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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 0-27470
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CYBERCASH, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1725021
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
2100 RESTON PARKWAY
THIRD FLOOR
RESTON, VIRGINIA 20191
(Address of principal executive offices, including zip code)
(703) 620-4200
(Registrant's telephone number, including area code)
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Securities pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference on Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 19, 1999, was approximately $235,229,000 based upon the
last sale price reported for such date on the Nasdaq National Market. For
purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the Registrant have been excluded because such persons
may be deemed to be affiliates. This determination is not necessarily
conclusive.
The number of shares outstanding of the Registrant's Common Stock outstanding as
of March 19, 1999 was 19,781,291.
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ITEM 1. BUSINESS
EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DESCRIPTION OF OUR
BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS OR OUR
FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS ARE ONLY PREDICTIONS, AND ACTUAL
EVENTS OR RESULTS MAY BE MATERIALLY DIFFERENT FROM OUR PREDICTIONS. IN
EVALUATING THESE STATEMENTS, YOU SHOULD CONSIDER THE VARIOUS FACTORS IDENTIFIED
IN THIS ANNUAL REPORT, INCLUDING BUT NOT LIMITED TO THE MATTERS SET FORTH BELOW
UNDER THE HEADING, "RISK FACTORS".
OVERVIEW
CyberCash, Inc. (including our subsidiaries) (http://www.cybercash.com) is
a provider of payment software and services, enabling electronic commerce for
merchants operating either in the physical "brick and mortar" world or the
virtual world of the Internet. The company was organized on August 29, 1994 in
the State of Delaware, and was in the development stage from the date of
inception until December 1996. In February 1996, we completed our initial public
offering. During our first four years of existence, we developed and began
marketing technologies and services that provide secure, convenient means of
making and accepting payments over the Internet. In 1997, we established joint
ventures in Japan and Germany and a strategic licensing arrangement in the
United Kingdom to commercialize some of our payment solutions in these
countries. On April 30, 1998, we acquired ICVerify, Inc., a privately held
company providing payment processing software to merchants operating in the
physical world and on the Internet. In October 1998, we introduced our new
InstaBuy service (http://www.instabuy.com), based on our Agile Wallet
technology, which we offer to merchants, online communities and financial
institutions to simplify the way consumers make payments online.
We manage our business in three segments: "Payments", "InstaBuy" and
"International". Our Payments business markets the following payment processing
software products in the United States and internationally:
- ICVERIFY,
- PCVERIFY, and
- NetVERIFY.
and the following services in the United States:
- CashRegister secure payment service,
- PayNow Secure Electronic Check Service, and
- CyberCoin service.
The Payments business generates revenues from sales of software products and
fees from payment services. Revenues from sales of software consist primarily of
license fees and maintenance fees, and to a lesser extent from fees for
consulting and training services. We make our Payment services available to
online shoppers without charge. Revenues generated from payment services consist
of initial set-up fees and monthly recurring revenue streams derived from
monthly minimum charges and per transaction fees.
The InstaBuy business markets the InstaBuy service in the United States and
to strategic partners overseas. We make the InstaBuy service available to
consumers without charge. We currently generate revenues primarily through the
licensing of the technology to banks and other financial institutions, which
provide the InstaBuy service to their customers. Over time, we expect also to
generate revenue from merchants and other operators of online points-of-purchase
to which we deliver InstaBuy transactions.
The International business markets our payment services and technologies in
Germany, Japan, the United Kingdom and Canada. This segment of our business
currently generates revenues primarily from license and maintenance fees and
fees for development work associated with our overseas licensing activities.
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Most commerce is still conducted in the physical world. However, the
exchange of goods and services for payment over the Internet is growing. We
believe the continued growth of Internet commerce will depend in part on:
- the ability of buyers and sellers to use familiar forms of payment
online -- such as credit and debit cards and checks -- in a simple and
secure manner; and
- the availability of payment software and services that:
-- securely transmit and store payment information with minimal
interruption of a consumer's online experience;
-- are convenient for merchants to install and maintain;
-- connect merchants to major payment processors and financial
institutions;
-- facilitate familiar types of transactions from the physical world --
like bill payment and incentive or loyalty programs -- on the
Internet; and
-- provide common payment platforms for merchants selling goods and
services both at physical points-of-sale and electronic storefronts.
We also believe the demand for software-based payment solutions at physical
points-of-sale will continue to grow because of the declining cost of personal
computers and the increased functionality and flexibility provided by software
solutions. Electronic payments technologies were once provided primarily through
proprietary, hard-wired cash registers and terminals. Advances in personal
computing now make it possible for merchants to use open architecture
software-based solutions that run either on stand-alone personal computers or
PC-based cash registers or terminals. This enables merchants to consolidate
their points-of-sale into one personal computer or PC-based cash register
instead of using proprietary terminals or multiple point-of-sale terminals at
each cash register, and provides an opportunity for merchants to use the same
PC-based payment solution for electronic storefronts.
PAYMENTS
SOFTWARE
Our software products are designed to be installed on personal computers or
PC-based cash registers for use in handling physical, mail or telephone order
and online sales. These payment solutions make it possible for merchants to:
- authorize, settle and capture VISA, MasterCard, JCB, American Express,
Discover/Novus and private-label credit card transactions to their bank
accounts, in real-time mode (ICVERIFY and PCVERIFY also support batch
processing offline);
- obtain check verification;
- establish connectivity with most U.S.-based financial institutions and
large payment processors, including First Data Corporation, Paymentech,
Global Payment Systems (Novus), NOVA and Vital Processing Services
(VisaNet); and
- access transaction data for tracking and reporting purposes.
ICVERIFY operates on a number of popular operating system platforms,
including Windows, DOS, SCO, HP-UX, Solaris, and AIX, while PCVERIFY operates on
Windows and NetVERIFY operates on Windows, Solaris and AIX. The products also
support open platform magnetic stripe card readers, PIN pads and magnetic ink
check readers, as well as address verification services (AVS) provided by some
payments processors to reduce the risk of fraudulent transactions.
The ICVERIFY suite of products provides a common payment platform for
merchants that wish to process transactions at physical, telephone or mail order
and electronic points-of-sale. In addition, NetVERIFY is
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designed for merchants to use at one or multiple electronic points-of-sale, or
by commerce service providers to provide payment processing functionality for
multiple merchants as part of a merchant store hosting solution.
We operate subsidiaries in the United Kingdom and Germany to sell versions
of ICVERIFY and PCVERIFY that meet European processor specifications for credit
and debit card transactions. We plan to continue to expand our software sales in
other markets outside the United States as the growth of electronic commerce
warrants.
PAYMENT SERVICES
CashRegister Secure Payment Service
The CashRegister secure payment service is a host-based service that we
operate on our servers for Internet merchants, removing them from the burden of
operating their own payment software. The service enables merchants to:
- authorize, settle and capture VISA, MasterCard, JCB, American Express,
Discover/Novus and private-label credit card transactions to their bank
accounts, in real-time or offline batch mode;
- establish connectivity with most U.S.-based financial institutions and
payment processors, including First Data Corporation, American Express,
Paymentech, Global Payment Systems (Novus), NOVA, Vital Processing
Services (VisaNet) and Wells Fargo Bank; and
- use browser software from an enabled personal computer to access
transaction data for reporting or tracking purposes.
The service also supports address verification services offered by some payment
processors to reduce the risk of fraudulent transactions.
The CashRegister solution is a simple and cost-effective solution for
merchants that want to begin accepting payments over the Internet with minimal
up-front investment. Since most of the functionality and storage is performed by
our host servers, the CashRegister solution simplifies the process for merchants
to begin accepting payment transactions, while minimizing the number of software
updates that a merchant needs to install on its client server. The client
software also is designed to integrate easily with storefront software packages,
and is scalable for various levels of transaction volumes. In addition, the
CashRegister service is designed for merchants to use at one or multiple
electronic points-of-sale, or for commerce service providers to use to provide
payment processing functionality to multiple merchants as part of a merchant
store hosting solution.
PayNow Secure Electronic Check Service
Introduced in 1997, the PayNow Secure Electronic Check Service enables
billers to accept real-time payment from consumer checking accounts of bills
presented on the Internet. PayNow is built on the same platform as our
CashRegister payment service, making it an integrated option available to
merchants using our CashRegister payment services.
CyberCoin Service
The CyberCoin service enables merchants to accept the electronic equivalent
of cash payments over the Internet. We introduced this service primarily to
enable Internet merchants to accept relatively low-value payments from consumers
in a convenient, cost-effective manner. The service is intended to provide an
alternative to credit cards as a form of payment since the cost of processing a
credit card transaction is large relative to the size of smaller payments.
THE INSTABUY SERVICE AND AGILE WALLET TECHNOLOGY
Our InstaBuy service makes Internet shopping easier by simplifying and
harmonizing the online buying experience for consumers. The service allows
consumers to transmit payment and shipping information with a single mouse-click
to any merchant, portal, or commerce aggregator that uses the InstaBuy service.
It provides a
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consistent user experience at all enabled merchants, making it unnecessary for
consumers to master different navigation paths or remember multiple passwords.
The InstaBuy service is built on CyberCash's Agile Wallet platform, a
technology for facilitating retail e-commerce transactions. The Agile Wallet
technology is a hosted consumer application that we primarily operate on behalf
of sponsoring financial institutions. It consists essentially of a database
containing consumer payment information and a simple, configurable user
interface or "electronic wallet". We brand and customize the user interface to
the specifications of the sponsoring financial institution, which can then
promote the service to its retail customers and online points-of-purchase such
as large Internet merchants, portals, online communities and shopping
aggregators. Over time, we expect to add a variety of new payment instruments,
features and functions.
The InstaBuy service responds to a need to simplify the process of
completing online sales. As much as two-thirds of all Internet "shopping carts"
that have items placed in them are abandoned by consumers before completing a
purchase. One factor that contributes to this high "drop-off" rate is that
consumers find it annoying and difficult to have to type in shipping addresses
and payment information each time they buy something online. For merchants, the
InstaBuy service offers a solution to this problem that we believe should
increase the volume of completed sales.
For financial institutions, the branded user interface offers a way to
project their brand on the Internet, presenting it to customers each time they
engage in a credit card transaction. The convenience of the InstaBuy service
also serves as a value-added utility that financial institutions can offer to
their customers to build loyalty. By making it easier for consumers to shop, and
by promoting the use of their cards within the branded user interface, credit
card issuers may be able to increase revenues they generate from interchange
fees and interest on outstanding receivables. Financial institutions can also
use the InstaBuy service as a vehicle to offer new products and services to
their customers.
INTERNATIONAL
We provide the CyberCoin and CashRegister services through our joint
ventures in Japan and Germany. In addition, Barclays Bank plc offers the
BarclayCoin service, based upon our CyberCoin technologies, and has selected our
secure payment technologies as the foundation for an Internet-based payment
system that Barclays is building. We plan to continue to expand our service
offerings in markets outside the United States as the growth of electronic
commerce warrants.
MARKETING AND DISTRIBUTION
PAYMENTS
Software
Our acquisition of ICVerify has allowed us to enter the physical market and
to market software-based payment solutions for Internet commerce. To sell these
products, we rely upon direct sales to a relatively small number of large
merchants and on our telemarketing sales team to sell directly to smaller
merchants. However, because we lack the internal sales and marketing resources
to achieve volume and revenue goals, we leverage our direct sales efforts
through a number of marketing channels. These channels include:
- Payment processors in the United States, including First Data
Corporation (including CardNet, Envoy, FDR, NaBANCO and Telemoney),
Paymentech, Global Payment Systems (including National Data Corporation,
MAPP and Modular Data, Inc.), NOVA, Novus and Vital Processing Services;
- Financial Institutions and independent sales organizations, some of
which resell our products and services, and others that sell the
products and services under private label; and
- Value-added resellers, hardware vendors and developers of
"store-builder" software packages to integrate our payment capabilities
into their products.
To facilitate installation and integration of our software products, we support
value-added resellers and integrators through their participation in our
Integration Partnership Program.
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CashRegister Secure Payment Service
We market the CashRegister secure payment service primarily to small- to
medium-sized merchants because of the ease of its set-up and relatively small
up-front costs. To sell this service, we have a direct sales force but rely
primarily upon our distribution channels, which include payment processors,
financial institutions, Internet service providers, hardware vendors and
developers of "store-builder" software packages that integrate our payment
capabilities into their products. We support web-hosting service providers,
technology integrators and value-added resellers through their participation in
our Merchant Development Partnership and Technology Partnership programs.
PayNow Secure Electronic Check Service
We market the PayNow Secure Electronic Check Service primarily through
firms that provide technology and services that enable large billers to present
bills to customers over the Internet. These firms include Bluegill Technologies,
Inc., the Digital Cities unit of America Online, eDocs, Inc., International
Billing Services, Inc., Microvault, Inc. NCR Corporation, Microsoft, Netscape,
Novazen, Oracle and Pitney-Bowes. In addition, with the recent integration of
our PayNow service into our CashRegister technology, we distribute the PayNow
service into existing distribution channels for our credit payment services.
CyberCoin Service
The U.S. market for the CyberCoin service has not matured as we had
originally anticipated. For that reason, we have ceased offering downloads of
the wallet software needed to use the service, and we plan to suspend the
service in the United States and Canada in the second quarter of 1999. We
anticipate, however, that there eventually will be a viable market for
cash-equivalent payment services in the United States and Canada. As that market
evolves, we will consider offering cash-equivalent payment services to our
merchant and consumer customers again.
In some markets outside North America, there appears to be greater demand
for cash-equivalent payments on the Internet. We plan to continue to offer the
CyberCoin services through our joint venture partners located in Japan and
Germany, as well as through Barclays Bank plc.
THE INSTABUY SERVICE AND AGILE WALLET TECHNOLOGY
Our goals are to obtain the agreement of several large financial
institutions to sponsor the issuance of InstaBuy wallets, to have the service
adopted by a substantial number of Internet merchants, and to distribute
InstaBuy wallets to large numbers of consumers. To meet these goals, we market
the InstaBuy service primarily to the largest issuers of credit cards in the
United States and abroad. We rely in part on these issuers to encourage larger
Internet merchants to participate in the InstaBuy service and to issue wallets
that they sponsor. We also enter into agreements with Internet portals to
promote the InstaBuy service. We market the InstaBuy service directly through
our own sales force, senior executives and website and indirectly through a
variety of channels, including Internet service providers, Internet portals, and
credit card processors.
INTERNATIONAL
We expect commerce on the Internet to become increasingly global. For that
reason, a component of our strategy is to support credit and cash-equivalent
payment and Euro currency conversion services offered by our joint ventures
partners in Japan and Germany, and to license our technology to financial
institutions, including Barclays Bank in the United Kingdom.
COMPETITION
The market for Internet commerce software and services is relatively new,
intensely competitive, quickly evolving, and subject to rapid technological
change. We expect competition to continue to increase in the future. Many of our
current and potential competitors have longer operating histories, greater name
recognition, larger installed customer bases and significantly greater
financial, technical and marketing resources than CyberCash. In
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addition, many of our current or potential competitors, such as Microsoft, have
broad distribution channels that may be used to bundle competing products and
services directly to end-users or purchasers. If these competitors were to
bundle competing products or services for their customers, the demand for our
products and services may be substantially reduced, and our ability to
successfully distribute our products and deploy our services would be
substantially diminished. In addition, we compete against custom payment
solutions built by in-house information technology engineers. We cannot assure
you that we will be able to compete effectively with current or future
competition, or that the competitive pressures we face will not have a material
adverse effect on our business, financial condition or operating results.
PAYMENTS
ICVERIFY and PCVERIFY
For payment processing solutions in the physical retail environment, our
current and potential competitors include makers of proprietary cash registers
and point-of-sale terminals, such as Verifone, a subsidiary of Hewlett-Packard
Company, and Hypercom Corporation. Many of these firms, and smaller software
firms, are also developing or marketing open platform software solutions to
compete with ICVERIFY and PCVERIFY. These firms market their software through
many of the same distribution channels that we use. In addition, a number of
financial institutions and payment processors, many of which act as distribution
channels for our software, are our current or potential competitors, developing
or marketing payment processing software under private labels to facilitate
connections to their respective payment gateways.
NetVERIFY and CashRegister
Our competition for providing payment processing over the Internet is
fragmented. For larger merchants wishing to establish direct gateways to their
payment processors, our competitors include software vendors like ClearCommerce
Corporation, IBM and Open Market, Inc. However, these solutions tend to be more
expensive, and require a greater investment in onsite maintenance. For small- to
medium-sized merchants, most of our competitors -- such as Authorize. Net,
PaymentNet, Card Services International and CyberSource -- offer either a
software payment solution or a hosted service. Some of our competitors are
beginning or planning to offer both software and hosted services.
PayNow Secure Electronic Check Service
Our PayNow Secure Electronic Check Service competes with electronic payment
and direct deposit services offered by financial institutions and companies
providing various means of payment fulfillment. Our competitors include
CheckFree Corporation, Transpoint Networks (a joint venture of Microsoft and
First Data Corporation) and financial institutions like Citibank and Wells Fargo
Bank, each of which operates services that permit consumers to direct the
movement of funds from their checking accounts electronically. Many of our
competitors have agreements with most major billers, and are now (or will soon
be) offering these services through major Internet portals. In contrast, we have
positioned our PayNow service to allow billers to enroll their own consumers for
payment rather than rely on third parties.
INSTABUY SERVICE
We compete with providers of other electronic wallet-based technologies to
get merchants and Internet portals to accept and sponsor our Agile Wallet and
InstaBuy service. Our competitors include larger Internet portals, such as
Yahoo! and America Online, which provide registration services that permit a
form of "one-click" shopping. In addition, Microsoft, which operates a major
Internet portal through its MSN website, recently announced its intent to offer
one-click shopping functionality through its new Passport service. Each of these
major portals offers, or plans to offer, the functionality of "one-click"
shopping as a way of becoming a central consumer registration bureau. In
contrast, we position our InstaBuy service and Agile Wallet on the assumption
that consumers will prefer to register their financial information and
transaction history with financial institutions. As part of this strategy, we
seek to encourage portals to co-brand with banks in the process of building
consumer trust and relationships.
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Some of the companies with competing electronic wallet technologies also
compete with us for sponsorship from financial institutions. Their offerings
include software programs that must be installed on consumers' computers, and
offerings that take the form of services like ours. Most of the companies with
which we compete in this area are relatively small private companies. A few
larger companies offer wallets designed to conform to the Secure Electronic
Transactions (SET) protocol, which has yet to achieve market acceptance. These
include IBM, GlobeSet, and Trintech. Some of their offerings may be adapted to
use in a non-SET environment, and could thus compete directly with our Agile
Wallet as an offering to financial institutions.
YEAR 2000 COMPLIANCE
We are actively engaged in examining and taking corrective action to ensure
our readiness for, and to mitigate risks associated with, the year 2000. The
systematic assessment and remediation of year 2000-related issues, measured
against rigorous, consistent and objective standards is one of our top
objectives in 1999.
Our efforts are organized and managed by a formal, enterprise-wide project
team, which has executive sponsorship and representation from each of our
principal lines of business and our development, finance, operations, legal and
information technology teams. These efforts are in addition to less formal
efforts we conducted before the formal establishment of this project team in
November 1998. We currently estimate that our direct labor costs for addressing
year 2000 issues will be approximately $500,000.
We are following an approach adopted by many public reporting companies,
both within and outside the financial service and software industries, for
conducting our year 2000 readiness efforts. The approach identifies
approximately five phases to achieving readiness: awareness, inventory,
assessment, action and contingency planning. Our goal is for all internally
developed software contained in active releases of our products and services,
and all third party systems and services, to meet our definition of year 2000
compliance by September 30, 1999. We currently believe we are on target to meet
that goal.
In reviewing our own software and services, and the software, services and
systems of third parties, we define year 2000 compliance to mean that the
software, services and systems:
- accept input and provide output of data involving dates or portions of
dates before, during and after January 1, 2000 in a consistent, defined,
disclosed and unambiguous manner as to the appropriate century;
- Manage, store, manipulate, sort, sequence and perform calculations with
respect to data involving dates or portions of dates before, during and
after January 1, 2000, consistently and accurately;
- Recognize the year 2000 as a leap year; and
- Operate continuously and without error, malfunction or interruption
caused by or resulting from the change of the centuries from 1999 to
2000, or the transition from any date to any other date.
Our CashRegister 3.x payment service meets our definition of year 2000
compliance. In January 1999, we announced that we would be discontinuing support
of earlier versions of the CashRegister payment service (including the Secure
Transport Payment Service) during the fourth calendar quarter of 1999, and that
we would be providing migration tools to assist merchants in the free upgrade to
the CashRegister 3.x payment service. In February 1999, we announced that active
releases of ICVERIFY and PCVERIFY for Windows are year 2000 compliant, and we
began offering free upgrades to current users of our discontinued Windows
versions of these products. As we complete testing of our other products and
services, we plan to provide current users of our discontinued versions with
copies of year 2000-compliant versions for the same underlying operating system.
We maintain up-to-date information on our website (located at
http://www.cybercash.com) so that our customers and partners can stay informed
about the status of our internal testing, the products and services we recommend
they not use after December 31, 1999, and our definition of year 2000
compliance.
In conducting our assessment of year 2000 compliance, particularly for the
software that we develop for our products and services, we cannot control all
variables that may result in year 2000-related failures. For that reason, our
definition of year 2000 expressly excludes year 2000-related problems occurring
as a result of reasons falling outside our control. Those reasons include:
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- The party operating the software (who may be a merchant, an ISP hosting
a merchant's website or a software integrator responsible for
maintaining the merchant's integrated payment processing software)
failing to install a version of software that we announced on our
website is year 2000 compliant;
- Failure by software integrators to follow documented interface
specifications for our software, or to use and configure the software
for use in accordance with the documentation associated with the
software;
- Modification of software by the user or its agent in a manner that we
did not expressly authorize;
- Use, interaction or interface of our software with any software,
hardware or data that does not meet our definition for year 2000
compliance (which could include the underlying operating system of the
machine on which the software is hosted, or any other software used with
or in the host machine);
- The input of data or output of data from the software is in a format or
using a protocol that fails to meet our year 2000 compliance definition
and is specified by a payment processor, a user or third party; or.
- Code changes in our year 2000 compliant products or service-enabling
software that may be required by payment processors after we conduct
end-to-end testing with them. We plan to conduct end-to-end testing with
selected payment processors as their test environments become available.
We believe we are managing the risk of revenue and customer service
interruption due to the year 2000 threat to immaterial levels. However, existing
industry standards in year 2000 compliance efforts cannot guarantee 100%
accuracy, and there may be issues of which we are not yet aware. Accordingly, we
may experience future uncertainties regarding year 2000 compliance of our
services and products. We cannot assure you that all of our products and
services will be year 2000 compliant before all relevant change-over dates,
including January 1, 2000, January 3, 2000 (the first business day of the year
2000) and February 29, 2000. Nor can we assure you that our currently compliant
products will not contain undetected problems associated with year 2000
compliance. Such problems may result in litigation and/or increased expenses
negatively affecting our future operating results.
RESEARCH AND DEVELOPMENT
We intend to remain competitive by continuing to invest in research and
development. In 1999, we expect to focus on developing enhancements to our
existing products and services. In addition, we intend to adapt some of our
technologies to local processor specifications, currency and other requirements
for use in some non-U.S. markets, including Canada, Europe and Asia; however, we
intend to perform only a limited amount of development consulting work. Our
programmers and software engineering facilities are located in Reston, Virginia;
Oakland, California; and Bangalore, India.
Research and development expenses were approximately $9,029,000, $9,656,000
and $12,692,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. To date, all software development costs have been expenses as
incurred. We do not anticipate our research and development costs will increase
substantially in 1999.
EMPLOYEES
As of December 31, 1998, we had a total of 337 employees, 215 of whom are
based in the United States. We may increase the number of employees of our
development subsidiary in India. None of our employees is represented by a labor
union. We consider our relations with our employees to be good.
The CyberCash logo, ICVERIFY, PCVERIFY, NetVERIFY, CyberCoin and PayNow
Secure Electronic Check Service are registered trademarks or service marks of
CyberCash or its affiliates in the United States and other countries. CyberCash,
PayNow, InstaBuy and Agile Wallet are trademarks of CyberCash in the United
States and other countries. Any other trademarks, service marks and registered
trademarks and service marks that we reference in this Annual Report on Form
10-K belong to their respective owners.
CyberCash has been awarded U.S. Patent No. 5,870,473 for its "Electronic
Transfer System and Method." The patent describes a secure method for merchants
and customers to place orders for goods and services over
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any network, including the Internet. The patent covers encrypted transactions
between merchants and customers, linked by a server which brokers the
specific-merchant and specific-customer session for a specific period of time.
If either the merchant or the customer session occurs (or attempts to occur)
beyond a prescribed time period, the transaction is deemed to be invalid and no
transfer of funds or goods can take place. The patent covers small payments as,
for example, between merchants and consumers over the Internet, and large
payments such as between manufacturers and suppliers over a private network. The
patent was also awarded in Germany and is pending in other countries.
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY AND HAVE NOT YET OPERATED PROFITABLY.
We were founded in August 1994, and we have not yet operated at a profit.
Our limited operating history offers little information to serve as a basis for
evaluating us and our long-term prospects. You should consider our prospects in
light of the risks, expenses and difficulties that companies in their earlier
stage of development encounter, particularly companies in new and rapidly
evolving markets. Our success depends upon our ability to address those risks
successfully, which include, among other things:
- Whether we can continue to build and maintain a strong management
structure that can develop and execute our business strategy, and
respond effectively to changes in the markets for our services and
software products;
- Whether we can respond quickly and effectively to technological changes
and competitive forces in our markets;
- Whether we will be able to assemble and maintain the necessary
resources, especially talented software programmers, we will need to
develop and upgrade our technology to meet evolving market demands;
- Whether we will be successful in continuing to evolve and successfully
implement a sales and marketing strategy;
- Whether we will be able to develop and manage strategic relationships to
maximize widespread acceptance of our products and services; and
- Whether the effect of the volatility of the market price of our stock
will adversely affect our ability to sell our products and services,
develop strategic relationships, attract and maintain qualified
employees, and raise additional capital if necessary.
If we do not succeed in addressing these risks, our business likely will be
materially and adversely affected.
WE MAY CONTINUE TO EXPERIENCE LOSSES, WHICH WOULD DEPRESS OUR STOCK PRICE.
As of December 31, 1998, we had an accumulated deficit of $94,881,000.
Since we started our business, our revenues have been small compared to our
expenses. Our ability to generate significant revenue remains uncertain. We
expect to continue to incur operating losses at least through 1999, and perhaps
for some time thereafter. We may never achieve, or be able to sustain,
profitability.
THE DEVELOPMENT OF A MARKET FOR OUR PRODUCTS AND SERVICES IS UNCERTAIN.
The market for our services is still immature and is evolving rapidly. An
increasing number of market entrants have introduced or are developing competing
products and services to enable payment transactions over the Internet. Critical
issues concerning the Internet (including security, reliability, cost, ease of
use and quality of service) remain unresolved and may limit the growth of
electronic commerce. Delays in the deployment of improvements to the
infrastructure for Internet access, including higher speed modems and other
access devices, adequate capacity and a reliable network backbone, also could
hinder the development of the Internet as a viable commercial marketplace. For
all of these reasons, it remains uncertain whether commerce over the Internet
will continue to grow, a significant market for our products and services will
emerge, or our products and services will
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<PAGE> 11
become generally adopted. Even if such a market does develop, competitive
pressures may make it difficult, or impossible, for us to operate profitably.
THE MARKET FOR OUR PRODUCTS AND SERVICE MAY NOT GROW FAST ENOUGH TO SUPPORT
OUR LEVEL OF INVESTMENT, ADVERSELY AFFECTING REVENUES AND PROFITABILITY.
The growth of our business depends upon widespread acceptance of our
products and services. This is particularly true of our new InstaBuy service,
the deployment of which is a major element of our business strategy for 1999.
The success of this service will depend on our ability to obtain the agreement
of several large financial institutions to sponsor the issuance of InstaBuy
wallets, to have the service adopted by a substantial number of Internet
merchants, and to distribute InstaBuy wallets to large numbers of consumers.
Moreover, our ability to persuade merchants to use the service is dependent in
part on the number of consumers who are using wallets; and our ability to
motivate consumers to use wallets is dependent in part on the number and type of
merchants that are using the service. To succeed, we will have to motivate both
groups to adopt the service simultaneously, which is particularly difficult. We
have only recently commenced operating the InstaBuy service, and we cannot
assure you that we will succeed in accomplishing any of these goals. Our failure
to accomplish these goals, or our inability to accomplish them on the
anticipated schedule, would have a material adverse effect on our business
WE EXPECT OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE.
Our quarterly operating results have varied significantly and probably will
continue to do so in the future as a result of a variety of factors, many of
which are outside our control:
- Sales of our ICVERIFY payment software and our CashRegister service are
affected by the reluctance of merchants to modify their payment systems
during the fourth calendar quarter holiday period and during the first
calendar quarter accounting and auditing period. Consequently, revenues
from sales of our payment software and sign-up fees for our CashRegister
service are likely to be lower during these periods than the balance of
the year.
- In some cases our customers pay one-time licensing or consulting fees in
connection with acquiring our payment services. The timing of the
recognition of fees varies, which contributes to quarterly fluctuations
in revenues. In addition, many of our distribution channels integrate
our services with other electronic commerce solutions. The timing for
these channels to complete the integration and deploy their solutions
into their distribution channel is unpredictable.
- Our InstaBuy service is new, and the pricing structures and timing of
the recognition of revenues for this service is unpredictable at this
time. In addition to these factors, as a strategic response to changes
in the competitive environment, we may from time to time make pricing
decisions, marketing decisions, licensing decisions or business
combinations that adversely affect our revenues or increase our costs.
We also anticipate that revenues may decline as customers focus their
financial and technical resources on responding to year 2000 issues
instead of adopting payment technologies such as our products and
services. Extraordinary events such as material litigation or
acquisitions also could result in fluctuations in our operating results
from one reporting period to the next.
For these reasons, period-to-period comparisons of our results of
operations are not necessarily a reliable indication of future performance.
Because of all of the foregoing factors, it is likely that our quarterly
operating results from time to time will be below the expectations of public
market analysts and investors. In that case, we expect that the price of our
common stock would be materially and adversely affected.
WE FACE INTENSE COMPETITION.
The payments and electronic wallet industries are new and evolving rapidly,
resulting in a dynamic, competitive environment for our Payments and InstaBuy
businesses. We expect competition to persist, intensify and increase in the
future. Many of our current and potential competitors have longer operating
histories, greater name recognition, larger installed customer bases and
significantly greater financial, technical and marketing
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<PAGE> 12
resources than we have. In addition, many of our current or potential
competitors, such as Microsoft, have broad distribution channels that they may
use to bundle competing products directly to end-users or purchasers. If these
competitors were to bundle competing products for their customers, it could
adversely affect our ability to market our products and services.
Competitive pressures have led us on occasion to reduce our prices. We
expect that competition in our markets will continue to increase and may force
us to reduce prices for some of our products and services. Unless we can
increase our volume or reduce our costs, any such reductions would have an
adverse effect on our profitability.
WE MUST ACHIEVE MARKET ACCEPTANCE AND DEVELOP NEW PRODUCTS AND SERVICES TO
ADDRESS TECHNOLOGICAL CHANGE.
Broad acceptance of our products and services and their use in large
numbers is critical to our success because a large portion of our revenues
derive from one-time fees charged to customers buying our products and services.
In addition, our ability to earn significant revenues from our InstaBuy service
will depend in part on its acceptance by a substantial number of prominent
online merchants. One obstacle to widespread market acceptance for our products
and services is that widely adopted technological standards for accepting and
processing payments over the Internet have not yet emerged. As a result,
merchants and financial institutions have been slow to select which service to
use. Until one or more dominant standards emerge, we must design, develop, test,
introduce and support new services to meet changing customer needs and respond
to other technological developments. Our technologies have not been accepted as
standards. To be successful, we must obtain widespread acceptance of our
technologies, or modify our products and services to meet whatever industry
standards do ultimately develop. It is not certain that we will be able to do
either.
WE MAY EXPERIENCE SOFTWARE DEFECTS AND DEVELOPMENT DELAYS, DAMAGING CUSTOMER
RELATIONS.
Services based on sophisticated software and computing systems often
encounter development delays, and the underlying software may contain undetected
errors or failures when introduced or when the volume of services provided
increases. We may experience delays in the development of our software products
or the software and computing systems underlying our services. In addition,
despite testing by us and potential customers, it is possible that our software
may nevertheless contain errors, and this could have a material adverse effect
on our business.
WE MAY EXPERIENCE BREAKDOWNS IN OUR PAYMENT PROCESSING SYSTEMS, HARMING OUR
BUSINESS.
The operations of our Payment, InstaBuy and International services depend
on whether we are able to protect our system from interruption by events that
are beyond our control. Events that could cause system interruptions are:
- fire,
- earthquake,
- power loss,
- telecommunications failure, and
- unauthorized entry or other events.
We have established two separate operations centers in Northern Virginia
that provide backup support for our services. In addition, we are building out a
third operations center, which we anticipate will be in operation before June
30, 1999. If one of these sites should cease operations because of a power
outage, fire, or natural disaster, the others should be able to take over with
only a minimal disruption in service. We have not, however, been able to test
the transfer of operations under emergency conditions, and we cannot be sure
that the transfer would be successful. Also, we have experienced growing
transaction volumes that have from time to time stressed the capacity of our
systems. There is a possibility that our existing systems may be inadequate and
cause serious failures of our services. Finally, although we regularly back up
data from operations, and take other
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measures to protect against loss of data, there is still some risk of such
losses. A system outage or data loss could materially and adversely affect our
business.
Despite the security measures we maintain, our infrastructure may be
vulnerable to computer viruses, hackers, rogue employees or similar sources of
disruption. Any damage or failure that causes interruptions in our operations
could have a material adverse effect on our business. Any problem of this nature
could result in significant liability to customers or financial institutions and
also may deter potential customers from using our services. We attempt to limit
this sort of liability through back-up systems, contractual provisions and
insurance. However, we cannot assure you that these contractual limitations on
liability would be enforceable, or that our insurance coverage would be adequate
to cover any liabilities we did sustain.
OUR OPERATIONS AND BUSINESS COULD BE DISRUPTED OR DAMAGED IF OUR SYSTEMS AND
PRODUCTS ARE NOT YEAR 2000 COMPLIANT.
We use computer software, operating systems, and embedded processors
containing programs in the development of our products and services, in the
delivery of our services and in our administrative and management operations.
The software we use in our products and in the delivery of our services
contains, in addition to code written by our programmers, some software that we
license from third parties. In addition, we rely on equipment and services
provided by other vendors that are susceptible to year 2000 problems. We are
reviewing the critical programs, systems and services we use (including those
provided by third party vendors) to assure that they are all able to handle
properly the upcoming calendar year 2000. On the basis of our work so far, we do
not anticipate that the year 2000 issue will have a material effect on our
business. It is, however, possible that problems will surface that have not yet
been identified that will require substantial time and resources to remedy. It
is also possible that we could fail to identify a problem with a resulting
failure or disruption of our operations. Either eventuality could have a
material adverse effect on our business.
OUR RESULTS MAY SUFFER IF WE ARE UNABLE TO ATTRACT AND MAINTAIN QUALIFIED
MANAGEMENT AND TECHNICAL PERSONNEL.
Our performance is substantially dependent on the performance of our
executive officers and key employees. We depend on our ability to retain and
motivate high quality personnel, especially our management and highly skilled
development teams. We do not have "key person" life insurance policies on any of
our employees. The loss of the services of any of our key employees,
particularly our founder and Chief Executive Officer, William N. Melton or our
President and Chief Operating Officer, James J. Condon, could have a material
adverse effect on us. Our future success also depends on our continuing ability
to identify, hire, train and retain other highly qualified technical and
managerial personnel. Competition for these employees is intense and increasing.
We may not be able to attract, assimilate or retain qualified technical and
managerial personnel in the future, and the failure of us to do so would have a
material adverse effect on our business.
WE HAVE A LIMITED SALES FORCE, AND RELY ON OUR DISTRIBUTION CHANNELS, WHICH
ARE NEW AND EVOLVING.
We have only a limited number of sales and marketing employees and,
therefore, we rely heavily on distribution channels for sales of our products
and payment services. Because of the rapidly evolving nature of electronic
commerce, we are not certain that the distribution channels with which we are
working will provide an adequate distribution network for us to achieve our
goals, or that we will be able to develop alternative channels.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, PERMITTING COMPETITORS TO
DUPLICATE OUR PRODUCTS AND SERVICES.
Our success and ability to compete is dependent in part upon our
proprietary technology. We rely primarily on copyright, trade secret and
trademark law to protect our technology. We hold one United States patent, and
have applied for several others in the United States and foreign countries. We
intend to continue to file patent applications on inventions that we may make in
the future. There can be no assurance that any of these patents will be granted,
or that if granted such patents would survive a legal challenge to their
validity, or provide meaningful levels of protection.
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We may have difficulties protecting our source code.
The source code for our proprietary software is protected both as a trade
secret and as a copyrighted work. We generally enter into confidentiality and
assignment agreements with our employees, consultants and vendors, and generally
control access to and distribution of our software, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our products, services or
technology without authorization, or to develop similar products, services or
technology independently. In addition, effective copyright and trade secret
protection may be unenforceable or limited in certain foreign countries, and the
global nature of the Internet makes it difficult to control the ultimate
destinations of our products or services. To license our products or services,
we often rely on "on-screen" licenses that are not manually signed by the
end-users and, therefore, may be unenforceable under some laws.
We may be required to engage in litigation to enforce our proprietary
rights.
Despite our efforts to protect our proprietary rights, third parties may
attempt to copy aspects of our products and services or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products and services is difficult, particularly in the global environment in
which we operate, and the laws of other countries may afford us little or no
effective protection of our intellectual property. We cannot assure you that the
steps that we have taken will prevent others from misappropriating our
technology or that these agreements will be enforceable.
We may engage in litigation related to our intellectual property for a
number of reasons, including to:
- Enforce our intellectual property rights,
- Protect our trade secrets,
- Determine the validity and scope of the proprietary rights of others, or
- Defend against claims of infringement or invalidity.
This litigation, whether successful or unsuccessful, could result in
substantial costs and diversions of resources, either of which could have a
material adverse effect on our business, financial condition or operating
results.
Our products and services may infringe claims of third party patents, which
could adversely affect our business and profitability.
We are aware of various patents held by independent third parties in the
area of electronic payment systems. It is possible that the holders of rights
under these patents could assert them against us. In fact, we have already
received notices of claims of infringement of other parties' proprietary rights.
We cannot assure you that our products and services are not within the scope of
patents held by others, either now or in the future. If any such claims are
asserted, we may seek to obtain a license under a third party's intellectual
property rights. There can be no assurance that such a license would be
available on reasonable terms or at all. We may also decide to defend against a
claim of infringement, but litigation, even if successful, is costly and may
have a material adverse effect on us regardless of the eventual outcome.
We rely in part on third party technology licenses.
We also rely on certain technology which we license from third parties,
including software which is integrated with internally developed software and
used in our software to perform key functions. We cannot assure you that third
party technology licenses will continue to be available to us on commercially
reasonable terms or at all. The loss of or inability to maintain any of these
technology licenses could result in delays in introduction of our services,
which could have a material adverse effect on our business, financial condition
or operating results.
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WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, WHICH MAY CHANGE AND HARM
OUR BUSINESS.
Our operations are subject to various state and federal regulations.
Because electronic commerce in general, and most of our products and services in
particular, are so new, the application of many of these regulations is
uncertain and difficult to interpret. The agencies responsible for the
interpretation and enforcement of these regulations could amend those
regulations or issue new interpretations of existing regulations. It is also
possible that new legislation may be passed that imposes additional burdens. Any
such change could lead to increased operating costs and could also reduce the
convenience and functionality of our products or services, possibly resulting in
reduced market acceptance. It is possible that new laws and regulations may be
enacted with respect to the Internet, covering issues such as user privacy,
pricing, content, characteristics and quality of products and services. The
adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the demand for our products or services
and increase our cost of doing business or could otherwise have a material
adverse effect on our business, financial condition or operating results.
WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL NEEDED TO OPERATE AND GROW OUR
BUSINESS.
We believe that our available cash resources combined with funds from
operations will be sufficient to meet our working capital and capital
expenditure requirements until our cash flow from operations turns positive. If
this belief should prove mistaken, we may be required to raise additional funds.
Alternatively, we may decide to raise additional funds in order to expand
operations, finance acquisitions or to finance other activities we decide may be
beneficial to our business. If we raise additional funds through the issuance of
equity securities, the percentage ownership of the stockholders of record will
be reduced, and stockholders may experience additional dilution. It is also
possible that new equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. Moreover, we cannot assure
you that additional financing will be available if we should need it. If
adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures, which could have a
material adverse effect on our business, financial condition or operating
results.
WE HAVE INTERNATIONAL OPERATIONS, AND CHANGES IN THESE MARKETS MAY UNDERMINE
OUR BUSINESS OBJECTIVES.
A component of our strategy is to expand our operations into international
markets. We have created joint ventures in Japan and Germany and have arranged
with Barclays Bank for the delivery of certain of our services in the United
Kingdom. The majority of our revenues in 1997 were derived from licensing fees
and customization work charged to these joint ventures and foreign strategic
allies. In 1998, only 13% of our revenues derived from these activities. We
anticipate that revenues derived from customization work and initial licensing
fees from these international operations will continue to decline over time. We
also have subsidiaries in the United Kingdom and Germany to customize and market
our products in Europe. The deployment of our products and services through our
joint ventures, alliances and subsidiaries in Japan and Europe is at an early
stage, and revenues have so far have been small. We do not know if our products
and services will be commercially successful in these markets, or will generate
significant revenues for our business.
WE MAY BE UNABLE TO SUCCESSFULLY ACQUIRE NEW BUSINESSES, PRODUCTS OR
TECHNOLOGIES NEEDED TO EFFECTIVELY COMPETE, OR TO MAKE THESE ACQUISITIONS
PROFITABLE ONCE ACQUIRED.
As our business evolves, we may acquire complementary products,
technologies, and businesses. Any significant acquisition would entail a risk
that we would not be successful in integrating and operating the acquired
business, product or technology. A failure to do so could have a material
adverse effect on us.
OUR STOCK PRICE IS VOLATILE.
The price of our common stock has been and likely will continue to be
subject to wide fluctuations in response to a number of events and factors, such
as:
- quarterly variations in operating results,
- variances of our quarterly results of operations from securities analyst
estimates,
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- announcements of technological innovations, new products, acquisitions,
capital commitments or strategic alliances by CyberCash or our
competitors,
- changes in financial estimates and recommendations by securities
analysts,
- the operating and stock price performance of other companies that
investors may deem comparable to us, and
- news reports relating to trends in our markets.
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced significant price and
volume fluctuations that often have been unrelated to the operating performance
of the companies affected by these fluctuations. These broad market fluctuations
may adversely affect the market price of our common stock, regardless of our
operating performance. Securities class action litigation has often been
instituted against companies that have experienced periods of volatility in the
market price for their securities. If we were to become the target of this kind
of litigation, the cost in dollars and management attention could be
substantial, and the diversion of management's attention and resources could
have a material adverse affect on our business.
EFFECTING A CHANGE OF CONTROL OF CYBERCASH WOULD BE DIFFICULT, WHICH MAY
DISCOURAGE OFFERS FOR SHARES OF OUR COMMON STOCK AND DEPRESS THE VALUE OF OUR
COMMON STOCK.
Our certificate of incorporation authorizes our board of directors to issue
up to 5,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges, including voting rights, of those shares without any
further vote or action by the stockholders. The rights of the holders of our
common stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. We also
have a stockholders rights plan. It provides for the issuance of rights if an
acquiror purchases 15 percent or more of our common stock without the approval
of our board of directors. The rights plan may have the effect of delaying,
deterring, or preventing changes in control or management of CyberCash, which
may discourage potential acquirors who otherwise might wish to acquire CyberCash
without the consent of our board of directors. The certificate of incorporation
provides for staggered terms for members of CyberCash's board of directors.
Certain provisions of our bylaws, the issuance of preferred stock, certain
provisions in the certificate of incorporation, the staggered board of directors
as well as applicable provisions of Delaware law could have a depressive effect
on our stock price or discourage a hostile bid in which stockholders could
receive a premium for their shares. In addition, these provisions could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock, or delay, prevent or deter a merger, acquisition,
tender offer or proxy contest for us.
THE COMMON STOCK WE ARE COMMITTED TO SELL AND MAY SELL IN THE FUTURE WILL
INCREASE THE AMOUNT OF OUR COMMON STOCK ON THE PUBLIC MARKET, CAUSING OUR STOCK
PRICE TO DECLINE.
As of March 19, 1999, there were no issued or outstanding shares of
preferred stock. As of March 19, 1999, we had granted warrants, investment
options and stock options to acquire an aggregate of 6,749,933 shares of our
common stock. In addition, we have made firm commitments to issue 304,878 shares
of our common stock and an equal number of warrants to acquire 228,659 shares of
our common stock for $5 million. We granted these securities and entered into
these commitments in connection with acquiring technologies, raising capital in
private placement transactions, entering into strategic alliances and providing
incentives to employees, consultants and non-employee directors under our stock
option plans. The issuance of preferred stock, or sales in the public market of
substantial amounts of shares acquired upon exercise of the foregoing warrants
and options, or the prospect of such sales, could adversely affect the market
price of our common stock.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information concerning CyberCash's
executive officers and key employees as of March 19, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William N. Melton.................... 56 Chairman and Chief Executive Officer
James J. Condon...................... 42 President, Chief Financial Officer and Chief Operating
Officer
Bruce G. Wilson...................... 51 Executive Vice President, International Operations
Denis Yaro........................... 45 Executive Vice President, InstaBuy Service
Nancy C. Goldberg.................... 40 Senior Vice President, Payments
Thomas P. Costello................... 50 Senior Vice President, Development
Kenneth E. Perez..................... 38 Senior Vice President, Marketing
Russell B. Stevenson, Jr............. 57 Senior Vice President, General Counsel and Secretary
</TABLE>
William N. Melton, a founder of CyberCash, has served as a member of its
board of directors and as its chief executive officer since its inception in
August 1994. He also served as CyberCash's president until January 1999. Mr.
Melton founded VeriFone, Inc., a transaction automation company, in 1981 and was
a director of VeriFone from 1981 until 1996, 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 also serves as a
director of America Online, Inc.
James J. Condon, has served as CyberCash's chief financial officer since
March 1997, as its chief operating officer since March 1998 and as its president
since January 1999. Before joining CyberCash, Mr. Condon was director of
performance improvement for the information, communications and entertainment
industries at KPMG Peat Marwick. From 1991 to 1995, he was corporate vice
president for financial planning and administration, and before that vice
president of operations, in the customer support and development divisions of
Legent Corporation. Mr. Condon serves as a director of Solutions Consulting, a
privately held company that consults to software companies about electronic
commerce and supply-chain management issues.
Bruce G. Wilson, a founder of CyberCash, has served in various capacities
since the company's inception and, since May 1996, as its executive vice
president for International Operations. Before joining CyberCash, Mr. Wilson
held a number of executive positions at NYNEX, a telecommunications company,
including as vice president for electronic funds transfer systems of NYNEX's
Information Solutions Group and vice president for sales and marketing of
NYNEX's Computer Services Group. Mr. Wilson is chairman of the board of
directors of the Electronic Funds Transfer Association. He helped establish the
EFTA's Prepaid Card (Smart Card) special interest group, of which he currently
is a member.
Denis Yaro has served as executive vice president running CyberCash's
InstaBuy business since June 1998. He joined CyberCash in January 1996 as vice
president for product development. Mr. Yaro served as executive vice president
for development before taking on his present responsibilities. Before joining
CyberCash, Mr. Yaro was vice president and general manager of Enterprise
Management Products at SunSoft and vice president and general manager of
SunConnect, both business units of Sun Microsystems, Inc.
Nancy C. Goldberg has served as CyberCash's senior vice president
responsible for the Payments business since October 1998. She joined CyberCash
in January 1998 as vice president for Internet Billing and Payment Services.
Before joining CyberCash, Ms. Goldberg was market director for financial
services at Proxicom, Inc., an Internet software developer, from October 1997 to
January 1998; chief executive officer and a co-founder of Verb, inc., a
developer of relational database-driven software, from 1994 to 1997; and a vice
president for Prudential Home Mortgage from 1991 to 1994, where she was
responsible for all applications systems. Before 1991, Ms Goldberg consulted
with the financial services industry group of Anderson Consulting.
Thomas P. Costello has served as CyberCash's senior vice president for
development since June 1998. From 1990 to May 1998, Mr. Costello was senior vice
president for research and development at INTERSOLV, Inc., a maker of software
development tools. Before joining INTERSOLV, Mr. Costello served as president
and chief
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executive officer of Mergent International, Inc., a software company he
co-founded to develop and market personal computer security products. Mr.
Costello serves as a director of Trigent Software, Ltd., a firm that performs
year 2000 remediation and assessment services.
Kenneth E. Perez has served as senior vice president for marketing since
November 1998. Before joining CyberCash, Mr. Perez held a variety of positions
within the Hewlett-Packard Company, including director of business development
for its Extended Enterprise Business Unit from June 1997; Worldwide Financial
Operations Manager for the Channel Products Support Division from December 1996
to May 1997; and Finance Department Supervisor for the Commercial Systems
Division from 1992 to November 1996.
Russell B. Stevenson, Jr. has served as general counsel and secretary of
CyberCash since April 1996 and as senior vice president since December 1997.
Before joining the company, Mr. Stevenson was a partner in the law firm of
Ballard Spahr Andrews & Ingersoll from 1993 to 1996 and a partner in Pepper
Hamilton & Scheetz from 1989 to 1993.
ITEM 2. PROPERTIES
The Company leases its principal facilities totaling approximately 44,000
sq. ft. in Reston, Virginia, and approximately 25,000 sq. ft. in Oakland,
California together with smaller facilities in Tennessee, New York, Ohio,
London, England, Munich, Germany, Hong Kong and Bangalore, India. Leases on
3,297 sq. ft. in the Reston, Virginia space expire in April 1999; with 7,740 sq.
ft. expiring in December 2000 and 5,642 sq. ft. expiring in June 2001; 1,040 sq.
ft. expiring in January 2002 and 25,926 sq. ft. expiring in March 2003. The
leases for the Oakland, California space expires in June 1999. The Company paid
fees of $65,000 to terminate these leases before their scheduled expiration
dates. The Company has entered into a new lease for office space of
approximately 25,000 sq. feet in the Oakland, California area, which it expects
to occupy beginning in May 1999. The Company believes that its existing Reston,
Virginia and new Oakland, California facilities will be adequate through at
least 1999 and that sufficient additional space will be available thereafter as
needed on terms acceptable to the Company.
The Company's processing facilities are presently located at the Company's
Reston, Virginia corporate headquarters and at an offsite back-up data center,
also located in Reston, Virginia. We are building out a 10,000 sq. ft. facility
for a third operations center, which we currently anticipate will be in
operation before June 30, 1999. Payment system processing is done on redundant
systems with frequent data backups. The system is physically housed in secured,
climate-controlled rooms. These geographically redundant systems protect against
system outage due to regional natural disasters or system failures, such as
power outages or telephone system failures. The Company's systems are capable of
uninterrupted operation despite the loss of power grid connections. The system
presently has the capacity to process a substantially greater volume of
transactions than are currently being received. The Company has three separately
routed telecommunications links to the Internet.
ITEM 3. LEGAL PROCEEDINGS
On June 30, 1998, we implemented a shareholder rights plan. Under the
shareholder rights plan as originally adopted, outstanding rights could only be
redeemed by "continuing directors" upon any person or group acquiring 15% or
more of the outstanding CyberCash common stock. The term "continuing directors"
was generally defined to mean directors who were members of the board at the
time the plan was adopted and any other person who subsequently became a member
of the board if a majority of the continuing directors had recommended or
approved that person's nomination for election to the board. A lawsuit was
brought on August 13, 1998 against CyberCash, its board of directors and James
J. Condon, as CyberCash's Chief Financial Officer. The suit claims that the
"continuing director" provision of the plan violated Delaware law, and sought
injunctive relief and unspecified damages. We entered into a settlement
agreement with the law firm representing the plaintiffs in this lawsuit, which
did not have material impact on our financial statements. We amended the plan on
December 11, 1998 as part of that settlement by eliminating provisions that
require certain actions to be taken only by these "continuing directors." We
understand that the law firm representing the plaintiffs has filed several
similar suits against other companies that have similar provisions in their
shareholder rights plans. We believe that the rights plan as originally adopted,
including the provisions related to "continuing directors", was
18
<PAGE> 19
in compliance with Delaware law. Nevertheless, to avoid the expense and
distraction of protracted litigation, we agreed to amend the shareholder rights
plan to eliminate the "continuing director" provisions. A hearing is scheduled
for April 6, 1999 before the Chancery Court of Delaware to consider and approve
the proposed settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
CyberCash's common stock is traded on the Nasdaq National Market under the
symbol "CYCH". The following table sets forth the high and low sales prices for
our common stock for the indicated periods during 1998, 1997 and 1996, as
reported by the Nasdaq National Market. We completed our initial public offering
in February 1996 at a price of $17.00 per share. On March 19, 1999, the closing
price of our common stock as reported by the Nasdaq National Market was $14.4375
per share. As of March 19, 1999, there were 367 holders of record of the common
stock.
<TABLE>
<CAPTION>
SALES PRICES
PER SHARE
--------------------
HIGH LOW
-------- --------
<S> <C> <C>
1996
February 15, 1996 to March 31, 1996......................... $ 64.50 $ 24.50
Second Quarter.............................................. 64.75 28.75
Third Quarter............................................... 54.75 23.50
Fourth Quarter.............................................. 40.50 20.75
1997
First Quarter............................................... $ 23.25 $ 12.75
Second Quarter.............................................. 18.00 10.75
Third Quarter............................................... 23.25 11.50
Fourth Quarter.............................................. 23.25 12.25
1998
First Quarter............................................... $ 17.0625 $ 10.4375
Second Quarter.............................................. 26.875 12.1875
Third Quarter............................................... 14.50 7.625
Fourth Quarter.............................................. 22.125 6.25
</TABLE>
We have never paid cash dividends on our capital stock. We currently intend
to retain earnings, if any, for use in our business and do not anticipate paying
any cash dividends in the foreseeable future.
Note 7 "Stockholders' Equity", Note 8 "First USA Warrants" and Note 16
"Events Subsequent to the Date of the Auditors Report (unaudited)" to the
Company's Consolidated Financial Statements, which are incorporated by this
reference into this Item 5, contain information concerning securities of the
Company that it sold during the three years ended March 19, 1999 which have not
been registered under the Securities Act.
19
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated statements of operations data for five years in
the period ended December 31, 1998 and the following consolidated balance sheet
data at December 31, 1998, 1997, 1996 1995 and 1994 should be read in
conjunction with the Consolidated Financial Statements of the CyberCash and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The historical operating results are not necessarily
indicative of future operating results.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 29,
1994
YEAR ENDED DECEMBER 31, (INCEPTION) TO
--------------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.......................................... $ 12,587,603 $ 4,487,173 $ 127,439 $ -- $ --
Cost of revenues.................................. 7,775,359 3,658,196 2,207,725 -- --
------------ ------------ ------------ ------------ -----------
Gross profit (loss)............................... 4,812,244 828,977 (2,080,286) -- --
Costs and expenses:
Research and development........................ 9,029,483 9,655,885 12,692,431 5,648,052 920,951
Sales and marketing............................. 14,599,418 9,603,299 9,414,656 1,772,365 56,200
General and administrative...................... 7,168,740 5,840,100 4,564,644 2,728,673 190,627
Amortization of intangible assets............... 5,164,056 -- -- -- --
Restructuring charges........................... 608,755 344,242 -- -- --
Write-off of NetBill technology license......... -- 2,162,500 -- -- --
------------ ------------ ------------ ------------ -----------
Loss from operations.............................. (31,758,208) (26,777,049) (28,752,017) (10,149,090) (1,167,778)
Interest income and expense....................... 915,040 1,460,568 2,197,276 142,895 14,284
Loss from investments in affiliates............... (101,280) (905,429) -- -- --
------------ ------------ ------------ ------------ -----------
Net loss.......................................... $(30,944,448) $(26,221,910) $(26,554,741) $(10,006,195) $(1,153,494)
Net loss available to common stockholders......... $(31,667,512) $(26,504,649) $(26,554,741) $(10,006,195) $(1,153,494)
============ ============ ============ ============ ===========
Basic and diluted loss per share.................. $ (2.15) $ (2.43) $ (2.77) $ (6.90) $ (0.80)
============ ============ ============ ============ ===========
Weighted average shares outstanding............... 14,707,723 10,898,036 9,585,418 1,450,000 1,450,000
============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 10,781,597 $ 24,035,699 $ 31,842,308 $ 3,421,115 $ 1,105,093
Total assets...................................... 93,324,471 31,359,274 41,050,081 7,386,224 1,719,014
Total liabilities................................. 5,730,266 1,752,946 2,940,595 2,273,022 378,991
Redeemable convertible preferred stock............ -- 13,013,772 -- 16,094,692 2,366,667
Accumulated Deficit............................... (94,880,788) (63,936,340) (37,714,430) (11,159,689) (1,153,494)
Stockholders' equity (deficit).................... 87,594,205 16,592,556 38,109,486 (10,981,490) (1,026,644)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Investors should read the following discussion in conjunction with the
accompanying consolidated financial statements and the notes thereto. Our
reported results for 1998, and the relationship between those results and the
results for prior years, are not necessarily indicative of our results in the
future. This discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. All statements
other than statements of historical fact made in this discussion and throughout
this Annual Report on Form 10-K are forward looking. Our actual results could
differ significantly from the results discussed in these forward-looking
statements.
In particular, the statements regarding industry prospects and future
results of operations or financial position are forward-looking statements.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Our actual results may differ significantly from
management's expectations. The
20
<PAGE> 21
following discussion and the section entitled "Risk Factors" in Item 1 of this
Annual Report on Form 10-K describe some, but not all, of the factors that could
cause these differences.
OVERVIEW
Our future operating performance will depend in large part on:
- the rate of growth of electronic commerce,
- our success at delivering products and services that meet market demands,
- our ability to maintain and expand our distribution channels,
- in the case of our new InstaBuy service, on our ability to form
additional alliances with banks and other financial institutions,
- strategic decisions by major participants in the industry,
- competitive pricing pressures,
- legal and regulatory developments, and
- general economic conditions.
Moreover, the market for electronic payment services is still new and changing
rapidly. We are not certain that our product and service offerings will find the
widespread market acceptance required to support our level of investment in
these offerings. Our revenue expectations have been based partly on expectations
of future demand rather than on actual experience. Most of our efforts before
1998 were devoted to business development and marketing in preparation for, and
anticipation of, the growth in electronic commerce. Largely, as a result of the
expenses associated with these efforts, our operating expenses increased each
quarter through the end of 1996, but they remained constant at approximately
$7.5 million for the five quarters ended March 31, 1998. We continued our
preparations in 1998, making significant investments to expand our technological
infrastructure to support the growth of our payment service and InstaBuy service
offerings. We also increased our marketing and sales expenditures, as we
concentrate on expanding our merchant base and deploying the InstaBuy service.
On April 30, 1998, we completed our acquisition of ICVerify, Inc., a
company that develops and markets payment systems software, for $16,250,000 in
cash, 2,300,000 shares of our common stock valued at $20.50 on April 30, 1998,
the conversion of outstanding vested and unvested stock options under ICVerify's
1995 Employee Stock Option Plan into stock options exercisable under the
CyberCash 1995 Employee Stock Option Plan for $7.0 million and transaction costs
of approximately $279,000. Our operating expenses increased to approximately
$12.5 million for the last three quarters of 1998, largely as a result of
consolidating ICVerify's operating results with ours. We expect to maintain our
operating expenses at approximately this level for the foreseeable future.
Although our research and development expenses fell slightly in 1998 from 1997,
we expect research and development expenses will increase slightly as we
continue to develop new products, services and enhancements to our existing
technology.
During 1997 and 1998, we continued our efforts to establish a strong market
position and to lay the foundations for growth in recurring revenues as
electronic commerce increases. In 1998, we reduced our reliance on revenues
generated by development work performed for strategic allies or joint venture
partners. We do not expect revenues from this kind of development work will be a
significant portion of our overall revenue in the future.
Electronic commerce appears to have become established, and promises to
continue to grow rapidly. In this environment, our success will depend largely
on our ability to continue to compete successfully in our established Payments
business, establish our Agile Wallet and the InstaBuy service, develop our new
products and services and market them successfully in a market that is becoming
increasingly competitive.
21
<PAGE> 22
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Our revenues for the year ended December 31, 1998 were $12,588,000 compared
to $4,487,000 for the year ended December 31, 1997. During 1998, we generated
approximately 82% of these revenues from our Payments business, 5% from our
InstaBuy program and 13% from International. In contrast, the majority of our
revenues in 1997 derived from licensing our Internet payment technology and fees
for development work associated with these licensing activities. We grew our
revenue stream from our credit payment services by approximately 35% from 1997.
This growth resulted in part from increasing our base of merchant customers by
approximately 150% and in part from implementing a new fee structure, under
which we charge merchants a set-up and monthly service fee in addition to
transaction fees. Of the total revenues from our Payments business,
approximately 35% derived from set-up fees for our payment services and one-time
perpetual license fees from the sale of our software products.
Our revenues from both software sales and payment service set-up fees are
subject to some seasonal variation. During the busy year-end holiday season,
merchants tend to focus their attention on selling, making them reluctant to
modify their payment systems. As a result, sales of payment software and
services are slower during that period. During the last half of 1998, revenues
from sales of our software products constituted approximately 50% of our total
revenues. We anticipate that revenues from sales of our payment software will
continue to represent a substantial portion of our total revenue for the
foreseeable future even though the market for Internet payment services is
likely to grow faster than the market for software payment products. As Internet
commerce continues to grow, we expect revenues from our payment services to grow
also, but the rate of this growth is likely to be slower due to substantial
increases in competition in our market. Competitive pressures have both affected
our market share and exerted downward pressure on prices for our payment
services. We also expect our sales of payment software to continue to grow, but
at a rate more consistent with growth of commerce in the physical "brick and
mortar" world than that of commerce on the Internet.
For the foreseeable future, a significant factor in the growth of our
revenues will be the success of our Agile Wallet technology and InstaBuy
service. We entered into an agreement in October 1998 to operate the service for
First USA Bank, the first financial institution to brand our Agile Wallet user
interface to its specifications and pay us to customize and operate the service
for it. Revenues from First USA and other financial institutions for issuing
branded Agile Wallets could be significant in 1999 and subsequent years.
However, because the program is new and untested in the marketplace, we cannot
predict with any confidence the amount of these revenues, the rate of revenue
growth, or whether, in fact, we will succeed in generating revenues from any
financial institution other than First USA Bank.
The long-term success of the InstaBuy service not only depends on our
ability to get other large financial institutions to sponsor and promote the
InstaBuy service but on consumers, Internet merchants, portals, online
communities and shopping aggregators. Because of the time it will take to enroll
significant numbers of merchants, and because of concessionary introductory
pricing arrangements, we do not anticipate generating significant revenues from
merchants in 1999.
OPERATING EXPENSES
Cost of Revenues. Cost of revenues consist primarily of the cost of
operations to provide transaction processing, customer service and the software
and hardware components for our software products. Cost of revenues increased by
$4,117,000 from $3,658,000 for the year ended December 31, 1997 to $7,775,000
for the year ended December 31, 1998 primarily as a result of costs incurred to
produce and distribute our software products, increasing the size of our
customer service and network operations staffs and expanding our technological
infrastructure with investments in computers, networking systems and
telecommunications equipment to support growing transactions volumes for our
service offerings.
Research and Development. Research and development expenses consist
primarily of compensation expense and consulting fees to support the development
of our service and product offerings and technologies.
22
<PAGE> 23
Research and development expenses decreased $627,000 from $9,656,000 for the
year ended December 31, 1997 to $9,029,000 for the year ended December 31, 1998.
This decrease was primarily due to our ability to shift portions of our
U.S.-based research and development efforts to our Bangalore, India development
subsidiary, where the cost of labor is less expensive. We plan to continue to
make significant investments in research and development. To date, all of our
software development costs have been expensed as incurred. We will continue to
expense similar costs until we can demonstrate that we may realize future
benefits from costs incurred to develop our software.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation expense and advertising and marketing costs. Sales and marketing
expenses increased $4,997,000 from $9,603,000 for the year ended December 31,
1997 to $14,599,000 for the year ended December 31, 1998. A large portion of
1998 and 1997 sales and marketing expense was related to raising brand awareness
of CyberCash through television and magazine advertisements. In addition, during
1998, we almost tripled the size of our direct sales force primarily through the
acquisition of ICVerify. We expect our sales and marketing expenses to increase
as we promote our InstaBuy and Payment offerings.
General and Administrative. General and administrative expenses consist
primarily of compensation expense for management and support personnel and fees
for professional services and other expenses not associated with our general
management and administration and not attributable to a particular source of
revenue, or type of expense. General and administrative expenses increased
$1,329,000 from $5,840,000 for the year ended December 31, 1997 to $7,169,000
for the year ended December 31, 1998. This increase primarily reflects an
increase in employees during 1998 as a result of acquiring of ICVerify and
internal growth. We anticipate that our general and administrative expenses will
continue to be significant as we continue to develop and expand our operations.
Amortization of Intangibles. We accounted for the acquisition of ICVerify
as a purchase. Accordingly, we allocated the purchase price to the assets and
liabilities acquired at their estimated fair value as of the date of
acquisition. Of the purchase price, we allocated $400,000 to ICVerify's net
assets, and the remainder to intangible assets. Intangible assets are being
amortized using the straight-line method over their estimated useful lives.
During 1998, the Company had $5,164,000 in amortization expense.
Restructuring Charges. We routinely evaluate and realign our
organizational structure in order to respond appropriately to the ever-changing
electronic commerce market space and to take advantage of cost-reduction
opportunities related to acquisitions. During 1998 and 1997, we recorded
restructuring charges of $609,000 and $344,000, respectively, as a result.
Acquisition of NetBill Technology License. In 1997, we entered into a
technology licensing agreement with Carnegie Mellon University ("CMU") whereby
we acquired the exclusive worldwide rights to CMU's NetBill technology for use
in network-based electronic commerce. Due to the uncertainty associated with the
realizability of the license acquired, we recorded a non-cash charge to
operations of $2,163,000 during 1997 for the cost of this license.
Interest Income. Interest income decreased $546,000 from $1,461,000 for
the year ended December 31, 1997 to $915,000 for the year ended December 31,
1998. We funded the acquisition of ICVerify and operating activities out of cash
generated from the Company's private placements in 1998.
Loss from Investments in Affiliates. For the years ended December 31, 1998
and 1997, we recognized losses of $101,000 and $905,000, respectively, related
to our share of the net losses of our affiliates.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, we had cash, cash equivalents and short-term
investments of $10,903,000 compared to $22,002,000 at December 31, 1997. The
decrease of $11,099,000 was a result of a net loss of $30,944,000 which was
offset primarily by non-cash expenses of $8,938,000 for depreciation,
amortization, provision for doubtful accounts, and losses from investments in
affiliates and disposal of property and equipment. In addition, we had cash
outflows for acquisitions and investments in affiliates of $15,693,000, capital
expenditures of $7,470,000 and investments in other long-term assets of
$1,500,000. These cash outflows were offset by proceeds
23
<PAGE> 24
from private placements during 1998 which resulted in net cash proceeds of
$33,062,000; cash provided by the sale of short-term investments of $8,780,000;
operating activities and the effect of exchange rates of $855,000; and cash
provided from a receivable from the sale of common stock of $559,000 and the
sale of CyberCash common stock through the Employee Stock Purchase Plan and the
exercise of stock options for a total price of $1,093,000.
We currently anticipate that our current available cash resources,
including the $10 million in private placement funds received in January 1999
and an additional $5 million in private placement funds, subject to a firm
commitment, combined with future cash flows from operations will be sufficient
to meet our presently anticipated cash needs, including our working capital
requirements for at least twelve to fifteen months. Thereafter, we may need to
raise additional funds.
We may need to raise additional funds sooner than anticipated in order to:
- fund more rapid expansion,
- develop new or enhanced services,
- respond to competitive pressures or
- acquire complementary businesses or technologies.
If we do raise additional funds through the issuance of equity securities,
the percentage ownership of the stockholders will be reduced, stockholders may
experience additional dilution, or equity securities issued may have rights,
preferences or privileges senior to those of common stockholders. We cannot
assure you that additional financing will be available now or in the future. If
adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance its services, take advantage of future
opportunities, or respond to competitive pressures, which could have a material
adverse effect on our business, financial condition or operating results. See
"Business -- Risk Factors." The common stock we are committed to sell and may
sell in the future will increase the amount of our common stock on the public
market, which could cause our stock price to decline.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
CyberCash's revenues for the year ended December 31, 1997 were $4,487,000
compared to $127,000 for the year ended December 31, 1996. During 1997, the
majority of our revenues derived from licensing our technology and from fees for
development work associated with licensing activities.
OPERATING EXPENSES
Cost of Revenues. Cost of revenues consist primarily of labor costs for
providing development work associated with licensing activities and the cost of
operations to provide transaction processing and customer support. Cost of
revenues increased $1,450,000 from $2,208,000 for the year ended December 31,
1996 to $3,658,000 for the year ended December 31, 1997 primarily as a result of
increased revenues for the year ended December 31, 1997 from development
associated with licensing activities.
Research and Development. Research and development expenses consist
primarily of compensation expense and consulting fees to support the development
of CyberCash's services and technologies. Research and development expenses
decreased $3,036,000 from $12,692,000 for the year ended December 31, 1996 to
$9,656,000 for the year ended December 31, 1997. This decrease was primarily due
to our ability to receive development contracts in 1997 from strategic alliances
and joint venture partners to finance a portion of our development work. In
addition, we shifted much of our research and development efforts to our
Bangalore, India facility, resulting in a significant cost savings.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation expense and advertising and marketing costs. Sales and marketing
expenses increased $188,000 from $9,415,000 for the year ended December 31, 1996
to $9,603,000 for the year ended December 31, 1997. A large portion of 1997
sales
24
<PAGE> 25
and marketing expense was related to raising brand awareness of through
television and magazine advertisements.
General and Administrative. General and administrative expenses consist
primarily of compensation expense and fees for professional services and other
expenses associated with the general management and administration of CyberCash.
General and administrative expenses increased $1,619,000 from $4,565,000 for the
year ended December 31, 1996 to $6,184,000 for the year ended December 31, 1997.
This increase primarily reflects an increase in depreciation, and in
professional fees related to international joint ventures and strategic
alliances.
Acquisition of Technology License. On March 21, 1997, entered into a
technology licensing agreement with Carnegie-Mellon University whereby CyberCash
acquired the exclusive worldwide rights to technology for use in network-based
electronic commerce. In accordance with the CyberCash's research and development
policy, we recorded a non-cash charge to operations of $2,163,000 during the
three months ended March 31, 1997, for the fair value of the common stock and
warrants issued in the acquisition of the technology license.
Interest Income. Interest income decreased $736,000 from $2,197,000 for
the year ended December 31, 1996 to $1,461,000 for the year ended December 31,
1997. CyberCash funded operating activities out of cash generated from its
initial public offering and concurrent private placement on February 15, 1996
and private placement August 5, 1997.
Loss from Investments in Affiliates. For the year ended December 31, 1997,
CyberCash recognized a $905,000 loss related to its share of net losses of its
investments in affiliates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
CyberCash, Inc.
We have audited the accompanying consolidated balance sheets of CyberCash,
Inc. as of December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CyberCash, Inc. at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Vienna, Virginia
January 26, 1999
26
<PAGE> 27
CYBERCASH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $10,902,532 $13,222,234
Short-term investments.................................... -- 8,779,773
Restricted cash........................................... 347,733 263,132
Accounts receivable, net of allowance of $1,050,835 at
December 31, 1998...................................... 4,661,574 2,706,776
Prepaid expenses and other current assets................. 600,024 816,730
----------- -----------
Total current assets................................... 16,511,863 25,788,645
Property and equipment, net................................. 9,050,162 4,671,350
Investment in affiliates.................................... 242,947 342,155
Other long-term assets...................................... 2,346,184 557,124
Goodwill and other intangibles, net......................... 65,173,315 --
----------- -----------
Total assets........................................... $93,324,471 $31,359,274
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,474,155 $ 801,252
Accrued employee benefits................................. 1,432,060 474,942
Other accrued expenses.................................... 853,268 266,946
Deferred revenue.......................................... 970,783 209,806
----------- -----------
Total current liabilities.............................. 5,730,266 1,752,946
Commitments
Series C redeemable convertible Preferred Stock, $.001 par
value; 15,000 shares designated and issued, 13,500
shares outstanding at December 31, 1997................ -- 13,013,772
Stockholders' equity:
Common Stock, $.001 par value; 25,000,000 shares
authorized, 19,129,722 shares issued and 19,109,722
shares outstanding as of December 31, 1998 and
11,075,246 shares issued and 11,055,246 shares
outstanding as of December 31, 1997.................... 19,130 11,075
Additional paid-in capital................................ 183,265,162 81,896,532
Accumulated deficit....................................... (94,880,788) (63,936,340)
Treasury stock, 20,000 shares at cost..................... (120,000) (120,000)
Receivable from sale of Common Stock...................... (267,724) (803,338)
Accumulated other comprehensive income.................... (420,750) (332,288)
Unearned compensatory stock options....................... (825) (123,085)
----------- -----------
Total stockholders' equity............................. 87,594,205 16,592,556
----------- -----------
Total liabilities and stockholders' equity............. $93,324,471 $31,359,274
=========== ===========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product sales...................................... $ 6,478,191 $ -- $ --
Service offerings.................................. 6,109,412 4,487,173 127,439
------------ ------------ ------------
Total revenues.................................. 12,587,603 4,487,173 127,439
Cost of revenues:
Product sales...................................... 1,738,963 -- --
Service offerings.................................. 6,036,396 3,658,196 2,207,725
------------ ------------ ------------
Total cost of revenues.......................... 7,775,359 3,658,196 2,207,725
Gross profit (loss).................................. 4,812,244 828,977 (2,080,286)
Costs and expenses:
Research and development........................... 9,029,483 9,655,885 12,692,431
Sales and marketing................................ 14,599,418 9,603,299 9,414,656
General and administrative......................... 7,168,740 5,840,100 4,564,644
Amortization of intangibles........................ 5,164,056 -- --
Restructuring charges.............................. 608,755 344,242 --
Write-off of NetBill technology license............ -- 2,162,500 --
------------ ------------ ------------
Loss from operations................................. (31,758,208) (26,777,049) (28,752,017)
Interest income and expense.......................... 915,040 1,460,568 2,197,276
Loss from investments in affiliates.................. (101,280) (905,429) --
------------ ------------ ------------
Net loss............................................. $(30,944,448) $(26,221,910) $(26,554,741)
============ ============ ============
Basic and diluted loss per share..................... $ (2.15) $ (2.43) $ (2.77)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RECEIVABLE
FROM ACCUMULATED
COMMON STOCK ADDITIONAL SALE OF OTHER
-------------------- PAID-IN ACCUMULATED TREASURY COMMON COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT STOCK STOCK INCOME
---------- ------- ------------ ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995..................... 2,062,500 $ 2,063 $ 1,981,843 $(11,159,689) $ -- $(1,156,908) $ --
Initial public offering
and concurrent private
placement, net of
expenses................. 3,736,540 3,737 58,270,385 -- -- -- --
Common Stock issued in
connection with
conversion of Series A
and B Preferred Stock.... 4,700,000 4,700 15,999,083 -- -- -- --
Common Stock issued in
connection with the
exercise and subsequent
conversion of Series B
Preferred Stock
warrants................. 128,342 128 90,781 -- -- -- --
Exercise of Common Stock
options.................. 81,431 82 386,887 -- -- -- --
Common Stock issued in
connection with Employee
Stock Purchase Plan...... 23,449 22 338,815 -- -- -- --
Treasury stock received in
satisfaction of
receivable from sale of
Common Stock............. -- -- -- -- (120,000) -- --
Repayment of receivable
from sale of Common
Stock.................... -- -- -- -- -- 398,070 --
Accrued interest on
receivable from sale of
Common Stock............. -- -- -- -- -- (61,395) --
Compensation expense in
connection with stock
options.................. -- -- 133,668 -- -- -- --
Amortization of deferred
compensation............. -- -- -- -- -- -- --
Comprehensive Income
Net loss................. -- -- -- (26,554,741) -- -- --
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (87,569)
Comprehensive income.....
---------- ------- ------------ ------------ --------- ----------- ---------
Balance at December 31,
1996..................... 10,732,262 10,732 77,201,462 (37,714,430) (120,000) (820,233) (87,569)
========== ======= ============ ============ ========= =========== =========
<CAPTION>
UNEARNED
COMPENSATORY TOTAL
STOCK EQUITY
OPTIONS (DEFICIT)
------------ ------------
<S> <C> <C>
Balance at December 31,
1995..................... $(648,799) $(10,981,490)
Initial public offering
and concurrent private
placement, net of
expenses................. -- 58,274,122
Common Stock issued in
connection with
conversion of Series A
and B Preferred Stock.... -- 16,003,783
Common Stock issued in
connection with the
exercise and subsequent
conversion of Series B
Preferred Stock
warrants................. -- 90,909
Exercise of Common Stock
options.................. -- 386,969
Common Stock issued in
connection with Employee
Stock Purchase Plan...... -- 338,837
Treasury stock received in
satisfaction of
receivable from sale of
Common Stock............. -- (120,000)
Repayment of receivable
from sale of Common
Stock.................... -- 398,070
Accrued interest on
receivable from sale of
Common Stock............. -- (61,395)
Compensation expense in
connection with stock
options.................. -- 133,668
Amortization of deferred
compensation............. 288,323 288,323
Comprehensive Income
Net loss................. -- (26,554,741)
Foreign currency
translation
adjustment............. -- (87,569)
------------
Comprehensive income..... (26,642,310)
--------- ------------
Balance at December 31,
1996..................... (360,476) 38,109,486
========= ============
</TABLE>
29
<PAGE> 30
CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
RECEIVABLE
FROM ACCUMULATED
COMMON STOCK ADDITIONAL SALE OF OTHER
-------------------- PAID-IN ACCUMULATED TREASURY COMMON COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT STOCK STOCK INCOME
---------- ------- ------------ ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996..................... 10,732,262 10,732 77,201,462 (37,714,430) (120,000) (820,233) (87,569)
Sale of Common Stock...... 10,000 10 132,490 -- -- -- --
Exercise of Common Stock
options.................. 94,377 95 530,540 -- -- -- --
Common Stock and Warrants
issued in Connection with
acquisition of NetBill
technology license....... 120,000 120 2,162,380 -- -- -- --
Common Stock issued in
connection with Employee
Stock Purchase Plan...... 35,451 35 441,533 -- -- -- --
Common Stock issued in
connection with the
conversion of Series C
Preferred Stock.......... 83,156 83 1,507,109 -- -- -- --
Accretion of Series C
Preferred Stock.......... -- -- (282,739) -- -- -- --
Repayment of receivable
from sale of Common
Stock.................... -- -- -- -- -- 64,227 --
Accrued interest on
receivable from sale of
Common Stock............. -- -- -- -- -- (47,332) --
Compensation expense in
connection with stock
options.................. -- -- 274,571 -- -- -- --
Amortization of deferred
compensation............. -- -- (70,814) -- -- -- --
Comprehensive Income
Net loss................. -- -- -- (26,221,910) -- -- --
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (244,719)
Comprehensive income.....
---------- ------- ------------ ------------ --------- ----------- ---------
Balance at December 31,
1997..................... 11,075,246 11,075 81,896,532 (63,936,340) (120,000) (803,338) (332,288)
========== ======= ============ ============ ========= =========== =========
<CAPTION>
UNEARNED
COMPENSATORY TOTAL
STOCK EQUITY
OPTIONS (DEFICIT)
------------ ------------
<S> <C> <C>
Balance at December 31,
1996..................... (360,476) 38,109,486
Sale of Common Stock...... -- 132,500
Exercise of Common Stock
options.................. -- 530,635
Common Stock and Warrants
issued in Connection with
acquisition of NetBill
technology license....... -- 2,162,500
Common Stock issued in
connection with Employee
Stock Purchase Plan...... -- 441,568
Common Stock issued in
connection with the
conversion of Series C
Preferred Stock.......... -- 1,507,192
Accretion of Series C
Preferred Stock.......... -- (282,739)
Repayment of receivable
from sale of Common
Stock.................... -- 64,227
Accrued interest on
receivable from sale of
Common Stock............. -- (47,332)
Compensation expense in
connection with stock
options.................. -- 274,571
Amortization of deferred
compensation............. 237,391 166,577
Comprehensive Income
Net loss................. -- (26,221,910)
Foreign currency
translation
adjustment............. -- (244,719)
------------
Comprehensive income..... (26,466,629)
--------- ------------
Balance at December 31,
1997..................... (123,085) 16,592,556
========= ============
</TABLE>
30
<PAGE> 31
CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
RECEIVABLE
FROM ACCUMULATED
COMMON STOCK ADDITIONAL SALE OF OTHER
-------------------- PAID-IN ACCUMULATED TREASURY COMMON COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT STOCK STOCK INCOME
---------- ------- ------------ ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997..................... 11,075,246 11,075 81,896,532 (63,936,340) (120,000) (803,338) (332,288)
Sale of Common Stock...... 376,701 377 3,799,623 -- -- -- --
Issuance of Common Stock
in connection with the
acquisition of ICVerify,
Inc...................... 2,300,000 2,300 54,228,654 -- -- -- --
Exercise of Common Stock
options.................. 336,426 336 649,483 -- -- -- --
Common Stock issued in
connection with Employee
Stock Purchase Plan...... 54,829 55 442,855 -- -- -- --
Common Stock issued in
connection with the
conversion of Series C
and Series D Preferred
Stock.................... 4,986,520 4,987 42,994,227 -- -- -- --
Accretion of Series C and
D Preferred Stock........ -- -- (723,064) -- -- -- --
Repayment of receivable
from sale of Common
Stock.................... -- -- -- -- -- 558,978 --
Accrued interest on
receivable from sale of
Common Stock............. -- -- -- -- -- (23,364) --
Amortization of deferred
compensation............. -- -- (23,148) -- -- -- --
Comprehensive Income
Net loss................. -- -- -- (30,944,448) -- -- --
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (88,462)
Comprehensive income.....
---------- ------- ------------ ------------ --------- ----------- ---------
Balance at December 31,
1998..................... 19,129,722 $19,130 $183,265,162 $(94,880,788) $(120,000) $ (267,724) $(420,750)
========== ======= ============ ============ ========= =========== =========
<CAPTION>
UNEARNED
COMPENSATORY TOTAL
STOCK EQUITY
OPTIONS (DEFICIT)
------------ ------------
<S> <C> <C>
Balance at December 31,
1997..................... (123,085) 16,592,556
Sale of Common Stock...... -- 3,800,000
Issuance of Common Stock
in connection with the
acquisition of ICVerify,
Inc...................... -- 54,230,954
Exercise of Common Stock
options.................. -- 649,819
Common Stock issued in
connection with Employee
Stock Purchase Plan...... -- 442,910
Common Stock issued in
connection with the
conversion of Series C
and Series D Preferred
Stock.................... -- 42,999,214
Accretion of Series C and
D Preferred Stock........ -- (723,064)
Repayment of receivable
from sale of Common
Stock.................... -- 558,978
Accrued interest on
receivable from sale of
Common Stock............. -- (23,364)
Amortization of deferred
compensation............. 122,260 99,112
Comprehensive Income
Net loss................. -- (30,944,448)
Foreign currency
translation
adjustment............. -- (88,462)
------------
Comprehensive income..... (31,032,910)
--------- ------------
Balance at December 31,
1998..................... $ (825) $ 87,594,205
========= ============
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(30,944,448) $(26,221,910) $(26,554,741)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 3,152,584 2,403,259 1,343,832
Amortization of goodwill and intangible assets............ 5,164,056 -- --
Provision for doubtful accounts receivable................ 236,068 -- --
Write-off of NetBill technology license................... -- 2,162,500 --
Loss from investments in affiliates....................... 101,280 905,429 --
Loss on disposal of property and equipment................ 208,716 4,679 --
Accrued interest on receivable from sale of Common
Stock................................................... (23,364) (47,332) (61,395)
Compensation expense related to stock options............. 99,112 441,152 421,991
Changes in operating assets and liabilities, net of effect
of acquisition of ICVerify:
Restricted cash......................................... (84,601) (13,132) (250,000)
Accounts receivable..................................... (1,392,759) (2,555,011) (151,765)
Prepaid expenses and other current assets............... 348,710 (122,668) (294,547)
Other long-term assets.................................. (176,333) 80,390 (512,345)
Accounts payable and accrued expenses................... 2,011,040 (1,307,455) 577,573
Deferred revenue........................................ 237,639 119,806 90,000
------------ ------------ ------------
Net cash used in operating activities............... (21,062,300) (24,150,293) (25,391,397)
INVESTING ACTIVITIES
Sale(purchase) of short-term investments.................... 8,779,773 (8,779,773) --
Acquisition of ICVerify, net of cash received............... (15,690,498) -- --
Investments in affiliates................................... (2,072) (1,247,584) --
Investment in other long-term assets........................ (1,500,000) -- --
Purchases of property and equipment......................... (7,470,220) (1,449,628) (5,406,578)
------------ ------------ ------------
Net cash used in investing activities............... (15,883,017) (11,476,985) (5,406,578)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock...................... 3,800,000 132,500 58,274,122
Proceeds from exercise of stock options..................... 649,819 530,635 386,969
Proceeds from issuance of Common Stock through the Employee
Stock Purchase Plan....................................... 442,910 441,568 338,837
Proceeds from receivable from sale of Common Stock.......... 558,978 64,227 278,070
Proceeds from issuance of Series D Preferred Stock.......... 29,262,370 14,238,225 --
------------ ------------ ------------
Net cash provided by financing activities........... 34,714,077 15,407,155 59,277,998
------------ ------------ ------------
Effect of exchange rate changes on cash and cash
equivalents............................................... (88,462) (244,719) (87,569)
------------ ------------ ------------
Net (decrease)/increase in cash and cash equivalents........ (2,319,702) (20,464,842) 28,392,454
Cash and cash equivalents at beginning of year.............. 13,222,234 33,687,076 5,294,622
------------ ------------ ------------
Cash and cash equivalents at end of year.................... $ 10,902,532 $ 13,222,234 $ 33,687,076
============ ============ ============
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of Common Stock and Common Stock Options to acquire
ICVerify, Inc............................................. $ 54,230,954 $ -- $ --
============ ============ ============
Conversion of Preferred Stock to Common Stock............... $ 42,999,214 $ 1,507,192 $ --
============ ============ ============
Accretion of Stated Value of Preferred Stock................ $ 723,064 $ 282,739 $ --
============ ============ ============
Treasury stock received in satisfaction of receivable from
sale of Common Stock...................................... $ -- $ -- $ 120,000
============ ============ ============
Exercise of Series B Preferred Stock warrants, net of shares
required to satisfy exercise price........................ $ -- $ -- $ 267,380
============ ============ ============
Supplemental disclosure of acquisition of ICVerify:
Assets and intangibles acquired............................. $ 72,489,536 $ -- $ --
Liabilities................................................. 1,728,649 -- --
Common Stock and stock options.............................. 54,230,954 -- --
------------ ------------ ------------
16,529,933 -- --
Less: Cash received......................................... 839,435 -- --
------------ ------------ ------------
Cash paid................................................... $ 15,690,498 $ -- $ --
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
CyberCash, Inc. ("CyberCash" or the "Company") was incorporated on August
29, 1994 in the state of Delaware and was in the development stage from date of
inception through December 31, 1996. CyberCash is a leader in secure, convenient
payment software and services, enabling e-commerce for merchants operating
either in the physical "brick and mortar" world or the virtual world of the
Internet.
CyberCash solutions are the preferred choice for financial institutions,
software developers and integrators, commerce and Internet service providers,
and technology partners, offering unmatched ease and flexibility in integrating
payment capabilities into value-added offerings to customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of CyberCash and
its subsidiaries. All significant inter-company transactions have been
eliminated in consolidation.
Investments in unconsolidated joint ventures and affiliates in which the
Company has the ability to exercise significant influence over the investee but
has less than a controlling interest are accounted for using the equity method.
The Company records its share of net losses in its unconsolidated joint ventures
accounted for under the equity method to the extent of its investment balance.
Investments in affiliates in which the Company does not have the ability to
exercise significant influence over the investee and has less than a controlling
interest are accounted for using the cost method. The Company has no further
investment obligations or guarantees to its unconsolidated joint ventures and
affiliates.
CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid financial instruments purchased
with original maturities of three months or less to be cash equivalents. Cash
equivalents consist of investments in highly rated corporate debentures and
commercial paper, having maturities of less than three months, and a money
market mutual fund, which consists of U.S. government agency obligations and
highly rated corporate debentures, having maturities of less than three months.
These securities are recorded at cost, which approximates fair market value. The
Company has not experienced any losses on these investments. Restricted cash, in
the form of certificates of deposit, secure Company credit cards held by
employees for business expenses and a stand-by letter of credit issued as
security on leased property.
SHORT-TERM INVESTMENTS
Short-term investments consisted of high-grade commercial paper with
original maturities beyond three months and less than twelve months. The
Company's short-term investments were classified as available-for-sale and were
stated at cost, which approximated fair market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the asset's
estimated useful life ranging from 3 to 5 years.
ASSET IMPAIRMENT
Each year, management determines whether any property and equipment or any
other long-lived asset has been impaired based on the criteria established in
Statement of Financial Accounting Standards No. 121,
33
<PAGE> 34
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
Disposed of". The Company has not made any adjustments to the carrying values of
its assets to date.
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets are recorded at cost and amortized using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Developed technology........................................ 3 years
Assembled workforce......................................... 5 years
Trademark and tradename..................................... 10 years
Goodwill.................................................... 10 years
</TABLE>
The Company evaluates the recoverability of goodwill and other intangible
assets based on estimated, undiscounted operating income over the amortization
periods, giving consideration to sales and cost benefits expected to be realized
by the consolidated entity from the acquisition and integration of acquired
entities.
AGENCY FUNDS
Customer cash balances available for CyberCoin transactions are deposited
in insured accounts with financial institutions in which the Company acts as the
agent for its customers pending payment settlement. These funds are considered
neither an asset nor a liability of the Company. As of December 31, 1998 and
1997, the balance of funds held in agency accounts totaled approximately
$179,000 and $124,000, respectively.
FOREIGN CURRENCY TRANSLATION
Results of operations for foreign entities are translated to U.S. dollars
using average exchange rates during the year. Assets and liabilities are
translated to U.S. dollars using the exchange rate in effect at the balance
sheet dates. Resulting translation adjustments are reflected in stockholders'
equity as accumulated other comprehensive income.
REVENUE RECOGNITION
On January 1, 1998, the Company adopted AICPA Statement of Position 97-2
("SOP 97-2") "Software Revenue Recognition" (as amended by SOP 98-4 and SOP
98-9) which provides guidance in recognizing revenue on software transactions.
Accordingly, the Company recognizes transaction processing revenues, merchant
set-up and account fees, hardware and software product sales, software
development and technology license fees as the related services are performed or
products are shipped, assuming collectability is probable, fees are fixed, and
persuasive evidence of an arrangement exits.
In those cases where customers have duplication rights for the software
products, revenue is recognized upon receipt of reports of units produced by the
customers. Revenues from the sale of product maintenance and support is
recognized ratably over the term of the agreement, which in most cases is one
year. In arrangements that include more than one element, the Company allocates
the total fee among each deliverable based upon their relative fair value as
determined by vendor-specific objective evidence.
RESEARCH AND DEVELOPMENT COSTS
The Company has expensed its product development costs as research and
development costs. It will continue to expense such costs until the
realizability of the Company's technologies can be established.
34
<PAGE> 35
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ADVERTISING COSTS
All costs related to advertising the Company's products are expensed in the
period incurred. During 1998, 1997 and 1996 advertising costs were $716,000,
$2,135,000 and $167,000, respectively.
RESTRUCTURING CHARGES
The Company evaluates and realigns its organizational structure in order to
respond to changes in the market and to take advantage of cost-reduction
opportunities. Costs related to corporate reorganizations conducted upon the
Company's comprehensive review of its key business lines have been classified as
restructuring charges. These charges include costs for severance and lease
termination charges related to downsizing the workforce. Restructuring charges
have been paid during the year in which they were incurred.
INCOME TAXES
The Company provides for income taxes in accordance with the liability
method. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
STOCK BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with
the provisions of APB No. 25. The Company presents pro forma disclosures of net
loss and net loss per share as if SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") which established the fair value method of
accounting for employee stock options has been adopted.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The estimates involve judgments with respect to, among other
things, various future factors which are difficult to predict and are beyond the
control of the Company. Actual results could differ from those estimates.
CONCENTRATION OF RISK
The Company acts as an intermediary and facilitator for automated clearing
house and credit card transactions. The Company is exposed to risks associated
with returned transactions, merchant fraud and transmission of erroneous
information related to these transactions. The Company has not incurred
significant losses for these risks to date.
The Company performs ongoing credit evaluations of its customers' financial
conditions and generally does not require collateral with regards to its
accounts receivable. The Company maintains reserves for credit losses and such
losses have been within management's expectations.
RECLASSIFICATION
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
35
<PAGE> 36
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RECENT PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued AICPA Statement of Position
98-1 ("SOP 98-1") "Accounting for the Costs of Software Developed or Obtained
for Internal Use" which is required to be adopted by the Company for all
financial periods ending after December 15, 1998. SOP 98-1 provides guidance in
capitalizing software that is developed in-house or purchased. The Company does
not believe SOP 98-1 will have a material impact on the Company's financial
statements.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Computer equipment.......................................... $11,013,000 $6,339,000
Furniture and fixtures...................................... 1,216,000 766,000
Office equipment............................................ 1,338,000 663,000
Leasehold improvements...................................... 2,241,000 810,000
----------- ----------
15,808,000 8,578,000
Less accumulated depreciation............................... 6,758,000 3,907,000
----------- ----------
$ 9,050,000 $4,671,000
=========== ==========
</TABLE>
4. ACQUISITION OF ICVERIFY, INC.
On April 30, 1998, CyberCash acquired all the outstanding shares of common
stock of ICVerify, Inc. ("ICVerify") from its shareholders for $70.7 million,
including fees and expenses. The purchase price included $16.25 million in cash,
2.3 million shares of CyberCash Common Stock valued at $20.50 on April 30, 1998,
the conversion of outstanding vested and unvested stock options under ICVerify's
1995 Employee Stock Option Plan into stock options exercisable under the
CyberCash 1995 Employee Stock Option Plan for $7.0 million and transaction costs
of approximately $279,000. The consolidated financial statements include the
results of operations of ICVerify since the date of acquisition.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been preliminarily allocated to the assets and liabilities
acquired at the estimated fair value as of the date of acquisition. Of the
purchase price, $400,000 was allocated to ICVerify's net assets, and the
remainder was allocated to intangible assets, as follows:
<TABLE>
<S> <C>
Developed technology........................................ $ 2,700,000
Assembled workforce......................................... $ 800,000
Trademark and tradename..................................... $ 1,500,000
Goodwill.................................................... $65,300,000
</TABLE>
Accumulated amortization is approximately $5,164,000 at December 31, 1998.
36
<PAGE> 37
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITION OF ICVERIFY, INC. -- (CONTINUED)
The Company's unaudited pro forma consolidated condensed statements of
income for the years ended December 31, 1998 and 1997, assuming the acquisition
of ICVerify was effected at the beginning of each period, is summarized as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ------------------
<S> <C> <C>
Revenue............................................ $ 15,182,000 $ 11,740,000
Net loss........................................... $(35,612,000) $(37,540,000)
Net loss available to Common Stockholders.......... $(36,335,000) $(37,823,000)
Weighted average shares outstanding................ 15,463,887 13,198,036
Basic and diluted earnings per share............... $ (2.35) $ (2.87)
</TABLE>
This pro forma information does not purport to be indicative of the results
which may have been obtained had the acquisition been consummated at the date
assumed.
5. COMMITMENTS
The Company has entered into various operating lease agreements for office
and equipment. The leases generally contain renewal options. Future minimum
lease payments under non-cancelable operating lease agreements, with initial or
remaining terms in excess of one year, as of December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999........................................................ $1,410,000
2000........................................................ 1,156,000
2001........................................................ 1,056,000
2002........................................................ 1,011,000
2003........................................................ 517,000
Thereafter.................................................. 1,843,000
----------
$6,993,000
==========
</TABLE>
During the years ended December 31, 1998, 1997 and 1996, the Company
recognized approximately $2,346,000 $1,751,000, and $1,371,000, respectively, in
rent expense. During 1998, 1997 and 1996, the Company recognized approximately
$123,000, $257,000 and $25,000, respectively, in sub-lease rental income.
On August 11, 1998, in connection with one of the Company's office space
leases, the Company entered into a one-year standby letter of credit for $70,000
on behalf of the landlord.
At the end of 1998, the Company entered into an agreement with an
affiliated company for a five-year sub-lease of office space. Minimum future
sub-lease rents to be received under this sub-lease as of December 31, 1998 are
approximately $442,000.
In March 1999, the Company signed a lease for new office space of
approximately 25,000 square feet in Oakland, California for a lease term of
approximately 5 years beginning in May 1999.
6. ACQUISITION OF NETBILL TECHNOLOGY LICENSE
On March 21, 1997, the Company entered into a technology licensing
agreement with Carnegie Mellon University ("CMU") for exclusive worldwide rights
to CMU's NetBill technology for use in network-based electronic commerce. The
consideration for the license included 120,000 shares of Common Stock, plus
Warrants to purchase an additional 50,000 shares of the Company's Common Stock
at an exercise price of $16.45 per share. The Warrants are divided into 25,000
Class A Warrants and 25,000 Class B Warrants. Each class will become exercisable
in five equal annual installments of 5,000 Warrant shares, beginning on March
21, 1998 and
37
<PAGE> 38
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACQUISITION OF NETBILL TECHNOLOGY LICENSE -- (CONTINUED)
will expire on March 21, 2007. However the exercise of the Class B Warrants is
also conditioned upon the achievement of certain milestones which, as of
December 31, 1998, have not been met. In addition, the Company will pay annual
cash royalties of $75,000 over the next four years. The Company will expense
these royalty payments in the year paid. Due to the uncertainty associated with
the realizability of the license acquired, the Company recorded a non-cash
charge to operations during 1997 of $2,162,500 for the fair value of the Common
Stock and Class A Warrants issued in the acquisition of the NetBill technology
license.
7. STOCKHOLDERS' EQUITY
INITIAL FUNDING
In October 1994, the Company sold 2,500,000 shares of Series A redeemable
convertible Preferred Stock ("Series A Preferred Stock") at $2.00 per share.
During August and September 1995, the Company issued a total of 2,200,000 shares
of Series B redeemable convertible Preferred Stock ("Series B Preferred Stock")
at $5.00 per share and detachable warrants, at a cost of approximately $91,000,
to purchase up to 181,818 shares of Series B Preferred Stock at $5.00 per share.
The Series A and Series B Preferred Stock and related warrants were converted
into 4,828,342 shares of Common Stock upon the closing of the Company's initial
public offering in February 1996.
INITIAL PUBLIC OFFERING
On February 15, 1996, the Company completed its initial public offering of
2,760,000 shares of Common Stock, resulting in net proceeds of approximately
$42,835,000. Concurrent with the initial public offering, the Company issued
976,540 shares of Common Stock in a private placement, which generated proceeds
of approximately $15,439,000.
PRIVATE PLACEMENTS
On August 5, 1997, the Company completed a private placement with two
institutional investors for 15,000 shares of the Company's Series C redeemable
convertible Preferred Stock ("Series C Preferred Stock") with a stated value of
$1,000 per share resulting in net proceeds of approximately $14,200,000. During
1998 and 1997, the investors converted 13,500 and 1,500 shares of the Series C
Preferred Stock into 1,303,244 and 83,156 shares, respectively, of Common Stock.
On both February 5, 1998 and July 14, 1998, the Company completed private
placements of equity securities. The Company issued an aggregate of 30,000
shares of $.001 par value Series D Convertible Preferred Stock, with a stated
value of $1,000 per share ("Series D Preferred Stock") and options to purchase
up to an aggregate of 708,382 shares of the Company's Common Stock ("Investment
Options"). The Investment Options may be exercised between January 1, 1999 and
February 5, 2003 at an exercise price of $12.80 per share. The two private
placements resulted in net proceeds of approximately $14,409,000 and
$14,800,000, respectively. As of December 31, 1998, the Series D Preferred Stock
was converted into 3,683,276 shares of Common Stock.
Based on the terms of the Series C and Series D Preferred Stock private
placements, dividends of five percent were due to be accreted on the outstanding
Preferred Stock. During 1998, dividends of approximately $154,000 and $569,000
were accreted on the Series C and Series D Preferred Stock, respectively. During
1997, dividends of approximately $283,000 were accreted on the Series C
Preferred Stock.
On January 6, 1999, the Company issued 609,719 Units, each Unit of which
consists of one share of the Company's Common Stock and a Warrant to purchase
0.75 shares of the Company's Common Stock for $16.40 per Unit in a private
placement for net proceeds of approximately $9,980,000. The Warrants are
initially exercisable for 457,317 shares of Common Stock. The Company is
committed to sell, and the investors have
38
<PAGE> 39
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY -- (CONTINUED)
agreed to purchase, an additional 304,859 Units for an additional $5.0 million
in cash after the registration statement covering the $15.0 million private
placement, filed in February 1999, is declared effective by the Securities and
Exchange Commission. The exercise price for each Warrant contained in a Unit is
initially set at $20.00. If the average closing bid price of the Company's
Common Stock over the 10 trading days preceding January 6, 2000, January 6, 2001
and January 6, 2002 is less than the $20.00 exercise price ("Reset Price"), the
exercise price may be reset on these dates to the Reset Price. If an adjustment
of the exercise price occurs, the number of shares of Common Stock that can be
issued upon exercise of the Warrants would proportionately increase. The
Warrants will expire on January 6, 2004.
On July 17, 1998, Garen Staglin, a Director of the Company, bought 16,701
shares of CyberCash Common Stock for an aggregate purchase price of $200,000. On
September 16, 1998, William N. Melton, Chairman and Chief Executive Officer,
completed the purchase of 350,000 shares of CyberCash Common Stock for an
aggregate purchase price of $3.5 million. In addition, Michael L. Rothschild, a
Director of the Company, bought 10,000 shares of CyberCash Common Stock for an
aggregate purchase price of $100,000. Messrs. Melton and Rothschild paid for
their shares at a premium to the then current fair market value of Common Stock,
and Mr. Staglin paid for his shares at the then current fair market value of
Common Stock. As of March 29, 1999, the Company had not registered for resale
any of the shares acquired by Messrs. Melton, Staglin or Rothschild.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock in one or more series with such rights, preferences and privileges as
determined by the Board of Directors.
8. FIRST USA WARRANTS
In November 1998, the Company issued the following warrants to First USA
Bank (the "FUSA Warrants") in connection with an Operating Agreement ("Operating
Agreement") entered into in October 1998. Under the Operating Agreement, the
Company has agreed to license its Agile Wallet technology to and operate a
branded version of its InstaBuy service for First USA, which will be promoted by
both companies. The warrants are fully vested and non-forfeitable as of January
1, 1999. All of the FUSA Warrants expire on September 30, 2003.
The warrants are accounted for in accordance with the provisions of EITF
96-18, "Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services." As
a result, the warrants were valued in November 1998 at approximately $5.6
million. This amount will be expensed over the remaining term of the Operating
Agreement, which extends to October 2003.
<TABLE>
<CAPTION>
RIGHT TO PURCHASE
NUMBER OF SHARES OF ELIGIBLE DATE OF EXERCISE AT
COMMON STOCK EXERCISE PRICE STATED EXERCISE PRICE
------------------- -------------- ------------------------------------
<S> <C> <C> <C>
Warrant No. 1............... 600,000 $12.50 January 1, 1999 - June 30, 1999
$17.00 July 1, 1999 - December 31, 1999
$32.00 January 1, 2000 - September 30, 2003
Warrant No. 2............... 600,000 $17.00 January 1, 1999 - December 31, 1999
$32.00 January 1, 2000 - September 30, 2003
Warrant No. 3............... 1,000,000 $32.00 January 1, 1999 - September 30, 2003
</TABLE>
As of March 29, 1999, the Company had not registered for resale any of the
shares underlying any of the warrants granted to First USA Bank.
39
<PAGE> 40
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK OPTIONS
The Company's 1995 Stock Option Plan ("Option Plan") provides for incentive
and non-statutory stock option grants and their respective exercise prices to be
made at the discretion of the Compensation Committee of the Board of Directors
to employees, officers, employee directors and consultants. However, the
exercise price of the incentive stock options and the non-statutory stock
options can not be less than 100% and 85%, respectively, of the fair market
value of the Common Stock on the date of grant. The Option Plan reserves
3,500,000 shares of Common Stock for issuance upon the exercise of options.
Stock options 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. The
terms of stock options granted under the Option Plan may not exceed 10 years.
During the year ended December 31, 1995, employees exercised 500,000
options in exchange for notes receivable totaling $1,130,000. As of December 31,
1998, approximately $249,000 of the notes receivable balance and approximately
$18,000 of interest accrued on the notes receivable balance remained
outstanding. During 1998 and 1996, the Company received approximately $559,000
in cash and, 20,000 shares of treasury stock and $225,000 in cash, respectively,
in satisfaction of employees' notes receivable.
During 1995, the Company recognized deferred compensation expense of
$752,000 for the difference between the exercise price and the deemed fair
market value on the date of grant of stock options. The Company is amortizing
this amount ratably over the vesting period of the options, which are 40 to 64
months. During the years ended December 31, 1998, 1997 and 1996, the Company
recognized approximately $99,000, $441,000 and $422,000, respectively, of
compensation expense related to Common Stock options. Included in the
compensation expense for 1998 and 1997 is $23,000 and $275,000, respectively,
related to accelerated vesting of stock options for terminated employees.
The Company's 1995 Non-Employee Directors' Plan ("Directors' Plan")
provides for the automatic grant of options to purchase shares of Common Stock
to non-employee directors of the Company. Upon election to the Board of
Directors, the non-employee director will be granted an option to purchase
10,000 shares of Common Stock. In addition, on the date of each annual meeting
of the Company, each person who is then a non-employee director of the Company
will be granted an option to purchase 5,000 and 1,500 shares of Common Stock in
consideration for their participation on the Board of Directors and for each
committee membership, respectively. The number of options granted would be based
on the number of days such person has continuously served as a non-employee
director since the last annual meeting. Outstanding options under the Directors'
Plan will vest monthly over a five-year period and the exercise price will be
equal to the fair market value of the Common Stock on the date of grant. The
maximum number of shares of Common Stock that may be issued pursuant to options
that are granted under the Directors' Plan is 100,000.
Additionally, in December 1995, the Company adopted an Employee Stock
Purchase Plan (the "ESPP") for employees of the Company. Employees who elect to
enroll in the ESPP may make contributions to the ESPP by having withheld from
their salary an amount between 1% and 15% of their compensation to purchase
shares of Common Stock. Lump-sum purchases of Common Stock are made at the end
of the purchase period at the lower of 85% of the fair market value of the stock
on the first day of the offering period, or the employee's commencement date in
the program, or 85% of the fair market value of the stock on the last day of the
purchase period.
40
<PAGE> 41
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK OPTIONS -- (CONTINUED)
The following activity occurred in the ESPP:
<TABLE>
<CAPTION>
AMOUNT
CONTRIBUTED SHARES PURCHASE
TO ESPP PURCHASED PRICE
----------- --------- -------------
<S> <C> <C> <C>
1998............................................. $443,000 54,829 $6.43-$17.42
1997............................................. $442,000 35,451 $11.90-$13.39
1996............................................. $449,000 23,449 $14.45
</TABLE>
The maximum number of shares of Common Stock that may be issued under the
ESPP is 500,000.
In connection with the acquisition of ICVerify, CyberCash assumed all
outstanding options under ICVerify's 1995 Employee Stock Option Plan ("ICVerify
Option Plan"). All vested and unvested options granted under the ICVerify Option
Plan will continue to have the same terms and conditions as under the ICVerify
Option Plan. The options may be exercised for CyberCash Common Stock equal to
the number of shares exercisable under the ICVerify Option Plan multiplied by
.2464 and the per share exercise price will be the exercise price under the
ICVerify Option Plan divided by .2464. Stock options generally vest as to 25% of
the shares subject to option, twelve months after the date of grant and
approximately 2% of such shares at the end of each month thereafter, so that the
option is fully vested 48 months after grant. The maximum number of shares of
Common Stock that may be issued pursuant to options granted under the ICVerify
Option Plan is 542,000.
41
<PAGE> 42
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK OPTIONS -- (CONTINUED)
A summary of activity under the Option Plans and Directors' Plan follows:
<TABLE>
<CAPTION>
CYBERCASH ICVERIFY
----------------------------------------- ----------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTION PRICE PER PRICE PER OPTION PRICE PER PRICE PER
SHARES SHARE SHARE SHARES SHARE SHARE
--------- ----------------- --------- -------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at December 31,
1995......................... 486,645 $2.00- $ 8.00 $ 4.32 -- -- --
Granted.................... 1,016,948 $8.00- $45.75 $26.92 -- -- --
Exercised.................. (81,431) $2.00- $15.00 $ 4.76 -- -- --
Canceled................... (82,204) $2.00- $33.50 $16.68 -- -- --
--------- ------ ------- ------ -------- ------ ------- -----
Outstanding at December 31,
1996......................... 1,339,958 $2.00- $45.75 $20.49 -- -- --
Granted.................... 793,889 $2.00- $27.50 $14.27 -- -- --
Exercised.................. (94,377) $2.00- $15.00 $ 5.62 -- -- --
Canceled................... (388,561) $2.00- $37.25 $21.69 -- -- --
--------- ------ ------- ------ -------- ------ ------- -----
Outstanding at December 31,
1997......................... 1,650,909 $2.00- $45.75 $18.03 -- -- --
Granted.................... 1,855,773 $6.26- $22.625 $13.32 -- -- --
Converted in CyberCash
Options................. -- -- -- 377,717 $0.41- $16.875 $6.59
Exercised.................. (115,816) $2.00- $17.00 $ 3.97 (220,610) $0.41- $ 1.79 $0.71
Canceled................... (750,917) $2.00- $37.25 $18.60 (58,247) $0.41- $16.875 $2.20
--------- ------ ------- ------ -------- ------ ------- -----
Outstanding at December 31,
1998......................... 2,639,949 $2.00- $45.75 $15.08 98,860 $0.41- $16.875 $2.38
========= ====== ======= ====== ======== ====== ======= =====
</TABLE>
<TABLE>
<CAPTION>
DIRECTOR'S PLAN
-----------------------------------
WEIGHTED
AVERAGE
OPTION PRICE PER PRICE PER
SHARES SHARE SHARE
------ -------------- ---------
<S> <C> <C> <C>
Outstanding at December 31, 1995............................ -- -- --
Granted................................................. 10,000 $32.25 $32.25
Exercised............................................... -- -- --
Canceled................................................ -- -- --
------ -------------- ------
Outstanding at December 31, 1996............................ 10,000 $32.25 $32.25
Granted................................................. 32,158 $10.75-$13.625 $11.64
Exercised............................................... -- -- --
Canceled................................................ -- -- --
------ -------------- ------
Outstanding at December 31, 1997............................ 42,158 $10.75-$32.25 $16.53
Granted................................................. 29,000 $14.38 $14.38
Exercised............................................... -- -- --
Canceled................................................ -- -- --
------ -------------- ------
Outstanding at December 31, 1998............................ 71,158 $10.75-$32.25 $15.93
====== ============== ======
</TABLE>
42
<PAGE> 43
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK OPTIONS -- (CONTINUED)
The following table summarizes information regarding stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
----------------------------------------------- ----------------------------
NUMBER OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF EXERCISE OPTIONS REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.41- $2.00................... 162,413 7.59 $ 1.66 98,777 $ 1.76
$6.00-$8.50.................... 199,287 8.14 $ 6.92 100,267 $ 6.32
$8.63-$8.88.................... 428,203 9.64 $ 8.87 44,551 $ 8.87
$8.97-$11.63................... 322,152 8.78 $11.16 68,971 $11.42
$11.81-$13.25.................. 188,212 8.89 $12.86 45,319 $13.08
$13.38-$13.63.................. 410,722 8.54 $13.62 148,063 $13.62
$13.69-$15.00.................. 354,937 8.11 $14.72 172,183 $14.90
$15.03-$19.88.................. 293,042 9.31 $16.37 31,667 $16.49
$20.00-$31.75.................. 281,400 8.25 $25.64 126,974 $27.85
$32.25-$45.75.................. 169,600 7.24 $40.65 59,648 $37.17
--------- ---- ------ ------- ------
$0.41-$45.75................... 2,809,967 8.59 $14.66 896,420 $14.99
========= ==== ====== ======= ======
</TABLE>
The Company has reserved shares of Common Stock for future issuance
relating to the employee benefits plans and the Directors' plan. At December 31,
1998, the remaining reserved shares of Common Stock are as follows:
<TABLE>
<S> <C>
CyberCash Option Plan....................................... 2,708,376
ICVerify Option Plan........................................ 321,390
Directors' Plan............................................. 100,000
ESPP........................................................ 386,271
---------
3,516,137
=========
</TABLE>
Adjusted pro forma information regarding net loss is required by SFAS No.
123 and has been determined as if the Company had accounted for its Option Plan,
ICVerify Option Plan, Directors' Plan and ESPP under the fair value methodology.
The fair value of the options granted during the years ended December 31, 1998,
1997 and 1996 are estimated as $11.35, $9.14, and $18.19 per share,
respectively, on the date of grant. The fair value for the Option Plan, ICVerify
Option Plan, Directors' Plan and ESPP was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-Free Interest Rate....................... 5.40% 5.44% 6.00%
Expected Dividend Yields...................... 0.00% 0.00% 0.00%
Expected Life of the Option................... 48.4 months 48.4 months 48.4 months
Volatility of the Company's Stock............. 91.41% 79.88% 101.00%
</TABLE>
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized over the option's vesting period. The effect of
applying SFAS No. 123 on 1998, 1997 and 1996 pro forma net loss is not
necessarily representative of the effects on reported net loss for future years
due to, among other things, (1) the
43
<PAGE> 44
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMON STOCK OPTIONS -- (CONTINUED)
vesting period of the stock options and (2) the fair value of additional stock
options in future years. The Company's adjusted pro forma information for the
years ended December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Adjusted pro forma net loss.................. $(42,494,601) $(31,468,485) $(30,106,000)
Adjusted pro forma net loss per share........ $ (2.89) $ (2.91) $ (3.14)
</TABLE>
As of December 31, 1998, there remains available for grant pursuant to the
Option Plan, ICVerify Option Plan, Directors' Plan and the ESPP 576,556 shares
of Common Stock.
10. INCOME TAXES
The following is a summary of the components of the Company's net deferred
tax assets as of December 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net operating loss carryforward............................ $32,189,000 $22,132,000
Deferred start-up costs.................................... 741,000 1,111,000
Depreciation............................................... 81,000 42,000
Accrued and deferred expenses.............................. 360,000 235,000
----------- -----------
33,371,000 23,520,000
Valuation allowance........................................ (33,371,000) (23,520,000)
----------- -----------
Deferred tax asset, net.................................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1998, the Company had approximately $80,472,000 in tax net
operating loss carryforwards that expire at varying dates through 2018. These
carryforwards may be significantly limited under the Internal Revenue Service
Code as a result of ownership changes resulting from the Company's redeemable
convertible Preferred Stock financings and the initial public offering.
11. INVESTMENT IN AFFILIATES
On May 13, 1997, CyberCash and Softbank Corporation ("Softbank") entered
into a joint venture agreement to commercialize CyberCash's technology in Japan.
Pursuant to the agreement, the parties formed a Japanese corporation, CyberCash
Kabushiki Kaisha ("CCKK"), to serve as the joint venture entity. A subsidiary of
CyberCash purchased 200 shares of CCKK's Common Stock (approximately a 46%
interest) for $83,000, and Softbank and several other entities purchased 220
shares of CCKK's Preferred Stock, which is convertible into CCKK's Common Stock
on a one-for-one basis. During February 1998, CyberCash's subsidiary sold 10
shares of CCKK's common stock to another shareholder of CCKK for approximately
$200,000. CyberCash accounts for its investment in CCKK under the equity method.
In May 1997, CyberCash and CCKK entered into a Software Development
Agreement. Under the agreement, CyberCash will modify the CyberCash technology
and will license it to CCKK for use in the Japanese market. CCKK agreed to pay
CyberCash $100,000 plus its fully-burdened costs of performing this work, not to
exceed $1,100,000. During 1998 and 1997, the Company recognized revenues of
$522,000 and $597,000, respectively, for work performed under the Software
Development Agreement and $315,000 of these revenues are included in accounts
receivable as of December 31, 1998.
On October 3, 1997, CyberCash, Dresdner Bank AG ("Dresdner") and Landesbank
Sachsen Girozentrale ("Sachsen") formed a joint venture, CyberCash GmbH ("CC
GmbH"), to commercialize CyberCash's technology in Germany. A wholly owned
subsidiary of CyberCash purchased 40% of CC GmbH's equity shares
44
<PAGE> 45
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INVESTMENT IN AFFILIATES -- (CONTINUED)
for $1,165,000 with Dresdner and Sachsen purchasing the remaining 40% and 20% of
the shares, respectively. CyberCash accounts for its investment in CC GmbH under
the equity method.
CyberCash and CC GmbH agreed to enter into a technology license agreement.
Under the agreement, CyberCash will modify the CyberCash technology and will
license it to CC GmbH for use in the German market. CC GmbH agreed to pay
CyberCash DM 3,600,000 (approximately US $2,100,000) for the initial licensing
of the technology, in addition to annual maintenance fees of $80,000. The
Company recognized $344,000 and $2,045,000 in revenues during 1998 and 1997,
respectively, from CC GmbH and $471,000 and $2,045,000 of these revenues are
included in accounts receivable as of December 31, 1998 and 1997, respectively.
12. RETIREMENT PLAN
The Company has adopted a 401(k) plan (the "Plan"), which covers all
employees who have completed three months of service and attained the age of
twenty-one. The Plan allows employees to contribute up to 15% of their total
compensation, subject to Internal Revenue Service limitations. The Company has
not made matching contributions to the Plan.
13. SEGMENT INFORMATION
In accordance with SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information," the Company has determined that it has three
reportable segments: Payments, InstaBuy and International. The Company's
revenues in 1998 from each of these segments were $10,307,000 (82%) from
Payments, $655,000 (5%) from InstaBuy and $1,626,000 (13%) from International.
The Company began managing its business using these segments during 1998.
CyberCash's Payments segment provides a complete line of software products
and services allowing merchants, billers, financial institutions and consumers
to conduct secure transactions using the broadest array of popular payment
forms. Credit, debit, purchase cards, cash, checks, smart cards and alternative
payment types (e.g., "frequent buyer" or loyalty programs) are all supported by
CyberCash payment solutions. Leading payment solutions of CyberCash and its
subsidiaries include ICVERIFY(R), PCVERIFY(TM), CashRegister, NetVERIFY(TM), and
PayNow(TM).
The Company's InstaBuy segment provides merchants and financial
institutions with a service to assist in building better relationships with
their consumers. The InstaBuy service provides merchants with a way to convert a
higher percentage of web site visitors to buyers and to retain those customers
for repeat purchases through one-click purchasing while consumers gain
convenience and security. The leading InstaBuy service solution of CyberCash
includes Agile Wallet(TM) and InstaBuy(TM).
CyberCash's International segment provides for the licensing of CyberCash
technology for use in foreign markets. The Company has entered into licensing
agreements with its joint ventures and international partners to commercialize
CyberCash's technology through the modification of and subsequent licensing of
CyberCash's technology for usage in international markets. The leading solutions
of CyberCash and its subsidiaries to be licensed in foreign markets include
Agile Wallet(TM), InstaBuy(TM), ICVERIFY(R), PCVERIFY(TM), CashRegister,
NetVERIFY(TM) and CyberCoin(R).
45
<PAGE> 46
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SEGMENT INFORMATION -- (CONTINUED)
The following table sets forth the Company's long-lived assets and revenues
by geographic location:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------ --------
ASSETS REVENUES ASSETS REVENUES REVENUES
----------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
United States.................... $89,964,000 $11,207,000 $29,021,000 $1,531,000 $127,000
India............................ 3,035,000 -- 2,338,000 -- --
United Kingdom................... -- 350,000 -- 164,000 --
Germany.......................... 325,000 533,000 -- 2,195,000 --
Japan............................ -- 498,000 -- 597,000 --
</TABLE>
The Company's net revenues in 1997 were primarily from three customers who
have licensed CyberCash technology for use in foreign markets and who provide
services in the banking and transaction processing industries. Revenues from
these customers totaled approximately $2,045,000 (46%), $1,028,000 (23%) and
$597,000 (13%). As of December 31, 1997, substantially all of the Company's
accounts receivable were due from these three customers.
The Company's net revenues in 1996 were primarily from four customers who
provide services in the banking and transaction processing industries. Revenues
from these customers totaled approximately $35,000 (28%), $30,000 (24%), $22,000
(17%) and $20,000 (16%).
14. NET LOSS PER SHARE
The following table set forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net loss................................... $(30,944,448) $(26,221,910) $(26,554,741)
Accrued dividends to Preferred
Stockholders............................ (723,064) (282,739) --
------------ ------------ ------------
Net loss available to Common
Stockholders............................ $(31,667,512) $(26,504,649) $(26,554,741)
------------ ------------ ------------
Denominator:
Weighted average shares outstanding........ 14,707,723 10,898,036 9,585,418
------------ ------------ ------------
Basic and diluted loss per share............. $ (2.15) $ (2.43) $ (2.77)
</TABLE>
Stock options issued under the Company's Option Plan, ICVerify Option Plan,
Directors' Plan and warrants and Investment Options issued to CMU and First USA
and in connection with the Company's private placements, have been excluded from
diluted earnings per share computation because of their anti-dilutive nature.
15. RELATED PARTY TRANSACTIONS
During 1998, the Company paid $35,000 to a relative of a shareholder in
connection with an operating lease agreement in California.
At the end of 1998, the Company entered into an agreement with an
affiliated company for a five-year sub-lease of office space. Also, during 1998,
the Company paid approximately $670,000 to this affiliated company for
engineering services.
During 1998, 1997 and 1996 the Company paid $119,000, $65,000 and $57,000,
respectively to a processing company in which the Company's Chairman and Chief
Executive Officer is a director.
46
<PAGE> 47
CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITOR'S REPORT (UNAUDITED)
INCREASE IN COMMON STOCK OPTION RESERVE
During February 1999, the Board of Directors increased the 1995 Stock
Option Plan ("Option Plan") stock reserve to 7,500,000 shares of Common Stock.
This increase in the Option Plan reserve is subject to approval by the
shareholders at the annual shareholders meeting in June 1999.
STOCK BONUS PLAN
In February 1999, the Company adopted the 1999 Restricted Stock Plan (the
"Stock Plan"). The Stock Plan provides for restricted and unrestricted stock
grants to be made at the discretion of the Compensation Committee of the Board
of Directors to employees, officers and employee directors and consultants. The
Company reserved 500,000 shares of Common Stock for issuance under the Stock
Plan.
PRIVATE PLACEMENT
In consideration for certain advertising services, the Company has
committed to sell 15,000 shares of its Common Stock to Donino White & Partners,
Inc., subject to these shares becoming registered with the Securities and
Exchange Commission before May 31, 1999. The Company filed a registration
statement in February 1999 for the registration of these shares.
47
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Current executive officers of the Registrant found under the caption
"Executive Officers of the Registrant" in Part I hereof is also incorporated by
reference into this Item 10.
DIRECTORS
The following sets forth certain information regarding the directors as of
March 19, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William N. Melton.................... 56 Chairman of the Board of Directors
Daniel C. Lynch...................... 56 Director
Michael Rothschild................... 46 Director
Charles T. Russell................... 69 Director
Garen K. Staglin..................... 54 Director
</TABLE>
Daniel C. Lynch, a founder of the Company, served as chairman of
CyberCash's board of directors from its inception in August 1994 until January
1999, and continues to serve as a director. He also served briefly as vice
president during the Company's 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 Softbank Expos and formerly
Ziff-Davis Conference and Exhibition Company. 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, a
director of Exodus Communications, Inc. and a director of Couad Communications
Group, Inc.
Michael Rothschild has served as a member of CyberCash'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 1996, Mr.
Rothschild has been president and chief executive officer of Maxager Technology,
Inc., a software maker specializing in advanced product costing systems for
manufacturers.
Charles T. Russell has been a member of CyberCash's board of directors
since August 1997. Mr. Russell was president and chief executive officer of Visa
International from 1984 to 1994. Mr. Russell is a member of the board of
directors of First Data Corporation.
Garen K. Staglin has served as a member of CyberCash's board of directors
since July 1996. Mr. Staglin served as chairman and chief executive officer from
1991 to 1998 of Safelite Glass Corporation, a manufacturer and retailer of
replacement autoglass and related services. He continues to serve as chairman of
Safelite's board of directors. Mr. Staglin is also a director of First Data
Corporation, Quick Response Services, Inc. and Specialized Bicycle Corporation.
He is a member of the Advisory Board of the Stanford Graduate School of
Business.
BOARD COMPOSITION
CyberCash's board of directors is divided into three classes: Class I
expires at the annual meeting of stockholders to be held in 2000; Class II
expires at the annual meeting of stockholders to be held in 2001; and Class III
expires at the annual meeting of stockholders to be held in 1999. The Class I
directors are Messrs. Melton and Staglin; the Class II directors are Messrs.
Lynch and Russell; and the Class III director is Mr. Rothschild. At each annual
meeting of stockholders, the successors to directors whose terms are expiring
will be elected to serve from the time of election and qualification until the
third annual meeting following election and until their successors have been
duly elected and qualified. Any additional directorships resulting from an
48
<PAGE> 49
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of an equal number of
directors.
BOARD COMMITTEES
The audit committee of the CyberCash's board of directors was formed in
December 1995 to review the internal accounting procedures of the Company and
consult with and review the services provided by CyberCash's independent
auditors. Messrs. Lynch, Rothschild and Staglin comprise the audit committee.
The compensation committee of CyberCash's board of directors was formed in
December 1995 to review and recommend 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 CyberCash 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.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from CyberCash for
their service as members of its board of directors, although they are reimbursed
for certain expenses in connection with attendance at board and committee
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of CyberCash served as a director or member of (i) the
compensation committee of another entity which has an executive officer who is a
director of CyberCash or a member of CyberCash's Compensation Committee, (ii)
the board of directors of another entity in which one of the executive officers
of such entity served on CyberCash'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 CyberCash's board of directors,
during the year ended December 31, 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires
CyberCash's directors and executive officers, and persons who own more than ten
percent of the company's common stock, to file with the Securities and Exchange
Commission, by a specified date, reports regarding their respective ownership of
CyberCash common stock. To the company's knowledge, based solely on its review
of the copies of such reports furnished to it and written representations that
no other reports were required, we believe 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 1998.
49
<PAGE> 50
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the three fiscal years ended December 31, 1998 to its Chairman of
the Board and Chief Executive Officer and the Company's four other most highly
compensated officers and key employees:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER LONG TERM
ANNUAL COMPENSATION AWARDS
COMPEN- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION ($) OPTIONS (#)
- --------------------------- ---- ---------- --------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
William N. Melton......................... 1998 -- -- -- --
Chairman of the Board and Chief Executive 1997 100,000 -- -- --
Officer 1996 100,000 -- -- --
James J. Condon........................... 1998 207,853 -- -- 165,000
President, Chief Financial Officer and 1997 126,628 -- -- 90,000
Chief Operating Officer
Bruce G. Wilson........................... 1998 186,806 -- -- 23,000
Executive Vice President 1997 180,000 9,000 -- 15,000
1996 180,000 15,000 -- --
Russell B. Stevenson, Jr.................. 1998 209,160 -- -- 55,000
Senior Vice President, General Counsel and 1997 210,000 20,475 -- 30,000
Secretary 1996 168,523 20,475 -- 35,000
Denis Yaro................................ 1998 220,000 -- -- 10,000
Executive Vice President 1997 220,000 26,000 -- 10,000
1996 175,389 22,533 -- 160,000
</TABLE>
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 7,500,000 shares of
Common Stock subject to shareholder approval. The Option Plan provides for
grants of incentive stock options to employees (including officers and employee
directors) and nonstatutory stock options to employees (including officers and
employee directors), directors and consultants of the Company. The Option Plan
is administered by the Compensation Committee of the Board of Directors, 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. 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
50
<PAGE> 51
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. The Compensation Committee may
offer to exchange new options for existing options; however, the shares subject
either to the new and existing options will be charged against the Option Plan's
reserve. 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, 1998, 791,624 shares of Common Stock had been issued
upon the exercise of options granted under the Option Plan, options to purchase
2,639,949 of Common Stock at exercise prices ranging from $2.00 to $45.75 per
share were outstanding and 68,427 shares remained available for future option
grants. In January 1999, the Company's Board of Directors increased the reserve
of Common Stock available under the Option Plan by 4 million shares, subject to
the approval by the Company's stockholder at its next annual meeting. 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. 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 such person has
continuously served as a Non-Employee Director since the last annual meeting. In
addition, on the date of each annual meeting of the Company, each person who 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, 1998, options to purchase 71,158 shares of Common Stock
at exercise prices ranging from $10.75 to $32.25 per share were outstanding
under the Directors' Plan and 28,842 shares remained available for future option
grants under the Directors' Plan.
ICVerify, Inc. Stock Option Plan. In connection with the acquisition of
ICVerify, CyberCash assumed ICVerify's 1995 Employee Stock Option Plan
("ICVerify Option Plan"). All vested and unvested options granted under the
ICVerify Option Plan will continue to have the same terms and conditions as
under the ICVerify Option
51
<PAGE> 52
Plan. The options may be exercised for CyberCash Common Stock equal to the
number of shares exercisable under the ICVerify Option Plan multiplied by .2464
and the per share exercise price will be the exercise price under the ICVerify
Option Plan divided by .2464. Stock options generally vest as to 25% of the
shares subject to option, twelve months after the date of grant and
approximately 2% of such shares at the end of each month thereafter, so that the
option is fully vested 48 months after grant. The maximum number of shares of
Common Stock that may be issued pursuant to options granted under the ICVerify
Option Plan is 2,200,000.
As of December 31, 1998, 220,610 shares of Common Stock had been issued
upon the exercise of options granted under the Option Plan, options to purchase
98,860 shares of Common Stock at exercise prices ranging from $0.41 to $16.875
per share were outstanding and 220,530 shares remained available for future
option grants.
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, 1998, 113,729 shares of Common Stock have been purchased
at prices ranging from $6.4281 to $24.225 per share, and 386,271 shares remained
available for future purchases.
52
<PAGE> 53
STOCK OPTION INFORMATION
The following table shows for the fiscal year ended December 31, 1998,
certain information regarding options granted to, exercised by, and held at year
end by the Company's Chairman of the Board and Chief Executive Officer and the
Company's four other most highly compensated officers and key employees:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
NUMBER OF % OF TOTAL OPTION TERM ($)(3)(4)
SECURITIES OPTIONS EXERCISE OPTION GRANTS IN LAST
UNDERLYING GRANTED TO OR BASE FISCAL YEAR
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...... -- -- -- -- -- --
James J. Condon........ 165,000 9% $8.875-$15.94 8/17/2008 $3,025,000 $5,343,000
Bruce G. Wilson........ 23,000 1.2% $8.875-$11.63 8/17/2008 $ 152,135 $ 448,826
Denis Yaro............. 10,000 .05% $ 11.63 1/9/2008 $ 170,917 $ 73,109
Russell B. Stevenson,
Jr................... 55,000 3% $8.875-$12.44 8/17/2008 $ 407,602 $1,032,944
</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 Securities and
Exchange 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, 1998 by the Company's
Chairman of the Board 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, 1998 by the Company's Chairman of
the Board 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,
1998 of unexercised in-the-money options; that is, the amount by which the fair
market value exceeds the exercise price of the Common Stock as of December 31,
1998 ($15.00).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED AT FISCAL YEAR END (#) FISCAL YEAR-END ($)(1)
ON EXERCISE ---------------------------- ----------------------------
NAME (#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
William N. Melton........ -- -- -- -- --
James J. Condon.......... -- 69,626 185,374 $ 94,041 $125,022
Bruce G. Wilson.......... -- 36,275 28,725 $252,363 $110,888
Denis Yaro............... -- 41,000 139,000 $ 15,125 $ 32,375
Russell B
Stevenson, Jr............ -- 52,625 67,375 $ 49,234 $168,891
</TABLE>
- ---------------
(1) Based on the closing price of the Company's Common Stock on December 31,
1998 of $15.00 per share, minus the exercise price, multiplied by the
number of shares underlying the option.
53
<PAGE> 54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to CyberCash with
respect to the beneficial ownership of its common stock as of March 19, 1999 for
(i) each stockholder who is known by CyberCash to own beneficially more than 5%
of its common stock, (ii) certain executive officers of CyberCash, (iii) each
director of CyberCash and (iv) all directors and executive officers of
CyberCash, as a group. Unless otherwise specified, the address of all
stockholders is the address of CyberCash's principal executive offices, provided
on the cover page of this Annual Report.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) % OF CLASS
- ------------------------------------ ----------------------- ----------
<S> <C> <C>
William N. Melton(2)....................................... 2,644,258 13.37%
First USA Bank, N.A.(3).................................... 2,200,000 10.01%
Three Christine Centre
201 North Walnut Street
Wilmington, Delaware 19801
Halifax Fund LP(4)......................................... 1,432,865 7.13%
c/o The Palladin Group, Inc.
40 West 57th Street
New York, New York 10019
RGC International Investors, LDC(5)........................ 1,183,991 5.76%
c/o Rose Glen Capital Management, L.P.
251 St. Asaphs Road, 3 Bala Plaza -- East
Bala Cynwyd, Pennsylvania 19004
Daniel C. Lynch(6)......................................... 602,509 3.05%
----------
Bruce G. Wilson(7)......................................... 195,214
Denis Yaro(8).............................................. 160,816 *
James J. Condon(9)......................................... 98,594
Russell B. Stevenson, Jr.(10).............................. 69,500 *
Michael Rothschild(11)..................................... 52,932 *
Garen K. Staglin(12)....................................... 47,008 *
Charles T. Russell(13)..................................... 5,292 *
All directors and executive officers as a group (9 3,876,123 18.12%
persons)(14).............................................
----------
</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 19,781,291 shares outstanding as of March 19, 1999. 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,
40,000 shares held by The William N. Melton 1994 Charitable Remainder
Annuity Trust, 70,000 shares held by The William N. Melton 1995 Charitable
Remainder Annuity Trust and 110,000 shares held by The Melton Foundation.
(3) Consists of shares subject to warrants exercisable within 60 days of March
19, 1999.
54
<PAGE> 55
(4) Includes 152,287 shares subject to warrants and 236,128 shares subject to
investment options, in each case exercisable within 60 days of March 19,
1999.
(5) Includes 305,030 shares subject to warrants and 472,254 shares subject to
investment options, in each case exercisable within 60 days of March 19,
1999.
(6) 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; and 5,000
shares held by The Francis Troy Lynch Irrevocable Trust of which Daniel C.
Lynch is trustee and 4,933 shares subject to stock options exercisable
within 60 days of March 19, 1999.
(7) Includes 600 shares subject to forfeiture within 60 days of March 19, 1999
and 43,300 shares subject to stock options exercisable within 60 days of
March 19, 1999.
(8) Includes 360 shares subject to forfeiture within 60 days of March 19, 1999
and 157,650 shares subject to stock options exercisable within 60 days of
March 19, 1999.
(9) Includes 1,800 shares subject to forfeiture within 60 days of March 19,
1999, and 94,768 shares subject to stock options exercisable within 60 days
of March 19, 1999.
(10) Includes 1,200 shares subject to forfeiture within 60 days of March 19,
1999 and 67,500 shares subject to stock options exercisable within 60 days
of March 19, 1999.
(11) Consists of 38,924 shares held by The Michael L. Rothschild Trustee
Revocable Trust U/T/A dated August 9, 1993, 10,000 shares held by The MLR
Enterprises, Inc. Master Pension and Profit-Sharing Plan U/T/A dated
January 1, 1991 and 4,008 shares subject to stock options exercisable
within 60 days of March 19, 1999.
(12) Includes 16,700 shares held by The Garen K. and Sharalyn King Staglin 1997
Charitable Unit Trust dated July 8, 1997 and 10,308 shares subject to stock
options exercisable within 60 days of March 19, 1999.
(13) Consists of shares subject to stock options exercisable within 60 days of
March 19, 1999.
(14) Includes 3,960 shares subject to forfeiture within 60 days of March 19,
1999 and 387,759 shares subject to stock options exercisable within 60 days
of March 19, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the exercise of stock options during 1995, Stephen
Crocker executed a promissory note in the amount of $400,000 with interest
payable at an annual rate of 6%, which is secured by the Common Stock issued
upon exercise of the options. Mr. Crocker, the Company's former Chief Technology
Officer, paid his note in full, including interest, during 1998.
On July 17, 1998, Garen Staglin, a Director of the Company, bought 16,701
shares of CyberCash Common Stock for an aggregate $200,000. On September 16,
1998, William N. Melton, Chairman and Chief Executive Officer, completed the
purchase of 30,000 shares of CyberCash Common Stock for an aggregate of $3.5
million. In addition, Michael L. Rothschild, a Director of the Company, bought
10,000 shares of CyberCash Common Stock for an aggregate of $100,000.
During 1998, 1997 and 1996 the Company paid $119,000, $65,000 and $57,000,
respectively, to a processing company in which William N. Melton, Chairman and
Chief Executive Officer, is a director.
55
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. FINANCIAL STATEMENTS. Consolidated Financial Statements and Report of
Ernst & Young LLP, Independent Auditors, are included in Item 8 in Part
II of this Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES. Schedules have been omitted since they
are either not required, not applicable, or the information is otherwise
included.
3. EXHIBITS. The exhibits listed on the accompanying Index to Exhibits are
filed as part of, or incorporated by reference into, this Form 10-K.
(b) REPORTS ON FORM 8-K: None.
(c) EXHIBITS. See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULE: Schedule II -- Valuation and Qualifying
Accounts.
56
<PAGE> 57
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
CyberCash, Inc.
We have audited the consolidated financial statements of CyberCash, Inc. as
of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, and have issued our report thereon dated January 26,
1999 (included elsewhere in this Form 10-K). Our audits also included the
financial statement schedule listed in Item 14 of this Form 10-K. This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Vienna, Virginia
January 26, 1999
57
<PAGE> 58
SCHEDULE II
CYBERCASH, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
December 31, 1996..................... $ -- $ -- $ -- $ --
December 31, 1997..................... -- -- -- --
December 31, 1998..................... -- 1,050,835(1) -- 1,050,835
</TABLE>
(1) Additions relate primarily to the acquisition of ICVerify.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CYBERCASH, INC.
Registrant
By: /s/ WILLIAM N. MELTON
------------------------------------
William N. Melton
Chairman and Chief Executive Officer
March 31, 1999
<TABLE>
<C> <S> <C>
/s/ WILLIAM N. MELTON Chairman of the Board of Directors March 31, 1999
- --------------------------------------------- and
William N. Melton Chief Executive Officer
(Principal Executive Officer)
/s/ JAMES J. CONDON President, Chief Operating Officer March 31, 1999
- --------------------------------------------- and
James J. Condon Chief Financial Officer (Principal
Financial Officer and
Principal Accounting Officer)
/s/ DANIEL C. LYNCH Director March 31, 1999
- ---------------------------------------------
Daniel C. Lynch
/s/ MICHAEL ROTHSCHILD Director March 31, 1999
- ---------------------------------------------
Michael Rothschild
/s/ CHARLES T. RUSSELL Director March 31, 1999
- ---------------------------------------------
Charles T. Russell
/s/ GAREN K. STAGLIN Director March 31, 1999
- ---------------------------------------------
Garen K. Staglin
</TABLE>
59
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated April 8, 1998
among CyberCash, Inc., CyberCash Acquisition Corporation and
ICVerify, Inc. (1)
3.1 Amended and Restated Certificate of Incorporation (2)
3.1(i) Amendment to Amended and Restated Certificate of
Incorporation
3.2 Bylaws (2)
3.3 Certificate of Designation, Preferences and Rights of Series
C Convertible Preferred Stock (3)
3.4 Certificate of Designation, Preferences and Rights of Series
D Convertible Preferred Stock (4)
3.5 Certificate of Designation, Preferences and Rights of Series
E Junior Participating Preferred Stock (5)
4.1 Form of the Company's common stock certificate (2)
4.2 Form of Rights Agreement dated as of June 30, 1998 between
the Company and BankBoston N.A. as Rights Agent, including
exhibits thereto (6)
4.2(i) Form of Amendment dated as of December 18, 1998 to Rights
Agreement
4.3 Subscription Agreement dated as of March 21, 1997 between
the Company and Carnegie Mellon University (7)
4.4 Warrant Certificate dated as of March 21, 1997 (8)
4.5 Securities Purchase Agreement dated as of August 1, 1997
between CyberCash, Inc., RGC International Investors, LDC
and Halifax Fund, L.P. (9)
4.6 Registration Rights Agreement dated as of August 1, 1997
between CyberCash, Inc., RGC International Investors, LDC
and Halifax Fund, L.P. (10)
4.7 Securities Purchase Agreement dated as of February 5, 1998
between CyberCash, Inc., RGC International Investors, LDC
and Halifax Fund, L.P. (11)
4.8 Registration Rights Agreement dated as of February 5, 1998
between CyberCash, Inc., RGC International Investors, LDC
and Halifax Fund, L.P. (12)
4.9 Form of Investment Option issued to RGC International
Investors, LDC and Halifax Fund, L.P. (13)
4.10 Securities Purchase Agreement dated as of January 6, 1999
between CyberCash, Inc., RGC International Investors, LDC
and Halifax Fund, L.P. (14)
4.11 Registration Rights Agreement dated as of January 6, 1999
between CyberCash, Inc., RGC International Investors, LDC
and Halifax Fund, L.P. (15)
4.12 Form of Warrant issued to RGC International Investors, LDC
and Halifax Fund, L.P. (16)
4.13 Form of Warrant 98-1 dated as of November 6, 1998 between
the Company and First USA Bank (17)
4.14 Form of Warrant 98-2 dated as of November 6, 1998 between
the Company and First USA Bank (18)
4.15 Form of Warrant 98-3 dated as of November 6, 1998 between
the Company and First USA Bank (19)
10.1 Form of Indemnity Agreement entered into between the Company
and certain of its directors and executive officers (2) (20)
10.2 CyberCash, Inc. 1995 Stock Option Plan (2) (20)
10.3 Form of Incentive Stock Option (2) (20)
10.4 Form of Performance Stock Option (2) (20)
10.5 Form of Non-Statutory Stock Option (2) (20)
10.6 CyberCash, Inc. Employee Stock Purchase Plan (2) (20)
10.7 CyberCash, Inc. Non-Employee Directors Stock Option Plan (2)
(20)
10.8 CyberCash, Inc. 1999 Restricted Stock Plan (20)
10.9 Sublease dated March 14, 1995 by and between the Company and
Health Sciences Television Network, Inc. and Lease dated
October 18, 1993 between Gateway Virginia Properties and
Health Sciences Television Network, Inc. (21)
</TABLE>
60
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.10 Lease dated November 30, 1994 by and between the Company and
Gateway Virginia Properties, Inc. and First Amendment to
Lease dated November 7, 1995 (22)
10.11 Second Amendment to Lease dated April 29, 1996 by and
between the Company and Gateway Virginia Properties, Inc.
(23)
10.12 Sublease Agreement dated December 1 6, 1996 by and between
the Company and Gateway Virginia Properties, Inc. (24)
10.13 Lease Agreement dated August 11, 1998 between APA Properties
No. 6, L.P. and the Company
10.14 Sublease dated March 22, 1999 between Computer Associates
International Inc. and the Company
10.15 Form of Subscription Agreement between the Company and
certain of its directors
10.16 Amended and Restated Investors Rights Agreement, dated
August 24, 1994, between the Company and certain investors
(25)
10.16(i) Amendment, dated September 29, 1995, to Amended and Restated
Investors' Rights Agreement (26)
10.17 BSAFE/TIPEM OEM Master License Agreement, dated September
1995, by and between the Company and RSA Data Security, Inc.
(27)
10.18 Purchase Agreement dated February 15, 1996 by and between
the Company and Softbank Holdings, Inc. (28)
10.19 Joint Venture Agreement dated as of May 13, 1997 among the
Company, CyberCash Japan C.V. and Softbank Corporation (29)
10.20 Software License Agreement dated as of May 13, 1997 between
the Company and CyberCash K.K. (30)
10.21 Technology License Agreement dated as of December 17, 1997
between the Company and CyberCash GmbH (31)
10.22 Operating Agreement dated October 15, 1998 between the
Company and First USA Bank
21.01 Subsidiaries of the Company
23.01 Consent of Ernst & Young LLP, Independent Auditors
Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated herein by reference to the same-numbered exhibit to the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 1, 1998.
(2) Incorporated herein by reference to the same-numbered exhibit to the
Company's Registration Statement on Form S-1 (Reg. No. 33-80725) (the "S-1
Registration Statement").
(3) Incorporated herein by reference to Exhibit 99.2 to the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
August 5, 1997 (the "August 1997 8-K").
(4) Incorporated herein by reference to Exhibit 3.4 to the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
February 10, 1998 (the "February 1998 8-K").
(5) Incorporated herein by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
July 2, 1998 (the "July 1998 8-K").
(6) Incorporated herein by reference to Exhibit 4.1 to the July 1998 8-K.
(7) Incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on
August 25, 1997 ("Second Quarter 1997 10-Q").
(8) Incorporated herein by reference to Exhibit 10.4 to the Second Quarter 1997
10-Q.
(9) Incorporated herein by reference to Exhibit 99.3 to the August 1997 8-K.
(10) Incorporated herein by reference to Exhibit 99.4 to the August 1997 8-K.
(11) Incorporated herein by reference to Exhibit 4.2 to the February 1998 8-K.
(12) Incorporated herein by reference to Exhibit 4.3 to the February 1998 8-K.
(13) Incorporated herein by reference to Exhibit 4.4 to the February 1998 8-K.
(14) Incorporated herein by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
January 11, 1999 (the "January 1999 8-K").
61
<PAGE> 62
(15) Incorporated herein by reference to Exhibit 4.2 to the January 1999 8-K.
(16) Incorporated herein by reference to Exhibit 4.3 to the January 1999 8-K.
(17) Incorporated herein by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on
November 16, 1998 ("Third Quarter 1998 10-Q").
(18) Incorporated herein by reference to Exhibit 4.2 to the Third Quarter 1998
10-Q.
(19) Incorporated herein by reference to Exhibit 4.3 to the Third Quarter 1998
10-Q.
(20) Indicates a management compensatory plan, contract or arrangement.
(21) Incorporated by reference to Exhibit 10.8 to the S-1 Registration
Statement.
(22) Incorporated by reference to Exhibit 10.9 to the S-1 Registration
Statement.
(23) Incorporated by reference to Exhibit 10.10 to the Company's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 10,
1997 (the "1997 10-K").
(24) Incorporated by reference to Exhibit 10.11 to the 1997 10-K.
(25) Incorporated by reference to Exhibit 10.13 to the S-1 Registration
Statement.
(26) Incorporated by reference to Exhibit 10.13(i) to the S-1 Registration
Statement.
(27) Incorporated by reference to Exhibit 10.14 to the S-1 Registration
Statement.
(28) Incorporated by reference to Exhibit 10.15 to the 1997 10-K.
(29) Incorporated by reference to Exhibit 10.5 to the Second Quarter 1997 10-Q.
(30) Incorporated by reference to Exhibit 10.6 to the Second Quarter 1997 10-Q.
(31) Incorporated herein by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K405 filed with the Securities and Exchange Commission on
March 31, 1998.
62
<PAGE> 1
Exhibit 3.1(i)
Amendment to Amended and Restated Certificate of Incorporation
CERTIFICATE OF AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
CyberCash, Inc.
Pursuant to Section 242 of the General Corporation Law
of the State of Delaware
I, James J. Condon, Chief Financial Officer, of CyberCash, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware, in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation, as amended, of the said
Corporation, the said Board of Directors, at a regular meeting held on April 24,
1998, adopted a resolution setting forth the amendment set forth below, and
directed that the amendment be considered at the next annual meeting of the
Company's stockholders;
That pursuant to Section 242(b)(1) of the General Corporation Law
of the State of Delaware, stockholders of the Company, representing a majority
of the outstanding stock entitled to vote, approved the aforesaid amendment at
an annual meeting of stockholders held on June 26, 1998, for which meeting
notice was duly given and at which a quorum was present; and
That ARTICLE FOURTH of the Restated Certificate of Incorporation,
as amended, is hereby amended in its entirety to read as follows:
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.
IN WITNESS WHEREOF, I have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 30th day of June, 1998.
CYBERCASH, INC.
1
<PAGE> 2
By: /s/ James J. Condon
-----------------------------------
Name: James J. Condon
Title: Chief Financial Officer
Attest:
By: /s/ Russell B. Stevenson, Jr.
------------------------------------
Russell B. Stevenson, Jr.
Senior Vice President and
General Counsel
2
<PAGE> 1
Exhibit 4.2(i)
Form of Amendment to Rights Agreement
AMENDMENT NO. 1
TO
RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO RIGHTS AGREEMENT (this "Amendment No. 1") is
entered into as of December 18, 1998, between CyberCash, Inc. a Delaware
corporation (the "Company"), and BankBoston N.A. (the "Rights Agent").
WHEREAS, the Company and the Rights Agent entered into the Rights
Agreement, dated as of June 30, 1998 (the "Rights Agreement");
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement on the terms and conditions hereinafter set forth; and
WHEREAS, for purposes of this Amendment No. 1, capitalized terms not
otherwise defined herein shall have the respective meanings set forth in the
Rights Agreement, as amended by this Amendment No. 1.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
1. Certain Definitions. Section 1 of the Rights Agreement is amended
as follows: (A) deleting the text of paragraph (i) thereof and replacing it with
the phrase "Intentionally Omitted."; (B) deleting the phrase "a majority of the
Continuing Directors" in paragraph (j) thereof and replacing it with the phrase
"the Board prior to such time as any Person becomes an Acquiring Person"; and
(C) deleting the text of paragraph (o) thereof and replacing it with the phrase
"Intentionally Omitted.".
2. Form of Rights Certificates. Section 4(b) of the Rights Agreement
is amended by deleting the phrase "Continuing Directors" and replacing it with
the word "Board".
3. Exercise of Rights; Purchase Price; Expiration Date of Rights.
Section 7(e) of the Rights Agreement is amended by deleting the phrase
"Continuing Directors" and replacing it with the word "Board".
1
<PAGE> 2
4. Adjustment of Purchase Price, Number and Kind of Shares or Number
of Rights.
(A) Section 11(a)(ii) of the Rights Agreement is amended by deleting
the phrase "a majority of the Outside Directors" and replacing it with the
phrase "two-thirds of the Board".
(B) Section 11(a)(iii) of the Rights Agreement is amended by deleting
the parenthetical phrase "(acting by at least a majority of the Continuing
Directors)".
(C) Section 11(m) of the Rights Agreement is amended by deleting the
word "it" and replacing such word with the phrase "the Board".
5. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. Section 13(c)(i)(B) of the Rights Agreement is amended by inserting the
word "Securities" immediately before the word "Act".
6. Redemption. Section 23(a) of the Rights Agreement is amended as
follows: (A) deleting in the first sentence thereof the phrase "then there must
be Continuing Directors then in office and such authorization shall require the
concurrence of a majority of such Continuing Directors" and replacing it with
the phrase "then such authorization shall require the concurrence of two-thirds
of the Board"; and (B) deleting in the second sentence thereof the parenthetical
phrase "(with the concurrence of a majority of the Continuing Directors)" and
replacing it with the phrase ", by a vote of two-thirds of the Board,".
7. Determinations and Actions by the Board, etc. Section 29 of the
Rights Agreement is amended by deleting the phrase "the Continuing Directors or
Outside Directors" each of the three times it appears therein and replacing it
in each such place with the phrase "two-thirds of the Board".
8. Exhibit C. Exhibit C to the Rights Agreement is amended as
follows: (A) with respect to the second paragraph following the capitalized
legend on the first page thereof, deleting the phrase "Continuing Directors (as
defined in the Rights Agreement)" and replacing it with the phrase "Board of
Directors"; and (B) with respect to the seventh paragraph following the
capitalized legend on the first page thereof, (i) deleting the phrase "a
majority of the Continuing Directors" and replacing it with the phrase
"two-thirds of the Board of Directors"; (ii) inserting the phrase "a two-thirds
vote of" between the phrases "reinstatement is approved by"
2
<PAGE> 3
and "the Company's Board of Directors"; and (iii) deleting the parenthetical
phrase "(with the concurrence of a majority of the Continuing Directors)".
9. Benefits. Nothing in the Rights Agreement, as amended by this
Amendment No. 1, shall be construed to give to any Person other than the
Company, the Rights Agent and the registered holders of the Rights Certificates
(and, prior to the Distribution Date, the registered holders of the Common
Stock) any legal or equitable right, remedy or claim under the Rights Agreement,
as amended by this Amendment No. 1; but the Rights Agreement, as amended by this
Amendment No. 1, shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Rights certificates (and, prior
to the Distribution Date, registered holders of Common Stock).
10. Descriptive Headings. Descriptive headings of the several Sections
of this Amendment No. 1 are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
11. Governing Law. This Amendment No. 1 shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be governed by and construed in accordance with the laws of such State.
12. Other Terms Unchanged. The Rights Agreement, as amended by this
Amendment No. 1, shall remain and continue in full force and effect and is in
all respects agreed to, ratified and confirmed hereby. Any reference to the
Rights Agreement after the date first set forth above shall be deemed to be a
reference to the Rights Agreement, as amended by this Amendment No. 1.
13. Counterparts. This Amendment No. 1 may be executed in any number
of counterparts. It shall not be necessary that the signature of or on behalf of
each party appears on each counterpart, but it shall be sufficient that the
signature of or on behalf of each party appears on one or more of the
counterparts. All counterparts shall collectively constitute a single agreement.
It shall not be necessary in any proof of this Amendment No. 1 to produce or
account for more than a number of counterparts containing the respective
signatures of or on behalf of all of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed and attested, all as of the day and year first above
written.
3
<PAGE> 4
Attest: CYBERCASH, INC.
By: /s/William N. Melton By: /s/ Russell B. Stevenson, Jr
---------------------------- ------------------------------------
Attest: BankBoston N.A.
By: /s/ John E. Muha By: /s/
---------------------------- ------------------------------------
4
<PAGE> 1
Exhibit 10.8
Restricted Stock Plan
CYBERCASH, INC.
1999 RESTRICTED STOCK PLAN
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
1. PURPOSE...................................................................1
2. DEFINITIONS...............................................................1
3. ADMINISTRATION OF THE PLAN................................................3
3.1. Board...........................................................3
3.2. Committee.......................................................3
3.3. Awards..........................................................3
3.4. No Liability....................................................4
4. STOCK SUBJECT TO THE PLAN.................................................4
5. EFFECTIVE DATE AND TERM OF THE PLAN.......................................4
5.1. Effective Date..................................................4
5.2. Term............................................................4
6. ELIGIBILITY..............................................................4
6.1. Company or Subsidiary Employees; Service Providers..............4
6.2. Successive Grants...............................................4
7. AWARD AGREEMENT...........................................................4
8. RESTRICTED STOCK..........................................................4
8.1. Grant of Restricted Stock.......................................4
8.2. Restrictions....................................................4
8.3. Restricted Stock Certificates...................................5
8.4. Rights of Holders of Restricted Stock...........................5
8.5. Termination of Employment or Other Relationship.................5
8.6. Rights in the Event of Death....................................5
8.7. Rights in the Event of Disability...............................5
8.8. Delivery of Stock and Payment Therefor..........................5
9. UNRESTRICTED STOCK AWARDS.................................................6
10. PARACHUTE LIMITATIONS....................................................6
11. REQUIREMENTS OF LAW......................................................6
11.1. General........................................................6
11.2. Rule 16B-3.....................................................7
12. AMENDMENT AND TERMINATION OF THE PLAN....................................7
13. EFFECT OF CHANGES IN CAPITALIZATION......................................7
13.1. Changes in Stock...............................................7
13.2. Reorganization, Sale of Assets or Sale of
Stock Which Involves a Change of Control.......................7
13.3. Adjustments....................................................8
13.4. No Limitations on Company......................................8
14. DISCLAIMER OF RIGHTS.....................................................8
15. NONEXCLUSIVITY OF THE PLAN...............................................8
16. WITHHOLDING TAXES........................................................8
17. CAPTIONS.................................................................9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
18. OTHER PROVISIONS.........................................................9
19. NUMBER AND GENDER........................................................9
20. SEVERABILITY.............................................................9
21. GOVERNING LAW............................................................9
</TABLE>
-ii-
<PAGE> 4
CYBERCASH, INC.
1999 RESTRICTED STOCK PLAN
CyberCash, Inc., a Delaware corporation (the "Company"), sets forth
herein the terms of its 1999 Restricted Stock Plan (the "Plan") as follows:
1. PURPOSE
The purpose of the Plan is to enhance the Company's ability to attract,
retain and compensate highly qualified officers, key employees, and other
persons, and to motivate such officers, key employees, and other persons to
serve the Company and its affiliates (as defined herein) and to expend maximum
effort to improve the business results and earnings of the Company, by providing
to such officers, key employees and other persons an opportunity to acquire or
increase a direct proprietary interest in the operations and future success of
the Company. To this end, the Plan provides for the grant of restricted stock
and unrestricted stock.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any
company or other trade or business that controls, is controlled by or is under
common control with such person within the meaning of Rule 405 of Regulation C
under the Securities Act.
2.2 "Award" means a grant of Restricted Stock or Unrestricted Stock
under the Plan.
2.3 "Award Agreement" means the Restricted Stock Agreement or
Unrestricted Stock Award Agreement or other written agreement between the
Company and a Grantee that evidences and sets out the terms and conditions of an
Award.
2.4 "Benefit Arrangement" shall have the meaning set forth in SECTION
10 hereof.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect
or as hereafter amended.
2.7 "Committee" means a committee of, and designated from time to time
by resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate of the Company.
2.8 "Company" means CyberCash, Inc.
1
<PAGE> 5
2.9 "Effective Date" means January 29, 1999, the date on which the
Plan was adopted by the Board.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended.
2.11 "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title of the California Code of
Regulations:
(1) If the common stock is listed on any established stock exchange or
a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a share
of common stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in common
stock) on the last market trading day prior to the day of determination,
as reported in the Wall Street Journal or such other source as the Board
deems reliable;
(2) If the common stock is quoted on the NASDAQ System (but not on the
National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling process are not reported, the Fair Market
Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to
the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(3) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
2.11 "Grant Date" means, as determined by the Board or authorized
Committee, (i) the date as of which the Board or such Committee approves an
Award, (ii) the date on which the recipient of such Award first became an
employee of or otherwise entered into a relationship with the Company or an
affiliate of the Company or (iii) such other date as may be specified by the
Board or such Committee.
2.12 "Grantee" means a person who receives or holds Restricted Stock or
an Unrestricted Stock Award under the Plan.
2.13 "Other Agreement" shall have the meaning set forth in SECTION
10 hereof.
2.14 "Plan" means this CyberCash, Inc. 1999 Restricted Stock Plan.
2.15 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.16 "Restricted Period" means the period during which Restricted Stock
is subject to restrictions or conditions pursuant to SECTION 8.2 hereof.
2
<PAGE> 6
2.17 "Restricted Stock" means shares of Stock, awarded to a Grantee
pursuant to SECTION 8 hereof, that are subject to restrictions and to a risk of
forfeiture.
2.18 "Securities Act" means the Securities Act of 1933, as now in
effect or as hereafter amended.
2.19 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or affiliate of the Company, and employees of any of the foregoing, as
such persons may be designated from time to time by the Board pursuant to
SECTION 6.1 hereof.
2.20 "Stock" means the common stock, par value $0.001 per share, of the
Company.
2.21 "Subsidiary" means any "subsidiary corporation" of the Company
within the meaning of Section 424(f) of the Code.
2.22 "Unrestricted Stock Award" means any Award granted pursuant to
SECTION 9.
3. ADMINISTRATION OF THE PLAN
3.1 Board.
The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company's certificate of
incorporation and by-laws and applicable law. The Board shall have full power
and authority to take all actions and to make all determinations required or
provided for under the Plan, any Award or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Award or any Award Agreement. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous consent of the Board executed in
writing in accordance with the Company's articles of incorporation and by-laws
and applicable law. The interpretation and construction by the Board of any
provision of the Plan, any Award or any Award Agreement shall be final and
conclusive. As permitted by law, the Board may delegate its authority under the
Plan to a member of the Board of Directors or an executive officer of the
Company.
3.2 Committee.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in SECTION 3.1 above and in other applicable provisions, as the Board
shall determine, consistent with the certificate of incorporation and by-laws of
the Corporation and applicable law. In the event that the Plan, any Award or any
Award Agreement entered into hereunder provides for any action to be taken or
determination to be made by the Board, such action may be taken or such
determination may be made by the Committee if the power and authority to do so
has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive. As
permitted by law, the Committee may delegate its authority under the Plan to a
member of the Board of Directors or an executive officer of the Company.
3.3 Awards.
Subject to the other terms and conditions of the Plan, the Board shall
have full and final authority (i) to designate Grantees, (ii) to determine the
type or types of Award to be made to a Grantee, (iii) to determine the number of
shares of Stock to be subject to an Award, (iv) to establish the terms and
conditions of each Award (including, but not limited to, the nature and duration
of any restriction or condition (or
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<PAGE> 7
provision for lapse thereof) relating to the vesting, transfer, or forfeiture of
an Award or the shares of Stock subject thereto), (v) to prescribe the form of
each Award Agreement evidencing an Award, and (vi) to amend, modify, or
supplement the terms of any outstanding Award. Such authority specifically
includes the authority, in order to effectuate the purposes of the Plan but
without amending the Plan, to modify Awards to eligible individuals who are
foreign nationals or are individuals who are employed outside the United States
to recognize differences in local law, tax policy, or custom. As a condition to
any subsequent Award, the Board shall have the right, at its discretion, to
require Grantees to return to the Company Awards previously made under the Plan.
Subject to the terms and conditions of the Plan, any such new Award shall be
upon such terms and conditions as are specified by the Board at the time the new
Award is made.
3.4 No Liability.
No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award or
Award Agreement.
4 STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in SECTION 13 hereof, the number of
shares of Stock available for issuance under the Plan shall be 500,000. Stock
issued or to be issued under the Plan shall be authorized but unissued shares.
If any shares covered by an Award are not purchased or are forfeited, or if an
Award otherwise terminates without delivery of any Stock subject thereto, then
the number of shares of Stock counted against the aggregate number of shares
available under the Plan with respect to such Award shall, to the extent of
any such forfeiture or termination, again be available for making Awards
under the Plan.
5 EFFECTIVE DATE AND TERM OF THE PLAN
5.1 Effective Date.
The Plan shall be effective as of the Effective Date.
5.2 Term.
The Plan has no termination date.
6 ELIGIBILITY
6.1 Company or Subsidiary Employees; Service Providers.
Awards may be made under the Plan to any employee of, or a Service
Provider to, the Company or any Subsidiary, including any such employee who is
an officer or director of the Company or of any Subsidiary, as the Board shall
determine and designate from time to time.
6.2 Successive Grants.
An eligible person may receive more than one Award, subject to such
restrictions as are provided herein.
7 AWARD AGREEMENT
Each Award pursuant to the Plan shall be evidenced by an Award Agreement,
to be executed by the Company and by the Grantee, in such form or forms as the
Board shall from time to time determine. Award Agreements granted from time to
time or at the same time need not contain similar provisions but shall be
consistent with the terms of the Plan.
8 RESTRICTED STOCK
8.1 Grant of Restricted Stock.
The Board may from time to time grant Restricted Stock to persons
eligible to receive Awards under SECTION 6 hereof, subject to such
restrictions, conditions and other terms as the Board may determine.
8.2 Restrictions.
At the time an Award of Restricted Stock is made, the Board shall
establish a period of time (the "Restricted Period") applicable to such
Restricted Stock. Each Award of Restricted Stock may be subject to a different
Restricted Period. The Board may, in its sole discretion, at the time an Award
of Restricted Stock is made, prescribe restrictions in addition to or other than
the expiration of the Restricted Period, including the satisfaction of corporate
or individual performance objectives. Restricted Stock may not be
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<PAGE> 8
sold, transferred, assigned, pledged or otherwise encumbered or disposed of
during the Restricted Period or prior to the satisfaction of any other
restrictions prescribed by the Board with respect to such Restricted Stock.
8.3 Restricted Stock Certificates.
The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, stock certificates representing the total number of
shares of Restricted Stock granted to the Grantee, as soon as reasonably
practicable after the Grant Date. The Board may provide in an Award Agreement
that either (i) the Secretary of the Company shall hold such certificates for
the Grantee's benefit until such time as the Restricted Stock is forfeited to
the Company or the restrictions lapse, or (ii) such certificates shall be
delivered to the Grantee, provided, however, that such certificates shall bear a
legend or legends that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions imposed under
the Plan and the Award Agreement.
8.4 Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders
of Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board
may provide that any dividends paid on Restricted Stock must be reinvested in
shares of Stock, which may or may not be subject to the same vesting conditions
and restrictions applicable to such Restricted Stock. All distributions, if
any, received by a Grantee with respect to Restricted Stock as a result of any
stock split, stock dividend, combination of shares, or other similar
transaction shall be subject to the restrictions applicable to the original
Award.
8.5 Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship with
the Company other than by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Restricted Stock held
by such Grantee that has not vested, or with respect to which all applicable
restrictions and conditions have not lapsed, shall immediately be deemed
forfeited, unless the Board, in its discretion, determines otherwise. Upon
forfeiture of Restricted Stock, the Grantee shall have no further rights with
respect to such Award, including but not limited to any right to vote Restricted
Stock or any right to receive dividends with respect to shares of Restricted
Stock. Whether a leave of absence or leave on military or government service
shall constitute a termination of employment or other relationship for purposes
of the Plan shall be determined by the Board, which determination shall be final
and conclusive.
8.6 Rights in the Event of Death.
Unless otherwise provided in the Award Agreement, if a Grantee dies while
employed by the Company, only the vested Restricted Stock granted to such
Grantee shall be fully vested on the date of death, and the shares of Stock
represented thereby shall be deliverable in accordance with the terms of the
Plan to the executors, administrators, legatees or distributees of the Grantee's
estate.
8.7 Rights in the Event of Disability.
Unless otherwise provided in the Award Agreement, if a Grantee terminates
employment or other relationship with the Company by reason of his or her
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code), only the Restricted Stock granted to such Grantee shall be fully vested
on the date of such termination. Whether a termination of employment or service
is to be considered by reason of "permanent and total disability" for purposes
of the Plan shall be determined by the Board, which determination shall be final
and conclusive.
8.8 Delivery of Stock and Payment Therefor.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock shall lapse, and, unless otherwise
provided in the Award Agreement, upon payment by the Grantee to the Company, in
cash or by check, of the aggregate par value of the shares of Stock represented
by such Restricted Stock (or such other higher purchase price determined by the
Board), a stock certificate for such shares shall be delivered, free of all such
restrictions, to the Grantee or the Grantee's beneficiary or estate, as the case
may be.
5
<PAGE> 9
9 UNRESTRICTED STOCK AWARDS
The Board may, in its sole discretion, grant (or sell at par value or
such other higher purchase price determined by the Board) an Unrestricted Stock
Award to any Grantee pursuant to which such Grantee may receive shares of Stock
free of any restrictions ("Unrestricted Stock") under the Plan. Unrestricted
Stock Awards may be granted or sold as described in the preceding sentence in
respect of past services or other valid consideration, or in lieu of any cash
compensation due to such Grantee.
10 PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by a
Grantee with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
Grantees or beneficiaries of which the Grantee is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Restricted Stock
held by that Grantee and any right to receive any payment or other benefit under
this Plan shall not become exercisable or vested (i) to the extent that such
right to exercise, vesting, payment, or benefit, taking into account all other
rights, payments, or benefits to or for the Grantee under this Plan, all Other
Agreements, and all Benefit Arrangements, would cause any payment or benefit to
the Grantee under this Plan to be considered a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute
Payment") and (ii) if, as a result of receiving a Parachute Payment, the
aggregate after-tax amounts received by the Grantee from the Company under this
Plan, all Other Agreements, and all Benefit Arrangements would be less than the
maximum after-tax amount that could be received by the Grantee without causing
any such payment or benefit to be considered a Parachute Payment. In the event
that the receipt of any such right to exercise, vesting, payment, or benefit
under this Plan, in conjunction with all other rights, payments, or benefits to
or for the Grantee under any Other Agreement or any Benefit Arrangement would
cause the Grantee to be considered to have received a Parachute Payment under
this Plan that would have the effect of decreasing the after-tax amount received
by the Grantee as described in clause (ii) of the preceding sentence, then the
Grantee shall have the right, in the Grantee's sole discretion, to designate
those rights, payments, or benefits under this Plan, any Other Agreements, and
any Benefit Arrangements that should be reduced or eliminated so as to avoid
having the payment or benefit to the Grantee under this Plan be deemed to be a
Parachute Payment.
11 REQUIREMENTS OF LAW
11.1 General.
The Company shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the Grantee or the Company of any provision of any law or
regulation of any governmental authority, including without limitation any
federal or state securities laws or regulations. If at any time the Company
shall determine, in its discretion, that the listing, registration or
qualification of any shares subject to an Award upon any securities exchange or
under any governmental regulatory body is necessary or desirable as a condition
of, or in connection with, the issuance or purchase of shares hereunder, no
shares of Stock may be issued or sold to the Grantee unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company, and any delay
caused thereby shall in no way affect the date of termination of the Award.
Specifically, in connection with the Securities Act, upon the delivery of any
shares of Stock underlying an Award, unless a registration statement under such
Act is in effect with respect to the shares of Stock covered by such Award, the
Company shall not be required to sell or issue such shares unless the Board has
received evidence satisfactory to it that the Grantee may acquire such shares
pursuant to an exemption from registration under the Securities Act. Any
determination in this connection by the Board shall be final, binding, and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take
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<PAGE> 10
any affirmative action in order to cause the issuance of shares of Stock
pursuant to the Plan to comply with any law or regulation of any governmental
authority.
11.2 Rule 16b-3.
During any time when the Company has a class of equity security
registered under Section 12 of the Exchange Act, it is the intent of the Company
that Awards pursuant to the Plan will qualify for the exemption provided by Rule
16b-3 under the Exchange Act. To the extent that any provision of the Plan or
action by the Board does not comply with the requirements of Rule 16b-3, it
shall be deemed inoperative to the extent permitted by law and deemed advisable
by the Board, and shall not affect the validity of the Plan. In the event that
Rule 16b-3 is revised or replaced, the Board may exercise its discretion to
modify this Plan in any respect necessary to satisfy the requirements of, or to
take advantage of any features of, the revised exemption or its replacement.
12 AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Awards have not been
made; provided, however, that the Board shall not, without approval of the
Company's shareholders, amend the Plan such that it does not comply with the
Code. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul an Award if the Grantee is an
employee of the Company or an affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this SECTION 12 or
SECTION 13 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Award theretofore awarded under the Plan.
13 EFFECT OF CHANGES IN CAPITALIZATION
13.1 Changes in Stock.
If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or kind
of shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares
for which Awards may be made under the Plan shall be adjusted proportionately
and accordingly by the Company. In addition, the number and kind of shares for
which Awards are outstanding shall be adjusted proportionately and accordingly
so that the proportionate interest of the Grantee immediately following such
event shall, to the extent practicable, be the same as immediately before such
event.
13.2 Reorganization, Sale of Assets or Sale of Stock Which Involves a Change
of Control.
Upon the dissolution or liquidation of the Company or upon a merger,
consolidation, or reorganization of the Company with one or more other entities
in which the Company is not the surviving entity, or upon a sale of
substantially all of the assets of the Company to another entity, or upon any
transaction (including, without limitation, a merger or reorganization in which
the Company is the surviving entity) approved by the Board that results in any
person or entity (or person or entities acting as a group or otherwise in
concert, owning fifty percent (50%) or more of the combined voting power of all
classes of securities of the Company), all outstanding shares subject to Awards
shall be deemed to have vested, and all restrictions and conditions applicable
to such shares subject to Awards shall be deemed to have lapsed, immediately
prior to the occurrence of such event. This SECTION 13.2 shall not apply to any
transaction to the extent that (A) provision is made in writing in connection
with such transaction for the continuation of the Plan or the assumption of the
Restricted Stock theretofore granted, or for the substitution for such
Restricted Stock of new restricted stock covering the stock of a successor
entity,
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<PAGE> 11
or a parent or subsidiary thereof, with appropriate adjustments as to the number
and kinds of shares, in which event the Plan and Restricted Stock theretofore
granted shall continue in the manner and under the terms so provided or (B) a
majority of the full Board determines that such transaction shall not trigger
application of the provisions of this SECTION 13.2 and limited by any "change in
control" provision in any employment agreement or Award Agreement applicable to
the Grantee. Upon consummation of any such transaction, the Plan shall
terminate, except to the extent provision is made in writing in connection with
such transaction for the continuation of the Plan.
13.3 Adjustments.
Adjustments under SECTION 13 related to shares of Stock or securities of
the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share.
13.4 No Limitations on Company.
The making of Awards pursuant to the Plan shall not affect or limit in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.
14 DISCLAIMER OF RIGHTS
No provision in the Plan or in any Award or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any affiliate, or to interfere in any way with any
contractual or other right or authority of the Company either to increase or
decrease the compensation or other payments to any individual at any time, or to
terminate any employment or other relationship between any individual and the
Company. In addition, notwithstanding anything contained in the Plan to the
contrary, unless otherwise stated in the applicable Award Agreement, no Award
granted under the Plan shall be affected by any change of duties or position of
the Grantee, so long as such Grantee continues to be a director, officer,
consultant or employee of the Company. The obligation of the Company to pay any
benefits pursuant to this Plan shall be interpreted as a contractual obligation
to pay only those amounts described herein, in the manner and under the
conditions prescribed herein. The Plan shall in no way be interpreted to require
the Company to transfer any amounts to a third party trustee or otherwise hold
any amounts in trust or escrow for payment to any Grantee or beneficiary under
the terms of the Plan.
15 NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines
desirable.
16 WITHHOLDING TAXES
The Company or a Subsidiary, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any Federal, state,
or local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to an Award or upon the
issuance of any shares of Stock pursuant to an Award. At the time of such
vesting, lapse, or exercise, the Grantee shall pay to the Company or the
Subsidiary, as the case may be, any amount that the Company or the Subsidiary
may reasonably determine to be necessary to satisfy such withholding obligation.
Subject to the prior approval of the Company or the Subsidiary, which may be
withheld by the Company or the Subsidiary, as the case may be, in its sole
discretion, the Grantee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company or the Subsidiary to withhold shares of Stock
otherwise issuable to the Grantee or (ii) by delivering to the Company or the
Subsidiary shares of Stock already owned by the Grantee. The shares of Stock so
delivered or withheld shall have an aggregate Fair Market Value equal to such
withholding obligations. The Fair Market Value of the shares of Stock used to
satisfy such
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<PAGE> 12
withholding obligation shall be determined by the Company or the Subsidiary as
of the date that the amount of tax to be withheld is to be determined. A Grantee
who has made an election pursuant to this SECTION 16 may satisfy his or her
withholding obligation only with shares of Stock that are not subject to any
repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
17 CAPTIONS
The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.
18 OTHER PROVISIONS
Each Award granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.
19 NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, etc.,
as the context requires.
20 SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined
to be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
21 GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Awards granted hereunder shall be governed by the laws of the State of
Delaware (without giving effect to the choice of law provisions thereof).
* * *
The Plan was duly adopted and approved by the Board of Directors of the
Company as of January 27, 1999.
/s/James J. Condon
-------------------------------------------------
James J. Condon
President and Chief Financial Officer
9
<PAGE> 13
Exhibit to Exhibit 10.8
(Form of Award Certificate)
CYBERCASH, INC.
1999 RESTRICTED STOCK AND INCENTIVE PLAN
RESTRICTED STOCK AWARD CERTIFICATE
(NON-TRANSFERABLE)
1. THE SALE. CyberCash, Inc., a Delaware Corporation, (the "Company")
pursuant to action of the Board and in accordance with the CyberCash, Inc. 1999
Restricted Stock and Incentive Plan ("Plan"), hereby sells to <<FirstName>>
<<LastName>> ("Holder") and Holder hereby purchases from the Company <<Shares>>
shares of common stock of the Company (the "Restricted Stock"), for $
<<Price>> per share, for a total cost ("the Cost") of $<<Cost>>, subject
to all of the forfeiture and vesting provisions set forth in this Award
Certificate (which is deemed to be an Award Agreement for the purposes of the
Plan) and the terms and conditions set forth in the Plan (which is attached to
this Award Certificate). The Secretary of the Company shall hold certificates
representing the Restricted Stock being acquired by Holder, registered in
Holder's name, for the Holder's benefit until such time as the restrictions
lapse or the shares of Restricted Stock are forfeited to the Company. The date
of the Sale is February 10, 1999 (the "Grant Date").
2. SERVICE REQUIREMENT. Except as provided below, the Restricted
Stock shall be subject to forfeiture, in whole or in part, by the Holder upon
the termination of the Holder's employment with the Company prior to February
10, 2000, the one-year anniversary of the Grant Date (the "Vesting Date"). The
Restricted Stock becomes vested as to twenty percent (20%) of the shares subject
to the Award Certificate on the Grant Date. Thereafter, so long as the Holder
has been employed or otherwise providing services to the Company or any of its
affiliates or Service Providers continuously, the Restricted Stock becomes
vested as to an additional twenty percent (20%) of the shares subject to the
Award Certificate every three months until the shares are one hundred percent
(100%) vested on the Vesting Date.
3. TAX TREATMENT. THE HOLDER IS RESPONSIBLE FOR TAXES AT THE TIME
OF VESTING EQUAL TO THE COST OF THE RESTRICTED STOCK AND ON ANY GAIN MADE UPON
THE SUBSEQUENT SALE OF THE RESPECTIVE STOCK. THE HOLDER ACKNOWLEDGES HAVING
RECEIVED A SECTION 83(B) ELECTION FORM, THAT THE SECTION 83(B) ELECTION FORM
MUST BE FILED WITH THE IRS BEFORE MARCH 10, 1999.
3. RISK OF FORFEITURE. Until such time as the Restricted Stock
becomes fully vested as provided in this Award Certificate, the unvested portion
of the Restricted Stock shall be forfeited upon the occurrence of a Forfeiture
Event (as defined herein) and may not be sold, assigned, conveyed or otherwise
disposed of, or pledged, mortgaged, hypothecated or otherwise encumbered by the
Holder. A Forfeiture Event means a termination of Holder's employment or other
service relationship, including termination due to the Holder's death or
permanent and total disability (as defined in the Plan). If unvested Restricted
Stock is forfeited, then the unvested Restricted Stock (and all certificates
therefor) shall be immediately transferred to the Company without any payment by
the Company. The certificate representing the Restricted Stock will be affixed
with a legend setting forth the restrictions applicable to the transfer of the
Restricted Stock.
4. DELIVERY OF SHARES AND PAYMENT THEREFOR. When the restrictions
applicable to the Restricted Stock lapse, a new certificate for the Restricted
Stock, free of legends stating the applicable restrictions, shall be delivered
to Holder.
IN WITNESS WHEREOF, the Company has duly executed and delivered this
Award Certificate, or caused this Award Certificate to be duly executed and
delivered in its name and on its behalf, as of February 10, 1999.
CyberCash, Inc.
By:
--------------------------
By:
--------------------------
10
<PAGE> 1
Exhibit 10.13
LEASE AGREEMENT
BY AND BETWEEN
APA PROPERTIES NO. 6, L.P.
("Lessor")
AND
CYBERCASH, INC.
("Lessee")
Isaac Newton Square
Building W-2
Reston, Virginia 20190
<PAGE> 2
ISAAC NEWTON SQUARE
LEASE AGREEMENT
Table of Contents
1. PREMISES: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. TERM; OPTIONS TO RENEW: . . . . . . . . . . . . . . . . . . . . . . 1
3. RENT: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. REPAIR AND MAINTENANCE: . . . . . . . . . . . . . . . . . . . . . . 3
5. COMPLIANCE WITH REQUIREMENTS OF LAW: . . . . . . . . . . . . . . . . 4
6. UTILITIES: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. ALTERATIONS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. ACCESS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. SIGNAGE: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
10. USE: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. LIABILITY: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
12. SURRENDER AND TERMINATION: . . . . . . . . . . . . . . . . . . . . 6
13. INDEMNITY: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
14. NO WAIVER: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
15. SUBORDINATION: . . . . . . . . . . . . . . . . . . . . . . . . . . 7
16. INSURANCE: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
17. DEFAULT: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
18. LESSOR'S REMEDIES: . . . . . . . . . . . . . . . . . . . . . . . . 9
19. DESTRUCTION - FIRE OR OTHER CAUSE: . . . . . . . . . . . . . . . . 10
20. LEGAL FEES: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
21. CONDEMNATION: . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
22. ASSIGNMENT AND SUBLETTING: . . . . . . . . . . . . . . . . . . . . 12
23. PARKING: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
24. KEYS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
25. MECHANICS' LIENS: . . . . . . . . . . . . . . . . . . . . . . . . . 15
26. NOTICES: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
27. LESSEE'S PROPORTIONATE SHARE: . . . . . . . . . . . . . . . . . . . 15
28. SECURITY SERVICES: . . . . . . . . . . . . . . . . . . . . . . . . 17
29. "AS IS": . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
30. WAIVER OF JURY AND COUNTERCLAIM: . . . . . . . . . . . . . . . . . 17
31. SECURITY DEPOSIT: . . . . . . . . . . . . . . . . . . . . . . . . . 18
32. VIRGINIA LAW: . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
33. BROKER: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
34. RECORDING: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
35. RULES AND REGULATIONS: . . . . . . . . . . . . . . . . . . . . . . 19
36. FAILURE TO DELIVER POSSESSION: . . . . . . . . . . . . . . . . . . 19
37. WAIVER OF LIABILITY: . . . . . . . . . . . . . . . . . . . . . . . 20
38. RIGHT OF LESSOR TO DISCHARGE OBLIGATIONS OF LESSEE: . . . . . . . . 21
39. SERVICE CONTRACTS: . . . . . . . . . . . . . . . . . . . . . . . . 21
40. BINDING ON SUCCESSORS, ETC.: . . . . . . . . . . . . . . . . . . . 21
41. LATE CHARGE: . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
42. ATTORNMENT: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
43. EXECUTION OF LEASE: . . . . . . . . . . . . . . . . . . . . . . . . 22
44. MORTGAGEE PROTECTION CLAUSE: . . . . . . . . . . . . . . . . . . . 22
45. PARTIAL INVALIDITY: . . . . . . . . . . . . . . . . . . . . . . . . 22
46. HOLDING OVER: . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
47. HAZARDOUS MATERIALS: . . . . . . . . . . . . . . . . . . . . . . . 22
48. ESTOPPEL CERTIFICATE: . . . . . . . . . . . . . . . . . . . . . . . 23
49. FINANCIAL STATEMENTS: . . . . . . . . . . . . . . . . . . . . . . . 24
50. QUIET ENJOYMENT; ACCESS: . . . . . . . . . . . . . . . . . . . . . 24
51. ROOFTOP ACCESS: . . . . . . . . . . . . . . . . . . . . . . . . . . 24
52. GENERATOR INSTALLATION: . . . . . . . . . . . . . . . . . . . . . . 26
<PAGE> 3
Exhibit A - Demised Premises
Exhibit B - Rules and Regulations
Exhibit C - Work Agreement
Exhibit D - Antenna Area
Exhibit E - Form of Current Lender's Subordination Nondisturbance and
Attornment Agreement
Exhibit F - Standard Form of Letter of Credit
Exhibit F-1 -- Approved Form of Letter of Credit
<PAGE> 4
ISAAC NEWTON SQUARE
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") made and entered into this
August 11, 1998, by and between APA PROPERTIES NO. 6, L.P., a Delaware limited
partnership, (hereinafter referred to as "Lessor"), c/o its Agent Peter Lawrence
of Virginia, Inc. ("Agent"), 11440 Isaac Newton Square North, Suite 208, Reston,
Virginia 20190, and CYBERCASH, INC., a Delaware corporation, having a notice
address at 2100 Reston Parkway, Third Floor, Reston, Virginia, hereinafter
referred to as "Lessee".
W I T N E S S E T H:
1. PREMISES:
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
the space shown on Exhibit A, in the building commonly known as Isaac Newton
Square, Building W-2 ("Building") having a mailing address of 1916 Isaac
Newton Square West, Reston, Virginia, 20190 which space contains an "agreed
upon" Ten Thousand Five Hundred Forty-Five (10,545) square feet of gross
rentable space and is hereinafter referred to as the "Demised Premises" or the
"Premises", which square footage was determined in accordance with the Building
Owners' and Managers' Association (1996) Standard Method for Measuring Floor
Area in Office Buildings. The Building is located in an office park (the
"Office Park") commonly known as "Isaac Newton Square". Lessee's interest in
this Lease is subject to all convenants and restrictions of record and all
applicable zoning, municipal, county, state and federal laws, statutes, codes,
ordinances, rules and regulations affecting Isaac Newton Square. The term
"Land", as used in this Lease, shall mean the tax lot on which the Building is
located and all appurtenances thereto. The Demised Premises is shown on Exhibit
A, attached to this Lease and made a part hereof.
2. TERM; OPTIONS TO RENEW:
(a) Lessor shall deliver the Demised Premises to Lessee
promptly after the full execution and delivery of this Lease and Lessee shall
accept the same in their "as is" condition on the date the Demised Premises are
delivered to Lessee. The Term shall commence on August 15, 1998 (the "Lease
Commencement Date") and shall continue for fifty-five and one-half (55 1/2)
full calendar months thereafter. Accordingly, the Term shall expire on March
31, 2003.
(b) All of the terms and conditions set forth in this
Lease shall be in full force and effect from and after the full execution and
delivery of this Lease. "Lease Year" shall mean a period of twelve (12)
consecutive months commencing on the Lease Commencement Date, and each
successive twelve (12) month period thereafter; provided, however, that if the
Lease Commencement Date is not the first day of a month, then the first Lease
Year shall commence on the Lease Commencement Date and shall continue for the
balance of the month in which the Lease Commencement Date occurs and for a
period of twelve (12) months thereafter.
(c) Lessor hereby grants to Lessee the conditional right,
exercisable at Lessee's option, to renew the term of this Lease for two (2)
successive terms of two (2) years each. If exercised, and if the conditions
applicable thereto have been satisfied, the first such renewal term (the "First
Renewal Term") shall commence immediately following the end of the initial
Lease Term provided in clause (a) above, and the second renewal term (the
"Second Renewal Term") shall commence immediately following the end of the
First Renewal Term. The
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<PAGE> 5
rights of renewal herein granted to Lessee shall be subject to, and shall be
exercised in accordance with, the following terms and conditions:
(i) Lessee shall exercise its right of renewal
with respect to a Renewal Term by giving Lessor written notice thereof not
earlier than fifteen (15) months nor later than twelve (12) months prior to the
expiration of the then-current term of this Lease. Base Rent payable during
the first Lease Year of the First Renewal Term shall be One Hundred Nine
Thousand Fifty-One and 64/100 Dollar ($109,051.64), and Base Rent payable
during the second Lease Year of the First Renewal Term shall be One Hundred
Thirteen Thousand Four Hundred Thirteen and 71/100 Dollars ($113,413.71). If
Lessee elects to renew the Term of this Lease for the Second Renewal Term, then
within two months after Lessor's timely receipt of such notice, Lessor shall
provide Lessee with Lessor's determination of the annual base rent which shall
be payable during each year of the Second Renewal Term. The parties shall have
thirty (30) days after Lessee's receipt of such determination in which to agree
on such annual base rent. Among the factors to be considered by the parties
during such negotiations shall be the general office rental market in Reston,
Virginia, the rental rates then being quoted by Lessor to comparable tenants
for comparable space in the Office Park, and the rents being charged similar
tenants for similar office space in similar multi-tenanted buildings. In no
event, however, shall Lessor be under any obligation to agree to a base rent
for any Lease Year of such Second Renewal Term which is less than the Base Rent
in effect under this Lease during the Lease Year immediately preceding the
commencement of such Second Renewal Term. If during such thirty (30) day
period the parties agree on such annual base rent payable during each year of
such Second Renewal Term, then they shall promptly execute an amendment to this
Lease stating the rent so agreed upon. If during such thirty (30) day period
the parties are unable, for any reason whatsoever, to agree on such annual base
rent payable, then Lessee's rights with respect to the Second Renewal Term
shall lapse and be of no further force or effect.
(ii) If any renewal notice is not given timely,
then Lessee's right of renewal with respect to the applicable Renewal Term
shall lapse and be of no further force or effect.
(iii) If an Event of Default (as defined in Section
17) exists under this Lease on the date Lessee sends a renewal notice or any
time thereafter until a Renewal Term is to commence, then, at Lessor's
election, such Renewal Term shall not commence and the term of this Lease shall
expire at the expiration of the then-current term of this Lease.
(iv) If Lessee's right of renewal with respect to
a Renewal Term lapses for any reason, then Lessee's right of renewal with
respect to any subsequent Renewal Term shall similarly lapse and be of no
further force or effect. Lessee's renewal rights set forth in this Section
2(c) shall apply to the entire Premises only.
(v) If at any time fifty percent (50%) or more of
the square feet of rentable area of the Premises has been subleased or assigned
to other than a successor corporation or a related corporation (as each is
defined in Section 22(b)) or any entity described in Section 22(f)
(collectively, "Excluded Subtenants"), or if this Lease has been terminated
with respect to any such portion, then Lessee's rights pursuant to this Section
shall lapse and be of no further force or effect.
(vi) Lessee's rights of renewal under this Section
may be exercised only by Lessee and may not be exercised by any transferee,
sublessee or assignee of Lessee (other than a successor corporation or a
related corporation, as defined in Section 22(b)).
3. RENT:
Commencing upon the Lease Commencement Date, Lessee shall pay to
Lessor annual base rent ("Base Rent") for the Demised Premises as follows:
2
<PAGE> 6
<TABLE>
<CAPTION>
PERIOD ANNUAL AMOUNT MONTHLY AMOUNT
- ------ ------------- --------------
<S> <C> <C>
First Lease Year $89,632.50 $7,469.38
Second Lease Year $93,217.80 $7,768.15
Third Lease Year $96,946.51 $8,078.88
Fourth Lease Year $100,824.37 $8,402.03
Fifth Lease Year $104,857.35 $8,738.11
</TABLE>
(a) Annual Base Rent stipulated for each of the
applicable lease years shall be paid in equal one-twelfth (1/12th) installments
in advance on the first day of each calendar month for the applicable Lease
Year. Notwithstanding the foregoing sentence to the contrary, if the Lease
Commencement Date is not the first day of a month, then, in addition to the
amount set forth above as the annual Base Rent for the first Lease Year, for
each day of such partial month, Lessee shall pay one three hundred sixty-fifth
(1/365) of such annual Base Rent in advance on the Lease Commencement Date.
Base Rent and all other items of rent or payments due Lessor under this Lease
shall be paid to Lessor at the address of Lessor set forth above or at such
other address and/or to such other party as Lessor may, from time to time,
designate by written notice to Lessee in the manner hereafter set forth.
(b) Simultaneously with Lessee's execution of this Lease,
Lessee shall deliver to Lessor the initial security deposit required by
paragraph 31 of this Lease.
(c) Simultaneously with Lessee's execution of this Lease,
Lessee shall deliver to Lessor a check, which shall be accepted by Lessor
subject to collection, in the amount of Seven Thousand Four Hundred Sixty-Nine-
and 38/100 Dollars ($7,469.38), representing payment of one (1) month of Base
Rent in advance.
(d) Lessee covenants and agrees to pay all licenses,
taxes, sales taxes and assessments of every kind and character imposed by any
governmental body, on, against or in connection with the operation of the
business conducted on the Demised Premises, or against Lessee's property in or
on the Demised Premises or on any installment of Base Rent or item of
additional rent or other charge payable by Lessee under this Lease.
4. REPAIR AND MAINTENANCE:
Lessor shall (other than for any repairs or replacements required as a
result of the acts or failure to act as required by this Lease or negligence
of Lessee, its agents, officers and its and their employees or invitees)
maintain in good condition the roof, foundation and structure of the Building
as well as all landscaping, curbing, sidewalks, roads, parking areas, driveways
and all exterior areas used in common by the tenants of the Building and
generally keep the same clean. Lessee will maintain in good order, condition
and repair the entire Demised Premises (interior and exterior), including,
without limitation, overhead loading doors, electrical, heating, ventilating,
air-conditioning, sprinkler and lighting and plumbing systems and fire/life
safety in the Demised Premises and replace parts and materials as required;
provided, however, that, provided Lessee has complied with its maintenance and
repair obligations set forth in this Lease and no Event of Default otherwise
exists, Lessee shall not be required to replace or repair any capital items
located within and serving only the Premises (e.g. building systems or
components thereof) that first malfunction during the last twelve (12) months
of the Lease Term (as the same may be extended), unless Lessor reasonably
determines that (a) the malfunction was caused by Lessee's negligence, or (b)
the cost of the replacement or repair is one thousand dollars ($1,000) or less
per item, or (c) the failure promptly to replace any such item might compromise
the safety or lawful occupancy of the Premises or the Building or cause waste
to occur therein which waste, if not promptly repaired, would cause further
deterioration or disrepair. Lessee shall, at its own expense, keep the Demised
Premises in good repair, order and clean and, at its own expense, will remove
all refuse and garbage therefrom. Garbage and refuse shall be stored at such
locations and in such containers as shall be approved by Lessor. Lessee shall
use such rubbish and trash removal contractors as Lessor, at its option, may
designate. Notwithstanding anything contained in this Lease to the contrary,
Lessee shall be responsible for repairs and restoration to the
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<PAGE> 7
Demised Premises or the Building resulting from, occasioned by, or arising
from, any break-ins, burglaries or attempted break-ins or burglaries in, on or
to the Demised Premises.
5. COMPLIANCE WITH REQUIREMENTS OF LAW:
Lessee, at its sole cost and expense, shall promptly comply with all
laws, statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State, County and local government and of any and all their
departments and bureaus and associations with jurisdiction over the Demised
Premises, and with any directives of any public officer or officers which shall
impose any violation, order or duty upon Lessor or Lessee with respect to the
Demised Premises and/or relate to the correction, prevention and/or abatement
of nuisances or other grievances in, upon or connected with the Demised
Premises during the term hereof (collectively, "Laws"). Lessee shall, at
Lessee's own cost and expense, also promptly comply with and obey all rules,
orders and regulations of any fire underwriting or rating authority. Any
governmental or municipal permits, approvals or consents required in order for
Lessee to be able to use the Demised Premises for the purposes for which Lessee
intends, and is permitted hereunder, to use the Demised Premises, if necessary,
shall be obtained by Lessee, at Lessee's sole cost and expense, and any failure
of Lessee to obtain such permits, approvals or consents shall not relieve
Lessee of its obligations hereunder. All references in this Section to the
Demised Premises shall include any equipment servicing the Demised Premises.
Lessee may not place or store any pallets or other items outside the exterior
of the Demised Premises other than the temporary placement during loading and
unloading in the rear loading dock area of the Building.
6. UTILITIES:
Lessee shall be responsible for the costs and expenses of all
utilities and services used in the Demised Premises during the term of this
Lease. Lessee shall apply to the applicable utility company or municipality
for natural gas, electricity, telephone, water, sewer and all other utility
services required by Lessee for use in the Demised Premises, and Lessee shall
be responsible for the connection and installation of the same, including the
cost of meters and the installation thereof. Lessor represents that as of the
date hereof gas, electricity, telephone, water and sewer services are available
to the Demised Premises. If any of the equipment or machinery located outside
the Demised Premises used to bring such utilities to the Building as a whole
fall into disrepair, then, subject to Lessor's rights under Section 27 and
subject to the provisions of Section 8 below, Lessor shall repair the same
(provided, however, that if such disrepair was caused by the negligence or
willful misconduct of Lessee, then Lessee shall reimburse Lessor for all costs
incurred by Lessor therefor). If Lessee is obligated to reimburse Lessor
pursuant to the preceding sentence, then, except (a) in the event of emergency,
or (b) if the disrepair adversely affects Lessor or other tenants' operations
or quiet enjoyment, Lessor shall not perform such repairs unless Lessee fails
to do so within five (5) days after Lessor notifies Lessee thereof (with no
other notice or cure period applicable thereto).
7. ALTERATIONS:
Lessee shall make no additions, installations, alterations or changes
("Alterations") in or to the Demised Premises without obtaining the prior
written permission of Lessor (which shall be granted or withheld in accordance
with clause (b) below). In any event, all Alterations done by Lessee shall at
all times comply with:
(a) All Laws and such rules and regulations as Lessor
shall reasonably promulgate that do not unreasonably restrict the utility of
the Demised Premises during the construction of such Alteration.
(b) Plans and specifications prepared by and at the
expense of Lessee theretofore submitted to Lessor for its prior written
approval which approval may be granted or withheld in Lessor's sole and
absolute discretion with respect to all structural Alterations and to those
non-structural Alterations which are visible from the exterior of the Demised
Premises or for which a building permit is required, and which consent shall
not be unreasonably withheld, conditioned or delayed with respect to all other
non-structural Alterations. Structural Alterations shall be deemed to include
without limitation any Alteration that will or may necessitate any changes,
replacements or additions to the walls, ceilings, partitions, columns or floor,
or to the
4
<PAGE> 8
water, electrical, mechanical, plumbing or HVAC systems, of the Demised
Premises or the Building. No Alterations shall be undertaken, started or begun
by Lessee, its agents, servants or employees, until Lessor has approved such
plans and specifications; and no amendments or additions to such plans and
specifications shall be made without the prior written consent of Lessor in
accordance with this Section.
(c) Lessee agrees to pay to Lessor a fee of Five Hundred
($500.00) Dollars each time Lessee proposes to make Alterations to compensate
Lessor for its time and costs incurred in reviewing any plans and
specifications submitted by Lessee.
8. ACCESS:
Lessee shall permit Lessor and others authorized by Lessor to enter
upon the Demised Premises at all reasonable times after notice (except that in
the event of emergency, no notice shall be required) to examine the condition
thereof and conditions of Lessee's occupancy, to make such repairs, additions
or alterations therein as Lessor may deem necessary, for such other purposes as
may be related to Lessor's ownership or to exhibit the same to prospective
tenants, purchasers and/or mortgagees; provided, however, that Lessor agrees to
give Lessee at least forty-eight (48) hours prior written notice of any such
access to the computer room, the network operating center (NOC) and UPS
battery, each as outlined on Exhibit C-1 and upon receipt of such notice,
Lessor and Lessee shall agree to a mutually agreeable time for access to the
computer room (which time shall not be more than 24 hours after expiration of
such 48 hour notice period). In exercising its rights under this Section,
Lessor shall use reasonable efforts to minimize disruption to Lessee's business
operations, provided the same can be accomplished without additional cost to
Lessor.
9. SIGNAGE:
Lessee may erect any sign in or on any portion of the Demised Premises
or in front of the Building after it obtains Lessor's prior written consent,
which consent shall not be unreasonably withheld as to any such signage that is
not visible from the exterior of the Demised Premises, but which consent may be
granted or withheld in Lessor's sole and absolute discretion with respect to
all other signage. Lessee may, at its sole cost and expense, erect in a
location acceptable to Lessor one (1) pedestal sign identifying Tenant's name
provided it is the same size, style and color as other such pedestal signs in
the Office Park Any such signage shall be purchased, installed and maintained
by Lessee at Lessee's sole cost. Prior to installing any such signage, Lessee
shall be solely responsible, at its sole cost, for obtaining all required
permits and other approvals, and shall deliver copies of any such approvals to
Lessor prior to the installation thereof. Upon expiration or earlier
termination of the Term, Lessee shall, at its sole cost, remove any such
signage and shall repair any damage to the Building or the Demised Premises
caused by such removal to the condition that existed prior to the installation
thereof.
10. USE:
Lessee shall use the Demised Premises solely for general office use
purposes in connection with Lessee's business and for no other use or purpose;
provided, however that Lessor also approves the use of a portion of the
Premises as a computer data center provided such use is permitted under
applicable Laws. Lessee shall not use, or permit the use of, the Demised
Premises contrary to any applicable statute, ordinance, law, rule or regulation
or in violation of the certificate of occupancy. Lessor represents that as of
the date hereof the Building is zoned to permit general office use.
11. LIABILITY:
Lessee shall save and hold Lessor harmless from all liabilities,
charges, expenses (including counsel fees) and costs on account of all claims
for damages and otherwise and/or suits for or by reason of any injury or
injuries to any person or property of any kind whatsoever, whether the person
or property of Lessee, its agents or employees or third persons, from any cause
or causes whatsoever (other than the gross negligence or willful misconduct of
Lessor, its agents or employees) while in, on or upon the Building or the Land
or due to any breach of a covenant herein by Lessee or to Lessee's use and
occupancy of the Demised Premises. Lessor
5
<PAGE> 9
shall not in any manner be liable to Lessee for damages, losses or any other
claim resulting from Lessor's delay or failure in delivery of the Demised
Premises.
12. SURRENDER AND TERMINATION:
All fixtures, equipment, improvements and appurtenances attached to or
built into the Demised Premises prior to or during the Term, whether by Lessor,
at its expense or at the expense of Lessee, or by Lessee, shall be and remain
part of the Demised Premises and shall not be removed by Lessee at the end of
the Term, unless Lessor, at least fifteen (15) days prior to the expiration of
the Term, notifies Lessee to remove the same. Notwithstanding the foregoing to
the contrary, and subject to the provisions of Article 52, Lessee shall not be
required to remove any of the initial Leasehold Improvements approved by Lessor
and installed pursuant to Exhibit C attached hereto. For any subsequent
Alterations made pursuant to Article 7 of this Lease, Lessor will indicate to
Lessee whether Lessor will require the removal of any such Alteration, at the
time of Lessor's approval of any such Alterations. All of Lessee's removable
trade fixtures and removable business equipment may be removed by Lessee upon
condition that such removal does not materially damage the Building and that
the cost of repairing any damage to the Demised Premises or the Building
arising from such removal shall be paid by Lessee. Any property of Lessee or
of any subtenant or occupant that Lessee has the right to remove or may
hereunder be required to remove which shall remain in the Building after the
expiration or termination of the term of this Lease shall be deemed to have
been abandoned by Lessee, and either may be retained by Lessor as its property
or may be disposed of in such manner as Lessor may see fit; provided, however,
that, notwithstanding the foregoing, in the event of any failure of Lessee to
promptly remove the items requested by Lessor to be removed and/or restore any
damage to the Building or Demised Premises occasioned by such removal, Lessor,
at Lessee's cost and expense, may remove the items Lessee failed to remove
and/or effect all repairs to the Building and Demised Premises. If such
property or any part thereof shall be sold, Lessor may receive and retain the
proceeds of such sale and apply the same, at its option, against the expenses
of the sale, the cost of moving and storage, any arrears of Base Rent,
additional rent or other charge payable hereunder and any damages to which
Lessor may be entitled hereunder or pursuant to law. Upon the expiration or
other termination of the term of this Lease, Lessee shall quit and surrender to
Lessor the Demised Premises, broom clean, in good order and condition, ordinary
wear excepted, and Lessee shall (i) remove all of its property and other items
that it is permitted or required hereunder to remove and (ii) repair all damage
to the Building and/or the Demised Premises occasioned by such removal.
Lessee's obligation to observe or perform this covenant shall survive the
expiration or other termination of the term of this Lease.
13. INDEMNITY:
Lessor, its agents and its and their employees shall not be liable for
any damage to property of Lessee or of any other party claiming by, through or
under Lessee, nor for the loss or damage to any property of Lessee by theft or
otherwise. Lessee shall, at its own cost and expense, be responsible for the
repairs or restoration due to, or resulting from, any theft or otherwise.
Lessor or its Agent shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain or snow or leaks from any part
of the Building or from the pipes, appliances or plumbing works or from the
roof, street or sub-surface or from any other place or by dampness or by any
other cause of whatsoever nature; nor shall Lessor or its Agents be liable for
any such damage caused by other tenants or persons in the Building or caused by
operations in construction of any private, public or quasi-public work; nor
shall Lessor be liable for any defect (latent or otherwise) in the Demised
Premises or in the Building. Lessee shall reimburse and compensate Lessor as
additional rent for all expenditures made by, or damages or fines sustained or
incurred by, Lessor due to non-performance or non-compliance with or breach or
failure to observe any term, covenants or condition of this Lease upon Lessee's
part to be kept, observed, performed or complied with, which nonperformance,
noncompliance, breach, and/or failure is not cured by Lessee prior to the
expiration of any applicable notice and cure period. Notwithstanding the
foregoing provisions of this Section, Lessor shall not be released from
liability to Lessee for any physical injury to any natural person or damage to
Lessee's personal property caused by Lessor's gross negligence or willful
misconduct to the extent such injury or damage is not covered by
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<PAGE> 10
insurance (a) carried by Lessee or such person, or (b) required by this Lease
to be carried by Lessee.
14. NO WAIVER:
The failure of Lessor to seek redress for violation of, or to insist
upon the strict performance of, any covenant or condition of this Lease shall
not prevent a subsequent act, which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Lessor of rent with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach. No provision of this Lease
shall be deemed to have been waived by Lessor unless such waiver be in writing
signed by Lessor. No surrender of this Lease shall be effective without
Lessor's written agreement to accept such surrender. No payment by Lessee, or
receipt by Lessor, of a lesser amount than the full rent, additional rent or
payment obligation hereunder shall be deemed to be other than on account for
the sum or sums stipulated hereunder, nor shall any endorsement or statement on
any check or any letter accompanying a payment by Lessee be deemed an accord
and satisfaction and Lessor may accept such check or payment without prejudice
to Lessor's right to recover the balance of such rent, additional rent or other
payment or pursue any other remedy available to Lessor. No waiver, on the part
of Lessor, its successors or assigns, of any default or breach by Lessee of any
covenant, agreement or condition of this Lease shall be construed to be a
waiver of the rights of Lessor as to any prior or future default or breach by
Lessee.
15. SUBORDINATION:
(a) This Lease is subject and subordinate to the lien of
any and all mortgages, deeds of trust or other security devices (collectively,
"Mortgages") which may now or hereafter affect or encumber all or any portion
of the Building or the land underlying the same and the land and other property
appurtenant to the use and enjoyment of the Building (collectively, the
"Land"). This clause shall be self-operative and no further instrument of
subordination shall be required by any mortgagee, or holder of another security
device or holder of a ground leasehold interest. In confirmation of such
subordination, Lessee shall execute promptly any certificate that Lessor may
request. Lessee hereby constitutes and appoints Lessor Lessee's
attorney-in-fact to execute any such certificate or certificates for and on
behalf of Lessee.
(b) Notwithstanding the foregoing, in the event any such
mortgagee or the holder of any deed to secure debt, other security device or
ground leasehold interest shall elect to make the lien of this Lease prior to
the lien of its mortgage, deed to secure debt, other security device or ground
leasehold interest, then, upon such party giving Lessee written notice to such
effect, this Lease shall be deemed to be prior in lien to the lien of such
mortgage deed to secure debt, other security device or ground leasehold
interest, whether dated prior or subsequent thereto.
(c) Lessor shall secure for Lessee a non-disturbance
agreement from Riggs Bank N.A., the current holder of the Mortgage, in the form
attached hereto as Exhibit E. Lessor shall secure for Lessee a Nondisturbance
agreement (recognizing Lessee's rights under this Lease) from the holder of
each Mortgage hereafter encumbering the Building and/or the Land on such
holder's standard form Nondisturbance agreement.
(d) If the holder of any Mortgage directs Lessee to make
certain payments to such holder (which payments were otherwise payable to
Lessor) in accordance with the Nondisturbance agreement between Lessee and any
such holder, then such payment shall be deemed made under this Lease and the
payment thereof to such holder shall not constitute an Event of Default.
16. INSURANCE:
A. Lessee shall, during the term hereof, keep in full
force and effect (i) public liability and property damage insurance with
respect to the Demised Premises and the use and/or business operated by Lessee
in the Demised Premises, in which the limits of public liability shall not be
less than Three Million and no/100 ($3,000,000.00) Dollars on account of
personal injury to or the death of any one or more persons, as a result of any
accident or disaster, and One
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Million and no/100 ($1,000,000.00) Dollars on account of damage to property;
(ii) fire and extended coverage insurance with VMM and sprinkler leakage
coverage in an amount sufficient to cover the cost of replacing its property
and fixtures and (iii) plate glass and other glass breakage and replacement
insurance.
(a) The limits of said insurance shall not, however, in
any way limit the liability of Lessee under this Lease.
(b) All insurance policies which Lessee is required to
secure and maintain shall be in such form and by companies acceptable to
Lessor, such acceptance to not be unreasonably withheld.
(c) Lessee shall include in its fire and plate glass
insurance policies for the Demised Premises appropriate clauses pursuant to
which the insurance carriers (i) waive all rights of subrogation against
Lessor, Lessor's mortgagees and holders of any ground lease, with respect to
losses payable under such policies and/or (ii) agree that such policies shall
not be invalidated should the insured waive, in writing, prior to a loss any or
all right of recovery against any party for losses covered by such policies. If
Lessee, at any time, is unable to obtain such inclusion of either of the
clauses described in the preceding sentence, Lessee shall have Lessor, Lessor's
mortgagees and holders of any ground lease named in such policies as insureds.
Lessee hereby waives any and all right of recovery which it might otherwise
have against Lessor, its contractors, agents and its and their employees, for
loss or damage to Lessee's furniture, furnishings, fixtures and other property
and all other losses covered by the insurance required to be carried by Lessee.
Lessee shall, concurrently with its execution of this Lease (and thereafter, at
least thirty (30) days prior to the expiration of any policy) furnish Lessor
with a duplicate original Certificate of Insurance on all insurance carried by
Lessee at the Demised Premises with evidence that the premiums therefor have
been paid current.
(d) All public liability policies required by this Lease
to be obtained by Lessee shall name Lessor and Agent and such other parties as
Lessor shall designate as an additional insured thereunder. All property
insurance carried by Lessee as required pursuant to clause 16(A)(ii) above
shall name Lessor as loss payee.
B. Lessor shall, during the term hereof, keep in full
force and effect all risk-property insurance covering the replacement value of
the Building and Lessor's property therein (but excluding all of Lessee's
property therein as well as the improvements constructed by Lessee pursuant to
Exhibit C) as reasonably determined by Lessor. Lessor also agrees to carry and
maintain commercial general liability insurance in limits it reasonably deems
appropriate.
17. DEFAULT:
Time is of the essence with regard to the performance of Lessee's and
Lessor's obligations under this Lease. Any of the following constitutes an
"Event of Default" :
(a) Failure to pay any installment of Base Rent, item of
additional rent or other charge payable under this Lease on the applicable
payment date. Notwithstanding the foregoing to the contrary, any late payment
of Base Rent, additional rent or other sum which is the first or second late
payment made within the immediately preceding twelve (12) month period shall
not constitute an Event of Default unless it continues for five (5) days after
Lessor gives Lessee written notice thereof.
(b) Failure to cure any of Lessee's other obligations
under this Lease for a period of ten (10) days after notice specifying the
nature of the default; provided, however, that, if such cure cannot reasonably
be effected within such ten (10) day period and Lessee begins such cure
promptly within such ten (10) day period and is pursuing such cure in good
faith and with diligence and continuity, then Lessee shall have such additional
time, up to an additional twenty (20) days, as is reasonably necessary to
effect such cure.
(c) Lessee files a voluntary petition in bankruptcy or is
adjudicated insolvent or a bankrupt, or makes an assignment for the benefit of
creditors, or files a petition for relief
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under any applicable bankruptcy law, or consents to the appointment of a
trustee or receiver of all or any substantial part of its property.
(d) An involuntary petition under any applicable
bankruptcy law is filed against Lessee and is not vacated within sixty (60)
days.
Lessee shall pay Lessor interest at the rate of fifteen percent (15%)
simple interest per annum (or if such rate be illegal, at the maximum rate
permitted by law, and any payment in excess of that which is permitted by law
shall, and be deemed to be, an advance payment of Base Rent and shall be
applied against the installments of Base Rent next becoming due) on all
payments due under this Lease that are not made on the date when due,
calculated from the date when due until paid in full. Such payment shall be in
addition to, and not in substitution for, the payment contemplated in Paragraph
41.
18. LESSOR'S REMEDIES:
Upon Lessee's default and the expiration of any applicable grace
period, Lessor may (at Lessor's option and in addition to all other rights
provided in this Lease, at law or in equity) take any one or more of the
following actions without further notice or demand:
(a) Terminate this Lease and Lessee's right of possession
of the Demised Premises, and recover all damages to which Lessor is entitled
under law, specifically including, but without limitation, all of Lessor's
expenses of releting (including, without limitation, rental concessions to new
tenants, repairs, alterations, legal fees and brokerage commissions). If
Lessor elects to terminate this Lease, every obligation of the parties shall
cease as of the date of such termination, except that Lessee shall remain
liable for payment of rent and performance of all other terms and conditions of
this Lease to the date of termination.
(b) Terminate Lessee's right of possession of the Demised
Premises without terminating this Lease, in which event Lessor may, but shall
not be obligated to, relet the Demised Premises, or any part thereof, for the
account of Lessee, for such rent and term and upon such other conditions as are
acceptable to Lessor. For purposes of such releting, Lessor is authorized to
redecorate, repair, alter and improve the Demised Premises to the extent
necessary in Lessor's sole discretion. Until Lessor relets the Demised
Premises, Lessee shall remain obligated to pay rent to Lessor as provided in
this Lease. If and when the Demised Premises are relet and if a sufficient sum
is not realized from such releting after payment of all Lessor's expenses of
releting (including, without limitation, rental concessions to new tenants,
repairs, alterations, legal fees and brokerage commissions) to satisfy the
payment of rent due under this Lease for any month, Lessee shall pay Lessor any
such deficiency upon demand. Lessee agrees that Lessor may file suit to
recover any sums due Lessor under this paragraph 18b from time to time and that
such suit or recovery of any amount due Lessor shall not be any defense to any
subsequent action brought for any amount not previously reduced to judgment in
favor of Lessor.
(c) Terminate this Lease and Lessee's right of possession
of the Demised Premises, and recover from Lessee the net present value of the
rent due from the date of termination until the stated expiration date,
discounted at the lesser of the prime rate of Citibank, N.A. as of the date of
termination or seven percent (7%) per annum.
(d) Re-enter and repossess the Demised Premises and
remove all persons and effects therefrom, by summary proceeding, ejectment or
other legal action or by using such force as may be necessary. Lessor shall
have no liability by reason of any such re-entry, repossession or removal.
(e) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Demised
Premises are located. Unpaid installments of rent and other unpaid monetary
obligations of Lessee under the terms of this Lease shall bear interest from
the date due at the lesser of fifteen percent (15%) per annum or the maximum
rate then allowable by law.
(f) If Lessor takes possession pursuant to this paragraph
18, with or without terminating this Lease, Lessor may, at its option, enter
unto the Demised Premises, remove
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Lessee's improvements, signs, personal property, equipment and other evidences
of tenancy, and store or dispose of them, at Lessee's risk and expense or as
Lessor may see fit, and take and hold possession of the Demised Premises,
provided, however, that if Lessor elects to take possession only without
terminating this Lease, such entry and possession shall not terminate this
Lease or release Lessee, in whole or in part, from the obligation to pay the
Base Rent and additional rent and other charges payable under this Lease for
the full term or from any other obligation under this Lease.
This Lease shall not be deemed to be terminated by Lessor's entry on
the Demised Premises or by any other act unless Lessor specifically expresses
its intent to terminate this Lease. Lessor's remedies in this paragraph 18 are
cumulative and in addition to any other remedies available at law or in equity.
19. DESTRUCTION - FIRE OR OTHER CAUSE:
(a) If the Demised Premises shall be partially damaged by
fire or other cause without the negligence or willful misconduct of Lessee or
Lessee's servants, employees, agents, invitees or licensees, Lessor shall, upon
Lessor's receipt of the insurance proceeds and to the extent such proceeds are
allocable or attributable to the Demised Premises, repair the Demised Premises
to a "cold dark shell", and the rent until such repairs shall have been made
shall be apportioned according to the part of the Demised Premises which is
reasonably usable by Lessee. But if such partial damage is due to the
negligence or willful misconduct of Lessee or Lessee's servants, employees,
agents, invitees or licensees, without prejudice to any other rights and
remedies of Lessor and without prejudice to the rights of subrogation of
Lessor's insurer, the damages shall be repaired by Lessor but there shall be no
apportionment or abatement of rent (except if and to the extent Lessor receives
rent loss insurance proceeds therefor). If the Demised Premises are totally
damaged or are rendered wholly untenantable by fire or other cause and Lessor
shall decide not to restore or not to rebuild the same, or if the Building
shall be so damaged that Lessor shall decide to demolish it or not to rebuild
it, or if the damage occurs in the last year of the then term of this Lease, or
if the Building (whether or not the Demised Premises have been damaged) should
be damaged to the extent of fifty (50%) percent or more of the then monetary
value thereof, or if the damage resulted from a risk not fully covered by
Lessor's insurance, then or in any of such events, Lessor may, within sixty
(60) days after such fire or other cause, give Lessee a notice of Lessor's
election to cancel this Lease, and thereupon the term of this Lease shall
expire by lapse of time upon the third day after such notice is given, and
Lessee shall vacate the Demised Premises and surrender the same to Lessor in
which event Lessee shall have the opportunity to remove its fixtures and
equipment in a manner reasonably acceptable to Lessor without obligation to
repair nonstructural damage to the Demised Premises (but, if Lessor has not
elected to demolish the Building, then at Lessor's option, Lessee shall be
required to repair all structural damage in the Demised Premises or outside the
Demised Premises and other damage to the Demised Premises caused by such
removal). For purposes of this Lease, the term "Lessor's receipt of insurance
proceeds" shall mean the portion of the insurance proceeds paid over to Lessor
free and clear of any collection by mortgagees for the value of the damage,
attorney fees and other costs of compromise, adjustment, settlement and
collection of the insurance proceeds.
(b) Within sixty (60) days after the occurrence of the
damage or destruction described in Section 19(a), Lessor shall notify Lessee in
writing of the approximate number of days it would take (from the date of the
damage or destruction) to substantially complete the repairs and restoration
required to be made by Lessor to restore the Premises to a "cold dark shell"
(the "Restoration Period") and whether or not Lessor intends to rebuild the
Premises in accordance with this Section. If the Restoration Period is
determined to be over one hundred eighty (180) days, then for a period
continuing through the thirtieth (30th) day after Lessor notifies Lessee of the
Restoration Period, Lessee shall have the right to terminate this Lease by
providing written notice to Lessor (which date of such termination shall be not
more than thirty (30) days after the date of Lessee's notice to Lessor).
Notwithstanding any of the foregoing to the contrary, Lessee shall not have the
right to terminate this Lease if the negligent act or omission or the willful
misconduct of Lessee or any invitee shall have caused the damage or
destruction.
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(c) If neither party terminates this Lease in accordance
with this Section, and the damage or destruction described above was to the
portion of the Premises in which Lessee's computer equipment described in
Section 8 was located (as opposed to its office space), and the repairs and
restoration required to be made by Lessor are not substantially completed by
the sixtieth (60th) day after expiration of the Restoration Period (the
"Outside Date"), then for a ten (10) day period commencing on the first
business day after the Outside Date, Lessee shall have the right to terminate
this Lease by providing written notice to Lessor (which date of such
termination shall be not more than thirty (30) days after the date of Lessee's
notice to Lessor); provided, however, that if Lessor substantially completes
its repairs and restoration prior to the date it receives Lessee's termination
notice, then Lessee's right to terminate this Lease under this Section shall be
of no further force or effect. Notwithstanding any of the foregoing to the
contrary, (x) Lessee shall not have the right to terminate this Lease if the
negligent act or omission of Lessee or any invitee shall have caused the damage
or destruction, and (y) the Outside Date shall be extended on a day for day
basis for each day of delay in the substantial completion of the repairs and/or
restoration caused by Lessee.
(d) If neither party elects to terminate this Lease
pursuant to this Article 19, then Lessee shall, at its cost, promptly restore
the tenant improvements to the Premises. If either Lessee or Lessor elects to
terminate this Lease in accordance with this Article, and provided the casualty
was not caused by the negligence or willful misconduct of Lessee or its agents,
employees or invitees, then Lessee shall not be obligated to restore the
improvements to the Premises nor to give Lessor the insurance proceeds
described in Section 16(A)(ii); provided, however, that in such event Lessee
shall pay to Lessor proceeds in an amount as is reasonably necessary for Lessor
to demolish the damaged improvements and remove the casualty debris from the
Premises and to repair damage to the Premises caused by such casualty to
restore the Premises to the condition in which it was delivered to Lessee, but
only to the extent Lessor is not insured therefor (or required by this Lease to
be insured therefor). If either party terminates this Lease in accordance with
this Article, and if the casualty was caused by the negligence or willful
misconduct of Lessee or its agents, employees, or invitees, then such insurance
proceeds shall be paid to Lessor.
20. LEGAL FEES:
In the event it shall become necessary for either party at any time to
institute any legal action or proceedings of any nature for the enforcement of
this Lease, or any of the provisions hereof, or to employ an attorney-at-law
therefor and said party prevails in such action or proceedings, then the
non-prevailing party shall pay to the prevailing party such prevailing party's
costs (including a reasonable attorney's fee) incurred in such action or
proceedings.
21. CONDEMNATION:
If all of the Building is taken by or under the power of eminent
domain (or conveyance in lieu thereof), this Lease shall terminate on the date
the condemning authority takes possession. In all other cases of any taking of
the Building or the Land by the power of eminent domain (or conveyance in lieu
thereof), Lessor shall have the option of electing to terminate this Lease. If
Lessor does not elect to terminate, Lessor shall do the work necessary so as to
constitute the portion of the Building not so taken a complete architectural
unit and so that the Demised Premises is a separately demised space and Lessee
shall do all other work necessary for it to use and occupy the Demised Premises
for its permitted purpose. During the period of Lessor's repairs, rent shall
abate in an amount bearing the same ratio as the portion of the Demised
Premises usable by Lessee bears to the entire Demised Premises. Rent shall be
equitably adjusted, as of the date the condemning authority permanently
acquires possession of any portion of the Demised Premises, to reflect any
permanent reduction in the tenantable portion of the Demised Premises. Lessee
shall not be entitled to, hereby expressly waives, and hereby assigns to Lessor
all Lessee's right, title and interest in and to, any condemnation award for
any taking (or consideration paid for a conveyance in lieu thereof), whether
whole, partial, temporary or permanent, and whether for diminution of the value
of Lessee's interest in this Lease or term thereof or to the lease improvements
or for any other claim or damage, including, without limitation, and severance
damages, except Lessee shall not be precluded from seeking a separate claim for
business damages, the value of furnishings and trade fixtures installed in the
Demised
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Premises at Lessee's expense or moving expenses against the condemning
authority provided any awards or proceeds sought by, or paid to, Lessee does
not reduce or diminish in any way or amount the awards or proceeds otherwise
payable to Lessor.
22. ASSIGNMENT AND SUBLETTING:
(a) Lessee shall not assign this Lease or any of Lessee's
rights or obligations hereunder, or sublet or permit anyone to occupy the
Demised Premises or any part thereof, without Lessor's prior written consent,
which consent may be granted or withheld in Lessor's sole and absolute
discretion. No assignment or subletting shall be effective against any holder
of any Mortgage unless the provisions of any nondisturbance agreement with such
holder relating to assignment and subletting are complied with. If Lessor does
not respond to Lessee's Request Notice (as defined in Section 22(c) below)
within ten (10) business days after Lessor's receipt of (x) Lessee's Request
Notice, and (y) the information specified in Section 22(c) below, and Lessee
sends a follow up request to Lessor which specifically notifies Lessor that
Lessor's failure to respond within five (5) days after Lessor's receipt of such
follow up notice shall constitute Lessor's approval of Lessee's Request Notice,
then if Lessor fails to respond within such five (5) day period, Lessor shall
be deemed to have consented to Lessee's Request Notice. Notwithstanding any of
the foregoing to the contrary, provided Lessee is not in default under this
Lease, and subject to Lessor's rights and Lessee's obligations pursuant to
Sections 22(d) and 22(e) below, Lessor shall not unreasonably withhold its
consent to any proposed subletting of the Demised Premises. Without limiting
the generality of the immediately preceding sentence, it is specifically agreed
that it shall be reasonable for Lessor to withhold its consent if: (i) the
proposed subtenant is engaged in a business, or the Demised Premises will be
used in a manner, that is inconsistent with the image of the Building; or (ii)
Lessor is not satisfied with the financial condition of the proposed subtenant;
or (iii) the proposed use of the Demised Premises is not in compliance with the
use permitted in this Lease; or (iv) such proposed sublease would cause the
aggregate number of rentable square feet sublet under such sublease and all
other subleases with respect to the Demised Premises to exceed fifty percent
(50%) of the total number of renewable square feet in the Demised Premises as
of the Lease Commencement Date; or (v) the initial Lessee does not remain fully
liable as a primary obligor for the payment of all rent and other charges
payable by Lessee under this Lease and for the performance of all other
obligations of Lessee under this Lease; or (vi) the proposed subtenant is a
governmental or quasi-governmental agency; or (vii) the proposed subtenant is a
current tenant in the Building or a potential tenant in the Building with whom
Lessor is engaged in active negotiations. For purposes hereof, "active
negotiation" shall be deemed to mean such negotiations wherein (1) the
prospective tenant or its broker has submitted a written proposal to Lessor, or
(2) the prospective tenant or its broker shall have received a written proposal
to tenant from Lessor. No assignment or transfer of this Lease may be effected
by operation of law or otherwise without Lessor's prior written consent. Any
assignment, subletting or occupancy, Lessor's consent thereto or Lessor's
collection or acceptance of rent from any assignee, subtenant or occupant shall
not be construed as a waiver or release of Lessee from liability for the
performance of any obligation to be performed under this Lease by Lessee. Any
assignment, subletting or occupancy, Lessor's consent thereto or Lessor's
collection or acceptance of rent from any assignee, subtenant or occupant shall
not be construed as relieving Lessee or any assignee, subtenant or occupant
from the obligation of obtaining Lessor's prior written consent to any
subsequent assignment, subletting or occupancy. Lessee assigns to Lessor any
rent due from any assignee, subtenant or occupant of Lessee as security for
Lessee's performance of its obligations pursuant to this Lease. Lessee
authorizes each such assignee, subtenant or occupant to pay such rent directly
to Lessor if such assignee, subtenant or occupant receives written notice from
Lessor specifying that such rent shall be paid directly to Lessor. Lessor's
collection of such rent shall not be construed as an acceptance of such
assignee, subtenant or occupant as a tenant. All restrictions and obligations
imposed pursuant to this Lease on Lessee shall be deemed to extend to any
subtenant, assignee or occupant of Lessee, and Lessee shall cause such persons
to comply with all such restrictions and obligations. Lessee shall not
mortgage this Lease without Lessor's consent, which consent may be granted or
withheld in Lessor's sole and absolute discretion. Lessee shall pay the
expenses (including attorneys' fees) incurred by Lessor in connection with
Lessee's request for Lessor to give its consent to any assignment, subletting,
occupancy or mortgage (but only up to one thousand dollars ($1,000) per
request).
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(b) If Lessee is a partnership, then any dissolution of
Lessee or a withdrawal or change, whether voluntary, involuntary or by
operation of law, of partners owning a controlling interest in Lessee shall be
deemed a voluntary assignment of this Lease. If Lessee is a corporation, then
any dissolution, merger, consolidation or other reorganization of Lessee, or
any sale or transfer of a controlling interest of the capital stock of Lessee,
shall be deemed a voluntary assignment of this Lease. Notwithstanding anything
contained in this Section 22 to the contrary, provided Lessee is not in default
hereunder, Lessee may, upon prior written notice to Lessor but without Lessor's
prior written consent and without being subject to Lessor's rights and Lessee's
obligations set forth in Sections 22(d) and 22(e) below, assign or transfer its
entire interest in this Lease or sublease the entire Demised Premises: (a) to
a corporation or other business entity (herein sometimes referred to as a
"successor corporation") into or with which Lessee shall be merged or
consolidated, or to which substantially all of the assets of Lessee may be
transferred, provided that either (x) such successor corporation shall have a
net worth and liquidity factor at least equal to the net worth and liquidity
factor of Lessee as of the Lease Commencement Date, or (y) if such successor
does not meet the standard set forth in clause (x), and such successor
corporation deposits with Lessor an additional security deposit equal to fifty
percent (50%) of the security deposit then required under this Lease not less
than five (5) business days before the date of such merger, consolidation or
transfer, and in each case provided that the successor corporation shall
assume in writing all of the obligations and liabilities of Lessee under this
Lease; or (b) to a corporation or other business entity (herein sometimes
referred to as a "related corporation") which shall control, be controlled by
or be under common control with Lessee. In the event of any such assignment or
subletting, Lessee shall remain fully liable as a primary obligor for the
payment of all rent and other charges required hereunder and for the
performance of all obligations to be performed by Lessee hereunder. For
purposes of clause (b) above, "control" shall be deemed to be ownership of more
than fifty percent (50%) of the stock or other voting interest of the
controlled corporation or other business entity. Together with Lessee's notice
to Lessor of the occurrence of any transaction described above, Lessee shall
submit to Lessor information regarding the transaction as is reasonably
necessary for Lessor to confirm that the transaction meets the qualifications
set forth in this Section 22(b).
(c) If at any time Lessee wants to assign, sublet or
otherwise transfer all or part of the Demised Premises or this Lease, then, in
connection with Lessee's request for Lessor's consent thereto, Lessee shall
give written notice to Lessor ("Lessee's Request Notice") of the identity of
the proposed assignee or subtenant and its business, all terms of the proposed
assignment or subletting, the commencement date of the proposed assignment or
subletting (the "Proposed Sublease Commencement Date") and the area proposed to
be assigned or sublet (the "Proposed Sublet Space"). Lessee shall also
transmit therewith the most recent financial statement or other evidence of
financial responsibility of such assignee or subtenant and a certification
executed by Lessee and such proposed assignee or subtenant stating whether any
premium or other consideration is being paid for the proposed assignment or
sublease.
(d) If Lessee requests Lessor's permission to sublease a
portion of the Premises to other than an Excluded Subtenant and the portion
proposed to be subleased together with all other portions of the Premises
subleased by Lessee (excluding any such portions subleased to Excluded
Subtenants) constitute fifty percent (50%) or more of the Premises, then Lessor
shall have the right in its sole and absolute discretion to terminate this
Lease with respect to the Proposed Sublet Space by sending Lessee written
notice within ten (10) business days after Lessor's receipt of Lessee's Request
Notice. If the Proposed Sublet Space does not constitute the entire Demised
Premises and Lessor elects to terminate this Lease with respect to the Proposed
Sublet Space, then (1) Lessee shall tender the Proposed Sublet Space to Lessor
on the Proposed Sublease Commencement Date as if the Proposed Sublease
Commencement Date had been originally set forth in this Lease as the expiration
date of the Term with respect to the Proposed Sublet Space, and (2) as to all
portions of the Demised Premises other than the Proposed Sublet Space, this
Lease shall remain in full force and effect except that the additional rent
payable for Expenses and the Base Rent shall be reduced pro rata. Lessee shall
pay all expenses of construction required to permit the operation of the
Proposed Sublet Space separate from the balance of the Demised Premises. If
the Proposed Sublet Space constitutes the entire Demised Premises and Lessor
elects to terminate this Lease, then (1) Lessee shall tender the Demised
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Premises to Lessor on the Proposed Sublease Commencement Date, and (2) the Term
shall terminate on the Proposed Sublease Commencement Date.
(e) If any sublease, assignment or other transfer
(whether by operation of law or otherwise) to other than an Excluded Subtenant
provides that the subtenant, assignee or other transferee is to pay any amount
in excess of the sum of (i) twelve dollars ($12.00) per square foot (on a
triple net basis), plus (ii) the cost of any reasonable and customary brokerage
commission, subtenant improvement allowance and reasonable advertising expenses
incurred by Lessee in connection with the procurement of such sublease,
assignment or other transfer, then whether such excess be in the form of an
increased monthly or annual rental, a lump sum payment, payment for the sale,
transfer or lease of Lessee's fixtures, leasehold improvements, furniture and
other personal property, or any other form (and if the subleased or assigned
space does not constitute the entire Demised Premises, the existence of such
excess shall be determined on a pro rata basis), Lessee shall pay fifty percent
(50%) of any such excess as additional rent upon such terms as shall be
specified by Lessor and in no event later than ten (10) days after Lessee's
receipt thereof and after Lessee has first recovered any sublease expenses
described in clause (e)(ii) above. Lessor shall have the right to inspect and
audit Lessee's books and records relating to any sublease, assignment or other
transfer. Any sublease, assignment or other transfer shall be effected on
forms supplied or approved by Lessor. Lessee shall deliver to Lessor a
fully-executed copy of each agreement evidencing a sublease, assignment or
other transfer within ten (10) days after Lessee's execution thereof.
(f) After at least ten (10) days prior written notice to
Lessor, Lessee may permit businesses, business associates, customers or
consultants then working with Lessee ("Business Related Third Parties") to
sublease office space within the Premises during the periods such Business
Related Third Parties are working with Lessee and the same shall not constitute
an assignment or subletting subject to the terms of this Article 22.
23. PARKING:
(a) Lessee shall not park any vehicle, in any area, where
said parking will constitute a problem to other tenants. Parking areas shall
be provided at no additional cost to Lessee. Lessor reserves the right at all
times during the term hereof to designate and redesignate such parking areas
and to proscribe the use thereof by reasonable rules and regulations. Lessee,
its officers, employees, guests, invitees and visitors shall not at any time
park trucks or vehicles in any of the areas designated for automobile parking.
Lessee shall not be entitled to any minimum or maximum parking spaces or areas.
Lessor shall have no responsibility to police or otherwise insure Lessee's or
other lessees' use thereof. Parking areas shall be provided by Lessor for use
by Lessee, its officers, employees, guests, invitees and visitors in common
with the other tenants of the Office Park, their officers, employees, guests,
invitees, visitors and such other parties as Lessor shall, from time to time,
permit, on a "first come-first served" basis. All parking spaces and parking
areas shall be non-attended and shall be utilized at the vehicle owner's own
risk. Lessor shall not be liable for any injury to persons or property or loss
by theft or otherwise to any vehicle or its contents. Vehicles parked on areas
other than those designated for parking are subject to being towed away at
vehicle owner's expense.
(b) Lessee has notified Lessor that it may desire, at
Lessee's cost, to pave an area behind the Building to accommodate additional
parking for standard sized automobiles for Lessee's employees and/or visitors
(but not to exceed eight (8) standard parking spaces). Subject to Lessor's
approval of the location, size and configuration of the proposed additional
parking area and the method of constructing or paving the same (which approval
may be granted or withheld in its sole and absolute discretion), and subject to
Lessee's demonstrating to Lessor's sole discretion that Lessee has obtained all
necessary governmental, quasi-governmental and all other required approvals
(including any architectural review board approval), Lessee may pave such
approved area. All such work shall be performed by Lessee in accordance with
Article 7 of this Lease.
24. KEYS:
At the expiration or earlier termination of this Lease, Lessee shall
furnish Lessor with at least one (1) key to each door or other locked area in
or to the Demised Premises.
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25. MECHANICS' LIENS:
Neither Lessor nor the property shall be liable for any labor,
services or materials furnished or to be furnished to Lessee upon credit, and
no mechanic's or other lien for any such labor, services or materials shall
attach to, encumber or in any way affect the reversionary interest or other
estate or interest of Lessor in and to the Building or the Land. Nothing in
this Lease shall be construed as a consent by Lessor to subject Lessor's
reversionary interest in the Demised Premises to liability under any lien or
other law. If, as a result of any work or installation made by, or on behalf of
Lessee, or Lessee's maintenance and repair of the Demised Premises, a claim of
lien or lien is filed against the Demised Premises or all or any portion of the
Building or the Land, then Lessee shall satisfy the claim of lien or lien
within ten (10) days after it is filed by the payment thereof or, in lieu of
paying off such lien, Lessee shall have the right to "bond off" the lien (so
that the lien is removed of record) and contest the payment thereof in
accordance with all applicable laws. If Lessee fails to do so within the ten
(10) day period, Lessor may satisfy the lien, and Lessee shall reimburse Lessor
for all Lessor's costs and expenses (including reasonable attorneys' fees)
incurred in connection therewith.
26. NOTICES:
All notices by Lessee to Lessor or by Lessor to Lessee with regard to
this Lease must be in writing and shall be deemed conclusively delivered when
same are either hand delivered, or deposited in the U.S. mail, postage prepaid,
certified, return receipt requested, or picked up for delivery by a nationally
recognized courier for overnight delivery with such delivery charge being
prepaid, if to Lessor, addressed to Lessor at the address set forth for Lessor
on page 1 of this Lease or if to Lessee, at the address set forth for Lessee on
page 1 of this Lease prior to Lessee's initial occupancy of the Demised
Premises and thereafter at the Demised Premises. Either party hereto may, by
notice given as aforesaid, designate a different address or addresses for
notices.
27. LESSEE'S PROPORTIONATE SHARE:
(a) Lessee agrees to pay its proportionate share of (i)
real property taxes and assessments, as hereinafter defined (including any
changes or additions to any existing method of taxation) now or hereafter
imposed, levied or assessed against the Building and the Land, and (ii)
Operating Expenses, as such term is hereinafter defined, for the Land and
allocated to the Building, each on the basis provided for in this paragraph 27.
Lessee's proportionate share for the purposes of this paragraph 27 shall be
Thirty-Seven and 53/100 percent (37.53%). Such percentage is computed on the
basis that the Demised Premises consist of Ten Thousand Five Hundred Forty-Five
(10,545) gross rentable square feet and the Building consists of Twenty-Eight
Thousand Ninety-Six (28,096) gross rentable square feet. Lessee's
proportionate share shall be recomputed if, and each time, the aggregate size
of the Demised Premises or the Building is changed.
(b) As used herein, the term "Operating Expenses" shall
mean the total of the amount of expenses, costs or charges expended, paid or
incurred by Lessor in any calendar year with respect to the repair,
replacement, operation and maintenance of the Building, Office Park and Land,
including, but not limited to, all insurance coverages obtained by Lessor, such
as, by way of illustration only and not intended to be all inclusive, fire,
casualty and extended coverage (including, without limitation, rent insurance
and VMM) and public liability insurance, fuel and electricity attributable to,
or used or consumed in, on or for, the common areas, water, water rates, sewer
charges or rent, labor costs, security costs, service contracts, management
charges, exterior cleaning, refuse removal from, the common areas, snow
removal, landscaping, interior and exterior repairs and replacements and
drainage and parking field operation, maintenance, repairs and replacements
that Lessor is obligated to make or do (including, without limitation,
lighting, striping and resurfacing), the cost of painting and decorating the
common areas of the Office Park and all other expenses, costs and charges
relative to the repair, replacements, operation and maintenance of the
Building, Office Park and Land that Lessor is obligated to do or make,
including all legal and auditing fees necessarily incurred in connection with
the foregoing and including all improvements and equipment required by any
federal, state or local law or government regulation. Notwithstanding the
foregoing to the contrary, Operating Expenses shall not include any utilities
to the extent that such utilities are provided to the
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Demised Premises (and not to the common areas of the Office Park) and the costs
of such utilities have been paid to Lessor or the applicable utility company or
municipality pursuant to Paragraph 6; repairs or other work occasioned by fire
or other casualty, the costs of which are reimbursed to Lessor by insurers or
by governmental authorities in eminent domain or by others; costs incurred in
improving space for other tenants or other occupants in the Building or vacant
rentable space in the Building; costs incurred by Lessor for alterations,
replacements, equipment and tools which are considered capital expenditures
under generally accepted accounting principles consistently applied, except to
the extent such costs are incurred because Lessor reasonably expects the same
will reduce Operating Expenses or to comply with Laws applicable to the
Building after the Lease Commencement Date (and in such event, such costs shall
be amortized over the payback period and any associated calculations made by or
on behalf of Lessor shall be made available for Lessee's review); costs
incurred due to the violation by Lessor or any other tenant of the terms and
conditions of any lease pertaining to the Building; capital costs required as a
result of Lessor's violation of any applicable legal requirement, building
code, or environment regulation which existed as of the date the Building was
constructed; costs to repair or replace the foundation or structural walls of
the Building; leasing commissions or brokerage fees; advertising expenses;
salaries and wages for any employee of Lessor higher than the grade of senior
property manager; legal, architectural and engineering fees and government
permit or application fees associated with any rezoning or redevelopment; or
any fees or penalties imposed because of Lessor's failure to comply with
applicable Laws (except as set forth above), including the payment of real
property taxes and assessments..
(c) As used herein, the term "real property taxes and
assessments" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Land and/or Building by any authority having
the direct or indirect power to tax, including any local, city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Land and/or Building, as against Lessor's
right to rent or other income therefrom or as against Lessor's business of
leasing the Land and/or Building. The term "real property taxes and
assessments" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, or in addition to, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property taxes and assessments", or (ii) the nature of which was hereinbefore
included within the definition of "real property taxes and assessments" or
(iii) which is imposed by reason of this transaction or any modification or
changes hereto.
(d) Lessee shall pay, prior to delinquency, all taxes
assessed against and levied upon trade fixtures, furnishings, equipment and all
other personal property of Lessee contained in the Demised Premises. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the real
property of Lessor.
(e) If any of Lessee's personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement from Lessor setting forth the taxes applicable to Lessee's property.
(f) In determining Operating Expenses for any calendar
year, if less than all of the Building's rentable area shall have been occupied
by tenants at any time during any such year, Operating Expenses shall be
determined for such year to be an amount equal to the like expenses which would
normally be expected to be incurred had all such areas been occupied throughout
such year.
(g) Real estate taxes and assessments and Operating
Expenses shall hereafter collectively be referred to as the "Expenses".
(h) Lessor hereby estimates that Lessee's proportionate
share of Expenses for the calendar year ending December 31 of the calendar year
in which the commencement date occurs will be Thirty-One Thousand Six Hundred
Thirty-Five and 00/100 Dollars ($31,635.00) (on an annualized basis of Three
Dollars ($3.00) per rentable square foot of the Demised Premises) payable in
equal one-twelfth (1/12th) installments on the first day of each month in
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advance, which installments shall continue to be paid by Lessee until Lessor
furnishes Lessee with a statement setting forth the actual Expenses for the
applicable calendar year and showing Lessee's proportionate share thereof,
together with notice to Lessee stating whether the installments of Lessee's
proportionate share of Expenses previously made for the period of time to which
such statement relates is greater or less than the amount actually paid, or
payable, by Lessor for such period and (i) if there shall be a deficiency,
Lessee shall pay the amount thereof within ten (10) days after demand therefor
or (ii) if there shall be an overpayment, Lessor shall promptly either refund
to Lessee the amount thereof or permit Lessee to credit the amount thereof
against subsequent payments payable under this paragraph 27, and on the first
day of the month following the month in which the applicable statement is
furnished to Lessee and monthly thereafter until a new statement shall be
furnished to Lessee by Lessor, Lessee shall pay to Lessor an amount equal to
one-twelfth (1/12th) of Lessee's proportionate share of the actual Expenses
shown on the statement last submitted to Lessee. Notwithstanding the foregoing
sentence to the contrary, if the Lease Commencement Date is not the first day
of a month, then, in addition to the amount set forth above as the annual Base
Rent for the first Lease Year, for each day of such partial month, Lessee shall
pay one three hundred sixty-fifth (1/365) of such annualized estimation on the
Lease Commencement Date. Lessor may, no more than twice in any calendar year,
furnish to Lessee a revised statement of Lessor's estimate of Lessee's
proportionate share of Expenses for such calendar year, and in each such case,
the monthly installments of Lessee's proportionate share of Expenses shall be
adjusted and paid substantially in the same manner as provided in the preceding
sentence. Lessee's obligation to pay Base Rent and additional rent for any
period of time attributable or allocable prior to the expiration of this Lease
shall survive the expiration or earlier termination of this Lease and any
failure of Lessor to provide Lessee with a statement shall not relieve or
release Lessee for its obligation to pay its proportionate share of actual
Expenses at such time as the applicable statement is furnished to Lessee.
28. SECURITY SERVICES:
Lessee acknowledges that Lessor is not providing, and is not obligated
to provide, any security protection services to the Demised Premises, Buildings
or Land.
29. "AS IS":
Lessor shall not be required to do any work in, on or upon the Demised
Premises or the Building to ready the same for Lessee's use or occupancy of the
Demised Premises, it being acknowledged that Lessee is fully familiar with the
condition of the Demised Premises and that Lessee has either undertaken an
exhaustive examination of the same prior to the execution of this Lease or has
waived the opportunity to undertake such inspection. All other work necessary
for Lessee's use, occupancy and operation of the Demised Premises for their
intended purposes shall be done by Lessee, at Lessee's sole cost and expense,
pursuant to the terms and conditions of this Lease.
30. WAIVER OF JURY AND COUNTERCLAIM:
It is mutually agreed by and between Lessor and Lessee that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Lessor and Lessee, Lessee's use
or occupancy of said Demised Premises and/or any claim of injury or damage and
any emergency statutory or any other statutory remedy. It is further mutually
agreed that in the event Lessor commences any summary proceeding or action for
non-payment of rent, additional rent or other charge payable hereunder, Lessee
will not interpose any counterclaim of whatsoever nature or description in such
proceeding or action or seek to consolidate any action or proceedings with
Lessor's action or proceedings. Lessor and Lessee agree that in the event of
any litigation regarding this Lease, its terms and the enforcement of the
rights and obligations of the parties hereto, the sole proper venue for any
such litigation shall be in Fairfax County, Virginia.
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31. SECURITY DEPOSIT:
(a) Simultaneously with Lessee's execution of this Lease,
Lessee shall deposit with Lessor the sum of Ninety Thousand Dollars ($90,000)
as security for the faithful performance and observance by Lessee of the terms,
provisions and conditions of this Lease; it is agreed that in the event Lessee
defaults in respect of any of the terms, provisions and conditions of this
Lease, Lessor may, without prejudice to any other remedy which Lessor may have
on account therefor, appropriate, use, apply or retain the whole or any part of
the security so deposited to the extent required for the payment of any sum as
to which Lessee is in default beyond applicable notice and cure periods and
Lessee shall forthwith, upon demand of Lessor, restore said security to the
original sum deposited. Lessor may commingle the security deposit with its
other funds and no interest shall be payable to Lessee. In the event that
Lessee shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this Lease, the security shall be returned to
Lessee after the date fixed at the end of this Lease and after delivery of
entire possession of the Demised Premises to Lessor. In the event of a sale of
the Land and Buildings or leasing of the Building, Lessor shall have the right
to transfer the security to the purchaser or lessee and Lessor shall thereupon
be released by Lessee from all liability for the return of such security.
(b) Notwithstanding the foregoing, Lessee shall have the
right at any time to deliver to Lessor an unconditional, irrevocable
"evergreen" letter of credit in substitution for up to Seventy Thousand Dollars
($70,000) of the cash security deposit, subject to the following terms and
conditions. Such letter of credit shall be (a) in the form attached hereto as
Exhibit F or Exhibit F-1, or in a form substantially similar to the form
attached as Exhibit F with only minor, immaterial changes; (b) at all times in
the amount of the security deposit (less any cash security deposit held by
Lessor), and shall permit multiple draws; (c) issued by an Acceptable Bank (as
defined below) located in the Washington, DC metropolitan area; (d) made
payable to, and expressly transferable and assignable at no charge by, the
owner from time to time of the Building (which transfer/assignment shall be
conditioned only upon the execution of a written document in connection
therewith and which transfer/assignment shall be only to any future owner from
time to time of the Building or lender to the owner from time to time of the
Building) (or if the issuer charges a transfer or assignment fee, the same
shall be paid by Lessee); (e) payable at sight upon presentment to the draw
location specified in the letter of credit (which must include at least one
local branch of the issuer) of a simple sight draft or certificate stating that
an Event of Default exists for which Lessee owes Lessor money under this Lease
and the amount that Lessor is owed in connection therewith; (f) of a term not
less than one year; and (g) at least thirty (30) days prior to the then-current
expiration date of such letter of credit either (1) automatically renewed (or
automatically and unconditionally extended) from time to time through the
ninetieth (90th) day after the expiration of the Lease Term, or (2) replaced
with cash in the amount of the Security Deposit. The issuer of the letter of
credit must agree to notify both Lessor (at each of the following addresses:
c/o Peter Lawrence Commercial Real Estate, 4710 Eisenhower Boulevard, Suite
C-1, Tampa, Florida 33634, and 11440 Isaac Newton Square North, Suite 208,
Reston, Virginia 20190) and Lessee in writing (the "Nonrenewal Notice") by
certified mail, return receipt requested at least thirty (30) days prior to the
expiration of the letter of credit if it will not renew or extend the same in
accordance with this paragraph. Notwithstanding anything in this Lease to the
contrary, any cure or grace periods set forth in this Lease shall not apply to
any of the foregoing, and, specifically, if Lessee fails to timely comply with
the requirements of subsection (g) above, then such failure shall be an Event
of Default for which no notice or cure period is permitted and Lessor shall
have the right to immediately draw upon the letter of credit without notice to
Lessee and apply the proceeds to the security deposit; provided, however, that
if the issuer of the letter of credit timely delivers a Nonrenewal Notice to
Lessor and Lessee, then Lessor shall not draw on the letter of credit unless
Lessor does not receive either cash or a replacement letter of credit (meeting
the requirements of this Section) by the fifth (5th) day after Lessor's timely
receipt of the Nonrenewal Notice. Each letter of credit shall be issued by a
commercial bank that has a credit rating with respect to certificates of
deposit, short term deposits or commercial paper of at least P-2 (or
equivalent) by Moody's Investor Service, Inc., or at least A-2 (or equivalent)
by Standard & Poor's Corporation (an "Acceptable Bank"). If the issuer's
credit rating is reduced below P-2 (or equivalent) by Moody's Investors
Service, Inc. or below A-2 (or equivalent) by Standard & Poor's Corporation,
or if the financial condition of such issuer changes in any other materially
adverse way, then Lessor shall
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have the right to require that Lessee obtain from a different issuer a
substitute letter of credit that complies in all respects with the requirements
of this Section, and Lessee's failure to obtain such substitute letter of
credit within ten (10) business days following Lessor's written demand therefor
(with no other notice or cure or grace period being applicable thereto,
notwithstanding anything in this Lease to the contrary) shall entitle Lessor to
immediately draw upon the then existing letter of credit in whole or in part,
without notice to Lessee. In the event the issuer of any letter of credit held
by Lessor is placed into receivership or conservatorship by the Federal Deposit
Insurance Corporation, or any successor or similar entity, then, effective as
of the date such receivership or conservatorship occurs, said letter of credit
shall be deemed to not meet the requirements of this Section, and such event
shall constitute an Event of Default permitting Lessor to draw down the entire
letter of credit (provided, however, that if there exists no other Event of
Default at such time, then, Lessor shall hold the same as a cash security
deposit until the occurrence of an Event of Default or the delivery by Lessee
of a substitute letter of credit meeting the terms of this Section).
Alternatively, Lessor may require that Lessee replace the letter of credit with
a substitute letter of credit that meets the requirements of this Section and
Lessee's failure to do so (or to replace the same with cash) within ten (10)
business days after Lessor's request therefor shall, notwithstanding anything
in this Lease to the contrary, constitute an Event of Default for which there
shall be no notice or grace or cure periods being applicable thereto other than
the aforesaid ten (10) day period). Lessee shall notify Lessor in writing as
soon as it becomes aware of the placement of the issuer of the letter of credit
into conservatorship or receivership. Any failure or refusal of the issuer to
honor the letter of credit shall be at Lessee's sole risk and shall not relieve
Lessee of its obligations hereunder with respect to the security deposit.
32. VIRGINIA LAW:
This Lease shall be governed by and construed in accordance with the
laws of, or applicable to, the Commonwealth of Virginia. For purposes of
Virginia Code Section 55-2, this Lease shall be deemed to be a Deed of Lease.
33. BROKER:
Lessee represents that the sole brokers instrumental in consummating
this Lease were The Mark Winkler Company and The Staubach Company ("Brokers")
and that no dealings or prior negotiations were had with any other broker
concerning the renting of the Demised Premises. Lessee agrees to hold Lessor
harmless against any claims for brokerage commissions, other than those made by
Brokers arising out of any conversations had by Lessee with any broker other
than Brokers. Lessor agrees to hold Lessee harmless against any claims for
brokerage commissions arising out of any conversations had by Lessor with any
broker other than Brokers.
34. RECORDING:
Lessee shall not record this Lease or a memorandum thereof
without the written consent of Lessor.
35. RULES AND REGULATIONS:
Lessee shall observe faithfully and comply strictly with the rules and
regulations set forth in Exhibit B attached hereto and made a part hereof and
any amendments or supplements thereto and such further rules and regulations as
Lessor may, from time to time, adopt or promulgate.
36. FAILURE TO DELIVER POSSESSION:
If Lessor is unable to deliver possession of all or any portion of the
Demised Premises, because of the holding-over or retention of possession of any
tenant, under tenant or occupant, or for any other reason, Lessor shall not be
subject to any liability for failure to give possession and the validity of
this Lease shall not be impaired under such circumstances, nor shall the same
be construed in any way to extend the term of this Lease. If permission is
given to Lessee to enter into the possession of all or any portion of the
Demised Premises prior to the date specified as the commencement of the term of
this Lease, Lessee covenants and agrees that such occupancy
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shall be deemed to be under all the terms, covenants, conditions and provisions
of this Lease, except as to the covenant to pay rent.
37. WAIVER OF LIABILITY:
In the event that at any time Lessor shall sell or transfer title to
the Building or Lessor's interest therein, provided the purchaser or transferee
assumes the obligations of Lessor hereunder arising from and after the date of
the transfer, the Lessor named herein shall not be liable to Lessee for any
obligations or liabilities based on or arising out of events or conditions
occurring on or after the date of such sale or transfer. Lessee agrees to look
solely to the estate and interest of Lessor in the Land and Buildings, and
subject to prior right of any mortgage of the Land and/or Buildings, for the
collection of any judgment (or other judicial process) recovered against Lessor
based upon the breach by Lessor of any of the terms, conditions or covenants of
this Lease on the part of Lessor to be performed, and no other property or
assets of Lessor shall be subject to levy, execution or other enforcement
procedures for the satisfaction of Lessee's remedies under or with respect to
either this Lease, the relationship of Lessor or Lessee hereunder, or Lessee's
use and occupancy of the Demised Premises.
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38. RIGHT OF LESSOR TO DISCHARGE OBLIGATIONS OF LESSEE:
If Lessee shall fail to perform or observe any of the terms,
obligations or conditions contained herein on its part to be performed or
observed hereunder, within the time limits set forth herein (including any
applicable notice and cure periods set forth in Section 17, except in the event
of an emergency), Lessor may, at its option, but shall be under no obligation
to do so, perform or observe the same and all costs and expenses incurred or
expended by Lessor in such performance or observance shall, upon demand by
Lessor, be immediately repaid to Lessor by Lessee together with interest
thereon at the higher of fifteen percent (15%) per annum or one hundred twenty
(120%) percent of the prime rate charged by Citibank, N.A. (or if both rates be
illegal, at the maximum rate permitted by law) to the date of repayment;
provided, however, that unless the notice given to Lessee pursuant to Section
17 specifically notified Lessee of Lessor's rights under this Section to cure
any such failure of Lessee and collect the costs incurred therefor from Lessee,
and except in the event of emergency, Lessor shall notify Lessee that it
intends to exercise its rights under this Section (in which case Lessor shall
not exercise its rights under this Section unless the default is not fully and
completely cured before the fifth (5th) day after Lessee's receipt of such
notice). For the purposes of this Lease, the term "prime rate" shall mean the
rate then being charged by Citibank, N.A. to its largest corporate customers
for unsecured loans of ninety (90) days or less.
39. SERVICE CONTRACTS:
In addition to Lessee's other obligations contained herein, Lessee
specifically agrees to keep and maintain in good order and condition the
heating, air-conditioning and ventilating systems and equipment now or
hereafter located on and/or servicing the Demised Premises; and in connection
therewith, Lessee shall, at its sole cost and expense, obtain, procure and keep
in full force and effect, throughout the term of this Lease, a standard
maintenance agreement by a contractor approved by Lessor, such approval not to
be unreasonably withheld or delayed, which agreement must be acceptable in form
and content to Lessor, and provide, among other things, for the contractor to
furnish the parts and labor necessary to repair and maintain such systems and
equipment in good working order and to provide prophylactic inspections and
maintenance services on at least quarter annual intervals, a copy of which
service contract shall be given to Lessor within sixty (60) days after the
execution of this Lease, and thereafter at least sixty (60) days prior to the
expiration date of the then current contract.
40. BINDING ON SUCCESSORS, ETC.:
Except as otherwise provided in this Lease, the covenants, conditions
and agreements contained in this Lease shall bind and inure to the benefit of
Lessor and Lessee and their respective legal representatives, successors and
assigns.
41. LATE CHARGE:
Lessee shall pay to Lessor a late charge of ten (10 cents) cents per
dollar for any installment of base annual rent, any item of additional rent or
other charge payable hereunder which Lessee has failed to pay to Lessor when
due, not as a penalty, but to help defray administrative and other expenses
involved in handling delinquent payments. In the event any check given to
Lessor by, or on behalf of, Lessee is returned to Lessor by its bank for
insufficient funds or for any other reason or is otherwise uncollectible,
Lessee shall pay to Lessor a service charge in the sum equal to the higher of
(i) Ten and no/100 ($10.00) Dollars for each check so returned or otherwise
uncollected or (ii) five (5%) percent of the amount of the check so returned or
otherwise uncollected, which service charge, if applicable and if not
prohibited by law, shall be in addition to, and not in substitution of, any
"late charge".
42. ATTORNMENT:
If Lessor's interest in the ground lease or Demised Premises or the
Building is encumbered by a mortgage and such mortgage is foreclosed, or
Lessor's interest in the ground lease, the Demised Premises or the Building is
acquired by deed in lieu of foreclosure or if Lessor's interest in the ground
lease, the Demised Premises or Building are sold pursuant to such foreclosure
or by reason of a default under said mortgage, then notwithstanding such
foreclosure,
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such acquisition by deed in lieu of foreclosure, such sale, or such default (i)
Lessee shall not disaffirm this Lease or any of its obligations hereunder and
(ii) at the request of the applicable mortgagee, transferee by deed in lieu of
foreclosure or purchaser at such foreclosure or sale, Lessee shall attorn to
such mortgagee, transferee or purchaser and execute a new lease for the Demised
Premises for the rentals reserved herein and otherwise setting forth all of the
provisions of this Lease except that the term of such new lease shall be for
the balance of the term of this Lease, and except that such mortgagee,
transferee or purchaser shall not be bound by any amendment of this Lease made
without the consent of the holder of each Mortgage existing as of the date of
such amendment.
43. EXECUTION OF LEASE:
The submission of this Lease for examination does not constitute a
reservation or option of any kind or nature whatsoever on or for the Demised
Premises or any other space within the Building and shall vest no right in
either party. This Lease shall become effective as a lease only upon execution
and legal delivery thereof by the parties hereto. This Lease may be executed
in more than one counterpart, and each such counterpart shall be deemed to be
an original document.
44. MORTGAGEE PROTECTION CLAUSE:
Lessee agrees to give any mortgage and/or trust deed holders, by
certified mail, a copy of any notice of default served upon Lessor. Lessee
further agrees that if Lessor shall have failed to cure such default within the
time provided for in this Lease, then the mortgagees and/or trust deed holders
shall have such additional time as may be reasonably necessary to cure such
default (including, but not limited to, commencement of foreclosure
proceedings, if necessary to effect such cure), in which event this Lease shall
not be terminated while such remedies are being so pursued.
45. PARTIAL INVALIDITY:
If any provision of this Lease or application thereof to any person or
circumstance shall to any extent be invalid, the remainder of this Lease or the
application of such provision to persons or circumstances other than those as
to which it is held invalid shall not be affected thereby and each provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.
46. HOLDING OVER:
Any holding over after the expiration of the term or any validly
exercised renewal term shall be construed to be a tenancy from month to month
at the rent equal to One Hundred Fifty percent (150%) of the Base Rent,
Expenses and additional rentals and other charges specified herein (prorated on
a monthly basis) and shall otherwise be on the terms herein specified so far as
applicable. Notwithstanding the foregoing, if, not less than ninety (90) days
before the end of the Lease Term, Lessee notifies Lessor in writing that it
would like to hold over in the Premises for either one (1) calendar month or
two (2) calendar months, and if together with such notice Lessee delivers to
Lessor the entire holdover rent payment required by this Section for the entire
desired hold over period, then, unless Lessor notifies Lessee that it has
leased all or any portion of the Premises or has a "legitimate prospect"
therefor within fourteen (14) days after Lessor's receipt of Lessee's notice
and the holdover rent payment, then Lessee shall be permitted to hold over in
the Premises for either one (1) or two (2) calendar months, as requested by
Lessee. A "legitimate prospect" shall mean a potential tenant from whom Lessor
has received an executed letter of intent.
47. HAZARDOUS MATERIALS:
Lessee covenants and agrees, at its sole cost and expense, to (i)
indemnify, protect and save Lessor harmless against and from any and all fines,
damages, losses, liabilities, obligations, penalties, claims, litigation,
demands, defenses, judgments, suits, proceedings, costs, disbursements or
expenses (including, without limitation, attorneys' and experts' reasonable
fees and disbursements) of any kind or of any nature whatsoever (collectively,
the "Indemnified Matters") which may at any time be imposed upon, incurred by
or asserted or awarded against
22
<PAGE> 26
Lessor and arising from, or out of, the presence, existence, storage, handling
or disposition of any Hazardous Materials (as hereinafter defined) on, in,
under, from or affecting all or any portion of the Demised Premises (including
the area on which any generator installed pursuant to Section 52 may be
located) introduced or caused at any time by Lessee or its agents or employees
or any invitee of such parties and (ii) promptly, upon Lessor's demand, (y)
remove, or cause to be removed, from the Office Park and properly disposed of,
all Hazardous Materials introduced or caused at any time by Lessee or its
agents or employees or any invitee of such parties and (z) undertake and
complete all remediation of such Hazardous Materials. As used herein,
"Hazardous Materials" means petroleum, petroleum products or distillates,
petroleum derived substances, asbestos, asbestos containing materials or any
other materials, wastes or substances which are (or would or could, upon
attainment of a certain level or concentration, be) regulated, defined,
determined or identified as hazardous, toxic or special waste in any Laws (as
hereinafter defined) or such other items or materials that, in Lessor's
reasonable determination, could constitute or pose a potential threat to the
environment or a potential health threat. As used herein, "Laws" means any
Federal, State or local laws, rules or regulations (whether now existing or
hereafter enacted or promulgated) and any judicial or administrative
interpretation thereof, including any judicial or administrative orders or
judgments.
Indemnified Matters shall include, without limitation, all of the
following: (i) the costs of removal, and proper disposal, of any and all
Hazardous Materials introduced or caused at any time by Lessee or its agents or
employees or any invitee of such parties from all or any portion of the
Demised Premises or any surrounding areas (including the area on which any
generator installed pursuant to Section 52 may be located), (ii) additional
costs required to take necessary precautions to protect against the release of
Hazardous Materials on, in, under or affecting the Demised Premises (including
the area on which any generator installed pursuant to Section 52 may be
located) into the air, any body of water, any other public domain or any
surrounding areas and (iii) costs incurred to bring the Demised Premises and
any surrounding areas (including the area on which any generator installed
pursuant to Section 52 may be located) into compliance with all applicable Laws
with respect to Hazardous Materials. All removal work referred to in clause
(i) above, all work and other actions to take precautions against release
referred to in clause (ii) above and all work and other actions performed in
order to comply with Laws referred to in clause (iii) above are herein
collectively referred to as "Corrective Work".
Lessor represents that it has not received any notice of violation of
any environmental law which remains uncured, and that, to its knowledge, no
Hazardous Materials are present in the Building in violation of any
environmental law. If, pursuant to applicable Laws, removal or remediation of
Hazardous Materials is required, then Lessor shall be responsible, at its cost,
to remove or remediate any such Hazardous Materials (a) generated or released
by Lessor in or about the Building in violation of applicable Law; or (b)
existing in the Demised Premises on or before the Commencement Date unless
introduced by Lessee or its agents or employees or any invitee of any such
parties, in which event Lessee shall, at its sole cost, remove or remediate
such Hazardous Materials.
Lessor's rights under this paragraph 47 shall be in addition to all
other rights of Lessor under this Lease. Notwithstanding anything to the
contrary contained herein, the indemnity provided for under this paragraph 47
with respect to surrounding areas shall not extend to the cost of Corrective
Work on, in, under or affecting any surrounding areas, if the applicable
Hazardous Materials did not originate from any portion of the Demised Premises
(including the area on which any generator installed pursuant to Section 52 may
be located), unless the removal of any Hazardous Materials on, in, under or
affecting any surrounding areas is required by Law or by order or directive of
any Federal, State or local governmental authority in connection with the
Corrective Work on, in, under or affecting any portion of the Demised Premises.
48. ESTOPPEL CERTIFICATE:
Lessee agrees, at any time, and from time to time, upon not less than
ten (10) business days prior notice by Lessor, to execute, acknowledge and
deliver to Lessor, a statement in writing addressed to Lessor or such other
party as Lessor shall designate certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that the same is
in full force and effect as modified and stating the modification), stating the
dates to
23
<PAGE> 27
which Base Rent, additional rent and other charges have been paid, the amount
of security deposited, if any, and stating whether or not there exists any
default in the performance of any covenant, agreement, term, provisions or
condition contained in this Lease, and, if so, specifying each such default and
containing such other information, items and certifications as Lessor shall
request, it being intended that any such statement delivered pursuant hereto
may be relied upon by Lessor and by any purchaser, mortgagee or prospective
mortgagee of any mortgage affecting all or any portion of the Office Park and
by any lessor under a ground or underlying lease affecting all or any portion
of the Office Park.
49. FINANCIAL STATEMENTS:
Lessee hereby agrees, from time to time and at the request of Lessor
(but not more frequently than quarterly), to furnish Lessor, within thirty (30)
days of each such request, with such financial statements of Lessee as Lessor
shall require in order to reasonably determine the financial condition of
Lessee, which financial statements shall be certified by Lessee's chief
financial officer as true, complete and correct. Such statements shall be
prepared by an independent certified public accountant and shall include,
without limitation, Lessee's net worth statements and statements of financial
position and retained earnings statement of Lessee and its subsidiaries, if
any, for the preceding three (3) years. Lessee agrees that Lessor may furnish
any of its lenders or potential lenders or purchasers copies of such financial
statements and records. Lessor agrees to hold, and to cause its lender and
potential lenders and purchasers to hold, such financial statements in
confidence and not to disclose such records to any party other than such party
as shall have a financial interest in the Office Park or who has a loan on all
or any portion of the Office Park or who is interested in making a loan on all
or any portion of the Office Park or who is interested in purchasing all or a
portion of the Office Park. Notwithstanding the foregoing, the provisions of
this Section 49 shall not apply to Lessee as long as Lessee is a public company
trading on a recognized national or regional exchange.
50. QUIET ENJOYMENT; ACCESS:
Lessor represents and covenants that it has the full right, power and
authority to make this Lease and that Lessee, on payment of the rentals and
performance of the covenants on Lessee's part to be performed hereunder, shall
and may peacefully and quietly have, hold and enjoy the Demised Premises during
the term hereof. Notwithstanding any of the foregoing to the contrary, Lessee
shall have access to the Building and the Demised Premises twenty-four (24)
hours per day each day of the year (except in the event of an emergency).
51. ROOFTOP ACCESS:
(a) Subject to the satisfaction of all the conditions in
this Section 51 and all other provisions of this Lease, Lessee shall have the
right to install and maintain on the roof of the Building (the "Antenna Area")
(at the location shown on Exhibit D) three (3) antennas, together with the
cables extending from such antenna to the Premises, in accordance with the
plans and specifications approved by Lessor. The location, size, weight,
height and all other features and specifications of the antenna and the manner
of the initial installment of the same shall be subject to Lessor's prior
written approval, which approval may be granted or withheld in Lessor's sole
and absolute discretion. Notwithstanding the foregoing, Lessee shall not be
entitled to install such an antenna (i) which is greater than two (2) meters in
diameter, (ii) which is more than ten (10) feet in height, (iii) if such
installation would adversely affect (or in a manner that would adversely
affect) any warranty with respect to the roof of the Building, (iv) if such
installation would adversely affect (or in a manner that would adversely
affect) the structure or any of the building systems of the Building, or if
such installation would require (or in a manner that would require) any
structural alteration to the Building, or if such installation would disturb
the roof membrane or make any other penetration on the roof or the exterior
facade of the Building unless Lessor in its sole and absolute discretion
approves in writing such structural alteration, (v) if such installation would
violate (or in a manner that would violate) any covenant, condition, or
restriction of record affecting the Building or any applicable federal, state
or local law, rule or regulation, (vi) unless all required approvals and
consents of all holders of mortgages encumbering the Building are obtained,
(vii) unless Lessee has obtained and maintains at Lessee's expense, and has
submitted to Lessor copies of, all permits and approvals relating to such
antenna and such installation and maintenance (including, without limitation,
any permit
24
<PAGE> 28
required if a crane is necessary to place such antenna on the roof) and pays
all taxes and fees related thereto, (viii) unless such antenna is white or of a
beige or lighter color (or otherwise appropriately screened), (ix) unless such
antenna is installed, at Lessee's sole cost and expense, by a qualified
contractor chosen by Lessee and approved in advance by Lessor, which approval
shall not be unreasonably withheld, (x) the installation or operation of which
would interfere with or disrupt the use or operation of any other antenna or
the roof of the Building, (xi) unless Lessee obtains Lessor's prior consent to
the manner and time in which such installation work is to be done; (xii)
unless sufficient room therefor exists on the roof, as determined by Lessor's,
at the time of the proposed installation; and (x) unless screened from view
from the grounds adjacent to the Building in a manner and with materials
acceptable to Lessor in its sole discretion. All plans and specifications
concerning such installation shall be subject to Lessor's prior written
approval, which approval shall not be unreasonably withheld, and Lessee shall
reimburse Lessor's expenses incurred in such review. All repairs and
installations required after the initial installation of the antenna also shall
be subject to Lessor's prior written approval (to be granted or withheld in
Lessor's sole and absolute discretion) which approval shall be at Lessee's sole
cost and expense.
(b) Lessee's access to any such antenna shall be
subject to reasonable rules and regulations relating thereto established from
time to time by Lessor.,
(c) At all times during the Lease Term, Lessee shall (i)
maintain said antenna in clean, good and safe condition and in a manner that
avoids interference with or disruption to Lessor and other tenants of the
Building and (ii) comply with all requirements of laws, ordinances, rules and
regulations of all public authorities and insurance companies which shall
impose any order or duty upon Lessor with respect to or affecting the antenna
or wiring out of Lessee's use or manner of use thereof. Lessee shall pay and
discharge all costs and expenses incurred by Lessor in connection with the
furnishing, installation, maintenance, operation and removal of the antenna
within five (5) days after written demand. All repairs to the Building made
necessary by reason of the furnishing, installation, maintenance, operation or
removal of the antenna or any replacements thereof (including, without
limitation, any invalidation of the roof warranty due to the antenna or
Lessee's actions) shall be at Lessee's sole cost. Such maintenance shall be
performed by a qualified contractor approved by Lessor. At the expiration or
earlier termination of the Lease Term, Lessee shall remove such antenna and
related equipment from the Building and surrender the Satellite Area in good
condition, ordinary wear and tear and unavoidable damage by the elements
excepted.
(d) Upon at least ten (10) days' prior written notice to
Lessee, Lessor shall have the right to require Lessee to relocate the antenna,
if in Lessor's opinion such relocation is necessary or desirable. Any such
relocation shall be performed by Lessee at Lessor's expense, and in accordance
with all of the requirements of this Section. Nothing in this Section shall be
construed as granting Lessee any line of sight easement with respect to such
satellite dish antenna.
(e) It is expressly understood that by granting Lessee
the right hereunder, Lessor makes no representation as to the legality of such
antenna or its installation. In the event that any federal, state, county,
regulatory or other authority requires the removal or relocation of such
antenna, Lessee shall remove or relocate such antenna at Lessee's sole cost and
expense, and Lessor shall under no circumstances be liable to Lessee therefor.
(f) Lessee shall indemnify and hold Lessor harmless from
and against all costs, damages, claims, liabilities and expenses (including
attorneys' fees) suffered by or claimed against Lessor, directly or indirectly,
based on, arising out of or resulting from any act or omission by Lessee or
Lessee's employees, agents, assignees, subtenants, contractors, clients,
guests, licensees, customers or invitees with respect to the installation, use,
operation, maintenance, repair or disassembly of such antenna and related
equipment.
(g) The antenna may be used by Lessee only in the conduct
of Lessee's customary business. No assignee or subtenant shall have any rights
pursuant to this Article.
(h) Lessee shall maintain such insurance as is
appropriate with respect to the installation, operation and maintenance of the
antenna. Lessor shall have no liability on account
25
<PAGE> 29
of any damage to or interference with the operation of the antenna except for
physical damage caused by Lessor's gross negligence or willful misconduct and
Lessor expressly makes no representations or warranties with respect to the
capacity for an antenna placed on the roof of the Building to receive or
transmit signals. The operation of the antenna shall be at Lessee's sole and
absolute risk. Lessee shall in no event interfere with the use of any other
communications equipment located on the roof of the Building.
52. GENERATOR INSTALLATION:
Lessee has notified Lessor that it may desire, at Lessee's sole cost
and expense, to install a generator behind the Building to service Lessee's
operations within the Demised Premises. Subject to Lessor's approval of the
location, size and style of the proposed generator and the method of
constructing or installation of the same, including compliance with Article 47
of the Lease (which approval may be granted or withheld in its sole and
absolute discretion), and subject to Lessee's demonstrating to Lessor's sole
discretion that Lessee has obtained all necessary governmental,
quasi-governmental and all other required approvals (including any
architectural review board approval), Lessee may install such approved
generator in accordance with the plans and procedures approved by Lessor. All
such work shall be performed by Lessee in accordance with Article 7 of this
Lease. Thereafter, Lessee shall be required, at its sole cost, to operate,
maintain and repair such generator and the area surrounding the generator in a
clean and safe condition and in accordance with all applicable Laws. On or
before the expiration or earlier termination of the Term (or at any earlier
time at which Lessee's use of or the existence of the generator does not comply
with all Laws and required approvals), Lessee shall, at its sole cost and
expense, remove the generator (and all other related improvements, i.e., fuel
tank, containment wall, etc.) and restore the area on which the generator was
located to the condition that existed prior to the installation thereof unless
Lessor, at least ninety (90) days prior to the expiration of the Lease Term,
notifies Lessee in writing (the "Nonremoval Notice") that it shall not remove
the generator. Notwithstanding the foregoing, if Lessor sends the Nonremoval
Notice, Lessee shall have the right, by providing written notice to Lessor not
later than ten (10) business days after Lessee's receipt of the Nonremoval
Notice, to override such notice and remove the generator in accordance with
this Section.
IN WITNESS WHEREOF, we have hereunto set our hands and seals the day
and year first above written.
LESSOR:
Witnesses: APA PROPERTIES NO. 6, L.P.
by its Agent, Peter Lawrence
Of Virginia, Inc.
By: /s/ JAMES J. SHAPIRO
/s/ LAUREL ANN COYCE ---------------------
- --------------------
Name: LAUREL ANN COYCE Name: James J. Shapiro
Title: President
LESSEE:
Witnesses: CYBERCASH, INC., a Delaware corporation
By: /s/ JAMES J. CONDON
/s/ SCOTT D. RABIN -------------------
- ------------------ Name: James J. Condon
Name: SCOTT D. RABIN Title: Chief Financial Officer and
Chief Operating Officer
26
<PAGE> 1
Exhibit 10.14
Sublease Agreement dated March 25, 1999 between Computer Associates
International and CyberCash, Inc.
<PAGE> 2
Exhibit 10.14
THIS SUBLEASE (the "Sublease") is entered into as of the date set forth
in SECTION 1.1(e) below, by and between the Sublandlord and the Subtenant set
forth below.
W I T N E S S E T H
1.1 SUBLEASE SUMMARY AND DEFINITIONS
The Sublease provisions and definitions set forth in this
SECTION 1.1 in summary form are solely to facilitate convenient reference by the
parties. If there is any conflict between this Section and any other provisions
of this Sublease, the latter shall control.
<TABLE>
<S> <C>
(a) Sublandlord's Name COMPUTER ASSOCIATES
and address: INTERNATIONAL, INC.
1 Computer Associates Plaza
Islandia, N.Y. 11788-7000
Attn: Senior Vice President - Facilities
Rent payments to above address,
Attention: Treasurer - Rent Collection
(b) Sublandlord's State of
Incorporation: Delaware
(c) Subtenant's Name and CYBERCASH, INC.
address: 2100 Reston Parkway
Reston, Virginia 20191
Attn: Facilities Manager
(d) Subtenant's State of
Incorporation: Delaware
(e) Sublease Date: March 22, 1999
(f) Overlandlord's Name and
Address: Alameda Real Estate Investments
Vintage Properties
393 Vintage Park Drive
Suite 210
Foster City, CA 94404
(g) Overlease: Lease dated June 25, 1992
between Overlandlord and
Sublandlord, as amended by Amendment
No. 1 dated December 1, 1994.
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C>
(h) Unincorporated provisions
of the Overlease: Paragraphs: 4.A, 4.B, 4.C, 4.G, 5, 9 (except that
Subtenant shall be responsible for payment of applicable
telephone charges), 32, 36, and 45
(i) Building: 1201 Marina Village Parkway
Alameda, CA 94501
(j) Premises: 26,066 Rentable Square Feet on the 3rd floor.
(k) Sublease Commencement Date: The earlier of (i) the date upon which Subtenant commences
operation of its business in the Premises, or (ii) eight (8)
weeks after delivery of Overlandlord's consen in
substantially the form of Overlandlord's Consent attached
hereto as Exhibit B except to the extent such consent is
delayed due to Subtenant's acts.
(l) Sublease Expiration Date: September 29, 2004
</TABLE>
(m) Base Rent:
<TABLE>
<CAPTION>
- ------------------------------- ------------------------ ----------------- ----------------
Annual Rent per rentable
Yearly Periods square foot Monthly Base Rent Annual Base Rent
- ------------------------------- ------------------------ ----------------- ----------------
<C> <C> <C> <C>
5 months after the Sublease $21.00 $45,615.50 $547,386
Commencement Date through
month 12
- ------------------------------- ------------------------ ----------------- ----------------
Month 13-24 $21.60 $46,918.80 $563,025.60
- ------------------------------- ------------------------ ----------------- ----------------
Month 25-36 $22.20 $48,222.10 $578,665.20
- ------------------------------- ------------------------ ----------------- ----------------
Month 37-Sublease Expiration $23.40 $50,828.70 $609,994.40
Date
- ------------------------------- ------------------------ ----------------- ----------------
</TABLE>
<TABLE>
<S> <C>
(n) Prepaid Base Rent: $45,615.50
(o) Sublease Operating Expenses
(including Real Estate Taxes)
Increases over Base Year: 1999
</TABLE>
-2-
<PAGE> 4
<TABLE>
<S> <C>
Building Hours of Operation: 8:00 a.m. - 6:00 p.m.
Monday- Friday (excluding holidays).
Overtime HVAC charge is $20.00/hour
(p) Subtenant's Proportionate
Share: 31.41% (determined by dividing the rentable
square footage of the Premises by the rentable
square footage of the Building)
(q) Intentionally deleted
(r) Security Deposit: $45,615.50
(s) Alterations: The Premises shall be provided to Subtenant
in its "As Is" condition, provided however,
Subtenant shall have the right, in accordance
with SECTION 15 below, and provided same is
approved by Overlandlord in writing, to
install or cause to be installed certain
alterations relating to the Premises.
(t) Brokers: For Sublandlord: BT Commercial
For Subtenant: Staubach Company
(u) Parking: 78 unassigned parking spaces (based on 33
parking spaces per 1,000 rentable square
feet of the Premises).
</TABLE>
2. SUBLEASE GRANT
2.1 By lease (hereinafter referred to as the "Overlease") described
above, the Overlandlord leased to Sublandlord certain space (hereinafter called
the "Leased Space") in the Building in accordance with the terms of the
Overlease. A true and complete copy of the Overlease is annexed hereto as
Exhibit A.
2.2 In consideration of the obligation of Subtenant to pay rent as
herein provided and in consideration of the other terms, covenants and
conditions hereof, Sublandlord hereby leases to Subtenant and Subtenant hereby
hires from Sublandlord, upon and subject to the provisions of this Sublease and
the Overlease, the square feet of rentable area as set forth in SECTION 1.1(j)
herein
-3-
<PAGE> 5
(comprising a portion of the Leased Space) and as shown hatched on EXHIBIT A-1
annexed hereto and made a part hereof (hereinafter called the "Premises").
3. SUBLEASE TERM
3.1 Subject to the other provisions hereof, this Sublease shall
continue in full force and effect for a primary term beginning on the Sublease
Commencement Date and ending on the Sublease Expiration Date as defined above.
Such term, as it may be extended or modified only by written agreement of the
parties or pursuant to an express provision of this Sublease, is herein called
the "Sublease Term". Notwithstanding the foregoing, Subtenant, its agents and
contractors shall be permitted access, from time to time, to the Premises prior
to the Sublease Commencement Date, after full execution and approval of the
Sublease by Overlandlord and after presentation to Sublandlord of Subtenant's
certificate of insurance, for the sole purpose of planning, constructing,
installing and outfitting the Premises for Subtenant's use. Said early entry
will be at no charge to Subtenant and Sublandlord will not interfere with the
ability of Subtenant's general contractor to complete its work.
4. RENT
4.1 Subtenant, in consideration of this Sublease, agrees to pay to
Sublandlord as rent ("Base Rent") the amounts set forth in SECTION 1.1(m)
hereof. Base Rent is payable in advance and without demand, at Sublandlord's
address specified in SECTION 1.1(a) above (or such other address as Sublandlord
shall designate) in writing to Subtenant) by check in equal monthly
installments, on the first day of each month during the Sublease Term, without
any set-off, off-set, abatement or reduction whatsoever. Notwithstanding the
foregoing, the Base Rent will not be payable until the sixth month of the
Sublease Term. Subtenant's failure to receive an invoice from Sublandlord for
the Base Rent shall not relieve Subtenant from its obligation of timely payment
hereunder. The Prepaid Base Rent shall be paid upon Subtenant's execution of
this Sublease. When the term of this Sublease commences in accordance with the
provisions hereof, Sublandlord and Subtenant shall execute a declaration
specifying the Sublease Commencement Date. Base Rent for any partial months
during the Sublease Term shall be equitably prorated. Prepaid Base Rent shall
constitute payment of the first full month's Base Rent due after the Sublease
Commencement Date.
4.2 As used in this Sublease, "Rent" shall mean the Base Rent, the
Sublease Operating Expense reimbursements pursuant to SECTION 13, and all other
monetary obligations provided for in this Sublease to be paid by Subtenant, all
of which constitute rental in consideration for this Sublease.
4.3 In the event the rent is not paid when due as aforesaid, interest
shall accrue thereon at the lesser of 18% per annum or the maximum rate
permitted by law. Any such interest payment shall be payable as additional rent
under this Sublease and shall be payable promptly on demand.
-4-
<PAGE> 6
5. ASSIGNMENT OR UNDERLETTING
5.1 Subtenant shall not (a) assign this Sublease, nor (b) permit this
Sublease to be assigned by operation of law or otherwise, nor (c) underlet all
or any portion of the Premises, nor (d) permit any desk space therein to be
occupied by any person(s), without first obtaining:
(a) Overlandlord's consent and all other required consents to
such assignment or subletting as set forth in and pursuant to
the Overlease, and
(b) Sublandlord's consent.
Notwithstanding anything hereinbefore contained in SECTION 5.1
hereof, in the event Subtenant desires Sublandlord's consent to an assignment of
this Sublease or an underletting of all of the Premises, Subtenant by notice in
writing (a) shall notify Sublandlord of the name of the proposed assignee or
undertenant, furnish such information as to the proposed assignee's or
undertenant's financial responsibility and standing as Sublandlord may
reasonably require, and advise Sublandlord of the covenants, agreements, terms,
provisions and conditions contained in the proposed assignment or underlease and
(b) shall offer to vacate the Premises and to Surrender the same to Sublandlord
as of a date (hereafter called the "Surrender Date") specified in said offer
which shall be the last day of any calendar month during the term hereof,
provided, however, that the Surrender Date shall not be earlier than the date
occurring 120 days after the giving of such notice nor be later than the
effective date of the proposed assignment or the commencement date of the term
of the proposed underlease. Sublandlord may at its option accept such offer by
notice to Subtenant given within fifteen (15) business days after the receipt of
such notice from Subtenant. If the Premises be so surrendered by Subtenant
(without subletting or assigning this Sublease for the Premises), then in that
event this Sublease shall be canceled and terminated as of the agreed Surrender
Date with the same force and effect as if the agreed Surrender Date were the
date hereinbefore specified for the expiration of the full term of this
Sublease.
5.2 In the event Sublandlord does not accept such offer of Subtenant
referred to in SECTION 5.1 hereof, Sublandlord covenants not to unreasonably
withhold its consent to such proposed assignment or underletting by Subtenant of
the Premises to the proposed assignee or undertenant on said covenants,
agreements, terms, provisions and conditions set forth in notice to Sublandlord
referred to in SECTION 5.1 hereof; provided, however, that Sublandlord shall not
in any event be obligated to consent to any such proposed assignment or
underletting unless:
-5-
<PAGE> 7
(a) the proposed assignee or undertenant is of a financial
standing and is engaged in a business and the Premises will be
used in a manner which is in keeping with the then standards
of the Building;
(b) the proposed assignee or undertenant is a reputable party;
(c) the assignment or underletting shall not have the effect
(or give the utility company servicing the Building with
electricity cause to claim) that Sublandlord may not service
the Premises, or any part thereof, with electricity on a "rent
inclusion" basis;
(d) Sublandlord shall have the right, upon five (5) days prior
written notice to Subtenant, to require Subtenant thereafter
to pay to Sublandlord a sum equal to fifty percent (50%) of:
(i) any rent or other consideration paid to Subtenant by any
undertenant which is in excess of the fixed annual rent and
additional rent then being paid by Subtenant to Sublandlord
pursuant to the terms of this Sublease, and (ii) any other
profit or gain realized by Subtenant from any such assignment
or underletting in connection with any underletting, less
Subtenant's reasonable and actual costs of subletting; all
sums payable hereunder by Subtenant shall be paid to
Sublandlord as additional rent immediately upon receipt
thereof by Subtenant and, if requested by Sublandlord,
Subtenant shall promptly enter into a written agreement with
Sublandlord setting forth the amount of additional rent to be
paid to Sublandlord pursuant to this Section;
(e) there shall be no default by Subtenant under any of the
terms, covenants and conditions of this Sublease at the time
that Sublandlord's consent to any such assignment or
underletting is requested and on the effective date of the
assignment or the proposed underlease;
(f) the proposed assignee or undertenant shall not be (i) a
government or any subdivision or agency thereof, (ii) a school
college, university or educational institution of any type,
whether for profit or non-profit, (iii) a direct competitor of
Sublandlord (iv) an employment or recruitment agency, or (v) a
telephone solicitation business.
(g) Subtenant shall reimburse Sublandlord for any reasonable
expenses that may be incurred by Sublandlord in connection
with the proposed assignment or underlease, including without
limitation the reasonable costs of making investigations as to
the acceptability of a proposed assignee or
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undertenant and reasonable legal expenses incurred in
connection with the granting of any requested consent to the
assignment or underlease, such expenses not to exceed $1,000;
(h) such proposed underletting will result in there being no
more than one occupant of the Premises including Subtenant.
5.3 Notwithstanding anything herein to the contrary, and provided that
Overlandlord has approved of such use, use of the Premises by contractors or
consultants of Subtenant, in connection with Subtenant's business shall not
constitute a subletting or assignment hereunder.
6. TERMS OF THE OVERLEASE
6.1 Except as herein otherwise expressly provided, including without
limitation the provisions specifically set forth in SECTION 1.1(h), all of the
terms, covenants, conditions and provisions in the Overlease are hereby
incorporated in, and made a part of this Sublease, and such rights and
obligations as are contained in the Overlease are hereby imposed, mutatis
mutandis, upon the respective parties hereto; the Sublandlord herein being
substituted for the Landlord in the Overlease, and the Subtenant herein being
substituted for the Tenant named in the Overlease; provided, however, that
Subtenant acknowledges that the services to be rendered to the Premises are to
be rendered by Overlandlord, not Sublandlord. Sublandlord herein shall not be
liable for any defaults by Overlandlord and, if Overlandlord is not the fee
owner, the owner in fee of the land and the Building of which the Premises are a
part. If the Overlease shall be terminated for any reason during the term
hereof, other than due to Sublandlord's breach, then and in that event this
Sublease shall thereupon automatically terminate and Sublandlord shall have no
liability to Subtenant by reason thereof. Notwithstanding the foregoing, in the
event of any breach of the Overlease by Overlandlord which would entitle the
Tenant to a remedy or otherwise exercise its self-help right thereunder,
Sublandlord shall either (a) exercise such remedy or self-help right on behalf
of Subtenant at Subtenant's request, provided that Subtenant reimburses
Sublandlord for any costs incurred thereby which are not recovered from the
Overlandlord; or (b) permit Subtenant to exercise such self-help right or seek
such remedy in Sublandlord's stead; provided Subtenant indemnifies and holds
Sublandlord harmless from and against any claims resulting from such exercise.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the Overlease.
6.2 Subject to the terms and conditions of the Overlandlord's Consent,
this Sublease is subject to, and Subtenant accepts this Sublease subject to, any
amendments and supplements to the Overlease hereafter made between Overlandlord
and Sublandlord, provided that any such amendment or supplement to the Overlease
will not prevent or adversely affect the use by Subtenant of the Premises in
accordance with the terms of this Sublease, increase the obligations of
Subtenant or decrease its rights under the Sublease or in any other way
materially adversely affect Subtenant.
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6.3 Subject to the terms and conditions of the Overlandlord's Consent,
this Sublease is subject and subordinate to the Overlease and to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which the Premises are a part and all renewals,
modifications, replacements and extensions of any of the foregoing. This SECTION
6.3 shall be self-operative and no further instrument of subordination shall be
required. To confirm such subordination, Subtenant shall execute any
certificate, reasonably acceptable in form and substance to Subtenant,,
Sublandlord and Overlandlord that Sublandlord and Overlandlord may request.
7. CONDITION OF PREMISES
7.1 Subtenant has examined the Premises, is aware of the physical
condition thereof, and agrees to take the same "as is," (except as otherwise
expressly provided herein) with the understanding that there shall be no
obligation on the part of Sublandlord to incur any out-of-pocket expense
whatsoever in connection with the preparation of the Premises for Subtenant's
occupancy thereof. Any work performed by Subtenant shall be in accordance with
the terms of the Overlease and the Sublease including, but not limited to,
SECTION 15 herein.
8. USE OF PREMISES
8.1 Subtenant agrees that the Premises shall be occupied only in
accordance with the terms of Paragraph 6 of the Overlease, as incorporated
herein. Provided that same is permitted under the Overlease or otherwise
consented to by Overlandlord, the Premises may be used for research and
development activities associated with software development as well as training
and support of Subtenant's own employees, all in connection with Subtenant's
business. In no event will any such permitted use allow Subtenant to engage in
any type of manufacturing or assembly activities at the Premises and the
provisions relating to Hazardous Materials contained in Section 37 of the
Overlease shall apply to Subtenant's use of the Premises.
9. CONSENT OF OVERLANDLORD
9.1 This Sublease is conditioned upon the consent hereto by
Overlandlord, which consent shall be evidenced by Overlandlord's execution and
delivery of the Overlandlord's Consent annexed hereto as Exhibit B or other form
as Overlandlord, Sublandlord and Subtenant shall reasonably approve. Subtenant
shall be solely responsible for any fees or charges imposed by the Overlandlord
in connection with the obtaining of such consent and otherwise due and payable
under the Overlease. Provided Overlandlord's Consent does not materially affect
the terms of this Sublease, Subtenant shall promptly execute any documents
reasonably requested by Overlandlord in order to obtain such consent.
9.2 Sublandlord shall use commercially reasonable efforts to obtain the
Overlandlord's Consent; provided however, Sublandlord makes no representation
with respect to obtaining Overlandlord's approval of this Sublease. In the event
that Overlandlord notifies Sublandlord that
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Overlandlord will not give such approval, Sublandlord will promptly notify
Subtenant of such refusal and thereafter Subtenant and Sublandlord shall discuss
in good faith possible alternative approaches to obtaining Overlandlord's
consent to this Sublease. Notwithstanding the foregoing and except to the extent
caused by Subtenant delays including, but not limited to, the use of Subtenant's
form of Overlandlord agreement as attached hereto, if the Overlandlord's Consent
is not executed by Overlandlord on or before the date (the "Consent Date") that
is twenty (20) business days after full execution of this Sublease, either
Sublandlord or Subtenant may give the other a notice of intention to terminate
this Sublease, and if the party to whom such notice is sent does not cause the
Overlandlord's Consent to be executed within ten (10) days following the giving
of such notice, then the other party may terminate this Sublease by written
notice given within five (5) days following the expiration of said ten (10) day
period. Upon such termination, neither party shall have any further obligation
or liability hereunder.
9.3 Except as otherwise specifically provided herein, wherever in this
Sublease Subtenant is required to obtain Sublandlord's consent or approval,
Subtenant understands that Sublandlord may be required to first obtain the
consent or approval of Overlandlord. If Overlandlord should refuse such consent
or approval, Sublandlord shall be released of any obligation to grant its
consent or approval whether or not Overlandlord's refusal, in Subtenant's
opinion, is arbitrary or unreasonable. Notwithstanding the foregoing,
Sublandlord shall cooperate with Subtenant, at no cost to Sublandlord, in
seeking to obtain Overlandlord's consent or approval, including without
limitation, enforcing Sublandlord's rights under the Overlease on behalf of
Subtenant.
10. DEFAULT
10.1 Without limiting the generality of SECTION 6.1, the terms and
conditions of Paragraph 15 of the Overlease, as incorporated herein, shall apply
to any default by Subtenant under this Sublease, any associated cure rights and
remedies for such default.
11. SUBLANDLORD REPRESENTATIONS/COVENANTS
11.1 As of the date hereof, Sublandlord represents to the best of its
knowledge without further investigation (a) that it is the holder of the
interest of the Tenant under the Overlease, (b) that the Overlease is in full
force and effect, (c) that it has not given nor received a notice of default
under the Overlease, nor to its knowledge do any facts exist that would
constitute a default under the Overlease by either Sublandlord or Overlandlord,
(d) that it has not transferred, assigned, granted a security interest in,
pledged or otherwise hypothecated its interest in the Overlease to a third
party, (e) that it is duly organized and validly existing under the laws of
Delaware and has all requisite power and authority to enter into this Sublease.
11.2 The continued validity of the representations set forth in SECTION
11.1 above (except subsection (a) to the extent Sublandlord assigns its interest
as Tenant to
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a controlled entity or subsection (c) to the extent Sublandlord reasonably
prosecutes to cure in accordance with the Overlease) as of the Sublease
Commencement Date is an express condition to Subtenant's obligations under this
Sublease. Failure of any such representation to be correct as of the Sublease
Commencement Date shall permit Subtenant to terminate this Sublease. Sublandlord
agrees that throughout the Sublease Term it will not be in default of the
Overlease beyond any applicable cure period.
12. BROKERS
12.1 Subtenant and Sublandlord hereby covenant, represent and warrant
to each other that neither party has had any dealings or communications with any
broker or agent in connection with the consummation of this Sublease other than
those parties named in SECTION 1.1(h) hereof, and Subtenant and Sublandlord
hereby covenant and agree to pay, hold harmless and indemnify the other from and
against any and all cost, expense (including reasonable attorneys' fees) or
liability for any compensation, commissions or charges claimed by any broker or
agent other than such brokers with respect to this Sublease or the negotiation
thereof.
13. SUBLEASE OPERATING EXPENSES/TAXES
13.1 As used in this Sublease, the term "Sublease Operating Expenses"
shall mean the Operating Expenses and the Property Taxes payable by Sublandlord
under the Overlease and all other reasonable out-of-pocket expenses paid by
Sublandlord to Overlandlord in accordance with the provisions of the Overlease.
Notwithstanding the foregoing, the provisions of 4F of the Overlease, including
the exclusions listed therein, shall apply to the Sublease Operating Expenses.
13.2 In addition to Base Rent, Subtenant shall pay to Sublandlord (if
not collected by Overlandlord pursuant to the Amendment to the Overlease), as
additional rent with respect to each calendar year of the Sublease Term
subsequent to the Base Year as specified in SECTION 1.1(o), Tenant's
Proportionate Share of the total dollar increase, if any, in the Sublease
Operating Expenses paid or incurred by Sublandlord in such subsequent calendar
year over the Sublease Operating Expenses incurred during the Base Year.
13.3 The procedure for payment and reconciliation of Operating Expenses
set forth in Paragraph 4(F) of the Overlease shall apply to the Sublease
Operating Expenses, including without limitation, the delivery to Subtenant of a
statement setting forth the actual Sublease Operating Expenses and Premises
Expenses and the right of Subtenant to audit the bills and invoices underlying
such statement.
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13.4 With respect to any utility expense portion of the Sublease
Operating Expenses, to the extent such utility is not directly billed to
Subtenant by the appropriate utility company, such utility expense shall be
shared prorata between Sublandlord and Subtenant based on the rentable square
footage of the Premises in relation to the rentable square footage of the
Building. Notwithstanding the foregoing, Sublandlord may require Subtenant to
(upon presentation to Subtenant of reasonable documentation of Subtenant's
excess utility usage) or Subtenant may, at Subtenant's sole cost and expense,
install or cause to be installed a separate utility meter or submeter to measure
the utility in question (including a meter relating solely to HVAC usage) and
thereafter the Sublease Operating Expenses shall not include charges for such
separately metered or submetered utility. In addition, if any of the utilities
in the Premises are so separately metered, Subtenant shall be entitled to a
credit against Base Rent as a result of such utility being paid directly by
Subtenant. Such credit shall be reasonably determined at such time by the
parties hereto by using calculations of the utility costs from the 1001 Marina
Village Parkway building, taking into consideration that the Building's common
area charges will not be included as part of such credit.
13.5. Subtenant shall pay to Sublandlord during the Sublease Term an
annual fee of $250 for the costs of administration and management of this
Sublease, which fee shall be due and payable within thirty (30) days of the
commencement of each year of this Sublease.
14. INTENTIONALLY DELETED
15. ALTERATIONS
15.1 Subtenant shall not make or suffer to be made any alteration,
additions or improvements to the Premises or to any other portion of the
Building ("Sublease Alterations") without first obtaining the prior written
consent of Sublandlord which shall not be unreasonably withheld, conditioned or
delayed. Subject to Sublandlord's review of Subtenant's final plans and
specifications and receipt of Overlandlord's consent, Sublandlord acknowledges
that it has agreed to allow Subtenant or its agents or contractors to construct,
install or otherwise improve the Premises in accordance with the specifications
set forth on Exhibit D annexed hereto. All Sublease Alterations, if any, shall
be subject to and installed in accordance with the Sublease and the terms and
conditions of Paragraph 13 of the Overlease, including, without limitation,
Subtenant obtaining the approval of the Sublease Alterations by Overlandlord
pursuant to the provisions of the Overlease, Subtenant applying for and
obtaining all permits and approvals for the Sublease Alterations from all
governmental authorities having jurisdiction over the construction or
installation of the Sublease Alterations. Notwithstanding anything herein,
Sublandlord shall have no obligation to contribute funds or otherwise be exposed
to any expenses relating to or toward any Sublease Alterations or other items to
be installed by Subtenant in the Premises. The parties hereto acknowledge that
the five (5) month Base Rent abatement provided for under this Sublease serves
as full and total compensation by Sublandlord for any Sublease Alterations made
to the Premises by Subtenant.
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15.2 Although the construction work may be performed during normal
business hours, Subtenant and its agents and contractors will not interfere with
the quiet enjoyment of the Building by Sublandlord or Sublandlord"s use of the
Leased Space. Sublandlord may impose reasonable rules and regulations in order
to preserve its security and operational requirements. These regulations would
include, but not be limited to, the following: (1) Subtenant to coordinate all
work with Sublandlord and provide a schedule of work prior proceeding.; (2) all
work which (a) impact main building systems or any systems shared by Sublandlord
(i.e. electrical, mechanical, security, fire safety), or (b) may produce
excessive noise, vibration or noxious fumes must be scheduled through
Sublandlord and Sublandlord reserves the right to require that such work be
performed after hours or at such times as Sublandlord may reasonably designate.
Subtenant shall further provide Sublandlord, for its reasonable approval, a
logistics plan identifying paths for deliveries, staging and contractor access.
Any approvals required to be given by Sublandlord under this section shall not
be unreasonably withheld, conditioned or delayed.
16. SECURITY DEPOSIT
16.1 As security for the faithful performance and observance by
Subtenant of the terms, provisions, covenants and conditions of this Sublease,
Subtenant is simultaneously herewith delivering to Sublandlord a check in the
amount set forth in SECTION 1.1(q).
16.2 In the event Subtenant defaults in respect of any of the terms,
provisions, covenants and conditions of this Sublease, including, but not
limited to, the payment of Base Rent and additional rent, Sublandlord may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any Base Rent and additional rent or any other sum
as to which Subtenant is in default or for any sum which Sublandlord may expend
or may be required to expend by reason of Subtenant's default in respect of any
of the terms, provisions, covenants, and conditions of this Sublease, including,
but not limited to, any damages or deficiency accrued before or after any
re-entry by Sublandlord.
16.3 In the event that Subtenant defaults in respect of any of the
terms, provisions, covenants and conditions of the Sublease and Sublandlord
utilizes all or any part of the security but does not terminate this Sublease as
provided herein, Sublandlord may in addition to exercising its rights as
provided in SECTION 16.2, retain the unapplied and unused balance of the
principal amount of the security as security for the faithful performance and
observance by Subtenant thereafter of the terms, provisions and conditions of
this Sublease and may use, apply or retain the whole or any part of said balance
to the extent required for payment of rent, additional rent, or any other sum as
to which Subtenant is in default or for any sum which Sublandlord may expend or
be required to expend by reason of Subtenant's default in respect of any of the
terms, covenants, and conditions of this Sublease. In the event Sublandlord
applies or retains any portion or all of the security delivered hereunder,
Subtenant shall forthwith restore the amount so applied or retained so that at
all times the amount deposited shall be no less than the security required by
SECTION 1.1(r).
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16.4 In the event that Subtenant shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this Sublease, the
security shall be returned to Subtenant (i) after the Sublease Expiration Date
and within fifteen (15) business days after written request from Subtenant and
after delivery of entire possession of the Premises to Sublandlord, or (ii) upon
Sublandlord's receipt of an equivalent amount of security from an assignee or
undertenant pursuant to an assignment or underletting permitted by Paragraph 25
of the Overlease. In the event of an assignment of the Overlease by Sublandlord,
Sublandlord shall have the right to transfer any interest it may have in the
security to the assignee and Sublandlord shall thereupon be released by
Subtenant from all liability for the return of such security, provided such
assignee expressly assumes any responsibilities of Sublandlord with respect to
such security, and Subtenant thereafter agrees to look solely to the new
sublandlord for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new sublandlord. Subtenant further covenants that it will not
assign or encumber or attempt to assign or encumber the monies deposited herein
as security and that neither Sublandlord nor its successors or assigns shall be
bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
17. QUIET ENJOYMENT
17.1 So long as Subtenant pays all of the Base Rent and additional rent
due under this Sublease and performs all of Subtenant's other obligations
hereunder, Subtenant shall peacefully and quietly have, hold and enjoy the
Premises subject, however, to the terms, provisions and obligations of this
Sublease and the Overlease.
18. INTENTIONALLY DELETED
19. NO WAIVER
19.1 The receipt by Sublandlord of rent with knowledge of the breach of
any covenant of this Sublease shall not be deemed a waiver of such breach and no
provision of this Sublease shall be deemed to have been waived by Sublandlord
unless such waiver be in writing signed by Sublandlord. No payment by Subtenant
or receipt by Sublandlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated Base Rent, additional rent or other charge due, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Sublandlord may accept
such check or payment without prejudice to Sublandlord's right to recover the
balance of such Base Rent, additional rent or other charge, or pursue any other
remedy in this Sublease provided. No act or thing done by Sublandlord or
Sublandlord's agents during the Sublease Term hereby demised shall be deemed an
acceptance of a surrender of the Premises and no agreement to accept such
surrender shall be valid unless in writing signed by Sublandlord. No employee of
Sublandlord or agent of Sublandlord shall have any power to accept
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the keys of the Premises prior to the termination of the Sublease and the
delivery of keys to any such agent or employee shall not operate as a
termination of the Sublease or a surrender of the Premises.
20. NOTICES
20.1 Any notice, demand or communication which, under the terms of this
Sublease or under any statute or municipal regulation must or may be given or
made by the parties hereto, shall be in writing and given or made by mailing the
same by registered or certified mail, return receipt requested or by a
recognized overnight courier to the address and person designated in SECTION
1.1(a) and SECTION 1.1(c) herein.
20.2 Either party, however, may designate such new or other address to
which such notices, demands or communications thereafter shall be given, made or
mailed by notice (given in the manner prescribed herein). Any such notice,
demand or communication shall be deemed given or served, as the case may be, on
the date actually received (or refused) by the party to be noticed. In the event
Subtenant's address is not set forth above, notice to Subtenant shall be deemed
sufficient if sent to the Premises.
21. INTERPRETATION
21.1 The parties acknowledge that each party and its respective counsel
have reviewed this Sublease and that no rule of construction to the effect that
any ambiguities are to be resolved against the drafting party shall be employed
in the interpretation of this Sublease or any amendments or exhibits hereto.
22. NON-SOLICITATION OF SUBLANDLORD'S EMPLOYEES
22.1 Subtenant agrees that it will not, without the prior written
consent of Sublandlord, solicit or hire any Sublandlord employee, or induce such
employee to leave Sublandlord's employment, directly or indirectly, during the
Sublease Term and for a period of twelve (12) months after expiration of the
Sublease Term.
23. NO SMOKING/NO LIQUOR
23.1 Subtenant shall not permit smoking in or about the Premises or the
Building (except in designated areas, if any, outside the Building) and shall
notify its employees, visitors, agents and other occupants or invitees to the
Premises of same, and shall, at its expense, provide appropriate signage within
the Premises to advise of same.
23.2 No alcoholic beverages of any kind or liquor of any kind shall be
sold on the Premises.
24 PARTIAL INVALIDITY
24.1 If any provision of this Sublease or the application thereof to
any person or circumstance shall, to any extent, be valid or unenforceable, the
remainder of the Sublease, or the
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application of such provision to persons or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Sublease shall be valid and enforceable to the full extent
permitted by law.
25. EXPANSION OPTION
25.1 Subtenant shall have a right of first offer to lease any
additional space that Sublandlord intends to sublease in the Building. Prior to
subleasing any additional space in the Leased Premises, Sublandlord shall
provide written notice (the "Offer Notice") to Subtenant of Sublandlord's
intention to sublease such space. The Offer Notice shall identify the space
proposed to be sublet (the "Additional Space") and specify the time (the
"Delivery Date") Sublandlord will deliver possession of the Additional Space as
well as the rent and additional payments which would be payable for such
Additional Space. Subtenant shall have the right to lease the Additional Space
by giving Sublandlord written notice within seven (7) business days after
receipt of the Offer Notice that Subtenant is exercising its right to lease the
Additional Space. If Subtenant so exercises its right of first offer, this
Sublease shall be deemed modified, as of the Delivery Date, to include the
Additional Space. The lease of the Additional Space shall be upon the same terms
and conditions set forth in this Sublease; provided however, the Base Rent for
the Additional Space shall be at the amount set forth in the Offer Notice. The
term of the lease for the Additional Space leased pursuant to this provision
shall expire on the Sublease Expiration Date.
25.2 This right is personal to the Subtenant named herein and is not
transferable and may be revoked by Sublandlord in the event of repeated late
payments by Subtenant or other repeated defaults of material provisions of the
Sublease.
26. SECURITY CARDS
26.1 Subtenant's access to the Building will be controlled by
Sublandlord's security system, which requires a security card to be displayed
before entrance into the Building will be granted. Subtenant shall pay to
Sublandlord the sum of $10.00 for each security card required for each employee
of Subtenant who requires entrance into the Building. In the event that any
security card is lost, misplaced or damaged, Subtenant will pay to Sublandlord
$10.00 for a replacement of such security card. Notwithstanding the foregoing,
Subtenant may, at Subtenant's sole cost and expense, install and maintain its
own security system controlling access to the Premises; provided (a) that
Subtenant gives Sublandlord and Overlandlord security cards or other items or
information necessary to allow such parties to have access to the Premises for
the purposes permitted under this Sublease and the Overlease; and (b) that such
security system shall be solely on the Premises and shall not in any manner
affect access to any other areas of the Building or the Leased Space.
27. SIGNAGE
27.1 Subtenant may, at its sole cost and expense, install "eyebrow"
signage on the Building as well as a monument sign by the Building; provided
that same are approved by all
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applicable municipal agencies, the Overlandlord, and Sublandlord (Sublandlord's
consent not to be unreasonably withheld), and provided that same do not violate
any covenants and restrictions running with the Property nor that said signage
is provided to replace Sublandlord's sign(s). At the expiration of the Sublease,
Subtenant shall be responsible for the removal of the signage and return of the
Building facade to substantially its prior condition.
27.2 This right is personal to the Subtenant named herein and is not
transferable and may be revoked by Sublandlord in the event of repeated late
payments by Subtenant or other repeated defaults of material provisions of the
Sublease.
28. MISCELLANEOUS
28.1 Where applicable, Subtenant shall be responsible for all
reasonable out-of-pocket additional costs incurred solely as a result of this
Sublease, the issuance of security cards, keys and parking cards and similar
items. The foregoing provision shall not apply to expenses described in SECTION
13 hereof.
28.2 This Sublease may not be changed orally, but only by an agreement
in writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
28.3 This Sublease shall not be binding upon Sublandlord unless and
until it is signed by Sublandlord and delivered to Subtenant. This SECTION 28.3
shall not be deemed to modify the provisions of SECTION 9 hereof.
28.4 This Sublease constitutes and contains the entire agreement
between the parties and supersedes all prior agreements, representations and
understandings between the parties relating to the subject matter of this
Sublease. No oral understandings, statements, promises or inducements contrary
to the terms of this Sublease exist.
28.5 This Sublease shall inure to the benefit of all of the parties
hereto, their successors and (subject to the provisions hereof) their assigns.
28.6 Subtenant agrees and acknowledges that Subtenant has been
represented by counsel of Subtenant's own choosing in connection with the
negotiation, preparation and execution of this Sublease Agreement.
28.7 Sublandlord agrees and acknowledges that it has been represented
by counsel of its own choosing in connection with the negotiations, preparation
and execution of this Sublease Agreement.
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28.8 Sublandlord shall indemnify, defend, protect and hold each of
Subtenant and its respective officers, partners, employees, agents, attorneys,
successors and assigns harmless from and against any and all claims,
liabilities, penalties, damages, losses, causes of action, costs and expenses
(including, without limitation, attorneys' fees and costs) to the extent the
foregoing arise from or are caused, directly or indirectly, by any act or
omission of Sublandlord, its officers, partners, agents, servants, employees,
contractors, invitees or transferees: (i) occurring in, on, or about the Leased
Space or the Building; or (ii) which is a default under or breach of any of the
provisions of this Sublease.
28.9 Subtenant shall indemnify, defend, protect and hold each of
Sublandlord and its respective officers, partners, employees, agents, attorneys,
successors and assigns harmless from and against any and all claims,
liabilities, penalties, damages, losses, causes of action, costs and expenses
(including, without limitation, attorneys' fees and costs) to the extent the
foregoing arise from or are caused, directly or indirectly, by any act or
omission of Subtenant, its officers, partners, agents, servants, employees,
contractors, invitees or transferees: (i) occurring in, on, or about the
Premises or the Building; or (ii) which is a default under or breach of any of
the provisions of this Sublease.
28.10 In the event that Subtenant fails to vacate the Premises at the
expiration of the Sublease Term in accordance with the terms of the Overlease,
the provisions of Paragraph 22 of the Overlease shall apply, except that the
reference to "one hundred twenty-five percent (125%)" therein shall be changed
to "one hundred fifty percent (150%)" for the purposes of this Sublease.
28.11 Subtenant agrees that it will begin to diligently pursue
obtaining alternative office space beginning no later than six (6) months prior
to the expiration of this Sublease and will use commercially reasonable efforts
during the last six (6) months of the Sublease Term to ensure that it is able to
vacate the Premises in a timely and proper manner. Subtenant shall, if requested
by Sublandlord during the last six (6) months of the Sublease Term, present
evidence of such efforts to Sublandlord.
-17-
<PAGE> 19
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
of the day and year first above written.
COMPUTER ASSOCIATES
INTERNATIONAL, INC.,
Sublandlord
By
-----------------------
Name:
--------------------
CYBERCASH, INC., Subtenant
By /s/ JAMES J. CONDON
-----------------------
Name: JAMES J. CONDON
--------------------
-18-
<PAGE> 1
Exhibit 10.15
FORM OF SUBSCRIPTION AGREEMENT
* See accompanying table
Subscription Agreement
This Subscription Agreement is entered into as of *________, 1998 by and
between CyberCash, Inc., a Delaware corporation (the "Company"), and
*____________________________ ("BUYER").
1. SALE OF STOCK. Subject to the terms and conditions herein, the
Company agrees to issue to Buyer, and Buyer agrees to purchase from the Company,
*_____ shares of the Company's common stock (the "SHARES") at a per share
purchase price of $*____.
2. PAYMENT. Buyer shall deliver to the Company on the date hereof by
check or wire transfer the aggregate purchase price of the Shares as determined
in accordance with Section 1. Upon receipt of the purchase price, the Company
shall issue the Shares to Buyer.
3. NO RESALE. Buyer understands that the Shares have not been
registered under the Securities Act of 1933, as amended (the "ACT"), in reliance
upon exemptions contained in the Act or interpretations thereof, and cannot be
offered for sale, sold or otherwise transferred unless the Shares subsequently
are so registered or qualify for exemption from registration under the Act.
4. LEGENDS. The certificates evidencing the Shares shall bear a
restrictive legend until such time as the Shares have been registered under the
Act or qualify for exemption from registration under the Act, and a "stock
transfer" order shall be entered in the stock transfer records of the Company
with respect to the Shares.
5. CHOICE OF LAW. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia
(excluding the choice of law rules thereof).
6. ENTIRE AGREEMENT; AMENDMENT. This Subscription Agreement
constitutes the entire Agreement among the parties hereto with respect to the
transaction contemplated herein, and it supersedes all prior oral or written
agreements, commitments or understandings with respect to the matters provided
for herein. No amendment, modification or discharge of this Subscription
Agreement shall be valid or binding unless set forth in writing and duly
executed and delivered by the party against whom enforcement of the amendment,
modification or discharge is sought.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have duly executed this
Subscription Agreement, or have caused this Subscription Agreement to be duly
executed on their behalf, as of the day and year first above written.
CYBERCASH, INC.
By:
--------------------
Name:
Title:
-----------------------
("BUYER")
By:
--------------------
Name:
Title:
2
<PAGE> 3
The following table sets forth the material terms of the subscription agreements
entered in 1998 between CyberCash, Inc. and certain of its directors (or
entities over whom a director is deemed to have a beneficial ownership interest)
for the purchase and sale of CyberCash common stock. Each of these transactions
was made pursuant to the attached form of subscription agreement, with the
following material terms added for the referenced purchasing director.
<TABLE>
<CAPTION>
Purchaser Date of NUMBER OF PER SHARE PURCHASE
Agreement ACQUIRED PRICE
SHARES
<S> <C> <C> <C>
The Garen K. and Sharalyn King July 8, 1998 16,701 $11.98, which was equal to the average of
Staglin 1997 Charitable unit the closing prices of the common stock
Trust dated July 8, 1997 during the five trading days preceding
July 8, 1998 as reported by the Nasdaq
National Market.
William N. Melton September 11, 1998 130,000 $10.00
The William N. Melton 1994
Charitable Annuity Remainder Trust September 11, 1998 70,000 $10.00
The William N. Melton 1995
Charitable Annuity Remainder Trust September 11, 1998 40,000 $10.00
The Melton Foundation September 11, 1998 110,000 $10.00
The MLR Enterprises, Inc. Master September 9, 1998 10,000 $10.00
Pension Plan and Profit Sharing
Plan UTA dated January 1, 1991 (of
which Michael L. Rothschild is a
co-trustee)
</TABLE>
3
<PAGE> 1
Exhibit 10.22
OPERATING AGREEMENT
BETWEEN
FIRST USA BANK
AND
CYBERCASH INC.
DATED OCTOBER 15, 1998
The asterisk (*), wherever used in this document, refers to confidential
portions of this agreement that have been omitted in reliance on Rule 24b-2 of
the Securities Exchange Act of 1934. The confidential portions
have been submitted separately to the Securities and Exchange Commission.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
DEFINED TERMS..........................................................................1
Section 1.1 Defined Terms.........................................................1
Section 1.2 Interpretation........................................................4
ARTICLE II
LICENSES...............................................................................5
Section 2.1 First USAWallet.......................................................5
Section 2.2 Cybercash Ownership...................................................5
Section 2.3 Cybercash Hardware and Software.......................................5
Section 2.4 Cybercash License.....................................................5
Section 2.5 First USA License.....................................................6
ARTICLE III
ENGAGEMENT AND SERVICES................................................................6
Section 3.1 Engagement............................................................6
Section 3.2 Operations............................................................6
Section 3.3 Installation..........................................................6
Section 3.4 Maintenance Obligations...............................................7
Section 3.5 Modifications.........................................................7
Section 3.6 Performance Warranty..................................................7
Section 3.7 Inspections...........................................................8
Section 3.8 Quality Assurance and Reporting.......................................8
Section 3.9 Data Collection.......................................................8
Section 3.10 Disaster Recovery.....................................................8
Section 3.11 Technical Support and Personnel.......................................8
Section 3.12 Insurance.............................................................9
Section 3.13 Licenses.............................................................10
Section 3.14 Subcontracting Rights................................................10
Section 3.15 Cybercash Indemnification............................................10
Section 3.16 Source Code Escrow...................................................10
Section 3.17 Export Controls......................................................10
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE IV
<S> <C>
MARKETING.............................................................................11
Section 4.1 * ...................................................................11
Section 4.2 Additional Internet Merchants........................................11
Section 4.3 Exclusivity..........................................................11
Section 4.4 Equal Treatment......................................................11
ARTICLE V
PAYMENTS..............................................................................11
Section 5.1 Payments ............................................................11
Section 5.2 * Compensation Fee Payments .........................................11
Section 5.3 * License Fee .......................................................11
Section 5.4 * Operations Fee ....................................................11
Section 5.5 * ...................................................................11
Section 5.6 First USA Wallet Use Royalty ........................................12
Section 5.7 Internet Merchants ..................................................12
Section 5.8 Additional Fees .....................................................12
Section 5.9 Payment Obligations..................................................12
Section 5.10 Taxes................................................................12
Section 5.11 Expenses.............................................................12
Section 5.12 Recordkeeping and Audits.............................................12
ARTICLE VI
CONFIDENTIAL INFORMATION, USAGE DATA AND PUBLICITY....................................12
Section 6.1 Protection...........................................................12
Section 6.2 Exclusions...........................................................13
Section 6.3 Return of or Destroy Confidential Information Upon Termination or
Expiration of Agreement...............................................................14
Section 6.4 Usage Data...........................................................14
Section 6.5 Public Statements Regarding Agreement................................14
Section 6.6 Equitable Relief.....................................................14
ARTICLE VII
CYBERCASH REPRESENTATIONS AND WARRANTIES..............................................14
Section 7.1 Organization and Qualification.......................................14
Section 7.2 Due Authorization....................................................14
Section 7.3 Conflicting Agreements...............................................15
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
Section 7.4 Consents.............................................................15
Section 7.5 Litigation...........................................................15
Section 7.6 Laws and Regulations.................................................15
Section 7.7 Patents and Trademarks...............................................15
Section 7.8 Compliance...........................................................16
Section 7.9 "Year 2000" Warranty.................................................16
ARTICLE VIII
FIRST USA REPRESENTATIONS AND WARRANTIES..............................................16
Section 8.1 Organization and Qualification.......................................16
Section 8.2 Due Authorization....................................................17
Section 8.3 Conflicting Agreements...............................................17
ARTICLE IX
TERM AND TERMINATION..................................................................17
Section 9.1 Term.................................................................17
Section 9.2 Termination..........................................................17
Section 9.3 Transition...........................................................18
Section 9.4 Survival.............................................................18
ARTICLE X
DISPUTE RESOLUTION....................................................................18
Section 10.1 Disputes.............................................................18
Section 10.2 Level 1 Dispute Review...............................................19
Section 10.3 Level 2 Dispute Review...............................................19
Section 10.4 Submission of Dispute to Mediation...................................19
Section 10.5 Arbitration..........................................................19
Section 10.6 Recourse to Courts and Other Remedies................................21
Section 10.7 Attorneys' Fees......................................................21
Section 10.8 Affiliates...........................................................21
ARTICLE XI
INDEMNIFICATION PROCEDURES AND LIABILITY..............................................22
Section 11.1 Procedure for Indemnification........................................22
Section 11.2 Limitation of Liability..............................................23
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE XII
<S> <C>
GENERAL TERMS AND CONDITIONS..........................................................23
Section 12.1 Independent Contractor Relationship Among Parties....................23
Section 12.2 Force Majeure........................................................23
Section 12.3 Severability.........................................................24
Section 12.4 Assignment of Agreement..............................................25
Section 12.5 Obligation to Notify Upon Knowledge of Event or Circumstance
Giving Rise to Claim, Liability, Etc..................................................25
Section 12.6 Amendment and Modification of Agreement..............................25
Section 12.7 Choice of Law and Venue..............................................25
Section 12.8 Waiver of Compliance or Enforcement..................................25
Section 12.9 Notices..............................................................25
Section 12.10 Entire Agreement.....................................................26
Section 12.11 Headings.............................................................26
Section 12.12 Counterparts.........................................................26
Section 12.13 Further Assurances...................................................27
Exhibit A - Technical Standards & Specifications
Exhibit B - Graphics Interface
Exhibit C - *
Schedule 1
</TABLE>
(iv)
<PAGE> 6
OPERATING AGREEMENT
This OPERATING AGREEMENT (the "Agreement") is entered into as
of October 15, 1998, by and between First USA Bank, a Delaware banking
corporation ("First USA") and Cybercash Inc., a Delaware corporation
("Cybercash"). First USA and Cybercash may be referred to individually as a
"party" and collectively as "parties".
RECITALS
WHEREAS, Cybercash has developed the First USA Wallet, the
Agile Wallet Software, the Sample Software and the Client Software;
WHEREAS, First USA desires to license the First USA Wallet,
the Agile Wallet Software, the Sample Software and the Client Software from
Cybercash;
WHEREAS, Cybercash desires to license the First USA Wallet,
the Agile Wallet Software, the Sample Software and the Client Software to First
USA;
WHEREAS, First USA desires to provide the First USA Wallet to
*;
WHEREAS, Cybercash possesses the technical and operational
staff to install, operate and maintain the First USA Wallet;
WHEREAS, First USA desires to enter into a service
relationship whereby First USA authorizes Cybercash, as its agent, to provide
the technical and operational support to establish, install, operate and
maintain the First USA Wallet at First USA's direction;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, First USA and Cybercash agree as follows:
ARTICLE 1
DEFINED TERMS
Section 1.1 Defined Terms. Unless the context requires otherwise, the following
defined terms shall have the meaning set forth herein:
"Affiliate" means any Person that, directly or indirectly,
through one or more intermediaries, (i) owns or controls another Person, (ii) is
owned or controlled by another Person, or (iii) is under common control or
ownership with another Person. As used herein, "control" means the power to
direct the management or affairs of a Person, and "ownership" means the
<PAGE> 7
direct or indirect beneficial ownership of more than 50% of the equity
securities of a Person, or, in the case of a Person which is not a corporation,
more than 50% of the voting and/or equity interest.
"Agile Wallet" means a system operated by or for Cybercash
that enables consumers to effect, and Internet Merchants to accept, payment
transactions.
"Agile Wallet Software" means a merchant connection kit that
when used to create an AW Connector permits Internet Merchants to communicate
with the Cybercash Server and complies with applicable interface requirements
established by Cybercash. The Agile Wallet Software includes Sample Software and
Client Software.
"Applicant Data" means the credit card application data the
End User must provide First USA in order to obtain a First USA credit card
account.
"AW Connector" means a software program that conforms to the
AW Documentation. An AW Connector may incorporate Sample Software, Derivative
Software and/or Client Software.
"AW Documentation" means Cybercash's guides and other
information intended for use in the installation, operation and development of
the First USA Wallet.
"Change Order" shall have the meaning given to it in Section
3.5.
"Client Software" means software programs to be used by the
First USA Internet Merchant to make available to End Users the First USA Wallet.
"Customization and Branding Fee" shall have the meaning given
to it in Section 5.2.
"Cybercash Server" shall have the meaning given to it in
Section 2.3.
"Derivative Software" means software that is derived from
Sample Software.
"Dollars" means the lawful currency of the United States of
America.
"End User" means the customer of a First USA Internet Merchant
who acquires a First USA Wallet.
"End User Agreement" means the agreement entered into between
First USA and End User as such agreement shall be provided by First USA.
2
<PAGE> 8
"First Level Technical Support" means the technical and
service support the terms of which shall be agreed to by First USA and Cybercash
within thirty (30) days from the execution of this Agreement and as such terms
may be subsequently modified from time to time.
* means *.
"First USA Wallet" means a Partner branded Agile Wallet in
substantial conformity with the Graphics Interface and the Technical Standards
and Specifications.
"Force Majeure" shall have the meaning given to it in Section
12.2.
"Graphics Interface" means the graphics interface
substantially in the form of Exhibit B and as such graphics interface may be
subsequently modified from time to time upon the direction of First USA.
"Intellectual Property Rights" means intellectual property
and/or proprietary rights, including, without limitation, copyrights (including,
but not limited to, rights in audiovisual works); moral rights; patent rights
(including patent applications and disclosures); rights of priority; publicity
rights, trade secret rights; registered or otherwise protected trademarks, trade
names, and service marks, and protections from trademark dilution; to the extent
that any of the foregoing are recognized in any country or jurisdiction in the
world.
"Internet Merchant" means a merchant based on the Internet or
a hosting service acting on behalf of an Internet Merchant.
* means any of the * identified in Exhibit C attached hereto
as such list may be amended in writing from time to time.
* means *.
"Partner" means First USA or any one of First USA's partners
as may be determined by First USA from time to time.
"Person" means any individual, firm, corporation, business
trust, partnership, or other entity and shall include any successor (by merger
or otherwise) of such entity.
"Representative" means an Affiliate, agent, representative or
employee of Cybercash.
"Sample Software" means programs provided by Cybercash in
human readable form that may be used by First USA to create an AW Connector.
3
<PAGE> 9
"Second Level Technical Support" means the technical and
service support the terms of which shall be agreed to by First USA and Cybercash
within thirty (30) days from the execution of this Agreement and as may be
subsequently modified from time to time.
"Technical Standards and Specifications" means those technical
standards and specifications substantially in the form of Exhibit A and as such
technical standards and specifications may be subsequently modified from time to
time upon the direction of First USA.
"Wallet Services" means the support services provided by
Cybercash and its Affiliates which is required to install, operate and maintain
the Agile Wallet, together with any modifications or enhancements to such
support services, as such modifications or enhancements may be developed by
Cybercash or its Affiliates from time to time.
Section 1.2 Interpretation. Words importing the singular number shall include
the plural number and vice versa and words importing the masculine gender shall
include all genders. The headings in this Agreement are inserted for convenience
of reference only and shall not limit or affect the interpretation of the
provisions hereof. References to Articles, Sections, Exhibits and Schedules are
to be construed as references to the Articles or Sections of, and Exhibits or
Schedules to, this Agreement, unless otherwise indicated, and terms such as
"hereof", herein", "hereunder" and other similar compounds of the word "here"
shall mean and refer to this entire Agreement rather than any particular part of
the same. The terms approval, discretion and other terms importing a decision by
a party shall mean in such party's sole discretion.
4
<PAGE> 10
ARTICLE 2
LICENSES
Section 2.1 First USA Wallet. As soon as possible, and in any event within
fifteen (15) business days after the execution of this Agreement, Cybercash
shall provide First USA with the First USA Wallet developed, designed and
operated in substantial conformity with the Technical Standards and
Specifications and Graphics Interface as each may be modified from time to time.
Section 2.2 Cybercash Ownership. Cybercash shall own all hardware and software
provided herein, and shall own the Cybercash Server and all hardware and
software necessary to develop, operate and manage the First USA Wallet.
Section 2.3 Cybercash Hardware and Software. Cybercash shall provide all
computer hardware (e.g., servers, routers, network devices, switches and
associated hardware) and software in an amount necessary to meet the Technical
Standards and Specifications and the anticipated traffic demands, adequate power
supply (including generator back-up) and HVAC, adequate service contracts and
all necessary equipment racks, floor space, network cabling and power
distribution to support the Cybercash Server. Cybercash Server shall mean the
server system hardware, software and documentation developed, operated and
maintained by Cybercash to be used in the operation of the First USA Wallet, to
communicate with the AW Connector, to transmit data to the First USA Internet
Merchant, and the provision of any associated services. This includes the AW
Connector developed by Cybercash for the First USA Wallet to be installed by
Cybercash at the First USA Internet Merchant locations, and all server-side
software developed by Cybercash necessary to develop, operate, and manage the
First USA Wallet and associated services. The Cybercash Server shall include all
modifications, upgrades and enhancements to the server hardware, software or
documentation, and any additional technical enhancements developed and supplied
by Cybercash during the term of this Agreement for the purpose of installing the
First USA Wallet and delivering the services associated with the First USA
Wallet.
Section 2.4 Cybercash License. Cybercash hereby grants to First USA an
nonexclusive license to:
(a) copy or authorize others to copy the Agile Wallet Software
onto First USA's server or on servers operated for First USA and as directed by
First USA;
(b) modify or authorize others to modify the Sample Software;
(c) develop or authorize others to develop an AW Connector
using Sample Software, Derivative Software, Client Software or any combination
of the above for the sole purpose of communicating with the Cybercash Server;
5
<PAGE> 11
(d) install or authorize others to install AW Connectors on
server(s) owned or controlled by, or otherwise directed by First USA, to permit
Internet Merchants to use the First USA Wallet.
Section 2.5 First USA License. (a) First USA grants to Cybercash for the term of
this Agreement, a non-exclusive, royalty-free, non-transferable, non-assignable,
fully-paid-up license to use, as directed by First USA and in First USA's sole
discretion, any Partner's trademarks, in connection with the First USA Wallet
(the "First USA Trademark").
(b) Cybercash shall use the First USA Trademark in accordance
with the standard policies and guidelines adopted by First USA, as such
standards, policies, guidelines may be amended by First USA from time to time.
First USA shall have the right to proscribe any use of the First USA Trademark
pursuant to the exercise of the foregoing license that is not in accordance with
any and all such standards, policies and/or guidelines.
(c) Cybercash shall not engage in any action associated with
the First USA Trademark that adversely affects the good name, goodwill, image or
reputation of First USA. All uses of the First USA Trademark hereunder shall
inure to the benefit of First USA.
ARTICLE 3
ENGAGEMENT AND SERVICES
Section 3.1 Engagement. First USA hereby engages Cybercash to perform the
services and provide the technology described in this Agreement for the term
specified in Section 9.1, and Cybercash hereby agrees to perform such services
and provide such technology for such term, on the terms and conditions specified
in this Agreement. Subject to the terms and conditions of this Agreement, First
USA may resell to Internet Merchants the right to access and use the First USA
Wallet. Nothing in this Agreement shall prohibit First USA from obtaining from
other Persons services that are the same as, similar to or competitive with, the
First USA Wallet.
Section 3.2 Operations. Cybercash shall assemble (whether by acquisition or
lease) and maintain suitable facilities and equipment for the efficient
operation of the First USA Wallet. Such facilities and equipment shall be kept
in good working order, normal wear and tear excepted. Cybercash shall be
responsible for all costs associated with the possession, use, operation and
maintenance of such facilities and equipment.
Section 3.3 Installation. Cybercash shall install the First USA Wallet and the
AW Connector at the First USA Internet Merchant site within thirty (30) days
after receipt of an instruction jointly delivered by First USA and the First USA
Internet Merchant to install the First USA Wallet and the AW Connector at the
First USA Internet Merchant site.
6
<PAGE> 12
Section 3.4 Maintenance Obligations. Cybercash shall regularly maintain and
support the First USA Wallet in conformance with such standards as shall be
mutually acceptable to both First USA and Cybercash. Cybercash agrees to modify,
maintain, and service the First USA Wallet on terms and conditions or in a
manner which is no less favorable than the terms and conditions or manner it
offers or may offer to any other Person.
Section 3.5 Modifications.
(a) Cybercash shall, as soon as possible after the execution
of this Agreement, modify its existing Agile Wallet to create the First USA
Wallet to conform to Exhibit A.
(b) Cybercash shall make all reasonable changes to the First
USA Wallet upon receipt of a written change request ("Change Order") from First
USA. The Change Order shall consist of information with respect to the
specifications for the change and desired implementation date. Upon receipt of
such Change Order, Cybercash shall assess the impact of such Change Order,
considering the resources required to effectuate such Change Order and provide
First USA with an estimate as to the cost and time required to complete the
Change Order. First USA shall pay Cybercash for all reasonable costs incurred to
implement the Change Order.
(c) To the extent that the Agile Wallet is modified or
enhanced from time to time by Cybercash, Cybercash shall promptly upgrade the
First USA Wallet to reflect such modifications. Cybercash agrees to provide
First USA with any and all technical enhancements or modifications that
Cybercash offers or may offer to any other Person. Notwithstanding the
foregoing, Cybercash shall not modify the First USA Wallet in any way that would
materially degrade the operational performance of the First USA Wallet without
the prior written consent of First USA.
Section 3.6 Performance Warranty. Cybercash warrants that the First USA Wallet's
technical and operational functionalities shall conform to the Technical
Standards and Specifications and further that it has or shall develop and
implement in a timely manner, all necessary internal technical systems and
procedures to ensure that the operations of the First USA Wallet comport with
standards at all times reasonably acceptable to First USA or as otherwise
required to assure compliance by Cybercash or First USA with any law or
regulation, including, without limitation, the standards for firewalls,
antivirus protection, and system security. First USA shall have the right at any
time and in a reasonable manner, to review and inspect Cybercash's operational
and security standards. Notwithstanding any other provision in this Agreement,
in the event that First USA notifies Cybercash that the First USA Wallet is
failing to conform to the above warranties, First USA may, in its sole
discretion, (i) immediately terminate this Agreement and (ii) request that
Cybercash, without charge, promptly repair or replace the cause of such failure.
If Cybercash fails to promptly repair or replace the cause of such failure,
First USA may terminate the Agreement.
7
<PAGE> 13
Section 3.7 Inspections. Cybercash shall permit First USA's technical personnel
to obtain reasonable access to Cybercash's facilities used to provide the
services contemplated herein, for the purpose of performing inspections or
"walk-throughs" in connection with activities relating to the First USA Wallet.
First USA may once during any calendar year, request Cybercash to, and Cybercash
shall, upon reasonable advance notice, permit employees, agents or
representatives of First USA, during normal business hours, to review, inspect
and/or audit Cybercash's financial records and operating procedures relating to
the performance of the First USA Wallet and the services provided under this
Agreement. Cybercash shall cooperate and make available appropriate personnel to
assist representatives of First USA in inspecting and auditing the books,
records and facilities of Cybercash, and Cybercash will reasonably cooperate
with respect to any such inspection or audit.
Section 3.8 Quality Assurance and Reporting. Cybercash shall promptly report to
First USA (a) all malfunctions or delays in the First USA Wallet, the Cybercash
Server or the First USA Internet Merchant-side software discovered by Cybercash,
(b) any knowledge of circumstances that could reasonably result in malfunction
or lead to delay in the performance of the First USA Wallet and the services
described herein, and (c) Cybercash's proposed solution to items (a) and (b),
including a detailed description of all solutions to such problems. First USA
shall have the right to receive and review all quality and performance reports
produced by Cybercash. Cybercash shall accommodate reasonable First USA requests
to expand, alter, or modify Cybercash's quality assurance procedures, if such
expansion, alteration, or modification is of benefit to First USA.
Section 3.9 Data Collection. Cybercash, acting as First USA's agent, shall be
responsible for maintaining adequate means to facilitate the transmission,
receipt and collection of information transmitted by, collected or otherwise
received from First USA Internet Merchants, End Users and *. Data receipt and
collection with respect to First USA Internet Merchant, End User and *
information shall be performed without charge to First USA.
Section 3.10 Disaster Recovery. Cybercash maintains, and shall continue to
maintain throughout the term of this Agreement, offsite disaster recovery
capabilities that permit Cybercash to recover from a disaster and continue
providing the services hereunder within a commercially reasonable period.
Cybercash maintains, and shall continue to maintain throughout the term of this
Agreement, a back-up power supply system to guard against electrical outages.
Section 3.11 Technical Support and Personnel.
(a) First USA and Cybercash shall designate acceptable and
appropriately trained technical personnel to serve as the technical contacts to
communicate regarding all requests or aspects of technical support necessitated
by this Agreement.
8
<PAGE> 14
(b) First USA shall offer and provide First Level Technical
Support to End Users and *. Upon the written request of First USA, Cybercash
shall offer and provide First Level Technical Support to First USA Internet
Merchants. Cybercash shall not charge First USA or First USA Internet Merchants
for the provision of such First Level Technical Support for a period of two (2)
years after the date of the execution of this Agreement.
(c) Cybercash shall offer and provide Second Level Technical
Support to First USA without charge.
(d) Cybercash shall provide to designated representatives of
First USA consultation and training concerning the use, design and attributes of
the First USA Wallet and associated services and technology, and the operation
and functioning of the First USA Wallet, sufficient to allow First USA to assume
responsibility for First Level Technical Support provided to End Users and *.
Such training and consultation shall be delivered over a period of one (1)
month and shall commence at times and locations mutually agreed upon by the
parties. Cybercash shall provide additional training and consultation sessions
to such designated representatives if such additional training or consultation
sessions are reasonably necessary to reflect any modifications or upgrades to
the First USA Wallet.
(e) Cybercash shall maintain personnel (i) adequate to perform
its obligations under this Agreement and (ii) possessing such qualification,
knowledge and experience in the provision of the tasks to which they are
assigned as would be required for comparable positions and tasks in competitive
businesses. Cybercash shall provide appropriate training to such personnel as
and when required in order to facilitate the efficient and knowledgeable
performance of services under this Agreement. Cybercash shall monitor the
performance of such personnel and shall take such action as is necessary to
remedy promptly any deficiencies in such performance.
Section 3.12 Insurance. At all times during the term of this Agreement,
Cybercash shall maintain in force comprehensive general liability insurance;
provided that Cybercash shall, at a minimum, obtain and maintain in force
insurance policies providing coverages against the following risks, and in the
following amounts: (i) general liability, $2,000,000; (ii) umbrella liability,
$1,000,000, (iii) products/completed operations, $2,000,000, (iv) non-owned &
hired automobile liability, $1,000,000, and (v) workers compensation as required
by applicable state laws. Such insurance shall include contractual liability
insurance for the indemnification obligations contained in Sections 3.15 and
7.7(b), products hazard and catastrophe coverage, and coverage for negligent
acts, errors and omissions in the provision of the First USA Wallet under this
Agreement. Except to the extent prohibited by law, all insurance provided herein
shall name First USA and all its assignees and Affiliates as additional insureds
and as loss payees. The required coverages referred to and set forth in this
Section 3.12 shall in no way affect, nor are they intended as a limitation of,
Cybercash's liability with respect to the performance of its obligations under
this Agreement. Cybercash further releases, assigns and waives any and all
rights of recovery against First USA and its Affiliates, employees, successors
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and permitted assigns which Cybercash may otherwise have or acquire in or from
or in any way connected with any loss covered by policies of insurance
maintained or required to be maintained by Cybercash pursuant to this Agreement
or because of deductible clauses in or inadequacy of limits of any such policies
of insurance.
Section 3.13 Licenses. Cybercash shall be responsible for obtaining and
maintaining all licenses and permits required from any governmental body or
agency for the performance of its services and technology hereunder.
Section 3.14 Subcontracting Rights. Cybercash shall not enter into any contract
or arrangement pursuant to which any third party shall have responsibility for
the management and technical execution of the First USA Wallet or associated
services provided hereunder. Cybercash shall not enter into any contract or
arrangement pursuant to which any third party shall have responsibility for the
provision or operation of the Cybercash Server.
Section 3.15 Cybercash Indemnification. Cybercash hereby indemnifies and holds
harmless First USA and its Affiliates, and its successors and assigns from any
loss, liability, claim or damage incurred as a result of the negligence, gross
negligence or willful misconduct of Cybercash, a breach of an obligation of
Cybercash to First USA under this Agreement, or claims against First USA brought
by First USA Internet Merchants, End Users, *, any Person, or customers based
on a malfunction of the First USA Wallet.
Section 3.16 Source Code Escrow. Upon the date of the execution of this
Agreement or soon thereafter, which in no case shall be later than thirty (30)
days after date of the execution of this Agreement, First USA and Cybercash
agree to enter into an escrow agreement with an escrow agent acceptable to First
USA and in a form mutually acceptable to both parties. Upon execution of such
escrow agreement, Cybercash hereby agrees to deposit the source code for the
First USA Wallet with the escrow agent. The release conditions of such escrow
agreement shall include the occurrence of any event listed in Section 9.2(b).
Should one of the events identified in Section 9.2(b) occur, First USA shall
have the right to use, copy and modify the Cybercash source code, for the sole
purpose of maintaining and supporting Internet Merchants. Cybercash shall update
the source code held in escrow not less frequently than once every six (6)
months.
Section 3.17 Export Controls. Cybercash acknowledges and agrees that both (i)
certain equipment, software and technical data which may be provided or utilized
in connection with the furnishing of the technology and services hereunder; and
(ii) any activities in connection with the provision of the technology and
services, may be subject to export, re-export or import controls under the U.S.
Export Administration Regulations or similar regulations of the United States or
of any other countries. Cybercash agrees that neither it nor any agents,
contractors, subcontractors or Affiliates shall export, re-export or import any
such equipment, software, technical data or any direct product thereof in
violation of any such laws.
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ARTICLE 4
MARKETING
Section 4.1 *. Subject to the terms and conditions of this Agreement, Cybercash
shall provide First USA with such reasonable assistance as may be necessary *.
Section 4.2 Additional Internet Merchants. After First USA has entered into
agreements to provide the First USA Wallet to *, then with respect to
additional Internet Merchants, (a) *; and (b) * pursuant to subsections 5.7(b)
and (c).
Section 4.3 Exclusivity
(a) The parties acknowledge that it is in their mutual
interest that Cybercash contract with other financial institutions to issue
Agile Wallets. They also acknowledge their mutual intent to provide First USA an
initial advantage in contracting with Internet Merchants to issue First USA
Wallets.
(b) Consistent with the foregoing, prior to March 31, 1999,
and except as otherwise disclosed in Schedule 1, Cybercash shall not, without
the prior written consent of First USA, *. In addition, prior to March 31,
1999, Cybercash shall not issue or cause the issuance of any Agile Wallets
other than the First USA Wallet except pursuant to * as provided above.
Section 4.4 Equal Treatment.
(a) During the term of this Agreement, Cybercash will provide
the First USA Wallet to First USA on terms and conditions not less favorable
than the terms and conditions under which it offers the Agile Wallet to any
other Person.
(b) During the term of this Agreement, Cybercash shall not
develop, offer or market any version of the First USA Wallet under which the
Internet Merchant or Cybercash may solicit or recommend that the modify or
amend the First USA credit card default settings as the default.*
ARTICLE 5
PAYMENTS
Section 5.1 Payments. Unless otherwise agreed to by First USA and Cybercash in
writing, First USA shall not pay Cybercash more than * pursuant to Sections 5.2,
5.3 and 5.4 below.
------------------
Section 5.2 Compensation Fee Payments. In consideration for Cybercash's work in
developing the First USA Wallet, customizing it to First USA's specifications,
and in developing the software and technology necessary to implement First
USA's marketing program, First USA will pay Cybercash * (the "Customization,
Branding and Licensing Fee").
Section 5.3 * License Fee. Subject to Section 5.1, First USA shall give
Cybercash prompt notice of the execution by First USA and * of an agreement for
*. Upon each execution, First USA shall become obligated to pay Cybercash a
fee of * in consideration for Cybercash's * in the First USA Wallet program
and a license for * to use the First USA Wallet.
Section 5.4 * Operations Fee. Subject to Section 5.1, within thirty (30) days
after Cybercash certifies to First USA in writing that the AW Connector has
been installed at the site of * and * has been enabled to spawn First USA
Wallets, First USA shall pay Cybercash an operations fee of * in consideration
for Cybercash's providing and installing the First USA Wallet, maintaining the
gateway, providing technical support and training, processing transactions for
*, and installing upgrades to the First USA Wallet if and when they become
available.
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Section 5.5 * In addition to the amounts set forth in Section 5.2 through 5.4
and subject to the audit procedures set forth in Section 5.12, First USA shall
pay to Cybercash * plus * of the difference between *.
Section 5.6 First USA Wallet Use Royalty. During the term of this Agreement, in
addition to amounts set forth in Sections 5.2 through 5.5, and subject to the
audit procedures set forth in Section 5.12, First USA shall pay Cybercash *.
Section 5.7 Internet Merchants. After the execution of agreements to provide
the First USA Wallet to * (as contemplated in Section 4.1), and subject to the
audit procedures set forth in Section 5.12, then with respect to any additional
Internet Merchants, First USA shall pay to Cybercash: (a) an access fee
mutually agreed upon by First USA and Cybercash pursuant to Section 4.2(a);
(b) *.
Section 5.8 Additional Fees. *.
Section 5.9 Payment Obligations. During the term of this Agreement, First USA
shall be responsible for paying the fees incurred pursuant to this Article 5,
according to the procedures herein. Each month in which any sums become due it
under this Agreement, Cybercash shall invoice First USA for the sums due, and
First USA shall pay the amounts due within thirty (30) days. Disputes related to
any payments due under this Agreement shall not constitute grounds for any party
hereto to cease to perform any of its obligations under this Agreement and shall
be handled in accordance with Article 10.
Section 5.10 Taxes. Cybercash shall be responsible for all taxes of any sort due
on any fees received pursuant to this Agreement.
Section 5.11 Expenses. Cybercash shall be solely responsible for all expenses,
obligations or commitments incurred in connection with the performance of its
obligations under this Agreement.
Section 5.12 Recordkeeping and Audits. Cybercash agrees to make and maintain
such books, records and accounts as are reasonably necessary to verify any
payments made by First USA to Cybercash under this Agreement. Cybercash shall
retain such books, records and accounts for five (5) years. First USA shall have
reasonable access to such books, records and accounts during normal business
hours and upon Cybercash's prior written consent, which consent shall not be
unreasonably withheld, and First USA may make such copies as may be reasonably
necessary to confirm and reconcile payments and the performance of First USA's
obligations under this Agreement. In addition, upon at least thirty (30) days'
prior written notice, First USA shall have the right to retain, at its own
expense, a reputable certified public accounting firm of First USA's choice, to
audit only such books, records, and accounts necessary to verify the accuracy of
accounts relating to Cybercash for the period in question. To the extent that
such an audit discovers any over- or underpayment with respect to such payments,
each party shall promptly make the other parties whole as to any over- or
underpaid amounts.
ARTICLE 6
CONFIDENTIAL INFORMATION, USAGE DATA AND PUBLICITY
Section 6.1 Protection. All Confidential Information (as defined herein)
disclosed by a
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party hereto to any other party hereto in the course of performing under this
Agreement or to which a party hereto gains access in connection with this
Agreement shall be deemed to be the property of the disclosing party. For the
term of this Agreement and for five (5) years thereafter, the receiving party
shall: (i) receive such Confidential Information in confidence; (ii) use
reasonable efforts to maintain the confidentiality of such Confidential
Information and not disclose such Confidential Information to third parties
(except for the receiving party's representatives, agents and contractors who
have a need to know, are under a duty of non-disclosure, and are acting for the
sole benefit of the receiving party), which efforts shall accord such
Confidential Information at least the same level of protection against
unauthorized use and disclosure that the receiving party customarily accords its
own information of a similar nature; (iii) use or permit the use of such
Confidential Information solely in accordance with the terms of this Agreement;
and (iv) promptly notify the disclosing party in writing of any loss or
unauthorized use or disclosure of or access to the disclosing party's
Confidential Information of which it becomes aware. The parties hereto shall
each abide by and reproduce and include any restrictive legends or confidential
rights notices that appear in or on any Confidential Information of the other
party hereto that it is authorized to reproduce. Each party shall also not
remove, alter, cover or distort any confidential rights notices, legends,
symbols or labels appearing in any Confidential Information of any other party
hereto. Confidential Information shall mean any information relating to or
disclosed in the course of this Agreement which is or should be reasonably
understood to be confidential or proprietary to the disclosing party, including,
but not limited to, information about technical processes and formulas, product
designs, sales, cost and other unpublished financial information, product and
business plans, projections and marketing data. The terms and conditions of this
Agreement (as well as all information regarding the negotiation of this
Agreement) shall be deemed to be the Confidential Information of the parties
hereto.
Section 6.2 Exclusions. The restrictions on disclosure set forth above shall not
apply when, and to the extent that the Confidential Information: (i) is or
becomes generally available to the public through no fault of the receiving
party (or any Person acting on its behalf); (ii) was previously rightfully known
to the receiving party free of any obligation to keep it confidential; (iii) is
subsequently disclosed to the receiving party by a third party who may
rightfully transfer and disclose such information without restriction and free
of any obligation to keep it confidential; (iv) is independently developed by
the receiving party or a third party without reference to the disclosing party's
Confidential Information; or (v) is required to be disclosed by the receiving
party as a matter of law, provided that the receiving party uses all reasonable
efforts to provide the disclosing party with at least ten (10) days' prior
written notice of such disclosure and the receiving party discloses only that
portion of the Confidential Information that is legally required to be furnished
pursuant to the opinion of legal counsel of the receiving party.
Section 6.3 Return of or Destroy Confidential Information Upon Termination or
Expiration of Agreement. Upon the termination or expiration of this Agreement,
each party shall promptly return or destroy all materials subject to
Intellectual Property Rights of the other party, all Confidential Information of
the other party, and other information, documents, manuals and
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other materials belonging exclusively to the other party, except as may be
otherwise provided in this Agreement.
Section 6.4*.
Section 6.5 Public Statements Regarding Agreement. The parties hereto shall
jointly prepare a press release regarding the existence of this Agreement and
the terms hereof at a mutually agreed upon time. The parties hereto acknowledge
that each may have internal constraints that may affect the timing of issuance
and the content of any such press releases. Unless required by law or to assert
its rights under this Agreement, and except for disclosure on a "need to know
basis" to its own employees and consultants, and its legal, investment,
financial and other professional advisers on a confidential basis, each party
shall not disclose the existence of or the terms of this Agreement to any Person
without the prior written consent of the other party. The breach of this Section
6.5 by either party, shall constitute a material breach of this Agreement and
shall accord the other party the immediate right to terminate this Agreement as
provided in Article 9.
Section 6.6 Equitable Relief. The parties acknowledge that the breach of any
portion of this Article 6 would cause the non-disclosing party irreparable harm
for which monetary damages would be inadequate. Accordingly, the non-disclosing
party shall be entitled to seek injunctive or other equitable relief to remedy
any threatened or actual breach of any portion of this Article 6 by the other
party.
ARTICLE 7
CYBERCASH REPRESENTATIONS AND WARRANTIES
Cybercash represents and warrants as of the date hereof as follows:
Section 7.1 Organization and Qualification. Cybercash is duly organized and
existing in good standing under the laws of the jurisdiction in which it is
organized, is duly qualified and in good standing as a foreign corporation in
every state in which the character of its business requires such qualifications,
and has the power to own its property and to carry on its business as now being
conducted.
Section 7.2 Due Authorization. The execution and delivery of this Agreement and
compliance by Cybercash with all provisions of this Agreement (i) are within the
corporate power and authority of Cybercash, and (ii) have been duly authorized
by all requisite corporate proceedings. The Agreement has been duly executed
and delivered by Cybercash and constitutes a valid and binding agreement of
Cybercash, enforceable in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to
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equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
Section 7.3 Conflicting Agreements. The execution and delivery of this Agreement
shall not conflict with or result in a breach of the terms, conditions or
provisions of, or give rise to a right of termination under, or constitute a
default under, or result in any violation of, the organizational documents of
Cybercash or any mortgage, agreement, contract, instrument, order, judgment,
decree, statute, law, rule or regulation to which Cybercash or any of its
respective properties is subject.
Section 7.4 Consents. No authorizations or other consents or approvals or
notices of or to any Person are required in connection with (i) the
participation by Cybercash in the transactions contemplated by this Agreement;
(ii) the development and implementation of the First USA Wallet in accordance
with the applicable provisions of this Agreement and in compliance with all
applicable law; (iii) the validity and enforceability of this Agreement; and
(iv) the execution, delivery and performance by Cybercash of this Agreement.
Section 7.5 Litigation. No litigation, investigation, arbitration or
administrative proceeding or claim of or before any arbitrator or authority is
pending, or threatened against or affecting any of its properties, rights, or
assets either (i) with respect to this Agreement; or (ii) that, if determined
adversely to Cybercash could by itself or together with any other proceeding or
claim be reasonably expected to have a material adverse effect (either
individually or in the aggregate).
Section 7.6 Laws and Regulations. Cybercash is in compliance in all material
respects with all applicable federal, state, local and foreign laws and
regulations and has obtained all licenses required or necessary for the conduct
of the Agile Wallet. There are no claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings pending or, to the best knowledge of Cybercash, threatened against
Cybercash with respect to the Agile Wallet. Cybercash (i) has not received
notice of any violation of any such law, order from any court or other
governmental authority, nor other legal requirement, nor is it in default with
respect to any order from any court or other governmental authority, nor (ii) is
Cybercash in default under any franchise, license, authorization, permit, or
notice related to the Agile Wallet. There are no orders of any federal, state or
local court or governmental or regulatory authority or arbitrator, domestic or
foreign, applicable to Cybercash regarding the operation of the Agile Wallet.
Section 7.7 Patents and Trademarks.
(a) Cybercash owns, or has the right to use under valid and
enforceable agreements, all Intellectual Property Rights related to the
operation of Agile Wallet. The operation of Agile Wallet as presently conducted
or proposed to be conducted by Cybercash does not infringe or violate any
Intellectual Property Rights of any other Person, and Cybercash has
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not received any charge, complaint, claim, demand or notice alleging any such
infringement or violation. No other Person has any right to or interest in any
inventions, improvements, discoveries or other confidential information utilized
by Cybercash that relate to the Agile Wallet.
(b) Cybercash hereby indemnifies and holds harmless First USA,
its successors and assigns, including any Internet Merchants and End Users, from
any loss, liability, claim or damage regarding the Agile Wallet utilized
hereunder, based on any actual or alleged infringement of an Intellectual
Property Right of any third party. If such claim arises, or if in Cybercash's
judgement is likely to arise, First USA agrees to allow Cybercash, at
Cybercash's option, to procure the right for First USA to continue to exercise
its rights granted herein, or to replace or modify them in a functionally
equivalent manner so they become noninfringing. If such an event involves the
claim of any third party, Cybercash shall be entitled to participate in and, to
the extent it shall wish, assume control over the defense, settlement,
adjustment or compromise of such claim. First USA shall have the right to employ
separate counsel in any action or claim and to participate in the defense of any
action thereof at the expense of Cybercash.
Section 7.8 Compliance. Cybercash represents and warrants to First USA that its
performance under this Agreement shall conform to applicable laws and government
rules and regulations.
Section 7.9 "Year 2000" Warranty. All computer systems, software, and hardware
used in the provision of services and the First USA Wallet by Cybercash are able
to accurately process date data, including, calculating, comparing, and
sequencing from, into and between the twentieth century (through year 1999), the
year 2000 and the twenty-first century, including leap year calculations. To the
best knowledge of Cybercash after conducting reasonable inquiries, Cybercash is
not aware of any inability on its part to accurately process date data, or to
timely remedy any deficiencies in the operations of the First USA Wallet in
respect of the year 2000 and other date-related processing or calculations.
ARTICLE 8
FIRST USA REPRESENTATIONS AND WARRANTIES
First USA represents and warrants as of the date hereof as follows:
Section 8.1 Organization and Qualification. First USA is duly organized and
existing in good standing under the laws of the jurisdiction in which it is
organized, is duly qualified and in good standing as a foreign corporation in
every state in which the character of its business requires such qualifications,
and has the power to own its property and to carry on its business as now being
conducted.
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Section 8.2 Due Authorization. The execution and delivery of this Agreement and
compliance by First USA with all provisions of this Agreement (i) are within the
corporate power and authority of First USA, and (ii) have been duly authorized
by all requisite corporate proceedings. The Agreement has been duly executed and
delivered by First USA and constitutes a valid and binding agreement of First
USA, enforceable in accordance with its terms, except that (i) such enforcement
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights, and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Section 8.3 Conflicting Agreements. The execution and delivery of this Agreement
shall not conflict with or result in a breach of the terms, conditions or
provisions of, or give rise to a right of termination under, or constitute a
default under, or result in any violation of, the organizational documents of
First USA or any mortgage, agreement, contract, instrument, order, judgment,
decree, statute, law, rule or regulation to which First USA or any of its
respective properties is subject.
ARTICLE 9
TERM AND TERMINATION
Section 9.1 Term. Once effective, this Agreement shall continue in force for a
period of five (5) years or until the valid termination hereof as provided
herein. First USA, at its option, may elect to extend the Agreement for another
five (5) years on prior written notice to Cybercash.
Section 9.2 Termination. (a) Except as otherwise provided in Section 3.6, either
party may, at its option, terminate this Agreement in the event of a material
breach by the other party. Such termination maybe effected only through written
notice to the breaching party and which notice shall specifically identify the
breach on which termination is based. Following receipt of such notice, the
party in breach shall have ninety (90) days to cure such breach, and this
Agreement shall terminate in the event that such cure is not effected by the end
of such period.
(b) If Cybercash becomes or is declared insolvent or bankrupt;
is the subject to any proceedings relating to its liquidation or insolvency or
for the appointment of a receiver, conservator, or similar officer; or makes an
assignment for the benefit of all or substantially all of its creditors or
enters into any agreement for the composition, extension or readjustment of all
or substantially all of its obligations, then First USA may terminate this
Agreement.
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(c) If Cybercash charges First USA or First USA Internet
Merchants any additional fees for its services hereunder at any time after the
second anniversary of the date of the execution of this Agreement, except for
those fees provided for herein, First USA may terminate this Agreement.
(d) If First USA determines in its sole discretion that the
market does not support the First USA Wallet, or the First USA Wallet does not
meet First USA's standards for quality, then First USA may terminate this
Agreement.
Section 9.3 Transition. (a) Notwithstanding the provisions of Section 9.2, in
the event that this Agreement is terminated by either party, First USA may
request an extension of this Agreement, and Cybercash shall continue to perform
hereunder at First USA's sole cost and expense for a period of up to six (6)
months from the otherwise effective date of the termination in order to allow
the orderly migration and transition of operating responsibility for the First
USA Wallet, to First USA and/or a third party designated by First USA (the
"Transition"). Upon termination of this Agreement, Cybercash shall license the
First USA Wallet on reasonable commercial terms to a third party chosen by First
USA. The license shall enable such third party to install, modify, operate and
maintain the First USA Wallet on behalf of First USA.
(b) If deemed reasonably necessary by First USA in order to
facilitate the Transition, First USA shall have the right to enter the
facilities where the personnel and equipment related to the operation of the
First USA Wallet and Cybercash Server are located for the purposes of (i)
observing such operations; (ii) directing such operations and retaining such
personnel; and (iii) obtaining copies of any and all related records. In
addition, Cybercash shall provide to First USA copies of all source codes,
deliver to First USA all Usage Data, provide First USA with access to any and
all multiple payment products and provide to First USA all related documentation
for the First USA Wallet without charge.
Section 9.4 Survival. All accrued and outstanding payment obligations hereunder,
any remedies for breach of this Agreement and Section 3.15, Section 5.9,
Sections 6.1, 6.2, 6.3 and 6.6, Section 7.7(b), Article 10, Article 11 and
Article 12 and all other provisions of this Agreement which may be reasonably
interpreted or construed as surviving the termination or expiration of this
Agreement, shall survive the termination or expiration of this Agreement.
ARTICLE 10
DISPUTE RESOLUTION
Section 10.1 Disputes. Any dispute, controversy, claim or disagreement between
the parties hereto arising from, relating to or in connection with this
Agreement, any agreement, certificate or other document referred to herein or
delivered in connection herewith, or the relationships of the parties hereunder
or thereunder, including questions regarding the interpretation, meaning or
performance of this Agreement, and including claims based on
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contract, tort, common law equity, statute, regulation, order or otherwise
("Dispute") shall be resolved in accordance with this Article 10.
Section 10.2 Level 1 Dispute Review. Upon the written request of any party,
First USA and Cybercash shall each appoint a designated representative whose
task shall be to meet the other party's designated representative (by conference
telephone call or in person at a mutually agreeable site) in an endeavor to
resolve such Dispute ("Level 1 Dispute Review"). The designated representatives
shall meet as often as the parties reasonably deem necessary to discuss the
Dispute and negotiate in good faith in an effort to resolve the Dispute without
the necessity of any formal proceeding.
Section 10.3 Level 2 Dispute Review. If resolution of the Dispute cannot be
resolved within the earlier of (i) fifteen (15) days of the first Level 1
Dispute Review meeting or (ii) such time as when either party gives the other
notice of an impasse ("Level 1 Dispute Termination Date"), a chief executive
officer (or a functional equivalent) of each of First USA and Cybercash shall
meet (by conference telephone call or in person at a mutually agreeable site)
within 72 hours after the Level 1 Dispute Termination Date for the purpose of
resolving such unresolved Dispute ("Level 2 Dispute Review").
Section 10.4 Submission of Dispute to Mediation. If the parties are unable to
resolve the Dispute within a reasonable period after commencement of the Level 2
Dispute Review, the parties shall give each other notice of the existence of a
continuing impasse (the date on which both parties are in receipt of such
notice, the "Level 2 Dispute Termination Date") and shall thereafter immediately
submit the Dispute to mediation in accordance with the Commercial Mediation
Rules of the American Arbitration Association ("AAA") and shall bear equally the
costs of the mediation. The parties will act in good faith to jointly appoint a
mutually acceptable mediator, seeking assistance in such regard from the AAA
within fifteen (15) days of the Level 2 Termination Date. The parties agree to
participate in good faith in the mediation and negotiations related thereto for
a period of thirty days commencing with the selection of the mediator and any
extension of such period as mutually agreed to by the parties.
Section 10.5 Arbitration.
(i) If the parties cannot agree to a mediator within fifteen
days of the Level 2 Dispute Termination Date or if the Dispute
is not resolved within thirty (30) days after the beginning of
the mediation and any extension of such periods as mutually
agreed to by the parties, the Dispute shall be submitted to,
and finally determined by, binding arbitration in accordance
with the following provisions of this Section 10.5, regardless
of the amount in controversy or whether such Dispute would
otherwise be considered justiciable or ripe for resolution by
a court or arbitration panel.
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(ii) Any such arbitration shall be conducted by the AAA in
accordance with its current Commercial Rules ("AAA Rules"),
except to the extent that the AAA Rules conflict with the
provisions of this Section, in which event the provisions of
this Section shall control.
(iii) The arbitration panel (the "Panel") shall consist of
three neutral arbitrators ("Arbitrators"), each of whom shall
be an attorney having five or more years experience in the
primary area of law as to which the Dispute relates, and shall
be appointed in accordance with the AAA Rules (the "Basic
Qualifications").
(iv) Should an Arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section 10.5, a
substitute Arbitrator possessing the Basic Qualifications
shall be appointed by the AAA. If an Arbitrator is replaced
after the arbitration hearing has commenced, then a rehearing
shall take place in accordance with the provisions of this
Section 10.5 and the AAA Rules.
(v) The arbitration shall be conducted in the location of the
party against whom the arbitration claim is being filed;
provided, that the Panel may from time to time convene, carry
on hearings, inspect property or documents and take evidence
at any location which the Panel deems appropriate.
(vi) The Panel may in its discretion order a pre-exchange of
information including production of documents, exchange of
summaries of testimony or exchange of statements of position
and shall schedule promptly all discovery and other procedural
steps and otherwise assume case management initiative and
control to effect an efficient and expeditious resolution of
the Dispute.
(vii) At any oral hearing of evidence in connection with any
arbitration conducted pursuant to this Section 10.5, each
party and its legal counsel shall have the right to examine
its witnesses and to cross-examine the witnesses of the other
party. No testimony of any witness shall be presented in
written form unless the opposing parties shall have the
opportunity to cross-examine such witness, except as the
parties otherwise agree in writing and except under
extraordinary circumstances where, in the opinion of the
Panel, the interests of justice require a different procedure.
(viii) Within fifteen (15) days after the closing of the
arbitration hearing, the Panel shall prepare and distribute to
the parties a written award, setting forth the Panel's
findings of facts and conclusions of law relating to the
Dispute, including the reasons for the giving or denial of any
requested remedy or relief. The Panel shall have the authority
to award any remedy or relief that a court of competent
jurisdiction could order or grant, and shall award interest on
any monetary award from the date that the loss or expense was
incurred by the successful party. In
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addition, the Panel shall have the authority to decide issues
relating to the interpretation, meaning or performance of this
Agreement, any agreement, certificate or other document
referred to herein or delivered in connection herewith, or the
relationships of the parties hereunder or thereunder, even if
such decision would constitute an advisory opinion in a court
proceeding or if the issues would otherwise not be ripe for
resolution in a court proceeding, and any such decision shall
bind the parties in their performance of this Agreement and
such other documents.
(ix) Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to
obtain interim relief, no party nor any arbitrator shall
disclose the existence, content or results of any arbitration
conducted hereunder without the prior written consent of the
other parties.
(x) To the extent that the relief or remedy granted in an
award rendered by the Panel is relief or a remedy on which a
court could enter judgment, a judgment upon the award rendered
by the Panel may be entered in any court having jurisdiction
thereof. Otherwise, the award shall be binding on the parties
in connection with their obligations under this Agreement and
in any subsequent arbitration or judicial proceedings among
any of the parties.
(xi) The parties agree to share equally the cost of any
arbitration, including the administrative fee, the
compensation of the arbitrators and the costs of any neutral
witnesses or proof produced at the direct request of the
Panel.
(xii) Notwithstanding the choice of law provision set forth in
Section 12.7, The Federal Arbitration Act, 9 U.S.C. Sections 1
to 14, except as modified hereby, shall govern the
interpretation and enforcement of this Section 10.5.
Section 10.6 Recourse to Courts and Other Remedies. Notwithstanding the Dispute
resolution procedures contained in Section 10.5, any party may apply to any
court having jurisdiction (a) to enforce this Agreement to arbitrate, (b) to
seek provisional injunctive relief so as to maintain the status quo until the
arbitration award is rendered or the Dispute is otherwise resolved, (c) to avoid
the expiration of any applicable limitation period, (d) to preserve a superior
position with respect to other creditors, or (e) to challenge or vacate any
final judgment, award or decision of the Panel that does not comport with the
express provisions of Section 10.5.
Section 10.7 Attorneys' Fees. If any action, suit, or proceeding is commenced to
establish, maintain, or enforce any right or remedy under this Agreement, the
party not prevailing therein shall pay, in addition to any damages or other
award, all reasonable attorneys' fees and litigation expenses incurred therein
by the prevailing party.
Section 10.8 Affiliates. Each party hereto agrees that for purposes of this
Article 10,
21
<PAGE> 27
references to the parties shall also include their respective Affiliates, who
shall be subject to the Dispute resolution procedures of this Article 10 to the
same extent as the parties.
ARTICLE 11
INDEMNIFICATION PROCEDURES AND LIABILITY
Section 11.1 Procedure for Indemnification If First USA seeks indemnification
from Cybercash under Sections 3.15 or 7.7(b), (a) First USA shall notify
Cybercash within thirty (30) days after learning of the occurrence of any event
that First USA asserts is an indemnifiable event pursuant to this Agreement. If
such event involves the claim of any third party and Cybercash confirms in
writing its responsibility for such liability, if established, Cybercash shall
be entitled to participate in and, to the extent it shall wish, assume control
over (in which case Cybercash shall assume all expense with respect to) the
defense, settlement, adjustment or compromise of such claim.
(b) First USA shall have the right to employ separate counsel
in any action or claim and to participate in the defense thereof at the expense
of Cybercash (i) if the retention of such counsel has been specifically
authorized by Cybercash, or (ii) if the counsel is retained because Cybercash
does not notify First USA within twenty (20) days after receipt of a claim
notice that it elects to undertake the defense thereof. First USA shall have the
right to employ counsel at First USA's own expense and to participate in such
action or claim, including settlement or trial, so long as such participation
does not substantially interfere in Cybercash's defense of such claim or action.
(c) Cybercash shall obtain the prior written approval of First
USA before entering into any settlement, adjustment, or compromise of such claim
or ceasing to defend against such claim, if pursuant to or as a result of such
settlement, adjustment, compromise, or cessation, injunctive or other relief
would be imposed against First USA.
(d) If Cybercash does not assume control over the defense of
such claim as provided in Section 11.1(a), First USA shall have the right to
defend the claim in such manner as it may deem appropriate at the cost and
expense of Cybercash, and with the consent of Cybercash, to settle, adjust, or
compromise such claim. First USA may settle, adjust, or compromise any such
claim without the consent of Cybercash if First USA waives indemnification for
such claim.
(e) Cybercash shall remit payment for the amount of a valid
and substantiated claim for indemnification hereunder promptly upon receipt of a
claim notice therefor. Upon the payment in full of any claim hereunder,
Cybercash shall be subrogated to the rights of First USA against any person with
respect to the subject matter of such claim.
22
<PAGE> 28
(f) In the event that Cybercash reimburses First USA for any
third party claim, First USA shall remit to Cybercash any reimbursement that
First USA subsequently receives for such third party claim.
Section 11.2 Limitation of Liability. EXCEPT FOR THE INDEMNIFICATION LIABILITY
SET FORTH IN SECTION 3.15 AND SECTION 7.7(b) (WHICH SHALL BE UNLIMITED), IN NO
EVENT OR UNDER ANY CIRCUMSTANCE SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY
FOR ANY LOSS OF PROFITS, INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER EVEN IF ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATION SHALL NOT
APPLY TO AN INTENTIONAL OR WILLFUL BREACH OF THIS AGREEMENT (IT BEING UNDERSTOOD
THAT IN ORDER TO DEMONSTRATE THAT A FAILURE TO PROVIDE AN APPROVAL UNDER
CIRCUMSTANCES WHERE THIS AGREEMENT REQUIRES SUCH APPROVAL NOT TO BE UNREASONABLY
WITHHELD, AMOUNTED TO AN INTENTIONAL OR WILLFUL BREACH OF SUCH REQUIREMENT, A
PARTY MUST SHOW THAT THE OTHER PARTY ACTED IN BAD FAITH).
ARTICLE 12
GENERAL TERMS AND CONDITIONS
Section 12.1 Independent Contractor Relationship Among Parties. The parties to
this Agreement are independent contractors. This Agreement shall not be
interpreted or construed to create an association, joint venture or partnership
among the parties or to impose any partnership obligation or liability upon any
of the parties hereto.
Section 12.2 Force Majeure. (a) For the purposes of this Agreement, "Force
Majeure Event" means an event, condition or circumstance beyond the reasonable
control of the party affected (the "Affected Party") which, despite all
reasonable efforts of the Affected Party to prevent it or mitigate its effects,
prevents the performance by such Affected Party of its obligations hereunder.
Subject to the foregoing, Force Majeure Events shall include, without
limitation:
(i) explosion and fire;
(ii) flood, earthquake, storm, or other natural
calamity or act of God;
(iii) strike or other labor dispute;
(iv) war, insurrection or riot;
(v) acts of or failure to act by any governmental
authority; and
23
<PAGE> 29
(vi) changes in law;
provided, however, that in no event will the unavailability of funds or Year
2000 issues constitute a Force Majeure Event.
(b) Obligations Under Force Majeure.
(i) If an Affected Party is rendered unable, wholly
or in part, by a Force Majeure Event, to carry out some or all
of its obligations under this Agreement, then, during the
continuance of such inability, the obligation of such Affected
Party to perform the obligations so affected shall be
suspended.
(ii) The Affected Party shall give written notice of
the Force Majeure Event to the other party (the "Unaffected
Party") as soon as practicable after such event occurs, which
notice shall include information with respect to the nature,
cause and date of commencement of the occurrence(s), and the
anticipated scope and duration of the delay. Upon the
conclusion of a Force Majeure Event, the Affected Party shall,
with all reasonable dispatch, take all necessary steps to
resume the obligation(s) previously suspended.
(iii) Notwithstanding the foregoing, an Affected
Party shall not be excused under this Section 12.2 for (1) any
non-performance of its obligations under this Agreement having
a greater scope or longer period than is justified by the
Force Majeure Event, or (2) for the performance of obligations
that arose prior to the Force Majeure Event. Nothing contained
herein shall be construed as requiring an Affected Party to
settle any strike, lockout or other labor dispute in which it
may be involved.
(c) Continued Payment Obligation. Either party's obligation to
make payments already owing shall not be suspended by Force Majeure Events.
(d) Extended Force Majeure. Either party may terminate this
Agreement upon thirty (30) days prior written notice to the other party if Force
Majeure Events prevent the other party from substantially performing its
obligations hereunder for a cumulative period of 365 days provided that strikes
or other labor disputes shall be disregarded in determining such cumulative
period.
Section 12.3 Severability. If any term, provision, or restriction of this
Agreement and any appendix, exhibit, or schedule hereto is held by a court or
panel of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
and such exhibits shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and
24
<PAGE> 30
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable.
Section 12.4 Assignment of Agreement. No party shall assign, sublicense or
otherwise transfer (voluntarily, by operation of law or otherwise) this
Agreement or any right, interest or benefit under this Agreement, without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. Any attempted assignment, sublicense or transfer in
derogation hereof shall be null and void. Subject to the foregoing, this
Agreement shall be fully binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
Section 12.5 Obligation to Notify Upon Knowledge of Event or Circumstance Giving
Rise to Claim, Liability, Etc. Each party hereto shall promptly inform the other
party hereto of any event or circumstance and provide all information related to
its respective information, properties or products which could reasonably lead
to a claim, demand, or liability of or against the other party and/or its
Affiliates by any third party.
Section 12.6 Amendment and Modification of Agreement. No change, amendment or
modification of any provision of this Agreement or waiver of any of its terms
shall be valid unless set forth in writing and signed by the party to be bound
thereby.
Section 12.7 Choice of Law and Venue. This Agreement shall be interpreted,
construed and enforced in all respects in accordance with the laws of the state
of Delaware. Each party irrevocably consents to the exclusive jurisdiction of
any state or federal court of or within the State of Delaware over any action or
proceeding arising out of or related to this Agreement, and waives any objection
to venue or inconvenience of the forum in any such court.
Section 12.8 Waiver of Compliance or Enforcement. The failure of any party
hereto to insist upon or enforce strict performance by the other party of any
provision of this Agreement or to exercise any right under this Agreement shall
not be construed as a waiver or relinquishment to any extent of such party's
right to assert or rely upon any such provision or right in that or any other
instance; rather the same shall be and remain in full force and effect.
Section 12.9 Notices. Any notice, approval, request, authorization, direction or
other communication under this Agreement shall be given in writing, shall
reference this Agreement and shall be deemed to have been delivered and given
(a) when delivered personally; (b) three (3) business days after having been
sent by registered or certified U.S. mail, return receipt requested, postage and
charges prepaid, whether or not actually received; or (c) one (1) business day
after deposit with a commercial overnight courier, with written verification of
receipt. All communications shall be sent to the addresses set forth below or to
such other address as may be designated by a party by giving written notice to
the other party pursuant to this Section 12.9.
25
<PAGE> 31
If to First USA: Three Christina Centre
201 N. Walnut Street
Wilmington, Delaware 19801
Tele: (302) 434-7677
Fax: (302) 884-8361
Attn: Clinton Walker
with a copy to: Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037
Attn: Russell J. Bruemmer
Fax: (202) 663-6363
If to Cybercash: Cybercash Inc.
2100 Reston Parkway
Reston, VA 20191
Attn: General Counsel
Tele: (703) 620-4200
Fax: (703) 264-5928
Section 12.10 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto and supersedes any and all prior agreements or
understandings among the parties with respect to the subject matter hereof. No
party hereto shall be bound by, and each party hereto specifically objects to,
any term, condition or other provision or other condition which is different
from or in addition to the provisions of this Agreement (whether or not it would
materially alter this Agreement) and which is proffered by any other party
hereto in any correspondence or other document, unless the party to be bound
thereby specifically agrees to such provision in writing.
Section 12.11 Headings. The headings used in this document are for convenience
only and are not to be construed to have legal significance. In the event that
any provision of this Agreement conflicts with the law under which this
Agreement is to be construed or if any such provision is held invalid by a court
with jurisdiction over the parties to this Agreement, such provision shall be
deemed to be restated to reflect as nearly as possible the original intentions
of the parties in accordance with applicable law, and the remainder of this
Agreement shall remain in full force and effect.
Section 12.12 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
26
<PAGE> 32
Section 12.13 Further Assurances. Each party hereto agrees to take, or cause to
be taken, all such further or other actions as shall reasonably be necessary to
make effective, to consummate and to perform the undertakings and obligations
contemplated by this Agreement.
[signature page follows]
27
<PAGE> 33
IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
FIRST USA BANK
By: /s/ Kurt Campisano
___________________________
Name: Kurt Campisano
Title: Vice President
CYBERCASH INC.
By: /s/ Denis Yaro
___________________________
Name: Denis Yaro
Title: Executive Vice
President
28
<PAGE> 34
EXHIBIT A
TECHNICAL STANDARDS & SPECIFICATIONS
[22 pages omitted]
<PAGE> 35
EXHIBIT B
GRAPHICS INTERFACE
[9 pages omitted]
<PAGE> 36
EXHIBIT C
*
[1 page omitted]
<PAGE> 37
SCHEDULE 1
Cybercash has entered into an agreement with * and * to develop a pilot
program for *. Pursuant to that agreement, Cybercash expects to issue a small
number of branded Agile Wallets in the first quarter of 1999. It is understood
that the Agile Wallets issued under this program will not be used as a mechanism
to *.
<PAGE> 1
Exhibit 21.1
Direct and Indirect Subsidiaries of the Company
(without regard to significance)
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
<S> <C>
ICVerify, Inc. Delaware
ICVerify GmbH Germany
EZCharge, Inc. Maryland
CyberCash India Private Limited India
Reston Parkway I, Inc. Delaware
Reston Parkway II, Inc. Delaware
CyberCash International C.V. The Netherlands
CC International B.V. The Netherlands
CyberCash Japan C.V. The Netherlands
CyberCash K.K. Japan
CyberCash Asia Limited Hong Kong
CyberCash GmbH Germany
CyberCash (UK) Limited United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement
(Form S-8 No's. 333-1872, 333-3164 and 333-71993) pertaining to the 1995 Stock
Option Plan, as amended, the Employee Stock Purchase Plan, and the 1995
Non-Employee Directors' Stock Option Plan of CyberCash, Inc., (ii) the
Registration Statement (Form S-8 No. 333-51649) relating to the 1995 Stock
Option Plan of ICVerify, Inc., (iii) the Registration Statement (Form S-8 No.
333-71709) relating to the 1999 Restricted Stock Plan of CyberCash, Inc., (iv)
the Registration Statement (Form S-3 No. 333-34303) relating to the Common Stock
issuable upon conversion of the Company's Series C Convertible Preferred Stock,
and (v) the Registration Statement (Form S-3 No. 333-46965) relating to the
Common Stock issuable upon conversion of the Company's Series D Convertible
Preferred Stock, the Common Stock issuable upon exercise of the Investment
Options issued contemparaneously with the Series D Preferred Stock, (vi) the
Registration Statement (Form S-3 No. 333-51495) relating to the Common Stock
issued in consideration of the outstanding stock of ICVerify, Inc., and (vii)
the Registration Statement (Form S-3 No. 333-71895) relating to Common Stock
issued and common stock issuable upon exercise of warrants issued by the
Company, of our reports dated January 26, 1999, with respect to the consolidated
financial statements and schedule of CyberCash, Inc. included in the Annual
Report on Form 10-K for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Vienna, Virginia
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001004232
<NAME> CYBERCASH,INC.
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 10,902,532
<SECURITIES> 0
<RECEIVABLES> 5,712,409
<ALLOWANCES> 1,050,835
<INVENTORY> 0
<CURRENT-ASSETS> 16,511,863
<PP&E> 15,807,957
<DEPRECIATION> 6,757,795
<TOTAL-ASSETS> 93,324,471
<CURRENT-LIABILITIES> 5,730,266
<BONDS> 0
0
0
<COMMON> 19,130
<OTHER-SE> 87,575,075
<TOTAL-LIABILITY-AND-EQUITY> 93,324,471
<SALES> 12,587,603
<TOTAL-REVENUES> 12,587,603
<CGS> 0
<TOTAL-COSTS> 7,775,359
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (30,944,448)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,944,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,944,448)
<EPS-PRIMARY> (2.15)
<EPS-DILUTED> (2.15)
</TABLE>
