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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27470
CYBERCASH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 54-1725021
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
2100 RESTON PARKWAY, RESTON, VA 20191
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 620-4200
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.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, $0.001 Par Value
(Class)
22,957,701 Shares
(Outstanding at November 7, 1999)
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TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations for the three and nine
months ended September 30, 1999 and 1998.................. 3
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998......................................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998......................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations................................. 8
Item 3. Qualitative and Quantitative Market Risk Disclosure......... 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 13
Item 2. Changes in Securities....................................... 13
Item 3. Defaults upon Senior Securities............................. 13
Item 4. Submission of Matters to a Vote of Security-Holders......... 13
Item 5. Other Information........................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 13
Signatures............................................................ 15
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM I. CONSOLIDATED FINANCIAL STATEMENTS
CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues................................ $ 5,099,528 $ 4,522,285 $ 13,991,649 8,169,621
Less: returns and allowances............ 107,980 136,014 376,059 198,657
------------ ----------- ------------ -----------
Net revenues.......................... 4,991,548 4,386,271 13,615,590 7,970,964
Cost of revenues........................ 3,059,681 2,438,345 8,222,562 4,760,073
------------ ----------- ------------ -----------
Gross profit.......................... 1,931,867 1,947,926 5,393,028 3,210,891
Costs and expenses:
Research and development.............. 2,904,705 2,342,087 7,847,419 6,355,774
Sales and marketing................... 8,785,564 3,469,635 17,695,996 11,241,282
General and administrative............ 2,339,861 1,866,326 6,193,268 5,441,037
Amortization of intangibles........... 2,234,468 1,936,521 6,107,510 3,227,535
Restructuring Charge.................. -- -- -- 608,755
------------ ----------- ------------ -----------
Loss from operations.................... (14,332,731) (7,666,643) (32,451,165) (23,663,492)
Interest and other income............... 132,202 45,293 395,412 876,110
Other expense........................... -- (10,723) -- (119,776)
Loss from investments................... -- -- (1,000,000) --
------------ ----------- ------------ -----------
Net loss................................ $(14,200,529) $(7,632,073) $(33,055,753) (22,907,158)
============ =========== ============ ===========
Net loss per share...................... $ (0.65) $ (0.51) $ (1.61) (1.71)
============ =========== ============ ===========
</TABLE>
See accompanying notes.
3
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CYBERCASH, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 13,406,216 $ 10,902,532
Restricted cash........................................... 354,936 347,733
Accounts receivable, net.................................. 4,317,198 4,661,574
Prepaid expenses and other current assets................. 936,900 600,024
------------- -------------
Total current assets........................................ 19,015,250 16,511,863
Property and equipment, net................................. 9,758,403 9,050,162
Investment in affiliates.................................... 3,742,947 242,947
Other long-term assets...................................... 1,228,148 2,346,184
Intangibles, net............................................ 70,655,960 65,173,315
------------- -------------
Total assets................................................ $ 104,400,708 $ 93,324,471
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,628,144 $ 2,474,155
Accrued employee benefits and bonus....................... 747,396 1,432,060
Other accrued expenses.................................... 1,673,064 853,268
Deferred revenue.......................................... 1,516,705 970,783
------------- -------------
Total current liabilities................................... 5,565,309 5,730,266
Commitments and contingencies
Stockholders' equity:
Common Stock, $.001 par value; 25,000,000 shares
authorized; 22,977,139 shares issued and 22,957,139
outstanding as of September 30, 1999 and 19,129,622
shares issued and 19,109,722 outstanding as of December
31, 1998............................................... 22,977 19,130
Additional paid-in capital................................ 227,618,042 183,265,162
Accumulated deficit....................................... (127,936,541) (94,880,788)
Treasury stock, at cost, 20,000 shares.................... (120,000) (120,000)
Accumulated other comprehensive income.................... (484,091) (420,750)
Receivable from sale of Common Stock...................... (264,988) (267,724)
Unearned compensatory stock options....................... -- (825)
------------- -------------
Total stockholders' equity.................................. 98,835,399 87,594,205
------------- -------------
Total liabilities and stockholders' equity.................. $ 104,400,708 $ 93,324,471
============= =============
</TABLE>
See accompanying notes.
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CYBERCASH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(33,055,753) $(22,907,158)
Adjustments to reconcile net loss to net cash used in
operating
activities:
Depreciation........................................... 2,807,096 2,236,376
Amortization........................................... 6,107,510 3,227,535
Loss from write-off of investment...................... 1,000,000 --
Expense recognized in association with issuance of
stock, stock options and warrants.................... 1,300,468 83,632
Loss on disposal of assets............................. 165,007 211,973
Accrued interest on receivable from sale of Common
Stock................................................ (11,434) (23,364)
Changes in operating assets and liabilities:
Restricted cash...................................... (7,203) --
Accounts receivable.................................. 720,589 (499,993)
Prepaid expenses and other current assets............ (293,839) (1,962,074)
Other long-term assets............................... 118,036 (192,572)
Accounts payable and accrued expenses................ (635,812) 1,878,968
Deferred revenue..................................... 481,413 186,299
------------ ------------
Net cash used in operating activities............. (21,303,922) (17,760,378)
INVESTING ACTIVITIES
Sales of short-term investments........................... -- 8,779,773
Acquisitions, net of cash received........................ (634,782) (15,690,498)
Investment in affiliates.................................. (3,500,000) (1,001,972)
Purchases of property and equipment....................... (3,564,739) (5,333,829)
------------ ------------
Net cash used in investing activities............. (7,699,521) (13,246,526)
FINANCING ACTIVITIES
Proceeds from issuance of Preferred Stock................. -- 29,262,372
Proceeds from issuance of Common Stock.................... 29,890,818 3,600,000
Proceeds from receivable from sale of Common Stock........ 14,170 562,890
Proceeds from the issuance of Common Stock through the
Employee Stock Purchase Plan........................... 238,840 163,152
Proceeds from the issuance of Common Stock through the
Employee Stock Option Plan............................. 1,426,640 690,819
------------ ------------
Net cash provided by financing activities......... 31,570,468 34,279,233
------------ ------------
Effect of exchange rates changes on cash and cash
equivalents............................................... (63,341) (91,314)
------------ ------------
Net increase/(decrease) in cash and cash equivalents........ 2,503,684 3,181,015
Cash and cash equivalents at beginning of period............ 10,902,532 13,222,234
------------ ------------
Cash and cash equivalents at end of period.................. $ 13,406,216 $ 16,403,249
------------ ------------
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of Common Stock grants to employees................ $ 233,919 $ --
============ ============
Conversion of Preferred Stock to Common Stock............... $ -- $ 21,699,835
============ ============
Accretion of Stated Value of Preferred Stock................ $ -- $ 344,756
============ ============
Supplemental disclosure of acquisition activities:
Assets and intangibles acquired............................. $ 12,739,809 $ 72,489,536
Liabilities................................................. (163,731) (1,728,649)
Common stock and stock options.............................. (11,326,496) (54,230,954)
------------ ------------
1,249,582 16,529,933
Less: cash received......................................... 614,800 839,435
------------ ------------
Cash paid................................................... $ 634,782 $ 15,690,498
============ ============
</TABLE>
See accompanying notes.
5
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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. CyberCash is the world leader in secure,
convenient payment technologies and services, enabling e-commerce across the
entire market spectrum from electronic retailing environments to the Internet.
CyberCash 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.
The accompanying condensed consolidated financial statements and notes
thereto have been prepared in accordance with generally accepted accounting
principles for interim financial information and should be read in conjunction
with the Company's consolidated financial statements found in the Company's Form
10-K. In the opinion of management, all adjustments (consisting only of normal,
recurring adjustments) considered necessary to reflect fairly the Company's
consolidated financial position and consolidated results of operations have been
included. 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 at the
date of the financial statements and the reported amounts of revenues and
expenses for the nine months ended September 30, 1999 and 1998 are not
necessarily indicative of the results for the full year.
2. FINANCING
On January 6, 1999 and March 31, 1999, the Company issued in a private
placement 609,756 and 304,878 Units, respectively, each consisting of one share
of the Company's Common Stock and Warrants to purchase 0.75 shares of Common
Stock. The price of each Unit was $16.40, and the net proceeds were
approximately $14,779,000. The initial exercise price of the Warrants are $20.00
per share. If the average closing bid price of the Company's Common Stock over
the 10 trading days preceding January 6, 2000, January 6, 2001 or January 6,
2002 (the "Reset Price") is less than the exercise price then in effect, the
exercise price will be changed 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
issued on January 6, 1999 will expire on January 6, 2004 and the Warrants issued
on March 31, 1999 will expire on March 31, 1999.
On August 19,1999, CyberCash issued and sold, pursuant to the Company's
Registration Statement on Form S-3, an aggregate of 1,643,836 shares of the
Company's Common Stock, par value $.001 per share, and Warrants to purchase
164,384 shares of Common Stock, for net proceeds of $14.9 million. The purchase
price for the Common Stock was $9.125 per share, and the initial exercise price
for the Warrants is $11.40622 per share (125 percent of the purchase price). If
the average of the closing bid prices of the Common Stock for the ten trading
days immediately preceding August 19, 2000 (the "One Year Price") is less than
$9.125 per share, the Company must either make a cash payment to the purchaser
in an amount equal to the price difference multiplied by the number of shares
purchased or, alternatively, issue additional shares with a market value equal
to that amount. In addition, the exercise price of the warrants would be reduced
to the One Year Price. If the Company elects to issue additional shares, the
purchaser may instead elect to receive an equal number of additional warrants at
an exercise price of $.01 per share. The Warrants will expire on August 19,
2004.
3. ACQUISITION OF TELLAN SOFTWARE, INC.
On July 23, 1999, CyberCash acquired all the outstanding shares of the
capital stock of Tellan Software, Inc. ("Tellan"). The cost of the acquisition
was approximately $12.7 million, including fees and expenses. The purchase price
included $1.2 million in cash and 1,105,024 shares of CyberCash's Common Stock.
In addition, Tellan shareholders may be entitled to additional cash payments
based upon the
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CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
achievement of specific milestones estimated at approximately $1.1 million over
the next three years. The consolidated financial statements include the results
of operations of Tellan since the date of acquisition.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been tentatively allocated to the assets and liabilities
acquired at their estimated fair value as of the date of acquisition. Of the
purchase price, $1.0 million was allocated to Tellan's net assets, $1.8 million
to developed technology and $9.8 million to goodwill. Accumulated amortization
was approximately $298,000 at September 30, 1999.
The Company's unaudited pro forma consolidated condensed statements of
income for the nine months ended September 30, 1999 and 1998, assuming the
acquisition of Tellan was effected at the beginning of each period, are
summarized as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenue..................................................... $ 15,311,009 9,414,485
Net loss.................................................... $(32,404,124) (22,785,896)
------------ -----------
Net loss available to Common Stockholders................... $(32,404,124) (23,381,784)
------------ -----------
Weighted average shares outstanding......................... 21,404,984 14,861,890
Basic earnings per share.................................... $ (1.51) (1.57)
------------ -----------
Diluted earnings per share.................................. $ (1.51) (1.57)
------------ -----------
</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.
4. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net loss............................... $(14,200,529) $(7,632,073) $(33,055,753) $(22,907,158)
Accrued dividends to Preferred
Stockholders......................... -- (251,132) -- (595,888)
------------ ----------- ------------ ------------
Net loss available to Common
Stockholders......................... $(14,200,529) $(7,883,205) $(33,055,753) $(23,503,046)
============ =========== ============ ============
Denominator:
Weighted average shares outstanding.... 21,817,468 15,436,576 20,583,300 13,756,866
Basic earnings per share............... $ (0.65) $ (0.51) $ (1.61) $ (1.71)
============ =========== ============ ============
Diluted earnings per share............. $ (0.65) $ (0.51) $ (1.61) $ (1.71)
============ =========== ============ ============
</TABLE>
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CYBERCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMPREHENSIVE INCOME
The components of comprehensive income for the nine months ended September
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss............................... $(14,200,529) $(7,632,073) $(33,055,753) $(22,907,158)
Foreign currency translation
adjustments.......................... 224 771 (63,341) (91,314)
------------ ----------- ------------ ------------
Comprehensive income................... $(14,200,305) $(7,631,302) $(33,119,094) $(22,998,472)
============ =========== ============ ============
</TABLE>
6. SEGMENT INFORMATION
The Company has three reportable segments: Payments and InstaBuy Service
("Service"), Payment Software ("Software") and Consulting Services. During the
third quarter, the Company realigned its primary business segments from
Payments, which included both services and software, and the InstaBuy Service to
consolidate its services offerings into one business segment and to separate out
its software business into its own segment: all amounts herein have been
restated to reflect the realignment. The Company's revenues in the three and
nine months ended September 30, 1999 from each of these segments were $1,838,000
(36%) and $5,640,000 (40%) from Service; $2,936,000 (58%) and $7,674,000 (55%)
from Software; and $325,000 (6%) and $678,000 (5%) from Consulting respectively.
The Company's revenues in the three and nine months ended September 30,
1998 from each of these segments were $1,802,000 (40%) and $2,852,000 (35%) from
Service; $2,419,000 (53%) and $3,914,000 (48%) from Software; and $301,000 (7%)
and $1,404,000 (17%) from Consulting respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 the third quarter of 1999, and the relationship between
those results and the results for prior periods, are not necessarily indicative
of our results in the future. This discussion contains, in addition to
historical information, forward-looking statements, that reflect our current
expectations. The forward-looking statements we make about industry prospects
and our future results of operations or financial position involve risks and
uncertainties. Our actual results could differ significantly. The following
discussion and the section entitled "Risk Factors" in Item 1 of our Annual
Report on Form 10-K for 1998 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 in broadening our offerings by adding new products and
services to assist merchants in growing their businesses
- our ability to identify, develop, and deliver products services that meet
market demands
- our ability to maintain and expand our distribution channels
- strategic decisions by major participants in the industry
- competitive pricing pressures
- legal and regulatory developments
- general economic conditions.
The market for electronic payment products and services is still new and
changing rapidly. It is not certain that our product and service offerings will
find the widespread market acceptance required to support the level of
investment made in these offerings. Most of the Company's 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, operating expenses increased each
quarter through the end of 1996, but they remained constant at approximately
$7.5 million per quarter for the five quarters ended March 31, 1998. Operating
expenses increased to approximately $12.5 million per quarter for the last three
quarters of 1998 and the first three quarters of 1999, largely as a result of
consolidating the operating results of ICVerify and Tellan. In addition, during
the second and third quarter of 1999, the Company invested $5.5 million in total
into a corporate branding campaign. Also, during the first two quarters of 1999,
we made significant investments and/or commitments to expand our service
offerings and the technological infrastructure that supports the growth of our
Payment and InstaBuy Service offerings. Marketing and sales expenditures also
increased, as we focused on increasing our installed base of Internet merchants,
on deploying our InstaBuy service and our corporate branding campaign.
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 service
and software payments business, establish the InstaBuy service, develop new
products and services and market them successfully in a market that is becoming
increasingly competitive.
RESULTS OF OPERATIONS
Revenues. Our Services business grew over 40% for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998, not
including a one-time $500,000 licensing payment received in the third quarter
1998 for InstaBuy licensing and increased almost 100% from the nine months ended
September 30, 1999 from the same period in 1998. The growth between each of the
1998 and
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1999 periods resulted in part from an increase of over 100% in our merchant base
from September 30, 1998, and in part from implementing a new fee structure
during 1998 for our Payment Services.
Our Software business grew over 20% for the three months ended September
30, 1999 compared to the three months ended September 30, 1998 primarily because
of the inclusion in the Company's consolidated financial statements of sales of
Tellan's software product since July 23, 1999, the date of the Tellan
acquisition. In addition, our Software business increased almost 100% from the
nine months ended September 30, 1998 to the nine months ended September 30,
1999, as a result of including ICVerify software product sales in the Company's
consolidated financial statements for the full nine months of 1999 versus in
1998 when only the sales from the date of acquisition of ICVerify, Inc. of
April, 1998, were included in the Company's financial statements.
Revenues from our consulting fees on the customization of our services
remained relatively flat between the three months ended September 30, 1998 and
September 30, 1999 and decreased over 50% from the nine months ended September
30, 1998 to the nine months ended September 30, 1999, as we have emphasized the
growth of our Services and Software businesses and de-emphasized customizing
those services for different customers. We anticipate that the revenues from
consulting work will remain a small portion of our overall revenue stream.
Cost of Revenues. Cost of revenues consist primarily of cost of operations
to provide transaction processing and customer support, labor costs for the
development work associated with licensing activities, and the manufacturing and
distribution costs of our software products. Cost of revenues increased $622,000
from $2,438,000 for the three months ended September 30, 1998 to $3,060,000 for
the three months ended September 30, 1999 and increased $3,463,000 from
$4,760,000 for the nine months ended September 30, 1998 to $8,223,000 for the
nine months ended September 30, 1999. The increases are primarily a result of
costs incurred to produce and distribute Payment Software and to enlarge and
enhance our customer support operations.
Research and Development. Research and development expenses consist
primarily of compensation expense and consulting fees to support the development
of our services and technologies. Research and development expenses increased
$563,000 from $2,342,000 for the three months ended September 30, 1998 to
$2,905,000 for the three months ended September 30, 1999 and increased
$1,491,000 from $6,356,000 for the nine months ended September 30, 1998 to
$7,847,000 for the nine months ended September 30, 1999. This increase was due
in part to the continued focus on developing new technology, including
enhancements of the Agile Wallet technology, the Year 2000 remediation efforts
and in part to the acquisitions of ICVerify and Tellan. We plan to continue to
make significant investments in research and development. We have expensed all
software development costs as incurred, and we will continue to do so until it
can be demonstrated that future benefits may be realized 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 $5,316,000 from $3,470,000 for the three months ended
September 30, 1998 to $8,786,000 for the three months ended September 30, 1999
and increased $6,455,000 from $11,241,000 for the nine months ended September
30, 1998 to $17,696,000 for the nine months ended September 30, 1999. A large
part of the increase was related to a $5.5 million corporate branding campaign
of which $5.0 million was incurred during the third quarter 1999. A large
portion of 1999 sales and marketing expense was related to a multi-media
campaign designed to promote our InstaBuy service. We anticipate that sales and
marketing expenses will continue to be significant.
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 attributable to a particular
source of revenue, or type of expense. General and administrative expenses
increased $474,000 from $1,866,000 for the three months ended September 30, 1998
to $2,340,000 for the three months ended September 30, 1999 and increased
$752,000 from $5,441,000 for the nine months ended September 30, 1998 to
$6,193,000 for the nine months ended September 30, 1999. The quarter-to-quarter
increase is primarily related to the compensation expense associated with the
employment contract of the Company's President. We anticipate that general and
administrative expenses will continue to be significant as
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our operations continue to develop and expand, however we do not anticipate that
they will increase significantly.
Amortization of Intangibles. The acquisitions of ICVerify and Tellan were
accounted for as purchases. Accordingly, the purchase prices were allocated to
the respective assets and liabilities acquired at their estimated fair value as
of the date of each acquisition. Intangible assets acquired in the acquisitions
are being amortized using the straight-line method over their estimated useful
lives.
Restructuring Charge. Restructuring charges consist of severance and other
expenses related to a reduction-in-force of the Company's employee base. In June
1998, the Company reduced the size of its employee base by approximately 20%,
which resulted in costs of $609,000.
Interest and Other Income. Interest and other income increased $87,000
from $45,000 for the three months ended September 30, 1998 to $132,000 for the
three months ended September 30, 1999, as a result of investing the funds
received from private placements during 1999. Interest and other income
decreased $481,000 from $876,000 for the nine months ended September 30, 1998 to
$395,000 for the nine months ended September 30, 1999, as a result of carrying
higher cash balances during 1998.
Loss From Investments. Loss from investments consists of the adjustment of
the carrying value of an investment in a technology company. During the second
quarter of 1999 this asset was determined to be impaired and was written off
based on the criteria established in Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets Disposed of."
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had cash and cash equivalents of $13,406,000
compared to $10,903,000 at December 31, 1998. The increase of $2,500,000
resulted from a net loss of $33,056,000, offset by net cash proceeds of
$31,570,000 from the private placement and exercise of stock options and stock
purchase through the employee stock purchase plan, by non-cash expenses of
$11,368,000 for depreciation, amortization, expenses related to the issuance of
stock, warrants and options, provision for doubtful accounts and disposal of
property and equipment; and offset by the net inflows from operating activities
and the effect of exchange rates of $320,000. In addition, we had cash outflows
for capital expenditures, investment in affiliates and acquisitions of
$7,700,000.
In June 1999 we registered for future sale on an as needed basis $60
million in securities pursuant to an unallocated shelf registration. In our
August financing, we sold $15 million of Common Stock and Warrants under that
registration to finance our planned marketing campaign and investment in a
strategic partnership. To fund the future growth of our business, losses from
operations, and possible strategic acquisitions, we may raise up to an
additional $45 million in one or more financings over the next twelve months. We
have conducted preliminary discussions with several institutional investors, and
we believe that we will be able to raise the necessary funds without difficulty,
most likely through the sale of common stock or senior debt securities that are
convertible into common stock.
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 give
any assurance that we will, in fact, be able to raise additional funds on
desirable terms, or at all. If adequate funds are not available, or are not
available on acceptable terms, we may be unable to develop or enhance our
services, take advantage of future opportunities, or respond to competitive
pressures. This would be likely to have a material adverse effect on our
business.
YEAR 2000 COMPLIANCE
We have been 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 has been one of our top
objectives in 1999.
11
<PAGE> 12
We have followed 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. By September 30, 1999, we had
substantially completed the first four phases of our year 2000 readiness efforts
and had begun our contingency planning efforts. At this time, all internally
developed software contained in active releases of our products and services
meet our definition of year 2000 compliance. For some previously released
versions of our products and services, we have made available to our customers,
at no charge, new versions or upgrades that are year 2000 compliant. We are
retiring all other versions that are not compliant, and we have published
information on our plans to discontinue those products or services. Our website
(http://www.cybercash.com) provides current information about year 2000 upgrades
for CyberCash and ICVerify products and services, and our definition of year
2000 compliance. Tellan's website (located at http://www.tellan.com) provides
similar information for Tellan's PCAuthorize, WebAuthorize and MacAuthorize
products. We have previously indicated that our direct labor costs for
addressing year 2000 issues would be approximately $500,000, and we have no
reason to believe that our estimate will be exceeded.
We have completed our assessment of third party software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems to assure that our reliance on these technologies will not result
in year 2000-related interruptions. However, the ultimate performance of some of
our services may depend upon the readiness of third party suppliers and vendors
over whom we have limited or no control. While have worked to determine whether
our vendors' products or services are year 2000 compatible, we cannot ensure
compatibility between our products, services, equipment or computer systems and
those of our suppliers, telecommunications carriers and other vendors.
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.
ITEM 3. QUALITATIVE AND QUANTITATIVE MARKET RISK DISCLOSURE
Not Applicable.
12
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 [Employment Contract between the Company and James J. Condon, dated
August 20, 1999.]
(b) Reports on Form 8-K
On January 11, 1999, the Company filed a Form 8-K, which reported under
items 5 and 7 therein the closing of the first tranche of a private placement of
Units on January 6, 1999.
On February 5, 1999, the Company filed a Form 8-K/A providing under item 7
therein updated unaudited pro forma financial information for the nine month
period ended September 30, 1998, to amend a Current Report on Form 8-K filed on
May 1, 1998 that reported financial information following the Company's
acquisition of ICVerify.
On April 6, 1999, the Company filed a Form 8-K, which reported under items
5 and 7 therein the closing the second tranche of a private placement of Units
on March 31, 1999.
On April 6, 1999, the Company filed a Form 8-K/A providing under item 7
therein updated unaudited pro forma financial information for the year ended
December 31, 1998, to amend a Current Report on Form 8-K filed on May 1, 1998
that reported financial information following the Company's acquisition of
ICVerify.
On July 6, 1999, the Company filed a Form 8-K, which reported under item 5
therein that it had entered into a definitive agreement on June 29, 1999 to
acquire Tellan Software, Inc..
On July 29, 1999, the Company filed a Form 8-K, which reported under item 5
therein the closing of the acquisition of Tellan Software, Inc. on July 23,
1999.
13
<PAGE> 14
On August 9, 1999, the Company filed a Form 8-K/A, which reported under
item 2 therein the closing of the acquisition of Tellan.
On August 19, 1999, the Company filed a Form 8-K to file a legal opinion in
connection with a public offering of securities under the Company's Registration
Statement on Form S-3 (SEC File No. 333-79943).
On August 23, 1999, the Company filed a Form 8-K, which reported under
items 5 and 7 therein the closing of an offering under the Company's
Registration Statement on Form S-3 (SEC File No. 333-79943) for an aggregate of
1,643,836 shares of the Company's Common Stock, par value $.001 per share, and
warrants to purchase 164,384 shares of Common Stock.
On August 31, 1999, the Company filed a Form 8-K/A, which amended and
restated in its entirety the Form 8-K/A filed on August 9, 1999 to correct
certain minor and inadvertent typographical errors.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYBERCASH, INC.
(Registrant)
/s/ WILLIAM N. MELTON
William N. Melton
Chairman and Chief Executive Officer
Date: November 15, 1999
/s/ JAMES J. CONDON
James J. Condon
President
and Chief Operating Officer
Date: November 15, 1999
15
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("the Agreement")
between James J. Condon ("you" or "Employee") and CyberCash, Inc., a Delaware
corporation with offices at 2100 Reston Parkway, Reston, Virginia ("CyberCash"
or the "Company") is entered into as of the 20th day of August, 1999 and sets
forth the new terms and conditions of your employment by CyberCash.
You and the Company are currently parties to an employment contract
dated as of March 17, 1999. In order to induce you to continue in your position
with the Company, it has agreed to amend that agreement. As a further
inducement, the Company has represented to you that its Board of Directors will
give consideration to elevating you to the position of Chief Executive Officer
should William Melton, the current Chief Executive Officer, resign from that
position.
1. SCOPE
a) You will act as President and Chief Operating Officer of
CyberCash, and in that capacity you will report directly to
the Chief Executive Officer. You will be responsible for the
day-to-day oversight and management of the business of
CyberCash, including:
i) Assisting in the development of strategies to make
CyberCash the leading global provider of software and
services to enable payments.
ii) Providing general management of the Company's
marketing, sales, development, operations, human
resources, and finance and administration activities.
iii) Representing the interests of CyberCash and its
affiliated companies in accordance with the Company's
strategies.
b) If you are appointed Chief Executive Officer, you will assume
the duties normally inherent in that office, and you will
report directly to the Board of Directors.
c) You agree not to engage in any other employment or activity at
any time during your employment with CyberCash which
materially interferes with the performance of your duties for
CyberCash.
<PAGE> 2
2. TERM OF EMPLOYMENT
The term of this Agreement will be from March 17, 1998 through
December 31, 2002.
3. COMPENSATION AND BENEFITS
a) Your compensation will consist of the following:
i) Salary: Effective July 1, 1999, you will begin
receiving an annual base salary of $290,000, to be
paid monthly in arrears into a bank account
designated by you. You will be responsible for the
payment of any taxes due. Your base salary will be
increased to $320,000 on September 1, 2000, and
increased to $350,000 on January 1, 2002.
ii) Stock Options: Stock Options to purchase 100,00
shares of the Company's common stock at a price per
share equal to the closing price of the common stock
on the day prior to the date the options are approved
by the Board of Directors or its Compensation
Committee. Of these, options to purchase 50,000
shares will start vesting immediately and will vest
over 40 months in accordance with the Company's
standard policy. An additional 50,000 will commence
vesting on the last day of the first fiscal quarter
in which the Company reports an operating profit.
These options will be issued under, and will be
subject to, the terms and conditions of CyberCash's
1995 Employee Stock Option Plan ("ESOP") and will be
evidenced by CyberCash's standard form option
agreement reflecting the terms of this paragraph.
Additional Stock Options: CyberCash will grant you
additional stock options in the following amounts
under the terms set forth below:
(1) Options to purchase 200,000 shares of the
Company's Common Stock at the price of $10.20 per
share. Those options will start vesting immediately
and will vest over 40 months in accordance with the
Company's standard policy.
(2) Options to purchase 200,000 shares of the
Company's Common Stock at the price of $10.20 per
share. Those options will vest on December 31, 2002 .
These options will be issued under, and will be
subject to, the terms and conditions of CyberCash's
1995 ESOP and will be
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<PAGE> 3
evidenced by CyberCash's standard form of option
agreement reflecting the terms of this paragraph; all
options will vest immediately in the event of a
Change in Control following which you are not
retained or appointed as the CEO under the new
ownership structure.
iii) Bonuses: CyberCash will pay you the following
bonuses:
September 01, 1999: $100,000
February 01, 2000: $150,000
February 01, 2001: $200,000
February 01, 2002: $250,000
February 01, 2003: $300,000
b) Severance Pay: You will be entitled to severance pay equal to
your then current base salary (without benefits, but not less
than $290,000 per annum) for eighteen months, paid in equal
monthly installments, plus a bonus equal to 1.5 times the
amount of any annual bonus you were paid for the calendar year
immediately preceding the termination of your employment if
(i) your employment with CyberCash is terminated by CyberCash
other than for Cause, (ii) there is a Change of Control or
Change of Responsibilities.
For the purposes of this Agreement:
i) Cause for termination shall exist if: (a) you fail or
refuse to perform your duties (not including a
failure to perform due to a disability entitling you
to disability benefits) and your failure or refusal
continues after written notice; (b) you are convicted
for a crime constituting a felony involving moral
turpitude; or (c) you commit a material act of fraud
or dishonesty resulting in substantial harm to the
Company.
ii) Change of Control shall mean (i) a transaction or
series of related transactions resulting in a change
in beneficial ownership of more than 50% of the
outstanding equity securities of the Company; (ii) or
a sale of all or substantially all of the assets of
the Company; provided that such a transaction shall
not be considered a change in Change in Control if
after the transaction a majority of the members of
the board of directors are persons who were members
of the board of directors prior to the transaction
and you remain the Chief Operating Officer (or, if
you have been promoted, the Chief Executive Officer)
of the Company.
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<PAGE> 4
iii) There would be a Change of Responsibilities if because
of actions of the Board of Directors of the Company
you no longer are performing the functions normally
performed by the Chief Operating Officer (or, if you
have been promoted, the Chief Executive Officer) of a
corporation similar to the Company.
c) The Company shall provide you the following additional
benefits:
i) Health insurance benefits for you and your family, in
accordance with the standard CyberCash health
insurance plan for CyberCash executives.
ii) Twenty-three days per year of paid vacation.
iii) An allowance of up to $600 per month to lease an
automobile.
iv) A life insurance policy on your life in the amount of
$1,000,000 for the benefit of your named beneficiary.
v) Reimbursement of pre-approved business expenses.
4. CONFIDENTIAL INFORMATION.
a) In the course of your employment, CyberCash will disclose to
you confidential information concerning, among other things,
CyberCash's existing and prospective clients, existing and
contemplated products and services, inventions, software, and
other matters and information received from CyberCash clients,
any CyberCash affiliated entities, and other third parties,
which information constitutes valuable assets of CyberCash
("Confidential Information"). The term "Confidential
Information" shall include all information that is not known
by, or generally available to the public at large and that
concerns the business or affairs of CyberCash and CyberCash's
affiliated entities, including, but not limited to,
technology, methods of operation, and information regarding
clients of a party hereto. CyberCash shall have no obligation
to specifically identify any information as constituting
Confidential Information in order for it to be entitled to
protection as such.
b) You will not, at any time during or after your employment,
without the prior written consent of CyberCash, use any
portion of the Confidential Information for any purpose other
than as contemplated herein, and you agree that:
i) You will hold all Confidential Information in the
strictest confidence, and will exercise at least the
same care with respect thereto as you exercise with
respect to your own proprietary and confidential
information, and will not, without CyberCash's prior
written consent,
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<PAGE> 5
copy or disclose any portion thereof to any third
party except as contemplated herein; and
ii) You will not remove or permit to be removed from any
Confidential Information any notice placed thereon by
CyberCash indicating the confidential nature of, or
the proprietary right of CyberCash in such items.
c) The foregoing shall not prohibit or limit your use of
information (including, but not limited to, ideas, concepts,
know-how, techniques, and methodologies) which: (i) are
already known to you; (ii) are independently developed by you;
(iii) were received by you on a non-confidential basis, prior
to receipt from CyberCash, from a third party lawfully
possessing and lawfully entitled to disclose such information;
or (iv) becomes part of the public domain through
circumstances unrelated to any breach by you of this
Agreement.
d) In the event you become aware that any person or entity is
taking or threatens to take any action which would violate any
of the foregoing provisions were that person or entity a party
to this Agreement, you shall promptly and fully advise
CyberCash (with written confirmation as soon as practicable
thereafter) of all facts known to you concerning such action
or threatened action. You shall not in any way aid, abet or
encourage any such action or threatened action. You agree to
cooperate in all reasonable ways to prevent such action or
threatened action, and you agree to do all reasonable things
and cooperate in all reasonable ways as may be requested by
CyberCash to protect the trade secrets, and proprietary rights
of CyberCash in and to the Confidential Information.
5. OWNERSHIP OF WORK.
a) CyberCash shall own and you hereby assign to CyberCash all
right, title and interest in any invention, technique,
process, device, discovery, improvement or know-how,
patentable or not, including all trade secrets and copyrights,
in and to the following works created by you on CyberCash
premises or at any other location: (i) works that relate to
or are derived from the actual or anticipated business of
CyberCash, and (ii) works that result from or are derived from
any services performed by you or, if not actually performed,
services requested by CyberCash to be so performed
(collectively the "Contract Work"). CyberCash shall own such
Contract Work even if you create such Contract Work outside
normal working hours and regardless of the ownership of the
equipment used to create such Contract Work. Such Contract
Work shall include program codes and documentation.
b) To the extent that any such Contract Work does not qualify as
works made for hire under U.S. copyright law, you hereby
assign to CyberCash and agree to assign to CyberCash,
irrevocably and in perpetuity, any and all right, title and
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<PAGE> 6
interest that you may have in and to the Contract Work.
Promptly upon CyberCash's request, you agree that you will
execute any appropriate assignment document.
c) If you alone or jointly with others make or conceive of any
invention, technique, process, or other know-how, whether
patentable or not, in the course of your employment, which
relates in any manner to the actual or anticipated business of
CyberCash (collectively, "Inventions"), you hereby assign to
CyberCash your entire right, title and interest in such
Inventions. You will disclose any such Inventions to an
officer of CyberCash and will, upon request, promptly sign a
specific assignment of title to CyberCash, and do anything
else reasonably necessary to enable CyberCash to secure
patent, trade secret or any other proprietary rights in the
United States or foreign countries.
d) You hereby agree, at CyberCash's request, to assist CyberCash
and its nominees to secure, maintain, and defend for
CyberCash's own benefit all copyrights and patents, and other
proprietary rights in the Contract Work in any and all
countries. Your obligations to assist CyberCash in obtaining
and enforcing its proprietary rights in the Contract Work
shall continue beyond the termination or expiration of this
Agreement, but CyberCash shall compensate you for any
assistance rendered after such expiration or termination at a
reasonable rate for time actually spent by you at CyberCash's
request.
e) You understand that you may continue to work on, and retain
rights to, projects of your own interest outside of CyberCash
which do not in any way compete or conflict with the current
or planned business of CyberCash provided that (i) they do not
fall under the paragraphs titled "Ownership of Works" above;
and (ii) they do not interfere in any way with your time at
work or duties for CyberCash. You understand that you are not
permitted to engage in any outside business activities while
employed by CyberCash which compete with or conflict with the
current or planned business of CyberCash.
6. EQUITABLE RELIEF.
a) Because any breach by you of the promises set forth in
Sections 4 and 5 herein would cause irreparable harm and
significant injury which dollar amount would be difficult to
ascertain and which in fact would not be compensable by money
damages alone, you agree that CyberCash shall have the right
to enforce this Agreement and any of such provisions by
injunction, specific performance or other equitable relief
without prejudice to any other rights and remedies that
CyberCash may have for breach of this Agreement.
b) You hereby consent to the personal jurisdiction of the U.S.
federal courts in the Commonwealth of Virginia over you in
connection with all disputes regarding
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<PAGE> 7
this Agreement and agree that all disputes regarding this
Agreement shall be exclusively settled in those courts.
7. RESTRICTIVE COVENANTS.
a) You further agree that, unless CyberCash has materially failed
to meet its obligations under this Agreement, during your
employment by CyberCash and for a period of eighteen months
(or, if you were employed by CyberCash for less than eighteen
months and you are not receiving the above described severance
pay, for a shorter period equal to the duration of your
employment by CyberCash) commencing on the date of termination
of your employment with CyberCash (the "Termination Date"),
you shall not:
i) solicit business or perform work for any of
CyberCash's past or present clients, or for any of
CyberCash's prospective clients to whom CyberCash has
made written proposals within six months prior to the
Termination Date, either directly or indirectly, for
the benefit of anyone other than CyberCash or
participate or assist in any way in the solicitation
of business from or performance of work for any such
clients as an independent contractor or consultant to
any other entity unless the business being solicited
or the work being performed is not directly
competitive with the services and products provided
by the CyberCash to such clients (the business of
CyberCash is international in scope, therefore, the
restrictions of this paragraph shall apply
worldwide);
ii) hire any past or present CyberCash employee, or
knowingly attempt to induce any employee of CyberCash
to leave CyberCash's employ;
iii) either directly or indirectly, alone or in
association with others, become an employee, officer,
director, partner or five percent or greater
stockholder of, or consultant to, any entity which
engages in the development, sale or marketing of
software or services to enable electronic payments,
or in any other business which is directly
competitive with any business conducted by CyberCash;
and
iv) enter the employ of any person, firm or other entity
engaged in any business that directly competes with
the Company Business, as defined below, or render any
services to any person, firm or other entity for use
in directly competing with the Company Business.
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<PAGE> 8
b) You acknowledge that (i) CyberCash is engaged and in the
future will be engaged in the business of providing technology
and services to enable electronic payments (the foregoing,
together with any other businesses that CyberCash engages from
the date hereof to the date of the termination of this
Agreement, being hereinafter referred to as the "Company
Business"); (ii) your services to CyberCash have been and will
continue to be special and unique and have immeasurable value
to CyberCash; (iii) your work for CyberCash allows you access
to trade secrets of and confidential information concerning
CyberCash; (iv) the Company Business is national and
international in scope; (v) CyberCash would not have entered
into this Agreement and employed you but for the agreements
and covenants contained in this Agreement; and (vi) the
agreements and covenants contained in this Agreement are
essential to protect the business and goodwill of CyberCash.
8. GOVERNING LAW AND SEVERABILITY.
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia. If any provision of this Agreement
is for any reason found by a court of competent jurisdiction to be
unenforceable, that provision will be enforced to the maximum extent
permissible, and the remainder of this Agreement shall continue in full force
and effect.
9. NOTICES.
Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified above or at such other address as
the party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or three days after being sent by
certified or registered mail or Federal Express.
10. ENTIRE AGREEMENT AND MODIFICATION.
Except as modified in this Amended and Restated Employment Agreement,
all other terms and conditions of the Agreement remain in full force and
effect. This Agreement contains the entire agreement between you and CyberCash
concerning the subject matter hereof and supersedes all prior agreements and
understandings, including but not limited to the Employment Agreement dated
March 17, 1998. This Agreement may be modified only by a writing signed by
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<PAGE> 9
the parties hereto. If the terms of this offer of employment are acceptable to
you, please sign and return the enclosed copy of this letter, confirming your
agreement with the foregoing.
<TABLE>
<S> <C>
James J. Condon CyberCash, Inc.
/s/ JAMES J. CONDON By: /s/ WILLIAM N. MELTON
- ------------------------------ --------------------------------
Date: August 20, 1999 Name: William N. Melton
Title: Chief Executive Officer
Date: August 20, 1999
</TABLE>
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<PAGE> 10
COMPENSATION AGREEMENT AND PERSONAL GUARANTEE
This Compensation Agreement and Personal Guarantee ("Compensation
Agreement") between James J. Condon ("Condon") and William Melton ("Melton") is
entered into this 20th day of August, 1999 .
WHEREAS pursuant to that certain Employment Agreement dated March 17,
1998, Condon is employed as the President and Chief Operating Officer of
CyberCash, Inc. a Delaware corporation with offices at 2100 Reston Parkway,
Reston, Virginia ("CyberCash" or "Company"); and
WHEREAS CyberCash and Condon are considering entering into an Amended
and Restated Employment Agreement which would supersede the March 17, 1998
Employment Agreement; and
WHEREAS pursuant to the Amended and Restated Employment Agreement
CyberCash will agree to give Condon additional compensation in the form of
increased salary and stock and consider appointing him its Chief Executive
Officer upon Melton's resignation; and
WHEREAS Melton himself, as the Chief Executive Officer of CyberCash and
a major stockholder, personally desires to secure Condon's services by removing
the risk that Condon may not realize the full benefit of the compensation
package set forth in the Amended and Restated Employment Agreement; and
WHEREAS Condon has agreed to continue his employment at CyberCash in
reliance on Melton's promise to guarantee Condon the full benefit of his
compensation package, regardless of the obligations of CyberCash and
notwithstanding the possibility that Condon might not otherwise be entitled
under the Amended and Restated Employment Agreement to the financial benefits
guaranteed herein by Melton;
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. In lieu of pursuing other opportunities currently available to him,
Condon agrees to execute the Amended and Restated Employment Agreement and
remain employed by CyberCash.
2. On or about the dates indicated below, Melton will pay Condon the
difference, if any, between the amount of any bonus paid to Condon by
CyberCash and the following amounts:
September 01, 1999: $100,000
February 01, 2000: $150,000
<PAGE> 11
February 01, 2001: $200,000
February 01, 2002: $250,000
February 01, 2003: $300,000
Melton may fulfill his obligation in this paragraph 2 by paying Condon in
cash or additional stock valued as of the date the bonus is due and
payable.
3. Melton hereby grants Condon the option to purchase 100,000 shares of
CyberCash common stock currently held by Melton at a price of $10.20 per
share. These options will vest on December 31, 2002 and Condon's right to
exercise the options will expire on February 1, 2003. In recognition of his
obligation to Condon hereunder, and regardless of his rights and
obligations under any other Agreement to sell, transfer, or otherwise
dispose of CyberCash common stock that he currently holds, Melton agrees to
hold at least 100,000 shares of CyberCash common stock until February 1,
2003.
4. No later than February 1, 2003, Melton will pay Condon the difference,
if any, between $6 million and the combined value of Condon's options
(approximately 800,000) under the Amended and Restated Employment Agreement
and this Compensation Agreement.
5. In the event of a Change in Control and a Change of Responsibilities
(as defined in the Amended and Restated Employment Agreement) prior to
December 31, 2002 (hereinafter together referred to as the "Transition
Event"), Melton's guarantee of Condon's compensation package will be
prorated for each 6 month period that Condon was employed by CyberCash
prior to the Transition Event. Thus, if the Transition Event occurs at any
time within the applicable time periods set forth below, Melton will pay
Condon the following amounts either in cash or equity, but only after first
subtracting the sum of the total value of all bonuses already paid by
Melton or the Company to Condon pursuant to this Compensation Agreement and
the total value of Condon's vested options as of the date of the Transition
Event.
July 15, 1999 - January 15, 2000: $1,000,000
January 16, 2000 - July 15, 2000: $2,000,000
July 16, 2000 - January 15, 2001: $3,000,000
January 16, 2001 - July 15, 2001: $4,000,000
July 16, 2001 - January 15, 2002: $5,000,000
January 16, 2002 - July 15, 2002 $6,000,000
July 16, 2002 - December 31,2002: $7,000,000
6. In the event of Condon's death prior to December 31, 2002, Condon's estate
shall have the right to either (1) immediately vest all 500,000 options and
wait until
<PAGE> 12
December 31, 2002 to calculate the value of the options in order to
determine whether any additional amount is due by Melton pursuant to
paragraph 4 of this Compensation Agreement; or (2) transfer to Melton these
options with all their rights and privileges in exchange for immediate
payment of $6 million in cash or equity.
7. This Compensation Agreement shall inure to the benefit of each party's
successors, heirs, assigns, and personal representatives. In the event of
Condon's death, all benefits owed to Condon pursuant to this Agreement
shall be paid to Condon's designated beneficiary. In the event Condon does
not designate a beneficiary, all benefits shall be payable to Condon's
estate.
8. In the event of Melton's death, this Compensation Agreement will be binding
on Melton's successors, heirs, assigns, and personal representatives.
/s/ WILLIAM MELTON /s/ JAMES J. CONDON
- --------------------------------- ------------------------------
William Melton James J. Condon
August 20, 1999 August 20, 1999
- --------------------------------- ------------------------------
Date Date
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