As filed with the Securities and Exchange Commission on May 13, 1999
Delaware 5961 77-0454966
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
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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
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CALCULATION OF REGISTRATION FEE
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Amount of
Title of Each Class of Proposed Maximum Aggregate Registration
Securities to be Registered Offering Price(1) Fee(2)
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Common Stock, $.001 par value.............................. $57,500,000 $15,985
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(1) Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(o).
(2) Previously paid by the registrant in connection with the filing of the Registration Statement on April 26, 1999. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Company shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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+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. + |
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SUBJECT TO COMPLETION, DATED MAY 13, 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 6.
Per Share Total
--------- -----
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Stamps.com...................................... $ $
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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
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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
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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
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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
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As of March 31,
1999
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(unaudited)
Actual As Adjusted
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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
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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%
=== === =========== =======
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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
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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)
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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
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(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)
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(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
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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
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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% %
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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
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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..........................................................
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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........................ $ $ $
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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 31, Pro Forma
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 Period from Period from
January 9, January 9, Three January 9,
1998 (date of 1998 (date of Months 1998 (date of
inception) to inception) to Ended inception) to
December 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 Period from Period from
January 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
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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
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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 $ .
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 and Forms of Notice of Grant and Stock Option
Agreement.
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.
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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.
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** Previously filed by the registrant with the Commission.
+ Confidential treatment is requested for certain confidential portions of this exhibit pursuant to Rule 406 under the Securities Act. In accordance with Rule 406, these confidential portions have been omitted from this exhibit and filed separately with the Commission.
(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 Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Monica, State of California, on the 13th day of May 1999.
STAMPS.COM INC.
By: /s/ John M. Payne
-----------------------------------
John M. Payne
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Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the 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, May 13, 1999
____________________________________ President and Director
John M. Payne (Principal Executive
Officer)
/s/ John W. LaValle Chief Financial Officer, May 13, 1999
____________________________________ Senior Vice President of
John W. LaValle Operations and Secretary
(Principal Financial and
Accounting Officer)
Thomas H. Bruggere* Chairman of the Board of May 13, 1999
____________________________________ Directors
Thomas H. Bruggere
Mohan P. Ananda* Director May 13, 1999
____________________________________
Mohan P. Ananda
David C. Bohnett* Director May 13, 1999
____________________________________
David C. Bohnett
Jeffrey J. Brown* Director May 13, 1999
____________________________________
Jeffrey J. Brown
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II-5
Signature Title Date
--------- ----- ----
Thomas N. Clancy* Director May 13, 1999
____________________________________
Thomas N. Clancy
G. Bradford Jones* Director May 13, 1999
____________________________________
G. Bradford Jones
Marvin Runyon* Director May 13, 1999
____________________________________
Marvin Runyon
Loren E. Smith* Director May 13, 1999
____________________________________
Loren E. Smith
|
* Power of Attorney
By:
/s/ John W. LaValle ---------------------------- John W. LaValle |
Attorney-in-fact
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 & Harrison LLP.
10.1** Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.
10.2** Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.
10.3** Patent Assignment from Mohan P. Ananda to the Registrant dated January
20, 1998.
10.4** Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.
10.5** Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.
10.6** Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.
10.7 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.
10.8** 1999 Stock Incentive Plan.
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.
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* To be filed by amendment.
** Previously filed by the registrant with the Commission.
+ Confidential treatment is requested for certain confidential portions of this exhibit pursuant to Rule 406 under the Securities Act. In accordance with Rule 406, these confidential portions have been omitted from this
exhibit and filed separately with the Commission.
EXHIBIT 10.7
STAMPS.COM INC.
1998 STOCK PLAN
(AS AMENDED AND RESTATED ON FEBRUARY 10, 1999 AND APRIL 22, 1999)
(ii) If the Common Stock is quoted on the Nasdaq System (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
respect to such exercise shall be treated as not issued and shall continue to be available under the Plan. Shares repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan.
(i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights or any combination thereof may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights;
(x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; and
(xi) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options or Stock Purchase Rights to participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs.
(c) The Plan shall not confer upon the holder of any Option or Stock Purchase Right any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with such holder's right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause.
(a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board and set forth in the applicable agreement, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of such Option, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note (subject to the provisions of Section 153 of the Delaware General Corporation Law), (4) other Shares that (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender or such other period as may be required to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) authorization for the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market Value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised, (6) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable income or employment taxes, (7) delivery of an irrevocable subscription agreement for the Shares that irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (8) any combination of the foregoing methods of payment, or (9) such other consideration and method of payment for the issuance of Shares to the extent permitted under the Applicable Laws. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.
and/or performance criteria with respect to the Company and/or the Optionee; provided, however, that such Option shall become exercisable at the rate of at least 20% per year over five years from the date the Option is granted. In the event that any of the Shares issued upon exercise of an Option should be subject to a right of repurchase in the Company's favor, such repurchase right shall lapse at the rate of at least 20% per year over five years from the date the Option is granted. Notwithstanding the above, in the case of an Option granted to an officer, director or Consultant of the Company or any Parent or Subsidiary of the Company, the Option may become fully exercisable, and a repurchase right, if any, in favor of the Company shall lapse, at any time or during any period established by the Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), such Optionee may, but only within twelve months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), such Optionee may, but only within six months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option (within the meaning of Section 422 of
the Code) within three months of the date of such termination, the Option will
not qualify for Incentive Stock Option treatment under the Code. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within six months from the date of termination, the Option shall
terminate.
Any surrender by a Reporting Person of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular Shares of the Option or Stock Purchase Right as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of the Administrator.
In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option or Stock Purchase Right is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date.
reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right.
(c) On February 10, 1999, the Board amended the Plan to increase the number of Shares reserved for issuance under the Plan by 1,000,000 Shares. No Options shall be granted, and no Stock Purchase Rights shall be issued, on the basis of the 1,000,000-Share increase approved by the Board on February 10, 1999, unless and until such Share increase is approved by the stockholders prior to February 10, 2000. Should stockholder approval not be obtained by such date, then such Share increase shall not be implemented. Subject to the foregoing limitations, the Administrator may make option grants under the Plan at any time before the date fixed herein for the termination of the Plan.
As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law.
STAMPS.COM INC.
1998 STOCK PLAN
Date of Grant: GrantDate
Vesting Commencement Date: VestingCommenceDate
Exercise Price Per Share: $ExercisePrice
Total Number of Shares Granted: NoofShares
Total Exercise Price: $TotalExercisePrice
Type of Option: NoSharesISO Incentive Stock Option ("ISO")
----------- ---
NoSharesNSO Nonstatutory Stock Option ("NSO")
----------- ---
Term/Expiration Date: ExpirDate
Vesting Schedule: This Option may be exercised, in whole or in part,
in accordance with the following schedule:
25% of the Shares subject to the Option shall vest
twelve months after the Vesting Commencment
Date, and 1/48th of the Shares subject to the Option
shall vest each month thereafter.
|
Termination Period: This Option may be exercised for 60 days after
termination of employment or consulting
relationship except as set out in Sections 6 and 7 of
the Stock Option Agreement (but in no event later
than the Expiration Date).
|
By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the 1998 Stock Plan and the Stock Option Agreement, both of which are attached and made a part of this document.
Optionee Stamps.com Inc.
By:
-------------------------------- ----------------------------------
Signature
-------------------------------- ----------------------------------
Print Name Print Name and Title
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STAMPS.COM INC.
1998 STOCK PLAN
If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code.
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other termination of employment or consulting relationship, the exercisability of the Option is governed by Sections 5, 6 and 7 below, subject to the limitation contained in Section 2(a)(iv) below.
(iv) In no event may this Option be exercised after the Expiration Date of this Option as set forth in the Notice of Stock Option Grant.
No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares.
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than 6 months on the date of surrender, and
(ii) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised;
(d) if there is a public market for the Shares and they are registered under the Exchange Act, delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the Exercise Price; or
(a) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant and in Section 9 below), exercise this Option to the extent he or she was entitled to exercise it at such Termination Date. To the extent that Optionee was not entitled to exercise the Option on the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event
of termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of a disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant and in Section 9
below), exercise the Option to the extent Optionee was entitled to exercise it
as of such Termination Date; provided, however, that if this is an Incentive
Stock Option and Optionee fails to exercise this Incentive Stock Option within
three months from the Termination Date, this Option will cease to qualify as an
Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will
be treated for federal income tax purposes as having received ordinary income at
the time of such exercise in an amount generally measured by the difference
between the Exercise Price for the Shares and the Fair Market Value of the
Shares on the date of exercise. To the extent that Optionee was not entitled to
exercise the Option at the Termination Date, or if Optionee does not exercise
such Option to the extent so entitled within the time specified in this Section
6(b), the Option shall terminate.
disposition of the Shares under the laws in effect as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
All elections by Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of the Administrator.
underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering.
[Signature Page Follows]
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one document.
STAMPS.COM INC.
2900 31st Street, Suite 150
Santa Monica, California 90405
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option.
Dated:
-------------------- ------------------------------
Optionee
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ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby made a part of, that certain Stock Option Agreement (the "Option Agreement") dated _________________, 199___ by and between Stamps.com Inc. (the "Corporation") and ________________________ ("Optionee") evidencing the stock option (the "Option") granted on that date to Optionee under the Corporation's 1998 Stock Plan, and such provisions shall be effective as of the Effective Date specified below. All capitalized terms in this Addendum, to the extent not otherwise defined herein, shall have the meanings assigned to them in the Option Agreement.
SPECIAL CHANGE IN CONTROL PROVISIONS
1. Subject to the limitations of Paragraph 2 below, the following provisions shall become applicable upon the occurrence of a Change in Control prior to the Optionee's cessation of Service:
(a) If the Optionee has completed at least one year of Service prior to the effective date of the Change in Control, then the Option, to the extent outstanding at the time of that Change in Control but not otherwise fully exercisable, shall automatically accelerate so that the Option shall, immediately prior to the specified effective date of such Change in Control, become exercisable for all of the shares at the time subject to the Option and may be exercised for any or all of those shares as fully-vested shares.
(b) If the Optionee has not completed at least one year of Service prior to the effective date of the Change in Control, then the Option, to the extent outstanding at the time of that Change in Control but not otherwise fully exercisable, shall automatically accelerate as to only a portion of the shares so that the Option shall, immediately prior to the specified effective date of such Change in Control, become exercisable on an accelerated basis for that number of shares for which the Option would have otherwise become exercisable, in accordance with the normal vesting schedule in effect for the option shares, during the period of Service to be rendered between the effective date of the Change in Control and the second anniversary of the grant date of the Option.
2. The Option shall not become exercisable in whole or in part on such an accelerated basis if and to the extent: (i) the Option is, in connection with the Change in Control, to be assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the express terms of the Change in Control transaction or (ii) the Option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Change in Control on any shares for which the Option is not otherwiseat that time exercisable (the fair market value of those shares at the time of the Change
of Control less the option exercise price payable for the shares) and provides for subsequent payout in accordance with the same exercise/vesting schedule applicable to those option shares.
3. Immediately following the Change in Control, the Option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in effect pursuant to the express terms of the Change in Control transaction.
5. The Option, as assumed by the successor corporation (or its parent company) in the Change in Control or otherwise continued in effect, shall continue to become exercisable for the option shares in one or more installments over the Optionee's period of Service in accordance with the vesting schedule in effect for the Option at the time of the Change in Control. However, upon an Involuntary Termination of Optionee's Service within eighteen (18) months following a Change in Control in which the Option is assumed or otherwise continued in effect, the Option, to the extent outstanding at such time but not otherwise fully exercisable, shall automatically accelerate so that such Option shall immediately become exercisable for all of the shares at the time subject to the Option and may be exercised for any or all of those shares as fully- vested shares. The Option shall remain so exercisable until the Expiration Date or sooner termination of the option term. Any cash escrow maintained on Optionee's behalf pursuant to Paragraph 2 shall also vest immediately upon such an Involuntary Termination and shall be paid to Optionee as soon as practicable thereafter.
6. For purposes of this Addendum, the following definitions shall be in effect:
A Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:
(a) 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 merger or consolidation, or
(b) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in liquidation or dissolution of the Corporation, or
(c) the acquisition 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 Securities Exchange Act of 1934)) 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.
An Involuntary Termination shall mean the termination of Optionee's service as an employee or consultant by reason of:
(a) Optionee's involuntary dismissal or discharge by the Corporation for reasons other than for Misconduct, or
(b) Optionee's voluntary resignation following (A) a change in Optionee's position with the Corporation (or any parent or subsidiary employing Optionee) which materially reduces Optionee's duties and responsibilities or the level of management to which he or she reports, (B) a reduction in Optionee's level of compensation (including base salary, fringe benefits and target bonuses under any corporate-performance based incentive programs) by more than fifteen percent (15%) or (C) a relocation of Optionee'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 Optionee's consent.
Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any parent or subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any parent or subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any parent or subsidiary) may consider as grounds for the dismissal or discharge of Optionee or any other person in the employ or service of the Corporation (or any parent or subsidiary).
Service shall mean the Optionee's performance of services for the Corporation (or any parent or majority-owned subsidiary) person in the capacity of an employee, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance, a non-employee member of the board of directors or a consultant or other independent advisor.
7. The provisions of this Addendum shall also supersede any provisions to the contrary in the Option Agreement.
IN WITNESS WHEREOF, Stamps.com Inc. has caused this Addendum to be executed by its duly-authorized officer as of the Effective Date specified below.
STAMPS.COM INC.
By: ____________________________
Title: ____________________________
EFFECTIVE DATE: ____________________, 1999
STAMPS.COM INC.
1998 STOCK PLAN
(a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
The parties have executed this Agreement as of the date first set forth above.
COMPANY:
STAMPS.COM INC.
PURCHASER:
Optionee
Address:
$ __________, California
----------
_______________, 19__
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If the undersigned's employment or consulting relationship with the Company is terminated prior to payment in full of this Note, this Note shall be immediately due and payable.
Principal and interest are payable in lawful money of the United States of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum as the Court may deem reasonable shall be added hereto as attorneys' fees. The makers and endorsers have severally waived presentment for payment, protest notice of protest and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares of Common Stock of the Company and is subject to the terms of a Pledge and Security Agreement between the undersigned and the Company of even date herewith.
In consideration of the Company's acceptance of the Note as full or partial payment of the exercise price of the Shares, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. The Note shall become payable in full upon the voluntary or involuntary termination or cessation of employment of Purchaser with the Company, for any reason, with or without cause (including death or disability).
5. In the event of any foreclosure of the security interest created by this Agreement, the Company may sell the Shares at a private sale or may repurchase the Shares itself. The parties agree that, prior to the establishment of a public market for the Shares of the Company, the securities laws affecting sale of the Shares make a public sale of the Shares commercially unreasonable. The parties further agree that the repurchasing of such Shares by the Company, or by any person to whom the Company may have assigned its rights under this Agreement, is commercially reasonable if made at a price determined by the Board of Directors in its discretion, fairly exercised, representing what would be the fair market value of the Shares reduced by any limitation on transferability, whether due to the size of the block of shares or the restrictions of applicable securities laws.
6. In the event of default in payment when due of any indebtedness under the Note, the Company may elect then, or at any time thereafter, to exercise all rights available to a secured party under the California Commercial Code including the right to sell the Collateral at a private or public sale or repurchase the Shares as provided above. The proceeds of any sale shall be applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all reasonable expenses of the Company in enforcing this Agreement and the Note, including, without limitation, reasonable attorney's fees and legal expenses incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
The parties have executed this Pledge and Security Agreement as of the date first set forth above.
COMPANY:
STAMPS.COM INC.
Address:
PURCHASER:
Optionee
Address:
Dated: ____________
Signature:
Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to perfect the security interest of the Company pursuant to the Agreement.
The undersigned hereby acknowledges receipt of Certificate No. _____ for __________ shares of Common Stock of Stamps.com Inc..
Dated: _______________
The undersigned further acknowledges that the Secretary of the Company, or his or her designee, is acting as Pledge Holder pursuant to the Pledge and Security Agreement Purchaser has previously entered into with the Company. As Pledge Holder, the Secretary of the Company, or his or her designee, holds the original of the aforementioned certificate issued in the undersigned's name.
Dated: _______________
Optionee
_____ A check in the amount of $__________
_____ The cancellation of indebtedness in the amount of $__________
_____ Certificate No. ____ representing ______ shares of the Company's
Common Stock with a fair market value of $__________
_____ A promissory note in the amount of $__________.
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given by Optionee as consideration for Certificate No. ______ for ___________ shares of Common Stock of the Company.
Dated: ______________
STAMPS.COM INC.
Title:
EXHIBIT 10.12
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS ENCLOSED BY BRACKETS AND UNDERLINED. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
by and between
AMERICA ONLINE, INC.
and
STAMPS.COM INC.
Dated
December 16, 1998
-----------------------------------------------------------------------------------------------
Advertiser Advertising Agency
-----------------------------------------------------------------------------------------------
Contact Person Doug Walner
-----------------------------------------------------------------------------------------------
Company Name Stamps.com, Inc.
-----------------------------------------------------------------------------------------------
Address - Line 1 2900 31st St., Suite 150
-----------------------------------------------------------------------------------------------
Address - Line 2 Santa Monica, CA 90405
-----------------------------------------------------------------------------------------------
Phone # 310-450-1444
-----------------------------------------------------------------------------------------------
Fax #
-----------------------------------------------------------------------------------------------
Email Dwalner@stamps.com
-----------------------------------------------------------------------------------------------
SIC Code
-----------------------------------------------------------------------------------------------
Advertiser IAB Category
-----------------------------------------------------------------------------------------------
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-----------------------------------------------------------------------------------------------
Billing Information
-----------------------------------------------------------------------------------------------
Send Invoices to (choose one): Advertiser [_] Agency
-----------------------------------------------------------------------------------------------
Advertiser or Agency Billing Same as above
Contact Person
-----------------------------------------------------------------------------------------------
Company Name
-----------------------------------------------------------------------------------------------
Billing Address - Line 1
-----------------------------------------------------------------------------------------------
Billing Address - Line 2
-----------------------------------------------------------------------------------------------
Billing Phone #
-----------------------------------------------------------------------------------------------
Billing Fax #
-----------------------------------------------------------------------------------------------
Billing Email Address
-----------------------------------------------------------------------------------------------
P.O. #, if applicable
-----------------------------------------------------------------------------------------------
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1. Guaranteed Payments. Advertiser shall make the following payments to AOL:
2. Additional Payments. See Sections 3 and 8 of Exhibit A, and Section 9 of Exhibit E attached hereto.
--------------------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
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---------------------------------------------------------------------------------------------------------------------------------
AOL Service
---------------------------------------------------------------------------------------------------------------------------------
Inventory
---------------------------------------------------------------------------------------------------------------------------------
Display
AOL Inventory/Demographic* Display Stop # of Ad Slots Total Gross Total
Purchased Start Date Date Ad Type Purchased Price Impressions
---------------------------------------------------------------------------------------------------------------------------------
PHASE I PROMOTIONS
---------------------------------------------------------------------------------------------------------------------------------
Run of E-mail: Zip Code Area 1 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
Run of E-mail: Zip Code Area 2 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
Run of E-mail: Zip Code Area 3 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
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Run of Service: Zip Code Area 1 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
Run of Service: Zip Code Area 2 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
Run of Service: Zip Code Area 3 [***] [***] Banner Rotation [***] [***]
--- --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
Computing Download Software: Zip [***] [***] Banner Rotation [***] [***]
Code Targeted --- --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
PHASE II PROMOTIONS [***] [***]
See Exhibit B attached hereto --- ---
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---------------------------------------------------------------------------------------------------------------------------------
* Attach completed AOL Demographic Phase I [***] [***]
Profile Worksheet Promotions Total: --- ---
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Art
---------------------------------------------------------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
[_] 234x60 IAB Standard /10k Max [_] 145x30 Old Standard /10k Max [_] 120x60 Shopping/10k Max
[_] 175x45 Chat/Mail in-box/10k Max [_] 197x40 PF Area/10k Max [_] Special
------------------
* Static banners only, no animation*
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Linking URL: The HTTP/URL address to be connected to the Advertisement shall be:
http://www.stamps.com, or any other HTTP/URL agreed upon by Advertiser and AOL
(the "Affiliated Advertiser Site"). Advertiser shall be responsible for any
hosting or communication costs associated with the Affiliated Advertiser Site.
Please send artwork and URL to (choose one):
----------------------------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
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------------------------------------------------------------------------------------------------------------------------------------
AOL Affiliate (e.g., AOL.com)
------------------------------------------------------------------------------------------------------------------------------------
Inventory
------------------------------------------------------------------------------------------------------------------------------------
AOL Affiliate
Inventory/Demographic* Display Start Display Stop # of Ad Slots Total
Purchased Date Date Ad Type Purchased Total Gross Price Impressions
------------------------------------------------------------------------------------------------------------------------------------
PHASE I PROMOTIONS
------------------------------------------------------------------------------------------------------------------------------------
Digital City -
Market Selection [***] [***] Banner Rotation [***] [***]
--- --- --- ---
------------------------------------------------------------------------------------------------------------------------------------
PHASE II PROMOTIONS [***] [***]
See Exhibit B attached hereto --- ---
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* See attached package description for ------------------------------------------------------
any AOL.com package purchases PHASE I [***] [***]
PROMOTIONS --- ---
TOTAL :
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Art
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All necessary artwork and active URL's must be provided by
advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
[_] 468x60 NF Reviews, Search Terms, My News & Hometown/10k Max/animation OK
[_] 100x70 AOL.com Home Page/3k Max/No animation [_] 234x60 NF Kids Only & Hometown/5k Max/animation OK
[_] 120x60 NF Home Page/2k Max/No animation [_] 120x60 Instant Messenger/7.5k Max/animation OK
[_] 120x60 Shopping/4k Max/No animation
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Linking URL: The HTTP/URL address to be connected to the Advertisement shall be the same address as that of the Advertiser Site.
Please send artwork and URL to (choose one):
--------------------------------------------------------------------------------
Advertising Purchase Summary
--------------------------------------------------------------------------------
Total Price Total Impessions CPM
--------------------------------------------------------------------------------
AOL Networks [***] [***]
--- ---
--------------------------------------------------------------------------------
AOL Affiliate [***] [***]
--- ---
--------------------------------------------------------------------------------
Total Purchase Price [***] [***] [***]
--- --- ---
--------------------------------------------------------------------------------
(Less Agency Discount) N/A N/A
--------------------------------------------------------------------------------
-----------------------------------------------------
Net Purchase Price Total Impressions
-----------------------------------------------------
[***] [***]
--- ---
-----------------------------------------------------
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The products and/or services to be offered or promoted by Advertiser in the Advertisements are as follows: online postal services (i.e., services associated with the online sale of postage stamps and ancillary products and services related thereto) (the "Advertiser Products").
-------------------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
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AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order Agreement, their duly authorized representatives have signed their names below on the dates indicated. This Agreement (including Exhibits A, B, C, D and E attached hereto and incorporated by reference) shall be binding on both parties when signed on behalf of each party and delivered to the other party (which delivery may be accomplished by facsimile transmission of the signature pages hereto).
AOL ADVERTISER
By: /S/ David M. Colburn By: /S/ John M. Payne
----------------------------- ------------------------------
(signature) (signature)
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Print Name: David M. Colburn Print Name: John M. Payne
--------------------- ----------------------
Title: SVP Business Affairs Title: Pres/CEO
-------------------------- ---------------------------
(Print or Type) (Print or Type)
Date: 12/16/98 Date: 12/15/98
-------------------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
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a. At least three (3) days prior to the Phase I Promotions Display Stop Date, Advertiser shall provide AOL with a written notice which shall contain the following:
ii. Advertiser shall submit the relevant Insertion Order to AOL at least five (5) days prior to the date on which Advertiser wishes to begin receiving impressions; and
iii. AOL's obligation to deliver any additional impressions pursuant to this Section 3 shall be subject to the availability of advertising inventory on the AOL Service from which AOL can deliver such additional impressions.
Section 3(a)(i), (ii) and (iii).
---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
|
---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
|
---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
|
PHASE II PROMOTIONS
-------------------------------------------------------------------------------------------------------------------
Impressions Percent of Average CPM Total Cost
Carriage
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Level A -- Highly Targeted [***] [***] [***] [***]
--- --- --- ---
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Level B - Targeted [***] [***] [***] [***]
--- --- --- ---
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Level C -- Relevant Broad Reach [***] [***] [***] [***]
--- --- --- ---
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Campaign Promotion: Stamp Days [***] [***] [***] [***]
--- --- --- ---
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Total Campaign [***] [***] [***] [***]
--- --- --- ---
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Level A Promotions Type of Promotion
------------------ -----------------
AOL Network
[***] [***]
--- ---
AOL.com
[***]
---
CompuServe
----------
[***] [***]
--- ---
Level B Areas
-------------
AOL.com
[***] [***]
--- ---
Digital City
[***] [***]
--- ---
Level C Areas
-------------
AOL Network
[***] [***]
--- ---
AOL.com
[***] [***]
--- ---
---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
|
---------------
[***] Confidential treatment has been requested for the bracketed portions.
The confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
|
registered trademark of Advertiser. AOL reserves the right to revoke at any time Advertiser's use of any AOL Keyword Terms which do not incorporate registered trademarks of Advertiser. Advertiser acknowledges that its utilization of any AOL Keyword Term will not create in it, nor will it represent it has, any right, title or interest in or to such AOL Keyword Term, other than the right, title and interest Advertiser holds in Advertiser's registered trademark independent of the AOL Keyword Term.
6. Each party acknowledges that Confidential Information may be disclosed to the other party during the course of this Insertion Order Agreement. Each party agrees that it will take reasonable steps, at least substantially equivalent to the steps it takes to protect its own proprietary information, during the term of this Insertion Order Agreement, and for a period of three years following expiration or termination of this Insertion Order Agreement, to prevent the duplication or disclosure of Confidential Information of the other party, other than by or to its employees or agents who must have access to such Confidential Information to perform such party's obligations hereunder, who will each agree to comply with this Section 6. Notwithstanding the foregoing, either party may issue a press release or other disclosure containing Confidential Information without the consent of the other party, to the extent such press release or disclosure is required by law, rule, regulation or government or court order. In such event, the disclosing party will provide at least five (5) business days prior written notice of such proposed disclosure to the other party. Further, in the event such disclosure is required of either party under the laws, rules or regulations of the Securities and Exchange Commission or any other applicable governing body, such party will (i) redact mutually agreed-upon portions of this Insertion Order Agreement to the fullest extent permitted under applicable laws, rules and regulations and (ii) submit a request to such governing body that such portions and other provisions of this Insertion Order Agreement receive confidential treatment under the laws, rules and regulations of the Securities and Exchange Commission or otherwise be held in the strictest confidence to the fullest extent permitted under the laws, rules or regulations of any other applicable governing body. For the purposes hereof, "Confidential Information" shall mean any information relating to or disclosed in the course of the Insertion Order Agreement, which is or should be reasonably understood to be confidential or proprietary to the disclosing party, including, but not limited to, the material terms of this Insertion Order Agreement, information about AOL users, technical processes and formulas, source codes, product designs, sales, cost and other unpublished financial information, product and business plans, projections, and marketing data. "Confidential Information" will not include information (a) already lawfully known to the receiving party and which the receiving party has a reasonable basis to believe it may use or disclose without restriction, (b) independently developed by the receiving party, (c) disclosed in published materials except as disclosed by the receiving party in breach of this Section 6, (d) generally known to the public except as disclosed by the receiving party in breach of this Section 6, or (e) lawfully obtained from any third party without restriction.
distributors, franchises and employees of AOL from and against all claims,
actions, liabilities, losses, expenses, damages and costs (including,
without limitation, reasonable attorneys' fees) that may at any time be
incurred by any of them by reason of any claims, suits or proceedings to the
extent such claims, suits or proceedings arise out of or are related to: (a)
third party claims (1) for libel, defamation, violation of right of privacy
or publicity, copyright infringement, trademark infringement or other
infringement of any third party right, fraud, false advertising,
misrepresentation, product liability or violation of any law, statute,
ordinance, rule or regulation throughout the world in connection with the
Advertisements or Advertiser Content provided by Advertiser to AOL hereunder
or in connection with the Advertiser Software distributed by AOL hereunder
(collectively referred to as the "Advertiser Rights Violations"); provided,
however, that Advertiser shall have no such indemnification obligation to
the extent that any alleged Advertiser Rights Violation arises from or in
connection with any (x) modification or other alteration of any
Advertisement or Advertiser Content provided to AOL by Advertiser hereunder,
without Advertiser's prior approval, (y) (i) use of any Advertisement or
Advertising Content other than in a manner specified hereunder or authorized
by Advertiser (ii) claim based upon the combination of the Advertisement,
the Advertising Content, or the Advertiser Software with other content,
software technology or materials which Advertiser has not approved, or (z)
(i) any Advertiser Software that has been modified by AOL without the prior
consent of Advertiser, (ii) use of the Advertiser Software by AOL in a
manner which is beyond the scope of the license granted to it by Advertiser
pursuant to Exhibit E, (iii) AOL's use of the Advertiser Software after
notice from Advertiser of infringement or misappropriation ((i) (ii) and
(iii) collectively the "Advertiser Software Exceptions"); (2) any material
breach by Advertiser of any duty, representation or warranty under this
Insertion Order Agreement; or (3) any contaminated file, virus, worm or
Trojan horse originating solely from the Advertisements or Advertiser
Content, or (4) solely arising out of or in connection with the ability of
the Advertiser Software distributed by AOL hereunder to process calendar
date values, including but not limited to, calendar date values from January
1, 1999 through or beyond January 1, 2000, and in processing such calendar
values, to operate in accordance with the procured system documentation or
whether any or all data fields for calendar date values and data are four
digit fields capable of indicating century and millennium or addressing leap
years correctly, and (b) any contaminated file, virus, worm or Trojan horse
originating solely from the Advertisements or Advertiser Content.
limitation, by way of merger or consolidation) shall be subject to AOL's prior written approval. Subject to the foregoing, this Insertion Order Agreement shall be fully binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In the event that any provision of this Insertion Order Agreement is held invalid by a court with jurisdiction over the Parties to this Insertion Order Agreement, (i) such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law and (ii) the remaining terms, provisions, covenants and restrictions of this Insertion Order Agreement shall remain in full force and effect. Both parties shall adhere to all applicable laws, regulations and rules relating to the export of technical data and shall not export or re-export any technical data, any products received from the other party or the direct product of such technical data to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized. This Insertion Order Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Except with respect to any claims brought by Advertiser in connection with Exhibit E or with respect to the AOL Promos, this Insertion Order Agreement shall be interpreted, construed and enforced in all respects in accordance with the laws of the Commonwealth of Virginia, except for its conflicts of laws principles. Except as otherwise provided herein, Advertiser hereby irrevocably consents to the exclusive jurisdiction of the courts of the Commonwealth of Virginia and the federal courts situated in the Commonwealth of Virginia in connection with any action arising under this Insertion Order Agreement. With respect to any claims brought by Advertiser in connection with Exhibit E or with respect to the AOL Promos, such claims will be interpreted and enforced in accordance with the laws of the State of California and AOL hereby consents to the exclusive jurisdiction of the courts of the State of California and the federal courts situated in the State of California in connection with any claim brought by Advertiser in connection with Exhibit E or with respect to the AOL Promos.
Complying Product prior to commercial production or public release by
AOL under this Agreement. AOL shall, in its discretion (but based
upon commercially reasonable factors (including without limitation a
change of control of Advertiser, or technical or operational problems
or incompatibilities), provide notice of approval or rejection within
fifteen (15) business days of receiving certification from the
Authorized Testing Service that such product is a Complying Product
together with a copy of the Complying Product.
-----------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
15
|
AOL shall have no obligation to distribute any copy of the Advertiser
Software that has not first obtained release approval from AOL. The
parties may negotiate in good faith to cure any circumstance or issue
causing AOL to so reject, provided that if AOL does not approve
release pursuant to this Section 5(iii), then AOL shall refund to
Advertiser any payments made by Advertiser to AOL pursuant to Section
9(i) of this Exhibit E.
|
----------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with
the Securities and Exchange Commission.
|
10. Auditing Rights. Advertiser will maintain complete, clear and accurate
records of all expenses, revenues and fees in connection with the
performance of this Insertion Order Agreement, including reports which
indicate the number of customers acquired as a result of the distribution of
the Advertiser Software by AOL, and the number of such customers which
become Commerce Customers . For the sole purpose of ensuring compliance
with Section 9(ii) of this Insertion Order Agreement, AOL (or its
representative) will have the right to conduct a reasonable and necessary
inspection of portions of the books and records of Advertiser which are
relevant to Advertiser's performance pursuant to this Insertion Order
Agreement. Any such audit may be conducted after twenty (20) business days
prior written notice to Advertiser. AOL shall bear the expense of any audit
conducted pursuant to this Section 9 unless such audit shows an error in
AOL's favor amounting to a deficiency to AOL in excess of five percent (5%)
of the actual amounts paid and/or payable to AOL hereunder, in which event
Advertiser shall bear the reasonable expenses of the audit. Advertiser
shall pay AOL the amount of any deficiency discovered by AOL within thirty
(30) days after receipt of notice thereof from AOL. This provision shall
survive the termination or expiration of this Insertion Order Agreement for
an additional three year period.
[***]
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement.
/s/ Arthur Andersen LLP
________________________________________
ARTHUR ANDERSEN LLP
Los Angeles, California
May 12, 1999
|