<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
CYBERCASH, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CYBERCASH, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
[CYBERCASH LOGO]
May 15, 1998
Dear CyberCash Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
CyberCash, Inc. (the "Company") to be held on June 26, 1998, at 10:00 a.m.
(Pacific Daylight Saving Time), at the Hotel Sofitel, 223 Twin Dolphin Drive,
Redwood City, California 94065. At this meeting, we are asking you to vote on
the following proposals, as more fully described in the Proxy Statement
accompanying this Notice:
1. To elect two Class II directors;
2. To approve an amendment to the Company's certificate of
incorporation increasing the number of authorized shares of Common Stock;
3. To ratify and approve the sale of 15,000 shares of the Company's
Series C Convertible Preferred Stock and the issuance of shares of Common
Stock in connection with the conversion of the Company's Series C
Convertible Preferred Stock to Common Stock;
4. To ratify and approve the sale of 30,000 shares of the Company's
Series D Convertible Preferred Stock and the issuance of shares of Common
Stock in connection with the conversion of the Company's Series D
Convertible Preferred Stock to Common Stock and the exercise of certain
investment options granted by the Company in connection with the sale of
the Series D Convertible Preferred Stock;
5. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998; and
6. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Please read the enclosed materials carefully and return your proxy as soon
as possible. Thank you.
Sincerely,
/s/ Daniel C. Lynch
Daniel C. Lynch
Chairman of the Board of Directors
<PAGE> 3
CYBERCASH, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1998
------------------------
To Our Stockholders:
The Annual Meeting of Stockholders of CyberCash, Inc., a Delaware
corporation (the "Company"), will be held at the Hotel Sofitel, 223 Twin Dolphin
Drive, Redwood City, California 94065 on Friday, June 26, 1998, at 10:00 a.m.
(Pacific Daylight Saving Time), to consider and take action on the following
matters:
1. To reelect Daniel C. Lynch and Charles T. Russell as Class II
directors of the Company. Mr. Lynch has served as the Chairman of the
Company's Board of Directors since the Company's formation in 1994. Mr.
Russell has served as a director since July 1997, when he was elected by
the Company's Board of Directors to fill a vacancy. Each nominee would
serve for a three-year term ending in the year 2001 or until his successor
is duly elected and qualified;
2. To approve an amendment to the Company's certificate of
incorporation, which will increase the number of shares of Common Stock
authorized for issuance thereunder by an additional 15 million shares to a
total of 40 million shares of Common Stock. The increase in the amount of
authorized shares of Common Stock will enable the Company to issue
additional shares of Common Stock in the future for general corporate
purposes without further stockholder action;
3. To ratify and approve the sale of 15,000 shares of the Company's
Series C Convertible Preferred Stock and the issuance of shares of Common
Stock in connection with the conversion of the Company's Series C
Convertible Preferred Stock to Common Stock;
4. To ratify and approve the sale of 30,000 shares of the Company's
Series D Convertible Preferred Stock and the issuance of shares of Common
Stock in connection with the conversion of the Company's Series D
Convertible Preferred Stock to Common Stock and the exercise of certain
investment options granted by the Company in connection with the sale of
the Series D Convertible Preferred Stock;
5. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998; and
6. To transact such other business as may properly come before the
Meeting or any adjournment(s) thereof.
The above matters are described in the Proxy Statement. You are urged,
after reading the Proxy Statement, to mark, sign, date and return the enclosed
Proxy in the postage-prepaid envelope to assure that your shares are represented
at the Meeting.
<PAGE> 4
Only stockholders of record at the close of business on May 5, 1998 are
entitled to vote at the Meeting, either in person or proxy. The Proxy Statement
is being mailed to those stockholders on or about May 15, 1998.
By order of the Board of Directors,
/s/ Russell B. Stevenson, Jr.
Russell B. Stevenson, Jr.
Secretary
Reston, Virginia
May 15, 1998
<PAGE> 5
May 15, 1998
CYBERCASH, INC.
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1998
------------------------
GENERAL INFORMATION
The enclosed Proxy is solicited by the Board of Directors of CyberCash,
Inc. (the "Company") for use at the Annual Meeting of Stockholders ("Meeting")
to be held Friday, June 26, 1998, at 10:00 a.m. (Pacific Daylight Saving Time),
and at any adjournment(s) or postponement(s) thereof, for the purposes set forth
herein. The Meeting will be held at the Hotel Sofitel, 223 Twin Dolphin Drive,
Redwood City, California 94065. The Company's principal executive offices are
located at 2100 Reston Parkway, Third Floor, Reston, Virginia 20191, and its
telephone number is (703) 620-4200. These proxy solicitation materials were
mailed on or about May 15, 1998, to all stockholders entitled to vote at the
Meeting.
REVOCABILITY OF PROXIES
A proxy may be revoked by a stockholder at any time before it is voted, by
notice in writing delivered to the Secretary of the Company, by submission of
another proxy bearing a later date, or by voting in person at the Meeting.
SHARES OUTSTANDING AND VOTING RIGHTS
As of May 5, 1998, the Company had outstanding 12,754,285 shares of common
stock, $0.001 par value per share (the "Common Stock"), entitled to one vote per
share. Only stockholders of record at the close of business on May 5, 1998 (the
"Record Date") are entitled to vote at the Meeting. A majority of the shares
entitled to vote at the Meeting, represented in person or by proxy, will
constitute a quorum for the transaction of business.
PRINCIPAL STOCKHOLDERS OF THE COMPANY
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of its Common Stock as of May 5, 1998
for (i) each stockholder who is known by the Company to own beneficially more
than 5% of the Common Stock, (ii) each named executive officer of the Company,
(iii) each director of the Company, and (iv) all directors and named executive
officers of the Company as a group. Unless otherwise specified, the address of
all stockholders is the address of the Company set forth herein.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) % OF CLASS
------------------- ----------------------- ----------
<S> <C> <C>
William N. Melton(2)........................................ 2,294,258 17.99%
SOFTBANK Holdings, Inc. .................................... 976,540 7.66
2951 28th Street, #3060
Santa Monica, CA 90405
VeriFone, Inc.(3)........................................... 900,000 7.06
4988 Great America Parkway Santa Clara, CA 95054
Daniel C. Lynch(4).......................................... 599,176 4.70
Steven Elefant(5)........................................... 578,373 4.53
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) % OF CLASS
------------------- ----------------------- ----------
<S> <C> <C>
Stephen D. Crocker.......................................... 253,600 1.99
F. Thomas Aden(6)........................................... 193,890 1.52
Bruce G. Wilson(7).......................................... 177,398 1.39
Denis Yaro(8)............................................... 110,000 *
Michael Rothschild(9)....................................... 40,224 *
Russell B. Stevenson, Jr.(8)................................ 32,875 *
Garen K. Staglin(10)........................................ 25,365 *
Charles T. Russell(8)....................................... 1,833 *
All directors and executive officers as a group (11
persons)(11).............................................. 4,306,992 33.77%
</TABLE>
- ---------------
* Less than one percent.
(1) The ownership of shares of Common Stock reported herein is based upon
filings with the Securities and Exchange Commission (the "Commission").
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Percentage of beneficial ownership is
based on 12,754,285 shares outstanding as of May 5, 1998. Securities
issuable upon exercise of options are deemed to be outstanding for the
purpose of computing the percentage of outstanding securities owned by the
holder of such options.
(2) Includes 15,000 shares held by members of Mr. Melton's immediate family.
(3) Information presented is based on a Schedule 13G filed by VeriFone, Inc.
("VeriFone") with the Commission on February 17, 1998. Includes 100,000
shares owned by a wholly-owned subsidiary of VeriFone.
(4) Consists of 572,576 shares held by The Lynch Living Trust U/T/A dated March
2, 1990 of which Daniel C. Lynch and Karen D. Lynch are co-trustees; 10,000
shares held by The Katherine Danielle Lynch Irrevocable Trust of which
Daniel C. Lynch is trustee; 10,000 shares held by The Michael MacAllen
Lynch Irrevocable Trust of which Daniel C. Lynch is trustee; 5,000 shares
held by The Francis Troy Lynch Irrevocable Trust of which Daniel C. Lynch
is trustee; and 1,600 shares subject to stock options exercisable within 60
days of May 5, 1998.
(5) Includes 25,227 shares held by The Andrew Seth Elefant 1996 Trust U/T/A
dated November 25, 1996, of which David J. Elefant is trustee; 25,227
shares held by The Ashley Beth Elefant 1996 Trust U/T/A dated November 25,
1996, 1996 of which David J. Elefant is trustee; and 3,750 shares subject
to stock options exercisable within 60 days.
(6) Includes 125,567 shares subject to stock options exercisable within 60 days
of May 5, 1998.
(7) Includes 26,925 shares subject to stock options exercisable within 60 days
of May 5, 1998.
(8) Consists of shares subject to stock options exercisable within 60 days of
May 5, 1998.
(9) Consists of 38,924 shares held by The Michael L. Rothschild Trustee
Revocable Trust U/T/A dated August 9, 1993 and 1,300 shares subject to
stock options exercisable within 60 days of May 5, 1998.
(10) Includes 5,365 shares subject to stock options exercisable within 60 days
of May 5, 1998.
(11) Includes 302,715 shares subject to stock options exercisable within 60 days
of May 5, 1998.
2
<PAGE> 7
PROPOSAL 1
ELECTION OF DIRECTORS
BOARD COMPOSITION
The Company's Board of Directors comprises five directors divided into
three classes. The Board of Directors proposes the election of two Class II
directors at the Meeting, each to hold office for a three-year term and until
his successor is duly elected and qualified. Class III and Class I directors
will be elected at the annual meetings of stockholders to be held in 1999 and
2000, respectively, for three-year terms, and until their respective successors
are duly elected and qualified. It is intended that the accompanying Proxy will
be voted for the nominees set forth below, each of whom is currently a director
of the Company. If some unexpected occurrence should make necessary, in the
Board of Directors' judgment, the substitution of some other person or persons
for any of the nominees, shares will be voted for such other person or persons
as the Board of Directors may select. The Board of Directors is not aware that
any nominee may be unable or for good reason unwilling to serve as a director.
In the election of directors, those receiving the greatest number of votes shall
be elected, even if such votes do not constitute a majority of the shares
entitled to vote. The following sets forth certain information as of May 5, 1998
with respect to each nominee and also with respect to each director whose term
of office will continue after the Meeting.
NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- --- -------------------- --------------
<S> <C> <C> <C>
Daniel C. Lynch........................ 56 Private Investor 1994
Charles T. Russell..................... 68 Private Consultant 1997
</TABLE>
Daniel C. Lynch, a founder of the Company, has served as Chairman of the
Company's Board of Directors since the Company's inception in August 1994 and
served briefly as Vice President during its formation in August 1994. Mr. Lynch
was the founder of Interop, a conference and tradeshow company for the computer
and communications industry, now a division of ZD Comdex Forums, and from 1980
to 1983, he was Director of Information Processing Division for the Information
Sciences Institute. Mr. Lynch is also a member of the Board of Trustees of the
Santa Fe Institute and a director of Exodus Communications, Inc.
Charles T. Russell has served as a member of the Company's Board of
Directors since August 1997. Mr. Russell was President and Chief Executive
Officer of Visa International from 1984 to 1994. Since his retirement in 1994,
he has been a private consultant. Mr. Russell is a member of the Board of
Directors of First Data Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR REELECTION OF MESSRS. LYNCH
AND RUSSELL AS DIRECTORS OF THE COMPANY.
DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- --- -------------------- --------------
<S> <C> <C> <C>
William N. Melton...................... 56 President and Chief Executive 1994
Officer
CyberCash, Inc.
Michael Rothschild..................... 45 President 1994
The Bionomics Institute
President and Chief Executive
Officer
Maxager Technology Inc.
Garen K. Staglin....................... 53 Chairman and Chief Executive Officer 1996
Safelite Glass Corporation
</TABLE>
William N. Melton, a founder of the Company, has served as a member of the
Company's Board of Directors and as its President and Chief Executive Officer
since the Company's inception in August 1994.
3
<PAGE> 8
Mr. Melton founded VeriFone, Inc., a transaction automation company, in 1981 and
was a director of VeriFone from 1981 until 1996. He served as President and
Chief Executive Officer of VeriFone from 1981 until 1986, and served as its
Chairman of the Board from 1986 until 1992. Mr. Melton was a founding investor
of Transaction Network Services, Inc., a transaction network communications
company, and continues to serve on its Board of Directors. Mr. Melton is also a
director of America Online, Inc.
Michael Rothschild has served as a member of the Company's Board of
Directors since November 1995. He is an author, economic columnist and president
of The Bionomics Institute, a non-profit educational foundation. Since 1993, Mr.
Rothschild has been President and Chief Executive Officer of Maxager Technology
Inc., a software maker specializing in real-time profit analysis systems for
manufacturers. Mr. Rothschild is also a director of Ramtron International
Corporation.
Garen K. Staglin has served as a member of the Company's Board of Directors
since July 1996. He is the Chairman and Chief Executive Officer of Safelite
Glass Corporation, a manufacturer and retailer of replacement autoglass and
related services. Mr. Staglin is also a director of First Data Corporation,
Quick Response Services, Inc. and Grimes Aerospace Corporation. He is a member
of the Advisory Board of the Stanford Graduate School of Business.
BOARD COMMITTEES AND MEETINGS
During 1997, the Board of Directors held six regularly scheduled meetings
and had two standing committees: an Audit Committee and a Compensation
Committee. No incumbent Board member attended fewer than 75 percent of the
aggregate of (i) the total number of meetings of the Board of Directors which
such director was eligible to attend during 1997 and (ii) the total number of
meetings held by any committee of the Board upon which such director served.
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with and reviews the services
provided by the Company's independent auditors. Messrs. Lynch, Rothschild and
Staglin comprise the Audit Committee. The Audit Committee met two times during
1997. The Compensation Committee of the Board of Directors reviews and
recommends to the Board the compensation and benefits of employees of the
Company. The Compensation Committee also administers the issuance of stock
options and other awards under the Company's stock plans, except for the 1995
Non-Employee Directors' Stock Option Plan, which is administered by the Board of
Directors. Messrs. Lynch, Russell and Staglin comprise the Compensation
Committee. The Compensation Committee met two times during 1997.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for their out-of-pocket expenses in connection with attendance at
Board and Committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company served as a director or member of (i)
the compensation committee of another entity which has an executive officer who
is a director of the Company or a member of the Company's Compensation
Committee, (ii) the board of directors of another entity in which one of the
executive officers of such entity served on the Company's Compensation
Committee, or (iii) the compensation committee of any other entity in which one
of the executive officers of such entity served as a member of the Company's
Board of Directors, during the year ended December 31, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the exercise of stock options during 1995, Stephen D.
Crocker, the Company's Chief Technology Officer, executed a promissory note in
the amount of $400,000 with interest payable at an annual rate of 6%, which
matures on October 29, 1998 and is secured by the Common Stock issued upon
exercise of
4
<PAGE> 9
the options. During 1997, the Company reimbursed Mr. Crocker for approximately
$69,000 in interest payable with respect to the note. As of May 5, 1998, the
outstanding amount of principal owed by Mr. Crocker was $400,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's Common Stock, to file with the Commission, by a specified date,
reports regarding their ownership of Common Stock. To the Company's knowledge,
based solely on its review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that all of its officers and directors and greater than ten
percent beneficial owners complied with all Section 16(a) filing requirements
applicable to them with respect to those transactions during 1997.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the three fiscal years ended December 31, 1997 to its President
and Chief Executive Officer and the Company's four other most highly compensated
officers and key employees:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
--------------------------- ---- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
William N. Melton.............................. 1997 100,000 -- -- --
President and Chief Executive Officer 1996 100,000 -- -- --
1995 100,000 -- -- --
Bruce G. Wilson................................ 1997 180,000 -- -- 15,000
Executive Vice President 1996 180,000 24,000 -- --
1995 170,000 -- -- 27,000
Stephen D. Crocker............................. 1997 184,950 -- 69,100(1) --
Chief Technology Officer 1996 180,000 28,500 29,021(1) --
1995 170,000 -- -- 200,000
Russell B. Stevenson, Jr....................... 1997 210,000 -- -- 30,000
Senior Vice President and General Counsel 1996 168,523 35,475 -- 35,000
1995 -- -- -- --
Denis Yaro..................................... 1997 220,000 -- -- 10,000
Executive Vice President 1996 175,389 26,000 -- 160,000
1995 -- -- -- --
</TABLE>
- ---------------
(1) In connection with the exercise of certain options during 1995, Mr. Crocker
executed a promissory note in the amount of $400,000, which accrues interest
at an annual rate of 6%. During 1997 and 1996, the Company paid Mr. Crocker
$69,100 and $29,021, respectively, to reimburse him for the interest that he
paid on the note.
EQUITY INCENTIVE PLANS
1995 Stock Option Plan. In April 1995, the Company adopted the 1995 Stock
Option Plan (the "Option Plan") under which 1,000,000 shares of Common Stock
were reserved for issuance upon exercise of options granted to employees,
officers and consultants of the Company. Subsequent amendments to the Option
Plan increased the share reserve to its current level of 3,500,000 shares of
Common Stock. The Option Plan provides for grants of incentive stock options to
employees (including officers and employee directors)
5
<PAGE> 10
and nonstatutory stock options to employees (including officers and employee
directors), directors and consultants of the Company. The Option Plan previously
was administered by the Board of Directors and presently is being administered
by the Compensation Committee, which determines recipients and types of awards
to be granted, including the exercise price, number of shares subject to the
award and the exercisability thereof.
The terms of stock options granted under the Option Plan may not exceed 10
years. The exercise price of options granted under the Option Plan is determined
by the Compensation Committee; provided, however, that the exercise price of a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of the option grant; and the exercise price of an
incentive stock option cannot be less than 100% of the fair market value of the
Common Stock on the date of grant. Options granted under the Option Plan
generally vest as to 7.5% of the shares subject to option three months after the
date of grant and 2.5% of such shares at the end of each month thereafter, so
that the option is fully vested 40 months after grant. Performance-based vested
options generally vest in their entirety 10 years after the date of grant;
provided, however, that vesting is accelerated upon achievement of a milestone
event, as specified in the terms of the options. Upon occurrence of a milestone
event, vesting accelerates so that 2.5% of the shares generally vest each month
after the event, and the option is fully vested 40 months after the occurrence
of the event. No option may be transferred by the optionee other than by will or
the laws of descent or distribution. An optionee whose relationship with the
Company or any related corporation ceases for any reason (other than by death or
permanent and total disability) may exercise options within the three month
period following such cessation (unless such options terminate or expire sooner
by their terms) or within such longer period as determined by the Compensation
Committee.
Shares subject to options which have lapsed or terminated may again be
subject to options granted under the Option Plan. Furthermore, the Compensation
Committee may offer to exchange new options for existing options, with the
shares subject to the existing options again becoming available for grant under
the Option Plan. In the event of a decline in the value of the Company's Common
Stock, the Compensation Committee has the authority to offer optionees the
opportunity to replace outstanding higher priced options with new lower priced
options. Upon any merger or consolidation in which the Company is acquired, all
outstanding vested options will either be assumed or substituted by the
surviving entity. If the surviving entity determines not to assume or substitute
unvested options, the unvested portion of the options will terminate as of the
closing of the merger or consolidation.
As of December 31, 1997, 675,808 shares of Common Stock had been issued
upon the exercise of options granted under the Option Plan (16,876 of which were
subject to a repurchase option in favor of the Company as of December 31, 1997),
options to purchase 1,650,909 shares of Common Stock at exercise prices ranging
from $2.00 to $45.75 per share were outstanding and 1,173,283 shares remained
available for future option grants. The Option Plan will terminate on April 5,
2005, unless terminated sooner by the Compensation Committee.
Non-Employee Directors' Stock Option Plan. In December 1995, the Board of
Directors adopted the 1995 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company. The Directors'
Plan is administered by the Board of Directors.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 100,000. Pursuant to the terms of
the Directors' Plan, each newly elected director of the Company who is not
otherwise an employee of the Company (a "Non-Employee Director") will
automatically be granted an option to purchase 10,000 shares of Common Stock on
the date of his or her election to the Board.
The Directors' Plan provides that on the date of each annual meeting of the
Company, each person who is then a Non-Employee Director of the Company, and who
has continuously served as a Non-Employee Director since the last annual
meeting, will be granted an option to purchase 5,000 shares of Common Stock of
the Company under the Directors' Plan, and each other person who is then a
Non-Employee Director will be granted an option to purchase a pro rated number
of shares of Common Stock based on the number of days
6
<PAGE> 11
such person has continuously served as a Non-Employee Director since the last
annual meeting. The Directors' Plan also provides that on the date of each
annual meeting of the Company, each person which is then a Non-Employee Director
of the Company will be granted an option to purchase 1,500 shares of Common
Stock of the Company under the Directors' Plan for each committee of the Board
of Directors of the Company on which such person has served for at least the
five months immediately prior to the annual meeting of the Company's
stockholders.
Outstanding options under the Directors' Plan will vest monthly over a five
year period. The exercise price of options granted under the Directors' Plan
will be equal to the fair market value of the Common Stock on the date of grant.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. Options granted under the
Directors' Plan are generally non-transferable. The Directors' Plan will
terminate at the direction of the Board of Directors.
In the event of certain transactions by which the Company is acquired or
controlled by a single investor or group of investors, options outstanding under
the Directors' Plan will automatically become fully vested and will terminate if
not exercised prior to such event.
As of December 31, 1997, options to purchase 42,158 shares of Common Stock
at exercise prices ranging from $10.75 to $32.25 per share were outstanding
under the Directors' Plan and 57,842 shares remained available for future option
grants under the Directors' Plan.
Employee Stock Purchase Plan. In December 1995, the Company adopted the
Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
500,000 shares of Common Stock. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code. The Purchase Plan is administered by the Compensation Committee.
Under the Purchase Plan, the Compensation Committee may authorize participation
by eligible employees, including officers, in periodic offerings. The offering
period for any offering will be no more than 27 months.
Employees are eligible to participate if they are employed by the Company
or a subsidiary of the Company designated by the Compensation Committee for at
least 20 hours per week and are employed by the Company or a subsidiary of the
Company designated by the Committee for at least five months per calendar year.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan. The amount withheld will then be used to
purchase shares of Common Stock on specified dates determined by the
Compensation Committee. The price of Common Stock purchased under the Purchase
Plan will be equal to 85% of the lower of the fair market value of the Common
Stock on the commencement date of each offering period or the relevant purchase
date. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of
employment with the Company.
In the event of certain transactions by which the Company is acquired or
becomes controlled by a single investor or group of investors, the Compensation
Committee has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
if any, or the Compensation Committee may shorten the offering period and
provide for all sums collected by payroll deductions to be applied to purchase
stock immediately prior to such transaction. The Purchase Plan will terminate at
the Board's direction. The Board of Directors has the authority to amend or
terminate the Purchase Plan, subject to the limitation that no such action may
adversely affect any outstanding rights to purchase Common Stock.
As of December 31, 1997, 35,451 shares of Common Stock were purchased at
exercise prices ranging from $11.90 to $13.3875 per share, and 441,100 shares
remained available for future purchases.
7
<PAGE> 12
STOCK OPTION INFORMATION
The following table shows, for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by the Company's President and Chief Executive Officer and the Company's
four other most highly compensated officers and key employees:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS EXERCISE FOR OPTION
UNDERLYING GRANTED TO OR BASE TERM($)(3)(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE 5% 10%
- ---- ------------- ------------ --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
William N. Melton................ -- -- -- -- -- --
Bruce G. Wilson.................. 15,000 2.0 13.625 7/17/07 128,530 325,721
Denis Yaro....................... 10,000 1.0 13.625 7/17/07 85,687 217,147
Stephen D. Crocker............... -- -- -- -- -- --
Russell B. Stevenson, Jr. ....... 30,000 4.0 13.625 7/17/07 257,061 651,442
</TABLE>
- ---------------
(1) The options are generally incentive stock options with vesting occurring
over 40 months, with 7.5% of the shares vesting after three months, and 2.5%
of the shares vesting each month for the next 37 months.
(2) The exercise price is equal to 100% of the fair market value of the Common
Stock on the date of the grant.
(3) The options have a ten-year term, subject to earlier termination upon death,
permanent and total disability or termination of employment.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and is calculated by assuming that the stock
price on the date of grant as determined by the Board of Directors
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the Commission and do not
represent the Company's estimate or projection of the future Common Stock
price.
The following table sets forth information with respect to (i) the exercise
of stock options during the fiscal year ended December 31, 1997 by the Company's
President and Chief Executive Officer and the Company's four other most highly
compensated officers and key employees, (ii) the number of unexercised options
held as of December 31, 1997 by the Company's President and Chief Executive
Officer and the Company's four other most highly compensated officers and key
employees and (iii) the value as of December 31, 1997 of unexercised
in-the-money options; that is, the amount by which the exercise price exceeds
the fair market value of the Common Stock as of December 31, 1997 ($12.6875).
8
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END(#) FISCAL YEAR-END($)(2)
ACQUIRED ---------------------------- ----------------------------
NAME ON EXERCISE(#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
William N. Melton..................... 0 0 0 0 0
Bruce G. Wilson....................... 0 18,750 23,250 112,852 67,711
Denis Yaro............................ 0 83,250 86,750 0 0
Stephen D. Crocker(1)................. 0 0 15,000 0 160,313
Russell B. Stevenson, Jr. ............ 0 21,250 43,750 0 0
</TABLE>
- ---------------
(1) Represents 15,000 shares held by Mr. Crocker issued upon exercise of options
but subject to a right of repurchase by the Company.
(2) Based on the closing price of the Company's Common Stock on December 31,
1997 of $12.6875 per share, minus the exercise price, multiplied by the
number of shares underlying the option.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee was formed on December 20, 1995, and its current
members are Daniel C. Lynch, Charles T. Russell and Garen K. Staglin. It is the
responsibility of the Compensation Committee to review and recommend changes to
the Company's compensation policies and benefits programs and to administer the
Company's incentive compensation and benefit plans, including approving stock
option grants.
COMPENSATION PHILOSOPHY
The Company's overall approach to compensating its executives is (i) to
provide compensation packages that enable the Company to attract and retain
executive talent and (ii) to link compensation to the accomplishment of the
Company's goals. The Compensation Committee believes that the Company has
aligned the financial interests of the Company's executives with the interests
of its stockholders by granting stock options to its executives and offering
cash and stock awards to executives who meet performance objectives.
COMPENSATION PROGRAM
The Company's executive compensation plan includes a base salary,
participation in equity plans, and awards under a performance incentive plan.
BASE SALARY
The Compensation Committee intends to compensate its executive officers
competitively within its industry. In order to evaluate the Company's
competitive position in the industry, the Compensation Committee reviews and
analyzes the compensation packages, including base salary levels, offered by
comparable technology companies and targets the base salaries of the Company's
executives at or near the 50th percentile of executive salaries paid by
comparative companies. In addition, the Compensation Committee, together with
the Board of Directors, subjectively evaluates the level of performance of each
executive officer, including the Chief Executive Officer, in order to determine
current and future appropriate base pay levels. The Compensation Committee
reviews each senior executive officer's salary annually. In determining the
appropriate salary levels, the Compensation Committee considers the officer's
scope of responsibility, prior experience and data on prevailing compensation
levels in relevant executive labor markets. In December 1997, Mr. Melton
volunteered not to draw a salary from the Company, beginning in 1998, until the
Company becomes profitable. As the Company's largest stockholder, Mr. Melton
already has significant incentives to see that the Company reaches its strategic
and performance goals. With respect to the other
9
<PAGE> 14
executive officers of the Company, the Company sets base salaries in line with
competitive compensation levels in relevant executive labor markets.
EQUITY PLANS
The Compensation Committee provides the Company's executive officers with
long-term incentive compensation through its stock option and employee stock
purchase plans. The Compensation Committee is responsible for administering the
plans and determining the individuals to whom grants should be made, the timing
of grants, the exercise price per share and the number of shares subject to each
option. The Compensation Committee believes that stock options provide
executives with a strong economic interest in maximizing stock price
appreciation over the longer term. The Company believes that the practice of
granting stock options is critical to retaining and recruiting the key talent
necessary at all employee levels to ensure the Company's continued success.
Options granted by the Compensation Committee typically vest over 40 months in
order to encourage employees to continue in the employ of the Company. It is
also the Company's practice to set option exercise prices at the fair market
value of the Company's stock on the date of grant. Thus, the value of the
stockholders' investment in the Company must appreciate before an optionee
receives any financial benefit from the option. Because of his significant
equity ownership in the Company, no stock options have been granted to Mr.
Melton. Mr. Melton does not participate in the Company's stock purchase plan.
PERFORMANCE INCENTIVE PLAN
The Company has adopted a Performance Incentive Plan for its employees,
including its executive officers, which provides cash bonuses or stock option
awards twice a year to employees who achieve pre-determined performance goals
during the preceding six months. The operation of this plan commenced in 1997.
The Compensation Committee believes that the Performance Incentive Plan will
provide significant incentives for the Company's employees, including its
executives, to meet the Company's strategic and performance goals throughout
1998. Because Mr. Melton's significant equity ownership in the Company already
provides adequate performance incentives, he is not eligible to receive awards
under this plan.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Present tax law limits to $1 million the Company's deduction for
compensation paid to each of the Chief Executive Officer and the other four most
highly compensated executives. However, compensation which qualifies as
"performance-based" is excluded from the $1 million limit if, among other
requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals under a plan approved by
shareholders.
In 1997, all of the compensation paid to the Chief Executive Officer and
the other four most highly compensated executives qualified for deduction under
the Internal Revenue Code. The Company's 1995 Stock Option Plan and Employee
Stock Purchase Plan provide for equity awards to be qualified as "performance-
based" under Section 162(m) of the Internal Revenue Code and have been approved
by the Company's stockholders in order to permit the deductibility of such
compensation.
The Compensation Committee does not currently expect total compensation
payable in connection with base salaries, the Company's equity plans and the
Performance Incentive Plan to exceed the $1 million limit for any individual
executive in 1998. The Compensation Committee will continue to monitor the
compensation levels potentially payable under the Company's compensation
programs. The Committee, however, reserves the right to award compensation to
its executives in the future that may not qualify as deductible compensation in
order to provide cash compensation in line with competitive practice and the
Company's best interests.
10
<PAGE> 15
SUMMARY
The Compensation Committee believes that its executive compensation
philosophy of paying its executive officers well by providing competitive base
salaries, long-term equity incentives and performance incentives, as described
in this report, serves the interests of the Company and the Company's
stockholders.
Compensation Committee
Daniel C. Lynch
Charles T. Russell
Garen K. Staglin
PERFORMANCE GRAPH
Set forth below is a line graph comparing the Company's stock price
performance to the Nasdaq Stock Market (U.S.) Total Return Index and the
Hambrecht & Quist Technology Stock Index for the period commencing on February
15, 1996 (the date on which the Company's Common Stock began trading on the
Nasdaq Stock Market) and ending on December 31, 1997. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance. All stock price performance assumes an initial investment of
$100 at the beginning of the period and assumes the reinvestment of any
dividends. The graph is not deemed to be "soliciting material" or to be "filed"
with the SEC or subject to the SEC's proxy rules or to the liabilities of
Section 18 of the 1934 Act, and the graph shall not be deemed to be incorporated
by reference into any prior or subsequent filing by the Company under the
Securities Act of 1933 or the 1934 Act.
[GRAPH]
<TABLE>
<CAPTION>
Measurement Period Nasdaq Stock Hambrecht &
(Fiscal Year Covered) CyberCash, Inc. Market (U.S.) Quist Technology
<S> <C> <C> <C>
2/15/96 100 100 100
12/31/96 135 119 114
12/31/97 75 146 138
</TABLE>
11
<PAGE> 16
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") authorizes 25,000,000 shares of Common Stock and 5,000,000 shares
of Preferred Stock each having a par value of $.001 per share. The Board of
Directors believes this capital structure does not provide for sufficient
authorized shares of Common Stock for the future needs of the Company.
Therefore, the Board of Directors unanimously approved in a meeting on April 24,
1998 an amendment to the Certificate to increase the authorized number of shares
of Common Stock from 25,000,000 shares to 40,000,000 shares. The full text of
the first paragraph of ARTICLE FOURTH of the Certificate reflecting the proposed
amendment is set forth below:
"This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock". The total
number of shares which the corporation is authorized to issue is 45,000,000
shares. Forty million shares shall be Common Stock, each having a par value
of $.001. Five Million shares shall be Preferred Stock, each having a par
value of $.001."
PURPOSE OF AUTHORIZING COMMON STOCK
On May 5, 1998, 12,754,285 shares of Common Stock were outstanding, 1,000
shares of Series C Convertible Preferred Stock were outstanding and 6,250 shares
of Series D Convertible Preferred Stock were outstanding. In addition, certain
institutional investors hold investment options or warrants to acquire an
aggregate of up to 404,191 shares of Common Stock. The Company is contractually
obligated to issue an additional 15,000 shares of Series D Convertible Preferred
Stock and to grant investment options to acquire up to 354,191 shares of Common
Stock upon the satisfaction of certain conditions and the receipt of
consideration for the shares. After giving effect to the reservations of shares
of Common Stock issuable upon conversion of the Company's Series C Convertible
Preferred Stock and the Series D Convertible Preferred Stock, the exercise of
the aforementioned investment options and warrants and the exercise of stock
options previously granted or available for grant under the Company's stock
option plans, the Company has 3,924,993 shares of authorized but unissued and
unreserved Common Stock.
The Board of Directors would generally have the authority, without further
action of the stockholders, to issue the proposed additional 15,000,000 shares
of Common Stock from time to time as the Board of Directors deems necessary. The
Board of Directors believes it is desirable to have the ability to issue such
additional shares of Common Stock for general corporate purposes. Potential uses
of the additional authorized shares may include acquisition of other businesses,
equity financings, stock dividends or distributions, issuance of options
pursuant to the Company's 1995 Stock Option Plan and the Non-Employee Directors'
Stock Option Plan and issuances of Common Stock pursuant to the Company's
Employee Stock Purchase Plan. Any or all of these could take place without
further action by the stockholders, unless such action were specifically
required by applicable law or rules of any stock exchange on which the Company's
securities may then be listed. The Company's Board of Directors has no current
plans or intentions to issue any of the additional shares of Common Stock.
The proposed increase in the authorized number of shares of Common Stock
could have a number of effects on the Company's stockholders depending upon the
exact nature and circumstances of any actual issuances of authorized but
unissued shares. The increase could deter takeovers, in that additional shares
could be issued (within the limits imposed by applicable law) in one or more
transactions that could make a change in control or takeover of the Company more
difficult. For example, additional shares could be issued by the Company so as
to dilute the stock ownership or voting rights of persons seeking to obtain
control of the Company. Similarly, the issuance of additional shares to certain
persons allied with the Company's management could have the effect of making it
more difficult to remove the Company's current management by diluting the stock
ownership or voting rights of persons seeking to cause such removal. In
addition, an issuance of additional shares by the Company could have an effect
on the potential realizable value of a stockholder's investment. In the absence
of a proportionate increase in the Company's earnings and book value, an
increase in the aggregate number of outstanding shares of the Company caused by
the issuance of
12
<PAGE> 17
the additional shares would dilute the earnings per share and book value per
share of all outstanding shares of the Company's Common Stock. If such factors
were reflected in the price per share of Common Stock, the potential realizable
value of a stockholder's investment could be adversely affected. The Common
Stock carries no preemptive rights to purchase additional shares.
The affirmative vote of a majority of the Company's outstanding Common
Stock is required for approval of Proposal 2.
THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE PROPOSED AMENDMENT TO
THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK FROM 25,000,000 TO 40,000,000 SHARES IS IN THE BEST
INTERESTS OF ALL STOCKHOLDERS AND, ACCORDINGLY, RECOMMENDS A VOTE FOR PROPOSAL
2. YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
PROPOSAL 3
RATIFICATION AND APPROVAL OF THE SALE OF SERIES C PREFERRED STOCK
On August 5, 1997, Company issued 15,000 shares of Series C Convertible
Preferred Stock with a stated value of $1,000 per share (the "Series C Preferred
Stock"). The securities were issued to two institutional investors in a private
offering pursuant to Regulation D of the Securities Act of 1933, as amended, for
an aggregate of $15 million in cash.
Stockholders are requested in this Proposal 3 to ratify and approve the
sale of the Series C Preferred Stock and the issuance of Common Stock upon
conversion of the Company's Series C Preferred Stock to Common Stock. If the
stockholders fail to approve this Proposal 3, the Company will not sell, and the
institutional investors that bought the first tranche of the Series D Preferred
Stock described below under Proposal 4 will not buy, certain additional shares
of Series D Preferred Stock or certain Investment Options (as defined below
under Proposal 4), and the Company will not receive an additional $15 million in
cash from these investors. The affirmative vote of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required in connection with the foregoing transactions. William N.
Melton and Daniel C. Lynch, holding between them an aggregate of 2,891,834
shares of the Company's Common Stock, have agreed to vote in favor of Proposal
3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION AND APPROVAL OF
THE SALE OF THE COMPANY'S SERIES C PREFERRED STOCK AND THE ISSUANCE OF SHARES OF
COMMON STOCK UPON CONVERSION OF THE COMPANY'S SERIES C PREFERRED STOCK TO COMMON
STOCK.
Material terms and conditions of the Series C Preferred Stock are described
below.
GENERAL DESCRIPTION OF SERIES C PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board has
classified 15,000 shares of the Preferred Stock as Series C Convertible
Preferred Stock with the rights, preferences, privileges and terms set forth in
the Certificate of Designations filed pursuant thereto. The Stated Value Per
Share of the Series C Preferred Stock is $1000.00. With respect to rights upon
liquidation, winding up or dissolution and redemption rights, the Series C
Preferred Stock ranks (i) with the consent of the holders of the Series C
Preferred Stock obtained in accordance with the Certificate of Designation,
junior to any other series of Preferred Stock duly established by the Board of
Directors of the Company, the terms of which specifically provide that such
series ranks prior to the Preferred Stock, whether now existing or hereafter
created (the "Senior Preferred Stock"), (ii) with the consent of the holders of
the Series C Preferred Stock obtained in accordance with the Certificate of
Designation, on a parity with any other series of Preferred Stock duly
established by the Board of Directors of the Company, the terms of which
specifically provide that such series ranks on a parity with the Preferred
Stock, whether now existing or hereafter created (the "Parity Preferred Stock"),
and (iii) prior to any other class or series of capital stock of the Company,
including, without limitation, all classes of the Common Stock, par value $0.001
per share, of the Company, whether now existing or hereafter created (the
"Common Stock"; all of such classes or series of capital stock of the Company to
which the Series C Preferred
13
<PAGE> 18
Stock ranks prior, including without limitation the Common Stock, and including,
without limitation, junior securities convertible into or exchangeable for other
junior securities or phantom stock representing junior securities, are
collectively referred to herein as "Junior Securities").
Dividends. Holders of the Series C Preferred Stock are not entitled to
receive dividends. So long as the Series C Preferred Stock is outstanding,
however, no dividends may be declared or paid on, nor may any distribution be
made on, any Junior Securities, the Company may not redeem or repurchase any
Junior Securities, nor may any moneys be paid to or made available for a sinking
fund for the benefit of any Junior Securities, without the written consent of
the holders of a majority of the outstanding shares of Series C Preferred Stock.
Liquidation. In the event any dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, or any bankruptcy, insolvency or
similar proceedings, whether voluntary or involuntary, is commenced with respect
to the Company (a "Liquidation"), the holders of shares of Series C Preferred
Stock are entitled to receive out of the assets of the Company legally available
for distribution to stockholders (whether representing capital or surplus),
before any payment or distribution is made on the Common Stock or any other
Junior Securities (but after distribution of such assets among, or payment
thereof over to, creditors of the Company and to holders of any stock of the
Company with liquidation rights senior to the Series C Preferred Stock,
including holders of Senior Preferred Stock), the Stated Value Per Share plus an
amount equal to 5% per annum for the period beginning August 5, 1997 and ending
on the date of final distribution to the holder thereof (pro rated for any
portion of such period) (the "Preferred Stock Liquidation Distribution"). After
the Preferred Stock Liquidation Distribution has been made, the holders of
shares of Series C Preferred Stock are not entitled to any further participation
in any distribution of assets of the Company. If the assets distributable upon
such dissolution, liquidation or winding up (as provided above) are insufficient
to pay cash in an amount equal to the amount of the Preferred Stock Liquidation
Distribution to the holders of shares of Series C Preferred Stock, then such
assets or the proceeds thereof will be distributed among the holders of the
Series C Preferred Stock ratably in proportion to the respective amounts of the
Preferred Stock Liquidation Distribution to which they otherwise would be
entitled. The merger or consolidation of the Company into or with another
corporation, a merger or consolidation of any other corporation with or into the
Company upon the completion of which the stockholders of the Company prior to
the merger or consolidation no longer hold a majority of the outstanding equity
securities of the Company or the sale, conveyance, exchange or transfer of all
or substantially all of the property or assets of the Company (any such event, a
"Reorganization Event") will, at the option of the holders of at least 50% of
the Series C Preferred Stock, be deemed to be a Liquidation of the Company.
Voting Rights. The holders of the Series C Preferred Stock are entitled to
notice of all stockholders meetings in accordance with the Company's bylaws.
Except as otherwise provided by the Delaware General Corporation Law (the
"DGCL"), the holders of the Series C Preferred Stock have no voting power
whatsoever.
Conversion. Each share of Series C Preferred Stock is convertible into the
number of shares of the Company's Common Stock equal to (i) the Stated Value Per
Share plus a premium of 5% of the stated value from the date of issuance of the
Series C Preferred Stock divided by (ii) the Conversion Price. The Conversion
Price is equal to the lowest closing price of the Company's Common Stock on
Nasdaq during a measurement period ending one trading day prior to the
conversion date. The measurement period initially was 10 consecutive trading
days. It increases by 2 trading days each month beginning January 16, 1998 until
June 16, 1998, when the measurement period will be 22 trading days.
The holders of the Series C Preferred Stock are subject to limits on the
number of shares they can convert at any one time. Unless the trading price of
the Common Stock on the date of conversion is greater than either $17 per share
or 125% of the then applicable Conversion Price, the following limits apply:
from the date of issuance until January 3, 1998, the Series C Preferred Stock
could not be converted; beginning on January 3, 1998, each holder of Series C
Preferred Stock was entitled to convert up to 30% of its initial holding of
Series C Preferred Stock into Common Stock ("Initial Holding"); beginning on
February 2, 1998, each holder was entitled to convert up to 60% of its Initial
Holding; beginning on March 4, 1998, each holder was
14
<PAGE> 19
entitled to convert up to 90% of its Initial Holding; and beginning on April 3,
1998, each holder was entitled to convert up to 100% of its Initial Holding.
The Series C Preferred Stock will automatically convert into Common Stock,
at the then applicable Conversion Price, on August 4, 2002.
Under an agreement with the purchasers of the Series C Preferred Stock, the
Company registered under the Securities Act of 1933 the resale of the Common
Stock to be issued upon conversion of the Series C Preferred Stock.
The issuance of the Series C Preferred Stock is subject to Nasdaq's
Marketplace Rule 4460(i). The holders of the Series C Preferred Stock have
agreed that the Company will not issue more than 19.99% of the Common Stock upon
conversion of the Series C Preferred Stock or Series D Preferred Stock
(described more fully in Proposal 4 below) in the absence of approval by the
Company's stockholders. As of May 5, 1998, the number of shares of Common Stock
issued upon conversion of the Series C Preferred Stock was 1,216,274,
representing 11.14% of Common Stock outstanding on August 5, 1997.
PROPOSAL 4
RATIFICATION AND APPROVAL OF THE SALE OF SERIES D
PREFERRED STOCK AND RELATED TRANSACTIONS
On February 5, 1998, Company issued 15,000 shares of Series D Convertible
Preferred Stock with a stated value of $1,000 per share (the "Series D Preferred
Stock") and options to purchase up to 354,191 shares of the Company's Common
Stock (the "Investment Options"). The securities were issued to two
institutional investors in a private offering pursuant to Regulation D of the
Securities Act of 1933 for an aggregate of $15 million in cash. In addition, the
Company is committed to sell, and the investors are committed to buy, additional
shares of Series D Preferred Stock and Investment Options for an additional $15
million in cash upon the satisfaction of certain conditions, including that the
market price of the Common Stock is at least $13.76 per share and that
stockholder approval is obtained.
Stockholders are requested in this Proposal 4 to ratify and approve the
sale of the Series D Preferred Stock and the issuance of Common Stock upon
conversion of the Company's Series D Preferred Stock to Common Stock and in
connection with the exercise of the Investment Options. If the stockholders fail
to approve this Proposal 4, the Company will not sell, and the investors will
not buy, additional shares of Series D Preferred Stock or additional Investment
Options, and the Company will not receive an additional $15 million in cash from
the investors. The affirmative vote of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the issuance of shares of Common Stock in connection with
the foregoing transactions. Mr. Melton and Mr. Lynch, holding between them an
aggregate of 2,891,834, have agreed to vote in favor of Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION AND APPROVAL OF
THE SALE OF THE COMPANY'S SERIES D PREFERRED STOCK AND THE ISSUANCE OF SHARES OF
COMMON STOCK UPON CONVERSION OF THE COMPANY'S SERIES D PREFERRED STOCK TO COMMON
STOCK AND IN CONNECTION WITH THE EXERCISE OF INVESTMENT OPTIONS.
Material terms and conditions of the Series D Preferred Stock and the
Investment Options are described below.
GENERAL DESCRIPTION OF SERIES D PREFERRED STOCK AND INVESTMENT OPTIONS
Pursuant to the Company's Certificate of Incorporation, the Board has
classified 15,000 shares of the Preferred Stock as Series D Convertible
Preferred Stock with the rights, preferences, privileges and terms set forth in
the Certificate of Designations filed pursuant thereto. The Stated Value Per
Share of the Series D Preferred Stock is $1,000.00. With respect to rights upon
liquidation, winding up or dissolution and redemption rights, the Series D
Preferred Stock ranks (i) junior to the Series C Preferred Stock, (ii) with the
consent of the holders of the Series D Preferred Stock obtained in accordance
with the Certificate of Designation, junior to any other series of Preferred
Stock duly established by the Board of Directors of the
15
<PAGE> 20
Company, the terms of which specifically provide that such series ranks prior to
the Preferred Stock, whether now existing or hereafter created (the "Senior
Preferred Stock"), (iii) with the consent of the holders of the Series D
Preferred Stock obtained in accordance with the Certificate of Designation, on a
parity with any other series of Preferred Stock duly established by the Board of
Directors of the Company, the terms of which specifically provide that such
series ranks on a parity with the Preferred Stock, whether now existing or
hereafter created (the "Parity Preferred Stock"), and (iv) prior to any other
class or series of capital stock of the Company, including, without limitation,
all classes of the Common Stock, par value $0.001 per share, of the Company,
whether now existing or hereafter created (the "Common Stock"; all of such
classes or series of capital stock of the Company to which the Series D
Preferred Stock ranks prior, including without limitation the Common Stock, and
including, without limitation, junior securities convertible into or
exchangeable for other junior securities or phantom stock representing junior
securities, are collectively referred to herein as "Junior Securities").
Dividends. Holders of the Series D Preferred Stock are not entitled to
receive dividends. So long as the Series D Preferred Stock is outstanding,
however, no dividends may be declared or paid on, nor may any distribution be
made on, any Junior Securities, the Company may not redeem or repurchase any
Junior Securities, nor may any moneys be paid to or made available for a sinking
fund for the benefit of any Junior Securities, without the written consent of
the holders of a majority of the outstanding shares of Series D Preferred Stock.
Liquidation. In the event any dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, or any bankruptcy, insolvency or
similar proceedings, whether voluntary or involuntary, is commenced with respect
to the Company (a "Liquidation"), the holders of shares of Series D Preferred
Stock are entitled to receive out of the assets of the Company legally available
for distribution to stockholders (whether representing capital or surplus),
before any payment or distribution is made on the Common Stock or any other
Junior Securities (but after distribution of such assets among, or payment
thereof over to, creditors of the Company and to holders of any stock of the
Company with liquidation rights senior to the Series D Preferred Stock,
including holders of Senior Preferred Stock), the Stated Value Per Share plus an
amount equal to 5% per annum for the period beginning February 5, 1998 and
ending on the date of final distribution to the holder thereof (pro rated for
any portion of such period) (the "Preferred Stock Liquidation Distribution").
After the Preferred Stock Liquidation Distribution has been made, the holders of
shares of Series D Preferred Stock are not entitled to any further participation
in any distribution of assets of the Company. If the assets distributable upon
such dissolution, liquidation or winding up (as provided above) are insufficient
to pay cash in an amount equal to the amount of the Preferred Stock Liquidation
Distribution to the holders of shares of Series D Preferred Stock, then such
assets or the proceeds thereof will be distributed among the holders of the
Series D Preferred Stock ratably in proportion to the respective amounts of the
Preferred Stock Liquidation Distribution to which they otherwise would be
entitled. The merger or consolidation of the Company into or with another
corporation, a merger or consolidation of any other corporation with or into the
Company upon the completion of which the stockholders of the Company prior to
the merger or consolidation no longer hold a majority of the outstanding equity
securities of the Company or the sale, conveyance, exchange or transfer of all
or substantially all of the property or assets of the Company (any such event, a
"Reorganization Event") will, at the option of the holders of at least 50 % of
the Series D Preferred Stock, be deemed to be a Liquidation of the Company.
Voting Rights. The holders of the Series D Preferred Stock are entitled to
notice of all stockholders meetings in accordance with the Company's bylaws.
Except as otherwise provided by the DGCL, the holders of the Series D Preferred
Stock have no voting power whatsoever.
Conversion. Each share of Series D Preferred Stock is convertible into the
number of shares of the Company's Common Stock equal to (i) the Stated Value Per
Share plus a premium of 5% of the stated value from the date of issuance of the
Series D Preferred Stock divided by (ii) the Conversion Price. The Conversion
Price is equal to the lowest closing price of the Company's Common Stock on
Nasdaq during a measurement period ending one trading day prior to the
conversion date. The measurement period initially is 10 consecutive trading days
and will increase by 2 trading days each month beginning August 1, 1998 and
ending January 1, 1999, when the measurement period will be 22 trading days.
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The holders of the Series D Preferred Stock are subject to limits on the
number of shares they can convert at any one time. Unless the trading price of
the Common Stock on the date of conversion is greater than either $17 per share
or 125% of the then applicable Conversion Price, the following limits apply:
from the date of issuance until August 1, 1998, the Series D Preferred Stock may
not be converted; beginning on November 1, 1998, each holder of Series D
Preferred Stock may convert up to 30% of its initial holding of Series D
Preferred Stock into Common Stock ("Initial Holding"); beginning on February 1,
1998, it may convert up to 60% of its Initial Holding; beginning on April 4,
1998, it may convert up to 90% of its Initial Holding; and beginning on July 1,
1998, it may convert up to 100% of its Initial Holding.
The Series D Preferred Stock will automatically convert into Common Stock,
at the then applicable Conversion Price, on February 4, 2003.
The exercise price of the Investment Options is equal to the lesser of (a)
the average of $10.59 and the market price of the Company's common stock at the
end of 1998 and (b) 110% of the stock market price at the end of 1998. The
Investment Options may be exercised between January 1, 1999 and February 5,
2003.
Under an agreement with the purchasers of the Series D Preferred Stock and
the Investment Options, the Company has agreed to register under the Securities
Act of 1933 the resale of the Common Stock to be issued upon conversion of the
Series D Preferred Stock and upon exercise of the Investment Options.
The issuance of the Series D Preferred Stock is subject to Nasdaq's
Marketplace Rule 4460(i). The holders of the Series D Preferred Stock have
agreed that the Company will not issue more than 19.99% of the Common Stock upon
conversion of the Series C Preferred Stock or Series D Preferred Stock in the
absence of approval by the Company's stockholders. As of May 5, 1998, the number
of shares of Common Stock issued upon conversion of the Series D Preferred Stock
was 530,865, representing 4.79% of Common Stock outstanding on February 5, 1998.
PROPOSAL 5
RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1998. Ernst & Young LLP
served in this capacity for the years ended December 31, 1996 and 1997. A
representative of Ernst & Young LLP will attend the Meeting and will be afforded
an opportunity to make a statement if he or she desires to do so. It also is
expected the representative will be available to respond to appropriate
questions.
The appointment of auditors is approved annually by the Board and
subsequently submitted to the stockholders for ratification. The decision of the
Board is based on the recommendation of the Audit Committee. Before making its
recommendation to the Board for appointment of Ernst & Young LLP, the Audit
Committee carefully considered that firm's qualifications as auditors for the
Company. This included a review of its performance last year, as well as its
reputation for integrity and competence in the fields of accounting and
auditing. The Audit Committee has expressed its satisfaction with Ernst & Young
LLP in all of these respects.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S AUDITORS.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Meeting. If any other matters should be presented at the
Meeting for action, it is the intention of the persons named in the enclosed
Proxy to vote the shares they represent in their own discretion.
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VOTING PROCEDURES
Votes are tabulated by an Inspector of Election. Assuming the presence of a
quorum, directors are elected by the affirmative vote of a plurality of all the
votes cast by holders of Common Stock, and all other proposals are approved by
the affirmative vote of a majority of all the votes cast by holders of Common
Stock present in person or represented by a proxy at the Meeting. The Company
intends to include abstentions and broker non-votes as present or represented
for purposes of establishing a quorum for the transaction of business, to
include abstentions as shares entitled to vote and to exclude broker non-votes
from the calculation of shares entitled to vote with respect to any proposal for
which authorization to vote was withheld.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting of Stockholders must
be received by the Company no later than January 15, 1999 in order to be
considered for possible inclusion in the proxy statement and form of proxy
relating to that meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies is being borne by the Company. The Company
may reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone or electronic mail.
May 15, 1997
By order of the Board of Directors,
/s/ Russell B. Stevenson, Jr.
Russell B. Stevenson, Jr.
Secretary
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1484-PS-98
<PAGE> 24
PROXY
[LOGO] CYBERCASH, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 26, 1998
The undersigned hereby appoints William N. Melton, James J. Condon,
Russell B. Stevenson, Jr., or any of them, the proxies of the undersigned, with
full power of substitution, to vote all shares of Common Stock of CYBERCASH,
INC. which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held June 26, 1998, or any adjournment
thereof, as follows:
1. Election of Two Directors by all Stockholders
_____ FOR all nominees listed below _____ WITHHOLD AUTHORITY to vote
except as marked to the contrary for all nominees listed
below
Daniel C. Lynch and Charles T. Russell
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below):
2. Proposal to amend the Company's Certificate of Incorporation to increase the
number of shares of Common Stock authorized for issuance thereunder from 25
million shares to 40 million shares.
_____ FOR _____ AGAINST _____ ABSTAIN
3. Proposal to ratify and approve the sale of the Company's Series C Preferred
Stock and the issuance of Common Stock upon conversion of Series C Preferred
Stock.
_____ FOR _____ AGAINST _____ ABSTAIN
4. Proposal to ratify and approve the sale of the Company's Series D Preferred
Stock and the issuance of Common Stock upon conversion of Series D Preferred
Stock and in connection with the exercise of Investment Options.
_____ FOR _____ AGAINST _____ ABSTAIN
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5. Proposal to ratify the selection of Ernst & Young LLP as independent public
auditors for the Company.
_____ FOR _____ AGAINST _____ ABSTAIN
6. The proxies are authorized to vote in their discretion on any other matters
which may properly come before the Annual Meeting to the extent set forth in the
proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
LISTED PROPOSALS.
PLACE AN "X" HERE IF YOU PLAN TO VOTE YOUR SHARES AT THE MEETING. ____________
Execute proxy exactly as your name appears on this form. If stock is registered
in more than one name, each joint holder should sign. When signing as trustee,
executor or other fiduciary, please so indicate:
___________________ ______________________________ ____________
Signature of holder Signature of co-holder (if any) Date
2
