Stamps.com 2004 Annual Report Download - page 9

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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. This re-
pricing resulted in a loss of value for some employee stock options. As a result, we recognized approximately $3.1
million of compensation expense during the first quarter of 2004 related to compensation paid to employees for the
lost value in employee stock options.
In January 2004, our Board of Directors authorized a reverse stock split proposal of our common stock,
which was approved by our shareholders at our annual meeting on April 23, 2004. Our 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 our Board of Directors at the time they elected to effect
the split.
In April 2004, following stockholder approval at the April 23 annual meeting, the 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
beginning on May 12, 2004. As a result, every two shares of our common stock were combined into one share.
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 filed by Stamps.com
in June 2003. Under this agreement, eBay paid us a one-time settlement amount of approximately $1.4 million. In
addition, we recognized 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 USPS 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
upload 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 limited market test results. We concluded the market test with more than 138,000 total sheets, or 2.8 million
individual PhotoStamps™, ordered. 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
for the new form of postage.
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
Storage Technologies (Thailand), Ltd., in the United States District Court for the District of Minnesota. The
complaint alleges infringement of a patent allegedly covering use of data matrices and seeks an injunction,
unspecified damages, and attorneys’ fees. We dispute the plaintiffs’ claims and intend to defend the lawsuit
vigorously.
On January 31, 2005, Craig Ogg, our VP of R&D, resigned from the Company in order to pursue other
endeavors. Immediately following that event, JP Leon, our VP of Advanced Technology, assumed the leadership
role for the R&D team.
Employees
As of December 31, 2004 we had 120 employees not including temporary or contract workers. Our
employees work in various departments including customer support, research and development, sales and marketing,
information technology and general administration. None of our employees are represented by a labor union. We
believe that our relationship with our employees is good.