Stamps.com 2004 Annual Report Download - page 51

F-16
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS (continued)
9. Commitments and Contingencies
Operating Leases
The following is a schedule of future minimum lease payments under operating leases at December 31,
2004 (in thousands):
Operating
Years ended:
2005....................................................................................... $ 607
2006....................................................................................... 632
2007....................................................................................... 694
2008....................................................................................... 751
2009....................................................................................... 794
Thereafter.............................................................................. 134
$3,612
Total rent expense from operations for the years ended December 31, 2004, 2003 and 2002 were $1.1
million, $935,000, and $796,000, respectively.
In November 2003, we entered into a facility lease agreement commencing on March 2004 for our new
corporate headquarters with aggregate lease payments of approximately $4.0 million through February 2010. As of
December 31, 2004, the Company maintained a letter of credit for the facility lease in the amount of $554,000.
10. Return of Capital
In January 2004, the Board of Directors declared a return of capital cash dividend of $1.75 per share to
shareholders of record as of the close of business on February 9, 2004, paid on February 23, 2004. Based on
45,045,514 (22,522,757 shares after the 1:2 reverse split, see Note 11) common shares outstanding, less treasury
stock of approximately 648,000 (324,000 shares after the 1:2 reverse split) on the date of record, February 9, 2004,
the total cash dividend was approximately $78 million.
As a result of the cash distribution relating to the return of capital cash dividend and pursuant to FASB
Interpretation No. 44, the exercise price of all active employee stock options prior to the ex-dividend date was
reduced. Outstanding options with a strike price greater than or equal to the fair market value (“FMV”) of the stock
immediately prior to the ex-dividend date received a strike price reduction equal to the cash distribution, or $1.75
per share. For outstanding options with a strike price below the FMV immediately prior to the ex-dividend date, the
reduction was such that the aggregate intrinsic value of the options was not increased, and the ratio of exercise price
to market price per share was not reduced. In addition, the Company recognized approximately $3 million of
compensation expense during the first quarter of 2004 related to the return of capital dividend and its impact on the
Company’ s employee stock options. This expense was allocated among cost of sales, sales and marketing, research
and development and general and administrative categories, based on individual employee costs and positions.
11. Reverse Split
In January 2004, the Board of Directors authorized a reverse stock split proposal of the Company’ s
common stock, which was approved by the shareholders at the annual meeting on April 23, 2004. The Board of
Directors was given the authority by the shareholders to select the exact exchange ratio of either one-for-two (1:2),
one-for-three (1:3) or one-for-four (1:4), with the exact ratio to be determined by the Board of Directors at the time
it elected to effect the split. The par value of the Company’ s common stock would remain unchanged at $0.001 per
share, and the number of authorized shares of common stock and preferred stock would be reduced proportionately,
by the reverse split ratio, from 95,000,000 and 5,000,000, respectively. In April 2004, following shareholder
approval, the Board of Directors authorized a reverse stock split of the Company’ s common stock with a ratio of
one-for-two (1:2), effective for all shares beginning on May 12, 2004. As a result, every 2 shares of the Company’ s
common stock were combined into one share. The Company paid cash in lieu of fractional shares. All share amounts
have been retroactively adjusted to reflect the reverse split.