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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
TALK CITY, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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Talk City, Inc.
1919 South Bascom Avenue
Campbell, CA 95008
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 19, 2000
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To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of Talk City,
Inc., a Delaware corporation, will be held on Friday, May 19, 2000 at 10:00
a.m., local time, at the Company's offices located at 1919 South Bascom
Avenue, Campbell, California for the following purposes:
1. To elect two (2) directors to serve for the ensuing year or until their
successors are duly elected and qualified.
2. To ratify the appointment of KPMG LLP as independent public accountants
for the fiscal year ending December 31, 2000.
3. To ratify and approve an amendment to the Company's Amended and Restated
1996 Stock Option Plan increasing the number of shares of Common Stock
authorized for issuance under the 1996 Plan by 3,500,000 shares, and to
change the annual automatic increase in the number of shares reserved
for issuance under the 1996 Plan to a number of shares equal to the
lesser of (i) 2,000,000 shares, (ii) 7% of the then outstanding shares
of Common Stock, or (iii) a lesser amount determined by the Board.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The above items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only holders of record of the Company's Common Stock at the close of
business on March 21, 2000, the record date, are entitled to notice of and to
vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-paid envelope enclosed for that purpose. Any stockholder attending the
Annual Meeting may vote in person even if he or she has returned a proxy.
/s/ Peter H. Friedman
Peter H. Friedman
Chairman of the Board and Chief
Executive Officer
Campbell, California
April 17, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-
PAID ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
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Talk City, Inc.
----------------
PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF STOCKHOLDERS
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PROCEDURAL MATTERS
General
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Talk City, Inc. for use at the Annual
Meeting of Stockholders to be held on Friday, May 19, 2000 at 10:00 a.m.,
local time, and at any adjournments thereof, for the purposes set forth in
this Proxy Statement and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the Company's headquarters
located at 1919 South Bascom Avenue, California 95008, and the telephone
number at that location is (408) 871-5200.
These proxy solicitation materials were mailed on or about April 19, 2000,
together with the Company's 1999 Annual Report, to all stockholders entitled
to vote at the Annual Meeting.
Record Date
Stockholders of record at the close of business on March 21, 2000 (the
"Record Date") are entitled to notice of and to vote at the meeting. As of the
Record Date, 24,746,484 shares of the Company's Common Stock were issued and
outstanding. No shares of Preferred Stock were outstanding.
Revocability of Proxies
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
Voting Procedures
Each stockholder is entitled to one vote for each share of Common Stock held
on all matters to be voted on by the stockholders. Votes cast in person or by
proxy will be tabulated by Firststar Bank, the Company's transfer agent.
Upon the execution and return of the enclosed form of proxy, the shares
represented thereby will be voted in accordance with the terms of the proxy,
unless the proxy is revoked. If no directions are indicated in such proxy, the
shares represented thereby will be voted (i) "FOR" the election of each of the
Company's nominees as a director, (ii) "FOR" ratification of the appointment
of KPMG LLP as independent public accountants for the Company for the fiscal
year ending December 31, 2000, and (iii) "FOR" the amendment to the Company's
Amended and Restated 1996 Stock Option Plan.
Quorum; Abstentions; Broker Non-Votes
A majority of the outstanding shares of Common Stock entitled to vote on the
Record Date, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the Annual Meeting or
any adjournments thereof. Shares that are voted "FOR" or "AGAINST" a matter
are treated as being present at the meeting for purposes of establishing a
quorum and are also treated as votes eligible to be cast by the Common Stock
present in person or represented by proxy at the meeting and entitled to vote
on the subject matter with respect to such matter.
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Abstentions are considered as shares present and entitled to vote and
therefore will have the same effect as a vote against a matter presented at
the meeting. Brokers who hold shares in street name for customers have the
authority to vote on certain matters; with respect to any other matters,
shares as to which brokers have not received discretionary voting authority
from their customers are considered as shares not entitled to vote with
respect to such matters, but are counted toward the establishment of a quorum.
Costs of Solicitation of Proxies
The costs of soliciting proxies will be borne by the Company. The Company
may reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and employees, without additional compensation, personally
or by telephone, letter or facsimile.
Deadline for Receipt of Stockholder Proposals
Proposals of the Company's stockholders intended to be presented at the
regularly scheduled 2001 Annual Meeting of Stockholders must be received by
the Company no later than December 15, 2000, and must satisfy the conditions
established by the Securities and Exchange Commission for stockholder
proposals to be included in the Company's proxy statement for that meeting.
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PROPOSAL ONE
ELECTION OF DIRECTORS
General
The Company's Board of Directors is currently composed of seven members. The
Board is divided into three classes with each class serving for a term of
three years as follows:
<TABLE>
<CAPTION>
Class Expiration Member
----- ---------- ------
<S> <C> <C>
Class I.......................... 2000 Bronfin and Hirschfeld
Class II......................... 2001 Sculley, Yudkovitz and Weinman
Class III........................ 2002 Friedman and Graziano
</TABLE>
Directors Bronfin and Hirschfeld have been nominated for re-election to the
Board. Both of the nominees are incumbent directors. Unless otherwise
instructed, the holders of proxies solicited by this Proxy Statement will vote
the proxies received by them for the two nominees. In the event that any
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxy holders will vote for a nominee designated by the present
Board to fill the vacancy. The Company is not aware of any reason that any
nominee will be unable or will decline to serve as a director.
Vote Required
The two (2) nominees receiving the highest number of affirmative votes of
the shares entitled to be voted shall be elected as directors of the Company.
Votes withheld from any director are counted for purposes of determining the
presence or absence of a quorum but have no other legal effect under Delaware
law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH NAMED NOMINEE.
The names of the directors of the Company, including the nominees, and
certain information about them, are set forth below.
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Peter H. Friedman............. 45 Chairman of the Board and Chief Executive
Officer of the Company
Kenneth A. Bronfin............ 40 Director of the Company
Joseph A. Graziano(1)(2)...... 56 Director of the Company
Thomas P. Hirschfeld(1)(2).... 37 Director of the Company
John Sculley.................. 61 Director of the Company
Barry M. Weinman(1)(2)........ 61 Director of the Company
Martin J. Yudkovitz........... 45 Director of the Company
</TABLE>
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Peter H. Friedman has served as our Chairman of the Board and Chief
Executive Officer since he co-founded our company in March 1996. From 1984 to
February 1996, Mr. Friedman worked at Apple Computer, Inc., where he served as
Vice President and General Manager of Apple's Internet/Online business unit.
In this role, Mr. Friedman oversaw the launch and growth of eWorld, Apple's
consumer online Internet-based service, managed and grew Apple's AppleLink
business services and a series of Internet-based services such as Salon and
Youth Central. Mr. Friedman also held various senior roles in marketing at
Apple. Mr. Friedman received an M.B.A. degree from the Harvard Business School
and a B.A. degree from Brown University.
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Kenneth A. Bronfin has served as a director of our company since September
1998. Mr. Bronfin currently serves as Senior Vice President and Deputy Group
Head of Hearst New Media and Technology, the unit of The Hearst Corporation
responsible for the development and investment in Internet-related businesses.
Prior to joining Hearst in June 1996, Mr. Bronfin served as Vice President,
Business Development and General Manager of the NBC Data Network at NBC. Mr.
Bronfin received an M.B.A. degree from the Wharton School at the University of
Pennsylvania and a B.S. degree in Electrical Engineering from the University
of Virginia.
Joseph A. Graziano has served as a director of our company since its
inception in March 1996 and was the Acting Chief Financial Officer from May
1996 until March 1999. From June 1989 to December 1995, Mr. Graziano served as
the Executive Vice President and Chief Financial Officer of Apple and was a
member of its board of directors from June 1993 until October 1995. From May
1987 to June 1989, Mr. Graziano served as Chief Financial Officer of Sun
Microsystems, Inc. and from October 1981 to May 1985, as Chief Financial
Officer of Apple. Mr. Graziano also serves as a director of Pixar and Carrier
Access Corporation. Mr. Graziano received a B.S. degree in accounting from
Merrimack College and is a Certified Public Accountant.
Thomas P. Hirschfeld has served as a director of our company since October
1997. Mr. Hirschfeld has served as a Managing Director of Patricof & Co.
Ventures, Inc., a venture capital company, since April 1999 and was a
Principal from January 1995 to March 1999. From January 1994 to December 1994,
he served as Assistant to the Mayor of New York City. From August 1986 to
December 1993, Mr. Hirschfeld was with Salomon Brothers, an investment banking
firm. Mr. Hirschfeld serves as a director of a number of privately-held
companies in which the limited partnerships managed by Patricof & Co. are
investors. He received an M.A degree from Balliol College, Oxford and an A.B.
degree from Harvard College.
John Sculley has served as a director of our company since July 1996. Since
February 1994, Mr. Sculley has been a partner with his brothers in Sculley
Brothers, a family investment capital firm, that focuses on media enabling
technologies, Internet services and consumer businesses. The Sculleys are
active investors in approximately 20 companies in the Silicon Valley, New
York, Bermuda and Israel. Their Internet service investments include
Intralinks, Talk City, Zapa.com, GreenTree, Buy.com and Softvideo. Their
consumer companies include Country Gourmet, Select Comfort, Ranch 1, Frame
King and Sirius Thinking Ltd. Mr. Sculley serves on the board of directors of
NFO Worldwide, Inc., an affiliate of NFO Research, and a number of other
private companies.
Barry M. Weinman has served as a director of our company since August 1998.
Since May 1993, he has been a Managing Director of Media Technology Equity
Partners and a General Partner of Media Technology Ventures and AVI Management
Partners, which has been making high tech venture capital investments in the
Silicon Valley since 1980. AVI and its new media fund, Media Technology
Ventures, had approximately $300 million under management as of March 31,
1999. Mr. Weinman is also on the board of directors of Women.com, Be Inc,
InfoGear and Quokka Sports. Mr. Weinman received an M.A. degree from London
School of Economics/University of Southern California and a B.S. degree from
Clarkson College of Technology.
Martin J. Yudkovitz has served as a director of our company since August
1998. Since December 1995, Mr. Yudkovitz has been the President and Chief
Executive Officer of NBC Multimedia, Inc., a subsidiary of NBC. Prior to this
he served as Senior Vice President, Strategic Development for NBC. From 1992
to 1994, he served as Senior Vice President of Strategic Development at NBC.
His other positions at NBC have included Vice President of Business Affairs
for NBC's 1992 Olympics Unit, First General Counsel and Vice President for
Business Affairs at CNBC and Senior Counsel to NBC's 1988 Seoul Olympics Unit
in NBC Sports. Mr. Yudkovitz joined NBC in January 1984 in the legal
department. Mr. Yudkovitz received a J.D. degree from Columbia University and
a B.A. degree from Rutgers University.
Board Meetings and Committees
During fiscal 1999, the Board of Directors held eleven meetings. During this
period, each incumbent director, except for Messrs. Sculley and Yudkovitz,
attended or participated in at least seventy-five percent of the
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aggregate of (i) the total number of meetings of the Board of Directors (held
during the time period for which each such director served on the Board of
Directors) and (ii) the total number of meetings held by all Committees of the
Board of Directors on which each such director served. Messrs. Sculley and
Yudkovitz participated in sixty-four percent and fifty-five percent,
respectively, of the total number of meetings of the Board of Directors.
The Board currently has two standing committees: an Audit Committee and a
Compensation Committee. The Audit Committee and Compensation Committee are
composed of Messrs. Graziano, Hirschfeld and Weinman. The Company has no
nominating committee or committee performing similar functions.
Audit Committee. The Audit Committee makes such examinations as are
necessary to monitor the corporate financial reporting and the internal and
external audits of the Company, provides to the Board the results of its
examinations and recommendations derived therefrom, outlines to the Board
improvements made, or to be made, in internal accounting controls, nominates
independent auditors, and provides to the Board such additional information
and materials as it may deem necessary to make the Board aware of significant
financial matters that require Board attention. The Audit Committee held two
meetings during fiscal 1999.
Compensation Committee. The Compensation Committee makes decisions regarding
all forms of salary and bonus and stock compensation provided to executive
officers of the Company, the long-term strategy for employee compensation, the
types of stock and other compensation plans to be used by the Company and the
shares and amounts reserved thereunder, and such other compensation matters as
may from time to time be directed by the Board of Directors. The Compensation
Committee held one meeting during Fiscal 1999.
Director Compensation
Members of the Board of Directors receive no cash compensation for their
services as directors, nor are they reimbursed for their expenses incurred in
attending board meetings. Directors who are not employees of the Company are
eligible to receive periodic option grants under the Company's 1999 Directors
Stock Option Plan (the "Directors Plan"). Each eligible director is
automatically granted an option for 20,000 shares on the date such director
first becomes a member of the Board of Directors, and, if such director has
served as a director continuously for at least six months preceding the annual
meeting of stockholders, the director is automatically granted an option to
purchase 5,000 shares on the date of each annual meeting of stockholders.
Eligible directors who were members of the Board of Directors prior to the
Company's initial public offering in July 1999 each received an option for
5,000 shares on the effective date of the initial public offering.
All options under the Directors Plan are fully vested and exercisable on the
date of grant with exercise prices equal to the fair market value of the
Common Stock on the date of grant. Options have a ten year term and are only
exercisable while the individual remains a director of the Company. Upon a
director's termination, the director may exercise the option, but only within
three months following the date of such termination.
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PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board has appointed KPMG LLP as independent public accountants of the
Company to audit the consolidated financial statements of the Company for the
fiscal year ending December 31, 2000, and recommends that the stockholders
vote for ratification of such appointment.
KPMG LLP has audited the Company's financial statements since 1996. A
representative of KPMG LLP is expected to be present at the Annual Meeting,
will have the opportunity to make a statement and is expected to be available
to respond to appropriate questions.
Vote Required
Ratification of the appointment of KPMG LLP as the Company's independent
public accountants will require the affirmative vote of a majority of the
outstanding shares of Common Stock represented, in person or by proxy, and
entitled to vote on this proposal. Abstentions will have the same effect as a
vote against this proposal. Broker non-votes will not be counted as having
been represented.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF APPOINTING
KPMG LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
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PROPOSAL THREE
AMENDMENT TO THE AMENDED AND RESTATED
1996 STOCK OPTION PLAN
Our Amended and Restated 1996 Stock Option Plan provides for the granting to
employees incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and for the granting
to employees and consultants nonstatutory stock options and stock purchase
rights. The 1996 Plan was originally adopted by the Board of Directors in
October 1996 and approved by the Company's stockholders in October 1996.
Unless terminated sooner, the 1996 Plan will terminate automatically in
October 2006.
In April 1999, the Board voted to increase the number of shares authorized
for issuance under the 1996 Plan by an aggregate of 750,000 shares, and to
provide for an automatic annual increase (the "Evergreen Increase") in the
number of shares reserved for issuance under the 1996 Plan each year on the
first day of the company's fiscal year (beginning in 2000) by a number of
shares equal to the lessor of (i) 750,000 shares, (ii) 4% of the then
outstanding shares of Common Stock or (iii) a lesser amount determined by the
Board of Directors, bringing the total shares currently reserved for issuance
under the 1996 Plan to 3,825,000 shares.
Proposal Three seeks stockholder approval of a 3,500,000 increase in shares
authorized under the 1996 Plan and to change the Evergreen Increase in the
number of shares reserved for issuance under the Stock Plan each year on the
first day of the Company's fiscal year (beginning in 2001) by a number of
shares equal to the lesser of (i) 2,000,000 shares, (ii) 7% of the then
outstanding shares of Common Stock or (iii) a lesser amount determined by the
Board. As of the Record Date and after giving effect to the proposed 3,500,000
share increase, there were 3,844,803 available for future grant under the 1996
Plan. Approval of this amendment to the 1996 Plan also perfects the
stockholder approval requirement of Section 422 of the Code.
Stock options are extremely important in order to recruit, reward and retain
experienced and highly skilled executives and key employees. Internet and
technology companies like Talk City have historically used stock options as an
integral part of recruitment and retention packages. We compete directly with
other companies for experienced executives, sales, engineering and other
highly skilled personnel in the very competitive Silicon Valley job market and
believe that we must be able to offer competitive compensation packages to
attract the caliber of individual necessary to effectively operate and grow
our business. The significant increase in our personnel over the last year as
well as the projected growth of our employee infrastructure are primarily
responsible for the need to increase shares issuable under the 1996 Plan. The
total number of our employees has increased from 56 as of December 31, 1998 to
197 as of December 31, 1999.
Vote Required
Ratification of the amendment to the Amended and Restated 1996 Stock Option
Plan will require the affirmative vote of a majority of the outstanding shares
of Common Stock represented, in person or by proxy, and entitled to vote on
this proposal. Abstentions will have the same effect as a vote against this
proposal. Broker non-votes will not be counted as having been represented.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
AMENDMENT TO THE AMENDED AND RESTATED 1996 STOCK OPTION PLAN.
The essential provisions of the 1996 Plan are outlined below.
Administration
The 1996 Plan may be administered by the Board, the Compensation Committee
or a committee appointed by the Board. The 1996 Plan is currently administered
by the Board (the "Administrator").
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Eligibility; Limits on Grants
The 1996 Plan provides that nonstatutory stock options and stock purchase
rights may be granted to an Employee, Director or Consultant ("Service
Providers"). Incentive stock options may be granted only to Employees. The
Administrator approves the participants, the time or times at which options
and stock purchase rights are granted and the number of shares subject to
each. The 1996 Plan is administered so as to satisfy certain requirements
under the federal securities laws, including the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the Code.
The 1996 Plan limits the discretion allowed to the Administrator in granting
options. This limitation is intended to preserve the Company's ability to
deduct for federal income tax purposes the compensation expense relating to
options exercised by certain executive officers under the 1996 Plan. The
limitation provides that under the 1996 Plan no employee may be granted in any
one fiscal year options and stock purchase rights to receive more than 500,000
shares of Common Stock (except in connection with the commencement of
employment, in which case options and stock purchase rights to purchase no
more than an additional 500,000 shares may be granted). See discussions below
under "Tax Information" for a summary of the more general rules governing the
availability to the Company of tax deductions in connection with stock options
exercised under the 1996 Plan.
Terms of Options and Stock Purchase Rights
The terms of options and stock purchase rights granted under the 1996 Plan
are determined by the Administrator but may not be longer than ten years,
except in the case of incentive stock options granted to an optionee who at
the time of grant owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any parent or
subsidiary of the Company (a "10% Stockholder"), for whom the term of each
option may not be longer than five years. Each option or stock purchase right
is evidenced by a written agreement between the Company and the optionee to
whom such option or stock purchase right is granted and is subject to the
following additional terms and conditions:
(a) Exercise Of The Option: The Administrator determines when options may be
exercisable. Shares subject to an option generally vest and are exercisable
over four (4) years at the rate of 25% of the Shares subject to the option
shall vest twelve months after the Vesting Commencement Date, and 1/48 of the
Shares subject to the option shall vest each month thereafter, subject to
Optionee's continuing to be a Service Provider on such dates. The
Administrator may accelerate the vesting of any outstanding option. The
purchase price of the shares to be purchased upon exercise of any option may
be paid, at the discretion of the Administrator, in cash, check, or other
shares of Common Stock (with some restrictions), or, if specified in the
optionee's option agreement, promissory note, cashless exercise, a reduction
in the amount of any Company liability to the optionee, any combination
thereof, or other legally permitted consideration.
(b) Exercise Price: The exercise price under the 1996 Plan is determined by
the Administrator, provided that, in the case of an incentive stock option,
the exercise price may not be less than 100% of the fair market value of the
Common Stock on the date the option is granted, and, provided further, that,
in the case of an incentive stock option granted to a 10% Stockholder, the
exercise price may be no less than 110% of the fair market value of the Common
Stock on the date the option is granted. In the case of a nonstatutory stock
option, the exercise price is determined by the Administrator; however, in the
case of a nonstatutory option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the exercise
price may not be less than 100% of the fair market value of the Common Stock
on the date the option is granted.
(c) Termination of Relationship as a Service Provider: If an optionee's
status as a Service Provider terminates for any reason other than death or
disability, an option under the 1996 Plan may be exercised within such period
of time as is specified in the Option Agreement, or, in the absence of a
specified time in the Option Agreement, for three (3) months after such
termination (but in no event later than the date of expiration of the term of
the option) and may be exercised only to the extent such option was
exercisable and vested on the date of termination.
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(d) Disability of Optionee: If an optionee's continuous status as a Service
Provider terminates as a result of the optionee's disability (as defined in
Section 22(e)(3) of the Code), an option may be exercised within twelve (12)
months after termination of employment due to such disability (but in no event
later than the date of expiration of the term of the option), but only to the
extent such option was exercisable and vested on the date of termination.
(e) Death of Optionee: If an optionee should die while a Service Provider of
the Company, an option may be exercised by the optionee's estate at any time
within twelve (12) months after the date of death (but in no event later than
the date of expiration of the term of the option), but only to the extent such
options were exercisable and vested on the date of death.
(f) Termination of Options: Stock options granted under the 1996 Plan expire
as determined by the Administrator, but in no event later than ten (10) years
from the date of grant. However, in the case of an incentive stock option
granted to a 10% Stockholder, the term of the option may not be greater than
five (5) years. Under the form of option agreement currently used by the
Company, options generally expire ten (10) years from the date of grant.
(g) Non-Transferability of Options and Stock Purchase Rights: Unless
otherwise specified by the Administrator, options and stock purchase rights
are non-transferable by the optionee other than by will or by the laws of
descent or distribution and are exercisable during the optionee's lifetime
only by the optionee.
(h) Other Provisions: The option agreement may contain such other terms,
provisions and conditions not inconsistent with the 1996 Plan as may be
determined by the Administrator.
The 1996 Plan permits the Company to grant stock purchase rights to purchase
Common Stock of the Company either alone, in addition to, or in tandem with
other awards under the 1996 Plan and/or cash awards made outside the Plan.
Upon the granting of a stock purchase right under the 1996 Plan, the offeree
is advised in writing of the terms, conditions and restrictions related to the
offer, including the number of shares of Common Stock that the offeree is
entitled to purchase, the price to be paid and the time within which the
offeree must accept such offer. The offer is accepted by execution of a
restricted stock purchase agreement between the Company and the offeree.
Unless the Administrator determines otherwise, the restricted stock purchase
agreement grants the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment or
consulting relationship with the Company for any reason (including death or
disability as defined in Section 22(e)(3) of the Code). The purchase price for
shares repurchased pursuant to this repurchase option is the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of
the purchaser to the Company. The repurchase option lapses at such rate as the
Administrator may determine.
Upon exercise of a stock purchase right, the purchaser has all rights of a
stockholder of the Company. As of the Record Date, the Company has not granted
any stock purchase rights under the 1996 Plan.
Changes in Capitalization
In the event a change, such as a stock split or stock dividend payable in
Common Stock, is made in the Company's capitalization which results in an
exchange of Common Stock for a greater or lesser number of shares without
receipt of consideration by the Company, appropriate adjustment will be made
in the number of shares reserved for issuance under the 1996 Plan and in the
number of shares subject to outstanding options and stock purchase rights
under the 1996 Plan, as well as in the price per share of Common Stock covered
by such options and stock purchase rights. Such adjustment will be made by the
Board of Directors, whose determination will be final, binding and conclusive.
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In the event of a proposed dissolution or liquidation of the Company,
options and stock purchase rights outstanding under the 1996 Plan will
terminate immediately prior to such action. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company into another corporation, outstanding options and stock purchase
rights may be assumed or an equivalent option or stock purchase right may be
substituted by the successor entity. If such outstanding options and stock
purchase rights are not assumed or substituted, however, the Administrator
must provide for all of the options and stock purchase rights to become fully
vested and immediately exercisable for a period of fifteen (15) days, and the
option or stock purchase right shall terminate upon the expiration of such
period.
Amendment and Termination of the Plan
The Board may amend the 1996 Plan at any time, or may terminate the 1996
Plan, without stockholder approval; provided, however, that stockholder
approval is required for any amendment to the 1996 Plan for which stockholder
approval would be required under the Code or other applicable rules, and no
action by the Board or stockholders may unilaterally impair any option or
stock purchase right previously granted under the 1996 Plan. In any event, the
1996 Plan will terminate in October 2006. Any options outstanding under the
1996 Plan at the time of its termination will remain outstanding until they
expire by their terms.
Federal Income Tax Information
The following is a summary of the effect of federal income taxation with
respect to the grant and exercise of options and stock purchase rights under
the 1996 Plan. The summary does not purport to be complete and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which a participant may reside.
Incentive Stock Options
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% Stockholder of the Company. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized
by the optionee. Any gain or loss recognized on such a premature disposition
of the shares in excess of the amount treated as ordinary income will be
characterized as long-term or short-term capital gain or loss, depending on
the holding period.
Nonstatutory Stock Options
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory stock option.
However, upon the option's exercise, the optionee will recognize taxable
income, generally measured as the excess of the then fair market value of the
shares purchased over the exercise price. Any taxable income recognized in
connection with an option exercise by an optionee who is also an employee of
the Company will be subject to tax withholding by the Company. The Company
will be entitled to a tax deduction in the same amount as the ordinary income
recognized by the optionee. Upon resale of such shares by the optionee, any
difference between the sales price and the exercise price, to the extent not
recognized as taxable income as described above, will be treated as long-term
or short-term capital gain or loss, depending on the holding period.
10
<PAGE>
Stock Purchase Rights
Stock purchase rights will generally be taxed in the same manner as non-
statutory stock options. However, the stock issued upon exercise of a stock
purchase right is usually subject to the Company's right to repurchase such
stock upon the purchaser's termination of employment with the Company, which
right lapses progressively over time. As a result, at the time of purchase,
this restricted stock is subject to a "substantial risk of forfeiture" within
the meaning of Section 83 of the Code. As a result, the purchaser will not
recognize ordinary income at the time of purchase. Instead, the purchaser will
recognize ordinary income on the date or dates when the stock ceases to be
subject to substantial risk of forfeiture. The stock will generally cease to
be subject to a substantial risk of forfeiture when it is no longer subject to
the Company's right to repurchase the stock (i.e., as it "vests"). At such
times, the purchaser will recognize the ordinary income measured as the
difference between the purchase price and the fair market value of the stock
on the date the stock is no longer subject to a substantial risk of
forfeiture. The ordinary income recognized by a purchaser who is an employee
will be treated as wages and will be subject to tax withholding by the
Company. Generally, the Company will be entitled to a tax deduction in the
amount and at the time the purchaser recognizes ordinary income.
Notwithstanding the foregoing, a purchaser may accelerate the date of his or
her recognition of ordinary income, and the beginning of any capital gain
holding period, by timely filing an election pursuant to Section 83(b) of the
Code. In such event, the ordinary income recognized, if any, would be equal to
the difference between the purchase price and the fair market value of the
stock on the date of purchase, and the capital gain holding period would
commence on the purchase date.
Different rules may apply in the case of purchasers who are subject to
Section 16 of the Exchange Act.
Participation in the 1996 Plan
The grant of options and stock purchase rights under the 1996 Plan to eligible
service providers is subject to the discretion of the Administrator. The table
on page 22 sets forth information with respect to options granted under the
1996 Plan during 1999 to each of the officers named in the Summary
Compensation Table. The term of options under the 1996 Plan (other than those
granted to 10% Stockholders, as to which the term is five years from the date
of grant) is generally ten years from the date of grant.
11
<PAGE>
EXECUTIVE OFFICERS
In addition to the executive officers who are members of the Board of
Directors, the following individuals are executive officers of the Company:
V. David Watkins has served as our President and Chief Operating Officer
since December 1999. From March 1999 to November 1999, Mr. Watkins served as
the President of Diamond Multimedia, Inc.'s RioPort.com Division. Mr. Watkins
and his team successfully identified a new market opportunity for MP3 audio on
the Internet. From April 1996 to February 1999, Mr. Watkins served as Vice
President of the Multimedia Division for Diamond Multimedia, Inc. and was
chartered to oversee the management of the audio and core graphics product
lines. From June 1995 to March 1996, Mr. Watkins served as Executive Vice
President of Catapult Entertainment, a company specializing in networked
consumer entertainment game play. From June 1989 to May 1995, Mr. Watkins held
various executive positions for Borland International including Vice President
of Worldwide Marketing and Technical Support and Vice President and General
Manager of the dBase and Paradox Business Groups. From June 1986 to May 1989,
Mr. Watkins was a Vice President at Symantec Corporation. Mr. Watkins received
a M.B.A. degree from Stanford University and a B.A. degree in Economics from
Connecticut College.
Jeffrey Snetiker has served as our Senior Vice President, Chief Financial
and Administrative Officer since March 1999. From October 1996 to February
1999, Mr. Snetiker was Principal Consultant of Executive Business Advisory, a
consulting company. From January 1995 to September 1996, Mr. Snetiker served
as Senior Vice President, Finance and Administration of United Paramount
Network, a television broadcast network. From October 1985 to November 1993,
Mr. Snetiker held various executive positions for Reeves Entertainment, a
television production and distribution company, including Executive Vice
President, Chief Financial and Administrative Officer from January 1990 to
November 1993, Senior Vice President, Finance and Administration from January
1989 to December 1989 and Vice President, Finance and Administration from
October 1985 to December 1988. From January 1983 to September 1985, Mr.
Snetiker was Vice President and Controller of Group W Productions, a
subsidiary of Westinghouse Broadcasting & Cable. Mr. Snetiker received a B.S.
degree in Accounting from C.W. Post College of Long Island University.
Jenna Woodul has served as our Vice President of Community since she co-
founded our company in March 1996. From January 1993 to March 1996, Ms. Woodul
cultivated the online community for Apple's eWorld, where she directed the
Community Center. Ms. Woodul worked at Apple from 1984 to 1988 in the area of
Apple's business communications service, AppleLink, as a core member of the
team which developed the community-oriented AppleLink Personal Edition, which
later became America Online. Ms. Woodul received an M.A. degree from the
University of New Mexico and a B.A. degree from Vassar College.
Chris N. Christensen has served as our Vice President of Engineering and
Operations since May 1996. From May 1993 to May 1996, Mr. Christensen served
as the Engineering Manager for Apple's Online Services division. Mr.
Christensen managed the Macintosh and Windows clients for Apple's eWorld
online service. He also wrote the email application for the Newton and worked
on the QuickTime plug-in for Macintosh. Prior to his experience at Apple, Mr.
Christensen worked at Hewlett Packard for five years. Mr. Christensen received
an M.E. degree and a B.S. degree from Rensselaer Polytechnic Institute.
Patricia Griffith has served as our Vice President of Sales since January
1998. From July 1997 to January 1998, Ms. Griffith served as our Director of
Western Sales. Ms. Griffith joined our company from Women.com where she served
as Vice President of Sales from January 1996 to July 1997. At Women.com, Ms.
Griffith was responsible for developing the advertising strategies and
programs that launched a successful advertising model for Women's Wire. From
October 1986 to December 1995, Ms. Griffith worked for Harte Hanks
Communications, a marketing company, where she served as Senior Accountant
Executive for Major/National Accounts. Ms. Griffith received a B.A. degree in
History and a B.A. degree in Anthropology from the University of California,
Santa Barbara.
12
<PAGE>
Christopher J. Escher has served as our Vice President of Marketing since
August 1997. From February 1997 to August 1997, Mr. Escher served as the
managing director of the Palo Alto, California office of Cunningham
Communication, Inc., a marketing communication firm specializing in high
technology concerns. At Cunningham, Mr. Escher led the Cisco Systems account,
among others. From October 1984 to February 1997, Mr. Escher worked at Apple
in a variety of marketing and communications roles, from Online Services
Marketing Director to Public Relations Director and Creative Director. He
culminated his career at Apple in 1997 as Vice President, Corporate
Communications. Mr. Escher received a B.A. degree in British Studies from
Stanford University.
13
<PAGE>
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of December 31, 1999 for the following: (i) each person or
entity who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock; (ii) each of the Company's
directors; (iii) each of the officers named in the Summary Compensation Table;
and (iv) all current directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially Beneficially
Name of Beneficial Owner Owned(1) Owned
- ------------------------ ------------ ------------
<S> <C> <C>
Martin J. Yudkovitz(2).............................. 2,452,223 9.7%
National Broadcasting Company, Inc. and affiliates
Thomas A. Hirschfeld(3)............................. 2,043,320 8.4%
Funds Managed by Patricof & Co. Ventures, Inc.
New York Life Insurance(4).......................... 1,471,469 6.0%
Peter H. Friedman(5)................................ 1,418,934 5.8%
Kenneth A. Bronfin(6)............................... 1,264,554 5.2%
Hearst Communications, Inc.
Cox Interactive Media, Inc.(7)...................... 1,250,000 5.1%
Barry M. Weinman(8)................................. 1,133,050 4.6%
Media Technology Equity Partners, L.P.
Joseph A. Graziano(9)............................... 580,761 2.4%
Jenna Woodul(10).................................... 382,691 1.6%
John Sculley(11).................................... 265,762 1.1%
Christopher Escher(12).............................. 156,155 *
Jeffrey Snetiker.................................... 130,638 *
Patricia Griffith................................... 76,742 *
All current directors and executive officers as a
group (17 persons)(13)............................. 10,795,515 44.1%
</TABLE>
- --------
* Less than 1%
(1) The number of shares outstanding and percent of ownership is based on
24,461,370 shares of Common Stock outstanding as of December 31, 1999.
Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares of Common Stock beneficially owned, subject to community property
laws where applicable. The shares of Common Stock issuable pursuant to
options and warrants that are currently exercisable or exercisable within
60 days of December 31, 1999 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person, but are not deemed to
be outstanding and to be beneficially owned for the purpose of computing
the percentage ownership of any other person.
(2) Principal address is 30 Rockefeller Plaza, New York, NY 10112. Number of
shares includes 1,050,000 shares held by NBC, 500,000 shares held by NBC
Multimedia, warrants issued to NBC to purchase 391,667 shares exercisable
within 60 days of December 31, 1999, warrants issued to NBC Multimedia to
purchase 505,556 shares exercisable within 60 days of December 31, 1999
and an option issued to Mr. Yudkovitz to purchase 5,000 shares
exercisable within 60 days of December 31, 1999. Mr. Yudkovitz, a
director of our company, is President and Chief Executive Officer of NBC
Multimedia. Mr. Yudkovitz disclaims beneficial ownership of the shares
held by NBC and NBC Multimedia except to the extent of his proportional
interest in the entities.
(3) Principal address is 445 Park Avenue, New York, NY 10022. Number of
shares includes 2,038,320 shares held by funds managed by Patricof & Co.
Ventures, Inc. and an option issued to Mr. Hirschfeld to purchase 5,000
shares exercisable within 60 days of December 31, 1999. Mr. Hirschfeld, a
director of our company, is a Managing Director of Patricof & Co.
Ventures, Inc. Mr. Hirschfeld disclaims beneficial ownership of the
shares held by the funds managed by Patricof & Co. Ventures, Inc. except
to the extent of his proportional interest in the entities.
14
<PAGE>
(4) Principal address is 51 Madison Avenue, Room 206, New York, NY 10010.
Number of shares includes warrants issued to New York Life Insurance to
purchase 40,000 shares exercisable within 60 days of December 31, 1999.
(5) Number of shares includes a warrant issued to Mr. Friedman to purchase
5,000 shares exercisable within 60 days of December 31, 1999.
(6) Principal address is 959 8th Avenue, New York, NY 10019. Number of shares
includes 1,259,554 shares held by Hearst Communications, Inc. and an
option issued to Mr. Bronfin to purchase 5,000 shares exercisable within
60 days of December 31, 1999. Mr. Bronfin, a director of our company, is
Senior Vice President and Deputy Group Head of the Hearst New Media and
Technology division of Hearst Communications, Inc. Mr. Bronfin disclaims
beneficial ownership of the shares held by Hearst Communications, Inc.
except to the extent of his proportional interest in the entities.
(7) Principal address is 530 Means Street, Atlanta, GA 30318.
(8) Number of shares includes 1,128,050 shares held by Media Technology
Equity Partners, L.P. and an option issued to Mr. Weinman to purchase
5,000 shares exercisable within 60 days of December 31, 1999.
Mr. Weinman, a director of our company, is a Managing Director of Media
Technology Equity Partners and a General Partner of Media Technology
Ventures and AVI Management Partners. Mr. Weinman disclaims beneficial
ownership of the shares held by Media Technology Equity Partners, L.P.
except to the extent of his proportional interest in the entities.
(9) Number of shares includes an option issued to Mr. Graziano to purchase
5,000 shares exercisable within 60 days of December 31, 1999.
(10) Number of shares includes a warrant issued to Ms. Woodul to purchase
2,000 shares exercisable within 60 days of December 31, 1999.
(11) Principal address is 90 Park Avenue, New York, NY 10016. Number of shares
includes 31,667 shares held by Sculley Brothers LLC, 10,000 shares held
by Sculley Investment Ltd. Partnership, 2,500 shares held by John Sculley
Irrevocable Trust fbo Madeline Allnatt u/d/t 12/30/97, 2,500 shares held
by John Sculley Irrevocable Trust fbo Oliver Allnatt u/d/t 12/30/97, and
an option issued to Mr. Sculley to purchase 5,000 shares exercisable
within 60 days of December 31, 1999.
(12) Number of shares includes a warrant issued to Mr. Escher to purchase
5,000 shares exercisable within 60 days of December 31, 1999.
(13) Includes an aggregate of:
. 1,700,000 shares issued upon exercise of stock options;
. warrants to purchase 909,223 shares exercisable within 60 days of
December 31, 1999; and
. options to purchase 30,000 shares exercisable within 60 days of
December 31, 1999.
15
<PAGE>
OTHER INFORMATION
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity securities ("10% of
Class Stockholders") to file with the Securities and Exchange Commission (the
"SEC") reports of ownership on Form 3 and reports of changes in ownership on
Form 4 or Form 5. Such executive officers, directors and 10% of Class
Stockholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no
Forms 5 were required for such persons, the Company believes that, through the
Record Date, its executive officers, directors and 10% of Class Stockholders
complied with all applicable Section 16(a) filing requirements except a Form 3
required to be filed by V. David Watkins and Jay Friedman by December 24,
1999. The forms were filed on January 3, 2000.
16
<PAGE>
CERTAIN TRANSACTIONS
Equity Investment Transactions for Cash
In June 1996, we sold 150,000 shares of Series A preferred stock for $2.00
per share. In July 1996 we sold 350,000 shares of Series A1 preferred stock
for $2.00 per share. In November 1996, we sold 3,294,785 shares of Series B
preferred stock for $2.80 per share. In August and September of 1998, we sold
5,592,033 shares of Series D preferred stock at $4.00 per share. In April
1999, we sold 2,499,882 shares of Series E preferred stock for $8.00 per
share. Listed below are the directors, executive officers and stockholders who
beneficially own 5% or more of our securities who participated in these
financings.
<TABLE>
<CAPTION>
Directors, Executive Series A Series A1 Series B Series D Series E Aggregate
Officers Preferred Preferred Preferred Preferred Preferred Cash
and 5% Stockholders Stock Stock Stock Stock Stock Consideration
-------------------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Funds managed by:
Patricof & Co.
Ventures, Inc.(a)...... -- -- 714,287 1,253,405 -- $6,100,000
Cox Interactive Media,
Inc. .................. -- -- -- 1,250,000 -- 5,000,000
New York Life Insurance
Company ............... -- -- 714,286 400,000 175,000 5,000,000
Hearst Communications,
Inc.(b) ............... -- -- -- 292,033 210,521 2,852,296
</TABLE>
- --------
(a) The Patricof & Co. Ventures, Inc. shares include shares purchased by APA
Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P. and Patricof Private
Investment Club, L.P. Mr. Hirshfeld, a Managing Director of Patricof & Co.
Ventures, Inc. and a director of our company, disclaims beneficial
ownership of the securities held by these entities except for his
proportional interest in the entities.
(b) Mr. Bronfin, a director of our company, is Senior Vice President and
Deputy Group Head of the Hearst New Media and Technology division of
Hearst Communications, Inc. Mr. Bronfin disclaims beneficial ownership of
the securities held by this entity except for his proportional interest in
the entity.
NBC and Affiliates Agreements
NBC
We entered into a series of letter agreements with NBC in April and August
1998, as amended April 15, 1999, pursuant to which we aired advertisements on
various NBC television programs. In consideration for NBC's agreement to air
the advertisements, we issued:
. an aggregate of 384,615 shares, at a price per share of $4.68, of our
Series C preferred stock, which converts to 450,000 shares of common
stock;
. a warrant to purchase 125,000 shares, with an exercise price per share
of $6.00, of Series D preferred stock;
. an aggregate of 600,000 shares, at a price per share of $4.00, of our
Series D preferred stock; and
. a warrant to purchase a total of 266,667 shares of Series D preferred
stock with a weighted average exercise price of $8.44 per share.
The exercise prices of the warrant to purchase an aggregate of 266,667
shares of Series D preferred stock are as follows:
. with respect to 41,667 shares, $6.00 per share;
. with respect to 125,000 shares, $8.00 per share; and
. with respect to 100,000 shares, $10.00 per share.
17
<PAGE>
Mr. Yudkovitz, a director of our company, is President and Chief Executive
Officer of NBC Multimedia, a subsidiary of NBC.
NBC Multimedia
In February 1998, we executed a letter agreement with NBC Multimedia, Inc.
pursuant to which we include localized versions of our chat service within NBC
Interactive Neighborhood's menu of localized Web services. In consideration,
we issued a warrant to NBC Multimedia to purchase 320,513 shares of common
stock at an exercise price per share of $4.68. On August 31, 1998, we issued a
new warrant to NBC Multimedia, upon cancellation and in replacement of the
original NBC Multimedia warrant, exercisable for 375,000 shares of common
stock, at an exercise price per share of $4.00, pursuant to an anti-dilution
protection contained in the original warrant.
In August 1998, we entered into an operating agreement with NBC Multimedia
pursuant to which we provide our community services to various NBC Web sites.
In consideration for the execution of the operating agreement by NBC
Multimedia, we issued:
. 500,000 shares of our Series D preferred stock, at a purchase price per
share of $4.00; and
. a warrant to purchase a total of 130,556 shares of Series D preferred
stock with a weighted average exercise price of $7.66 per share.
The warrant has the following exercise prices:
. with respect to 55,555 shares, $6.00 per share;
. with respect to 41,666 shares, $8.00 per share; and
. with respect to 33,335 shares, $10.00 per share.
Hearst Agreement
Pursuant to an agreement, dated October 30, 1998, as amended on April 15,
1999, with the Hearst New Media and Technology division of Hearst
Communications, Inc., we issued an aggregate of 750,000 shares of our Series D
preferred stock, at a price per share of $4.00, in consideration for the
publication by Hearst, over an agreed upon time period beginning September 3,
1998, of our advertisements in various magazines owned by Hearst. Mr. Bronfin,
a director of our company, is Senior Vice President and Deputy Group Head of
the Hearst New Media and Technology division of Hearst Communications, Inc.
Loan Financing
In April and July of 1998, we engaged in a loan financing pursuant to which
we issued to the investors in the financing convertible promissory notes and
warrants to purchase shares of common stock. An aggregate principal amount of
$2,903,000 was issued pursuant to the loan financing.
The principal plus interest on the notes were convertible, at the option of
each individual investor, into Series D preferred stock upon the initial
closing of the Series D financing, which occurred on August 25, 1998, at a
conversion price per share of $4.00. Each individual warrant issued pursuant
to the financing was exercisable for a number of shares of common stock equal
to 30% of the principal amount of the note held by the investor divided by
$3.00 per share. The exercise price of the warrants is $3.00 per share.
Funds managed by Patricof & Co. Ventures, Inc. invested an aggregate
principal amount of $900,000 in the loan financing, which converted to an
aggregate of 228,405 shares of Series D preferred stock. These funds also
received warrants to purchase an aggregate of 90,000 shares of common stock.
The Patricof & Co. Ventures,
18
<PAGE>
Inc. shares and warrants include shares and warrants held by APA Excelsior IV,
L.P., APA Excelsior IV/Offshore, L.P. and Patricof Private Investment Club,
L.P. Funds managed by Patricof & Co. Ventures, Inc. own more than 5% of our
securities. Mr. Hirschfeld, a Managing Director of Patricof & Co. Ventures,
Inc. and a director of our company, disclaims beneficial ownership of the
securities held by these entities except for his proportional interest in the
entities.
New York Life Insurance Company invested an aggregate principal amount of
$400,000 in the loan financing which converted to an aggregate of 102,183
shares of Series D preferred stock. New York Life also received warrants to
purchase an aggregate of 40,000 shares of common stock. New York Life
Insurance Company owns more than 5% of our securities.
19
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Report of the Compensation Committee of the Board of Directors
The Compensation Committee of the Board of Directors sets the compensation
of the Chief Executive Officer, reviews the design and effectiveness of
compensation programs for other key executives, and approves stock option
grants for Company employees. The committee is composed entirely of outside
directors who have never served as officers of the Company except for Mr.
Graziano, who was the acting Chief Financial Officer of the Company from May
1996 to March 1999.
The goals of the compensation committee are to align compensation with the
Company's performance and objectives and to attract, retain and reward
executive officers and employees whose contributions are critical to the long-
term success of the Company.
The primary components of the Company's executive compensation package are
salary and stock options. The Company sets its compensation package to be
competitive with the marketplace.
Salary
The level of base salary for executive officers is set based upon their
scope of responsibility, level of experience and individual performance. The
salary range for each position is reviewed against the Radford Survey (a
third-party compensation survey) data for high-tech companies with similar
sales volumes located in the same geographic area. Additionally, the committee
takes into account general business and economic conditions and current
Company circumstances.
Stock options
The committee believes that the granting of stock options is an important
method of rewarding and motivating Company employees by aligning employees'
interests with the Company's stockholders. The committee also recognizes that
a stock incentive program is a necessary element in a competitive compensation
package. The program utilizes a vesting schedule to encourage employees of the
Company to continue in the employ of the Company and to encourage employees to
maintain a long-term perspective. In determining the size of stock option
grants, the committee focuses primarily on the employees' current and expected
future value to the Company. The committee also considers the number of
unvested options held by the employee.
Compensation of the Chief Executive Officer
Peter H. Friedman has been Chairman of the Board and CEO of the Company
since 1996. The Committee used the same compensation policy described above
for all executive officers to determine Mr. Friedman's fiscal 1999
compensation. In setting both the cash-based and the equity-based elements of
Mr. Friedman's compensation, the committee considered competitive forces, the
company's performance and Mr. Friedman's leadership in achieving the Company's
long-term goals. During fiscal 1999, Mr. Friedman received a base salary of
$292,884.
COMPENSATION COMMITTEE
Thomas P. Hirschfeld
Joseph A. Graziano
Barry M. Weinman
20
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee was formed in November 1996 to review
and approve the compensation and benefits for the Company's key executive
officers, administer the Company's stock option plans and make recommendations
to the Board of Directors regarding such matters. The committee is currently
composed of Messrs. Hirschfeld, Graziano and Weinman. No interlocking
relationship exists between any member of the Company's Board of Directors or
Compensation Committee and any member of the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
Summary Compensation Table
The following table sets forth certain information concerning total
compensation received by the Chief Executive Officer and each of the four
other most highly compensated executive officers (collectively, the "Named
Officers") for services rendered to the Company in all capacities for the
fiscal years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------- ------------
Other Annual Securities All Other
Name and Principal Fiscal Salary Compensation Bonus Underlying Compensation
Position Year ($) ($) ($) Options (#) ($)
- ------------------ ------ ------- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Friedman ...... 1999 292,884 -- -- -- --
Chairman of the Board
and 1998 225,000 -- -- -- --
Chief Executive Officer 1997 225,000 -- -- -- --
Jeffrey Snetiker(1) .... 1999 211,538 58,820 -- 175,000 --
Senior Vice President,
Chief Financial 1998 -- -- -- -- --
and Administrative
Officer 1997 -- -- -- -- --
Patricia Griffith ...... 1999 147,923 85,305(2) -- -- --
Vice President of Sales 1998 140,000 21,569(2) -- 55,000 --
1997 68,076 -- -- 20,000 --
Christopher J. Escher .. 1999 155,769 -- -- -- --
Vice President of
Marketing 1998 150,000 -- -- -- --
1997 60,576 -- -- 150,000 --
Jenna Woodul ........... 1999 137,557 -- -- -- --
Senior Vice President
of Community 1998 125,000 -- -- -- --
1997 125,000 -- -- -- --
</TABLE>
- --------
(1) Mr. Snetiker joined the Company on March 1, 1999. The amount shown in the
All Other Compensation column for 1999 covers temporary living expenses
and commuting costs from Mr. Snetikers residence in Los Angeles, together
with a gross-up to cover applicable taxes.
(2) Consists of sales commissions.
21
<PAGE>
Option Grants in Fiscal 1999
The following table sets forth certain information regarding the stock
options granted during fiscal 1999 to each of the Named Officers. No stock
appreciation rights were granted to the Named Officers during fiscal 1999.
<TABLE>
<CAPTION>
Potential Realizable Value
At Assumed Annual Rates
of Stock Price Appreciation
Individual Grants For Option Term(4)
----------------------------------------------- ---------------------------
Number of % of Total Exercise
Securities Options Price
Underlying Granted to Per
Options Employees In Share Expiration
Granted Fiscal Year(2) (3) Date 5% 10%
Name ---------- -------------- -------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Friedman....... -- -- -- -- -- --
Jeffrey Snetiker........ 125,000(1) 10.8% $ 5.0000 03/01/09 $ 393,059 $ 996,089
50,000 4.3% $13.9375 12/16/09 $ 438,261 $ 1,110,639
Patricia Griffith....... -- -- -- -- -- --
Christopher J. Escher... -- -- -- -- -- --
Jenna Woodul............ -- -- -- -- -- --
</TABLE>
- --------
(1) Each option is immediately exercisable and vests according to a vesting
schedule, subject to the employee's continued employment with the Company.
(2) Based on a total of 1,155,925 options granted to all employees in fiscal
1999.
(3) The exercise price per share of options granted prior to July 20, 1999
represented the fair market value as determined by the Board of Directors
on the date the options were granted. The exercise price per share of
options granted after July 19, 1999 represented the closing price for such
stock as quoted by the NASDAQ stock exchange on the date the options were
granted.
(4) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation based upon the deemed fair market value are mandated by the
rules of the SEC and do not represent the Company's estimate or projection
of the future common stock price. Actual gains, if any, on stock option
exercises are dependent on the future financial performance of the
Company, overall market conditions and the option holders' continued
employment through the vesting period. There can be no assurance that the
amounts reflected in this table will be achieved.
22
<PAGE>
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values
The following table sets forth, as to the Named Officers, certain
information concerning stock options exercised during Fiscal 1999 and the
number of shares covered by exercisable stock options as of December 31, 1999.
Also reported are values for "in-the-money" options that represent the
positive spread between the respective exercise prices of outstanding options
and the fair market value of the Company's Common Stock as of December 31,
1999. No stock appreciation rights to the Named Officers were outstanding
during Fiscal 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at Fiscal Year the-Money Options at
Shares End Fiscal Year End(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Friedman....... -- -- -- -- $ -- $ --
Jeffrey Snetiker........ 125,000(2)(3) -- -- 50,000 -- 609,375
Patricia Griffith....... -- -- -- -- -- --
Christopher J. Escher... -- -- -- -- -- --
Jenna Woodul............ -- -- -- -- -- --
</TABLE>
- --------
(1) The value of underlying securities is based on the $26.125 per share
closing price of the Company's Common on December 31, 1999 minus the
aggregate exercise price.
(2) All options granted under the 1996A Stock Option Plan and options granted
to officers of the Company under the 1996 Stock Option Plan prior to July
19, 1999 may be exercised immediately upon grant and prior to full
vesting, subject to the optionee entering into a restricted stock purchase
agreement with the Company with respect to unvested shares.
(3) Includes no vested shares and 125,000 unvested shares as of December 31,
1999.
Employment Contracts and Change of Control Agreements
The Company and Jeffrey Snetiker are parties to a letter of agreement dated
February 18, 1999 governing his employment with the Company. Under the
agreement, the Company offered Mr. Snetiker an initial annual salary of
$250,000. In addition, he was granted an initial option to purchase 125,000
shares of Common Stock at an exercise price of $5.00 per share.
In March 1999, Mr. Snetiker exercised an option grant to purchase an
aggregate of 125,000 shares of common stock and entered into a restricted
stock purchase agreement regarding the shares. Pursuant to the restricted
stock purchase agreement, we have a right to repurchase any of the unvested
125,000 shares upon his termination of employment. As of December 31, 1999,
all 125,000 shares held by Mr. Snetiker remain unvested. Mr. Snetiker paid the
$5.00 exercise price per share for such shares by delivery of a ten-year full-
recourse promissory note bearing interest at 5.23% per annum, compounded semi-
annually. The note is secured by the shares of common stock purchased by Mr.
Snetiker. As of December 31, 1999, approximately $625,000 in unpaid principal
and interest was outstanding in the aggregate under the note. In addition, Mr.
Snetiker's stock option agreement provides that, if at any time prior to March
1, 2000:
. we enter into any transaction which involves a change of control and Mr.
Snetiker's employment is terminated as a result of the change of
control; or
. Mr. Snetiker's employment is terminated other than for cause or as a
result of voluntary resignation
then, in each case, 25% of the unvested shares held by Mr. Snetiker will
automatically vest in full. Generally, a "change of control" is defined to
include mergers, asset sales or other transactions involving a transfer of at
least 50% of our securities.
The Company and V. David Watkins are parties to a letter agreement dated
October 7, 1999 governing his employment with the Company. Under the
agreement, the Company offered Mr. Watkins an initial annual salary of
$325,000, a signing bonus of $45,000 payable in January 2000, and a $30,000
bonus payable after one
23
<PAGE>
hundred eighty days of service with the Company. In addition, he was granted
an initial option to purchase 450,000 shares of Common Stock. The option
becomes exercisable as to 112,500 shares after the first six months of
employment, and the remainder becomes exercisable as to 25% or 112,500 shares
after one year and the balance in equal monthly installments over the three
years thereafter. If, at any time prior to the first twelve months of his
employment with the Company, all or substantially all of the Company's assets
or outstanding shares are sold, or if the Company is party to a merger as a
result of which the Company's stockholders do not own more than fifty percent
of the surviving entity, fifty percent of the options or 225,000 shares will
immediately vest and become exercisable. Thereafter, all remaining unvested
options will become vested and immediately exercisable upon a change of
ownership.
Company Stock Price Performance Graph
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the total return on the S&P 500 Index and the S&P
Technology 500 (comprised of those companies in the technology sector of the
S&P 500 Index). The graph assumes that $100 was invested on July 19, 1999 (the
effective date of the Company's initial public offering) in the Company's
Common Stock and in the S&P 500 Index and the S&P Technology 500, including
reinvestment of dividends. Historic stock price performance is not necessarily
indicative of future stock price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TALK CITY, NASDAQ STOCK HAMBRECHT AND
INC. MARKET (U.S.) QUIST INTERNET
---------- ------------- --------------
7/19/99 $100 $100 $100
12/31/99 $218 $145 $207
24
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are therefore urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Peter H. Friedman
Peter H. Friedman
Chairman of the Board and
Chief Executive Officer
Campbell, California
April 17, 2000
25
<PAGE>
TALK CITY, INC.
2000 Annual Meeting of Stockholders - May 19, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Talk City, Inc., a Delaware corporation,
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, each dated April 17, 2000 and appoints Peter H. Friedman and Jeffrey
Snetiker, and each of them, proxies and attorneys-in-fact, with full power to
each of substitution, on behalf and in the name of the undersigned, to represent
the undersigned at the 2000 Annual Meeting of Stockholders of Talk City, Inc. to
be held on Friday, May 19, 2000, at 10:00 a.m. local time, at the Company's
offices located at 1919 South Bascom Avenue, Campbell, California 95008 and at
any adjournment(s) thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below, and, in their discretion, upon such other matter or
matters which may properly come before the meeting and any adjournment(s)
thereof.
THIS PROXY WILL BE VOTED IN THE MANNER AS DIRECTED, OR, IF NO CONTRARY DIRECTION
IS INDICATED, WILL BE VOTED "FOR" THE ELECTION OF THE SPECIFIED NOMINEES AS
DIRECTORS, "FOR" EACH PROPOSAL LISTED, AND AS THE PROXY DEEMS ADVISABLE ON SUCH
MATTER OR MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
TALK CITY, INC. 2000 ANNUAL MEETING
<TABLE>
<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS:
1. Kenneth A. Bronfin 2. Thomas P. Hirschfeld 3. Other_________________
[_] FOR all nominees listed above (except as specified below). [_] WITHHELD AUTHORITY to vote for all nominees
listed above.
(Instructions: To withhold authority to vote for any indicated ---------------------------------------------
nominee, write the number(s) of the nominee(s) in the box
provided at the right.) ---------------------------------------------
2. Proposal to ratify the appointment of KPMG LLP as
independent public accountants for the fiscal year ending [_] FOR [_] AGAINST [_] ABSTAIN
December 31, 2000
3. Proposal to ratify the amendment to the Amended and
Restated 1996 Stock Option Plan [_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, upon such other matter or matters which may properly come
before the meeting and any adjournment(s) thereof.
</TABLE>
Check appropriate box
Indicate changes below: Date: _________________ NO. OF SHARES
Address Change? [_] Name Change? [_]
------------------------------------------
------------------------------------------
Signature(s) in Box
(Please sign exactly as stockholder(s)
name(s) appears hereon, and return
promptly in the enclosed envelope.
Persons signing in a fiduciary capacity
should so indicate. If shares are held by
joint tenants or as community property,
both should sign.)
