Stamps.com 2012 Annual Report Download - page 20

We have employees and offer our services in multiple states, and we may in the future expand internationally. These jurisdictions may claim that
we are required to qualify to do business as a foreign corporation in each state or foreign country. Our failure to qualify as a foreign corporation
in a jurisdiction where we are required to do so could subject us to taxes and penalties. Other states and foreign countries may also attempt to
regulate our services or prosecute us for violations of their laws. States are aggressively pursuing Internet business for various taxes and the
obligation to pay any of such taxes may result in serious harm to our financial condition.
Risks Related to Our Stock
The tax value of our net operating losses could be impaired if we trigger a change of control pursuant to Section 382 of the Internal
Revenue Code.
We currently have federal and state NOL carry-
forwards of approximately $210 million and $100 million, respectively, which when combined
with our other tax credits and tax assets has a potential value of up to $72 million in tax savings over the next 19 years. Under Internal Revenue
Code Section 382 rules, if a “change of ownership”
is triggered, our NOL asset may be impaired. A change in ownership can occur whenever
there is a shift in ownership by more than 50 percentage points by one or more “5% shareholders” within a three-
year period. We estimate that as
of December 31, 2012 we were at approximately a 22% level compared with the 50% level that would trigger impairment of our NOL asset.
Under our certificate of incorporation, any person or entity, including company or investment firm, that wishes to become a “
5%
shareholder” (
as defined in our certificate of incorporation) must first obtain a waiver from our board of directors. In addition any person or
entity, including any company or investment firm, that is already a “5% shareholder”
of ours cannot make any additional purchases of our stock
without a waiver from our board of directors. These NOL Protective Measures are more particularly discussed in our Definitive Proxy
Statement filed with the SEC on April 2, 2008.
On July 22, 2010, our Board of Directors suspended the NOL Protective Measures by approving a waiver from the NOL Protective Measures to
all persons and entities, including companies and investment firms. As a result, as of the date of filing of this Annual Report on Form 10-
K, our
stockholders are now allowed to become “5% shareholders” and existing “5% shareholders”
are allowed to make additional purchases of our
stock each without having to comply with the restrictions contained in the NOL Protective Measures. This waiver may be revoked by our Board
of Directors at any time if the Board deems the revocation necessary to protect against a Section 382 “change of ownership”
that would limit our
ability to utilize future NOLs. For complete details about this waiver from the NOL Protective Measures, please see our Form 8-
K filed on July
28, 2010. As of February 28, 2013, we had 15,319,433 shares outstanding, and therefore ownership of approximately 766,000 shares or more
would currently constitute a “5% shareholder”.
We strongly urge that any stockholder contemplating becoming a 5% or more
shareholder contact us before doing so.
Even if we revoke the existing waiver to make the NOL Protective Measures operate again to prevent new “5% shareholders”,
we
cannot ensure that an “ownership change” will not occur.
Section 382 of the Internal Revenue Code is an extremely complex provision with respect to which there are many uncertainties. Accordingly, if
the existing waiver were revoked so that the measures were to operate again to prevent new “5% shareholders”,
the NOL Protective Measures
might not prevent all transfers that might result in an “ownership change.”
Alternatively, a court could find that some or all of the NOL
Protective Measures are not enforceable, either in general or as to a particular fact situation. Even if the NOL Protective Measures are enforced
by state courts, we have not requested a ruling from the Internal Revenue Service (“IRS”)
regarding the effectiveness of the NOL Protective
Measures, and we cannot ensure that the IRS will agree that the NOL Protective Measures are effective for purposes of Section 382. Moreover,
our board of directors could still permit a transfer or transfers that result in or contribute towards an “ownership change”
if it were to determine
that such a transfer is in our best interests. As a result of these and other factors, the NOL Protective Measures, if operative, would serve to
reduce, but not eliminate, the risk that we could undergo an “ownership change.”
Accordingly, even in such event, we could not assure you that
upon audit, the IRS would agree that all of our NOLs are allowable.
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