Stamps.com 2004 Annual Report Download - page 20

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In January 2004, our Board of Directors declared a return of capital cash dividend of $1.75 per share to
stockholders of record as of the close of business on February 9, 2004, which was paid on February 23, 2004. Based
on 45,045,514 (22,522,757 shares after the 1:2 reverse split in May 2004) 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 paid to stockholders 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, we recognized approximately $3.1 million of compensation
expense during the first quarter of 2004 related to our return of capital dividend and its impact on our 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.
In January 2004, our Board of Directors authorized a reverse stock split proposal of our common stock,
which was approved by our stockholders at our annual meeting on April 23, 2004. Our Board of Directors was given
the authority by the stockholders 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 our Board of Directors at the time they elected to effect
the split.
In April 2004, following stockholders approval, our Board of Directors authorized a reverse stock split of
our common stock with a ratio of one-for-two (1:2), effective for all shares outstanding on May 12, 2004. As a
result, every two shares of our common stock were combined into one share. The par value of our 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. We
paid cash in lieu of fractional shares based on the market price on the effective date of the split.
In May 2004, we launched Stamps.com Version 4.0 providing customers with an improved experience for
handling postage printing problems, improved usability of NetStamps™, the addition of email notification
capabilities, and increased availability of Stamps.com Insurance.
In July 2004, we entered into an agreement with eBay Inc. (“eBay”) to settle litigation we filed against
eBay in June 2003. Under this agreement, eBay paid us a one-time settlement of approximately $1.4 million
recognized in the accompanying statement of operations as other income. In addition, we also recognized the related
litigation expenses in the amount of $1.4 million as a component of general and administrative expenses.
Furthermore, eBay agreed to a three year licensing agreement for the use of software and intellectual property
owned by Stamps.com.
In July 2004, we received authorization from the US Postal Service to proceed with a limited market test of
a new form of postage called PhotoStamps™ that couple the technology of PC Postage with the simplicity of a web-
based image up load and order process to allow consumers and businesses to order fully customized postage. In
September 2004, the USPS asked us to conclude our market test effective on October 1, 2004, to allow the USPS to
conduct a review of the results of the test run. As of the date of this report, the USPS continues to review the
PhotoStamps™ test results. There is no assurance that we will receive final approval or receive authorization for
further market tests from the USPS for this new form of postage. We concluded the market test with more than
138,000 total sheets, or 2.8 million individual PhotoStamps, ordered.
On October 22, 2004 Kara Technology Incorporated filed suit against us in the United States District Court
for the Southern District of New York, alleging, among other claims, that Stamps.com infringed certain Kara
Technology patents and that Stamps.com misappropriated trade secrets owned by Kara Technology, most
particularly with respect to our NetStamps feature. Kara Technology seeks an injunction, unspecified damages, and
attorneys’ fees. On February 9, 2005, the court granted our motion to transfer this suit to the United States District
Court for the Central District of California. We dispute Kara Technology’ s claims and intend to defend the lawsuit
vigorously.
On December 30, 2004 VCode Holdings, Inc. and VData LLC filed suit against us, as well as Adidas-
Salomon AG, Adidas America, Inc., Advanced Micro Devices, Inc., Boston Scientific Corp. and Hitachi Global