FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STAMPS.COM INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 5961 77-0454966
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
|
2900 31st Street, Suite 150
Santa Monica, California 90405
(310) 450-1444
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
John M. Payne
President, Chief Executive Officer and Director
STAMPS.COM INC.
2900 31st Street, Suite 150
Santa Monica, California 90405
(310) 450-1444
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Bruce R. Hallett, Esq. Alan K. Austin, Esq.
Allen Z. Sussman, Esq. Mark L. Reinstra, Esq.
Michael A. Zuercher, Esq. James C. Creigh, Esq.
Sean M. Pence, Esq. Brian M. McDaniel, Esq.
Brobeck, Phleger & Harrison LLP Wilson Sonsini Goodrich & Rosati
38 Technology Drive 650 Page Mill Road
Irvine, California 92618 Palo Alto, California 94304
(949) 790-6300 (650) 493-9300
|
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Amount of
Title of Each Class of Proposed Maximum Aggregate Registration
Securities to be Registered Offering Price(1) Fee
----------------------------------------------------------------------------------------------------
Common Stock, $.001 par value.............................. $57,500,000 $15,985
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
|
(1) Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(o).
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Company shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities and is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + |
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED APRIL 26, 1999
[LOGO OF STAMPS.COM]
Shares
Common Stock
This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $ and $ per share. We have applied to list our common stock for quotation on the Nasdaq National Market under the symbol "STMP."
Investing in our common stock involves risks.
See "Risk Factors" beginning on page .
Per Share Total
--------- -----
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Stamps.com...................................... $ $
|
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
We have granted the underwriters a 30-day option to purchase up to an additional shares of common stock to cover any over-allotments. If the underwriters exercise the right in full, the public offering price will total $ , the underwriting discounts and commissions will total $ , and our proceeds will total $ .
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock against payment in San Francisco, California on , 1999.
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
The date of this Prospectus is , 1999
[Inside front cover will fold out. Fold out page will contain screenshots of our Website, including our initial page for accessing postage. Facing page will have a diagram of an information based indicium]
[Inside back cover artwork will include a graphic about the evolution of postage from the traditional stamp to the postage meter to information based indicia. The artwork will also contain a table comparing the relative benefits we believe Internet postage provides compared to other methods]
Stamps.com(TM) and Postage Server(TM) are our trademarks. This prospectus also includes trademarks of entities other than Stamps.com.
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotment or subscriptions.
TABLE OF CONTENTS
Page
----
Summary.................................................................. 4
Risk Factors............................................................. 6
Information Regarding Forward Looking Statements......................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 21
Business................................................................. 24
Management............................................................... 36
Certain Transactions..................................................... 49
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 53
Underwriting............................................................. 57
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 59
Index to Financial Statements............................................ F-1
|
Except as otherwise noted, all information in this prospectus: (1) reflects the automatic conversion of our outstanding preferred stock into common stock immediately prior to the closing of this offering; (2) reflects a -for- stock split of our common stock and preferred stock authorized by the Board of Directors on , 1999; and (3) assumes that the underwriters' over- allotment option will not be exercised.
SUMMARY
You should read the following summary together with the more detailed information and financial statements and the notes to those statements appearing elsewhere in this prospectus. This prospectus contains forward looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in these forward looking statements as a result of the factors set forth under "Risk Factors" and elsewhere in this prospectus.
Stamps.com Inc.
We offer a convenient, cost effective and easy to use service for purchasing and printing postage over the Internet. Our core service will enable users to print information based indicia, or electronic stamps, directly onto envelopes, labels or business documents using ordinary laser or inkjet printers. No additional hardware is necessary for a user to purchase and print our Internet postage; the user's existing PC, printer and Internet set-up are sufficient. Accessing our service is simple. A user will obtain our free software either via a download from the Internet or through an install from a CD-ROM. After installing the software and completing a brief registration process, the user will connect via the Internet to our secure Postage Server and purchase postage electronically 24 hours a day, seven days a week. We will act as an ongoing intermediary between the US Postal Service and users by offering the ability to purchase postage through our secure Postage Server. Our proprietary technology works within the rigorous US Postal Service framework of specification and performance requirements and leverages encryption, authentication and transaction processing to provide secure access to postage. Our Postage Server will be designed to interact with word processing, contact management, accounting and corporate applications to stamp letters, invoices, statements, checks and other business documents automatically.
Our Strategy
Our objective is to be the leading provider of convenient, cost effective and easy to use software-based Internet postage services. To achieve this objective, our strategy includes the following key elements:
. Enhancing our brand name through a variety of marketing and promotional techniques;
. Forming strategic partnerships with companies in the Internet, software, original equipment manufacturer, office supply and media industries;
. Establishing first-mover advantages;
. Rapidly growing our installed base by enhancing our brand name, forming strategic partnerships and establishing first-mover advantages;
. Leveraging our software-based solution and technology platform to enhance our service offering and expand the benefits of secure online transactions; and
. Pursuing our incremental revenue opportunities, including the sale of postage related consumables, peripherals and insurance, the international Internet postage market, and the document fulfillment markets.
Corporate Information
In September 1996, our founders began to investigate the feasibility of entering into the US Postal Service Information Based Indicia Program, or IBIP, and initiated the certification process. In January 1998, we were incorporated in Delaware as StampMaster, Inc. and changed our name to Stamps.com Inc. in December 1998. Our executive offices are located at 2900 31st Street, Suite 150, Santa Monica, California 90405, and our telephone number is (310) 450- 1444. Information contained on our Web site does not constitute part of this prospectus.
The Offering
Common stock offered....................... shares
Common stock to be outstanding after this
offering................................. shares
Use of proceeds............................ To expand marketing and
distribution partnerships, for
further development our
technology and for working
capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol..... STMP
|
The number of shares outstanding after this offering is excluding:
(1) 4,235,000 shares of common stock reserved for issuance pursuant to our 1999
Stock Incentive Plan, of which shares were subject to outstanding options
as of the date of this prospectus; (2) shares reserved for issuance under
our Employee Stock Purchase Plan; and (3) 4,700 shares of common stock subject
to a warrant granted to a lender at an exercise price of $0.40 per share. See
"Capitalization."
Summary Financial Data
(in thousands, except share and per share data)
The following table sets forth certain of our summary financial data. This information should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this prospectus. The pro forma calculations give effect to the conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering as if such conversion occurred at inception, or the date of original issuance, if later. Our as adjusted column reflects the sale of shares of common stock offered hereby at the initial public offering price of $ per share after deducting the underwriter discount and estimated expenses payable by us.
January 9, 1998 January 9, 1998
(inception) (inception) Three Months
through through Ended
December 31, 1998 March 31, 1998 March 31, 1999
----------------- --------------- --------------
(unaudited) (unaudited)
Statement of Operations Data:
Net revenues.................. $ -- $ -- $ --
Loss from operations.......... (4,013) (359) (3,278)
Net loss...................... (4,029) (359) (3,276)
---------- ---------- ----------
Basic and diluted net loss per
share....................... (1.22) (0.13) (0.71)
Pro forma basic and diluted
net loss per share.......... (0.52) (0.08) (0.20)
Shares outstanding used in
basic and diluted net loss
per share calculations...... 3,303,942 2,827,012 4,600,650
Shares outstanding used in pro
forma basic and diluted net
loss per share calculation.. 7,728,920 4,575,945 16,705,188
|
As of March 31,
1999
-------------------
(unaudited)
Actual As Adjusted
------- -----------
Balance Sheet Data:
Cash and cash equivalents................................... $28,524 $
Working capital............................................. 26,090
Total assets................................................ 29,872
Line of credit and capital lease obligations................ 1,425
Total stockholders' equity.................................. 27,051
|
RISK FACTORS
You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our stock could decline, and you may lose all or part of your investment. This prospectus also contains forward looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward looking statements as a result of the risks described below and elsewhere in this prospectus.
We face risks associated with our operations
Our service may never be approved for commercial release.
Our service for purchasing postage over the Internet has not been approved by the US Postal Service. We depend entirely on US Postal Service approval of our Internet postage service. We are currently in the pre-approval testing stage of the US Postal Service's Information Based Indicia Program. We cannot be certain that our service will successfully emerge from this testing phase or that the US Postal Service will ever approve our service for commercial release.
We believe that US Postal Service approval of our software-based service, prior to approval of our competitors' software-based products, is critical to our success. If we don't receive the required regulatory approval in a timely manner, our business and ability to compete in the Internet postage market will suffer dramatically.
Our service will be subject to ongoing US Postal Service regulation.
If we achieve US Postal Service approval of our Internet postage service, we will remain subject to continued US Postal Service scrutiny and other government regulations. For example, US Postal Service regulations may require that our personnel with access to postal information or resources receive a security clearance prior to doing relevant work. We may experience delays or disruptions if our personnel cannot receive necessary security clearances in a timely manner, or at all. The regulations may limit our ability to hire qualified personnel. For example, sensitive clearance may only be provided to US citizens or aliens who are specifically approved to work on certain US Postal Service projects.
The US Postal Service could change certification requirements or specifications for Internet postage or revoke the approval of our service. The US Postal Service could also decide that Internet postage should no longer be an approved postage service due to security concerns or other issues. Our business would suffer dramatically if we are unable to adapt our Internet postage service to any new requirements or specifications or if the US Postal Service were to discontinue Internet postage as an approved postage method. Any other change in the current or future regulatory environment could have an adverse impact on our business and could adversely affect our operating results and profitability.
We face uncertainty in the Internet postage market.
The market for Internet postage has not developed, and its development is subject to substantial uncertainty. We cannot assure you that the Internet postage market will develop. We depend on the commercial acceptance of our service for purchasing postage over the Internet. We do not know if our target users will transition to the Internet as a means of purchasing postage. To the extent users choose the Internet to purchase postage, we cannot be certain that these consumers will adopt our system.
We have a history of losses and expect to incur losses in the future.
As of March 31, 1999, we had not generated any revenues and had a deficit accumulated during the development stage of $7.3 million. We have not achieved profitability and expect to continue to incur net losses
for at least the next several quarters. We expect to incur increasing sales and marketing, product development and administrative expenses. As a result, we will need to generate significant revenues to achieve and maintain profitability. We cannot be certain that we will achieve sufficient revenues for profitability. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis.
We must effectively manage the commercial release of our service.
If we receive US Postal Service approval of our Internet postage service, we will face numerous risks coincident with the introduction of our services. We will be initially subject for approximately 30 days to a limited launch of 10,000 customers after our commercial release. We intend to conduct a controlled national launch of our service; however, we have very limited experience conducting marketing campaigns, and we may fail to generate significant interest. On the other hand, if we experience extensive interest in our services, we may fail to meet the expectations of customers due to the strains this demand will place on our Web site, network infrastructure and our transaction-processing systems.
Our ability to obtain and retain customers depends on our customer service capabilities. We plan to add customer service personnel and resources to meet demand for our Internet postage service; however, we cannot predict whether the quantity or quality of our customer service will be sufficient to address our customers' needs. If we are unable at any time during and after our controlled national launch to appropriately address customer service issues or provide a satisfactory customer experience for current or potential customers, our business and reputation may be damaged.
We may be unable to effectively manage our rapid growth.
Our reputation and our ability to attract, retain and serve our customers depend upon the reliable performance of our Web site, network infrastructure and transaction-processing systems. We have a limited basis upon which to evaluate the capability of our service to handle controlled or full commercial availability of our Internet postage service. We have recently expanded our operations significantly, and further expansion will be required to address the anticipated growth in our user base and market opportunities. To manage the expected growth of operations and personnel, we will need to improve existing and implement new transaction-processing, operational and financial systems, procedures and controls. In addition, we will need to expand, train and manage an increasing employee base. We will also need to expand our finance, administrative and operations staff. In addition, we will be required to relocate our administrative and operations personnel due to capacity constraints at our current facility. We may not be able to effectively manage this growth. Our current expansion has placed and we expect our future expansion to continue to place a significant strain on our managerial, operational and financial resources. Our current and planned personnel, systems, procedures and controls may be inadequate to support our future operations. If we are unable to manage growth effectively or experience disruptions during our expansion, our business will suffer and our financial condition and results of operations will be seriously affected.
We have a limited operating history.
In September 1996, our founders began to investigate the feasibility of entering into the US Postal Service Information Based Indicia Program and initiated the certification process. In January 1998, we were incorporated in Delaware and accordingly, we have a very limited operating history. As of March 31, 1999, we had generated no revenues and do not expect to generate any significant revenues until the US Postal Service approves our Internet postage service for commercial release. You should consider our prospects in light of the risks and difficulties frequently encountered by early stage companies in new and rapidly evolving markets. These risks include, among other things, our:
. ability to meet and maintain government specifications for our service, specifically US Postal Service requirements;
. complete dependence on a service that currently has no market acceptance;
. need to expand our sales and support organizations;
. ability to establish and expand our brand name;
. ability to expand our operations to meet the commercial demand for our service;
. development of and reliance on strategic and distribution relationships;
. ability to prevent and respond quickly to service interruptions;
. ability to minimize fraud and other security risks; and
. competition from our competitors with greater capital resources and brand awareness.
We depend on the maintenance and development of our strategic relationships and distribution arrangements.
We have established strategic relationships with a very limited number of third parties. We believe we must establish additional relationships to effectively market our service. We have limited experience in establishing and maintaining these strategic relationships and we may fail in our efforts to establish and maintain our strategic relationships.
None of our current strategic relationships have resulted in revenues, primarily because the US Postal Service has not approved our Internet postage service for commercial release. Our strategic partners may not view their relationships with us as significant or vital to their businesses and consequently, may not perform according to our expectations. We have little ability to control the efforts of our strategic partners. As a result, even if we are successful in establishing strategic relationships, these strategic relationships may not be successful.
We face potential claims of infringement on other parties' intellectual property rights.
We face substantial uncertainty regarding the impact that other parties' intellectual property positions will have on the Internet postage market. For example, on October 22, 1997, Pitney Bowes sent formal comment to the US Postal Service asserting that fifteen US patents issued to Pitney Bowes and four US patent applications filed by Pitney Bowes would be infringed by products meeting the Information Based Indicia Program specifications. On August 17, 1998, Pitney Bowes issued a press release stating that it holds dozens of US patents related to computer-based postage metering and that it intends to engage in discussions with other marketers of computer-based postal products to license Pitney Bowes technology. To that end, we are currently in license discussions with Pitney Bowes. We cannot predict the outcome of these discussions or the impact of Pitney Bowes' intellectual property claims on our business or the Internet postage market. If Pitney Bowes is able to successfully assert its claims against Internet postage vendors and if we do not enter into a license relationship with Pitney Bowes, our business could be adversely affected. For example, Pitney Bowes could obtain monetary relief from us or permanent or temporary injunctive relief against us.
As is customary with technology companies, from time to time, we may receive or become aware of correspondence claiming potential infringement of other parties' proprietary rights. We could incur significant costs and diversion of management time and resources to defend claims regardless of the validity of these claims. We may not have adequate resources to defend these claims, and any associated costs and distractions could have a material adverse effect on our business, financial condition and results of operations. As an alternative to litigation, we may seek licenses for other parties' intellectual property rights. We may not be successful in obtaining any necessary licenses on commercially reasonable terms, if at all.
We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions to establish and protect proprietary rights in our products, services, know-how and information. We have three issued US patents and have filed two patent applications in the United States. We have also applied for several trademarks and service marks. We plan to apply for other patents in the future. We may not receive patents for any of our patent applications. Even if patents are issued, claims covered by these patents may be substantially reduced from the claims covered by our patent applications. Moreover, any of our patents might be held invalid or unenforceable by a court. If our patents fail to protect our technology, our competitive
position could be harmed. Even if our patents are upheld or are not challenged, third parties may develop alternative technologies or products without infringing our patents. We generally enter into confidentiality agreements with our employees, consultants and other third parties to control and limit access and disclosure of our proprietary information. These contractual arrangements or other steps taken to protect our intellectual property may not prove to be sufficient to prevent misappropriation of technology or deter independent third party development of similar technologies. Additionally, the laws of foreign countries may not protect our services or intellectual property rights to the same extent as do the laws of the United States.
We will rely on a single service for revenues.
We expect that a substantial percentage, if not all, of our future revenues will be generated from our Internet postage service. Assuming we receive US Postal Service approval, we will be relying on a single service for our revenues for the foreseeable future. As a result, our ability to gain commercial acceptance of our Internet postage service is critical to our success. Any failure to successfully gain commercial acceptance of our Internet postage service would not only have a material adverse effect on our business and results of operations but also on our ability to seek any incremental revenue opportunities.
System and online security failures could harm our business.
Our Internet postage service depends on the efficient and uninterrupted operation of our computer and communications hardware systems. In addition, we must provide a high level of security for the transactions we execute. We rely on encryption and authentication technology to provide the security necessary for transmission of postage and other confidential information. Any breach of these security measures would severely impact our business and reputation and would likely result in the loss of customers. Furthermore, if we are unable to provide adequate security, the US Postal Service could prohibit us from selling postage over the Internet.
Despite our efforts to minimize interruption and security risks, our systems and operations are vulnerable to damage or interruption from a number of sources, including fire, flood, power loss, telecommunications failure, break-ins, earthquakes and similar events. For example, all of our Internet postage processing hardware is located in our facility in Southern California, a seismically active region. Our servers are also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. We have experienced system interruptions in the past and may experience them again in the future. Any substantial interruptions in the future could result in the loss of data and could completely impair our ability to generate revenues from our service. We do not presently have a formal disaster recovery plan in effect. We are currently evaluating our business interruption insurance to determine whether we have sufficient coverage to compensate us for losses that may occur after our commercial launch.
A significant barrier to electronic commerce and communications is the secure transmission of confidential information over public networks. Anyone who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems caused by any breach. We rely on encryption and authentication technology to provide the security and authentication necessary for secure transmission of postage and other confidential information. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the algorithms we use to protect customer transaction data. Should someone circumvent our security measures, it could seriously harm our reputation, business, financial condition and results of operations. Security breaches could also expose us to a risk of loss or litigation and possible liability for failing to secure confidential customer information. As a result, we may be required to expend a significant amount of financial and other resources to protect against security breaches or to alleviate any problems that they may cause.
We may face disruptions in our operations during our relocation to a new facility in the near future.
The current lease for our facilities in Santa Monica, California will terminate on May 31, 1999. In addition, our current facilities are inadequate for our current growth plans. We are currently negotiating a lease for approximately 40,000 square feet of office space in Santa Monica, California. As a result, we will be relocating substantially all of our employees to new facilities in the near future. We may experience temporary interruptions in our normal operating activities during the moving process. If we experience more permanent disruptions related to our move, or if we are unable to complete the move in a timely manner, our development efforts and business could be harmed.
We will need to expand our product and service offerings.
We may pursue the acquisition of new or complementary businesses, products or technologies in an effort to enter into new business areas, diversify our sources of revenue and expand our product and service offerings. At present, we have no commitments or agreements and are not currently engaged in discussions for any material acquisitions or investments. To the extent we pursue new or complementary businesses, we may not be able to expand our service offerings and related operations in a cost-effective or timely manner. We may experience increased costs, delays and diversions of management's attention when integrating any new businesses or services. We may lose key personnel from our operations or those of any acquired business. Furthermore, any new business or service we launch that is not favorably received by users could damage our reputation and brand name. We also cannot be certain that we will generate satisfactory revenues from any expanded services or products to offset related costs. Any expansion of our operations would also require significant additional expenses, and these efforts may strain our management, financial and operational resources. Additionally, future acquisitions may also result in potentially dilutive issuances of equity securities, the incurrence of additional debt, the assumption of known and unknown liabilities, and the amortization of expenses related to goodwill and other intangible assets, all of which could have a material adverse effect on our business, financial condition and operating results. New issuances of securities may also have rights, preferences and privileges senior to those of our common stock.
We expect that the fluctuations in our operating results could cause our stock price to fall.
As of March 31, 1999, we had not generated any revenues from our operations. Accordingly, we have little basis upon which to predict future operating results. We expect that our revenues, margins and operating results will fluctuate significantly due to a variety of factors, many of which are outside of our control. These factors include:
. timing of the commercial release of our Internet postage service;
. the costs of our marketing programs to establish the Stamps.com brand name;
. demand for our Internet postage service;
. our ability to develop and maintain strategic and distribution relationships;
. the number, timing and significance of new products or services introduced by both us and our competitors;
. our ability to develop, market and introduce new and enhanced services on a timely basis;
. the level of service and price competition;
. changes in our operating expenses as we expand operations; and
. general economic factors.
Our cost of revenues includes costs for systems operations, customer service, Internet connection and security services; all of these costs fluctuate depending upon the demand for our service. In addition, a substantial portion of our operating expenses is related to personnel costs, marketing programs and overhead,
which cannot be adjusted quickly and are therefore relatively fixed in the short term. Our operating expense levels are based, in significant part, on our expectations of future revenues. If our expenses precede increased revenues, both gross margins and results of operations would be materially and adversely affected because a relatively small amount of our costs and expenses varies with our revenues in the short term.
Due to the foregoing factors and the other risks discussed in this prospectus, you should not rely on period-to-period comparisons of our results of operations as an indication of future performance. It is possible that in some future periods our results of operations will be below the expectations of public market analysts and investors. In this event, the market price of our common stock is likely to fall.
We may not achieve broad brand recognition necessary to succeed.
We must quickly build our Stamps.com brand to gain market acceptance for our service. We believe it is imperative to our long term success that we obtain significant market share for our services before other competitors enter the Internet postage market. We must make substantial expenditures on product development, strategic relationships and marketing initiatives in an effort to establish our brand awareness. In addition, we must devote significant resources to ensure that our users are provided with a high quality online experience supported by a high level of customer service. We cannot be certain that we will have sufficient resources to build our brand and realize commercial acceptance of our service. If we fail to gain market acceptance for our service, our business will suffer dramatically.
We will face intense competition.
The market for Internet postage products and services is new and we expect it to be intensely competitive. At present, three other Information Based Indicia Program, or IBIP, vendors have hardware products available for beta testing. One of the vendors also has a software-based product in beta testing. We expect that our competitors will include:
. traditional providers of postage products and services, including Pitney Bowes and Neopost Industrie;
. potential providers of Internet postage products and services, including Pitney Bowes, E-Stamp and Neopost (a unit of Neopost Industrie);
. a number of indirect competitors that specialize in electronic commerce or derive a substantial portion of their revenue from electronic commerce; and
. other companies with substantial customer bases in the computer and other technical fields.
Internet postage may not be adopted by postage consumers. These consumers may continue to use traditional means to purchase postage, including purchasing postage from their local post office. To the extent Internet postage becomes a viable market, we may not be able to establish or maintain a competitive position against current or future competitors as they enter the market. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition, greater financial, marketing, service, support, technical, intellectual property and other resources than us. As a result, our competitors may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to Web site and systems development than us. This increased competition may result in reduced operating margins, loss of market share and a diminished brand. We may from time to time make certain pricing, service or marketing decisions or acquisitions as a strategic response to changes in the competitive environment. These actions could result in reduced margins and seriously harm our business.
We also face competitive pressures from new technologies and the expansion of existing technologies. Companies that control access to transactions through a network or Web browsers could also promote our competitors or charge us a substantial fee for inclusion. Our competitors may also be acquired by, receive investments from or enter into other commercial relationships with larger, better-established and better-financed companies as use of the Internet and other online services increases. In addition, changes in postal regulations could adversely affect our service and significantly impact our competitive position. We may be unable to compete successfully against current and future competitors, and the competitive pressures we face could seriously harm our business. See "Business--Our Competition."
We rely on a relatively new management team and need additional personnel to grow our business.
Our management team is relatively new and we intend to continue to hire key management personnel, including a Chief Operating Officer. For example, our Chief Executive Officer was hired in October 1998 and our Chief Financial Officer was hired in September 1998. There can be no assurance that we will successfully assimilate our recently hired managers or that we can successfully locate, hire, assimilate and retain qualified key management personnel. Our business is largely dependent on the personal efforts and abilities of our senior management, including Mr. Payne, our Chief Executive Officer, Mr. LaValle, our Chief Financial Officer, and certain other key personnel. Any of our officers or employees can terminate his or her employment relationship at any time. The loss of these certain key employees or our inability to attract or retain other qualified employees could have a material adverse effect on our results of operations and financial condition.
Our future success depends on our ability to attract, retain and motivate highly skilled technical, managerial, editorial, merchandising, marketing and customer service personnel. We plan to hire additional personnel in all areas of our business. Competition for such personnel is intense, particularly in the Internet and high technology industries. As a result, we may be unable to successfully attract, assimilate or retain qualified personnel. Further, we may be unable to retain the employees we currently employ or attract additional technical personnel. The failure to retain and attract the necessary personnel could seriously harm our business, financial condition and results of operations.
We may not be able to keep up with rapid technological and other changes.
The development of our service and other proprietary technology entails significant technical and business risks. To remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our online operations. The Internet and the electronic commerce industry are characterized by:
. rapid technological change;
. changes in user and customer requirements and preferences;
. frequent new product and service introductions embodying new technologies; and
. the emergence of new industry standards and practices.
The evolving nature of the Internet could render our existing proprietary technology and systems obsolete. Our success will depend, in part, on our ability to:
. license or acquire leading technologies useful in our business;
. enhance our existing service;
. develop new services and technology that address the increasingly sophisticated and varied needs of our current and prospective users; and
. respond to technological advances and emerging industry and regulatory standards and practices in a cost-effective and timely manner.
Future advances in technology may not be beneficial to, or compatible with, our business. Furthermore, we may not successfully use new technologies effectively or adapt our proprietary technology and transaction-processing systems to user requirements or emerging industry standards on a timely basis. Our ability to remain technologically competitive may require substantial expenditures and lead time. If we are unable to adapt in a timely manner to changing market conditions or user requirements, our business, financial condition and results of operations could be seriously harmed.
We may face risks associated with international sales and regulation of postage by international agencies.
One element of our strategy is to provide our service in international markets. Our ability to provide our service in international markets would likely be subject to rigorous governmental approval and certification requirements similar to those imposed by the US Postal Service. For example, our service cannot currently be used for international mail because foreign postal authorities do not currently recognize information based indicia postage. If foreign postal authorities in the future accept postage generated by our service and if we
obtain the necessary foreign certification or approvals, we would likely be subject to ongoing regulation by international governments and agencies. To date, efforts to create a certification process in Europe and other foreign markets are in a very preliminary stage and these markets may not prove to be a viable opportunity for us. As a result, we cannot predict when, or if, international markets will become a viable source of revenues for a postage service similar to ours.
If we achieve significant international acceptance of our service, our business activities will be subject to a variety of potential risks, including the adoption of laws and regulatory requirements, political and economic conditions, difficulties protecting our intellectual property rights and actions by third parties that would restrict or eliminate our ability to do business in certain jurisdictions. If we begin to transact business in foreign currencies, we will become subject to the risks attendant to transacting in foreign currencies, including the potential adverse effects of exchange rate fluctuations.
Year 2000 risks may harm our business.
Many existing computer systems and software products are coded to accept only two digit entries in the date code field and cannot distinguish 21st century dates from 20th century dates. If not corrected, there could be system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced to comply with these "Year 2000" requirements.
We use and depend on third-party equipment and software that may not be Year 2000 compliant. We have not completed an assessment of this third-party equipment and software. If Year 2000 issues prevent our users from accessing the Internet or our service, processing postage or using their credit cards, our business and operations will suffer. Any failure of our third-party equipment or software to operate properly could require us to incur unanticipated expenses, which could seriously harm our business, operating results and financial condition. For example, pursuant to IBIP regulations, we rely on the US Postal Service's secure postage accounting vault to purchase postage credit for our customers. If the US Postal Service systems are not Year 2000 compliant, IBIP users may not be able to purchase additional postage.
Our failure to make our service Year 2000 compliant could result in:
. a decrease in sales of our service;
. an increase in the allocation of resources to address Year 2000 problems of our users without additional revenue commensurate with such dedication of resources; and
. an increase in litigation costs relating to losses suffered by our users due to such Year 2000 problems.
Furthermore, the purchasing patterns of users or potential users may be affected by Year 2000 issues as companies expend significant resources to correct their current systems. These expenditures may result in reduced funds available to purchase our service, which could seriously harm our business, operating results and financial condition. We have conducted a preliminary review of our internal computer systems to identify the systems that could be affected by the Year 2000 issue. Based on this preliminary review, we believe that our internal software systems are Year 2000 compliant. However, we continually evaluate our systems and intend to develop a contingency plan to address any Year 2000 issues we discover. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
We may be unable to meet our future capital requirements.
We believe that our current cash balances together with the net proceeds of this offering will allow us to fund our operations for at least the next 12 months. However, we may require substantial working capital to fund our business and we may need to raise additional capital. We cannot be certain that additional funds will be available on satisfactory terms when needed, if at all. Our future capital needs depend on many factors, including:
. the timing of our development efforts and US Postal Service approval of our service;
. market acceptance of Internet postage;
. the level of promotion and advertising required to launch our service; and
. changes in technology.
The various elements of our business and growth strategies, including our plans to support fully the commercial release of our service, our introduction of new products and services and our investments in infrastructure will require additional capital. If we are unable to raise additional necessary capital in the future, we may be required to curtail our operations significantly or obtain funding through the relinquishment of significant technology or markets. Also, raising additional equity capital would have a dilutive effect on existing stockholders.
We face risks related to the Internet industry
The success of our business will depend on the continued growth of the Internet electronic commerce and the acceptance by consumers of an Internet postage sales channel.
Our success depends in part on widespread acceptance and use of the Internet as a way to purchase postage. This practice is at an early stage of development, and demand and continued market acceptance is uncertain. We cannot predict the extent to which users will be willing to shift their purchasing habits from traditional to online postage purchasing. To be successful, our users must accept and utilize e-commerce to satisfy their product needs. Our future revenues and profits, if any, substantially depend upon the acceptance and use of the Internet and other online services as an effective medium of commerce by our target users.
The Internet may not become a viable long-term commercial marketplace due to potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. The commercial acceptance and use of the Internet may not continue to develop at historical rates. Our business, financial condition and results of operations would be seriously harmed if:
. use of the Internet and other online services does not continue to increase or increases more slowly than expected;
. the infrastructure for the Internet and other online services does not effectively support future expansion;
. concerns over security and privacy inhibit the growth of the Internet; or
. the Internet and other online services do not become a viable commercial marketplace.
Regulatory and legal uncertainties could harm our business.
With the exception of US Postal Service regulations, we are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally, and laws or regulations directly applicable to electronic commerce. However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet, relating to:
. user privacy;
. pricing;
. content;
. copyrights;
. distribution; and
. characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the expansion of the Internet. A decline in the growth of the Internet could decrease demand for our products and services and increase our cost of doing business. Moreover, the applicability of existing laws to the Internet is uncertain with regard to many issues governing issues such as property ownership, export of encryption technology, sales tax, libel and
personal privacy. Our business, financial condition and results of operations could be seriously harmed by any such new legislation or regulation. The application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could also harm our business.
We plan to offer our service over the Internet in multiple states and foreign countries. Such jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each state or foreign country. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties. Other states and foreign countries may also attempt to regulate our Internet postage service or prosecute us for violations of their laws. Further, we might unintentionally violate such laws and such laws may be modified and new laws may be enacted in the future.
We are subject to risks related to the offering
No prior public market exists for our common stock.
Prior to this offering, there has been no public market for our common stock and we cannot be sure that an active trading market for the common stock will develop or continue as a result of this offering.
The concentrated control of our company could adversely affect stockholders.
After this offering, our executive officers, directors and 5% stockholders, in the aggregate, will control % of our voting stock. As a result, these stockholders will have significant influence and ability to control most matters requiring board and stockholder approval, including a significant corporate transaction like the sale of our company, a change in control, or the terms of future equity financings.
Purchasers in this offering will experience immediate and substantial dilution.
If you purchase common stock in this offering, you will incur immediate and substantial dilution in the net tangible book value of the shares purchased. We estimate this dilution to be approximately $ per share, or approximately % (based on an initial public offering price of $ ). Additional dilution may occur upon the exercise of outstanding stock options.
Our stock price could fluctuate dramatically.
The trading price of our common stock is likely to be volatile and could fluctuate dramatically in response to: factors such as the following, some of which are beyond our control:
. changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;
. changes in operating and stock price performance of other Internet and online companies similar to us;
. future sales of our common stock; or
. general economic factors.
Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance may adversely affect the price of our common stock. In particular, following initial public offerings, the market prices for stocks of Internet and technology-related companies often reach levels that bear no relationship to the operating performance of these companies. These market prices are generally not sustainable and could vary widely. The market prices of the securities of Internet-related and online companies have been especially volatile. If our common stock trades to such high levels following this offering, it could eventually experience a significant decline.
Our offering price does not necessarily relate to any established criteria of value.
Through negotiations with the underwriters, we will determine the public offering price of the shares of our common stock. This price will not necessarily relate to our book value, assets, past operating results, financial condition or any other established criteria of value. As a result, the shares being offered may trade at market prices below the initial public offering price.
Additional shares may be sold into the public market.
Sales of substantial amounts of our common stock in the public market after this offering could adversely affect the prevailing market price of our common stock. Upon completion of this offering, we will have shares of common stock outstanding. Of those shares, a total of shares (plus additional shares if the underwriters exercise their over-allotment option in full) will be freely tradable under the Securities Act unless purchased or held by our "affiliates," as that term is defined in Rule 144 under the Securities Act. As part of this offering, our executive officers, directors and stockholders have agreed with the underwriters that they will not offer or sell any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of BancBoston Robertson Stephens Inc., except for options granted pursuant to our stock incentive plan. BancBoston Robertson Stephens Inc. may, in its sole discretion, at any time and without notice, release all of our portion of the shares of common stock subject to these agreements. Sales of substantial amounts of common stock in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price for the common stock and could impair our ability to raise capital through a public offering of equity securities.
Our management has broad discretion over use of the proceeds from this offering.
The net proceeds of this offering are estimated to be approximately $ million (approximately $ million if the underwriters' over-allotment is exercised in full) at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and estimated offering expenses. Our management will retain broad discretion as to the allocation of the proceeds of this offering. See "Use of Proceeds."
Certain provisions in our charter documents could deter takeover efforts.
Provisions of our Amended and Restated Certificate of Incorporation, Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, as amended from time to time. This statute could prohibit or delay the accomplishment of mergers or other takeover or change in control in attempts with respect to us and, accordingly, may discourage attempts to acquire us. See "Description of Capital Stock."
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. When used in this prospectus, the words "expects," "anticipates," "estimates," "intends," "believes" and similar expressions are intended to identify forward looking statements. These statements include, but are not limited to, statements under the captions "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The cautionary statements made in this prospectus should be read as being applicable to all related forward looking statements wherever they appear in this prospectus.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock offered hereby are estimated to be approximately $ ($ million of the underwriters exercise their over-allotment option in full) based upon an assumed offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds of the offering:
. for expansion of our marketing and distribution partnerships;
. to enhance our server and network infrastructure and the functionality of our Web site; and
. for working capital and other general corporate purposes.
As of the date of this prospectus, we cannot specify with certainty the particular uses for the net proceeds to be received upon completion of the offering. Pending such uses, the net proceeds of the offering will be invested in short-term, interest-bearing, investment-grade instruments. We intend to maintain flexibility in our use of the proceeds of this offering. The amounts actually expended for each of the purposes listed above are at our discretion and may vary significantly depending upon a number of factors, including the progress of our marketing programs, capital spending requirements, and developments in the Internet postage market and Internet commerce. Accordingly, we reserve the right to reallocate the proceeds of this offering as we deem appropriate.
From time to time, in the ordinary course of business, we may pursue the acquisition of new or complementary businesses, products or technologies in an effort to enter into new business areas, diversify our sources of revenue and expand our product and service offerings. A portion of the net proceeds may be used to fund acquisitions or investments. We currently have no arrangements, agreements or understandings, and are not engaged in active negotiations for any material acquisitions or investments.
DIVIDEND POLICY
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain all available funds for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our results of operations, financial conditions, contractual and legal restrictions and other factors it deems relevant.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on an actual basis and on a pro forma as adjusted basis (a) to reflect the automatic conversion of all outstanding shares of preferred stock into shares of common stock upon the closing of this offering and (b) to give effect to the receipt of the receipt of the estimated net proceeds from the sale of shares of common stock at an assumed initial public offering price of $ per share.
March 31, 1999
--------------------
(Unaudited)
Pro Forma
Actual As Adjusted
------- -----------
(in thousands,
except share data)
Line of credit and capital lease obligations ............. $ 1,425 $ 1,425
------- -------
Stockholders' equity:
Preferred stock, par value $0.001, (Series A, B and C);
15,500,000 shares authorized; 15,246,986 shares issued
and outstanding, actual; 5,000,000 shares authorized;
no shares issued and outstanding, pro forma as
adjusted............................................... 34,278 --
Common stock, par value $0.001; 40,000,000 shares
authorized, 4,600,650 issued and outstanding, actual;
authorized, issued and outstanding, pro forma
as adjusted............................................ 5
Additional paid-in capital................................ 190
Notes receivable for stock sales.......................... (117) (117)
Accumulated deficit during development stage.............. (7,305) (7,305)
------- -------
Total stockholders' equity............................... 27,051
Total capitalization.................................... $28,476
======= =======
|
Our stockholders' equity excludes 3,099,606 shares of common stock issuable upon exercise of outstanding options granted under our 1999 Stock Incentive Plan plus an additional shares reserved for issuance under our 1999 Stock Incentive Plan and Employee Stock Purchase Plan and warrants to purchase 4,700 shares of common stock at $0.40 per share.
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately $ million, or $ per share of common stock. Pro forma net tangible book value per share represents the amount of our pro forma total tangible assets less pro forma total liabilities divided by the pro forma number of shares of common stock outstanding as of March 31, 1999. Without taking into account any other changes in pro forma net tangible book value other than to give effect to our sale of the shares of common stock offered hereby and the receipt and application of the net proceeds therefrom, the pro forma net tangible book value of as of March 31, 1999 would have been $ million, or $ per share of common stock. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to investors purchasing common stock in this offering.
The following table illustrates this per share dilution:
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share as of March 31,
1999....................................................... $
Increase per share attributable to new investors.............
------
Pro forma net tangible book value per share after this
offering....................................................
------
Dilution per share to new investors........................... $
======
|
The following table summarizes, on a pro forma basis as of March 31, 1999 the difference between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by new investors, assuming an initial public offering price of $ per share and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:
Shares
Purchased Total Consideration Average
-------------- ---------------------- Price
Number Percent Amount Percent per Share
------ ------- ----------- ---------- ---------
Existing stockholders....... $ $
New investors............... $
--- --- ----------- -------
Total..................... 100% $ 100%
=== === =========== =======
|
The foregoing table assumes no exercise of the underwriters' over-allotment option or shares underlying outstanding options. As of March 31, 1999, options to purchase shares of common stock were outstanding at a weighted average exercise price of $ per share. To the extent that these options are exercised, new investors will experience further dilution. See "Management--Stock Options," "Description of Capital Stock" and note 5 of the notes to our financial statements.
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial data should be read in conjunction with our financial statements and the notes to such statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The statement of operations data for the period from inception through December 31, 1998 and the balance sheet data at December 31, 1998, are derived from our financial statements which have been audited by Arthur Andersen LLP, our independent public accountants, and are included elsewhere in this prospectus. The statements of operations data for the period January 9, 1998 (inception) through March 31, 1998 and the three month period ended March 31, 1999, and the balance sheet data at March 31, 1999, are derived from our unaudited interim financial statements included elsewhere in this prospectus. Our unaudited financial statements have been prepared on substantially the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for such periods. Please be advised that historical results are not necessarily indicative of the results to be expected in the future, and results of interim periods are not necessarily indicative of results for the entire year.
January 9, 1998 January 9, 1998
(inception) through (inception) through Three Months Ended
December 31, 1998 March 31, 1998 March 31, 1999
------------------- ------------------- ------------------
(unaudited) (unaudited)
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ --
Costs and expenses:
Research and
development.......... 1,532 83 1,160
General and
administrative....... 2,481 276 2,118
---------- ---------- -----------
Total costs and
expenses............ 4,013 359 3,278
Loss from operations.... (4,013) (359) (3,278)
Interest expense, net... (16) -- 2
---------- ---------- -----------
Net loss................ $ (4,029) $ (359) $ (3,276)
========== ========== ===========
Basic and diluted net
loss per share........ $ (1.22) $ (0.13) $ (0.71)
Pro forma basic and
diluted net loss per
share................. $ (0.52) $ (0.08) $ (0.20)
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation........... 3,303,942 2,827,012 4,600,650
Weighted average shares
outstanding used in
pro forma basic and
diluted net loss per
share calculation..... 7,728,920 4,575,945 16,705,188
|
As of As of
December 31, 1998 March 31, 1999
----------------- --------------
(unaudited)
Balance Sheet Data:
Cash and cash
equivalents........... $3,470 $28,524
Working capital......... 1,385 26,090
Total assets............ 4,426 29,872
Line of credit and
capital lease
obligations........... 1,473 1,425
Total stockholders'
equity................ 2,027 27,051
|
Our statement of operations data for the period from inception through December 31, 1998 includes approximately $35,000 of expenses incurred prior to incorporation. Prior to incorporation, the founders primarily investigated the feasibility of entering into the US Postal Service's Information Based Indicia Program and initiated the certification process.
All expenses other than those related to research and development are classified as general and administrative until we recognize revenue from our principal business activities. In addition, the provision for income taxes which consist solely of minimum state taxes is classified as general and administrative.
Please refer to note 1 of the notes to our financial statements for a description of the method used to compute basic and diluted loss per share and pro forma basic and diluted loss per share. Our pro forma calculations give effect to the conversion of all outstanding shares of our preferred stock into common stock upon closing of this offering as if such conversion occurred on January 9, 1998, or the date of original issuance, if later.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward looking statements that involve risks and uncertainties. Actual events or results may differ materially from those projected in such forward looking statements. See "Information Regarding Forward Looking Statements." The following discussion of our financial condition and results of operations also should be read in conjunction with the financial statements and notes to those statements included elsewhere in this prospectus.
Overview
We offer a convenient, cost effective and easy to use service for purchasing and printing postage over the Internet. Beginning in September 1996, our founders investigated the feasability of entering into the US Postal Service Information Based Indicia Program and initiated the certification process. We had no revenues and immaterial expenses prior to our incorporation in Delaware on January 9, 1998. In February 1998, we raised $1.5 million in a private placement transaction and commenced development of our Postage Server within the US Postal Service framework of specification and performance requirements.
In August 1998, we received US Postal Service approval for Phase I beta testing. Also in August 1998, we raised an additional $0.6 million in private placements and commenced hiring key executives. In September 1998, we hired a core technology team to continue development of our Postage Server and in October and November 1998, we closed another private placement transaction for $3.9 million.
In December 1998, we changed our name from StampMaster, Inc. to Stamps.com Inc. and received US Postal Service approval for Phase II beta testing, which resulted in an increase in the user base for our service from 25 to 500. From the end of December 1998 to the end of March 1999, we grew from 34 employees to 77 employees, including key executive hires. In March 1999, we also completed a private placement transaction that raised $30.0 million.
To date, we have not recognized any revenue and do not expect to recognize any revenues until after we receive US Postal Service approval for our Internet postage service.
Our Results of Operations
Revenues. We have recognized no revenues to date and we do not expect to recognize revenues until after our Internet postage service is approved by the US Postal Service for commercial release. If the US Postal Service approves our Internet postage service for commercial release, we will offer service plans that provide access to our Internet Postage Server and we plan to assess a "convenience" fee based on the customer's postage use.
Cost of Revenues. We currently have no cost of revenues because we have not recognized any revenues to date. Once we begin to charge convenience fees, cost of revenues will primarily consist of costs related to customer service activities and server and network operations and, to a lesser extent, bank processing charges for customer fees paid by credit card, Internet connection charges, depreciation of server and network equipment and allocation of overhead.
Sales and Marketing Expenses. Costs related to our sales and marketing efforts, which to date have not been significant, are currently classified as general and administrative expenses until we commence charging convenience fees. Our sales and marketing expenses will consist of compensation for sales and marketing personnel, advertising, creative development and promotional costs and commissions. The majority of these costs will be directed to programs designed to build brand name recognition, attract a customer base and retain the anticipated customer base.
Research and Development Expenses. Our research and development expenses principally consist of compensation for personnel involved in the development effort of our Postage Server, which includes our Web site and transaction- processing systems, and expenditures for consulting services, third-party software and other costs related to development. Our research and development expenses for the year ended December 31, 1998
were $1.5 million. Our research and development expenses increased to $1.2 million for the quarter ended March 31, 1999 from approximately $83,000 for the quarter ended March 31, 1998. The increase is due to our expanded development efforts in the latest quarter, including increased personnel and consulting costs. We believe that significant investments in research and development are required to remain competitive. We expect that we will continue to incur significant research and development expenses.
General and Administrative Expenses. Our general and administrative expenses consist primarily of salaries and related costs for general corporate functions, including finance, accounting, facilities and fees for legal and other professional services. Our general and administrative expenses for the year ended December 31, 1998 were $2.5 million. Our general and administrative expenses increased to $2.1 million for the quarter ended March 31, 1999 from approximately $276,000 for the quarter ended March 31, 1998. The increase is principally due to increase in personnel, facility costs and professional service fees.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the private placement of equity securities, raising $36.0 million through March 31, 1999. At March 31, 1999 and 1998, we had $28.5 million and $1.0 million, respectively, in cash and cash equivalents. We have had significant negative cash flows from operating activities in each fiscal and quarterly period to date.
Net cash used in our operating activities was $2.9 million for the quarter ended March 31, 1999, $0.3 million for the quarter ended March 31, 1998 and $3.1 million for the year ended December 31, 1998. Cash used in operating activities consisted primarily of net operating losses and increases in prepaid expenses, which were partially offset by increases in accrued expenses and accounts payable.
Net cash used in our investing activities was $0.3 million for the quarter ended March 31, 1999, $0.1 million for the quarter ended March 31, 1998 and $0.4 million for the year ended December 31, 1998. Net cash used in investing activities in these periods consisted primarily of capital expenditures for computer equipment, purchased software and office equipment.
Net cash provided by our financing activities was $28.3 million for the quarter ended March 31, 1999, $1.5 million for the quarter ended March 31, 1998 and $6.9 million for the year ended December 31, 1998. Net cash provided by financing activities was principally attributable to the private sale of preferred stock and, to a lesser extent, to the proceeds from a line of credit.
We believe that our current cash balances together with the net proceeds of this offering will allow us to fund our operations for at least the next 12 months. However, we may require substantial working capital to fund our business and we may need to raise additional capital. We cannot be certain that additional funds will be available on satisfactory terms when needed, if at all. Our future capital needs depend on many factors, including:
. the timing of our development efforts and US Postal Service approval of our service;
. market acceptance of Internet postage;
. the level of promotion and advertising required to launch our service; and
. changes in technology.
The various elements of our business and growth strategies, including our plans to support fully the commercial release of our service, our introduction of new products and services and our investments in infrastructure will require additional capital. If we are unable to raise additional necessary capital in the future, we may be required to curtail our operations significantly or obtain funding through the relinquishment of significant technology or markets. Also, raising additional equity capital would have a dilutive effect on existing stockholders.
Year 2000
Many existing computer systems and software products are coded to accept only two digit entries in the date code field and cannot distinguish 21st century dates from 20th century dates. If not corrected, there could
be system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced to comply with these "Year 2000" requirements.
We are in the process of reviewing the Year 2000 compliance of our internally developed proprietary software. This review has included testing to determine how our systems will function at and beyond the Year 2000. Since inception, we have internally developed substantially all of the systems for the operation of our Internet postage service. These systems include the software used to provide customer interaction and transaction-processing and distribution functions to our service, as well as monitoring and back-up capabilities. Based upon our assessment to date, we believe that our internally developed proprietary software is Year 2000 compliant. However, we cannot be sure how our software will integrate with other vendor-provided software.
We use and depend on third-party equipment and software, including systems operated by the US Postal Service, that may not be Year 2000 compliant. We are currently assessing the Year 2000 readiness of other third-party supplied software, computer technology and other services and of our vendors. Based upon the results of this assessment, we will develop and implement, if necessary, a remediation plan with respect to third-party software, third-party vendors and computer technology and service that may fail to be Year 2000 compliant. To date, the expenses associated with this assessment have not been material and our potential remediation costs and potential remediation plan cannot be determined at this time. If Year 2000 issues prevent our users from accessing the Internet or our service, processing postage or using their credit cards, our business and operations will suffer. Any failure of our third-party equipment or software to operate properly could require us to incur unanticipated expenses, which could seriously harm our business, operating results and financial condition. For example, pursuant to IBIP regulations, we rely on the US Postal Service's secure postage accounting vault to purchase postage credit for our customers. If the US Postal Service systems are not Year 2000 compliant, IBIP users may not be able to purchase additional postage.
The Year 2000 readiness of the general infrastructure necessary to support our operations is difficult to assess. For instance, we depend on the integrity and stability of the Internet to provide our services. We also depend on the Year 2000 compliance of the computer systems and financial services used by consumers. Thus, the infrastructure necessary to support our operations consists of a network of computers and telecommunications systems located throughout the world and operated by numerous unrelated entities and individuals, none of which have the ability to control or manage the potential Year 2000 issues that may impact the entire infrastructure. Our ability to assess the reliability of this infrastructure is limited and relies solely on generally available news reports, surveys and comparable industry data. Based on these sources, we believe most entities and individuals that rely significantly on the Internet are carefully reviewing and attempting to remediate issues relating to Year 2000 compliance, but it is not possible to predict whether these efforts will be successful in reducing or eliminating the potential negative impact of Year 2000 issues. A significant disruption in the ability of consumers to reliably access the Internet or portions of it or to use their credit cards or other electronic payment methods would have an adverse effect on demand for our services and would have a material adverse effect on us.
At this time, we have not yet developed a contingency plan to address situations that may result if we or our vendors are unable to achieve Year 2000 compliance. The cost of developing and implementing such a plan, if necessary, could be material. Any failure of our material systems, our vendors' material systems or the Internet to be Year 2000 compliant could have material adverse consequences for us. Such consequences could include difficulties in operating our service effectively or conducting other fundamental parts of our business.
Recently Issued Accounting Pronouncements
The American Institute of Certified Public Accountants issued Statement of Position, or SOP, No. 98-1, "Software for Internal Use," which provides guidance on accounting for the costs of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. We do not expect that the adoption of SOP No. 98-1 will have a material impact on our financial statements.
BUSINESS
This prospectus contains forward looking statements that involve risks and uncertainties. Actual results and the timing of certain events could differ materially from those projected in the forward looking statements due to a number of factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.
Our Company
We offer a convenient, cost effective and easy to use service for purchasing and printing postage over the Internet. Our core service will enable users to print information based indicia, or electronic stamps, directly onto envelopes, labels or business documents using ordinary laser or inkjet printers. No additional hardware is necessary for a user to purchase and print our Internet postage; the user's existing PC, printer and Internet set-up are sufficient. Accessing our service is simple. A user will obtain our free software either via a download from the Internet or through an install from a CD-ROM. After installing the software and completing a brief registration process, the user will connect via the Internet to our secure Postage Server and purchase postage electronically 24 hours a day, seven days a week. We will act as an ongoing intermediary between the US Postal Service and users by offering the ability to purchase postage through our secure Postage Server. Our proprietary technology works within the rigorous US Postal Service framework of specification and performance requirements and leverages encryption, authentication and transaction processing to provide secure access to postage. Our Postage Server will be designed to interact with word processing, contact management, accounting and corporate applications to stamp letters, invoices, statements, checks and other business documents automatically.
Overview of Our Industry
Growth of Internet Commerce
The Internet has emerged as a significant global communications medium, enabling millions of people to share information and conduct business electronically. A number of factors have contributed to the growth of the Internet and its commercial use, including:
. the large and growing installed base of personal computers in homes and businesses;
. improvements in network infrastructure and bandwidth;
. easier and cheaper access to the Internet;
. increased awareness of the Internet among consumer and business users; and
. the rapidly expanding availability of online content and commerce which increases the value to users of being connected to the Internet.
According to International Data Corporation, or IDC, the number of Web users worldwide will grow from an estimated 100 million in 1998 to 319 million by 2002. In addition, IDC estimates that the percentage of such users buying goods and services on the Internet will grow from 26% in December 1997 to 40% in December 2002. IDC further estimates that the total value of goods and services purchased over the Web will increase from approximately $12.4 billion in 1997 to approximately $425.0 billion in 2002. Business-to-business commerce is expected to be a significant driver in the future growth of Internet commerce. For example, IDC estimates that business-to-consumer commerce on the Internet will grow from approximately $5.0 billion in 1997 to approximately $95.0 billion in 2002 while business-to-business commerce on the Internet will grow from approximately $7.0 billion in 1997 to approximately $331.0 billion in 2002.
Rapid Growth in Internet Usage by Small Businesses
The small office/home office, or SOHO, and small business markets represent a large and growing customer segment. According to IDC, there were a combined 44.7 million small businesses and home offices in the United States in 1998, a number which IDC forecasts will grow to 57.6 million by 2002. For 1998, IDC
reported that small businesses with less than 100 employees numbered 7.4 million of which 77% had fewer than 10 employees. In addition, home offices numbered 37.3 million, of which 22.2 million were income producing home offices, and the remainder were home offices used for corporate after hours work or telecommuting.
We believe that small businesses increasingly will rely on the functionality and pervasiveness of the Internet to reach and serve a large and global group of end users. The reduced cost of selling and marketing on the Web, the ability to build and serve a large base of customers electronically and the potential for personalized low-cost customer interaction provide significant economic advantages. These overall benefits, combined with accessibility, have led to adoption of the Internet by small businesses and home offices. According to IDC, there will be 30.2 million US home offices accessing the Internet by 2002. According to Cyber Dialogue/FindSVP's 1999 US Small Business Internet Survey, 43% of businesses with fewer than 100 employees are estimated to be online in 1999. Of those small businesses that are currently online, 63% are already ordering products online and are spending an average of $171 monthly on postage. The Cyber Dialogue/FindSVP survey also found that 64% of online small businesses have employees who are online multiple times a day. This increased use of the Internet has resulted in small businesses becoming significant electronic commerce participants. IDC estimates that small businesses accounted for $4.5 billion of electronic commerce in 1998 and will account for approximately $102.0 billion of electronic commerce activity in 2002.
Traditional Postage Industry and the Emergence of the Internet Postage
The traditional postage industry is large and growing. According to the US Postal Service Annual Report, the total postage market was $58.0 billion in 1998, of which $38.9 billion was represented by first class, priority and express mail with the remainder consisting of other classes of mail such as periodicals, bulk and international. In addition, the US Postal Service processed over 197 billion pieces of mail in 1998 and, despite the growth in the use of e-mail, the total US postage market increased by 3.1% in 1998 from 1997. Keenan Vision, an independent research firm, estimates that revenues from first class, priority and express mail will grow to $46.2 billion by 2002. Despite this consistent growth in the postage market, the US Postal Service has experienced:
. strong competition from overnight delivery services;
. loss of revenue due to postal fraud; and
. continued public demand for more convenient access to US Postal Service products and services.
In response to these challenges, in 1995 the US Postal Service announced a program for its first new postage method since the approval of the postage meter in 1920. The Information Based Indicia Program, or IBIP, is a ten-stage certification process for commercial release of Information Based Indicia products, or electronic postage, that can be purchased over the Internet and printed from a computer using ordinary laser or inkjet printers. Indicia are a new type of US Postal Service-approved postage marks similar to stamps or metered postage. Information Based Indicia, which are essentially digital stamps, consist of a two dimensional bar code containing an encrypted digital signature that make each indicium unique. Through IBIP, the US Postal Service is seeking to enhance user convenience with a new access channel for postage that allows users to print postage from a personal computer 24 hours a day, seven days a week. IBIP is intended to achieve US Postal Service security and revenue objectives by incorporating technological security features in each unique digitally-signed indicium and a secure postage accounting vault to provide greater revenue security. All Internet postage products, including any subsequent enhancements or additional implementation of a product, must complete exhaustive US Postal Service testing and evaluation to ensure operational reliability, financial integrity and security to become certified for commercial distribution. Overall, IBIP aims to provide improved, accurate mail processing and increased productivity, a result which is intended to:
. reduce US Postal Service costs and postal fraud;
. increase US Postal Service service to underserved markets, including the rapidly growing SOHO and other small business markets; and
. improve the US Postal Service's competitive position against overnight delivery services.
The emergence of Internet postage though the US Postal Service's IBIP initiative has created an attractive channel for the sale of postage, particularly to SOHO and other small businesses. According to a 1997 US Postal Service survey of over 1,600 home offices, 98% of the respondents would likely use commercial software products to print postage directly from their computers, 88% of the respondents did not use a postage meter and 43% of the respondents purchased over $50 of postage per month. We believe that small businesses consider cost-effective mail generation, elimination of trips to the post office and the production of professional-looking mail as key components of an effective mailing system. Internet postage satisfies these requirements by providing 24 hours a day, seven day a week access to metered mail from the desktop. Furthermore, when considering the total cost of a traditional postage meter, including lease fees for both the meter and scale, meter resetting fees and proprietary consumables such as ink cartridges, small businesses pay a significant premium in addition to their normal postage expenditures for leasing a postage meter. Leasing a postage meter also requires space for additional hardware and the purchase of proprietary consumables. Meanwhile, small businesses that find leasing a postage meter uneconomical are still faced with the inconvenience of travelling to the post office, ATM or other locations to purchase stamps.
Our Solution
We offer a convenient, cost effective and easy to use service for purchasing and printing postage over the Internet. We target the SOHO, other small business, corporate and consumer user markets with an Internet service that is accessible with free software downloaded from the Internet or installed from a free CD-ROM; the user's existing PC, printer and Internet set up are sufficient to purchase and print postage. Using our service requires no purchase or installation of a hardware device for a user's PC and users can access and print postage without the US Postal Service address matching CD-ROM needed by hardware-based IBIP products. Our Internet postage solution was the first software-based service approved for beta testing by the US Postal Service and provides the following benefits to the user and the US Postal Service:
Benefits to the User. Our Internet postage service is designed to be convenient, cost effective and easy to use and provides the following benefits to the user:
. Unlimited, convenient access to postage from the desktop 24 hours a day, 7 days a week;
. Prints address and postage in one easy step;
. Secure and accurate tracking of postage expenditures;
. Cost effective relative to traditional postage meter solutions; and
. No additional hardware peripherals required.
Using our free proprietary software client, which can be downloaded from the Internet or installed from a CD-ROM, users can purchase postage with their PC from our secure Postage Server where and when it is most convenient. Our solution allows users to avoid common inconveniences such as running out of postage, using too much postage for a letter or parcel and enduring long lines at the post office. With the Stamps.com service, users can print postage in any denomination and rely on secure, accurate management of their postal dollars. Finally, we will seek to enhance our convenient, easy to use service with solutions such as integrating our software with a wide range of software applications, including word processors and database managers, to increase the efficiency of everyday tasks such as writing letters, paying bills or generating invoices.
Benefits to the US Postal Service. Our Internet postage service provides several benefits to the US Postal Service including:
. increased convenience to the postal consumer;
. increased security to protect postal revenues;
. ability to more effectively compete with overnight delivery services;
. use of advanced technology for more cost efficient mail processing and tracking; and
. cost savings relating to printing and distribution of traditional postage stamps.
We believe our convenient, cost effective, easy to use Internet postage solution addresses the US Postal Service's goals for the Information Based Indicia Program. Our service is designed to provide a high level of security and auditing capabilities, helping to reduce the millions of dollars of known postal fraud to the US Postal Service. As additional security and in accordance with US Postal Service specifications, our solution will provide for the printing of unique, secure Information Based Indicia, or electronic postage, on ordinary laser or inkjet printers. Our service is designed to promote postal efficiencies and cost savings for the US Postal Service with address verification and correction and extended zip code printing capabilities. Finally, our solution is designed to allow the US Postal Service to capitalize on advances in technology, especially as the US Postal Service seeks to phase out traditional postage methods such as mechanical and electro-mechanical postage meters.
Our Strategy
Our objective is to be the leading provider of convenient, cost effective and easy to use software-based Internet postage services. To achieve this objective, our strategy includes the following key elements:
Enhance Our Brand Name. We intend to increase our brand recognition through a variety of marketing and promotional techniques, including the prominent display of our logo on all pieces of mail generated through our service and co- marketing and co-branding agreements with strategic partners. We also intend to promote our brand by conducting an ongoing public relations campaign and developing affiliations and affinity programs to extend the brand. We believe that building the brand awareness of our Internet Postage Server is critical to attracting and expanding our installed base.
Leverage Our Premier Strategic Partnerships. We intend to develop and leverage premier strategic partnerships to gain access to large numbers of potential users, cooperatively market products and services, cross-sell additional services and gain entry into new markets. As of April 1999, we have entered into strategic partnerships with AOL and Office Depot, among others. We believe that we can further leverage our premier strategic partnerships to enhance our brand name and grow our installed base.
Establish First-Mover Advantages. Our Internet postage solution was the first software-based Internet postage solution approved for beta testing required for US Postal Service certification. We believe that we will have significant first-mover and time-to-market advantages as a software-based solution in the Internet postage market. We intend to use this first-mover advantage to rapidly establish our brand and grow our installed base. We believe our potential market position will be enhanced by significant barriers to entry, including:
. a ten-step US Postal Service certification process, including an approximate nine month beta testing phase;
. our anticipated lead in providing a proprietary software-based Internet postage solution that does not require additional hardware or a CD-ROM to be employed with a user's PC;
. significant up-front time and investment by potential competitors in technology and technical infrastructure;
. strong brand awareness for our software-based Internet postage solution; and
. inconvenience of switching from one metered postage provider to another.
Rapidly Grow Our Installed Base. We intend to broaden our installed base through enhancing our brand, forming strategic partnerships and establishing first-mover advantages. We believe that our service can achieve rapid distribution because there is no investment in hardware beyond a PC and printer, and users can obtain the software client for free. We are primarily targeting the SOHO and small business markets as well as certain segments of the corporate and consumer markets.
Leverage Our Software-Based Solution and Technology Platform. We intend to leverage our scaleable, e-commerce platform to enhance our service offering and expand the benefits of secure online transactions. We believe that we have an inherent advantage relative to our competitors in the Internet postage industry because
our solution does not require the use of additional hardware. We believe we can achieve rapid distribution of our services as users download or install our free software. Additionally, our service provides increased flexibility and scalability over competing solutions because transactions are processed through our secure Postage Server using the free software whereas competing hardware solutions require each user to utilize a CD-ROM and peripheral hardware device for each PC that is engaged in a postage transaction. We will continue to invest in and enhance our technology in order to increase efficiency, reliability and bandwidth, to expand services and to reduce costs.
Pursue Our Incremental Revenue Opportunities. We intend to leverage our brand, electronic commerce capabilities, infrastructure and user base to develop incremental revenue opportunities. We will consider the following opportunities:
. Sale of Postage Related Consumables, Peripherals and Insurance. We intend to leverage our Web site to offer mailing-related consumables, such as labels and envelopes, and peripherals, such as mechanical scales, PC-enabled digital scales and label printers. We also intend to offer package insurance to our customers through third-party insurance companies.
. International Internet Postage Market. We believe that there are significant opportunities in international markets for our Internet postage service. We intend to focus on those regions where there is a critical mass of Internet utilization, and a large current postage market with a need for highly secure transaction-oriented Internet services once foreign postal authorities accept the use of Internet postage.
. Document Fulfillment Market. We will consider investing in technology that will allow us to extend our core Internet postage technology to print authenticated documents, such as airline, movie and concert tickets, from their laser or inkjet printers.
Our Internet Postage Service
We offer a convenient, cost effective and easy to use service for purchasing and printing postage over the Internet. Our core service will enable users to print information based indicia, or electronic stamps, directly onto envelopes, labels or business documents using ordinary laser or inkjet printers. No additional hardware is necessary for a user to purchase and print our Internet postage; the user's existing PC, printer and Internet set-up are sufficient.
[Insert Graphic--Description: Describe three steps to using our service. Step 1 is download and install free software and complete brief registration process. Step 2 is users print postage using their existing PC and printer set-up. Step 3 is postage is printed onto envelopes, labels or business documents.]
Accessing our service is simple. A user will obtain our free software either via a download from the Internet or through an install from a CD-ROM. After installing the software and completing a brief registration process, the user can connect via the Internet to our secure Postage Server and purchase postage electronically 24 hours a day, seven days a week. We act as an ongoing intermediary between the US Postal Service and users by offering users the ability to purchase postage through our secure Postage Server. We use sophisticated cryptography and proprietary technologies which meet strict US government security standards and our service incorporates US Postal Service- mandated address verification features which enhance the efficiency of mail processing and delivery. Finally, our Postage Server is designed to interact with word processing, contact management, accounting and corporate applications to provide postage for letters, invoices, statements, checks and other business documents automatically. Our customers will sign up for a service plan that provides access to our Internet Postage Server and we plan to assess a "convenience" fee based on the customer's postage use. The service plan will also offer benefits that could include such items as free postage, free labels and envelopes and discounts on scales or printers.
As part of our Internet postage service, we intend to roll out functional modules of our Web site to address our strategic initiatives, including a Virtual Post Office which will provide a variety of mailing services and resources including bulk mail fulfillment, free e-mail, Express and Priority Mail tracking, ZIP Code look-up, and postal information including postal publications; a Product Center that will serve as an online commerce module featuring mailing supplies and general office supplies; and a Small Business Resource Center module that will feature products, services, and editorial content targeted to the small business market.
The US Postal Service Certification Process
All Internet postage products must complete extensive US Postal Service testing and evaluation to ensure operational reliability, financial integrity and security to become certified for commercial distribution. Each additional implementation of a particular product or function requires additional evaluation and incremental approval by the US Postal Service prior to commercial delivery.
The US Postal Service certification process for Internet postage is a standardized, ten-stage process concluding with commercial release. Each stage requires US Postal Service review and authorization to proceed to the next stage of the certification process. The US Postal Service has no published timeline or estimated time to complete each of the first eight stages; however, each stage involves significant complexity and US Postal Service scrutiny and approval. In addition, each Internet postage vendor must complete three phases of beta testing during the ninth stage, with each phase requiring approximately 90 days of testing to complete. The substantial time commitment required of a potential IBIP vendor to complete the US Postal Service certification process is a significant barrier to entry for vendors seeking to compete in the Internet postage market.
The ten stages for US Postal Service certification process which are set forth at the US Postal Service Web site are as follows:
1. Letter of Intent 6. US Postal Service Address
2. Non-Disclosure Agreements Matching System CD-ROM Integration
3. Concept of Operations 7. Product Submission/Testing
4. Software and Documentation 8. Product Infrastructure Testing
Requirements Distribution) 9. Three Phase Beta Test Approval
5. Provider Infrastructure Plan (Limited Distribution)
10. Vendor Product Approval (Full
Distribution)
|
Our Certification Progress and Commercial Release
In March 1997, we submitted our letter of intent to join the Information Based Indicia Program. From March 1997 through August 1998, we progressed through the first eight stages of the US Postal Service certification process. On August 24, 1998, the US Postal Service announced that we were approved for beta
testing and our Internet postage service became the first software-based postage solution approved by the US Postal Service for market testing. Subsequent to US Postal Service approval for beta testing, we selected 25 users from approximately 1,000 beta test applications. Beta users are SOHO, other small business and home consumer users with an average mail volume of 30 to 500 pieces per month. Most of the beta users we selected do not have postage meters, but all have some form of Internet access. The beta test consists of three phases of testing; each phase requires approximately 90 days to complete and involves increasing standards. The following describes the planned three phase beta test that we are currently conducting:
Phase I. We have completed Phase I testing. All Phase I participants are located in the Washington, D.C. area. In this phase, we performed on-site software installations for all beta testers, including five US Postal Service users. User feedback has been largely positive and has focused on feature enhancements and US Postal Service regulations. We provided user support through an 800-number, online help, and printed or viewable manuals. We generated weekly usage reports and log files that were forwarded to the US Postal Service Beta Program Manager. Phase I users and data requirements continue for Phases II and III.
Phase II. We commenced Phase II testing on December 4, 1998. Phase II of our beta testing includes the expansion of the user base by an additional 475 users. These users are in the Washington, D.C. and San Francisco Bay Areas per US Postal Service specification. Installations in Phase II were executed via a software download over the Internet or with a CD-ROM provided to users. Our recruiting process for testers included use of our Web site, local advertising, SOHO lists and leveraging business development relationships. During Phase II beta testing, we have developed electronic file submission requirements, continued to strengthen our US Postal Service relationship, maintained heavy user focus and dialogue and continued to develop support strategy and infrastructure.
Phase III. We have not yet commenced Phase III testing. Phase III of beta testing includes expansion of the user base from 500 to 1,500 users in the Washington, D.C. and California regions. Phase III will provide us and the US Postal Service the opportunity to perform statistically significant market analyses to determine marketing and pricing strategies and to further stress test systems in preparation for a national launch.
US Postal Service Approval. Upon satisfactory completion of Phase III, the US Postal Service will publish and announce in the federal register the approval of the Stamps.com service for commercial release.
Commercial Release. Following US Postal Service approval, we will conduct a readiness review and then be subject for approximately 30 days to a US Postal Service-mandated limited launch of 10,000 customers following the initial commercial release of our service. After completion of the limited launch and to ensure the integrity of our service, we will conduct a controlled national launch of our service through our strategic distribution partners.
Our Strategic Distribution Partners
Our objective is to achieve significant market penetration through relationships with strategic partners in each of the four following categories:
. Web portals, content sites and Internet service providers, such as AOL;
. independent software vendors;
. PC, printer and peripherals manufacturers; and
. office/postal supplies vendors, such as Office Depot and Avery Dennison.
We believe we will benefit from these relationships by achieving positive brand association and a cost effective means of customer acquisition. We believe our partners can leverage their relationships with us to derive incremental revenue opportunities, including revenue-sharing arrangements with us, and provide additional value-added services to their customers.
America Online. In December 1998, we entered into a two phase co-marketing and distribution agreement with AOL and are currently in the first phase, or Pre-Launch Phase, of the program. During the Pre-Launch Phase, we are collaboratively conducting development, testing, advertising and educational activities over the AOL network. The second phase of the Stamps.com/AOL program, or Launch Phase, becomes active when the US Postal Service approves the commercial release of our Internet postage service. Subject to certain conditions, the Launch Phase provides the following benefits to us:
. our software will be bundled exclusively on CD-ROMs that are distributed to AOL prospects and customers;
. our software CD-ROMs will exclusively be inserted in boxes with select products purchased through AOL Store;
. we will be featured prominently when AOL Keyword "stamps" is used;
. we will receive top positioning on the AOL Network postage category page; and
. we will collaboratively develop and present an exclusive three day Internet postage educational program for the AOL customer base.
The Launch Phase will also include a significant advertising impression commitment throughout select AOL properties, including the AOL Service, aol.com, Digital Cities and CompuServe.
Office Depot. In February 1999, we entered into a strategic partnership with Office Depot, Inc., a leading seller of office products. Our agreement with Office Depot provides us with a download link to sign up for our service available from the Office Depot Online Superstore, including above the fold positioning of the link, and contemplates a "point of purchase" advertisement campaign.
Avery Dennison. In March 1999, we entered into to a strategic distribution relationship with Avery Dennison Corporation, a leading supplier of adhesive materials, office products and label systems. Our agreement with Avery Dennison provides that through 1999 our service will be exclusively offered for download off the Avery Web Site and exclusively distributed on Avery Label Pro Software CD-ROMs through retail channels. During this time period, we will exclusively promote Avery Label products.
Dymo/CoStar. In March 1999, we entered into a strategic distribution relationship with Dymo, a leading label-making brand available in 160 countries worldwide. Dymo is part of Esselte, an international office and business supplies company, which recently acquired CoStar Corporation. CoStar is a leading manufacturer of specialty printers, software and supplies for printing labels, bar codes, receipts and identification badges. Our agreement with Dymo/CoStar provides that our software will be bundled on all software installation CD-ROMs included in all CoStar LabelWriter printer boxes. In addition, our software will be downloadable from the CoStar Web site.
Seiko Instruments. In March 1999, we entered into a strategic distribution agreement with Seiko Instruments USA Inc., a leading supplier and marketer of electronic components, consumer electronics, printer mechanisms, PC peripheral color printers, and specialty black and white printers. Our agreement with Seiko provides that our software will be bundled on software installation CD- ROMs included in all Seiko Smart Label Printer boxes. In addition, our software will be downloadable from the Seiko Web site.
Westvaco. In April 1999, we entered into a strategic distribution and co- development agreement with Westvaco Corporation, a leading manufacturer and supplier of paper materials, envelopes and other packaging products. Our agreement with Westvaco provides that our service be promoted on boxes of Westvaco's Columbian brand laser and inkjet envelopes sold through several channels, including office superstores. In addition, our service will be promoted on the Columbian brand Web site.
Our Marketing and Sales
We intend to establish a strong brand name by allocating significant resources to our marketing and distribution efforts. We intend to distribute our postage printing software through our Web site. In addition, we will rely on traditional media and several other channels to achieve rapid distribution of our services, including:
Web Sites. We intend to work with high traffic Web sites including portals, commerce and content sites, and other high visibility Internet sites. This channel will provide the opportunity for users to download our proprietary software and access Internet postage services.
Affiliate Programs. We intend to leverage the traffic and customers of other online sites by offering revenue-sharing opportunities to affiliates that provide a link on their Web site to download our Internet postage software and access other related services. Affiliates can capitalize on the ability to offer new, value-added services and increase repeat visits to their site.
Preloaded/Bundled Hardware and Services. We intend to leverage relationships with vendors of hardware products, such as computers, printers and label makers; and with Internet service providers to offer our software to buyers of their products. Resellers can capitalize on the ability to promote new features on commodity, non-differentiated products and services.
Embedded Software. We intend to seek further partnerships with software publishing companies. Software packages that would benefit from our current services would include word processing, contact management, accounting, billing and retail software.
Postal Supplies. We will target companies in the postal supplies industry, including manufacturers of envelopes, labels, checks, forms, digital scales and postage meters.
Financial Services. We will seek distribution and co-branding opportunities with banks and brokerages by incorporating our Internet postage service into online banking and investing offered by financial service providers.
Direct Sales. We will target specific large industries or vertical markets where distributed use of the mail is prevalent, including insurance, travel and hospitality, financial services, law firms or other businesses where branch offices or agent organizational structures are common. We believe that significant benefits in the form of usability, convenience and cost savings to large corporate users may result from integrating our Internet postage service into the everyday work flow.
Customer Retention Programs. We believe we can increase customer retention by offering co-branded affinity marketing programs, such as frequent flyer miles, based on postage and other related expenditures. Further, we intend to create strong customer loyalty by offering discounts to our online store, as well as free peripherals and consumables, that are tied to customer postage volume.
Our Competition
The market for Internet postage products and services is new and we expect it to be intensely competitive. At present, three other IBIP vendors have hardware products available for beta testing. One of the vendors also has a software-based product in beta testing. However, we were the first participant authorized for beta testing by the US Postal Service with a software-based solution that does not require the purchase or use of additional hardware for a user's PC and printer set-up. We were approved for beta testing on August 25, 1998 and the other software-based product vendor announced their approval for the first stage of beta testing on March 29, 1999. As a result, we believe we have a significant development lead over our competitors given the length of time associated with security evaluation and beta testing to which the US Postal Service subjects all new product offerings. The following is a summary of our competitors in the IBIP program:
E-Stamp Corporation. E-Stamp is a developer and marketer of a hardware- based solution enabling users to generate postage transactions from their existing personal computers and printers. E-Stamp was the first company to gain US Postal Service approval for market testing of a hardware peripheral storage device
identified as the Postal Service Device. E-Stamp is currently in beta testing for its PC Postal Security Device product and announced their approval for Phase II beta testing in July 1998.
Neopost. Neopost is a large French postage company with a small percentage of US market share in the traditional postage meter industry. Similar to E- Stamp, Neopost has developed an online postage product that requires a special purpose hardware device, and announced their approval for Phase I beta testing in September 1998. Neopost has also announced a software-based postage product for which it is seeking IBIP certification. On March 29, 1999, Neopost announced approval for their software based postage product for Phase I beta testing.
Pitney Bowes, Inc. Pitney Bowes is the current market leader in the traditional postage meter business and according to its most recent annual report had approximately $4.2 billion in revenues in 1998. Pitney Bowes has developed a product similar to E-Stamp which requires the use of a specialized peripheral hardware device for postage transactions. Pitney Bowes announced the approval of their hardware-based product for Phase II beta testing on March 9, 1999.
In addition to competing with IBIP vendors for market share of Internet postage sales, we will also compete with traditional postage methods such as stamps and metered mail. While we believe our Internet postage service provides benefits over traditional postage methods, we cannot be assured that Internet postage will be adopted by postage consumers on a commercial scale, if at all. These customers may continue to use traditional means to purchase postage, including purchasing postage from their local post office. Any failure by us or other IBIP vendors to displace traditional postage methods would seriously impact our ability to compete with providers of traditional postage.
Overall, we may not be able to maintain a competitive position against current or future competitors as they enter the markets in which we compete. This is particularly true with respect to competitors with greater financial, marketing, service, support, technical, intellectual property and other resources than us. Our failure to maintain a competitive position within the market could seriously harm our business, financial condition and results of operations. We believe that the principal competitive factors in our market include:
. US Postal Service product certification;
. Ability to successfully achieve commercial release of an Internet postage product;
. Brand recognition;
. Convenience;
. Ease of use;
. Price;
. Accountability;
. Security;
. Compatibility;
. Accuracy; and
. Integration.
For further discussion of the competitive risks and factors to be considering in making an investment in our common stock, see "Risk Factors--We face intense competition."
Our Technology
Our service is comprised of the following key components:
System Architecture. Our Internet postage servers are located in a high- security, off-site data center. Our application servers, which handle user requests, operate with proprietary server software and secure sockets
layer (SSL) encryption software to communicate with users. These same application servers create the indicia and process postage purchases using Federal Information Processing Standard (FIPS) 140-1 validated cryptographic processes that meet customer and US Postal Service security requirements.
Our service currently supports Windows 95, 98 and NT 4.0 with a Win32-based client application. The Win32-based client application enables a simpler, more intuitive interface for the user and provides the power and flexibility necessary to support a variety of label and envelope options. In addition, the client application employs a proprietary challenge-response authentication mechanism for additional security. The client application also includes specialized printing code to more accurately print indicia on envelopes with a wide range of printers and to support a variety of mailing label options.
Transaction Processing. Our transaction processing servers are a proprietary combination of secure, commercially available cryptography and standards-based Internet technologies to provide secure and reliable transaction throughput. Our system implements server-side, cryptographic hardware to exceed the highest government standard for security and data integrity currently in effect, FIPS 140-1 Level 4. The performance and scalability of our Internet postage system allows a wide range of users to process postage transactions through our Web site.
Database Processing. Our proprietary database servers are designed to complement industry leading database technologies and can be built to scale incrementally and seamlessly as needed.
Client Interoperability. Our system utilizes a lightweight, secure client module for authentication, communication and output control. The client module is designed to be the building block for Internet postage capabilities that are accessible from popular software applications. Our client module will be used by our postage application as well as add-ins for popular word processing applications and third party mailing and business systems.
Our Intellectual Property
We face substantial uncertainty regarding the impact that other parties' intellectual property positions will have on the Internet postage market. For example, on October 22, 1997, Pitney Bowes sent formal comment to the US Postal Service asserting that fifteen US patents issued to Pitney Bowes and four US patent applications filed by Pitney Bowes would be infringed by products meeting the Information Based Indicia Program specifications. On August 17, 1998, Pitney Bowes issued a press release stating that it holds dozens of US patents related to computer-based postage metering and that it intends to engage in discussions with other marketers of computer-based postal products to license Pitney Bowes technology. To that end, we are currently in license discussions with Pitney Bowes. We cannot predict the outcome of these discussions or the impact of Pitney Bowes' intellectual property claims on our business or the Internet postage market. If Pitney Bowes is able to successfully assert its claims against Internet postage vendors and if we do not enter into a license relationship with Pitney Bowes, our business could be adversely affected. For example, Pitney Bowes could obtain monetary relief from us or permanent or temporary injunctive relief against us .
As is customary with technology companies, from time to time, we may receive or become aware of correspondence claiming potential infringement of other parties' proprietary rights. We could incur significant costs and diversion of management time and resources to defend claims regardless of the validity of these claims. We may not have adequate resources to defend these claims, and any associated costs and distractions could have a material adverse effect on our business, financial condition and results of operations. As an alternative to litigation, we may seek licenses for other parties' intellectual property rights. We may not be successful in obtaining any necessary licenses on commercially reasonable terms, if at all.
We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions to establish and protect proprietary rights in our products, services, know-how and information. We have three issued US patents and have filed two patent applications in the United States. We have also applied
for several trademarks and service marks. We plan to apply for other patents in the future. We may not receive patents for any of our patent applications. Even if patents are issued, claims covered by these patents may be substantially reduced from the claims covered by our patent applications. Moreover, any of our patents might be held invalid or unenforceable by a court. If our patents fail to protect our technology, our competitive position could be harmed. Even if our patents are upheld or are not challenged, third parties may develop alternative technologies or products without infringing our patents. We generally enter into confidentiality agreements with our employees, consultants and other third parties to control and limit access and disclosure of our proprietary information. These contractual arrangements or other steps taken to protect our intellectual property may not prove to be sufficient to prevent misappropriation of technology or deter independent third party development of similar technologies. Additionally, the laws of foreign countries may not protect our services or intellectual property rights to the same extent as do the laws of the United States.
Our Employees
As of March 31, 1999, we had 77 full time employees, of which 44 were employed in research and development, 16 were employed in network operations, 9 were employed in sales and marketing, and 8 were employed in administrative positions. None of our employees are represented by a labor union, and we consider our employee relations to be good. We intend to expand significantly our employee base in 1999. See "Risk Factors--We rely on a relatively new management team and need additional personnel to grow our business."
Our Properties
Our corporate headquarters is located in a 17,000 square foot facility in Santa Monica, California under a lease expiring on May 31, 1999. We also have a 5,000 square foot satellite research and development site in Irvine, California under a lease expiring in September 1999.
We are currently negotiating a lease for approximately 40,000 square feet of office space in Santa Monica, California. As a result, we will be relocating substantially all of our employees to new facilities in the near future. We may experience temporary interruptions in our normal operating activities during the moving process. If we experience more permanent disruptions related to our move, or if we are unable to complete the move in a timely manner, our development efforts and business could be harmed. See "Risk Factors--We may face disruptions in our operations during our relocation to a new facility in the near future."
Legal Proceedings
We are not currently involved in any legal proceedings, nor have we been involved in any such proceedings that has had or may have a significant effect on our financial position. We are not aware of any material legal proceedings pending against us. See "Risk Factors--We face potential claims of infringement on other parties' intellectual property rights."
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding our executive officers and directors as of March 31, 1999:
Name Age Position
------------------------ --- ---------------------------------------------------------------------------
John M. Payne........... 43 Chief Executive Officer, President and Director
John W. LaValle......... 42 Chief Financial Officer, Senior Vice President of Operations, and Secretary
Michael D. Walther...... 45 Senior Vice President, Network Operations
Timothy A. Von Kaenel... 33 Senior Vice President, Product Development
Douglas J. Walner....... 29 Vice President, Business Development
Jeffrey L. Green........ 28 Vice President, Marketing
Candelario J. Andalon... 30 Corporate Controller
Thomas H. Bruggere (2).. 53 Chairman of the Board of Directors
Mohan P. Ananda......... 52 Director
David C. Bohnett (1).... 43 Director
Jeffrey J. Brown (1).... 38 Director
Thomas N. Clancy (2).... 41 Director
G. Bradford Jones (2)... 44 Director
Marvin Runyon (1)....... 74 Director
Loren E. Smith.......... 61 Director
|
(2) Member of the Compensation Committee.
John M. Payne has been our Chief Executive Officer and President and a Director since October 1998, and was a consultant to us from May 1998 to October 1998. From June 1994 to January 1998, Mr. Payne served as the President and Chief Operating Officer and later the President and Chief Executive Officer of Airmedia, Inc., a wireless communications software and service provider. On April 15, 1999, Airmedia filed for Chapter 11 bankruptcy protection. From October 1992 to June 1994, Mr. Payne was the founding Chief Executive Officer of Fingertip Technologies, Inc., a software company. Previously, Mr. Payne co- founded and served as President of two specialty software firms, Financial Microsystems from June 1986 to October 1992, and LoanStar Computer from September 1979 to November 1986. Mr. Payne received his B.A. in Economics from the University of California, Irvine.
John W. LaValle has been our Chief Financial Officer, Senior Vice President of Operations, and Corporate Secretary since September 1998. From July 1997 to September 1998, Mr. LaValle served as Chief Financial Officer of Comcore Semiconductor, Inc., a semiconductor manufacturer. From November 1994 to July 1997, he was the Chief Financial Officer of Trikon Technologies a semiconductor equipment manufacturer. Previously, Mr. LaValle served as the Chief Financial Officer at Superconductor Technologies, a manufacturer of high temperature thin film superconductors used in cellular base station applications from September 1989 to November 1994. From April 1987 to September 1989, he was the Chief Financial Officer of PS Medical, a manufacturer of implantable neurosurgery products. From August 1984 to February 1987, Mr. LaValle served as a senior financial analyst for Chevron Corporation, and from December 1980 to September 1982, he served as a senior analyst for Andersen Consulting. Mr. LaValle received his B.A. in Government from Boston College and his M.B.A. from Harvard University.
Michael D. Walther has been our Senior Vice President of Network Operations since April 1999 after having served as a consultant since January 1999. From December 1997 to December 1999, Mr. Walther provided interim CEO/COO support to early stage venture companies. In June 1994, he co-founded Artios Corporation, an enterprise solutions company, and served as its President until December 1997. From October 1989 to June 1994, Mr. Walther served as President of AEI, a computer aided design software firm. Mr. Walther received his B.S. in Computer Science from the Texas A&M University--School of Commerce.
Timothy A. Von Kaenel has been our Senior Vice President of Product Development since January 1999. From July 1998 to January 1999, Mr. Von Kaenel was Director, Product Management at IMA, a customer service software company. From July 1995 to July 1998, Mr. Von Kaenel was Senior Vice President of Product Development at AirMedia, Inc., a wireless communications software and service provider. On April 15, 1999, Airmedia filed for Chapter 11 bankruptcy protection. Before AirMedia, Mr. Von Kaenel was Vice President, Interactive Technologies at Advanced Media, a multimedia software and interactive services company. In 1990, he founded and was President of Vision Imaging, an international developer and publisher of multimedia software products, which was later acquired by Advanced Media. Mr. Von Kaenel received his B.A. in Economics and M.B.A. from the University of California, Irvine.
Douglas J. Walner has been our Vice President of Business Development since September 1998, and from March 1998 to August 1998, Mr. Walner served as a business development and strategic relationship consultant. From January 1996 to March 1998, Mr. Walner was the Director of Business Development at CyberMedia, a software company. Mr. Walner served as OEM Sales Manager at Airmedia, Inc., from April 1994 to January 1996. Prior to 1994, Mr. Walner served as a Program Manager at Mortgage Capital Group/City National Bank. Mr. Walner received his B.A. in History from Tulane University.
Jeffrey L. Green has been our Vice President of Marketing since co-founding Stamps.com in September 1996. From August 1992 to May 1995, Mr. Green served as an account executive at Ziff Davis, Inc., a publishing company. Mr. Green also worked at Hewlett Packard in Product Marketing in 1996 while attending the Anderson School at UCLA. Mr. Green received his B.A. in Political Science from Dartmouth and his M.B.A. from UCLA.
Candelario J. Andalon has been our Corporate Controller since October 1998. From September 1991 to September 1998, Mr. Andalon served in various capacities at Ernst & Young LLP, most recently as Manager in the firm's Technology, Communications and Entertainment group. Mr. Andalon received his B.S. degree in Accounting from Loyola Marymount University and is a Certified Public Accountant.
Thomas H. Bruggere has been our Chairman of the Board of Directors since April 1998. Since 1994, Mr. Bruggere has been a private investor. In 1995 and 1996, Mr. Bruggere was the Democratic Nominee for the US Senate from Oregon. Mr. Bruggere founded Mentor Graphics, a semiconductor design consulting firm, in 1981 and served as its Chief Executive Officer until 1994. Mr. Bruggere also serves on the Board of Directors of Open Market, Inc., a software development company, and several privately-held companies. Mr. Bruggere received his B.S. in Mathematics from UC Santa Barbara, his M.S. in Computer Science from the University of Wisconsin and his M.B.A. from Pepperdine University.
Mohan P. Ananda has been a Director since January 1998. Mr. Ananda is a founder and currently serves as the Chief Executive Officer and Chairman of the Board of AmazingHitz.com, Inc., an Internet-based entertainment company. From January 1997 to October 1998, Mr. Ananda served as our Chief Executive Officer. From June 1986 to December 1996, Mr. Ananda was a partner of Ananda & Krause, a law firm. Mr. Ananda also serves on the Board of Directors of other privately- held companies. Mr. Ananda received his B.S. in Engineering from Coimbature Institute of Technology in India, M.S. his in Aeronautics from the California Institute of Technology, his Ph.D. in Astrodynamics and Control from UCLA, and his J.D. from the University of West Los Angeles.
David C. Bohnett has been a Director since March 1999. Currently, Mr. Bohnett serves as Chairman of the Board and Secretary of GeoCities, Inc., an Internet hosting company, which he founded in November 1994. From November 1994 to April 1998, Mr. Bohnett also served as GeoCities' Chief Executive Officer and President. From November 1994 to November 1997, Mr. Bohnett also served as GeoCities' Chief Financial Officer. Prior to founding GeoCities, from February 1990 to May 1994, Mr. Bohnett served as Director of Product Marketing at Goal Systems, which merged with LEGENT, a software company. From 1988 to 1990, Mr. Bohnett was Chief Financial Officer of Essential Software, which merged with Goal Systems. Mr. Bohnett also is a director of GeoCities, Inc. and several private companies. Mr. Bohnett was elected to our Board of Directors as a representative of the class of Series C investors pursuant to a voting agreement which will terminate upon the closing of this offering. Mr. Bohnett received his B.S. degree in Business Administration from the University of Southern California and his M.B.A. degree in Finance from the University of Michigan.
Jeffrey J. Brown has been a Director since February 1998. In June 1993, Mr. Brown founded and, since that time, he has been a director, executive officer and shareholder of Forrest Binkley & Brown Venture Co., the general partner of Forrest Binkley & Brown L.P., the Managing Partner of SBIC Partners. Mr. Brown is also a founder, director, executive officer and shareholder of Forrest Binkley & Brown Venture Advisor Co., an affiliate of SBIC Partners. From 1987 to 1992, Mr. Brown served in various executive capacities at Security Pacific Venture Capital Group. From April 1992 until June 1993, Mr. Brown acted as Senior Vice President of BankAmerica Venture Capital Group. Mr. Brown is a director of Golden State Vintners, Inc., a supplier of premium bulk wines and wine processing services, and serves on the boards of a number of private companies. Mr. Brown was elected to our Board of Directors as a representative of SBIC Partners pursuant to a voting agreement which will terminate upon the closing of this offering. Mr. Brown received his B.S. in Mathematics from Willamette University and his M.B.A. from the Stanford Graduate School of Business.
Thomas N. Clancy has been a Director since February 1998. Mr. Clancy has been a Venture Partner at Enterprise Partners Venture Capital since February 1997. Prior to joining Enterprise Partners in September 1996, Mr. Clancy was a Partner at Technical Resource Connection, now Perot Systems, a provider of information technology services, from March 1996 to July 1996. Previously, Mr. Clancy served as the Chief Executive Officer at Expersoft from May 1994 to January 1996 and as Vice President of Product Marketing at Expersoft from October 1993 to May 1994. From March 1983 to November 1991, Mr. Clancy worked at Citibank in engineering management and product development. Mr. Clancy serves on the board of a number of private companies. Mr. Clancy was elected to our Board of Directors as a representative of Enterprise Partners pursuant to a voting agreement which will terminate upon the closing of this offering. Mr. Clancy received his Computer and Systems Engineering degree from Rensselaer Polytechnic Institute in New York.
G. Bradford Jones has been a Director since October 1998. Mr. Jones is currently a General Partner at Brentwood Venture Capital, which he joined in 1981. Mr. Jones also currently serves on the board of directors of Onyx Acceptance Corporation, a specialized consumer finance company, Interpore International, a medical device company, and ISOCOR, a software developer, and several privately-held companies. Mr. Jones was elected to our Board of Directors as a representative of Brentwood Associates pursuant to a voting agreement which will terminate upon the closing of this offering. Mr. Jones received his B.S. in Chemistry from Harvard University, his Masters degree in Physics from Harvard University and his J.D./M.B.A. from Stanford University.
Marvin Runyon has been a Director since February 1999. From 1992 to 1999, Mr. Runyon served as Postmaster General of the United States. Prior to joining the US Postal Service, he served as Chairman of the Tennessee Valley Authority from 1988 to 1992. From 1980 to 1988, Mr. Runyon was the founding President and CEO of Nissan Motor Manufacturing Corporation U.S.A. Previously, Mr. Runyon spent 37 years at Ford Motor Co., leaving in 1980 with the position of Vice President, Body and Assembly Operations. Mr. Runyon serves as a board member of Genesis Direct, Inc., a specialty retailer. Mr. Runyon received his B.S. from Texas A&M University.
Loren E. Smith has served as a Director since February 1999. Since November 1996, Mr. Smith has been a Principal at Threshold Management, a consulting firm that specializes in strategic growth management for leading businesses in a diverse range of industries. He was also employed as a Principal at Threshold Management from July 1993 to October 1994. From October 1994 to October 1996, he served as Senior Vice President and Chief Marketing Officer of the US Postal Service. In 1985, Mr. Smith joined Citibank and was responsible for establishing the national marketing organization of its Consumer Services Group. From 1975 to 1995, he founded Threshold Management. Previously, Mr. Smith held various management positions at General Foods Corporation and Colgate Palmolive Co. Mr. Smith received his A.B. degree in Economics from Albion College and his M.B.A. from the University of Michigan.
Board Committees
The Board has established a Audit Committee to meet with and consider suggestions from members of management and our internal accounting personnel, as well as our independent accountants, concerning our financial operations. The Audit Committee also has the responsibility to review our audited financial statements and consider and recommend the employment of, and approve the fee arrangements with, independent accountants for both audit functions and for advisory and other consulting services. The Audit Committee is currently comprised of Messrs. Runyon, Bohnett and Brown. The Board has also established a Compensation Committee to review and approve the compensation and benefits for our key executive officers, administer our stock purchase, equity incentive and stock option plans and make recommendations to the Board regarding such matters. The Compensation Committee is currently comprised of Messrs. Bruggere, Clancy and Jones.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Bruggere, Clancy and Jones. Neither of these individuals was an employee of ours at any time since our formation. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.
Director Compensation and Other Arrangements
Our directors receive no cash remuneration for serving on the Board of Directors or any board committee. In March and February, 1999, Messrs. Bohnett, Runyon and Smith were each granted an option to purchase 72,000 shares of common stock. The options were granted at fair market value on the date of grant and vest ratably over a three year periods. In April 1999, Messrs. Clancy, Jones and Brown were each granted an option to purchase 24,000 shares of common stock. These options were granted at fair market value on the date of grant and vest in full on the first anniversary of the grant. In addition, directors are reimbursed for all reasonable expenses incurred by them in attending Board and Committee meetings.
In February 1999 we entered into a three-year consulting agreement with Loren Smith whereby he will provide marketing and strategic planning services. Mr. Smith also agreed to serve as a director on our Board of Directors and to serve as a member on a board committee. In exchange for these services, we will compensate Mr. Smith $120,000 per year, and in consideration of his consulting services, grant him an option to purchase 90,000 shares of our common stock at $0.50 per share.
Directors who are also our employees are eligible to receive options and be issued shares of common stock directly under our 1999 Stock Incentive Plan. Non-employee directors will also receive automatic option grants pursuant to our 1999 Stock Incentive Plan, subject to certain conditions. See "--1999 Stock Incentive Plan."
Executive Compensation
The following summary compensation table sets forth information concerning cash and non-cash compensation earned during the fiscal year ended December 31, 1998 by our Chief Executive Officer and each of our other four highest paid executive officers whose total compensation exceeded or would have exceeded $100,000 during such year had such officers provided services to us for the entire fiscal year (the "Named Executive Officers").
Summary Compensation Table for Fiscal Year 1998
Long Term
Annual Compensation Compensation
-------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Positions Salary ($) Bonus ($) Compensation ($) Options (#) Compensation ($)
------------------ ---------- --------- ---------------- ------------ ----------------
John M. Payne
President and Chief
Executive
Officer (October 1998
to present).......... 27,897 -- -- -- 112,800(1)
John W. LaValle
Chief Financial Officer
and Senior
Vice President of
Operations........... 42,000 -- -- 263,868 --
Mohan P. Ananda
Chief Executive Officer
and
President (January 1998
to October 1998)..... 85,500 -- -- -- --
Douglas J. Walner
Vice President of
Business
Development............ 35,000 25,000 -- 244,238 7,434(2)
|
(2) Represents aggregate payments to Mr. Walner for consulting services performed during the period from August 1998 to September 1998.
Stock Options Granted During Fiscal Year 1998
The following table sets forth certain information regarding options to purchase common stock granted to Named Executive Officers during the fiscal year ended December 31, 1998. No stock appreciation rights were granted to such individuals during such year.
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Appreciation
For Option
Individual Grants Term(4)
------------------------------------------------------------- ---------------
Number of Percentage of
Securities Total Options Granted Exercise
Underlying Options to Employees Price Per Expiration
Name Granted(1) in 1998(2) Share(3) Date 5% 10%
---- ------------------ --------------------- --------- ---------- ------- -------
John W. LaValle......... 263,868 16.9% $0.10 9/24/08 $16,594 $42,054
Douglas J. Walner....... 244,238 15.6% $0.10 8/20/08 $15,360 $38,925
|
Aggregated Option Exercises in Fiscal Year Ended December 31, 1998 and Year-End Option Values
The following table sets forth certain information concerning options to purchase common stock exercised by the Named Executive Officers during 1998 and the number and value of unexercised options held by each of the Named Executive Officers at December 31, 1998.
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Options at
December 31, December 31,
1998(1) 1998(2)
--------------- ---------------
Name Vested Unvested Vested Unvested
---- ------ -------- ------ --------
John W. LaValle (3)............................. 0 263,868 0 $105,547
Douglas J. Walner (3)........................... 0 244,238 0 $ 97,695
|
Employment Agreements and Change in Control Arrangements
John M. Payne has entered into a letter agreement, effective as of October 29, 1998, pursuant to which Mr. Payne serves as our President and Chief Executive Officer. Mr. Payne's 1999 compensation includes a base salary of $210,000 per year and a potential bonus of $90,000 if certain performance targets are satisfied. In addition, we gave Mr. Payne benefits that we make available to our employees in comparable positions, and upon his execution of the letter agreement, we sold 1,000,000 shares of our common stock to him at $0.10 per share, the fair market value on the purchase date. Mr. Payne is an at-will employee and his employment may be terminated at any time by him or by us. If Mr. Payne's employment is constructively terminated or terminated by us or a successor entity involuntarily within 12 months following a change in control, or if we terminate or constructively terminate Mr. Payne's employment for any reason other than for cause, he will be entitled to receive monthly installments of his base salary for six months and all of his unvested stock will become immediately vested. After two years of employment, such severance period will increase to nine months, and after three years of service, the severance period will increase to one year.
John W. LaValle entered into a letter agreement, effective as of August 16, 1998, pursuant to which Mr. LaValle serves as our Chief Financial Officer and Senior Vice President. Pursuant to this agreement, Mr. LaValle receives a base salary of $156,000 per year. We granted Mr. LaValle an option to purchase 263,868 shares of common stock at $0.10 per share, the fair market value on the grant date. In addition, Mr. LaValle receives standard medical and dental benefits available to our other employees. Mr. LaValle is an at-will employee and his employment can be terminated at anytime by him or by us. If Mr. LaValle's employment is constructively terminated or terminated by us or a successor entity within 12 months following a change in control, all of his unvested stock will become immediately vested.
Mohan P. Ananda entered into an employment agreement, effective as of January 20, 1998, pursuant to which Mr. Ananda served as our President, Chief Executive Officer and the Chairman of the Board of Directors. Mr. Ananda received an initial base salary of $60,000, which was increased to $120,000 per year in October 1998. In addition, we sold 1,448,397 shares of our common stock to Mr. Ananda at $0.02 per share. Mr. Ananda has ceased active involvement with our operations, but he continues to be a director on our Board of Directors.
In April 1999, we amended our 1998 Stock Plan to adopt a change in control provision. As a result of this provision, should any optionee have their service involuntarily terminated within eighteen (18) months following a Corporate Transaction in which his or her options are assumed by the successor corporation and do not otherwise accelerate at that time, then those options will accelerate and become fully exercisable for all of the option shares as fully-vested shares of Common Stock upon such involuntary termination. A "Corporate Transaction" under the 1998 Stock Plan is defined as a merger or consolidation in which securities possessing more than 50% of the total combined voting power of our outstanding securities are transferred to a person or persons different from those who held those securities immediately prior to such transaction, or the sale, transfer or other disposition of all or substantially all of our assets in complete liquidation of us. "Involuntary Termination" is defined under the 1998 Stock Plan as the optionee's involuntary dismissal or discharge by us for reasons other than misconduct, or the optionee's voluntary resignation following (a) a change in his or her position with us which materially reduces his or her responsibilities or (b) a reduction in his or her level of compensation (including base salary, fringe benefits and any non-discretionary and objective-standard incentive payment or bonus award) by more than 15% or (c) a relocation of the optionee's place of employment by more than 50 miles, and such change, reduction or relocation is effected by us without the optionee's consent.
Douglas J. Walner is subject to an agreement which partially accelerates the vesting of his options upon a change in control and his subsequent termination.
Our 1999 Stock Incentive Plan will include change in control provisions which may result in the accelerated vesting of outstanding option grants and stock issuances. See "--1999 Stock Incentive Plan--Change in Control."
1999 Stock Incentive Plan
Introduction. The 1999 Stock Incentive Plan is intended to serve as the successor program to our 1998 Stock Plan. The 1999 plan was adopted by the board in 1999 and approved by the stockholders in 1999. The 1999 plan will become effective when the underwriting agreement for this offering is signed. At that time, all outstanding options under our existing 1998 plan will then be transferred to the 1999 plan, and no further option grants will be made under the 1998 plan. The transferred options will continue to be governed by their existing terms, unless our compensation committee decides to extend one or more features of the 1999 plan to those options. Except as otherwise noted below, the transferred options have substantially the same terms as will be in effect for grants made under the discretionary option grant program of our 1999 stock plan.
Share Reserve. shares of our common stock have been authorized for issuance under the 1999 plan. This share reserve consists of the number of shares we estimate will be carried over from the 1998 plan plus an additional increase of shares. The share reserve under our 1999 plan will automatically increase on the first trading day in January each year, beginning with calendar year 2000, by an amount equal to percent ( %) of the total number of shares of our common stock outstanding on the last trading day of December in the prior year, but in no event will this annual increase exceed shares. In addition, no participant in the 1999 plan may be granted stock options or direct stock issuances for more than 1,000,000 shares of common stock in total in any calendar year.
Programs. Our 1999 plan has five separate programs:
. the discretionary option grant program, under which eligible individuals in our employ may be granted options to purchase shares of our common stock at an exercise price not less than the fair market value of those shares on the grant date;
. the stock issuance program, under which eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or upon the completion of a period of service or as a bonus for past services;
. the salary investment option grant program, under which our executive officers and other highly compensated employees may be given the opportunity to apply a portion of their base salary to the acquisition of special below market stock option grants;
. the automatic option grant program, under which option grants will automatically be made at periodic intervals to eligible non-employee board members to purchase shares of common stock at an exercise price equal to the fair market value of those shares on the grant date; and
. the director fee option grant program, under which our non-employee board members may be given the opportunity to apply a portion of any retainer fee otherwise payable to them in cash for the year to the acquisition of special below-market option grants.
Eligibility. The individuals eligible to participate in our 1999 plan include our officers and other employees, our board members and any consultants we hire.
Administration. The discretionary option grant and stock issuance programs will be administered by our compensation committee. This committee will determine which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a nonstatutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The compensation committee will also have the authority to select the executive officers and other highly compensated employees who may participate in the salary investment option grant program in the event that program is put into effect for one or more calendar years.
Plan Features. Our 1999 plan will include the following features:
. The exercise price for any options granted the plan may be paid in cash or in shares of our common stock valued at fair market value on the exercise date. The option may also be exercised through a same-day sale program without any cash outlay by the optionee.
. The compensation committee will have the authority to cancel outstanding options under the discretionary option grant program, including any transferred options from our 1998 plan, in return for the grant of new options for the same or different number of option shares with an exercise price per share based upon the fair market value of our common stock on the new grant date.
. Stock appreciation rights may be issued under the discretionary option grant program. These rights will provide the holders with the election to surrender their outstanding options for a payment from us equal to the fair market value of the shares subject to the surrendered options less the exercise price payable for those shares. We may make the payment in cash or in shares of our common stock. None of the options under our 1998 plan have any stock appreciation rights.
Change in Control. The 1999 plan will include the following change in control provisions which may result in the accelerated vesting of outstanding option grants and stock issuances:
. In the event that we are acquired by merger or asset sale, each outstanding option under the discretionary option grant program which is not to be assumed by the successor corporation will
immediately become exercisable for all the option shares, and all outstanding unvested shares will immediately vest, except to the extent our repurchase rights with respect to those shares are to be assigned to the successor corporation.
. The compensation committee will have complete discretion to grant one or more options which will become exercisable for all the option shares in the event those options are assumed in the acquisition but the optionee's service with us or the acquiring entity is subsequently terminated. The vesting of any outstanding shares under our 1999 plan may be accelerated upon similar terms and conditions.
. The compensation committee may grant options and structure repurchase rights so that the shares subject to those options or repurchase rights will immediately vest in connection with a successful tender offer for more than fifty percent of our outstanding voting stock or a change in the majority of our board through one or more contested elections. Such accelerated vesting may occur either at the time of such transaction or upon the subsequent termination of the individual's service.
. The options currently outstanding under our 1998 plan will immediately vest in the event we are acquired and the acquiring company does not assume those options. Any options which are so assumed will immediately vest upon an involuntary termination of the optionee's employment within 18 months after the acquisition.
Salary Investment Option Grant Program. In the event the compensation committee decides to put this program into effect for one or more calendar years, each of our executive officers and other highly compensated employees may elect to reduce his or her base salary for the calendar year by an amount not less than $10,000 nor more than $50,000. Each selected individual who makes such an election will automatically be granted, on the first trading day in January of the calendar year for which his or her salary reduction is to be in effect, an option to purchase that number of shares of common stock determined by dividing the salary reduction amount by two-thirds of the fair market value per share of our common stock on the grant date. The option will have exercise price per share equal to one-third of the fair market value of the option shares on the grant date. As a result, the option will be structured so that the fair market value of the option shares on the grant date less the exercise price payable for those shares will be equal to the amount of the salary reduction. The option will become exercisable in a series of twelve equal monthly installments over the calendar year for which the salary reduction is to be in effect.
Automatic Option Grant Program. Each individual who first becomes a non- employee board member at any time after the effective date of this offering will receive an option grant for shares of common stock on the date such individual joins the board. In addition, on the date of each annual stockholders meeting held after the effective date of this offering, each non- employee board member who is to continue to serve as a non-employee board member, including each of our current non-employee board members, will automatically be granted an option to purchase shares of common stock, provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the fair market value per share of our common stock on the grant date and will have a term of 10 years, subject to earlier termination following the optionee's cessation of board service. The option will be immediately exercisable for all of the option shares; however, we may repurchase, at the exercise price paid per share, any shares purchased under the option which are not vested at the time of the optionee's cessation of board service. The shares subject to each annual automatic grant will be fully-vested when granted. The shares subject to each initial -share automatic option grant will vest in a series of successive equal monthly installments upon the optionee's completion of each month of board service over the month period measured from the grant date. However, the shares will immediately vest in full upon certain changes in control or ownership or upon the optionee's death or disability while a board member.
Director Fee Option Grant Program. If this program is put into effect in the future, then each non-employee board member may elect to apply all or a portion of any cash retainer fee for the year to the acquisition of a below- market option grant. The option grant will automatically be made on the first trading day
in January in the year for which the non-employee board member would otherwise be paid the cash retainer fee in the absence of his or her election. The option will have an exercise price per share equal to one-third of the fair market value of the option shares on the grant date, and the number of shares subject to the option will be determined by dividing the amount of the retainer fee applied to the program by two-thirds of the fair market value per share of our common stock on the grant date. As a result, the option will be structured so that the fair market value of the option shares on the grant date less the exercise price payable for those shares will be equal to the portion of the retainer fee applied to that option. The option will become exercisable in a series of twelve equal monthly installments over the calendar year for which the election is in effect. However, the option will become immediately exercisable for all the option shares upon the death or disability of the optionee while serving as a board member.
Additional Program Features. Our 1999 plan will also have the following features:
. Outstanding options under the salary investment and director fee option grant programs will immediately vest if we are acquired by a merger or asset sale or if there is a successful tender offer for more than 50% of our outstanding voting stock or a change in the majority of our board through one or more contested elections.
. Limited stock appreciation rights will automatically be included as part of each grant made under the salary investment option grant program and the automatic and director fee option grant programs, and these rights may also be granted to one or more officers as part of their option grants under the discretionary option grant program. Options with this feature may be surrendered to us upon the successful completion of a hostile tender offer for more than 50% of our outstanding voting stock. In return for the surrendered option, the optionee will be entitled to a cash distribution from us in an amount per surrendered option share based upon the highest price per share of our common stock paid in that tender offer.
. The board may amend or modify the 1999 plan at any time, subject to any required stockholder approval. The 1999 plan will terminate no later than , 2009.
1999 Employee Stock Purchase Plan
Introduction. Our 1999 Employee Stock Purchase Plan was adopted by the board in 1999 and approved by the stockholders in 1999. The plan will become effective immediately upon the signing of the underwriting agreement for this offering. The plan is designed to allow our eligible employees and the eligible employees our participating subsidiaries to purchase shares of common stock, at semi-annual intervals, with their accumulated payroll deductions.
Share Reserve. shares of our common stock will initially be reserved for issuance. The reserve will automatically increase on the first trading day in January each year, beginning in calendar year 2000, by an amount equal to percent ( %) of the total number of outstanding shares of our common stock on the last trading day in December in the prior year. In no event will any such annual increase exceed shares.
Offering Periods. The plan will have a series of successive offering periods, each with a maximum duration of 24 months. The initial offering period will start on the date the underwriting agreement for the offering covered is signed and will end on the last business day in 2001. The next offering period will start on the first business day in 2001, and subsequent offering periods will set by our compensation committee.
Eligible Employees. Individuals scheduled to work more than 20 hours per week for more than 5 calendar months per year may join an offering period on the start date or any semi-annual entry date within that period. Semi-annual entry dates will occur on the first business day of and each year. Individuals who become eligible employees after the start date of an offering period may join the plan on any subsequent semi- annual entry date within that offering period.
Payroll Deductions. A participant may contribute up to 15% of his or her cash earnings through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date . The purchase price per share will be equal to 85% of the fair market value per share on the participant's entry date into the offering period or, if lower, 85% of the fair market value per share on the semi-annual purchase date.
Semi-annual purchase dates will occur on the last business day of and each year. In no event, however, may any participant purchase more than shares on any purchase date, and not more than shares may be purchased in total by all participants on any purchase date.
Reset Feature. If the fair market value per share of our common stock on any purchase date is less than the fair market value per share on the start date of the two-year offering period, then that offering period will automatically terminate, and a new two-year offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period.
Change in Control. Should we be acquired by merger or sale of substantially all of our assets or more than fifty percent of our voting securities, then all outstanding purchase rights will automatically be exercised immediately prior to the effective date of the acquisition. The purchase price will be equal to 85% of the market value per share on the participant's entry date into the offering period in which an acquisition occurs or, if lower, 85% of the fair market value per share immediately prior to the acquisition.
Plan Provisions. The following provisions will also be in effect under the plan:
. The plan will terminate no later than the last business day of 2009.
. The board may at any time amend, suspend or discontinue the plan. However, certain amendments may require stockholder approval.
Limitation on Liability and Indemnification Matters
The certificate of incorporation that we will adopt immediately prior to the closing of this offering provides that, except to the extent prohibited by the Delaware General Corporation Law, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as directors. Under the Delaware General Corporation Law, the directors have a fiduciary duty to Stamps.com which is not eliminated by this provision of the certificate of incorporation and, in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available. In addition, each director will continue to be subject to liability under the Delaware law for breach of the director's duty of loyalty, for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or which involve intentional misconduct, or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are prohibited by Delaware law. This provision also does not affect the director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. We have obtained liability insurance for our officers and directors.
Section 145 of the Delaware law empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided
that this provision shall not eliminate or limit the liability of a director:
(a) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) arising under Section
174 of the Delaware law, or (d) for any transaction from which the director
derived an improper personal benefit. The Delaware law provides further that
the indemnification permitted thereunder shall not be deemed exclusive of any
other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
certificate of incorporation provides that we shall, to the
fullest extent permitted by the Delaware law, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director or officer, or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding.
We plan to enter into indemnification agreements with our directors and certain of our officers containing provisions that may require us, among other things, to indemnify such directors and officers against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' liability insurance if maintained for other directors or officers.
At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.
CERTAIN TRANSACTIONS
Since our inception in January 1998, there has not been, nor is there currently proposed, any transaction to which we are a party in which the amount involved exceeded $60,000 and in which any director, executive officer, holder of more than 5% of our common stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest other than (1) compensation agreements and other agreements and (2) the transactions described below.
We have issued an aggregate of 4,600,650 shares of common stock for an aggregate purchase price of $193,760.00. John M. Payne, our President and Chief Executive Officer, purchased 1,000,000 shares of common stock in November 1998 for an aggregate purchase price of $100,000.00, which amount includes a note payable to Stamps.com for $99,000.00. Thomas Bruggere, our Chairman of the Board of Directors, purchased 325,650 shares of common stock in October 1998 and December 1998 for an aggregate purchase price of $28,460.00. Mohan Ananda, a member of our board of directors, purchased 1,448,397 shares of common stock in January 1998 for an aggregate purchase price of $28,967.94. As payment of the purchase price, Mr. Ananda assigned certain intellectual property rights to us and received an exclusive, worldwide, fully paid license back from us to use certain patents in a restricted field of use. In January 1998, we also sold 282,662 shares of common stock to each of our co-founders, James McDermott, Ari Engelberg and Jeffrey Green, for an aggregate purchase price of $16,959.72, which amount includes $9,000.00 in notes payable to Stamps.com.
We have issued, in private placement transactions, shares of preferred stock as follows:
. an aggregate of 3,762,500 shares of Series A preferred stock at $0.40 per share in February 1998;
. an aggregate of 6,020,000 shares of Series B preferred stock at $0.75 per share in August, October and November 1998; and
. an aggregate of 5,464,486 shares of Series C preferred stock at $5.49 per share in February and March 1999.
Each share of preferred stock will be converted into common stock upon completion of this offering.
We paid $61,000 in March 1998 to Safeware Corporation for employee salary and patent prosecution expenses incurred on our behalf. Mr. Ananda is the majority shareholder in Safeware Corporation. We also reimbursed Mr. Ananda for approximately $20,000 for expenses incurred on our behalf.
We paid Mr. Payne $112,800 for consulting services he rendered to us between May 1998 and October 1998.
In February 1999, Loren Smith, a director, entered into a three-year consulting agreement with us to provide marketing and strategic planning services. In exchange for his consulting services, Mr. Smith will receive consulting fees of $120,000 per annum and an option to purchase 90,000 shares of common stock at $0.50 per share. The term of this agreement extends from February 1999 to February 2002.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of the common stock as of March 31, 1999, after giving effect to the conversion of convertible preferred stock, and as adjusted to reflect the sale of the shares of common stock offered in this offering, by (1) each stockholder whom we know to beneficially own 5% or more of the outstanding shares of common stock, (2) each of our directors and Named Executive Officers, and (3) all of our directors and executive officers as a group. Unless otherwise indicated, the address of each beneficial owner listed below is c/o Stamps.com Inc., 2900 31st Street, Suite 150, Santa Monica, California 90405.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Percentage of beneficial ownership is based on 19,847,636 shares of common stock outstanding as of March 31, 1999 on a proforma basis and shares of common stock outstanding after the completion of this offering. In computing the number of shares of common stock subject to options held by that person that are exercisable within 60 days of March 31, 1999, these shares are deemed outstanding for the purpose of determining the percentage ownership of the optionee. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other stockholder.
Percentage of Shares
Beneficially Owned
------------------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned offering offering
------------------------ ------------------ ---------- ----------
Named Executive Officers and
Directors:
Jeffrey J. Brown(1)............ 3,614,299 18.2% %
Thomas N. Clancy(2)............ 3,614,299 18.2% %
G. Bradford Jones(3)........... 3,614,299 18.2% %
Mohan P. Ananda(4)............. 1,448,397 7.3% %
John M. Payne.................. 1,000,000 5.0% %
Thomas H. Bruggere(5).......... 325,650 1.6% %
John W. LaValle (6)............ 263,868 1.3% %
Douglas J. Walner(7)........... 244,238 1.2% %
Loren E. Smith(8).............. 162,000 * *
David C. Bohnett(9)............ 90,215 * *
Marvin Runyon(10).............. 76,554 * *
Other 5% Stockholders:
Brentwood Venture Capital
(3).......................... 3,614,299 18.2% %
11150 Santa Monica Blvd,
Suite 1200
Los Angeles, CA 90025
Enterprise Partners IV, L.P.
(2).......................... 3,614,299 18.2% %
5000 Birch Street, Suite
6200
Newport Beach, CA 92660
SBIC Partners, L.P. ........... 3,614,299 18.2% %
840 Newport Center Drive,
Suite 480
Newport Beach, CA 92660
Vulcan Ventures Inc............ 1,821,494 9.2% %
110-110th Ave., N.E., Suite
550
Bellevue, WA 98004
Chase Venture Capital
Partners, L.P................ 1,457,195 7.3% %
380 Madison Ave., 12th Floor
New York, NY 10017
All directors and executive
officers as a group
(15 people) (11)............... 14,861,391 71.5% %
|
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and certain provisions of our certificate of incorporation and bylaws are summaries. Statements contained in this prospectus relating to such provisions are not necessarily complete, copies of which have been filed with the Commission as exhibits to our registration statement, of which this prospectus forms a part. The description of common stock and preferred stock reflect changes to our capital structure that will occur upon the closing of this offering in accordance with the terms of the certificates that will be adopted by us immediately prior to the closing of this offering.
Upon the closing of this offering, our authorized capital stock will consist of shares of common stock, par value $0.001, and 5,000,000 shares of preferred stock, par value $0.001.
Common Stock
As of March 31, 1999, there were 19,847,636 shares of common stock outstanding and held of record by 36 stockholders (assuming conversion of all shares of preferred stock into common stock). Based on the number of shares outstanding as of that date and giving effect to the issuance of the shares of common stock offered by us hereby, there will be shares of common stock outstanding (assuming no exercise of the underwriters' over- allotment option) upon the closing of the offering.
Holders of the common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds, subject to any preferential dividend rights of any outstanding preferred stock. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive ratably our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are, and the shares offered by us in this offering will be, upon receipt of payment for such shares, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock which we may designate and issue in the future without further stockholder approval. Upon the closing of the offering, there will be no shares of preferred stock outstanding.
Preferred Stock
Upon the closing of this offering, all outstanding shares of our Series A, Series B and Series C preferred stock will convert into shares of common stock. Thereafter, the Board of Directors will be authorized without further stockholder approval, to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series, including the dividend rights, dividend rates, conversion rights, voting rights, term of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our management without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. We have no present plans to issue any shares of preferred stock.
Warrant
On May 1, 1998, we issued a warrant which is currently exercisable for 4,700 shares of common stock at $0.40 per share. The warrant may be exercised at any time on or before May 1, 2005.
Anti-Takeover Effects of Provisions of Delaware Law and our Certificate of Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, as amended from time to time. Subject to certain exceptions,
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years from the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, fifteen percent (15%) or more of the corporation's
voting stock. This statute could prohibit or delay the accomplishment of
mergers or other takeover or change in control in attempts with respect to us
and, accordingly, may discourage attempts to acquire us.
In addition, certain provisions of the certificate of incorporation and bylaws, which provisions are summarized in the following paragraphs, may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in his best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.
Stockholder Action; Special Meeting of Stockholders. The certificate provides that stockholders may not take action by written consent, but only at duly called annual or special meetings of stockholders. The certificate further provides that special meetings of our stockholders may be called only by the Chairman of the Board of Directors or a majority of the Board of Directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations. The bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder's notice must be delivered to or mailed and received at our principal executive offices not less than days nor more than days prior to the first anniversary of the date of our notice of annual meeting provided with respect to the previous year's annual meeting of stockholders; provided, that if no annual meeting of stockholders was held in the previous year or the date of the annual meeting of stockholders has been changed to be more than 30 calendar days earlier than or 60 calendar days after such anniversary, notice by the stockholder, to be timely, must be so received not more than 90 days before nor later than the later of (a) 60 days prior to the annual meeting of stockholders or (b) the close of business on the 10th day following the date on which notice of the date of the meeting is given to stockholders or made public, whichever first occurs. The bylaws also specify certain requirements as to the form and content of a stockholder's notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws, unless a corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage.
Registration Rights
After this offering, holders of the 16,695,383 shares of common stock issuable upon conversion of the outstanding preferred stock upon the closing of this offering will be entitled to registration rights with respect
to their shares. Of such shares, 1,448,397 shares of common stock are only entitled to "piggy-back" registration rights. The holders of securities with registration rights can require us to register all or part of their shares at any time following six months after this offering, subject to certain conditions. In addition, subject to certain limitations, these holders may also require us to include their shares in future registration statements that we file and may require us to register their shares on Form S-3. Upon registration, such shares are freely tradable in the public market without restriction.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock will be U.S. Stock Transfer Corporation.
Listing
Application has been made for listing the common stock on the Nasdaq National Market under the trading symbol "STMP."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have shares of common stock outstanding ( shares if the underwriters' over-allotment option is exercised in full), assuming no exercise of options after , 1999. Of this amount, the shares offered by this prospectus will be available for immediate sale in the public market as of the date of this prospectus. An additional shares are not subject to an 180-day lock- up and will be available for sale in the public market 90 days following the date of this prospectus pursuant to Rule 701. Approximately additional shares will be available for sale in the public market following the expiration of 180-day lock-up agreements with the representatives of our underwriters, subject in some cases to compliance with the volume and other limitations of Rule 144.
Days after the Approximate Shares
Date of this Eligible for
Prospectus Future Sale Comment
-------------- ------------------ ---------------------------------------
Upon Effectiveness Freely tradable shares sold in offering
and shares salable under Rule 144(k)
that are not subject to 180-day lock-up
90 days Shares salable under Rules 144 or 701
that are not subject to 180-day lock-up
180 days Lock-up released; shares salable under
Rules 144 or 701
Over 180 days Restricted securities held for one year
or less
|
In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year is entitled to sell within any three-month period commencing 90 days after the date of this prospectus a number of shares that does not exceed the greater of (a) 1% of the then outstanding shares of common stock (approximately shares immediately after the offering) or (b) the average weekly trading volume during the four calendar weeks preceding such sale, subject to the filing of a Form 144 with respect to such sale. A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of Stamps.com at any time during the 90 days immediately preceding the sale and who has beneficially owned his or her shares for at least two years is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations described above. Persons deemed to be affiliates must always sell pursuant to Rule 144, even after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule 144, since this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors. Prior to the offering, there has been no public market for the common stock, and there can be no assurance that a significant public market for the common stock will develop or be sustained after the offering. Any future sale of substantial amounts of the common stock in the open market may adversely affect the market price of the common stock offered hereby.
Our directors, executive officers, stockholders with registration rights and certain other stockholder and optionholders have agreed pursuant to the underwriting agreement and other agreements that they will not sell any common stock without the prior written consent of BancBoston Robertson Stephens Inc. for a period of 180 days from the date of this prospectus. We have also agreed not to issue any shares during the lock-up period without the consent of BancBoston Robertson Stephens Inc., except that we may, without such consent, grant options and sell shares pursuant to our stock incentive and purchase plans.
Any of our employees or consultants who purchased his or her shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permits nonaffiliates to sell their Rule 701 shares without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 shares without having to comply with the Rule 144 holding period restrictions, in each case commencing 90 days after the date of this prospectus. As of , the holders of options to purchase approximately shares of common stock will be eligible to sell their shares upon the expiration of the lock-up period, subject in certain cases to vesting of such options.
We intend to file a registration statement on Form S-8 under the Securities Act within days after the completion of the offering to register shares of common stock subject to outstanding stock options reserved for issuance under our 1999 Stock Incentive Plan, thus permitting the resale of such shares by nonaffiliates in the public market without restriction under the Securities Act.
In addition, certain shareholders have registration rights with respect to 16,695,383 shares of common stock and common stock equivalents. Registration of the registrable securities under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act.
UNDERWRITING
The underwriters named below, acting through their representatives, BancBoston Robertson Stephens Inc., Thomas Weisel Partners LLC and Volpe Brown Whelan & Company, LLC have severally agreed with us, subject to the terms and conditions of the underwriting agreement, to purchase from us the number of shares of common stock set forth opposite their names below. The underwriters are committed to purchase and pay for all such shares if any are purchased.
Number of
Underwriters Shares
------------ ----------
BancBoston Robertson Stephens Inc. ..............................
Thomas Weisel Partners LLC.......................................
Volpe Brown Whelan & Company, LLC................................
----------
Total..........................................................
|
We have been advised that the underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at such price less a concession of not in excess of $ per share, of which $ may be reallowed to other dealers. After the initial public offering, the public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.
Over-Allotment Option. We have granted to the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to additional shares of common stock at the same price per share as we will receive for the shares that the underwriters have agreed to purchase. To the extent that the underwriters exercise such option, each of the underwriters will have a firm commitment to purchase approximately the same percentage of such additional shares that the number of shares of common stock to be purchased by it shown in the above table represents as a percentage of the shares offered hereby. If purchased, such additional shares will be sold by the underwriters on the same terms as those on which the shares are being sold. We will be obligated, pursuant to the option, to sell shares to the extent the option is exercised. The underwriters may exercise such option only to cover over- allotments made in connection with the sale of the shares of common stock offered hereby.
The following table shows the per share and total underwriting discounts and commissions to be paid by us to the underwriters. This information is presented assuming either no exercise or full exercise by the underwriters of their over-allotment option.
Per Without With
Share Option Option
----- ------- ------
Public offering price................................... $ $ $
Underwriting discounts and commissions.................. $ $ $
Proceeds, before expenses, to us........................ $ $ $
|
The expenses of the offering are estimated at $ million and are payable entirely by us. BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock to purchasers on , 1999.
Indemnity. The underwriting agreement contains covenants of indemnity among the underwriters and us against certain civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representation and warranties contained in the underwriting agreement.
Future Sales. Each of our executive officers, directors and other significant stockholders of record has agreed with the representatives, for a period of 180 days after the date of this prospectus (the "Lock-Up Period"), not to offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock, any options or warrants to purchase any shares of common stock, or
any securities convertible into or exchangeable for shares of common stock
owned as of the date of this prospectus or thereafter acquired directly by such
holders or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of BancBoston Robertson Stephens
Inc. However, BancBoston Robertson Stephens Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. There are no agreements between the
representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the Lock-Up
Period. In addition, we have agreed that, during the Lock-Up Period, we will
not, subject to certain exceptions, without the prior written consent of
BancBoston Robertson Stephens Inc., (a) consent to the disposition of any
shares held by stockholders prior to the expiration of the Lock-Up Period or
(b) issue, sell, contract to sell or otherwise dispose of, any shares of common
stock, any options or warrants to purchase any shares of common stock, or any
securities convertible into, exercisable for or exchangeable for shares of
common stock, other than our sale of shares in the offering, our issuance of
common stock upon the exercise of currently outstanding options and warrants,
and our issuance of incentive awards under our stock incentive plans. See
"Shares Eligible for Future Sale."
Directed Shares. At our request, the underwriters have reserved up to shares of common stock for sale, at the initial public offering price, to our employees, business associates and other friends through a directed share program. The number of shares of common stock available for sale to the general public in the offering will be reduced to the extent participants in the directed share program purchase the reserved shares.
The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority.
No Prior Public Market. Prior to this offering, there has been no public market for the common stock. Consequently, the initial public offering price for the common stock offered hereby has been determined through negotiations between us and the representatives. Among the factors considered in such negotiations were prevailing market conditions, our financial information, market valuations of other companies that we and the representatives believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.
Bayview Investors, Ltd., an investment partnership affiliated with BancBoston Robertson Stephens Inc., purchased 60,717 shares of Series C Preferred Stock from us on February 17, 1999 at a price of $5.49 per share and on the same terms and conditions as all other purchasers in our Series C Preferred Stock financing. BancBoston Robertson Stephens Inc. acted as placement agent for our Series C Preferred Stock financing and received for its services a fee of approximately $1.4 million from us.
New Underwriter. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has been named as a lead or co-manager on filed public offerings of equity securities, of which have been completed, and has acted as a syndicate member in an additional public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or other controlling persons, except with respect to its contractual relationship with us pursuant to the underwriting agreement entered into in connection with this offering.
Stabilization. The representatives have advised us that, pursuant to Regulation M under the Securities Exchange Act, certain persons participating in the offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of the common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A "syndicate covering transaction" is the bid for or purchase of the common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with the offering if the common stock originally sold by such underwriter or syndicate member is purchased by the representatives in a syndicate covering transaction and has therefore not been effectively placed by such underwriter or syndicate member. The representatives have advised us that such transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by Brobeck, Phleger & Harrison LLP, Irvine, California. As of March 31, 1999, certain entities and individuals affiliated with Brobeck, Phleger & Harrison LLP beneficially owned an aggregate of 51,609 shares of our Series C preferred stock that will convert to common stock in the offering. Certain legal matters relating to the sale of common stock in this offering will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati, Palo Alto, California.
EXPERTS
The financial statements included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (including the exhibits and schedules thereto) under the Securities Act with respect to the shares to be sold in the offering. This prospectus does not contain all the information set forth in the registration statement. For further information with respect to us and the shares to be sold in the offering, reference is made to the registration statement. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract, agreement or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. In addition, we intend to file annual, quarterly and current reports, proxy statements and other information with the Commission.
You may read and copy all or any portion of the registration statement or any reports, statements or other information that we file at the Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our Commission filings, including the registration statement, are also available to you on the Commission's Web site (http://www.sec.gov).
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants.................................. F-2
Balance Sheets at December 31, 1998 and March 31, 1999 (unaudited)........ F-3
Statements of Operations for the period from January 9, 1998 (date of
inception) to December 31, 1998, the period from January 9, 1998 (date
of inception) to March 31, 1998 (unaudited), the three months ended
March 31, 1999 (unaudited) and the period from January 9, 1998 (date of
inception) to March 31, 1999 (unaudited)................................ F-4
Statements of Stockholders' Equity for the period from January 9, 1998
(date of inception) through December 31, 1998 and the three months ended
March 31, 1999 (unaudited).............................................. F-5
Statements of Cash Flows for the period from January 9, 1998 (date of
inception) to December 31, 1998, the period from January 9, 1998 (date
of inception) to March 31, 1998 (unaudited), the three months ended
March 31, 1999 (unaudited) and the period from January 9, 1998 (date of
inception) to March 31, 1999 (unaudited)................................ F-6
Notes to Financial Statements............................................. F-7
|
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Stamps.com Inc.:
We have audited the accompanying balance sheet of Stamps.com Inc. (a Delaware corporation in the development stage) as of December 31, 1998, and the related statements of operations, stockholders' equity and cash flows for the period from January 9, 1998 (date of inception) through December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stamps.com Inc. as of December 31, 1998, and the results of its operations and its cash flows for the period from January 9, 1998 (date of inception) through December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 13, 1999
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
March 31, 1999
------------------------
December Pro Forma
31, 1998 Historical (Note 1)
----------- ----------- -----------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents............. $ 3,470,207 $28,523,897 $28,523,897
Prepaid expenses...................... 48,118 170,809 170,809
----------- ----------- -----------
Total current assets.................... 3,518,325 28,694,706 28,694,706
Property and equipment, net............. 670,301 920,255 920,255
Patents, trademarks and other
intangibles, net...................... 78,122 75,854 75,854
Other................................... 159,071 181,437 181,437
----------- ----------- -----------
Total assets............................ $ 4,425,819 $29,872,252 $29,872,252
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit........................ $ 1,000,000 $ 1,000,000 $ 1,000,000
Accounts payable...................... 392,372 559,158 559,158
Accrued expenses...................... 192,528 537,106 537,106
Accrued payroll and related........... 140,942 300,751 300,751
Accrued professional.................. 200,000 -- --
Current portion of capital lease
obligations......................... 207,683 207,683 207,683
----------- ----------- -----------
Total current liabilities............... 2,133,525 2,604,698 2,604,698
Capital lease obligations, less current
portion............................... 265,070 216,916 216,916
Commitments
Stockholders' equity:
Preferred stock, $.001 par value
(Series A, B & C):
Authorized shares 10,000,000 at
December 31, 1998 and 15,500,000 at
March 31, 1999
Issued and outstanding shares
9,782,500 at December 31, 1998 and
15,246,986 at March 31, 1999 (pro
forma: none)
Liquidation preference of $6,020,000
at December 31, 1998 and
$36,020,028 at March 31, 1999 (pro
forma: none)....................... 5,978,344 34,277,938 --
Common stock, $.001 par value:
Authorized shares 20,000,000 at
December 31, 1998 and 40,000,000 at
March 31, 1999
Issued and outstanding shares
4,600,650 at December 31, 1998 and
March 31, 1999 (pro forma:
19,847,636)........................ 4,601 4,601 19,848
Additional paid-in capital............ 190,159 190,159 34,452,850
Notes receivable from stock sales..... (117,000) (117,000) (117,000)
Deficit accumulated during the
development stage................... (4,028,880) (7,305,060) (7,305,060)
----------- ----------- -----------
Total stockholders' equity.............. 2,027,224 27,050,638 27,050,638
----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $ 4,425,819 $29,872,252 $29,872,252
=========== =========== ===========
|
See accompanying notes.
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Period from
January 9, 1998 Period from Period from
(date of inception) January 9, 1998 Three Months January 9, 1998
to (date of inception) Ended (date of inception)
December 31, 1998 to March 31, 1999 March 31, 1999 to March 31, 1999
------------------- ------------------- -------------- -------------------
(unaudited) (unaudited) (unaudited)
Revenues................ $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development......... 1,531,811 83,381 1,159,772 2,691,583
General and
administrative...... 2,481,279 275,713 2,118,426 4,599,705
----------- --------- ----------- -----------
Total costs and
expense.......... 4,013,090 359,094 3,278,198 7,291,288
----------- --------- ----------- -----------
Loss from operations.... (4,013,090) (359,094) (3,278,198) (7,291,288)
Other income (expense):
Interest expense...... (27,624) -- (33,001) (60,625)
Interest income....... 11,834 -- 35,019 46,853
----------- --------- ----------- -----------
Net loss................ $(4,028,880) $(359,094) $(3,276,180) $(7,305,060)
=========== ========= =========== ===========
Historical basic and
diluted net loss per
share................. $ (1.22) $ (0.13) $ (0.71) $ (2.05)
Pro forma basic and
diluted net loss per
share................. $ (0.52) $ (0.08) $ (0.20) $ (0.77)
|
See accompanying notes.
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Preferred Stock Notes Accumulated
(Series A, B & C) Common Stock Additional Receivable During the
---------------------- ---------------- Paid-in from Development
Shares Amount Shares Amount Capital Stock Sales Stage Total
---------- ----------- --------- ------ ---------- ----------- ----------- -----------
Balance at January 9,
1998 (inception)....... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of Common
Stock................. -- -- 3,275,000 3,275 63,025 (18,000) -- 48,300
Issuance of Series A
Preferred Stock, net
of offering costs, at
$0.40 a share......... 3,762,500 1,463,344 -- -- -- -- -- 1,463,344
Issuance of Series B
Preferred Stock at
$0.75 a share......... 6,020,000 4,515,000 -- -- -- -- -- 4,515,000
Issuance of restricted
Common Stock.......... -- -- 1,325,650 1,326 127,134 (99,000) -- 29,460
Net loss............... -- -- -- -- -- -- (4,028,880) (4,028,880)
---------- ----------- --------- ------ -------- --------- ----------- -----------
Balance at December 31,
1998................... 9,782,500 5,978,344 4,600,650 4,601 190,159 (117,000) (4,028,880) 2,027,224
Issuance of Series C
Preferred Stock, net
of offering costs, at
$5.49 a share
(unaudited)........... 5,464,486 28,299,594 -- -- -- -- -- 28,299,594
Net loss (unaudited).... -- -- -- -- -- -- (3,276,180) (3,276,180)
---------- ----------- --------- ------ -------- --------- ----------- -----------
Balance at March 31,
1999 (unaudited)....... 15,246,986 $34,277,938 4,600,650 $4,601 $190,159 $(117,000) $(7,305,060) $27,050,638
========== =========== ========= ====== ======== ========= =========== ===========
|
See accompanying notes.
STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Period from
January 9,
1998 (date Period from Period from
of January 9, Three January 9,
inception) 1998 (date of Months 1998 (date of
to December inception) to Ended inception) to
31, March 31, March 31, March 31,
----------- ------------- ----------- -------------
1998 1998 1999 1999
----------- ------------- ----------- -------------
(unaudited) (unaudited) (unaudited)
Operating activities:
Net loss............... $(4,028,880) $ (359,094) $(3,276,180) $(7,305,060)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and
amortization...... 81,540 4,126 63,480 145,020
Changes in operating
assets and
liabilities:
Prepaid expenses.. (48,118) (10,023) (122,691) (170,809)
Accounts payable.. 392,372 20,928 166,786 559,158
Accrued expenses.. 533,470 -- 304,387 837,857
----------- ---------- ----------- -----------
Net cash used in
operations activities.. (3,069,616) (344,063) (2,864,218) (5,933,834)
Investing activities:
Capital expenditures... (195,297) (111,513) (311,166) (506,463)
Other.................. (209,071) (24,512) (22,366) (231,437)
----------- ---------- ----------- -----------
Net cash used in
investing activities... (404,368) (136,025) (333,532) (737,900)
Financing activities:
Net proceeds from line
of credit............ 1,000,000 -- -- 1,000,000
Repayment of capital
lease obligations.... (81,945) -- (48,154) (130,099)
Issuance of Series A
Preferred Stock,
net.................. 1,463,344 1,463,344 -- 1,463,344
Issuance of Series B
Preferred Stock...... 4,515,000 -- -- 4,515,000
Issuance of Series C
Preferred Stock,
net.................. -- -- 28,299,594 28,299,594
Issuance of Common
Stock................ 47,792 18,332 -- 47,792
----------- ---------- ----------- -----------
Net cash provided by
financing activities... 6,944,191 1,481,676 28,251,440 35,195,631
----------- ---------- ----------- -----------
Net increase in cash and
cash equivalents....... 3,470,207 1,001,588 25,053,690 28,523,897
Cash and cash equivalents
at beginning of
period................. -- -- 3,470,207 --
----------- ---------- ----------- -----------
Cash and cash equivalents
at end of period....... $ 3,470,207 $1,001,588 $28,523,897 28,523,897
=========== ========== =========== ===========
Supplemental cash flow
disclosure:............
Cash paid for:
Interest............... $ 27,624 $ -- $ 33,001 $ 60,625
Income taxes........... $ 800 $ 800 $ 800 $ 1,600
Noncash investing and
financial activity:
Issuance of common
stock in exchange
for a patent and a
trademark name....... $ 29,968 $ 28,968 $ -- $ 29,968
Equipment acquired
under capital
lease................ $ 554,698 $ -- $ -- $ 554,698
Issuance of notes
receivable from
stock sales.......... $ 117,000 $ 117,000 $ -- $ 117,000
|
See accompanying notes.
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
Stamps.com Inc. (Stamps.com Inc. or the Company), formerly known as StampMaster, Inc., was incorporated in Delaware on January 9, 1998, and is a development stage company. Its primary activities since inception have been to develop an internet-based postal service delivery system for end-users and raise capital to finance operations.
The Company is subject to the normal risks associated with a development stage enterprise in the technology industry. These risks include, among others, the risks associated with product development, approval of product by the United States Postal Service, acceptance of the product by end users and the ability to raise additional capital to sustain operations.
The Company's Internet postage service for purchasing postage over the Internet has not yet been approved by the US Postal Service. The Company is currently in the pre-approval testing stage of the US Postal Service's Information Based Indicia Program. There can be no assurance that the Company's service will successfully emerge from this testing phase or that the US Postal Service will approve the service for commercial use.
The statement of operations for the period from inception through December 31, 1998 includes approximately $35,000 of expenses incurred prior to incorporation. In September 1996, the founders began to investigate the feasibility of entering into the United States Postal Service's Information Based Indicia Program and initiated the certification process.
Unaudited Interim Financial Information and Pro Forma Balance Sheet
The interim financial statements of the Company for the period from January 9, 1998 (date of inception) to March 31, 1998 and the three months ended March 31, 1999, included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. In the opinion of management, the accompanying unaudited interim financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at March 31, 1999, the results of operations and its cash flows for the period from January 9, 1998 (date of inception) to March 31, 1998 and the three months ended March 31, 1999.
The unaudited pro forma balance sheet is presented to show the effects on the unaudited March 31, 1999 balance sheet of the conversion of all outstanding shares of preferred stock into 15,246,986 shares of common stock which will occur upon the completion of the anticipated initial public offering (see Note 6 and 7) as if the conversions took place at inception, or the date of original issuance, if later.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements.
Cash Equivalents
Cash equivalents include demand deposits and short-term investments with a maturity of three months or less when purchased.
Concentration of Risk
The financial instrument that potentially exposes the Company to concentrations of credit risks consists primarily of cash equivalents. The Company places its cash equivalents with high quality financial institutions. At times, such balances may be in excess of the FDIC insurance limit.
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Computation of Historical Net Loss per Share and Pro Forma Net Loss Per Share
In accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Computation of Earnings Per Share," basic earnings per share is computed by dividing the net earnings available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net earnings for the period by the weighted average number of common and common equivalent shares outstanding during the period.
Common equivalent shares, consisting of unvested restricted Common Stock and incremental common shares issuable upon the exercise of stock options and warrants and upon conversion of convertible preferred stock, are excluded from the diluted earnings per share calculation if their effect is anti-dilutive.
A summary of the shares used to compute earnings per share is as follows:
Period from January Period from Period from
9, 1998 January 9, 1998 January 9, 1998
(date of inception) (date of inception) Three Months (date of inception)
to to Ended to
December 31, 1998 March 31, 1998 March 31, 1999 March 31, 1999
------------------- ------------------- -------------- -------------------
(unaudited) (unaudited) (unaudited)
Weighted average common
shares used to compute
basic net loss per
share.................. 3,303,942 2,827,012 4,600,650 3,563,284
Effect of Dilutive
securities............. -- -- -- --
--------- --------- ---------- ---------
Weighted average common
shares used to compute
dilutive net loss per
share.................. 3,303,942 2,827,012 4,600,650 3,563,284
========= ========= ========== =========
Conversion of preferred
stock.................. 4,424,978 1,748,933 12,104,538 5,960,890
--------- --------- ---------- ---------
Weighted average common
shares used to compute
pro forma basic and
diluted net loss per
share.................. 7,728,920 4,575,945 16,705,188 9,524,174
========= ========= ========== =========
|
Pro forma net loss per share is computed using the weighted average number of common shares outstanding, including the pro forma effects of the automatic conversion of the Company's Series A, B and C Preferred Stock into shares of the Company's Common Stock effective upon the closing of the Company's Initial Public Offering as if such conversion occurred at inception or the date of original issuance, if later. Pro forma diluted earnings per share is computed using the pro forma weighted average number of common and common equivalents shares outstanding during the period, to the extent such shares are dilutive.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is computed principally on a straight-line method over the estimated useful lives of the assets ranging from three to five years. Assets acquired under capitalized lease arrangements are recorded at the present value of the minimum lease payments. Amortization of assets capitalized under capital leases is computed using the straight-line method over the life of the asset or term of the lease, whichever is shorter. Expenditures for repairs and maintenance are charged to expense as incurred.
Patents, Trademarks and Other Intangibles
Patents, trademarks and other intangibles are carried at cost less accumulated amortization that is calculated on a straight-line basis over the estimated useful lives of the assets, not to exceed 40 years. Patents are currently amortized over an estimated useful live of 17 years. Trademarks and other intangibles have useful lives that range from 5 to 15 years. Accumulated amortization as of December 31, 1998 is $1,846.
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Company accounts for income taxes in accordance with FASB 109, "Accounting for Income Taxes." Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statements and the tax basis of assets and liabilities using the enacted tax rate in effect for the years in which the differences are expected to reverse.
Research and Development Costs
Research and development costs are expensed as incurred. These costs primarily consist of salaries, development materials, supplies and applicable overhead expenses of personnel directly involved in the research and development of new technology and products.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic-value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
2. Line of Credit
On May 1, 1998, the Company entered into a credit line agreement with a lender. The initial $300,000 borrowing base was increased to $1 million based on the Company's net equity balance, as defined, through December 31, 1998. Borrowings bear interest at the lender's prime rate plus 1% (8.75% at December 31, 1998) and are collateralized by certain of the Company's assets. The Company used the amount drawn for working capital purposes. The unpaid balance due under the line of credit at February 9, 1999 may be converted to a term loan payable in 24 equal monthly installments commencing on such date. Otherwise, the credit line agreement matures on October 8, 1999.
In connection with this indebtedness agreement, the Company issued a detachable warrant which permits the holder to purchase 4,700 shares of the Company's Series A Preferred Stock for $.40 per share. The term of this warrant is for a period of seven years from the date of grant.
3. Income Taxes
The provision for income taxes consists solely of minimum state taxes. The Company's effective tax rate differs from the statutory federal income tax rate primarily as a result of the establishment of a valuation allowance for the future benefits to be received from the net operating loss carryforwards and research tax credit carryforwards. The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 1998 are presented below.
Deferred tax assets (liabilities):
Net operating loss carryforwards............................. $ 537,154
Research credits............................................. 150,000
Depreciation................................................. (28,006)
Capitalized start-up costs................................... 988,403
Accruals..................................................... 46,068
-----------
Total deferred tax assets...................................... 1,693,619
Valuation allowance............................................ (1,693,619)
-----------
Net deferred tax assets........................................ $ --
===========
|
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Because the Company is uncertain when it may realize the benefits of its favorable tax attributes in future returns, the Company has placed a valuation allowance against its otherwise recognizable deferred tax assets. In 1998, the valuation allowance recorded was $1,693,619.
The Company has a net operating loss carryforward for federal and state income tax purposes at December 31, 1998 of $1,348,467, and an available tax credit carryforward at December 31, 1998 of $150,000, each of which can be carried forward to offset future taxable income, if any. The Company's federal net operating loss expires starting in 2018, state net operating loss expires starting in 2006, and credits expire starting in 2018. The Federal Tax Reform Act of 1986 and similar state tax laws contain provisions which may limit the net operating losses carryforwards to be used in any given year upon the occurrence of certain events, including a significant change in ownership interests.
4. Capital Leases, Commitments and Contingencies
The Company leases certain equipment under capital lease arrangements expiring on various dates through 2001. Included in property and equipment are the following assets held under capital lease at December 31, 1998:
Computer equipment................................................ $ 554,698
Accumulated depreciation.......................................... (58,129)
---------
$ 496,569
=========
|
The following is a schedule of future minimum lease payments:
Year ending December 31, 1998:
1999............................................................. $254,148
2000............................................................. 254,520
2001............................................................. 31,007
--------
539,675
Less amount representing interest................................ (66,922)
--------
Present value of net minimum lease payments ($207,683 payable
currently)..................................................... $472,753
========
|
The Company currently rents its facilities on a month-to-month basis or for terms less than one year. Total rent expense for the period from January 9,1998 through December 31, 1998 was $109,428 and includes $23,400 paid to a stockholder/officer for rental of office space.
In December 1998, the Company entered into a Distribution and Marketing Agreement with America Online (AOL) that provides broad distribution and marketing campaigns amongst AOL's diverse properties. In exchange for these services, the Company is required to make minimum payments that approximate $1,700,000 and $525,000 in 1999 and 2000, respectively.
5. Stock Options
In January 1998, the Company adopted the 1998 Stock Option Plan (the Plan) which authorizes the Board of Directors to grant incentive stock options, nonqualified stock options and stock purchase rights (collectively options) to employees, directors, consultants and advisors of the Company. The maximum number of shares of common stock to be issued under the Plan is 3,235,000. All options granted under the Plan have been made at prices not less than fair value of the stock at the date of grant, as determined by the Board of Directors. Options granted under the Plan are generally exercisable immediately however they vest 25% per year; however, the Board of Directors has the discretion with respect to vesting periods applicable to a particular grant.
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following tabulation summarizes certain information related to options for common stock:
Weighted
Average
Number of Exercise
Shares Price
--------- --------
Outstanding options at January 9, 1998................... -- $ --
Grants................................................... 1,564,981 .09
Surrendered, forfeited or expired........................ (24,375) .05
Exercised................................................ -- --
--------- ----
Outstanding options at December 31, 1998................. 1,540,606 $.09
========= ====
|
As of December 31, 1998, all options were exercisable. However no options were vested and 1,694,394 were available for future grant. The weighted average remaining contractual life of the outstanding stock options at December 31, 1998, is 9.7 years.
Pro forma information regarding net loss is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair-value method of that statement. The fair value for these options was estimated at the date of grant using the minimum-value method, which utilizes a near-zero volatility factor. The remaining assumptions, which are weighted average, under this method are as follows:
Expected life (years)............................................. 5 Risk-free interest rate........................................... 5.50% Dividend yield.................................................... -- |
This option-valuation method requires input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because change in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing method does not necessarily provide a reliable single measure of the fair value of its employee stock options. The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts and additional awards in future years are anticipated.
If the Company recognized employee stock related compensation expense in accordance with SFAS 123 under the minimum value method, its net loss for 1998 would not be materially different.
6. Equity
During 1998, the Company issued restricted stock to an employee and a director totaling 1,325,650 shares. These shares vest one-fourth on May 30, 1999 and the remaining shares vest monthly over thirty-six months.
In February 1998, the Company issued 3,762,500 shares of its Series A Preferred Stock at $0.40 per share and warrants which permit the holders to acquire 6,020,000 shares of the Company's its Series B Preferred Stock at $0.75 per share. In August and October 1998, 6,020,000 shares of Series B Preferred Stock were issued under these warrants.
Preferred stock is convertible to common stock on a one-for-one basis at the option of the holder at any time after issuance, subject to anti-dilution protection. Each share of Preferred Stock automatically converts to Common Stock upon (i) the sale of Common Stock by the Company in an underwritten public offering with a
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
public offering price of $2.00 per share and net proceeds of $15 million or
(ii) written consent of the majority holders of outstanding shares of Preferred
Stock (see Note 7).
The holders of Preferred Stock are entitled to receive non-cumulative dividends in preference to the Common stock at a rate of $0.040 and $0.075 per share per annum, respectively, or if greater (as determined on a per annum basis and an as converted basis for Preferred Stock), an amount equal to that paid on any other outstanding share, payable quarterly when, as and if declared. No dividends can be paid or declared on any Common Stock unless full cash dividends, including past dividends declared, have been paid on the Preferred Stock.
The Series A and Series B Preferred Stock have a liquidation preference over Common Stock of $0.40 and $0.75 per share, respectively.
The Preferred Stock may be redeemed at any time after February 26, 2003 at the written consent of the majority holders of outstanding shares of Preferred Stock. The redemption price for Series A and Series B Preferred Stock is $0.40 and $0.75 per share, respectively.
In connection with the issuance of Common Stock during the period, the Company exchanged shares with a fair value of $117,000 for notes receivable of the same amount. These notes receivable bear interest at 9% per annum and are payable in February 2003.
7. Events Subsequent to the Date of the Auditors' Report (Unaudited)
Authorize Stock
On February 17, 1999, the Company increased the number of authorized shares of common stock and preferred to 40,000,000 shares and 15,500,000 shares, respectively. On February 10, 1999, the Board of Directors increased the number of shares reserved for issuance under the 1998 Stock Option Plan by 1,000,000 shares.
Preferred Stock
On February 10, 1999, the Board of Directors approved the sale of Series C
Preferred Stock. In February and March 1999, the Company issued 5,464,486
shares of its Series C Preferred Stock at $5.49 per share. Series C Preferred
Stock is convertible to common stock on a one-for-one basis at the option of
the holder at any time after issuance, subject to anti-dilution protection. In
connection with the sale of Series C Preferred Stock, the board of directors
amended the certificate of incorporation and each share of Series A, Series B
and Series C Preferred Stock automatically converts to Common Stock upon
(i) the sale of Common Stock by the Company in an underwritten public offer
with a public offering price of at least $10.98 per share and net proceeds of
$20 million or (ii) written consent of the majority of holders of outstanding
shares of Preferred Stock.
The holders are entitled to receive a noncumulative dividends in preference of the Common Stock at a rate of $0.55 per share per annum or if greater (as determined on a per annum basis and as a converted bases for Preferred Stock), an amount equal to that paid on any other outstanding share, payable quarterly when, as and if declared. No dividends can be paid or declared on any Common Stock unless full cash dividends, including past dividends declared, have been paid on the Preferred Stock. The Series C Preferred Stock have a liquidation preference over Common Stock or $5.49 per share and may be redeemed at any time after February 27, 2003, at the written consent of the majority holders of outstanding shares of Preferred Stock at the redemption price of $5.49 per share.
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock options
During the three month period ending March 31, 1999, the Company issued 1,595,000 additional stock options under the 1998 stock option plan. A summary of the options granted is as follows:
Exercise Estimated
Number of options Price Fair Value
----------------- -------- ----------
299,600.............................................. $4.50 $1.07
1,295,400.............................................. $0.50 $0.12
|
The estimated fair value for these options was estimated at the date of grant using the minimum-value method using the same assumptions as Note 5.
[LOGO OF STAMPS.COM]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale and distribution of the securities being registered. All amounts are estimated except the Securities and Exchange Commission and NASD. All of the expenses below will be paid by the Company.
Item
----
Registration fee.................................................... 15,985
NASD filing fee..................................................... 6,250
Nasdaq National Market listing fee.................................. 50,000
Blue sky fees and expenses.......................................... 10,000
Printing and engraving expenses..................................... 100,000
Legal fees and expenses............................................. 250,000
Accounting fees and expenses........................................ 150,000
Transfer Agent and Registrar fees................................... 5,000
Miscellaneous....................................................... 62,765
Total............................................................. 650,000
|
Item 14. Indemnification of Directors and Officers.
The Company's Amended and Restated Certificate of Incorporation (the "Certificate") provides that, except to the extent prohibited by the Delaware General Corporation Law (the "DGCL"), the Company's directors shall not be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as directors of the Company. Under the DGCL, the directors have a fiduciary duty to the Company which is not eliminated by this provision of the Certificate and, in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available. In addition, each director will continue to be subject to liability under the DGCL for breach of the director's duty of loyalty to the Company, for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are prohibited by DGCL. This provision also does not affect the directors' responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. The Company has obtained liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the Company
shall fully indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that such person is or was a director or officer of the Company, or is or
was serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
II-1
The Company, with the approval of the Board of Directors, intends to obtain directors' and officers' liability insurance prior to the effectiveness of this offering. In addition, the Company intends to enter into indemnification agreements with each of its directors and executive officers, a form of which is filed as Exhibit 10.20 hereto.
There is no pending litigation or proceeding involving any director, officer, employee or agent of the Company in which indemnification will be required or permitted. Moreover, the Company is not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. The Company believes that the foregoing indemnification provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.
The Underwriting Agreement (the form of which is filed as Exhibit 1.1 hereto) provides for indemnification by the Underwriters of the Company and its officers and directors, and by the Company of the Underwriters, for certain liabilities arising under the Securities Act or otherwise.
Item 15. Recent Sales of Unregistered Securities.
The following is a summary of transactions by the Company since the Company's inception in September 1996 involving sales of the Company's securities that were not registered under the Securities Act. Prior to the Company's incorporation in Delaware in January 1998, it had been operating as a sole proprietorship.
On January 20, 1998, we issued an aggregate of 3,265,000 shares of Common Stock at $.02 per share to certain employees, consultants and friends of the company.
On May 1, 1998, we granted a warrant to a lender to purchase up to 4,700 shares of Series A Preferred Stock at $0.40 per share.
In October 1998, we issued an aggregate of 205,250 shares of Common Stock at $.08 per share to Thomas Bruggere.
In November 1998, we issued an aggregate of 1,000,000 shares of Common Stock at $.10 per share to John Payne.
In December 1998, we issued an aggregate of 120,400 shares of Common Stock at $.10 per share to Thomas Bruggere.
In December 1998, we issued 10,000 shares of Common Stock to Gregory Deeter in exchange for all rights and goodwill in connection with the Stamps.com domain name.
In January and February of 1998, we issued an aggregate of 3,762,500 shares of our Series A Preferred Stock to certain accredited investors for an aggregate offering price of $1,505,000 less $42,000 in offering expenses.
In August, October and November of 1998, we issued an aggregate of 6,020,000 shares of Series B Preferred Stock upon the exercise of warrants to certain accredited investors for an aggregate offering price of $4,515,000.50.
In February and March of 1999, we issued an aggregate of 5,464,486 shares of Series C Preferred Stock to certain accredited investors for an aggregate offering price of $30,000,028, less $1,645,000 in offering expenses.
II-2
From January 1998 to April 1999, we have granted options to purchase an aggregate of 3,342,906 shares of common stock to our directors, executive officers, employees and consultants at a weighted exercise price of $ . As of April 15, 1999, options to purchase 263,868 shares at an exercise price of $0.10 per share had been exercised.
The foregoing transactions were effected under Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following Exhibits are attached hereto and incorporated herein by reference:
Exhibit
Number Description
------- -----------
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Proposed Amended and Restated Certificate of Incorporation of the
Registrant.
3.3 Bylaws of the Registrant.
3.4* Proposed Bylaws of the Registrant.
4.1 See Exhibit 3.1, 3.2 and 3.3 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights of holders
of the Registrant's common stock. See Exhibit 10.3 for the rights of
certain holders of registration rights.
4.2* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.2 Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.
10.3 Patent Assignment from Mohan P. Ananda to the Registrant dated January
20, 1998.
10.4 Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.
10.5 Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.
10.6 Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.
10.7* 1998 Stock Plan.
10.8 1999 Stock Incentive Plan.
10.9 1999 Employee Stock Purchase Plan
10.10 Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.11 Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8, 1999.
|
II-3
Exhibit
Number Description
------- -----------
10.12** Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.
10.13 Master Lease Agreement between the Registrant and FirstCorp dated June
5, 1998.
10.14 Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.15 Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.
10.16 Consulting Agreement dated February 1, 1999 between the Registrant and
Loren Smith.
23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (Included on signature pages hereto).
27.1 Financial Data Schedule.
|
(b) Financial Statement Schedules
All such Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings.
The undersigned Company hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreements, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit, or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus as filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Monica, State of California, on the 22nd day of April 1999.
STAMPS.COM INC.
By: /s/ John M. Payne
-----------------------------------
John M. Payne
|
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and appoint John M. Payne and John W. LaValle and each of them, his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, or any related registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys- in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ John M. Payne Chief Executive Officer, April 22, 1999
____________________________________ President and Director
John M. Payne (Principal Executive
Officer)
/s/ John W. LaValle Chief Financial Officer, April 22, 1999
____________________________________ Senior Vice President of
John W. LaValle Operations and Secretary
(Principal Financial and
Accounting Officer)
/s/ Thomas H. Bruggere Chairman of the Board of April 22, 1999
____________________________________ Directors
Thomas H. Bruggere
/s/ Mohan P. Ananda Director April 22, 1999
____________________________________
Mohan P. Ananda
/s/ David C. Bohnett Director April 22, 1999
____________________________________
David C. Bohnett
/s/ Jeffrey J. Brown Director April 22, 1999
____________________________________
Jeffrey J. Brown
|
II-5
Signature Title Date
--------- ----- ----
/s/ Thomas N. Clancy Director April 22, 1999
____________________________________
Thomas N. Clancy
/s/ G. Bradford Jones Director April 22, 1999
____________________________________
G. Bradford Jones
/s/ Marvin Runyon Director April 22, 1999
____________________________________
Marvin Runyon
/s/ Loren E. Smith Director April 22, 1999
____________________________________
|
II-6
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Proposed Amended and Restated Certificate of Incorporation of the
Registrant.
3.3 Bylaws of the Registrant.
3.4* Proposed Bylaws of the Registrant.
4.1 See Exhibit 3.1, 3.2 and 3.3 for provisions of the Registrant's
Certificate of Incorporation and Bylaws defining the rights of holders
of the Registrant's common stock. See Exhibit 10.3 for the rights of
certain holders of registration rights.
4.2* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger and Harrison LLP.
10.1 Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.2 Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and certain investors.
10.3 Patent Assignment from Mohan Ananda to the Registrant dated January
20, 1998.
10.4 Assignment and License Agreement between the Registrant and Mohan
Ananda dated January 20, 1998.
10.5 Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John Payne.
10.6 Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan Ananda.
10.7* 1998 Stock Plan.
10.8 1999 Stock Incentive Plan.
10.9 1999 Employee Stock Purchase Plan.
10.10 Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.11 Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8, 1999.
10.12** Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.
10.13 Master Lease Agreement between the Registrant and FirstCorp dated June
5, 1998.
10.14 Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.15 Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.
10.16 Consulting Agreement dated February 1, 1999 between the Registrant and
Loren Smith.
23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (Included on signature pages hereto).
27.1 Financial Data Schedule.
|
Commission.
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STAMPS.COM INC.
The undersigned, John M. Payne and John W. LaValle, hereby certify that:
1. They are the duly elected and acting President and Secretary, respectively, of Stamps.com Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on January 9, 1998. The corporation was originally incorporated under the name StampMaster, Inc.
3. The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows:
"ARTICLE I
ARTICLE II
The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, Wilmington, County of New Castle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.
ARTICLE IV
(a) The holders of shares of Series A Preferred Stock, Series B Preferred Stock and 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 of the Corporation) on the Common Stock of the Corporation, at the rate of $0.04 per share per annum on each outstanding share of Series A Preferred Stock, $0.075 per share per annum on each outstanding share of Series B Preferred Stock and $0.55 per share per annum on each outstanding share of Series C Preferred Stock or, if greater (as determined on a per annum basis and an as converted basis for the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock), an amount equal to that paid on any other outstanding shares of this corporation, payable quarterly when, as and if declared by the Board of Directors. Such dividends shall not be cumulative.
(b) Unless full cash dividends on the Series A Preferred Stock, the Series B Preferred Stock and Series C Preferred Stock for all past dividend periods and the then current dividend period shall have been paid or declared and a sum sufficient for the payment thereof set apart: (A) no dividend whatsoever shall be paid or declared, and no distribution shall be made, on any Common Stock, and (B) no shares of Common Stock shall be purchased, redeemed, or acquired by the corporation and no funds shall be paid into or set aside or made available for a sinking fund for the purchase, redemption, or acquisition thereof; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock approved by the Board of Directors held by employees, officers, directors, consultants or other persons performing services for the corporation or any wholly owned subsidiary (including, but not by way of limitation, distributors and sales representatives) that are subject to restrictive securities purchase agreements under which the corporation has the option to repurchase such shares upon the termination of such employees, officers, directors, consultants or other persons performing services for the corporation or any wholly owned subsidiary.
Common Stock by reason of their ownership thereof, an amount per share equal to
(i) $0.40 per share for each share of Series A Preferred Stock then held by
them, (ii) $0.75 per share for each share of Series B Preferred Stock held by
them and (iii) $5.49 per share for each share of Series C Preferred Stock held
by them, plus declared but unpaid dividends. If, upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A,
Series B and Series C Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then, the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A, Series B and
Series C Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive. If the aggregate amount of any
distribution to be received by holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock pursuant to this Section 2 would be
greater if such holders were to convert such shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock to Common Stock
immediately prior to such distribution, then such holders shall participate in
such distribution as if they had so converted such shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock.
(A) Securities not subject to investment letter or other similar restrictions on free marketability:
(1) If traded on a securities exchange or The Nasdaq National Market, 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;
(2) 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
(3) 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 a majority of the voting power of all then outstanding shares of Preferred Stock.
(B) 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 Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock.
used to redeem the balance of the shares which the Corporation has become obliged to redeem on the any Redemption Date but which it has not redeemed.
(i) (A) If the corporation shall issue, after the Purchase Date
(as defined in Section 3(d) above), 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, Series B Preferred Stock or Series C
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the conversion Price for such series in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
(as determined in accordance with subsection 4(d)(i)(E) below) that the
aggregate consideration received by the corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock or 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 prior to 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 (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent
provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 4(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 this 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 determined by the Board of Directors 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 subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (to the extent then exercisable) 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 subsections 4(d)(i)(C) and (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 for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (to the extent then convertible or exchangeable) 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 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 subsections 4(d)(i)(C) and (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 this 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, the Series B Preferred Stock or 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) Upon the expiration 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, the Series B Preferred Stock or 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 subsections 4(d)(i)(E)(1) and
(2) shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by this Corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction described in subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to employees, consultants, directors or vendors (if in transactions with primarily non- financing purposes) of this Corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of this Corporation;
(C) shares of Common Stock issued or issuable (I) in a public offering before 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 or (II) upon exercise of warrants or rights granted to underwriters in connection with such a public offering;
(D) shares of Common Stock issued upon conversion or exercise of convertible or exercisable securities;
(E) 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;
(F) capital stock or warrants or options to purchase capital stock issued to financial institutions or lessors in connection with commercial credit
arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Corporation.
(v) The following provisions shall apply for purposes of this
Section 4(d):
(A) The aggregate maximum number of shares of Common Stock deliverable upon conversion or exercise of Common Stock Equivalents (assuming the satisfaction of any conditions to convertibility or exercisability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) shall be deemed to have been issued at the time such Common Stock Equivalents were issued.
(B) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon conversion or exercise of such Common Stock Equivalents including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of each of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, 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.
(C) Upon the termination or expiration of the convertibility or exercisability of any such Common Stock Equivalents, the Conversion Price of each of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Common Stock Equivalents which remain convertible or exercisable) actually issued upon the conversion or exercise of such Common Stock Equivalents.
(i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A, Series B or Series C Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series A, Series B or 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 A, Series B or Series C Preferred Stock pursuant to this Section 4, 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 such 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, Series B or 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 such series of 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 such series of Preferred Stock.
(a) Except as otherwise expressly provided herein or by law, the holder of each share of Series A, Series B or Series C Preferred Stock shall have the right to one vote for each share of Common Stock into which such Preferred Stock could then be converted, 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, notwithstanding any provision hereof, 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 A, Series B or 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).
(b) Four members of the Board of Directors shall be elected by (and may only be removed by) the holders of the Preferred Stock, voting together as a separate class. Two members shall be elected by (and may only be removed by) the holders of Common Stock, voting as a separate class. Any remaining members shall be elected only by (and may only be removed by) the holders of the Preferred Stock and Common Stock, voting together as a single class.
(c) If the office of any director becomes vacant, such director's replacement shall be elected by the class (or classes, as applicable) of shares of which such director is the representative.
(a) effect a transaction described in Section 2(c)(i) above;
(b) alter or change the rights, preferences or privileges of the shares of Series A, Series B or Series C Preferred Stock so as to affect adversely the shares of such series;
(c) increase or decrease (other than by redemption or conversion provided for herein) the total number of authorized shares of Series A, Series B or Series C 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, Series B or Series C Preferred Stock with respect to voting, dividends, conversion, redemption or upon liquidation;
(f) permit a subsidiary of the Corporation to sell securities to a third party.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General 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 fiduciary duty as a director.
(B) 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 he, his testator or intestate 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 or officer at the request of the Corporation or any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this Article VII, shall eliminate or reduce the effect of this Article VII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision."
[Remainder of Page Intentionally Left Blank]
The foregoing Second Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware.
Executed at Santa Monica, California, on February 17, 1999.
/s/ John M. Payne ------------------------------------------ John M. Payne, President /s/ John W. LaValle ------------------------------------------ John W. LaValle, Secretary |
EXHIBIT 3.3
BYLAWS
OF
STAMPMASTER, INC.
TABLE OF CONTENTS
Page
----
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 Meeting........................................................... 1
2.4 Notice Of Stockholders' Meetings.......................................... 2
2.5 Manner Of Giving Notice; Affidavit Of Notice.............................. 2
2.6 Quorum.................................................................... 2
2.7 Adjourned Meeting; Notice................................................. 2
2.8 Conduct Of Business....................................................... 3
2.9 Voting.................................................................... 3
2.10 Waiver Of Notice......................................................... 3
2.11 Stockholder Action By Written Consent Without A Meeting.................. 3
2.12 Record Date For Stockholder Notice; Voting; Giving Consents.............. 4
2.13 Proxies.................................................................. 4
ARTICLE III - DIRECTORS............................................................ 5
3.1 Powers.................................................................... 5
3.2 Number Of Directors....................................................... 5
3.3 Election, Qualification And Term Of Office Of Directors................... 5
3.4 Resignation And Vacancies................................................. 5
3.5 Place Of Meetings; Meetings By Telephone.................................. 6
3.6 Regular Meetings.......................................................... 6
3.7 Special Meetings; Notice.................................................. 7
3.8 Quorum.................................................................... 7
3.9 Waiver Of Notice.......................................................... 7
3.10 Board Action By Written Consent Without A Meeting........................ 8
3.11 Fees And Compensation Of Directors....................................... 8
3.12 Approval Of Loans To Officers............................................ 8
3.13 Removal Of Directors..................................................... 8
3.14 Chairman Of The Board Of Directors....................................... 8
ARTICLE IV - COMMITTEES............................................................ 9
4.1 Committees Of Directors................................................... 9
4.2 Committee Minutes......................................................... 9
4.3 Meetings And Action Of Committees......................................... 9
ARTICLE V - OFFICERS............................................................... 10
5.1 Officers.................................................................. 10
5.2 Appointment Of Officers................................................... 10
5.3 Subordinate Officers...................................................... 10
5.4 Removal And Resignation Of Officers....................................... 10
|
TABLE OF CONTENTS
(continued)
Page
----
5.5 Vacancies In Offices...................................................... 10
5.6 Chief Executive Officer................................................... 11
5.7 President................................................................. 11
5.8 Vice Presidents........................................................... 11
5.9 Secretary................................................................. 11
5.10 Chief Financial Officer.................................................. 12
5.11 Representation Of Shares Of Other Corporations........................... 12
5.12 Authority And Duties Of Officers......................................... 12
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS... 13
6.1 Indemnification Of Directors And Officers................................. 13
6.2 Indemnification Of Others................................................. 13
6.3 Payment Of Expenses In Advance............................................ 13
6.4 Indemnity Not Exclusive................................................... 13
6.5 Insurance................................................................. 14
6.6 Conflicts................................................................. 14
ARTICLE VII - RECORDS AND REPORTS.................................................. 14
7.1 Maintenance And Inspection Of Records..................................... 14
7.2 Inspection By Directors................................................... 15
7.3 Annual Statement To Stockholders.......................................... 15
ARTICLE VIII - GENERAL MATTERS..................................................... 15
8.1 Checks.................................................................... 15
8.2 Execution Of Corporate Contracts And Instruments.......................... 15
8.3 Stock Certificates; Partly Paid Shares.................................... 15
8.4 Special Designation On Certificates....................................... 16
8.5 Lost Certificates......................................................... 16
8.6 Construction; Definitions................................................. 17
8.7 Dividends................................................................. 17
8.8 Fiscal Year............................................................... 17
8.9 Seal...................................................................... 17
8.10 Transfer Of Stock........................................................ 17
8.11 Stock Transfer Agreements................................................ 18
8.12 Registered Stockholders.................................................. 18
ARTICLE IX - AMENDMENTS............................................................ 18
|
BYLAWS
OF
STAMPMASTER, INC.
ARTICLE I
The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Prentice-Hall Corporation System, Inc.
The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business.
ARTICLE II
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 registered office of the corporation.
The annual meeting of stockholders shall be held on such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted.
A special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board, the president or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the Board of Directors, the president or the chairman of the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
All notices of meetings with stockholders shall be in writing and 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 to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
The holders of a majority 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 of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
When a meeting is adjourned to another time or 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.
The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business.
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 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 of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.
Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in
writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.
In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or 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 be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) 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 day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
(b) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the corporation.
(c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
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; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder 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 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.
ARTICLE III
Subject to the provisions of the General Corporation Law of Delaware and 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.
Upon the adoption of these bylaws, the number of directors constituting the entire Board of Directors shall be six (6). Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires.
Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these Bylaws:
(a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
(b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.
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 Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.
The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board.
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 president, any 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 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 telephone or by 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.
At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
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 required quorum for that meeting.
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.
Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original.
Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, 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 in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office.
The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation.
ARTICLE IV
The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate 1 or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by this chapter to be submitted to stockholders for approval or (ii) adopting, amending or repealing any Bylaw of the corporation.
Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions 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.
ARTICLE V
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
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.
The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.
The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the attention of the Secretary of 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 officer is a party.
Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, 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. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and 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 duties as may be prescribed by the Board of Directors or these bylaws.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board.
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 directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, 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.
The chief financial officer shall keep and maintain, or cause to be kept and maintained, 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 books of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws.
The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein 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 the person having such authority.
In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority 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 or the stockholders.
ARTICLE VI
The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) 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 (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) 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 (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation.
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 any 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.
No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
ARTICLE VII
The corporation shall, either at its principal executive offices 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.
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.
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. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
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.
The Board of Directors, except as otherwise provided in these Bylaws, may authorize 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 authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors 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.
The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
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 202 of the General Corporation Law of Delaware, 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.
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 corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
The directors of the corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.
The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.
Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.
The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
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, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.
CERTIFICATE OF ADOPTION OF BYLAWS
OF
STAMPMASTER, INC.
The undersigned person appointed in the certificate of incorporation to act as the Incorporator of StampMaster, Inc. hereby adopts the foregoing bylaws as the Bylaws of the corporation.
Executed this 9th day of January, 1998.
/s/ John V. Bautista -------------------------------------------- John V. Bautista, Incorporator |
The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary of StampMaster, Inc., and that the foregoing Bylaws were adopted as the Bylaws of the corporation on January 9th, 1998, by the person appointed in the certificate of incorporation to act as the Incorporator of the corporation.
Executed this 9th day of January, 1998.
/s/ Ari Engelberg -------------------------------------------- Ari Engelberg, Secretary |
EXHIBIT 10.1
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
QUICKSTART
WARRANT TO PURCHASE STOCK
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $ 1.00 and for other good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.
Holder a new Warrant for such new securities or other property. The new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of the Shares as of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase riot represented by this Warrant and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder s notice of proposed sale.
"COMPANY"
By: /s/ Mohan Ananda
------------------------------------
Name: Mohan Ananda
------------------------------------
(Print)
Title: Chairman of the Board, President or
Vice President
|
By: /s/ James McDermott
-----------------------------------
Name: James McDermott
-----------------------------------
(Print)
Title: Chief Financial Officer, Secretary,
Assistant Treasurer or Assistant
Secretary
|
APPENDIX I
1. The undersigned hereby elects to purchase ___ shares of the Common/Series Preferred (strike one] Stock of pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in fall.
1. The undersigned hereby elects to convert the attached Warrant into Shares/cash (strike one] in the manner specified in the Warrant. This conversion is exercised with respect to of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:
3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws.
EXHIBIT 10.2
STAMPS.COM INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
February 17, 1999
TABLE OF CONTENTS
Page
----
1. Registration Rights.................................................... 2
1.1 Definitions...................................................... 2
1.2 Request for Registration......................................... 3
1.3 Company Registration............................................. 5
1.4 Form S-3 Registration............................................ 5
1.5 Obligations of the Company....................................... 6
1.6 Furnish Information.............................................. 8
1.7 Expenses of Registration......................................... 8
1.8 Underwriting Requirements........................................ 9
1.9 Delay of Registration............................................ 9
1.10 Indemnification.................................................. 9
1.11 Reports Under Securities Exchange Act of 1934.................... 12
1.12 Assignment of Registration Rights................................ 12
1.13 Limitations on Subsequent Registration Rights.................... 13
1.14 "Market Stand-Off" Agreement..................................... 13
1.15 Termination of Registration Rights............................... 14
2. Covenants of the Company............................................... 14
2.1 Delivery of Financial Statements................................. 14
2.2 Inspection....................................................... 14
2.3 Right of First Refusal........................................... 15
2.4 Termination of Covenants......................................... 16
3. Miscellaneous.......................................................... 17
3.1 Successors and Assigns........................................... 17
3.2 Amendments and Waivers........................................... 17
3.3 Notices.......................................................... 17
3.4 Severability..................................................... 18
3.5 Governing Law.................................................... 18
3.6 Counterparts..................................................... 18
3.7 Titles and Subtitles............................................. 18
3.8 Aggregation of Stock............................................. 18
3.9 Expenses......................................................... 18
3.10 Entire Agreement................................................. 18
3.11 Amendment of Original Agreement; Consent to Series C Financing... 18
3.12 Waiver of First Refusal Right on Series C Financing.............. 18
3.13 Supersedence..................................................... 19
|
STAMPS.COM INC.
--------- --------
as the "Founder".
-------
|
WHEREAS, a condition to the Series C Investors' obligations under the Purchase Agreement is that the Company, the Founder and the Investors enter into this Agreement in order to provide the Investors with (i) certain rights to register shares of the Company's Common Stock issuable upon conversion of the Series A, Series B and Series C Preferred Stock held by the Investors, and (ii) certain rights to receive or inspect information pertaining to the Company;
WHEREAS, the Company, the Investors and the Founder each desire to induce the Series C Investors to purchase shares of Series C Preferred Stock pursuant to the Purchase Agreement by amending and restating the Original Agreement (pursuant to Section 3.2 of the Original Agreement) and agreeing to the terms and conditions set forth herein.
The parties hereby agree as follows:
(a) If the Company shall receive at any time after the earlier of (i) February 26, 2003, or (ii) six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), a written request from the Holders of a
majority of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least thirty percent (30%) of the Registrable Securities then outstanding (or a
lesser percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $7,500,000), then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of subsection 1.2(b), use
its best efforts to effect as soon as practicable, and in any event within sixty
(60) days of the receipt of such request, the registration under the Securities
Act of all Registrable Securities which the Holders request to be registered
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 3.3.
(d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective;
(ii) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below.
(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
(b) Prepare and file with the SEC 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 for up to one hundred twenty
(120) days.
(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act,
and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (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 underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities 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, if any, and to the Holders requesting
registration of Registrable Securities.
Securities, shall be borne pro rata by the Holder or Holders participating in the Form S-3 Registration.
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) for such Holder
(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.
who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 1.
(a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company, all one-percent securityholders, and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period, and each Holder agrees that, if so requested, such Holder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
(b) within thirty (30) days of the end of each month, an unaudited income statement and a statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail;
(c) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, and, as soon as prepared, any other budgets or revised budgets prepared by the Company; and
(d) with respect to the financial statements called for in subsection (b) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment, provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board of Directors determines that it is in the best interest of the Company to do so.
to provide access to any information which it reasonably considers to be a trade secret or similar confidential information.
Each time the Company offers any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall make an offering of such Shares to each Holder before offering such shares to any other person, entity or association, in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice") to each Holders standing (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms upon which such Shares shall be offered.
(b) By written notification received by the Company, within fifteen (15) calendar days after giving of the Notice, each Holder may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of common stock issued and held, or issuable upon conversion of any capital stock or warrants of the Company then held, by such Holder bears to the total number of shares of common stock of the Company issued and outstanding (assuming conversion or exercise of all of the Company's outstanding convertible securities, options or warrants).
(c) If all Shares which Holders are entitled to obtain pursuant to subsection 2.3(b) are not elected to be obtained as provided in subsection 2.3(b) hereof, the Company may, during the 60-day period following the expiration of the period provided in subsection 2.3(b) hereof, offer the reaming unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Holders in accordance herewith.
(d) The right of first refusal in this paragraph 2.3 shall not be applicable (i) to the issuance or sale of shares of common stock (or options therefor) to employees, officers, directors or consultants of the Company or any wholly-owned subsidiary, pursuant to plans or agreements approved by the Board of Directors; (ii) to or after consummation of a bona fide, firmly underwritten public offering of shares of common stock,
registered under the Act pursuant to a registration statement on Form S-1; (iii) to the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities; (iv) to the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise; (v) to the issuance of securities to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions; (vi) to the issuance of stock, warrants or other securities or rights to persons or entities with which the Company has business relationships; provided such issuances are for other than primarily equity financing purposes and provided that at the time of any such issuance, the aggregate of such issuance and similar issuances in the preceding twelve month period do not exceed 1% of the then outstanding Common Stock of the Company (assuming full conversion and exercise of all convertible and exercisable securities) or (vii) to the issuance or sale of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock authorized as of the date hereof.
(e) The right of first refusal set forth in this Section 2.3 may not be assigned or transferred, except that (i) such right is assignable by each Holder to any wholly owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Act, controlling, controlled by or under common control with, any such Holder, or to any partner or retired partner of the Holder and (ii) such right is assignable between and among any of the Holders.
The covenants set forth in Section 2.1, Section 2.2 and Section 2.3 shall terminate as to each Holder and be of no further force or effect on the earlier of (a) immediately prior to the consummation of an IPO or (b) when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act.
The Company hereby covenants and agrees that it will not take, and each of the parties hereto agrees to use reasonable efforts to cause the Company not to take, any action reasonably expected to make the Company or its shareholders ineligible for the qualified small business stock tax reduction under Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code") or fail to file any filing required under Section 1202 of the Code or any regulation promulgated thereunder required to enable any Holder to take advantage of such Code provision.
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first above written.
COMPANY:
STAMPS.COM INC.
By: /s/ John M. Payne -------------------------- John M. Payne, President |
Address: 2900 31st Street,
Suite 150
Santa Monica, CA 90405
FOUNDER:
/s/ Mohan Ananda --------------------------------- Mohan Ananda |
Address: 549 Lakeview Canyon Road
Westlake Village, CA 91392
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first written above.
INVESTORS:
SELIGMAN COMMUNICATIONS AND INFORMATION
FUND, INC.
By: J. & W. Seligman & Co. Incorporated,
Its Investment Advisor
By: /s/ SMS Boswick
-------------------------
Name: SMS Boswick
Title: Managing Director
|
Address: 100 Park Avenue
7th Floor
New York, New York 10017
|
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first written above.
INVESTORS:
INTEL CORPORATION
By: /s/ Arvind Sodhani
---------------------------------
Name: Arvind Sodhani
Title: Treasurer
|
Address: 2200 Mission College Blvd.
Santa Clara, California 94088
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first written above.
INVESTORS:
MARVIN RUNYON
/s/ Marvin Runyon _________________________________ Address: |
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first written above.
INVESTORS:
CHASE VENTURE CAPITAL ASSOCIATES L.P.
By: Chase Capital Partners
Its General Partner
By: /s/ I. Robert Greene ___________________________ Name: I. Robert Greene Title: |
Address: 380 Madison Avenue 12th Floor New York, New York 10017
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first written above.
INVESTORS:
VULCAN VENTURES INC.
By: /s/ William D. Savoy _________________________________ Name: William D. Savoy Title: Vice President |
Address: 110 110th Avenue, Northeast Suite 550 Bellevue, Washington 98004
BAYVIEW INVESTORS, LTD
By: /s/ Terry Otton _________________________________ Name: Terry Otton Title: Chief Financial Officer |
Address: 555 California Street
Suite 2600
San Francisco, California
94104
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first written above.
INVESTORS:
BROBECK, PHLEGER & HARRISON LLP
By: /s/ Bruce R. Hallett _________________________________ Name: Bruce R. Hallett Title: Partner |
Address: 38 Technology Drive Irvine, California 92618
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first written above.
INVESTORS:
DAVID C. BOHNETT AS TRUSTEE OF THE DAVID C.
BOHNETT LIVING TRUST UNDER DECLARATION OF
TRUST DATED NOVEMBER 22, 1996
/s/ David C. Bohnett _________________________________ David C. Bohnett, Trustee |
Address: 9000 Clifton Way Penthouse Beverly Hills, California 90211
MAGELLEN TECHNOLOGIES, INC.
By: /s/ George M. Aschenbach
_________________________________
Name: George M. Aschenbach
Title: Vice President
Treasury, Strategy Support
and New Ventures
|
Address: Galileo International 9700 W. Higgins Road Suite 400 Rosemont, IL 60018
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first above written.
INVESTORS AND EXISTING HOLDERS:
BRENTWOOD ASSOCIATES VIII L.P.
By: Brentwood VIII Ventures, LLC
Its General Partner
By: /s/ G. Bradford Jones
______________________________________
Managing Member
|
Address: 11150 Santa Monica Blvd., Suite 1200 Los Angeles, CA 90025
BRENTWOOD AFFILIATES FUND L.P.
By: Brentwood VII Ventures, L.P.
Its General Partner
By: /s/ G. Bradford Jones
______________________________________
General Partner
|
Address: 11150 Santa Monica Blvd., Suite 1200 Los Angeles, CA 90025
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first above written.
INVESTORS AND EXISTING HOLDERS:
ENTERPRISE PARTNERS IV, L.P.
By: Enterprise Management Partners IV,
Its General Partner
By: /s/ Charles D. Martin ______________________________ Name: Charles D. Martin Title: General Partner |
Address: 5000 Birch Street Suite 6200 Newport Beach, CA 92660 Facsimile Number: (714) 833-3652 Attention: Thomas N. Clancy, Venture Partner
ENTERPRISE PARTNERS IV ASSOCIATES, L.P.
By: Enterprise Management Partners, IV,
Its General Partner
By: /s/ Charles D. Martin _______________________________ Name: Charles D. Martin Title: General Partner |
Address: 5000 Birch Street Suite 6200 Newport Beach, CA 92660 Facsimile Number: (714) 833-3652 Attention: Thomas N. Clancy, Venture Partner
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first above written.
INVESTORS AND EXISTING HOLDERS:
SBIC PARTNERS, L.P.
201 Main Street, Suite 2302
Fort Worth, Texas 76102
By: Forrest Binkley & Brown, L.P.,
General Partner
By: Forrest Binkley & Brown Venture Co.,
General Partner
By: /s/ Jeffrey J. Brown
-------------------------
Jeffrey J. Brown
Office of the President
|
By: SL-SBIC Partners, L.P., General Partner
By: FW-SBIC, Inc.,
General Partner
By: /s/ Peter Sterling
-------------------------
Peter Sterling
Chairman
|
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
The parties have executed this Amended and Restated Investors' Rights Agreement as of the date first above written.
EXISTING HOLDERS:
VLG INVESTMENTS 1998
By: /s/ Elias J. Blawie, Partner
----------------------------
Elias J. Blawie, Partner
|
Address: 2800 Sand Hill Road Menlo Park, CA 94025
MARK A. MEDEARIS
By: /s/ Mark S. Medearis
----------------------------
Mark S. Medearis
|
Address: 2800 Sand Hill Road Menlo Park, CA 94025
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
Brentwood Associates VIII, L.P.
Brentwood Affiliates Fund L.P.
Enterprise Partners IV, L.P.
Enterprise Partners IV Associates, L.P.
SBIC Partners, L.P
VLG Investments 1998
Mark A. Medearis
Vulcan Ventures Inc.
Chase Venture Capital Associates L.P.
Intel Corporation
Brentwood Associates VIII, L.P.
Brentwood Affiliates Fund, L.P.
SBIC Partners, L.P.
Enterprise Partners IV, L.P.
Enterprise Partners IV and Associates, L.P.
Seligman Communications and Information Fund, Inc.
Magellen Technologies, Inc.
Marvin Runyon
David C. Bohnett Living Trust
Bayview Investors, Ltd.
Brobeck, Phleger & Harrison LLP
Irell & Manella LLP Trustee
EXHIBIT 10.3
Assignor hereby requests the Commissioner of Patents to issue said Patents and Patent Application to said Assignee as the Assignee of the Letters Patents to be issued thereon for the sole use and behalf of said Assignee, its successors, legal representatives and assigns.
Dated: January 20, 1998 MOHAN ANANDA
/s/ Mohan Ananda
----------------------------------
|
EXHIBIT 10.4
RECITALS
3. The Company desires to obtain from Ananda, and Ananda is willing to assign to the Company, all intellectual property rights owned by Ananda as of the Effective Date in and to the Patents and the Patent Application, and the Know-how related thereto, on the terms and conditions set forth in this Agreement, and Ananda desires to obtain from the Company, and the Company is willing to grant to Ananda a limited license to Ananda, as of the Effective Date under the Patents (but not under the Patent Application) on the terms and conditions set forth in this Agreement.
4. The Company and Ananda have entered into a Common Stock Purchase Agreement of even date herewith, pursuant to which Ananda has purchased from the Company and the Company has sold to Ananda 1,448,397 shares of the Company's Common Stock, the consideration for which is the assignment and license between the parties pursuant to this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the capitalized terms set forth below shall have the meanings set forth in this Article I.
ARTICLE II
PATENT ASSIGNMENT
desirable to effectuate the sale, transfer, and assignment of the Assigned Patents and the Assigned Patent Application, and the Know-how related thereto. Furthermore, Ananda hereby covenants and agrees to and with the Company that Ananda will, whenever counsel of the Company shall advise that any proceeding in connection with the Assigned Patents and the Assigned Patent Application in any country, including interference proceedings, is lawful and desirable, or that any division, continuation or continuation-in-part of any application for any Assigned Patent or the Assigned Patent Application, or any reissue or extension of any Assigned Patent or the Assigned Patent Application, to be obtained thereon, is lawful and desirable, sign all papers and documents, take all lawful oaths, and do all reasonable acts necessary or required to be done for the procurement, maintenance, enforcement and defense of the Assigned Patents and the Assigned Patent Application, without charge to the Company, but at the cost and expense of the Company.
ARTICLE III
LICENSE GRANT
ARTICLE IV
CONFIDENTIALITY
(1) was generally available to the public or otherwise part of the public domain at the time of its disclosure or use by Ananda; or
(2) became generally available to the public or otherwise part of the pubic domain after its disclosure or use and other than through any act or omission of Ananda in breach of this Agreement.
ARTICLE V
TERMINATION
ARTICLE VI
NON-COMPETE
6.1 Non-Compete. During the term of Ananda's employment with the Company and for a period of twenty-four (24) months after termination of employment for any reason or no reason, with or without cause, Ananda. agrees that he will not market, sell, or distribute, either directly or indirectly, any Product for use outside the Field.
ARTICLE VII
MISCELLANEOUS
If to the Company: StampMaster, Inc.
4500 East Thousand Oaks Blvd., Suite 100
Westlake Village, CA 91362
If to Ananda: Mohan Ananda
549 Lakeview Canyon Road
Westlake Village, CA 91362
7.6 Complete Agreement. This Agreement constitutes the
------------------
|
entire agreement, both written and oral, between the parties with respect to the subject matter hereof, and all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, are merged and canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of the parties.
IN WITNESS WHEREOF, the parties have caused this Assignment and License Agreement to be executed by their duly authorized representatives.
STAMPMASTER, INC.
By: /s/ Ari Engelberg
-----------------------------
Name: Ari Engelberg
---------------------------
Title: Vice President
--------------------------
|
MOHAN ANANDA
/s/ Mohan Ananda -------------------------------- |
PATENT ASSIGNMENT DOCUMENT
[See attached document.]
EXHIBIT 10.5
October 29, 1998
John Payne
660 Thalia Street
Laguna Beach, CA. 92651
Dear John,
It is with great pleasure that we extend this offer on behalf of the officers and Board of Directors to join Stampmaster as President and Chief Executive Officer. Your start date will be October 29, 1998 coincident with your acceptance of our offer.
Responsibilities: As President and Chief Executive Officer, you will devote
your principal time and efforts assuming responsibility for
all aspects of the Company's operations, including such
duties as may be required by the Board of Directors. The
Company will use best efforts to cause you, as soon as
possible, to be elected a member of the Board of Directors.
Salary: Your base salary will be $13,333 per month, or $160,000 per
year.
Bonus: Your incentive compensation target will be $60,000 per annum,
paid in the earlier of the month subsequent to the Board of
Directors' review of the fiscal year's audited financial
results or March 15 each calendar year. Your incentive
compensation will be based on the achievement of milestones
set by you in conjunction with the Board of Directors at the
time of adoption of the annual operating plan. These
milestones will include customer acquisition goals, company
valuation and management objectives. Your 1998 incentive
target will be prorated according to your start date of
commencement with the Company. To be eligible for incentive
compensation, you will need to be employed through the end of
the Company's fiscal year, except in cases where constructive
or involuntary termination occur for reasons other than cause
(as defined under "Severance" below), in which case incentive
compensation will be pro-rated and paid based upon the
milestones achieved to date in the calendar year.
Stock: The Company will sell to you 1,000,000 shares of Common Stock
at the current fair market price at the time of purchase. The
Company will loan to you the funds necessary to purchase said
stock in a 4 year note with interest payable annually at the
minimum applicable federal rate and principal payable at
term, except that you shall pay the par value of the shares
($1,000) in cash.
|
Change of Control: In the event that the Company sells all or substantially all
of its assets or is merged with another Company or otherwise
is acquired such that the shareholders of the Company
immediately prior to such transaction own less than fifty
percent (50%) of the Company following such transaction (a
"Change of Control"), and your employment is constructively
terminated or terminated by the Company or a successor entity
involuntarily within 12 months following such transaction for
any reason other than cause, cause in this instance to
include:
(i) Your commitment of fraud or an illegal act related to
the Company's business;
(ii) Your violation of an agreement between you and the
Company, such as the Company's proprietary information
agreement; or
(iii) Your failure to perform your job functions to the
performance levels set as mutually agreed in
conjunction with new management within 90 days
subsequent to closing of a Change of Control as
described above;
you will be paid cash severance payments and benefits
identical to those required to be paid under clause 1. under
"Severance" below, and the acquiring or surviving company
shall undertake the severance obligation as computed based
upon an initial service date of May 30, 1998.
Constructive termination in this instance shall include:
(i) Relocation more than 30 miles from your job location
without your consent;
(ii) Disability (as defined below) or death;
(iii) Assignment to a new job not commensurate with your
seniority and compensation, it being understood and
agreed that your assignment to the position of Chief
Executive Officer of a business unit, division or
subsidiary of the Company or a company into which the
Company is merged in a Change of Control or otherwise
acquiring assets or voting shares of the Company in
connection with a Change of Control, or a parent of
such a company, shall constitute an assignment to a new
job that is commensurate with your seniority; or
(iv) Any reduction in compensation, including any bonus
compensation formula.
2
|
For purposes of this Agreement, "Disability" shall mean that
you have been unable to perform your Company duties as the
result of your incapacity due to physical or mental illness,
and such inability, at least 26 weeks after its commencement,
is determined to be total and permanent by a physician
selected by you or your legal representative and acceptable
to the Company (such Agreement as to acceptability not be
unreasonably withheld).
Severance: Should the Company terminate your employment for any reason
other than for cause or should you be constructively
terminated, other than during the 12-month period following
closing of a Change of Control as described above, cause in
this instance being defined as:
(i) Your commitment of fraud or an illegal act related to
the Company's business;
(ii) Your violation of an agreement between you and the
Company, such as the Company's proprietary information
agreement; or
(iii) Your failure to perform your job functions to written
performance levels set in conjunction with the Board of
Directors; provided that in the event of failure to
perform, the Board of Directors shall provide written
notice of such breach and a 30 day period during which
said breach can be cured;
the Company will:
1. Pay you severance for six months in monthly
installments beginning 30 days from the date of your
separation. The monthly severance payment will equal
1/12 of your annual base compensation. During any
months that the Company is paying you a monthly
severance in conjunction with this provision, it will
also continue to pay your medical, dental, and vision
benefits in accordance with the employee benefits you
were receiving at the time of severance. After two
years of service to the Company, the severance term
will increase to 9 months; after three years service
and thereafter, the severance term will increase to 12
months; and
Under no circumstances will the Company be obligated to pay
any severance other than that which you earned in your
calendar service to the Company in the case that you
voluntarily separate from the Company, except in cases of
constructive termination (as defined above) that results in
voluntary termination.
Benefits: The Company offers its employees an employer-paid medical
plan. As an additional benefit, the Company will pay for the
cost of insuring your
3
|
dependent child. Sign-up forms and plan description will be
available on your first day of work.
Relocation: If you determine in the first 12 months of employment that
it is necessary for you to relocate to the Los Angeles area,
the Company will pay for up to $10,000 in moving expenses.
Prerequisites: The Company is extending this offer contingent upon the
understanding that:
1. Your joining the Company will not violate any agreement
such as a non-competition or similar agreement to which
you are or have been a party;
2. You will not use or disclose to the Company any
confidential or proprietary information obtained from a
third party prior to your employment; and
3. You will comply with all applicable Company policies
and standards and shall perform your services in a
manner consistent with the ethical and professional
standards of the Company.
The Company's three greatest assets are its intellectual
property, its people and its clients. We are committed to
hiring the best, and our investment in developing our
personnel is second to none. Given our commitment, we must
protect this investment so that we can provide our people
the opportunity for growth and success. Therefore, you will
be asked to sign standard Employee Non-Disclosure and Non-
Solicitation Agreements on your first day of work.
At-Will Employment: Please note that the Company is an equal opportunity
employer and maintains an at-will employment policy, which
means that you can terminate your employment at any time and
so can the Company, with or without cause; provided that the
Company will remain obligated to provide severance and other
benefits to the extent set forth above.
Limitation on
Payments: In the event that the severance and other benefits provided
for in this Agreement or otherwise payable to you (i)
constitute "parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and (ii) but for this Section, would
be subject to the excise tax imposed by Section 4999 of the
Code (or any corresponding provisions of state income tax
law), then your severance benefits shall be either
(a) delivered in full, or
4
|
(b) delivered as to such lesser extent which would result
in no portion of such severance benefits being subject
to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and
the excise tax imposed by Section 4999, results in the
receipt by you on an after-tax-basis, of the greater
amount of severance benefits, notwithstanding that all
or some portion of such severance benefits may be
taxable under Section 4999 of the Code. Unless the
Company and you otherwise agree in writing, any
determination required under this Section shall be made
in writing by the Company's independent public
accountants (the "Accountants"), whose determination
shall be conclusive and binding upon you and the
Company for all purposes. For purposes of making the
calculations required by this Section, the Accountants
may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable,
good faith interpretations concerning the application
of Sections 280G and 4999 of the Code. The Company and
you shall furnish to the Accountants such information
and documents as the Accountants may reasonably request
in order to make a determination under this Section.
The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations
contemplated by this Section. In the event that
subsection (a) above applies, then you shall be
responsible for any excise taxes imposed with respect
to such severance and other benefits. In the event that
subsection (b) above applies then each benefit provided
hereunder shall be proportionately reduced to the
extent necessary to avoid imposition of such excise
taxes.
Entire Agreement: This Agreement and the stock documentation and the Non-
Disclosure and Non-Solicitation Agreements referenced above
contain the entire agreement of the parties, and there are
no other promises or conditions in any other agreement
whether oral or written with respect to the subject matter
hereof. This Agreement and the stock documentation and the
Non-Disclosure and Non-Solicitation Agreements supersede any
prior written or oral agreements between the parties with
respect to the subject matter hereof.
Arbitration: Any dispute under this Agreement shall be resolved by
arbitration in Los Angeles, California in accordance with
the commercial arbitration rules of the American Arbitration
Association ("AAA Rules") then in effect. Any judgment upon
the award rendered by the arbitrator may be entered in any
court having jurisdiction over the subject matter thereof.
The arbitrator shall have the authority to grant any
equitable and legal remedies that
5
|
would be available in any judicial proceeding instituted to
resolve such dispute.
Amendment: This Agreement may be modified or amended only if the
amendment is made in writing and is signed by both parties.
Governing Law: The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State
of California as applied to agreements entered into and
performed within California solely by residents of that
state.
Severability: The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity
or enforceability of any other provision hereof, which shall
remain in full force and effect.
Tax Withholding: All payments made pursuant to this Agreement will be subject
to withholding of applicable income and employment taxes, if
applicable.
Counterparts: This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together
will constitute one and the same instrument.
Offer Period: This offer is valid through Midnight, (Offer deadline) PST.
Please sign and return the attached acknowledgment copy.
This will serve as your official acceptance of our offer.
|
John, we are very pleased to extend this offer to you and very excited about having you join the team. If you have any questions, please do not hesitate to call me.
Very truly yours,
STAMPMASTER, INC.
/s/ Thomas H. Bruggere Thomas H. Bruggere Chairman |
ACKNOWLEDGED:
EXHIBIT 10.6
STAMPMASTER, INC.
of this Agreement and will receive such other benefits as the Company generally provides to its other employees of comparable position and experience.
(ii) The Company's determination that it is terminating Employee without Cause, which determination may be made by the Company at any time at the Company's sole discretion, for any or no reason (Termination Without Cause);
(iv) In the event a Constructive Termination (as defined in Section 5(b)(iv) below) has occurred; or
(v) Following Employee's death or Disability (as defined in Section 7 below).
Termination, Employee shall be entitled to receive payment of severance benefits equal to Employee's then regular monthly salary for the Severance Period. Such payments shall be made ratably over the Severance Period according to the Company's standard payroll policies. Health insurance benefits with the same coverage provided to Employee prior to the termination (e.g. medical, dental, optical, mental health) and in all other respects significantly comparable to those in place immediately prior to the termination will be provided at the Company's cost over the Severance Period. Any unvested stock options, warrants, or shares of restricted stock held by Employee as of the date of Employee's termination of employment as a result of an Involuntary Termination shall immediately vest in full or the Company's right of repurchase shall immediately lapse with respect to all of such securities.
Invention Assignment Agreement, including without limitation, Employee's theft or other misappropriation of the Company's proprietary information.
a. delivered in full; or
b. delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-taxbasis, of the greater amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Employed otherwise agree in writing, any determination required under this Section 10 shall be made in writing by the Accountants, whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section 10, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 10. In the event that subsection (a) above applies, then Employee shall be responsible for any excise taxes imposed with respect to such severance and other benefits. In the event that subsection (b) above applies, then each benefit provided hereunder shall be proportionately reduced to the extent necessary to avoid imposition of such excise taxes.
[Signature Page Follows]
The parties have executed this Agreement the date first written above.
STAMPMASTER, INC.
By: /s/ Thomas N. Clancy
-------------------------
Title:
----------------------
|
Address: 4500 East Thousand Oaks Blvd.
Suite 100
Westlake Village. CA 91362
MOHAN ANANDA
Signature: /s/ Mohan Ananda
-------------------
Address: 549 Lakeview Canyon Rd
---------------------
Westlake Village, CA 91362
|
The parties have executed this Agreement the date first written above.
STAMPMASTER, INC.
By: /s/ Thomas N. Clancy
-------------------------
Title:
----------------------
|
Address: 4500 East Thousand Oaks Blvd.
Suite 100
Westlake Village. CA 91362
MOHAN ANANDA
Signature: /s/ Mohan Ananda
------------------
Address: 549 Lakeview Canyon Rd
--------------------
Westlake Village, CA 91362
|
EXHIBIT 10.8
ARTICLE ONE
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests of Stamps.com Inc., a Delaware corporation, by providing eligible persons in the Corporation's service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible employees may elect to have a portion of their base salary invested each year in special option grants,
- the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible non- employee Board members shall automatically receive option grants at designated intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee Board members may elect to have all or any portion of their annual retainer fee otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Seven shall apply to all equity programs under the Plan and shall govern the interests of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board's discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer those programs with respect to all such persons. However, any discretionary option grants or stock issuances for members of the Primary Committee shall be made by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee.
Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of those programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or any option or stock issuance thereunder.
C. The Primary Committee shall have the sole and exclusive authority to determine which Section 16 Insiders and other highly compensated Employees shall be eligible for participation in the Salary Investment Option Grant Program for one or more calendar years. However, all option grants under the Salary Investment Option Grant Program shall be made in accordance with the express terms of that program, and the Primary Committee shall not exercise any discretionary functions with respect to the option grants made under that program.
D. Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan.
E. Administration of the Automatic Option Grant and Director Fee Option Grant Programs shall be self-executing in accordance with the terms of those programs, and no Plan Administrator shall exercise any discretionary functions with respect to any option grants or stock issuances made under those programs.
2.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly compensated individuals shall be eligible to participate in the Salary Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the Automatic Option Grant Program shall be limited to (i) those individuals who first become non-employee Board members on or after the Underwriting Date, whether through appointment by the Board or election by the Corporation's stockholders, and (ii) those individuals who continue to serve as non-employee Board members at one or more Annual Stockholders Meetings held after the Underwriting Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to receive an option grant under the Automatic Option Grant Program at the time he or she first becomes a non-employee Board member, but shall be eligible to receive periodic option grants under the Automatic Option Grant Program while he or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in the Director Fee Option Grant Program.
3.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The number of shares of Common Stock initially reserved for issuance over the term of the Plan shall not exceed _____________ shares. Such reserve shall consist of (i) the number of shares estimated to remain available for issuance, as of the Plan Effective Date, under the Predecessor Plan as last approved by the Corporation's stockholders, including the shares subject to outstanding options under that Predecessor Plan, (ii) plus an additional increase of approximately _____________ shares to be approved by the Corporation's stockholders prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance under the Plan shall automatically increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2000, by an amount equal to ______ percent (%) of the total number of shares of Common Stock outstanding on the last trading day in December of the immediately preceding calendar year, but in no event shall any such annual increase exceed _____________ shares.
C. No one person participating in the Plan may receive options, separately exercisable stock appreciation rights and direct stock issuances for more than _____________ shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall not
be available for subsequent issuance under the Plan.
4.
E. If any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under the Plan per calendar year, (iii) the number and/or class of securities for which grants are subsequently to be made under the Automatic Option Grant Program to new and continuing non-employee Board members, (iv) the number and/or class of securities and the exercise price per share in effect under each outstanding option under the Plan, (v) the number and/or class of securities and price per share in effect under each outstanding option incorporated into this Plan from the Predecessor Plan and (vi) the maximum number and/or class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions of Section V.B of this Article One. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive.
5.
ARTICLE TWO
I. OPTION TERMS
1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Seven and the documents evidencing the option, be payable in one or more of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
6.
1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death and exercisable in whole or in part at that time may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution or by the Optionee's designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:
(i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.
7.
II. INCENTIVE OPTIONS
8.
To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully vested shares of Common Stock. However, an outstanding option shall not become exercisable on such an accelerated basis if and to the extent: (i) such option is, in connection with the Corporate Transaction, to be assumed by the successor corporation (or parent thereof) or (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Corporate Transaction on any shares for which the option is not otherwise at that time exercisable and provides for subsequent payout in accordance with the same exercise/vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
9.
(iii) the maximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under the Plan per calendar year and (iv) the maximum number and/or class of securities by which the share reserve is to increase automatically each calendar year.
E. The Plan Administrator shall have the discretionary authority to structure one or more outstanding options under the Discretionary Option Grant Program so that those options shall, immediately prior to the effect date of such Corporate Transaction, become fully exercisable for the total number of shares of Common Stock at the time subject to those options and may be exercised for any or all of those shares as fully vested shares of Common Stock, whether or not those options are to be assumed in the Corporate Transaction. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Discretionary Option Grant Program so that those rights shall not be assignable in connection with such Corporate Transaction and shall accordingly terminate upon the consummation of such Corporate Transaction, and the shares subject to those terminated rights shall thereupon vest in full.
G. The Plan Administrator shall have the discretionary authority to structure one or more outstanding options under the Discretionary Option Grant Program so that those options shall, immediately prior to the effect date of a Change in Control, become fully exercisable for the total number of shares of Common Stock at the time subject to those options and may be exercised for any or all of those shares as fully vested shares of Common Stock. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Discretionary Option Grant Program so that those rights shall terminate automatically upon the consummation of such Change in Control, and the shares subject to those terminated rights shall thereupon vest in full. Alternatively, the Plan Administrator may condition the automatic acceleration of one or more outstanding options under the Discretionary Option Grant Program and the termination of one or more of the Corporation's outstanding repurchase rights under such program upon the subsequent termination of the Optionee's Service by reason of an Involuntary Termination within a
10.
H. The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program (including outstanding options incorporated from the Predecessor Plan) and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to selected Optionees tandem stock appreciation rights and/or limited stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect between the exercise of the underlying option for shares of Common Stock and the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (a) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (b) the aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it is approved by the Plan Administrator, either at the time of the actual option surrender or at any earlier time. If the surrender is so approved, then the distribution to which the Optionee shall be entitled may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate.
11.
C. The following terms shall govern the grant and exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual holding one or more options with such a limited stock appreciation right shall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation. In return for the surrendered option, the Optionee shall receive a cash distribution from the Corporation in an amount equal to the excess of (A) the Take-Over Price of the shares of Common Stock at the time subject to such option (whether or not the Optionee is otherwise vested in those shares) over (B) the aggregate exercise price payable for those shares. Such cash distribution shall be paid within five (5) days following the option surrender date.
(iii) At the time such limited stock appreciation right is granted, the Plan Administrator shall pre-approve any subsequent exercise of that right in accordance with the terms of this Paragraph C. Accordingly, no further approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash distribution.
12.
ARTICLE THREE
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years (if any) for which the Salary Investment Option Grant Program is to be in effect and to select the Section 16 Insiders and other highly compensated Employees eligible to participate in the Salary Investment Option Grant Program for such calendar year or years. Each selected individual who elects to participate in the Salary Investment Option Grant Program must, prior to the start of each calendar year of participation, file with the Plan Administrator (or its designate) an irrevocable authorization directing the Corporation to reduce his or her base salary for that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely authorization shall automatically be granted an option under the Salary Investment Grant Program on the first trading day in January of the calendar year for which the salary reduction is to be in effect.
II. OPTION TERMS
1. The exercise price per share shall be thirty-three and one- third percent (33-1/3%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base salary for the calendar year to be in effect pursuant to this program, and
13.
B is the Fair Market Value per share of Common Stock on the option grant date.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
B. In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall immediately become fully exercisable for the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock.
14.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
E. The grant of options under the Salary Investment Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
15.
ARTICLE FOUR
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients to receive those shares upon the attainment of designated performance goals.
1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or Subsidiary).
1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients to receive those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or
16.
other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which would otherwise occur upon the cessation of the Participant's Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives.
6. Outstanding share right awards under the Stock Issuance Program shall automatically terminate, and no shares of Common Stock shall actually be issued in satisfaction of those awards, if the performance goals established for such awards are not attained. The Plan Administrator, however, shall have the discretionary authority to issue shares of Common Stock under one or more outstanding share right awards as to which the designated performance goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.
17.
B. The Plan Administrator shall have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Stock Issuance Program so that those rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event the Participant's Service should subsequently terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction in which those repurchase rights are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Stock Issuance Program so that those rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event the Participant's Service should subsequently terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.
18.
ARTICLE FIVE
I. OPTION TERMS
1. Each individual who is first elected or appointed as a non- employee Board member at any time on or after the Underwriting Date shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase _____________ shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the Underwriting Date, each individual who is to continue to serve as an Eligible Director, whether or not that individual is standing for re-election to the Board at that particular Annual Meeting, shall automatically be granted a Non- Statutory Option to purchase __________ shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months. There shall be no limit on the number of such _________ share option grants any one Eligible Director may receive over his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) or who have otherwise received one or more stock option grants from the Corporation prior to the Underwriting Date shall be eligible to receive one or more such annual option grants over their period of continued Board service.
1. The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
19.
measured from the option grant date. Each annual _____________ share automatic
option shall vest, and the Corporation's repurchase right shall lapse, in one
(1) installment upon the Optionee's completion of the twelve (12) month period
of Board service measured from the option grant date.
(i) The Optionee (or, in the event of Optionee's death, the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution or by the designated beneficiary or beneficiaries of such option) shall have a twelve (12)-month period following the date of such cessation of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of vested shares of Common Stock for which the option is exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of Board service, be exercised for all or any portion of those shares as fully-vested shares of Common Stock.
20.
(iv) In no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)- month exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Board service for any reason other than death or Permanent Disability, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully- vested shares of Common Stock. Immediately following the consummation of the Corporate Transaction, each automatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Each such option shall remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the surrender of the option in connection with a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically terminate, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction or Change in Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each of his or her outstanding automatic option grants. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. Stockholder approval of the Plan shall constitute pre-approval of the grant of each such limited cash-out right and the subsequent exercise of that right in accordance with the terms of this Paragraph D. Accordingly, no approval or consent of the Board or any Plan Administrator shall be required at the time of the actual option surrender and cash distribution.
21.
The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
22.
ARTICLE SIX
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years for which the Director Fee Option Grant Program is to be in effect. For each such calendar year the program is in effect, each non-employee Board member may elect to apply all or any portion of the annual retainer fee otherwise payable in cash for his or her service on the Board for that year to the acquisition of a special option grant under this Director Fee Option Grant Program. Such election must be filed with the Corporation's Chief Financial Officer prior to first day of the calendar year for which the annual retainer fee which is the subject of that election is otherwise payable. Each non-employee Board member who files such a timely election shall automatically be granted an option under this Director Fee Option Grant Program on the first trading day in January in the calendar year for which the annual retainer fee which is the subject of that election would otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and conditions specified below.
1. The exercise price per share shall be thirty-three and one- third percent (33-1/3%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non- employee Board member's election, and
23.
B is the Fair Market Value per share of Common Stock on the option grant date.
24.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five
25.
(5) days following the surrender of the option to the Corporation. Stockholder approval of the Plan shall constitute pre-approval of the grant of each such limited cash-out right and the subsequent exercise of that right in accordance with the terms of this Paragraph C. Accordingly, no approval or consent of the Board or any Plan Administrator shall be required at the time of the actual option surrender and cash distribution.
D. The grant of options under the Director Fee Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
26.
ARTICLE SEVEN
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price of shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of options or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvested shares of Common Stock under the Plan (other than the options granted or the shares issued under the Automatic Option Grant or Director Fee Option Grant Program) with the right to use shares of Common Stock in satisfaction of all or part of the Withholding Taxes to which such holders may become subject in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats:
27.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective Date. However, the Salary Investment Option Grant Program and the Director Fee Option Grant Program shall not be implemented until such time as the Primary Committee may deem appropriate. Options may be granted under the Discretionary Option Grant at any time on or after the Plan Effective Date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's stockholders. If such stockholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and no further option grants or direct stock issuances shall be made under the Predecessor Plan after the Plan Effective Date. All options outstanding under the Predecessor Plan on the Plan Effective Date shall be incorporated into the Plan at that time and shall be treated as outstanding options under the Plan. However, each outstanding option so incorporated shall continue to be governed solely by the terms of the documents evidencing such option, and no provision of the Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation) the option/vesting acceleration provisions of Article Two relating to Corporate Transactions and Changes in Control, may, in the Plan Administrator's discretion, be extended to one or more options incorporated from the Predecessor Plan which do not otherwise contain such provisions.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to stock options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant and Salary Investment Option Grant Programs and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess
28.
shares actually issued under those programs shall be held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause.
29.
The following definitions shall be in effect under the Plan:
(i) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.
(i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation.
30.
(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the Underwriting Date, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is to be sold in the initial public offering pursuant to the Underwriting Agreement.
31.
(i) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent.
32.
33.
34.
EXHIBIT 10.9
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests of Stamps.com Inc., a Delaware corporation, by providing eligible employees with the opportunity to acquire a proprietary interest in the Corporation through participation in a payroll-deduction based employee stock purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Code Section 423. Decisions of the Plan Administrator shall be final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
C. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and class of securities issuable under the Plan, (ii) the maximum number and class of securities purchasable per Participant on any one Purchase Date, (iii) the maximum number and class of securities purchasable by all Participants in the aggregate on any one Purchase Date, (iv) the maximum
number and/or class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions of Section III.B of this Article One and (v) the number and class of securities and the price per share in effect under each outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan through a series of successive offering periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed twenty-four (24) months) as determined by the Plan Administrator prior to the start date of such offering period. However, the initial offering period shall commence at the Effective Time and terminate on the last business day in July 2001. The next offering period shall commence on the first business day in August 2001, and subsequent offering periods shall commence as designated by the Plan Administrator.
C. Each offering period shall be comprised of a series of one or more successive Purchase Intervals. Purchase Intervals shall run from the first business day in February to the last business day in July each year and from the first business day in August each year to the last business day in January in the following year. However, the first Purchase Interval in effect under the initial offering period shall commence at the Effective Time and terminate on the last business day in January 31, 2000.
D. Should the Fair Market Value per share of Common Stock on any Purchase Date within an offering period be less than the Fair Market Value per share of Common Stock on the start date of that offering period, then that offering period shall automatically terminate immediately after the purchase of shares of Common Stock on such Purchase Date, and a new offering period shall commence on the next business day following such Purchase Date. The new offering period shall have a duration of twenty (24) months, unless a shorter duration is established by the Plan Administrator within five (5) business days following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of any offering period under the Plan may enter that offering period on such start date or on any subsequent Semi-Annual Entry Date within that offering period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the start date of an offering period may enter that offering period on any subsequent Semi-Annual Entry Date within that offering period on which he or she is an Eligible Employee.
2.
C. The date an individual enters an offering period shall be designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator (including a stock purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
[fifteen percent (15%)]. The deduction rate so authorized shall continue in
effect throughout the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than one
(1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new Purchase Interval within the offering period, increase the rate of his or her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate (which may not exceed the [fifteen percent (15%)] maximum) shall become effective on the start date of the first Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day administratively feasible following the Participant's Entry Date into the offering period and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of that offering period. The amounts so collected shall be credited to the Participant's book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account. The amounts collected from the Participant shall not be required to be held in any segregated account or trust fund and may be commingled with the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of the Participant's purchase right in accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any Purchase Date shall neither limit nor require the Participant's acquisition of Common Stock on any subsequent Purchase Date, whether within the same or a different offering period.
3.
VII. PURCHASE RIGHTS
Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or any Corporate Affiliate.
4.
(i) A Participant may, at any time prior to the next scheduled Purchase Date in the offering period, terminate his or her outstanding purchase right by filing the appropriate form with the Plan Administrator (or its designate), and no further payroll deductions shall be collected from the Participant with respect to the terminated purchase right. Any payroll deductions collected during the Purchase Interval in which such termination occurs shall, at the Participant's election, be immediately refunded or held for the purchase of shares on the next Purchase Date. If no such election is made at the time such purchase right is terminated, then the payroll deductions collected with respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be irrevocable, and the Participant may not subsequently rejoin the offering period for which the terminated purchase right was granted. In order to resume participation in any subsequent offering period, such individual must re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or her scheduled Entry Date into that offering period.
(iii) Should the Participant cease to remain an Eligible Employee for any reason (including death, disability or change in status) while his or her purchase right remains outstanding, then that purchase right shall immediately terminate, and all of the Participant's payroll deductions for the Purchase Interval in which the purchase right so terminates shall be immediately refunded. However, should the Participant cease to remain in active service by reason of an approved unpaid leave of absence, then the Participant shall have the right, exercisable up until the last business day of the Purchase Interval in which such leave commences, to (a) withdraw all the payroll deductions collected to date on his or her behalf for that Purchase Interval or (b) have such funds held for the purchase of shares on his or her behalf on the next scheduled Purchase Date. In no event, however, shall any further payroll deductions be collected on the Participant's behalf during such leave. Upon the Participant's return to active service (x) within ninety (90) days following the commencement of such leave or (y) prior to the expiration of any longer period for which such Participant's right to reemployment with the Corporation is guaranteed by statute or contract, his or her payroll deductions under the Plan shall automatically resume at the rate in
5.
effect at the time the leave began, unless the Participant withdraws from the Plan prior to his or her return. An individual who returns to active employment following a leave of absence which exceeds in duration the applicable (x) or (y) time period will be treated as a new Employee for purposes of subsequent participation in the Plan and must accordingly re- enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or her scheduled Entry Date into the offering period.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with (i) rights to purchase Common Stock accrued under any other purchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans
6.
(within the meaning of Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise permit such Participant to purchase more than Twenty- Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate Affiliate (determined on the basis of the Fair Market Value per share on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase right shall accrue in a series of installments on each successive Purchase Date during the offering period on which such right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one or more other purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock (determined on the basis of the Fair Market Value per share on the date or dates of grant) for each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Purchase Interval, then the payroll deductions which the Participant made during that Purchase Interval with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this Article and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
7.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any time to become effective immediately following the close of any Purchase Interval. However, the Plan may be amended or terminated immediately upon Board action, if and to the extent necessary to assure that the Corporation will not recognize, for financial reporting purposes, any compensation expense in connection with the shares of Common Stock offered for purchase under the Plan, should the financial accounting rules applicable to the Plan at the Effective Time be subsequently revised so as to require the recognition of compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments or revisions to the Plan without the approval of the Corporation's stockholders: (i) increase the number of shares of Common Stock issuable under the Plan, except for permissible adjustments in the event of certain changes in the Corporation's capitalization, (ii) alter the purchase price formula so as to reduce the purchase price payable for the shares of Common Stock purchasable under the Plan or (iii) modify the eligibility requirements for participation in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan shall be paid by the Corporation; however, each Plan Participant shall bear all costs and expenses incurred by such individual in the sale or other disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to continue in the employ of the Corporation or any Corporate Affiliate for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Corporate Affiliate employing such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person's employment at any time for any reason, with or without cause.
C. The provisions of the Plan shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules.
8.
Stamps.com Inc.
The following definitions shall be in effect under the Plan:
(i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by or is under common control with the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders.
A-1.
(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which begins at the Effective Time, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is sold in the initial public offering pursuant to the Underwriting Agreement.
A-2.
A-3.
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ___ day of __________, 1999 between ________________, a ___________corporation (the "Company") and ___________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company have adopted an Amended and Restated Certificate of Incorporation (the "Certificate") permitting the Board of Directors to indemnify certain officers and employees designated by the Board of Directors or Chief Executive Officer (the "Officers") and directors (the "Directors") of the Company; and
WHEREAS, the Certificate and Section 145 of the Delaware General Corporation Law, as amended ("Law"), by their nonexclusive nature permit contracts between the Company and the Officers and Directors of the Company with respect to indemnification of such Officers and Directors; and
WHEREAS, in accordance with the authorization as provided by the Law, the Company may purchase and maintain a policy or policies of Directors' and Officers' liability insurance ("D & O Insurance"), covering certain liabilities which may be incurred by its Officers and Directors in the performance of their obligations as Officers and Directors of the Company; and
WHEREAS, as a result of recent developments affecting the terms, scope and availability of D & O Insurance there exists general uncertainty as to the extent of protection afforded the Company's Officers and Directors by such D & O Insurance and said uncertainty also exists under statutory and bylaw indemnification provisions; and
WHEREAS, in recognition of past services and in order to induce Indemnitee to continue to serve as an officer and/or a director of the Company, the Company has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as an officer and/or a director after the date hereof, the parties hereto agree as follows:
(a) Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(a) if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding
by or in the right of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; provided, however, that, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
(a) Subject only to the exclusions set forth in Section 2(b) hereof, the Company hereby further agrees to hold harmless and indemnify Indemnitee against any and all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with any Proceeding (including an action by or on behalf of the Company) to which Indemnitee is, was or at any time becomes a party, or is threatened to be made a party, by reason of his Corporate Status; provided, however, that with respect to actions by or on behalf of the Company, indemnification of Indemnitee against any judgments shall be made by the Company only as authorized in the specific case upon a determination that Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; and
(b) No indemnity pursuant to this Section 2 shall be paid by the Company:
(i) In respect to remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;
(ii) On account of any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law;
(iii) On account of Indemnitee's conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest, or to constitute willful misconduct; or
(iv) If a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful.
ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free. Notwithstanding the foregoing, the obligation of the Company to advance Expenses pursuant to this Section 5 shall be subject to the condition that, if, when and to the extent that the Company determines that Indemnitee would not be permitted to be indemnified under applicable law, the Company shall be entitled to be reimbursed, within thirty (30) days of such determination, 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 Company 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 advance of Expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed).
(a) To obtain indemnification (including, but not limited to, the advancement of Expenses and contribution by the Company) under this Agreement, Indemnitee shall submit to the Chief Executive Officer or Chief Financial Officer a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary or any Assistant Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee (unless Indemnitee shall request that such determination be made by the Board of Directors or the stockholders, in which case the determination shall be made in the manner provided in Clause (ii) below), or (ii) if a Change in Control shall not have occurred, (A) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, said Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (C) if so directed by said Disinterested Directors, by the stockholders of the Company; and, if it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board of Directors, or stockholder of the Company shall act reasonably and in good faith in making a determination under the Agreement of the Indemnitee's entitlement to indemnification. Any costs or expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). If a Change in
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
in Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within 10 days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a written
objection is made and substantiated, the Independent Counsel selected may not
serve as Independent Counsel unless and until such objection is withdrawn or a
court has determined that such objection is without merit. If, within 20 days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 6(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the court or by such other person as
the court shall designate, and the person with respect to whom all objections
are so resolved or the person so appointed shall act as Independent Counsel
under Section 6(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 6(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
6(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 8(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the consent of the Indemnitee to the settlement of any Proceeding which the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and the settlement grants the Indemnitee a complete and unqualified release in respect of the potential liability.
(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 6(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 6 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30 day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 7(b) shall
not apply (i) if the determination of entitlement to indemnification is to be
made by the stockholders pursuant to Section 6(b) of this Agreement and if (A)
within fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b) of
this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement (with or without court approval), conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee's action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the Officers and Directors of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. The provisions of this Section 7(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 3 or 4 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 6 or 7 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of
the American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 8(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 8 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.
(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 8, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 8, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 16 of this Agreement) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. The Company shall indemnify Indemnitee against any and all expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee to recover under any Directors' and Officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery, as the case may be.
(e) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 8 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate, any agreement, a vote of stockholders or a resolution of Directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for Directors, Officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director, officer, employee or agent under such policy or policies.
(c) In the event of any 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 papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer and/or a director of the Company, and the Company
acknowledges that Indemnitee is relying upon this Agreement in serving as an officer and/or a director of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the express written request of the Company.
(a) If to Indemnitee, to:
(b) If to the Company, to:
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.
COMPANY NAME,
a _____________ corporation
Title:
EXHIBIT 10.11
BASIC LEASE INFORMATION
OFFICE GROSS
LEASE DATE: August 27, 1998
(same as date in first paragraph of Lease)
TENANT: StampMaster, Inc.
TENANT'S NOTICE ADDRESS: 2900 31st Street, Suite 150, Santa Monica, CA 90405
TENANT'S BILLING ADDRESS: 2900 31st Street, Suite 150, Santa Monica, CA 90405
TENANT CONTACT: Jim McDermott PHONE NUMBER: (805) 371-4755
FAX NUMBER: (805) 371-4760
LANDLORD: Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS: 3250 Ocean Park Blvd., Suite 150, Santa Monica, CA 90405
LANDLORD'S REMITTANCE ADDRESS: P.O. Box 60077, Dept. 12367, Los Angeles, CA 90060-0077
Project Description: A project commonly known as Santa Monica Business park consisting of
nineteen buildings as further shown on Exhibit B and attached hereto.
Building Description: A two story office building located at 2900 31st Street, Santa Monica,
California, as further shown on Exhibit B and attached hereto.
Premises: 8,248 rentable square feet.
Permitted Use: General office use and no other.
Occupancy Density: Three persons per 1,000 rentable square feet of the Premises.
Parking Density: Three parking spaces per 1,000 rentable square feet of the Premises.
Parking and Parking Charge: Four non-exclusive spaces at $60.00 per space / per month, plus
applicable governmental taxes.
Scheduled Term Commencement Date: September 1, 1998
Scheduled Length of Term: Nine months
Scheduled Term Expiration Date: May 31, 1999
Rent:
Base Rent: $12,372.00
Base Year for Operating Expenses: None
Security Deposit: $12,372.00
Tenant's Proportionate Share:
Of Building: .15
|
The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease, the latter shall control.
LANDLORD TENANT
Spieker Properties, L.P., StampMaster, Inc.
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation, By:
its general partner
Print: James AC McDermott
--------------------------
By: /s/ Jeffrey K. Nickell Its: CFO
------------------------- --------------------------
Jeffrey K. Nickell
Its: Vice President Date: 9/2/98
--------------------------
Date: 9/17/98
-----------------------
2
|
TABLE OF CONTENTS
Page
Basic Lease Information.................................................. 1
Table of Contents........................................................ 2
1. Premises................................................................. 4
2. Possession and Lease Commencement........................................ 4
3. Term..................................................................... 4
4. Use...................................................................... 4
5. Rules and Regulations.................................................... 5
6. Rent..................................................................... 5
7. Operating Expenses....................................................... 5
8. Insurance and Indemnification............................................ 7
9. Waiver of Subrogation.................................................... 8
10. Landlord's Repairs and Maintenance....................................... 8
11. Tenant's Repairs and Maintenance......................................... 9
12. Alterations.............................................................. 9
13. Signs.................................................................... 9
14. Inspection/Posting Notices............................................... 9
15. Services and Utilities................................................... 10
16. Subordination............................................................ 10
17. Financial Statements..................................................... 11
18. Estoppel Certificate..................................................... 11
19. Security Deposit......................................................... 11
20. Limitation of Tenant's Remedies.......................................... 11
21. Assignment and Subletting................................................ 11
22. Authority of Tenant...................................................... 12
23. Condemnation............................................................. 12
24. Casualty Damage.......................................................... 13
25. Holding Over............................................................. 13
26. Default.................................................................. 13
27. Liens.................................................................... 15
28. Substitution............................................................. 15
29. Transfers by Landlord.................................................... 15
30. Right of Landlord to Perform Tenant's Covenants.......................... 15
31. Waiver................................................................... 15
32. Notices.................................................................. 15
33. Attorney's Fees.......................................................... 16
34. Successors and Assigns................................................... 16
35. Force Majeure............................................................ 16
36. Surrender of Premises.................................................... 16
37. Parking.................................................................. 16
38. Miscellaneous............................................................ 16
39. Additional Provisions.................................................... 17
40. Jury Trial Waiver........................................................ 17
Signatures............................................................... 18
Exhibits:
Exhibit A............................................. Rules and Regulations
Exhibit B................................... Site Plan, Property Description
Exhibit C............................ Tenant Improvements and Specifications
Additional Exhibits as Required
|
LEASE
THIS LEASE is made as of the 27th day of August, 1998, by and between Spieker Properties, L.P., a California limited partnership (hereinafter called "Landlord"), and StampMaster, Inc. (hereinafter called "Tenant").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions hereinafter set forth, those premises (the "Premises") outlined in red on Exhibit B and described in the Basic Lease Information. The Premises shall be all or part of a building (the "Building") and of a project (the "Project"), which may consist of more than one building and additional facilities, as described in the Basic Lease Information. The Building and Project are outlined in blue and green respectively on Exhibit B. Landlord and Tenant acknowledge that physical changes may occur from time to time in the Premises, Building or Project, and that the number of buildings and additional facilities which constitute the Project may change from time to time, which may result in an adjustment in Tenant's Proportionate Share, as defined in the Basic Lease Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. Existing Improvements. If this Lease pertains to a Premises in which the interior improvements have already been constructed ("Existing Improvements"), the provisions of this Paragraph 2.A. shall apply and the term commencement date ("Term Commencement Date") shall be the earlier of the date on which: (1) Tenant takes possession of some or all of the Premises; or (2) Landlord notifies Tenant that Tenant may occupy the Premises. If for any reason Landlord cannot deliver possession of the Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not be subject to any liability therefor, nor shall Landlord be in default hereunder nor shall such failure affect the validity of this Lease, and Tenant agrees to accept possession of the Premises at such time as Landlord is able to deliver the same, which date shall then be deemed the Term Commencement Date. Tenant shall not be liable for any Rent (defined below) for any period prior to the Term Commencement Date. Tenant acknowledges that Tenant has inspected and accepts the Premises in their present condition, "as is," and as suitable for, the Permitted Use (as defined below), and for Tenant's intended operations in the Premises. Tenant agrees that the Premises and other improvements are in good and satisfactory condition as of when possession was taken. Tenant further acknowledges that no representations as to the condition or repair of the Premises nor promises to alter, remodel or improve the Premises have been made by Landlord or any agents of Landlord unless such are expressly set forth in this Lease. Upon Landlord's request, Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among other things, to acceptance of the Premises and to the determination of the Term Commencement Date, in accordance with the terms of this Lease, but Tenant's failure or refusal to do so shall not negate Tenant's acceptance of the Premises or affect determination of the Term Commencement Date.
B. Construction of Improvements. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the provisions
of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A.
above and the term commencement date ("Term Commencement Date") shall be the
earlier of the date on which: (1) Tenant takes possession of some or all of the
Premises; or (2) the improvements to be constructed or performed in the Premises
by Landlord (if any) shall have been substantially completed in accordance with
the plans and specifications, if any, described on Exhibit C and Tenant's taking
of possession of the Premises or any part thereof shall constitute Tenant's
confirmation of substantial completion for all purposes hereof, whether or not
substantial completion of the Building or Project shall have occurred. If for
any reason Landlord cannot deliver possession of the Premises to Tenant on the
scheduled Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder nor shall such failure
affect the validity of this Lease, and Tenant agrees to accept possession of the
Premises at such time as such improvements have been substantially completed,
which date shall then be deemed the Term Commencement Date. Tenant shall not be
liable for any Rent for any period prior to the Term Commencement Date (but
without affecting any obligations of Tenant under any improvement agreement
appended to this Lease). In the event of any dispute as to substantial
completion of work performed or required to be performed by Landlord, the
certificate of Landlord's architect or general contractor shall be conclusive.
Substantial completion shall have occurred notwithstanding Tenant's submission
of a punchlist to Landlord, which Tenant shall submit, if at all, within three
(3) business days after the Term Commencement Date or otherwise in accordance
with any improvement agreement appended to this Lease. Upon Landlord's request,
Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in
which Tenant shall agree, among other things, to acceptance of the Premises and
to the determination of the Term Commencement Date, in accordance with the terms
of this Lease, but Tenant's failure or refusal to do so shall not negate
Tenant's acceptance of the Premises or affect determination of the Term
Commencement Date.
3. TERM
The term of this Lease (the "Term") shall commence on the Term Commencement Date and continue in full force and effect for the number of months specified as the Length of Term in the Basic Lease Information or until this Lease is terminated as otherwise provided herein. If the Term Commencement Date is a date other than the first day of the calendar month, the Term shall be the number of months of the Length of Term in addition to the remainder of the calendar month following the Term Commencement Date.
4. USE
A. General. Tenant shall use the Premises for the permitted use specified in the Basic Lease Information ("Permitted Use") and for no other use or purpose. Tenant shall control Tenant's employees, agents, customers, visitors, invitees, licensees, contractors, assignees and subtenants (collectively, "Tenant's Parties") in such a manner that Tenant and Tenant's Parties cumulatively do not exceed the occupant density (the "Occupancy Density") or the parking density (the "Parking Density") specified in the Basic Lease Information at any time. Tenant shall pay the Parking Charge specified in the Basic Lease Information as Additional Rent (as hereinafter defined) hereunder. So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive right to use, in common with other parties occupying the Building or Project, the parking areas, driveways and other common areas of the Building and Project, subject to the terms of this Lease and such rules and regulations as Landlord may from time to time prescribe. Landlord reserves the right, without notice or liability to Tenant, and without the same constituting an actual or constructive eviction, to alter or modify the common areas from time to time, including the location and configuration thereof, and the amenities and facilities which Landlord may determine to provide from time to time.
B. Limitations. Tenant shall not permit any odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises or from any portion of the common areas as a result of Tenant's or any Tenant's Party's use thereof, nor take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants or occupants of the Building or Project or elsewhere, or interfere with their use of their respective premises or common areas. Storage outside the Premises of materials, vehicles or any other
items is prohibited. Tenant shall not use or allow the Premises to be used for any immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. Tenant shall not allow any sale by auction upon the Premises, or place any loads upon the floors, walls or ceilings which could endanger the structure, or place any harmful substances in the drainage system of the Building or Project. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of the above- referenced rules or any other terms or provisions of such tenant's or occupant's lease or other contract.
C. Compliance with Regulations. By entering the Premises, Tenant accepts the Premises in the condition existing as of the date of such entry. Tenant shall at its sole cost and expense strictly comply with all existing or future applicable municipal, state and federal and other governmental statutes, rules, requirements, regulations, laws and ordinances, including zoning ordinances and regulations, and covenants, easements and restrictions of record governing and relating to the use, occupancy or possession of the Premises, to Tenant's use of the common areas, or to the use, storage, generation or disposal of Hazardous Materials (hereinafter defined) (collectively "Regulations"). Tenant shall at its sole cost and expense obtain any and all licenses or permits necessary for Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly comply with the requirements of any board of fire underwriters or other similar body now or hereafter constituted. Tenant shall not do or permit anything to be done in, on, under or about the Project or bring or keep anything which will in any way increase the rate of any insurance upon the Premises, Building or Project or upon any contents therein or cause a cancellation of said insurance or otherwise affect said insurance in any manner. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any loss, cost, expense, damage, attorneys' fees or liability arising out of the failure of Tenant to comply with any Regulation. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease.
D. Hazardous Materials. As used in this Lease, "Hazardous Materials" shall include, but not be limited to, hazardous, toxic and radioactive materials and those substances defined as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or other similar designations in any Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause, any Hazardous Materials to be handled, used, generated, stored, released or disposed of in, on, under or about the Premises, the Building or the Project or surrounding land or environment in violation of any Regulations. Tenant must obtain Landlord's written consent prior to the introduction of any Hazardous Materials onto the Project. Notwithstanding the foregoing, Tenant may handle, store, use and dispose of products containing small quantities of Hazardous Materials for "general office purposes" (such as toner for copiers) to the extent customary and necessary for the Permitted Use of the Premises; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises, Building, or Project or surrounding land or environment. Tenant shall immediately notify Landlord in writing of any Hazardous Materials' contamination of any portion of the Project of which Tenant becomes aware, whether or not caused by Tenant. Landlord shall have the right at all reasonable times to inspect the Premises and to conduct tests and investigations to determine whether Tenant is in compliance with the foregoing provisions, the costs of all such inspections, tests and investigations to be borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses (including attorneys' and consultants' fees and court costs), demands, causes of action, or judgments directly or indirectly arising out of or related to the use, generation, storage, release, or disposal of Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about the Premises, the Building or the Project or surrounding land or environment, which indemnity shall include, without limitation, damages for personal or bodily injury, property damage, damage to the environment or natural resources occurring on or off the Premises, losses attributable to diminution in value or adverse effects on marketability, the cost of any investigation, monitoring, government oversight, repair, removal, remediation, restoration, abatement, and disposal, and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the expiration or earlier termination of this Lease. Neither the consent by Landlord to the use, generation, storage, release or disposal of Hazardous Materials nor the strict compliance by Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation of indemnification pursuant to this Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and regulations attached hereto as Exhibit A and any other rules and regulations and any modifications or additions thereto which Landlord may from time to time prescribe in writing for the purpose of maintaining the proper care, cleanliness, safety, traffic flow and general order of the Premises or the Building or Project. Tenant shall cause Tenant's Parties to comply with such rules and regulations. Landlord shall not be responsible to Tenant for the non- compliance by any other tenant or occupant of the Building or Project with any of such rules and regulations, any other tenant's or occupant's lease or any Regulations.
6. RENT
A. Base Rent. Tenant shall pay to Landlord and Landlord shall receive, without notice or demand throughout the Term, Base Rent as specified in the Basic Lease Information, payable in monthly installments in advance on or before the first day of each calendar month, in lawful money of the United States, without deduction or offset whatsoever, at the Remittance Address specified in the Basic Lease Information or to such other place as Landlord may from time to time designate in writing. Base Rent for the first full month of the Term shall be paid by Tenant upon Tenant's execution of this Lease. If the obligation for payment of Base Rent commences on a day other than the first day of a month, then Base Rent shall be prorated and the prorated installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date. The Base Rent payable by Tenant hereunder is subject to adjustment as provided elsewhere in this Lease, as applicable. As used herein, the term "Base Rent" shall mean the Base Rent specified in the Basic Lease Information as it may be so adjusted from time to time.
B. Additional Rent. All monies other than Base Rent required to be paid by Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be paid by Tenant under Paragraph 15, the interest and late charge described in Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph 30, shall be considered additional rent ("Additional Rent"). "Rent" shall mean Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. Operating Expenses. In addition to the Base Rent required to be paid hereunder, beginning with the expiration of the Base Year specified in the Basic Lease Information (the "Base Year"), Tenant shall pay as Additional Rent, Tenant's Proportionate Share of the Building and/or Project (as applicable), as defined in the Basic Lease Information, of increases in Operating Expenses (defined below) over the Operating Expenses incurred by Landlord during the Base Year (the "Base Year Operating Expenses"), in the manner set forth below. Tenant shall pay the applicable Tenant's Proportionate Share of each such Operating Expenses. Landlord and Tenant acknowledge that if the number of buildings which constitute the Project increases or decreases, or if physical changes are made to the Premises, Building or Project or the configuration of any thereof, Landlord may at its discretion reasonably adjust Tenant's Proportionate Share of the Building or Project to reflect the change. Landlord's determination of Tenant's Proportionate Share of the Building and of the
Project shall be conclusive so long as it is reasonably and consistently applied. "Operating Expenses" shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay, because of or in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project (as determined in a reasonable manner) other than those expenses and costs which are specifically attributable to Tenant or which are expressly made the financial responsibility of Landlord or specific tenants of the Building or Project pursuant to this Lease. Operating Expenses shall include, but are not limited to, the following:
(1) Taxes. All real property taxes and assessments, possessory interest taxes, sales taxes, personal property taxes, business or license taxes or fees, gross receipts taxes, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, and other impositions, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind (including fees "in-lieu" of any such tax or assessment) which are now or hereafter assessed, levied, charged, confirmed, or imposed by any public authority upon the Building or Project, its operations or the Rent (or any portion or component thereof), or any tax, assessment or fee imposed in substitution, partially or totally, of any of the above. Operating Expenses shall also include any taxes, assessments, reassessments, or other fees or impositions with respect to the development, leasing, management, maintenance, alteration, repair, use or occupancy of the Premises, Building or Project or any portion thereof, including, without limitation, by or for Tenant, and all increases therein or reassessments thereof whether the increases or reassessments result from increased rate and/or valuation (whether upon a transfer of the Building or Project or any portion thereof or any interest therein or for any other reason). Operating Expenses shall not include inheritance or estate taxes imposed upon or assessed against the interest of any person in the Project, or taxes computed upon the basis of the net income of any owners of any interest in the Project. If it shall not be lawful for Tenant to reimburse Landlord for all or any part of such taxes, the monthly rental payable to Landlord under this Lease shall be revised to net Landlord the same net rental after imposition of any such taxes by Landlord as would have been payable to Landlord prior to the payment of any such taxes.
(2) Insurance. All insurance premiums and costs, including, but not limited to, any deductible amounts, premiums and other costs of insurance incurred by Landlord, including for the insurance coverage set forth in Paragraph 8.A. herein.
(3) Common Area Maintenance.
(a) Repairs, replacements, and general maintenance of and for the
Building and Project and public and common areas and facilities of and
comprising the Building and Project, including, but not limited to,
the roof and roof membrane, windows, elevators, restrooms, conference
rooms, health club facilities, lobbies, mezzanines, balconies,
mechanical rooms, building exteriors, alarm systems, pest
extermination, landscaped areas, parking and service areas, driveways,
sidewalks, loading areas, fire sprinkler systems, sanitary and storm
sewer lines, utility services, heating/ventilation/air conditioning
systems, electrical, mechanical or other systems, telephone equipment
and wiring servicing, plumbing, lighting, and any other items or areas
which affect the operation or appearance of the Building or Project,
which determination shall be at Landlord's discretion, except for:
those items expressly made the financial responsibility of Landlord
pursuant to Paragraph 10 hereof; those items to the extent paid for by
the proceeds of insurance; and those items attributable solely or
jointly to specific tenants of the Building or Project.
(b) Repairs, replacements, and general maintenance shall include the cost of any capital improvements made to or capital assets acquired for the Project or Building that in Landlord's discretion may reduce any other Operating Expenses, including present or future repair work, are reasonably necessary for the health and safety of the occupants of the Building or Project, or are required to comply with any Regulation, such costs or allocable portions thereof to be amortized over such reasonable period as Landlord shall determine, together with interest on the unamortized balance at the publicly announced "prime rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its successor at the time such improvements or capital assets are constructed or acquired, plus two (2) percentage points, or in the absence of such prime rate, then at the U.S. Treasury six-month market note (or bond, if so designated) rate as published by any national financial publication selected by Landlord, plus four (4) percentage points, but in no event more than the maximum rate permitted by law, plus reasonable financing charges.
(c) Payment under or for any easement, license, permit, operating agreement, declaration, restrictive covenant or instrument relating to the Building or Project.
(d) All expenses and rental related to services and costs of supplies, materials and equipment used in operating, managing and maintaining the Premises, Building and Project, the equipment therein and the adjacent sidewalks, driveways, parking and service areas, including, without limitation, expenses related to service agreements regarding security, fire and other alarm systems, janitorial services, window cleaning, elevator maintenance, Building exterior maintenance, landscaping and expenses related to the administration, management and operation of the Project, including without limitation salaries, wages and benefits and management office rent.
(e) The cost of supplying any services and utilities which benefit all or a portion of the Premises, Building or Project, including without limitation services and utilities provided pursuant to Paragraph 15 hereof.
(f) Legal expenses and the cost of audits by certified public accountants; provided, however, that legal expenses chargeable as Operating Expenses shall not include the cost of negotiating leases, collecting rents, evicting tenants nor shall it include costs incurred in legal proceedings with or against any tenant or to enforce the provisions of any lease.
(g) A management and accounting cost recovery fee equal to five percent (5%) of the sum of the Project's base rents and Operating Expenses to the extent not included in such base rents (other than such management and accounting fee).
If the rentable area of the Building and/or Project is not fully occupied during any fiscal year of the Term as determined by Landlord, an adjustment may be made in Landlord's discretion in computing the Operating Expenses for such year so that Tenant pays an equitable portion of all variable items (e.g., utilities, janitorial services and other component expenses that are affected by variations in occupancy levels) of Operating Expenses, as reasonably determined by Landlord; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total Operating Expenses from all of the tenants in the Building or Project, as the case may be.
Operating Expenses shall not include the cost of providing tenant improvements or other specific costs incurred for the account of, separately billed to and paid by specific tenants of the Building or Project, the initial construction cost of the Building, or debt service on any mortgage or deed of trust recorded with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above. Notwithstanding anything herein to the contrary, in any instance wherein Landlord, in Landlord's sole discretion, deems Tenant to be responsible for any
amounts greater than Tenant's Proportionate Share, Landlord shall have the right to allocate costs in any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed to impose an obligation on Landlord to make available or provide such services or facilities except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to make the same available or provide the same. Without limiting the generality of the foregoing, Tenant acknowledges and agrees that it shall be responsible for providing adequate security for its use of the Premises, the Building and the Project and that Landlord shall have no obligation or liability with respect thereto, except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. Payment of Estimated Operating Expenses. "Estimated Operating Expenses" for any particular year shall mean Landlord's estimate of the Operating Expenses for such fiscal year made with respect to such fiscal year as hereinafter provided. Landlord shall have the right from time to time to revise its fiscal year and interim accounting periods so long as the periods as so revised are reconciled with prior periods in a reasonable manner. During the last month of each fiscal year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay Tenant's Proportionate Share of the difference between Estimated Operating Expenses and Base Year Operating Expenses with installments of Base Rent for the fiscal year to which the Estimated Operating Expenses applies in monthly installments on the first day of each calendar month during such year, in advance. Such payment shall be construed to be Additional Rent for all purposes hereunder. If at any time during the course of the fiscal year, Landlord determines that Operating Expenses are projected to vary from the then Estimated Operating Expenses by more than five percent (5%), Landlord may, by written notice to Tenant, revise the Estimated Operating Expenses for the balance of such fiscal year, and Tenant's monthly installments for the remainder of such year shall be adjusted so that by the end of such fiscal year Tenant has paid to Landlord Tenant's Proportionate Share of the revised difference between Estimated Operating Expenses and Base Year Operating Expenses for such year, such revised installment amounts to be Additional Rent for all purposes hereunder.
C. Computation of Operating Expense Adjustment. "Operating Expense Adjustment" shall mean the difference between Estimated Operating Expenses and actual Operating Expenses for any fiscal year, over Base Year Operating Expenses, determined as hereinafter provided. Within one hundred twenty (120) days after the end of each fiscal year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement of actual Operating Expenses for the fiscal year just ended, accompanied by a computation of Operating Expense Adjustment. If such statement shows that Tenant's payment based upon Estimated Operating Expenses is less than Tenant's Proportionate Share of actual increases in Operating Expenses over the Base Year Operating Expenses, then Tenant shall pay to Landlord the difference within twenty (20) days after receipt of such statement, such payment to constitute Additional Rent for all purposes hereunder. If such statement shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's Proportionate Share of actual increases in Operating Expenses over the Base Year Operating Expenses, then (provided that Tenant is not in default under this Lease) Landlord shall pay to Tenant the difference within twenty (20) days after delivery of such statement to Tenant. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Operating Expense Adjustment shall be paid by the appropriate party within twenty (20) days after the date of delivery of the statement. Tenant's obligation to pay increases in Operating Expenses over the Base Year Operating Expenses shall commence on January 1 of the year succeeding the Base Year. Should this Lease terminate at any time other than the last day of the fiscal year, Tenant's Proportionate Share of the Operating Expense Adjustment shall be prorated based on a month of 30 days and the number of calendar months during such fiscal year that this Lease is in effect. Tenant shall in no event be entitled to any credit if Operating Expenses in any year are less than Base Year Operating Expenses. Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements within the time periods specified in those paragraphs shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate Share of increases in Operating Expenses.
D. Gross Lease. This shall be a gross Lease; however, it is intended that Base Rent shall be paid to Landlord absolutely net of all costs and expenses other than Operating Expenses each year equal to Tenant's Proportionate Share of Base Year Operating Expenses, except as otherwise specifically provided to the contrary in this Lease. The provisions for payment of increases in Operating Expenses and the Operating Expense Adjustment are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in Paragraph 7.A. incurred in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and/or Project and its supporting facilities and such additional facilities, in excess of the Base Year Operating Expenses, now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project.
E. Tenant Audit. If Tenant shall dispute the amount set forth in any statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the right, not later than twenty (20) days following receipt of such statement and upon the condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and records with respect to Operating Expenses for such fiscal year to be audited by certified public accountants selected by Tenant and subject to Landlord's reasonable right of approval. The Operating Expense Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund in excess of ten percent (10%) of Tenant's Proportionate Share of the Operating Expenses previously reported, the cost of such audit shall be borne by Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not request an audit in accordance with the provisions of this Paragraph 7.E. within twenty (20) days after receipt of Landlord's statement provided pursuant to Paragraph 7.B. or 7.C., such statement shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. Landlord's Insurance. All insurance maintained by Landlord shall be for the sole benefit of Landlord and under Landlord's sole control.
(1) Property Insurance. Landlord agrees to maintain property insurance insuring the Building against damage or destruction due to risk including fire, vandalism, and malicious mischief in an amount not less than the replacement cost thereof, in the form and with deductibles and endorsements as selected by Landlord. At its election, Landlord may instead (but shall have no obligation to) obtain "All Risk" coverage, and may also obtain earthquake, pollution, and/or flood insurance in amounts selected by Landlord.
(2) Optional Insurance. Landlord, at Landlord's option, may also (but shall have no obligation to) carry insurance against loss of rent, in an amount equal to the amount of Base Rent and Additional Rent that Landlord could be required to abate to all Building tenants in the event of condemnation or casualty damage for a period of twelve (12) months. Landlord may also (but shall have no obligation to) carry such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine. Landlord shall not be obligated to insure, and shall have no responsibility whatsoever for any damage to, any furniture, machinery, goods, inventory or supplies, or other personal property or fixtures which Tenant may keep or maintain in the Premises, or any leasehold improvements, additions or alterations within the Premises.
B. Tenant's Insurance.
(1) Property Insurance. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term, insurance on all personal property and fixtures of Tenant and all improvements, additions or alterations made by or for Tenant to the Premises on an "All Risk" basis, insuring such property for the full replacement value of such property.
(2) Liability Insurance. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term Commercial General Liability insurance covering bodily injury and property damage liability occurring in or about the Premises or arising out of the use and occupancy of the Premises and the Project, and any part of either, and any areas adjacent thereto, and the business operated by Tenant or by any other occupant of the Premises. Such insurance shall include contractual liability insurance coverage insuring all of Tenant's indemnity obligations under this Lease. Such coverage shall have a minimum combined single limit of liability of at least Two Million Dollars ($2,000,000.00), and a minimum general aggregate limit of Three Million Dollars ($3,000,000.00), with an "Additional Insured -Managers or Lessors of Premises Endorsement." All such policies shall be written to apply to all bodily injury (including death), property damage or loss, personal and advertising injury and other covered loss, however occasioned, occurring during the policy term, shall be endorsed to add Landlord and any party holding an interest to which this Lease may be subordinated as an additional insured, and shall provide that such coverage shall be "primary" and non-contributing with any insurance maintained by Landlord, which shall be excess insurance only. Such coverage shall also contain endorsements including employees as additional insureds if not covered by Tenant's Commercial General Liability Insurance. All such insurance shall provide for the severability of interests of insureds; and shall be written on an "occurrence" basis, which shall afford coverage for all claims based on acts, omissions, injury and damage, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period.
(3) Workers' Compensation and Employers' Liability Insurance. Tenant shall carry Workers' Compensation Insurance as required by any Regulation, throughout the Term at Tenant's sole cost and expense. Tenant shall also carry Employers' Liability Insurance in amounts not less than One Million Dollars ($1,000,000) each accident for bodily injury by accident; One Million Dollars ($1,000,000) policy limit for bodily injury by disease; and One Million Dollars ($1,000,000) each employee for bodily injury by disease, throughout the Term at Tenant's sole cost and expense.
(4) General Insurance Requirements. All coverages described in this Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty (30) days' notice of cancellation or change in terms; and (ii) waive all rights of subrogation by the insurance carrier against Landlord. If at any time during the Term the amount or coverage of insurance which Tenant is required to carry under this Paragraph 8.B. is, in Landlord's reasonable judgment, materially less than the amount or type of insurance coverage typically carried by owners or tenants of properties located in the general area in which the Premises are located which are similar to and operated for similar purposes as the Premises or if Tenant's use of the Premises should change with or without Landlord's consent, Landlord shall have the right to require Tenant to increase the amount or change the types of insurance coverage required under this Paragraph 8.B. All insurance policies required to be carried by Tenant under this Lease shall be written by companies rated A X or better in "Best's Insurance Guide" and authorized to do business in the State of California. In any event deductible amounts under all insurance policies required to be carried by Tenant under this Lease shall not exceed Five Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to Landlord on or before the Term Commencement Date, and thereafter at least thirty (30) days before the expiration dates of the expired policies, certified copies of Tenant's insurance policies, or a certificate evidencing the same issued by the insurer thereunder; and, if Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at Landlord's option and in addition to Landlord's other remedies in the event of a default by Tenant hereunder, procure the same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent.
C. Indemnification. Tenant shall indemnify, defend by counsel reasonably acceptable to Landlord, protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses, including reasonable attorneys' and consultants' fees and court costs, demands, causes of action, or judgments, directly or indirectly arising out of or related to: (1) claims of injury to or death of persons or damage to property occurring or resulting directly or indirectly from the use or occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or from activities or failures to act of Tenant or Tenant's Parties; (2) claims arising from work or labor performed, or for materials or supplies furnished to or at the request or for the account of Tenant in connection with performance of any work done for the account of Tenant within the Premises or Project; (3) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease; and (4) claims arising from the negligence or intentional acts or omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant shall not be applicable to claims to the extent arising from the gross negligence or willful misconduct of Landlord. Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury or damage to any person or property in or about the Premises, Building or Project by or from any cause whatsoever (other than Landlord's gross negligence or willful misconduct) and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises, Building or Project, or caused by gas, fire, oil or electricity in, on or about the Premises, Building or Project. The provisions of this Paragraph shall survive the expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage provided by insurance to be maintained hereunder or any other rights or remedies, Landlord and Tenant each waive any right to recover against the other for: (a) damages for injury to or death of persons; (b) damages to property, including personal property; (c) damages to the Premises or any part thereof; and (d) claims arising by reason of the foregoing due to hazards covered by insurance maintained or required to be maintained pursuant to this Lease to the extent of proceeds recovered therefrom, or proceeds which would have been recoverable therefrom in the case of the failure of any party to maintain any insurance coverage required to be maintained by such party pursuant to this Lease. This provision is intended to waive fully, any rights and/or claims arising by reason of the foregoing, but only to the extent that any of the foregoing damages and/or claims referred to above are covered or would be covered, and only to the extent of such coverage, by insurance actually carried or required to be maintained pursuant to this Lease by either Landlord or Tenant. This provision is also intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation on any insurance carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its rights as specified in this Paragraph 9 with respect to any subtenant that it has approved pursuant to Paragraph 21 but only in exchange for the written waiver of such rights to be given by such subtenant to Landlord upon such subtenant taking possession of the Premises or a portion thereof. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair, reasonable wear and tear excepted, the structural soundness of the roof, foundations, and exterior walls of the Building. The term "exterior walls" as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries. Any damage caused by or repairs necessitated by any negligence or act of Tenant or Tenant's
Parties may be repaired by Landlord at Landlord's option and Tenant's expense. Tenant shall immediately give Landlord written notice of any defect or need of repairs in such components of the Building for which Landlord is responsible, after which Landlord shall have a reasonable opportunity and the right to enter the Premises at all reasonable times to repair same. Landlord's liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance, and there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of repairs, alterations or improvements in or to any portion of the Premises, the Building or the Project or to fixtures, appurtenances or equipment in the Building, except as provided in Paragraph 24. By taking possession of the Premises, Tenant accepts them "as is," as being in good order, condition and repair and the condition in which Landlord is obligated to deliver them and suitable for the Permitted Use and Tenant's intended operations in the Premises, whether or not any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all parts of the Premises and such portions of the Building as are within the exclusive control of Tenant in a first-class, good, clean and secure condition and promptly make all necessary repairs and replacements, as determined by Landlord, with materials and workmanship of the same character, kind and quality as the original. Notwithstanding anything to the contrary contained herein, Tenant shall, at its expense, promptly repair any damage to the Premises or the Building or Project resulting from or caused by any negligence or act of Tenant or Tenant's Parties.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical additions, improvements or partitions, including without limitation the attachment of any fixtures or equipment, in, about or to the Premises ("Alterations") without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to proposed Alterations which: (a) comply with all applicable Regulations; (b) are, in Landlord's opinion, compatible with the Building or the Project and its mechanical, plumbing, electrical, heating/ventilation/air conditioning systems, and will not cause the Building or Project or such systems to be required to be modified to comply with any Regulations (including, without limitation, the Americans With Disabilities Act); and (c) will not interfere with the use and occupancy of any other portion of the Building or Project by any other tenant or its invitees. Specifically, but without limiting the generality of the foregoing, Landlord shall have the right of written consent for all plans and specifications for the proposed Alterations, construction means and methods, all appropriate permits and licenses, any contractor or subcontractor to be employed on the work of Alterations, and the time for performance of such work, and may impose rules and regulations for contractors and subcontractors performing such work. Tenant shall also supply to Landlord any documents and information reasonably requested by Landlord in connection with Landlord's consideration of a request for approval hereunder. Tenant shall cause all Alterations to be accomplished in a first-class, good and workmanlike manner, and to comply with all applicable Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense, perform any additional work required under applicable Regulations due to the Alterations hereunder. No review or consent by Landlord of or to any proposed Alteration or additional work shall constitute a waiver of Tenant's obligations under this Paragraph 12, nor constitute any warranty or representation that the same complies with all applicable Regulations, for which Tenant shall at all times be solely responsible. Tenant shall reimburse Landlord for all costs which Landlord may incur in connection with granting approval to Tenant for any such Alterations, including any costs or expenses which Landlord may incur in electing to have outside architects and engineers review said plans and specifications, and shall pay Landlord an administration fee of fifteen percent (15%) of the cost of the Alterations as Additional Rent hereunder. All such Alterations shall remain the property of Tenant until the expiration or earlier termination of this Lease, at which time they shall be and become the property of Landlord; provided, however, that Landlord may, at Landlord's option, require that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant and restore the Premises by the expiration or earlier termination of this Lease, to their condition existing prior to the construction of any such Alterations. All such removals and restoration shall be accomplished in a first-class and good and workmanlike manner so as not to cause any damage to the Premises or Project whatsoever. If Tenant fails to remove such Alterations or Tenant's trade fixtures or furniture or other personal property, Landlord may keep and use them or remove any of them and cause them to be stored or sold in accordance with applicable law, at Tenant's sole expense. In addition to and wholly apart from Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses, Tenant shall be responsible for and shall pay prior to delinquency any taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other charges imposed upon, levied with respect to or assessed against its fixtures or personal property, on the value of Alterations within the Premises, and on Tenant's interest pursuant to this Lease, or any increase in any of the foregoing based on such Alterations. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
Notwithstanding the foregoing, at Landlord's option (but without obligation), all or any portion of the Alterations shall be performed by Landlord for Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof (including a reasonable charge for Landlord's overhead and profit) prior to commencement of the work. In addition, at Landlord's election and notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of removing any such Alterations and restoring the Premises to their original condition such cost to include a reasonable charge for Landlord's overhead and profit as provided above, and such amount may be deducted from the Security Deposit or any other sums or amounts held by Landlord under this Lease.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non-responsibility. Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices, graphics or banners whatsoever or any window decor which is visible in or from public view or corridors, the common areas or the exterior of the Premises or the Building, in or on any exterior window or window fronting upon any common areas or service area without Landlord's prior written approval which Landlord shall have the right to withhold in its absolute and sole discretion; provided that Tenant's name shall be included in any Building-standard door and directory signage, if any, in accordance with Landlord's Building signage program, including without limitation, payment by Tenant of any fee charged by Landlord for maintaining such signage, which fee shall constitute Additional Rent hereunder. Any installation of signs, notices, graphics or banners on or about the Premises or Project approved by Landlord shall be subject to any Regulations and to any other requirements imposed by Landlord. Tenant shall remove all such signs or graphics by the expiration or any earlier termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Premises, Building or Project and any other improvements contained therein, and Tenant shall repair any injury or defacement including without limitation discoloration caused by such installation or removal.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be required, Landlord and Landlord's agents and representatives, shall have the right to enter the Premises to inspect the same, to clean, to perform such work as may be permitted or
required hereunder, to make repairs, improvements or alterations to the Premises, Building or Project or to other tenant spaces therein, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Landlord's interest in the Project or to exhibit the Premises to prospective tenants, purchasers, encumbrancers or to others, or for any other purpose as Landlord may deem necessary or desirable; provided, however, that Landlord shall use reasonable efforts not to unreasonably interfere with Tenant's business operations. Tenant shall not be entitled to any abatement of Rent by reason of the exercise of any such right of entry. Tenant waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. At any time within six (6) months prior to the expiration of the Term or following any earlier termination of this Lease or agreement to terminate this Lease, Landlord shall have the right to erect on the Premises, Building and/or Project a suitable sign indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and subject to the provisions elsewhere herein contained and to the rules and regulations of the Building, Landlord shall furnish to the Premises during ordinary business hours of generally recognized business days, to be determined by Landlord (but exclusive, in any event, of Saturdays, Sundays and legal holidays), water for lavatory and drinking purposes and electricity, heat and air conditioning as usually furnished or supplied for use of the Premises for reasonable and normal office use as of the date Tenant takes possession of the Premises as determined by Landlord (but not including above-standard or continuous cooling for excessive heat-generating machines, excess lighting or equipment), janitorial services during the times and in the manner that such services are, in Landlord's judgment, customarily furnished in comparable office buildings in the immediate market area, and elevator service, which shall mean service either by nonattended automatic elevators or elevators with attendants, or both, at the option of Landlord. Tenant acknowledges that Tenant has inspected and accepts the water, electricity, heat and air conditioning and other utilities and services being supplied or furnished to the Premises as of the date Tenant takes possession of the Premises, as being sufficient for use of the Premises for reasonable and normal office use in their present condition, "as is," and suitable for the Permitted Use, and for Tenant's intended operations in the Premises. Landlord shall have no obligation to provide additional or after- hours electricity, heating or air conditioning, but if Landlord elects to provide such services at Tenant's request, Tenant shall pay to Landlord a reasonable charge for such services as determined by Landlord. Tenant agrees to keep and cause to be kept closed all window covering when necessary because of the sun's position, and Tenant also agrees at all times to cooperate fully with Landlord and to abide by all of the regulations and requirements which Landlord may prescribe for the proper functioning and protection of electrical, heating, ventilating and air conditioning systems. Wherever heat-generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord.
B. Tenant shall not without written consent of Landlord use any apparatus, equipment or device in the Premises, including without limitation, computers, electronic data processing machines, copying machines, and other machines, using excess lighting or using electric current, water, or any other resource in excess of or which will in any way increase the amount of electricity, water, or any other resource being furnished or supplied for the use of the Premises for reasonable and normal office use, in each case as of the date Tenant takes possession of the Premises as determined by Landlord, or which will require additions or alterations to or interfere with the Building power distribution systems; nor connect with electric current, except through existing electrical outlets in the Premises or water pipes, any apparatus, equipment or device for the purpose of using electrical current, water, or any other resource. If Tenant shall require water or electric current or any other resource in excess of that being furnished or supplied for the use of the Premises as of the date Tenant takes possession of the Premises as determined by Landlord, Tenant shall first procure the written consent of Landlord which Landlord may refuse, to the use thereof, and Landlord may cause a special meter to be installed in the Premises so as to measure the amount of water, electric current or other resource consumed for any such other use. Tenant shall pay directly to Landlord as an addition to and separate from payment of Operating Expenses the cost of all such additional resources, energy, utility service and meters (and of installation, maintenance and repair thereof and of any additional circuits or other equipment necessary to furnish such additional resources, energy, utility or service). Landlord may add to the separate or metered charge a recovery of additional expense incurred in keeping account of the excess water, electric current or other resource so consumed. Landlord shall not be liable for any damages directly or indirectly resulting from nor shall the Rent or any monies owed Landlord under this Lease herein reserved be abated by reason of: (a) the installation, use or interruption of use of any equipment used in connection with the furnishing of any such utilities or services, or any change in the character or means of supplying or providing any such utilities or services or any supplier thereof; (b) the failure to furnish or delay in furnishing any such utilities or services when such failure or delay is caused by acts of God or the elements, labor disturbances of any character, or any other accidents or other conditions beyond the reasonable control of Landlord or because of any interruption of service due to Tenant's use of water, electric current or other resource in excess of that being supplied or furnished for the use of the Premises as of the date Tenant takes possession of the Premises; (c) the inadequacy, limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy or any other service or utility whatsoever serving the Premises or Project, whether by Regulation or otherwise; or (d) the partial or total unavailability of any such utilities or services to the Premises or the Building, whether by Regulation or otherwise; nor shall any such occurrence constitute an actual or constructive eviction of Tenant. Landlord shall further have no obligation to protect or preserve any apparatus, equipment or device installed by Tenant in the Premises, including without limitation by providing additional or after-hours heating or air conditioning. Landlord shall be entitled to cooperate voluntarily and in a reasonable manner with the efforts of national, state or local governmental agencies or utility suppliers in reducing energy or other resource consumption. The obligation to make services available hereunder shall be subject to the limitations of any such voluntary, reasonable program. In addition, Landlord reserves the right to change the supplier or provider of any such utility or service from time to time. Tenant shall have no right to contract with or otherwise obtain any electrical or other such service for or with respect to the Premises or Tenant's operations therein from any supplier or provider of any such service. Tenant shall cooperate with Landlord and any supplier or provider of such services designated by Landlord from time to time to facilitate the delivery of such services to Tenant at the Premises and to the Building and Project, including without limitation allowing Landlord and Landlord's suppliers or providers, and their respective agents and contractors, reasonable access to the Premises for the purpose of installing, maintaining, repairing, replacing or upgrading such service or any equipment or machinery associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the Premises, or if not separately billed to or metered to Tenant, Tenant's Proportionate Share of all charges jointly serving the Project in accordance with Paragraph 7. All sums payable under this Paragraph 15 shall constitute Additional Rent hereunder.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be and is hereby declared to be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or
hereafter be executed affecting the Premises and/or the land upon which the Premises and Project are situated, or both; and (b) any mortgage or deed of trust which may now exist or be placed upon the Building, the Project and/or the land upon which the Premises or the Project are situated, or said ground leases or underlying leases, or Landlord's interest or estate in any of said items which is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. If any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord provided that Tenant shall not be disturbed in its possession under this Lease by such successor in interest so long as Tenant is not in default under this Lease. Within ten (10) days after request by Landlord, Tenant shall execute and deliver any additional documents evidencing Tenant's attornment or the subordination of this Lease with respect to any such ground leases or underlying leases or any such mortgage or deed of trust, in the form requested by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of trust, subject to such nondisturbance requirement. If requested in writing by Tenant, Landlord shall use commercially reasonable efforts to obtain a subordination, nondisturbance and attornment agreement for the benefit of Tenant reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at Tenant's expense, subject to such other terms and conditions as the ground landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to Landlord Tenant's and any guarantor's current financial statements or other information discussing financial worth of Tenant and any guarantor, which Landlord shall use solely for purposes of this Lease and in connection with the ownership, management, financing and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, that this Lease has not been modified (or stating all modifications, written or oral, to this Lease), the date to which Rent has been paid, the unexpired portion of this Lease, that there are no current defaults by Landlord or Tenant under this Lease (or specifying any such defaults), that the leasehold estate granted by this Lease is the sole interest of Tenant in the Premises and/or the land at which the Premises are situated, and such other matters pertaining to this Lease as may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. Failure by Tenant to execute and deliver such certificate shall constitute an acceptance of the Premises and acknowledgment by Tenant that the statements included are true and correct without exception. Tenant agrees that if Tenant fails to execute and deliver such certificate within such ten (10) day period, Landlord may execute and deliver such certificate on Tenant's behalf and that such certificate shall be binding on Tenant. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. The parties agree that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this Lease, and shall be an event of default (without any cure period that might be provided under Paragraph 26.A(3) of this Lease) if Tenant fails to fully comply or makes any material misstatement in any such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a security deposit as stated in the Basic Lease Information (the "Security Deposit"), which sum shall be held and owned by Landlord, without obligation to pay interest, as security for the performance of Tenant's covenants and obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of damages incurred by Landlord in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may from time to time, without prejudice to any other remedy provided herein or by law, use such fund as a credit to the extent necessary to credit against any arrears of Rent or other payments due to Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default, and Tenant shall pay to Landlord, on demand, the amount so applied in order to restore the Security Deposit to its original amount. Although the Security Deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of Tenant's obligations under this Lease have been fulfilled, reduced by such amounts as may be required by Landlord to remedy defaults on the part of Tenant in the payment of Rent or other obligations of Tenant under this Lease, to repair damage to the Premises, Building or Project caused by Tenant or any Tenant's Parties and to clean the Premises. Landlord may use and commingle the Security Deposit with other funds of Landlord.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by Landlord under the terms of this Lease are not personal obligations of Landlord or of the individual or other partners of Landlord or its or their partners, directors, officers, or shareholders, and Tenant agrees to look solely to Landlord's interest in the Project for the recovery of any amount from Landlord, and shall not look to other assets of Landlord nor seek recourse against the assets of the individual or other partners of Landlord or its or their partners, directors, officers or shareholders. Any lien obtained to enforce any such judgment and any levy of execution thereon shall be subject and subordinate to any lien, mortgage or deed of trust on the Project. Under no circumstances shall Tenant have the right to offset against or recoup Rent or other payments due and to become due to Landlord hereunder except as expressly provided in Paragraph 23.B. below, which Rent and other payments shall be absolutely due and payable hereunder in accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) General. This Lease has been negotiated to be and is granted as an
accommodation to Tenant. Accordingly, this Lease is personal to Tenant, and
Tenant's rights granted hereunder do not include the right to assign this
Lease or sublease the Premises, or to receive any excess, either in
installments or lump sum, over the Rent which is expressly reserved by
Landlord as hereinafter provided, except as otherwise expressly hereinafter
provided. Tenant shall not assign or pledge this Lease or sublet the
Premises or any part thereof, whether voluntarily or by operation of law, or
permit the use or occupancy of the Premises or any part thereof by anyone
other than Tenant, or suffer or permit any such assignment, pledge,
subleasing or occupancy, without Landlord's prior written consent except as
provided herein. If Tenant desires to assign this Lease or sublet any or all
of the Premises, Tenant shall give Landlord written notice (the "Transfer
Notice") at least sixty (60) days prior to the anticipated effective date of
the proposed assignment or sublease, which shall contain all of the
information reasonably requested by Landlord to address Landlord's decision
criteria specified hereinafter. Landlord shall then have a period of thirty
(30) days following receipt of the Transfer Notice to notify Tenant in
writing that Landlord elects either: (i) to terminate this Lease as to the
space so affected as of the date so requested by Tenant; or (ii) to consent
to the proposed assignment or sublease, subject, however, to Landlord's
prior written consent of the proposed assignee or subtenant and of any
related documents or agreements associated with the assignment or sublease.
If Landlord should fail to notify Tenant in writing of such election within
said period, Landlord shall be deemed to have waived option (i) above, but
written consent by Landlord of the proposed assignee or subtenant shall
still be required. If Landlord does not exercise option (i) above,
Landlord's consent to a proposed assignment or sublease shall not be
unreasonably withheld. Consent to any assignment or subletting shall not
constitute consent to any subsequent transaction to which this Paragraph 21
applies.
(2) Conditions of Landlord's Consent. Without limiting the other instances in which it may be reasonable for Landlord to withhold Landlord's consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold Landlord's consent in the following instances: if the proposed assignee does not agree to be bound by and assume the obligations of Tenant under this Lease in form and substance satisfactory to Landlord; the use of the Premises by such proposed assignee or subtenant would not be a Permitted Use or would violate any exclusivity or other arrangement which Landlord has with any other tenant or occupant or any Regulation or would increase the Occupancy Density or Parking Density of the Building or Project, or would otherwise result in an undesirable tenant mix for the Project as determined by Landlord; the proposed assignee or subtenant is not of sound financial condition as determined by Landlord in Landlord's sole discretion; the proposed assignee or subtenant is a governmental agency; the proposed assignee or subtenant does not have a good reputation as a tenant of property or a good business reputation; the proposed assignee or subtenant is a person with whom Landlord is negotiating to lease space in the Project or is a present tenant of the Project; the assignment or subletting would entail any Alterations which would lessen the value of the leasehold improvements in the Premises or use of any Hazardous Materials or other noxious use or use which may disturb other tenants of the Project; or Tenant is in default of any obligation of Tenant under this Lease, or Tenant has defaulted under this Lease on three (3) or more occasions during any twelve (12) months preceding the date that Tenant shall request consent. Failure by or refusal of Landlord to consent to a proposed assignee or subtenant shall not cause a termination of this Lease. Upon a termination under Paragraph 21.A.(1)(i), Landlord may lease the Premises to any party, including parties with whom Tenant has negotiated an assignment or sublease, without incurring any liability to Tenant. At the option of Landlord, a surrender and termination of this Lease shall operate as an assignment to Landlord of some or all subleases or subtenancies. Landlord shall exercise this option by giving notice of that assignment to such subtenants on or before the effective date of the surrender and termination. In connection with each request for assignment or subletting, Tenant shall pay to Landlord Landlord's standard fee for approving such requests, as well as all costs incurred by Landlord or any mortgagee or ground lessor in approving each such request and effecting any such transfer, including, without limitation, reasonable attorneys' fees.
B. Bonus Rent. Any Rent or other consideration realized by Tenant under any such sublease or assignment in excess of the Rent payable hereunder, after amortization of a reasonable brokerage commission incurred by Tenant, shall be divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to Landlord. In any subletting or assignment undertaken by Tenant, Tenant shall diligently seek to obtain the maximum rental amount available in the marketplace for comparable space available for primary leasing.
C. Corporation. If Tenant is a corporation, a transfer of corporate shares by sale, assignment, bequest, inheritance, operation of law or other disposition (including such a transfer to or by a receiver or trustee in federal or state bankruptcy, insolvency or other proceedings) resulting in a change in the present control of such corporation or any of its parent corporations by the person or persons owning a majority of said corporate shares, shall constitute an assignment for purposes of this Lease.
D. Unincorporated Entity. If Tenant is a partnership, joint venture, unincorporated limited liability company or other unincorporated business form, a transfer of the interest of persons, firms or entities responsible for managerial control of Tenant by sale, assignment, bequest, inheritance, operation of law or other disposition, so as to result in a change in the present control of said entity and/or of the underlying beneficial interests of said entity and/or a change in the identity of the persons responsible for the general credit obligations of said entity shall constitute an assignment for all purposes of this Lease.
E. Liability. No assignment or subletting by Tenant, permitted or otherwise, shall relieve Tenant of any obligation under this Lease or alter the primary liability of the Tenant named herein for the payment of Rent or for the performance of any other obligations to be performed by Tenant, including obligations contained in Paragraph 25 with respect to any assignee or subtenant. Landlord may collect rent or other amounts or any portion thereof from any assignee, subtenant, or other occupant of the Premises, permitted or otherwise, and apply the net rent collected to the Rent payable hereunder, but no such collection shall be deemed to be a waiver of this Paragraph 21, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of the obligations of Tenant under this Lease. Any assignment or subletting which conflicts with the provisions hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to enter into this Lease and to perform all of Landlord's obligations hereunder and that all persons signing this Lease on its behalf are authorized to do. Tenant and the person or persons, if any, signing on behalf of Tenant, jointly and severally represent and warrant that Tenant has full right and authority to enter into this Lease, and to perform all of Tenant's obligations hereunder, and that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. Condemnation Resulting in Termination. If the whole or any substantial part of the Premises should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the Permitted Use of the Premises, either party shall have the right to terminate this Lease at its option. If any material portion of the Building or Project is taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, Landlord may terminate this Lease at its option. In either of such events, the Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall have occurred.
B. Condemnation Not Resulting in Termination. If a portion of the Project of which the Premises are a part should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking prevents or materially interferes with the Permitted Use of the Premises, and this Lease is not terminated as provided in Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion of this Lease shall be reduced, beginning on the date when the physical taking shall have occurred, to such amount as may be fair and reasonable under all of the circumstances, but only after giving Landlord credit for all sums received or to be received by Tenant by the condemning authority. Notwithstanding anything to the contrary contained in this Paragraph, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Term; in the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration of the Premises and the use and occupancy of the Premises.
C. Award. Landlord shall be entitled to (and Tenant shall assign to Landlord) any and all payment, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance and Tenant shall have no claim against Landlord or otherwise for any sums paid by virtue of such proceedings, whether or not attributable to the value of any unexpired portion of this Lease, except as expressly provided in this Lease. Notwithstanding the foregoing, any compensation specifically and separately awarded Tenant for Tenant's personal property and moving costs, shall be and remain the property of Tenant.
D. Waiver of CCP(S)1265.130. Each party waives the provisions of California Civil Code Procedure Section 1265.130 allowing either party to petition the superior court to terminate this Lease as a result of a partial taking.
24. CASUALTY DAMAGE
A. General. If the Premises or Building should be damaged or destroyed by fire, tornado, or other casualty (collectively, "Casualty"), Tenant shall give immediate written notice thereof to Landlord. Within thirty (30) days after Landlord's receipt of such notice, Landlord shall notify Tenant whether in Landlord's estimation material restoration of the Premises can reasonably be made within one hundred eighty (180) days from the date of such notice and receipt of required permits for such restoration. Landlord's determination shall be binding on Tenant.
B. Within 180 Days. If the Premises or Building should be damaged by Casualty to such extent that material restoration can in Landlord's estimation be reasonably completed within one hundred eighty (180) days after the date of such notice and receipt of required permits for such restoration, this Lease shall not terminate. Provided that insurance proceeds are received by Landlord to fully repair the damage, Landlord shall proceed to rebuild and repair the Premises in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of the Alterations which may have been placed on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy.
C. Greater than 180 Days. If the Premises or Building should be damaged by Casualty to such extent that rebuilding or repairs cannot in Landlord's estimation be reasonably completed within one hundred eighty (180) days after the date of such notice and receipt of required permits for such rebuilding or repair, then Landlord shall have the option of either: (1) terminating this Lease effective upon the date of the occurrence of such damage, in which event the Rent shall be abated during the unexpired portion of this Lease; or (2) electing to rebuild or repair the Premises diligently and in the manner determined by Landlord. Landlord shall notify Tenant of its election within thirty (30) days after Landlord's receipt of notice of the damage or destruction. Notwithstanding the above, Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed, on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy.
D. Tenant's Fault. Notwithstanding anything herein to the contrary, if the Premises or any other portion of the Building are damaged by Casualty resulting from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's Parties, Base Rent and Additional Rent shall not be diminished during the repair of such damage and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Building caused thereby to the extent such cost and expense is not covered by insurance proceeds.
E. Insurance Proceeds. Notwithstanding anything herein to the contrary, if the Premises or Building are damaged or destroyed and are not fully covered by the insurance proceeds received by Landlord or if the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then in either case Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within thirty (30) days after the date of notice to Landlord that said damage or destruction is not fully covered by insurance or such requirement is made by any such holder, as the case may be, whereupon this Lease shall terminate.
F. Waiver. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the event of damage or destruction to the Premises or the Building. As a material inducement to Landlord entering into this Lease, Tenant hereby waives any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of California with respect to any destruction of the Premises, Landlord's obligation for tenantability of the Premises and Tenant's right to make repairs and deduct the expenses of such repairs, or under any similar law, statute or ordinance now or hereafter in effect.
G. Tenant's Personal Property. In the event of any damage or destruction of the Premises or the Building, under no circumstances shall Landlord be required to repair any injury or damage to, or make any repairs to or replacements of, Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over, Tenant shall be unlawfully and illegally in possession of the Premises, whether or not Landlord accepts any rent from Tenant or any other person while Tenant remains in possession of the Premises without Landlord's written consent. If Tenant shall retain possession of the Premises or any portion thereof without Landlord's consent following the expiration of this Lease or sooner termination for any reason, then Tenant shall pay to Landlord for each day of such retention triple the amount of daily rental as of the last month prior to the date of expiration or earlier termination. Tenant shall also indemnify, defend, protect and hold Landlord harmless from any loss, liability or cost, including consequential and incidental damages and reasonable attorneys' fees, incurred by Landlord resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by the succeeding tenant founded on such delay. Acceptance of Rent by Landlord following expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, shall not constitute a renewal of this Lease, and nothing contained in this Paragraph 25 shall waive Landlord's right of reentry or any other right. Additionally, if upon expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, Tenant has not fulfilled its obligation with respect to repairs and cleanup of the Premises or any other Tenant obligations as set forth in this Lease, then Landlord shall have the right to perform any such obligations as it deems necessary at Tenant's sole cost and expense, and any time required by Landlord to complete such obligations shall be considered a period of holding over and the terms of this Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any expiration or earlier termination of this Lease.
26. DEFAULT
A. Events of Default. The occurrence of any of the following shall constitute an event of default on the part of Tenant:
(1) Abandonment. Abandonment or vacation of the Premises for a continuous period in excess of five (5) days. Tenant waives any right to notice Tenant may have under Section 1951.3 of the Civil Code of the State of California, the terms of this Paragraph 26.A. being deemed such notice to Tenant as required by said Section 1951.3.
(2) Nonpayment of Rent. Failure to pay any installment of Rent or any other amount due and payable hereunder upon the date when said payment is due, as to which time is of the essence.
(3) Other Obligations. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing for fifteen (15) days after written notice of such failure, as to which time is of the essence.
(4) General Assignment. A general assignment by Tenant for the benefit of creditors.
(5) Bankruptcy. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of thirty (30) days. If under applicable law, the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease.
(6) Receivership. The employment of a receiver to take possession of substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such appointment remains undismissed or undischarged for a period of fifteen (15) days after the order therefor.
(7) Attachment. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of fifteen (15) days after the levy thereof.
(8) Insolvency. The admission by Tenant in writing of its inability to pay its debts as they become due.
B. Remedies Upon Default.
(1) Termination. In the event of the occurrence of any event of default, Landlord shall have the right to give a written termination notice to Tenant, and on the date specified in such notice, Tenant's right to possession shall terminate, and this Lease shall terminate unless on or before such date all Rent in arrears and all costs and expenses incurred by or on behalf of Landlord hereunder shall have been paid by Tenant and all other events of default of this Lease by Tenant at the time existing shall have been fully remedied to the satisfaction of Landlord. At any time after such termination, Landlord may recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, including any subtenant or subtenants notwithstanding Landlord's consent to any sublease, by any lawful means, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this Lease, or at law or equity by any reason of Tenant's default or of such termination. Landlord hereby reserves the right, but shall not have the obligation, to recognize the continued possession of any subtenant. The delivery or surrender to Landlord by or on behalf of Tenant of keys, entry codes, or other means to bypass security at the Premises shall not terminate this Lease.
(2) Continuation After Default. Even though an event of default may have
occurred, this Lease shall continue in effect for so long as Landlord does
not terminate Tenant's right to possession under Paragraph 26.B.(1) hereof,
and Landlord may enforce all of Landlord's rights and remedies under this
Lease and at law or in equity, including without limitation, the right to
recover Rent as it becomes due, and Landlord, without terminating this
Lease, may exercise all of the rights and remedies of a landlord under
Section 1951.4 of the Civil Code of the State of California or any successor
code section. Acts of maintenance, preservation or efforts to lease the
Premises or the appointment of a receiver under application of Landlord to
protect Landlord's interest under this Lease or other entry by Landlord upon
the Premises shall not constitute an election to terminate Tenant's right to
possession.
(3) Increased Security Deposit. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for ten (10) days after
such occurrence or such default occurs more than three times in any twelve
(12) month period, Landlord may require that Tenant increase the Security
Deposit to the amount of three times the current month's Rent at the time of
the most recent default.
C. Damages After Default. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth
at the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. Late Charge. In addition to its other remedies, Landlord shall have the right without notice or demand to add to the amount of any payment required to be made by Tenant hereunder, and which is not paid and received by Landlord on or before the first day of each calendar month, an amount equal to ten percent (10%) of the delinquency for each month or portion thereof that the delinquency remains outstanding to compensate Landlord for the loss of the use of the amount not paid and the administrative costs caused by the delinquency, the parties agreeing that Landlord's damage by virtue of such delinquencies would be extremely difficult and impracticable to compute and the amount stated herein represents a reasonable estimate thereof. Any waiver by Landlord of any late charges or failure to claim the same shall not constitute a waiver of other late charges or any other remedies available to Landlord.
E. Interest. Interest shall accrue on all sums not paid when due hereunder at the lesser of eighteen percent (18%) per annum or the maximum interest rate allowed by law ("Applicable Interest Rate") from the due date until paid.
F. Remedies Cumulative. All rights, privileges and elections or remedies of the parties are cumulative and not alternative, to the extent permitted by law and except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens arising out of or related to work or services performed, materials or supplies furnished or obligations incurred by or on behalf of Tenant or in connection with work made, suffered or done by or on behalf of Tenant in or on the Premises or Project. If Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in connection therefor shall be payable to Landlord by Tenant on demand with interest at the Applicable Interest Rate as Additional Rent. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Project and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give Landlord not less than ten (10) business days prior written notice of the commencement of any work in the Premises or Project which could lawfully give rise to a claim for mechanics' or materialmen's liens to permit Landlord to post and record a timely notice of non-responsibility, as Landlord may elect to proceed or as the law may from time to time provide, for which purpose, if Landlord shall so determine, Landlord may enter the Premises. Tenant shall not remove any such notice posted by Landlord without Landlord's consent, and in any event not before completion of the work which could lawfully give rise to a claim for mechanics' or materialmen's liens.
28. SUBSTITUTION
A. At any time after execution of this Lease, Landlord may substitute for the Premises other premises in the Project or owned by Landlord in the vicinity of the Project (the "New Premises") upon not less than sixty (60) days prior written notice, in which event the New Premises shall be deemed to be the Premises for all purposes hereunder and this Lease shall be deemed modified accordingly to reflect the new location and shall remain in full force and effect as so modified, provided that:
(1) The New Premises shall be similar in area and in function for Tenant's purposes; and
(2) If Tenant is occupying the Premises at the time of such substitution, Landlord shall pay the expense of physically moving Tenant, Tenant's property and equipment to the New Premises and shall, at Landlord's sole cost, improve the New Premises with improvements substantially similar to those the Landlord has committed to provide or has provided in the Premises.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a foreclosure by any creditor of Landlord, the same shall operate to release Landlord from any liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, to the extent required to be performed after the passing of title to Landlord's successor-in-interest. In such event, Tenant agrees to look solely to the responsibility of the successor- in-interest of Landlord under this Lease with respect to the performance of the covenants and duties of "Landlord" to be performed after the passing of title to Landlord's successor-in-interest. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant with respect to the failure to perform any of the obligations of "Landlord," to the extent required to be performed prior to the date such successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent. If Tenant shall fail to pay any sum of money, other than Base Rent, required to be paid by Tenant hereunder or shall fail to perform any other act on Tenant's part to be performed hereunder, including Tenant's obligations under Paragraph 11 hereof, and such failure shall continue for fifteen (15) days after notice thereof by Landlord, in addition to the other rights and remedies of Landlord, Landlord may make any such payment and perform any such act on Tenant's part. In the case of an emergency, no prior notification by Landlord shall be required. Landlord may take such actions without any obligation and without releasing Tenant from any of Tenant's obligations. All sums so paid by Landlord and all incidental costs incurred by Landlord and interest thereon at the Applicable Interest Rate, from the date of payment by Landlord, shall be paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, or constitute a course of dealing contrary to the expressed terms of this Lease. The acceptance of Rent by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Rent. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to sending, mailing, or delivery of any notice or the making of any payment by Landlord or Tenant to the other shall be deemed to be complied with when and if the following steps are taken:
A. Rent. All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at Landlord's Remittance Address set forth in the Basic Lease Information, or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay Rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such Rent and other amounts have been actually received by Landlord.
B. Other. All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be in writing and either personally delivered, sent by commercial overnight courier, mailed, certified or registered, postage prepaid or sent by facsimile with confirmed receipt (and with an original sent by commercial overnight courier), and in each case addressed to the party to be notified at the Notice Address for such party as specified in the Basic Lease Information or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days notice to the notifying party. Notices shall be deemed served upon receipt or refusal to accept delivery. Tenant appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of occupying the Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the main entrance of the Premises.
C. Required Notices. Tenant shall immediately notify Landlord in writing of any notice of a violation or a potential or alleged violation of any Regulation that relates to the Premises or the Project, or of any inquiry, investigation, enforcement or other action that is instituted or threatened by any governmental or regulatory agency against Tenant or any other occupant of the Premises, or any claim that is instituted or threatened by any third party that relates to the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the collection of any Rent due, or to become due hereunder, or recovery of possession of the Premises in the hands of an attorney, Tenant shall pay to Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs, whether incurred without trial, at trial, appeal or review. In any action which Landlord or Tenant brings to enforce its respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party including reasonable attorneys' fees, to be fixed by the court, and said costs and attorneys' fees shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its successors and assigns, and shall be binding upon and inure to the benefit of Tenant, its successors, and to the extent assignment is approved by Landlord as provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by any prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes for those items, government actions, civil commotions, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform, performance by that party for a period equal to the period of that prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent, however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender the Premises to Landlord in the same condition as existed on the date Tenant originally took possession thereof, including, but not limited to, all interior walls cleaned, all interior painted surfaces repainted in the original color, all holes in walls repaired, all carpets shampooed and cleaned, and all floors cleaned, waxed, and free of any Tenant-introduced marking or painting, all to the reasonable satisfaction of Landlord. Tenant shall remove all of its debris from the Project. At or before the time of surrender, Tenant shall comply with the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises and all other matters addressed in such Paragraph. If the Premises are not so surrendered at the expiration or sooner termination of this Lease, the provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any part thereof shall be surrendered to Landlord upon expiration or sooner termination of the Term. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall meet with Landlord for a joint inspection of the Premises at the time of vacating, but nothing contained herein shall be construed as an extension of the Term or as a consent by Landlord to any holding over by Tenant. In the event of Tenant's failure to give such notice or participate in such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall conclusively be deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. Any delay caused by Tenant's failure to carry out its obligations under this Paragraph 36 beyond the term hereof, shall constitute unlawful and illegal possession of Premises under Paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the right to use up to the number of parking spaces, if any, specified in the Basic Lease Information on an unreserved, nonexclusive, first come, first served basis, for passenger-size automobiles, in the parking areas in the Project designated from time to time by Landlord for use in common by tenants of the Building.
Tenant may request additional parking spaces from time to time and if Landlord in its sole discretion agrees to make such additional spaces available for use by Tenant, such spaces shall be provided on a month-to-month unreserved and nonexclusive basis (unless otherwise agreed in writing by Landlord), and subject to such parking charges as Landlord shall determine, and shall otherwise be subject to such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties and visitors to comply with all Regulations and any rules and regulations established from time to time by Landlord relating to parking at the Project, including any keycard, sticker or other identification or entrance system, and hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other items located in the parking areas of the Project, nor for any personal injuries or death arising out of the use of parking areas in the Project by Tenant or any Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the parking areas to be operated by an independent contractor not affiliated with Landlord, Tenant acknowledges that Landlord shall have no liability for claims arising through acts or omissions of such independent contractor. In all events, Tenant agrees to look first to its insurance carrier and to require that Tenant's Parties look first to their respective insurance carriers for payment of any losses sustained in connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve spaces for visitors, small cars, disabled persons or for other tenants or guests, and Tenant shall not park and shall not allow Tenant's Parties to park in any such assigned or reserved spaces. Tenant may validate visitor parking by such method as Landlord may approve, at the validation rate from time to time generally applicable to visitor parking. Landlord also reserves the right to alter, modify, relocate or close all or any portion of the parking areas in order to make repairs or perform maintenance service, or to restripe or renovate the parking areas, or if required by casualty, condemnation, act of God, Regulations or for any other reason deemed reasonable by Landlord.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so directed in writing by Landlord), as Additional Rent hereunder, the monthly charges established from time to time by Landlord for parking in such parking areas (which shall initially be the charge specified in the Basic Lease Information, as applicable). Such parking charges shall be payable in advance with Tenant's payment of Basic Rent. No deductions from the monthly parking charge shall be made for days on which the Tenant does not use any of the parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. General. The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their respective successors, executors, administrators and permitted assigns, according to the context hereof.
B. Time. Time is of the essence regarding this Lease and all of its provisions.
C. Choice of Law. This Lease shall in all respects be governed by the laws of the State of California.
D. Entire Agreement. This Lease, together with its Exhibits, addenda and attachments and the Basic Lease Information, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its Exhibits, addenda and attachments and the Basic Lease Information.
E. Modification. This Lease may not be modified except by a written instrument signed by the parties hereto. Tenant accepts the area of the Premises as specified in the Basic Lease Information as the approximate area of the Premises for all purposes under this Lease, and acknowledges and agrees that no other definition of the area (rentable, usable or otherwise) of the Premises shall apply. Tenant shall in no event be entitled to a recalculation of the square footage of the Premises, rentable, usable or otherwise, and no recalculation, if made, irrespective of its purpose, shall reduce Tenant's obligations under this Lease in any manner, including without limitation the amount of Base Rent payable by Tenant or Tenant's Proportionate Share of the Building and of the Project.
F. Severability. If, for any reason whatsoever, any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect.
G. Recordation. Tenant shall not record this Lease or a short form memorandum hereof.
H. Examination of Lease. Submission of this Lease to Tenant does not constitute an option or offer to lease and this Lease is not effective otherwise until execution and delivery by both Landlord and Tenant.
I. Accord and Satisfaction. No payment by Tenant of a lesser amount than the total Rent due nor any endorsement on any check or letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction of full payment of Rent, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. All offers by or on behalf of Tenant of accord and satisfaction are hereby rejected in advance.
J. Easements. Landlord may grant easements on the Project and dedicate for public use portions of the Project without Tenant's consent; provided that no such grant or dedication shall materially interfere with Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and deliver to Landlord documents, instruments, maps and plats necessary to effectuate Tenant's covenants hereunder.
K. Drafting and Determination Presumption. The parties acknowledge that this Lease has been agreed to by both the parties, that both Landlord and Tenant have consulted with attorneys with respect to the terms of this Lease and that no presumption shall be created against Landlord because Landlord drafted this Lease. Except as otherwise specifically set forth in this Lease, with respect to any consent, determination or estimation of Landlord required or allowed in this Lease or requested of Landlord, Landlord's consent, determination or estimation shall be given or made solely by Landlord in Landlord's good faith opinion, whether or not objectively reasonable. If Landlord fails to respond to any request for its consent within the time period, if any, specified in this Lease, Landlord shall be deemed to have disapproved such request.
L. Exhibits. The Basic Lease Information, and the Exhibits, addenda and attachments attached hereto are hereby incorporated herein by this reference and made a part of this Lease as though fully set forth herein.
M. No Light, Air or View Easement. Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to or in the vicinity of the Building shall in no way affect this Lease or impose any liability on Landlord.
N. No Third Party Benefit. This Lease is a contract between Landlord and Tenant and nothing herein is intended to create any third party benefit.
O. Quiet Enjoyment. Upon payment by Tenant of the Rent, and upon the observance and performance of all of the other covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject, nevertheless, to all of the other terms and conditions of this Lease. Landlord shall not be liable for any hindrance, interruption, interference or disturbance by other tenants or third persons, nor shall Tenant be released from any obligations under this Lease because of such hindrance, interruption, interference or disturbance.
P. Counterparts. This Lease may be executed in any number of counterparts, each of which shall be deemed an original.
Q. Multiple Parties. If more than one person or entity is named herein as Tenant, such multiple parties shall have joint and several responsibility to comply with the terms of this Lease.
R. Prorations. Any Rent or other amounts payable to Landlord by Tenant hereunder for any fractional month shall be prorated based on a month of 30 days. As used herein, the term "fiscal year" shall mean the calendar year or such other fiscal year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY JURY, AND HEREBY FURTHER WAIVES ANY
OBJECTION TO VENUE IN THE COUNTY IN WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE PROVISIONS OF THIS PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ Jeffrey K. Nickell
-----------------------------------
Jeffrey K. Nickell
Its: Vice President
Date: 9-17-98
|
TENANT
StampMaster, Inc.
By: /s/ James AC McDermott
---------------------------------------
|
Print:
Its: CFO
EXHIBIT 10.13
MASTER LEASE AGREEMENT
NUMBER 912364
LESSEE NAME AND ADDRESS
STAMPMASTER, INC.
4500 E. THOUSAND OAKS BLVD., SUITE 100
WESTLAKE VILLAGE, CA 91362
1. LEASE. LESSOR and LESSEE agree that the terms of this Master Lease Agreement shall apply to and be incorporated by reference in one or more Lease Schedules in substantially the form of Exhibit A hereto which reference(s) the Master Lease Agreement Number indicated above). The word "LEASE" shall mean any one of the individual Lease Schedules executed hereunder, each of which shall incorporate the terms and conditions of this Master Lease Agreement and shall be evidenced by the original Lease Schedule and an attached copy of its Master Lease Agreement. The word "EQUIPMENT" shall mean the equipment which is the subject of any one of the LEASES. Each Lease Schedule will include an EQUIPMENT description, the EQUIPMENT location, the minimum lease term and payment and security deposit information. Each LEASE shall be enforceable upon execution by LESSEE and subsequent counter-signature by LESSOR indicating acceptance.
2. RENTAL PAYMENTS. Unless otherwise agreed in writing, each regular periodic payment of rent due during the term of each LEASE shall be due on the first day of the month (the billing date). The first billing date under each LEASE shall be the first day of the month following LESSEE's acceptance of the EQUIPMENT, or, if LESSEE's acceptance occurs after the 20th day of a month, then the first billing date shall be the first day of the second month following LESSEE's acceptance. LESSEE shall pay pro rated rent, together with applicable taxes, from the date of acceptance of the EQUIPMENT until the first billing date as interim rent. In addition, LESSEE shall pay to LESSOR as additional interim rent an amount equal to one thirtieth of the proportional money rental payment per day for any amount funded by LESSOR prior to acceptance of the EQUIPMENT by LESSEE. LESSEE agrees to pay rent for the minimum term specified above following the interim rent period and until the EQUIPMENT is returned to LESSOR on expiration or earlier termination of the LEASE. Each periodic rental installment shall be the sum set forth above or on an attached schedule plus any applicable sales and/or use taxes, and shall, at LESSOR's option, include a pro rata portion of that year's property tax. Payments shall be made by LESSEE at LESSOR's address set forth herein or as otherwise directed by LESSOR. LESSEE shall not abate, set off, deduct any amount or reduce any payment for any reason without the prior written consent of LESSOR. Payments are delinquent if not in LESSOR's possession by the due date.
3. COMMENCEMENT AND TERMINATION. The LEASE term shall commence on acceptance of the EQUIPMENT by LESSEE. The LEASE shall terminate on the expiration of its minimum term in months as set forth in the Lease Schedule following the first billing date and the fulfillment of all obligations of LESSEE thereunder or upon notice by LESSOR in the case of LESSEE default. In the event LESSEE retains part or all of the EQUIPMENT beyond the term of the LEASE, then the terms of the LEASE shall stay in effect during such hold-over period, subject to LESSOR's right on default to terminate the LEASE.
4. NO WARRANTIES BY LESSOR. LESSOR makes no warranty, express, implied or statutory, as to any matter whatsoever, including the condition of the EQUIPMENT, its merchantability or its fitness for any particular purpose, and as to LESSOR, LESSEE lenses the EQUIPMENT "as is".
5. CHOICE OF LAW, VENUE AND JURISDICTION. The LEASE shall be deemed to have been made and shall be construed in accordance with the laws of the State of Oregon or breach of the LEASE must be instituted and maintained in Multnomah County, State of Oregon, and LESSEE expressly agrees to submit to personal jurisdiction in such venue.
6. ASSIGNMENT. Without LESSOR's prior written consent, LESSEE shall not assign, transfer, pledge, hypothecate or otherwise dispose of the LEASE, any interest therein, or sublease or loan the EQUIPMENT or permit it to be used by anyone other than LESSEE or LESSEE's qualified employees. LESSOR may assign the LEASE and/or grant a security interest in the EQUIPMENT, in whole or in part, to one or more assignees, without notice to LESSEE. LESSOR's assignee(s) and/or the secured party(ies) may reassign the LEASE, and/or such security interest without notice to LESSEE. Each such assignee and/or such secured party shall have all rights of LESSORS under the LEASE, but no such assignee or secured party shall be bound to perform any obligation of LESSOR, LESSEE shall recognize each such assignment and shall not assert against any assignee and/or secured party any defense, counterclaim or setoff it may have against LESSOR. LESSEE acknowledges that any assignment or transfer by LESSOR shall not materially change LESSEE's duties or obligations under the LEASE nor materially increase the burdens or risks imposed on LESSEE.
7. SELECTION AND ACCEPTANCE OF EQUIPMENT. LESSEE has selected both the EQUIPMENT and the supplier(s) from whom LESSOR is to purchase the EQUIPMENT. LESSEE shall arrange for transportation, delivery, and installation of the EQUIPMENT at LESSEE's expense. LESSEE acknowledges that it has examined the EQUIPMENT as fully as it desires. If the EQUIPMENT is not properly installed, its delivery is delayed, it does not operate as represented by the supplier(s) or it is unsatisfactory for any reason. LESSEE shall make no claim on account thereof against LESSOR. LESSEE authorizes LESSOR to insert in the LEASE or other documents the serial numbers and other identification information for the EQUIPMENT as determined by LESSOR.
8. SUPPLIER/BROKER NOT AGENT OF LESSOR. LESSEE understands and agrees that neither the supplier(s), nor any salesperson or agent of the supplier(s), is an agent of LESSOR. LESSEE further agrees that if any transaction hereunder is presented to LESSOR by a lease broker, that such broker is acting as an agent of LESSEE and is not an agent of LESSOR. No salesperson or agent of the supplier(s) or broker(s) is authorized to waive or alter any term or condition of the LEASE, and no representation as to the EQUIPMENT or any matter by the supplier(s) or broker(s) shall in any way affect LESSEE's duty to pay rent and perform its other obligations set forth in the LEASE.
9. SECURITY DEPOSIT. Security deposits received by LESSOR are to guarantee
prompt and full payment of rent and the faithful and timely performance of all
provisions of the LEASE by LESSEE. Security deposits secure all obligations of
LESSEE to LESSOR under the LEASE or otherwise. No interest shall accrue on the
security deposit to the account of LESSEE. If LESSEE is not in default under
any agreement with LESSOR, the security deposit shall be returned to LESSEE at
the end of the LEASE term. In the event LESSEE defaults on any of its
obligations to LESSOR, LESSOR shall have the right, but shall not be obligated,
to apply the security deposit to cure such default. LESSEE shall, within ten
(10) days, restore the security deposit to the full amount held by LESSOR prior
to its application to cure such default.
10. CANCELLATION FOR NON-DELIVERY. If within 30 days after the LEASE is signed by LESSEE, the EQUIPMENT has not been delivered to and accepted by LESSEE and if LESSOR has accepted the LEASE by signing. LESSOR, by written notice to LESSEE, shall have the option at any time thereafter to terminate LESSOR's obligation, if any, to lease the subject EQUIPMENT to LESSEE.
11. RETURN OF EQUIPMENT. On the expiration or earlier termination of the LEASE, or on LESSEE default if LESSOR chooses, LESSEE, at its expense, freight prepaid with full original value declared and insured, shall immediately return the EQUIPMENT unencumbered to LESSOR in good repair, condition and working order, ordinary wear and tear resulting from proper use thereof alone excepted, by properly packing it for shipment and delivering it to any place designated by LESSOR.
12. OWNERSHIP. The EQUIPMENT shall at all times remain the personal property of LESSOR. LESSEE will at all times protect and defend, at its own cost and expense, the ownership of LESSOR against all claims, liens and legal processes of creditors of LESSEE and other persons, and keep the EQUIPMENT free and clear from all such claims, liens and processes. If the LEASE is deemed at any time to be one intended as security or should LESSOR agree at any time to sell the EQUIPMENT to LESSEE, LESSEE agrees that the EQUIPMENT shall secure, in addition to the indebtedness set forth in the LEASE, indebtedness at any time owing by
LESSEE to LESSOR. Notwithstanding any other terms and conditions of the LEASE, in the event that the EQUIPMENT includes computer software, LESSEE agrees that LESSOR has not had, does not have, nor shall have any title to such computer software. LESSEE may have executed or may execute a separate software license agreement(s) and LESSEE agrees that LESSOR is not a party to nor responsible for any performance with regard to such license agreement(s).
13. LOCATION AND RIGHT OF INSPECTION. The EQUIPMENT shall be kept at the location specified on the Lease Schedule or, if none is specified, at LESSEE's address as set forth therein, and shall not be removed therefrom without LESSOR's prior written consent. LESSOR shall have the right at any time during normal business hours and upon reasonable notice to inspect the EQUIPMENT and for that purpose has access to the location of the EQUIPMENT.
14. USE AND OPERATION. LESSEE shall use the EQUIPMENT in a careful manner and shall comply with all laws relating to its possession, use and maintenance. LESSEE represents that the EQUIPMENT shall be used in its business or commercial concern and that no item of EQUIPMENT will be used for personal, family or household purposes.
15. REPAIRS AND ALTERATIONS. LESSEE shall at its own expense maintain the EQUIPMENT in good repair, appearance and functional order. LESSEE agrees to comply with all maintenance schedules and procedures recommended by the manufacturer of the EQUIPMENT and, if available, purchase or otherwise enter into and adhere to dealer maintenance contracts. LESSEE shall not make any alterations, additions or improvements to the EQUIPMENT without LESSOR's prior written consent. All alterations, additions or improvements made to the EQUIPMENT shall belong to LESSOR.
16. LOSS AND DAMAGE. LESSEE shall bear the entire risk of loss, theft, damage
or destruction of the EQUIPMENT from any cause whatsoever and, as between LESSOR
and LESSEE, unless otherwise agreed between the parties. LESSEE shall bear that
risk of loss during transportation and delivery, and LESSEE shall arrange and
pay for transportation and delivery. No loss, theft, damage or destruction of
the EQUIPMENT shall relieve LESSEE of the obligation to pay rent or to comply
with any other obligation under the LEASE. In the event of damage to any item
of EQUIPMENT, LESSEE shall immediately place the same in good repair at LESSEE's
expense- If LESSOR determines that any item of EQUIPMENT is lost, stolen,
destroyed or damaged beyond repair. LESSEE shall, at LESSEE's option: (a)
replace the same with like equipment in good repair, acceptable to LESSOR; or
(b) pay LESSOR a sum equal to (i) all amounts due by LESSEE to LESSOR under the
LEASE up to the date of the loss, (ii) the unpaid balance of the total rent for
the remaining term under the LEASE which is attributable to said item of
EQUIPMENT, and (iii) an amount equal to eighteen percent (18%) of the original
cost of said item of EQUIPMENT, which the parties agree shall represent the fair
market value of LESSOR's residual interest in said item of EQUIPMENT. The
amounts in (ii) and (iii) shall be discounted to present value at a discount
rate of six percent (6%) per annum.
17. INSURANCE. LESSEE shall provide and maintain primary insurance against loss, theft, damage or destruction of the EQUIPMENT in an amount not less than the full replacement value of the EQUIPMENT, with loss payable to LESSOR. At LESSOR's request, LESSEE also shall provide and maintain primary comprehensive general all risk liability insurance. Such insurance shall include, but shall not be limited to, product liability coverage, insuring LESSOR and LESSEE, with a severability of interest endorsement or its equivalent, against any and all loss or liability for all damages, either to persons, property or otherwise, which might result from or happen in connection with the condition, use or operation of the EQUIPMENT, with such limits and with an insurer satisfactory to LESSOR. Each policy shall expressly provide that the insurance as to LESSOR shall not be invalidated by any act, omission or neglect of LESSEE and cannot be canceled without ten (10) days written notice to LESSOR. As to each policy, LESSEE shall furnish to LESSOR a certificate of insurance from the insurer evidencing the insurance coverage required by this Section. If LESSEE fails to procure or maintain such insurance. LESSOR shall have the right, but shall not be obligated, to obtain such insurance as to LESSOR's and/or LESSEE's interests. In that event, LESSEE shall repay to LESSOR the cost thereof with the next payment of rent, together with late charges as set forth in Section 23. LESSEE irrevocably appoints LESSOR as LESSEE's attorney-in-fact to make claim for, receive payment of, and execute and endorse all documents, checks or drafts received in payment for loss or damage under such insurance policy(ies). All obligations of this
Section shall extend throughout the term of the LEASE and until the EQUIPMENT is returned to LESSOR.
18. LIENS AND TAXES. LESSEE shall keep the EQUIPMENT free and clear of all
levies, liens and encumbrances. LESSEE shall pay LESSOR, on or before the due
date, all charges and taxes, local, state or federal, which may now or hereafter
be imposed upon the ownership, leasing, rental, sale, purchase, possession or
use of the EQUIPMENT, excluding, however, all taxes on LESSOR's income. If
LESSEE fails to pay said charges or taxes to LESSOR when due. LESSOR shall have
the right, but shall not be obligated, to pay said charges or taxes, and add the
same to the next payment of rent, together with late charges as set out in
Section 23. LESSEE agrees to pay a reasonable fee to LESSOR for the processing
of property tax payments.
19. INDEMNITY. LESSEE shall indemnify LESSOR against, and hold LESSOR harmless from, any and all claims, actions, proceedings, expenses, damages and liabilities, including attorney fees, arising in connection with the EQUIPMENT, including, without limitation, its manufacture, selection, purchase, delivery, possession, use, operation or return and the recovery of claims under insurance policies thereon. This indemnity provision shall survive termination, cancellation or breach of the LEASE.
20. MISCELLANEOUS REPRESENTA-TIONS OF LESSEE. LESSEE and any guarantor of the LEASE shall provide LESSOR with such corporate resolutions, financial statements not less than quarterly, and all other documents regarding the financial or credit condition of LESSEE or any guarantor which LESSOR may request from time to time. LESSEE represents and warrants that all credit and financial information submitted to LESSOR in connection with the LEASE is true and correct in all respects. LESSEE agrees that LESSOR and/or its assigns may at anytime investigate the credit-worthiness of LESSEE using all available means.
21. UNIFORM PERSONAL PROPERTY LEASING ACT. To the extent permitted by applicable law, and to the extent the LEASE is governed by the law of a jurisdiction which has adopted a version of the Uniform Personal Property Leasing Act (also known as "Uniform Commercial Code - Leases"), the parties hereto agree that: (1) the provisions thereof conferring remedies upon a LESSEE or imposing obligations upon a LESSOR shall not apply to the LEASE, its interpretation, or its enforcement; and (2) the LEASE is a Finance Lease as defined by Uniform Commercial Code - Section 2A-103(g). LESSEE acknowledges that LESSEE has reviewed and approved any written Supply Contract(s) covering the EQUIPMENT purchased from the Supplier(s) for lease to LESSEE. LESSEE further acknowledges that LESSOR has informed or advised LESSEE, in writing, either previously or in the LEASE, of the following: (a) the identity of the Supplier(s); (b) that the LESSEE may have rights under the Supply Contract(s); and (c) that the LESSEE may contact the Supplier(s) for a description of any such rights LESSEE may have under the Supply Contract(s).
22. FINANCING STATEMENTS. At the request of LESSOR, LESSEE will join LESSOR in executing financing statements pursuant to the Uniform Commercial Code. Lessee hereby authorizes Lessor or its agents or assigns to execute financing statements on LESSEE's behalf, and to file such financing statements in all jurisdictions where such execution and filing is permitted. It is agreed that a carbon or photocopy of any financing statement may be filed in place of the original and that a copy hereof may be filed as a financing statement.
23. LATE CHARGES AND INTEREST. If LESSEE fails to pay LESSOR any amount when due or, in the case of an amount due to one other than LESSOR, if LESSOR pays an amount on LESSEE's behalf, then LESSEE shall pay LESSOR a late charge of $29, plus five percent (5%) of such amount of $5, whichever is greater, for each calendar month or part thereof for which rent or other sum shall be delinquent or shall have been paid by LESSOR on LESSEE's behalf. If LESSEE fails to pay or fails to perform other LEASE obligations, LESSEE agrees to pay LESSOR $19 for each contact necessitated because of such failure. LESSEE also agrees to pay LESSOR the sum of $29 for each check of LESSEE's returned uncollectable by LESSEE's bank. The amount of any charges assessed hereunder shall be added to and become part of the next rental payment or shall be separately invoiced, at LESSOR's option. Interest shall accrue on any unpaid or unreimbursed amounts at the maximum rate allowable by law or eighteen percent (18%), whichever is less, from the due date until paid by LESSEE.
24. TIME OF THE ESSENCE. Time is of the essence of the LEASE. This provision shall not be
waived by the acceptance on occasion of late or defective performance.
25. DEFAULT. LESSEE shall be in default if (a) LESSEE shall fail to pay rent
or any other amount provided for under the LEASE within five (5) days after the
same becomes due and payable; or (b) LESSEE fails to observe, keep or perform
any other provision of the LEASE or of any other agreement with LESSOR, and such
failure shall continue for a period of ten (10) days; or (c) LESSEE shall
abandon the EQUIPMENT; or (d) except as inconsistent with Federal Bankruptcy
Law, any proceeding in bankruptcy, receivership or insolvency shall be commenced
against LESSEE or its property or any guarantor or such guarantor's property,
LESSEE or any guarantor files voluntarily for bankruptcy or reorganization, or
LESSEE or any guarantor makes an assignment for the benefit of its creditors; or
(e) LESSEE or any guarantor makes any misrepresentation or false statement as to
its credit or financial standing in connection with the execution or the further
performance of the LEASE; or (f) any attachment or execution be levied on any of
LESSEE's property; or (g) LESSEE permits any other entity or person to use the
EQUIPMENT without prior written consent of LESSOR; or (h) in the business and
affairs of LESSEE or any guarantor there occurs a material change which shall
impair the security of the EQUIPMENT or increase LESSOR's credit risk involved
in the LEASE.
26. REMEDIES. In the event of LESSEE default, LESSOR shall have the right and option, but shall not be obligated, to exercise any one or more of the following remedies, which remedies or any of them may be exercised by LESSOR without notice to LESSEE and without any election of remedies by LESSOR and, if the obligations of LESSEE are guaranteed by a guarantor or guarantors. LESSOR shall not be obligated to proceed against any such guarantor or guarantors before resorting to its remedies against LESSEE under the LEASE: (a) to the extent permitted under applicable law, LESSOR and/or its agents may, without notice or legal process, enter onto any premises of or under control of LESSEE or any agent of LESSEE where the EQUIPMENT may be or is believed to be located and repossess the EQUIPMENT, disconnecting and separating all thereof from any other property, using all means necessary or permitted by law. LESSEE hereby expressly waiving any right of action of any kind whatsoever against LESSOR arising out of such access to or removal, repossession or retention of the EQUIPMENT; (b) LESSOR may declare all sums due and to become due under the LEASE immediately due and payable and institute litigation to collect the same; (c) LESSOR may institute litigation to collect all rents and other amounts due as of the date of such default together with any sums that may accrue up to the date of trial; (d) LESSOR may institute litigation to specifically enforce the terms of the LEASE; (e) LESSOR may terminate the LEASE; (f) LESSOR may require LESSEE to return the EQUIPMENT pursuant to Section 11; and/or (g) LESSOR may pursue any other remedy now, or hereafter, existing in law or equity. However, damages for any future rentals and/or LESSOR's residual value in the EQUIPMENT shall be discounted to present value at a discount rate equal to six percent (6%) per annum. In the event of any default by LESSEE under the LEASE, LESSOR may at its sole discretion, although it shall not be obligated to do so, sell the EQUIPMENT at a private or public, cash or credit sale, or may re-let the equipment for a term and a rental which may be equal to, greater than, or less than provided in the LEASE. Any proceeds of sale or any rental payments received under the new lease - less LESSOR's expenses of taking possession, reasonable attorney fees and/or collection fees, storage and/or reconditioning costs, the costs of sale or re-letting, and less LESSOR's fair market residual value in the EQUIPMENT - shall be applied to LESSEE's obligations under the LEASE, and LESSEE shall remain liable for the balance. LESSEE's liability shall not be reduced by reason of any failure of LESSOR to sell or re-let.
27. EXPENSES OF ENFORCEMENT, ATTORNEY FEES. In the event of any default, LESSEE shall pay LESSOR a sum equal to all expenses, including attorney fees, if any, incurred by LESSOR in connection with the enforcement of any of LESSOR's remedies and all expenses of repossessing, storing, repairing, and selling or re-letting the EQUIPMENT together with interest on such amount at the maximum rate allowable by law or eighteen percent (18%), whichever is less, from the date such amount is paid by LESSOR. In the event litigation is instituted to enforce any of the terms of the LEASE, the prevailing party shall be entitled to recover from the other party such sum as the court may judge reasonable as attorney fees at trial and upon appeal, in addition to all other sums provided by law.
28. SUCCESSOR INTERESTS. Subject to any prohibition against assignment contained herein, the LEASE shall be binding upon and inure to the
benefit of the heirs, successors and assigns of the parties. As used in the LEASE, the term "LESSOR" shall include any assignee or secured party of LESSOR where appropriate.
29. MULTIPLE LESSEES. If more than one LESSEE is named herein, the reference to LESSEE refers to each and the liability of each shall be joint and several.
30. NOTICES. Any written notice or demand under the LEASE may be given to a party by mail at its address set forth on the Lease Schedule or at such address as the party may provide in writing from time to time. Notice and demand so made shall be effective when deposited in the United States mail duly addressed with postage prepaid.
31. WAIVER. Failure of LESSOR at any time to require performance of any provision of the LEASE shall not limit any right of LESSOR to enforce that provision, nor shall any waiver by LESSOR of any breach or any provision be a waiver of any succeeding breach of that provision or a waiver of that provision itself or any other provision.
32. NUMBER AND CAPTIONS. As used herein, the singular shall include the plural, and the plural the singular. All captions used herein arc intended solely for convenience of reference and shall in no way limit or explain any of the provisions of the LEASE.
33. DUPLICATE ENFORCEABLE AS ORIGINAL. LESSEE hereby consents to the use of the original Lease Schedule, along with a photocopy of the fully executed Master Lease Agreement, for all purposes including, but not limited to, evidence in litigation or any other judicial proceeding.
34. SEVERABILITY. If any provision of the LEASE is held invalid, such invalidity shall not affect other provisions which can be given effect without the invalid provision.
LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS ALL OF THE TERMS AND CONDITIONS CONTAINED IN THIS MASTER LEASE AGREEMENT AND THAT THESE TERMS AND CONDITIONS SHALL GOVERN EACH LEASE ENTERED INTO BY THE PARTIES.
LESSOR Date 6/5/98 LESSEE Date 5/28/98
By: /s/ Leonard Ludwig, CEO
-----------------------
Leonard Ludwig
|
THIS MASTER LEASE AGREEMENT WILL NOT
BIND LESSOR OR BECOME EFFECTIVE UNTIL By: /s/ James A. C. McDermott, CFO
AND UNLESS LESSOR ACCEPTS IT BY SIGNING ------------------------------
ABOVE. James A. C. McDermott
By: /s/ Ari Engelberg, Secretary
-----------------------------
Ari Engelberg
|
EXHIBIT 10.14
Silicon Valley Bank
QUICK START LOAN AND SECURITY AGREEMENT
Borrower: Stampmaster, Inc. Address: 4500 East Thousand Oaks Blvd., Suite 100 Date: May 1, 1998 Westlake Village, CA 91362
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and the borrower named above (jointly and severally, the "Borrower"), whose chief executive office is located at the above address ("Borrower's Address").
1. Loans. Silicon will make loans to Borrower (the "Loans") in amounts determined by Silicon in its reasonable business judgment up to the amount (the "Credit Limit") shown on the Schedule to this Agreement (the "Schedule"), provided no Event of Default and no event which, with notice or passage of time or both, would constitute an Event of Default has occurred. All Loans and other monetary Obligations will bear interest at the rate shown on the Schedule. Interest will be payable monthly, on the date shown on the monthly billing from Silicon. silicon may, in its discretion, charge interest to Borrower's deposit accounts maintained with Silicon.
2. Security Interest. As security for all present and future indebtedness, guarantees, liabilities, and other obligations, of Borrower to Silicon (collectively, the "Obligations), Borrower hereby grants Silicon a continuing security interest in all of Borrower's interest in the following types of property, whether now owned or hereafter acquired, and wherever located (collectively, the "Collateral"): All "accounts," "general intangibles," "contract rights," "chattel paper," "documents," "letters of credit," "instruments," "deposit accounts," "inventory," farm products," "investment property," "fixtures" and equipment," as such terms are defined in Division 9 of the California Uniform Commercial Code in effect on the date hereof, and all products, proceeds and insurance proceeds of the foregoing.
3. Representations And Agreements Of Borrower. Borrower represents to Silicon as follows, and Borrower agrees that the following representations will continue to be true, and that Borrower will comply with all of the following agreements throughout the term of this Agreement:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and will continue to be, duly authorized validly existing and in good standing under the laws of the jurisdiction of its incorporation. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby have been duly and validly authorized, and do not violate any law or any provision of, and are not grounds for acceleration under, any agreement or instrument which is binding upon Borrower.
3.2 Name; Places of Business. The name of Borrower set forth in this Agreement is its correct name. Borrower shall give Silicon 15 days' prior written notice before changing its name. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule. Borrower will give Silicon at least 15 days prior written notice before changing its chief executive office or locating the Collateral at any other location.
3.3 Collateral. Silicon has and will at all times continue to have a first- priority perfected security interest in all of the Collateral, other than specific equipment. Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral.
3.4 Financial Condition and Statements. All financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with generally accepted accounting principles. Since the last date covered by any such statement, there has been no material adverse change in the financial condition or business of Borrower. Borrower will provide Silicon: (i) within 30 days after the end of each month, a monthly financial statement prepared by Borrower, and such other information as Silicon shall reasonably request; (ii) within 120 days following the end of Borrower's fiscal year, complete annual financial statements, certified by independent certified public accountants acceptable to Silicon and accompanied by the unqualified report thereon by said independent
certified public accountants; and (iii) other financial information reasonably requested by Silicon from time to time.
3.5 Taxes; Compliance with Law. Borrower has filed and will file, when due, all tax returns and reports required by applicable law, and Borrower has paid, and will pay, when due, all taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower has complied, and will comply, in all material respects, with all applicable laws, rules and regulations.
3.6 Insurance. Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance as is customary in Borrower's industry.
3.7 Access to Collateral and Books and Records. At reasonable times, on one business day notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records.
3.8 Operating Accounts. Borrower shall maintain its primary operating accounts with Silicon.
3.9 Additional Agreements. Borrower shall not, without Silicon's prior written consent, do any of the following: (i) enter into any transaction outside the ordinary course of business, except for the ordinary course of business, except for the sale of capital stock to venture investors, strategic partners, and equipment lessors; (ii) sell or transfer any Collateral, except for (A) sale of finished inventory in the ordinary course of Borrower's business, and the sale of obsolete or unneeded equipment in the ordinary course of business and (B) the sale and leaseback of Borrower's equipment if any such transaction or series of transactions are consummated within 90 days of the date hereof and the aggregate value of the equipment that is the subject of such transactions does not exceed $125,000; (iii) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); or (iv) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock other than the repurchase of up to the greater of (A) repurchases of Borrower's stock from Borrower's employees or directors pursuant to written agreement with the Borrower in an aggregate amount not to exceed $20,000 in any fiscal year or (B) five percent (5%) of Borrower's then issued stock in any fiscal year from Borrower's employees or directors pursuant to written agreement with the Borrower.
4. Term. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"). This Agreement may be terminated, without penalty, prior to the Maturity Date as follows: (i) by Borrower, effective three business days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence of an Event of Default, without notice, effective immediately. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay all Obligations in full, whether or not such Obligations are otherwise then due and payable. No termination shall in any way affect or impair any security interest or other right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full.
Upon payment and performance in full of all the Obligations and termination of this Agreement, Silicon shall promptly deliver to Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate Silicon's security interests.
5. Events of Default and Remedies. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement: (a) Any representation, statement, report or certificate given to Silicon by Borrower or any of its officers, employees or agents, now or in the future, is untrue or misleading in a material respect; or (b) Borrower fails to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Obligations outstanding at any time exceed the Credit Limit, or (d) Borrower fails to perform any other non-monetary Obligation, which failure is not cured within 5 business days after the date due; or (e) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by or against Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (f) a material change in the ownership of Borrower, without the prior written consent of Silicon; or (g) a material adverse change in the business, operations, or financial or other condition of Borrower. If an Event of Default occurs, Silicon, shall have the right to accelerate and declare all of the Obligations to be immediately due and payable, increase the interest rate by an additional four percent
per annum. and exercise all rights and remedies accorded it by applicable law.
6. General If any provision of this Agreement is held to be unenforceable, the remainder of this Agreement shall still continue in full force and effect. This Agreement and any other written agreements, documents and instruments executed in connection herewith are the complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral understandings, representations or agreements between the parties which are not in this Agreement or in other written agreements signed by the parties in connection this Agreement. The failure of Silicon at any time to require Borrower to comply strictly with any of the provisions of this Agreement shall not waive Silicon's right later to demand and receive strict compliance. Any waiver of a default shall not waive any other default. None of the provisions of this Agreement may be waived except by a specific written waiver signed by an officer of Silicon and delivered to Borrower. The provisions of this Agreement may not be amended, except in a writing signed by Borrower and Silicon. Borrower shall reimburse Silicon for all reasonable attorneys' fees and all other reasonable costs incurred by Silicon, in connection with this Agreement (whether or not a lawsuit is filed). If Silicon or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorneys' fees from the non-prevailing party. Borrower may not assign any rights under this Agreement without Silicon's prior written consent. This Agreement shall be governed by the laws of the State of California.
7. Mutual Waiver of Jury Trial BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR AFFILIATES.
Borrower:
STAMPMASTER, INC.
By: /s/ James AC McDermott, CFO ------------------------------ President or Vice President By: /s/ Ari Engelberg, Secretary ------------------------------ Secretary or Ass't Secretary |
Silicon:
SILICON VALLEY BANK
By: /s/ James C. Crumpton
------------------------------
Title: SVP
---------------------------
|
Silicon Valley Bank
Schedule to
QuickStart Loan and Security Agreement (Master)
BORROWER: Stampmaster, Inc.
DATE: May 1, 1998
This Schedule is an integral part of the Loan and Security Agreement between Silicon Valley Bank ("Silicon") and the above-named borrower ("Borrower") of even date.
Credit Limit $300,000 (includes, without limitation, Equipmen
(Section 1): Advances and the Merchant Services and Business Visa
Reserve, if any), subject to increase as set forth below.
Interest Rate (Section 1): A rate equal to the "Prime Rate" in effect from time to
time, plus I% per annum. Interest shall be calculated on
the basis of a 360-day year for the actual number of
days elapsed. "Prime Rate" means the rate announced from
time to time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by Silicon are
based, and it is not necessarily the best rate available
at Silicon. The interest rate applicable to the
Obligations shall change on each date there is a change
in the Prime Rate.
Maturity Date (Section 4): October 8, 1999
Other Locations and Addresses
(Section 3.2): ---------------------------------------------------------
Other Agreements: Borrower also agrees as follows:
1. Loan Fee. Borrower shall concurrently pay Silicon a
non-refundable Loan Fee in the amount of $1,500.
2. Banking Relationship. Borrower shall at all times
maintain its primary banking relationship with Silicon.
3. Warrants. Concurrently herewith, Borrower shall
execute and deliver to Silicon a seven year warrant (the
"Warrant") to purchase stock for 4,000 Series A
Preferred Shares of the Borrower at an initial exercise
price of $.40 per share. Further, each increase in the
Credit Limit by $1,000 above the $300,000 level
irrevocably entitles
|
Silicon to one additional Series A Preferred Share of the Borrower as part of the Warrant; Silicon may from time to time request that the Borrower modify the Warrant to reflect such increase, and Borrower agrees to do so. 4. Potential Credit Limit Increases. For each $5,000 that the Borrower receives in net proceeds from equity financing transactions consummated after the date hereof and prior to December 31, 1998, the Credit Limit set forth above shall be deemed to be increased by $ 1,000, up to a maximum Credit Limit of $ 1,000,000. |
Borrower: Silicon:
STAMPMASTER, INC. SILICON VALLEY BANK
By /s/ James AC McDermott By /s/ James C. Crumpton, SVP
--------------------------- ---------------------------
President or Vice President Title
------------------------
-2-
|
Silicon Valley Bank |
Schedule to
QuickStart Loan and Security Agreement (Equipment Advances)
BORROWER: Stampmaster, Inc.
DATE: May 1, 1998
This Schedule is an integral part of the Loan and Security Agreement between Silicon Valley Bank ("Silicon") and the above-named borrower ("Borrower") of even date.
Credit Limit (Equipment) $300,000 (such amount to be funded under the aggregate
Credit Limit), subject to increase as more fully set forth
(Section 1): in the Schedule to QuickStart Loan and Security Agreement
(Master) of even date herewith. Equipment Advances will be
made only on or prior to January 9, 1999 (the "Last Advance
Date") and only for the purpose of purchasing equipment
reasonably acceptable to Silicon. Borrower must provide
invoices for the equipment to Silicon on or before the Last
Advance Date.
Interest Rate (Section 1): A rate equal to the "Prime Rate" in effect from time to
time, plus I% per annum. Interest shall be calculated on the
basis of a 360-day year for the actual number of days
elapsed. "Prime Rate" means the rate announced from time to
time by Silicon as its "prime rate;" it is a base rate upon
which other rates charged by Silicon are based, and it is
not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on
each date there is a change in the Prime Rate.
Maturity Date (Section 4): After the Last Advance Date, the unpaid principal balance of
the Loans shall be repaid in 24 equal monthly installments
of principal commencing on February 9, 1999 and continuing
on the same day of each month thereafter until the entire
unpaid principal balance of the Equipment Advances and all
accrued and unpaid interest have been paid (subject to
Silicon's right to accelerate the Loans on an Event of
Default).
|
Borrower: Silicon: STAMPMASTER, INC. SILICON VALLEY BANK By /s/ James AC McDermott By /s/ James C Crumpton --------------------------- -------------------------- |
EXHIBIT 10.15
Aug 7, 1998
Mr. John La Valle
1171 Westbend Road
Westlake Village, CA 91362
Dear John:
The terms of your new position with the Company are as set forth below:
a. You will become the Senior Vice President and Chief Financial Officer (CFO) of the Company, working out of the Company's headquarters office. As the CFO, you will have overall responsibility for the financial affairs of the Company. You will report to the Company's current President and Chief Operating Officer, Mr. John Payne.
b. You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.
August 10, 1998
August 10, 1998
We are all delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me, along with a signed and dated copy of the Confidentiality Agreement. This letter, together with the Confidentiality Agreement, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you.
Very truly yours,
StampMaster, Inc.,
/s/ Mohan Ananda By: Mohan Ananda Title: Chief Executive Officer |
ACCEPTED AND AGREED:
John La Valle,
/s/ John La Valle ---------------------------- Signature 16 August 1998 ---------------------------- Date |
Enclosure: Confidential Information and Invention Assignment Agreement
John La Valle
1171 Westbend Road
Westlake Village, California 91362
Dear John:
The purpose of this correspondence is to set forth the terms of your employment with StampMaster in the event of a Change In Control. This document is to be appended to your offer letter dated August 7, 1998. In addition, it confirms the understanding reached between you and Mohan Ananda concerning a Change In Control when you accepted employment with StampMaster on August 16th.
Change of Control: In the event that the Company sells all or substantially
all of its assets or is merged with another Company or
otherwise is acquired such that the shareholders of the
Company immediately prior to such transaction own less
than fifty percent (50%) of the Company following such
transaction (a "Change of Control"), and your employment
is constructively terminated or terminated by the Company
or a successor entity involuntarily within 12 months
following such transaction for any reason other than
cause, cause in this instance to include:
(i) Your commitment of fraud or an illegal act related
to the Company's business;
(ii) Your violation of an agreement between you and the
Company, such as the Company's proprietary
information agreement; or
(iii) Your failure to perform your job functions to the
performance levels set as mutually agreed in
conjunction with new management within 90 days
subsequent to closing of a Change of Control as
described above;
all of your unvested stock in the Company (or if a
successor entity has granted you replacement options,
such replacement options) shall be immediately vested
upon such involuntary termination or constructive
termination of your employment.
Constructive termination in this instance shall include:
(i) Relocation more than 40 miles from your home
without your consent;
(ii) Disability (as defined below) or death;
|
(iii) Assignment to a new job not commensurate with your
seniority and compensation, it being understood and
agreed that your assignment to the position of
Senior VP, Chief Financial Officer of a business
unit, division or subsidiary of the Company or a
company into which the Company is merged in a
Change of Control or otherwise acquiring assets or
voting shares of the Company in connection with a
Change of Control, or a parent of such a company,
shall constitute an assignment to a new job that is
commensurate with your seniority; or
(iv) Any reduction in compensation, including any bonus
compensation formula.
In the event your unvested option is not exchanged for an
option of the successor or related entity in connection
with such Change of Control transaction, you will receive
a cash payment equal to the financial benefit you would
have received if all of your option had vested
immediately prior to such transaction.
For purposes of this Agreement, "Disability" shall mean
that you have been unable to perform your Company duties
as the result of your incapacity due to physical or
mental illness, and such inability, at least 26 weeks
after its commencement, is determined to be total and
permanent by a physician selected by you or your legal
representative and acceptable to the Company (such
Agreement as to acceptability not be unreasonably
withheld).
In addition, your remaining unvested option will in any
event vest within one year after closing of the Change of
Control.
|
John, I hope the foregoing resolves any questions you have concerning the disposition of your option grant(s) in the event of a Change In Control.
Very truly yours,
STAMPMASTER, INC.
/s/ Thomas H. Bruggere Thomas H. Bruggere Chairman |
ACKNOWLEDGED:
/s/ John W. La Valle Date: 24 November 1991
----------------------------- -------------------------
3
|
EXHIBIT 10.16
A. The Company is in the business of developing, designing, programming and implementing an online postage system.
B. Consultant has expertise in U.S. Postal Service marketing strategy.
C. The Company desires to engage Consultant, as an independent contractor, to perform the services hereinafter set forth and Consultant desires to perform such services for the Company and its clients, in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties agree as follows:
a. development of a strategic marketing plan related to the Company's SOHO and corporate customer acquisition efforts in conjunction with Company's marketing and strategic planning team;
b. providing temporary executive consulting services to Company until Company has hired the SVP Marketing, performing work which would otherwise be undertaken by the SVP Marketing;
c. providing marketing consulting related to U.S.Postal Service offerings;
d. assisting in strategic planning regarding Company's relationship with the U.S. Postal Service;
e. participating in Company's government affairs program with respect to the U.S. Postal Service and legislative lobbying efforts;
f. collaborating with Company's management team to propose and facilitate the implementation of U.S. Postal Service-related Company initiatives;
g. providing consumer and corporate marketing consulting regarding Company's products and services;
h. assisting Company in development of its international strategic plan, including development of business models for working with international postal services;
i. developing relationships for Company at the most senior levels of the U.S. Postal Service, to enhance Company's ability to achieve its strategic goals and objectives; and
j. working with management and Ramsey Beirne to recruit and hire a SVP Marketing and to recruit other senior executives.
a. attendance at one board meeting in Southern California each month;
b. service on one board committee, as appointed thereto from time to time by the board;
c. providing such services as are rendered by Company's other board members, including without limitation periodic availability to attend to telephone conferences, correspondence, and e-mail.
a. Company shall pay Consultant annual compensation of $120,000.00 ("the Compansation"), payable in equal increments once per month over the term of this Agreement.
b. Company shall grant Consultant the following stock options for his Board Services and Consulting Services, which will be separately memorialized in Company's usual form of option grants:
(a) achieves a customer base of at least 250,000 customers and
(b) completes an initial public offering of its stock which yields the Company at least $20 million in revenue,
and if both those events occur before conclusion of the fourth anniversary of Company's grant of the Consulting Services options, then vesting of the final 30,000 options will be accelerated. If Company or Consultant elect early termination of the Consulting Services (i.e., before the second anniversary of this Agreement), then Consultant's options shall continue to vest monthly for ninety days following the date on which the Consulting Services terminate, and no all remaining options shall then lapse and shall never vest.
c. The Company shall reimburse Consultant for reasonable costs and expenses incurred by Consultant in providing the Consulting Services, in accordance with the Company's expense reimbursement guidelines. Any single expense which will exceed $7,500 must be approved in advance by the Company's CEO, or the Company may elect at its sole discretion not to reimburse Consultant for that expense.
will be developed, created, or discovered by or on behalf of the Company, or which became or will become known by, or was or is conveyed to the Company, which has commercial value in the Company's business. "Proprietary Information" includes, but is not limited to, information about operations, services, trade secrets, computer programs, algorithms, application programming interfaces, design, technology, ideas, know-how, processes, formulas, compositions, data, techniques, improvements, inventions (whether patentable or not), works of authorship, business and product development plans, customers and other information concerning the Company's actual or anticipated business, research or development, or which is received in confidence by the Company or for the Company from any other person or entity. Consultant hereby acknowledges and agrees that all such Proprietary Information shall be the sole and exclusive property of the Company. At all times, both during the term of this Agreement and after its termination, Consultant will keep in confidence and trust and will not use any Proprietary Information without the prior written consent of an officer of the Company except as may be necessary and appropriate in the ordinary course of performing the Consulting Services under this Agreement. Consultant acknowledges that any disclosure or unauthorized use of Proprietary Information will constitute a material breach of this Agreement and cause substantial harm to the Company for which damages would not be a fully adequate remedy, and, therefore, in the event of any such breach, in addition to other available remedies, the Company shall have the right to obtain injunctive relief.
a. Consultant's performance of the Consulting Services or of any term of this Agreement will not breach any agreement or understanding that Consultant has with any other person or entity and that there is no other contract or duty now in existence inconsistent with the terms of this Agreement;
b. During the term of this Agreement, Consultant shall not be bound by any agreement, nor assume any obligation, which would in any way be inconsistent with the Consulting Services to be performed by Consultant under this Agreement;
c. In performing the Consulting Services, Consultant will not use any confidential or proprietary information of any other person or entity or infringe the intellectual property rights (including, without limitation, patent, copyright, trademark or trade secret rights) of any other person or entity nor will Consultant disclose to the Company, or bring onto the Company's premises, or induce the Company to use any confidential information of any person or entity other than the Company or Consultant; and
d. Consultant will abide by all applicable laws and the Company's safety rules in the course of performing the Consulting Services.
a. Consultant agrees that any dispute in the meaning, effect or validity of this Agreement shall be resolved in accordance with the laws of the State of California without regard to the conflict of laws provisions thereof.
b. Consultant agrees that if one or more provisions of this Agreement are held to be illegal or unenforceable, such illegal or unenforceable portion(s) shall be limited or excluded from this Agreement to the minimum extent required and the balance of the Agreement shall be interpreted as if such portion(s) were so limited or excluded and shall be enforceable in accordance with its terms.
c. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, successors and assigns; provided, however, that this Agreement and the rights and obligations hereunder are not assignable by Consultant without the Company's prior written consent.
d. Notices under this Agreement will be sufficient only if personally delivered, delivered by a major commercial rapid delivery courier service with tracking capabilities and costs prepaid or mailed by prepaid certified or registered mail, return receipt requested, to a party at its address first set below its signature to this Agreement or as amended by notice pursuant to this Section 12(d). If not received sooner, notice by mail shall be deemed received five (5) days after deposit in the U.S. mails.
e. This Agreement contains the entire understanding of the parties regarding its subject matter and supersedes all prior understandings or agreements between the parties with regard to its subject matter. This Agreement can only be modified by a subsequent written agreement executed by both parties hereto.
f. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements, in addition to any other relief to which the party may be entitled.
g. This Agreement may be signed in counterparts, each of which shall be deemed an original.
h. Consultant shall not export, re-export or otherwise remove from the United States any Proprietary Information or Company Materials, or any portion or direct product of the foregoing. This obligation shall survive any termination or expiration of this Agreement.
i. Notwithstanding anything to the contrary in this Agreement, Sections ________ and __ hereof shall survive any termination of this Agreement.
IN WITNESS WHEREOF, this Consulting Agreement is entered into on the date first set forth above.
Accepted and Agreed to:
"COMPANY" "CONSULTANT"
STAMPS.COM INC.
By: /s/ John M. Payne /s/ Loren E. Smith
------------------------------- --------------------------------------
Name: John M. Payne
-----------------------------
Title: CEO/Pres
----------------------------
|
EXHIBIT 23.2
[LETTERHEAD OF ARTHUR ANDERSEN]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement.
/s/ Arthur Andersen LLP
________________________________________
ARTHUR ANDERSEN LLP
Los Angeles, California
April 23, 1999
|
| ARTICLE 5 |
| PERIOD TYPE | YEAR | 3 MOS |
| FISCAL YEAR END | DEC 31 1998 | DEC 31 1999 |
| PERIOD START | JAN 09 1998 | JAN 01 1999 |
| PERIOD END | DEC 31 1998 | MAR 31 1999 |
| CASH | 3,470,207 | 28,523,897 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 0 | 0 |
| ALLOWANCES | 0 | 0 |
| INVENTORY | 0 | 0 |
| CURRENT ASSETS | 3,518,325 | 28,694,706 |
| PP&E | 749,995 | 1,061,161 |
| DEPRECIATION | (79,693) | (140,906) |
| TOTAL ASSETS | 4,425,819 | 29,872,252 |
| CURRENT LIABILITIES | 2,133,525 | 2,604,698 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 5,978,344 | 34,277,938 |
| COMMON | 4,601 | 4,601 |
| OTHER SE | 190,159 | 190,159 |
| TOTAL LIABILITY AND EQUITY | 4,425,819 | 29,872,252 |
| SALES | 0 | 0 |
| TOTAL REVENUES | 0 | 0 |
| CGS | 0 | 0 |
| TOTAL COSTS | 4,013,090 | 3,278,198 |
| OTHER EXPENSES | 0 | 0 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 27,624 | 33,001 |
| INCOME PRETAX | (4,028,880) | (3,276,180) |
| INCOME TAX | 0 | 0 |
| INCOME CONTINUING | (4,028,880) | (3,276,180) |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (4,028,880) | (3,276,180) |
| EPS PRIMARY | (1.22) | (0.71) |
| EPS DILUTED | (1.22) | (0.71) |