<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1999.
REGISTRATION NO. 333-79067
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CYBERGOLD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 7311 94-3212392
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2921 ADELINE STREET
BERKELEY, CALIFORNIA 94703
(510) 845-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
A. NATHANIEL GOLDHABER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CYBERGOLD, INC.
2921 ADELINE STREET
BERKELEY, CALIFORNIA 94703
(510) 845-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
CARLA S. NEWELL, ESQ. NORA L. GIBSON, ESQ.
ANDREW BAW, ESQ. LINDSAY C. FREEMAN, ESQ.
ERIC E. KEPPLER, ESQ. ELISA S. LEE, ESQ.
GUNDERSON DETTMER STOUGH BROBECK, PHLEGER & HARRISON LLP
VILLENEUVE FRANKLIN & HACHIGIAN, LLP SPEAR STREET TOWER
155 CONSTITUTION DRIVE ONE MARKET
MENLO PARK, CALIFORNIA 94025 SAN FRANCISCO, CA 94105
(650) 321-2400 (415) 442-0900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $0.0001 par value.................... $50,600,000 $14,067
- ---------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(2) $12,788 of this amount was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 12, 1999
PROSPECTUS
4,000,000 SHARES
LOGO
COMMON STOCK
This is an initial public offering of shares of common stock of Cybergold,
Inc. Cybergold expects that the public offering price will be between $9.00 and
$11.00 per share.
We have applied for admission for trading and quotation of our common stock
on the Nasdaq National Market under the symbol "CGLD."
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to Cybergold..................... $ $
</TABLE>
The underwriters may also purchase up to an additional 600,000 shares of
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment on
, 1999.
---------------------------
SG COWEN
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE> 3
[FRONT COVER OUTSIDE GATEFOLD
DESCRIPTION: Color reproduction of Cybergold web site home page with text
annotations and artwork describing various components of the home page. Header
for page reads: Welcome to Cybergold.com
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - Services to enhance Cybergold membership value.
- - Cybergold presents to members a rotating set of featured incentive offers.
- - "Spend" offers enable members to purchase digital content using Cybergold
Micropayments.
- - Constantly changing "earn" offers provide members with opportunities to earn
cash for specific online behaviors.
- - Extra member perks are sponsored by Cybergold merchants.
- - Easy access to popular Internet content enhances member value.
- - Web surfers can open a free Cybergold account. No software downloads are
needed.
CYBERGOLD S-1
INSIDE FRONT COVER GATEFOLD
DESCRIPTION: 2-page spread color reproduction of three representative Cybergold
Web site pages, plus a rendering of a "BANK" symbol and a reproduction of a VISA
credit card. Header for page reads: How our members earn and spend
WEB SITE PAGE 1: Reproduction of the Cybergold "Earn" page. Header reads: Earn
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - TOP: Members earn cash for online activity.
- - NEAR TOP: Tabs enhance navigation of the Cybergold Web site.
- - RIGHT SIDE: Cybergold presents merchant offers for members to review and act
upon.
- - BOTTOM: Reward amounts vary.
- - LEFT BOTTOM: Members read brief descriptions of incentive offers. Clicking
offers delivers more information and instructions.
- - LEFT TOP: Listing offers by category provides additional navigational aid.
WEB SITE PAGE 2: Reproduction of the Cybergold "Account Management" page. Header
reads: View Account
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - TOP: Account management screen shows balance and account details.
- - LEFT BOTTOM: Member account history.
- - LEFT MIDDLE: Member balance.
- - LEFT TOP: Account information.
UPPER RIGHT SIDE OF PAGE, HEADER: Transfer Funds
UPPER RIGHT SIDE OF PAGE, SYMBOL 1: "BANK" symbol, annotated with: Members can
transfer their Cybergold balance to bank account or VISA card.
UPPER RIGHT SIDE OF PAGE, SYMBOL 2: Reproduction of VISA card, annotated with:
Conversely, members can upload their Cybergold account with their VISA card.
WEB SITE PAGE 3: Reproduction of the Cybergold "Spend" page. Header reads: Spend
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
TOP: Utilizing Cybergold Micropayments, members buy digital content, services
and products.
NEAR TOP: Log-in bar.
RIGHT TOP: Cybergold's MultimediaMart is a source for a wide variety of digital
content, services and products provided by merchants and hosted by Cybergold.
<PAGE> 4
RIGHT MIDDLE: Featured merchants sell a variety of products which match the
interests and preferences of our members.
RIGHT BOTTOM: Members have the option of donating their Cybergold to a selection
of worthy causes.]
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Forward-Looking Statements............. 19
Use of Proceeds........................ 20
Dividend Policy........................ 20
Capitalization......................... 21
Dilution............................... 22
Selected Financial Data................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 25
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................... 36
Management............................. 49
Transactions with Related Parties...... 61
Principal Stockholders................. 62
Description of Capital Stock........... 64
Shares Eligible for Future Sale........ 67
Underwriting........................... 69
Legal Matters.......................... 70
Experts................................ 70
Additional Information................. 71
Index to Financial Statements.......... F-1
</TABLE>
---------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY
SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THE
PROSPECTUS OR ANY SALE OF THE COMMON STOCK.
---------------------------
UNTIL , 1999 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 6
PROSPECTUS SUMMARY
The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including our financial
statements and related notes. Our business involves significant risks. You
should carefully consider the information under the heading "Risk Factors."
Unless otherwise noted, all information in this prospectus:
- assumes the conversion of 10,020,049 shares of preferred stock into an
equal number of shares of common stock on the day the offering is
completed, including 9,635,438 shares of preferred stock outstanding at
June 30, 1999, and 384,611 shares of Series D preferred stock issuable
upon the automatic exercise of warrants upon the consummation of the
offering,
- assumes that the underwriters do not exercise their option to purchase
additional shares,
- assumes our reincorporation in Delaware and
- reflects a 2-for-3 reverse stock split to be effected prior to the
consummation of the offering.
CYBERGOLD, INC.
We are a leading provider of Internet-based direct marketing and
advertising solutions. We combine Internet-based direct marketing and
advertising services with programs that reward consumers with cash when they
perform actions desired by our advertising and marketing clients. These
cash-based online incentive programs are intended to provide flexible,
incentive-marketing solutions for our clients. Our payment structure, in which
our advertising and marketing clients are only charged when our members execute
specific predefined actions, provides these clients with a known cost to achieve
the desired response to their advertising campaigns. By leveraging our member
database and our targeting capabilities, we are able to offer our clients
customized, targeted advertising solutions designed to improve advertisement
response rates and reduce the costs of acquiring new customers.
The unique capabilities of the Internet create significant opportunities
for advertisers, marketers and merchants to develop direct relationships with
consumers. Forrester Research estimates that worldwide Internet advertising
expenditures in 1998 were approximately $1.5 billion and projects Internet
advertising expenditures will increase to approximately $15.2 billion in 2003.
To date, the majority of Internet advertising has been in the form of passive
banner advertising. Decreasing consumer response to banner advertising has led
advertisers and marketers to seek alternative forms of online advertising to
increase the effectiveness and efficiency of their online marketing efforts. As
advertisers and marketers seek to increase the effectiveness and efficiency of
their online marketing efforts, they are turning to incentives-based programs,
which reward consumers for their attention or specific response to ads and
promotions. Most incentives-based programs offer consumers the ability to earn
"points" that are redeemable only for limited products, frequent flyer miles or
other non-cash, often restricted, rewards.
Our business revolves around what we call the Earn & Spend Community -- a
place on the Internet where consumers can earn cash incentives for responding to
online marketing offers presented by our advertising and marketing clients and
then spend the cash with merchants. By opening a Cybergold account, a consumer
can become a member of the Earn & Spend Community. The cash earned by our
consumer members can be credited to either their VISA or bank accounts from
their Cybergold account or be used to purchase content, services and products,
including software, music, games, credit reporting services and original
artistic works and publications through our Earn & Spend Community. We currently
have approximately 2.3 million consumer members.
We have developed a proprietary system that facilitates payment for
inexpensive purchases, which we call "micropayments," over the Internet. This
system enables the cost-effective management of cash-based incentive programs on
our Web site and on other Web sites. Our system combined with our Earn & Spend
incentives enables the online exchange of inexpensive content, services and
products which has not previously been economically practical.
3
<PAGE> 7
We believe our solution provides the following benefits:
Advertising and Marketing Client Benefits
- - Provides advertisers and marketers more flexible and effective marketing tools
to induce desired consumer behavior.
- - Provides reduced costs of acquiring new customers and reduced risk by only
charging advertisers and marketers when consumer members execute specific
predefined actions.
- - Enables advertisers and marketers to better measure the effectiveness of their
online advertising campaigns, allowing the review and modification of
campaigns at any time to react to consumer response rates.
- - Enables our clients to leverage our member database to offer customized and
targeted campaigns.
Member Benefits
- - Members receive cash for their Internet activity, unlike other incentive
reward programs where consumers receive only frequent flier miles, specified
products or other non-cash, often restricted, incentive rewards.
- - Member choice is increased by enabling consumers to limit the number of
advertising and marketing offers they are exposed to and to respond only to
advertising and marketing for which they have an interest. Consumers, through
our Earn & Spend Community, can spend their cash rewards on a wide variety of
content, services or products or simply have their cash rewards credited to
their VISA or bank accounts.
Merchant Benefits
- - Enables Internet commerce on a pay-per-transaction basis, offering merchants
an alternative revenue source by providing them access to our broad membership
base.
- - Provides merchants with value-added services, including "non-hosted" and
"hosted" services. In "non-hosted" solutions, our micropayment transaction
system enables merchants to sell inexpensive items or services on their own
Web sites. In "hosted" solutions, we provide the merchants with a complete
suite of Web site hosting, systems administration, transaction processing and
integration services, while the merchant only provides the content.
To date, our primary source of revenue has come from clients who pay us a
fee for each member we induce to perform a particular action. Examples of
actions our members take to receive incentives include making online purchases,
subscribing to magazines or online services, or visiting other Web sites. Since
inception, a total of 144 advertising and marketing clients have offered
incentives using our system. We have 55 advertising and marketing clients that
currently offer incentives using our system, including autobytel.com inc.,
Cendant Corporation (Netmarket), The Walt Disney Company (Disney Daily Blast,
Disney Store Online), Earthlink Network, Inc. and LifeMinders.com, Inc. To a
lesser extent, we also receive revenue for direct marketing activities over the
Internet, such as sending e-mails to a targeted subset of our members. We have
also historically received some revenue for performing one-time engineering
projects.
We have entered into a number of strategic relationships which have enabled
us to offer our advertising and marketing clients and members a broad range of
incentives and online services. For example, our relationship with the First
National Bank of Omaha enables members to directly credit their personal VISA
accounts with money earned through Cybergold. In addition, through our
relationship with MBNA America Bank we have launched the co-branded Cybergold
MBNA VISA card. We have also launched a private-label loyalty program with
Earthlink Network, Inc., that enables Earthlink members to earn incentives for
purchases made using their Earthlink credit cards. We intend to continue to
enter into strategic relationships in order to build our Earn & Spend Community,
generate additional traffic to our Web site, increase membership and establish
additional sources of revenue.
We were incorporated under the name Cyber-Bucks, Inc. in California in
October 1994. We subsequently changed our name to CyberGold, Inc. and intend to
reincorporate under the name Cybergold, Inc. in Delaware prior to this offering.
Our principal executive offices are located at 2921 Adeline Street, Berkeley,
California 94703, and our telephone number is (510) 845-5000. Cybergold is our
registered trademark. Cybergold Mint and Earn & Spend are our trademarks. This
prospectus also contains trademarks of other companies. Our Web site is
www.cybergold.com. Information contained on our website does not constitute part
of this prospectus.
4
<PAGE> 8
THE OFFERING
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Common Stock we are offering............................ 4,000,000 shares
Common Stock to be outstanding after this offering...... 18,318,313 shares
Underwriters' over-allotment option..................... 600,000 shares
Use of proceeds......................................... For the marketing and promotion of our brand and for
general corporate purposes, including working capital
and capital expenditures, and for potential strategic
acquisitions or investments. See "Use of Proceeds."
Dividend policy......................................... We do not anticipate paying cash dividends.
Proposed Nasdaq National Market symbol.................. CGLD
</TABLE>
The number of shares of our common stock to be outstanding immediately
after the offering is based on the number of shares outstanding on June 30, 1999
and includes 9,635,438 shares of preferred stock outstanding on that date and
384,611 shares of Series D preferred stock issuable upon the automatic exercise
of warrants upon the consummation of this offering. This number does not take
into account:
- 1,702,555 shares of our common stock subject to options outstanding at a
weighted average exercise price of $2.21 per share and 193,253 additional
shares of common stock reserved for issuance under our stock option plans
or other option agreements at June 30, 1999;
- 123,333 shares of common stock issuable upon exercise of outstanding
options at an exercise price of $1.50 per share;
- 1,500,000 shares of common stock reserved for issuance under our 1999
Omnibus Equity Incentive Plan;
- 300,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan; and
- outstanding warrants to purchase 181,666 shares of our common stock at a
weighted average exercise price of $0.45 per share.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data is derived and qualified in its
entirety by our financial statements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 1 $ 531 $1,005 $ 107 $ 503
Gross margin................................................ 0 238 539 72 258
Loss from operations........................................ (2,579) (3,729) (4,683) (1,215) (1,737)
Net loss.................................................... (2,569) (3,744) (4,604) (1,220) (1,726)
Basic and diluted net loss per common share................. $ (0.69) $ (0.94) $(1.31) $ (0.30) $ (0.50)
Shares used in computing basic and diluted net loss per
common share.............................................. 3,746 3,979 4,020 4,013 4,053
</TABLE>
The following table presents our summary balance sheet at March 31, 1999,
which has been adjusted for the conversion of our preferred stock into
10,020,049 shares of common stock, including 7,584,175 shares of preferred stock
outstanding as of March 31, 1999, 2,051,275 shares of Series D Preferred Stock
issued on May 18, 1999 and 384,611 shares of Series D Preferred Stock issuable
upon the automatic exercise of warrants upon the consummation of this offering.
The balance sheet has also been adjusted to reflect our sale of 4,000,000 shares
of our common stock at an assumed public offering price of $10.00 per share in
this offering. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,280 $10,280 $48,111
Current assets.............................................. 2,403 10,403 48,234
Total assets................................................ 2,893 10,893 48,724
Long-term obligations, net of current maturities............ 291 291 291
Convertible redeemable preferred stock...................... 6,671 14,671 --
Total stockholders' equity (deficit)........................ (5,978) (5,978) 44,793
</TABLE>
5
<PAGE> 9
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. You should also refer to the other information in this
prospectus, including our financial statements and the related notes.
If any of the following risks occur, our business, results of operations or
financial condition could be materially harmed. As a result, the trading price
of our common stock could decline, and you could lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND EXPECT CONTINUED LOSSES FOR THE FORESEEABLE
FUTURE
We have not achieved profitability in any previous quarter, and given our
planned level of operating expenses, we expect to continue to incur operating
losses for the foreseeable future. We incurred net losses of $2.6 million for
the year ended December 31, 1996, $3.7 million for the year ended December 31,
1997, $4.6 million for the year ended December 31, 1998 and $1.7 million for the
three months ended March 31, 1999. Our retained deficit as of March 31, 1999 was
approximately $13.8 million. We plan to increase our operating expenses as we
continue to build brand and infrastructure and consequently, our losses will
increase in the future. Although we have experienced revenue growth in recent
quarters, we cannot be certain that revenues will increase at a rate sufficient
to achieve and maintain profitability. If our revenue growth is slower than we
anticipate or our operating expenses exceed our expectations, our losses will
significantly increase. We may never achieve profitability. Even if we were to
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more information on our operating history and results of operations.
WE CANNOT ASSURE YOU THAT WE WILL BE PROFITABLE BECAUSE WE HAVE OPERATED OUR
BUSINESS ONLY FOR A SHORT PERIOD OF TIME AND HAVE ONLY A LIMITED OPERATING
HISTORY UPON WHICH TO EVALUATE OUR BUSINESS
We were incorporated in October 1994 but did not begin to generate
meaningful revenues until March 1997. Accordingly, we have only a limited
operating history upon which to evaluate our business and prospects. The
revenues and income potential of our business and the markets for online
incentives-based direct marketing programs and for making small payments over
the Internet are unproven. We will encounter risks and difficulties that are
frequently encountered by early stage companies in new and rapidly evolving
markets. Many of these risks are described in more detail in this "Risk Factors"
section.
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition may be harmed. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" for detailed information on our historical operating results.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS OF OPERATIONS MAKES IT DIFFICULT
TO PREDICT OUR FINANCIAL PERFORMANCE AND MAY ADVERSELY AFFECT THE TRADING PRICE
OF OUR COMMON STOCK
Our quarterly results of operations have varied in the past and are likely
to vary significantly from quarter to quarter. A number of factors are likely to
cause these variations, some of which are outside of our control. These factors
include:
- changes in revenue levels resulting from the advertising and marketing
budget cycles of individual advertisers and marketers;
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<PAGE> 10
- changes in advertising and marketing costs that we incur to attract and
retain members;
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for Internet advertising and marketing generally;
- our rate of member acquisition and the level of activity of new and
existing members;
- the number and type of programs and development contracts established
with our advertising and marketing clients as well as the impact of the
fixed price portion of development contracts, which accounted for 17% and
one percent of total revenues in the year ended December 31, 1998 and the
three months ended March 31, 1999, respectively, on gross margin;
- the introduction of new products and services by us or by our
competitors;
- unexpected costs and delays resulting from the expansion of our
operations; and
- the occurrence of technical difficulties or unscheduled system downtime.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers and
marketers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns. Consequently, our results of operations could be
harmed by a downturn in the general economy or a shift in consumer buying
patterns.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely upon them as an indication of our future performance. Our operating
expenses are based on expected future revenues and are relatively fixed in the
short term. If our revenues are lower than expected, we would incur greater than
expected losses. In addition, during future periods our operating results likely
will fall below the expectations of public market analysts and investors. In
this event, the market price of our common stock likely would decline. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
IF ONLINE INCENTIVES-BASED DIRECT MARKETING PROGRAMS DO NOT GAIN INCREASED
ACCEPTANCE BY MEMBERS, ADVERTISING AND MARKETING CLIENTS AND MERCHANTS, OUR
BUSINESS WOULD BE HARMED
Our success depends in part on the increased acceptance of online
incentives-based direct marketing programs. Although incentive programs have
been used extensively in traditional marketing and sales channels, they have
only recently begun to be used online.
The success of online incentives-based direct marketing programs will
depend on the ability of these programs to attract and retain members,
advertising and marketing clients and merchants. Our ability to attract and
retain members, clients and merchants will depend on our marketing efforts and
on the quality of each member, client or merchant experience with our system.
The number and relevance of the direct marketing offers we provide and the
perceived value of the incentives we offer will be necessary to achieve future
success. Our ability to generate revenue from clients and merchants will depend
on our ability to differentiate ourselves through the services we provide and
technology solutions we offer, as well as our success in generating adequate
participation from consumers in our online incentives-based direct marketing
programs. The attractiveness of our program to consumers depends in large part
on the attractiveness of the incentives we offer. To the extent that our online
incentives-based direct marketing program does not achieve market acceptance
among members, clients and merchants, our business, results of operations and
financial condition would be harmed.
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<PAGE> 11
OUR SUCCESS DEPENDS ON OUR ABILITY TO MAINTAIN AND EXPAND AN ACTIVE MEMBERSHIP
BASE
Our success largely depends on our ability to maintain and expand an active
membership base. Although we currently have approximately 2.3 million members,
we generate the majority of our revenues from a small percentage of our members,
and we cannot assure you that the percentage of active members will increase. In
addition, approximately 411,196 of our members have requested not to receive
e-mail from us. Because our revenues are primarily driven by commissions paid by
advertisers and direct marketers based on specific actions taken by our members,
if we are unable to induce existing and new members to actively participate in
the Cybergold Earn & Spend Community, our business, results of operations and
financial condition will be harmed. Although our membership has grown in prior
periods, we cannot be certain that our membership growth will continue at
current rates or increase in the future. Currently, we attract the majority of
our members through co-registration agreements with online partners, whereby
registrants for those sites have the option to concurrently sign up for the
Cybergold Earn & Spend Community. We believe that the convenience afforded by
this co-registration capability is a significant factor in attracting new
members. If we were to lose these relationships with our online co-registration
partners, we would lose a significant source of new members, and our business,
results of operations and financial condition would be harmed.
IF OUR RELATIONSHIP WITH THE FIRST NATIONAL BANK OF OMAHA WERE TO DETERIORATE OR
TERMINATE OR IF THE FIRST NATIONAL BANK OF OMAHA WERE TO ENTER INTO SIMILAR
RELATIONSHIPS WITH OUR COMPETITORS, OUR ABILITY TO DEPOSIT TO AND TRANSFER FUNDS
FROM VISA ACCOUNTS COULD BE DISCONTINUED OR WE COULD FACE INCREASED COMPETITION
Cybergold has a relationship with the First National Bank of Omaha, an
acquiring bank for VISA, that enables the transfer of funds from individual
Cybergold member accounts to their VISA accounts, as well as from their VISA
accounts to their Cybergold accounts. This transaction processing capability
required re-engineering of the First National Bank of Omaha's VISA transaction
processing system, and would be difficult to replicate with another financial
service provider if our relationship with the First National Bank of Omaha were
to deteriorate or terminate. The First National Bank of Omaha can terminate the
contract at any time with 30 days notice. Currently, under the conditions of our
contract, we cannot enter into similar relationships with other credit card
providers such as MasterCard, American Express or Discover. However, the First
National Bank of Omaha can at its own discretion freely offer similar services
to our existing and potential competitors. If we were to lose this relationship
with the First National Bank of Omaha, or if they were to extend similar
services to our competitors, our business, results of operations and financial
condition would be harmed.
IF WE ARE UNABLE TO ESTABLISH THE CYBERGOLD BRAND, OUR ABILITY TO ATTRACT
ADVERTISING AND MARKETING CLIENTS, MEMBERS AND MERCHANTS WOULD BE HARMED
Developing a strong brand is critical to our business. The reputation of
the Cybergold brand will largely depend on our ability to provide a high-quality
experience for our clients, members and merchants. We cannot assure you that we
will be successful in developing our brand. Any client, member or merchant
dissatisfaction with the quality of an experience with our company for reasons
within or outside of our control could damage our reputation. Any damage to our
reputation could have a material adverse effect on our business, results of
operations and financial condition. We intend to spend a portion of the proceeds
of this offering to further develop our brand. If we expend additional resources
to build the Cybergold brand and do not generate a corresponding increase in
revenues as a result of our branding efforts, or if we otherwise fail to promote
our brand successfully, our business, results of operations and financial
condition would be harmed.
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IF THE INTERNET FAILS TO GAIN FURTHER ACCEPTANCE AS A MEDIUM FOR ADVERTISING AND
MARKETING, OUR BUSINESS WOULD BE HARMED
Our business depends on market acceptance of the Internet as a medium for
advertising and marketing. Advertisers, marketers and advertising and marketing
agencies that have historically relied on traditional forms of advertising and
marketing may be reluctant or slow to adopt online advertising and marketing.
Many advertisers and marketers have limited or no experience using the Internet
as an advertising and marketing medium. In addition, these advertisers and
marketers may have allocated only a limited portion of their budgets to online
advertising and marketing, or may find online advertising and marketing to be
less effective for promoting their products and services than traditional
advertising and marketing media, including television, radio and print.
Advertisers, marketers, and advertising and marketing agencies that have
invested substantial resources in traditional methods of advertising and
marketing may also be reluctant to reallocate their resources to online
advertising and marketing. The market for online advertising and marketing also
depends on the overall growth and acceptance of electronic commerce. If the
markets for online advertising and marketing and electronic commerce fail to
develop or develop more slowly than we expect, our business, results of
operations and financial condition would be harmed.
THE MARKET FOR MAKING SMALL PAYMENTS OVER THE INTERNET IS NEW AND WE CANNOT BE
CERTAIN THAT A VIABLE MARKET FOR OUR PRODUCTS WILL EMERGE OR BE SUSTAINABLE
We cannot assure you that the demand for and market acceptance of Internet
micropayment services will develop to a sufficient level to support our
continued operations or planned expansion, and we also cannot assure you that
consumers, Web sites or merchants will utilize a system for micropayment
transactions over the Internet. Currently, Internet content and service
providers typically use a subscription model to charge for content or services
they provide, if they charge consumers directly for their content or services at
all. We cannot assure you that these entities will ever adopt a method for
accepting small payments for their content or services over the Internet. In
addition, the development of a market for micropayments on the Internet may
depend on the eventual adoption of a standard micropayment system. There can be
no assurance that our micropayment system will be the system adopted by
consumers, Web sites, or merchants. If a widespread demand for micropayments
does not develop or if another method for micropayments is adopted as a
standard, our business, results of operations and financial condition will be
harmed.
WE FACE SIGNIFICANT COMPETITION FROM ONLINE INCENTIVES-BASED ADVERTISING AND
MARKETING PROGRAMS AND PROVIDERS OF MICROPAYMENT SYSTEMS
We face significant competition from online incentives-based advertising
and marketing programs and providers of micropayment systems. We expect
competition to increase due to the lack of significant barriers to entry for
online business generally and for online incentives programs and micropayment
transactions in particular. Currently, several companies offer competitive
online incentives programs, including MyPoints.com, Inc. and Netcentives, Inc.
We may also face competition from established Internet portals and community Web
sites that engage in direct marketing, as well as from traditional advertising
agencies and direct marketing companies that may seek to offer online products
or services. In addition, financial service organizations, such as banks and
credit card companies, or other large organizations may develop competitive
micropayment systems and incentives-based advertising and marketing programs.
Some of our current and potential competitors have longer operating
histories, greater brand recognition, larger client and member bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may enable them to respond more quickly to new or emerging
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technologies and changes in customer preferences. These advantages may also
allow them to engage in more extensive research and development, undertake
extensive far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, strategic
partners and advertisers. As a result, it is possible that our existing
competitors or new competitors may rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margin and
loss of market share. We may not be able to compete successfully, and
competitive pressures may adversely affect our business, results of operations
and financial condition. See "Business -- Competition."
A SIGNIFICANT PORTION OF OUR QUARTERLY REVENUES IS RECOGNIZED FROM A LIMITED
NUMBER OF ADVERTISING AND MARKETING CLIENTS
A significant portion of our revenues to date have been recognized from a
limited number of advertising and marketing clients. Our five largest clients
accounted for approximately 65% and 63% of our revenues for the year ended
December 31, 1998 and the quarter ended March 31, 1999, respectively and our ten
largest clients accounted for approximately 84% and 85% of our revenues for the
year ended December 31, 1998 and the quarter ended March 31, 1999, respectively.
We generally do not have long-term contracts with any of our clients, and
clients can generally terminate their relationships with us upon specified
notice and without penalties. Our client base fluctuates significantly from
quarter to quarter primarily as a result of the advertising and marketing budget
cycles of individual clients. In addition, to date this fluctuating client base
has been drawn from a concentrated group of companies. Revenues from significant
clients as a percentage of total revenues are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1998
Qwest Communications International, Inc................... 22%
Interactive Coupon Network (Cool Savings)................. 16%
THREE MONTHS ENDED MARCH 31, 1999
Qwest Communications International, Inc................... 20%
autobytel.com inc......................................... 12%
LifeMinders.com, Inc...................................... 11%
Cendant Corporation (Netmarket)........................... 11%
The Walt Disney Company (Disney Daily Blast, Disney Store
Online)................................................ 10%
</TABLE>
We expect that the majority of our revenues will continue to depend on
sales to a relatively small number of clients and that our client base will
continue to vary significantly from quarter to quarter. Any negative change in
our relationship with or downturn in the business of clients or any general
downturn in the businesses of the concentrated group of companies from which our
client base is drawn could seriously harm our results of operations.
IF WE FAIL TO ADAPT TO RAPID CHANGE IN OUR INDUSTRY OR OUR INTERNALLY DEVELOPED
SYSTEMS CANNOT BE MODIFIED PROPERLY FOR INCREASED TRAFFIC OR VOLUME, OUR
PRODUCTS AND SERVICES MAY BECOME OBSOLETE
Our industry is characterized by rapid change. The introduction of products
and services embodying new technologies, the emergence of new industry standards
and changing consumer needs and preferences could render our existing services
obsolete and unmarketable. Our future success will depend in part on our ability
to respond effectively to rapidly changing technologies, industry standards and
customer requirements by adapting and improving the performance features and
reliability of our services. We may experience technical difficulties that could
delay or prevent the successful development, introduction or marketing of new
products and services. In addition, any new enhancements to our products and
services must meet the requirements of our current and prospective users. We
could incur substantial costs to modify our services or infrastructure to adapt
to rapid change in our industry.
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We internally developed our systems for maintaining our Web site processing
transactions and maintaining member accounts. If, in the future, we cannot
modify these systems to accommodate increased traffic and an increased volume of
transactions and orders, we could suffer slower response time, problems with
customer service and delays in reporting accurate financial information. During
the first three months of 1999, we experienced instances of unscheduled system
downtime, which resulted in our Web site being inaccessible for periods ranging
from several minutes to several hours and could experience such unscheduled
system downtime in the future.
WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS AND MAY BE UNABLE TO PROTECT THESE
RIGHTS
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our technology or business model.
Monitoring unauthorized use of our technology and business model is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology and business model. In addition, our business activities
may infringe upon the proprietary rights of others, and, from time to time, we
have received and may continue to receive, claims of infringement against us.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Litigation could subject us to significant
liability for damages and invalidation of our proprietary rights. These
lawsuits, regardless of their success, would likely be time consuming and
expensive to resolve and would divert management's time and attention away from
our business. Any potential intellectual property litigation could also force us
to do one or more of the following:
- make significant changes to the structure and operation of our business;
- attempt to design around a third party's patent; or
- license alternative technology from another party.
Implementation of any of these alternatives could be costly and time
consuming, and may not be possible. Accordingly, an adverse determination in any
litigation that we are a party to would have a material adverse effect on our
business, results of operations and financial condition.
Cybergold has two issued U.S. Patents covering its business model and
software architecture. We also have U.S. and foreign pending patent
applications. Cybergold is our only registered trademark, although we have
applied to register additional trademarks in the United States. We cannot assure
you that our patents or trademarks will not be successfully challenged by others
or invalidated, that our pending patents will be issued or that our trademark
registrations will be approved. If our trademark registrations are not approved
because third parties own these trademarks, our use of these trademarks would be
restricted unless we entered into arrangements with the third-party owners,
which might not be possible on reasonable terms.
We generally enter into confidentiality or license agreements with our
employees and consultants, and control access to and distribution of our
technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
unauthorized parties may attempt to disclose, obtain or use our solutions or
technologies. We cannot assure you that the steps we have taken will prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States. See
"Business -- Intellectual Property" for more information on our intellectual
property.
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<PAGE> 15
ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD HARM OUR BUSINESS
Our success depends on the capacity, reliability and security of our
networking hardware, software and telecommunications infrastructure. We use
network servers that are housed at an Internet co-location service provider's
data center in San Jose, California. Despite precautions taken by us and the
host of our Web site, our system is susceptible to natural and man-made
disasters such as earthquakes, fires, floods, power loss and vandalism.
Telecommunications failures, computer viruses, electronic break-ins or other
similar disruptive problems could adversely affect the operation of our systems.
In addition, any technical failure or security problems at our Internet service
provider and co-location facility could harm our business, financial condition
and results of operations. Our insurance policies may not adequately compensate
us for any losses that may occur due to any damages or interruptions in our
systems. Accordingly, we could be required to make capital expenditures in the
event of unanticipated damage. We do not currently have redundant systems or a
formal disaster recovery plan.
In addition, our members depend on Internet service providers for access to
our Web site. Internet service providers and Web sites have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. These problems
could harm our business, results of operations and financial condition.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION COULD BE HARMED
Our success will depend in part on our ability to manage our growth and
expansion effectively. We plan to expand our technology, sales, administrative
and marketing organizations. Our anticipated future expansion may place a
significant strain on our management systems and resources. We will need to
continue to improve our financial and managerial controls and reporting systems
and procedures and to expand, train and manage our workforce. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
In addition, we are in the process of moving our operations to new
facilities. During this move our technology infrastructure could be more
susceptible to technical failures or other disruptive problems. Any of these
problems could diminish or halt our ability to provide services to our
customers, which could harm our business, results of operations and financial
condition.
MANY OF OUR KEY PERSONNEL ARE NEW TO CYBERGOLD AND MAY NOT WORK TOGETHER
SUCCESSFULLY
A number of people on our management team and sales force have joined
Cybergold in the last 12 months. Our management team has limited experience
working together. Our future performance will depend, in part, on our ability to
integrate successfully our newly hired executive officers into our management
team, and our ability to develop an effective working relationship among
management. Our executive officers, who have worked together for only a short
time, may not be successful in working together or managing our company. Any
dissent among executive officers, or between our officers and our board of
directors, could affect our ability to make strategic decisions. See
"Management." In addition, the majority of our sales force has joined Cybergold
in the last six months and they have limited experience marketing our services
and working together. If our key personnel are unable to market our services and
work together successfully, our business, results of operations and financial
condition could be harmed.
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<PAGE> 16
COMPETITION FOR EMPLOYEES IN OUR INDUSTRY AND IN OUR GEOGRAPHIC REGION IS
INTENSE, AND WE MAY NOT BE ABLE TO HIRE OR RETAIN KEY EMPLOYEES
Our future success will depend, in part, on our ability to attract and
retain highly skilled employees, particularly management, sales and technical
personnel. Competition for employees in our industry and in our geographic
region is intense. We may be unable to retain our key employees or to attract
other highly qualified employees in the future. We have experienced difficulty
from time to time in retaining and attracting the personnel necessary to support
the growth of our business, particularly engineering and sales personnel, and we
may experience similar difficulty in the future. If we are unable to hire or
retain key employees, our business, results of operations and financial
condition will be harmed.
POTENTIAL ACQUISITIONS MAY BE DIFFICULT TO ASSIMILATE INTO OUR OPERATIONS, USE A
SIGNIFICANT AMOUNT OF OUR AVAILABLE CASH, RESULT IN DILUTION TO OUR STOCKHOLDERS
AND ADVERSELY AFFECT OUR REPORTED RESULTS OF OPERATIONS
We may acquire or make investments in businesses, products, services, or
technologies to carry out our business strategy. We do not have any present
understanding, nor are we having any discussions relating to any acquisition or
investment. We have not made a significant acquisition or investment to date. If
we acquire businesses, products, services or technologies, we could have
difficulty in assimilating them into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees and increase
our expenses. In addition, effecting acquisitions could require use of a
significant amount of our available cash. Furthermore, we may have to issue
equity or equity-linked securities to pay for future acquisitions, and any of
these issuances could be dilutive to existing and future stockholders. In
addition, acquisitions and investments may have negative effects on our reported
results of operations due to acquisition-related charges and amortization of
acquired technology and other intangibles. Any of these acquisition-related
risks or costs could harm our business, financial condition and operating
results.
IF WE EXPAND OUR BUSINESS INTERNATIONALLY WE MAY BE SUBJECT TO FOREIGN
GOVERNMENT REGULATION AND TAXATION, CURRENCY ISSUES, DIFFICULTIES IN MANAGING
FOREIGN OPERATIONS AND FOREIGN POLITICAL AND ECONOMIC INSTABILITY
An element of our growth strategy is to introduce our services in
international markets. Our participation in international markets will be
subject to a number of risks, including foreign government regulations, export
license requirements, tariffs and taxes, fluctuations in currency exchange
rates, introduction of the European Union common currency, difficulties in
managing foreign operations and political and economic instability. To the
extent our potential international members are impacted by currency
devaluations, general economic crises or other macroeconomic events, the ability
of our members to utilize our services could be diminished. In order to help us
address some of the risks associated with introducing our services
internationally, we believe it will be necessary to establish strategic
relationships with international partners. To date, we have not entered into any
strategic relationship with any international partners. We cannot assure you
that we will be able to establish international relationships, or that if
established, they will be successful. In addition, we cannot assure you that
electronic commerce will develop successfully in international markets or that
potential members in these foreign markets will utilize incentives-based
marketing programs. Furthermore, we cannot assure you that we will be able to
develop banking relationships with foreign banks or overcome any legal
restrictions related to offering cash rewards and incentives that exist in
foreign jurisdictions. Any failure to develop our business internationally may
harm our competitive position and consequently our business.
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<PAGE> 17
WE MAY NEED MORE WORKING CAPITAL TO EXPAND OUR BUSINESS, AND OUR PROSPECTS FOR
OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
capital expenditures and working capital requirements through the end of 2000.
However, we may need to raise additional funds sooner to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses, or
technologies. If additional funds are raised through the issuance of equity or
equity-linked securities, the percentage ownership of our stockholders would be
reduced. In addition, these securities may have rights, preferences or
privileges senior to those of our stockholders. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of potential opportunities,
develop or enhance services or products, or otherwise respond to competitive
pressures would be significantly limited. Our business, results of operations
and financial condition could be harmed by this limitation. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for a discussion of
working capital and capital expenditures.
RISKS RELATED TO THE INTERNET INDUSTRY
IF WE ARE UNABLE TO SECURELY MAINTAIN AND EXPAND OUR MEMBERSHIP DATABASE, OUR
BUSINESS COULD BE HARMED
An important feature of our program is our ability to develop and maintain
individual member profiles. Security and privacy concerns may cause consumers to
resist providing the personal data necessary to support this profiling
capability. As a result of these security and privacy concerns, we may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Use of our Cybergold Earn & Spend
Community could decline if any compromise of security occurred. In addition, if
unauthorized third parties gain access to our system and alter or destroy
information in our database, our ability to target direct marketing offers to
members would be harmed. We could also be subject to legal claims from members.
Any public perception that we engaged in unauthorized release of member
information would adversely affect our ability to attract and retain members.
Any of these events could have a material adverse effect on our business,
results of operations and financial condition.
We maintain a database containing information on our members, including
their account balances. Our database may be accessed by unauthorized users
accessing our systems remotely. If we experience a security breach, the
integrity of our database may be jeopardized. Any breach of this type could lead
to financial losses through the unauthorized redemption of monies.
WE COULD BE SUBJECT TO LIABILITY FOR ONLINE CONTENT THAT MAY NOT BE COVERED BY
OUR INSURANCE
The nature and breadth of information disseminated on our Web site could
expose us to liability in various areas, including claims relating to:
- programs and promotions we offer;
- content and publication of various materials posted on our Web site based
on defamation, libel, negligence, personal injury and other legal
theories; and
- copyright or trademark infringement and wrongful action due to the
actions of third parties.
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Claims of these kind against us would result in our incurring substantial
costs and would have a negative impact on our financial and other resources. If
there were numerous claims, or if the claims were severe, we would need to
implement measures to reduce our exposure and potential liability. Accordingly,
we may be required to change our services in such a way that would be less
attractive to our advertisers, marketers, merchants and members. This in turn
could reduce traffic to our Web site, negatively impact our membership or reduce
our revenue from electronic commerce or advertising and marketing. Our general
liability insurance may be insufficient to cover expenses and losses in
connection with any claims against us. To the extent our insurance coverage does
not cover liability or expenses we incur, our business, financial condition and
results of operations would be harmed.
IF THE INTERNET INFRASTRUCTURE FAILS TO DEVELOP OR BE ADEQUATELY MAINTAINED, OUR
BUSINESS WOULD BE HARMED BECAUSE MEMBERS MAY NOT BE ABLE TO ACCESS OUR SERVICES
We depend on the Internet infrastructure to provide the performance,
capacity and reliability needed to support the anticipated expansion of
electronic commerce on the Internet. If Internet usage grows, the Internet
infrastructure may not be able to support the demands placed on it by this
growth, and its performance and reliability may decline. Among other things,
continued development of the Internet infrastructure will require a reliable
network backbone with necessary speed, data capacity and security. Currently,
there are regular failures of the Internet network infrastructure, and there are
likely to be more in the future. These failures may undermine our marketing
clients' and our members' confidence in the Internet as a viable commercial
medium. Any actual or perceived degradation in the performance of the Internet
as a whole could undermine the benefits of our services. In addition, the
Internet could lose its viability as a commercial medium due to delays in the
development or adoption of new technology required to accommodate increased
levels of Internet activity or due to government regulation. If outages or
delays occur frequently in the future, electronic commerce and the use of our
services could grow more slowly or decline, which could harm our business,
results of operations and financial condition.
WE MAY BE VULNERABLE TO UNAUTHORIZED ACCESS, COMPUTER VIRUSES AND OTHER
DISRUPTION PROBLEMS THAT COULD ADVERSELY AFFECT US
Despite the implementation of security measures, our networks may be
vulnerable to unauthorized and illegal access, computer viruses and other
disruptive problems. Eliminating computer viruses and alleviating other security
problems may require interruptions, delays or cessation of service to users
accessing our Web sites, which could have a material adverse effect on our
business, results of operations and financial condition. A party who is able to
circumvent security measures could misappropriate proprietary information or
cause interruptions in our Internet operations. Internet service providers and
online service providers have in the past experienced, and may in the future
experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
We may be required to expend significant capital or other resources to protect
against the threat of security breaches or to alleviate problems caused by
breaches. Although we intend to continue to implement security measures, we
cannot be certain that measures implemented by us will not be circumvented in
the future.
OUR BUSINESS IS SUBJECT TO RISKS REGARDING SECURE TRANSMISSION OF CONFIDENTIAL
INFORMATION OVER PUBLIC NETWORKS
A necessity of online commerce and communications is the secure
transmission of confidential information over public networks. Our security
measures may not prevent security breaches. Any failure to prevent security
breaches could harm our business. We rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication technology to effect
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<PAGE> 19
secure transmission of confidential information, including customer credit card
numbers. Advances in computer capabilities, new discoveries in the field of
cryptography, or other developments may result in a compromise or breach of the
technology used by us to protect customer transaction data. Any compromise of
our security could harm our reputation and, therefore, our business.
FUTURE REGULATION OF THE INTERNET COULD RESTRICT THE OPERATION AND GROWTH OF OUR
BUSINESS
Any new regulation of the Internet could inhibit growth of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium, which could have a material and adverse effect on our business. The laws
governing the Internet and email services remain largely unsettled. There is no
single governmental body overseeing our industry, and many state laws enacted in
recent years have different and sometimes inconsistent application to our
business.
In addition, industry standards and practices by e-mail providers,
including Internet service providers and other third-party e-mail providers,
vary. Some of these providers have blocked in the past and, at their discretion,
may in the future elect to block, all e-mails coming from a specific domain,
such as Cybergold. We have experienced limited blockages by some e-mail
providers of e-mail correspondence from us. These blockages have not had a
material effect on our business, results of operations or financial condition.
However, because our revenues are driven in part by the number of members to
whom we are able to deliver targeted e-mails, any blockage of e-mails by a
significant e-mail provider, or by a significant number of e-mail providers in
the aggregate, of e-mails coming from us could harm our business, results of
operations and financial condition.
POTENTIAL PRIVACY REGULATION
In addition, the Federal Trade Commission is considering the adoption of
regulations regarding the collection and use of personal information obtained
from individuals, especially children, when accessing Web sites. These
regulations could restrict our ability to provide demographic data to our
advertising and marketing clients. At the international level, the European
Union has adopted a directive that will impose restrictions on the collection
and use of personal data. This directive could affect U.S. companies that
collect information over the Internet from individuals in European Union member
countries and may impose restrictions that are more stringent than current
Internet privacy standards in the United States. These developments could have
an adverse effect on our business, results of operations and financial
condition.
POTENTIAL CURRENCY REGULATION
Our online incentive program rewards are not currently subject to currency
regulation in any jurisdiction. If any governmental agency deemed that our
rewards are subject to currency regulation, our business, financial condition
and results of operations could be harmed.
POTENTIAL FOREIGN REGULATION
Governments of foreign countries may also attempt to regulate electronic
commerce. New laws could stall the growth of the Internet and decrease the
acceptance of the Internet as a commercial medium. In addition, existing laws
such as those governing intellectual property and privacy may be interpreted to
apply to the Internet. In the event that foreign governments, the federal
government, state governments or other governmental authorities adopt, modify or
re-interpret laws or regulations relating to the Internet, our business, results
of operations and financial condition could be harmed.
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POTENTIAL ELECTRONIC COMMERCE REGULATION
In 1998, the United States government enacted a three-year moratorium
prohibiting states and local governments from imposing new taxes on electronic
commerce transactions. Upon expiration of this moratorium, if it is not
extended, states or other governments may levy sales or use taxes on electronic
commerce transactions. An increase in the taxation of electronic commerce
transactions may make the Internet less attractive for consumers and businesses
which would harm our business.
WE FACE A NUMBER OF UNKNOWN RISKS ASSOCIATED WITH THE YEAR 2000 PROBLEM, ANY OF
WHICH MAY HARM OUR BUSINESS
Many currently installed computer systems and software products are coded
to accept only two digit entries in their date code field. Beginning in the Year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software products used by many companies may need to be upgraded to
comply with these Year 2000 requirements.
The costs we have incurred and expect to incur related to Year 2000
compliance have not been material to our business, results of operations or
financial condition. In the event that our assessment of our Year 2000 readiness
is inaccurate, we could be required to expend substantial resources to remedy
any unanticipated Year 2000 problems. Costs associated with unanticipated Year
2000 problems and difficulties in remedying these problems by year-end could
have a material adverse effect on our business, results of operations and
financial condition.
The most likely Year 2000 failure scenario attributable to a supplier or
customer is a systematic failure beyond our control or the supplier's or
customer's immediate control, such as a prolonged data communication,
telecommunications or electrical failure. A failure of this sort could prevent
members from accessing our Web site and prevent us from operating our business.
The primary business risks in the event of such a failure would include lost
revenues, increased operating expenses and loss of members. Any of these risks
could have a material adverse effect on our business, results of operations and
financial condition.
We have not yet developed a comprehensive contingency plan to address Year
2000 problems that are not detected and corrected prior to their occurrence.
RISKS RELATED TO THE OFFERING
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL RETAIN SUBSTANTIAL VOTING CONTROL OVER
CYBERGOLD AFTER THE OFFERING WHICH WILL ALLOW THEM TO INFLUENCE THE OUTCOME OF
MATTERS SUBMITTED TO STOCKHOLDERS FOR APPROVAL
We anticipate that our executive officers, our directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
67.5% of our outstanding common stock following the completion of this offering,
or 65.5% assuming exercise of the underwriters option to purchase additional
shares. As a result, these stockholders will retain substantial control over
matters requiring approval by our stockholders, such as the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control. See "Principal Stockholders" for more information relating to the
ownership positions of our executive officers and directors.
17
<PAGE> 21
SOME OF THE PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS
THAT COULD PREVENT A CHANGE IN CONTROL OF CYBERGOLD
Some of the provisions of our certificate of incorporation, our bylaws and
the Delaware General Corporation Law could make it more difficult for a third
party to acquire us, even if a change of control would be beneficial to our
stockholders. See "Description of Capital Stock" for more information on our
charter provisions and Delaware General Corporation Law. These provisions
include:
- authorizing the issuance of up to 5,000,000 shares of "blank check"
preferred stock;
- providing for a classified board of directors with staggered, three year
terms; and
- prohibiting stockholder action by written consent.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE IN THE NEAR FUTURE MAY
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
A substantial number of shares of common stock will be available for sale
in the public market following this offering, which could adversely affect the
market price for our common stock. See "Shares Eligible for Future Sale" for a
more detailed description of the eligibility of shares of our common stock for
future sale.
A PUBLIC MARKET FOR OUR SECURITIES MAY NOT DEVELOP OR BE SUSTAINED
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our common stock will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. You may not be able to resell
your shares at or above the initial public offering price. See "Underwriting."
OUR STOCK PRICE COULD BE VOLATILE FOLLOWING THIS OFFERING WHICH COULD LEAD TO
CLASS ACTION LITIGATION
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. Investors may not be able to resell their
shares at or above the initial public offering price. In addition, in the past,
securities class action litigation has often been instituted against a company
following periods of volatility in the company's stock price. This type of
litigation could result in substantial costs and could divert our management's
attention and resources which could harm our business.
YOU WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF
YOUR INVESTMENT
The initial public offering price of our common stock is substantially
higher than what the net tangible book value per share of the common stock will
be immediately after this offering. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $7.41 in the net
tangible book value per share of our common stock from the price you pay for our
common stock. For purposes of this calculation we have assumed an initial public
offering price of $10.00 per share. See "Dilution." The exercise of outstanding
options and warrants may result in further dilution.
18
<PAGE> 22
MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE
We intend to use $10.0 million to $15.0 million of the net proceeds for
advertising and marketing expenditures to promote our brand, and the remaining
net proceeds from the sale of the common stock for general corporate purposes,
including working capital, and for potential strategic acquisitions or
investments. We have not determined how the proceeds not allocated to
advertising and marketing expenditures will be allocated among the other
anticipated uses. Accordingly, our management will have significant flexibility
in applying the net proceeds of this offering and you will not have the
opportunity, as part of your investment decision, to assess whether the proceeds
are being used appropriately. The net proceeds may be used for corporate
purposes that do not increase our profitability or our market value. Until the
proceeds are needed, we plan to invest them in investment-grade,
interest-bearing securities. The failure of management to apply these funds
effectively could harm our business. See "Use of Proceeds."
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement. In addition, this prospectus contains forward-looking
statements attributed to third party industry sources relating to their
estimates regarding the growth of Internet use. You should not place undue
reliance on these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
19
<PAGE> 23
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 4,000,000 shares of
common stock we are offering will be approximately $36.2 million ($41.8 million
if the underwriters exercise their over-allotment option in full) at an assumed
initial public offering price of $10.00 and after deducting estimated offering
expenses of $1,000,000 and underwriting discounts and commissions payable by us.
We plan to use $10.0 million to $15.0 million of the net proceeds for
advertising and marketing expenditures to promote our brand, and the remaining
net proceeds from this offering for general corporate purposes, including
working capital and capital expenditures. A portion of the net proceeds may also
be used to acquire or invest in businesses, technologies, product lines or
products that are complementary to our business. We have no current agreements
or commitments with respect to any of these acquisitions or investments. Our
management will have broad discretion concerning the use of the net proceeds of
the offering. Pending these uses, we intend to invest the net proceeds of this
offering in investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock or other
securities and do not currently anticipate paying cash dividends in the future.
Our equipment financing obligations currently prohibit the payment of dividends.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
pro forma information reflects the conversion of all outstanding shares of
preferred stock into 10,020,049 shares of common stock on completion of this
offering, including 7,584,163 shares of preferred stock outstanding at March 31,
1999, 2,051,275 shares of Series D preferred stock issued on May 18, 1999, and
384,611 shares of Series D preferred stock issuable upon the automatic exercise
of outstanding warrants upon the consummation of this offering. It also reflects
the filing of an amendment to our amended and restated certificate of
incorporation to provide for authorized capital stock of 75,000,000 shares of
common stock and 5,000,000 shares of undesignated preferred stock. The pro forma
as adjusted information reflects the sale of the shares of common stock offered
hereby and the application of the net proceeds we receive from this offering.
The outstanding share information excludes 1,271,929 shares of common stock
issuable upon exercise of outstanding options as of March 31, 1999 at a weighted
average exercise price of $0.30 per share, 123,333 shares of common stock
issuable upon exercise of outstanding options to purchase common stock at an
exercise price of $1.50 per share, 181,666 shares of common stock issuable upon
exercise of outstanding warrants at a weighted average exercise price of $0.45
per share, 2,355,396 shares of common stock reserved for issuance under our 1999
Omnibus Equity Incentive Plan, and 300,000 shares of common stock reserved for
issuance under our 1999 Employee Stock Purchase Plan. This table should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the related notes.
See "Use of Proceeds" and "Management -- Stock Plans."
<TABLE>
<CAPTION>
(UNAUDITED)
AS OF MARCH 31, 1999
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, net of current
maturities..................................... $ 291,425 $ 291,425 $ 291,425
Convertible redeemable preferred stock, $0.00015
par value, 5,333,353 shares authorized,
4,189,195 shares issued and outstanding,
actual; no shares authorized, no shares issued
and outstanding, pro forma and pro forma as
adjusted....................................... 6,671,480 -- --
------------ ------------ ------------
Stockholders' equity (deficit):
Preferred stock, $0.00015 par value, 3,553,314
shares authorized, 3,394,981 shares issued and
outstanding, actual; 5,000,000 shares
authorized, no shares issued or outstanding,
pro forma and pro forma as adjusted............ 509 -- --
Common stock, $0.00015 par value, 14,446,667
shares authorized, 4,072,678 shares issued and
outstanding, actual; 75,000,000 shares
authorized, 14,318,313 shares issued and
outstanding, pro forma; 75,000,000 shares
authorized, 18,318,313 issued and outstanding,
pro forma as adjusted.......................... 611 2,114 2,714
Additional paid-in capital....................... 8,375,420 23,045,906 59,145,306
Deferred compensation............................ (603,069) (603,069) (603,069)
Retained deficit................................. (13,751,771) (13,751,771) (13,751,771)
------------ ------------ ------------
Total stockholders' equity (deficit)... (5,978,300) 8,693,180 44,793,180
------------ ------------ ------------
Total capitalization................... $ 984,605 $ 8,984,605 $ 45,084,605
============ ============ ============
</TABLE>
21
<PAGE> 25
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999, giving effect to the conversion of 10,020,049 shares of preferred stock
into an equal number of shares of common stock, including:
- 7,584,163 shares of preferred stock outstanding at March 31, 1999;
- 2,051,275 shares of Series D preferred stock issued on May 18, 1999; and
- 384,611 shares of Series D preferred stock issuable upon the automatic
exercise of warrants upon the consummation of this offering,
was $10,685,224, or approximately $0.76 per share of common stock. "Pro forma
net tangible book value per share" represents the amount of our total tangible
assets reduced by the amount of our total liabilities divided by 14,092,752
shares of common stock outstanding after giving effect to the conversion into
common stock of the 7,584,163 shares of preferred stock outstanding at March 31,
1999, the 2,051,275 shares of Series D preferred stock issued on May 18, and the
384,611 shares of Series D preferred stock issuable upon the automatic exercise
of warrants upon the completion of this offering. After giving effect to the
issuance and sale of 4,000,000 shares of common stock offered by us and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us, our pro forma net tangible book value as of
March 31, 1999 would have been 46,785,224, or $2.59 per share. This represents
an immediate increase in pro forma net tangible book value of $1.83 per share to
existing stockholders and an immediate dilution in net tangible book value of
$7.41 per share to new investors. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of March
31, 1999............................................... $0.76
Increase per share attributable to new investors.......... 1.83
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.59
------
Dilution per share to new investors $ 7.41
======
</TABLE>
The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of preferred stock into common stock on the
closing of this offering, as of March 31, 1999, the difference between the
number of shares of common stock purchased from us by existing stockholders and
by new investors, the total consideration paid to us by existing stockholders
and new investors and the average price paid by existing stockholders and by new
investors, before deduction of estimated discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 14,092,752 78% $24,778,770 38% $ 1.76
New investors................... 4,000,000 22% 40,000,000 62% 10.00
---------- ----- ----------- ----- ------
Totals................ 18,092,752 100.0% $64,778,770 100.0% $ 3.58
========== ===== =========== ===== ======
</TABLE>
As of March 31, 1999, there were options outstanding to purchase a total of
1,271,929 shares of common stock at a weighted average exercise price of $0.30
per share; 123,333 shares of common stock issuable upon conversion of
outstanding options to purchase preferred stock; 181,666 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $0.45 per share; 2,355,396 shares of common stock reserved for issuance
under our 1999 Omnibus Equity Incentive Plan and 300,000 shares of common stock
reserved for issuance under our 1999 Employee Stock Purchase Plan. To the extent
outstanding options or warrants are exercised, there will be further dilution to
new investors. See "Management -- Stock Plans."
22
<PAGE> 26
SELECTED FINANCIAL DATA
The selected balance sheet data set forth below, as of December 31, 1997,
and 1998 and the statement of operations data for each of the three years in the
period ended December 31, 1998, are derived from Cybergold's financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants, and which are included elsewhere in this prospectus.
The selected financial data as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are derived from Cybergold's unaudited financial
statements which are included elsewhere in this prospectus and which include, in
the opinion of Cybergold, all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of its financial
position and the results of its operations for those periods. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
Cybergold was formed in 1994 but did not begin meaningful operating
activities until 1996. Therefore, no selected financial data is presented for
the years ended December 31, 1994 or 1995.
The selected consolidated financial data should be read in conjunction
with, and is qualified by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Cybergold's financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
(UNAUDITED)
------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Transaction...................................... $ 1 $ 457 $ 628 $ 107 $ 333
Custom marketing services and other.............. 0 74 377 0 170
------- ------- ------- ------- -------
Total revenues........................... 1 531 1,005 107 503
Cost of revenues................................... 1 293 466 35 244
------- ------- ------- ------- -------
Gross margin..................................... 0 238 539 72 259
------- ------- ------- ------- -------
Operating expenses:
Product development.............................. 1,093 1,190 1,700 376 484
Sales and marketing.............................. 841 2,162 2,695 791 967
General and administrative....................... 645 615 642 120 228
Amortization of deferred compensation............ 0 0 185 0 316
------- ------- ------- ------- -------
Total operating expenses................. 2,579 3,967 5,222 1,287 1,995
------- ------- ------- ------- -------
Loss from operations............................... (2,579) (3,729) (4,683) (1,215) (1,736)
Interest income (expense), net..................... 10 (15) 79 (5) 11
------- ------- ------- ------- -------
Net loss......................................... $(2,569) $(3,744) $(4,604) $(1,220) $(1,725)
Dividend attributable to preferred stockholders.... -- -- (660) -- (293)
------- ------- ------- ------- -------
Net loss attributable to common stockholders....... $(2,569) $(3,744) $(5,265) $(1,220) $(2,018)
======= ======= ======= ======= =======
Net loss per common share,
Basic and diluted(1)............................. $ (0.69) $ (0.94) $ (1.31) $ (0.30) $ (0.50)
======= ======= ======= ======= =======
Weighted average common shares outstanding,
Basic and diluted(1)............................. 3,746 3,979 4,020 4,013 4,053+
======= ======= ======= ======= =======
Pro forma basic and diluted(1)..................... $ (0.53) $ (0.17)
======= =======
Weighted average common shares outstanding, basic
and diluted................................... 9,943 11,597
======= =======
</TABLE>
- -------------------------
(1) See Note 1 of Notes to Financial Statements for a description of the method
used to compute basic and diluted net loss per common share.
23
<PAGE> 27
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,240 $ 3,175 $ 2,280
Current assets.............................................. 1,401 3,592 2,403
Total assets................................................ 1,823 4,040 2,893
Long term obligations, net of current maturities............ 272 226 291
Convertible redeemable preferred stock...................... -- 6,379 6,671
Total stockholders' equity (deficit)........................ 743 (4,277) (5,978)
</TABLE>
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements that appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."
OVERVIEW
Cybergold is a leading provider of Internet-based direct marketing and
advertising solutions. We were incorporated in October 1994 and from inception
through the second quarter of 1996, we were in an early stage of development,
and had no sales and limited operating activities. From the second quarter of
1996 through the first quarter of 1997, operating activities related primarily
to developing necessary infrastructure, recruiting personnel, raising capital,
initial strategic planning and developing our Web site. In March 1997, we
launched our initial service and enrolled our first Cybergold members. In March
1999, we introduced our micropayments system, and launched our Earn & Spend
Community. Our membership base increased from approximately 250,000 at December
31, 1997 to approximately 1.0 million at December 31, 1998 and to approximately
2.3 million at June 30, 1999. Although our membership has grown in prior
periods, we cannot be certain that our membership growth will continue at
current rates or increase in the future. See "Risk Factors -- Our success
depends on our ability to maintain and expand an active membership base."
Our revenues consist of transaction revenues and custom marketing services
and other revenues. Transaction revenues represent fees paid to us each time a
member earns incentive rewards within our system and for micropayments
transactions. Our members earn rewards by responding to online advertisements
with a specific action such as filling out a survey or registering for services.
We are paid a transaction fee by advertisers or marketers and we pay a portion
of this fee to our members as a cash reward. We also earn a transaction fee when
our members spend their cash rewards to purchase inexpensive digital content,
services or products through our site or other sites using our system. These
transaction revenues are not recognized until the transaction has been
completed. In the case of prepayments by the advertising or marketing client,
amounts not yet recognized are included in deferred revenue on the balance
sheet. To date, our transaction revenues have been primarily generated from per-
transaction fees received from our advertising and marketing clients for
incentive programs. Revenues from micropayment transactions have not been
material.
Our transaction revenues are driven by a number of factors, including:
- the number of our advertising and marketing clients;
- the size of our membership base;
- the number of transactions performed by each member; and
- the average revenue per transaction.
Custom marketing services and other revenues include production and
development fees received for customization of marketing programs, fees received
for delivering targeted e-mail to our members and fees received for other
advertising and marketing services. Production and development fees represent
HTML design services, graphic services, engineering and database development and
related services. We charge clients for production and development fees on
either a fixed price or time and materials basis. Revenue is recognized as these
services are performed. These revenues fluctuate based on the number of new
programs initiated, type of services, and scope and complexity of each program.
25
<PAGE> 29
The cost of revenues associated with our transaction revenues represent
cash rewards paid to our members for completing transactions or actions. We pay
our members a portion of the amount received from the advertiser or marketer in
return for completing a specified response or action. Cash rewards to our
members are recorded as a current liability in the members payable account of
the balance sheet until transferred or spent to a bank account or a VISA card.
Gross margin on transaction revenues may fluctuate based on the nature of the
incentive programs and the advertisers and marketers in any given period.
The cost of revenues associated with custom advertising and marketing
services and other revenues primarily consist of costs for production and
development personnel and independent contractors, including associated payroll
tax, benefits and other indirect costs. Gross margin associated with these
revenues varies from contract to contract depending on the specific terms of the
individual contract, and may also fluctuate significantly based on the number
and size of fixed price contracts that we undertake in any period and our
ability to complete them within the anticipated budget.
We incurred a net loss of approximately $4.6 million in 1998, and
approximately $1.7 million in the three months ended March 31, 1999. As of March
31, 1999 we had a retained deficit of approximately $13.6 million. We plan to
increase our operating expenses as we continue to build brand and
infrastructure, including expenses for online and offline advertising, expanding
programs for membership recruitment, and for additional computer hardware and
software, and consequently, our losses will increase in the future. Our limited
operating history makes it difficult to forecast future operating results.
Although we have experienced revenue growth in recent quarters, we cannot be
certain that revenues will increase at a rate sufficient to achieve and maintain
profitability. Even if we were to achieve profitability in any period, we may
not be able to sustain or increase profitability on a quarterly or annual basis.
In connection with the granting of options to purchase our common stock to
employees, directors and consultants during 1998 and the first quarter of 1999,
we recorded deferred compensation of $1.1 million representing the difference
between the exercise price of options granted and the deemed fair market value
of our common stock at the time of grant. We will amortize this deferred
compensation as an expense over the vesting periods of the related options.
Total deferred compensation expenses recognized during the year ended December
31, 1998 and the three month period ended March 31, 1999 were $185,000, and
$316,000, respectively.
26
<PAGE> 30
RESULTS OF OPERATIONS
The following table sets forth selected financial data for the periods
indicated as a percentage of total revenues. Data for the year ended December
31, 1996 is not presented because we had no material revenues during that
period.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- ------------------
1997 1998 1998 1999
------ ------ -------- ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction......................................... 86.0% 62.5% 100.0% 66.1%
Custom marketing services and other................. 14.0 37.5 0.0 33.9
------ ------ -------- ------
Total revenues.............................. 100.0 100.0 100.0 100.0
Cost of revenues...................................... 55.2 46.4 32.7 48.5
------ ------ -------- ------
Gross margin................................ 44.8 53.6 67.3 51.5
Operating expenses:
Product development................................. 224.1 169.1 351.4 96.2
Sales and marketing................................. 407.2 268.2 739.2 192.2
General and administrative.......................... 115.8 63.9 112.2 45.3
Amortization of deferred compensation............... -- 18.4 0.0 62.8
------ ------ -------- ------
Total operating expenses.................... 747.1 519.6 1,202.8 396.5
------ ------ -------- ------
Loss from operations.................................. (702.3) (466.0) (1,135.5) (345.1)
Interest income (expense), net........................ (2.8) 7.9 (4.7) 2.2
------ ------ -------- ------
Net loss.............................................. (705.1)% (458.1)% (1,140.2)% (342.8)%
====== ====== ======== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUES
Our revenues increased 370% to $503,000 in the three months ended March 31,
1999 from $107,000 in the three months ended March 31, 1998.
Transaction Revenues. Transaction revenues increased 211% to $333,000 in
the three months ended March 31, 1999 from $107,000 in the three months ended
March 31, 1998. All revenues earned for the three months ended March 31, 1999
and 1998, related to members earning cash rewards by performing certain actions.
The increase in transaction revenues is primarily the result of the growth in
our membership base. Total membership grew 265% to approximately 1,550,000 as of
March 31, 1999 from approximately 425,000 as of March 31, 1998.
Custom Marketing Services and Other Revenues. Custom marketing services and
other revenues were $170,000 in the three months ended March 31, 1999. This
revenue was comprised of $106,000 of custom engineering and production fees,
$40,000 of fees for the transmission of emails to our members and $25,000 in
licensing fees. We did not generate any custom marketing services and other
revenues in the three months ended March 31, 1998. The increase in custom
marketing services revenues is primarily the result of our relationship with
Qwest Communications Corporation, which retained us to perform non-recurring
software engineering services. We expect custom marketing services and other
revenues to fluctuate from period to period.
COST OF REVENUES
Cost of revenues represents the cash incentives paid to members for
performing specified actions in response to advertisements and the personnel
costs associated with custom marketing services and other
27
<PAGE> 31
revenues. Cost of revenues increased 597% to $244,000 in the three months ended
March 31, 1999 from $35,000 in the three months ended March 31, 1998. Cost of
revenues for the three months ended March 31, 1999 were comprised of $159,000 of
cash incentives earned by members and $85,000 of personnel costs associated with
custom marketing services. Cost of revenues for the three months ended March 31,
1998 were comprised entirely of cash incentives earned by members. Gross margin
decreased to 52% from 67% in these respective periods. This decrease in gross
margin was primarily due to a change in the mix of revenue-generating services,
including an increase in lower-margin custom marketing services and other
revenues. We expect gross margin to fluctuate in future periods as a result of
continued variation in the mix of services we provide, as well as the potential
impact of fixed price custom marketing services contracts.
PRODUCT DEVELOPMENT COSTS
Our product development costs primarily consist of compensation for
technology personnel, fees for outside technology consultants, and an allocation
of overhead costs. Product development costs increased 29% to $484,000 in the
three months ended March 31, 1999 from $376,000 in the three months ended March
31, 1998, but decreased as a percentage of revenues to 96% from 351% in these
respective periods. The increase in product development costs was primarily due
to the increased hiring of additional technical personnel, including
consultants. The decrease in product development expenses as a percentage of
revenues is primarily attributable to an increase in revenues as we increased
our membership and advertising and marketing clients. In addition, the fixed
nature of certain development costs also contributed to the decrease in expense
as a percentage of revenues. To date, we have expensed all product development
costs as they have been incurred. We expect product development costs to
continue to increase as we continue to build features and functionality into our
system.
SALES AND MARKETING EXPENSES
Our sales expenses primarily consist of compensation for sales personnel,
expenses for trade shows and an allocation of overhead costs. Our marketing
expenses consist primarily of member acquisition expenses, promotions directed
towards new and existing incentives-based advertisers and marketers,
compensation for marketing personnel and an allocation of overhead costs.
Sales and marketing expenses increased 22% to $967,000 in the three months
ended March 31, 1999 from $792,000 in the three months ended March 31, 1998, but
decreased as a percentage of revenues to 192% from 739% in these respective
periods. The increase in sales and marketing expenses is primarily attributable
to additional hiring of sales and marketing personnel, increased sales
commissions resulting from higher revenues, increased expenses associated with
membership acquisition, and increased advertising and promotion expenses. The
decrease in sales and marketing expenses as a percentage of revenues is
attributable primarily to an increase in revenues as we increased our membership
and advertising and marketing clients. We expect sales and marketing expenses to
increase as we continue to increase our marketing efforts, expand our direct
sales force and open additional regional sales offices.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses include compensation for
administrative personnel, fees for outside professional advisors and an
allocation of overhead costs. General and administrative expenses increased 90%
to $228,000 in the three months ended March 31, 1999 from $120,000 in the three
months ended March 31, 1998, but decreased as a percentage of revenues to 45%
from 112% in these respective periods. The increase in general and
administrative expenses resulted from higher professional fees as well as an
increase in payroll expenses due to hiring additional administrative personnel.
The decrease in general and administrative expenses as a percentage of revenues
is primarily attributable to an increase in
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revenues as we increased our membership and advertising and marketing clients.
In addition, the fixed nature of a portion of our general and administrative
costs also contributed to the decrease in expenses as a percentage of revenues.
We expect that general and administrative expenses will continue to increase as
we expand our operations and incur additional costs related to being a public
company.
AMORTIZATION OF DEFERRED COMPENSATION EXPENSE
In connection with the granting of options to purchase our common stock to
employees, directors and consultants during the three months ended March 31,
1999, we recorded deferred compensation representing the difference between the
exercise price of options granted and the deemed fair market value of our common
stock at the time of grant. Amortization of deferred compensation was $316,000
in the three months ended March 31, 1999. In the three months ended March 31,
1998, we recorded no deferred compensation.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net, primarily consists of interest earned on
cash balances, including balances in Cybergold member accounts, offset by
interest expense incurred with respect to our capital leases and equipment
financing obligations. Interest income (expense), net, was $11,000 in the three
months ended March 31, 1999 and was a net expense of $5,000 in the three months
ended March 31, 1998. The change from net expense to net income resulted
primarily from increased interest income on higher cash balances.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES
Revenues increased 88% to $1.0 million in the year ended December 31, 1998
from $531,000 in the year ended December 31, 1997. We had no material revenues
in 1996.
Transaction Revenues. Transaction revenues increased 37% to $628,000 in the
year ended December 31, 1998 from $457,000 in the year ended December 31, 1997.
All transaction revenues earned for the years ended December 31, 1998 and 1997,
related to members earning cash rewards by performing certain actions. The
increase in transaction revenues is primarily the result of the growth in our
membership base. Total membership grew 320% from approximately 254,000 on
December 31, 1997 to approximately 1,066,000 on December 31, 1998.
Custom Marketing Services and Other Revenues. Custom marketing services and
other revenues increased 409% to $377,000 in the year ended December 31, 1998
from $74,000 in the year ended December 31, 1997. All custom marketing services
revenues earned for the years ended December 31, 1998 and 1997, related to
custom engineering and production fees. The increase in custom marketing
services and other revenues resulted primarily from the initiation of
relationships with three significant customers.
COST OF REVENUES
Cost of revenues increased 59% to $466,000 in the year ended December 31,
1998 from $293,000 in the year ended December 31, 1997. Cost of revenues for the
year ended December 31, 1998 was comprised of $277,000 of cash incentives earned
by members and $189,000 of personnel costs associated with custom marketing
services. Cost of revenues for the year ended December 31, 1997 was comprised of
$256,000 of cash incentives earned by members and $37,000 of personnel costs
associated with custom
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marketing services. Gross margin increased to 54% from 45% in these respective
periods. This increase in gross margin was primarily due to improved gross
margin on transaction revenues.
PRODUCT DEVELOPMENT COSTS
Product development costs increased 42% to $1.7 million in the year ended
December 31, 1998 from $1.2 million in the year ended December 31, 1997, but
decreased as a percentage of revenues to 169% from 224% in these respective
periods. The decrease in product development expenses as a percentage of
revenues is primarily attributable to an increase in revenues as we increased
our membership and advertising and marketing clients. In addition, the fixed
nature of certain development costs also contributed to the decrease in expense
as a percentage of revenues.
Product development costs were $1.1 million in the year ended December 31,
1996. The increase in costs from 1996 to 1997 was primarily due to increased
hiring of technical employees and consultants.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 23% to $2.7 million in the year
ended December 31, 1998 from $2.2 million in the year ended December 31, 1997,
but decreased as a percentage of revenues to 270% from 410% in these respective
periods. The increase in sales and marketing expenses is primarily attributable
to additional hiring of sales and marketing personnel, increased sales
commissions resulting from higher revenues, increased expenses associated with
member acquisition, and increased advertising and promotion expenses. The
decrease in sales and marketing expenses as a percentage of revenues is
attributable primarily to an increase in revenues as we increased our membership
and advertising and marketing clients.
Sales and marketing expenses were $841,000 in the year ended December 31,
1996. The increase in sales and marketing expenses from 1996 to 1997 is
primarily attributable to additional hiring of sales and marketing personnel,
increased sales commissions resulting from higher revenues, increased expenses
associated with member acquisition, and increased advertising and promotion
expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 4% to $642,000 in the year
ended December 31, 1998 from $615,000 in the year ended December 31, 1997, but
decreased as a percentage of revenues to 64% from 116% in these respective
periods. The increase in general and administrative expenses resulted from
higher professional fees as well as an increase in payroll expenses due to
hiring additional administrative personnel. The decrease in general and
administrative expenses as a percentage of revenues is primarily attributable to
an increase in revenues as we increased our membership and advertising and
marketing clients. In addition, the fixed nature of a portion of our general and
administrative costs also contributed to the decrease in expense as a percentage
of revenues.
General and administrative expenses were $645,000 in the year ended
December 31, 1996.
AMORTIZATION OF DEFERRED COMPENSATION EXPENSE
In connection with the granting of options to purchase our common stock to
certain employees, directors and consultants during the year ended December 31,
1998, we recorded deferred compensation representing the difference between the
exercise price of options granted and the deemed fair market value of our common
stock at the time of grant. Amortization of deferred compensation in the year
ended December 31, 1998 was $185,000. For the years ended December 31, 1997 and
1996 we recorded no deferred compensation.
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INTEREST INCOME (EXPENSE), NET
Interest income (expense), net was $79,000 in the year ended December 31,
1998, compared to a net expense of $15,000 in the year ended December 31, 1997.
The change to net interest income from net interest expense is primarily
attributable to an increase in the amount of interest earned on cash balances,
partially offset by an increase in interest expense generated from capital lease
and equipment financing obligations.
Interest income (expense), net was $10,000 in the year ended December 31,
1996. The change to net interest expense in 1997 from net interest income in
1996 is primarily attributable to an increase in interest expense generated from
capital lease and equipment financing obligations as well as interest on
investor notes that were paid in full upon completion of our Series B Preferred
Stock financing in May 1997.
INCOME TAXES
We recorded a net loss of $4.6 million for the year ended December 31,
1998. For federal and state tax purposes, no provision for income taxes was
recorded, and no tax benefit has been recognized due to the uncertainty of
realizing future tax deductions for these losses.
As of December 31, 1998, we had net operating loss carryforwards of
approximately $9,360,000 for federal and state income tax purposes. The federal
and state net operating loss carryforwards begin to expire in the years 2011 and
2005, respectively. Our ability to utilize our net operating loss carryforwards
to offset future taxable income, if any, may be restricted as a result of equity
transactions that give rise to changes in ownership as defined in the Tax Reform
Act of 1986.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth selected statement of operations data for
the quarters ended March 31, 1999 in dollars and as a percentage of revenues.
This data has been derived from our unaudited financial statements and is not
necessarily indicative of the results that may be expected for future periods.
In our opinion, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of our financial position and results of
operations for such period have been included.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction........................... $ 107 $ 155 $ 175 $ 191 $ 333
Custom marketing services and other... 0 8 108 261 170
------- ------- ------- ------- -------
Total revenues................. 107 163 283 452 503
Cost of revenues........................ 35 66 142 223 244
------- ------- ------- ------- -------
Gross margin................... 72 97 141 229 259
------- ------- ------- ------- -------
Operating expenses:
Product development................... 376 414 430 480 484
Sales and marketing................... 791 637 563 704 967
General and administrative............ 120 119 207 196 228
Amortization of deferred
compensation........................ 0 3 30 152 316
------- ------- ------- ------- -------
Total operating expenses....... 1,287 1,173 1,230 1,532 1,995
------- ------- ------- ------- -------
Loss from operations.................... (1,215) (1,076) (1,089) (1,303) (1,736)
Interest income (expense), net........ (5) 12 16 55 11
------- ------- ------- ------- -------
Net loss................................ $(1,220) $(1,064) $(1,073) $(1,248) $(1,725)
======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET REVENUES:
Revenues:........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................... 32.7 40.5 50.2 49.3 48.5
--------- ------ ------ ------ ------
Gross margin............... 67.3 59.5 49.8 50.7 51.5
--------- ------ ------ ------ ------
Operating expenses:
Product development............... 351.4 253.4 151.9 106.2 96.2
Sales and marketing............... 739.2 389.5 198.9 155.5 192.2
General and administrative........ 112.2 74.9 73.1 43.6 45.3
Amortization of deferred
compensation.................... 0.0 1.8 10.7 33.6 62.8
--------- ------ ------ ------ ------
Total operating expenses... 1,202.8 719.6 434.6 338.9 396.5
--------- ------ ------ ------ ------
Loss from operations................ (1,135.5) (660.1) (384.8) (288.2) (345)
Interest income (expense), net.... (4.7) 7.4 5.7 12.2 2.2
--------- ------ ------ ------ ------
Net loss............................ (1,140.2)% (652.7)% (379.1)% (276)% (342.8)%
========= ====== ====== ====== ======
</TABLE>
Our total revenues have grown in each quarter. Transaction revenues have
increased in each quarter as a result of growth in our membership base, the
average revenue per transaction generated by these members and the average
number of transactions per member. Custom marketing services and other revenues
decreased from the quarter ended December 31, 1998 to the quarter ended March
31, 1999 as the result of the timing of recognition of revenue from a single
significant contract in the quarter ended December 31, 1998. Gross margin has
also fluctuated as a result of quarter to quarter changes in the mix of revenue
between higher-margin transaction revenues and lower-margin custom marketing
services and other revenues.
Our operating expenses have increased significantly from 1996 to 1998 and
in the first quarter of 1999 as we have transitioned from the development stage
to the commercialization of our services. Sales and marketing expenses
fluctuated during 1998, declining sequentially in the second and third quarters
of 1998 as a result of changes made to our sales and marketing personnel in an
effort to enhance the quality and quantity of advertisers, marketers and new
members we attract. Sales and marketing expenses increased during the fourth
quarter of 1998 as we added new sales and marketing personnel, including a new
Vice President of Sales, and increased promotional expenditures to fuel
membership growth and to attract new advertising and marketing clients.
We plan to increase our operating expenses as we continue to build brand
and infrastructure. Consequently, our losses may increase in the future.
Although we have experienced revenue growth in recent periods, we cannot be
certain that such growth will continue at its current rate or increase in the
future. If our revenue growth is slower than we anticipate or our operating
expenses exceed our expectations, our losses will be significantly greater.
Our quarterly results of operations have varied in the past, and our
revenues and operating results are likely to vary significantly from quarter to
quarter. A number of factors are likely to cause these variations, some of which
are outside of our control. These factors include:
- changes in revenue levels resulting from the advertising and marketing
budget cycles of individual advertisers and marketers;
- changes in advertising and marketing costs that we incur to attract and
retain members;
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for Internet advertising and marketing generally;
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- our rate of member acquisition and the level of activity of new and
existing members;
- the number and type of programs and development contracts established
with our advertising and marketing clients as well as the impact of the
fixed price portion of development contracts on gross margin;
- the introduction of new products and services by us or by our
competitors;
- unexpected costs and delays resulting from the expansion of our
operations; and
- the occurrence of technical difficulties or unscheduled system downtime.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers and
marketers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns. As a result, our results of operations could be harmed
by a downturn in the general economy or a shift in consumer buying patterns.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely upon them as any indication of our future performance. Our operating
expenses are based on our expectations of our future revenues and are relatively
fixed in the short term. If our revenues are lower than expected, we would incur
greater than expected losses. In addition, during future periods our operating
results likely will fall below the expectations of public market analysts and
investors. In this event, the market price of our common stock likely would
decline.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1998, our cash and cash equivalents consisted primarily of
demand deposits and money market funds held by large institutions in the United
States and our short-term investments were invested in corporate debt and equity
securities maturing in less than one year. Due to the nature of our short-term
investments, we have concluded that there is no material market risk exposure.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from the sale of
equity securities to venture capital firms and other individual, institutional
and strategic investors. We have also borrowed funds under long-term capital
lease and equipment financing facilities. As of March 31, 1999, we had cash and
cash equivalents of $330,633 and $115,196 outstanding under capital lease and
equipment financing facilities, respectively. In addition, in May 1999, we
completed a Series D convertible preferred stock financing that resulted in net
proceeds to us of $8.0 million.
Net cash used in operating activities was $3.5 million in 1998, $3.2
million in 1997, $2.3 million in 1996 and $891,000 in the three months ended
March 31, 1999. In 1998, the net cash used in operating activities consisted
primarily of our net loss, offset in part by an increase in net accounts
payable, members payable, membership acquisition payable, depreciation and
amortization, and deferred revenue. In 1997, the net cash used in operating
activities consisted primarily of our net loss, offset by an increase in
depreciation, members payable, membership acquisition payable, and deferred
revenue. In 1996, the net cash used in operating activities consisted primarily
of our net loss, offset in part by an increase in accounts payable and
depreciation and amortization.
Net cash used in investing activities was $153,000 in 1998, $58,000 in
1997, $387,000 in 1996 and $89,000 in the three months ended March 31, 1999.
These amounts were used to acquire property and equipment.
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Net cash provided by financing activities was $5.6 million in 1998, $4.3
million in 1997, $2.9 million in 1996 and $85,000 in the three months ended
March 31, 1999. In 1998, this amount included $5.8 million in proceeds from the
issuance of preferred stock, less payments on capital leases. In 1997, this
amount included primarily $3.1 million in net proceeds from the issuance of
preferred stock, $1.0 million in proceeds from stockholder loans that were
subsequently converted into preferred stock, and $250,000 in proceeds from a
sale-leaseback transaction related to items of computer equipment, less payments
on capital leases. In 1996, this amount included primarily $3,000,000 in
proceeds from the issuance of preferred stock. Net cash provided by financing
activities in the three months ended March 31, 1999 consisted primarily of
proceeds from equipment financing.
In 1997 and 1998, we entered into various non-cancelable capital lease
agreements for certain types of capital expenditures. As a result of these
capital lease agreements, we had lease payment obligations of approximately
$110,000 in 1997 and $143,000 in 1998. Borrowings under these capital lease
arrangements have terms ranging from 36 to 48 months with monthly payments and
interest rates ranging from 10.5% to 11.5%.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements through the end of 2000.
However, we may need to raise additional funds sooner to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses or
technologies. If adequate funds are not available on acceptable terms, our
business, results of operations and financial condition could be harmed. See
"Risk Factors -- We may need more working capital to expand our business, and
our prospects for obtaining additional financing are uncertain."
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Development or Obtained for Internal Use. SOP No. 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. We do
not expect that the adoption of SOP No. 98-1 will have a material impact on our
financial statements.
In April 1998, the Accounting Standards Executive Committee issued SOP
98-5, Reporting on the Costs of Start-Up Activities. This SOP provides guidance
on the financial reporting of start-up costs and organization costs. It requires
the costs of the start-up activities and organization costs to be expensed as
incurred. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company adopted the SOP during the year
ended December 31, 1998. The adoption of the SOP did not have a material impact
on our financial statements.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in their date code field. Beginning in the Year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software products used by many companies may need to be upgraded to
comply with these Year 2000 requirements.
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We have made an assessment of the Year 2000 readiness of all our relevant
operating, financial and administrative systems. Our assessment plan consists
of:
- quality assurance testing of our internally developed proprietary
software;
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of our services to user;
- contacting vendors of third-party systems;
- appointing a Year 2000 compliance team composed of a cross-section of our
employees and appointing a manager of the team;
- assessing repair or replacement;
- implementation of the plan; and
- creating contingency plans in the event of Year 2000 failures.
We designed the software underlying our Web-based programs as well as our
Web site and related technology infrastructure to be Year 2000 compliant.
However, we rely on third-party hardware and software in the operation of our
business. We believe we have identified all of the major information systems
used in our internal operations, including operating systems, databases and
middleware, and have substantially completed all modifications, upgrades or
replacements to minimize the possibility of a material disruption of our
business. These remediation activities include updating these systems to the
newest versions, which are claimed to be Year 2000 compliant, and applying
patches to current versions. The expenditures that we have incurred to date and
the expenditures we expect to incur in this regard have not been and are not
expected to be material to our business, results of operations and financial
condition.
We have also contacted the vendors of third-party hardware and software we
use in order to gauge their Year 2000 compliance. Based on these vendors'
representations and the activities we have conducted, we believe that the
third-party hardware and software we use are Year 2000 compliant. We cannot
assure you, however, that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects in
the technology used in our internal systems. If, in the future, it comes to our
attention that the software underlying our e-mail or Web-based programs requires
modification, or that any of our third-party hardware and software are not Year
2000 compliant, then we will seek to make modifications to our systems. In such
case, we expect such modifications will not have a material effect on our
results of operations. There can be no assurance, however, that we will be able
to modify such systems in a timely and successful manner to comply with the Year
2000 requirements. Any failure to do so could have a material adverse effect on
our business, results of operations and financial conditions. The worst case
scenario for Year 2000 problems for us if the third-party hardware and software
we use in our service were to prove not to be Year 2000 compliant would be the
need to cease normal operations for an indefinite period of time if our web site
were to become inoperative and the need to remediate transactions that were
incorrectly processed or recorded.
We are also vulnerable to systemic failures resulting from Year 2000
problems. These failures could include prolonged data communications,
telecommunications or electrical failures. A failure of this type could prevent
members from accessing our Web site or prevent us from operating our business.
As a result, we could experience lost revenues, increased operating expenses and
loss of members. Any of these eventualities could have a material adverse effect
on our business, results of operations and financial condition.
We have not yet developed a comprehensive contingency plan to address Year
2000 problems that are not detected and corrected prior to their occurrence.
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BUSINESS
OVERVIEW
We are a leading provider of online direct marketing and advertising
solutions. We combine Internet-based direct marketing and advertising services
with programs that reward consumers with cash when they perform actions desired
by our advertising and marketing clients. These cash-based online incentives
programs are intended to provide flexible, incentive-marketing solutions for our
clients. Our payment structure, in which our advertising and marketing clients
are only charged when our members execute specific predefined actions, provides
these clients with a known cost to achieve the desired response to their
advertising campaigns. By leveraging our member database and our targeting
capabilities, we are able to offer our clients customized, targeted advertising
solutions designed to improve advertisement response rates and reduce the cost
of acquiring new customers.
Cybergold serves three main constituencies: advertising and marketing
clients, consumer members and merchants. Advertising and marketing clients use
Cybergold to cost-effectively acquire new customers with offers and cash
incentives. Consumer members use Cybergold to earn cash rewards for responding
to offers on our Web site, on third-party Web sites and through e-mail
campaigns. Merchants use Cybergold technology as a cost-effective means to sell
inexpensive digital content, services and products on a pay-per-transaction
basis to the Cybergold membership base.
Our business revolves around what we call the Earn & Spend Community -- a
place on the Internet where consumers can earn cash incentives for responding to
online marketing offers presented by our advertising and marketing clients and
then spend the cash with merchants. By opening a Cybergold account, a consumer
can become a member of the Earn & Spend Community. The cash earned by our
consumer members can be credited to either their VISA or bank accounts from
their Cybergold account or be used to purchase content, services and products,
including software, music, games, credit reporting services and original
artistic works and publications through our Earn & Spend Community. We currently
have approximately 2.3 million consumer members. Advertising and marketing
clients that currently use our service include autobytel.com inc., Cendant
Corporation (NetMarket), The Walt Disney Company, Earthlink Network, Inc. and
LifeMinders.com, Inc.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Internet has emerged rapidly as an important medium for facilitating
communication, disseminating information and conducting commerce. International
Data Corporation estimates that the number of Internet users worldwide exceeded
97 million in 1998 and will grow to approximately 320 million by the end of
2002. International Data Corporation also estimates that worldwide commerce over
the Internet will reach approximately $426 billion by the end of 2002, up from
approximately $32 billion in 1998. The availability of a broad range of content
and the acceptance of electronic commerce has driven rapid Internet adoption by
businesses and consumers alike, which has in turn stimulated the proliferation
of additional content and electronic commerce.
Online Advertising and Direct Marketing
The Internet possesses unique and commercially powerful characteristics
that differentiate it from traditional forms of media, including a lack of
geographic or temporal limitations, real time access to dynamic interactive
content, and instantaneous connections between advertisers, marketers and
consumers. Advertisers and marketers are particularly attracted to the Internet
because it enables them to distribute information efficiently, reach potential
customers globally and engage in one-to-one
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customer interaction. These capabilities create significant opportunities for
advertisers, marketers and merchants to develop direct relationships with
consumers. The Internet also facilitates the efficient collection of valuable
customer data and demographic information, enabling advertisers and marketers to
develop targeted marketing campaigns directed to existing and potential
customers.
These characteristics have resulted in the rapid growth of Internet
advertising. Forrester Research estimates that worldwide Internet advertising
expenditures in 1998 were approximately $1.5 billion and projects Internet
advertising expenditures to increase to approximately $15.2 billion in 2003. The
majority of Internet advertising to date has been in the form of passive banner
advertising. However, as the number of Web sites and amount of advertising on
the Internet has proliferated, we believe decreasing consumer response to banner
advertising has led advertisers and marketers to question the effectiveness of
such advertising and marketing campaigns. According to NetRatings, click-through
rates, used by advertisers to measure the effectiveness of their online efforts,
was 0.63% in April 1999.
These trends are causing marketers to consider alternative marketing
solutions that encourage consumers not only to pay greater attention to
marketing messages but also to increase response rates to those messages.
Conversely, many consumers prefer to limit the number of advertisements to which
they are exposed and prefer to be exposed only to those advertisements for
products or services in which they are interested. We believe that the inability
of traditional banner advertising to maximize the powerful one-to-one
relationships enabled by the Internet has led advertisers to place greater
emphasis on online direct marketing as a more effective means to convert
Internet users into customers. The Direct Marketing Association estimates that
spending on Internet direct marketing will grow from $603 million in 1998 to
$5.3 billion in 2003, representing a compound annual growth rate of 54%.
Online Incentive Programs
As advertisers and marketers seek to increase the effectiveness and
efficiency of their online marketing efforts, they are turning to
incentives-based programs, which reward consumers for their attention or
specific response to ads and promotions. Because advertisers are charged on a
cost-per-action basis in these programs, advertisers are provided with a
predictable cost for the desired response. In contrast, banner advertisers pay
simply for the number of times a banner appears on a Web site page, regardless
of how many consumers actually view or click on the banners or whether they take
additional actions based on what they read.
Most incentives-based programs offer consumers the ability to earn "points"
that are redeemable only for limited products, frequent flyer miles or other
non-cash rewards. These non-cash incentive programs often have significant
limitations on redemption due to the limited items for which rewards can be
redeemed as well as various program restrictions. For example, programs offering
frequent flyer miles are often restrictive and generally only appeal to
consumers who otherwise actively participate in frequent flyer programs. In
addition, rewards for participation in online direct marketing programs mostly
come in small increments and the redemption opportunities generally require
large outlays of points. Therefore, while these programs have the potential to
provide significant benefits to advertisers and marketers, they remain limited
to a subset of Internet users.
Online Payment Mechanisms
Traditionally, Internet companies have chosen either to fund the free
distribution of content or services through selling banner advertising on their
Web sites or to sell their content or services on a subscription basis. However,
the increasing amount of online advertising inventory and the decreasing
effectiveness of banner advertising is causing the price for banner advertising
to decline. According to AdKnowledge, the overall average advertising banner
cost per thousand impressions (CPMs) have fallen 7.5% from June 1998 to March
1999. We believe a continued decline in CPM rates will lead Internet
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content and service providers, many of whom depend on advertising sales as a
major source of revenue, to find alternative revenue sources, including the sale
of content or services on a per transaction basis.
While credit cards have traditionally been the dominant form of payment for
Internet transactions, the relatively high costs of processing credit card
payments makes them less suitable for inexpensive Internet purchases. In
addition, consumers have traditionally been reluctant to use credit cards for
inexpensive purchases. As a result, the absence of a broadly accepted online
micropayment system has left sales of inexpensive content, services and products
economically impractical.
Market Opportunity
Advertisers, marketers and merchants need more effective means to induce
consumers to respond to online advertising and marketing and facilitate the
online purchase of inexpensive content, goods and services. While there have
been several attempts to address these needs, current incentives-based online
advertising and marketing and micropayment solutions have a number of
significant limitations. Current incentives-based online advertising and
marketing campaigns impose significant limitations on consumer choice, limiting
consumers' ability to monetize their time spent online. These shortcomings limit
the utility and flexibility of incentives-based online marketing programs and,
therefore, consumers' desire to participate. In addition, current transaction
processing methods for the distribution of inexpensive content, services and
products are prohibitively expensive. There is a need for online
incentives-based advertising and marketing and micropayment solutions which
effectively target consumers and provide consumers with greater flexibility and
purchasing opportunities.
THE CYBERGOLD SOLUTION
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We believe that we are the first online company
to combine a cash-based incentive program with a direct marketing approach that
provides extensive benefits for our advertising and marketing clients, consumer
members and merchants. Our Earn & Spend Community has approximately 2.3 million
consumer members, which enables our advertising and marketing clients to offer
cost-per-action incentive programs either to our entire member database or to a
targeted subset. Members are compensated for responding to online advertisements
or promotions by performing client-specified actions, such as filling out online
surveys or purchasing products or services. Internet users become Cybergold
members at no cost by completing a short online registration form on our Web
site or on a co-marketer or co-registration Web site.
In order to manage these cash-based incentive programs on our Web site and
on other sites, we have developed a proprietary transaction system that enables
the cost-effective management of cash-based incentive reward programs and
micropayment transactions. Our Earn & Spend Community allows our members to earn
cash by interacting with offers that appeal to their interests. For example,
under a current promotion, members can earn $3.00 for requesting a quote for a
new car from our marketing client, autobytel.com inc. The cash earned by our
members is deposited in their Cybergold accounts and can then be credited to
either their VISA cards or bank accounts or be used to purchase content,
services and products, including software, music, games and original artistic
works and publications.
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LOGO
Benefits of our unique incentive programs include:
Advertising and Marketing Client Benefits
- FLEXIBLE AND EFFECTIVE MARKETING SOLUTION. We provide a variety of
advertising and marketing services for our clients, including incentive
offers on our Earn & Spend Community site, targeted and untargeted
e-mails, and ad campaigns that offer cash incentives directly on
third-party sites. We believe our services provide our clients with more
effective advertising tools to induce desired consumer behavior,
including purchasing, product evaluation and subscriptions.
- COST-PER-ACTION PAYMENT STRUCTURE. We provide a cost-per-action
incentive marketing solution, in which our clients are only charged when
our members take pre-defined actions specified by our clients. In
contrast, with banner advertising, advertisers typically pay for a number
of impressions on Web sites, regardless of whether consumers click on, or
take any action in response to, the banner advertisement. Our
cost-per-action solution provides our clients with both a known cost per
yield for each advertising and marketing campaign, the costs of acquiring
new customers and risk.
- MEASURABLE RESULTS. Member actions in response to client marketing
messages are instantly recorded in our database, allowing clients to
measure the effectiveness of their advertising campaigns on an ongoing
basis. Clients are able to review and modify their campaigns at any time
to react to customer response rates.
- TARGETING CAPABILITY. By leveraging our database of approximately 2.3
million members, we are able to provide customized, targeted campaigns
for our clients. This targeting capability enables our clients to focus
on specific demographic segments or groups of users that exhibit
desirable
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online behavioral patterns. We believe that by focusing on a specific
target audience, our clients should increase response rates and reduce
their customer acquisition costs.
Member Benefits
- CASH REWARDS. Unlike other online incentive programs which reward the
customer with "points" redeemable for frequent flyer miles, specified
products or other non-cash rewards, we reward our members with cash. One
Cybergold dollar equals one U.S. dollar. The dollars our members earn are
accumulated in a Cybergold account and can be credited to their VISA
cards or bank accounts. We also offer a number of online spending
opportunities to our members, such as the ability to purchase digital
content, services and products, including software, music, games, credit
reporting services and original artistic works and publications.
- MEMBER CHOICE. Our online incentives programs provide two primary
benefits for members. First, members may choose to respond only to
advertising and marketing that interests them and provides a sufficient
reward to induce their participation. Second, members earn cash rewards
which they can choose to spend on online purchases or have credited to
their VISA cards or bank accounts. This enables members to pursue
advertising and marketing that interests them, increasing the quality of
their online experience.
Merchant Benefits
- NEW REVENUE OPPORTUNITY. Through our micropayments system, we afford
merchants who provide inexpensive digital content, services and products
an opportunity to participate in Internet commerce on a
pay-per-transaction basis. We offer these merchants an alternative
revenue source by providing them access to our members, who have cash
accounts that can be used for inexpensive purchases of content, services
and products. In addition, if Cybergold members wish to purchase items
that cost more than the amount of Cybergold dollars in their accounts,
they can deposit additional funds into their Cybergold accounts from
their VISA cards. Our broad membership community gives merchants an
established base of potential customers.
- VALUE-ADDED SERVICES. We provide merchants with "non-hosted" and
"hosted" value-added services to sell inexpensive digital content,
products and services. In "non-hosted" solutions, our micropayment
transaction system enables merchants to sell inexpensive digital content,
services and products on their own Web sites. In "hosted" solutions, we
provide the merchants with a complete suite of Web site hosting, systems
administration, transaction processing and integration services, while
the merchant only provides the content.
STRATEGY
Our objective is to enhance our leadership position in online direct
marketing and incentives-based advertising. We intend to achieve our objective
through the following key strategies:
Increase Size of Membership Base. We intend to continue to expand our
membership base through membership acquisition activities such as
co-registration programs, co-marketing programs and advertising on third-party
Internet sites. We also plan to initiate offline branding and promotional
campaigns using broadcast, print and outdoor advertising in order to attract new
members. In addition, we intend to explore international opportunities,
including potential strategic alliances, in order to extend the reach of the
Cybergold brand.
Increase Number of Advertising and Marketing Clients. We are seeking to
broaden our advertising and marketing client base by increasing our direct and
indirect sales and marketing efforts. We plan to
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increase significantly the size of our direct sales force and to open additional
regional sales offices. In addition, we are seeking to take advantage of
existing distribution channels, such as advertising networks, to expand the
number of advertisers using our incentive marketing system.
Increase Brand Awareness. We are focused on increasing brand awareness to
attract and retain members, advertising and marketing clients and merchants. We
intend to use a combination of online and offline advertising, direct marketing,
public relations and other marketing programs designed to promote the Cybergold
brand and build loyalty among our members, clients and merchants. We also intend
to develop promotional and media campaigns with well-known Internet companies
and offline marketers of branded consumer products and services.
Expand Earn & Spend Opportunities to Other Web Sites. Although we currently
are primarily a site-centric service, our micropayment technology enables our
Earn & Spend capabilities to function on third-party Web sites. To date, a
number of Web sites have installed the Cybergold Mint, our electronic commerce
payment software, on their servers. We are seeking to aggressively expand
Cybergold Mint installations on other Web sites to increase the number of
Internet users who are exposed to the Cybergold Earn & Spend Community and
establish additional sources of revenue. We are also pursuing strategic
relationships with electronic commerce infrastructure vendors to further expand
the distribution of the Cybergold Mint technology.
Enhance Cybergold Earn & Spend Community. We intend to continue to enhance
the Cybergold Earn & Spend Community by increasing the number and variety of
incentive offers provided and the breadth of online purchasing opportunities. We
are also actively developing a community store site where our members can sell
their own inexpensive digital content, services and products to other members.
We believe that the Cybergold Earn & Spend Community and our technology enable
individuals and businesses to sell inexpensive digital content, services and
products that were previously not cost-effective to offer online.
Pursue Strategic Acquisitions and Relationships. We intend to continue to
enter into strategic relationships in order to build our Earn & Spend Community,
generate additional traffic to our Web site, increase membership and establish
additional sources of revenue. We have entered into strategic relationships with
the First National Bank of Omaha, MBNA America Bank, Earthlink Network, Inc. and
others which have enabled us to offer our clients and members a broader
selection of advertising opportunities, expanded content and more online
services. In addition, we intend to pursue strategic acquisitions of
complementary technologies and services in order to expand and enhance our
current offering of products and services.
CYBERGOLD SERVICES
Cybergold serves three main constituencies: advertising and marketing
clients, consumer members and merchants. Advertising and marketing clients use
Cybergold to cost-effectively acquire new customers with offers and cash
incentives. Consumer members use Cybergold to earn cash rewards for responding
to offers on our Web site, on third-party Web sites and through e-mail
campaigns. Merchants use Cybergold technology as a cost-effective means to sell
inexpensive digital content, services and products on a pay-per-transaction
basis to the Cybergold membership base.
Advertising and Marketing Client Services. We work closely with our
advertising and marketing clients to develop marketing campaigns that are
tailored to their customer acquisition needs. These programs include:
- incentives-based offers and promotions on the Cybergold Web site;
- targeted and untargeted e-mail campaigns conducted by us on behalf of our
advertising and marketing clients;
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- programs introduced on our marketing clients' Web sites; and
- banner ads placed on various targeted Web sites.
Our membership database technology enables us to maintain and track
information about our members. We are able to track aspects of member online
activity, such as marketing programs in which specific members have participated
and online purchases initiated through Cybergold. In addition, we have access to
member information gathered by a number of our advertising and marketing
clients. We believe that our database of membership information allows us to
carefully tailor marketing campaigns to maximize their effectiveness for our
clients.
Member Services. Internet users become Cybergold members at no cost by
completing a short online registration form on our Web site or on a co-marketer
or co-registration Web site. Our members earn cash rewards for completing
various desired actions, such as viewing an incentive offer, completing a survey
or registration form or downloading software. Members can also earn rebates and
incentives by purchasing a variety of products or services offered through our
Web site or third-party Web sites. In addition, to encourage members to visit
our Web site frequently, our members receive free services, including e-mail,
chat, stock quotes and news.
Existing members are notified of new programs and promotions through
periodic e-mail distributions. In contrast to other incentive programs, our
members have the opportunity not only to earn cash rewards that are transferable
to their VISA cards or bank accounts, but also to spend their Cybergold cash
rewards for a variety of goods and services. Cash is transferable to a member's
bank account in a minimum amount of $10.00 and to a VISA card in a minimum
amount of $5.00. Members are also able to transfer money from VISA cards to
their Cybergold accounts to enable them to use our micropayment system to
purchase additional content, goods and services from merchants.
We are committed to maintaining the privacy and security of our members. We
keep all personal information about our members confidential. Cybergold is a
member of TRUSTe, a non-profit organization dedicated to the protection of user
privacy and promotion of security online.
Merchant Services. We offer merchants the ability to sell digital content,
products and services over the Internet in transactions of any size. By
eliminating the high transaction costs typically associated with very small
credit card transactions, we enable the cost-effective delivery of content such
as articles or music for cents rather than dollars. We believe that our
micropayment system enables new business models for merchants of content,
products and services. We offer merchants with two micropayment environment
options:
- Non-hosted -- a technology and marketing solution where the Cybergold
Mint, our electronic commerce payment software, is provided to merchants
for use on their own Web sites to sell inexpensive content, services and
products to online consumers.
- Hosted -- a full-service solution where we provide the customer with a
complete suite of Web site hosting, systems administration, transaction
processing and integration services while the merchant only provides the
content.
SALES AND MARKETING
Our primary sales strategy is to sell our services directly to advertisers,
direct marketers, ad agencies and electronic commerce merchants. We currently
sell our services in the United States through a direct sales organization, with
seven employees located in the San Francisco Bay Area, metropolitan Dallas and
metropolitan New York. Our sales force is dedicated to establishing and
maintaining relationships with advertising and marketing clients. Our sales
force uses industry directories, press, personal contacts,
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industry knowledge and Internet search engines to seek likely sales prospects.
Recently we have begun to receive sales leads from advertising agencies that
have recommended Cybergold to clients.
Our marketing organization is composed of marketing communications, product
management, product marketing and membership marketing groups. In addition, we
also use consultants such as public relations agencies and graphic design firms
to assist with marketing activities. Marketing communications is responsible for
external public relations activities, managing relationships with the press and
industry analysts, and creating marketing collateral materials, such as sales
brochures. Product management is responsible for working with our engineering
department and our clients to define new products as well as enhancements to
existing products and services. Product management also contributes to
management development efforts, assists customers with special requirements, and
provides additional resources as needed throughout our company. Product
marketing is responsible for the content and graphics on our Web site, including
the production and implementation of advertising and merchant offers. Product
marketing also determines which additional services may be of interest to
members, clients and merchants.
Membership marketing is focused on expanding our membership base. We use a
variety of methods to generate new members, including e-mail campaigns,
advertising, and co-registration agreements with certain affiliate partners, as
well as referrals by current members and public relations. Currently, we attract
the majority of our members through co-registration agreements with online
partners, whereby registrants for those sites have the option to concurrently
sign up for the Cybergold Earn & Spend Community. We believe that the
convenience afforded by this co-registration capability is a significant factor
in attracting new members. Currently, we have a network of approximately 55
affiliate partners through which we can attract new members. In addition to
these online methods of increasing our membership base, we are currently
planning a range of offline marketing campaigns designed to attract new members.
ADVERTISING AND MARKETING CLIENTS
Our advertising and marketing clients pay us commissions each time a member
takes an action defined by our clients in response to some online advertising or
promotion. Since inception, a total of 144 advertising and marketing clients
have offered incentives using our system. In 1997, no client accounted for more
than 10% of our revenue. Revenues from significant clients as a percentage of
total revenues in 1998 and the first quarter of 1999 are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1998
Qwest Communications International, Inc................... 22%
Interactive Coupon Network (Cool Savings)................. 16%
THREE MONTHS ENDED MARCH 31, 1999
Qwest Communications International, Inc................... 20%
autobytel.com inc......................................... 12%
LifeMinders.com, Inc...................................... 11%
Cendant Corporation (Netmarket)........................... 11%
The Walt Disney Company (Disney Daily Blast, Disney Store
Online)................................................ 10%
</TABLE>
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We have 55 advertising and marketing clients who are currently offering
incentives using our system, including:
<TABLE>
<S> <C> <C>
- Ask Jeeves, Inc. - Consumer Info.com, Inc. - Earthlink Network, Inc.
- autobytel.com inc. - The Walt Disney Company - LifeMinders.com, Inc.
- Cendant Corporation (Disney Daily Blast, - Uproar (E-Pub Services Ltd.)
(Netmarket) Disney Store Online)
</TABLE>
STRATEGIC RELATIONSHIPS
To date, we have entered into a number of strategic relationships to build
our Earn & Spend Community, generate additional traffic to our Web site,
increase our membership and generate additional revenue.
These strategic relationships include:
- The First National Bank of Omaha. Our relationship with the First
National Bank of Omaha enables consumers to directly credit their
personal VISA accounts with money earned through Cybergold and to credit
their Cybergold accounts with funds from their VISA account. Cybergold
pays a monthly minimum fee to the First National Bank of Omaha, along
with a transaction fee for each transfer from a Cybergold account to a
VISA account.
- MBNA America Bank. Together with MBNA America Bank, we launched the
co-branded Cybergold MBNA VISA card, which provides convenient and easy
Internet shopping, MBNA's state-of-the-art fraud protection, VISA
Platinum Plus cardholder benefits and the potential for cash incentives.
Cybergold receives fee for each co-branded card generated and transaction
fees for all purchases made on these cards.
- Earthlink. We launched a private-label loyalty program with Earthlink
under which Earthlink will utilize our transaction processing and account
management technology to implement an incentives-based loyalty program
for its members that use their Earthlink credit cards for shopping both
on the Internet and offline. Cybergold receives a monthly minimum fee as
well as transaction fees for Cybergold transactions that occur on
Earthlink's Web site.
TECHNOLOGY
We have developed a scaleable technology infrastructure that executes both
incentive reward transactions and online micropayments for consumer purchases.
There are two proprietary components to our infrastructure:
- The Cybergold Mint is our electronic commerce payment software which runs
on either our servers or the servers of our clients or merchants. The
Cybergold Mint executes both Cybergold incentive reward transactions and
online micropayments for consumer purchases. To make world-wide
distribution possible, the Cybergold Mint employs a cryptographic system
called HMAC-MD5 that offers full 128-bit security without export
controls.
- The Cybergold payment server is our real-time transaction processing
engine. This engine is optimized for high-volume financial transactions
and is designed to scale by simply adding additional hardware to our
system. The Cybergold payment server communicates with consumer browsers
using SSL, the industry-standard Web security protocol, to safeguard all
private user information.
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Our payment server includes property modules for handling:
- interactive transactions;
- background transactions for off-line incentive programs;
- consumer account management and online statements;
- VISA and bank (ACH) transfers and charity donations;
- transaction reversal and dispute management;
- real-time risk management with velocity checking and fraud detection;
- context-sensitive help; and
- automated customer assistance with escalation to our separate Customer
Service system.
Typical Cybergold transactions begin when Internet users encounter
advertisements offering incentive and/or purchases on our Web site or on
third-party Web sites. The merchant Web servers use the Cybergold Mint to
generate rewards and payments. The transactions are sent over the Internet to
the Cybergold payment servers, which move incentive funds from merchant accounts
to member accounts, and move payment funds from member accounts to merchant
accounts. The payment servers incorporate a database of user, merchant and offer
information.
Our technology consists of proprietary programs integrated with third-party
hardware and software. Our third-party hardware includes Sybase SQL Servers, Sun
Solaris platforms and Apache Web servers, which members access with standard Web
browsers such as Netscape Navigator and Microsoft Internet Explorer. We do not
require consumers to download any software to process or store micropayments and
rewards.
We internally developed our systems for maintaining our Web site processing
transactions and maintaining member accounts. If, in the future, we cannot
modify these systems to accommodate increased traffic and an increased volume of
transactions and orders, we could suffer slower response time, problems with
customer service and delays in reporting accurate financial information. See
"Risk Factors -- If we fail to adapt to rapid change in our industry or our
internally developed systems cannot be modified properly for increased traffic
or volume, our products and services may become obsolete."
COMPETITION
The market for online direct advertising and marketing is extremely
competitive. In addition, while the market for services that facilitate
small-scale electronic commerce transactions is very new, we expect competition
in that area to increase dramatically in the near future. We cannot assure you
that we will compete successfully in this environment. Our ability to compete in
these marketplaces depends on many factors, some of which are beyond our
control. Please see "Risk Factors -- We face significant competition from online
incentives-based advertising and marketing programs and providers of
micropayment systems" for a list of these factors. Our failure to compete in
these marketplaces could have a material adverse effect on our business, results
of operations and financial condition.
We believe that the principal competitive factors in the online
incentives-based advertising market are:
- brand recognition;
- breadth and depth of content and services;
- number and quality of advertising clients;
- size of membership base;
- ease of use;
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- transaction speed and security;
- quality of service; and
- technical expertise.
We face significant competition from online incentives-based advertising
and marketing programs and providers of micropayment systems. We expect
competition to increase due to the lack of significant barriers to entry for
online business generally and for online incentives-based direct marketing
programs and micropayment transactions in particular. Currently, several
companies offer competitive online incentives programs, including MyPoints.com,
Inc. and Netcentives Inc. We may also face competition from established Internet
portals and community Web sites that engage in direct marketing, as well as from
traditional advertising agencies and direct marketing companies that may seek to
offer online products or services. In addition, financial service organizations,
such as banks and credit card companies, or other large organizations may
develop competitive micropayment systems and incentives-based advertising and
marketing programs.
Some of our current and potential competitors have longer operating
histories, greater brand recognition, larger client and member bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may enable them to respond more quickly to new or emerging
technologies and changes in customer preferences. These advantages may also
allow them to engage in more extensive research and development, undertake
extensive far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, strategic
partners and advertisers. As a result, it is possible that our existing
competitors or new competitors may rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margin and
loss of market share. We may not be able to compete successfully, and
competitive pressures may affect our business, results of operations and
financial condition.
INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our technology or business model.
Monitoring unauthorized use of our technology and business model is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology and business model. In addition, our business activities
may infringe upon the proprietary rights of others, and, from time to time, we
have received, and may continue to receive, claims of infringement against us.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. In May 1999 we notified MyPoints.com, Inc. of our
claim of infringement by MyPoints.com on our patent 5,794,210, which is
described below. If this claim cannot be resolved through a license or similar
arrangement, we could become a party to litigation with MyPoints.com. Any
litigation could subject us to significant liability for damages and
invalidation of our proprietary rights. These lawsuits, regardless of their
success, would likely be time consuming and expensive to resolve and would
divert management's time and attention away from our business. Any potential
intellectual property litigation could also force us to do one or more of the
following:
- make significant changes to the structure and operation of our business;
- attempt to design around a third party's patent; or
- license alternative technology from another party.
Implementation of any of these alternatives could be costly and time
consuming, and may not be possible. Accordingly, an adverse determination in any
litigation that we are a party to would have a material adverse effect on our
business, results of operations and financial condition.
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Cybergold has two issued U.S. Patents covering its business method and
software architecture:
- Patent #5,794,210 covers Attention Brokerage, in which users are
compensated for paying attention online to advertisements, promotions,
and similar information, and Orthogonal Sponsorship, in which users can
apply their earned compensation to purchase digital content or other
intellectual property; and
- Patent #5,855,008, for Consumer Controlled Privacy Management, in which
users establish criteria by which their personal information is released
to others, those requesting access to personal data provide their
identity, intentions for using the personal data, and may offer
compensation to the user for access to the personal data, and the user or
an automated process decides whether to release the requested personal
data based on the user's criteria and the requester's information.
We also have U.S. and foreign pending patent applications. Cybergold is our
only registered trademark, although we have applied to register additional
trademarks in the United States. We cannot assure you that our patents or
trademarks will not be successfully challenged by others or invalidated, that
our pending patents will be issued or that our trademark registrations will be
approved. If our trademark registrations are not approved because third parties
own these trademarks, our use of these trademarks would be restricted unless we
entered into arrangements with the third-party owners, which might not be
possible on reasonable terms.
We generally enter into confidentiality or license agreements with our
employees and consultants, and control access to and distribution of our
technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
parties may attempt to disclose, obtain or use our solutions or technologies. We
cannot assure you that the steps we have taken will prevent misappropriation of
our solutions or technologies, particularly in foreign countries where laws or
law enforcement practices may not protect our proprietary rights as fully as in
the United States.
EMPLOYEES
As of June 30, 1999, we had a total of 62 employees. Of those, 34 are in
sales and marketing, 17 are in engineering and 11 are in general and
administrative. We believe that we have good relationships with our employees.
We have never had a work stoppage, and none of our employees is represented
under a collective bargaining agreement. We believe that our future success will
depend in part on our ability to attract, integrate and retain highly motivated
sales, marketing, production and technical personnel and upon the continued
service of our senior management. Competition for qualified personnel in our
industry and geographical locations is intense, and there can be no assurance
that we will be successful in attracting, integrating, retaining and motivating
a sufficient number of qualified personnel to conduct our business in the
future.
FACILITIES
Our current headquarters are located in approximately 6,400 square feet of
office space we have leased at 2921 Adeline Street, Berkeley, California. We are
leasing this office space in a holdover capacity as our original lease has
expired. We are currently in negotiations on a lease for approximately 14,000
square feet of office space at 1530 Broadway, Oakland, California. The lease
extends through July 2002, with an option to lease the space for an additional
five year term, and includes a right of first refusal on additional space which
may become available in the building where we will be headquartered. We cannot
be certain that we will enter into this lease; however we believe that
alternative space is available on commercially reasonable terms if needed. Upon
securing new office space we will move our operations to the new facility.
During this move our technology system could be susceptible to technical
failures or
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other disruptive problems. Any such problems could diminish or halt our ability
to provide services to our customers, which could harm our business, results of
operations and financial condition. We believe the office space in the new
facility will be adequate to meet our needs for the next six months, and we
expect our growth for the next 24 months to be accommodated by our right of
first refusal on additional office space which may become available in the new
building. We have sales personnel located in the metropolitan areas of Dallas
and New York. These personnel work out of home-based offices, and do not receive
any additional compensation for the use of their home offices, other than
reimbursement for direct expenses such as telephone, office equipment and
supplies. We anticipate adding additional field personnel in the future; such
personnel may or may not work out of home-based offices, and therefore, we may
or may not incur additional expenses relating to the rental of additional office
space.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding our directors
and officers as of June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
A. Nathaniel Goldhaber.................... 51 President, Chief Executive Officer and Chairman
of the Board
Steven M. Farber.......................... 40 Chief Operating Officer
John D. Steuart........................... 38 Chief Financial Officer
Gary Fitts................................ 53 Chief Technology Officer
Daniel W. Berger.......................... 40 Vice President, Sales
Michael Koifman........................... 51 Vice President, Engineering
Larry Weinstein........................... 52 Vice President, Strategic Relationships
Pieter Hartsook........................... 52 Vice President, Business Development
Christopher D. Alafi, Ph.D.(2)............ 35 Director
Jay Chiat(2).............................. 67 Director
Garrett P. Gruener(2)..................... 44 Director
Regis P. McKenna(1)....................... 59 Director
Alan Salzman(1)........................... 45 Director
Peter S. Sealey, Ph.D.(1)................. 58 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
A. Nathaniel Goldhaber has served as President, Chairman of the Board and
Chief Executive Officer since October 1994. Prior to joining Cybergold, Mr.
Goldhaber was self-employed as a venture capitalist. Prior to that Mr. Goldhaber
was the Chief Executive Officer of Kaleida Labs, Inc., a multimedia joint
venture between IBM and Apple Computer, and the Chief Executive Officer of
Centram Systems West, a developer of local area networks. Mr. Goldhaber is a
Member of the Executive Board of the University of California, Berkeley, College
of Letters and Sciences. Mr. Goldhaber received a B.A. from Maharishi
International University and an M.A. from the University of California,
Berkeley.
Steven M. Farber has served as Chief Operating Officer since August 1998.
Prior to joining Cybergold, Mr. Farber was the Chief Executive Officer of
Interwoven, a provider of open systems for enterprise Web production for
Internets and intranets, from March 1997 to March 1998. From 1996 to 1997, he
was self-employed as a consultant. From 1995 to 1996, Mr. Farber was a Vice
President of Summit Integration Group, a software consulting firm. Prior to
that, Mr. Farber served as a Vice President of The Vantive Corporation, a
customer relationship management software company. Mr. Farber received a B.S.
from Tufts University.
John D. Steuart has served as Chief Financial Officer since June 1996.
Prior to joining Cybergold, Mr. Steuart acted as the Chief Financial Officer of
Alafi Capital, a venture capital firm, from October 1988 to June 1996. He is a
member of the Board of Directors of a number of privately held companies. Mr.
Steuart received a B.A. in Economics from the University of California, Berkeley
and an M.S. in Business from Golden Gate University.
Gary Fitts has served as Chief Technology Officer since July 1995. Prior to
joining Cybergold, Mr. Fitts was self-employed as a consultant. He has also
served as the Directors of TOPS Technology for SunSelect, a personal computer
networking business unit of Sun Microsystems, Inc., and as Vice
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President, Technology, of Sitka Corporation, a networking subsidiary of Sun
Microsystems, Inc. Mr. Fitts received a B.A. from Dartmouth College.
Daniel W. Berger has served as Vice President, Sales since November 1998.
From April 1998 to October 1998, Mr. Berger was Vice President, Sales, at
Conduct Software Technologies, Inc., a network software company. From April 1997
to March 1998 Mr. Berger was Vice President, Sales, at Make Systems, Inc., a
network design tool vendor. From August 1995 to March 1997, Mr. Berger was self-
employed as a software and Internet consultant. Prior to that Mr. Berger was
Vice President, Sales, at Seagate Software, a network software company. Mr.
Berger received a B.A. from Colby College.
Michael Koifman has served as Vice President, Engineering since November
1998. From October 1997 to November 1998, Mr. Koifman was Vice President of
Engineering at Blue Pumpkin Software, a developer of workforce management
software for call centers. From September 1996 to October 1997, Mr. Koifman
served as Manager of Advanced Applications at Siebel Systems, a sales force
automation company. Prior to that, Mr. Koifman was a Senior Principal at AMS, a
computer consulting company. Mr. Koifman holds an M.S. in Mathematics from St.
Petersburg University in St. Petersburg, Russia and an M.S.E.E. in Computer
Design from the Institute of Electrical Engineering in St. Petersburg, Russia.
Larry Weinstein has served as Vice President, Strategic Projects since
February 1999. From February 1998 to February 1999, Mr. Weinstein was the
Executive Vice President of Greenleaf Technologies, an encryption technology
company. From January 1996 to February 1998, Mr. Weinstein was self-employed as
a consultant. Prior to that Mr. Weinstein was a Producer for Frankfurt Balkind
Partners, a strategic communications agency.
Pieter Hartsook has served as Vice President, Business Development since
July 1998. From June 1997 to April 1998, Mr. Hartsook was Vice President,
Business Development, at IPT, Inc., a computer software firm. From November 1996
to April 1997, Mr. Hartsook was Vice President, Marketing Analysis, at Apple
Computer, Inc., a maker of personal computing products. Prior to joining Apple,
Mr. Hartsook was the President of the Hartsook Letter, a market research
consulting firm. Mr. Hartsook received a B.A. and an M.L.S. from the University
of California, Berkeley.
Christopher D. Alafi has served as one of our directors since July 1997.
Dr. Alafi is currently a general partner of Alafi Capital Co., a venture capital
firm. Prior to joining Alafi Capital in 1995, Dr. Alafi was a visiting scholar
in the Department of Chemistry at Stanford University. Dr. Alafi is currently a
member of the Board of Directors of a number of private companies. Dr. Alafi
received a B.A. from Pomona College and a Ph.D. in Biochemistry from the
University of Oxford.
Jay Chiat has served as one of our directors since May 1996. Since October
1998 Mr. Chiat has been the Chief Executive Officer of ScreamingMedia.net, an
Internet news service. From June 1968 to November 1996, Mr. Chiat served as the
Chief Executive Officer of Chiat/Day Advertising, an advertising firm. Mr. Chiat
is a member of the Board of Directors of Department 56, Inc., a designer,
importer and distributor of collectibles and giftware. Mr. Chiat received a B.S.
in Education from Rutgers University and an Executive M.B.A. from the Anderson
School at U.C.L.A.
Garrett P. Gruener has served as one of our directors since May 1998. Mr.
Gruener has been a general partner of Alta Partners L.P., a venture capital
firm, since February 1996. Since 1992, Mr. Gruener has been a general partner of
certain funds affiliated with Burr, Egan, Deleage & Co., a venture capital firm.
Mr. Gruener is a member of the Board of Directors of several private companies.
Mr. Gruener received a B.S. from the University of California, San Diego, and an
M.A. from the University of California, Berkeley.
Regis P. McKenna has served as one of our directors since May 1996. Mr.
McKenna has been Chairman of The McKenna Group, a Silicon Valley-based
management and marketing consulting firm,
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since 1970. Mr. McKenna serves on the board of the Economic Strategies Institute
and is a member of the Council on Competitiveness. Mr. McKenna also serves on
the advisory board to Stanford's Graduate School of Business. Mr. McKenna is a
trustee of Santa Clara University and is the Chairman of the Board of the Santa
Clara University Center for Science, Technology and Society. Mr. McKenna serves
as a member of the Board of Directors of Cylink Corporation, a supplier of
network information security products. Mr. McKenna received a B.A. from Duquesne
University.
Alan Salzman has served as one of our directors since May 1998. Mr. Salzman
is a founder and managing partner of VantagePoint Venture Partners, a venture
capital firm focused on the Internet, data networking and communications
services. Prior to joining VantagePoint in 1995, Mr. Salzman was a general
partner with Canaan Partners, a venture capital firm. Prior to that Mr. Salzman
was a partner with Brobeck, Phleger & Harrison, LLP, a law firm. Mr. Salzman
received a B.A. from the University of Toronto, a J.D. from Stanford Law School
and an L.L.M. from the University of Brussels.
Peter Sealey has served as one of our directors since May 1996. Dr. Sealey
has been a Lecturer and an Adjunct Professor of Marketing at the Haas School of
Business at the University of California, Berkeley since 1994. In addition, Dr.
Sealey has been self-employed as a management consultant, serving primarily
technology-oriented companies, during the same period. Prior to that, Dr. Sealey
was employed by the Coca-Cola Company for 24 years, where he held a series of
senior management positions, including Senior Vice President, Global Marketing.
Dr. Sealey serves on the board of directors of Autoweb.com, a consumer
automotive Internet service provider, and USWeb Corporation, an Internet
professional services and integrated marketing communications services company.
Dr. Sealey received a B.S. from the University of Florida, an M.I.A. from Yale
University and an M.A. and a Ph.D. from Claremont Graduate University.
Classified Board. Our certificate of incorporation provides for a
classified board of directors consisting of three classes of directors, each
serving staggered three-year terms. As a result, a portion of our board of
directors is elected each year. To implement the classified structure, prior to
the consummation of the offering, two of the nominees to the board of directors
were elected to one-year terms, two were elected to two-year terms, and three
were elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Christopher D. Alafi and Jay Chiat have been designated Class
I directors whose term expires at the 2000 annual meeting of stockholders. A.
Nathaniel Goldhaber and Garrett D. Gruener have been designated Class II
directors whose term expires at the 2001 annual meeting of stockholders. Regis
P. McKenna, Alan Salzman and Peter Sealey have been designated Class III
directors whose term expires at the 2002 annual meeting of stockholders. See
"Description of Capital Stock -- Antitakeover Effects of Provisions of
Certificate of Incorporation, Bylaws and Delaware Law."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
BOARD COMMITTEES
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding the
compensation and benefits provided to our key executive officers and directors,
including stock compensation and loans. In addition, the compensation committee
reviews policies regarding compensation arrangements and benefits for all of our
employees. As part of the foregoing, the compensation committee also administers
our 1999 Omnibus Equity Incentive Plan and 1999 Employee Stock Purchase Plan.
The current members of the compensation committee are Messrs. Alafi, Chiat and
Gruener.
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Audit Committee. The audit committee of the board of directors reviews and
monitors our internal accounting procedures and reviews the results and scope of
the annual audit and other services provided by our independent accountants. The
audit committee also consults with our management and our independent auditors
prior to the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee has the responsibility to consider and recommend
the appointment of, and to review fee arrangements with, our independent
auditors. The current members of the audit committee are Messrs. McKenna,
Salzman and Sealey.
DIRECTOR COMPENSATION
Our directors receive $5,000 for attendance at each Board meeting and
$2,500 for attendance at each board committee meeting. In addition, our
directors are reimbursed for all reasonable out-of-pocket expenses incurred in
connection with their attendance at board and board committee meetings. From
time to time, directors who are not employees of Cybergold have received grants
of options to purchase shares of our common stock. On June 25, 1996, we granted
Messrs. Chiat and McKenna each an option to purchase 46,666 shares of our common
stock. In addition, on June 25, 1996, in connection with a consulting agreement
with Mr. Sealey, we granted Mr. Sealey an option to purchase 16,666 shares of
our common stock at an exercise price of $0.015 per share. On November 11, 1996,
we also granted to Mr. Sealey an option to purchase 30,000 shares of our common
stock at an exercise price of $0.225 per share, and on June 19, 1998, in
connection with a consulting agreement with Mr. Sealey, we granted him an option
to purchase 20,000 shares of our common stock at an exercise price of $0.75 per
share. Following this offering, directors will receive automatic option grants
under our 1999 Omnibus Equity Incentive Plan. Please see "Stock Plans -- 1999
Omnibus Equity Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Messrs. Gruener, Chiat and Alafi. No interlocking relationship exists between
any member of our board of directors or our compensation committee and any
member of the board of directors or compensation committee of any other company,
and no such interlocking relationship has existed in the past.
INDEMNIFICATION
In May 1999, the board of directors authorized us to enter into
indemnification agreements with each of our directors and executive officers.
The form of indemnification agreement provides that we will indemnify our
directors and executive officers against any and all of their expenses incurred
by reason of their status as a director or executive officer to the fullest
extent permitted by Delaware law, our certificate of incorporation and our
bylaws.
Our certificate of incorporation and bylaws each contain certain provisions
relating to the limitation of liability and indemnification of our directors and
officers. Our certificate of incorporation provides that our directors will not
be personally liable to Cybergold or our stockholders for monetary damages for
any breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Cybergold or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- in respect of certain unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
- for any transaction from which the director derives any improper personal
benefit.
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Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after approval by our stockholders of our certificate
of incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of our directors will be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law. The foregoing provisions of our certificate of incorporation
are not intended to limit the liability of our directors or officers for any
violation of applicable federal securities laws.
In addition, as permitted by Section 145 of the Delaware General
Corporation Law, our bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law;
- to the fullest extent permitted by the Delaware General Corporation Law,
we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding (subject to
certain exceptions);
- the rights conferred in the bylaws are not exclusive;
- we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents; and
- we may not retroactively amend our bylaw provisions relating to
indemnification.
Our bylaws provide that we must indemnify our directors to the fullest
extent permitted by Delaware General Corporation Law, including in circumstances
in which indemnification is otherwise discretionary under Delaware General
Corporation Law.
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EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the fiscal year ended December 31, 1998 paid by us for services by our Chief
Executive Officer and our two other highest-paid executive officers collectively
referred to below as the named executive officers, whose total salary and bonus
exceeded $100,000 for services rendered to Cybergold in all capacities during
1998. No executive officer who would otherwise have been included in this table
based on salary and bonus earned for fiscal year 1998 has resigned or otherwise
been terminated as of the date of this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
A. Nathaniel Goldhaber(1)................................ -- -- --
President and Chief Executive Officer
John D. Steuart.......................................... 93,940 -- 33,333
Chief Financial Officer
Gary Fitts............................................... 123,963 -- --
Chief Technology Officer
</TABLE>
- -------------------------
(1) Mr. Goldhaber's annual salary for fiscal year 1999 is $175,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1998 to each of the named executive officers. No
stock appreciation rights were granted to these individuals during such year.
Each of the options listed in the table is immediately exercisable. The
shares purchasable under the options may be repurchased by Cybergold at the
original exercise price paid per share if the optionee ceases service before
vesting in such shares. The repurchase right lapses and the optionee vests as to
25% of the option shares upon completion of 12 months of service from the
vesting start date and the balance in a series of equal monthly installments
over the next three years of service. The option shares will vest upon an
acquisition of Cybergold by merger or asset sale, unless our repurchase right
with respect to the unvested option shares is transferred to the acquiring
entity.
The exercise price was equal to the fair market value of our common stock
as valued by our board of directors on the date of grant. In determining this
fair market value, the board of directors took into account the purchase price
paid by investors for shares of our preferred stock (taking into account the
liquidation preferences and other rights, privileges and preferences associated
with such preferred stock) and an evaluation by the board of directors of our
revenues, operating history and prospects. The exercise price may be paid in
cash, in shares of our common stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of the
purchased shares. We may also finance the option exercise by lending the
optionee sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
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The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable value at 5% and 10% appreciation is calculated by assuming
that the estimated fair market value on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. The initial public offering price is higher than the
estimated fair market value on the date of grant, and the potential realizable
value of the option grants would be significantly higher than the numbers shown
in the table if future stock prices were projected to the end of the option term
by applying the same annual rates of stock price appreciation to the initial
public offering price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
---- ---------- --------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
A. Nathaniel Goldhaber..... -- -- -- -- -- --
John D. Steuart(2)......... 33,333 3.8 1.00 01/06/08 15,722 39,844
Gary Fitts................. -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Based on a total of 875,966 options granted to our employees under our 1996
Stock Option Plan during the 12 months ended December 31, 1998.
(2) On May 10, 1999, we granted to Mr. Steuart an option for 133,332 shares of
our common stock at an exercise price of $3.90 per share. 66,666 of the
option shares vest over a two-year period, and the vesting is accelerated
for 33,333 of such shares upon the date of this offering. The remaining
66,666 option shares vest over a four-year period, with 25% of the shares
vesting upon the completion of one year of service and the balance vesting
upon the completion of each of the next 36 months of service.
In addition, on May 10, 1999 we granted to Steven Farber, one of our
executive officers, an option to purchase 200,000 shares of common stock of an
exercise price of $3.90 per share, such option vesting upon the achievement of
specified performance criteria or, if such milestones are not achieved, vesting
in full in five years from the date of grant. 33,333 of these shares accelerate
on the closing of this offering.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth for each of the named executive officers the
number of options exercised during the fiscal year ended December 31, 1998 and
the number and value of securities underlying unexercised options that are held
by the named executive officers as of December 31, 1998. No options were
exercised by the named executive officers in fiscal year 1998. No stock
appreciation
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rights were exercised by the named executive officers in fiscal year 1998, and
no stock appreciation rights were outstanding at the end of that year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
FISCAL YEAR END(#)(1) FISCAL YEAR END($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
A. Nathaniel Goldhaber.................... -- -- -- --
John D. Steuart........................... 33,333 -- 0 --
Gary Fitts................................ 233,333 -- 49,000 --
</TABLE>
- -------------------------
(1) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options will be subject to repurchase by
Cybergold, at the original exercise price paid per share, if the optionee
ceases service with Cybergold before vesting in such shares.
(2) Based on the fair market value of our common stock as determined by our
board of directors at the end of 1998 of $0.225 per share, less the exercise
price payable or paid for such shares. The fair market value of our common
stock at the end of 1998 was estimated by the board of directors on the
basis of the purchase price paid by investors for shares of our preferred
stock (taking into account the liquidation preferences and other rights,
privileges and preferences associated with the preferred stock) and an
evaluation by the board of our revenues, operating history and prospects.
The initial public offering price is higher than the estimated fair market
value at fiscal year-end, and the value of unexercised options would be
higher than the numbers shown in the table if the value were calculated by
subtracting the exercise price from the initial public offering price.
STOCK PLANS
1999 OMNIBUS EQUITY INCENTIVE PLAN
Share Reserve. Our board of directors adopted our 1999 Omnibus Equity
Incentive Plan on May 18, 1999. Our stockholders will also approve this plan. We
have reserved 1,500,000 shares of our common stock for issuance under the 1999
Omnibus Equity Incentive Plan. Any shares not yet issued under our 1996 Stock
Option Plan as of the date of this offering will also be available for grant
under the 1999 Omnibus Equity Incentive Plan. On January 1 of each year,
starting with the year 2000, the number of shares in the reserve will
automatically increase by 5% of the total number of shares of common stock that
are outstanding at that time or, if less, by 1,500,000 shares. In general, if
options or shares awarded under the 1999 Omnibus Equity Incentive Plan or 1996
Stock Option Plan are forfeited, then those options or shares will again become
available for awards under the 1999 Omnibus Equity Incentive Plan. We have not
yet granted any options under the 1999 Omnibus Equity Incentive Plan.
Administration. The compensation committee of our board of directors
administers the 1999 Omnibus Equity Incentive Plan. The committee has the
complete discretion to make all decisions relating to the interpretation and
operation of our 1999 Omnibus Equity Incentive Plan. The committee has the
discretion to determine who will receive an award, what type of award it will
be, how many shares will be covered by the award, what the vesting requirements
will be (if any), and what the other features and conditions of each award will
be. The compensation committee may also reprice outstanding options and modify
outstanding awards in other ways.
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Eligibility. The following groups of individuals are eligible to
participate in the 1999 Omnibus Equity Incentive Plan:
- Employees,
- Members of our board of directors who are not employees, and
- Consultants.
Types of Award. The 1999 Omnibus Equity Incentive Plan provides for the
following types of award:
- Incentive stock options to purchase shares of our common stock,
- Nonstatutory stock options to purchase shares of our common stock,
- Restricted shares of our common stock,
- Stock appreciation rights, and
- Stock units.
Options. An optionee who exercises an incentive stock option may qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code of
1986. On the other hand, nonstatutory stock options do not qualify for such
favorable tax treatment. The exercise price for incentive stock options granted
under the 1999 Omnibus Equity Incentive Plan may not be less than 100% of the
fair market value of our common stock on the option grant date. In the case of
nonstatutory stock options, the minimum exercise price is 85% of the fair market
value of our common stock on the option grant date. Optionees may pay the
exercise price by using:
- Cash,
- Shares of common stock that the optionee already owns,
- A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash,
- An immediate sale of the option shares through a broker designated by us,
or
- A loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
1999 Omnibus Equity Incentive Plan provides that no participant may receive
options covering more than 500,000 shares in the same year, except that a newly
hired employee may receive options covering up to 1,500,000 shares in the first
year of employment.
Restricted Shares. Restricted shares may be awarded under the 1999 Omnibus
Equity Incentive Plan in return for:
- Cash,
- A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash,
- Services already provided to us, and
- In the case of treasury shares only, services to be provided to us in the
future.
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Automatic Option Grants
Initial Grants. Only the non-employee members of our board of directors
will be eligible for option grants under the automatic option grant program.
Each non-employee director who first joins our board after the effective date of
this offering will receive an initial option for 15,000 shares. That grant will
occur when the director takes office. The initial options vest in full on the
first year anniversary of the date of grant.
Annual Grants. At the time of each of our annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a director
after that meeting will automatically be granted an annual option for 7,500
shares of our common stock. However, a new non-employee director who is
receiving the 15,000-share initial option will not receive the 7,500-share
annual option in the same calendar year. The annual options vest in full on the
first year anniversary of the date of grant.
The exercise price of each non-employee director's option will be equal to
the fair market value of our common stock on the option grant date. A director
may pay the exercise price by using cash, shares of common stock that the
director already owns, or an immediate sale of the option shares through a
broker designated by us. The non-employee directors' options have a 10-year
term, except that they expire one year after a director leaves the board (if
earlier). If a change in control of Cybergold occurs, a non-employee director's
option will become fully vested unless the accounting rules applicable to a
pooling of interests preclude acceleration. Vesting also accelerates if the
optionee retires after age 65, dies or is disabled.
Stock Appreciation Rights. We may award stock appreciation rights under the
1999 Omnibus Equity Incentive Plan. Each agreement evidencing stock appreciation
rights will inform the holder when such rights may be exercised. Stock
appreciation rights may be exercised for shares of common stock, cash or a
combination of cash and shares. No participant may receive stock appreciation
rights for more than 500,000 shares in the same year, except that a newly hired
employee may receive stock appreciation rights for up to 1,000,000 shares.
Stock Units. We may award stock units under the 1999 Omnibus Equity
Incentive Plan. The stock units may be subject to vesting. Stock units may be
settled for shares of common stock, cash or a combination of cash and shares.
Buy Outs. In our sole discretion, we may offer to buy out for cash an
option or authorize an optionee to cash out an option that was previously
granted.
Deferral of Awards. We may permit a participant to have cash that would be
paid to the participant for exercise of a stock appreciation right or settlement
of a stock unit credited to a deferred compensation account. We may also permit
shares that would be delivered for exercise of an option or stock appreciation
right converted into an equal number of stock units or converted into amounts
that would be credited to a deferred compensation account.
Change in Control. If a change in control of Cybergold occurs, an option or
other award under the 1999 Omnibus Equity Incentive Plan will become fully
vested if the option or other award is not assumed by the surviving corporation
or its parent or if the surviving corporation or its parent does not substitute
another award on substantially the same terms. A change in control includes:
- A merger of Cybergold after which our own stockholders own 50% or less of
the surviving corporation or its parent company,
- A sale of all or substantially all of our assets,
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- A proxy contest that results in the replacement of more than one-third of
our directors over a 24-month period, or
- An acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Cybergold (such as a holding
company owned by our stockholders).
Amendments or Termination. Our board may amend or terminate the 1999
Omnibus Equity Incentive Plan at any time. If our board amends the plan, it does
not need to ask for stockholder approval of the amendment unless applicable law
requires it. The 1999 Omnibus Equity Incentive Plan will continue in effect
indefinitely, unless the board decides to terminate the plan earlier.
1999 EMPLOYEE STOCK PURCHASE PLAN
Share Reserve and Administration. Our board of directors adopted our 1999
Employee Stock Purchase Plan on May 18, 1999. Our stockholders will also approve
this plan. Our 1999 Employee Stock Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code. We have reserved 300,000 shares of our
common stock for issuance under the plan. On January 1 of each year, starting
with the year 2000, the number of shares in the reserve will be automatically
increased by 500,000 shares. Our compensation committee of our board of
directors administers the plan.
Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months per
year. Eligible employees may begin participating in the 1999 Employee Stock
Purchase Plan at the start of any offering period. Each offering period lasts 24
months. Overlapping offering periods start on February 1 and August 1 of each
year. However, the first offering period will start on the effective date of
this offering and end on July 31, 2001.
Amount of Contributions. Our 1999 Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on January 31 and July 31
of each year. Each participant may purchase up to 750 shares on any purchase
date (1,500 shares per year). But the value of the shares purchased in any
calendar year (measured as of the beginning of the applicable offering period)
may not exceed $25,000.
Purchase Price. The price of each share of common stock purchased under our
1999 Employee Stock Purchase Plan will be 85% of the lower of:
- The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- The fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
- The price per share to the public in this offering, or
- The fair market value per share of common stock on the purchase date.
Other Provisions. Employees may end their participation in the 1999
Employee Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with Cybergold. If a change in control of Cybergold
occurs, our 1999 Employee Stock Purchase Plan will end and shares will be
purchased with the payroll deductions accumulated to date by participating
employees, unless the plan is assumed by the surviving corporation or its
parent. Our board of directors may amend or terminate the 1999 Employee Stock
Purchase Plan at any time. Our Chief Executive Officer also has a limited
ability to amend the plan. If our board increases the number of shares of common
stock reserved
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<PAGE> 63
for issuance under the plan (except for the automatic increases described
above), it must seek the approval of our stockholders.
CHANGE OF CONTROL ARRANGEMENTS
All options and other awards granted under our 1996 Stock Option Plan and
our 1999 Omnibus Equity Incentive Plan, including options granted to our named
executive officers, will become fully vested if a change in control of Cybergold
occurs, unless the options or awards are assumed by the surviving corporation or
its parent or if the surviving corporation or its parent substitutes comparable
options or awards for options or awards granted under our plans.
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TRANSACTIONS WITH RELATED PARTIES
In September 1996, we were a party to two agreements by which Mr. Goldhaber
sold 66,666 shares of common stock to each of Regis McKenna and Jay Chiat, two
of our directors, at a per share purchase price of $0.015, for an aggregate
purchase price of $2,000.
We have issued, in private placement transactions, shares of our preferred
stock as follows: an aggregate of 1,999,998 shares of Series A preferred stock
in July and September of 1996 at a purchase price of $1.50 per share; 1,394,973
shares of Series B preferred stock in June 1997 at a purchase price of $3.00 per
share; 4,189,192 shares of Series C preferred stock in May and August of 1998 at
a purchase price of $1.365 per share; and in May 1999, 2,051,275 shares of
Series D preferred stock at a purchase price of $3.90 per share, and warrants to
purchase an aggregate of 384,611 shares of Series D preferred stock at an
exercise price of $4.50 per share. Each share of preferred stock is convertible,
without payment of any additional consideration, into one share of common stock,
and all such shares of preferred stock shall be converted into shares of common
stock upon the closing of this offering. The warrants to purchase Series D
preferred stock, if not sooner exercised, will automatically be exercised
pursuant to net exercise provisions upon the closing of this offering.
The following table summarizes the shares of preferred stock purchased by
our named executive officers, directors and 5% stockholders, and entities
associated with them, in private placement transactions.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
INVESTOR(1) PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK(4)
----------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
A. Nathaniel Goldhaber........ 846,666 325,774 -- 66,666
John D. Steuart............... 16,666 4,294 7,326 7,485
Jay Chiat..................... 120,000 44,224 66,666 33,333
Regis P. McKenna.............. 33,333 16,834 36,630 19,084
Peter S. Sealey............... -- 3,333 5,494 1,941
Alafi Capital Company......... 650,000 371,218 -- 270,274
Alta California Partners,
L.P.(2)..................... -- -- 2,197,802 581,664
Vantage Point Venture
Partners, 1996(3)........... -- -- 1,648,352 581,664
</TABLE>
- -------------------------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Includes shares held by Alta Embarcadero Partners, LLC. Garrett P. Gruener,
one of our directors, is a general partner of the general partner of Alta
California Partners, L.P. and a member of Alta Embarcadero Partners, LLC.
(3) Alan Salzman, one of our directors, is a managing partner of Vantage Point
Venture Partners, 1996.
(4) Includes warrants to purchase Series D preferred stock.
We have entered into compensation arrangements and other arrangements with
directors and officers which are described in "Management," "Option Grants in
Last Fiscal Year," and "Director Compensation."
We believe that the transactions set forth above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
All future transactions, including loans between us and our officers, directors,
principal stockholders and their affiliates, will be approved by a majority of
the board of directors, and will continue to be on terms no less favorable to us
than could be obtained from unaffiliated third parties.
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<PAGE> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of June 30, 1999 and as adjusted to reflect the sale of the common stock
offered hereby for:
- each person who is known by us to beneficially own more than 5% of our
common stock;
- the chief executive officer and each of our named executive officers,
- each of our directors; and
- all of our directors and executive officers as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, based on information furnished by such owners, have
sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES -------------------------------
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY BEFORE AFTER
EXECUTIVE OFFICERS AND DIRECTORS OWNED OFFERING(1)(2) OFFERING(1)(2)
-------------------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
A. Nathaniel Goldhaber(3).......................... 4,839,106 33.80% 26.42%
Entities affiliated with Alta California Partners,
L.P.(4).......................................... 2,779,466 19.41% 15.17%
VantagePoint Venture Partners, 1996(5)............. 2,230,016 15.57% 12.17%
Alafi Capital Company(6)........................... 1,291,492 9.02% 7.05%
Gary Fitts(7)...................................... 233,333 1.63% 1.27%
John D. Steuart(8)................................. 319,103 2.20% 1.72%
Christopher D. Alafi, Ph.D.(6)..................... 1,291,492 9.02% 7.05%
Jay Chiat(9)....................................... 377,556 2.64% 2.06%
Garrett P. Gruener(4).............................. 2,779,466 19.41% 15.17%
Regis P. McKenna(10)............................... 219,213 1.53% 1.19%
Alan Salzman(5).................................... 2,230,016 15.57% 12.17%
Peter S. Sealey, Ph.D.(11)......................... 77,434 * *
All directors and officers as a group (14 persons)
(12)............................................. 13,031,117 85.20% 67.54%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentage ownership is based on 14,318,313 shares outstanding as of June
30, 1999, including 9,635,438 shares of common stock issuable upon
conversion of all outstanding preferred stock at the closing of this
offering and the assumed exercise on a cash basis of 384,611 shares of
preferred stock issuable upon exercise of outstanding warrants that
terminate upon the closing of this offering. Shares of common stock subject
to options currently exercisable or exercisable within 60 days of June 30,
1999 are deemed outstanding for purposes of computing the percentage
ownership of the person holding such options but are not deemed outstanding
for purposes of computing the percentage ownership of any other person.
Except pursuant to the community property laws or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by such stockholder. Unless otherwise
indicated, the address of each of the individuals listed in the table is
c/o Cybergold, Inc., 2921 Adeline Street, Berkeley, CA 94703.
(2) Assumes the underwriters' option to purchase additional shares is not
exercised.
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<PAGE> 66
(3) Includes 15,384 shares of common stock issuable upon exercise of a warrant,
and 560,000 shares of common stock which Mr. Goldhaber has made commitments
to transfer to a family trust.
(4) Includes 2,717,385 shares beneficially owned by Alta California Partners,
L.P., and 62,081 shares beneficially owned by Alta Embarcadero Partners
LLC. Of these shares, a total of 134,230 are issuable upon exercise of
warrants. Garrett P. Gruener, one of our directors, is a general partner of
the general partner Alta California Partners, L.P. and a member of Alta
Embarcadero Partners LLC. The address of Alta California Partners, L.P. and
Alta Embarcadero Partners LLC is One Embarcadero Center, Suite 4050, San
Francisco, CA 94111. Mr. Gruener disclaims beneficial ownership of the
shares held by Alta California Partners, L.P. and Alta Embarcadero Partners
LLC, except to the extent of his pecuniary interest therein.
(5) Includes 134,230 shares of common stock issuable upon exercise of a
warrant. Alan Salzman, one of our directors, is a managing partner of
Vantage Point Venture Partners, 1996. The address of Vantage Point Venture
Partners, 1996 is 1001 Bayhill Drive, Suite 100, San Bruno, CA 94066. Mr.
Salzman disclaims beneficial ownership of the shares held by Vantage Point
Venture Partners, 1996, except to the extent of his pecuniary interest
therein.
(6) Includes 62,371 shares of common stock issuable upon exercise of a warrant.
Christopher Alafi, one of our directors, is a general partner of Alafi
Capital Company. The address of Alafi Capital Company is 9 Commodore Drive,
Suite 405, Emeryville, CA 94608. Dr. Alafi disclaims beneficial ownership
of the shares held by Alafi Capital Company, except to the extent of his
pecuniary interest therein.
(7) Includes 33,333 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to our right of
repurchase.
(8) Includes 166,666 shares of common stock issuable upon exercise of
immediately exercisable options, 114,585 shares of which are subject to our
right of repurchase, and 1,727 shares of common stock issuable upon
exercise of a warrant.
(9) Includes 7,692 shares of common stock issuable upon exercise of a warrant.
(10) Includes 46,666 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to our right of
repurchase, and 4,404 shares of common stock issuable upon exercise of a
warrant.
(11) Includes 66,666 shares of common stock issuable upon exercise of
immediately exercisable options, 14,445 shares of which are subject to our
right of repurchase, and 448 shares of common stock issuable upon exercise
of a warrant.
(12) Includes 976,663 shares of common stock issuable upon exercise of
immediately exercisable options, 688,665 shares of which are subject to our
right of repurchase, and 360,038 shares of common stock issuable upon
exercise of warrants.
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<PAGE> 67
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon consummation of this offering, our authorized capital stock will
consist of 75,000,000 shares of common stock, $0.0001 par value, and 5,000,000
shares of preferred stock, $0.0001 par value. The following summary of certain
provisions of the common stock and the preferred stock does not purport to be
complete and is subject to, and qualified in its entirety by, our certificate of
incorporation and bylaws and by the provisions of applicable law.
COMMON STOCK
As of June 30, 1999, there were 14,318,313 shares of common stock
outstanding that were held of record by approximately 60 stockholders. There
will be 18,318,313 shares of common stock outstanding (assuming no exercise of
the underwriters' over-allotment option and assuming no exercise after March 31,
1999, of outstanding options) after giving effect to the sale of the shares of
common stock to the public offered hereby and the conversion of our preferred
stock into common stock at a one-to-one ratio.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution or winding up of
Cybergold, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation authorizes 5,000,000 shares of preferred
stock. The board of directors has the authority to issue the preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Cybergold without further action by the stockholders and
may adversely affect the voting and other rights of the holders of common stock.
The issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, we have no plans to issue any of the
preferred stock.
WARRANTS AND OPTIONS
As of June 30, 1999,we had outstanding exercisable warrants to purchase an
aggregate of 166,666 shares of common stock at $0.225 per share; 15,000 shares
of Series B preferred stock at $3.00 per share; and 384,611 shares of Series D
preferred stock at $4.50 per share. All unexercised warrants to purchase Series
D preferred stock will be automatically exercised (pursuant to net exercise
provisions to the extent unexercised) upon the closing of this offering. The
warrants to purchase common stock, which remain outstanding after this offering,
will expire between July 28, 2000 and January 30, 2008. All unexercised
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<PAGE> 68
warrants to purchase Series B preferred stock will automatically convert into
warrants to purchase the same number of shares of common stock upon the closing
of this offering. As of June 30, 1999 we had outstanding exercisable options to
purchase an aggregate of 123,333 shares of Series A preferred stock at $1.50 per
share. All unexercised options to purchase Series A preferred stock will
automatically convert into options to purchase the same number of shares of
common stock upon the closing of this offering.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation provides that, effective upon the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. In addition, we have a classified board
of directors such that approximately one-third of the members of the board of
directors are elected at each annual meeting of our stockholders. Our bylaws
provide that our stockholders may call a special meeting of stockholders only
upon a written request of stockholders owning at least 50% of our capital stock.
These provisions of the certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of Cybergold. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the board of directors and in the
policies formulated by the board of directors and to discourage undesirable
transactions that may involve an actual or threatened change of control of
Cybergold. These provisions are designed to reduce the vulnerability of
Cybergold to an unsolicited acquisition proposal. The provisions also are
intended to discourage some tactics that may be used in proxy fights. However,
such provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in our management. See "Risk Factors -- Antitakeover provisions in our
charter documents and Delaware law could prevent or delay a change in control of
our company."
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to limited exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (1) by persons who are
directors and also officers and (2) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
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Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of 9,817,104 shares of common stock will
be entitled to rights with respect to the registration of such shares under the
Securities Act. Under the terms of our agreement with the holders of these
registrable securities, if we proposed to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, these holders are entitled to
receive notice of the registration and are entitled to include shares of these
registrable securities therein. Additionally, holders of 9,802,104 shares of
common stock are entitled to demand registration rights pursuant to which they
may require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
our best efforts to effect this registration. Further, the holders of these
demand rights may require us to file additional registration statements on Form
S-1 or Form S-3. All of these registration rights are subject to conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in the registration and our right not to effect a
requested registration within six months following an offering of our
securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corporation.
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have 18,318,313 shares of
common stock outstanding, assuming the issuance of 4,000,000 shares of common
stock offered hereby and no exercise of options after June 30, 1999. Of these
shares, the 4,000,000 shares sold in the offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any shares held by our affiliates, as that term is defined under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 14,318,313 shares of common stock are deemed restricted
shares under Rule 144. The number of shares of common stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of SG Cowen
Securities Corporation. On the date of this prospectus, no shares other than the
4,000,000 shares offered hereby will be eligible for sale. Beginning 180 days
after the date of this prospectus, or earlier with the consent of SG Cowen
Securities Corporation, 11,812,344 restricted shares will become available for
sale in the public market subject to certain limitations of Rule 144 of the
Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock
(approximately 143,183 shares after giving effect to this offering) and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. Sales under Rule 144 of the
Securities Act are subject to restrictions relating to manner of sale, notice
and the availability of current public information about us. A person who is not
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell
these shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act prior to effecting a transfer of such shares.
Prior to this offering, there has been no public market for our common
stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
these shares in the public market, or the perception that these sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through an offering of our equity
securities.
OPTIONS
As of June 30, 1999, there were a total of 1,702,547 shares of common stock
subject to outstanding options under our 1996 Stock Option Plan, of which
522,161 were vested, and 123,333 shares of common stock subject to outstanding
options issued outside our 1996 Stock Option Plan, all of which were vested.
However, all of these shares are subject to lock-up agreements.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of outstanding options may be resold by persons other
than our affiliates, beginning 90 days after the date of
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<PAGE> 71
this prospectus, subject only to the manner of sale provisions of Rule 144, and
by affiliates, beginning 90 days after the date of this prospectus, subject to
all provisions of Rule 144 except its one-year minimum holding period.
Immediately after the completion of the offering, Cybergold intends to file
registration statements on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under the 1996
Stock Option Plan, our 1999 Omnibus Equity Incentive Plan and our 1999 Employee
Stock Purchase Plan, as well as the shares of common stock subject to options
issued outside the 1996 Stock Option Plan. On the date 180 days after the
effective date of the offering, a total of 514,767 shares of common stock
subject to outstanding options will be vested. After the effective dates of the
registration statements on Form S-8, shares purchased upon exercise of options
granted pursuant to the 1996 Stock Option Plan, 1999 Omnibus Equity Incentive
Plan, 1999 Employee Stock Purchase Plan and outside the 1996 Stock Option Plan
generally would be available for resale in the public market.
LOCK-UP AGREEMENTS
The officers, directors and stockholders of Cybergold have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of the offering. SG Cowen Securities Corporation, however, may in its
sole discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 1999, the underwriters named below, through their representatives
SG Cowen Securities Corporation, CIBC World Markets Corp. and Volpe Brown Whelan
& Company, LLC, have severally agreed to purchase from us the number of shares
of common stock set forth opposite their names at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
SG Cowen Securities Corporation.............................
CIBC World Markets Corp.....................................
Volpe Brown Whelan & Company, LLC...........................
----------
Total............................................. 4,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditional and may be terminated at their discretion based on
their assessment of the state of the financial markets and may also be
terminated upon the occurrence of the events specified in the underwriting
agreement. The underwriters are severally committed to purchase all of the
common stock being offered by Cybergold if any of such shares are purchased
(other than those covered by the over-allotment option described below).
The underwriters propose to offer the common stock directly to the public
at the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to certain dealers at that price less a
concession not in excess of $ per share. Dealers may reallow a concession
not in excess of $ per share to some other dealers. After the shares of the
common stock are released for sale to the public, the underwriters may vary the
offering price and other selling terms from time to time.
We have granted to the underwriters an option, exercisable for up to 30
days after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the public offering price set forth on the cover of
this prospectus to cover over-allotments, if any. If the underwriters exercise
their over-allotment option, the underwriters have severally agreed, subject to
limited conditions, to purchase approximately the same percentage thereof that
the number of shares of common stock to be purchased by each of them, as shown
in the foregoing table, bears to the common stock offered hereby.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect thereof.
Cybergold, our directors and officers and existing stockholders who hold an
aggregate of 14,267,239 shares, together with the holders of options to purchase
1,344,149 shares of common stock and holders of warrants to purchase 181,666
shares of common stock, have agreed that for a period 180 days following the
date of this prospectus, without the prior written consent of SG Cowen
Securities Corporation, they will not:
- directly or indirectly, offer, sell, assign, transfer, pledge, contract
to sell, or otherwise dispose of, other than by operation of law, any
shares of common stock or any securities convertible into or exercisable
or exchangeable for common stock (including, without limitation, common
stock
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<PAGE> 73
which may be deemed to be beneficially owned in accordance with the rules
and regulations promulgated under the Securities Act); or
- request or demand registration pursuant to the Securities Act of any
shares of common stock owned by them;
- provided, however, that this restriction shall not apply to any rights
they may have to be included in any company initiated registration of its
securities.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act"). Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by the syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to some limitations, make
bids for or purchases of the common stock until the time, if any, at which a
stabilizing bid is made. These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales
in excess of 5% of the common stock offered hereby to any account over which
they exercise discretionary authority.
Prior to this offering, there has been no public market of the common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the underwriters. Among the factors considered in
these negotiations will be prevailing market conditions, the market
capitalizations and the stages of development of other companies that we and the
underwriters believe to be comparable to us, estimates of our business
potential, our results of operations in recent periods, the present state of our
development and other factors deemed relevant.
We estimate that our out of pocket expenses for this offering will be
approximately $1,000,000.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, San
Francisco, California.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement, to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
70
<PAGE> 74
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission, or SEC, Washington,
D.C. 20549, a registration statement on Form S-1 under the Securities Act with
respect to the shares of common stock offered hereby. This prospectus does not
contain all the information set forth in the registration statement and the
exhibits and schedules filed therewith. For further information with respect to
Cybergold and the common stock offered hereby, reference is made to the
registration statement and to the exhibits and schedules filed therewith.
Statements contained in this prospectus as to the contents of any contract or
other document referred to may only be summaries of the contracts or documents.
Each such statement is qualified in all respects by reference to the full text
of such contract or other document filed as an exhibit to the registration
statement. A copy of the registration statement and the exhibits and schedules
filed therewith may be inspected without charge at the public reference
facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W.
Washington, D.C. 20549, and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from such offices upon payment of the fees prescribed by the SEC. The
SEC maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the regional
offices, public reference facilities and web site of the SEC referred to above.
71
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheet as of December 31, 1997, 1998 and March 31,
1999...................................................... F-3
Statements of Operations for the three years in the period
ended December 31, 1998 and the three month periods ended
March 31, 1998 and 1999................................... F-4
Statements of Stockholders Equity (Deficit) for the three
years in the period ended December 31, 1998 and the three
month periods ended March 31, 1998 and 1999............... F-5
Statements of Cash Flows for the three years in the period
ended December 31, 1998 and the three month periods ended
March 31, 1998 and 1999................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
CyberGold, Inc.:
We have audited the accompanying balance sheets of CyberGold, Inc. (a
California corporation) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CyberGold, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
July 9, 1999
F-2
<PAGE> 77
CYBERGOLD, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999
-------------------------- ----------------------------
1997 1998 ACTUAL PRO FORMA
---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $1,239,510 $ 3,175,008 $ 2,280,033
Accounts receivable, less allowance for doubtful
accounts of $50,000, $30,000 and $30,000,
respectively................................... 161,165 390,701 112,650
Prepaid expenses and other current assets........ -- 26,347 10,600
---------- ------------ ------------
Total current assets...................... 1,400,675 3,592,056 2,403,283
PROPERTY AND EQUIPMENT, net........................ 371,619 407,066 414,583
DEPOSITS AND OTHER ASSETS.......................... 50,364 41,150 74,809
---------- ------------ ------------
Total assets.............................. $1,822,658 $ 4,040,272 $ 2,892,675
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................. $ 142,070 $ 257,267 $ 122,437
Current maturities of long term obligations...... 81,791 136,639 154,404
Member payable................................... 382,203 800,255 912,159
Membership acquisition payable................... 69,775 175,653 287,469
Accrued liabilities.............................. 88,493 167,294 213,687
Deferred revenue................................. 43,134 175,543 217,914
---------- ------------ ------------
Total current liabilities................. 807,466 1,712,651 1,908,070
LONG TERM OBLIGATIONS, net of current maturities... 272,152 225,550 291,425
---------- ------------ ------------
Total liabilities......................... 1,079,618 1,938,201 2,199,495
---------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE REDEEMABLE PREFERRED STOCK, .00015 par
value: 5,333,353 shares authorized; 4,189,195
issued and outstanding at December 31, 1998, and
March 31, 1999 (preference in liquidation of
$5,718,251)...................................... -- 6,378,679 6,671,480 --
---------- ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock, .00015 par
value:
Authorized shares -- 2,123,333
Issued and outstanding shares -- 2,000,000,
2,000,000, 2,000,000 and 0 respectively..... 300 300 300 --
Preference in liquidation -- $3,000,000
Series B convertible preferred stock, .00015 par
value:
Authorized shares -- 1,429,981
Issued and outstanding shares -- 1,378,314,
1,394,981, 1,394,981, and 0 respectively.... 207 209 209 --
Preference in liquidation -- $4,134,939,
4,184,942 and $4,184,942
Common stock, .00015 par value:
Authorized shares -- 14,446,667
Issued and outstanding shares -- 4,012,042,
4,048,178, 4,072,678, and 11,656,853
respectively................................ 602 607 611 1,748
Additional paid-in capital......................... 7,210,077 8,021,686 8,375,420 15,046,272
Deferred compensation.............................. -- (566,393) (603,069) (603,069)
Retained (deficit)................................. (6,468,146) (11,733,017) (13,751,771) (13,751,771)
---------- ------------ ------------ ------------
Total stockholders' equity (deficit)...... 743,040 (4,276,608) (5,978,300) 693,180
---------- ------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)............................... $1,822,658 $ 4,040,272 $ 2,892,675 $ 2,892,675
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 78
CYBERGOLD, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, -------------------------
--------------------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Transaction....................... $ 1,000 $ 457,074 $ 628,350 $ 107,408 $ 332,558
Custom marketing services and
other.......................... -- 74,342 376,583 -- 170,178
----------- ----------- ----------- ----------- -----------
Total revenues............ 1,000 531,416 1,004,933 107,408 502,736
COST OF REVENUES.................... 671 293,171 466,118 35,282 244,417
----------- ----------- ----------- ----------- -----------
Gross margin.............. 329 238,245 538,815 72,126 258,319
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Product development............... 1,093,433 1,190,047 1,700,421 375,273 484,249
Sales and marketing............... 840,586 2,162,413 2,694,601 792,196 967,189
General and administrative........ 645,298 614,816 641,837 119,837 227,671
Amortization of deferred
compensation................... -- -- 184,778 -- 315,749
----------- ----------- ----------- ----------- -----------
Total operating expenses..... 2,579,317 3,967,276 5,221,637 1,287,306 1,994,858
----------- ----------- ----------- ----------- -----------
Loss from operations......... (2,578,988) (3,729,031) (4,682,822) (1,215,180) (1,736,539)
INTEREST INCOME (EXPENSE), net...... 10,198 (15,292) 78,381 (4,913) 10,586
----------- ----------- ----------- ----------- -----------
Net loss.................. (2,568,790) (3,744,323) (4,604,441) (1,220,093) (1,725,953)
DIVIDEND ATTRIBUTABLE TO PREFERRED
STOCKHOLDERS...................... -- -- (660,430) -- (292,801)
----------- ----------- ----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS...................... $(2,568,790) $(3,744,323) $(5,264,871) $(1,220,093) $(2,018,754)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON SHARE, Basic and
diluted........................... $ (0.69) $ (0.94) $ (1.31) $ (0.30) $ (0.50)
=========== =========== =========== =========== ===========
Pro forma basic and diluted....... $ (0.53) $ (0.17)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, Basic and diluted.... 3,745,607 3,979,489 4,020,393 4,013,009 4,052,695
=========== =========== =========== =========== ===========
Pro forma basic and diluted....... 9,943,079 11,597,185
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 79
CYBERGOLD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------------
SERIES A SERIES B COMMON STOCK ADDITIONAL
------------------- ------------------- ------------------- PAID IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------ ---------- ------ ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995........ -- $ -- -- $ -- 3,733,333 $ 560 $ 63,465 $ --
Issuance of Series A preferred
stock.......................... 2,000,000 300 -- -- -- -- 2,999,700 --
Exercise of common stock
options........................ -- -- -- -- 46,667 7 693 --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1996........ 2,000,000 300 -- -- 3,780,000 567 3,063,858 --
Issuance of Series B preferred
stock.......................... -- -- 1,378,314 207 -- -- 4,134,732 --
Exercise of common stock
options........................ -- -- -- -- 270,375 41 15,644 --
Repurchase of stock options...... -- -- -- -- (38,333) (6) (4,157) --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1997........ 2,000,000 300 1,378,314 207 4,012,042 602 7,210,077 --
Issuance of Series B preferred
stock.......................... -- -- 16,667 2 -- -- 49,998 --
Accretion of Series C redemption
premium........................ -- -- -- -- -- -- -- --
Exercise of common stock
options........................ -- -- -- -- 61,761 9 10,820 --
Repurchase of stock options...... -- -- -- -- (25,625) (4) (380) --
Deferred compensation............ -- -- -- -- -- -- 751,171 (751,171)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 184,778
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1998........ 2,000,000 300 1,394,981 209 4,048,178 607 8,021,686 (566,393)
Accretion of Series C
redemption..................... -- -- -- -- -- -- -- --
Exercise of common stock
options........................ -- -- -- -- 24,500 4 1,309 --
Deferred compensation............ -- -- -- -- -- -- 352,425 (352,425)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 315,749
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, MARCH 31, 1999
(unaudited)...................... 2,000,000 $ 300 1,394,981 $ 209 4,072,678 $ 611 $ 8,375,420 $ (603,069)
Conversion of Series A
preferred...................... (2,000,000) (300) -- -- 2,000,000 300 -- --
Conversion of Series B
preferred...................... -- -- (1,394,981) (209) 1,394,981 209 -- --
Conversion of Series C
preferred...................... -- -- -- -- 4,189,194 628 6,670,852 --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
PRO FORMA BALANCE, MARCH 31, 1999
(unaudited)...................... -- $ -- -- $ -- 11,656,853 $1,748 $15,046,272 $ (603,069)
========== ===== ========== ===== ========== ====== =========== ===========
<CAPTION>
RETAINED
DEFICIT TOTAL
------------ -----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1995........ $ (155,033) $ (91,008)
Issuance of Series A preferred
stock.......................... -- 3,000,000
Exercise of common stock
options........................ -- 700
Net loss......................... (2,568,790) (2,568,790)
------------ -----------
BALANCE, DECEMBER 31, 1996........ (2,723,823) 340,902
Issuance of Series B preferred
stock.......................... -- 4,134,939
Exercise of common stock
options........................ -- 15,685
Repurchase of stock options...... -- (4,163)
Net loss......................... (3,744,323) (3,744,323)
------------ -----------
BALANCE, DECEMBER 31, 1997........ (6,468,146) 743,040
Issuance of Series B preferred
stock.......................... -- 50,000
Accretion of Series C redemption
premium........................ (660,430) (660,430)
Exercise of common stock
options........................ -- 10,829
Repurchase of stock options...... -- (384)
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 184,778
Net loss......................... (4,604,441) (4,604,441)
------------ -----------
BALANCE, DECEMBER 31, 1998........ (11,733,017) (4,276,608)
Accretion of Series C
redemption..................... (292,801) (292,801)
Exercise of common stock
options........................ -- 1,313
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 315,749
Net loss......................... (1,725,953) (1,725,953)
------------ -----------
BALANCE, MARCH 31, 1999
(unaudited)...................... $(13,751,771) $(5,978,300)
Conversion of Series A
preferred...................... -- --
Conversion of Series B
preferred...................... -- --
Conversion of Series C
preferred...................... -- 6,671,480
------------ -----------
PRO FORMA BALANCE, MARCH 31, 1999
(unaudited)...................... $(13,751,771) $ 693,180
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 80
CYBERGOLD, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, -------------------------
--------------------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $(2,568,790) $(3,744,323) $(4,604,441) $(1,220,093) $(1,725,953)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation.................... 101,050 190,859 269,158 61,075 81,709
Amortization of deferred
compensation.................. -- -- 184,778 -- 315,749
Changes in assets and
liabilities:
Accounts receivable........... -- (161,165) (229,536) 63,421 278,051
Prepaid expenses and other
current assets............. (22,375) (27,989) (17,133) (8,507) (17,912)
Accounts payable.............. 148,310 (6,240) 115,197 71,222 (134,830)
Members payable............... -- 382,203 418,052 133,989 111,904
Membership acquisition
payable.................... -- 69,775 217,694 5,225 111,816
Accrued liabilities........... 38,392 50,101 (33,015) (39,785) 46,393
Deferred revenue.............. -- 43,134 132,409 13,495 42,371
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities............... (2,303,413) (3,203,645) (3,546,837) (919,958) (890,702)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and
equipment....................... (387,472) (57,564) (152,922) (23,185) (89,226)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease
obligations..................... -- (114,549) (143,437) (18,879) (40,084)
Proceeds from equipment
financing....................... -- -- -- -- 123,724
Proceeds from sale leaseback
transaction..................... -- 250,000 -- -- --
Proceeds from loans from
stockholders.................... -- 1,000,000 -- -- --
Repayments of advances from
stockholder..................... (91,008) -- -- -- --
Proceeds from issuance of preferred
stock........................... 3,000,000 3,134,939 5,768,249 99,796 --
Proceeds from exercise of stock
options, net of repurchases..... 700 11,522 10,445 -- 1,313
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities..... 2,909,692 4,281,912 5,635,257 80,917 84,953
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 218,807 1,020,703 1,935,498 (862,226) (894,975)
CASH AND CASH EQUIVALENTS:
Balance at beginning of period..... -- 218,807 1,239,510 1,239,510 3,175,008
=========== =========== =========== =========== ===========
Balance at end of period........... $ 218,807 $ 1,239,510 $ 3,175,008 $ 377,284 $ 2,280,033
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............. $ -- $ 35,800 $ 71,086 $ 16,261 $ 19,536
Acquisition of property and
equipment using capital
leases.......................... 120,600 97,892 151,683 61,970 --
Conversion of stockholder loans
into preferred stock............ -- 1,000,000 -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 81
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
CyberGold, Inc. (the Company) was incorporated in California in 1994. The
Company did not have any significant operations prior to 1996. The Company was a
development stage company through December 31, 1997.
The Company is engaged in the business of providing on-line direct
marketing and cash based incentive advertising solutions for on-line advertisers
and marketers. Additionally, the Company provides custom marketing services
which include production and development of marketing programs, delivery of
targeted e-mail to CyberGold members, design of customer web sites and third
party engineering functions.
As of December 31, 1998, the Company had a retained deficit of
approximately $11.7 million and has continued to incur losses during 1999.
During May 1999, the Company issued redeemable convertible preferred stock, as
further discussed in Note 4, in the amount of $8 million. Management believes
that this financing will be sufficient for it to meet its obligations through at
least December 31, 1999.
The industry in which the Company operates is very specialized and is
subject to a number of industry-specific risk factors, including, but not
limited to, rapidly changing technologies, significant numbers of new entrants,
dependence on key individuals, competition from similar products and from larger
companies, customer preferences, the need for the continued successful
development, marketing and selling of its products and services, the need for
financing, and the need for positive cash flows from operations.
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements as of March 31, 1999 and for the
quarters ended March 31, 1998 and 1999 are unaudited, but in the opinion of
management, include all adjustments consisting of normal recurring adjustments
necessary for a fair presentation of results for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted, although the Company believes that the disclosures included are
adequate to make the information presented not misleading. Results for the
quarter ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma balance sheet and statement of stockholders' equity
(deficit) as of March 31, 1999 reflects the automatic conversion of all
outstanding shares of convertible preferred stock into 7,584,175 shares of
common stock which will occur upon the closing of the Company's proposed initial
public offering.
F-7
<PAGE> 82
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIGNIFICANT CUSTOMERS
Two customers individually accounted for 22 and 16 percent, respectively,
of the Company's total revenue during the year ended December 31, 1998. No
individual customer exceeded 10 percent of total revenue during the year ended
December 31, 1997.
At December 31, 1998, one of these customers accounted for 78 percent of
accounts receivable. These amounts have been paid subsequent to December 31,
1998.
CASH EQUIVALENTS
For the statements of cash flows, the Company treats financial instruments
as cash equivalents if the original maturity of such instruments is three months
or less.
FINANCIAL INSTRUMENTS
Financial instruments consist of cash equivalents, accounts receivable,
accounts payable and debt. The estimated fair value of these financial
instruments approximates their carrying value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and for financial reporting
purposes, depreciation is computed using the straight-line method over estimated
useful lives of three years for all assets. Maintenance and repair expenditures
are charged to expense when incurred.
MEMBERS PAYABLE
Members payable represents amounts payable to the Company's members as a
result of them performing certain actions and completing transactions. These
amounts are cash rewards and are recorded on the Company's balance sheet until
the member elects to receive payment of the reward or to use the rewards to
purchase items on-line.
MEMBER ACQUISITION PAYABLE
Member acquisition payable represents amounts due to advertising partners
for new member sign-ups that are originated from a partner web site.
REVENUE RECOGNITION AND COST OF REVENUES
The Company earns revenue from certain member transactions and from custom
marketing and other services. Transaction revenues are earned each time a member
either earns or spends incentive rewards within the system and for micropayment
transactions. Transaction revenues are recognized as revenue upon completion of
the specific action related to the transaction fee.
Custom marketing services and other revenues include production and
development fees received for customization of marketing programs, fees received
for delivering targeted e-mail to the Company's members and fees received for
other advertising and marketing services. Production and development
F-8
<PAGE> 83
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fees represent HTML design services, graphic services, engineering and database
development and related services. Revenue is recognized as these services are
performed.
Prepayments by advertising or marketing clients for transaction fees or
custom marketing services are included in deferred revenue on the accompanying
balance sheets.
The cost of revenues associated with our transaction revenues represent
cash rewards paid to our members for completing transactions.
The cost of revenues associated with custom advertising and marketing
services and other revenues primarily consist of costs for production and
development personnel and independent contractors.
Any unpaid rewards due to members are recorded in members payable in the
accompanying balance sheets.
PRODUCT DEVELOPMENT
Product development costs include expenses related to the development and
enhancement of the Company's product offerings. Product development costs are
expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Actual results could differ from those estimates.
NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss by the weighted
average common shares outstanding during the period. Diluted income per share is
calculated by dividing the net income by the weighted average common shares
outstanding adjusted for all potential common shares, which includes shares
issuable upon the exercise of outstanding common stock options, warrants and
other contingent issuances of common stock. The Company has losses for all
periods presented and, accordingly, such potential common shares are excluded
from the computation of diluted net loss per share, as their effect is
antidilutive.
Potentially dilutive securities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Options to purchase common stock...... 690,375 776,333 1,250,122 1,271,950
Warrants to purchase common stock..... 166,667 166,667 166,667 166,667
Warrants to purchase preferred
stock............................... -- 146,667 138,333 138,333
Series A preferred stock.............. 2,000,000 2,000,000 2,000,000 2,000,000
Series B preferred stock.............. -- 1,378,314 1,394,981 1,394,981
Redeemable preferred stock............ -- -- 4,189,195 4,189,195
---------- ---------- ---------- ---------
Total....................... 2,857,042 4,467,981 9,139,298 9,161,126
========== ========== ========== =========
</TABLE>
F-9
<PAGE> 84
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The calculation of pro forma net loss per share assumes that all series of
convertible shares have been converted into common stock as of the original
issuance date.
STOCK SPLIT
During June 1999, the Company approved a 2-for-3 reverse stock split. All
of the share amounts and per share amounts in these financial statements have
been restated to reflect this split for all periods presented.
NEW ACCOUNTING STANDARDS
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." The Company has no other comprehensive income amounts for any of the
periods presented.
The Company also adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." As of December 31, 1998, management has
concluded that the Company only operates in one segment and exclusively in the
United States.
In March 1998, the American Institute of Certified Public Accountants
issued SOP No. 98-1, "Software for Internal Use." The Company does not expect
the adoption of SOP No. 98-1 to have a material impact on its financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is not expected to have a
material impact on the Company's financial position or results of operations.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Computer equipment and software............ $ 625,610 $ 923,127 $ 979,576
Furniture and fixtures..................... 25,817 30,465 63,145
Leasehold improvements..................... 12,101 14,541 14,541
--------- --------- ----------
663,528 968,133 1,057,262
Accumulated depreciation................... (291,909) (561,067) (642,679)
--------- --------- ----------
$ 371,619 $ 407,066 $ 414,583
========= ========= ==========
</TABLE>
Depreciation expense for property and equipment was $101,050, $190,859, and
$269,158 for the years ended December 31, 1996, 1997, and 1998, respectively.
Included in property and equipment at December 31, 1997 and 1998 are depreciated
amounts of approximately $372,000 and $278,000, respectively, related to assets
acquired under capital leases.
F-10
<PAGE> 85
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES:
Significant components of net deferred tax assets as of December 31 were:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards..................... $ 1,997,200 $ 3,744,037
R&D credit carryforward.............................. 147,482 274,163
Other................................................ 5,347 25,028
----------- -----------
Gross deferred tax assets.................. 2,150,029 4,043,228
Deferred tax valuation allowance..................... (2,150,029) (4,043,228)
----------- -----------
Net deferred tax asset..................... $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1998, the Company had tax net operating loss
carryforwards of approximately $9,360,000 for federal and state income tax
purposes. These carryforwards begin to expire in 2011 and 2005, respectively. In
addition, the Company has research and development tax credit carryforwards of
$156,821 and $117,342 for federal and state income tax purposes, respectively,
which begin to expire in 2011. A valuation allowance has been provided to offset
gross deferred tax assets due to the uncertainty surrounding the realizability
of such assets.
The reconciliation of the effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory tax rate......... $ 873,389 (34.0)% $ 1,273,070 (34.0)% $ 1,565,510 (34.0)%
State taxes, net of federal
income tax benefit............ 154,127 (6.0)% 224,659 (6.0)% 276,266 (6.0)%
Research and development tax
credit........................ 43,069 (1.7)% 104,413 (2.8)% 126,681 (2.8)%
Other........................... (39,057) 1.5% (111,496) 3.0% (75,258) 1.6%
Change in valuation allowance... (1,031,528) 40.2% (1,490,646) 39.8% (1,893,199) 41.1%
----------- ----- ----------- ----- ----------- -----
Provision for income taxes...... $ -- --% $ -- --% $ -- --%
=========== ===== =========== ===== =========== =====
</TABLE>
The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards and research and development credits available to
be used in any given year should certain events occur, including the sale of
equity securities and other changes in ownership. There can be no assurance that
the Company will be able to utilize net operating loss carryforwards and credits
before expiration.
4. CONVERTIBLE REDEEMABLE PREFERRED STOCK:
During 1998 and 1999, the Company amended and restated its articles of
incorporation to allow for the issuance of 5,333,353 shares of Series C
Convertible Redeemable Preferred Stock (Series C Stock) and 2,566,667 shares of
Series D Convertible Redeemable Preferred Stock (Series D Stock). During the
period from May 1998 through August 1998, the Company issued 4,189,195 shares of
Series C Stock at $1.37 per share. During May 1999, the Company issued 2,051,282
shares of Series D Stock at $3.90 per share.
The holders of Series C Stock and Series D Stock shall be entitled to
receive noncumulative dividends of $0.06825 per annum and $.195 per annum,
respectively, as declared by the Board of Directors.
F-11
<PAGE> 86
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series C Stock and Series D Stock has preference in liquidation over
common stock and Series A and B Preferred (see Note 5) equal to a liquidation
value of $1.37 and $3.90 per share, respectively.
Each share of Series C Stock and Series D Stock is convertible, at the
option of the holder, into a share of common stock at the Initial Conversion
Price, as defined. Each share will automatically convert into shares of common
stock at the Initial Conversion Price upon the earlier of (a) the Company's sale
of its common stock in a firm commitment underwritten initial public offering,
the public offering price of which was not less than $9.75 per share and
$15,000,000 in the aggregate or (b) the date specified by written consent of 67
percent of the holders of the then outstanding shares of preferred stock.
At any time after May 15, 2003, the holders of not less than 67 percent of
the then outstanding Series C Stock and Series D Stock may request for the
redemption of the Series C Stock and Series D Stock at $2.73 per share and $7.80
per share, respectively. This related redemption premium is being accreted over
the period from the issuance of the respective stock through May 15, 2003. For
the year ended December 31, 1998, and for the quarter ended March 31, 1999, the
accretion charged to retained deficit was $660,430 and $292,801, respectively.
In connection with the issuance of Series D Stock, the Company also issued
warrants to purchase 384,611 warrants of Series D Stock an exercise price of
$4.50.
5. STOCKHOLDERS EQUITY:
COMMON STOCK
The holders of common stock are entitled to one vote per share. Subject to
preferences on outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors. In the event of liquidation, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock. The common stock has no
preemptive, conversion or other subscription rights.
PREFERRED STOCK
Pursuant to the Company's Series A preferred stock agreement entered into
in May 1996, 2,000,000 shares of Series A preferred stock were sold to the
existing stockholder and other investors at a price of $1.50 per share in July
1996. Upon liquidation, merger or acquisition of the Company, provided
sufficient assets are available, Series A preferred stockholders would receive
$1.50 per share plus any declared but unpaid dividends.
On June 28, 1996, the Company issued to one of the new Series A investors a
warrant to purchase 166,667 shares of common stock at $0.225 per share. The
value of this warrant at June 28, 1996, was determined not to be material.
Pursuant to the Company's Series B preferred stock agreement entered into
in June 1997, 1,378,314 shares of Series B preferred stock were sold to the
existing stockholders and other investors at a price of $3.00 per share. Of the
total number of shares sold, 343,614 shares were issued upon the conversion of
stockholder notes (the Notes). The Notes were entered into in early 1997 by the
existing stockholders as bridge financing. The Notes accrued interest at 8
percent. Upon liquidation, merger or
F-12
<PAGE> 87
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
acquisition of the Company, provided sufficient assets are available, Series B
preferred stockholders would receive $3.00 per share plus any declared but
unpaid dividends.
Conversion of Series A preferred stock and Series B preferred stock into
common stock is at the option of the preferred stockholders. Each share of
preferred stock is convertible into such number of shares of common stock
determined by dividing the issuance price by the conversion price, which is
determined at the time of the conversion. The conversion price for Series A and
Series B preferred stock was initially set at $1.50 and $3.00 per share,
respectively. This conversion price is subject to adjustment upon the occurrence
of certain events. Conversion of the preferred stock is automatic upon the
earlier of (a) the Company's sale of its common stock in a firm commitment
underwritten initial public offering, the offering price of which is not less
than $4.10 and the proceeds of which are greater than $15,000,000; or (b) the
date specified by written consent of the holders of the then outstanding shares
of Series A, Series B, Series C and Series D stock, acting together as a single
class.
In connection with the capital leases described in Note 6, the Company
issued warrants to the lessor to purchase 15,000 shares of Series B preferred
stock at $3.00 per share. The value of these warrants at the grant dates was
determined not to be material, based on the Black-Scholes pricing model.
At December 31, 1998, 10,000,019 shares of common stock, equivalent to the
number of shares of preferred stock authorized, were reserved for issuance upon
conversion of preferred stock.
Each share of preferred stock conveys the right to the stockholder of one
vote.
6. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company entered into a sale leaseback transaction during 1997 related
to the leasing of certain computer equipment. No gain or loss was recognized on
this sale. During 1999, the Company moved its headquarters to Oakland,
California and entered into an operating lease that expires in June 2004.
As of December 31, 1998, future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASE LEASE
PAYMENTS PAYMENTS
---------- ---------
<S> <C> <C>
1999.................................................... $ 217,790 $ 196,013
2000.................................................... 341,100 166,456
2001.................................................... 370,800 83,498
2002.................................................... 407,700 15,414
2003.................................................... 427,500 --
Thereafter.............................................. 180,000 --
---------- ---------
Total......................................... $1,944,890 461,381
==========
Less: Interest component................................ (99,192)
---------
Present value of minimum lease payments................. 362,189
Less: Current maturities................................ (136,639)
---------
Long-term capital obligations........................... $ 225,550
=========
</TABLE>
F-13
<PAGE> 88
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Interest expense on capital leases amounted to $0, $35,800 and $71,086 for
the years ended December 31, 1996, 1997, and 1998 respectively. Rent expense for
the years ended December 31, 1996, 1997, and 1998, was $103,529, $150,730 and
$139,749, respectively.
EMPLOYMENT AGREEMENTS
During 1998, the Company entered into employment agreements with three
officers that provide for minimum annual base salaries, bonus entitlements and
issuance of common stock options upon the achievement of certain objectives.
Should these objectives not be achieved, these options vest over five years. The
employment agreements were effective as of the hire date of each respective
officer and may be terminated by either party. As of December 31, 1998, the
Company accrued approximately $32,000 in the accompanying balance sheet for
accrued bonuses in relation to these agreements.
EQUIPMENT CREDIT LINE
During February 1999, the Company entered into an equipment credit line
agreement. This credit line is to be used solely for capital expenditures.
Maximum borrowings under this line are $400,000. Interest of approximately 18
percent and principal are payable monthly, over a three year period. At March
31, 1999, the Company had amounts outstanding under this line of $115,196. Of
this amount, $4,760 is included in current maturities of long-term obligations
in the accompanying balance sheet with the remainder included in long-term
obligations, net of current maturities.
7. STOCK OPTION PLAN:
Under the terms of the Company's Employee Stock Option Plan (the Plan)
adopted in June 1996, options to purchase shares of the Company's common stock
are granted to employees, consultants and directors. Options currently
outstanding vest at 25 percent on the first anniversary of the grant date and
1/36 per month thereafter. Each option shall terminate 10 years after the date
of grant. In addition, the option holder is entitled to exercise prior to the
option's vesting as long as he or she is still an employee. Should the employee
subsequently leave, the Company has the right to repurchase the shares that had
not vested at the departure date. At December 31, 1998 and March 31, 1999,
56,771 and 54,167 shares of common stock were subject to repurchase,
respectively, under this provision.
F-14
<PAGE> 89
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's stock option plan at December 31,
1998 and changes during the years ended December 1996, 1997, and 1998, and three
months ended March 31, 1999, are presented in the table below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS OUTSTANDING AVERAGE AVERAGE
-------------------------- EXERCISE FAIR VALUE OF
QUALIFYING NONQUALIFYING TOTAL PRICE OPTIONS GRANTED
---------- ------------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1995...................... -- -- -- $ --
Granted................... 914,333 8,333 922,666 $0.05 $0.06
Canceled.................. (177,291) -- (177,291) $0.08
Exercised................. (46,667) (8,333) (55,000) $0.02
--------- ------- ---------
Balance, December 31, 1996 690,375 -- 690,375 $0.05
Granted................... 334,333 106,667 441,000 $0.41 $0.08
Canceled.................. (93,000) -- (93,000) $0.23
Exercised................. (262,042) -- (262,042) $0.05
--------- ------- ---------
Balance, December 31,
1997...................... 669,666 106,667 776,333 $0.24
Granted................... 675,733 200,233 875,966 $0.41 $1.02
Canceled.................. (279,305) (61,111) (340,416) $0.51
Exercised................. (60,694) (1,067) (61,761) $0.18
--------- ------- ---------
Balance, December 31,
1998...................... 1,005,400 244,722 1,250,122 $0.29
Granted................... 52,000 75,000 127,000 $0.23 $2.82
Canceled.................. (20,672) (60,000) (80,672) $0.24
Exercised................. (20,000) (4,500) (24,500) $0.06
--------- ------- ---------
Balance, March 31, 1999..... 1,016,728 255,222 1,271,950 $0.29
========= ======= =========
</TABLE>
Options outstanding, exercisable, and vested by price range at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE NUMBER CONTRACTUAL NUMBER NUMBER
PRICE OUTSTANDING REMAINING LIFE EXERCISABLE VESTED
- --------- ----------- -------------- ----------- -------
<S> <C> <C> <C> <C>
$0.75 274,929 9.0 274,929 152,067
$0.02 319,361 7.4 319,361 314,027
$0.23 655,833 9.5 655,833 100,617
--------- --------- -------
1,250,123 1,250,123 566,711
========= ========= =======
</TABLE>
During 1997, the Company entered into agreements that granted options to
purchase 123,333 shares of Series A preferred stock to consultants at $1.50 per
share. The options were fully vested at December 31, 1998. The value of these
options at the grant date (as determined using the Black-Scholes model), was not
material.
In connection with the granting of certain stock options to employees,
directors and consultants during 1998, the Company recorded deferred
compensation of $751,171. This deferred compensation is being amortized over the
expected service periods of the grantees, generally four years. Amortization of
deferred compensation for the year ended December 31, 1998, was $315,749.
F-15
<PAGE> 90
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In connection with the granting of certain stock options to employee,
directors and consultants during the three months ended March 31, 1999, the
Company recorded deferred compensation of $751,171. This deferred compensation
is being amortized over the expected service periods of the grantees, generally
four years. Amortization of deferred compensation for the year ended December
31, 1998, was $315,749.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation expense for the Plan
been determined based on the fair value at the grant dates, as prescribed in
SFAS No. 123, the Company's net loss and net loss per share would have been as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss:
As reported.............. $(2,568,790) $(3,744,323) $(5,264,871) $(1,220,093) $(2,018,754)
Pro forma................ (2,582,025) (3,779,438) (5,349,881) (1,220,093) (2,018,754)
Basic and diluted net loss
per common share:
As reported.............. $ (0.69) $ (0.95) $ (1.31) $ (0.30) $ (0.50)
Pro forma................ (0.69) (0.95) (1.34) (0.30) (0.50)
</TABLE>
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for the
grants: expected dividend yield of 0 percent in all periods; expected volatility
of 0 percent in all periods; weighted average risk-free interest rates ranging
from 4.45 percent to 6.28 percent for all periods presented in the table above;
and expected lives of four years for all periods.
8. COMPENSATION AND RETIREMENT PLANS:
On May 18, 1999, the Board of Directors adopted the following plans:
1999 OMNIBUS EQUITY INCENTIVE PLAN -- The Company has reserved 1,500,000
shares of common stock for issuance under this plan. Options may be granted
under this plan to employees, directors and consultants and will not be granted
at less than 100 percent of the fair market value of the common stock on the
option grant date. These options will generally vest over four years and expire
ten years after the date of grant. At May 18, 1999, no options were outstanding
under this plan.
1999 EMPLOYEE STOCK PURCHASE PLAN -- The Company has reserved 300,000
shares of common stock for issuance under this plan and only employees are
eligible. Employees can purchase stock through payroll deductions which may not
exceed 15 percent of the employee's cash compensation. The purchase price per
share of common stock will be no less than 85 percent of the fair market value
of the stock at the date of grant. At May 18, 1999, no purchases had been made
under this plan.
401(K) DEFINED CONTRIBUTION PLAN -- The Company also sponsors a defined
contribution 401(k) retirement plan for all employees who have completed at
least 30 days of service. Participants may elect to defer up to 15 percent of
their current annual salary, not to exceed $10,000. The Company does not match
contributions.
F-16
<PAGE> 91
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTIES:
During the years ended December 31, 1996, 1997, and 1998, the president of
the Company and majority common stockholder was not paid a salary.
F-17
<PAGE> 92
[BACK INSIDE COVER
Description: 14 color photographs of Cybergold members, laid out in a staggered
pattern. (See attached layout). Each photo is approximately 2.5 inches x 2
inches. Each photograph is captioned with name and occupation. Cybergold logo,
approximately 1 inch x 2 inches, in center of page. Header beneath Cybergold
logo reads: Meet Some of Our Members
<TABLE>
<S> <C>
CAPTIONS:
Stacey Trask waitress
Ron Beall business professor
Chris Trim police officer
Devora Kanter customer service manager
Rebecca Flores event planner
Dick Kerner financial portfolio planner
Ian Dalec field engineer
Colette Sandstedt filmmaker
Frank Siegel software developer
Jessica Burrows media planner
Jonathan Peacock technical support engineer
Jim Kwan chef
Carrie Applebaum marketing communications
Voltaire Moise artist]
</TABLE>
<PAGE> 93
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
SG COWEN
CIBC WORLD MARKETS
VOLPE BROWN WHELAN & COMPANY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Cybergold in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 14,067
NASD fee.................................................... 5,560
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 200,000
Blue sky fees and expenses.................................. 3,000
Transfer agent fees......................................... 10,000
Miscellaneous fees and expenses............................. 122,373
----------
Total............................................. 1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers, including reimbursement for expenses incurred, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VI, Section 6.1, of the Registrant's Bylaws provides
for mandatory indemnification of its directors and permissible indemnification
of officers and employees to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Certificate of Incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty as directors to the Company
and its stockholders. This provision in the Certificate of Incorporation does
not eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant has entered into Indemnification Agreements with its officers and
directors, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The Indemnification Agreements provide the Registrant's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. Reference is made to Section
7 of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities.
II-1
<PAGE> 95
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, Cybergold has issued and sold the following
unregistered securities pursuant to the exemption from the registration
requirements of the Securities Act of 1933 as amended (the "Act"), provided by
Sections 3(a)(10) or 4(2) of the Act or Rule 701 of the Act:
(1) On May 18, 1999, CyberGold, Inc., a California corporation ("Cybergold
California") incorporated a wholly-owned subsidiary, Cybergold, Inc., a
Delaware corporation (Cybergold Delaware) for purposes of reincorporating
into Delaware. In connection with the reincorporation, Cybergold Delaware
will issue shares of its common stock to the holders of common stock of
Cybergold California, such that the holders of common stock of CyberGold
California will receive a proportionate interest in Cybergold Delaware
common stock. The issuance of the securities and such reincorporation will
be exempt from the registration requirements of the Act, due to the
exemptions from registration provided by Sections 3(a)(10) and 4(2) thereof.
(2) In July and September of 1996, we issued 1,999,998 shares of Series A
Preferred Stock to a group of private accredited investors for an aggregate
consideration of $3,000,000 pursuant to Section 4(2) of the Act.
(3) In July 1996, we issued a warrant to purchase 166,666 shares of common stock
to a private accredited investor at an exercise price of $0.225 pursuant to
Section 4(2) of the Act.
(4) In June 1997, we issued 1,394,973 shares of Series B Preferred Stock to a
group of private accredited investors for an aggregate consideration of
$4,234,942 pursuant to Section 4(2) of the Act.
(5) In March 1997, we issued warrants to an equipment lessor to purchase 15,000
shares of Series B Preferred Stock at an exercise price of $3.50 pursuant to
Section 4(2) of the Act.
(6) In May and August 1998, we issued 4,189,192 shares of Series C Preferred
Stock to a group of private accredited investors for an aggregate
consideration of $5,655,750 pursuant to Section 4(2) of the Act.
(7) On May 18, 1999, we issued 2,051,275 shares of Series D Preferred Stock to a
group of private accredited investors for an aggregate consideration of
$7,999,999.80 pursuant to Section 4(2) of the Act.
(8) On May 18, 1999, we issued warrants to purchase a total of 384,611 shares of
Series D Preferred Stock at an exercise price of $4.50 to a group of private
accredited investors pursuant to Section 4(2) of the Act.
(9) Since 1996, we have issued options to purchase common stock to employees,
directors and consultants pursuant to Section 4(2) and Rule 701 of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement (preliminary form).
3.1* Registrant's Certificate of Incorporation
3.2* Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of the
offering
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.3* Registrant's Bylaws
3.4 Amended and Restated Bylaws of the Registrant
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
4.2 Specimen Common Stock Certificate
4.3* Amended and Restated Investors' Rights Agreement, dated May
18, 1999
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
10.1* Form of Indemnification Agreement
10.2 1996 Stock Plan
10.3 1999 Omnibus Equity Incentive Plan
10.4 1999 Employee Stock Purchase Plan
10.5* Standard Office Lease, by and between Central Building LLC
and the Registrant, dated March 25, 1999.
10.6* Commercial Lease, by and between Weilman Treloar & Co. and
the Registrant, dated December 20, 1995.
10.7+* Merchant Transaction Processing Agreement between the First
National Bank of Omaha and the Registrant, as amended July
21, 1997.
10.8+* Letter of Agreement between Earthlink Network, Inc. and the
Registrant, dated August 10, 1998.
10.9* Master Lease Agreement, between the Registrant and LINC
Capital, Inc., dated March 17, 1997.
10.10* Senior Loan and Security Agreement No. 6209, between the
Registrant and Phoenix Leasing Incorporated, dated December
10, 1998.
10.11+* Agreement, between the Registrant and Audits & Surveys
Worldwide, Inc., dated March 17, 1997.
10.12+* Affinity Agreement between the Registrant and MBNA America
Bank, N.A., dated November 20, 1998.
23.1* Independent Auditors' Consent.
23.2* Consent of Counsel (See Exhibit 5.1).
24.1* Power of Attorney (See Page II-5).
27.1* Financial Data Schedule (Fiscal 1998 and three months ended
March 31, 1999).
</TABLE>
- ---------------
* Previously filed
+ Specified portions of this agreement have been omitted and have been filed
separately with the Commission pursuant to a request for confidential
treatment.
(b) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement,
II-3
<PAGE> 97
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Berkeley, State of California, on this 12th day of July, 1999.
CYBERGOLD, INC.
By: /s/ A. NATHANIEL GOLDHABER
------------------------------------
A. Nathaniel Goldhaber
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ A. NATHANIEL GOLDHABER President, Chief Executive July 12, 1999
- --------------------------------------------------- Officer (Principal Executive
A. Nathaniel Goldhaber Officer)
and Director
/s/ JOHN STEUART Chief Financial Officer July 12, 1999
- --------------------------------------------------- (Principal Financial and
John Steuart Accounting Officer)
/s/ CHRISTOPHER ALAFI Director July 12, 1999
- ---------------------------------------------------
Christopher Alafi
/s/ JAY CHIAT Director July 12, 1999
- ---------------------------------------------------
Jay Chiat
/s/ GARRETT GRUENER Director July 12, 1999
- ---------------------------------------------------
Garrett Gruener
/s/ REGIS MCKENNA Director July 12, 1999
- ---------------------------------------------------
Regis McKenna
/s/ ALAN SALZMAN Director July 12, 1999
- ---------------------------------------------------
Alan Salzman
/s/ PETER SEALEY Director July 12, 1999
- ---------------------------------------------------
Peter Sealey
</TABLE>
*By: /s/ A. NATHANIEL GOLDHABER
---------------------------------
A. Nathaniel Goldhaber
Attorney-in-Fact
*By: /s/ JOHN STEUART
---------------------------------
John Steuart
Attorney-in-Fact
II-5
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement (preliminary form).
3.1* Registrant's Certificate of Incorporation
3.2* Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of the
offering
3.3* Registrant's Bylaws
3.4 Amended and Restated Bylaws of the Registrant
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
4.2 Specimen Common Stock Certificate
4.3* Amended and Restated Investors' Rights Agreement, dated May
18, 1999
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
10.1* Form of Indemnification Agreement
10.2 1996 Stock Plan
10.3 1999 Omnibus Equity Incentive Plan
10.4 1999 Employee Stock Purchase Plan
10.5* Standard Office Lease, by and between Central Building LLC
and the Registrant, dated March 25, 1999.
10.6* Commercial Lease, by and between Weilman Treloar & Co. and
the Registrant, dated December 20, 1995.
10.7+* Merchant Transaction Processing Agreement between the First
National Bank of Omaha and the Registrant, as amended July
21, 1997.
10.8+* Letter of Agreement between Earthlink Network, Inc. and the
Registrant, dated August 10, 1998.
10.9* Master Lease Agreement, between the Registrant and LINC
Capital, Inc., dated March 17, 1997.
10.10* Senior Loan and Security Agreement No. 6209, between the
Registrant and Phoenix Leasing Incorporated, dated December
10, 1998.
10.11+* Agreement, between the Registrant and Audits & Surveys
Worldwide, Inc., dated March 17, 1997.
10.12+* Affinity Agreement between the Registrant and MBNA America
Bank, N.A., dated November 20, 1998.
23.1* Independent Auditors' Consent.
23.2* Consent of Counsel (See Exhibit 5.1).
24.1* Power of Attorney (See Page II-5).
27.1* Financial Data Schedule (Fiscal 1998 and three months ended
March 31, 1999).
</TABLE>
- ---------------
* Previously filed
+ Specified portions of this agreement have been omitted and have been filed
separately with the Commission pursuant to a request for confidential
treatment.
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS OF
CYBERGOLD, INC.,
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I OFFICE AND RECORDS...............................................................1
Section 1.1 Delaware Office.......................................................1
Section 1.2 Other Offices.........................................................1
Section 1.3 Books and Records.....................................................1
ARTICLE II STOCKHOLDERS
Section 2.1 Annual Meeting........................................................1
Section 2.2 Special Meeting.......................................................1
Section 2.3 Place of Meeting......................................................1
Section 2.4 Notice of Meeting.....................................................2
Section 2.5 Quorum and Adjournment................................................2
Section 2.6 Proxies...............................................................2
Section 2.7 Notice of Stockholder Business and Nominations........................2
Section 2.8 Procedure for Election of Directors...................................4
Section 2.9 Inspectors of Elections; Opening and Closing the Polls................5
Section 2.10 Consent of Stockholders in Lieu of Meeting...........................5
ARTICLE III BOARD OF DIRECTORS.............................................................6
Section 3.1 General Powers........................................................6
Section 3.2 Number, Tenure and Qualifications.....................................6
Section 3.3 Regular Meetings......................................................6
Section 3.4 Special Meetings......................................................6
Section 3.5 Notice................................................................6
Section 3.6 Conference Telephone Meetings.........................................6
Section 3.7 Quorum................................................................7
Section 3.8 Vacancies.............................................................7
Section 3.9 Committee.............................................................7
Section 3.10 Removal..............................................................7
ARTICLE IV OFFICERS
Section 4.1 Elected Officers......................................................8
Section 4.2 Election and Term of Office...........................................8
Section 4.3 Chairman of the Board.................................................8
Section 4.4 President and Chief Executive Officer.................................8
Section 4.5 Secretary.............................................................8
Section 4.6 Treasurer.............................................................9
Section 4.7 Removal...............................................................9
Section 4.8 Vacancies.............................................................9
ARTICLE V STOCK CERTIFICATES AND TRANSFERS.................................................9
Section 5.1 Stock Certificates and Transfers......................................9
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VI INDEMNIFICATION................................................................10
Section 6.1 Right to Indemnification.............................................10
Section 6.2 Prepayment of Expenses...............................................10
Section 6.3 Claims...............................................................10
Section 6.4 Nonexclusivity of Rights.............................................10
Section 6.5 Amendment or Repeal..................................................11
Section 6.6 Other Indemnification and Prepayment of Expenses.....................11
ARTICLE VII MISCELLANEOUS PROVISIONS......................................................11
Section 7.1 Fiscal Year..........................................................11
Section 7.2 Dividends............................................................11
Section 7.3 Seal.................................................................11
Section 7.4 Waiver of Notice.....................................................11
Section 7.5 Audits...............................................................11
Section 7.6 Resignations.........................................................11
Section 7.7 Contracts............................................................12
Section 7.8 Proxies..............................................................12
ARTICLE VIII AMENDMENTS
Section 8.1 Amendments...........................................................12
</TABLE>
<PAGE> 4
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Delaware Office. The registered office of the Corporation
in the State of Delaware shall be located in the City of Dover, County of Kent.
Section 1.2 Other Offices. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.3 Books and Records. The books and records of the Corporation
may be kept at the Corporation's headquarters in Berkeley, California or at such
other locations outside the State of Delaware as may from time to time be
designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.
Section 2.2 Special Meeting.
A.Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
B.Notwithstanding the above provisions of this Section 2.2(A),
effective upon a closing of an initial public offering of the Corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, a special meeting of the stockholders of the corporation
may be called only by the President, the Chairman of the Board or by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of directors which the Corporation would have if there were no vacancies (the
"Whole Board"), or at the request in writing of stockholders owning at least
fifty percent (50%) in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote.
Section 2.3 Place of Meeting. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
<PAGE> 5
Section 2.4 Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and the purposes for which the meeting is
called, shall be prepared and delivered by the Corporation not less than ten
days nor more than sixty days before the date of the meeting, either personally,
or by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation. Such
further notice shall be given as may be required by law. Meetings may be held
without notice if all stockholders entitled to vote are present (except as
otherwise provided by law), or if notice is waived by those not present. Any
previously scheduled meeting of the stockholders may be postponed and (unless
the Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for such meeting of
stockholders.
Section 2.5 Quorum and Adjournment. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the voting
power of the outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting separately as a
class or series, the holders of a majority of the voting power of the shares of
such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the shares of Voting
Stock so represented may adjourn the meeting from time to time, whether or not
there is such a quorum (or, in the case of specified business to be voted on by
a class or series, the chairman or a majority of the shares of such class or
series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 2.6 Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or as may be permitted by
law, or by his duly authorized attorney-in-fact. Such proxy must be filed with
the Secretary of the Corporation or his representative at or before the time of
the meeting.
Section 2.7 Notice of Stockholder Business and Nominations.
A. Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders: (a) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 2.4 of
these Bylaws; (b) by or at the direction of the Chairman of the Board or the
Board of Directors; or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who has complied with the notice procedures set forth in
clauses (2) and (3) of this paragraph (A) of this Bylaw and who was a
stockholder of record at the time such notice was delivered to the Secretary of
the Corporation.
2
<PAGE> 6
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to a clause (c) of paragraph
(A)(1) of this Bylaw, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the ten day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a stockholder's
notice as described above.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
B. Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting pursuant to
Section 2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
3
<PAGE> 7
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as are specified in the Corporation's Notice of Meeting, if the
stockholder's notice as required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the ninetieth day prior to such special meeting and not later
than the close of business on the later of the seventieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
C. General.
(1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.8 Procedure for Election of Directors. Election of directors
at all meetings of the stockholders at which directors are to be elected shall
be by written ballot, and, except as otherwise set forth in the Certificate of
Incorporation with respect to the right of the holders of any series of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, a plurality of the votes cast thereat
shall elect directors. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all matters other than the election of directors
submitted to the stockholders at any meeting shall be decided
4
<PAGE> 8
by the affirmative vote of a majority of the voting power of the outstanding
Voting Stock present in person or represented by proxy at the meeting and
entitled to vote thereon.
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.
A. The Board of Directors by resolution shall appoint one or
more inspectors, which inspector or inspectors may include individuals who serve
the Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the General Corporation Law of the State of
Delaware.
B.The chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
Section 2.10 Consent of Stockholders in Lieu of Meeting.
A. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any written consent may be
revoked by a writing received by the Secretary of the Corporation prior to the
time that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
B. Notwithstanding the above provisions of this Section
2.10(A), effective upon a closing of an initial public offering of the
Corporation's securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the stockholders of the Corporation may not
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting.
5
<PAGE> 9
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law, by the Certificate of
Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the rights of
the holders of any series of Preferred Stock, or any other series or class of
stock as set forth in the Certificate of Incorporation, to elect directors under
specified circumstances, the number of directors shall initially be seven and
shall be fixed from time to time thereafter by a majority of the Board of
Directors.
Section 3.3 Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
Section 3.5 Notice. Notice of any special meeting shall be given to
each director at his business or residence in writing or by telegram or by
telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before such meeting. If by telephone, the notice shall be given at least
twelve hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these Bylaws as provided under Section 8.1 of Article VIII hereof.
A meeting may be held at any time without notice if all the directors are
present (except as otherwise provided by law) or if those not present waive
notice of the meeting in writing, either before or after such meeting.
Section 3.6 Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by
6
<PAGE> 10
means of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at such
meeting.
Section 3.7 Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 3.8 Vacancies. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.9 Committee.
A. The Board of Directors may designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
B. Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the Board of Directors conducts
its business pursuant to these Bylaws.
Section 3.10 Removal. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the
7
<PAGE> 11
entire Board of Directors, may be removed from office at any time, with or
without cause, only by the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the voting power of the then outstanding
Voting Stock, voting together as a single class.
ARTICLE IV
OFFICERS
Section 4.1 Elected Officers. The elected officers of the Corporation
shall be a Chairman of the Board, a President, a Secretary, a Treasurer, and
such other officers as the Board of Directors from time to time may deem proper.
The Chairman of the Board shall be chosen from the directors. All officers
chosen by the Board of Directors shall each have such powers and duties as
generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have powers and duties
as from time to time may be conferred by the Board of Directors or by any
committee thereof.
Section 4.2 Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.7 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign.
Section 4.3 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board.
Section 4.4 President and Chief Executive Officer. The President and
Chief Executive Officer shall be the general manager of the Corporation, subject
to the control of the Board of Directors, and as such shall preside at all
meetings of shareholders, shall have general supervision of the affairs of the
Corporation, shall sign or countersign or authorize another officer to sign all
certificates, contracts, and other instruments of the Corporation as authorized
by the Board of Directors, shall make reports to the Board of Directors and
shareholders, and shall perform all such other duties as are incident to such
office or are properly required by the Board of Directors. If the Board of
Directors creates the office of Chief Executive Officer as a separate office
from President, the President shall be the chief operating officer of the
corporation and shall be subject to the general supervision, direction, and
control of the Chief Executive Officer unless the Board of Directors provides
otherwise.
Section 4.5 Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these Bylaws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board or the President, or by the Board of Directors,
upon whose request the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the Board of Directors, any
committees thereof and the stockholders of the Corporation in a book to be kept
for that purpose, and shall perform such other duties as may be assigned to him
by the Board of Directors, the Chairman of the Board or
8
<PAGE> 12
the President. He shall have custody of the seal of the Corporation and shall
affix the same to all instruments requiring it, when authorized by the Board of
Directors, the Chairman of the Board or the President, and attest to the same.
Section 4.6 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond for the faithful discharge of his duties in such amount
and with such surety as the Board of Directors shall prescribe.
Section 4.7 Removal. Any officer elected by the Board of Directors may
be removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.
Section 4.8 Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1 Stock Certificates and Transfers.
A. The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the Corporation shall be transferred on the books of the Corporation by
the holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require.
B. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been
9
<PAGE> 13
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right to Indemnification. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person (an "Indemnitee") who
was or is made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 6.3, the Corporation
shall be required to indemnify an Indemnitee in connection with a proceeding (or
part thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board of
Directors of the Corporation.
Section 6.2 Prepayment of Expenses. The Corporation shall pay the
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3 Claims. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty days after a
written claim therefor by the Indemnitee has been received by the Corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the Indemnitee is not entitled to the requested indemnification
or payment of expenses under applicable law.
Section 6.4 Nonexclusivity of Rights. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise.
10
<PAGE> 14
Article 6.5 Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Article 6.6 Other Indemnification and Prepayment of Expenses. This
Article VI shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of April and end on the thirty-first day of March of each year.
Section 7.2 Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
Section 7.3 Seal. The corporate seal shall have inscribed the name of
the Corporation thereon and shall be in such form as may be approved from time
to time by the Board of Directors.
Section 7.4 Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders of the Board of Directors need be
specified in any waiver of notice of such meeting.
Section 7.5 Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
Section 7.6 Resignations. Any director or any officer, whether elected
or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary or at such later date as is stated therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
11
<PAGE> 15
Section 7.7 Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, any contracts or other instruments
may be executed and delivered in the name and on the behalf of the Corporation
by such officer or officers of the Corporation as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board of Directors or the Chairman of the
Board, the President or any Vice President of the Corporation may delegate
contractual powers to others under his jurisdiction, it being understood,
however, that any such delegation of power shall not relieve such officer of
responsibility with respect to the exercise of such delegated power.
Section 7.8 Proxies. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint any attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock and other securities of such other corporation or other entity, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENTS
Section 8.1 Amendments. These Bylaws may be amended, altered, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
that, notwithstanding any other provisions of these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required in order for stockholders to
alter, amend or repeal any provision of these Bylaws or to adopt any additional
bylaw.
12
<PAGE> 16
CERTIFICATE OF SECRETARY OF
CYBERGOLD, INC.
The undersigned, A. Nathaniel Goldhaber, hereby certifies that
he is the duly elected and acting Secretary of Cybergold, Inc., a Delaware
corporation (the "Corporation"), and that the Amended and Restated Bylaws
attached hereto constitute the Bylaws of said Corporation as duly adopted by the
Directors on ________, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
his name this ___ day of ______, 1999.
-------------------------
A. Nathaniel Goldhaber
Secretary
<PAGE> 1
EXHIBIT 4.2
FACE
CBG
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 23246N 10 5
This Certifies that is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.0001 PAR VALUE, OF
CYBERGOLD, INC
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar. WITNESS the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers. Dated:
CHIEF FINANCIAL OFFICER
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
BACK
CYBERGOLD, INC.
The Corporation will furnish to any stockholder, upon request and without
charge, a statement of the powers, designations, preferences, and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights, insofar as the same shall have been fixed, and of the authority
of the Board of Directors to designate any preferences, rights and limitations
of any wholly unissued series. Any such request should be directed to the
Secretary of the Corporation at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM as tenants in common
<PAGE> 2
TEN ENT as tenants by the entireties
JT TEN as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT Custodian
----------------- ---------
(Cust) (Minor)
under Uniform Gifts to Minors Act
(State)
UNIF TRF MIN ACT Custodian (until age)
(Cust)
under Uniform Transfers
(Minor)
to Minors Act
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises. Dated
X
X
NOTICE:
<PAGE> 3
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 5.1
GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN & HACHIGIAN, LLP
155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
July 8, 1999
Cybergold, Inc.
2921 Adeline St.
Berkeley, California 94703
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No.
333-79067) originally filed by Cybergold, Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission") on May 21, 1999, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
4,000,000 shares of the Company's Common Stock (the "Shares"). The Shares, which
include an over-allotment option granted by certain stockholders of the Company
to the Underwriters to purchase up to 600,000 additional shares of the Company's
Common Stock, are to be sold to the Underwriters by the Company as described in
the Registration Statement for resale to the public. As your counsel in
connection with this transaction, we have examined the proceedings taken and are
familiar with the proceedings proposed to be taken by you in connection with the
sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being
taken or contemplated by us, as your counsel, to be taken prior to the issuance
of the Shares being sold by the Company and upon completion of the proceedings
being taken in order to permit such transactions to be carried out in accordance
with the securities laws of the various states where required, the Shares being
sold by the Company, when issued and sold in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and non-assessable.
We consent to the use of this opinion as an exhibit to said
Registration Statement and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN & HACHIGIAN, LLP
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE> 1
EXHIBIT 10.2
CYBERGOLD, INC.
1996 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Option Plan is intended to promote the
interests of CyberGold, Inc., a California corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any
or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such period
of time as the Board may determine and shall be subject to removal by the Board
at any time. The Board may also at any time terminate the functions of the
Committee and reassume all powers and authority previously delegated to the
Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the
Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants who provide services to the Corporation
(or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to
determine which eligible persons are to receive option grants under the Plan,
the time or times when such option grants are to be made, the number of shares
to be covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
option is to
<PAGE> 2
become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
1,400,000 shares.
B. Shares of Common Stock subject to outstanding options shall
be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.
C. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive. In
no event shall any such adjustments be made in connection with the conversion of
one or more outstanding shares of the Corporation's preferred stock into shares
of Common Stock.
2
<PAGE> 3
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of
Common Stock on the option grant date.
(ii) If the person to whom the option is granted is a
10% Shareholder, then the exercise price per share shall not be less
than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Three and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:
(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions (a) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
3
<PAGE> 4
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE. The following provisions
shall govern the exercise of any options held by the Optionee at the time of
cessation of Service or death:
(i) Should the Optionee cease to remain in Service for
any reason other than Disability or death, then the Optionee shall
have a period of three (3) months following the date of such
cessation of Service during which to exercise each outstanding option
held by such Optionee.
(ii) Should such Service terminate by reason of
Disability, then the Optionee shall have a period of six (6) months
following the date of such cessation of Service during which to
exercise each outstanding option held by such Optionee. However,
should such Disability be deemed to constitute Permanent Disability,
then the period during which each outstanding option held by the
Optionee is to remain exercisable shall be extended by an additional
six (6) months so that the exercise period shall be the twelve
(12)-month period following the date of the Optionee's cessation of
Service by reason of such Permanent Disability.
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the
Optionee's estate or the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution shall have a period of twelve (12)
months following the date of the Optionee's death during which to
exercise each such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option
term.
(v) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent it is not exercisable for vested shares on the date of such
cessation of Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock under the Plan. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, all or (at the discretion of the Corporation and
with the consent of the Optionee) any of those unvested shares. The terms upon
which such repurchase
4
<PAGE> 5
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. To the extent required by California Code of Regulations
Section 260.140.41, the Plan Administrator may not impose a vesting schedule
upon any option grant or any shares of Common Stock subject to the option which
is more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur one (1) year after the option grant date.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock
is first registered under Section 12(g) of the 1934 Act, the Corporation shall
have the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, to the extent provided in
the document evidencing a Non-Statutory Option, the Non-Statutory Option may be
assigned in whole or in part during Optionee's lifetime in accordance with the
terms of a Qualified Domestic Relations Order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to such Qualified Domestic Relations Order. The terms applicable
to the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
H. WITHHOLDING. The Corporation's obligation to deliver shares
of Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
terms of Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. 10% SHAREHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Shareholder, then the option term shall not exceed
five (5) years measured from the option grant date.
5
<PAGE> 6
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with such
Corporate Transaction. In addition, all outstanding repurchase rights shall
lapse and the option shares vest in full except to the extent assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
C. The grant of options under the Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Plan and to grant
in substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
6
<PAGE> 7
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the
option exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. In all events, the maximum credit available to the Optionee may
not exceed the sum of (i) the aggregate option exercise price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee in connection with the option exercise.
II. ADDITIONAL AUTHORITY
The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board,
but no option granted under the Plan may be exercised until the Plan is approved
by the Corporation's shareholders. If such shareholder approval is not obtained
within twelve (12) months after the date of the Board's adoption of the Plan,
then all options previously granted under the Plan shall terminate and cease to
be outstanding, and no further options shall be granted. Subject to such
limitation, the Plan Administrator may grant options under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all options and unvested stock issuances outstanding under the Plan
shall continue to have full force and effect in accordance with the provisions
of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall, without the consent of the Optionees, adversely
affect their rights and obligations under their outstanding options. In
addition, the Board shall not, without the approval of the Corporation's
shareholders, (i) increase the maximum number of shares issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) materially modify the eligibility
requirements for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
7
<PAGE> 8
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such shareholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options
under the Plan and the issuance of any shares of Common Stock upon the exercise
of any option shall be subject to the Corporation's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the options granted under it and the shares of Common Stock issued
pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee's Service at any
time for any reason, with or without cause.
VIII. FINANCIAL REPORTS
To the extent required by California Code of Regulations
Section 260.140.45, the Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
8
<PAGE> 9
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean CyberGold, Inc., a California corporation.
G. DISABILITY shall mean the inability of the Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances. Disability shall be deemed to constitute PERMANENT
DISABILITY in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
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<PAGE> 10
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.
L. HIGHLY-COMPENSATED EMPLOYEE shall mean an Optionee (i) whose
compensation per calendar year from the Corporation (or any Parent or
Subsidiary) equals or exceeds Sixty Thousand Dollars ($60,000) in the aggregate
and (ii) who has previously received one or more option grants under the Plan.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under
the Plan.
Q. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. PLAN shall mean the Corporation's 1996 Stock Option Plan, as set
forth in this document.
S. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
the extent the Committee is at the time responsible for the administration of
the Plan.
T. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan
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<PAGE> 11
Administrator shall have the sole discretion to determine whether a Domestic
Relations Order is a Qualified Domestic Relations Order.
U. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant, except to the
extent otherwise specifically provided in the documents evidencing the option
grant.
V. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
W. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
X. 10% SHAREHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-iii
<PAGE> 1
EXHIBIT 10.3
CYBERGOLD, INC.
1999 OMNIBUS EQUITY INCENTIVE PLAN
(AS ADOPTED MAY 18, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE 1. INTRODUCTION.........................................................1
ARTICLE 2. ADMINISTRATION.......................................................1
2.1 Committee Composition...................................................1
2.2 Committee Responsibilities..............................................1
2.3 Committee for Non-Officer Grants........................................2
ARTICLE 3. SHARES AVAILABLE FOR GRANTS..........................................2
3.1 Basic Limitation........................................................2
3.2 Annual Increase in Shares...............................................2
3.3 Additional Shares.......................................................2
3.4 Dividend Equivalents....................................................2
ARTICLE 4. ELIGIBILITY..........................................................3
4.1 Incentive Stock Options.................................................3
4.2 Other Grants............................................................3
ARTICLE 5. OPTIONS..............................................................3
5.1 Stock Option Agreement..................................................3
5.2 Number of Shares........................................................3
5.3 Exercise Price..........................................................3
5.4 Exercisability and Term.................................................3
5.6 Modification or Assumption of Options...................................4
5.7 Buyout Provisions.......................................................4
ARTICLE 6. PAYMENT FOR OPTION SHARES............................................4
6.1 General Rule............................................................4
6.2 Surrender of Stock......................................................4
6.3 Exercise/Sale...........................................................4
6.4 Exercise/Pledge.........................................................5
6.5 Promissory Note.........................................................5
6.6 Other Forms of Payment..................................................5
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.........................5
7.1 Initial Grants..........................................................5
7.2 Annual Grants...........................................................5
7.3 Accelerated Exercisability..............................................5
7.4 Exercise Price..........................................................6
7.5 Term....................................................................6
7.6 Affiliates of Outside Directors.........................................6
</TABLE>
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<TABLE>
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ARTICLE 8. STOCK APPRECIATION RIGHTS............................................6
8.1 SAR Agreement...........................................................6
8.2 Number of Shares........................................................6
8.3 Exercise Price..........................................................7
8.4 Exercisability and Term.................................................7
8.6 Exercise of SARs........................................................7
8.7 Modification or Assumption of SARs......................................7
ARTICLE 9. RESTRICTED SHARES....................................................8
9.1 Restricted Stock Agreement..............................................8
9.2 Payment for Awards......................................................8
9.3 Vesting Conditions......................................................8
9.4 Voting and Dividend Rights..............................................8
ARTICLE 10. STOCK UNITS..........................................................8
10.1 Stock Unit Agreement....................................................8
10.2 Payment for Awards......................................................8
10.3 Vesting Conditions......................................................9
10.4 Voting and Dividend Rights..............................................9
10.5 Form and Time of Settlement of Stock Units..............................9
10.6 Death of Recipient......................................................9
10.7 Creditors' Rights.......................................................9
ARTICLE 11. PROTECTION AGAINST DILUTION.........................................10
11.1 Adjustments............................................................10
11.2 Dissolution or Liquidation.............................................10
11.3 Reorganizations........................................................10
ARTICLE 12. CHANGE IN CONTROL...................................................11
ARTICLE 13. DEFERRAL OF AWARDS..................................................11
ARTICLE 14. AWARDS UNDER OTHER PLANS............................................12
ARTICLE 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES............................12
15.1 Effective Date.........................................................12
15.2 Elections to Receive NSOs, Restricted Shares or Stock Units............12
15.3 Number and Terms of NSOs, Restricted Shares or Stock Units.............12
ARTICLE 16. LIMITATION ON RIGHTS................................................12
16.1 Retention Rights.......................................................12
16.2 Stockholders' Rights...................................................13
16.3 Regulatory Requirements................................................13
ARTICLE 17. WITHHOLDING TAXES...................................................13
17.1 General................................................................13
17.2 Share Withholding......................................................13
</TABLE>
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<TABLE>
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ARTICLE 18. FUTURE OF THE PLAN..................................................13
18.1 Term of the Plan.......................................................13
18.2 Amendment or Termination...............................................13
ARTICLE 19. LIMITATION ON PAYMENTS..............................................14
ARTICLE 20. DEFINITIONS.........................................................15
</TABLE>
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<PAGE> 5
CYBERGOLD, INC.
1999 OMNIBUS EQUITY INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board to be effective on the effective date
of the Company's initial public offering of its Common Shares. The purpose of
the Plan is to promote the long-term success of the Company and the creation of
stockholder value by (a) encouraging Employees, Outside Directors and
Consultants to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside Directors and Consultants with
exceptional qualifications and (c) linking Employees, Outside Directors and
Consultants directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, Options (which may constitute incentive stock
options or nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans intended to
qualify for exemption under Rule 16b-3 (or its successor) under the Exchange
Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify for
exemption under section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select
the Employees, Outside Directors and Consultants who are to receive Awards under
the Plan, (b) determine the type, number, vesting requirements and other
features and conditions of such Awards, (c) interpret the Plan and (d) make all
other decisions relating to the operation of the Plan. The Committee may adopt
such rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
<PAGE> 6
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint
a secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of the Company under
section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such
Awards. Within the limitations of this Section 2.3, any reference in the Plan to
the Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of Options, SARs, tock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 1,500,000 plus (b) the aggregate number of Common Shares
remaining available for grants under the Predecessor Plan on the date of the
Company's initial public offering of its Common Shares plus (c) the additional
Common Shares described in Sections 3.2 and 3.3. The limitations of this Section
3.1 and Section 3.2 shall be subject to adjustment pursuant to Article 11.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year,
commencing with the year 2000, the aggregate number of Options, SARs, Stock
Units and Restricted Shares that may be awarded under the Plan shall
automatically increase by a number equal to the lesser of (a) 5% of the total
number of Common Shares then outstanding or (b) 1,500,000.
3.3 ADDITIONAL SHARES. If Restricted Shares or Common Shares
issued upon the exercise of Options under this Plan or the Predecessor Plan are
forfeited, then such Common Shares shall again become available for Awards under
the Plan. If Stock Units, Options granted under this Plan or the Predecessor
Plan or SARs are forfeited or terminate for any other reason before being
exercised, then the corresponding Common Shares shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
Common Shares (if any) actually issued in settlement of such Stock Units shall
reduce the number available under Section 3.1 and the balance shall again become
available for Awards under the Plan. If SARs are exercised, then only the number
of Common Shares (if any) actually issued in settlement of such SARs shall
reduce the number available under Section 3.1 and the balance shall again become
available for Awards under the Plan. The foregoing notwithstanding, the
aggregate number of Common Shares that may be issued under the Plan upon the
exercise of ISOs shall not be increased when Restricted Shares or other Common
Shares are forfeited.
3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or
credited under the Plan shall not be applied against the number of Restricted
Shares, Stock Units, Options or SARs available for Awards, whether or not such
dividend equivalents are converted into Stock Units.
2
<PAGE> 7
ARTICLE 4. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
4.2 OTHER GRANTS. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Restricted Shares, Stock Units,
NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify
the number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than
500,000 Common Shares, except that Options granted to a new Employee in the
fiscal year of the Company in which his or her service as an Employee first
commences shall not cover more than 1,000,000 Common Shares. The limitations set
forth in the preceding sentence shall be subject to adjustment in accordance
with Article 11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than 85% of
the Fair Market Value of a Common Share on the date of grant. In the case of an
NSO, a Stock Option Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall
specify the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with
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<PAGE> 8
SARs, and such an Award may provide that the Options will not be exercisable
unless the related SARs are forfeited.
5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations
of the Plan, the Committee may modify, extend or assume outstanding options or
may accept the cancellation of outstanding options (whether granted by the
Company or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
5.6 BUYOUT PROVISIONS. The Committee may at any time (a) offer to
buy out for a payment in cash or cash equivalents an Option previously granted
or (b) authorize an Optionee to elect to cash out an Option previously granted,
in either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment may be
made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee shall
not surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to a securities broker approved by the Company to sell all or part of
the Common Shares being purchased under the Plan and to deliver all or part of
the sales proceeds to the Company.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a
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<PAGE> 9
form prescribed by the Company) an irrevocable direction to pledge all or part
of the Common Shares being purchased under the Plan to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) a full-recourse
promissory note. However, the par value of the Common Shares being purchased
under the Plan, if newly issued, shall be paid in cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6
is applicable, all or any part of the Exercise Price and any withholding taxes
may be paid in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.
7.1 INITIAL GRANTS. Each Outside Director who first becomes a
member of the Board after the date of the Company's initial public offering
shall receive a one-time grant of an NSO covering 15,000 Common Shares (subject
to adjustment under Article 11). Such NSO shall be granted on the date when such
Outside Director first joins the Board and shall become exercisable and vested
in full on the first anniversary of the date of grant. An Outside Director who
previously was an Employee shall not receive a grant under this Section 7.1.
7.2 ANNUAL GRANTS. Upon the conclusion of each regular annual
meeting of the Company's stockholders held in the year 2000 or thereafter, each
Outside Director who will continue serving as a member of the Board thereafter
shall receive an NSO covering 7,500 Common Shares (subject to adjustment under
Article 11), except that such NSO shall not be granted in the calendar year in
which the same Outside Director received the NSO described in Section 7.1. NSOs
granted under this Section 7.2 shall become exercisable and vested in full on
the first anniversary of the date of grant. An Outside Director who previously
was an Employee shall be eligible to receive grants under this Section 7.2.
7.3 ACCELERATED EXERCISABILITY. All NSOs granted to an Outside
Director under this Article 7 shall also become exercisable in full in the event
of:
(a) The termination of such Outside Director's service
because of death, total and permanent disability or retirement at or after age
65; or
(b) A Change in Control with respect to the Company, except
as provided in the next following sentence.
If the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of interests"
for financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of exercisability shall not occur to the extent that the
Company's independent accountants and such other party's independent
5
<PAGE> 10
accountants separately determine in good faith that such acceleration would
preclude the use of "pooling of interests" accounting.
7.4 EXERCISE PRICE. The Exercise Price under all NSOs granted to
an Outside Director under this Article 7 shall be equal to 100% of the Fair
Market Value of a Common Share on the date of grant, payable in one of the forms
described in Sections 6.1, 6.2, 6.3 and 6.4.
7.5 TERM. All NSOs granted to an Outside Director under this
Article 7 shall terminate on the earlier of (a) the 10th anniversary of the date
of grant, or (b) the date 12 months after the termination of such Outside
Director's service for any reason.
7.6 AFFILIATES OF OUTSIDE DIRECTORS. The Committee may provide
that the NSOs that otherwise would be granted to an Outside Director under this
Article 7 shall instead be granted to an affiliate of such Outside Director.
Such affiliate shall then be deemed to be an Outside Director for purposes of
the Plan, provided that the service-related vesting and termination provisions
pertaining to the NSOs shall be applied with regard to the service of the
Outside Director.
ARTICLE 8. STOCK APPRECIATION RIGHTS.
8.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
8.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number
of Common Shares to which the SAR pertains and shall provide for the adjustment
of such number in accordance with Article 11. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than 500,000 Common
Shares, except that SARs granted to a new Employee in the fiscal year of the
Company in which his or her service as an Employee first commences shall not
pertain to more than 1,000,000 Common Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article 11.
8.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise
Price. An SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
8.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the
date when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included
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in an ISO only at the time of grant but may be included in an NSO at the time of
grant or thereafter. An SAR granted under the Plan may provide that it will be
exercisable only in the event of a Change in Control.
8.5 EXERCISE OF SARS. Upon exercise of an SAR, the Optionee (or
any person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Common Shares, (b) cash or (c) a combination of
Common Shares and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of Common Shares received upon exercise of SARs
shall, in the aggregate, be equal to the amount by which the Fair Market Value
(on the date of surrender) of the Common Shares subject to the SARs exceeds the
Exercise Price. If, on the date when an SAR expires, the Exercise Price under
such SAR is less than the Fair Market Value on such date but any portion of such
SAR has not been exercised or surrendered, then such SAR shall automatically be
deemed to be exercised as of such date with respect to such portion.
8.6 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the Company or
by another issuer) in return for the grant of new SARs for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an SAR shall, without the consent
of the Optionee, alter or impair his or her rights or obligations under such
SAR.
ARTICLE 9. RESTRICTED SHARES.
9.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares
under the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
9.2 PAYMENT FOR AWARDS. Subject to the following sentence,
Restricted Shares may be sold or awarded under the Plan for such consideration
as the Committee may determine, including (without limitation) cash, cash
equivalents, full-recourse promissory notes, past services and future services.
To the extent that an Award consists of newly issued Restricted Shares, the
consideration shall consist exclusively of cash, cash equivalents or past
services rendered to the Company (or a Parent or Subsidiary) or, for the amount
in excess of the par value of such newly issued Restricted Shares, full-recourse
promissory notes, as the Committee may determine.
9.3 VESTING CONDITIONS. Each Award of Restricted Shares may or
may not be subject to vesting. Vesting shall occur, in full or in installments,
upon satisfaction of the conditions specified in the Restricted Stock Agreement.
A Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
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9.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Company's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
ARTICLE 10. STOCK UNITS.
10.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the
Plan shall be evidenced by a Stock Unit Agreement between the recipient and the
Company. Such Stock Units shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The provisions of the various Stock Unit Agreements entered into under the Plan
need not be identical. Stock Units may be granted in consideration of a
reduction in the recipient's other compensation.
10.2 PAYMENT FOR AWARDS. To the extent that an Award is granted
in the form of Stock Units, no cash consideration shall be required of the Award
recipients.
10.3 VESTING CONDITIONS. Each Award of Stock Units may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
10.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall
have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one Common Share while the Stock Unit
is outstanding. Dividend equivalents may be converted into additional Stock
Units. Settlement of dividend equivalents may be made in the form of cash, in
the form of Common Shares, or in a combination of both. Prior to distribution,
any dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.
10.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of
vested Stock Units may be made in the form of (d) cash, (e) Common Shares or (f)
any combination of both, as determined by the Committee. The actual number of
Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of Common Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting conditions
applicable to the Stock Units have been satisfied or have lapsed, or it may be
deferred to any later date. The amount of a deferred distribution may be
increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
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10.6 DEATH OF RECIPIENT. Any Stock Units Award that becomes
payable after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Units Award that
becomes payable after the recipient's death shall be distributed to the
recipient's estate.
10.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no
rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Stock Unit Agreement.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in Common Shares,
a declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off
or a similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of NSOs to be granted to Outside Directors
under Article 7;
(d) The number of Common Shares covered by each outstanding
Option and SAR;
(e) The Exercise Price under each outstanding Option and SAR;
or
(f) The number of Stock Units included in any prior Award
which has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
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11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously
exercised or settled, Options, SARs and Stock Units shall terminate immediately
prior to the dissolution or liquidation of the Company.
11.3 REORGANIZATIONS. In the event that the Company is a party to
a merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Company, if the Company is a
surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
ARTICLE 12. CHANGE IN CONTROL.
Unless the applicable agreement evidencing the Award provides
otherwise, in the event of any Change in Control, the vesting of each
outstanding Award shall automatically accelerate so that each such Award shall,
immediately prior to the effective date of the Change in Control, become fully
exercisable and vested for all of the Common Shares at the time subject to such
Award and may be exercised for any or all of those shares as fully-vested Common
Shares. However, an outstanding Award shall not so accelerate if and to the
extent such Award, in connection with the Change in Control, remains
outstanding, or is assumed by the surviving corporation (or parent thereof) or
substituted with an award with substantially the same terms by the surviving
corporation (or parent thereof). The determination of whether a substituted
award has substantially the same terms as an Award shall be made by the
Committee, and its determination shall be final, binding and conclusive. If the
Company and the other party to the transaction constituting a Change in Control
agree that such transaction is to be treated as a "pooling of interests" for
financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of vesting shall not occur to the extent that the
Company's independent accountants and such other party's independent accountants
separately determine in good faith that such acceleration would preclude the use
of "pooling of interests" accounting.
ARTICLE 13. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such
Participant as a result of the exercise of an SAR or the settlement of Stock
Units credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Company's books;
(b) Have Common Shares that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR converted into
an equal number of Stock Units; or
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(c) Have Common Shares that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee as an
entry on the Company's books. Such amounts shall be determined by reference to
the Fair Market Value of such Common Shares as of the date when they otherwise
would have been delivered to such Participant.
A deferred compensation account established under this Article 13 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 13.
ARTICLE 14. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.
ARTICLE 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
15.1 EFFECTIVE DATE. No provision of this Article 15 shall be
effective unless and until the Board has determined to implement such provision.
15.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK UNITS.
An Outside Director may elect to receive his or her annual retainer payments
and/or meeting fees from the Company in the form of cash, NSOs, Restricted
Shares or Stock Units, or a combination thereof, as determined by the Board.
Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An
election under this Article 15 shall be filed with the Company on the prescribed
form.
15.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK UNITS.
The number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 16. LIMITATION ON RIGHTS.
16.1 RETENTION RIGHTS. Neither the Plan nor any Award granted
under the Plan shall be deemed to give any individual a right to remain an
Employee, Outside Director
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or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve
the right to terminate the service of any Employee, Outside Director or
Consultant at any time, with or without cause, subject to applicable laws, the
Company's certificate of incorporation and by-laws and a written employment
agreement (if any).
16.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Award prior to the time when a stock
certificate for such Common Shares is issued or, if applicable, the time when he
or she becomes entitled to receive such Common Shares by filing any required
notice of exercise and paying any required Exercise Price. No adjustment shall
be made for cash dividends or other rights for which the record date is prior to
such time, except as expressly provided in the Plan.
16.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 17. WITHHOLDING TAXES.
17.1 GENERAL. To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
17.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued at
their Fair Market Value on the date when they are withheld or surrendered.
ARTICLE 18. FUTURE OF THE PLAN.
18.1 TERM OF THE PLAN. The Plan, as set forth herein, shall
become effective on the effective date of the Company's initial public offering
of its Common Shares. The Plan shall remain in effect until it is terminated
under Section 18.2, except that no ISOs shall be granted on or after the 10th
anniversary of the later of (a) the date when the Board adopted the Plan or (b)
the date when the Board adopted the most recent increase in the number of Common
Shares available under Article 3 which was approved by the Company's
stockholders.
18.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the
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approval of the Company's stockholders only to the extent required by applicable
laws, regulations or rules. No Awards shall be granted under the Plan after the
termination thereof. The termination of the Plan, or any amendment thereof,
shall not affect any Award previously granted under the Plan.
ARTICLE 19. LIMITATION ON PAYMENTS.
19.1 SCOPE OF LIMITATION. This Article 19 shall apply to an Award
only if:
(a) The independent auditors most recently selected by the
Board (the "Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the Participant
(including the excise tax under section 4999 of the Code), will be greater after
the application of this Article 19 than it was before the application of this
Article 19; or
(b) The Committee, at the time of making an Award under the
Plan or at any time thereafter, specifies in writing that such Award shall be
subject to this Article 19 (regardless of the after-tax value of such Award to
the Participant).
If this Article 19 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
19.2 BASIC RULE. In the event that the Auditors determine that
any payment or transfer by the Company under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 19, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
19.3 REDUCTION OF PAYMENTS. If the Auditors determine that any
Payment would be nondeductible by the Company because of section 280G of the
Code, then the Company shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the Participant within such
10-day period, then the Company may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 19, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 19 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or
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transferable. As promptly as practicable following such determination and the
elections hereunder, the Company shall pay or transfer to or for the benefit of
the Participant such amounts as are then due to him or her under the Plan and
shall promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.
19.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company which should not have been made (an "Overpayment") or
that additional Payments which will not have been made by the Company could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
19.5 RELATED CORPORATIONS. For purposes of this Article 19, the
term "Company" shall include affiliated corporations to the extent determined by
the Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 20. DEFINITIONS.
20.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
20.2 "AWARD" means any award of an Option, an SAR, a Restricted
Share or a Stock Unit under the Plan.
20.3 "BOARD" means the Company's Board of Directors, as
constituted from time to time.
20.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate reorganization, if
persons who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of the
outstanding securities of each of (i) the continuing or surviving entity and
(ii) any direct or indirect parent corporation of such continuing or surviving
entity;
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(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a result of
which fewer than 2/3 of the incumbent directors are directors who either (i) had
been directors of the Company on the date 24 months prior to the date of the
event that may constitute a Change in Control (the "original directors") or (ii)
were elected, or nominated for election, to the Board with the affirmative votes
of at least a majority of the aggregate of the original directors who were still
in office at the time of the election or nomination and the directors whose
election or nomination was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing at least 50% of the
total voting power represented by the Company's then outstanding voting
securities. For purposes of this Paragraph (d), the term "person" shall have the
same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but
shall exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the common stock of the
Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
20.5 "CODE" means the Internal Revenue Code of 1986, as amended.
20.6 "COMMITTEE" means a committee of the Board, as described in
Article 2.
20.7 "COMMON SHARE" means one share of the common stock of the
Company.
20.8 "COMPANY" means Cybergold, Inc., a Delaware corporation.
20.9 "CONSULTANT" means a consultant or adviser who provides bona
fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
20.10 "EMPLOYEE" means a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate.
20.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
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20.12 "EXERCISE PRICE," in the case of an Option, means the
amount for which one Common Share may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
20.13 "FAIR MARKET VALUE" means the market price of Common
Shares, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in The Wall Street Journal. Such
determination shall be conclusive and binding on all persons.
20.14 "ISO" means an incentive stock option described in section
422(b) of the Code.
20.15 "NSO" means a stock option not described in sections 422 or
423 of the Code.
20.16 "OPTION" means an ISO or NSO granted under the Plan and
entitling the holder to purchase Common Shares.
20.17 "OPTIONEE" means an individual or estate who holds an
Option or SAR.
20.18 "OUTSIDE DIRECTOR" shall mean a member of the Board who is
not an Employee. Service as an Outside Director shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
20.19 "PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
20.20 "PARTICIPANT" means an individual or estate who holds an
Award.
20.21 "PLAN" means this Cybergold, Inc. 1999 Omnibus Equity
Incentive Plan, as amended from time to time.
20.22 "PREDECESSOR PLAN" means the Cybergold, Inc. 1996 Stock
Option Plan.
20.23 "RESTRICTED SHARE" means a Common Share awarded under the
Plan.
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20.24 "RESTRICTED STOCK AGREEMENT" means the agreement between
the Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
20.25 "SAR" means a stock appreciation right granted under the
Plan.
20.26 "SAR AGREEMENT" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her SAR.
20.27 "STOCK OPTION AGREEMENT" means the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
20.28 "STOCK UNIT" means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.
20.29 "STOCK UNIT AGREEMENT" means the agreement between the
Company and the recipient of a Stock Unit which contains the terms, conditions
and restrictions pertaining to such Stock Unit.
20.30 "SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
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EXHIBIT 10.4
CYBERGOLD, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED MAY 18, 1999)
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TABLE OF CONTENTS
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SECTION 1. PURPOSE OF THE PLAN.............................................1
SECTION 2. ADMINISTRATION OF THE PLAN......................................1
(a) Committee Composition.........................................1
(b) Committee Responsibilities....................................1
SECTION 3. ENROLLMENT AND PARTICIPATION....................................1
(a) Offering Periods..............................................1
(b) Accumulation Periods..........................................1
(c) Enrollment....................................................1
(d) Duration of Participation.....................................1
(e) Applicable Offering Period....................................2
SECTION 4. EMPLOYEE CONTRIBUTIONS..........................................2
(a) Frequency of Payroll Deductions...............................2
(b) Amount of Payroll Deductions..................................2
(c) Changing Withholding Rate.....................................2
(d) Discontinuing Payroll Deductions..............................3
(e) Limit on Number of Elections..................................3
SECTION 5. WITHDRAWAL FROM THE PLAN........................................3
(a) Withdrawal....................................................3
(b) Re-Enrollment After Withdrawal................................3
SECTION 6. CHANGE IN EMPLOYMENT STATUS.....................................3
(a) Termination of Employment.....................................3
(b) Leave of Absence..............................................3
(c) Death.........................................................3
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES............................4
(a) Plan Accounts.................................................4
(b) Purchase Price................................................4
(c) Number of Shares Purchased....................................4
(d) Available Shares Insufficient.................................4
(e) Issuance of Stock.............................................4
(f) Unused Cash Balances..........................................5
(g) Stockholder Approval..........................................5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP..................................5
(a) Five Percent Limit............................................5
(b) Dollar Limit..................................................5
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SECTION 9. RIGHTS NOT TRANSFERABLE.........................................6
SECTION 10. NO RIGHTS AS AN EMPLOYEE.......................................6
SECTION 11. NO RIGHTS AS A STOCKHOLDER.....................................6
SECTION 12. SECURITIES LAW REQUIREMENTS....................................6
SECTION 13. STOCK OFFERED UNDER THE PLAN...................................7
(a) Authorized Shares.............................................7
(b) Anti-Dilution Adjustments.....................................7
(c) Reorganizations...............................................7
SECTION 14. AMENDMENT OR DISCONTINUANCE....................................7
SECTION 15. DEFINITIONS....................................................7
(a) Accumulation Period...........................................7
(b) Board.........................................................7
(c) Code..........................................................7
(d) Committee.....................................................7
(e) Company.......................................................7
(f) Compensation..................................................8
(g) Corporate Reorganization......................................8
(h) Eligible Employee.............................................8
(i) Exchange Act..................................................8
(j) Fair Market Value.............................................8
(k) IPO...........................................................8
(l) Offering Period...............................................9
(m) Participant...................................................9
(n) Participating Company.........................................9
(o) Plan..........................................................9
(p) Plan Account..................................................9
(q) Purchase Price................................................9
(r) Stock.........................................................9
(s) Subsidiary....................................................9
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CYBERGOLD, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board to be effective as of the date of the
IPO. The purpose of the Plan is to provide Eligible Employees with an
opportunity to increase their proprietary interest in the success of the Company
by purchasing Stock from the Company on favorable terms and to pay for such
purchases through payroll deductions. The Plan is intended to qualify under
section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each February 1 and August
1, except that the first Offering Period shall commence on the date of the IPO
and end on July 31, 2001.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each February 1 and August 1,
except that the first Accumulation Period shall commence on the date of the IPO
and end on January 31, 2000.
(c) ENROLLMENT. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than 15 days prior
to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who
<PAGE> 5
discontinued employee contributions under Section 4(d) or withdrew from the Plan
under Section 5(a) may again become a Participant, if he or she then is an
Eligible Employee, by following the procedure described in Subsection (c) above.
A Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume participation at the beginning of the
earliest Accumulation Period ending in the next calendar year, if he or she then
is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the
Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her
until the earliest of (A) the end of such Offering Period, (B) the end
of his or her participation under Subsection (d) above or (C)
re-enrollment for a subsequent Offering Period under Paragraph (ii) or
(iii) below.
(ii) In the event that the Fair Market Value of Stock on the last
trading day before the commencement of the Offering Period for which
the Participant is enrolled is higher than on the last trading day
before the commencement of any subsequent Offering Period, the
Participant shall automatically be re-enrolled for such subsequent
Offering Period.
(iii) Any other provision of the Plan notwithstanding, the Company
(at its sole discretion) may determine prior to the commencement of any
new Offering Period that all Participants shall be re-enrolled for such
new Offering Period.
(iv) When a Participant reaches the end of an Offering Period but
his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company at the prescribed location at any time. The new withholding
rate shall be effective as soon as
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reasonably practicable after such form has been received by the Company. The new
withholding rate shall be a whole percentage of the Eligible Employee's
Compensation, but not less than 1% nor more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than 2
elections under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
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SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading
day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last trading
day before the commencement of the applicable Offering Period (as
determined under Section 3(e)) or, in the case of the first Offering
Period under the Plan, 85% of the price at which one share of Stock is
offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 750 shares of Stock
with respect to any Accumulation Period nor more than the amounts of Stock set
forth in Sections 8(b) and 13(a). The Committee may determine with respect to
all Participants that any fractional share, as calculated under this Subsection
(c), shall be (i) rounded down to the next lower whole share or (ii) credited as
a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
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<PAGE> 8
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Stock under
the Plan if such Participant, immediately after his or her election to purchase
such Stock, would own stock possessing more than 5% of the total combined voting
power or value of all classes of stock of the Company or any parent or
Subsidiary of the Company. For purposes of this Subsection (a), the following
rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or
she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to
purchase 750 shares of Stock under this Plan with respect to each
Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period that
commenced in the current calendar year, the limit shall be equal to (A)
$25,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased in the current calendar year (under
this Plan and all other employee stock purchase plans of the Company or
any parent or Subsidiary of the Company).
(ii) In the case of Stock purchased during an Offering Period that
commenced in the immediately preceding calendar year, the limit shall
be equal to (A) $50,000 minus (B) the Fair Market Value of the Stock
that the Participant previously purchased (under this Plan and all
other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company) in the current calendar year and in the
immediately preceding calendar year.
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(iii) In the case of Stock purchased during an Offering Period that
commenced in the second preceding calendar year, the limit shall be
equal to (A) $75,000 minus (B) the Fair Market Value of the Stock that
the Participant previously purchased (under this Plan and all other
employee stock purchase plans of the Company or any parent or
Subsidiary of the Company) in the current calendar year and in the two
preceding calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
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SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available for
purchase under the Plan shall be 300,000 (subject to adjustment pursuant to this
Section 13). On January 1 of each year, commencing with January 1, 2000, the
aggregate number of shares of Stock available for purchase during the life of
the Plan shall automatically be increased by 500,000 (subject to adjustment
pursuant to this Section 13).
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 750-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is continued or
assumed by the surviving corporation or its parent corporation. The Plan shall
in no event be construed to restrict in any way the Company's right to undertake
a dissolution, liquidation, merger, consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. Except as provided in Section 13, any increase
in the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in Section
2.
(e) "COMPANY" means Cybergold, Inc., a Delaware corporation.
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(f) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(g) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation
or dissolution of the Company.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating Company
whose customary employment is for more than five months per calendar year and
for more than 20 hours per week. The foregoing notwithstanding, an individual
shall not be considered an Eligible Employee if his or her participation in the
Plan is prohibited by the law of any country which has jurisdiction over him or
her or if he or she is subject to a collective bargaining agreement that does
not provide for participation in the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on the
date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq National
Market;
(ii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for such
date; or
(iii) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
(k) "IPO" means the initial offering of Stock to the public pursuant to
a registration statement filed by the Company with the Securities and Exchange
Commission.
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<PAGE> 12
(l) "OFFERING PERIOD" means a 24-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.
(o) "PLAN" means this Cyberlaw.com 1999 Employee Stock Purchase Plan,
as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Company.
(s) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
