Stamps.com 2003 Annual Report Download - page 59

Table of Contents
STAMPS.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
In December 2000 the Company established a reserve of $3.3 million related to the note receivable from Mr. Payne. The reserve was
calculated as the difference between the note’s carrying value, $6.5 million, and the underlying value of the stock on December 31, 2000,
$3.2 million ($2.78 per share).
In May 2002, the Company received 1,411,000 shares of the Company’s common stock from Mr. Payne as payment in full of the
promissory note executed in November 2000. The shares were recorded at cost as treasury stock in the quarter ended June 30, 2002 for the full
value of notes receivable from Mr. Payne, net of reserve in the amount of $3.3 million ($2.33 per share) and subsequently retired in the quarter
ended September 30, 2002.
14. Employee Stock Plans
Stock Incentive Plans
The 1999 Stock Incentive Plan (the “1999 Plan”) serves as the successor to the 1998 Stock Plan (the “Predecessor Plan”). The 1999 Plan
became effective in June 1999. At that time, all outstanding options under the Predecessor Plan were transferred to the 1999 Plan, and no
further option grants can be made under the Predecessor Plan. All outstanding options under the Predecessor Plan continue to be governed by
the terms and conditions of the existing option agreements for those grants, unless the Company’s compensation committee decides to extend
one or more features of the 1999 Plan to those options.
As of December 31, 2003, the total number of shares authorized for issuance under the 1999 Plan is approximately 19,174,000, which
amount includes an automatic annual increase to the share reserve of 3% of the Company’s outstanding common shares on the last trading day
in December. The automatic increase on January 1, 2001 was 1,489,627 based upon 49,654,227 shares outstanding on the last day of 2000. The
automatic increase on January 1, 2002 was 1,521,681 based upon 50,722,713 shares outstanding on the last day of 2001. The automatic
increase on January 1, 2003 was 1,334,654 based upon 44,488,469 shares outstanding on the last day of 2002.
In no event will this annual increase exceed 1,564,715 shares. In addition, no participant in the 1999 Plan may be granted stock options or
direct stock issuances for more than 1,125,000 shares of common stock in total in any calendar year.
Options granted under the 1999 Plan generally vest 25% per year, and the Board of Directors has the discretion with respect to vesting
periods applicable to a particular grant. Each option granted has a 10 year contractual life. During 2003, 2002 and 2001, the Company issued
options to purchase 844,950, 1,730,500 and 1,557,434 shares of common stock, respectively, at prices which included approximately $0, $0
and $96,100 of a compensation element in 2003, 2002 and 2001, respectively. The total of deferred compensation is being recognized as
expense over the vesting periods of the related options and has been presented as a reduction of stockholders’ equity in the accompanying
balance sheets. The current year amortization of deferred compensation expense of $9,000 is included as a general and administrative expense.
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