1,023 8.98
===== ====
</TABLE>
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)
3. Stockholders' Equity (continued)
During the year ended December 31, 1998, 1,252,920 unvested options were
exercised for cash and in exchange for notes (see Note 7) by various employees
of the Company. At December 31, 1998, 841,757 of these options were still
unvested and subject to repurchase in the event of termination of the
employees.
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) $(11,640)
======= ======= ========
Pro forma.................................... $(7,146) $(8,831) $(12,190)
======= ======= ========
Net loss per share (basic and diluted):
As reported.................................. $ (0.63) $ (0.76) $ (1.11)
======= ======= ========
Pro forma.................................... $ (0.71) $ (0.85) $ (1.13)
======= ======= ========
</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 $(1,132,000 for the
period from inception to December 31, 1998).
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)
The Company has recorded additional deferred stock compensation of
approximately $2,694,000 during the year ended December 31, 1998 and $8,947,000
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 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 $405,000 for the year ended December 31, 1998
and approximately $1,927,000 for the six months ended June 30, 1999.
4. Partnership 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.
5. 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-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)
5. 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.
6. 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-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. Commitments (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.
7. 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.
8. 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-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)
8. 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) $(10,257) $(4,455) $(10,843)
Accretion on redeemable
convertible preferred
stock.................... -- (196) (1,383) (307) (1,176)
------- ------- -------- ------- --------
Net loss attributable to
common stock............. $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
======= ======= ======== ======= ========
Weighted-average shares of
common stock
outstanding.............. 10,034 10,373 11,235 10,560 12,323
Less: weighted-average
shares subject to
repurchase............... -- -- (775) (139) (1,534)
------- ------- -------- ------- --------
Weighted-average shares
used in computing basic
and diluted net loss per
share.................... 10,034 10,373 10,460 10,421 10,789
======= ======= ======== ======= ========
Basic and diluted net loss
per share................ $ (0.63) $ (0.76) $ (1.11) $ (0.46) $ (1.11)
======= ======= ======== ======= ========
Pro forma basic and diluted:
Net loss.................. $(10,257) $(10,843)
======== ========
Shares used above......... 10,460 10,789
Pro forma adjustment to
reflect weighted effect
of assumed conversion of
convertible preferred
stock (unaudited)........ 4,542 6,688
-------- --------
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)........ 15,002 17,477
======== ========
Pro forma basic and
diluted net loss per
share (unaudited)........ $ (0.68) $ (0.62)
======== ========
</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.
9. Subsequent Events
Strategic Distribution Agreements (unaudited)
From January 1, 1999 through August 2, 1999, the Company entered into
agreements for online advertising with Yahoo!, Inc., Microsoft Corporation,
Earthlink Operations, Inc. and Excite@Home. Aggregate
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. Subsequent Events (continued)
noncancelable advertising commitments related to these agreements total
approximately $4.4 million, $6.1 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.
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. 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 38,797 shares of common stock with an exercise price of
$10.31 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 July 27, 1999, options to purchase 626,000 shares were
issued to employees pursuant to the 1996 Stock Option Plan with an exercise
price of $1.50 per share. The Company estimates that
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)
9. Subsequent Events (continued)
additional deferred compensation of $4.5 million will be recorded as a result
of these option grants and amortized to compensation expense in accordance with
the Company's policy.
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
2,750,000 to 4,750,000 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 2,000,000 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.
Sales of Stock
In August 1999, the Company issued 2,931,229 shares of Series C redeemable
convertible preferred stock at $10.31 per share. 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 21,235 warrants to purchase shares of Series C
redeemable convertible preferred stock at $10.31 per share to Donaldson Lufkin
& Jenrette Securities Corporation as placement agent.
F-21
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
, 1999
[LOGO]
E-Stamp Corporation
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............................................... $ 23,630
NASD filing fee.................................................... $ 9,000
Nasdaq National Market listing fee................................. $ 95,000
Printing and engraving costs....................................... $250,000
Legal fees and expenses............................................ $400,000
Accounting fees and expenses....................................... *
Blue Sky fees and expenses......................................... $ 15,000
Transfer Agent and Registrar fees.................................. *
Miscellaneous expenses............................................. $ 75,000
Total.............................................................. *
</TABLE>
* To be filed by amendment
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
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(a) On September 3, 1997, we issued an aggregate of 2,500,000 shares of our
Series A Preferred Stock to certain accredited investors for an aggregate
offering price of $6,000,000.
On July 7, 1998, we issued an aggregate of 4,188,000 shares of our Series B
Preferred Stock to certain accredited investors for an aggregate offering price
of $16,000,000.
II-1
<PAGE>
On July 26, 1999, we granted a warrant to a lender to purchase up to 38,797
shares of Common Stock at $10.31 per share.
On August 10, 1999, we issued an aggregate of 2,931,229 shares of our Series
C Preferred Stock to certain accredited investors for an aggregate offering
price of $30,220,971.
On August 10, 1999, we granted a warrant to our placement agent to purchase
up to 21,235 shares of Series C Preferred Stock at $10.31 per share.
From January 1996 to August 1999, we have granted options to purchase an
aggregate of 5,889,175 shares of common stock to our directors, executive
officers, employees and consultants at a weighted exercise price of $1.05. As
of August 10, 1999, options to purchase 3,898,735 shares at a weighted exercise
price of $.87 per share had been exercised.
The foregoing transactions were effected under Section 4(2) of the
Securities Act.
(b) As of August 10, 1999, an aggregate of 3,555,712 shares of common stock
had been issued upon exercise of options under the Registrant's 1996 Stock
Option and Restricted Stock Plan. 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 was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. 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.
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.
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.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
(see Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
23.3 Consent of Howrey & Simon.
24.1 Power of Attorney (Included on page II-4).
27.1 Financial Data Schedules.
</TABLE>
- ---------------------
* To be filed by amendment.
(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.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this 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 17th day of August, 1999.
E-STAMP CORPORATION
/s/ Robert H. Ewald
By: _________________________________
Robert H. Ewald
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert H. Ewald and Edward Malysz and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and
any or all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or his substitute, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
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 August 17,
____________________________________ Officer and Director 1999
Robert H. Ewald (Principal Executive
Officer)
/s/ Anthony H. Lewis, Jr. Vice President and Chief August 17, 1999
____________________________________ Financial Officer
Anthony H. Lewis, Jr. (Principal Financial and
Accounting Officer)
/s/ Marcelo A. Gumucio Chairman of the Board August 17, 1999
____________________________________
Marcelo A. Gumucio
/s/ John V. Balen Director August 17, 1999
____________________________________
John V. Balen
/s/ Thomas L. Rosch Director August 17, 1999
____________________________________
Thomas L. Rosch
/s/ Gregory S. Stanger Director August 17, 1999
____________________________________
Gregory S. Stanger
/s/ Adam Wagner Director August 17, 1999
____________________________________
Adam Wagner
</TABLE>
II-4
<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.
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.
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.
24.1 Power of Attorney (Included on page II-4).
27.1 Financial Data Schedules.
</TABLE>
- ---------------------
* To be filed by amendment.
<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
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.
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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
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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,
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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
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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
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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
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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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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
13
<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
14
<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
15
<PAGE>
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
<PAGE>
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.
<PAGE>
(ee) You shall have received on the Closing Date an opinion relating to
the intellectual property of the Company (satisfactory to you and counsel for
the Underwriters), dated the Closing Date, of Fulbright & Jaworski.
(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 in the first paragraph under the
caption "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 in the first two paragraphs under the
caption "Business--Legal Proceedings" (collectively the "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 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 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 IP Sections not
misleading and (C) such counsel has no reason to believe that the 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 Section
8(e)(xvii) and (ee)(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.
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<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
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
Total
1
<PAGE>
Annex I
[Insert names]
2
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
E-STAMP CORPORATION
ARTICLE I
The name of the Corporation is E-Stamp Corporation (the "Corporation").
-----------
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "Delaware Corporation Law").
------------------------
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two classes
----------------
of capital stock, designated Common Stock (hereinafter referred to as "Common
------
Stock") and Preferred Stock (hereinafter referred to as "Preferred Stock"). The
- ----- ---------------
amount of total authorized capital stock of the Corporation is one hundred five
million (105,000,000) shares, divided into one hundred million (100,000,000)
shares of Common Stock, $.001 par value, and five million (5,000,000) shares of
Preferred Stock, $.001 par value.
B. Preferred Stock.
---------------
1. Terms of Designation. The Preferred Stock may be issued from time to
--------------------
time in one or more series, each such series to have distinctive serial
designations. The Board of Directors is hereby authorized to issue the shares of
Preferred Stock in such series and to fix from time to time before issuance the
number of shares to be included in any series and the designation, relative
powers, preferences and rights and qualifications, limitations or restrictions
of and consideration for all shares of such series. The authority of the Board
of Directors with respect to each series shall include, without limiting the
generality of the foregoing, the determination of any or all of the following:
(a) The number of shares of any series and the designation to distinguish
the shares of such series from the shares of all other series;
<PAGE>
(b) The voting powers, if any, and whether such voting powers are full or
limited in such series;
(c) The redemption provisions, if any, applicable to such series, including
the redemption price or prices to be paid;
(d) Whether dividends, if any, shall be cumulative or noncumulative, the
dividend rate of such series, and the dates and preferences of dividends on such
series;
(e) The rights of such series upon the voluntary or involuntary dissolution
of, or upon any distribution of the assets of, the Corporation;
(f) The provisions, if any, pursuant to which the shares of such series are
convertible into, or exchangeable for, shares of any other class or classes of
any other series of the same or any other class or classes of stock, or any
other security, of the Corporation or any other corporation, and price or prices
or the rates of exchange applicable thereto;
(g) The right, if any, to subscribe for or to purchase any securities of
the Corporation or any other corporation;
(h) The provisions, if any, of a sinking fund applicable to such series;
and
(i) Any other relative, participating, optional or other special powers,
preferences, rights, qualifications, limitations or restrictions thereof;
all as shall be stated in such resolution or resolutions of the Board of
Directors of the Corporation providing for the issue of such Preferred Stock (a
"Preferred Stock Designation").
---------------------------
2. Changes in Number of Shares. Except where otherwise set forth in a
---------------------------
Preferred Stock Designation establishing a series of Preferred Stock, the number
of shares comprising such series may be increased or decreased (but not below
the number of shares then outstanding) from time to time by like action of the
Board of Directors of the Corporation.
3. Status of Reacquired Shares. Shares of any series of Preferred Stock
---------------------------
which have been redeemed (whether through the operation of a sinking fund or
otherwise), purchased or otherwise acquired by the Corporation, or which, if
convertible or exchangeable, have been converted into or exchanged for shares of
stock of any other class or classes, shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as a part of the series
of which they were originally a part or may be reclassified or reissued as part
of a new series of Preferred Stock to be created by a Preferred Stock
Designation or as part of any other series of Preferred Stock, all subject to
-2-
<PAGE>
the conditions or restrictions adopted by the Board of Directors of the
Corporation providing for the issue of any series of Preferred Stock and to any
filing required by law.
4. Voting. Except as may be provided by the Board of Directors in a
------
Preferred Stock Designation, the Preferred Stock shall not have the right to
vote for the election of directors of the Corporation or for any other purposes,
and holders of Preferred Stock shall not be entitled to receive notice of any
meeting of stockholders at which they are not entitled to vote or consent.
C. Common Stock.
------------
1. Terms of Issuance. The Board of Directors is hereby authorized to
-----------------
issue the shares of Common Stock at such times and for such consideration,
having a value not less than the par value thereof, as determined by the Board
of Directors.
2. Voting Rights. Each share of Common Stock shall entitle the holder
-------------
thereof to one vote, in person or by proxy, at any and all meetings of the
stockholders of the Corporation on all propositions before such meetings. No
holder of Common Stock shall have the right to cumulate such holder's votes for
the election of directors, but each holder of Common Stock shall be entitled to
one vote for each share held thereof in the election of each director of the
Corporation. Except as may otherwise be provided in a Preferred Stock
Designation, the Common Stock shall have the exclusive right to vote for the
election of directors of the Corporation and for all other purposes.
3. Dividends. Subject to all of the rights of the Preferred Stock or any
---------
series thereof, the holders of the Common Stock shall be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation, out of
funds legally available therefor, dividends payable in cash, stock or otherwise.
4. Liquidation. Upon any liquidation, dissolution, or winding up of the
-----------
Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock of each series shall have been paid in full the amounts to which
they respectively shall be entitled, or a sum sufficient for such payments in
full shall have been set aside, the remaining net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock in accordance
with their respective rights and interests, to the exclusion of the holders of
the Preferred Stock.
D. General Terms. No stockholder shall be entitled as a matter of right,
-------------
preemptive or otherwise, to subscribe for, purchase or receive any other
securities, rights or options of the Corporation now or hereafter authorized to
be issued, or other securities held in the treasury of the Corporation, whether
issued or sold for cash or other consideration or as a dividend or otherwise.
-3-
<PAGE>
ARTICLE V
The name and mailing address of each person who is to serve as a director
of the Corporation until the organizational meeting of the corporation or until
his or her successor is elected and shall qualify is as follows:
Name Mailing Address
---- ---------------
Salim G. Kara 3050 Post Oak Blvd., Suite 110
Houston, Texas 77056
ARTICLE VI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in this Article VI, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding any other provision of this Certificate of
Incorporation or any provision of law to the contrary which might otherwise
permit a lesser vote or no vote, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of Common Stock and Preferred Stock, to the extent
entitled to vote at an election of directors (collectively, the "Voting Stock"),
voting together as a single class, shall be required to alter, amend, or repeal
Article VI, VII, VIII, IX, X or XI of this Certificate of Incorporation.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation. Subject to and in accordance with the Delaware
Corporation Law, the Bylaws may be altered or amended or new Bylaws adopted by
the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of Voting Stock.
ARTICLE VIII
A. Limitation of Liability. To the fullest extent permitted by the
-----------------------
Delaware Corporation Law as the same exists or as may hereafter be amended, a
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of his or her fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware Corporation Law, as the same exists
or hereafter may be amended, or (iv) for any transaction from which the director
derived
-4-
<PAGE>
an improper personal benefit. If the Delaware Corporation Law is amended after
the date of filing of this Certificate of Incorporation to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware Corporation Law.
B. Indemnification. The Corporation shall indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative, or investigative, by
reason of the fact that such person is or was a director or officer of the
Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer, or employee at the request of the
Corporation or any predecessor to the Corporation.
C. Effect of Amendment. Neither any amendment nor repeal of this Article
-------------------
VIII, nor the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article VIII, shall eliminate or reduce the effect of
this Article VIII, in respect of any matter occurring, or any cause of action,
suit, claim or proceeding that, but for this Article VIII, would accrue or
arise, prior to such amendment, repeal or adoption of any inconsistent
provision. Any repeal or modification of this Article VIII by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
ARTICLE IX
A. Number and Election of Directors. The number of directors which
--------------------------------
constitute the whole Board of Directors of the Corporation shall be as specified
in the Bylaws of the Corporation. At each annual meeting of stockholders,
directors of the Corporation shall be elected to hold office until the
expiration of the term for which they are elected and until their successors
have been duly elected and qualified; except that if any such election shall not
be so held, such election shall take place at a stockholders' meeting called and
held in accordance with the Delaware Corporation Law.
B. Classification of Directors. The directors of the Corporation shall be
---------------------------
divided into three classes as nearly equal in size as is practicable, hereby
designated Class I, Class II, and Class III. The term of office of the initial
Class I directors shall expire at the first regularly-scheduled annual meeting
of the stockholders following the effective date of this Certificate of
Incorporation (the "Effective Date"), the term of office of the initial Class II
directors shall expire at the second annual meeting of the stockholders
following the Effective Date and the term of office of the initial Class III
directors shall expire at the third annual meeting of the stockholders following
the Effective Date. At each annual meeting of stockholders, commencing with the
first regularly-scheduled annual meeting of stockholders following the Effective
Date, each of the successors elected to replace the directors of a class whose
terms shall have expired at such annual meeting shall be elected
-5-
<PAGE>
to hold office until the third annual meeting next succeeding his or her
election and until his or her respective successor shall have been duly elected
and qualified.
C. Change in Number of Directors. If the number of directors is hereafter
-----------------------------
changed, any newly-created directorships or decrease in directorships shall be
so apportioned among the classes as to make all classes as nearly equal in
number as is practicable, provided that no decrease in the number of directors
constituting the Board of Directors shall shorten the term of any remaining
incumbent director.
D. Removal of Directors. Subject to the provisions of any applicable
--------------------
Preferred Stock Designation, a director or the entire Board of Directors may be
removed from office by the stockholders of the Corporation only for cause, by
the affirmative vote of the holders of a majority of the voting power of all of
the Voting Stock. Notwithstanding the preceding sentence to the contrary, at any
time when the Corporation has less than five hundred (500) record stockholders,
a director or the entire Board of Directors may be removed from office by the
stockholders of the Corporation for cause or without cause, by the affirmative
vote of the holders of a majority of the voting power of all of the Voting
Stock.
E. Vacancies. Subject to the provisions of any applicable Preferred Stock
---------
Designation, any vacancies occurring on the Board of Directors for any reason
and newly-created directorships resulting from an increase in the authorized
number of directors may be filled only by vote of a majority of the remaining
members of the Board of Directors, although less than a quorum, at any meeting
of the Board of Directors. A person so elected by the Board of Directors to fill
a vacancy or newly-created directorship shall hold office until the next
election of the class for which such director shall have been chosen and until
his or her successor shall have been duly elected and qualified.
ARTICLE X
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE XI
A. Stockholder Action. At any time when the Corporation has five hundred
------------------
(500) or more record stockholders, no action shall be taken by the stockholders
of the Corporation except at an annual or special meeting of stockholders called
in accordance with the Bylaws of the Corporation and no action shall be taken by
the stockholders by written consent. Prior to such time, action may be taken by
the stockholders by written consent in accordance with the provisions of Section
228 of the Delaware Corporation Law.
B. Special Meetings. Special meetings of the stockholders of the
----------------
Corporation may be called, for any purpose or purposes, by (i) the Chairman of
the Board
-6-
<PAGE>
of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
C. Notice. Advance notice of stockholder nominations for the election of
------
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE XIII
The Corporation is to have perpetual existence.
ARTICLE XIV
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of the
Delaware Corporation Law or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under Section 279 of the
Delaware Corporation Law order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation as the case may be,
and also on the Corporation.
-7-
<PAGE>
ARTICLE XV
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Salim G. Kara 3050 Post Oak Blvd, Suite 110
Houston, Texas 77056
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation with the Office of the Secretary of State of the
State of Delaware.
IN WITNESS WHEREOF, I the undersigned, being the incorporator hereinabove
named, do hereby execute this Certificate of Incorporation this 15th day of
August, 1996.
/s/ Salim G. Kara
Salim G. Kara
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<PAGE>
EXHIBIT 3.2
BYLAWS
OF
E-STAMP CORPORATION
A Delaware Corporation
Date of Adoption: August 23, 1996
<PAGE>
E-STAMP CORPORATION
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES.............................. 1
1.1 REGISTERED OFFICE............................... 1
1.2 OTHER OFFICES................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS........................ 1
2.1 PLACE OF MEETINGS............................... 1
2.2 ANNUAL MEETING.................................. 1
2.3 SPECIAL MEETINGS................................ 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS................ 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS............................ 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.... 2
2.7 QUORUM.......................................... 2
2.8 ADJOURNED MEETING NOTICE........................ 3
2.9 VOTING.......................................... 3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING......................................... 3
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING...... 4
2.12 PROXIES......................................... 4
2.13 ORGANIZATION.................................... 4
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE........... 5
ARTICLE III DIRECTORS....................................... 5
3.1 POWERS.......................................... 5
3.2 NUMBER OF DIRECTORS............................. 5
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS;
CLASSES......................................... 5
3.4 RESIGNATION AND VACANCIES....................... 6
3.5 REMOVAL OF DIRECTORS............................ 7
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........ 7
3.7 FIRST MEETING................................... 7
3.8 REGULAR MEETINGS................................ 7
3.9 SPECIAL MEETINGS; NOTICE........................ 8
3.10 QUORUM.......................................... 8
3.11 WAIVER OF NOTICE................................ 8
3.12 ADJOURNMENT..................................... 8
3.13 NOTICE OF ADJOURNMENT........................... 9
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A
MEETING......................................... 9
3.15 FEES AND COMPENSATION OF DIRECTORS.............. 9
3.16 APPROVAL OF LOANS TO OFFICERS................... 9
3.17 SOLE DIRECTOR................................... 9
3.18 NOMINATION OF DIRECTORS; STOCKHOLDERS' BUSINESS
AT ANNUAL MEETINGS.............................. 10
3.19 ORGANIZATION.................................... 11
ARTICLE IV COMMITTEES...................................... 12
4.1 COMMITTEES OF DIRECTORS......................... 12
4.2 MEETINGS AND ACTIONS OF COMMITTEES.............. 12
4.3 COMMITTEE MINUTES............................... 13
ARTICLE V OFFICERS........................................ 13
5.1 OFFICERS........................................ 13
5.2 ELECTION OF OFFICERS............................ 13
5.3 REMOVAL AND RESIGNATION OF OFFICERS............. 13
5.4 VACANCIES IN OFFICES............................ 14
5.5 CHIEF EXECUTIVE OFFICER......................... 14
5.6 PRESIDENT/CHIEF OPERATING OFFICER............... 14
5.7 EXECUTIVE/SENIOR VICE PRESIDENTS................ 15
5.8 SECRETARY....................................... 15
5.9 CHIEF FINANCIAL OFFICER......................... 16
5.10 TREASURER....................................... 16
5.11 AUTHORITY AND DUTIES OF OFFICERS................ 16
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS...................... 16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS....... 16
6.2 INDEMNIFICATION OF OTHERS....................... 17
6.3 INSURANCE....................................... 18
ARTICLE VII RECORDS AND REPORTS............................. 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS........... 18
7.2 INSPECTION BY DIRECTORS......................... 18
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.. 18
7.4 CERTIFICATION AND INSPECTION OF BYLAWS.......... 19
ARTICLE VIII GENERAL MATTERS................................. 19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING.......................................... 19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS....... 19
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW
EXECUTED........................................ 19
8.4 SPECIAL DESIGNATION ON CERTIFICATES............. 20
8.5 LOST CERTIFICATES............................... 20
8.6 TRANSFER AGENTS AND REGISTRARS.................. 20
8.7 REGISTERED STOCKHOLDERS......................... 20
8.8 DIVIDENDS....................................... 21
8.9 FISCAL YEAR..................................... 21
8.10 PROVISIONS CONCERNING NOTICE.................... 21
8.11 CONSTRUCTION; DEFINITIONS....................... 21
ARTICLE IX AMENDMENTS...................................... 21
</TABLE>
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<PAGE>
BYLAWS
OF
E-STAMP CORPORATION
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the Corporation shall be fixed in the Certificate
of Incorporation of the Corporation.
1.2 OTHER OFFICES
-------------
The Board of Directors of the Corporation (the "Board of Directors" or the
"Board") may at any time establish a principal executive office and one or more
branch or subordinate offices at any place or places where the Corporation is
qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the Board of Directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the Corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the Board of Directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Friday in May in each year at 3:00 p.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETINGS
----------------
A special meeting of the stockholders may be called at any time by the
Board of Directors, the Chairman of the Board, or the President, or as specified
in the Certificate of Incorporation.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting. The notice shall specify the
place, date and hour of the meeting and (i) in the case of a special meeting,
the purpose or purposes for which the meeting is called (no business other than
that specified in the notice may be transacted) or (ii) in the case of the
annual meeting, those matters which the Board of Directors, at the time of
giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the Board of Directors
intends to present for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
To be properly brought before an annual meeting or special meeting,
nominations for the election of directors or other business proposals must be
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors or (c)
otherwise properly brought by a stockholder pursuant to Section 3.18 of these
Bylaws.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the Corporation or given by the stockholder to the
Corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the Secretary, Assistant Secretary or any
transfer agent of the Corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
------
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting
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<PAGE>
of the stockholders, then either (i) the chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting in accordance with Section 2.8 of
these Bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power then present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the laws of the State of
Delaware or of the Certificate of Incorporation or these Bylaws, a different
vote is required, in which case such express provision shall govern and control
the decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING NOTICE
------------------------
When a meeting is adjourned to another time and place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation or
these Bylaws, each stockholder shall be entitled to one vote for each share of
voting capital stock held by such stockholder.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
At any time when the Corporation has five hundred (500) or more record
stockholders, no action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
these Bylaws and no action shall be taken by the stockholders by written
consent. Prior to such time, action may be taken by the stockholders by written
consent in accordance with the provisions of Section 228 of the General
Corporation Law of Delaware.
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<PAGE>
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the Board of Directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such meeting, and in such event only stockholders of record on
the date so fixed are entitled to notice and to vote, notwithstanding any
transfer of any shares on the books of the Corporation after the record date.
If the Board of Directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these Bylaws.
2.12 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of the
Corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware (relating to the irrevocability of proxies).
2.13 ORGANIZATION
------------
The Chairman of the Board, or in the absence of the Chairman of the Board,
the Chief Executive Officer, shall call the meeting of the stockholders to
order, and shall act as chairman of the meeting. In the absence of the Chairman
of the Board, the Chief Executive Officer, and the President, the stockholders
shall appoint a chairman for such meeting. The Secretary of the Corporation
shall act as secretary of all meetings of the stockholders, but in the absence
of the Secretary at any meeting of the stockholders, the chairman of the meeting
may appoint any person to act as secretary of the meeting. The Board of
Directors of the Corporation shall be entitled to make such rules or regulations
for the conduct of meetings of stockholders as it shall deem necessary,
appropriate or convenient. Subject to such rules and regulations of the Board
of Directors, if any,
-4-
<PAGE>
the chairman of any meeting of stockholders shall determine in his or her own
judgment, the rules, regulations, procedures and acts which are necessary,
appropriate or convenient for the proper conduct of the meeting, including
without limitations the order of business at the meeting, the regulation of the
manner of voting and the conduct of business. Unless and to the extent
determined by the Board of Directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with rules of
parliamentary procedure.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at the principal executive office of the Corporation or at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
3.2 NUMBER OF DIRECTORS
-------------------
The Board of Directors shall initially consist of eight (8) members. The
number of directors may be increased or decreased by a resolution duly adopted
by the Board of Directors or by the stockholders, or by a duly adopted amendment
to the Certificate of Incorporation.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS; CLASSES
-------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall hold
office until the expiration of the term for which elected and until a successor
has been elected and qualified; except that if any such election shall not be so
held, such election shall take place at a stockholder's meeting
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called and held in accordance with the General Corporation Law of Delaware.
Election of directors need not be by written ballot.
The directors of the Corporation shall be divided into three classes as
nearly equal in size as is practicable, hereby designated Class I, Class II and
Class III. The term of office of the initial Class I directors shall expire at
the first regularly-scheduled annual meeting of the stockholders following the
effective date of these Bylaws (the "Effective Date"), the term of office of the
initial Class II directors shall expire at the second annual meeting of the
stockholders following the Effective Date and the term of office of the initial
Class III directors shall expire at the third annual meeting of the stockholders
following the Effective Date. For the purposes thereof, the initial Class I,
Class II, and Class III directors shall be those directors so designated by the
Board of Directors in written action taken in August 1996. At each annual
meeting of stockholders, commencing with the first regularly-scheduled annual
meeting of stockholders following the Effective Date, each of the successors
elected to replace the directors of a class whose term shall have expired at
such annual meeting shall be elected to hold office until the third annual
meeting next succeeding his or her election and until his or her respective
successor shall have been duly elected and qualified. If the number of
directors is hereafter changed, any newly created directorships or decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number as is practicable, provided that no decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any remaining incumbent director.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective.
If the resignation of a director is effective at a future time, the Board
of Directors may elect a successor to take office when the resignation becomes
effective. Each director so elected shall hold office until the expiration of
the term of office of the director whom he or she has replaced and until a
successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws, vacancies occurring on the Board of Directors for any reason and newly
created directorships resulting from an increase in the authorized number of
directors may be filled only by vote of a majority of the remaining members of
the Board of Directors, although less than a quorum, at any meeting of the Board
of Directors. A person so elected by the Board of Directors to fill a vacancy
or newly created directorship shall hold office until the next election of the
class for which such director shall have been chosen and until his or her
successor shall have been duly elected and qualified.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then the provisions of Section
223 of the General Corporation Law of Delaware shall apply to filling such
vacancies.
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If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole Board
(as constituted immediately prior to any such increase), then the provisions of
Section 223 of the General Corporation Law of Delaware shall apply to filling
such vacancy or newly created directorship.
3.5 REMOVAL OF DIRECTORS
--------------------
As provided in the Certificate of Incorporation, a director or the entire
Board of Directors may be removed from office by the stockholders of the
Corporation only for cause, by a vote of the holders of a majority of the shares
then entitled to vote at an election of directors. Notwithstanding the
preceding sentence to the contrary, at any time when the Corporation has less
than five hundred (500) record stockholders, a director or the entire Board of
Directors may be removed from office by the stockholders of the Corporation for
cause or without cause, by a vote of the holders of a majority of the shares
then entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the Board of Directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the Corporation. Special
meetings of the Board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
Corporation.
Any meeting of the Board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another, and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETING
-------------
The first meeting of each newly elected Board of Directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting. In the event of the failure of the stockholders to fix the time
or place of such first meeting of the newly elected Board of Directors, or in
the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
----------------
Regular meetings of the Board of Directors may be held without notice at
such time as shall from time to time be determined by the Board of Directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day.
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3.9 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the Board of Directors for any purpose or purposes may
be called at any time by the Chairman of the Board, the Chief Executive Officer,
the President, any Executive or Senior Vice President, the Secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the Corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telecopy or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight (48)
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose or the place of the meeting, if the meeting is to be held at
the principal executive office of the Corporation.
3.10 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these Bylaws. Every act or decision done or made by a majority of the
directors then present at a duly held meeting at which a quorum is present shall
be regarded as the act of the Board of Directors, subject to the provisions of
the Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purpose of objecting and does expressly
object at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. All such waivers shall
be filed with the corporate records or made part of the minutes of the meeting.
A waiver of notice need not specify the purpose of any regular or special
meeting of the Board of Directors.
3.12 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the Board to another time and place.
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3.13 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting of the Board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.9 of these
Bylaws, to the directors who were not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting, provided that all members of the Board consent in
writing to that action. Such action by written consent shall have the same
force and effect as a unanimous vote of the Board of Directors. Such written
consent and any counterparts thereof shall be filed with the minutes of the
proceedings of the Board of Directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.15 shall not
be construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The Corporation may lend money to, or guarantee any obligation of or
otherwise assist any officer or other employee of the Corporation of any of its
subsidiaries, including any officer or employee who is a director of the
Corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing contained in this Section 3.16 shall be
deemed to deny, limit, or restrict the powers of guaranty or warranty of the
Corporation at common law or under any statute.
3.17 SOLE DIRECTOR
-------------
In the event only one director is required by these Bylaws or the
Certificate of Incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such as being given or taken by such sole director,
who shall have the rights and duties and shall be entitled to exercise all of
the powers and shall assume all the responsibilities otherwise herein described
as given to the Board of Directors.
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3.18 NOMINATION OF DIRECTORS; STOCKHOLDERS' BUSINESS AT ANNUAL MEETINGS
------------------------------------------------------------------
Subject to the rights of holders of any class or series of stock of the
Corporation having a preference over the common stock of the Corporation as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or any nominating committee appointed by the
Board of Directors. However, a stockholder generally entitled to vote in the
election of directors may nominate one or more persons for election as directors
at a meeting only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an annual meeting of
stockholders, 60 days in advance of the first anniversary of the preceding
year's annual meeting and (ii) with respect to an election to be held at the
first annual meeting of stockholders or a special meeting of stockholders for
the election of directors, the close of business on the tenth day following the
date on which notice of such meeting is first given to stockholders. Each such
notice shall set forth the following information: (a) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated, (b) a representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice, (c) a description of all arrangements or understandings
between the stockholder, each nominee or any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder, (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), had the nominee been nominated, or intended to be nominated, by the Board
of Directors of the Corporation, and (e) the consent of each nominee to serve as
a director of the Corporation if so elected. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
A majority of the Board of Directors may reject any nomination by a stockholder
not timely made or otherwise not in accordance with the terms of this Section
3.18. If a majority of the Board of Directors reasonably determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.18 in any material respect, the
Secretary of the Corporation shall promptly notify such stockholder of the
deficiency in writing. The stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary within such
period of time, not to exceed ten (10) days from the date such deficiency notice
is given to the stockholder, as a majority of the Board of Directors shall
reasonably determine. If the deficiency is not cured within such period, or if
a majority of the Board of Directors reasonably determines that the additional
information provide by the stockholder, together with the information previously
provided, does not satisfy the requirements of this Section 3.18 in any material
respect, then a majority of the Board of Directors may reject such stockholder's
nomination. The Secretary of the Corporation shall notify a stockholder in
writing whether the stockholder's nomination has been made in accordance with
the time and information requirements of this Section 3.18.
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At an annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the chairman of the meeting or (ii) by any stockholder of the
Corporation who complied with the notice procedures set forth in this Section
3.18. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive office of the
Corporation not less than 60 days prior to the meeting, provided, however, that
in the event that less than 70 days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the tenth
day following the earlier of the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting the following information: (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder and (d) any material
direct or indirect interest, financial or otherwise, of the stockholder or its
affiliates or associates in such business. The Board of Directors may reject
any stockholder proposal not timely made in accordance with this Section 3.18.
Additionally, the Board of Directors may reject any stockholder proposal
pursuant to the 1934 Act or any rules or regulations thereto or pursuant to the
rules of any national or regional stock exchange which governs the trading of
shares of the Corporation. If the Board of Directors determines that the
purpose or information provided in a stockholder's notice does not satisfy the
requirements hereof, the Secretary of the Corporation shall promptly notify such
stockholder of the deficiency in the notice. The stockholder shall then have an
opportunity to cure the deficiency by providing additional information to the
Secretary within such period of time, not to exceed ten (10) days from the date
such deficiency notice is given to the stockholder, as the Board of Directors
shall determine. If the deficiency is not cured within such period, or if the
Board of Directors determines that the additional information provided by the
stockholder, together with the information previously provided, does not satisfy
the requirements of this Section 3.18, then the Board of Directors may reject
such stockholder's proposal. The Secretary of the Corporation shall notify a
stockholder in writing whether the stockholder's proposal has been made in
accordance with the time and information requirements hereof.
This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors and
committees of the Board of Directors, but in connection therewith no new
business shall be acted upon at any such meeting unless stated, filed and
received as herein provided. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with procedures set forth in this Section 3.18.
3.19 ORGANIZATION
------------
At every meeting of the Board of Directors, the Chairman of the Board, or,
if a Chairman of the Board has not been elected by the Board of Directors or is
absent, the Chief Executive Officer, or
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if the Chief Executive Officer is absent, a chairman of the meeting chosen by a
majority of the directors present shall preside over the meeting. The Secretary
of the Corporation shall act as secretary of all meetings of the Board of
Directors, but in the absence of the Secretary at any meeting of the Board of
Directors, the chairman of the meeting may appoint any person to act as
secretary of the meeting. The Chairman of the Board, if such an officer be
elected, shall, if present, preside at meetings of the Board of Directors and
exercise such other powers and perform such other duties as may from time to
time be assigned to him or her by the Board of Directors or as may be prescribed
by these Bylaws.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any committee, to the extent provided in the resolution of the Board, shall have
and may exercise all the powers and authority of the Board, but no such
committee shall have the power or authority to (i) approve or adopt, or
recommend to the stockholders, any action or matter expressly required by the
General Corporation Law of Delaware to be submitted to stockholders for approval
or (ii) adopt, amend or repeal any of the Bylaws of the Corporation.
4.2 MEETINGS AND ACTIONS OF COMMITTEES
----------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these Bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular
meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum),
Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13
(notice of adjournment) and Section 3.14 (Board action by written consent
without a meeting), with such changes in the content of those Bylaws as are
necessary to substitute the committee and its members for the Board of Directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the Board of Directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
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4.3 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The corporate officers of the Corporation shall be a Chief Executive
Officer, a President, a Secretary and a Chief Financial Officer or Treasurer.
The Corporation may also have, at the discretion of the Board of Directors, one
or more Executive or Senior Vice Presidents and such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any
number of offices may be held by the same person.
In addition to the corporate officers of the Corporation described above,
there may also be such administrative officers of the Corporation, including but
not limited to one or more Vice Presidents, Assistant Secretaries, or Assistant
Treasurers, as may be designated and appointed from time to time by the Chief
Executive Officer or the President of the Corporation. Administrative officers
shall perform such duties, hold office for such periods and have such powers as
from time to time may be determined by the President, the Chief Executive
Officer or the Board of Directors to assist the corporate officers in the
furtherance of their duties. In the performance of such duties and the exercise
of such powers, however, such administrative officers shall have only such
limited authority to act on behalf of the Corporation as the Chief Executive
Officer or President shall establish, including but not limited to limitations
on the dollar amount and on the scope of agreements or commitments that may be
made by such administrative officers on behalf of the Corporation, which
limitations may not be exceeded by such individuals or altered without further
approval by the Chief Executive Officer or President.
5.2 ELECTION OF OFFICERS
--------------------
The corporate officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.4 of
these Bylaws, shall be chosen by the Board of Directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the Board of Directors may from time to
time determine.
5.3 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of a corporate officer under any contract of
employment, any corporate officer may be removed, either with or without cause,
by the Board of Directors at any regular or special meeting of the Board or,
except in case of a corporate officer chosen by the Board
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of Directors, by any corporate officer upon whom such power of removal may be
conferred by the Board of Directors.
Any corporate officer may resign at any time by giving written notice to
the Corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice, and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the corporate
officer is a party.
Subject to the rights, if any, of an administrative officer under any
contract of employment, any administrative officer designated and appointed by
the President may be removed, either with or without cause, at any time by the
President. Any administrative officer may resign at any time by giving written
notice to the President or to the Secretary of the Corporation, but without
prejudice to the rights, if any, of the Corporation under any contract to which
the administrative officer is a party.
5.4 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
5.5 CHIEF EXECUTIVE OFFICER
-----------------------
The Chief Executive Officer of the Corporation shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and the officers of the Corporation. In the absence or
nonexistence of a Chairman of the Board, he or she shall preside at all meetings
of the stockholders and meetings of the Board of Directors. He or she shall
have the general powers and duties of management usually vested in the office of
chief executive officer of a corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or
these Bylaws.
5.6 PRESIDENT/CHIEF OPERATING OFFICER
---------------------------------
The President shall be the chief operating officer of the Corporation and,
in the absence of the Chairman of the Board and the Chief Executive Officer,
shall preside at all meetings of the stockholders and the Board of Directors.
Subject to the authority granted for any such matters to the Chairman of the
Board or the Chief Executive Officer of the Corporation, the President shall
have general and active management of the business operations of the Corporation
and shall see that all orders of the Chairman of the Board and the Chief
Executive Officer and the resolutions of the Board of Directors are carried into
effect. In the absence of the Chairman of the Board and the Chief Executive
Officer and except where required or permitted by law to be otherwise signed and
except where the signing thereof shall be expressly delegated by the Board of
Directors to another officer or agent of the Corporation, the President may
make, execute, acknowledge and deliver any and all contracts, leases, deeds,
conveyances, assignments, bills of sale, transfers, releases and receipts, and
any and all mortgages, deeds of trust, indentures, pledges, chattel mortgages,
liens and hypothecations, and any and all bonds, debentures, notes, other
evidences of indebtedness and any
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and all other obligations and encumbrances and any and all other instruments,
documents and papers of any kind or character for and on behalf of and in the
name of the Corporation. The President shall further perform such other duties
and have such additional authority and powers as from time to time may be
assigned to or conferred upon him or her by the Board of Directors.
5.7 EXECUTIVE/SENIOR VICE PRESIDENTS
--------------------------------
The Board of Directors shall have the authority to elect one or more
Executive Vice Presidents or Senior Vice Presidents, having the duties and
authority as described below.
In the absence of the President, the Chief Executive Officer and the
Chairman of the Board or in the event of the disability or refusal to act of any
of them, each Executive Vice President (if more than one, in the order
prescribed by the Board of Directors), if any, shall perform the duties of the
President, and when so acting, shall have such power and discharge such duties
as may be assigned to him or her from time to time by the Board of Directors.
Each Senior Vice President, if any, in the capacities determined by the
Board of Directors, shall perform such duties and exercise such powers as may be
assigned to him or her from time to time by the Board of Directors.
5.8 SECRETARY
---------
The Secretary shall keep or cause to be kept, at the principal executive
office of the Corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of the Board of Directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive
office of the Corporation or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the Board of Directors, a share
register or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required to be given by law or by
these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
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5.9 CHIEF FINANCIAL OFFICER
-----------------------
The Chief Financial Officer shall be the chief financial officer of the
Corporation and shall keep and maintain, or cause to be kept and maintained, in
a thorough and proper manner adequate and correct books and records of accounts
of the properties and business transactions of the Corporation, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings and shares. The Chief Financial Officer shall render
statements of the financial affairs of the Corporation in such form and as often
as required by the Board of Directors, the Chief Executive Officer or the
President. The books of account shall at all reasonable times be open to
inspection by any director for a purpose reasonably related to his or her
position as a director.
The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the Corporation
and shall perform other such duties commonly incident to his or her office. The
Chief Financial Officer shall perform such other duties and have such other
powers as the Board of Directors, the Chief Executive Officer or the President
shall designate from time to time. Unless provided otherwise, the Chief
Financial Officer shall have the powers under these Bylaws commensurate with an
Executive Vice President.
5.10 TREASURER
---------
The Treasurer shall assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, or if such
position is vacant. Additionally, the Treasurer shall perform other duties
commonly incident to his or her office and shall also perform such other duties
and have such other powers as the Board of Directors, the Chief Executive
Officer or the President shall designate from time to time.
5.11 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing powers, authority and duties, all officers of
the Corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the Corporation as may be
designated from time to time by the Board of Directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The Corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action,
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<PAGE>
suit, or proceeding in which such person was or is a party or is threatened to
be made a party by reason of the fact that such person is or was a director or
officer of the Corporation. For purposes of this Section 6.1, a "director" or
"officer" of the Corporation shall mean any person (i) who is or was a director
or officer of the Corporation, (ii) who is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation to the Corporation or of another
enterprise at the request of such predecessor corporation.
The Corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the Corporation.
The Corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the Corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the Corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, these Bylaws, agreement,
vote of the stockholders or disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions of this Section 6.1
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The Corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the Corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the Corporation, (ii) who is or was serving at
the request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation to the
Corporation or of another enterprise at the request of such predecessor
corporation.
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<PAGE>
6.3 INSURANCE
---------
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The Corporation shall, either at its principal executive office or at such
place or places as designated by the Board of Directors, keep a record of its
stockholders, listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The stock and other securities of other corporations owned or held by the
Corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person authorized
to do so by resolution of the Board of Directors, or in the absence of such
authorization, by the Chairman of the Board, if any, the Chief Executive
Officer, the President, or any Executive or Senior Vice President, or any other
person authorized by the Board of
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<PAGE>
Directors, the Chairman of the Board, if any, the Chief Executive Officer or the
President. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.4 CERTIFICATION AND INSPECTION OF BYLAWS
--------------------------------------
The original or a copy of these Bylaws, as amended or otherwise altered to
date, certified by the Secretary, shall be kept at the Corporation's principal
executive office and shall be open to inspection by the stockholders of the
Corporation at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix in advance a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted and which
shall not be more than sixty (60) days before any such action. In that case,
only stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date so fixed, except as
otherwise provided by law.
If the Board of Directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
-------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws, may
authorize and empower any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
Corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the Board of Directors
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<PAGE>
or within the agency power of an officer, no officer, agent or employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for
any amount.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the Corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 201 of the General Corporation Law of
Delaware (relating to transfers of stock, stock certificates and uncertificated
stock), in lieu of the foregoing requirements there may be set forth on the face
or back of the certificate that the Corporation shall issue to represent such
class or series of stock a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Board of
Directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the Board may require; the Board
may require indemnification of the Corporation secured by a bond or other
adequate security sufficient to protect the Corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 TRANSFER AGENTS AND REGISTRARS
------------------------------
The Board of Directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be appointed at such
times and places and for such consideration as the requirements of the
Corporation may necessitate and the Board of Directors may designate.
8.7 REGISTERED STOCKHOLDERS
-----------------------
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the General Corporation Law of Delaware.
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<PAGE>
8.8 DIVIDENDS
---------
Subject to the provisions of the Certificate of Incorporation, if any,
dividends upon the capital stock of the Corporation may be declared by the Board
of Directors pursuant to law at any regular or special meeting and may be paid
in cash, in property, or in shares of the capital stock of the Corporation.
Payment of dividends on any partly-paid shares shall be in accordance with
Section 8.4 of these Bylaws. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interests of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
8.9 FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
8.10 PROVISIONS CONCERNING NOTICE
----------------------------
All notices given by mail shall be deemed to have been given at the time of
mailing, and all notices given by facsimile, telex or telegram shall be deemed
to have been given as of the sending time recorded at time of transmission. An
affidavit of mailing, executed by a duly authorized and competent employee of
the Corporation or its transfer agent appointed with respect to the class of
stock affected, specifying the name and address or the names and addresses of
the stockholder or stockholders, or director or directors, to whom any such
notice or notices was or were given, and the time and method of giving the same
shall, in the absence of fraud, be prima facie evidence of the facts therein
contained.
8.11 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, as used in these Bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both an entity and a natural person.
ARTICLE IX
AMENDMENTS
----------
The original or other Bylaws of the Corporation may be adopted, amended or
repealed by the Board of Directors. The fact that such power has been so
conferred upon the directors shall not
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<PAGE>
divest the stockholders of the power, nor limit their power to adopt, amend or
repeal Bylaws pursuant to the Certificate of Incorporation and the General
Corporation Law of Delaware.
Whenever an amendment or new Bylaw is adopted, it shall be copied in the
book of Bylaws with the original Bylaws, in the appropriate place. If any Bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
the book of Bylaws.
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<PAGE>
Exhibit 3.5
E-STAMP CORPORATION
STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES
Designated
SERIES A PREFERRED STOCK
E-Stamp Corporation, a Delaware corporation (the "Corporation"), hereby
-----------
certifies:
That, pursuant to the authority contained in Article IV of the Certificate
of Incorporation of the Corporation (the "Certificate of Incorporation") and in
----------------------------
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware (the "Delaware Act"), the Board of Directors of the
------------
Corporation has duly adopted, by unanimous written consent dated August 28,
1997, the following resolution creating and providing for the establishment and
issuance of a series of shares of serial preferred stock as hereinafter
described, providing for the designations, preferences, limitations and
relative, voting, conversion and other rights thereof and the qualifications,
limitations, or restrictions thereof, in addition to those set forth in the
Certificate of Incorporation, all in accordance with the provisions of Section
151 of the Delaware Act:
RESOLVED, that pursuant to Article IV of the Certificate of Incorporation,
which authorizes the issuance 105,000,000 shares of stock, consisting of
100,000,000 shares of common stock, $.001 par value (the "Common Stock"), and
------------
5,000,000 shares of preferred stock, $.001 par value (the "Preferred Stock"),
---------------
the Corporation hereby provides for the issuance of a series of 2,500,000 shares
of Preferred Stock, to be designated as Series A Preferred Stock (the "Series A
--------
Preferred Stock"), and hereby approves the designation, issuance, and sale by
- ---------------
the Corporation of 2,500,000 shares of the Series A Preferred Stock and hereby
provides for the following designations, preferences, limitations and relative,
voting, conversion, and other rights thereof and the qualifications,
limitations, or restrictions thereof:
1. Designation of Series A. There shall be a series of Preferred Stock
-----------------------
designated as "Series A Preferred Stock", par value $.001 per share, consisting
of 2,500,000 shares. Each share of Series A Preferred Stock shall be referred
to herein as a "Series A Preferred Share" or "Share."
2. Voting. The holder of each share of Series A Preferred Stock shall
------
have the right to one vote for each share of Common Stock into which such Series
A Preferred Stock could then be converted as provided hereinbelow, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled to notice of any stockholders' meeting in accordance with the bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with
Page 1 of 12
<PAGE>
respect to any question upon which holders of Common Stock have the right to
vote. Fractional votes shall not, however, be permitted and any fractional
voting rights available on an as-converted basis (after aggregating all shares
into which shares of Series A Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
3. Protective Provisions. Subject to the rights of other series of
---------------------
Preferred Stock which may from time to time come into existence, so long as any
shares of Series A Preferred Stock are outstanding, the Corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) which such approval shall not be unreasonably withheld, conditioned, or
delayed of the holders of at least fifty percent (50%) of the then outstanding
shares of Series A Preferred Stock, voting together as a class:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
affect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Corporation is disposed of,
provided that this Section 3(a) shall not apply to a merger effected exclusively
- --------
for the purpose of changing the domicile of the Corporation;
(b) alter or change the rights, preferences, or privileges of the
shares of Series A Preferred Stock in any manner or exchange, reclassify, or
cancel all or part of the Series A Preferred Stock;
(c) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Common Stock, Series A Preferred Stock,
or any other series of Preferred Stock;
(d) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
Series A Preferred Stock with respect to redemption, voting, dividends or upon
liquidation;
(e) perform any act or omission that would result in taxation of
the holders of the Series A Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended;
(f) declare or pay any dividend or cancel or modify any dividends
on the Series A Preferred Stock which have been declared but not yet paid;
(g) change the authorized number of directors of the Corporation
from seven members;
(h) authorize the aggregate number of shares of Common Stock that
are available for issuance under the Corporation's 1996 Stock Option and
Restricted Stock Plan to an amount greater than 2,000,000 shares of Common Stock
except as adjusted for stock splits, stock dividends, consolidations,
recapitalizations, and similar events;
Page 2 of 12
<PAGE>
(i) authorize the aggregate number of shares of Common Stock that
are available for issuance under the Corporation's 1996 Non-Employee Director
Stock Option Plan to an amount greater than 100,000 shares of Common Stock
except as adjusted for stock splits, stock dividends, consolidations,
recapitalizations, and similar events; or
(j) authorize or issue any capital stock or rights therefore to
third parties without the prior approval of the Board of Directors of the
Corporation or a duly appointed committee thereof.
4. Dividends. Subject to the rights of other series of Preferred Stock
---------
which may from time to time come into existence, the holders of shares of Series
A Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor prior and in preference to any declaration or payment
of any dividend (payable other than in Common Stock or other securities and
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock) on the Common Stock, at the rate
of $0.192 per share per annum on each outstanding share of Series A Preferred
Stock, payable quarterly when, as, and only if declared by the Board of
Directors. Such dividends shall not be cumulative.
5. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, subject to the
rights of other series of Preferred Stock that may from time to time come into
existence, the holders of the Series A Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to $2.40 per share for each share of Series A
Preferred Stock then held by them, plus any declared but unpaid dividends. If,
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then, subject
to the rights of other series of Preferred Stock that may from time to time come
into existence, the entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the Series A
Preferred Stock in proportion to the preferential amount each such holder is
otherwise entitled to receive.
(b) Remaining Assets. Upon the completion of the distribution
----------------
required by Section 5(a) above and any other distribution that may be required
with respect to other series of Preferred Stock that may from time to time come
into existence, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of the
Series A Preferred Stock and the Common Stock pro rata based on the number of
shares of Common Stock held by each (assuming conversion of all such Series A
Preferred Stock).
(c) Deemed Liquidation. For purposes of this Section 5, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to be
occasioned by, or to include, (i) the acquisition of the Corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation,
Page 3 of 12
<PAGE>
but excluding any merger effected exclusively for the purpose of changing the
domicile of the Corporation); or (ii) a sale of all or substantially all of the
assets of the Corporation, unless the Corporation's stockholders of record as
------
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Corporation's acquisition or sale or otherwise) hold at least 50% of the
voting power of the surviving or acquiring entity in approximately the same
relative percentages after such acquisition or sale as before such acquisition
or sale.
(d) Market Value. In any of the events specified in (c) above, if the
------------
consideration received by the Corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or the Nasdaq
National Market System, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of at least fifty percent (50%) of the voting power of all then
outstanding shares of Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (i)(A),(B) or (C) to reflect the approximate fair market
value thereof, as mutually determined by the Corporation and the holders of at
least fifty percent (50%) of the voting power of all then outstanding shares of
Preferred Stock.
(iii) In the event the requirements of Section 5(c) are not
complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 5 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section
5(c)(iv) hereof.
Page 4 of 12
<PAGE>
(iv) The Corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholder's meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 5, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least fifty percent (50%) of the voting power of all then
outstanding shares of such Preferred Stock.
6. Conversion. The holders of the Series A Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 6(c), each share of Series A
----------------
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the principal corporate
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing $2.40 by the Conversion Price applicable to such share in effect on the
date the certificate is surrendered for conversion. The initial Conversion
Price per share of Series A Preferred Stock shall be $2.40 (the "Conversion
----------
Price"). Such initial Conversion Price shall be subject to adjustment as set
- -----
forth in Section 6(d).
(b) Automatic Conversion. Each share of Series A Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such share immediately upon the earlier of (i)
the Corporation's sale of its Common Stock pursuant to a firm commitment
underwritten public offering pursuant to an effective registration statement
filed pursuant to the Securities Act of 1933, as amended, the public offering
price of which is not less than $12.00 per share (adjusted to reflect subsequent
stock dividends, stock splits, or recapitalizations) and which results in
aggregate gross cash proceeds to the Corporation of more than $15,000,000, or
(ii) the date specified by written consent or agreement of the holders of at
least fifty percent (50%) of the then outstanding shares of Series A Preferred
Stock.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock pursuant
to Section 6(a), he shall give written notice at least ten (10) days prior to
the Corporation at its principal corporate office, of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. He shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of
Page 5 of 12
<PAGE>
Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date. If
the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive
Common Stock upon conversion of such Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments. The Conversion Price of the Series
----------------------------
A Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If the Corporation shall issue, after the date upon
which any shares of Series A Preferred Stock were first issued (the "Purchase
--------
Date"), any Additional Stock (as defined below) without consideration or for a
- ----
consideration per share less than the Conversion Price for the Series A
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for the Series A Preferred Stock in effect
immediately prior to such issuance shall automatically (except as otherwise
provided in this clause (i)) be adjusted to a price equal to the price paid per
share for such Additional Stock.
(B) No adjustment of the Conversion Price for the Series A
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to three years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of three years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in Sections
6(d)(i)(E)(3) and 6(d)(i)(E)(4), no adjustment of such Conversion Price pursuant
to this Section 6(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as reasonably determined by
the Board of Directors or any committee thereof irrespective of any accounting
treatment.
(E) In the case of the issuance (whether before, on or after
the applicable Purchase Date) of options to purchase or rights to subscribe for
Common Stock,
Page 6 of 12
<PAGE>
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
Section 6(d)(i) and Section 6(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Sections
6(d)(i)(C) and 6(d)(i)(D)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Sections 6(d)(i)(C) and 6(d)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Series A Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration or cancellation of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities or
options or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options
Page 7 of 12
<PAGE>
or rights, upon the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities
(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to Sections 6(d)(i)(E)(1) and
6(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 6(d)(i)(E)(3) or
6(d)(i)(E)(4).
(ii) "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have been issued pursuant to Section 6(d)(i)(E) by the
Corporation after the Purchase Date) but specifically excluding:
(A) Common Stock issued pursuant to a transaction described
in Section 6(d)(iii) hereof,
(B) Shares of Common Stock issuable or issued to employees,
consultants, or directors of the Corporation, directly or pursuant to a stock
option plan or restricted stock plan, all as approved by the Board of Directors
of the Corporation,
(C) Capital stock, or options or warrants to purchase capital
stock, issued to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings or similar transactions, or to vendors
or customers in connection with commercial arrangements, as approved by the
Board of Directors of the Corporation,
(D) Capital stock or warrants or options to purchase capital
stock issued in connection with bona fide acquisitions, mergers or similar
transactions, the terms of which are approved by the Board of Directors of the
Corporation,
(E) Shares of Common Stock issued or issuable upon conversion of
the Series A Preferred Stock,
(F) Shares of Common Stock issued or issuable in a public
offering prior to or in connection with which all outstanding shares of Series A
Preferred stock will be converted to Common Stock, and
(G) Capital stock, or options or warrants to purchase capital
stock, issued in connection with the licensing or acquisition of intellectual
property or technology rights from third parties, the terms of which are
approved by the Board of Directors of the Corporation.
(iii) In the event the Corporation should at any time or from time to
time after the Purchase Date fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
------------------------
for the additional shares of
Page 8 of 12
<PAGE>
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable upon conversion of each share of Series A Preferred Stock shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 6(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable upon conversion
of each share of such series shall be decreased in proportion to such decrease
in outstanding shares.
(e) Other Distributions. In the event the Corporation shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 6(d)(iii), then, in each such case
for the purpose of this Section 6(e), the holders of Series A Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the Corporation
into which their shares of Series A Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
-----------------
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 6
or Section 5) provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 6 with respect to the rights of the holders of the
Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 6 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 6 and in the taking of all such action as may
be necessary or
Page 9 of 12
<PAGE>
appropriate in order to protect the Conversion Rights of the holders of Series A
Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock pursuant to
this Section 6, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for the Series A Preferred
Stock at the time in effect, and (C) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of a share of the Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Stock, at least 20 days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series A Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Certificate of
Incorporation.
Page 10 of 12
<PAGE>
(k) Notices. Any notice required by the provisions of this Section 6
-------
to be given to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Corporation.
7. Redemption.
----------
(a) Election to Redeem. Subject to the rights of other series of
------------------
Preferred Stock which may from time to time come into existence, at any time
after the fourth annual anniversary date of the Purchase Date but not later than
the sixth annual anniversary date of the Purchase Date, the Corporation shall
redeem the Series A Preferred Stock upon receipt by the Corporation (the
"Redemption Date") of a written request from the holders of not less than a
---------------
majority of the then outstanding Series A Preferred Stock and receipt
simultaneously therewith of the certificates representing the Series A Preferred
Stock to be redeemed. The Corporation shall, to the extent it may lawfully do
so, redeem within thirty (30) days of the Redemption Date the Series A Preferred
Stock by paying in cash therefor a sum equal to $2.40 per share of Series A
Preferred Stock (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus interest on such amount computed at the rate
of 10% compounded annually from the date of issuance plus all declared or
accumulated but unpaid dividends on such shares(the "Redemption Price").
----------------
(b) Mechanics. Subject to the rights of other series of Preferred
---------
Stock which may from time to time come into existence, at least fifteen (15) but
no more than thirty (30) days after the Redemption Date, written notice shall be
mailed by the Corporation, first class postage pre-paid, to each holder of
record (at the close of business on the business day next preceding the day on
which notice is given) of the Series A Preferred Stock to be redeemed, at the
address last shown on the records of the Corporation for such holder, notifying
such holder of the redemption to be effected, specifying the number of shares to
be redeemed from such holder, and the Redemption Price. The Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(c) Stockholder Rights. From and after the Redemption Date, all
------------------
rights of the holders of shares of Series A Preferred Stock (except the right to
receive the Redemption Price) shall cease with respect to such shares to be
redeemed, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
Subject to the rights of other series of Preferred Stock which may from time to
time come into existence, if the funds of the Corporation legally available for
redemption of Series A Preferred Stock on any Redemption Date are insufficient
to redeem the total number of shares of Series A Preferred Stock to be redeemed
on such date, those funds which are legally available will be used to redeem the
maximum possible number of such shares ratably among the holders of such shares
to be redeemed based upon their holdings of Series A Preferred Stock. The
shares of Series A Preferred Stock not redeemed shall remain outstanding and be
entitled to all the rights and preferences provided herein. Subject to the
rights of other series of Preferred Stock which may from time to time come into
existence, at any time thereafter when additional funds
Page 11 of 12
<PAGE>
of the Corporation are legally available for the redemption of shares of Series
A Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the Corporation has become obliged to redeem on any Redemption
Date but which it has not redeemed.
(d) Sinking Fund. No sinking fund shall be established for any
------------
redemption of the Series A Preferred Stock.
8. Status of Reacquired Series A Preferred Stock. Series A Preferred
---------------------------------------------
Stock issued and reacquired by the Corporation (including by conversion or
redemption) shall have the status of authorized and unissued shares of Preferred
Stock undesignated as to series, subject to later issuance, provided that they
may not be reissued as Series A Preferred Stock.
9. Preemptive Rights. The Series A Preferred Stock is not entitled to
-----------------
any preemptive or subscription rights in respect of any securities of the
Corporation unless and to the extent provided by written agreement with the
Corporation.
10. Severability of Provisions. Whenever possible, each provision hereof
--------------------------
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or adversely affecting the
remaining provisions hereof.
IN WITNESS WHEREOF, this Statement of Resolution has been executed by an
officer of the Corporation, this 28th day of August, 1997.
E-STAMP CORPORATION
By: /s/ Sunir K. Kapoor
---------------------------------
Sunir K. Kapoor, President
Page 12 of 12
<PAGE>
CERTIFICATE OF DESIGNATION
OF
E-STAMP CORPORATION
_________________________________
STATEMENT OF RESOLUTION AMENDING SERIES OF SHARES
Designated
SERIES A PREFERRED STOCK
E-Stamp Corporation, a Delaware corporation (the "Corporation"),
-----------
hereby certifies that:
WHEREAS, the Certificate of Incorporation of the Corporation as amended
(the "Certificate of Incorporation") authorizes the issuance of 112,000,000
----------------------------
shares of stock, consisting of 100,000,000 shares of common stock, $.001 par
value (the "Common Stock"), and 12,000,000 shares of preferred stock, $.001 par
------------
value (the "Preferred Stock");
---------------
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware (the "Delaware
--------
Act"), the Corporation filed with the Secretary of State of the State of
- ---
Delaware on September 2, 1997 that certain Certificate of Designation (the
"Series A Designated Certificate") providing for the establishment and issuance
-------------------------------
of a series of 2,500,000 shares of Preferred Stock designated as Series A
Preferred Stock (the "Series A Preferred Stock");
------------------------
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the Delaware Act, the Board of Directors of the Corporation has duly
adopted, by unanimous written consent dated June 26, 1998, a resolution
providing for the establishment and issuance of 4,188,000 shares of Preferred
Stock designated Series B Preferred Stock (the "Series B Preferred Stock");
------------------------
WHEREAS, the Board of Directors of the Corporation has duly adopted, by
unanimous written consent dated June 26, 1998, the following resolution
providing for an amendment to the Series A Designated Certificate all in
accordance with the provisions of Section 151 of the Delaware Act.
RESOLVED, that pursuant to Article IV of the Certificate of Incorporation,
the Corporation hereby amends the Series A Designation Certificate as follows:
Page 1 of 3
<PAGE>
1. Section 3 of the Series A Designation Certificate is hereby amended by
the addition of the following:
"3. Protective Provisions:
---------------------
(k) sell, convey, or otherwise dispose of or encumber all or
substantially all of the Corporation's material intellectual property
or technology rights outside of the ordinary course of business."
2. Section 5(a) of the Series A Designation Certificate is hereby deleted
in its entirety and replaced with the following:
"(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary,
subject to the rights of other series of Preferred Stock that may from
time to time come into existence, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of Common Stock, by reason of and in exchange for their
ownership of the Series A Preferred Stock an amount per share equal to
$2.40 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares) for each share of Series A
Preferred Stock then held by them, plus any declared but unpaid
dividends and any amounts payable pursuant to Section 5(b) below. If,
upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock and the
holders of the Series B Preferred Stock shall be insufficient to
permit the payment to such holders of the full preferential amount
each such holder is entitled to receive, then, subject to the rights
of other series of Preferred Stock that may from time to time come
into existence, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock and the holders of the Series
B Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive."
3. Section 5(b) of the Series A Designation Certificate is hereby deleted
in its entirety and replaced with the following:
"(b) Remaining Assets. Upon the completion of the distribution required by
----------------
Section 5(a) above and any other distribution that may be required with
respect to other series of Preferred Stock that may from time to time come
into existence, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of the
Common Stock, the Series A Preferred Stock, the Series B Preferred Stock,
and any other class or series of Preferred Stock that is entitled to share
in the residual assets of the Corporation which shall be distributed pro
rata based on the number of shares of Common Stock held by each (assuming
conversion of all such Preferred Stock)."
Page 2 of 3
<PAGE>
4. Section 5(c) of the Series A Designation Certificate is hereby deleted
in its entirety and replaced with the following:
"(c) Deemed Liquidation. For purposes of this Section 5, a
------------------
liquidation, dissolution or winding up of the Corporation shall be
deemed to be occasioned by, or to include, (i) a sale of all or
substantially all of the assets of the Corporation, or (ii) the
acquisition of the Corporation by another entity by means of any
transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the
domicile of the Corporation) unless the Corporation's stockholders of
------
record as constituted immediately prior to such acquisition will,
immediately after such acquisition (by virtue of securities issued as
consideration for the Corporation's acquisition or otherwise) hold at
least 50% of the voting power of the surviving or acquiring entity in
approximately the same relative percentages after such acquisition as
before such acquisition."
5. Section 5(d)(iii)(B) of the Series A Designation Certificate is hereby
deleted in its entirety and replace with the following:
"(B) cancel such transaction, in which event the rights, preferences and
privileges of the holders of the Series A Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section
5(d)(iv) hereof."
6. The Series A Designation Certificate shall be remain in full force and
effect except as specifically provided hereinabove.
IN WITNESS WHEREOF, this Statement of Resolution has been executed by an
officer of the Corporation, this 2nd day of July, 1998.
E-STAMP CORPORATION
By: /s/ Sunir K. Kapoor
--------------------------------
Sunir K. Kapoor, President/CEO
Page 3 of 3
<PAGE>
AMENDED
CERTIFICATE OF DESIGNATION
OF
E-STAMP CORPORATION
_____________________________________
STATEMENT OF RESOLUTION AMENDING SERIES OF SHARES
Designated
SERIES A PREFERRED STOCK
E-Stamp Corporation, a Delaware corporation (the "Corporation"), hereby
-----------
certifies that:
WHEREAS, the Certificate of Incorporation of the Corporation as amended
(the "Certificate of Incorporation") authorizes the issuance of 112,000,000
----------------------------
shares of stock, consisting of 100,000,000 shares of common stock, $.001 par
value (the "Common Stock"), and 12,000,000 shares of preferred stock, $.001 par
------------
value (the "Preferred Stock");
----------------
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware (the "Delaware
--------
Act"), the Corporation filed with the Secretary of State of the State of
- ---
Delaware on September 2, 1997 that certain Certificate of Designation (the
"Series A Designation Certificate") providing for the establishment and issuance
- ---------------------------------
of a series of 2,500,000 shares of Preferred Stock designated as Series A
Preferred Stock (the "Series A Preferred Stock");
------------------------
WHEREAS, the Corporation filed with the Secretary of State of the State of
Delaware on July 2, 1998 that certain Amended Certificate of Designation which
amended certain portions of the initial Series A Designation Certificate which
as amended is referred to herein as the "Series A Designation Certificate";
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the Delaware Act, the Corporation filed with the Secretary of State of
the State of Delaware on July 2, 1998 that certain Certificate of Designation
(the "Series B Designation Certificate") providing for the establishment and
--------------------------------
issuance of a series of 4,188,000 shares of Preferred Stock designated as Series
B Preferred Stock (the "Series B Preferred Stock");
------------------------
Page 1 of 3
<PAGE>
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the Delaware Act, the Board of Directors of the Corporation has duly
adopted, by unanimous written consent dated July 30, 1999, a resolution
providing for the establishment and issuance of 3,054,256 shares of Preferred
Stock designated Series C Preferred Stock (the "Series C Preferred Stock");
------------------------
WHEREAS, the Board of Directors of the Corporation has duly adopted, by
unanimous written consent dated July 30, 1999, the following resolution
providing for an amendment to the Series A Designation Certificate all in
accordance with the provisions of Section 151 of the Delaware Act.
RESOLVED, that pursuant to Article IV of the Certificate of Incorporation,
the Corporation hereby amends the Series A Designation Certificate as follows:
1. Section 5(a) of the Series A Designation Certificate is hereby deleted
in its entirety and replaced with the following:
"(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, subject
to the rights of other series of Preferred Stock that may from time to
time come into existence, the holders of the Series A Preferred Stock
shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of
Common Stock, by reason of and in exchange for their ownership of the
Series A Preferred Stock an amount per share equal to $2.40 per share
(as adjusted for any stock dividends, combinations or splits with
respect to such shares) for each share of Series A Preferred Stock then
held by them, plus any declared but unpaid dividends and any amounts
payable pursuant to Section 5(b) below. If, upon the occurrence of such
event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock, the Series B Preferred Stock, and the Series
C Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amount each such holder is entitled to
receive, then, subject to the rights of other series of Preferred Stock
that may from time to time come into existence, the entire assets and
funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock,
the Series B Preferred Stock, and the Series C Preferred stock in
proportion to the preferential amount each such holder is otherwise
entitled to receive."
2. The Series A Designation Certificate shall remain in full force
and effect except as specifically provided hereinabove.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, this Statement of Resolution has been executed by
an officer of the Corporation, this 2nd day of August, 1999.
E-STAMP CORPORATION
By: /s/ Robert H. Ewald
---------------------------------
Robert H. Ewald, President/CEO
Page 3 of 3
<PAGE>
Exhibit 3.6
CERTIFICATE OF DESIGNATION
OF
E-STAMP CORPORATION
____________________________________
STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES
Designated
SERIES B PREFERRED STOCK
E-Stamp Corporation, a Delaware corporation (the "Corporation"), hereby
-----------
certifies:
That, pursuant to the authority contained in Article IV of the Certificate
of Incorporation of the Corporation (the "Certificate of Incorporation") and in
----------------------------
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware (the "Delaware Act"), the Board of Directors of the
------------
Corporation has duly adopted, by unanimous written consent dated June 26, 1998,
the following resolution creating and providing for the establishment and
issuance of a series of shares of serial preferred stock as hereinafter
described, providing for the designations, preferences, limitations and
relative, voting, conversion and other rights thereof and the qualifications,
limitations, or restrictions thereof, in addition to those set forth in the
Certificate of Incorporation, all in accordance with the provisions of Section
151 of the Delaware Act:
RESOLVED, that pursuant to Article IV of the Certificate of Incorporation
as amended, which authorizes the issuance of 112,000,000 shares of stock,
consisting of 100,000,000 shares of common stock, $.001 par value (the "Common
------
Stock"), and 12,000,000 shares of preferred stock, $.001 par value (the
- -----
"Preferred Stock"), the Corporation hereby provides for the issuance of a series
---------------
of 4,188,000 shares of Preferred Stock, to be designated as Series B Preferred
Stock (the "Series B Preferred Stock"), and hereby approves the designation,
------------------------
issuance, and sale by the Corporation of 4,188,000 shares of the Series B
Preferred Stock and hereby provides for the following designations, preferences,
limitations and relative, voting, conversion, and other rights thereof and the
qualifications, limitations, or restrictions thereof:
1. Designation of Series B. There shall be a series of Preferred Stock
------------------------
designated as "Series B Preferred Stock", par value $.001 per share, consisting
of 4,188,000 shares. Each share of Series B Preferred Stock shall be referred
to herein as a "Series B Preferred Share" or "Share."
Page 1 of 13
<PAGE>
2. Voting. The holder of each share of Series B Preferred Stock shall
------
have the right to one vote for each share of Common Stock into which such Series
B Preferred Stock could then be converted as provided hereinbelow, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled to notice of any stockholders' meeting in accordance with the bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series B Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward).
3. Protective Provisions.
---------------------
Subject to the rights of other series of Preferred Stock which may
from time to time come into existence, so long as any shares of Series B
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least fifty percent (50%) of the then outstanding shares of Series
B Preferred Stock, voting together as a class:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
affect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Corporation is disposed of,
provided that this Section 3(a) shall not apply to a merger effected
- --------
exclusively for the purpose of changing the domicile of the Corporation;
(b) alter or change the rights, preferences, or privileges of the
shares of Series B Preferred Stock in any manner or exchange, reclassify, or
cancel all or part of the Series B Preferred Stock;
(c) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Common Stock or Preferred Stock;
(d) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, the
Series B Preferred Stock with respect to redemption, voting, dividends or upon
liquidation;
(e) perform any act or omission that would result in taxation of
the holders of the Series B Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended; or
(f) declare or pay any dividend or cancel or modify any dividends
on the Series B Preferred Stock which have been declared but not yet paid.
Page 2 of 13
<PAGE>
(g) change the authorized number of directors of the Corporation
from seven members;
(h) authorize the aggregate number of shares of Common Stock that
are available for issuance under the Corporation's 1996 Stock Option and
Restricted Stock Plan to an amount greater than 2,750,000 shares of Common Stock
except as adjusted for stock splits, stock dividends, consolidations,
recapitalizations, and similar events;
(i) authorize the aggregate number of shares of Common Stock that
are available for issuance under the Corporation's 1996 Non-Employee Director
Stock Option Plan to an amount greater than 100,000 shares of Common Stock
except as adjusted for stock splits, stock dividends, consolidations,
recapitalizations, and similar events;
(j) authorize or issue any capital stock or rights therefore to
third parties without the prior approval of the Board of Directors of the
Corporation or a duly appointed committee thereof; or
(k) sell, convey, or otherwise dispose of or encumber all or
substantially all of the Corporation's material intellectual property or
technology rights outside of the ordinary course of business.
4. Dividends. Subject to the rights of other series of Preferred Stock
---------
which may from time to time come into existence, the holders of shares of Series
B Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor prior and in preference to any declaration or payment
of any dividend (payable other than in Common Stock or other securities and
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock) on the Common Stock, at the rate
of $0.3056 per share per annum (as adjusted for any stock dividends,
combinations or splits with respect to such shares) on each outstanding share of
Series B Preferred Stock, payable quarterly when, as, and only if declared by
the Board of Directors. Such dividends shall not be cumulative.
5. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or winding
----------
up of the Corporation, either voluntary or involuntary, subject to the rights of
other series of Preferred Stock that may from time to time come into existence,
the holders of the Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Corporation to
the holders of Common Stock, by reason of and in exchange for their ownership of
the Series B Preferred Stock an amount per share equal to $3.82 per share (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) for each share of Series B Preferred Stock then held by them, plus any
declared but unpaid dividends and any amounts payable pursuant to Section 5(b)
below. If, upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock and the holders of
the Series B Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amount each such holder is entitled to receive,
then, subject to the rights of other series of Preferred Stock that may from
time to time come into existence, the entire assets and funds of the Corporation
legally available for distribution shall be distributed
Page 3 of 13
<PAGE>
ratably among the holders of the Series A Preferred Stock and the holders of the
Series B Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(b) Remaining Assets. Upon the completion of the distribution required
----------------
by Section 5(a) above and any other distribution that may be required with
respect to other series of Preferred Stock that may from time to time come into
existence, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of the Common Stock, the
Series A Preferred Stock, the Series B Preferred Stock, and any other class or
series of Preferred Stock that is entitled to share in the residual assets of
the Corporation which shall be distributed pro rata based on the number of
shares of Common Stock held by each (assuming conversion of all such Preferred
Stock).
(c) Deemed Liquidation. For purposes of this Section 5, a liquidation,
------------------
dissolution or winding up of the Corporation shall be deemed to be occasioned
by, or to include, (i) a sale of all or substantially all of the assets of the
Corporation, or (ii) the acquisition of the Corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation) unless the Corporation's stockholders of record as constituted
------
immediately prior to such acquisition will, immediately after such acquisition
(by virtue of securities issued as consideration for the Corporation's
acquisition or otherwise) hold at least 50% of the voting power of the surviving
or acquiring entity in approximately the same relative percentages after such
acquisition as before such acquisition.
(d) Market Value. In any of the events specified in (c) above, if the
------------
consideration received by the Corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(i) Securities not subject to restrictions on free marketability:
(A) If traded on a securities exchange or the Nasdaq National
Market System, the value shall be deemed to be the average of the closing prices
of the securities on such exchange over the thirty-day period ending three (3)
days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of at least fifty percent (50%) of the voting power of all then
outstanding shares of Preferred Stock.
(ii) The method of valuation of securities subject to restrictions
on free marketability (other than restrictions arising solely by virtue of a
stockholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value
Page 4 of 13
<PAGE>
determined as above in (i)(A),(B) or (C) to reflect the approximate fair market
value thereof, as mutually determined by the Corporation and the holders of at
least fifty percent (50%) of the voting power of all then outstanding shares of
Preferred Stock.
(iii) In the event the requirements of Section 5(c) are not
complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 5 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series B Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section
5(d)(iv) hereof.
(iv) The Corporation shall give each holder of record of Series B
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholder's meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 5, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least fifty percent (50%) of the voting power of all then
outstanding shares of such Preferred Stock.
6. Conversion. The holders of the Series B Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 6(c), each share of Series B
----------------
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the principal corporate
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing $3.82 by the Conversion Price applicable to such share in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share of Series B Preferred Stock shall be $3.82 (the "Conversion Price").
----------------
Such initial Conversion Price shall be subject to adjustment as set forth in
Section 6(d).
(b) Automatic Conversion. Each share of Series B Preferred Stock shall
--------------------
automatically be converted, without any further action by the holder of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, into shares of Common
Stock at the Conversion Price at the time in effect for such share immediately
upon the earlier of (i) the Corporation's sale of its Common Stock pursuant to a
Page 5 of 13
<PAGE>
firm commitment underwritten public offering pursuant to an effective
registration statement filed pursuant to the Securities Act of 1933, as amended,
the public offering price of which is not less than $12.00 per share (adjusted
to reflect subsequent stock dividends, stock splits, or recapitalizations) and
which results in aggregate gross cash proceeds to the Corporation of more than
$15,000,000, or (ii) the date specified by written consent or agreement of the
holders of at least fifty percent (50%) of the then outstanding shares of Series
B Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series B Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock pursuant
to Section 6(a), he shall give written notice at least ten (10) days prior to
the Corporation at its principal corporate office, of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. He shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series B Preferred Stock. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series B Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series B Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series B Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive
Common Stock upon conversion of such Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments. The Conversion Price of the Series B
----------------------------
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If the Corporation shall issue, after the date upon which
any shares of Series B Preferred Stock were first issued (the "Purchase Date"),
-------------
any consideration per share less than the Conversion Price for the Series B
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for the Series B Preferred Stock in effect
immediately prior to such issuance shall automatically (except as otherwise
provided in this clause (i)) be adjusted to a price equal to the product of the
Conversion Price then in effect multiplied by a fraction (x) the numerator of
which is equal to the number of shares of Common Stock outstanding immediately
prior to such event and (y) the denominator of which is equal to the number of
shares of Common Stock outstanding immediately prior to such event plus the
number of shares of Additional Stock actually issued in such transaction.
Notwithstanding the preceding sentence to the contrary, in the event the
Corporation shall issue any Additional Stock within ninety (90) days of the
Purchase Date without consideration or for a consideration per share less than
the Conversion Price for the Series B Preferred Stock in effect immediately
prior to the issuance of such Additional Stock, the Conversion Price for the
Series B Preferred Stock
Page 6 of 13
<PAGE>
in effect immediately prior to the issuance shall automatically be adjusted to a
price equal to the price paid per share for such Additional Stock.
(B) No adjustment of the Conversion Price for the Series B Preferred
Stock shall be made in an amount less than one cent per share, provided that any
adjustments which are not required to be made by reason of this sentence shall
be carried forward and shall be either taken into account in any subsequent
adjustment made prior to three years from the date of the event giving rise to
the adjustment being carried forward, or shall be made at the end of three years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in Sections 6(d)(i)(E)(3) and
6(d)(i)(E)(4), no adjustment of such Conversion Price pursuant to this Section
6(d)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as reasonably determined by
the Board of Directors or any committee thereof irrespective of any accounting
treatment.
(E) In the case of the issuance (whether before, on or after
the applicable Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this Section 6(d)(i) and Section 6(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Sections
6(d)(i)(C) and 6(d)(i)(D)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and
Page 7 of 13
<PAGE>
for a consideration equal to the consideration, if any, received by the
Corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the Corporation
(without taking into account potential antidilution adjustments) upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in Sections 6(d)(i)(C) and 6(d)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Series B Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration or cancellation of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series B Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities or
options or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities
(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to Sections 6(d)(i)(E)(1) and
6(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 6(d)(i)(E)(3) or
6(d)(i)(E)(4).
(ii) "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have been issued pursuant to Section 6(d)(i)(E) by the
Corporation after the Purchase Date) but specifically excluding:
(A) Common Stock issued pursuant to a transaction described
in Section 6(d)(iii) hereof,
(B) Shares of Common Stock issuable or issued to employees,
consultants, or directors of the Corporation, directly or pursuant to a stock
option plan or restricted stock plan, all as approved by the Board of Directors
of the Corporation,
(C) Capital stock, or options or warrants to purchase
capital stock, issued to financial institutions or lessors in connection with
commercial credit arrangements,
Page 8 of 13
<PAGE>
equipment financings or similar transactions, or to vendors or customers in
connection with commercial arrangements, as approved by the Board of Directors
of the Corporation,
(D) Capital stock or warrants or options to purchase capital
stock issued in connection with bona fide acquisitions, mergers or similar
transactions, the terms of which are approved by the Board of Directors of the
Corporation,
(E) Shares of Common Stock issued or issuable upon
conversion of Preferred Stock,
(F) Shares of Common Stock issued or issuable in a public
offering prior to or in connection with which all outstanding shares of Series B
Preferred stock will be converted to Common Stock, and
(G) Capital stock, or options or warrants to purchase
capital stock, issued in connection with the licensing or acquisition of
intellectual property or technology rights from third parties, the terms of
which are approved by the Board of Directors of the Corporation.
(iii) In the event the Corporation should at any time or from time to
time after the Purchase Date fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
------------------------
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series B Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable upon conversion of each share of
Series B Preferred Stock shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in Section 6(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any time
after the Purchase Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series B Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable upon conversion
of each share of such series shall be decreased in proportion to such decrease
in outstanding shares.
(e) Other Distributions. In the event the Corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 6(d)(iii), then, in each such case
for the purpose of this Section 6(e), the holders of
Page 9 of 13
<PAGE>
Series B Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series B Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 6 or Section 5) provision shall be made so that the holders of the
Series B Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series B Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6 with respect to the rights of
the holders of the Series B Preferred Stock after the recapitalization to the
end that the provisions of this Section 6 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Stock) shall be applicable after that event
and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 6 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Series B Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series B Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series B
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series B Preferred Stock pursuant to this Section 6,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for the Series B Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock
Page 10 of 13
<PAGE>
and the amount, if any, of other property which at the time would be received
upon the conversion of a share of the Series B Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series B Preferred Stock, at least 20 days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series B Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series B Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Certificate of
Incorporation.
(k) Notices. Any notice required by the provisions of this Section 6
-------
to be given to the holders of shares of Series B Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Corporation.
7. Redemption.
----------
(a) Election to Redeem. Subject to the rights of other series of
------------------
Preferred Stock which may from time to time come into existence, at any time
after the fourth annual anniversary date of the Purchase Date but not later than
the sixth annual anniversary date of the Purchase Date, the Corporation shall
redeem any Series B Preferred Stock upon receipt by the Corporation (the
"Redemption Date") of a written request from the holders of not less than a
---------------
majority of the then outstanding Series B Preferred Stock and receipt
simultaneously therewith of the certificates representing the Series B Preferred
Stock to be redeemed. The Corporation shall, to the extent it may lawfully do
so, redeem, within thirty (30) days of the Redemption Date, the Series B
Preferred Stock by paying in cash therefor a sum equal to $3.82 per share of
Series B Preferred Stock (as adjusted for any stock dividends, combinations or
splits with respect to such shares) plus interest on such amount computed at the
rate of 10% compounded annually from the Purchase Date plus all declared or
accumulated but unpaid dividends on such shares(the "Redemption Price").
----------------
Page 11 of 13
<PAGE>
(b) Mechanics. Subject to the rights of other series of Preferred
---------
Stock which may from time to time come into existence, at least fifteen (15) but
no more than thirty (30) days after the Redemption Date, written notice shall be
mailed by the Corporation, first class postage pre-paid, to each holder of
record (at the close of business on the business day next preceding the day on
which notice is given) of the Series B Preferred Stock to be redeemed, at the
address last shown on the records of the Corporation for such holder, notifying
such holder of the redemption to be effected, specifying the number of shares to
be redeemed from such holder, and the Redemption Price. The Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(c) Stockholder Rights. From and after the Redemption Date, all
------------------
rights of the holders of shares of Series B Preferred Stock (except the right to
receive the Redemption Price) shall cease with respect to such shares to be
redeemed, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
Subject to the rights of other series of Preferred Stock which may from time to
time come into existence, if the funds of the Corporation legally available for
redemption of Preferred Stock are insufficient to redeem the total number of
shares of Preferred Stock to be redeemed, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of such shares to be redeemed based upon the
proportional amount each such holder is entitled to receive. The shares of
Preferred Stock not redeemed shall remain outstanding and be entitled to all the
rights and preferences provided herein. Subject to the rights of other series
of Preferred Stock which may from time to time come into existence, at any time
thereafter when additional funds of the Corporation are legally available for
the redemption of shares of Preferred Stock, such funds will immediately be used
to redeem the balance of the shares which the Corporation has become obliged to
redeem on any Redemption Date but which it has not redeemed.
(d) Sinking Fund. No sinking fund shall be established for any
------------
redemption of the Series B Preferred Stock.
8. Status of Reacquired Series B Preferred Stock. Series B Preferred
---------------------------------------------
Stock issued and reacquired by the Corporation (including by conversion or
redemption) shall have the status of authorized and unissued shares of Preferred
Stock undesignated as to series, subject to later issuance, provided that they
may not be reissued as Series B Preferred Stock.
9. Preemptive Rights. The Series B Preferred Stock is not entitled to
-----------------
any preemptive or subscription rights in respect of any securities of the
Corporation unless and to the extent provided by written agreement with the
Corporation.
10. Severability of Provisions. Whenever possible, each provision hereof
--------------------------
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or adversely affecting the
remaining provisions hereof.
Page 12 of 13
<PAGE>
IN WITNESS WHEREOF, this Statement of Resolution has been executed by an
officer of the Corporation, this 2nd day of July, 1998.
E-STAMP CORPORATION
By: /s/ Sunir K. Kapoor
---------------------------------
Sunir K. Kapoor, President/CEO
Paage 13 of 13
<PAGE>
AMENDED
CERTIFICATE OF DESIGNATION
OF
E-STAMP CORPORATION
_____________________________________
STATEMENT OF RESOLUTION AMENDING SERIES OF SHARES
Designated
SERIES B PREFERRED STOCK
E-Stamp Corporation, a Delaware corporation (the "Corporation"), hereby
-----------
certifies that:
WHEREAS, the Certificate of Incorporation of the Corporation as amended
(the "Certificate of Incorporation") authorizes the issuance of 112,000,000
----------------------------
shares of stock, consisting of 100,000,000 shares of common stock, $.001 par
value (the "Common Stock"), and 12,000,000 shares of preferred stock, $.001 par
------------
value (the "Preferred Stock");
----------------
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware (the "Delaware
--------
Act"), the Corporation filed with the Secretary of State of the State of
- ---
Delaware on September 2, 1997 that certain Certificate of Designation (the
"Series A Designation Certificate") providing for the establishment and issuance
- ---------------------------------
of a series of 2,500,000 shares of Preferred Stock designated as Series A
Preferred Stock (the "Series A Preferred Stock");
------------------------
WHEREAS, the Corporation filed with the Secretary of State of the State of
Delaware on July 2, 1998 that certain Amended Certificate of Designation which
amended certain portions of the initial Series A Designation Certificate which
as amended is referred to herein as the "Series A Designation Cerfificate";
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the Delaware Act, the Corporation filed with the Secretary of State of
the State of Delaware on July 2, 1998 that certain Certificate of Designation
(the "Series B Designation Certificate") providing for the establishment and
--------------------------------
issuance of a series of 4,188,000 shares of Preferred Stock designated as Series
B Preferred Stock (the "Series B Preferred Stock");
------------------------
Page 1 of 3
<PAGE>
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the Delaware Act, the Board of Directors of the Corporation has duly
adopted, by unanimous written consent dated July 30, 1999, a resolution
providing for the establishment and issuance of 3,054,256 shares of Preferred
Stock designated Series C Preferred Stock (the "Series C Preferred Stock");
------------------------
WHEREAS, the Board of Directors of the Corporation has duly adopted, by
unanimous written consent dated July 30, 1999, the following resolution
providing for an amendment to the Series B Designation Certificate all in
accordance with the provisions of Section 151 of the Delaware Act.
RESOLVED, that pursuant to Article IV of the Certificate of Incorporation,
the Corporation hereby amends the Series B Designation Certificate as follows:
1. Section 5(a) of the Series B Designation Certificate is hereby deleted
in its entirety and replaced with the following:
"(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, subject
to the rights of other series of Preferred Stock that may from time to
time come into existence, the holders of the Series A Preferred Stock
shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of
Common Stock, by reason of and in exchange for their ownership of the
Series A Preferred Stock an amount per share equal to $3.82 per share
(as adjusted for any stock dividends, combinations or splits with
respect to such shares) for each share of Series A Preferred Stock then
held by them, plus any declared but unpaid dividends and any amounts
payable pursuant to Section 5(b) below. If, upon the occurrence of such
event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock, the Series B Preferred Stock, and the Series
C Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amount each such holder is entitled to
receive, then, subject to the rights of other series of Preferred Stock
that may from time to time come into existence, the entire assets and
funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock,
the Series B Preferred Stock, and the Series C Preferred stock in
proportion to the preferential amount each such holder is otherwise
entitled to receive."
2. The Series B Designation Certificate shall remain in full force
and effect except as specifically provided hereinabove.
Page 2 of 3
<PAGE>
IN WITNESS WHEREOF, this Statement of Resolution has been executed by
an officer of the Corporation, this 2nd day of August, 1999.
E-STAMP CORPORATION
By: /s/ Robert H. Ewald
---------------------------------
Robert H. Ewald, President/CEO
Page 3 of 3
<PAGE>
Exhibit 3.7
CERTIFICATE OF DESIGNATION
OF
E-STAMP CORPORATION
_________________________________________
STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES
Designated
SERIES C PREFERRED STOCK
E-Stamp Corporation, a Delaware corporation (the "Corporation"), hereby
-----------
certifies:
WHEREAS, pursuant to the authority contained in Article IV of the
Certificate of Incorporation of the Corporation (the "Certificate of
--------------
Incorporation") and in accordance with the provisions of Section 151 of the
- -------------
General Corporation Law of the State of Delaware (the "Delaware Act"), the Board
------------
of Directors of the Corporation has duly adopted, by unanimous written consent
dated July 30, 1999, the following resolution creating and providing for the
establishment and issuance of a series of shares of serial preferred stock as
hereinafter described, providing for the designations, preferences, limitations
and relative, voting, conversion and other rights thereof and the
qualifications, limitations, or restrictions thereof, in addition to those set
forth in the Certificate of Incorporation, all in accordance with the provisions
of Section 151 of the Delaware Act,
WHEREAS, the Certificate of Incorporation as amended, authorizes the
issuance of 112,000,000 shares of stock, consisting of 100,000,000 shares of
common stock, $.001 par value (the "Common Stock"), and 12,000,000 shares of
------------
preferred stock, $.001 par value (the "Preferred Stock"),
---------------
WHEREAS, the Corporation has previously authorized and issued 2,500,000
shares of Preferred Stock which was designated as Series A Preferred Stock (the
"Series A Preferred Stock") all of which such shares are currently issued and
------------------------
outstanding,
WHEREAS, the Corporation has previously authorized and issued 4,188,000
shares of Preferred Stock which was designated as Series B Preferred Stock (the
"Series B Preferred Stock") all of which such shares are currently issued and
------------------------
outstanding,
RESOLVED, that the Corporation hereby provides for the issuance of a
new series of Preferred Stock to be designated as Series C Preferred Stock (the
"Series C Preferred Stock"), and hereby approves the designation, issuance, and
------------------------
sale by the Corporation of 3,054,256 shares of the Series C Preferred Stock and
hereby provides for the following designations, preferences,
Page 1 of 15
<PAGE>
limitations and relative, voting, conversion, and other rights thereof and the
qualifications, limitations, or restrictions thereof:
1. Designation of Series C. There shall be a series of Preferred Stock
-----------------------
designated as "Series C Preferred Stock", par value $.001 per share, consisting
of 3,054,256 shares. Each share of Series C Preferred Stock shall be referred
to herein as a "Series C Preferred Share" or "Share."
2. Voting. The holder of each share of Series C Preferred Stock shall
------
have the right to one vote for each share of Common Stock into which such Series
C Preferred Stock could then be converted as provided hereinbelow, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled to notice of any stockholders' meeting in accordance with the bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series C Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward).
3. Protective Provisions.:
---------------------
Subject to the rights of other series of Preferred Stock which may
from time to time come into existence, so long as any shares of Series C
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least fifty percent (50%) of the then outstanding shares of Series
C Preferred Stock, voting together as a class:
(a) alter or change the rights, preferences, or privileges of
the shares of Series C Preferred Stock in any manner or exchange, reclassify, or
cancel all or part of the Series C Preferred Stock;
(b) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Common Stock or Preferred
Stock;
(c) authorize or issue, or obligate itself to issue, any other
equity security (including any other security convertible into or exercisable
for any equity security) having a preference over, or being on a parity with,
the Series C Preferred Stock with respect to redemption, voting, dividends or
upon liquidation;
(d) perform any act or omission that would result in taxation
of the holders of the Series C Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended;
(e) cancel or modify any dividends on the Series C Preferred
Stock which
Page 2 of 15
<PAGE>
have been declared but not yet paid; or
(g) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
affect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Corporation is disposed of,
provided that this Section 3(f) shall not apply to a merger effected
- --------
exclusively for the purpose of changing the domicile of the Corporation;
(h) authorize the aggregate number of shares of Common Stock
that are available for issuance under the Corporation's 1996 Stock Option and
Restricted Stock Plan to an amount greater than 4,750,000 shares of Common Stock
except as adjusted for stock splits, stock dividends, consolidations,
recapitalizations, and similar events;
(i) authorize or issue any capital stock or rights therefor to
third parties without the prior approval of the Board of Directors of the
Corporation or a duly appointed committee thereof;
(j) sell, convey, or otherwise dispose of or encumber all or
substantially of the Corporation's material intellectual property or technology
rights outside of the ordinary course of business; or
(k) change the authorized number of directors of the Corporation
from seven (7) members, provided that this Section 3(j) shall not apply unless
--------
and until the holders of the Series C Preferred Stock shall have a right to
elect as a class any directors of the Corporation.
4. Dividends. Subject to the rights of other series of Preferred Stock
---------
which may from time to time come into existence, the holders of shares of Series
C Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor prior and in preference to any declaration or payment
of any dividend (payable other than in Common Stock or other securities and
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock) on the Common Stock, at the rate
of $0.8248 per share per annum (as adjusted for any stock dividends,
combinations or splits with respect to such shares) on each outstanding share of
Series C Preferred Stock, payable quarterly when, as, and only if declared by
the Board of Directors. Such dividends shall not be cumulative.
5. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, subject to the
rights of other series of Preferred Stock that may from time to time come into
existence, the holders of the Series C Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Common Stock, by reason of and in exchange for
their ownership of the Series C Preferred Stock an amount per share equal to
$10.31 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) for each
Page 3 of 15
<PAGE>
share of Series C Preferred Stock then held by them, plus any declared but
unpaid dividends. If, upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series A Preferred Stock, the Series B
Preferred Stock, and the Series C Preferred Stock shall be insufficient to
permit the payment to such holders of the full preferential amount each such
holder is entitled to receive, then, subject to the rights of other series of
Preferred Stock that may from time to time come into existence, the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock, the
Series B Preferred Stock, and the Series C Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) Deemed Liquidation. For purposes of this Section 5, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to be
occasioned by, or to include, (i) a sale of all or substantially all of the
assets of the Corporation, or (ii) the acquisition of the Corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the domicile of the
Corporation) unless the Corporation's stockholders of record as constituted
------
immediately prior to such acquisition will, immediately after such acquisition
(by virtue of securities issued as consideration for the Corporation's
acquisition or otherwise) hold at least 50% of the voting power of the surviving
or acquiring entity in approximately the same relative percentages after such
acquisition as before such acquisition.
(c) Market Value. In any of the events specified in (b) above, if
------------
the consideration received by the Corporation is other than cash, its value will
be deemed its fair market value. Any securities shall be valued as follows:
(i) Securities not subject to restrictions on free marketability:
(A) If traded on a securities exchange or the Nasdaq
National Market System, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of at least fifty percent (50%) of the voting power of all then
outstanding shares of Preferred Stock.
(ii) The method of valuation of securities subject to restrictions on
free marketability (other than restrictions arising solely by virtue of a
stockholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (i)(A),(B) or
(C) to reflect the approximate fair market value thereof, as mutually determined
by the Corporation and the holders of at least fifty percent (50%) of the voting
power of all then
Page 4 of 15
<PAGE>
outstanding shares of Preferred Stock.
(iii) In the event the requirements of Section 5(b) are not complied
with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 5 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series C Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section
5(c)(iv) hereof.
(iv) The Corporation shall give each holder of record of Series C
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholder's meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 5, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least fifty percent (50%) of the voting power of all then
outstanding shares of such Preferred Stock.
6. Conversion. The holders of the Series C Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 6(c), each share of
----------------
Series C Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the principal
corporate office of the Corporation or any transfer agent for such stock, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $10.31 by the Conversion Price applicable to such share
in effect on the date the certificate is surrendered for conversion. The initial
Conversion Price per share of Series C Preferred Stock shall be $10.31 (the
"Conversion Price"). Such initial Conversion Price shall be subject to
----------------
adjustment as set forth in Section 6(d).
(b) Automatic Conversion. Each share of Series C Preferred Stock
--------------------
shall automatically be converted, without any further action by the holder of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, into shares of Common
Stock at the Conversion Price at the time in effect for such share immediately
upon the earlier of (i) the Corporation's sale of its Common Stock pursuant to a
firm commitment underwritten public offering pursuant to an effective
registration statement
Page 5 of 15
<PAGE>
filed pursuant to the Securities Act of 1933, as amended, (a "Public Offering")
---------------
provided the public offering price is not less than $12.00 per share (adjusted
to reflect stock dividends, stock splits, or recapitalizations) and which
results in aggregate gross cash proceeds to the Corporation of not less than
$35,000,000, (ii) a Public Offering that does not satisfy either the per share
price or the cash proceeds requirements of (b)(i) but is a Public Offering in
which all of the then outstanding shares of Series A Preferred Stock and Series
B Preferred Stock are converted either automatically or voluntarily into shares
of Common Stock, or (iii)the date specified by written consent or agreement of
the holders of at least two-thirds (66.67%) of the then outstanding shares of
Series C Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series C Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock pursuant
to Section 6(a), he shall give written notice at least ten (10) days prior to
the Corporation at its principal corporate office, of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. He shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series C Preferred Stock. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series C Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series C Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series C Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive
Common Stock upon conversion of such Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments. The Conversion Price of the Series
----------------------------
C Preferred Stock shall be subject to adjustment from time to time as follows:
(i)(A) If the Corporation shall issue, after the date upon which
any shares of Series C Preferred Stock are first issued (the "Purchase Date"),
-------------
any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for the Series C
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for the Series C Preferred Stock in effect
immediately prior to such issuance shall automatically (except as otherwise
provided in this clause (i)) be adjusted to a price equal to the product of the
Conversion Price then in effect multiplied by a fraction (x) the numerator of
which is equal to the number of shares of Common Stock outstanding immediately
prior to such event and (y) the denominator of which is equal to the number of
shares of Common Stock outstanding immediately prior to such event plus the
number of shares of Additional Stock actually issued in such transaction.
Page 6 of 15
<PAGE>
(B) No adjustment of the Conversion Price for the Series C
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made within three (3) years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of three years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in Sections
6(d)(i)(E)(3) and 6(d)(i)(E)(4), no adjustment of such Conversion Price pursuant
to this Section 6(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as reasonably determined by
the Board of Directors or any committee thereof irrespective of any accounting
treatment.
(E) In the case of the issuance (whether before, on or after
the applicable Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this Section 6(d)(i) and Section 6(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Sections
6(d)(i)(C) and 6(d)(i)(D)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such
Page 7 of 15
<PAGE>
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Sections
6(d)(i)(C) and 6(d)(i)(D)).
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to the Corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof, the Conversion Price
of the Series C Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(4) any options or rights related to such convertible
or exchangeable securities, the Conversion Price of the Series C Preferred
Stock, to the extent in any way affected by or computed using such options,
rights or securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities which remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to Sections 6(d)(i)(E)(1)
and 6(d)(i)(E)(2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either Section 6(d)(i)(E)(3)
or 6(d)(i)(E)(4).
(ii) "Additional Stock" shall mean any shares of Common Stock issued
----------------
(or deemed to have been issued pursuant to Section 6(d)(i)(E) by the Corporation
after the Purchase Date) but specifically excluding:
(A) Common Stock issued pursuant to a transaction described in
Section 6(d)(iii) hereof,
(B) Shares of Common Stock issuable or issued to employees,
consultants, or directors of the Corporation directly or pursuant to a stock
option plan or restricted stock plan all as approved on or before the Purchase
Date by the Board of Directors of the Corporation,
(C) Shares of Common Stock issuable or issued to employees,
consultants, or directors of the Corporation pursuant to a stock option plan or
restricted stock plan approved
Page 8 of 15
<PAGE>
subsequent to the Purchase Date by the Board of Directors of the Corporation,
(D) Capital stock, or options or warrants to purchase capital
stock, issued to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings or similar transactions, or to vendors
or customers in connection with commercial arrangements, as approved by the
Board of Directors of the Corporation,
(E) Capital stock or warrants or options to purchase capital
stock issued in connection with bona fide strategic partnering transactions or
acquisitions, the terms of which are approved by the Board of Directors of the
Corporation,
(F) Capital stock or warrants or options to purchase capital
stock issued in connection with mergers or similar transactions, the terms of
which are approved by the Board of Directors of the Corporation,
(G) Shares of Common Stock issued or issuable upon conversion of
Preferred Stock,
(H) Shares of Common Stock issued or issuable in a public
offering prior to or in connection with which all outstanding shares of Series C
Preferred stock are converted to Common Stock, and
(I) Capital stock, or options or warrants to purchase capital
stock, issued in connection with the licensing or acquisition of intellectual
property or technology rights from third parties, the terms of which are
approved by the Board of Directors of the Corporation.
Notwithstanding the preceding provisions of this Section 6(d)(ii) to
the contrary, Additional Stock shall include the aggregate amount of shares of
Common Stock, if any, issued pursuant to subsections (C), (D), (E), (F) or (I)
above to the extent such shares exceed an amount equal to fifteen percent (15%)
of the number of shares of Common Stock outstanding thirty (30) days after the
Purchase Date (such number to be computed on a fully diluted basis and as
adjusted for any stock dividends, combinations or splits with respect to such
shares).
(iii) In the event the Corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
------------------------
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series C Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable upon conversion of each share of
Series C Preferred Stock shall be increased in
Page 9 of 15
<PAGE>
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
Section 6(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series C Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable upon conversion
of each share of Series C Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(v)( A) In the event the Corporation completes a Public Offering
within one eighty (180) days of the Purchase Date in which the public offering
price is not less than $12.00 per share (to be adjusted to reflect stock
dividends, combinations or splits) and which results in aggregate cash proceeds
to the Corporation of not less than $35,000,000 (collectively, a "Qualified
---------
Public Offering") then the Conversion Price for purposes of Section 6(b) shall
- ---------------
be calculated by (x) multiplying the Market Valuation of the Corporation
(defined below) by sixty percent (60%), (y) then subtracting from such product
the sum of the gross proceeds received by the Corporation for the sale of the
Series C Preferred Stock plus sixty percent (60%) of the aggregate amount of any
additional private equity financings of the Corporation which occur subsequent
to the Purchase Date, (z) and dividing the difference between (x) and (y) by the
number of shares of Common Stock outstanding immediately prior to the Purchase
Date (such number to be computed on a fully diluted basis and adjusted for any
stock dividends, combinations or splits with respect to the Common Stock). For
purposes of this subsection, Market Valuation shall mean the product of the per
share price as established in the Qualified Public Offering multiplied by the
total number of shares of Common Stock outstanding on a fully diluted basis.
(B) Notwithstanding the preceding subparagraph (A) to the
contrary, such Conversion Price shall not be greater than $10.31 per share nor
less than $6.88 per share (such limits to be adjusted accordingly for any stock
dividends, combinations or splits with respect to the Common Stock).
(C) In the event the Company fails to complete a Qualified
Public Offering or in the event of an automatic conversion pursuant to Section
6(b)(ii) above then the Conversion Price will be adjusted to the lower of (i)
$6.88 per share (to be adjusted for any stock dividends, combinations or splits
with respect to the Common Stock) or (ii) the Public Offering price per share of
Common Stock in an initial Public Offering but in no event less than $5.55 per
share (to be adjusted for any stock dividends, combinations or splits with
respect to the Common Stock).
(e) Other Distributions. In the event the Corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 6(d)(iii), then, in each such case
for the purpose of this Section 6(e), the holders of Series C
Page 10 of 15
<PAGE>
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series C Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 6 or Section 5) provision shall be made so that the holders of the
Series C Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series C Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6 with respect to the rights of
the holders of the Series C Preferred Stock after the recapitalization to the
end that the provisions of this Section 6 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series C Preferred Stock) shall be applicable after that event
and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 6 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Series C Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series C Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series C
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series C Preferred Stock pursuant to
this Section 6, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series C Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series C Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for the
Page 11 of 15
<PAGE>
Series C Preferred Stock at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of the Series C Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series C Preferred Stock, at least twenty (20) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series C Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series C Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series C
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to this Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this
-------
Section 6 to be given to the holders of shares of Series C Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
7. Redemption.
----------
(a) Election to Redeem. Subject to the rights of other series
------------------
of Preferred Stock which may from time to time come into existence, at any time
after the fourth annual anniversary date of the Purchase Date but not later than
the sixth annual anniversary date of the Purchase Date, the Corporation shall
redeem any Series C Preferred Stock upon receipt by the Corporation (the
"Redemption Date") of a written request from any holder of Series C Preferred
---------------
Stock and receipt simultaneously therewith of the certificate(s) representing
the Series C Preferred Stock to be redeemed. The Corporation shall, to the
extent it may lawfully do so, redeem, within thirty (30) days of the Redemption
Date, the Series C Preferred Stock requested to be redeemed by paying in cash
therefor a sum equal to $10.31 per share of Series C Preferred Stock (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus interest on such amount computed at the rate of 10% compounded
annually from the Purchase Date plus all declared or accumulated but unpaid
dividends on such shares(the "Redemption Price").
----------------
Page 12 of 15
<PAGE>
(b) Mechanics. Subject to the rights of other series of
---------
Preferred Stock which may from time to time come into existence, at least
fifteen (15) but no more than thirty (30) days after the Redemption Date,
written notice shall be mailed by the Corporation, first class postage pre-paid,
to each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series C Preferred Stock to
be redeemed, at the address last shown on the records of the Corporation for
such holder, notifying such holder of the redemption to be effected, specifying
the number of shares to be redeemed from such holder, and the Redemption Price.
The Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
(c) Stockholder Rights. From and after the Redemption Date,
------------------
all rights of the holders of shares of Series C Preferred Stock to be redeemed
(except the right to receive the Redemption Price) shall cease with respect to
such shares to be redeemed, and such shares shall not thereafter be transferred
on the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. Subject to the rights of other series of Preferred Stock which may
from time to time come into existence, if the funds of the Corporation legally
available for redemption of Preferred Stock are insufficient to redeem the total
number of shares of Preferred Stock to be redeemed, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon the
proportional amount each such holder is entitled to receive. The shares of
Preferred Stock not redeemed shall remain outstanding and be entitled to all the
rights and preferences provided herein. Subject to the rights of other series of
Preferred Stock which may from time to time come into existence, at any time
thereafter when additional funds of the Corporation are legally available for
the redemption of shares of Preferred Stock, such funds will immediately be used
to redeem the balance of the shares which the Corporation has become obliged to
redeem on any Redemption Date but which it has not redeemed.
(d) Sinking Fund. No sinking fund shall be established for any
------------
redemption of the Series C Preferred Stock.
8. Status of Reacquired Series C Preferred Stock. Series C Preferred
---------------------------------------------
Stock issued and reacquired by the Corporation (including by conversion or
redemption) shall have the status of authorized and unissued shares of Preferred
Stock undesignated as to series, subject to later issuance, provided that they
may not be reissued as Series C Preferred Stock.
9. Preemptive Rights. The Series C Preferred Stock is not entitled to
-----------------
any preemptive or subscription rights in respect of any securities of the
Corporation unless and to the extent provided by written agreement with the
Corporation.
10. Severability of Provisions. Whenever possible, each provision hereof
--------------------------
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held
Page 13 of 15
<PAGE>
to be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating or adversely affecting the remaining provisions hereof.
Page 14 of 15
<PAGE>
IN WITNESS WHEREOF, this Statement of Resolution has been executed by
an officer of the Corporation, this 2nd day of August, 1999.
E-STAMP CORPORATION
/s/ Robert H. Ewald
By:_________________________________
Robert H. Ewald, President/CEO
Page 15 of 15
<PAGE>
EXHIBIT 10.1
E-STAMP CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of the
___ day of August, 1999 by and between E-Stamp Corporation, a Delaware
corporation (the "Company"), and __________ ("Indemnitee").
RECITALS
--------
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall
---------------------------
indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was or
is or becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, any threatened, pending
or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was
<PAGE>
serving at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity (hereinafter an "Indemnifiable Event") against
any and all expenses (including attorneys' fees and all other costs, expenses
and obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than five days after written demand by Indemnitee therefor
is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
-2-
<PAGE>
(c) Change in Control. The Company agrees that if there is
-----------------
a Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then, with respect to all
matters thereafter arising concerning the rights of Indemnitees to payments of
Expenses and Expense Advances under this Agreement or any other agreement or
under the Company's Certificate of Incorporation or Bylaws as now or hereafter
in effect, Independent Legal Counsel (as defined in Section 10(d) hereof) shall
be selected by Indemnitee and approved by the Company (which approval shall not
be unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any
-----------------------------
other provision of this Agreement other than Section 9 hereof, to the extent
that Indemnitee has been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without prejudice, in defense of
any action, suit, proceeding, inquiry or investigation referred to in Section
(1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all
-----------------------
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as
--------------------------------
a condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitees'
power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any
-3-
<PAGE>
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief. In connection with
any determination by the Reviewing Party or otherwise as to whether Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by
------------------
the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company shall
give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if
(A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee counsel shall be at
the expense of the Company. The Company shall have the right to conduct such
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify
-----
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its Board
of Directors or an officer, employee, agent or
-4-
<PAGE>
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder except as set forth
in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this
--------------
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable
--------------------------
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, Certificate of Incorporation, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee
----------------------
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. Liability Insurance. To the extent the Company maintains
-------------------
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as to
provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee is a director; or of
the Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
----------------------------
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be relieved of liability under applicable law;
-5-
<PAGE>
(b) Claims Initiated by Indemnitee. To indemnify or advance
------------------------------
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any
------------------
expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for
--------------------------
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with
-6-
<PAGE>
respect to an employee benefit plan, its participants or its beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall
be deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitee within the last three years
(other than with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
-7-
<PAGE>
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall
--------------------------------------
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or
------
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposit with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the business
day of delivery by facsimile transmission, if delivered by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at the Indemnitee address as set forth beneath
Indemnitee signatures to this Agreement and if to the Company at the address of
its principal corporate offices (attention: Secretary) or at such other address
as such party may designate by ten days' advance written notice to the other
party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any
-8-
<PAGE>
action or proceeding which arises out of or relates to this Agreement and agree
that any action instituted under this Agreement shall be commenced, prosecuted
and continued only in the Court of Chancery of the State of Delaware in and for
New Castle County, which shall be the exclusive and only proper forum for
adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be
------------
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitations, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
-------------
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in
---------------------------------------
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
E-STAMP CORPORATION
By:
-----------------------------------------
Title:
--------------------------------------
Address: 2855 Campus Drive, Suite 100
San Mateo, California 94403
AGREED TO AND ACCEPTED BY:
Signature:
----------------------
Printed Name:
-------------------
Address:
------------------------
-10-
<PAGE>
EXHIBIT 10.2
E-STAMP CORPORATION
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are (i) to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, (ii) to provide additional incentive to Employees, Directors and
Consultants, and (iii) to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means E-Stamp Corporation, a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless
<PAGE>
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, then three (3) months following the 91/st/ day of such leave
any Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
-2-
<PAGE>
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1999 Stock Plan.
----
(x) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(y) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(z) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
----------
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(aa) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(bb) "Service Provider" means an Employee, Director or Consultant.
----------------
(cc) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(dd) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ee) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 2,000,000 Shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in fiscal year 2000 equal
to the lesser of (i) 1,000,000 shares, (ii) 3% of the outstanding shares on such
date, or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option or Stock
Purchase Right expires or becomes unexercisable without having been exercised in
full, the unpurchased Shares which were subject
-3-
<PAGE>
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated); provided, however, that Shares that have actually been
-------- -------
issued under the Plan, whether upon exercise of an Option or Stock Purchase
Right, shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if Shares of Restricted Stock
are repurchased by the Company at their original purchase price, such Shares
shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
-4-
<PAGE>
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred treatment under foreign laws;
(viii) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(ix) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to (or lesser than) the minimum amount required to be withheld. The
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(x) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator; and
(xi) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
-5-
<PAGE>
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 1,500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
-6-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
-7-
<PAGE>
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides in writing
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her
-8-
<PAGE>
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
-9-
<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
-10-
<PAGE>
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until thirty (30) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has
not been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of thirty (30) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
-11-
<PAGE>
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
E-STAMP CORPORATION
1999 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number __________________________
Date of Grant __________________________
Vesting Commencement Date __________________________
Exercise Price per Share $_________________________
Total Number of Shares Granted __________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: __________________________
Vesting Schedule:
----------------
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.]
<PAGE>
Termination Period:
------------------
This Option may be exercised for three months after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for twelve months after Optionee ceases to be a Service Provider.
In no event shall this Option be exercised later than the Term/Expiration Date
as provided above.
II. AGREEMENT
---------
A. Grant of Option.
---------------
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Stock Plan Administrator of the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied
by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE>
C. Method of Payment.
------------------
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
4. to the extent permitted by the Administrator, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale proceeds required to pay
the Exercise Price.
D. Non-Transferability of Option.
------------------------------
This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this
Option Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
E. Term of Option.
---------------
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
-------------------
Some of the federal tax consequences relating to this Option, as of
the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
G. Exercising the Option.
----------------------
1. Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in
-3-
<PAGE>
cash equal to a percentage of this compensation income at the time of exercise,
and may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
2. Incentive Stock Option. If this Option qualifies as an ISO, the
----------------------
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option on the date three (3) months and one (1)
day following such change of status.
3. Disposition of Shares.
---------------------
(a) NSO. If the Optionee holds NSO Shares for at least one year,
---
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one year
---
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If
-------------------------------------------------
the Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or (ii)
one year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
H. Entire Agreement; Governing Law.
--------------------------------
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Colorado.
-4-
<PAGE>
I. NO GUARANTEE OF CONTINUED SERVICE.
----------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: E-STAMP CORPORATION
____________________________ ___________________________
Signature By
____________________________ ___________________________
Print Name Title
____________________________
Residence Address
____________________________
-5-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
__________________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
E-STAMP CORPORATION
1999 STOCK PLAN
EXERCISE NOTICE
E-Stamp Corporation
[Address]
Attention: Stock Plan Administrator
1. Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of E-Stamp Corporation (the "Company") under
and pursuant to the 1999 Stock Plan (the "Plan") and the Stock Option Agreement
dated, _____ (the "Option Agreement"). The purchase price for the Shares shall
be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Colorado.
Submitted by: Accepted by:
PURCHASER: E-STAMP CORPORATION
___________________________ ___________________________
Signature By
___________________________ ___________________________
Print Name
Address: Address:
- ------- -------
___________________________ ___________________________
___________________________ ___________________________
___________________________
Date Received
-2-
<PAGE>
EXHIBIT 10.3
E-STAMP CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of E-Stamp Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean E-Stamp Corporation and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all salary, wages (including amounts
------------
elected to be deferred by the employee, that would otherwise have been paid,
under a cash or deferred arrangement established by the Company), overtime pay,
commissions, bonuses and any other remuneration paid directly to the employee,
but excluding profit sharing, the cost of employee benefits paid for by the
Company, education or tuition reimbursements, imputed income arising under any
Company group insurance or benefit program, traveling expenses, business and
moving expense reimbursements, income recognized in connection with stock
options, contributions made by the Company under any employee benefit plan, and
similar items of compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
<PAGE>
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(3) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board; or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately twenty-
----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 15th and November
15th of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before November 14,
2001. The second Offering Period under the Plan shall commence on the first
Trading Day on or after November 15, 2001 and end on the last Trading Day on
or before November 14, 2003. The duration and timing of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.; provided however that
the first Purchase Period shall end on the last Trading Day on or before
May 14, 2000.
-2-
<PAGE>
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 15th and November 15th each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
November 14, 2001. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
-3-
<PAGE>
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate; provided, however, that a participant may increase or decrease
the rate of his or her payroll deductions only once during each Purchase Period.
The Board may, in its discretion, limit the number of participation rate changes
during any Offering Period. The change in rate shall be effective with the
first full payroll period following five (5) business days after the Company's
receipt of the new subscription agreement unless the Company elects to process a
given change in participation more quickly. A participant's subscription
agreement shall remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of
-4-
<PAGE>
shares of the Company's Common Stock determined by dividing such Employee's
payroll deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during each
Purchase Period more than 5,000 shares of the Company's Common Stock (subject
to any adjustment pursuant to Section 19), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12
hereof. The Board may, for future Offering Periods, increase or decrease, in its
absolute discretion, the maximum number of shares of the Company's Common Stock
an Employee may purchase during each Purchase Period of such Offering Period.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
-5-
<PAGE>
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of the shares purchased upon exercise of his
or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2000 equal to the lesser of (i) 350,000
shares, (ii) 1% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
-6-
<PAGE>
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
-7-
<PAGE>
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The Board
shall notify each participant in writing, at least ten (10) business days prior
to the New Exercise Date, that the Exercise Date for the participant's option
has been changed to the New Exercise Date and that the participant's option
shall be exercised automatically on the New Exercise Date, unless prior to such
date the participant has withdrawn from the Offering Period as provided in
Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
-8-
<PAGE>
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period including
an Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
-9-
<PAGE>
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
----------
E-STAMP CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ___________ hereby elects to participate in the E-Stamp Corporation 1999
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the
--------
<PAGE>
disposition of the Common Stock. The Company may, but will not be
-------------------------------
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
_________________________ _____________________________________
Relationship
_____________________________________
Address
-2-
<PAGE>
Employee's Social
Security Number: ___________________________________
Employee's Address: ___________________________________
___________________________________
___________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ____________________ __________________________________
Signature of Employee
__________________________________
Spouse's Signature (If beneficiary
other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
E-STAMP CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the E-Stamp
Corporation 1999 Employee Stock Purchase Plan which began on ___________, 19____
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:____________________________
<PAGE>
Exhibit 10.4
E-STAMP CORPORATION
1999 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Director Option
--------------------
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and
to encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the common stock of the Company.
------------
(d) "Company" means E-Stamp Corporation, a Delaware corporation.
-------
(e) "Director" means a member of the Board.
--------
(f) "Disability" means total and permanent disability as defined
----------
in section 22(e)(3) of the Code.
(g) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
on the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
<PAGE>
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the day of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "Inside Director" means a Director who is an Employee.
---------------
(k) "Option" means a stock option granted pursuant to the Plan.
------
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means a Director who holds an Option.
--------
(n) "Outside Director" means a Director who is not an Employee and
----------------
who is not the "beneficial owner" (as defined in Rule 13d-3 of the Exchange
Act) directly or indirectly, of securities of the Company representing more
than one percent (1%) of the total voting power represented by the Company's
outstanding voting securities on the date of any grant hereunder.
(o) "Parent" means a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Director Option Plan.
----
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
-------------------------
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 300,000 Shares (the "Pool"). The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
-2-
<PAGE>
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside
--------------------
Director under this Plan shall be automatic in accordance with the following
provisions:
(i) Each Outside Director, who first becomes an Outside
Director after the effective date of this Plan, shall be automatically granted
an Option to purchase 40,000 Shares (the "First Option") on the date on which
such person first becomes an Outside Director, whether through election by the
stockholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 2,500 Shares (a "Subsequent Option") on the date of each of
annual meeting of the stockholders held after the effective date of this Plan,
provided he or she is then an Outside Director and if as of such date, he or
she shall have served on the Board for at least the preceding six (6) months.
(iii) Notwithstanding the provisions of subsections (i) and
(ii) hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 16 hereof.
(iv) The terms of each First Option granted under this
Section 4 shall be as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall become exercisable as to one-forty-eighth (1/48) of the Shares subject to
the First Option on each monthly anniversary of its date of grant, provided
that the Optionee continues to serve as a Director on such dates.
(E) the First Option shall be a nonstatutory stock
option.
-3-
<PAGE>
(v) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten
(10) years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to one-twelfth (1/12) of the Shares subject
to the Subsequent Option on each monthly anniversary of its date of grant,
provided that the Optionee continues to serve as a Director on such dates,
(E) the Subsequent Option shall be a nonstatutory
stock option.
(vi) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased under Options to exceed the Pool, then
the remaining Shares available for Option grant shall be granted under Options
to the Outside Directors on a pro rata basis. No further grants shall be made
until such time, if any, as additional Shares become available for grant under
the Plan through action of the Board or the stockholders to increase the
number of Shares which may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors.
-----------
All Options shall be automatically granted in accordance with the terms set
forth in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate the Director's relationship with the Company at
any time.
6. Term of Plan. The Plan was adopted by the Board in August 1999,
------------
and is subject to stockholder approval as described in Section 16 of the Plan.
The Plan shall become effective immediately upon the effective date of the
initial public offering of the Company's common stock pursuant to a
registration statement filed under Section 12 of the Exchange Act. The Plan
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
---------------------
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair
-4-
<PAGE>
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (v) any combination of the foregoing
methods of payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable
until stockholder approval of the Plan in accordance with Section 16 hereof
has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no
right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be
issued to the Optionee as soon as practicable after exercise of the Option. No
adjustment shall be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided
in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may
exercise his or her Option, but only within three (3) months following the
date of such termination, and only to the extent that the Optionee was
entitled to exercise it on the date of such termination (but in no event later
than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of such
termination and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of Disability, the Optionee may exercise his
or her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled
-5-
<PAGE>
to exercise it on the date of such termination (but in no event later than the
expiration of its ten (10)-year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of termination, or if he or she
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee
was entitled to exercise it on the date of death (but in no event later than
the expiration of its ten (10) year term). To the extent that the Optionee was
not entitled to exercise an Option on the date of death, and to the extent
that the Optionee's estate or a person who acquired the right to exercise such
Option does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
------------------------------
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the stockholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding
Option, and the number of Shares issuable pursuant to the automatic grant
provisions of Section 4 hereof shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration." Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has
not been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent
options may be substituted by the successor corporation or a Parent or
Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or
substituted for, the
-6-
<PAGE>
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a
director of the Successor Corporation. Following such assumption or
substitution, if the Optionee's status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a
voluntary resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option
or substitute for it an equivalent option, the Option shall become fully
vested and exercisable, including as to Shares for which it would not
otherwise be exercisable. In such event the Board shall notify the Optionee
that the Option shall be fully exercisable for a period of thirty (30) days
from the date of such notice, and upon the expiration of such period the
Option shall terminate.
For the purposes of this Section 10(c), an Option shall be
considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger or sale of assets is not solely common stock of the Successor
Corporation or its Parent, the Administrator may, with the consent of the
Successor Corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the
Option, to be solely common stock of the Successor Corporation or its Parent
equal in fair market value to the per share consideration received by holders
of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall,
------------------------
for all purposes, be the date determined in accordance with Section 4 hereof.
-7-
<PAGE>
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, state securities laws, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
-8-
<PAGE>
E-STAMP CORPORATION
DIRECTOR OPTION AGREEMENT
E-Stamp Corporation, (the "Company"), has granted to _________ (the
"Optionee"), an option to purchase a total of [________(____)] shares of the
Company's Common Stock (the "Optioned Stock"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1999 Director Option Plan (the "Plan") adopted by
the Company which is incorporated herein by reference. The terms defined in the
Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is
--------------------
not intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
--------------
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its
------------------
term in accordance with the provisions of Section 8 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option shall be exercisable for one hundred percent
(100%) the Optioned Stock on the date of grant; provided, however, that in no
event shall any Option be exercisable prior to the date the stockholders of the
Company approve the Plan.
(ii) This Option may not be exercised for a fraction of a
share.
(iii) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(b) Method of Exercise. This Option shall be exercisable by
------------------
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such written
notice, in the form attached hereto as Exhibit A, shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice shall be accompanied by payment of the
exercise price.
4. Method of Payment. Payment of the exercise price shall be by any
-----------------
of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check; or
<PAGE>
(c) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(d) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred
-----------------------------
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten
--------------
(10) years from the date of grant of this Option, and may be exercised during
such period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.
-2-
<PAGE>
DATE OF GRANT: ______________
E-Stamp Corporation
a Delaware corporation
By:____________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: _________________
______________________________
Optionee
-3-
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
E-Stamp Corporation
______________
______________
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
------------------
exercise Optionee's option to purchase ______ fully-vested shares of the Common
Stock (the "Shares") of E-Stamp Corporation (the "Company") under and pursuant
to the Company's 1999 Director Option Plan and the Director Option Agreement
dated _______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the Shares
--------------------------------
must be held indefinitely unless they are registered under the Securities Act of
1933, as amended (the "1933 Act"), or unless an exemption from such registration
is available, and that the certificate(s) representing the Shares may bear a
legend to that effect. Optionee understands that the Company is under no
obligation to register the Shares and that an exemption may not be available or
may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
<PAGE>
6. Entire Agreement. The Agreement is incorporated herein by reference.
----------------
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof. This
Exercise Notice and the Agreement are governed by California law except for that
body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: E-STAMP CORPORATION
By:____________________________ By:_____________________________
Title:__________________________
Address:_______________________
_______________________________
Dated:_________________________ Dated:__________________________
-2-
<PAGE>
Exhibit 10.5
E-STAMP CORPORATION
1996 STOCK OPTION AND RESTRICTED STOCK PLAN
SECTION 1
PURPOSE
-------
This Plan is established (i) to offer selected Employees and Consultants of
the Company or its Subsidiaries or any predecessor entity an equity ownership
interest in the financial success of the Company, (ii) to provide the Company an
opportunity to attract and retain the best available personnel for positions of
substantial responsibility, and (iii) to encourage equity participation in the
Company by eligible Participants. This Plan provides for the grant by the
Company of (i) Options to purchase Shares, and (ii) shares of Restricted Stock.
Options granted under this Plan may include nonstatutory options as well as
incentive stock options intended to qualify under section 422 of the Code.
SECTION 2
DEFINITIONS
-----------
"Board of Directors" shall mean the board of directors of the Company, as
------------------
duly elected from time to time.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and as
----
interpreted by the regulations thereunder.
"Committee" shall mean the Compensation Committee of the Company, or such
---------
other Committee as may be appointed by the Board of Directors from time to time.
"Company" shall mean E-Stamp Corporation, a Delaware corporation.
-------
"Consultant" shall mean any individual that is expressly designated and
----------
compensated as a consultant of the Company or its Subsidiaries by the Committee
in its sole discretion; provided, however, that the term "Consultant" shall not
include directors who are paid only a director's fee by the Company.
"Date of Grant" shall mean the date on which the Committee resolves to
-------------
grant an Option to an Optionee or grant Restricted Stock to a Participant, as
the case may be.
"Employee" shall include every individual performing Services to the
--------
Company or its Subsidiaries if the relationship between such individual and the
Company or its Subsidiaries is the legal relationship of employer and employee.
This definition of "Employee" is qualified in its entirety and is subject to the
definition set forth in section 3401(c) of the Code and the regulations
thereunder. Neither service as a member of the Board of Directors nor payment
of a director's fee shall in itself constitute "Services" for purposes of this
definition.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
and as interpreted by the rules and regulations promulgated thereunder.
"Exercise Price" shall mean the amount for which one Share may be purchased
--------------
upon exercise of an Option, as specified by the Committee in the applicable
Stock Option Agreement, but in no event less than the par value per Share.
"Fair Market Value" shall mean such amount as the Committee, in its sole
-----------------
discretion, shall determine; provided, however, that if there is a public market
-------- -------
for the securities, the Fair Market Value shall be the mean of the bid and asked
prices of the securities per share or unit, as the case may be, as reported in
the Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation System) as of the
date in question or, in the event the securities are listed on a stock exchange,
the Fair Market Value shall be the closing sales price of the securities per
share or unit, as the case may be, on such exchange, as reported in the Wall
Street Journal, as of the date in question.
<PAGE>
"ISO" shall mean a stock option which is granted to an individual and which
---
meets the requirements of section 422(b) of the Code, pursuant to which the
Optionee has no tax consequences resulting from the grant or, subject to certain
holding period requirements, exercise of the option and the employer is not
entitled to a business expense deduction with respect thereto.
"Non-employee Director" shall mean any person who at the time of grant is a
---------------------
member of the Board of Directors but is not an Employee of or Consultant to the
Company or any Affiliate of the Company and has not been an Employee of or
Consultant to the Company or any Affiliate of the Company at any time during the
preceding 12 months. Neither the payment of a director's fee nor service as a
director shall in itself constitute employment for purposes of this definition.
"Nonstatutory Option" shall mean any Option granted by the Committee that
-------------------
does not meet the requirements of sections 421 through 424 of the Code, as
amended.
"Option" shall mean either an ISO or Nonstatutory Option, as the context
------
requires.
"Optionee" shall mean a Participant who holds an Option.
--------
"Participants" shall mean those individuals described in Section 1 of this
------------
Plan selected by the Committee who are eligible under Section 4 of this Plan for
grants of either Options or Restricted Stock under this Plan.
"Permanent and Total Disability" shall mean that an individual is unable to
------------------------------
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. An individual shall not be considered to
suffer from Permanent and Total Disability unless such individual furnishes
proof of the existence thereof in such form and manner, and at such times, as
the Committee may reasonably require. The scope of this definition shall
automatically be reduced or expanded to the extent that section 22(e)(3) of the
Code is amended to reduce or expand the scope of the definition of Permanent and
Total Disability thereunder.
"Plan" shall mean this 1996 Stock Option and Restricted Stock Plan, as
----
amended from time to time.
"Plan Award" shall mean the grant of either an Option or Restricted Stock,
----------
as the context requires.
"Restricted Stock" shall have that meaning set forth in Section 7(a) of
----------------
this Plan.
"Restricted Stock Account" shall have that meaning set forth in Section
------------------------
7(a)(ii) of this Plan.
"Restricted Stock Criteria" shall have that meaning set forth in Section
-------------------------
7(a)(iv) of this Plan.
"Restriction Period" shall have that meaning set forth in Section 7(a)(iii)
------------------
of this Plan.
"Services" shall mean services rendered to the Company or any predecessor
--------
entity or any of its Subsidiaries as an Employee or Consultant, as the context
requires.
"Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 9 of this Plan (if applicable).
"Stock" shall mean the common stock of the Company, par value $.001 per
-----
share.
"Stock Option Agreement" shall mean the agreement executed between the
----------------------
Company and an Optionee that contains the terms, conditions, and restrictions
pertaining to the granting of an Option. Any inconsistencies between this Plan
and any Stock Option Agreement shall be controlled by this Plan.
<PAGE>
"Subsidiary" shall mean any corporation as to which more than fifty (50%)
----------
percent of the outstanding voting stock or shares shall now or hereafter be
owned or controlled directly by a person, any Subsidiary of such person, or any
Subsidiary of such Subsidiary.
"Ten-Percent Stockholder" shall mean a person that owns more than ten
-----------------------
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company or any Subsidiary, taking into account the attribution
rules set forth in section 424 of the Code, as amended. For purposes of this
definition of "Ten Percent Stockholder" the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
an Option to an Optionee. "Outstanding stock" shall not include reacquired
shares or shares authorized for issuance under outstanding Options held by the
Optionee or by any other person.
"Vest Date" shall have that meaning set forth in Section 7(a)(v) of this
---------
Plan.
SECTION 3
ADMINISTRATION
--------------
(a) General Administration. This Plan shall be administered by the
----------------------
Committee, which shall consist of at least two (2) persons who shall be Non-
employee Directors. The members of the Committee shall be appointed by the
Board of Directors for such terms as the Board of Directors may determine. The
Board of Directors may from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, however caused, shall be filled by
the Board of Directors.
(b) Committee Procedures. The Board of Directors shall designate one of
--------------------
the members of the Committee as chairman. The Committee may hold meetings at
such times, places, and in such manner as it shall determine. The acts of a
majority of the Committee members present at meetings at which a quorum exists,
or acts reduced to or approved in writing by a majority of all Committee
members, shall be valid acts of the Committee. A majority of the Committee
shall constitute a quorum.
(c) Authority of Committee. This Plan shall be administered by, or under
----------------------
the direction of, the Committee constituted in such a manner as to comply at all
times with Rule 16b-3 (or any successor rule) under the Exchange Act. The
Committee shall administer this Plan so as to comply at all times with the
Exchange Act and, subject to the Code, shall otherwise have absolute and final
authority to interpret this Plan and to make all determinations specified in or
permitted by this Plan or deemed necessary or desirable for its administration
or for the conduct of the Committee's business including without limitation the
authority to take the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to this Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of this Plan;
(iv) To determine when Plan Awards are to be granted under this Plan;
(v) To select the Optionees and Participants;
(vi) To determine the number of Shares to be made subject to each
Plan Award;
(vii) To prescribe the terms, conditions and restrictions of each
Plan Award, including without limitation the Exercise Price and the
determination whether an Option is to be classified as an ISO or a Nonstatutory
Option;
(viii) To amend any outstanding Stock Option Agreement or the terms,
conditions and restrictions of a grant of Restricted Stock, subject to
applicable legal restrictions and the consent of the Optionee or Participant, as
the case may be, who entered into such agreement;
<PAGE>
(ix) To establish procedures so that an Optionee may obtain a loan
through a registered broker-dealer under the rules and regulations of the
Federal Reserve Board, for the purpose of exercising an Option;
(x) To establish procedures for an Optionee (1) to have withheld
from the total number of Shares to be acquired upon the exercise of an Option
that number of Shares having a Fair Market Value, which, together with such cash
as shall be paid in respect of fractional shares, shall equal the Exercise
Price, and (2) to exercise a portion of an Option by delivering that number of
Shares already owned by an Optionee having a Fair Market Value which shall equal
the partial Exercise Price and to deliver the Shares thus acquired by such
Optionee in payment of Shares to be received pursuant to the exercise of
additional portions of the Option, the effect of which shall be that an Optionee
can in sequence utilize such newly acquired shares in payment of the Exercise
Price of the entire Option, together with such cash as shall be paid in respect
of fractional shares;
(xi) To establish procedures whereby a number of Shares may be
withheld from the total number of Shares to be issued upon exercise of an
Option, to meet the obligation of withholding for federal and state income and
other taxes, if any, incurred by the Optionee upon such exercise; and
(xii) To take any other actions deemed necessary or advisable for the
administration of this Plan.
All interpretations and determinations of the Committee made with respect
to the granting of Plan Awards shall be final, conclusive, and binding on all
interested parties. The Committee may make grants of Plan Awards on an
individual or group basis. No member of the Committee shall be liable for any
action that is taken or is omitted to be taken if such action or omission is
taken in good faith with respect to this Plan or grant of any Plan Award.
(d) Holding Period. The Committee may in its sole discretion require as a
--------------
condition to the granting of any Plan Award, that a Participant agree not to
sell or otherwise dispose of a Plan Award, any Shares acquired pursuant to a
Plan Award, or any other "derivative security" (as defined by Rule 16a-1(c)
under the Exchange Act) for a period of time determined by the Committee
including, without limitation, a period of six (6) months following the later of
(i) the date of the grant of such Plan Award, or (ii) the date when the Exercise
Price of an Option is fixed if such Exercise Price is not fixed on the Date of
Grant.
SECTION 4
ELIGIBILITY
-----------
(a) General Rule. Subject to the limitations set forth in subsection b
------------
below, Participants shall be eligible to participate in this Plan; provided,
--------
however, that no Non-employee Directors shall be eligible for any Plan Awards
- -------
under this Plan.
(b) Non-Employee Ineligible for ISOs. In no event shall an ISO be granted
--------------------------------
to any individual who is not an Employee on the Date of Grant.
(c) Former Employees. Employees and former employees of any predecessor
----------------
entity of the Company may be eligible to participate in this Plan if selected by
the Committee.
SECTION 5
SHARES SUBJECT TO PLAN
----------------------
(a) Basic Limitation. Shares offered under this Plan may be authorized but
----------------
unissued Shares or Shares that have been reacquired by the Company. The
aggregate number of Shares that are available for issuance under this Plan shall
not exceed one million two hundred thousand (1,200,000) Shares, subject to
adjustment pursuant to Section 9 of this Plan. The Committee shall not issue
more Shares than are available for issuance under this Plan. The number of
Shares that are subject to unexercised Options at any time under this Plan shall
not exceed the number of Shares that remain available for issuance under this
Plan. The Company, during the term of this Plan, shall at all times reserve and
keep available sufficient Shares to satisfy the requirements of this Plan.
<PAGE>
(b) Additional Shares. In the event any outstanding Option for any reason
-----------------
expires, is canceled or otherwise terminates, the Shares allocable to the
unexercised portion of such Option shall again be available for issuance under
this Plan. In the event that Shares issued under this Plan revert to the
Company prior to the Vest Date under a grant of Restricted Stock, such Shares
shall again be available for issuance under this Plan.
SECTION 6
TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) Term of Option. The term of each Option shall be ten (10) years from
--------------
the Date of Grant or such shorter term as may be determined by the Committee;
provided, however, in the case of an ISO granted to a Ten-Percent Stockholder,
- -------- -------
the term of such ISO shall be five (5) years from the Date of Grant or such
shorter time as may be determined by the Committee.
(b) Vesting of Options. The Committee shall determine the vesting period
------------------
for each Option granted pursuant to this Plan; provided, however, no more than
-------- -------
twenty-five percent (25%) of any Option can vest before the first anniversary of
the Date of Grant. The Committee shall be authorized to recognize for vesting
purposes any Services provided to any predecessor entity of the Company.
(c) Exercise Price and Method of Payment.
------------------------------------
(i) Exercise Price. The Exercise Price shall be such price as is
--------------
determined by the Committee in its sole discretion and set forth in the Stock
Option Agreement; provided, however, in the case of an ISO granted to an
-------- -------
Optionee, the Exercise Price shall not be less than 100% of the Fair Market
Value of the Shares subject to such option on the Date of Grant (or 110% in the
case of an Option granted to a Participant who is a Ten-Percent Stockholder on
the Date of Grant).
(ii) Payment of Shares. Payment for the Shares upon exercise of an
-----------------
Option shall be made in cash, by certified check, or if authorized by the
Committee, by delivery of other Shares having a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Shares as to which said
Option is being exercised, or by any combination of such methods of payment or
by any other method of payment as may be permitted under applicable law and
authorized by the Committee.
(d) Exercise of Option.
------------------
(i) Procedure for Exercise; Rights of Stockholder. Any Option granted
---------------------------------------------
hereunder shall be exercisable at such times and under such conditions as shall
be determined by the Committee, including without limitation performance
criteria with respect to the Company and/or the Optionee, and in accordance with
the terms of this Plan. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the Stock
Option Agreement by the Optionee entitled to exercise the Option and full
payment for the Shares and any withholding and other applicable taxes with
respect to which the Option is exercised has been received by the Company. Full
payment may, as authorized by the Committee, consist of any form of
consideration and method of payment allowable under Section 6(c)(ii) of this
Plan. Upon the receipt of notice of exercise and full payment for the Shares
and taxes, the Shares shall be deemed to have been issued and the Optionee shall
be entitled to receive such Shares and shall be a stockholder with respect to
such Shares, and the Shares shall be considered fully paid and nonassessable.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date on which the stock certificate is issued, except as
provided in Section 9 of this Plan.
Each exercise of an Option shall reduce, by an equal number, the total
number of Shares that may thereafter be purchased under such Option.
<PAGE>
(ii) Termination of Status as an Employee or Consultant. Except as
--------------------------------------------------
provided in Subsections 6(d)(iii) and 6(d)(iv) below and unless provided
otherwise in the Stock Option Agreement, an Optionee holding an Option who
ceases to be an Employee or Consultant of the Company may, but only until the
earlier of the date (i) the Option held by the Optionee expires, or (ii) (y) in
the case of an ISO, ninety (90) days, and (z) in the case of a Nonstatutory
Option, six (6) months, after the date such Optionee ceases to be an Employee or
a Consultant (or in each case, such shorter period as may be provided in the
Stock Option Agreement), exercise the Option to the extent that the Optionee was
entitled to exercise it on such date, unless the Committee terminates or further
extends such period in its sole discretion. To the extent that the Optionee was
not entitled to exercise an Option on such date, or if the Optionee does not
exercise it within the time specified herein, such Option shall terminate. The
Committee shall have the authority (i) to determine the date an Optionee ceases
to be an Employee or a Consultant and (ii) to shorten or terminate the exercise
periods provided above in the event the Optionee resigns and/or ceases for
"cause" to be an Employee or a Consultant.
(iii) Permanent and Total Disability. Notwithstanding the
------------------------------
provisions of Section 6(d)(ii) above, in the event an Optionee is unable to
continue to perform Services for the Company or any of its Subsidiaries as a
result of such Optionee's Permanent and Total Disability, (and, for ISOs, at the
time such Permanent and Total Disability begins, the Optionee was an Employee
and had been an Employee since the Date of Grant), such Optionee may exercise an
Option in whole or in part to the extent that the Optionee was entitled to
exercise it on such date, but only until the earlier of the date (i) the Option
held by the Optionee expires, or (ii) twelve (12) months from the date of
termination of Services due to such Permanent and Total Disability. To the
extent the Optionee is not entitled to exercise an Option on such date or if the
Optionee does not exercise it within the time specified herein, such Option
shall terminate, unless the Committee further extends such period in its sole
discretion.
(iv) Death of an Optionee. Upon the death of an Optionee, any Option
--------------------
held by an Optionee shall terminate and be of no further effect; provided,
--------
however, notwithstanding the provisions of Section 6(d)(ii) above, in the event
- -------
an Optionee's death occurs during the term of an Option held by such Optionee
and, at the time of death, the Optionee was an Employee or Consultant (and, for
ISOs, at the time of death, the Optionee was an Employee and had been an
Employee since the Date of Grant), the Option may be exercised in whole or in
part to the extent that the Optionee was entitled to exercise it on such date,
but only until the earlier of the date (i) the Option held by the Optionee
expires, or (ii) twelve (12) months from the date of the Optionee's death, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance. To the extent the Option is not entitled to
be exercised on such date or if the Option is not exercised within the time
specified herein, such Option shall terminate, unless the Committee further
extends such period in its sole discretion.
(v) Return of Proceeds.
------------------
(a) The Committee, in its discretion, may include as a term of any
Optionee's Stock Option Agreement a provision that, if within one year after
ceasing to be an Employee or Consultant (whether voluntarily or involuntarily),
an Optionee shall, directly or indirectly, engage in an activity that competes
with the business of the Company or a Subsidiary as conducted at the time the
Optionee ceased to be an Employee or Consultant (as determined by the Board of
Directors in its sole discretion and good faith) and such Optionee had exercised
Options within six months of the date the Optionee ceased to be an Employee or
Consultant, the Optionee shall be required to remit to the Company in good funds
within 5 business days of receipt of written demand therefore an amount equal to
(i) the excess of (A) the Fair Market Value per share of Common Stock on the
date of exercise of such Option(s) less (B) the aggregate option exercise price
for such number of shares of Common Stock multiplied by (ii) the number of
shares with respect to which the Options were exercised (the "Proceeds").
(b) The Committee, in its discretion, may include as a term of any
Optionee's Stock Option Agreement a provision requiring the remittance by an
Optionee to the Company in good funds within 5 business days of receipt of
written demand therefore of Proceeds by an Optionee that has exercised Options
within six months of the date the Optionee ceased to be an Employee or
Consultant (whether voluntarily or involuntarily). The Committee shall have the
authority in its discretion to include such other conditions and/or terms in an
Optionee's Stock Option Agreement that it deems appropriate or desirable in
furtherance of the foregoing provisions.
<PAGE>
(e) Non-Transferability of Options. No Option granted under this Plan may
------------------------------
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and no Option
granted under this Plan is assignable by operation of law or subject to
execution, attachment or similar process. Any Option granted under this Plan
can only be exercised during the Optionee's lifetime by such Optionee unless
exercised pursuant to Section 6(d)(iv). Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option contrary to the provisions hereof
and the levy of any execution, attachment or similar process upon the Option
shall be null and void and without force or effect. No transfer of the Option
by will or by the laws of descent and distribution shall be effective to bind
the Company unless the Company shall have been furnished written notice thereof
and an authenticated copy of the will and/or such other evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions of the
Option. The terms of any Option transferred by will or by the laws of descent
and distribution shall be binding upon the executors, administrators, heirs and
successors of Optionee.
(f) Time of Granting Options. Any Option granted hereunder shall be deemed
------------------------
to be granted on the Date of Grant. Written notice of the Committee's
determination to grant an Option to an Employee, evidenced by a Stock Option
Agreement, dated as of the Date of Grant, shall be given to such Employee within
a reasonable time after the Date of Grant.
(g) Modification, Extension and Renewal of Options. Within the limitations
----------------------------------------------
of this Plan, the Committee may modify, extend or renew outstanding Options or
may accept the cancellation of outstanding Options (to the extent not previously
exercised) for the granting of new Options in substitution therefor. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair the Optionee's rights or obligations
under such Option.
(h) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
----------------------------------
an Option shall be subject to such rights of repurchase and other transfer
restrictions as the Committee may determine in its sole discretion. Such
restrictions shall be set forth in the applicable Stock Option Agreement.
(i) Special Limitation on ISOs. To the extent that the aggregate Fair
--------------------------
Market Value (determined on the Date of Grant) of the Shares with respect to
which ISOs are exercisable for the first time by an individual during any
calendar year under this Plan, and under all other plans maintained by the
Company, exceeds $100,000, such Options shall be treated as Options that are not
ISOs.
(j) Leaves of Absence. Leaves of absence approved by the Committee which
------------------
conform to the policies of the Company shall not be considered termination of
employment if the employer-employee relationship as defined under the Code or
the regulations promulgated thereunder otherwise exists.
(k) Limitation on Grants. Notwithstanding any other provision contained in
--------------------
this Plan, no Employee may receive in any one calendar year Options under this
Plan to acquire and rights to purchase more than 150,000 Shares.
(l) Early Exercise. In the Committee's sole and absolute discretion, an
--------------
Option may include a provision whereby the Optionee may elect at anytime while
an Employee or Consultant to exercise the Option as to any part or all of the
Shares subject to the Option prior to the full vesting of the Option. Any
unvested Shares so purchased shall be subject to a repurchase right in favor of
the Company, with the repurchase price to be equal to the original purchase
price of the Shares, or to any other restriction the Committee determines to be
appropriate, provided however, that (i) the right to repurchase at the original
purchase price shall lapse at a rate equal to the remaining portion of the
original vesting schedule of the Shares so purchased, (ii) such repurchase right
shall be exercisable by the Company within (A) the ninety (90) day period
following the termination of employment or relationship as a Consultant for any
reason whatsoever, or (B) such longer period as may be agreed to by the Company
and the Optionee (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such repurchase right shall be exercisable for cash or cancellation of
purchase money indebtedness for the Shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash equal to the
<PAGE>
difference between the original purchase price and stock's fair market value if
the original purchase price is less than the stock's fair market value.
SECTION 7
RESTRICTED STOCK
----------------
(a) Authority to Grant Restricted Stock. The Committee shall have the
-----------------------------------
authority to grant Shares to Participants that are subject to certain terms,
conditions, and restrictions (the "Restricted Stock"). The Restricted Stock may
----------------
be granted by the Committee either separately or in combination with Options.
The terms, conditions and restrictions of the Restricted Stock shall be
determined from time to time by the Committee without limitation, except as
otherwise provided in this Plan; provided, however, that each grant of
-------- -------
Restricted Stock to an Employee shall require the Employee to remain an Employee
of the Company or any of its Subsidiaries for at least six (6) months from the
Date of Grant. The granting, vesting, and issuing of the Restricted Stock shall
also be subject to the following provisions:
(i) Nature of Grant. Restricted Stock shall be granted to
---------------
Participants for Services rendered and at no additional cost to Participant;
provided, however, that the value of the Services performed must, in the opinion
- -------- -------
of the Committee, equal or exceed the par value of the Restricted Stock to be
granted to the Participant.
(ii) Restricted Stock Account. The Company shall establish a
------------------------
restricted stock account (the "Restricted Stock Account") for each Participant
------------------------
to whom Restricted Stock is granted, and such Restricted Stock shall be credited
to such account. No certificates will be issued to the Participant with respect
to the Restricted Stock until the Vest Date as provided herein. Every credit of
Restricted Stock under this Plan to a Restricted Stock Account shall be
considered "contingent" and unfunded until the Vest Date. Such contingent
credits shall be considered bookkeeping entries only, notwithstanding the
"crediting" of "dividends" as provided herein. Such accounts shall be subject
to the general claims of the Company's creditors. The Participant's rights to
the Restricted Stock Account shall be no greater than that of a general creditor
of the Company. Nothing contained herein shall be construed as creating a trust
or fiduciary relationship between the Participants and the Company, the Board of
Directors or the Committee.
(iii) Restrictions. The terms, conditions, and restrictions of the
------------
Restricted Stock shall be determined by the Committee on the Date of Grant. The
Restricted Stock may not be sold, assigned, transferred, redeemed, pledged or
otherwise encumbered during the period in which the terms, conditions and
restrictions apply (the "Restriction Period"). More than one grant of
------------------
Restricted Stock may be outstanding at any one time, and the Restriction Periods
may be of different lengths. Receipt of the Restricted Stock is conditioned
upon satisfactory compliance with the terms, conditions and restrictions of this
Plan and those imposed by the Committee.
(iv) Restricted Stock Criteria. At the time of each grant of
-------------------------
Restricted Stock, the Committee in its sole discretion may establish certain
criteria to determine the times at which restrictions placed on Restricted Stock
shall lapse (i.e., the termination of the Restriction Period), which criteria
may include without limitation performance measures and targets and/or holding
period requirements (the "Restricted Stock Criteria"). The Committee may
-------------------------
establish a corresponding relationship between the Restricted Stock Criteria and
(i) the number of Shares of Restricted Stock that may be earned, and (ii) the
extent to which the terms, conditions and restrictions on the Restricted Stock
shall lapse. Restricted Stock Criteria may vary among grants of Restricted
Stock; provided, however, that once the Restricted Stock Criteria are
-------- -------
established for a grant of Restricted Stock, the Restricted Stock Criteria shall
not be modified with respect to that grant.
(v) Vesting. On the date the Restriction Period terminates, the
-------
Restricted Stock shall vest in the Participant (the "Vest Date"), who may then
---------
require the Company to issue certificates evidencing the Restricted Stock
credited to the Restricted Stock Account of such Participant.
(vi) Dividends. The Committee may provide from time to time that
---------
amounts equivalent to dividends shall be payable with respect to the Restricted
Stock held in the Restricted Stock Account of a Participant. Such amounts shall
be credited to the Restricted Stock Account and shall be payable to the
Participant on the Vest Date.
(vii) Termination of Services. If a Participant (x) with the
-----------------------
consent of the Committee, ceases to be an Employee of, or otherwise ceases to
provide Services to, the Company or any of its Subsidiaries, or (y) dies or
<PAGE>
suffers from Permanent and Total Disability, the vesting or forfeiture
(including without limitation the terms, conditions and restrictions) of any
grant under this Section 7 shall be determined by the Committee in its sole
discretion, subject to any limitations or terms of this Plan. If the
Participant ceases to be an Employee of, or otherwise ceases to provide Services
to, the Company or any of its Subsidiaries for any other reason, all grants of
Restricted Stock under this Plan shall be forfeited (subject to the terms of
this Plan).
(b) Deferral of Payments. The Committee may establish procedures by
--------------------
which a Participant may elect to defer the transfer of Restricted Stock to the
Participant. The Committee shall determine the terms and conditions of such
deferral in its sole discretion.
(c) Payment of Taxes. Notwithstanding the provisions of Section 7(a)(v)
----------------
above, the Company will not be required to issue any Restricted Stock unless and
until the Participant shall pay to the Company an amount equal to any
withholding and other applicable taxes related to the issuance of the Restricted
Stock. Such payment shall be made in cash, by certified check, or if authorized
by the Committee, by delivery of other Shares having a Fair Market Value on the
date of delivery equal to such payment or by any combination of such methods of
payment or by any other method of payment as may be permitted under applicable
law and authorized by the Committee.
SECTION 8
ISSUANCE OF SHARES
------------------
As a condition to the transfer of any Shares issued under this Plan, the
Company may require an opinion of counsel, satisfactory to the Company, to the
effect that such transfer will not be in violation of the Securities Act of
1933, as amended (the "Securities Act"), or any other applicable securities
--------------
laws, rules or regulations, or that such transfer has been registered under
federal and all applicable state securities laws. The Company may refrain from
delivering or transferring Shares issued under this Plan until the Committee has
determined that the Participant has tendered to the Company any and all
applicable federal, state or local tax owed by the Participant as the result of
the receipt of a Plan Award, the exercise of an Option or the disposition of any
Shares issued under this Plan, in the event that the Company reasonably
determines that it might have a legal liability to satisfy such tax. The
Company shall not be liable to any person or entity for damages due to any delay
in the delivery or issuance of any stock certificate evidencing any Shares for
any reason whatsoever.
SECTION 9
CAPITALIZATION ADJUSTMENTS; MERGER
----------------------------------
(a) Adjustments Upon Changes in Capitalization. Subject to any required
------------------------------------------
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option, the aggregate number of Shares that have been authorized for
issuance under this Plan, the maximum number of Shares that an Employee may
receive rights to pursuant to Section 6(k) of this Plan, and the number of
Shares of Restricted Stock credited to any Restricted Stock Account of a
Participant (as well as the Exercise Price covered by any outstanding Option),
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, payment of a stock dividend with
respect to the Stock or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company. Such
adjustment shall be made by the Committee in its sole discretion, which
adjustment shall be final, binding, and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option.
(b) Dissolution, Liquidation, Sale of Assets or Merger. In the event of
--------------------------------------------------
the proposed dissolution or liquidation of the Company, or a proposed sale of
all or substantially all of the assets of the Company, or the proposed merger of
the Company with or into another corporation where the Company is not the
surviving entity, any Options and grants of Restricted Stock shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided in the Stock Option Agreement or by the Committee. The Committee may,
in the exercise of its sole discretion, in such instances declare that any
Option shall terminate as of a date fixed by the Committee and give each
Optionee the right to exercise the Optionee's Option as to all or any part of
the Shares covered by such Option, including Shares as to which the Option would
not otherwise be exercisable. Notwithstanding the provisions of Section 6(b) to
the contrary, the Committee may, in the exercise of its sole discretion, provide
in any Stock Option Agreement
<PAGE>
or under any grant of Restricted Stock that the applicable Plan Award shall
become immediately vested in the event of a change in control of the Company or
other extraordinary events as defined by the Committee.
SECTION 10
NO EMPLOYMENT RIGHTS
--------------------
No provision of this Plan, under any Stock Option Agreement or under any
grant of Restricted Stock shall be construed to give any Participant any right
to remain an Employee of, or provide Services to, the Company or any of its
Subsidiaries or to affect the right of the Company to terminate any
Participant's service at any time, with or without cause.
SECTION 11
STOCKHOLDER APPROVAL
--------------------
With respect to any amendment to this Plan adopted by the Committee that is
required to be approved by the Company's stockholders pursuant to the terms of
Section 12 of this Plan, such approval shall be obtained within twelve (12)
months after the date such amendment is adopted by the Committee; provided, that
--------
such amendment shall not become effective until such approval has been obtained.
If the Company is required to comply with section 14(c) of the Exchange
Act, the approval by the Company's stockholders of this Plan, and their approval
of any subsequent amendment to this Plan requiring their approval, shall be
solicited substantially in accordance with section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder. If the Company is not
required to comply with section 14(a) of the Exchange Act at the time of seeking
such approval and such approval is not solicited substantially in accordance
with the rules and regulations, if any, in effect under section 14(a) of the
Exchange Act at the time of such approval, the Company shall furnish in writing
to the holders of record of the securities entitled to vote for this Plan
substantially the same information concerning this Plan which would be required
by the rules and regulations in effect under section 14(a) of the Exchange Act
at the time that such information is furnished, if proxies to be voted with
respect to the approval or disapproval of this Plan were then being solicited,
on or prior to the date of the first annual meeting of security holders held
subsequent to the later of: (i) the first registration of an equity security
under Section 12 of the Act or (ii) the acquisition of an equity security which
exemption from section 16(b) under the Exchange Act is claimed.
SECTION 12
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
------------------------------------------------
(a) Term of Plan. This Plan shall become effective upon its adoption by
------------
the Board of Directors subject to the condition subsequent that this Plan is
approved by the stockholders of the Company. This Plan shall continue in effect
for a term of ten (10) years unless sooner terminated under this Section 12.
(b) Amendment and Termination. The Committee in its sole discretion may
-------------------------
terminate this Plan at any time. The Committee may amend this Plan at any time
in such respects as the Committee may deem advisable; provided, that the
--------
following amendments shall require approval of the holders of a majority of the
outstanding Shares entitled to vote:
(i) Any change in the aggregate number of Shares that may be issued
under this Plan, other than in connection with an adjustment under Section 9 of
this Plan;
(ii) Any change in the designation of the Participants eligible to be
granted Plan Awards; or
(iii) Any change in this Plan that would materially increase the
benefits accruing to Participants under this Plan.
(c) Effect of Termination. In the event this Plan is terminated, no Shares
---------------------
shall be issued under this Plan nor shall any Shares of Restricted Stock be
credited to a Restricted Stock Account, except upon exercise of an Option
granted prior to such termination or issuance of Shares of Restricted Stock
previously credited to a Restricted Stock
<PAGE>
Account. The termination of this Plan, or any amendment thereof, shall not
affect any Shares previously issued to a Participant, any Option previously
granted under this Plan or any Restricted Stock previously credited to a
Restricted Stock Account.
SECTION 13
GOVERNING LAW
-------------
THIS PLAN AND ANY AND ALL STOCK OPTION AGREEMENTS AND AGREEMENTS RELATING
TO THE GRANT OF RESTRICTED STOCK EXECUTED IN CONNECTION WITH THIS PLAN SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
Adoption Date: August 26, 1996
<PAGE>
Exhibit 10.6
E-STAMP CORPORATION
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
SECTION 1
ESTABLISHMENT AND PURPOSE
-------------------------
This Plan is established (i) to offer each director of the Company, who is
not otherwise at the time of grant an employee of or consultant to the Company
or any of its Affiliates, an equity ownership interest in the financial success
of the Company, (ii) to provide the Company an opportunity to attract and retain
the best available individuals to serve as members of the Board of Directors,
and (iii) to encourage equity participation in the Company by eligible non-
employee directors.
SECTION 2
DEFINITIONS
-----------
"Affiliate" shall mean a parent or subsidiary corporation as defined
---------
in the applicable provisions (currently, Sections 424(e) and (f), respectively)
of the Code.
"Board of Directors" shall mean the board of directors of the Company,
------------------
as duly elected from time to time.
"Change in Control" shall be deemed to occur in the event of a
-----------------
transaction or a series of related transactions (excluding an initial public
offering) in which securities constituting more than fifty percent (50%) of the
Company's then outstanding voting power are transferred to a person or persons
other than the persons holding such securities immediately prior to such
transaction or series of related transactions.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and as
----
interpreted by the regulations thereunder.
"Committee" shall mean the Compensation Committee of the Company, or such
---------
other Committee as may be appointed by the Board of Directors from time to time,
as provided in Section 3.
"Common Stock" shall mean the common stock, $0.001 par value, of the
------------
Company and any successor entity.
"Company" shall mean E-Stamp Corporation, a Delaware corporation.
-------
"Effective Date" shall mean the date upon which the Board of Directors
--------------
adopts this Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
and as interpreted by the rules and regulations promulgated thereunder.
"Fair Market Value" shall mean such amount as the Committee, in its sole
-----------------
discretion, shall determine; provided, however, that if there is a public market
-------- -------
for the securities, the Fair Market Value shall be the mean of the bid and asked
prices of the securities per share or unit, as the case may be, as reported in
the Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation System) as of the
date in question or, in the event the securities are listed on one or more stock
exchanges, the Fair Market Value shall be the closing sales price of the
securities per share or unit, as the case may be, on such exchange as selected
by the Committee, as reported in the Wall Street Journal, as of the date in
question.
"Non-employee Director" shall mean any person who at the time of grant is a
---------------------
member of the Board of Directors but is not an employee of or consultant to the
Company or any Affiliate of the Company and has not been an employee of or
consultant to the Company or any Affiliate of the Company at any time during the
preceding 12 months. Service as a director does not in itself constitute
employment for purposes of this definition.
<PAGE>
"Option" shall mean a stock option granted pursuant to this Plan. Each
------
Option shall be a nonstatutory option not intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code.
"Optionee" shall mean a Non-employee Director who holds an Option.
--------
"Permanent and Total Disability" shall mean that an individual is unable
------------------------------
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. An individual shall not be considered to
suffer from Permanent and Total Disability unless such individual furnishes
proof of the existence thereof in such form and manner, and at such times, as
the Committee may reasonably require. The scope of this definition shall
automatically be reduced or expanded to the extent that section 22(e)(3) of the
Code is amended to reduce or expand the scope of the definition of Permanent and
Total Disability thereunder.
"Plan" shall mean this 1996 Non-employee Director Stock Option Plan, as
----
amended from time to time.
"Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 9 of this Plan (if applicable).
"Stock Option Agreement" shall mean the agreement executed between the
----------------------
Company and an Optionee that contains the terms, conditions, and restrictions
pertaining to the granting of an Option.
SECTION 3
ADMINISTRATION
--------------
(a) General Administration. This Plan shall be administered by the
----------------------
Committee, which shall consist of at least two (2) persons who shall be members
of the Board of Directors but who do not qualify as Non-employee Directors. The
members of the Committee shall be appointed by the Board of Directors for such
terms as the Board of Directors may determine. The Board of Directors may from
time to time remove members from, or add members to, the Committee. Vacancies
on the Committee, however caused, shall be filled by the Board of Directors.
The Board of Directors at any time may terminate the authority delegated to any
committee of the Board of Directors pursuant to this Section 3(a) and revest in
the Board of Directors the administration of this Plan.
(b) Committee Procedures. The Board of Directors shall designate one of
--------------------
the members of the Committee as chairman. The Committee may hold meetings at
such times places, and in such manner as it shall determine. The acts of a
majority of the Committee members present at meetings at which a quorum exists,
or acts reduced to or proved in writing by a majority of all Committee members
shall be valid acts of the Committee. A majority of the Committee shall
constitute a quorum.
(c) Authority of Committee. This Plan shall be administered in such a
----------------------
manner as to comply with all terms of Rule 16b-3 (or any successor rule) under
the Exchange Act. The Committee shall have no authority, discretion, or power to
select the Non-employee Directors who will receive Options hereunder or to set
the number of shares to be covered by each Option granted hereunder, the
exercise price of such Option, the timing of the grant of such Option or the
period within which such Option may be exercised. The Committee may delegate
administrative duties to such employees of the Company as it deems proper, so
long as such delegation is not otherwise prohibited by Rule 16b-3 under the
Exchange Act.
(d) Committee Determinations Binding. Subject to the limitations set forth
--------------------------------
above, the Committee may adopt, alter, and repeal administrative rules,
guidelines and practices governing this Plan as it from time to time shall deem
advisable, may interpret the terms and provisions of this Plan, any Option and
any Option Agreement and may otherwise supervise the administration of this
Plan. All decisions made by the Committee under this Plan shall be binding on
all persons, including the Company and Optionees. No member of the Committee
shall be liable for any action that he or she has in good faith taken or failed
to take with respect to this Plan or any Option.
<PAGE>
SECTION 4
ELIGIBILITY
-----------
Only Non-employee Directors may receive Options under this Plan.
SECTION 5
SHARES SUBJECT TO PLAN
----------------------
(a) Basic Limitation. Shares offered under this Plan may be authorized
----------------
but unissued Shares or Shares that have been reacquired by the Company. The
aggregate number of Shares that are available for issuance under this Plan shall
not exceed one hundred thousand (100,000) Shares, subject to adjustment pursuant
to Section 9 of this Plan. The Committee shall not issue more Shares than are
available for issuance under this Plan. The number of Shares that are subject to
unexercised Options at any time under this Plan shall not exceed the number of
Shares that remain available for issuance under this Plan. The Company, during
the term of this Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of this Plan.
(b) Additional Shares. In the event any outstanding Option for any reason
-----------------
expires, is canceled or otherwise terminates, the Shares allocable to the
unexercised portion of such Option shall again be available for issuance under
this Plan.
SECTION 6
NON-DISCRETIONARY GRANTS
------------------------
(a) Initial Grant. Subject to the restrictions listed below, each
-------------
Non-employee Director elected upon the date of his or her initial election to be
a Non-employee Director shall be granted automatically an option to purchase ten
thousand (10,000) shares of Common Stock of the Company on the terms and
conditions set forth herein. Any Non-employee Director who is serving as such
as of the Effective Date of this Plan and has been serving for less than six (6)
months as a Non-employee Director or in a similar capacity for any predecessor
of the Company shall also receive this initial grant of Options as of the
Effective Date of this Plan if, and only if, such Non-employee Director has not
received for such services prior to the Effective Date any other equity
ownership rights from the Company or any predecessor entity.
(b) Subsequent Grants. Each Non-employee Director shall be granted
-----------------
automatically an Option to purchase three thousand (3,000) Shares on April 1 of
each year (the "April Grant Date"), provided the individual is a Non-employee
----------------
Director as of the April Grant Date, and has been a Non-employee Director for at
least one (1) year prior to the April Grant Date. If such individual has been a
Non-employee Director for less than one (1) year as of the April Grant Date,
then such individual shall be granted automatically an Option to purchase two
hundred fifty (250) Shares for each full month such individual has served as a
Non-employee Director prior to the April Grant Date. Any service as a Non-
employee Director of the Company or its predecessor prior to the Effective Date
of this Plan shall be counted for purposes of the 1997 April Grant Date.
(c) Prior Options. Any Non-employee Director who is serving as such as of
-------------
the Effective Date of this Plan who holds stock options of the Company for
serving as a Non-employee Director or in a similar capacity for any predecessor
of the Company may receive a grant of Options under this Plan in exchange for
such prior options on terms and conditions and as determined by the Committee in
its sole discretion.
SECTION 7
TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) Term of Option. The term of each Option shall commence on the date it
--------------
is granted and, unless
<PAGE>
sooner terminated as set forth herein, shall expire on the date ("Expiration
----------
Date") ten (10) years from the date of grant.
- ----
(b) Vesting of Options. Subject to the other provisions of this Plan, each
------------------
Option granted pursuant to this Plan shall become exercisable in installments
cumulatively as to fifty percent (50%) of the Shares subject to each Option on
each of the first and second annual anniversaries of the date of grant of the
Option. Notwithstanding the preceding sentence to the contrary, each Option
granted pursuant to this Plan shall become immediately exercisable in the event
of a Change in Control as of the effective date thereof.
(c) Exercise Price and Method of Payment.
------------------------------------
(i) Exercise Price. The Exercise Price of each Option shall be one
--------------
hundred percent (100%) of the Fair Market Value of the Shares subject to such
Option on the date such Option is granted.
(ii) Payment of Shares. Payment for the Shares upon exercise of an
-----------------
Option shall be made in cash, by certified check, or if authorized by the
Committee, by delivery of other Shares having a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Shares as to which said
Option is being exercised, or by any combination of such methods of payment or
by any other method of payment as may be permitted under applicable law and this
Plan and authorized by the Committee pursuant to the provisions of this Plan.
(d) Exercise of Option.
------------------
(i) Procedure for Exercise; Rights of Stockholder. Any Option granted
---------------------------------------------
hereunder shall be exercisable at such times as set forth in Section 7(b)
hereof, provided, however, that no Option shall be exercisable prior to
stockholder approval of this Plan in accordance with Section 13 hereof.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the Stock
Option Agreement by the Optionee entitled to exercise the Option and full
payment for the Shares and any withholding and other applicable taxes with
respect to which the Option is exercised has been received by the Company. Full
payment may, as authorized by the Committee, consist of any form of
consideration and method of payment allowable under Section 7(c)(ii) of this
Plan. Upon the receipt of notice of exercise and full payment for the Shares and
taxes, the Shares shall be deemed to have been issued and the Optionee shall be
entitled to receive such Shares and shall be a stockholder with respect to such
Shares, and the Shares shall be considered fully paid and nonassessable. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date on which the stock certificate is issued, except as
provided in Section 9 of this Plan.
Each exercise of an Option shall reduce, by an equal number, the total
number of Shares that may thereafter be purchased under such Option.
(ii) Termination of Status as a Director. If a Non-employee Director
-----------------------------------
ceases to serve as a director of or consultant to the Company, he or she may,
but only until the earlier of the date (i) the Option held by the Optionee
expires, or (ii) ninety (90) days after the date such Optionee ceases to be a
director or consultant, exercise the Option to the extent that the Optionee was
entitled to exercise it on such date. To the extent that the Optionee was not
entitled to exercise an Option on such date, or if the Optionee does not
exercise it within the time specified herein, such Option shall terminate.
(iii) Permanent and Total Disability. Notwithstanding the provisions
------------------------------
of Section 7(d)(ii) above, in the event an Optionee is unable to continue to
perform services for the Company or any of its Affiliates as a result of such
Optionee's Permanent and Total Disability, such Optionee may exercise an Option
in whole or in part to the extent that the Optionee was entitled to exercise it
on such date, but only until the earlier of the date (i) the Option held by the
Optionee expires, or (ii) twelve (12) months from the date of termination of
services due to such
<PAGE>
Permanent and Total Disability. To the extent the Optionee is not entitled to
exercise an Option on such date or if the Optionee does not exercise it within
the time specified herein, such Option shall terminate.
(iv) Death of an Optionee. Upon the death of an Optionee, any Option
--------------------
held by an Optionee shall terminate and be of no further effect; provided,
--------
however, notwithstanding the provisions of Section 7(d)(ii) above, in the event
- -------
an Optionee's death occurs during the term of an Option held by such Optionee
and, at the time of death, the Optionee was a director of or consultant to the
Company, the Option may be exercised in whole or in part to the extent that the
Optionee was entitled to exercise it on such date, but only until the earlier of
the date (i) the Option held by the Optionee expires, or (ii) twelve (12) months
from the date of the Optionee's death, by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance. To the
extent the Option is not entitled to be exercised on such date or if the Option
is not exercised within the time specified herein, such Option shall terminate.
(e) Non-Transferability of Options. No Option granted under this Plan
------------------------------
may be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and no Option
granted under this Plan is assignable by operation of law or subject to
execution, attachment or similar process. Any Option granted under this Plan
can only be exercised during the Optionee's lifetime by such Optionee unless
exercised pursuant to Section 7(d)(iv). Any attempted sale, pledge, assignment,
hypothecation or other transfer of the Option contrary to the provisions hereof
and the levy of any execution, attachment or similar process upon the Option
shall be null and void and without force or effect. No transfer of the Option
by will or by the laws of descent and distribution shall be effective to bind
the Company unless the Company shall have been furnished written notice thereof
and an authenticated copy of the will and/or such other evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions of the
Option. The terms of any Option transferred by will or by the laws of descent
and distribution shall be binding upon the executors, administrators, heirs and
successors of Optionee.
(f) Time of Granting Options. Any Option granted hereunder shall be deemed
------------------------
to be granted on the date of grant. Written notice of the Committee's
determination to grant an Option to a Non-employee Director, evidenced by a
Stock Option Agreement, dated as of the date of grant, shall be given to such
Non-employee Director within a reasonable time after the date of grant.
Early Exercise. In the Committee's sole and absolute discretion, an Option
--------------
may include a provision whereby the Optionee may elect at anytime while a Non-
employee Director to exercise the Option as to any part or all of the Shares
subject to the Option prior to the full vesting of the Option. Any unvested
Shares so purchased shall be subject to a repurchase right in favor of the
Company, with the repurchase price to be equal to the original purchase price of
the Shares, or to any other restriction the Committee determines to be
appropriate, provided however, that (i) the right to repurchase at the original
purchase price shall lapse at a rate equal to the remaining portion of the
original vesting schedule of the Shares so purchased, (ii) such repurchase right
shall be exercisable by the Company within (A) the ninety (90) day period
following the termination of service as a Non-employee Director for any reason
whatsoever, or (B) such longer period as may be agreed to by the Company and the
Optionee (for example, for purposes of satisfying the requirements of Section
1202(c)(3) of the Code (regarding "qualified small business stock")), and (iii)
such repurchase right shall be exercisable for cash or cancellation of purchase
money indebtedness for the Shares. Should the right of repurchase be assigned by
the Company, the assignee shall pay the Company cash equal to the difference
between the original purchase price and stock's fair market value if the
original purchase price is less than the stock's fair market value.
SECTION 8
ISSUANCE OF SHARES
------------------
As a condition to the transfer of any Shares issued under this Plan, the
Company may require an opinion of counsel, satisfactory to the Company, to the
effect that such transfer will not be in violation of the Securities Act of
<PAGE>
1933, as amended (the "Securities Act"), or any other applicable securities
--------------
laws, rules or regulations, or that such transfer has been registered under
federal and all applicable state securities laws. The Company may refrain from
delivering or transferring Shares issued under this Plan until the Committee has
determined that the Optionee has tendered to the Company any and all applicable
federal, state or local tax owed by the Optionee as the result of the receipt of
an Option, the exercise of an Option or the disposition of any Shares issued
under this Plan, in the event that the Company reasonably determines that it
might have a legal liability to satisfy such tax. The Company shall not be
liable to any person or entity for damages due to any delay in the delivery or
issuance of any stock certificate evidencing any Shares for any reason
whatsoever.
SECTION 9
CAPITALIZATION ADJUSTMENTS; MERGER
----------------------------------
(a) Adjustments Upon Changes in Capitalization. Subject to any required
------------------------------------------
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option and the aggregate number of Shares that have been authorized
for issuance under this Plan (as well as the exercise price covered by any
outstanding Option), shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, payment of
a stock dividend with respect to the Common Stock or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company. Such adjustment shall be made by the Committee in
its sole discretion, which adjustment shall be final, binding, and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of Shares subject to an Option.
(b) Dissolution, Liquidation, Sale of Assets or Merger. In the event of
--------------------------------------------------
the proposed dissolution or liquidation of the Company, or a proposed sale of
all or substantially all of the assets of the Company, or the proposed merger of
the Company with or into another corporation where the Company is not the
surviving entity, any Options shall terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion, in such
instances declare that any Option shall terminate as of a date fixed by the
Committee and give each Optionee the right to exercise the Optionee's Option as
to all or any part of the Shares covered by such Option, including Shares as to
which the Option would not otherwise be exercisable.
SECTION 10
NO RIGHTS TO DIRECTORSHIP
-------------------------
No provision of this Plan, or under any Stock Option Agreement, shall be
construed to give any Optionee any rights with respect to the continuation of
the Optionee's membership on the Board of Directors or shall interfere in any
way with provisions in the Company's Certificate of Incorporation and Bylaws
relating to the election, appointment, terms of office, and removal of members
of the Board of Directors.
SECTION 11
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
------------------------------------------------
(a) Term of Plan. This Plan shall become effective upon its adoption by
------------
the Board of Directors. This Plan shall continue in effect for a term of ten
(10) years unless sooner terminated under this Section 11.
(b) Amendment and Termination. The Board of Directors may terminate this
-------------------------
Plan at any time as the Board of Directors may deem advisable. The Committee
may amend this Plan at any time, provided, however, that the Committee shall not
amend this Plan with respect to the provisions of this Plan which relate to who
is granted Options, the amount, price and timing of grants, or the period within
which each Option may be exercised and may not be amended more than once every
six (6) months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules
-----
thereunder. Except as provided in
<PAGE>
Section 9 relating to adjustments upon changes in capitalization, no amendment
shall be effective unless approved by the stockholders of the Company within
twelve (12) months before or after the adoption of the amendment, where the
amendment will:
(i) increase the number of shares which may be issued under this
Plan;
(ii) modify the requirements as to eligibility for participation in
this Plan (to the extent such modification requires stockholder approval in
order for this Plan to comply with the requirements of Rule 16b-3); or
(iii) modify this Plan in any other way if such modification requires
stockholder approval in order for this Plan to comply with the requirements of
Rule 16b-3.
(c) Rights and obligations under any option granted before any amendment of
this Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii) such
person consents in writing.
(d) Effect of Termination. In the event this Plan is terminated, no Shares
---------------------
shall be issued under this Plan, except upon exercise of an Option granted prior
to such termination. The termination of this Plan, or any amendment thereof,
shall not affect any Shares previously issued to a Participant or any Option
previously granted under this Plan.
SECTION 12
LEGAL REQUIREMENTS; RULE 16b-3
------------------------------
(a) Legal Requirements. The Company shall not be obligated to offer or
------------------
sell any Shares upon exercise of any Option unless the Shares are at that time
effectively registered or exempt from registration under the federal and
applicable state securities laws and the offer and sale of the Shares are
otherwise in compliance with all applicable securities laws and the regulations
of any stock exchange on which the Company's securities may then be listed. The
Company shall have no obligation to register the securities covered by this Plan
under the federal securities laws or take any other steps as may be necessary to
enable the securities covered by this Plan to be offered and sold under federal
or other securities laws. Upon exercising all or any portion or an Option, an
Optionee may be required to furnish representations or undertakings deemed
appropriate by the Company to enable the offer and sale of the Shares or
subsequent transfers of any interest in the Shares to comply with applicable
securities laws. Certificates evidencing Shares acquired upon exercise of
Options shall bear any legend required by, or useful for purposes of compliance
with, applicable securities laws, this Plan or the Stock Option Agreements.
(b) Rule 16b-3. With respect to persons subject to Section 16 of the
----------
Exchange Act, transactions under this Plan are intended to comply with the
applicable conditions of Rule 16b-3 under the Exchange Act. To the extent any
provision of this Plan or action by the Committee fails to so comply, it shall
be adjusted to comply with Rule 16b-3, to the extent permitted by law and deemed
advisable by the Committee. It shall be the responsibility of persons subject
to Section 16 of the Exchange Act, not of the Company or the Committee, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Committee shall be liable if this Plan or any transaction under
this Plan fails to comply with the applicable conditions of Rule 16b-3, or if
any such person incurs any liability under Section 16 of the Exchange Act.
SECTION 13
EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE
----------------------------------------------
(a) This Plan shall become effective upon adoption by the Board of
Directors subject to the condition subsequent that this Plan is approved by the
stockholders of the Company.
<PAGE>
(b) No Option granted under this Plan shall be exercised or exercisable
unless and until the condition of Section 13(a) above has been met.
SECTION 14
GOVERNING LAW
-------------
THIS PLAN AND ANY AND ALL STOCK OPTION AGREEMENTS EXECUTED IN CONNECTION
WITH THIS PLAN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
Adoption Date: August 26, 1996
<PAGE>
EXHIBIT 10.7
E-STAMP CORPORATION
_______________________________________________________
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
_______________________________________________________
August 3, 1999
_____________________________________________________
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
1. Certain Definitions............................................................... 2
2. Financial Statements and Reports to Stockholders.................................. 4
3. Inspection........................................................................ 5
4. Participation Rights.............................................................. 5
5. Demand Registration............................................................... 7
5.1 Request for Registration on Form Other Than Form S-3........................... 7
5.2 Request for Registration on Form S-3........................................... 9
5.3 Registration of Other Securities in Demand Registration........................10
5.4 Underwriting in Demand Registration............................................10
5.4.1 Notice of Underwriting.....................................................10
5.4.2 Inclusion of Other Holders in Demand Registration..........................10
5.4.3 Selection of Underwriter in Demand Registration............................10
5.4.4 Marketing Limitation in Demand Registration................................11
5.4.5 Right of withdrawal in Demand Registration.................................11
6. Piggyback Registration............................................................11
6.1 Notice of Piggyback Registration and Inclusion of Registrable Securities.......11
6.2 Underwriting in Piggyback Registration.........................................12
6.2.1 Notice of Underwriting in Piggyback Registration...........................12
6.2.2 Marketing Limitation in Piggyback Registration.............................12
6.2.3 Allocation of Shares in Piggyback Registration.............................12
6.2.4 Withdrawal in Piggyback Registration.......................................13
7. Expenses of Registration..........................................................13
8. Registration Procedures and Obligations...........................................13
9. Information Furnished by Holder...................................................15
10. Rule 144........................................................................15
10.1 Reports.......................................................................15
10.2 Sales.........................................................................16
11. Indemnification...................................................................16
11.1 Company's Indemnification of Holders..........................................16
11.2 Holder's Indemnification of Company...........................................17
11.3 Indemnification Procedure.....................................................18
11.4 Contribution..................................................................18
11.5 Survival......................................................................19
12. Transfer of Rights................................................................19
13. Market Stand-off..................................................................19
14. Right of First Refusal............................................................19
14.1 Transfers by Investors........................................................19
14.2 Offer by an Investor..........................................................20
14.3 Acceptance of Offer...........................................................20
14.3.1 By Company................................................................20
14.3.2 By the Remaining Series C Investors.......................................20
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
14.3.3 Pro Rata Portion.......................................................... 20
14.4 Offer Not Accepted............................................................ 21
14.5 Transfers to Affiliates....................................................... 21
14.6 No Other Transfer Effective................................................... 21
14.7 Termination of Restrictions................................................... 21
15. Observer Rights................................................................... 21
16. Miscellaneous..................................................................... 22
16.1 No Conflicts.................................................................. 22
16.2 Entire Agreement; Successors.................................................. 22
16.3 Counterparts.................................................................. 23
16.4 Modification.................................................................. 23
16.5 Governing Law................................................................. 23
16.6 Notices....................................................................... 23
16.7 Severability.................................................................. 23
16.8 Specific Performance.......................................................... 23
16.9 Submission to Jurisdiction.................................................... 24
16.10 Aggregation of Stock......................................................... 24
16.11 Additional Parties........................................................... 24
</TABLE>
[The remainder of this page is intentionally blank.]
(ii)
<PAGE>
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
_______________________________________
This SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the
"Agreement") is entered into this 3rd day of August, 1999 by and between E-
---------
STAMP CORPORATION, a Delaware corporation (the "Company"), VENTURE FUND I, L.P.,
-------
a Delaware limited partnership ("Venture I"), AT&T VENTURE FUND II, L.P., a
Delaware limited partnership ("Venture II"), and MICROSOFT CORPORATION, a
Washington corporation ("Microsoft") (each of Venture I, Venture II and
----------------------------------------------
Microsoft is a "Series A Investor" and, collectively, the "Series A Investors"),
- --------------------------------------------------------------------------------
and the entities indicated on Exhibit A attached hereto (individually, a "Series
- --- ------
B Investor" and collectively, the "Series B Investors") and the entities and
- ---------- ------------------
individuals indicated on Exhibit B hereto (individually, a "Series C Investor"
-----------------
and collectively, the "Series C Investors").
------------------
RECITALS
A. The Series A Investors purchased an aggregate of 2,500,000 shares of
the Company's Series A Preferred Stock, $.001 par value (the "Series A Preferred
------------------
Stock"), pursuant to that certain Stock Purchase Agreement dated as of September
- -----
3, 1997 by and between the Company and the Series A Investors;
B. The Series B Investors purchased an aggregate of 4,188,000 shares of
the Company's Series B Preferred Stock (the "Series B Preferred Stock") pursuant
------------------------
to that certain Stock Purchase Agreement dated as of July 7, 1998 by and between
the Company and the Series B Investors;
C. Simultaneously with the sale and purchase of the Series B Preferred
Stock, the Company, the Series A Investors and the Series B Investors entered
into that certain Amended and Restated Investor Rights Agreement dated July 7,
1998 (the Amended Rights Agreement")
----------------------------
D. The Series C Investors are purchasing shares of the Company's Series C
Preferred Stock pursuant to that certain Stock Purchase Agreement executed
simultaneously herewith between the Company and the Series C Investors (the
Stock Purchase Agreement");
- -------------------------
E. It is a condition to the obligations of the Company under the Stock
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute, and to be bound by the provisions of, this
Agreement; and
F. The parties hereto desire to amend and restate the Amended Rights
Agreement
Page 1 of 24
<PAGE>
by replacing it entirely with the provisions of this Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Certain Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
(a) "Amended Rights Agreement" shall mean that certain Amended and
------------------------
Restated Investor Rights Agreement dated July 7, 1998 by and among the Company,
the Series A Investors and the Series B Investors pursuant to which certain
rights were granted in conjunction with the sale and purchase of the Series B
Preferred Stock.
(b) "Commission" shall mean the Securities and Exchange Commission
----------
or any other federal agency at the time administering the Securities Act.
(c) "Common Stock" shall mean the Company's common stock, $.001 par
------------
value.
(d) "Convertible Securities" shall mean securities of the Company
----------------------
convertible into or exchangeable for Common Stock of the Company or into other
securities that are convertible into or exchangeable for Common Stock including,
without limitation, Series A Preferred Stock, Series B Preferred Stock, and
Series C Preferred Stock.
(e) "Exchange Act" shall mean the Securities and Exchange Act of
------------
1934, as amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
(f) "Form S-3" shall mean Form S-3 issued by the Commission or any
--------
substantially similar form then in effect.
(g) "Holder" shall mean any holder of outstanding Registrable
------
Securities which have not been sold to the public, but only if such holder is
one of the Investors or an assignee or transferee of Registration rights as
permitted by Section 12.
(h) "Investor" shall mean any of the Series A Investors, the Series B
--------
Investors or the Series C Investors
Page 2 of 24
<PAGE>
(i) "Material Adverse Event" shall mean an occurrence having a
----------------------
consequence that either (i) is materially adverse as to the business,
properties, prospects, or financial condition of the Company or (ii) is
reasonably foreseeable, has a reasonable likelihood of occurring, and if it
were to occur might materially adversely affect the business, properties,
prospects, or financial condition of the Company.
(j) The terms "Register", "Registered", and "Registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act ("Registration Statement"), and the
----------------------
declaration or ordering of the effectiveness of such Registration Statement.
(k) "Registrable Securities" shall mean all Common Stock issued or
----------------------
issuable upon conversion or exercise of any of the Company's Convertible
Securities purchased by or issued to an Investor and not previously sold to the
public, including Common Stock issued or issuable pursuant to stock splits,
stock dividends and similar distributions, and any securities of the Company
granted registration rights pursuant to this Agreement; provided, however, that
shares of Common Stock or other securities shall cease to be treated as
Registrable Securities at such time as they (i) have been sold pursuant to an
effective Registration statement under the Securities Act or (ii) have otherwise
been sold or transferred to or through a broker, dealer or underwriter in a
public distribution or a public securities transaction.
(l) "Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 5 or 6 of this Agreement, including, without
limitation, all federal and state registration, qualification, and filing fees,
printing expenses, fees and disbursements of counsel for the Company and one
special counsel for the Holders (if different from the Company) who shall be
reasonably acceptable to the Holders, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration.
Registration Expenses shall not include any underwriting discounts.
(m) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(n) "Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of Registrable Securities pursuant
to this Agreement.
(o) "Series A Preferred Stock" shall mean the 2,500,000 shares of
------------------------
Series A Preferred Stock sold by the Company pursuant to that certain Stock
Purchase Agreement dated September 3, 1997 by and between the Company and the
Investors listed therein.
(p) "Series B Preferred Stock" shall mean the 4,188,000 shares of
------------------------
Series B Preferred Stock sold by the Company pursuant to that certain Stock
Purchase Agreement
Page 3 of 24
<PAGE>
dated July 7, 1998 by and between the Company and the investors listed therein.
(q) "Series C Preferred Stock" shall mean the 2,931,229 shares of
------------------------
Series C Preferred Stock, $.001 par value, purchased by the Series C Investors
pursuant to the Stock Purchase Agreement executed simultaneously herewith.
2. Financial Statements and Reports to Stockholders
The Company shall deliver to the Investors the following financial
statements and reports:
(a) As soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, an audited
consolidated balance sheet of the Company as of the end of such year and audited
consolidated statements of income, stockholders' equity and cash flow for such
year, which year-end financial reports shall be in reasonable detail and shall
be prepared in accordance with generally accepted accounting principles and
accompanied by the opinion of independent public accountants of nationally
recognized standing selected by the Company;
(b) For so long as an Investor holds at least 200,000 shares (as
adjusted for stock splits, stock dividends and the like) of Series A Preferred
Stock and/or Series B Preferred Stock and/or Series C Preferred Stock, then the
Company shall deliver to such Investor as soon as practicable after the end of
each month, and in any event within thirty (30) days thereafter, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such month, and consolidated statements of income and cash flow for such month
and for the current fiscal year to date, in reasonable detail and including
comparisons to budget, prepared in accordance with generally accepted accounting
principles (other than for accompanying notes) and accompanied by a certificate
of the Chief Financial Officer or President of the Company confirming that such
statements fairly and accurately present the financial condition and results of
operation of the Company, subject to changes resulting from year-end audit
adjustment;
(c) For so long as an Investor holds at least 200,000 shares (as
adjusted for stock splits, stock dividends and the like) of Series A Preferred
Stock and/or Series B Preferred Stock and/or Series C Preferred Stock, then the
Company shall deliver to such Investor as soon as practicable after the end of
each quarter, and in any event within thirty (30) days thereafter, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such quarter, and consolidated statements of income and cash flow for such
quarter and for the current fiscal year to date, in reasonable detail and
including comparisons to budget, prepared in accordance with generally accepted
accounting principles (other than for accompanying notes) and accompanied by a
certificate of the Chief Financial Officer or President of the Company
confirming that such statements fairly and accurately present the financial
condition and results of operation of the Company, subject to changes resulting
from year-end audit adjustment;
Page 4 of 24
<PAGE>
(d) Contemporaneously with delivery to holders of Common Stock, a copy
of each report of the Company delivered to holders of Common Stock; and
(e) For so long as an Investor holds at least 200,000 shares (as
adjusted for stock splits, stock dividends and the like) of Series A Preferred
Stock and/or Series B Preferred Stock and/or Series C Preferred Stock, then the
Company shall deliver to such Investor as soon as practicable following
submission to and approval by the Board of Directors of the Company, but in no
event later than thirty (30) days prior to the end of each fiscal year, an
operating budget and plan (the "Plan") respecting the next fiscal year, together
----
with any update of the Plan as such update is prepared.
3. Inspection
For so long as an Investor holds at least 200,000 shares (as
adjusted for stock splits, stock dividends and the like) of Series A Preferred
Stock and/or Series B Preferred Stock and/or Series C Preferred Stock, the
Company shall permit such Investor, or Investor's authorized representative,
at Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances, and accounts with its officers, all upon reasonable notice and at
such reasonable times as may be requested by each Investor.
4. Participation Rights
4.1 The Company hereby grants to each Investor a right of first
refusal to purchase up to its Pro Rata Share of any New Securities (as defined
below) that the Company may, from time to time, propose to sell and issue.
Investors may purchase New Securities on the same terms and at the same price
at which the Company proposes to sell the New Securities. The "Pro Rata Share"
--------------
of each Investor, for purposes of this right of first refusal, is the ratio of
(a) the total number of shares of Series A Preferred Stock and Series B
Preferred Stock and Series C Preferred Stock held by such Investor to (b) the
total number of shares of capital stock of the Company then outstanding.
4.2 "New Securities" shall mean any capital stock of the Company,
--------------
whether authorized or not, and any rights, options, or warrants to purchase
said capital stock, and securities of any type whatsoever that are, or may
become, convertible into said capital stock; provided, however, that "New
Securities" does not include:
---
(a) Shares of Common Stock issuable or issued to employees,
consultants, or directors of the Company, directly or pursuant to a stock
option plan or restricted stock plan provided such issuances or plans are
approved or adopted on or before the date hereof by the Board of Directors of
the Company,
Page 5 of 24
<PAGE>
(b) Shares of Common Stock issuable or issued to employees,
consultants, or directors of the Company pursuant to a stock option plan or
restricted stock plan provided such plan is adopted after the date hereof by
the Board of Directors of the Company
(c) Capital stock, or options or warrants to purchase capital
stock, issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions,
or to vendors or customers in connection with commercial arrangements,
provided such issuances are approved by the Board of Directors of the Company,
(d) Capital stock or warrants or options to purchase capital
stock issued in connection with bona fide strategic partnering transactions or
acquisitions, the terms of which are approved by the Board of Directors of the
Company,
(e) Capital stock or warrants or options to purchase capital
stock issued in connection with mergers or similar transactions, the terms of
which are approved by the Board of Directors of the Company,
(f) Shares of Common Stock issued or issuable upon conversion
of Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred
Stock,
(g) Shares of Common Stock issued or issuable in a public
offering prior to or in connection with which all outstanding shares of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock will
be converted to Common Stock,
(h) Common Stock issued without consideration pursuant to a
stock dividend, stock split, or similar transaction,
(i) Capital Stock, or options or warrants to purchase Capital
Stock, issued in connection with the licensing or acquisition of intellectual
property or technology rights from third parties, the terms of which are
approved by the Board of Directors of the Company, and
(j) Shares of Series C Preferred Stock issued pursuant to the
Stock Purchase Agreement.
Notwithstanding the preceding provisions of this Section 4.2 to
the contrary, New Securities shall include the aggregate amount of shares of
Common Stock, if any, issued pursuant to subsections (b), (c), (d), or (i)
above the extent such shares exceed an amount equal to fifteen percent (15%)
of the number of shares of Common Stock outstanding thirty (30) days after the
date hereof (such number to be computed on a fully diluted basis and as
adjusted for any stock dividends, combinations, or splits with respect to such
shares.)
4.3 In the event the Company proposes to undertake an issuance of New
Securities, it shall give to each Investor written notice (the "Notice") of its
------
intention,
Page 6 of 24
<PAGE>
describing the type of New Securities, the price, the terms upon which the
Company proposes to issue the same, the number of shares that such Investor is
entitled to purchase, and a statement that Investor shall have twenty (20) days
to respond to such Notice. Investor shall have twenty (20) days from the date of
receipt of the Notice to agree to purchase any or all of its Pro Rata Share of
the New Securities for the price and upon the terms specified in the Notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased and forwarding payment for such New Securities to the
Company if immediate payment is required by such terms.
4.4 In the event Investor fails to exercise in full the right of
first refusal within said twenty (20) day period, the Company shall have sixty
(60) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within
thirty (30) days from date of said agreement) to sell the New Securities
respecting which Investor's rights were not exercised, at a price and upon
general terms no more favorable to the purchaser thereof than specified in the
Notice. In the event the Company has not sold the New Securities within said
sixty (60) day period (or sold and issued New Securities in accordance with
the foregoing within thirty (30) days from the date of said agreement), the
Company shall not thereafter issue or sell any New Securities without first
offering such securities to such Investor in the manner provided above.
4.5. The covenants of the Company set forth in this Section 4 shall
terminate upon conversion of any shares of Series A Preferred Stock or Series B
Preferred Stock or Series C Preferred Stock with respect to such shares
converted.
5. Demand Registration
5.1 Request for Registration on Form Other Than Form S-3
5.1.1 Subject to the terms of this Agreement, in the event
that the Company shall receive a written request from a Holder or Holders of
Registrable Securities obtained from the conversion of Series A Preferred
Stock requesting that the Company effect a Registration with respect to all or
a part of the Registrable Securities on a form other than Form S-3 for an
offering greater than 25% of the then outstanding Registrable Securities
obtained from the conversion of Series A Preferred Stock (or any lesser
percent if the reasonably anticipated aggregate offering price to the public
would exceed $15,000,000), the Company shall (i) promptly give written notice
of the proposed Registration to all other Holders and (ii) as soon as
practicable, use its reasonable best efforts to effect Registration of the
Registrable Securities specified in such request, together with any
Registrable Securities of any Holder joining in such request as are specified
in a written request given within twenty (20) days after written notice from
the Company. The Company shall not be obligated to take any action to effect
any such registration pursuant to this Section 5.1.1 (i) at any time within
One Hundred Eighty (180) days following the effective date of any Registration
Statement on Form S-1 (or any successor form), or (ii) at any time prior to
September 3, 1999, or (iii) if the
Page 7 of 24
<PAGE>
Company has previously effected one (1) such Registration pursuant to this
Section 5.1.1. A Registration that is withdrawn or otherwise abandoned at the
request of such Holders will count towards the preceding limitation of one (1)
Registration unless at the time of such withdrawal or abandonment the Holders
have learned of a material adverse change in the financial condition or business
of the Company from that known to the Holders at the time of their request and
have withdrawn or abandoned their request following disclosure by the Company of
such material adverse change. The provisions of Section 5.4 shall be applicable
to each registration initiated under this Section 5.1.1.
5.1.2 Subject to the terms of this Agreement, in the event
that the Company shall receive a written request from a Holder or Holders of
Registrable Securities obtained from the conversion of Series B Preferred
Stock requesting that the Company effect a Registration with respect to all or
a part of the Registrable Securities on a form other than Form S-3 for an
offering greater than 25% of the then outstanding Registrable Securities
obtained from the conversion of Series B Preferred Stock (or any lesser
percent if the reasonably anticipated aggregate offering price to the public
would exceed $15,000,000), the Company shall (i) promptly give written notice
of the proposed Registration to all other Holders and (ii) as soon as
practicable, use its reasonable best efforts to effect Registration of the
Registrable Securities specified in such request, together with any
Registrable Securities of any Holder joining in such request as are specified
in a written request given within twenty (20) days after written notice from
the Company. The Company shall not be obligated to take any action to effect
any such registration pursuant to this Section 5.1.2 (i) at any time within
One Hundred Eighty (180) days following the effective date of any Registration
Statement on Form S-1 (or any successor form), or (ii) at any time prior to
July 7, 2000, or (iii) if the Company has previously effected one (1) such
Registration pursuant to this Section 5.1.2. A Registration that is withdrawn
or otherwise abandoned at the request of such Holders will count towards the
preceding limitation of one (1) Registration unless at the time of such
withdrawal or abandonment the Holders have learned of a material adverse
change in the financial condition or business of the Company from that known
to the Holders at the time of their request and have withdrawn or abandoned
their request following disclosure by the Company of such material adverse
change. The provisions of Section 5.4 shall be applicable to each registration
initiated under this Section 5.1.2.
5.1.3 Subject to the terms of this Agreement, in the event
that the Company shall receive a written request from a Holder or Holders of
Registrable Securities obtained from the conversion of Series C Preferred
Stock requesting that the Company effect a Registration with respect to all or
a part of the Registrable Securities on a form other than Form S-3 for an
offering greater than 25% of the then outstanding Registrable Securities
obtained from the conversion of Series C Preferred Stock (or any lesser
percent if the reasonably anticipated aggregate offering price to the public
would exceed $15,000,000), the Company shall (i) promptly give written notice
of the proposed Registration to all other Holders and (ii) as soon as
practicable, use its reasonable best efforts to effect Registration of the
Registrable Securities specified in such request, together with any
Registrable Securities of any Holder
Page 8 of 24
<PAGE>
joining in such request as are specified in a written request given within
twenty (20) days after written notice from the Company. The Company shall not be
obligated to take any action to effect any such registration pursuant to this
Section 5.1.3 (i) at any time within One Hundred Eighty (180) days following the
effective date of any Registration Statement on Form S-1 (or any successor
form), or (ii) at any time prior to August 3, 2001, or (iii) if the Company has
previously effected one (1) such Registration pursuant to this Section 5.1.3. A
Registration that is withdrawn or otherwise abandoned at the request of such
Holders will count towards the preceding limitation of one (1) Registration
unless at the time of such withdrawal or abandonment the Holders have learned of
a material adverse change in the financial condition or business of the Company
from that known to the Holders at the time of their request and have withdrawn
or abandoned their request following disclosure by the Company of such material
adverse change. The provisions of Section 5.4 shall be applicable to each
registration initiated under this Section 5.1.3.
5.1.4 Notwithstanding the provisions of Section 5.1.1, Section
5.1.2 and Section 5.1.3, if the Company shall furnish to all such Holders who
joined in the request a certificate signed by the President of the Company
stating that, in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for any Registration
to be effected as requested under Section 5.1.1, Section 5.1.2 or Section
5.1.3, the Company shall have the right, exercisable not more than once in any
twelve (12) month period, to defer the filing of a Registration Statement with
respect to such offering for a period of not more than ninety (90) days from
delivery of the request of the initiating Holder.
5.2 Request for Registration on Form S-3
5.2.1 If a Holder or Holders of outstanding Registrable
Securities request that the Company file a Registration Statement on Form S-3
(or any successor form to Form S-3) for a public offering of shares of
Registrable Securities, and the Company is entitled to use Form S-3 to
register the Registrable Securities for such an offering, the Company shall
(i) promptly give written notice of the proposed Registration to all other
Holders and (ii) as soon as practicable, use its reasonable efforts to effect
Registration of the Registrable Securities specified in such request, together
with any Registrable Securities of any Holder joining in such request as are
specified in a written request given within twenty (20) days after receipt of
written notice from the Company; provided, however, that the Company shall not
be required to effect more than two (2) Registrations pursuant to this Section
5.2 in any twelve (12) month period. Additionally, the Company shall not be
required to effect any Registrations pursuant to this Section 5.2 if the
reasonably anticipated aggregate offering price to the public would not equal
at least $500,000. The provisions of Section 5.4 shall be applicable to each
registration initiated under this Section 5.2.
5.2.2 Notwithstanding the provisions of Section 5.2.1, if the
Company provides to all Holders who joined in the request a certificate signed
by the President of the Company stating that, in the good faith judgment of the
Board of Directors of the Company,
Page 9 of 24
<PAGE>
it would be seriously detrimental to the Company for any Registration to be
effected as requested under Section 5.2.1, the Company shall have the right,
exercisable not more than once in any twelve (12) month period, to defer the
filing of a Registration Statement with respect to such offering for a period of
not more than ninety (90) days from delivery of the request of the initiating
Holder.
5.3 Registration of Other Securities in Demand Registration
Any Registration Statement filed pursuant to the request of the
Holder or Holders under this Section 5 may, subject to the provisions of
Section 5.4, include securities registered for the account of the Company or
other security holders in addition to Registrable Securities.
5.4 Underwriting in Demand Registration
5.4.1 Notice of Underwriting
If a Holder or Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 5, and the Company shall include such information in the written
notice referred to in Section 5.1 or 5.2. The right of any Holder to
Registration pursuant to Section 5 shall be conditioned upon such Holder's
agreement to participate in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting.
5.4.2 Inclusion of Other Holders in Demand Registration
If the Company, officers or directors of the Company
holding Common Stock other than Registrable Securities, or holders of
securities other than Registrable Securities, request inclusion in such
Registration, the initiating Holders, to the extent they deem advisable and
consistent with the goals of such Registration, may, in their sole discretion,
on behalf of all Holders, offer to any or all of the Company, such officers or
directors, and such holders of securities other than Registrable Securities
that such securities other than Registrable Securities be included in the
underwriting and may condition such offer on the acceptance by such persons of
the terms of this Section 5. In the event, however, that the number of shares
so included exceeds the number of shares of Registrable Securities included by
all Holders, such Registration shall be treated as governed by Section 6
rather than Section 5, and it shall not count as a Registration for purposes
of Section 5.1.
5.4.3 Selection of Underwriter in Demand Registration
The Company shall (together with all Holders proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement with the representative of the underwriter or
underwriters selected for such underwriting by the
Page 10 of 24
<PAGE>
Holders of a majority of the Registrable Securities being registered by the
initiating Holders and agreed to by the Company.
5.4.4 Marketing Limitation in Demand Registration
In the event the Underwriter's Representative advises
the initiating Holders in writing that market factors (including, without
limitation, the aggregate number of shares of Common Stock requested to be
Registered, the general condition of the market, and the status of the persons
proposing to sell securities pursuant to the Registration) require a
limitation of the number of shares to be underwritten, then (a) first the
Common Stock (other than Registrable Securities) held by officers or directors
of the Company, (b) next the securities other than Registrable Securities, and
(c) last the securities requested to be registered by the Company, shall be
excluded from such Registration to the extent required by such limitation. If
a limitation of the number of shares is still required, the initiating Holders
shall so advise all Holders and the number of shares of Registrable Securities
that may be included in the Registration and underwriting shall be allocated
among all Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities entitled to inclusion in such Registration
held by such Holders at the time of filing the Registration Statement. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 5.4.4 shall be included in such Registration Statement.
5.4.5 Right of withdrawal in Demand Registration
If any Holder of Registrable Securities, or a holder of
other securities entitled (upon request) to be included in such Registration,
disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and the
initiating Holders delivered prior to the effective date of the Registration
Statement. The securities so withdrawn shall also be withdrawn from the
Registration Statement.
6. Piggyback Registration
6.1 Notice of Piggyback Registration and Inclusion of Registrable
Securities
Subject to the terms of this Agreement, in the event the
Company decides to Register any of its Common Stock (either for its own
account or the account of a security holder or holders exercising demand
registration rights) on a form that would be suitable for a registration
involving solely Registrable Securities, the Company will: (a) promptly give
each Holder written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable Blue Sky or other state securities laws) and
(b) include in such Registration (and any related qualification under Blue Sky
laws or other compliance), and in any underwriting involved therein, all the
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Registrable Securities specified in a written request delivered to the Company
by any Holder within twenty (20) days after delivery of such written notice from
the Company.
6.2 Underwriting in Piggyback Registration
6.2.1 Notice of Underwriting in Piggyback Registration
If the Registration of which the Company gives notice is
for a Registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to
Section 6.1. In such event, the right of any Holder to Registration shall be
conditioned upon such underwriting and the inclusion of such Holder's
Registrable Securities in such underwriting to the extent provided in this
Section 6. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement with the underwriter's representative for such
offering.
6.2.2 Marketing Limitation in Piggyback Registration
In the event the Underwriter's Representative advises
the Holders seeking registration of Registrable Securities pursuant to Section
6 in writing that market factors (including, without limitation, the aggregate
number of shares of Common Stock requested to be Registered, the general
condition of the market, and the status of the persons proposing to sell
securities pursuant to the Registration) require a limitation of the number of
shares to be underwritten, the Underwriter's Representative (subject to the
allocation priority set forth in Section 6.2.3) may:
(a) in the case of the Company's initial Registered
public offering, limit the number of shares of Registrable Securities to be
included in such registration and underwriting to zero; and
(b) in the case of any Registered public offering
subsequent to the initial public offering, limit the number of shares of
Registrable Securities to be included in such Registration and underwriting to
not less than fifty percent (50%) of the securities included in such
Registration (based on aggregate market values).
6.2.3 Allocation of Shares in Piggyback Registration
In the event the Underwriter's Representative limits the
number of shares to be included in a Registration pursuant to Section 6.2.2,
the number of shares to be included in such Registration shall be allocated
(subject to Section 6.2.2) in the following manner: The
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<PAGE>
shares (other than Registrable Securities) held by officers or directors of the
Company shall be excluded from such registration and underwriting to the extent
required by such limitation. If a limitation of the number of shares is still
required after such exclusion, the number of shares that may be included in the
Registration and underwriting by selling stockholders shall be allocated among
all other Holders thereof, in proportion, as nearly as practicable, to the
respective amounts of securities (including Registrable Securities) which such
Holders would otherwise be entitled to include in such Registration. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 6.2.3 shall be included in the Registration Statement.
6.2.4 Withdrawal in Piggyback Registration
If any Holder disapproves of the terms of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company and the
underwriter delivered prior to the effective date of the Registration Statement.
Any Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
7. Expenses of Registration
All Registration Expenses incurred in connection with one (1) Registration
pursuant to Section 5.1.1, one (1) Registration pursuant to Section 5.1.2, one
(1) Registration pursuant to Section 5.1.3, two (2) Registrations in each twelve
(12) month period pursuant to Section 5.2, and unlimited Registrations pursuant
to Section 6 shall be borne by the Company. The Company shall not be required to
pay for such expenses of any registration proceeding begun pursuant to Section 5
if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (which
Holders shall bear such expenses), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 5; provided, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
financial condition or business of the Company from that known to the Holders at
the time of their request and have withdrawn their request following disclosure
by the Company of such material adverse change, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 5. All Selling Expenses shall be borne by the holders of the securities
Registered pro rata on the basis of the number of shares Registered.
8. Registration Procedures and Obligations
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause such
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Registration Statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such Registration Statement effective for up to one hundred twenty (120)
days.
(b) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered
by such Registration Statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process or to become subject to taxation in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such Registration.
(h) Furnish, at the request of any Holder requesting Registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered for sale in connection with a registration
pursuant to this Agreement, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an
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<PAGE>
underwritten public offering, and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.
9. Information Furnished by Holder
It shall be a condition precedent of the Company's obligations under this
Agreement that each Holder of Registrable Securities included in any
Registration furnish to the Company such information regarding such Holder and
the distribution proposed by such Holder or Holders as the Company may
reasonably request.
10. Rule 144
10.1 Reports
With a view to making available to the Holders the benefits of Rule 144
promulgated by the Commission pursuant to the Securities Act ("Rule 144") and
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any other rule or regulation of the Commission that may at any time permit a
Holder to sell securities of the Company to the public without Registration or
pursuant to a Registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Commission Rule 144, at all times after ninety
(90) days after the effective date of the first Registration Statement filed
by the Company for the offering of its securities to the general public so
long as the Company remains subject to the periodic reporting requirements
under Sections 13 or 15(d) of the Exchange Act;
(b) include a statement in such public information that the
Company has complied with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the effective date of the first Registration
Statement filed by the Company);
(c) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is reasonably
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first Registration Statement filed by
the Company for the offering of its securities to the general public is
declared effective;
(d) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(e) furnish to any Holder such other information as may be
reasonably requested and necessary in availing such Holder of any rule or
regulation of the Commission
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which permits the selling of any such securities without Registration or
pursuant to Form S-3.
10.2 Sales
Notwithstanding any provision in this Agreement to the contrary, the
covenants of the Company set forth in Section 5 and Section 6 shall terminate as
to any Holder upon the earlier of (i) such time as the Holder qualifies to sell
pursuant to Rule 144 or any similar exemption all of such Holder's shares of
Series A Preferred Stock or Series B Preferred Stock or Series C Preferred Stock
or Registrable Securities obtained from the conversion thereof to the public
within a three (3) month period without registration and without volume
limitations or (ii) the fifth (5th) annual anniversary of the effective date of
the Registration Statement of the Company for the initial offering of its
securities to the general public.
11. Indemnification
11.1 Company's Indemnification of Holders
To the extent permitted by law, the Company will indemnify each Holder,
each of its officers, directors, and constituent partners, legal counsel for the
Holders, and each person controlling such Holder with the meaning of the
Securities Act, with respect to which Registration, qualification, or compliance
of Registrable Securities has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls any underwriter, against all
claims, losses, damages, or liabilities (joint or several) (or actions in
respect thereof) to the extent such claims, losses, damages, or liabilities
arise out of or are based upon any untrue statement by the Company or it
officers, directors, or agent (or alleged untrue statement) of a material fact
contained in any prospectus or other document (including any related
Registration Statement) incident to any such Registration, qualification, or
compliance, or are based on any omission by the Company or it officers,
directors, or agent (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in the light of the circumstances under which they were made, or any
violation by the Company or it officers, directors, or agent of any rule or
regulation promulgated under the Securities Act or the Exchange Act or any state
securities law or any rules or regulations promulgated thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such Registration, qualification, or compliance; and the
Company will reimburse each such Holder, each such underwriter, and each person
who controls any such Holder or underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action; provided, however, that the
indemnity contained in this Section 11.1 shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability, or action if settlement
is effected without the consent of the Company (which consent shall not
unreasonably be withheld); provided, further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
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liability, or expense arises directly out of or is based upon any untrue
statement or omission based upon written information furnished to the Company by
such Holder, underwriter, or controlling person and stated to be for use in
connection with such Registration; provided, further, that this indemnity
agreement with respect to a preliminary prospectus shall not inure to the
benefit of any Holder from whom the person asserting any such losses,
liabilities, claims, damages or expenses purchased Registrable Securities, or
any person controlling such Holder, if a copy of the prospectus (as amended or
supplemented at the time of sale) was not sent or given by or on behalf of the
Holder to such person and if the prospectus (as so amended or supplemented)
would have corrected the defect giving rise to such loss, liability, claim,
damage or expense unless such failure to send or give the prospectus resulted
from non-compliance by the Company with Section 8(c) or (f) hereof.
11.2 Holder's Indemnification of Company
To the extent permitted by law, each Holder will, if Registrable Securities
held by such Holder are included in the securities as to which such
Registration, qualification or, compliance is being effected pursuant to this
Agreement, indemnify the Company, each of its directors and executive officers,
each legal counsel and independent accountant of the Company, each underwriter,
if any, of the Company's securities covered by such a Registration Statement,
each person who controls the Company or such underwriter within the meaning of
the Securities Act, and each other such Holder, each of its officers, directors,
and constituent partners, and each person controlling such other Holder, against
all claims, losses, damages, and liabilities (or actions in respect thereof)
arising out of or based upon any untrue statement by such Holder (or alleged
untrue statement) of a material fact contained in any such Registration
Statement, prospectus, offering circular, or other document, or any omission by
such Holder (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, or any violation by
such Holder of any rule or regulation promulgated under the Securities Act or
the Exchange Act or any state securities law or any rules or regulations
promulgated thereunder applicable to such Holder and relating to action or
inaction required of such Holder in connection with any such Registration,
qualification, or compliance, and will reimburse the Company, such Holders, such
directors, officers, partners, persons, law and accounting firms, underwriters
or control persons for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but in each case only to the
extent that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such Registration Statement, prospectus, offering
circular, or other document in reliance upon and in conformity with written
information furnished to the Company by a vice president or higher officer or
manager of such Holder if such Holder is not an individual and stated to be
specifically for use in connection with such Registration; provided, however,
that the indemnity contained in this Section 11.2 shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if
settlement is effected without the consent of such Holder (which consent shall
not be
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<PAGE>
unreasonably withheld) and provided, further, that each Holder's liability under
this Section 11.2 shall not exceed such Holder's net proceeds from the offering
of securities made in connection with such Registration.
11.3 Indemnification Procedure
Promptly after receipt by an indemnified party under this Section 11 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 11, notify the indemnifying party in writing of the commencement thereof
and generally summarize such action. The indemnifying party shall have the right
to participate in and to assume the defense of such claim; provided, however,
that the indemnifying party shall be entitled to select counsel for the defense
of such claim with the approval of any parties entitled to indemnification,
which approval shall not be unreasonably withheld; provided further, however,
that if either party reasonably determines that there may be a material conflict
between the position of the Company and the Holders in conducting the defense of
such action, suit, or proceeding by reason of recognized claims for indemnity
under this Section 11, then counsel for such party shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interest of such party. The failure to notify an indemnifying
party promptly of the commencement of any such action, if prejudicial to the
ability of the indemnifying party to defend such action, shall relieve such
indemnifying party, to the extent so prejudiced, of any liability to the
indemnified party under this Section 11, but the omission so to notify the
indemnifying party will not relieve such party of any liability that such party
may have to any indemnified party otherwise other than under this Section 11.
11.4 Contribution
If the indemnification provided for in this Section 11 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission. Each Holder's liability under
this Section 11.4 shall not exceed such Holder's net proceeds from the offering
of securities made in connection with such Registration.
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11.5 Survival
The obligations of the Company and Holders under this Section 11 shall
survive the completion of any offering of Registrable Securities in a
Registration made pursuant hereto.
12. Transfer of Rights
The rights to information and inspection under Sections 2 and 3 and the
right to cause the Company to Register securities granted by the Company to such
Investor under this Agreement may be assigned by any Investor to (i) a
transferee who acquires at least 200,000 shares (as adjusted for stock splits,
stock dividends and the like) of Series A Preferred Stock and/or Series B
Preferred Stock and/or Series C Preferred Stock, or (ii) an affiliate of such
Investor which controls, is controlled by, or is under common control with such
Investor; provided, however, that the Company must receive written notice prior
to or within twenty (20) days of the time of said transfer, stating the name and
address of said transferee and identifying the securities with respect to which
such information and Registration rights are being assigned. This Section 12
shall not diminish or impair restrictions on transfer of Series A Preferred
Stock or Series B Preferred Stock or Series C Preferred Stock as contained in
any agreement executed simultaneously herewith by the parties hereto.
13. Market Stand-off
Each Holder hereby agrees that, if so requested by the Company and the
Underwriter's Representative (if any) in connection with the Company's initial
public offering, such Holder shall not sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company without the prior
written consent of the Company and the Underwriter's Representative for such
period of time (not to exceed 180 days) following the effective date of a
Registration Statement of the Company filed under the Securities Act as may be
requested by the Underwriter's Representative; provided, however, that such
restrictions shall not apply to any transactions relating to any shares of
Common Stock which such Holder purchases in the Company's initial public
offering or in the open market after the completion of such offering. The
obligations of Holders under this Section 13 shall be conditioned upon similar
agreements being in effect with each other stockholder who then is an officer,
director, or ten percent (10%) stockholder of the Company.
14. Right of First Refusal
14.1 Transfers by Investors
Except as otherwise provided in this Agreement, each Series C Investor
agrees not to sell, transfer, exchange, or assign any right, title, or interest
(a "Transfer") in or to all or any
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part of its Series C Preferred Stock or Common Stock issued upon conversion
thereof unless it has made an offer (an "Investor Offer") and such offer has not
---------------
been accepted as provided below.
14.2 Offer by an Investor
The Investor Offer shall be made to the Company and to the remaining Series
C Investors and shall consist of a written offer to Transfer all or such part of
the capital stock of the Company owned by the Series C Investor as such Series C
Investor intends to Transfer (the "Offered Investor Shares"). A statement shall
-----------------------
be attached to the Investor Offer which shall provide a full disclosure of the
Investor Offer including (a) a statement of intention to Transfer; (b) the name
and address of any prospective transferee; (c) the number of Offered Investor
Shares; and (d) the terms and conditions of the proposed Transfer, including the
purchase price for the Offered Investor Shares.
14.3 Acceptance of Offer
14.3.1 By Company
Within twenty (20) days after its receipt of the Investor Offer, the
Company or its designee may, in its sole discretion, accept the Investor Offer
by giving written notice to the selling Series C Investor and to the remaining
Series C Investors of the election to accept. In the event the Company does not
provide such written notice within said twenty (20) days then the Company shall
be deemed to have declined to accept the Investor Offer.
14.3.2 By the Remaining Series C Investors
If the Investor Offer is not accepted by the Company, each of the
remaining Series C Investors may elect within ten (10) days after decline of the
Investor Offer by the Company to purchase up to such Series C Investor's pro
rata portion of the remaining Offered Investor Shares by giving written notice
within such 10-day period to the selling Investor and to the Company. In the
event a remaining Series C Investor does not provide such written notice within
said 10-day period then such Series C Investor shall be deemed to have declined
to accept the Investor Offer. Said 10-day period for the remaining Series C
Investors shall run sequentially to the 20-day period for the Company as
provided above.
14.3.3 Pro Rata Portion
For purposes of this Section 14.1, each accepting Series C Investor's
pro rata portion of the Offered Investor Shares is that proportion of the
Offered Investor Shares multiplied by a fraction, the numerator of which is the
number of shares of Series C Preferred Stock (or
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Common Stock issued upon conversion thereof) then owned by such Series C
Investor and the denominator of which is the aggregate number of shares of
Series C Preferred Stock (or Common Stock issued upon conversion thereof) then
issued and outstanding and held by all non-selling Series C Investors. If any
Series C Investor declines to accept all or any part of its pro rata portion of
the Offered Investor Shares, then each of the Series C Investors who has elected
to purchase pursuant to Section 14.3.2 shall have an additional 5-day period
within which such accepting Series C Investors may additionally accept up to its
pro rata portion of the declining Series C Investor's unpurchased pro rata
portion of the Offered Investor Shares.
14.4 Offer Not Accepted
If the Company and the accepting Series C Investors have not elected to
accept all of the Offered Shares pursuant to and within the time periods
specified above (maximum of 35 days), the Series C Investor may Transfer the
balance of the Offered Investor Shares to the prospective transferee named in
the statement attached to the Investor Offer as provided in Section 14.2, such
Transfer to be made only in strict accordance with the terms set forth in such
statement, and to be completed within thirty (30) days following the expiration
of the time provided for the election by the Series C Investors to accept the
Offered Shares, after which time any such Transfer shall again become subject to
all the restrictions of this Agreement.
14.5 Transfers to Affiliates
The restrictions on Transfers by the Series C Investors set forth in this
Section 14 shall not apply to Transfers by a Series C Investor to an affiliate
which controls, is controlled by, or under common control with such Series C
Investor provided that all such transferees shall simultaneously with such
Transfer execute this Agreement and become a party hereto and subject to the
provisions hereof.
14.6 No Other Transfer Effective
Except as provided in this Section 14, no Transfer in or to all or any part
of the capital stock of the Company now owned or hereafter acquired by the
Investors shall be effective, and the Company shall not record or recognize any
such Transfer, until there has been compliance with the provisions of this
Agreement.
14.7 Termination of Restrictions
The restrictions on Transfers by the Series C Investors set forth in this
Section 14 shall terminate upon the effective date of the Registration Statement
of the Company for the initial offering of its securities to the general public.
15. Observer Rights
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The Company shall permit the holders of a majority of the outstanding
Series C Preferred Stock to designate one (1) individual representative to
attend each meeting of the Company's Board of Directors and to participate in
all discussions during each such meeting (but not to vote on any matters). The
Company shall send to such representative notice of the time and place of each
meeting in the same manner and at the same time as it shall send such notice to
its directors and the Company shall also provide to the representative copies of
all notices, reports, minutes and consents at the time and in the manner as they
are provided to all directors; provided, however, that the Company reserves the
right to exclude such representative from any meeting or portion thereof, and
deny access to any materials, to the extent the Company believes that such
exclusion or denial of access is reasonably necessary to preserve the attorney-
client privilege, to protect confidential or proprietary information, material
non-public information or for other similar reasons. The representative
designated by the holders of the Series C Preferred Stock may designate a new
representative at any time and for any reason upon a written election by the
holders of a majority of the then outstanding Series C Preferred Stock. Such
representative shall not be deemed to be an officer or director of the Company
and shall not receive any direct or indirect compensation from the Company for
such activities. The observer rights contained herein shall terminate upon the
effective date of the Registration Statement of the Company for the initial
offering of its securities to the general public.
In connection with an initial public offering of its securities to the
general public, the Company will nominate said representative as a member of the
Board of Directors, subject to applicable stockholder approval. If the Company
fails to complete an initial public offering within one hundred eighty (180)
days following the date hereof, the Company shall use its best efforts to obtain
the requisite approvals from the holders of the Series A Preferred Stock, the
Series B Preferred Stock, and the Common Stock pursuant to existing arrangements
between such stockholders and the Company for purposes of allowing the holders
of the Series C Preferred Stock to elect said individual to the Board of
Directors.
16. Miscellaneous
16.1 No Conflicts
The parties hereto represent that they are not parties to and do not know
of any other agreements that conflict with any of the provisions of this
Agreement.
16.2 Entire Agreement; Successors
This Agreement and any documents executed simultaneously herewith
constitute the entire contract between the parties hereto relative to the
subject matter hereof. Without diminishing the generality of the preceding
sentence, this Agreement shall replace in its entirely all of the provisions of
the Amended Rights Agreement which shall be null and void as of the date hereof.
The provisions of this Agreement shall inure to the benefit of and shall
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be binding upon the permitted successors and assigns of the parties hereto.
16.3 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
16.4 Modification
This Agreement shall not be subject to modification or amendment in any
respect, except by an instrument in writing signed by (a) the Company, (b) the
holders of not less than fifty percent (50%) of the Series A Preferred Stock
then outstanding, (c) the holders of not less than fifty percent (50%) of the
Series B Preferred Stock then outstanding, and (d) the holders of not less than
fifty percent (50%) of the Series C Preferred Stock then outstanding.
16.5 Governing Law
This Agreement shall for all purposes be governed by and construed in
accordance with the laws of the state of California as applied to agreements
among California residents entered into and to be performed entirely within the
state of California.
16.6 Notices
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified (including via facsimile
transmission with confirmation) or three (3) business days after deposit with
the United States Post Office, postage prepaid, registered or certified with
return receipt requested and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties given in the foregoing manner.
16.7 Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provisions shall be excluded from this Agreement and
the balance of this Agreement shall be interpreted as if such provisions were so
excluded and shall be enforceable in accordance with its terms .
16.8 Specific Performance
Each of the parties to this Agreement agrees that the other parties to this
Agreement will be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach or threatened breach of the terms, covenants and/or
conditions of this Agreement by any party
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<PAGE>
to this Agreement, the parties to this Agreement shall, in addition to all other
remedies, each be entitled to a temporary or permanent injunction, and/or a
decree for specific performance, in accordance with the provisions of this
Agreement.
16.9 Submission to Jurisdiction
Each party hereby irrevocably submits to the personal jurisdiction of the
United States District Court for San Mateo County, California, as well as of the
District Courts of the State of California in San Mateo County, California over
any suit, action or proceeding arising out of or relating to this Agreement or
any other agreement as contemplated herein or entered into simultaneously
herewith or any amendment or modification thereto. Each party hereby irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such mediation, arbitration,
suit, action or proceeding brought in any such county and any claim that any
such mediation, arbitration, suit, action or proceeding brought in such county
has been brought in an inconvenient forum.
16.10 Aggregation of Stock.
Any shares of Series A Preferred held by Venture I or Venture II shall be
aggregated together for purposes of determining the availability of any rights
under this Agreement.
16.11 Additional Parties.
Additional persons or entities that purchase Series C Preferred Stock
pursuant to the terms of the Stock Purchase Agreement after the date hereof may
become parties to this Agreement by executing a signature page to this Agreement
and agreeing to be bound by the terms hereof. Any such additional parties shall
be deemed Series C Investors for all purposes hereunder, and the Company may
after the date hereof and without the consent of any other party hereto update
Exhibit B to this Agreement to reflect the inclusion of any such subsequent
purchasers of the Series C Preferred Stock as Series C Investors.
Page 24 of 24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first above written.
E-STAMP CORPORATION,
a Delaware corporation
/s/ Robert H. Ewald
By:_________________________________
Robert H. Ewald
President/CEO
Address: 2855 Campus Drive, Suite
San Mateo, California
Fax: 650/554-8455
<PAGE>
INVESTOR SIGNATURE PAGE
FOR
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
-------------------------
IN WITNESS WHEREOF, the undersigned hereby agrees to the terms and
conditions of that certain Second Amended and Restated Investor Rights Agreement
dated August 3, 1999.
(PLEASE COMPLETE AND EXECUTE)
______________________________________________
(Legal Name of Investor)
By____________________________________________
(Signature of Authorized Representative)
______________________________________________
(Printed Name of Authorized Representative)
______________________________________________
(Title of Authorized Representative)
Address: __________________________________
__________________________________
(fax)_____________________________
(e-mail)__________________________
<PAGE>
EXHIBIT A
Series B Investors
<TABLE>
<CAPTION>
Investor S Series B Shares
- -------- ---------------
<S> <C>
Canaan Equity, L.P. 1,047,000
Unified Holdings, L.L.C. 1,047,000
CPQ Holdings, Inc. 785,250
Francotyp-Postalia AG & Co 785,250
Microsoft Corporation 261,750
AT&T Venture Fund II, L.P. 235,575
Venture Fund I, L.P. 26,175
---------
4,188,000
</TABLE>
<PAGE>
EXHIBIT B
Series C Investors
<TABLE>
<CAPTION>
Investor Series C Shares
- -------- ---------------
<S> <C>
Canaan Equity, L.P. 151,302
CPQ Holdings, Inc. 113,476
Microsoft Corporation 109,231
AT&T Venture Fund II, L.P. 196,616
Venture Fund I, L.P. 21,846
Declaration of Trust for Defined Benefit
Plans of Zeneca Holdings, Inc. 77,575
Declaration of Trust for Defined Benefit
Plans of ICI American Holdings, Inc. 116,392
Delaware State Employees' Retirement Fund 387,992
At Home Corporation 242,483
Remington Investment Strategies, L.P. 34,918
Moore Global Investments, Ltd. 159,069
T. Rowe Price Media & Telecommunications Fund, Inc. 193,986
GE Capital Equity Investments, Inc. 193,986
Seligman Investment Opportunities (Master) Fund -
NTV Portfolio 23,278
Seligman New Technologies Fund, Inc. 122,212
Hillside Internet Ventures, L.L.C. 106,693
Winfield Capital Corp. 96,993
DLJ Private Equity Partners Fund, L.P. 42,884
DLJ Fund Investment Partners II, L.P. 16,694
DLJ Capital Corporation 8,729
DLJ Private Equity Employees Fund, L.P. 1,528
DLJ ESC II, L.P. 17,459
Parallel Capital I, L.L.C. 31,037
Parallel Capital II, L.L.C. 31,037
45th Parallel, L.L.C. 3,880
Double Black Diamond II, L.L.C. 11,640
Crossover Fund II, L.P. 46,072
Beta Bayview, L.L.C. 2,425
Talon Opportunity Fund, L.P. 48,497
Columbus Avenue, L.L.C. 19,399
Wilson Sonsini 18,728
Dallas Semiconductor Corporation 9,699
Glynn Ventures IV, L.P. 24,248
Prisma German American Venture Partners GGR 16,973
Cornerstone Equities, L.L.C. 16,973
A.A. Seeligson Jr. Company 2,708
Akwirus Inc. 2,708
(formerly Interactive Public Relations)
Alexander E. Galbraith 1995 Trust 2,708
Laura R. Bacon, Co-Trustee
Alison E. Galbraith 1995 Trust 2,708
Laura R. Bacon, Co-Trustee
Andrew Garland Bacon 1995 Trust 2,708
Laura R. Bacon, Co-Trustee
Badger, Peter & Catherine 2,708
Paul F. Barnhart, Jr., 2,708
as his Separate Property & Estate
L. Irvin Barnhart, 2,708
as his Separate Property & Estate
Paul F. Barnhart, 2,708
as his Separate Property & Estate
Barnhart One Ltd. 2,708
Barnhart Two Ltd. 2,708
BBN Partners 2,708
Arnold E. Bernstein 2,708
Verwood Capital Corp. 2,708
Celeste Pinto McLain Trust 1,083
Churchhill Associates L.P. 2,708
Cohn, Anne Lindsay 2,708
Cohn, Courtney Lyle 2,708
Cohn, Morton A. 2,708
William H. Crispin 1,083
Crockett, John C. 1,354
IRA/Rollover
Big Hat Cattle Company G.P. 1,083
Sean A. Dobson 2,708
Anne Laure Douglas 2,708
Elizabeth Katherine Duncan 2,708
Fairchild, Jr., Richard W. 2,708
Hill A. Feinberg 2,708
Ferguson, J. Philip 2,708
Financiera E Inversionista Las Colinas 2,708
Fink, David L. 2,708
Edward O. Gaylord (Sep. Property) 2,708
Scott, Roxann 2,708
Glaw, Carl W. 2,708
Walter G. Goodrich 2,708
Guerrieri Venture Partnership L.P. 2,708
Elizabeth M. Brown Estate 1,083
Kendall Hocott 1,083
Hoover, Howard S. Jr. 1,083
James R. Gregath Revocable Trust 1,083
DTD 5-4-93
Kapoor, Sunir K. 2,708
John Wilson Kelsey IRA 1,083
Smith Barney Custodian
KitchCo Investments, Ltd. 2,708
LARJA Company 2,708
Lieberman, Craig F. 2,708
Alan L. Lindsay 2,708
Livermore, Robert 1,083
Margolis, Kenneth C. 1,083
Mark, Daniel L. 2,708
Mark, R. Dewey 2,708
Martin, Ronald E. 2,708
Mary Katherine Bacon 1995 Trust 2,708
Laura R. Bacon Co-Trustee
Heptagon Investments ltd. 2,708
Mathew T. Galbraith 1995 Trust 2,708
Laura R. Bacon Co-Trustee
Matthews, Guy & Carolyn 2,166
McConnell, Elizabeth Kirby Cohn 2,708
McConnell, Michael 2,708
Trustee
McCoy, Mike 2,708
Middleton, Jr., John C. 1,083
Monroe, Jr., Richard E. 2,708
Napier, H. Albert 1,624
O'Dell, Holly W. 2,708
O'Dell, John 2,708
O'Haire, Michael 1,083
Pagel, Martin 2,166
Parkans, Llyod M. 1,083
Parrot, Billy 1,083
Prime, Rick 1,083
Randall III, Edward 2,708
Randall, Helen Wicks 2,708
Rio Bravo Inversiones Ltd. 2,708
Rosenberg, Ben 1,083
Roth, Robert E. 2,708
FSI Corporation 1,083
Seeligson III, Arthur 2,708
Sharma, Deepak 1,624
Shoemaker, John C. 2,708
Sintra Capital Corp. 2,708
Sintra Fund Ltd. 2,708
Solomon, David L. 2,166
Thomas E. McLain Trustee 1,083
Thomas E. McLain P.C. Retirement Trust
Vaghi III, Joseph P. 1,354
Vaghi, Nino R. 1,354
Valenti, Jack J. 2,708
Valenti, Mary Margaret 2,708
Wagner & Brown Ltd. 2,708
Wagner Family Partnership VI 2,708
Weinstein Spira Employee Savings Trust 1,083
Weinstein, Stanley C. 1,083
Wilhite, Randall B. 2,708
Green Funds L.L.C. 2,708
Wise, Robert A. 2,708
Wurfel, Arthur P. F/b/o Arthur P. 1,083
Wurfel Profit Sharing Plan
American Mailing Equip.
Financiera E Inversionista Xana 2,708
Glaw Brown Consulting Group 2,708
</TABLE>
<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 9, as to which the date is August 13, 1999, in the Registration
Statement (Form S-1) and related Prospectus of E-Stamp Corporation.
/s/ Ernst & Young LLP
Palo Alto, California
August 13, 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
August 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 JUN-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 10,217 1,916
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,361 2,414
<PP&E> 1,204 1,591
<DEPRECIATION> 754 909
<TOTAL-ASSETS> 10,811 3,096
<CURRENT-LIABILITIES> 1,556 2,938
<BONDS> 0 0
23,469 24,645
0 0
<COMMON> 12 14
<OTHER-SE> 14,213 24,279
<TOTAL-LIABILITY-AND-EQUITY> 10,811 3,096
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 10,627 11,019
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (370) (176)
<INCOME-PRETAX> 10,257 10,843
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 10,257 10,843
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,257 10,843
<EPS-BASIC> (1.11) (1.11)
<EPS-DILUTED> (1.11) (1.11)
</TABLE>
