Stamps.com 2001 Annual Report Download - page 62

STAMPS.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In February 1999, a director entered into a three-year consulting agreement with the Company to provide marketing and strategic planning
services. In exchange for his consulting services, the director will receive consulting fees of $120,000 per annum and an option to purchase
135,000 shares of common stock at $0.33 per share. During 1999, a compensation element of approximately $1.4 million was calculated using
the Black-Scholes valuation model for the options earned during the period. This agreement was terminated in October 1999 upon the director's
appointment as an officer of the Company. This change in status will result in a new measurement date for the remaining unvested options. The
compensation expense resulting for the new measurement date is being recognized over the remaining vesting period.
In February 2000, John M. Payne (former Chairman of the Board, Chief Executive Officer and director) purchased 187,000 shares of the
Company's common stock on the open market for an aggregate purchase price of approximately $6.0 million. Mr. Payne purchased the shares
on margin and the margin account was secured by a pledge of 1,467,500 shares of the Company's common stock held by Mr. Payne, of which
approximately 593,750 shares are subject to repurchase by the Company. As of October 31, 2000, Mr. Payne's total indebtedness under the
margin account was approximately $6.7 million, which amount consists of the purchase price of the 187,000 shares, accrued interest on the
purchase price and other fees and indebtedness incurred by Mr. Payne, less the proceeds from his sale of the Company's common stock during
the third quarter of 2000.
In April 2000, the Company agreed to guarantee Mr. Payne's margin account in the event the value of the shares pledged was insufficient
collateral to secure the indebtedness outstanding under the margin account. The guarantee was in the form of a single-purpose line of credit
extended to Mr. Payne which would have a balance due to the Company to the extent the value of the pledged shares is insufficient collateral to
secure indebtedness outstanding under the margin account. This line of credit was secured by all of Mr. Payne's assets.
Mr. Payne agreed to sell a minimum of 100,000 shares of common stock during each fiscal quarter (beginning the third fiscal quarter of 2000)
in order to pay down the indebtedness outstanding under the margin account. Pursuant to this agreement, Mr. Payne sold 7,500 shares at a price
of $4.50 per share and 95,500 shares at a price of $4.3125 per share on August 29, 2000. Mr. Payne also sold 15,000 shares at a price of $2.94
per share on November 15, 2000 and 85,000 shares at a price of $3.02 per share on November 17, 2000. The sale of these 200,000 shares
during the third and fourth fiscal quarters resulted in aggregate repayment of indebtedness in the amount of approximately $730,000.
In November 2000, Mr. Payne executed a promissory note in favor of the Company in the amount of $6.6 million. The payment of the note was
secured by a pledge of all shares of the Company's common stock and all shares of EncrypTix, Inc. held by Mr. Payne. The entire principal
balance and all accrued and unpaid interest was due and payable on June 30, 2001. Mr. Payne is currently in default. The Company and Mr.
Payne are currently in negotiations to agree on payment terms for the amount due the Company.
The Company has established a reserve of $3,346,000 related to the note receivable from Mr. Payne. The reserve is calculated as the difference
between the note's carrying value, $6,527,000, and the underlying value of the stock on December 31, 2000, $3,181,000 (2.78 per share).
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2002. EDGAR Online, Inc.